As
filed with the Securities and Exchange Commission on August 8, 2022
Securities
Act File No. 333-
1940
Act File No. 811-23481
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
N-2
|
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933 |
[X] |
Pre-Effective
Amendment No.
Post-Effective
Amendment No.
|
REGISTRATION
STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |
[X] |
Amendment
No. 7
RiverNorth
Flexible Municipal Income Fund II, Inc.
(Exact
Name of Registrant as Specified in Charter)
360
South Rosemary Avenue, Suite 1420
West
Palm Beach, FL 33401
(Address
of Principal Executive Offices)
(561) 484-7185
(Registrant’s
Telephone Number)
Marcus
L. Collins, Esq.
RiverNorth
Capital Management, LLC
360
South Rosemary Avenue, Suite 1420
West
Palm Beach, FL 33401
(Name
and Address of Agent for Service)
Copy
to:
Joshua
B. Deringer, Esq.
Faegre
Drinker Biddle & Reath LLP
One
Logan Square, Ste. 2000
Philadelphia,
PA 19103-6996
215-988-2700
APPROXIMATE
DATE OF PROPOSED PUBLIC OFFERING:
AS SOON AS PRACTICABLE 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 (the “Securities Act”), other than securities offered in connection with dividend or interest
reinvestment plans, check the following box [X]
If
this Form is a registration statement pursuant to General Instruction A.2 or a post-effective amendment thereto, check the following
box [X]
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):
[X]
when declared effective pursuant to section 8(c)
Check
each box that appropriately characterizes the Registrant:
[X]
Registered Closed-End Fund (closed-end company that is registered under the Investment Company Act of 1940 (the “Investment
Company Act”)).
[ ]
Business Development Company (closed-end company that intends or has elected to be regulated as a business development
company under the Investment Company Act.
[ ]
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).
[X]
A.2 Qualified (qualified to register securities pursuant to General Instruction A.2 of this Form).
[ ]
Well-Known Seasoned Issuer (as defined by Rule 405 under the Securities Act).
[ ]
Emerging Growth Company (as defined by Rule 12b-2 under the Securities and Exchange Act of 1934).
[ ]
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.
[ ]
New Registrant (registered or regulated under the Investment Company Act for less than 12 calendar months preceding this filing).
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 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 it is not soliciting
an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
BASE PROSPECTUS
Subject
to Completion, Dated August 8, 2022
[ ]
RiverNorth
Flexible Municipal Income Fund II, Inc.
Common Stock
Preferred Stock
Subscription Rights for Common Stock
Subscription Rights for Preferred Stock
Subscription Rights for Common and Preferred Stock
The Fund. RiverNorth
Flexible Municipal Income Fund II, Inc. (the “Fund”) is a newly organized, diversified, closed-end management investment
company.
Investment Objectives.
The Fund’s primary investment objective is current income exempt from regular U.S. federal income taxes (but which may
be includable in taxable income for purposes of the Federal alternative minimum tax). The Fund’s secondary investment objective
is total return. There is no assurance that the Fund will achieve its investment objectives.
Principal Investment
Strategies. Under normal market conditions, the Fund seeks to achieve its investment objectives by investing, directly
or indirectly, at least 80% of its Managed Assets (as defined below) in municipal bonds, the interest on which is, in the opinion
of bond counsel to the issuers, generally excludable from gross income for regular U.S. federal income tax purposes, except that
the interest may be includable in taxable income for purposes of the Federal alternative minimum tax (“Municipal Bonds”).
In order to qualify to pay exempt-interest dividends, which are items of interest excludable from gross income for federal income
tax purposes, the Fund seeks to invest at least 50% of its Managed Assets either directly (and indirectly through tender option
bond transactions) in such Municipal Bonds or in other funds that are taxed as regulated investment companies.
The Fund seeks to allocate
its assets among the two principal investment strategies described below:
Tactical Municipal
Closed-End Fund Strategy (25% - 65% of Managed Assets): This strategy seeks to (i) generate returns through investments in
other investment companies, consisting principally of closed-end funds and exchange-traded funds (collectively, the “Underlying
Funds”), that invest, under normal market conditions, at least 80% of their net assets, plus the amount of any borrowings
for investment purposes, in Municipal Bonds, and (ii) derive value from the discount and premium spreads associated with closed-end
funds that invest, under normal market conditions, at least 80% of their net assets, plus the amount of any borrowings for investment
purposes, in Municipal Bonds. The term “tactical” is used to indicate that this strategy will seek to take advantage
of pricing discrepancies in the closed-end fund market (e.g., the difference between a closed-end fund’s market value
and its net asset value).
Municipal Bond Income
Strategy (35% - 75% of Managed Assets): This strategy seeks to capitalize on inefficiencies in the tax-exempt and tax-advantaged
securities markets through investments in Municipal Bonds. Under normal market conditions, the Fund may not directly invest more
than 25% of the Managed Assets allocated to this strategy in Municipal Bonds in any one industry or in any one state of origin,
and the Fund may not directly invest more than 5% of the Managed Assets allocated to this strategy in the Municipal Bonds of any
one issuer, except that the foregoing industry and issuer restrictions shall not apply to general obligation bonds and the Fund
will consider the obligor or borrower underlying the Municipal Bond to be the “issuer.” The Fund may invest up to 30%
of the Managed Assets allocated to this strategy in Municipal Bonds that pay interest that may be includable in taxable income
for purposes of the Federal alternative minimum tax. The Fund can invest, directly or indirectly through Underlying Funds, in bonds
of any maturity; however, under this strategy, it will generally invest in Municipal Bonds that have a maturity of five years or
longer at the time of purchase.
The Fund may offer,
from time to time, up to [ ] aggregate initial offering price of (i) shares of its common stock, $0.0001 par value per
share (“Common Shares”), (ii) shares of its preferred stock (“Preferred Shares”) and/or (iii) subscription
rights to purchase Common Shares, Preferred Shares or both (“Rights” and together with the Common Shares and Preferred
Shares, “Securities”), in one or more offerings in amounts, at prices and on terms set forth in a supplement to this
Prospectus. See “Description of the Fund’s Securities” beginning on page 65.
The Fund may offer
Securities directly to one or more purchasers, including existing common shareholders and/or preferred shareholders in a Rights
offering, through agents that the Fund or the purchasers designate from time to time, or to or through underwriters or dealers.
The prospectus supplement relating to the particular offering will identify any agents or underwriters involved in the sale of
the Fund’s Securities, and will set forth any applicable purchase price, fee, commission or discount arrangement between
the Fund and such agents or underwriters or among the underwriters or the basis upon which such amount may be calculated. The prospectus
supplement relating to any sale of preferred stock will set forth the liquidation preference and information about the dividend
period, dividend rate, any call protection or non-call period and other matters. A supplement to this Prospectus relating to any
offering of subscription rights will set forth the number of shares (common or preferred) issuable upon the exercise of each right
and the other terms of such rights offering, including whether the Preferred Shares issuable upon the exercise of such rights are
convertible into Common Shares. The Fund may not sell Securities through agents, underwriters or dealers without delivery of this
Prospectus and a prospectus supplement. For more information about the manner in which the Fund may offer shares of its common
stock, see “Plan of Distribution.”
The currently outstanding
shares of the Fund’s common stock are, and the shares of the Fund’s common stock offered in this Prospectus will be,
subject to notice of issuance, listed on the New York Stock Exchange (“NYSE”) under the trading or “ticker”
symbol “RFMZ.” The net asset value of the Fund’s common stock on June 22, 2022 was $15.46 per share, and the last sale price
of the Fund’s common stock on the NYSE on such date was $14.35. Shares of common stock of closed-end funds, like the Fund,
frequently trade at discounts to their net asset values. If the shares of the Fund’s common stock trade at a discount to
net asset value, the risk of loss may increase for purchasers in an offering under this prospectus, especially for those investors
who expect to sell their shares in a relatively short period after purchasing shares in such an offering. Following a Rights offering,
a shareholder may experience dilution in net asset value per share of stock if the subscription price per share is below the net
asset value per share on the expiration date.
The applicable prospectus
supplement will set forth whether or not the Preferred Shares offered in this Prospectus will be listed or traded on any securities
exchange. If the Fund’s Preferred Shares are not listed on a securities exchange, there may be no active secondary trading
market for such shares and an investment in such shares may be illiquid.
The Fund, or the Underlying
Funds in which the Fund invests, may invest in securities of any credit quality, including, without limit, securities that are
rated below investment grade, except as further set forth under “Investment Objectives, Strategies and Policies” below.
Below investment grade securities are commonly referred to as “junk” and “high yield” securities and are
considered speculative with respect to the issuer’s capacity to pay interest and repay principal. See also “Risks—Investment-Related
Risks—Credit and Below Investment Grade Securities Risk.”
“Managed Assets”
means the total assets of the Fund, including assets attributable to leverage, minus liabilities (other than debt representing
leverage and any preferred stock that may be outstanding). Such assets attributable to leverage include the portion of assets in
tender option bond trusts of which the Fund owns TOB Residuals (as defined below) that has been effectively financed by the trust’s
issuance of TOB Floaters (as defined below). See “Use of Leverage—Tender Option Bonds.”
Investment Adviser
and Subadviser. The Fund’s investment adviser is RiverNorth Capital Management, LLC (the “Adviser”) and
the Fund’s subadviser is MacKay Shields LLC (the “Subadviser”). The Adviser is responsible for the day-to-day
management of the Fund’s Managed Assets allocated to the Tactical Municipal Closed-End Fund Strategy. The Subadviser is responsible
for the day-to-day management of the Fund’s Managed Assets allocated to the Municipal Bond Income Strategy. See “Management
of the Fund.”
Limited Operating
History Risk. The Fund is a newly organized, diversified, closed-end management investment company with limited operating
history.
Limited Term
and Eligible Tender Offer. The Fund will terminate on or before February 26, 2036 (the “Termination Date”);
provided, that if the Board of Directors of the Fund (the “Board of Directors”) believes that, under then-current market
conditions, it is in the best interests of the Fund to do so, the Fund may extend the Termination Date: (i) once for up to one
year (i.e., up to February 26, 2037), and (ii) once for up to an additional six months (i.e., up to August 26, 2037), in each case
upon the affirmative vote of a majority of the Board of Directors and without the approval of the holders of the Common Shares
of the Fund (the “Common Shareholders”).
In addition, as of
a date within twelve months preceding the Termination Date, the Board of Directors may cause the Fund to conduct a tender offer
to all Common Shareholders to purchase Common Shares of the Fund at a price equal to the net asset value (“NAV”) per
Common Share on the expiration date of the tender offer (an “Eligible Tender Offer”). The Board of Directors has established
that, following an Eligible Tender Offer, the Fund must have at least $100 million of net assets to ensure the continued viability
of the Fund (the “Termination Threshold”). In an Eligible Tender Offer, the Fund will offer to purchase all Common
Shares held by each Common Shareholder; provided, that if the number of properly tendered Common Shares would result in the Fund’s
net assets totaling less than the Termination Threshold, the Eligible Tender Offer will be terminated and no Common Shares will
be repurchased pursuant to the Eligible Tender Offer. Instead, the Fund will begin (or continue) liquidating its portfolio and
proceed to terminate on or before the Termination Date. Following the completion of an Eligible Tender Offer, the Board of Directors
may eliminate the limited term structure of the Fund upon the affirmative vote of a majority of the Board of Directors and without
the approval of Common Shareholders.
The Fund is not
a so called “target date” or “life cycle” fund whose asset allocation becomes more conservative over time
as its target date, often associated with retirement, approaches. In addition, the Fund is not a “target term” fund
whose investment objective is to return its original NAV on the termination date. See “Limited Term and Eligible Tender Offer”
and “Risks—Structural Risks—Limited Term and Eligible Tender Offer Risk” below.
Dividends and
Distributions. The Fund has implemented a level distribution policy. Under the level distribution policy, the Fund intends
to distribute to holders of the Common Shares regular monthly cash distributions of all or a portion of its net investment income.
There is no assurance the Fund will make regular monthly distributions or that it will do so at a particular rate. If the Fund’s
investments do not generate sufficient income, the Fund may be required to liquidate a portion of its portfolio to fund these distributions,
and therefore there payments may represent a reduction of a shareholder’s principal investment.
From time to time,
portions of the Fund’s distributions may constitute a return of capital. A return of capital would reduce a Common Shareholder’s
tax basis in its Common Shares, which could result in higher taxes when the Common Shareholder sells such Common Shares. This may
cause the Common Shareholder to owe taxes even if it sells Common Shares for less than the original purchase price of such Common
Shares. See “Dividends and Distributions.”
Leverage.
The Fund may borrow money and/or issue preferred stock, notes or debt securities for investment purposes. These practices are known
as leveraging. In addition, the Fund may enter into derivative and other transactions that have the effect of leverage. Such other
transactions may include tender option bond transactions (as described herein). As of the time immediately after it enters into
any of the foregoing transactions, the Fund will seek to limit its overall effective leverage to 45% of its Managed Assets. The
Fund currently anticipates that leverage will initially be obtained through borrowings from banks or other financial institutions
and the use of proceeds received from tender option bond transactions. See “Use of Leverage—Tender Option Bonds.”
Since the holders of common stock pay all expenses related to the use of leverage, such use of leverage would create a greater
risk of loss for the Fund’s Common Shares than if leverage is not used. See “Risks—Structural Risk—Leverage
Risks.”
The Prospectus sets
forth concisely the information about the Fund and the Securities that a prospective investor ought to know before investing in
the Fund. You should read this Prospectus and the related prospectus supplement, which contain important information about the
Fund, before deciding whether to invest in the Fund’s Securities, and retain them for future reference. A Statement of Additional
Information, dated [ ](the “SAI”), containing additional information about the Fund, has been filed with the Securities
and Exchange Commission (the “SEC”) and is incorporated by reference in its entirety into this Prospectus. You may
request a free copy of the Prospectus, the SAI, annual and semi-annual reports to shareholders and other information about the
Fund, or make shareholder inquiries, by calling (855) 862-6092, by writing to the Fund at 360 South Rosemary Avenue, Suite 1420,
West Palm Beach, FL 33401, or by visiting the Fund’s and the Adviser’s website at www.rivernorth.com (information
included on the website does not form a part of this Prospectus), or from the SEC’s website at www.sec.gov.
Investing in the
Fund’s common stock involves certain risks. See “Risks” beginning on page 31 of this Prospectus.
Neither the SEC
nor any state securities commission has approved or disapproved these securities or determined if this Prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
The Fund’s
Securities do not represent a deposit or obligation of, and are not guaranteed 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.
Prospectus dated [
], 2022
TABLE OF CONTENTS
|
Page |
PROSPECTUS SUMMARY |
1 |
SUMMARY OF FUND EXPENSES |
16 |
FINANCIAL HIGHLIGHTS |
18 |
MARKET AND NET ASSET VALUE INFORMATION |
18 |
THE FUND |
19 |
USE OF PROCEEDS |
20 |
INVESTMENT OBJECTIVES, STRATEGIES AND POLICIES |
20 |
INVESTMENT PHILOSOPHY AND PROCESS |
26 |
USE OF LEVERAGE |
27 |
RISKS |
30 |
MANAGEMENT OF THE FUND |
57 |
NET ASSET VALUE |
60 |
DIVIDENDS AND DISTRIBUTIONS |
61 |
DIVIDEND REINVESTMENT PLAN |
62 |
DESCRIPTION OF THE FUND’S SECURITIES |
64 |
CERTAIN PROVISIONS OF THE FUND’S CHARTER AND BYLAWS AND OF MARYLAND LAW |
67 |
REPURCHASE OF SHARES |
74 |
RIGHTS OFFERINGS |
74 |
CONVERSION TO OPEN-END FUND |
75 |
LIMITED TERM AND ELIGIBLE TENDER OFFER |
75 |
U.S. FEDERAL INCOME TAX MATTERS |
77 |
CALIFORNIA TAX MATTERS |
81 |
PLAN OF DISTRIBUTION |
82 |
ADMINISTRATOR, FUND ACCOUNTANT, TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND CUSTODIAN |
85 |
LEGAL MATTERS |
86 |
CONTROL PERSONS |
86 |
ADDITIONAL INFORMATION |
86 |
THE FUND’S PRIVACY POLICY |
86 |
You should rely
only on the information contained or incorporated by reference in this Prospectus and any related 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. 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 provided by this Prospectus and any related prospectus supplement
is accurate as of any date other than the respective date on the front covers. The Fund’s business, financial condition
and results of operations may have changed since that date.
PROSPECTUS SUMMARY
This is only
a summary of information contained elsewhere in this Prospectus. This summary does not contain all of the information that you
should consider before investing in the Fund’s securities offered by this Prospectus. You should review the more detailed
information contained in this Prospectus, and any related prospectus supplement and the Statement of Additional Information (“SAI”),
including the documents incorporated by reference. In particular, you should carefully read the section entitled “Risks”
in this Prospectus.
The Fund |
RiverNorth Flexible Municipal Income Fund II, Inc. (the “Fund”) is a Maryland corporation registered as a diversified, closed-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). The Fund will have a limited term unless otherwise determined by the Fund’s Board of Directors (“Board of Directors”). See “Limited Term” and “Risks—Structural Risks—Limited Term and Eligible Tender Offer Risk.” |
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The Fund commenced operations and completed its initial public offering of common stock in February 2021, raising approximately $440 million in equity after payment of offering expenses. As of June 30, 2021, the Fund had 24,351,756 shares of its common stock outstanding and net assets applicable to such shares of $505,714,488. The shares of the Fund’s common stock offered by this Prospectus are called “Common Shares” and the holders of Common Shares are called “Common Shareholders.” As used hereinafter in this Prospectus, unless the context otherwise requires, “common shares” refer to the shares of the Fund’s common stock currently outstanding as well as those Common Shares offered by this Prospectus and the holders of common shares are called “common shareholders.” As of the date of this Prospectus, the Fund had not issued any shares of preferred stock (“Preferred Shares”). An investment in the Fund may not be appropriate for all investors. |
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Investment Adviser and Subadviser |
The Fund’s investment adviser is RiverNorth Capital Management, LLC (the “Adviser”) and the Fund’s subadviser is MacKay Shields LLC (the “Subadviser”). The Adviser is responsible for the day-to-day management of the Fund’s Managed Assets (as defined below) allocated to the Tactical Municipal Closed-End Fund Strategy (as described below). The Subadviser is responsible for the day-to-day management of the Fund’s Managed Assets allocated to the Municipal Bond Income Strategy (as described below). Subject to the ranges noted below under “—Principal Investment Strategies and Policies—Tactical Municipal Closed-End Fund Strategy” and “—Principal Investment Strategies and Policies—Municipal Bond Income Strategy,” the Adviser determines the portion of the Fund’s Managed Assets to allocate to each strategy and may, from time to time, adjust the allocations. See “Management of the Fund.” |
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The
Offering |
The Fund may offer Securities directly
to one or more purchasers, including existing common shareholders and/or preferred shareholders in a Rights offering, through agents
that the Fund or the purchasers designate from time to time, or to or through underwriters or dealers. The prospectus supplement
relating to the offering will identify any agents or underwriters involved in the sale of the Securities, and will set forth any
applicable purchase price, fee, commission or discount arrangement between the Fund and such agents or underwriters or among underwriters
or the basis upon which such amount may be calculated. The prospectus supplement relating to any sale of preferred stock will set
forth the liquidation preference and information about the dividend period, dividend rate, any call protection or non-call period
and other matters. A supplement to this Prospectus relating to any offering of subscription rights will set forth the number of
shares (common or preferred) issuable upon the exercise of each right and the other terms of such rights offering, including whether
the Preferred Shares issuable upon the exercise of such right are convertible into Common Shares. The Fund may not sell Securities
through agents, underwriters or dealers without delivery of this Prospectus and a prospectus supplement describing the method and
terms of the offering of the Securities. See “Plan of Distribution.” |
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Offerings of Shares will be subject to the provisions
of the 1940 Act, which generally require that the public offering price of common shares of a closed-end investment company (exclusive
of distribution commissions and discounts) must equal the net asset value per share of the company’s common stock (calculated
within 48 hours of pricing), absent shareholder approval or under certain other circumstances. The Fund may, however, issue Common
Shares pursuant to exercises of Rights at prices below net asset value. |
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Investment Objectives |
The Fund’s primary investment objective is current income exempt from regular U.S. federal income taxes (but which may be includable in taxable income for purposes of the Federal alternative minimum tax). The Fund’s secondary investment objective is total return. There is no assurance that the Fund will achieve its investment objectives. |
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Principal Investment Strategies and Policies |
Under normal market conditions, the Fund seeks to achieve its investment objectives by investing, directly or indirectly, at least 80% of its Managed Assets in municipal bonds, the interest on which is, in the opinion of bond counsel to the issuers, generally excludable from gross income for regular U.S. federal income tax purposes, except that the interest may be includable in taxable income for purposes of the Federal alternative minimum tax (“Municipal Bonds”). In order to qualify to pay exempt-interest dividends, which are items of interest excludable from gross income for federal income tax purposes, the Fund will seek to invest at least 50% of its total assets either directly (and indirectly through tender option bond transactions) in such Municipal Bonds or in other funds that are taxed as regulated investment companies. See “Risks—Investment-Related Risks—Tax Risks.” |
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Municipal Bonds are debt obligations, which may have a variety of issuers, including governmental entities or other qualifying issuers. Issuers may be states, territories and possessions of the United States and the District of Columbia and their political subdivisions, agencies and instrumentalities. See “Risks—Investment-Related Risks—Municipal Bond Risks” and “Risks—Investment-Related Risks—Market Disruption, Geopolitical, Pandemic and Climate Change Risks.” Such territories of the United States include Puerto Rico. See “Risks—Investment-Related Risks—Puerto Rico Municipal Bond Risks” for a discussion of the risks associated with an investment in Puerto Rico Municipal Bonds. Municipal Bonds include, among other instruments, general obligation bonds, revenue bonds, municipal leases, certificates of participation, private activity bonds, moral obligation bonds, and tobacco settlement bonds, as well as short-term, tax-exempt obligations such as municipal notes and variable rate demand obligations. See “Investment Objectives, Strategies and Policies—Portfolio Composition” for a description of the types of Municipal Bonds in which the Fund may invest. |
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The Fund seeks to allocate its assets among the two principal strategies described below. The Adviser determines the portion of the Fund’s Managed Assets to allocate to each strategy and may, from time to time, adjust the allocations. See “Risks—Structural Risks—Asset Allocation Risk.” Under normal market conditions, the Fund may allocate between 25% and 65% of its Managed Assets to the Tactical Municipal Closed-End Fund Strategy and 35% to 75% of its Managed Assets to the Municipal Bond Income Strategy. |
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Tactical Municipal Closed-End Fund Strategy (25%-65% of Managed Assets). This strategy seeks to (i) generate returns through investments in other investment companies, consisting principally of closed-end funds and exchange-traded funds (“ETFs” and, together with such other investment companies, the “Underlying Funds”), that invest, under normal market conditions, at least 80% of their net assets, plus the amount of any borrowings for investment purposes, in Municipal Bonds, and (ii) derive value from the discount and premium spreads associated with closed-end funds that invest, under normal market conditions, at least 80% of their net assets, plus the amount of any borrowings for investment purposes, in Municipal Bonds. See “Risks—Investment-Related Risks—Tactical Municipal Closed-End Fund Strategy Risk.” All Underlying Funds will be registered under the Securities Act of 1933, as amended (the “Securities Act”). |
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Under normal market conditions, the Fund limits its investments in closed-end funds that have been in operation for less than one year to no more than 10% of the Fund’s Managed Assets allocated to the Tactical Municipal Closed-End Fund Strategy. The Fund will not invest in inverse ETFs or leveraged ETFs. Under normal market conditions, the Fund may not invest more than 35% of its Managed Assets in the Tactical Municipal Closed-End Fund Strategy in single state municipal closed-end funds. The Fund’s shareholders will indirectly bear the expenses, including the management fees, of the Underlying Funds. See “Risks—Investment-Related Risks—Underlying Fund Risks.” |
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The Fund may invest in Underlying Funds that invest in securities that are rated below investment grade, including those receiving the lowest ratings from Standard & Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business (“S&P”), Fitch Ratings, a part of the Fitch Group (“Fitch”), or Moody’s Investor Services, Inc. (“Moody’s”), or comparably rated by another nationally recognized statistical rating organization (“NRSRO”) or, if unrated, determined by the Adviser or Subadviser to be of comparable credit quality, which indicates that the security is in default or has little prospect for full recovery of principal or interest. See “Risks—Investment-Related Risks—Defaulted and Distressed Securities Risk.” Below investment grade securities (such as securities rated below BBB- by S&P or Fitch or below Baa3 by Moody’s) are commonly referred to as “junk” and “high yield” securities. Below investment grade securities are considered speculative with respect to the issuer’s capacity to pay interest and repay principal. The Underlying Funds in which the Fund invests may invest in securities receiving the lowest ratings from the NRSROs, including securities rated C by Moody’s or D- by S&P. Lower rated below investment grade securities are considered more vulnerable to nonpayment than other below investment grade securities and their issuers are more dependent on favorable business, financial and economic conditions to meet their financial commitments. The lowest rated below investment grade securities are typically already in default. See “Risks—Investment-Related Risks—Credit and Below Investment Grade Securities Risk.” |
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The Underlying Funds in which the Fund invests will not include those that are advised or subadvised by the Adviser, the Subadviser or their affiliates. |
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Municipal Bond Income Strategy (35%-75% of Managed Assets). This strategy seeks to capitalize on inefficiencies in the tax-exempt and tax-advantaged securities markets through investments in Municipal Bonds. Under normal market conditions, the Fund may not directly invest more than 25% of the Managed Assets allocated to the Municipal Bond Income Strategy in Municipal Bonds in any one industry or in any one state of origin, and the Fund may not directly invest more than 5% of the Managed Assets allocated to this strategy in the Municipal Bonds of any one issuer, except that the foregoing industry and issuer restrictions shall not apply to general obligation bonds and the Fund will consider the obligor or borrower underlying the Municipal Bond to be the “issuer.” See “Risks—Investment-Related Risks—State Specific and Industry Risks.” The Fund may invest up to 30% of the Managed Assets allocated to the Municipal Bond Income Strategy in Municipal Bonds that pay interest that may be includable in taxable income for purposes of the Federal alternative minimum tax. The Fund can invest, directly or indirectly through Underlying Funds, in bonds of any maturity; however, under this strategy, it will generally invest in Municipal Bonds that have a maturity of five years or longer at the time of purchase. |
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Under normal market conditions, the Fund invests at least 60% of the Fund’s Managed Assets allocated to the Municipal Bond Income Strategy directly in investment grade Municipal Bonds. The Subadviser invests no more than 20% of the Managed Assets allocated to the Municipal Bond Income Strategy in Municipal Bonds rated at or below Caa1 by Moody’s or CCC+ by S&P or Fitch, or comparably rated by another NRSRO, including unrated bonds judged to be of equivalent quality as determined by the Adviser or Subadviser, as applicable. Investment grade securities are those rated Baa or higher by Moody’s (although Moody’s considers securities rated Baa to have speculative characteristics) or BBB or higher by S&P or rated similarly by another NRSRO or, if unrated, judged to be of equivalent quality as determined by the Adviser or Subadviser, as applicable. If the independent ratings agencies assign different ratings to the same security, the Fund will use the higher rating for purposes of determining the security’s credit quality. Subject to the foregoing limitations, the Fund may invest in securities receiving the lowest ratings from the NRSROs, including securities rated C by Moody’s or D- by S&P, which indicates that the security is in default or has little prospect for full recovery of principal or interest. See “Risks—Investment-Related Risks—Credit and Below Investment Grade Securities Risk.” |
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Under normal market conditions, the Fund, or the Underlying Funds in which the Fund invests, will invest at least 50% of its Managed Assets, directly or indirectly in investment grade Municipal Bonds. |
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“Managed Assets” means the total assets of the Fund, including assets attributable to leverage, minus liabilities (other than debt representing leverage and any preferred stock that may be outstanding). Such assets attributable to leverage include the portion of assets in tender option bond trusts of which the Fund owns TOB Residuals (as defined below) that has been effectively financed by the trust’s issuance of TOB Floaters (as defined below). See “Use of Leverage—Tender Option Bonds.” |
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Other Investments. The Fund may invest, directly or indirectly, up to 20% of its Managed Assets in taxable municipal securities. Any portion of the Fund’s assets invested in taxable municipal securities will not count toward the 35%-75% of the Fund’s assets allocated to Municipal Bonds. |
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The Fund may at times establish hedging positions, which may include short sales and derivatives, such as options, futures and swaps (“Hedging Positions”). Such Hedging Positions may be used to attempt to protect against possible changes in the value of securities held in or to be purchased for the Fund’s portfolio and to manage the effective maturity or duration of the Fund’s portfolio. The Fund’s Hedging Positions may, however, result in income or gain to the Fund that is not exempt from regular U.S. federal income taxes. See “Risks—Investment-Related Risks—Derivatives Risks” and “Risks—Investment-Related Risks—Options and Futures Risks.” See also “Risks—Investment-Related Risks—Legislation and Regulatory Risks” for forthcoming changes that may impact the Fund’s use of derivatives and other transactions, including short sales. |
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A short sale is a transaction in which the Fund sells a security that it does not own in anticipation of a decline in the market price of the security. The Fund may benefit from a short position when the shorted security decreases in value by more than the cost of the transaction but will suffer a loss on a short sale if the security’s value does not decline or increases. The Fund will not engage in any short sales of securities issued by closed-end funds. See “Investment Objectives, Strategies and Policies—Principal Investment Strategies—Other Investments” and “Risks—Investment-Related Risks—Short Sale Risks.” |
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The Fund also may attempt to enhance the return on the cash portion of its portfolio by investing in total return swap agreements. A total return swap agreement provides the Fund with a return based on the performance of an underlying asset, in exchange for fee payments to a counterparty based on a specific rate. The difference in the value of these income streams is recorded daily by the Fund, and is typically settled in cash at least monthly. If the underlying asset declines in value over the term of the swap, the Fund would be required to pay the dollar value of that decline plus any applicable fees to the counterparty. The Fund may use its own NAV or any other reference asset that the Adviser or Subadviser chooses as the underlying asset in a total return swap. The Fund will limit the notional amount of all total return swaps in the aggregate to 15% of the Fund’s Managed Assets. See “Investment Objectives, Strategies and Policies—Principal Investment Strategies—Other Investments“ and “Risks—Investment-Related Risks—Swap Risks.” See also “Risks—Investment-Related Risks—Legislation and Regulatory Risks” for forthcoming changes that may impact the Fund’s use of derivatives, including swaps. |
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In addition to the foregoing principal investment strategies of the Fund, the Adviser also may allocate the Fund’s Managed Assets among cash and short-term investments. See “Investment Policies and Techniques—Temporary Investments and Defensive Position” in the SAI. There are no limits on the Fund’s portfolio turnover, and the Fund may buy and sell securities to take advantage of potential short-term trading opportunities without regard to length of time and when the Adviser or Subadviser believes investment considerations warrant such action. High portfolio turnover may result in the realization of net short-term capital gains by the Fund which, when distributed to holders of the Common Shares (the “Common Shareholders”), will be taxable as ordinary income. In addition, a higher portfolio turnover rate results in correspondingly greater brokerage commissions and other transactional expenses that are borne by the Fund. See “Risks—Structural Risks—Portfolio Turnover Risk.” |
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All percentage limitations described in this Prospectus are measured at the time of investment and may be exceeded on a going-forward basis as a result of credit rating downgrades or market value fluctuations of the Fund’s portfolio securities. Unless otherwise specified herein, the Fund may count its holdings in Underlying Funds towards various guideline tests, including the 80% policy so long as the earnings on the underlying holdings of such Underlying Funds are exempt from regular U.S. federal income taxes (but which may be includable in taxable income for purposes of the Federal alternative minimum tax). |
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Unless otherwise specified, the investment policies and limitations of the Fund are not considered to be fundamental by the Fund and can be changed without a vote of the Common Shareholders. The Fund’s primary investment objective, 80% policy and certain investment restrictions specifically identified as such in the SAI are considered fundamental and may not be changed without the approval of the holders of a majority of the outstanding voting securities of the Fund, as defined in the 1940 Act, which includes Common Shares and preferred stock of the Fund (“Preferred Shares”), if any, voting together as a single class, and the holders of the outstanding Preferred Shares, if any, voting as a single class. See “Investment Restrictions” in the SAI. |
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Investment Philosophy and Process |
The Adviser will allocate the Fund’s assets among the Tactical Municipal Closed-End Fund Strategy and the Municipal Bond Income Strategy (as described above). The amount allocated to each of the principal strategies may change depending on the Adviser’s assessment of market risk, security valuations, market volatility, and the prospects for earning income and capital appreciation. See “Risks—Structural Risks—Multi-Manager Risk.” |
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Tactical Municipal Closed-End Fund Strategy. The Adviser considers a number of factors when selecting Underlying Funds, including fundamental and technical analysis to assess the relative risk and reward potential throughout the financial markets. The term “tactical” is used to indicate that the portion of the Fund’s Managed Assets allocated to this strategy invests in closed-end funds to seek to take advantage of pricing discrepancies in the closed-end fund market. |
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In selecting closed-end funds, the Adviser opportunistically utilizes a combination of short-term and longer-term trading strategies to seek to derive value from the discount and premium spreads associated with closed-end funds by identifying pricing aberrations. Closed-end funds may trade at a price that is above their net asset value per share, referred to as a “premium,” or below their net asset value per share, referred to as a “discount.” The difference between the net asset value per share and the discount or premium is referred to as a “spread.” The Adviser employs both a quantitative and qualitative approach in its selection of closed-end funds and has developed proprietary screening models and algorithms to trade closed-end funds. The Adviser’s mean reversion investing looks to capitalize on changes within the pricing of a closed-end fund and, based upon its research and analysis, a view that it will revert to historical pricing. The Adviser employs the following trading strategies, among others: |
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Statistical Analysis (Mean Reversion) |
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● Using proprietary quantitative models, the Adviser seeks to identify closed-end funds that are trading at compelling absolute and/or relative discounts. |
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● The Adviser attempts to capitalize on the perceived mispricing if the Adviser believes that the discount widening is irrational and expects the discount to narrow to longer-term mean valuations. |
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Corporate Actions |
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● The Adviser pursues investments in closed-end funds that have announced, or the Adviser believes are likely to announce, certain corporate actions that may drive value for their shareholders. |
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● The Adviser has developed trading strategies that focus on closed-end fund tender offers, rights offerings, shareholder distributions, open-endings and liquidations. |
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Shareholder Activism |
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● The Adviser assesses activism opportunities by determining a closed-end fund’s susceptibility to dissident activity and analyzing the composition of the fund’s shareholder register. The Fund, in seeking to achieve its investment objectives, will not initiate an activist role with the Underlying Funds in which it invests. |
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In employing its trading strategies, the Adviser conducts an extensive amount of due diligence on various fund sponsors, investment managers and funds, including actively monitoring regulatory filings, analyzing a fund’s registration statements, financial statements and organizational documents, as well as conducting proprietary research, such as speaking with fund sponsors, underwriters, sell-side brokers and investors. |
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See “Investment Philosophy and Process—Tactical Municipal Closed-End Fund Strategy.” |
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Municipal Bond Income Strategy. The Subadviser believes inefficiencies exist in the tax-exempt and tax-advantaged securities markets. In order to capitalize on these opportunities, the Subadviser applies both a top-down and bottom-up research investment process. The Subadviser’s top-down analysis considers the economic, interest rate, inflation outlook and other economic variables to guide overall portfolio structure. The Subadviser employs a value-oriented security selection process to invest in securities it believes to be mispriced which offer a yield advantage. In choosing investments, the Subadviser analyzes the credit quality of issuers and considers the yields available on municipal bonds with different maturities. In addition, the Subadviser reviews macroeconomic events, technical characteristics in the municipal bond market, tax policies, as well as analyzing individual municipal securities and sectors. The Subadviser seeks to reduce volatility through its disciplined investment process and investment risk management. |
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The Subadviser may sell a security if it no longer believes the security will contribute to meeting the investment objectives of the Fund. In considering whether to sell a security, the Subadviser may evaluate, among other things, the condition of the economy and meaningful changes in the issuer’s financial condition. |
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See “Investment Philosophy and Process—Municipal Bond Income Strategy.” |
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Limited Term Fund Structure and Eligible Tender Offer |
The Fund will terminate on or before February 26, 2036 (the “Termination Date”); provided, that if the Board of Directors believes that, under then-current market conditions, it is in the best interests of the Fund to do so, the Fund may extend the Termination Date: (i) once for up to one year (i.e., up to February 26, 2037), and (ii) once for up to an additional six months (i.e., up to August 26, 2037), in each case upon the affirmative vote of a majority of the Board of Directors and without the approval of Common Shareholders. In determining whether to extend the Termination Date, the Board of Directors may consider, for example, the Fund’s inability to sell its assets in a time frame consistent with termination due to lack of market liquidity or other extenuating circumstances. Additionally, the Board of Directors may determine that market conditions are such that it is reasonable to believe that, with an extension, the Fund’s remaining assets will appreciate and generate income in an amount that, in the aggregate, is meaningful relative to the cost and expense of continuing the operation of the Fund. |
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In anticipation of the Termination Date (such period of time, the “wind-down period”), the Fund may begin liquidating all or a portion of the Fund’s portfolio, and may deviate from its investment policies and may not achieve its investment objective. During the wind-down period (or in anticipation of an Eligible Tender Offer), the Fund’s portfolio composition may change as more of its portfolio holdings are called or sold and portfolio holdings are disposed of in anticipation of liquidation. Rather than reinvesting the proceeds of matured, called or sold securities in accordance with the investment program described above, the Fund may invest such proceeds in short term or other lower yielding securities or hold the proceeds in cash, which may adversely affect its performance. |
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In addition, within twelve months preceding the Termination Date, the Board of Directors may cause the Fund to conduct an Eligible Tender Offer. An Eligible Tender Offer would consist of a tender offer to all Common Shareholders to purchase Common Shares of the Fund at a price equal to the NAV per Common Share on the expiration date of the tender offer. The Board of Directors has established that, following an Eligible Tender Offer, the Fund must have at least $100 million of net assets to ensure the continued viability of the Fund (the “Termination Threshold”). |
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In an Eligible Tender Offer, the Fund will offer to purchase all Common Shares held by each Common Shareholder; provided, that if the number of properly tendered Common Shares would result in the Fund’s net assets totaling less than the Termination Threshold, the Eligible Tender Offer will be terminated and no Common Shares will be repurchased pursuant to the Eligible Tender Offer. Instead, the Fund will begin (or continue) liquidating its portfolio and proceed to terminate on or before the Termination Date. The Adviser will pay all costs and expenses associated with the making of an Eligible Tender Offer, other than brokerage and related transaction costs associated with the disposition of portfolio investments in connection with the Eligible Tender Offer, which will be borne by the Fund and its shareholders. An Eligible Tender Offer would be made, and Common Shareholders would be notified thereof, in accordance with the requirements of the 1940 Act, the Exchange Act and the applicable tender offer rules thereunder (including Rule 13e-4 and Regulation 14E under the Exchange Act). |
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If the number of properly tendered Common Shares would result
in the Fund’s net assets equaling or totaling greater than the Termination Threshold, all Common Shares properly tendered
and not withdrawn will be purchased by the Fund pursuant to the terms of the Eligible Tender Offer. The Fund’s purchase of
tendered Common Shares pursuant to a tender offer will have tax consequences for tendering Common Shareholders and may have tax
consequences for non-tendering Common Shareholders. In addition, the Fund would continue to be subject to its obligations with
respect to its issued and outstanding preferred stock or debt securities, if any.
All Common Shareholders remaining after a tender offer
will be subject to proportionately higher expenses due to the reduction in the Fund’s total assets resulting from payment
for the tendered Common Shares. A reduction in net assets, and the corresponding increase in the Fund’s expense ratio, could
result in lower returns and put the Fund at a disadvantage relative to its peers and potentially cause the Fund to trade at a
wider discount to NAV than it otherwise would. Such reduction in the Fund’s total assets may also result in less investment
flexibility, reduced diversification and greater volatility for the Fund, and may have an adverse effect on the Fund’s investment
performance. Moreover, the resulting reduction in the number of outstanding Common Shares could cause the Common Shares to become
thinly traded or otherwise adversely impact the secondary market trading of such shares. See “Risks—Structural Risks—Limited
Term and Eligible Tender Offer Risk.” |
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Following the completion of an Eligible Tender Offer, the Board of Directors may eliminate the limited term structure of the Fund upon the affirmative vote of a majority of the Board of Directors and without the approval of Common Shareholders. In making such decision, the Board of Directors will take such actions with respect to the continued operations of the Fund as it deems to be in the best interests of the Fund, based on market conditions at such time, the extent of Common Shareholder participation in the Eligible Tender Offer and all other factors deemed relevant by the Board of Directors in consultation with the Adviser and Subadviser, taking into account that the Adviser and Subadviser may have a potential conflict of interest in seeking to convert to a perpetual fund (or in seeking to extend the Termination Date). The Fund is not required to conduct additional tender offers following an Eligible Tender Offer and conversion to a perpetual structure. Therefore, remaining Common Shareholders may not have another opportunity to participate in a tender offer or exchange their Common Shares for the then-existing NAV per Common Share. |
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The Fund is not a so called “target date” or “life cycle” fund whose asset allocation becomes more conservative over time as its target date, often associated with retirement, approaches. In addition, the Fund is not a “target term” fund whose investment objective is to return its original NAV on the termination date. See “Certain Provisions of the Fund’s Charter and Bylaws and Of Maryland Law” and “Risks—Structural Risks—Limited Term and Eligible Tender Offer Risk.” |
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Use of Leverage |
The Fund may borrow money and/or issue Preferred Shares, notes or debt securities for investment purposes. In addition, the Fund may enter into derivative and other transactions that have the effect of leverage. Such other transactions may include tender option bond transactions (as described herein). The Adviser determines whether or not to engage in leverage based on its assessment of conditions in the debt and credit markets. As of the time immediately after it enters into any of the foregoing transactions, the Fund will seek to limit its overall effective leverage to 45% of its Managed Assets. The Fund currently anticipates that leverage will initially be obtained through borrowings from banks or other financial institutions and the use of proceeds received from tender option bond transactions. See “—Tender Option Bonds.” Since the holders of common stock pay all expenses related to the use of leverage, such use of leverage would create a greater risk of loss for the Fund’s Common Shares than if leverage is not used. See “Risks—Structural Risk—Leverage Risk.” |
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The provisions of the 1940 Act provide that the Fund may borrow or issue notes or debt securities in an amount up to 33 1/3% of its total assets or may issue Preferred Shares in an amount up to 50% of the Fund’s total assets (including the proceeds from leverage). The Fund’s use of derivatives and other transactions are not subject to such limitations if the Fund earmarks or segregates liquid assets (or enters into offsetting positions) in accordance with applicable SEC regulations and interpretations to cover its obligations under those transactions and instruments. However, these transactions will entail expenses (e.g., transaction costs) which will be borne by the Fund. With respect to the Fund’s anticipated investments in TOB Residuals issued by a tender option bond trust (as further discussed below under “—Tender Option Bonds”), the Fund currently intends to segregate (or earmark) unencumbered liquid assets (other than the bonds deposited into the tender option bond trust) with a value at least equal to the amount of the TOB Floaters issued by such trust plus accrued interest, if any, to the extent necessary for the Fund to comply with the foregoing requirements of the 1940 Act. See “Risks—Investment-Related Risks—Legislation and Regulatory Risks.” |
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The use of leverage by the Fund can magnify the effect of any losses. If the income and gains earned on the securities and investments purchased with leverage proceeds are greater than the cost of the leverage, returns will be greater than if leverage had not been used. Conversely, if the income and gains from the securities and investments purchased with such proceeds do not cover the cost of leverage, returns will be less than if leverage had not been used. Since the holders of common stock pay all expenses related to the issuance of debt or use of leverage, any use of leverage would create a greater risk of loss for the Common Shares than if leverage is not used. There can be no assurance that a leveraging strategy will be successful during any period in which it is employed. See “Use of Leverage” and “Risks—Structural Risks—Leverage Risks.” |
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Tender Option Bonds. The Fund may leverage its assets through the use of proceeds received from tender option bond transactions. In a tender option bond transaction, a tender option bond trust (a “TOB Issuer”) is typically established by forming a special purpose trust into which the Fund, or an agent on behalf of the Fund, transfers municipal bonds or other municipal securities. A TOB Issuer typically issues two classes of beneficial interests: short-term floating rate notes (“TOB Floaters”), which are sold to third party investors, and residual interest municipal tender option bonds (“TOB Residuals”), which are generally issued to the Fund. The Fund may invest in both TOB Floaters and TOB Residuals, including TOB Floaters and TOB Residuals issued by the same TOB Issuer. The Fund may not invest more than 5% of its Managed Assets in any single TOB Issuer. The Fund does not currently intend to invest in TOB Residuals issued by a TOB Issuer that was not formed for the Fund, although it reserves the right to do so in the future. |
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Under accounting rules, securities of the Fund that are deposited into a TOB Issuer are treated as investments of the Fund, and are presented on the Fund’s Schedule of Investments and outstanding TOB Floaters issued by a TOB Issuer are presented as liabilities in the Fund’s Statement of Assets and Liabilities. Interest income from the underlying security is recorded by the Fund on an accrual basis. Interest expense incurred on the TOB Floaters and other expenses related to remarketing, administration and trustee services to a TOB Issuer are reported as expenses of the Fund. |
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For TOB Floaters, generally, the interest rate earned will be based upon the market rates for municipal securities with maturities or remarketing provisions that are comparable in duration to the periodic interval of the tender option, which may vary from weekly, to monthly, to extended periods of one year or multiple years. Since the option feature has a shorter term than the final maturity or first call date of the underlying securities deposited in the TOB Issuer, the Fund, if it is the holder of the TOB Floaters, relies upon the terms of the agreement with the financial institution furnishing the option as well as the credit strength of that institution. As further assurance of liquidity, the terms of the TOB Issuer provide for a liquidation of the municipal security deposited in the TOB Issuer and the application of the proceeds to pay off the TOB Floaters. |
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There are inherent risks with respect to investing in a TOB Issuer. These risks include, among others, the bankruptcy or default of the issuer of the securities deposited in the TOB Issuer, a substantial downgrade in the credit quality of the issuer of the securities deposited in the TOB Issuer, the inability of the TOB Issuer to obtain liquidity support for the TOB Floaters, a substantial decline in the market value of the securities deposited in the TOB Issuer, or the inability of the sponsor or remarketing agent to remarket any TOB Floaters tendered by holders of the TOB Floaters. See “Risks—Investment-Related Risks—Tender Option Bonds Risk.” |
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Dividends and
Distributions |
The Fund has implemented a level distribution
policy (the “Level Distribution Policy”). Under the Level Distribution Policy, the Fund intends to make monthly distributions
to common shareholders at a constant and fixed (but not guaranteed) rate (which is annually reset) equal to 6.00% of the average
of the Fund’s NAV per share as reported for the final five trading days of the preceding calendar year.
Under the Level Distribution Policy, to the extent
that sufficient investment income is not available on a monthly basis, the Fund’s distributions could consist of return
of capital in order to maintain the distribution rate. The amount treated as a return of capital will reduce a shareholder’s
adjusted basis in the shareholder’s shares, thereby increasing the potential gain or reducing the potential loss on the
sale of shares. Investors should not make any conclusions about the Fund’s investment performance from the amount of the
Fund’s distributions or from the terms of the Fund’s Level Distribution Policy. Dividends and distributions may be
payable in cash or common shares, with shareholders having the option to receive additional common shares in lieu of cash. The
Fund may at times, in its discretion, pay out less than the entire amount of net investment income earned in any particular period
and may at times pay out such accumulated undistributed income in addition to net investment income earned in other periods in
order to permit the Fund to maintain a more stable level of distributions. As a result, the dividend paid by the Fund to common
shareholders for any particular period may be more or less than the amount of net investment income earned by the Fund during
such period. The Fund’s ability to maintain a stable level of distributions to shareholders will depend on a number of factors,
including the stability of income received from its investments. The amount of monthly distributions could vary depending on a
number of factors, including the costs of any leverage. As portfolio and market conditions change, the amount of dividends on
the Fund’s common shares could change. For federal income tax purposes, the Fund is required to distribute substantially
all of its net investment income each year to both reduce its federal income tax liability and to avoid a potential federal excise
tax. The Fund intends to distribute all realized net capital gains, if any, at least annually. See “Dividends and Distributions.” |
Dividend Reinvestment
Plan |
The Fund has an automatic dividend reinvestment plan (the “Plan”) commonly referred to as an “opt-out” plan. Each Common Shareholder who participates in the Plan will have all distributions of dividends and capital gains automatically reinvested in additional Common Shares. The automatic reinvestment of dividends and distributions in Common Shares will not relieve participants of any federal, state or local income tax that may be payable (or required to be withheld) on such dividends and distributions, even though such participants have not received any cash with which to pay the resulting tax. |
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Common Shareholders who elect not to participate in the Plan will receive all distributions in cash. All correspondence or questions concerning the Plan, including how a Common Shareholder may opt out of the Plan, should be directed to DST Systems, Inc., (844) 569-4750 (the “Plan Administrator”). Beneficial owners of Common Shares who hold their Common Shares in the name of a broker or nominee should contact the broker or nominee to determine whether and how they may participate in, or opt out of, the Plan. See “Dividend Reinvestment Plan” and “U.S. Federal Income Tax Matters.” |
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Listing of Common Shares |
The Fund’s currently outstanding common shares are, and the Common Shares offered in this Prospectus and any applicable prospectus supplement will be, subject to notice of issuance, listed on the New York Stock Exchange (“NYSE”) under the trading or “ticker” symbol “RFMZ.” The net asset value of the Fund’s common shares at the close of business on June 22, 2022 was $15.46, and the last sale price of the common shares on the NYSE on such date was $14.35. |
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Risk Considerations |
Risk is inherent in all investing. Investing in any investment company security involves risks, including the risk that you may receive little or no return on your investment or even that you may lose part or all of your investment. Therefore, before investing in the Fund, you should consider the risks more fully set forth under “Risks” beginning on page 31 (as well as the other information in this Prospectus and the SAI), which provides a discussion of the principal risk factors associated with an investment in the Fund specifically, as well as those factors generally associated with an investment in a company with investment objectives, investment policies, capital structure or trading markets similar to the Fund. Given the nature of the Fund’s investment strategies, these principal risks include risks associated with investments in municipal bonds, other investment companies and below investment grade-rated securities; risks associated with the use of leverage, including the use of tender option bond transactions and derivatives; and risks related to interest rates and tax matters. |
Administrator, Fund Accountant,
Transfer Agent, Dividend Disbursing Agent
and Custodian |
ALPS Fund Services, Inc. (“AFS”) is the Fund’s administrator. Under an Administration, Bookkeeping and Pricing Services Agreement (the “Administration Agreement”), AFS is responsible for calculating NAVs, providing additional fund accounting and tax services, and providing fund administration and compliance-related services. State Street Bank and Trust Company serves as the Fund’s custodian. DST Systems, Inc. serves as the Fund’s transfer agent, registrar, Plan Administrator, dividend disbursing agent, and provides certain other administrative services to the Fund. See “Administrator, Fund Accountant, Transfer Agent, Dividend Disbursing Agent and Custodian.” |
SUMMARY OF FUND EXPENSES
The following table
shows estimated Fund expenses as a percentage of net assets attributable to Common Shares. The purpose of the following table and
the example below is to help you understand the fees and expenses that you, as a Common Shareholder, would bear directly or indirectly.
Actual expenses may be greater or less than those shown below.
Shareholder Transaction Expenses |
|
Sales Load (as a percentage of offering price) |
--%* |
Offering Expenses Borne by Common Shareholders of the Fund |
--%* |
Dividend Reinvestment Plan Fees(1) |
--* |
Preferred Shares Offering Expenses Borne by the Trust (as a percentage of net assets attributable to Common Shares) |
--%* |
Annual Expenses (as a percentage of offering price) |
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Management fee(2) |
1.92% |
Leverage costs(3)(4) |
0.17% |
Dividends on Preferred Shares(5) |
--% |
Other Expenses(6) |
0.01% |
Acquired fund fees and expenses(7) |
0.76% |
Total annual expenses |
2.86% |
The purpose of the table
above and the example below is to help you understand the fees and expenses that you, as a Common Shareholder, would bear directly
or indirectly. The expenses shown in the table under “Other Expenses” and “Total Annual Expenses” are based
in part on estimated amounts for the Fund’s 12 months of operations after December 31, 2021 unless otherwise indicated and assumes
that the Fund has not issued any additional Common Shares.
Example(8)
The example illustrates
the expenses you would pay on a $1,000 investment in Common Shares, based on the fees and expenses set forth in the table above,
assuming a 5% annual return.
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1 year |
3 years |
5 years |
10 years |
Total Expenses Incurred |
$29 |
$91 |
$154 |
$327 |
The example should not be considered a
representation of future expenses. Actual expenses may be greater or less than those assumed.
* |
The applicable prospectus supplement to be used in connection with any sales of Common Shares or Preferred Shares will set forth any applicable sales load and the estimated offering expenses borne by the Fund under an Offering. |
(1) |
There will be no brokerage charges with respect to common shares issued directly by the Fund under the dividend reinvestment plan. You will pay brokerage charges in connection with open market purchases or if you direct the plan agent to sell your common shares held in a dividend reinvestment account. |
(2) |
The management fee paid by the Fund to the Adviser is essentially an all-in fee structure (the “unified management fee”), including the fee paid to the Adviser for advisory, supervisory, administrative, shareholder servicing and other services. However, the Fund (and not the Adviser) will be responsible for certain additional fees and expenses, which are reflected in the table above, that are not covered by the unified management fee. The unified management fee is inclusive of the fees payable by the Adviser to the Subadviser for advisory services. The unified management fee is charged as a percentage of the Fund’s average daily Managed Assets, as opposed to net assets. With leverage, Managed Assets are greater in amount than net assets, because Managed Assets include assets attributable to the Fund’s use of leverage created by its tender option bond transactions. In addition, the mark-to-market value of the Fund’s derivatives will be used for purposes of calculating Managed Assets. The management fee of 1.40% of the Fund’s Managed Assets represents 1.92% of net assets attributable to Common Shares assuming the use of leverage in an amount of 30% of the Fund’s Managed Assets. See “Management of the Fund—Investment Advisory and Subadvisory Agreements.” |
(3) |
Assumes the use of leverage from the proceeds of tender option bond transactions representing 30% of Managed Assets at an annual interest rate expense to the Fund of 0.45%, which is based on market conditions anticipated for the period. The actual amount of interest expense borne by the Fund will vary over time in accordance with the level of the Fund’s use of tender option bond transactions and variations in market interest rates. See “Use of Leverage.” |
(4) |
The “Leverage Costs” reflect the expenses associated with the Fund’s tender option bond transactions, including remarketing, administration and trustee services to a TOB Issuer, accrued at a rate of 0.17%. |
(5) |
As of the date of this Prospectus, the Trust has not issued any Preferred Shares. The applicable prospectus supplement will set forth the expense related to any Preferred Shares issued in the future. |
|
|
(6) |
“Other Expenses” are based on estimated
amounts for the current fiscal year. |
|
|
(7) |
The “Acquired fund fees and expenses” disclosed above are based on the expense ratios for the most recent fiscal year of the Underlying Funds in which the Fund anticipates investing, which may change substantially over time and, therefore, significantly affect “Acquired fund fees and expenses.” These amounts are based on the total expense ratio disclosed in each Underlying Fund’s most recent shareholder report. “Acquired fund fees and expenses” are not charged directly to the Fund, but rather reflect the estimated pro rata portion of the Underlying Funds’ fees attributable to the Fund’s investments in shares of the Underlying Funds. The 0.76% shown as “Acquired fund fees and expenses” reflects estimated operating expenses of the Underlying Funds and transaction-related fees. Deducting the “Acquired fund fees and expenses” from the Annual Expenses table (because these expenses are not paid by the Fund directly) results in Fund Total annual expenses (levered) of 2.86% and Fund Total annual expenses (unlevered) of 1.41%. Certain Underlying Funds in which the Fund intends to invest generally charge a management fee of 1.00% to 2.00%, which are included in “Acquired fund fees and expenses,” as applicable. Acquired fund fees and expenses are borne indirectly by the Fund, but they will not be reflected in the Fund’s financial statements; and the information presented in the table will differ from that presented in the Fund’s financial highlights, when available. |
(8) |
The example should not be considered a representation
of future expenses. The example assumes that the estimated “Other expenses” set forth in the table are accurate and
that all dividends and distributions are reinvested at the Common Share net asset values. 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% annual return
shown in the example. |
FINANCIAL HIGHLIGHTS
The Fund’s “Financial Highlights” and the report of the Fund's independent registered public accounting firm, [ ], thereon, contained in the following document filed by the Fund with the SEC, is hereby incorporated by reference
into this Prospectus: the annual report for the year ended June 30, 2021 contained in the Fund's N-CSR filed with the SEC on September
7, 2021. The Fund's "Financial Highlights" contained in the following document filed by the Fund with the SEC, is also hereby incorporated
by reference into this Prospectus: the semi-annual report for the six-months ended December 31, 2021 contained in the Fund's Form N-CSR
filed with the SEC on March 11, 2022.
MARKET AND NET ASSET VALUE INFORMATION
The Fund’s currently outstanding common
shares are, and any Common Shares offered by this Prospectus and the applicable prospectus supplement will be, subject to notice
of issuance, listed on the NYSE. The Fund’s common shares commenced trading on the NYSE on February 26, 2021.
The Fund’s common shares have traded
both at a premium and at a discount in relation to net asset value. Shares of closed-end investment companies frequently trade
at a discount from net asset value. The Fund’s issuance of the Common Shares may have an adverse effect on prices in the
secondary market for the Fund’s common shares by increasing the number of common shares available, which may put downward
pressure on the market price for the Fund’s common shares.
The Fund may (but is not obligated to)
take action to repurchase shares in the open market or make tender offers for its shares at or near NAV. During the pendency of
any tender offer, the Fund will publish how common shareholders may readily ascertain the NAV. Repurchase of the common shares
may have the effect of reducing any market discount to NAV. There is no assurance that, if action is undertaken to repurchase or
tender for shares, such action will result in the shares trading at a price which approximates their NAV. Please see “Repurchase
of Shares” for more information.
The following table sets forth for each
of the periods indicated the high and low closing market prices for common shares of the Fund on the NYSE, the net asset value
per share and the premium or discount to net asset value per share at which the Fund’s common shares were trading. Net asset
value is determined daily as of the close of regular trading on the NYSE (normally 4:00 p.m. Eastern Time). See “Net Asset
Value” for information as to the determination of the Fund’s net asset value.
|
MARKET
PRICE(1) |
NET
ASSET VALUE (2) |
PREMIUM/(DISCOUNT)
TO
NET ASSET
VALUE(3) |
Quarter
Ended |
High |
Low |
High |
Low |
High |
Low |
March 31, 2021 |
$20.35 |
$20.00 |
$20.00 |
$20.04 |
1.75% |
-0.20% |
June 30, 2021 |
$20.79 |
$19.94 |
$20.89 |
$20.47 |
-0.48% |
-2.58% |
September 30,
2021 |
$21.85 |
$20.18 |
$20.52 |
$20.39 |
6.48% |
-1.03% |
December 31, 2021 |
$20.97 |
$19.38 |
$19.98 |
$20.15 |
4.93% |
-3.82% |
March 31, 2022 |
$19.83 |
$15.85 |
$20.36 |
$17.47 |
-2.60% |
-9.27% |
(1) |
Based on high and low closing market price for the respective quarter. |
(2) |
Based on the net asset value calculated on the day of the high and low closing market prices, as applicable, as of the close of regular trading on the NYSE (normally 4:00 p.m. Eastern Time). |
(3) |
Calculated based on the information presented. |
The last reported sale price, net asset
value per share and percentage discount to net asset value per share of the common shares as of June 22, 2022 were $14.35, $15.46 and 7.18%, respectively.
As of that same date, the Fund had 24,351,756 common shares outstanding and net assets of the Fund were $376,430,377.
THE FUND
RiverNorth Flexible
Municipal Income Fund II, Inc. (the “Fund”) is a diversified, closed-end management investment company registered under
the Investment Company Act of 1940 (the “1940 Act”). The Fund was organized as a Maryland corporation on June 11, 2020.
The Fund will have an approximate 15-year limited term unless otherwise determined by the Fund’s Board of Directors (the
“Board of Directors”). On February 24, 2021, 22,000,000 shares of common stock were issued in connection with the Fund’s
initial public offering. An additional 1,250,000 shares of common stock were issued on March 18, 2021 and an additional 1,096,756 shares of common stock were issued on April 13, 2021 in connection with the
underwriter’s over-allotment option. The Fund’s currently outstanding common stock is, and common stock offered in
this Prospectus and any applicable prospectus supplement will be, listed on the New York Stock Exchange (“NYSE”) under
the symbol “RFMZ.” The Fund’s principal office is located at 360 South Rosemary Avenue, Suite 1420, West Palm
Beach, FL 33401, and its telephone number is (561) 484-7185. The Fund’s currently outstanding common stock is, and common
stock offered in this Prospectus and any applicable prospectus supplement will be, listed on the New York Stock Exchange (the “NYSE”)
under the symbol “RFMZ.” The shares of the Fund’s common stock offered by this Prospectus and any applicable
prospectus supplement are hereinafter called “Common Shares” and the holders of Common Shares are called “Common
Shareholders.” As used in this Prospectus, unless the context requires otherwise, “common shares” refers to the
shares of the Fund’s common stock currently outstanding as well as those Common Shares offered by this Prospectus and the
holders of common shares are called “common shareholders.”
The following table
provides information about the Fund’s outstanding securities as of June 22, 2022:
Title of Class |
Amount Authorized |
Amount Held by the
Fund or for its Account |
Amount Outstanding |
Common Shares |
50,000,000 |
0 |
24,351,756 |
THE OFFERING
The Fund may offer, from
time to time, up to [ ] aggregate initial offering price of (i) Common Shares, (ii) shares of its preferred stock (“Preferred
Shares”), and/or (iii) subscription rights to purchase Common Shares, Preferred Shares or both (“Rights” and,
together with the Common Shares and the Preferred Shares, “Securities) in one or more offerings in amounts, at prices and
on terms set forth in one or more supplements to this Prospectus. See “Description of the Fund’s Securities.”
The Fund may offer Securities
directly to one or more purchasers, including existing common shareholders and/or preferred shareholders in a Rights offering,
through agents that the Fund or the purchasers designate from time to time, or to or through underwriters or dealers. The prospectus
supplement relating to the offering will identify any agents or underwriters involved in the sale of the Securities, and will set
forth any applicable purchase price, fee, commission or discount arrangement between the Fund and such agents or underwriters or
among underwriters or the basis upon which such amount may be calculated. The prospectus supplement relating to any sale of preferred
stock will set forth the liquidation preference and information about the dividend period, dividend rate, any call protection or
non-call period and other matters. A supplement to this Prospectus relating to any offering of subscription rights will set forth
the number of shares (common or preferred) issuable upon the exercise of each right and the other terms of such Rights offering,
including whether the Preferred Shares issuable upon the exercise of such right are convertible into Common Shares. The Fund may
not sell Securities through agents, underwriters or dealers without delivery of this Prospectus and a prospectus supplement describing
the method and terms of the offering of the Securities. See “Plan of Distribution.”
The Fund may offer Common
Shares or Preferred Shares on an immediate, continuous or delayed basis. Offerings of Shares will be subject to the provisions
of the 1940 Act, which generally require that the public offering price of common shares of a closed-end investment company (exclusive
of distribution commissions and discounts) must equal or exceed the net asset value per share of the company’s common stock
(calculated within 48 hours of pricing), absent shareholder approval or under certain other circumstances. The Fund may, however,
issue Common Shares pursuant to exercises of Rights at prices below net asset value.
USE OF PROCEEDS
Unless otherwise specified
in a prospectus supplement, the Fund expects to invest the net proceeds from any sales of Securities in accordance with the Fund’s
investment objective and policies as stated below, or use such proceeds for other general corporate purposes within approximately
three months of receipt of such proceeds. Pending any such use, the proceeds may be invested in cash, cash equivalents, short-term
debt securities or U.S. government securities. A delay in the anticipated use of proceeds could lower returns and reduce the Fund’s
distributions to common shareholders.
INVESTMENT OBJECTIVES, STRATEGIES AND
POLICIES
Investment Objectives
The Fund’s primary
investment objective is current income exempt from regular U.S. federal income taxes (but which may be includable in taxable income
for purposes of the Federal alternative minimum tax). The Fund’s secondary investment objective is total return. There is
no assurance that the Fund will achieve its investment objectives.
Principal Investment Strategies
Under normal market
conditions, the Fund seeks to achieve its investment objectives by investing, directly or indirectly, at least 80% of its Managed
Assets in municipal bonds, the interest on which is, in the opinion of bond counsel to the issuers, generally excludable from gross
income for regular U.S. federal income tax purposes, except that the interest may be includable in taxable income for purposes
of the Federal alternative minimum tax (“Municipal Bonds”). In order to qualify to pay exempt-interest dividends, which
are items of interest excludable from gross income for federal income tax purposes, the Fund seeks to invest at least 50% of its
total assets either directly (and indirectly through tender option bond transactions) in such Municipal Bonds or in other funds
that are taxed as regulated investment companies. See “Risks—Investment-Related Risks—Tax Risks.”
Municipal Bonds are
debt obligations, which may have a variety of issuers, including governmental entities or other qualifying issuers. Issuers may
be states, territories and possessions of the United States and the District of Columbia and their political subdivisions, agencies
and instrumentalities. See “Risks—Investment-Related Risks—Municipal Bond Risks” and “Risks—Investment-Related
Risks—Market Disruption, Geopolitical, Pandemic and Climate Change Risks.” Such territories of the United States include
Puerto Rico. See “Risks—Investment-Related Risks—Puerto Rico Municipal Bond Risks” for a discussion of
the risks associated with an investment in Puerto Rico Municipal Bonds. Municipal Bonds include, among other instruments, general
obligation bonds, revenue bonds, municipal leases, certificates of participation, private activity bonds, moral obligation bonds,
and tobacco settlement bonds, as well as short-term, tax-exempt obligations such as municipal notes and variable rate demand obligations.
See “—Portfolio Composition” for a description of the types of Municipal Bonds in which the Fund may invest.
The Fund seeks to allocate
its assets among the two principal strategies described below. The Adviser determines the portion of the Fund’s Managed Assets
to allocate to each strategy and may, from time to time, adjust the allocations. See “Risks—Structural Risks—Asset
Allocation Risk.” Under normal market conditions, the Fund may allocate between 25% and 65% of its Managed Assets to the
Tactical Municipal Closed-End Fund Strategy (as described below) and 35% to 75% of its Managed Assets to the Municipal Bond Income
Strategy (as described below).
Tactical Municipal
Closed-End Fund Strategy (25%-65% of Managed Assets). This strategy seeks to (i) generate returns through investments in other
investment companies, consisting principally of closed-end funds and exchange-traded funds (“ETFs” and, together with
such other investment companies, the “Underlying Funds”), that invest, under normal market conditions, at least 80%
of their net assets, plus the amount of any borrowings for investment purposes, in Municipal Bonds, and (ii) derive value from
the discount and premium spreads associated with closed-end funds that invest, under normal market conditions, at least 80% of
their net assets, plus the amount of any borrowings, for investment purposes, in Municipal Bonds. See “Risks—Investment-Related
Risks—Tactical Municipal Closed-End Fund Strategy Risk.” All Underlying Funds will be registered under the Securities
Act of 1933, as amended (the “Securities Act”).
Under normal market
conditions, the Fund limits its investments in closed-end funds that have been in operation for less than one year to no more than
10% of the Fund’s Managed Assets allocated to the Tactical Municipal Closed-End Fund Strategy. The Fund will not invest in
inverse ETFs or leveraged ETFs. Under normal market conditions, the Fund may not invest more than 35% of its Managed Assets in
the Tactical Municipal Closed-End Fund Strategy in single state municipal closed-end funds. The Fund’s shareholders will
indirectly bear the expenses, including the management fees, of the Underlying Funds. See “Risks—Investment-Related
Risks—Underlying Fund Risks.”
Under Section 12(d)(1)(A)
of the 1940 Act, the Fund may hold securities of an Underlying Fund in amounts which (i) do not exceed 3% of the total outstanding
voting stock of the Underlying Fund, (ii) do not exceed 5% of the value of the Fund’s total assets and (iii) when added to
all other Underlying Fund securities held by the Fund, do not exceed 10% of the value of the Fund’s total assets. These limits
may be exceeded when permitted under Rule 12d1-4. The Fund intends to rely on either Section 12(d)(1)(F) of the 1940 Act, which
provides that the provisions of Section 12(d)(1)(A) shall not apply to securities purchased or otherwise acquired by the Fund if
(i) immediately after such purchase or acquisition not more than 3% of the total outstanding stock of such Underlying Fund is owned
by the Fund and all affiliated persons of the Fund, and (ii) certain requirements are met with respect to sales charges, or Rule
12d1-4.
The Fund may invest
in Underlying Funds that invest in securities that are rated below investment grade, including those receiving the lowest ratings
from Standard & Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business (“S&P”),
Fitch Ratings, a part of the Fitch Group (“Fitch”), or Moody’s Investor Services, Inc. (“Moody’s”),
or comparably rated by another nationally recognized statistical rating organization (“NRSRO”) or, if unrated, determined
by the Adviser or Subadviser to be of comparable credit quality, which indicates that the security is in default or has little
prospect for full recovery of principal or interest. See “Risks—Investment-Related Risks—Defaulted and Distressed
Securities Risk.” Below investment grade securities (such as securities rated below BBB- by S&P or Fitch or below Baa3
by Moody’s) are commonly referred to as “junk” and “high yield” securities. Below investment grade
securities are considered speculative with respect to the issuer’s capacity to pay interest and repay principal. The Underlying
Funds in which the Fund invests may invest in securities receiving the lowest ratings from the NRSROs, including securities rated
C by Moody’s or D- by S&P. Lower rated below investment grade securities are considered more vulnerable to nonpayment
than other below investment grade securities and their issuers are more dependent on favorable business, financial and economic
conditions to meet their financial commitments. The lowest rated below investment grade securities are typically already in default.
See “Risks—Investment-Related Risks—Credit and Below Investment Grade Securities Risk.”
The Underlying Funds
in which the Fund invests will not include those that are advised or subadvised by the Adviser, the Subadviser or their affiliates.
Municipal Bond Income
Strategy (35%-75% of Managed Assets). This strategy seeks to capitalize on inefficiencies in the tax-exempt and tax-advantaged
securities markets through investments in Municipal Bonds. Under normal market conditions, the Fund may not directly invest more
than 25% of the Managed Assets allocated to the Municipal Bond Income Strategy in Municipal Bonds in any one industry or in any
one state of origin, and the Fund may not directly invest more than 5% of the Managed Assets allocated to this strategy in the
Municipal Bonds of any one issuer, except that the foregoing industry and issuer restrictions shall not apply to general obligation
bonds and the Fund will consider the obligor or borrower underlying the Municipal Bond to be the “issuer.” See “Risks—Investment-Related
Risks—State Specific and Industry Risks.” The Fund may invest up to 30% of the Managed Assets allocated to the Municipal
Bond Income Strategy in Municipal Bonds that pay interest that may be includable in taxable income for purposes of the Federal
alternative minimum tax. The Fund can invest, directly or indirectly through Underlying Funds, in bonds of any maturity; however,
under this strategy, it will generally invest in Municipal Bonds that have a maturity of five years or longer at the time of purchase.
Under normal market
conditions, the Fund invests at least 60% of the Fund’s Managed Assets allocated to the Municipal Bond Income Strategy directly
in investment grade Municipal Bonds. The Subadviser invests no more than 20% of the Managed Assets allocated to the Municipal Bond
Income Strategy in Municipal Bonds rated at or below Caa1 by Moody’s or CCC+ by S&P or Fitch, or comparably rated by
another NRSRO, including unrated bonds judged to be of equivalent quality as determined by the Adviser or Subadviser, as applicable.
Investment grade securities are those rated Baa or higher by Moody’s (although Moody’s considers securities rated Baa
to have speculative characteristics) or BBB or higher by S&P or rated similarly by another NRSRO or, if unrated, judged to
be of equivalent quality as determined by the Adviser or Subadviser, as applicable. If the independent ratings agencies assign
different ratings to the same security, the Fund will use the higher rating for purposes of determining the security’s credit
quality. Subject to the foregoing limitations, the Fund may invest in securities receiving the lowest ratings from the NRSROs,
including securities rated C by Moody’s or D- by S&P, which indicates that the security is in default or has little prospect
for full recovery of principal or interest. See “Risks—Investment-Related Risks—Credit and Below Investment Grade
Securities Risk.”
Under normal market
conditions, the Fund, or the Underlying Funds in which the Fund invests, will invest at least 50% of its Managed Assets, directly
or indirectly, in investment grade Municipal Bonds.
“Managed Assets”
means the total assets of the Fund, including assets attributable to leverage, minus liabilities (other than debt representing
leverage and any preferred stock that may be outstanding). Such assets attributable to leverage include the portion of assets in
tender option bond trusts of which the Fund owns TOB Residuals (as defined below) that has been effectively financed by the trust’s
issuance of TOB Floaters (as defined below). See “Use of Leverage—Tender Option Bonds.”
Other Investments.
The Fund may invest, directly or indirectly, up to 20% of its Managed Assets in taxable municipal securities. Any portion of
the Fund’s assets invested in taxable municipal securities will not count toward the 35%-75% of the Fund’s assets allocated
to Municipal Bonds.
The Fund may at times
establish hedging positions, which may include short sales and derivatives, such as options, futures and swaps (“Hedging
Positions”). Such Hedging Positions may be used to attempt to protect against possible changes in the value of securities
held in or to be purchased for the Fund’s portfolio and to manage the effective maturity or duration of the Fund’s
portfolio. The Fund’s Hedging Positions may, however, result in income or gain to the Fund that is not exempt from regular
U.S. federal income taxes. See “Risks—Investment-Related Risks—Derivatives Risks” and “Risks—Investment-Related
Risks—Options and Futures Risks.” See also “Risks—Investment-Related Risks—Legislation and Regulatory
Risks” for forthcoming changes that may impact the Fund’s use of derivatives and other transactions, including short
sales.
A short sale is a transaction
in which the Fund sells a security that it does not own in anticipation of a decline in the market price of the security. The Fund
may benefit from a short position when the shorted security decreases in value by more than the cost of the transaction but will
suffer a loss on a short sale if the security’s value does not decline or increases. The Fund will not engage in any short
sales of securities issued by closed-end funds. See “Investment Objectives, Strategies and Policies—Principal Investment
Strategies—Other Investments” and “Risks—Investment-Related Risks—Short Sale Risks.”
The Fund also may attempt
to enhance the return on the cash portion of its portfolio by investing in total return swap agreements. A total return swap agreement
provides the Fund with a return based on the performance of an underlying asset, in exchange for fee payments to a counterparty
based on a specific rate. The difference in the value of these income streams is recorded daily by the Fund, and is typically settled
in cash at least monthly. If the underlying asset declines in value over the term of the swap, the Fund would be required to pay
the dollar value of that decline plus any applicable fees to the counterparty. The Fund may use its own NAV or any other reference
asset that the Adviser or Subadviser chooses as the underlying asset in a total return swap. The Fund will limit the notional amount
of all total return swaps in the aggregate to 15% of the Fund’s Managed Assets. See “Risks—Investment-Related
Risks—Swap Risks.” See also “Risks—Investment-Related Risks—Legislation and Regulatory Risks”
for forthcoming changes that may impact the Fund’s use of derivatives, including swaps.
In addition to the
foregoing principal investment strategies of the Fund, the Adviser also may allocate the Fund’s Managed Assets among cash
and short-term investments. See “Investment Policies and Techniques—Temporary Investments and Defensive Position”
in the SAI. There are no limits on the Fund’s portfolio turnover, and the Fund may buy and sell securities to take advantage
of potential short-term trading opportunities without regard to length of time and when the Adviser or Subadviser believes investment
considerations warrant such action. High portfolio turnover may result in the realization of net short-term capital gains by the
Fund which, when distributed to holders of the Common Shares (the “Common Shareholders”), will be taxable as ordinary
income. In addition, a higher portfolio turnover rate results in correspondingly greater brokerage commissions and other transactional
expenses that are borne by the Fund. See “Risks—Structural Risks—Portfolio Turnover Risk.”
All percentage limitations
described in this Prospectus are measured at the time of investment and may be exceeded on a going-forward basis as a result of
credit rating downgrades or market value fluctuations of the Fund’s portfolio securities. Unless otherwise specified herein,
the Fund may count its holdings in Underlying Funds towards various guideline tests, including the 80% policy so long as the earnings
on the underlying holdings of such Underlying Funds are exempt from regular U.S. federal income taxes (but which may be includable
in taxable income for purposes of the Federal alternative minimum tax).
Unless otherwise specified,
the investment policies and limitations of the Fund are not considered to be fundamental by the Fund and can be changed without
a vote of the Common Shareholders. The Fund’s primary investment objective, 80% policy and certain investment restrictions
specifically identified as such in the SAI are considered fundamental and may not be changed without the approval of the holders
of a majority of the outstanding voting securities of the Fund, as defined in the 1940 Act, which includes Common Shares and Preferred
Shares, if any, voting together as a single class, and the holders of the outstanding Preferred Shares, if any, voting as a single
class. See “Investment Restrictions” in the SAI.
Portfolio Composition
Set forth below is
a description of the various types of Municipal Bonds in which the Fund may invest. See “Risks—Investment-Related Risks—Municipal
Bond Risks” for a discussion of the risks associated with the Fund’s investments in Municipal Bonds. Obligations are
included within the term “Municipal Bonds” if the interest paid thereon is excluded from gross income for U.S. federal
income tax purposes in the opinion of bond counsel to the issuer. See also “Use of Leverage—Tender Option Bonds.”
Municipal Bonds are
either general obligation or revenue bonds and typically are issued to finance public projects, such as roads or public buildings,
to pay general operating expenses or to refinance outstanding debt. Municipal Bonds may also be issued for private activities,
such as housing, medical and educational facility construction or for privately owned industrial development and pollution control
projects. General obligation bonds are backed by the full faith and credit and taxing authority of the issuer and may be repaid
from any revenue source. Revenue bonds may be repaid only from the revenues of a specific facility or source. The Fund also may
purchase Municipal Bonds that represent lease obligations. These carry special risks because the issuer of the bonds may not be
obligated to appropriate money annually to make payments under the lease. See “Risks—Investment-Related Risks—Municipal
Bond Risks.”
The Municipal Bonds
in which the Fund primarily invests pay interest or income that, in the opinion of bond counsel to the issuer, is exempt from regular
U.S. federal income tax. The Adviser and the Subadviser will not conduct their own analysis of the tax status of the interest paid
by Municipal Bonds held by the Fund, but will rely on the opinion of counsel to the issuer of each such instrument. The Fund may
also invest in Municipal Bonds issued by United States Territories (such as Puerto Rico or Guam) that are exempt from regular U.S.
federal income tax. See “Risks—Investment-Related Risks—Puerto Rico Municipal Bond Risks.” In addition,
the Fund may invest in other securities that pay interest or income that is, or make other distributions that are, exempt from
regular U.S. federal income tax and/or state and local taxes, regardless of the technical structure of the issuer of the instrument.
The Fund treats all of such tax-exempt securities as Municipal Bonds.
The yields on Municipal
Bonds are dependent on a variety of factors, including prevailing interest rates and the condition of the general money market
and the municipal bond market, the size of a particular offering, the maturity of the obligation and the rating of the issuer.
The market value of Municipal Bonds will vary with changes in interest rate levels and as a result of changing evaluations of the
ability of bond issuers to meet interest and principal payments.
General Obligation
Bonds. General obligation bonds are backed by the issuer’s full faith and credit and taxing authority for the payment
of principal and interest. The taxing authority of any governmental entity may be limited, however, by provisions of its state
constitution or laws, and an entity’s creditworthiness will depend on many factors, including potential erosion of its tax
base due to population declines, natural disasters, declines in the state’s industrial base or inability to attract new industries,
economic limits on the ability to tax without eroding the tax base, state legislative proposals or voter initiatives to limit ad
valorem real property taxes (i.e., taxes based upon an assessed value of the property) and the extent to which the entity
relies on federal or state aid, access to capital markets or other factors beyond the state’s or entity’s control.
Accordingly, the capacity of the issuer of a general obligation bond as to the timely payment of interest and the repayment of
principal when due is affected by the issuer’s maintenance of its tax base.
Revenue Bonds. Revenue
bonds are payable only from the revenues derived from a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise tax or other specific revenue sources such as payments from the user of the facility being financed.
Accordingly, the timely payment of interest and the repayment of principal in accordance with the terms of the revenue or special
obligation bond is a function of the economic viability of such facility or such revenue source.
Private Activity
Bonds. Private activity bonds are issued by or on behalf of public authorities to obtain funds to provide privately operated
housing facilities, airport, mass transit or port facilities, sewage disposal, solid waste disposal or hazardous waste treatment
or disposal facilities and certain local facilities for water supply, gas or electricity. Other types of private activity bonds,
the proceeds of which are used for the construction, equipping, repair or improvement of privately operated industrial or commercial
facilities, may constitute Municipal Bonds, although the current U.S. federal income tax laws place substantial limitations on
the size of such issues.
Private activity bonds
are secured primarily by revenues derived from loan repayments or lease payments due from the entity, which may or may not be guaranteed
by a parent company or otherwise secured. Private activity bonds generally are not secured by a pledge of the taxing power of the
issuer of such bonds. Therefore, an investor should be aware that repayment of such bonds generally depends on the revenues of
a private entity and be aware of the risks that such an investment may entail. Continued ability of an entity to generate sufficient
revenues for the payment of principal and interest on such bonds will be affected by many factors including the size of the entity,
capital structure, demand for its products or services, competition, general economic conditions, government regulation and the
entity’s dependence on revenues for the operation of the particular facility being financed. The Fund expects that, due to
investments in private activity bonds, a portion of the distributions it makes on the Common Shares will be includable in the federal
alternative minimum taxable income.
Moral Obligation
Bonds. The Fund also may invest in “moral obligation” bonds, which are normally issued by special purpose public
authorities. If an issuer of moral obligation bonds is unable to meet its obligations, the repayment of such bonds becomes a moral
commitment but not a legal obligation of the state or municipality in question.
Municipal Lease
Obligations and Certificates of Participation. Also included within the general category of Municipal Bonds are participations
in lease obligations or installment purchase contract obligations of municipal authorities or entities (hereinafter collectively
called “Municipal Lease Obligations”). Although a Municipal Lease Obligation does not constitute a general obligation
of the municipality for which the municipality’s taxing power is pledged, a Municipal Lease Obligation is ordinarily backed
by the municipality’s covenant to budget for, appropriate and make the payments due under the Municipal Lease Obligation.
However, certain Municipal Lease Obligations contain “non-appropriation” clauses which provide that the municipality
has no obligation to make lease or installment purchase payments in future years unless money is appropriated for such purpose
on a yearly basis. In the case of a “non-appropriation” lease, a Fund’s ability to recover under the lease in
the event of non-appropriation or default will be limited solely to the repossession of the leased property, without recourse to
the general credit of the lessee, and the disposition or re-leasing of the property might prove difficult. A certificate of participation
represents an undivided interest in an unmanaged pool of municipal leases, an installment purchase agreement or other instruments.
The certificates are typically issued by a municipal agency, a trust or other entity that has received an assignment of the payments
to be made by the state or political subdivision under such leases or installment purchase agreements. In addition, such participations
generally provide the Fund with the right to demand payment, on not more than seven days’ notice, of all or any part of the
Fund’s participation interest in the underlying leases, plus accrued interest.
Tobacco Settlement
Bonds. Included in the general category of Municipal Bonds in which the Fund may invest are “tobacco settlement bonds.”
The Fund may invest in tobacco settlement bonds, which are municipal securities that are backed solely by expected revenues to
be derived from lawsuits involving tobacco related deaths and illnesses which were settled between certain states and American
tobacco companies. Tobacco settlement bonds are secured by an issuing state’s proportionate share in the Master Settlement
Agreement (“MSA”). The MSA is an agreement, reached out of court in November 1998 between 46 states and nearly all
of the U.S. tobacco manufacturers. The MSA provides for annual payments in perpetuity by the manufacturers to the states in exchange
for releasing all claims against the manufacturers and a pledge of no further litigation. Tobacco manufacturers pay into a master
escrow trust based on their market share, and each state receives a fixed percentage of the payment as set forth in the MSA. A
number of states have securitized the future flow of those payments by selling bonds pursuant to indentures or through distinct
governmental entities created for such purpose. The principal and interest payments on the bonds are backed by the future revenue
flow related to the MSA. Annual payments on the bonds, and thus risk to the Fund, are highly dependent on the receipt of future
settlement payments to the state or its governmental entity. See “Risks—Investment-Related Risks—Tobacco Settlement
Bond Risks.”
Zero Coupon Bonds.
The Fund may invest in zero-coupon bonds. A zero coupon bond is a bond that does not pay interest either for the entire life
of the obligation or for an initial period after the issuance of the obligation. When held to its maturity, its return comes from
the difference between the purchase price and its maturity value. A zero coupon bond is normally issued and traded at a deep discount
from face value. Zero coupon bonds allow an issuer to avoid or delay the need to generate cash to meet current interest payments
and, as a result, may involve greater credit risk than bonds that pay interest currently or in cash. The market prices of zero
coupon bonds are affected to a greater extent by changes in prevailing levels of interest rates and thereby tend to be more volatile
in price than securities that pay interest periodically. In addition, the Fund would be required to distribute the income on any
of these instruments as it accrues, even though the Fund will not receive all of the income on a current basis or in cash. Thus,
the Fund may have to sell other investments, including when it may not be advisable to do so, to make income distributions to its
common shareholders.
INVESTMENT PHILOSOPHY AND PROCESS
The Adviser allocates
the Fund’s assets among the Tactical Municipal Closed-End Fund Strategy and the Municipal Bond Income Strategy (as described
above). The amount allocated to each of the principal strategies may change depending on the Adviser’s assessment of market
risk, security valuations, market volatility, and the prospects for earning income and capital appreciation. See “Risks—Structural
Risks—Multi-Manager Risk.”
Tactical Municipal
Closed-End Fund Strategy. The Adviser considers a number of factors when selecting Underlying Funds, including fundamental
and technical analysis to assess the relative risk and reward potential throughout the financial markets. The term “tactical”
is used to indicate that the portion of the Fund’s Managed Assets allocated to this strategy that invests in closed-end funds
to take advantage of pricing discrepancies in the closed-end fund market.
In selecting closed-end
funds, the Adviser opportunistically utilizes a combination of short-term and longer-term trading strategies to seek to derive
value from the discount and premium spreads associated with closed-end funds by identifying pricing aberrations. The Adviser employs
both a quantitative and qualitative approach in its selection of closed-end funds and has developed proprietary screening models
and algorithms to trade closed-end funds. The Adviser’s mean reversion investing looks to capitalize on changes within the
pricing of a closed-end fund and, based upon its research and analysis, a view that it will revert to historical pricing. The Adviser
employs the following trading strategies, among others:
Statistical Analysis
(Mean Reversion)
|
● |
Using proprietary quantitative models, the Adviser seeks to identify closed-end funds that are trading at compelling absolute and/or relative discounts. |
|
● |
The Adviser will attempt to capitalize on the perceived mispricing if the Adviser believes that the discount widening is irrational and expects the discount to narrow to longer-term mean valuations. |
Corporate Actions
|
● |
The Adviser pursues investments in closed-end funds that have announced, or the Adviser believes are likely to announce, certain corporate actions that may drive value for their shareholders. |
|
● |
The Adviser has developed trading strategies that focus on closed-end fund tender offers, rights offerings, shareholder distributions, open-endings and liquidations. |
Shareholder Activism
|
● |
The Adviser assessed activism opportunities by determining a closed-end fund’s susceptibility to dissident activity and analyzing the composition of the fund’s shareholder register. The Fund, in seeking to achieve its investment objectives, will not take activist positions in the Underlying Funds. |
In employing its trading
strategies, the Adviser conducts an extensive amount of due diligence on various fund sponsors, investment managers and funds,
including actively monitoring regulatory filings, analyzing a fund’s registration statements, financial statements and organizational
documents, as well as conducting proprietary research, such as speaking with fund sponsors, underwriters, sell-side brokers and
investors.
Municipal Bond Income
Strategy. The Subadviser believes inefficiencies exist in the tax-exempt and tax-advantaged securities markets. In order to
capitalize on these opportunities, the Subadviser applies both a top-down and bottom-up research investment process. The Subadviser’s
top-down analysis considers the economic, interest rate, inflation outlook and other economic variables to guide overall portfolio
structure. The Subadviser employs a value-oriented security selection process to invest in securities it believes to be mispriced
which offer a yield advantage. In choosing investments, the Subadviser analyzes the credit quality of issuers and considers the
yields available on municipal bonds with different maturities. In addition, the Subadviser reviews macroeconomic events, technical
characteristics in the municipal bond market, tax policies, as well as analyzing individual municipal securities and sectors. The
Subadviser seeks to reduce volatility through its disciplined investment process and investment risk management.
The Subadviser may
sell a security if it no longer believes the security will contribute to meeting the investment objectives of the Fund. In considering
whether to sell a security, the Subadviser may evaluate, among other things, the condition of the economy and meaningful changes
in the issuer’s financial condition.
USE OF LEVERAGE
The Fund may borrow
money and/or issue Preferred Shares, notes or debt securities for investment purposes. These practices are known as leveraging.
In addition, the Fund may enter into derivative and other transactions that have the effect of leverage. Such other transactions
may include tender option bond transactions (as described herein). The Adviser will determine whether or not to engage in leverage
based on its assessment of conditions in the debt and credit markets. As of the time immediately after it enters into any of the
foregoing transactions, the Fund will seek to limit its overall effective leverage to 45% of its Managed Assets. The Fund currently
anticipates that leverage will initially be obtained through borrowings from banks or other financial institutions and the use
of proceeds received from tender option bond transactions. See “—Tender Option Bonds” below. The Fund does not
anticipate that it will issue Preferred Shares within 12 months of the date of this Prospectus.
Under the 1940 Act,
the Fund is not permitted to incur indebtedness unless immediately after doing so 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 including the amount borrowed). Additionally, under the 1940 Act, the Fund may 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, asset coverage
of at least 300% after deducting the amount of such dividend, distribution, or purchase price, as the case may be. Under the 1940
Act, the Fund is not permitted to issue Preferred Shares unless immediately after such issuance the total asset value of the Fund’s
portfolio is at least 200% of the liquidation value of the outstanding Preferred Shares (i.e., such liquidation value may
not exceed 50% of the Fund’s Managed Assets). In addition, the Fund is not permitted to declare any cash dividend or other
distribution on its Common Shares unless, at the time of such declaration, the NAV of the Fund’s portfolio (determined after
deducting the amount of such dividend or other distribution) is at least 200% of such liquidation value of the Preferred Shares.
However, certain short-term borrowings (such as for cash management purposes) are not subject to the 33 1/3% limitation if (i)
repaid within 60 days, (ii) not extended or renewed and (iii) not in excess of 5% of the total assets of the Fund. Normally, holders
of Common Shares will elect the directors of the Fund except that the holders of any Preferred Shares will elect two directors.
In the event the Fund failed to pay dividends on its Preferred Shares for two years, holders of Preferred Shares would be entitled
to elect a majority of the directors until the dividends are paid.
The Fund may be subject
to certain restrictions on investments imposed by lenders or by one or more rating agencies that may issue ratings for any senior
securities issued by the Fund. Borrowing covenants or rating agency guidelines may impose asset coverage or Fund composition requirements
that are more stringent than those imposed on the Fund by the 1940 Act. Since the holders of common stock pay all expenses related
to the use of leverage, such use of leverage would create a greater risk of loss for the Fund’s Common Shares than if leverage
is not used. See “Risks—Structural Risks—Leverage Risks.”
The Fund may enter
into derivatives or other transactions (e.g., total return swaps) that may provide leverage (other than through borrowings
or the issuance of Preferred Shares), but which are not subject to the above noted limitations under the 1940 Act if the Fund earmarks
or segregates liquid assets (or enters into offsetting positions) in accordance with applicable SEC regulations and interpretations
to cover its obligations under those transactions and instruments. However, pursuant to a rule recently adopted by the SEC, the
Fund will become subject to new regulations that govern the use of such derivatives and other transactions during the third quarter
of 2022. Once implemented, the new SEC rule will impose, among other things, new limits on the amount of derivatives and other
transactions that a fund can enter into and eliminate the asset segregation framework that the Fund initially intends to use to
comply with Section 18 of the 1940 Act. See “Risks—Investment-Related Risks—Legislation and Regulatory Risks.”
These transactions
will entail additional expenses (e.g., transaction costs) which will be borne by the Fund. These types of transactions have
the potential to increase returns to Common Shareholders, but they also involve additional risks. This additional leverage will
increase the volatility of the Fund’s investment portfolio and could result in larger losses than if the transactions were
not entered into. See “Risks—Investment-Related Risks—Derivatives Risks.”
Tender Option Bonds.
The Fund may leverage its assets through the use of proceeds received from tender option bond transactions. In a tender option
bond transaction, a tender option bond trust (a “TOB Issuer”) is typically established by forming a special purpose
trust into which the Fund, or an agent on behalf of the Fund, transfers Municipal Bonds or other municipal securities. A TOB Issuer
typically issues two classes of beneficial interests: short-term floating rate notes (“TOB Floaters”), which are sold
to third party investors, and residual interest municipal tender option bonds (“TOB Residuals”), which are generally
issued to the Fund. The Fund may invest in both TOB Floaters and TOB Residuals, including TOB Floaters and TOB Residuals issued
by the same TOB Issuer. The Fund may not invest more than 5% of its Managed Assets in any single TOB Issuer. The Fund does not
currently intend to invest in TOB Residuals issued by a TOB Issuer that was not formed for the Fund, although it reserves the right
to do so in the future.
The TOB Issuer receives
Municipal Bonds or other municipal securities and then issues TOB Floaters to third party investors and a TOB Residual to the Fund.
The Fund is paid the cash (less transaction expenses, which are borne by the Fund and therefore the holders of the Common Shares
indirectly) received by the TOB Issuer from the sale of the TOB Floaters and typically will invest the cash in additional Municipal
Bonds or other investments permitted by its investment policies. TOB Floaters may have first priority on the cash flow from the
securities held by the TOB Issuer and are enhanced with a liquidity support arrangement from a third-party bank or other financial
institution (the “liquidity provider”), which allows holders to tender their position at par (plus accrued interest).
The Fund, in addition to receiving cash from the sale of the TOB Floaters, also receives the TOB Residual. The TOB Residual provides
the Fund with the right to (1) cause the holders of the TOB Floaters to tender their notes to the TOB Issuer at par (plus accrued
interest), and (2) acquire the underlying Municipal Bonds or other municipal securities from the TOB Issuer. In addition, all voting
rights and decisions to be made with respect to any other rights relating to the underlying securities deposited in the TOB Issuer
are passed through to the Fund, as the holder of the TOB Residual. Such a transaction, in effect, creates exposure for the Fund
to the entire return of the securities deposited in the TOB Issuer, with a net cash investment by the Fund that is less than the
value of the underlying securities deposited in the TOB Issuer. This multiplies the positive or negative impact of the underlying
securities’ return within the Fund (thereby creating leverage).
The TOB Issuer may
be terminated without the consent of the Fund upon the occurrence of certain events, such as the bankruptcy or default of the issuer
of the underlying securities deposited in the TOB Issuer, a substantial downgrade in the credit quality of the issuer of the securities
deposited in the TOB Issuer, the inability of the TOB Issuer to obtain liquidity support for the TOB Floaters, a substantial decline
in the market value of the underlying securities deposited in the TOB Issuer, or the inability of the sponsor or remarketing agent
to remarket any TOB Floaters tendered by holders of the TOB Floaters. In such an event, the TOB Floaters would be redeemed by the
TOB Issuer at par (plus accrued interest) out of the proceeds from a sale of the underlying securities deposited in the TOB Issuer.
If this happens, the Fund would be entitled to the assets of the TOB Issuer, if any, that remain after the TOB Floaters have been
redeemed at par (plus accrued interest). If there are insufficient proceeds from the sale of these securities to redeem all of
the TOB Floaters at par (plus accrued interest), the liquidity provider or holders of the TOB Floaters would bear the losses on
those securities and there would be no recourse to the Fund’s assets (unless the Fund held a recourse TOB Residual). A recourse
TOB Residual is generally a TOB Residual issued by a TOB Issuer in which the TOB Floaters represent greater than 75% of the market
value of the securities at the time they are deposited in the TOB Issuer. If the Fund were to invest in a recourse TOB Residual
to leverage its portfolio, it would typically be required to enter into an agreement pursuant to which the Fund is required to
pay to the liquidity provider the difference between the purchase price of any TOB Floaters put to the liquidity provider by holders
of the TOB Floaters and the proceeds realized from the remarketing of those TOB Floaters or the sale of the assets in the TOB Issuer.
The Fund currently does not intend to use recourse TOB Residuals to leverage the Fund’s portfolio, but reserves the right
to do so depending on future market conditions.
Under accounting rules,
securities of the Fund that are deposited into a TOB Issuer are treated as investments of the Fund, and are presented on the Fund’s
Schedule of Investments and outstanding TOB Floaters issued by a TOB Issuer are presented as liabilities in the Fund’s Statement
of Assets and Liabilities. Interest income from the underlying security is recorded by the Fund on an accrual basis. Interest expense
incurred on the TOB Floaters and other expenses related to remarketing, administration and trustee services to a TOB Issuer are
reported as expenses of the Fund.
For TOB Floaters, generally,
the interest rate earned will be based upon the market rates for Municipal Bonds with maturities or remarketing provisions that
are comparable in duration to the periodic interval of the tender option, which may vary from weekly, to monthly, to extended periods
of one year or multiple years. Since the option feature has a shorter term than the final maturity or first call date of the underlying
securities deposited in the TOB Issuer, the Fund, if it is the holder of the TOB Floaters, relies upon the terms of the agreement
with the financial institution furnishing the option as well as the credit strength of that institution. As further assurance of
liquidity, the terms of the TOB Issuer provide for a liquidation of the Municipal Bond deposited in the TOB Issuer and the application
of the proceeds to pay off the TOB Floaters.
There are inherent
risks with respect to investing in a TOB Issuer. These risks include, among others, the bankruptcy or default of the issuer of
the securities deposited in the TOB Issuer, a substantial downgrade in the credit quality of the issuer of the securities deposited
in the TOB Issuer, the inability of the TOB Issuer to obtain liquidity support for the TOB Floaters, a substantial decline in the
market value of the securities deposited in the TOB Issuer, or the inability of the sponsor or remarketing agent to remarket any
TOB Floaters tendered by holders of the TOB Floaters. See “Risks—Investment-Related Risks—Tender Option Bonds
Risk.”
Effects of Leverage.
Assuming the use of leverage in the amount of 35% of the Fund’s Managed Assets and an annual interest rate on leverage
of 1.48% payable on such leverage based on estimated market interest rates as of the date anticipated for the initial use of leverage,
the additional income that the Fund must earn (net of estimated expenses related to leverage) in order to cover such interest payments
is 0.80%. The Fund’s actual cost of leverage will be based on market interest rates at the time the Fund undertakes a leveraging
strategy and such actual cost of leverage may be higher or lower than that assumed in the previous example.
The following table
is furnished in response to requirements of the SEC. It is designed to illustrate the effect of leverage on total return on Common
Shares, assuming investment portfolio total returns (comprised of income, net expenses and changes in the value of investments
held in the Fund’s portfolio) of -10%, -5%, 0%, 5% and 10%. These assumed investment portfolio returns are hypothetical figures
and are not necessarily indicative of what the Fund’s investment portfolio returns will be. In other words, the Fund’s
actual returns may be greater or less than those appearing in the table below. The table further reflects the use of leverage representing
approximately 35% of the Fund’s Managed Assets after such issuance and the Fund’s currently projected annual interest
rate of 1.48%. See “Risks—Structural Risks—Leverage Risks.” The table does not reflect any offering costs
of Common Shares or leverage.
Assumed Portfolio Return
(Net of Expenses) |
-10.00% |
-5.00% |
0.00% |
5.00% |
10.00% |
Common Share Total Return |
-16.18% |
-8.49% |
-0.80% |
6.90% |
14.59% |
Total return is composed
of two elements—the dividends on Common Shares paid by the Fund (the amount of which is largely determined by the Fund’s
net investment income after paying the cost of leverage) and realized and unrealized gains or losses on the value of the securities
the Fund owns. As the table shows, leverage generally increases the return to Common Shareholders when portfolio return is positive
or greater than the costs of leverage and decreases return when the portfolio return is negative or less than the costs of leverage.
During the time in
which the Fund is using leverage, the amount of the fees paid to the Adviser (and from the Adviser to the Subadviser) for investment
management services (and subadvisory services) will be higher than if the Fund did not use leverage because the fees paid will
be calculated based on the Fund’s Managed Assets. This may create a conflict of interest between the Adviser and the Subadviser,
on the one hand, and the holders of Common Shares, on the other. Also, because the leverage costs will be borne by the Fund at
a specified interest rate, only the Fund’s Common Shareholders will bear the cost of the Fund’s management fees and
other expenses. There can be no assurance that a leveraging strategy will be successful during any period in which it is employed.
RISKS
Investing in any investment
company security involves risk, including the risk that you may receive little or no return on your investment or even that you
may lose part or all of your investment. This section discusses the principal risk factors associated with an investment in the
Fund specifically, as well as those factors generally associated with an investment in a company with investment objectives, investment
policies, capital structure or trading markets similar to the Fund. Investors should consider the following risk factors and special
considerations as well as the other information in this Prospectus prior to investing in the Fund’s Securities.
Investment-Related Risks:
With the exception
of Underlying Fund risk (and except as otherwise noted below), the following risks apply to the direct investments the Fund may
make, and generally apply to the Fund’s investments in Underlying Funds. That said, each risk described below may not apply
to each Underlying Fund.
Investment and Market Risks
An investment in Common
Shares is subject to investment risk, including the possible loss of the entire principal amount invested. An investment in Common
Shares represents an indirect investment in the Underlying Funds owned by the Fund. The value of the Fund or the Underlying Funds,
like other market investments, may move up or down, sometimes rapidly and unpredictably. Overall stock market risks may also affect
the NAV of the Fund or the Underlying Funds. Factors such as economic growth and market conditions, interest rate levels and political
events affect the securities markets. The Common Shares at any point in time may be worth less than the original investment, even
after taking into account any reinvestment of dividends and distributions.
Management Risks
The Adviser’s
and the Subadviser’s judgments about the attractiveness, value and potential appreciation of a particular asset class or
individual security in which the Fund invests may prove to be incorrect and there is no guarantee that the Adviser’s or the
Subadviser’s judgment, as applicable, will produce the desired results. Similarly, the Fund’s investments in Underlying
Funds are subject to the judgment of the Underlying Funds’ managers which may prove to be incorrect. In addition, the Adviser
and Subadviser will have limited information as to the portfolio holdings of the Underlying Funds at any given time. This may result
in the Adviser and Subadviser having less ability to respond to changing market conditions. The Fund may allocate its assets so
as to under-emphasize or over-emphasize its investments under the wrong market conditions, in which case the Fund’s NAV may
be adversely affected.
In addition, the Fund
depends on the diligence, skill and business contacts of the investment professionals of the Adviser and the Subadviser to achieve
the Fund’s investment objectives. In particular, the Adviser and Subadviser are dependent upon the expertise of their respective
portfolio management teams to implement the Fund’s strategies. If the Adviser or the Subadviser were to lose the services
of one or more key individuals, including members of their portfolio management teams, each may not be able to hire qualified replacements
or may require an extended time to do so. This could prevent the Fund from achieving its investment objectives and could have an
adverse effect on an investment in the Fund.
The Fund is the seventh
closed-end fund to be managed by the Adviser and the sixth closed-end fund to be managed by the Subadviser. The Adviser and the
Subadviser each manage several registered open-end funds, and the portfolio managers have previous experience managing closed-end
funds. As with any managed fund, the Adviser and Subadviser may not be successful in selecting the best performing securities,
leverage strategy or investment techniques, and the Fund’s performance may lag behind that of similar funds as a result.
Securities Risks
The value of the Fund
or an Underlying Fund may decrease in response to the activities and financial prospects of individual securities in the fund’s
portfolio.
Municipal Bond Risks
Economic exposure to
Municipal Bonds involves certain risks. The Fund’s economic exposure to Municipal Bonds includes Municipal Bonds in the Fund’s
portfolio and Municipal Bonds to which the Fund is exposed through Underlying Funds and the ownership of TOB Residuals. The municipal
market is one in which dealer firms make markets in bonds on a principal basis using their proprietary capital, and at times these
firms’ capital may be severely constrained. In such event, some firms may be unwilling to commit their capital to purchase
and to serve as a dealer for Municipal Bonds. Municipal Bonds typically are not registered with the SEC or any state securities
commission and will not be listed on any national securities exchange. The amount of public information available about the Municipal
Bonds to which the Fund is economically exposed 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 abilities of the Adviser and the Subadviser than would
be a stock fund or taxable bond fund. The secondary market for Municipal Bonds, particularly non-investment grade bonds, also tends
to be less well-developed or liquid than many other securities markets, which may adversely affect the ability to sell such bonds
at attractive prices or at prices approximating those at which the Fund and Underlying Funds 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. The current
COVID-19 pandemic has significantly stressed the financial resources of many municipalities and other issuers of municipal securities,
which may impair their ability to meet their financial obligations and may harm the value or liquidity of the Fund’s investments
in municipal securities. In particular, responses by municipalities to the COVID-19 pandemic have caused disruptions in business
activities. These and other effects of the COVID-19 pandemic, such as increased unemployment levels, have impacted tax and other
revenues of municipalities and other issuers of municipal securities and the financial conditions of such issuers. As a result,
there is increased budgetary and financial pressure on municipalities and heightened risk of default or other adverse credit or
similar events for issuers of municipal securities, which would adversely impact the Fund’s investments. See “—Market
Disruption, Geopolitical, Pandemic and Climate Change Risks.” In addition, the taxing power of any governmental entity may
be limited by provisions of state constitutions or other laws, and an entity’s credit generally will depend on many factors,
including the entity’s tax base, the extent to which the entity relies on Federal or state aid, and other factors which are
beyond the entity’s control. In addition, laws enacted in the future by Congress or state legislatures or referenda could
extend the time for payment of principal and/or interest, or impose other constraints on enforcement of such obligations, or on
the ability of municipalities to levy taxes or could limit the tax exemption of certain types of Municipal Bonds that the Fund
and Underlying Funds may invest in. Issuers of Municipal Bonds might seek protection under the bankruptcy laws. In the event of
bankruptcy of such an issuer, holders of Municipal Bonds could experience delays in collecting principal and interest and such
holders may not, in all circumstances, be able to collect all principal and interest to which they are entitled. To enforce its
rights in the event of a default in the payment of interest or repayment of principal, or both, the Fund may, in certain circumstances,
take possession of and manage the assets securing the issuer’s obligations on such securities, which may increase the Fund’s
operating expenses. Any income derived from the Fund’s ownership or operation of such assets may not be tax-exempt.
General obligation
bonds are obligations involving the credit of an issuer possessing taxing power and are payable from such issuer’s general
revenues and not from any particular source. Timely payments depend on the issuer’s credit quality, ability to raise tax
revenues and the ability to maintain an adequate tax base. The timely payments may also be influenced by any unfunded pension liabilities
or other post-employee benefit plan liabilities.
Revenue bonds involve
special risks, including that the underlying facilities may not generate sufficient income to pay expenses and interest costs.
In the case of revenue bonds issued by state and local agencies to finance the development of low-income, multi-family housing,
such bonds are generally non-recourse against the property owner, may be junior to the rights of others with an interest in the
properties, may pay interest that changes based in part on the financial performance of the property, may be prepayable without
penalty and may be used to finance the construction of housing developments which, until completed and rented, do not generate
income to pay interest. Increases in interest rates payable on senior obligations may make it more difficult for issuers to meet
payment obligations on subordinated bonds.
The Fund may be more
sensitive to adverse economic, business or political developments if it invests a substantial portion of its assets in the bonds
of specific projects (such as those relating to education, health care, housing, transportation, and utilities), industrial development
bonds, or general obligation bonds, particularly if there is a large concentration from issuers in a single state. This is because
the value of Municipal Bonds can be significantly affected by the political, economic, legal, and legislative realities of the
particular issuer’s locality or municipal sector events. Similarly, changes to state or federal regulation tied to a specific
sector, such as the hospital sector, could have an impact on the revenue stream for a given subset of the market.
Municipal leases and
certificates of participation involve special risks not normally associated with general obligation or revenue bonds. Leases and
installment purchase or conditional sale contracts (which normally provide for title to the leased asset to pass eventually to
the governmental issuer) have evolved as a means for governmental issuers to acquire property and equipment without meeting the
constitutional and statutory requirements for the issuance of debt. The debt issuance limitations are deemed to be inapplicable
because of the inclusion in many leases or contracts of “non-appropriation” clauses that relieve the governmental issuer
of any obligation to make future payments under the lease or contract unless money is appropriated for such purpose by the appropriate
legislative body on a yearly or other periodic basis. In addition, such leases or contracts may be subject to the temporary abatement
of payments in the event that the governmental issuer is prevented from maintaining occupancy of the lease premises or utilizing
the leased equipment. Although the obligations may be secured by the leased equipment or facilities, the disposition of the property
in the event of non-appropriation or foreclosure might prove difficult, time consuming and costly, and may result in a delay in
recovering or the failure to fully recover ownership of the assets.
Certificates of participation,
which represent interests in unmanaged pools of municipal leases or installment contracts, involve the same risks as the underlying
municipal leases. In addition, the Fund may be dependent upon the municipal authority issuing the certificate of participation
to exercise remedies with respect to the underlying securities. Certificates of participation also entail a risk of default or
bankruptcy, both of the issuer of the municipal lease and also the municipal agency issuing the certificate of participation.
Municipalities and
other public authorities issue private activity bonds to finance development of facilities for use by a private enterprise, which
is solely responsible for paying the principal and interest on the bond. Moral obligation bonds are generally issued by special
purpose public authorities of a state or municipality. If the issuer is unable to meet its obligations, repayment of these bonds
becomes a moral commitment, but not a legal obligation, of the state or municipality.
To be tax-exempt, Municipal
Bonds must meet certain regulatory requirements. If a Municipal Bond fails to meet such requirements, the interest received by
the Fund from its investment in such bonds and distributed to shareholders may be taxable. It is possible that interest on a Municipal
Bond may be declared taxable after the issuance of the bond, and this determination may apply retroactively to the date of the
issuance of the bond, which could cause a portion of prior distributions made by the Fund to be taxable to shareholders in the
year of receipt.
Municipal bonds are
also subject to interest rate, credit, and liquidity risk, which are discussed generally elsewhere in this section.
State Specific and Industry Risk
The Fund may not directly
invest more than 25% of its Managed Assets in Municipal Bonds in any one industry or in any one state of origin. However, the Fund’s
overall exposure to a single industry or a single state of origin may be greater after factoring in the investments of the Underlying
Funds, in which case the Fund may be more susceptible to adverse economic, political or regulatory occurrences affecting that particular
state or industry. For example, the Fund may invest, under normal market conditions, up to 35% of the Managed Assets allocated
to the Tactical Municipal Closed-End Fund Strategy in single state municipal closed-end funds and such investments could increase
the Fund’s overall exposure to a particular single state. To the extent that the Fund is aware of the investments held by
the Underlying Funds, the Fund will consider such information when determining compliance with its fundamental policy relating
to industry concentration as described in the SAI. See “Investment Restrictions” in the Fund’s SAI.
Puerto Rico Municipal Bond Risks
The Fund may invest
directly, without limit, in Puerto Rico Municipal Bonds, subject to the industry, issuer and below investment grade investment
restrictions under the Municipal Bond Income Strategy, as applicable. Municipal obligations issued by the Commonwealth of Puerto
Rico or its political subdivisions, agencies, instrumentalities, or public corporations may be affected by economic, market, political,
and social conditions in Puerto Rico. Puerto Rico currently is experiencing significant fiscal and economic challenges, including
substantial debt service obligations, high levels of unemployment, underfunded public retirement systems, and persistent government
budget deficits. These challenges may negatively affect the value of the Fund’s investments in Puerto Rico Municipal Bonds.
Major ratings agencies have downgraded the general obligation debt of Puerto Rico to below investment grade and continue to maintain
a negative outlook for this debt, which increases the likelihood that the rating will be lowered further. In both August 2015 and
January 2016, Puerto Rico defaulted on its debt by failing to make full payment due on its outstanding bonds, and there can be
no assurance that Puerto Rico will be able to satisfy its future debt obligations. Further downgrades or defaults may place additional
strain on the Puerto Rico economy and may negatively affect the value, liquidity, and volatility of the Fund’s investments
in Puerto Rico Municipal Bonds. Legislation could also impact the value of the Fund’s investments in Puerto Rico Municipal
Bonds.
These challenges and
uncertainties have been exacerbated by Hurricane Maria, and subsequent hurricanes and storms, and the resulting natural disaster
in Puerto Rico. In September 2017, Hurricane Maria struck Puerto Rico, causing major damage across the Commonwealth, including
damage to its water, power, and telecommunications infrastructure. The length of time needed to rebuild Puerto Rico’s infrastructure
is unclear, but could amount to years, during which the Commonwealth is likely to be in an even more uncertain economic state.
The full extent of the natural disaster’s impact on Puerto Rico’s economy and foreign investment in Puerto Rico is
difficult to estimate.
Tobacco Settlement Bond Risks
The Fund may invest
directly, without limit, in tobacco settlement bonds, subject to the industry, issuer and below investment grade investment restrictions
under the Municipal Bond Income Strategy, as applicable. Annual payments on tobacco settlement bonds, and thus risk to the Fund,
are highly dependent on the receipt of future settlement payments to the state or its governmental entity pursuant to the MSA.
The actual amount of future settlement payments is further dependent on many factors, including, but not limited to, annual domestic
cigarette shipments, reduced cigarette consumption, increased taxes on cigarettes, inflation, financial capability of tobacco companies,
continuing litigation and the possibility of tobacco manufacturer bankruptcy. The initial and annual payments made by the tobacco
companies will be adjusted based on a number of factors, the most important of which is domestic cigarette consumption. If the
volume of cigarettes shipped in the U.S. by manufacturers participating in the settlement decreases significantly, payments due
from them will also decrease. Demand for cigarettes in the U.S. could continue to decline due to price increases needed to recoup
the cost of payments by tobacco companies. Demand could also be affected by: anti-smoking campaigns, tax increases, reduced advertising,
enforcement of laws prohibiting sales to minors; elimination of certain sales venues such as vending machines; the spread of local
ordinances restricting smoking in public places, and competition from e-cigarettes. As a result, payments made by tobacco manufacturers
could be negatively impacted if the decrease in tobacco consumption is significantly greater than the forecasted decline. A market
share loss by the MSA companies to non-MSA participating tobacco manufacturers would cause a downward adjustment in the payment
amounts. A participating manufacturer filing for bankruptcy also could cause delays or reductions in bond payments. The MSA itself
has been subject to legal challenges and has, to date, withstood those challenges.
Credit and Below Investment Grade Securities Risks
Credit risk is the
risk that an issuer of a security may be unable or unwilling to make dividend, interest and principal payments when due and the
related risk that the value of a security may decline because of concerns about the issuer’s ability or willingness to make
such payments. Credit risk may be heightened for the Fund because it and the Underlying Funds may invest in below investment grade
securities, which are commonly referred to as “junk” and “high yield” securities; such securities, while
generally offering the potential for higher yields than investment grade securities with similar maturities, involve greater risks,
including the possibility of dividend or interest deferral, default or bankruptcy, and are regarded as predominantly speculative
with respect to the issuer’s capacity to pay dividends or interest and repay principal. The below investment grade securities
receiving the lowest rating from an NRSRO are typically already in default. In addition, below investment grade securities are
generally susceptible to decline in market value due to adverse economic and business developments and are often unsecured and
subordinated to other creditors of the issuer. The market values for below investment grade securities tend to be very volatile,
and these securities are generally less liquid than investment grade securities. Because of the substantial risks associated with
below investment grade securities, among other factors, you could lose money on your investment in Common Shares, both in the short
term and the long term. See “Investment Policies and Techniques—Below Investment Grade Securities” in the SAI
for additional discussion of below investment grade securities risks. See also “—Defaulted and Distressed Securities
Risk.”
Interest Rate Risk
Generally, when market
interest rates rise, bond prices fall, and vice versa. Interest rate risk is the risk that the municipal securities in the Fund’s
portfolio will decline in value because of increases in market interest rates. As interest rates decline, issuers of municipal
securities may prepay principal earlier than scheduled, forcing the Fund to reinvest in lower-yielding securities and potentially
reducing the Fund’s income. As interest rates increase, slower than expected principal payments may extend the average life
of securities, potentially locking in a below-market interest rate and reducing the Fund’s value. Currently, market interest
rates are near historically low levels. In typical market interest rate environments, the prices of longer-term municipal securities
generally fluctuate more than prices of shorter-term municipal securities as interest rates change.
To the extent the Fund
is primarily exposed to longer-term Municipal Bonds, the Common Share NAV and market price per Common Share will fluctuate more
in response to changes in market interest rates than if the Fund invested primarily in shorter-term Municipal Bonds.
In comparison to maturity
(which is the date on which a debt instrument ceases and the issuer is obligated to repay the principal amount), duration is a
measure of the price volatility of a debt instrument as a result of changes in market rates of interest, based on the weighted
average timing of the instrument’s expected principal and interest payments. Duration differs from maturity in that it considers
a security’s yield, coupon payments, principal payments and call features, in addition to the amount of time until the security
finally matures. As the value of a security changes over time, so will its duration. Prices of securities with longer durations
tend to be more sensitive to interest rate changes than securities with shorter durations. In general, a portfolio of securities
with a longer duration can be expected to be more sensitive to interest rate changes than a portfolio with a shorter duration.
For example, the price of a bond with an effective duration of two years will rise (fall) two percent for every one percent decrease
(increase) in its yield, and the price of a five-year duration bond will rise (fall) five percent for a one percent decrease (increase)
in its yield.
If increasing interest
rates slow principal payments and thus extend the average life of securities held by the Fund, this increase in duration will make
the Fund more sensitive to the effect of rising rates and may cause the principal value of the Fund’s holdings to decline
more than they would in the absence of such an increase in duration.
Yield curve risk is
the risk associated with either a flattening or steepening of the yield curve, which is a result of changing yields among comparable
bonds with different maturities. When market interest rates, or yields, increase, the price of a bond will decrease and vice versa.
When the yield curve shifts, the price of the bond, which was initially priced based on the initial yield curve, will change in
price. If the yield curve flattens, then the yield spread between long- and short-term interest rates narrows, and the price of
the bond will change accordingly. If the bond is short-term and the yield decreases, the price of this bond will increase. If the
yield curve steepens, this means that the spread between long- and short-term interest rates increases. Therefore, long-term bond
prices will decrease relative to short-term bonds. Changes in the yield curve are based on bond risk premiums and expectations
of future interest rates.
The Common Share NAV
and market price per Common Share will fluctuate more in response to changes in market interest rates when the Fund has higher
exposure to long-term Municipal Bonds than short-term Municipal Bonds. Because the values of lower-rated and comparable unrated
debt securities are affected both by credit risk and interest rate risk, the price movements of such lower grade securities in
response to changes in interest rates typically have not been highly correlated to the fluctuations of the prices of investment
grade quality securities in response to changes in market interest rates.
Inflation/Deflation Risk
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.
As inflation increases, the real value of the Common Shares and distributions can decline. In addition, during any period of rising
inflation, interest rates on borrowings would likely increase, which would tend to further reduce returns to Common Shareholders.
Deflation risk is the risk that prices throughout the economy decline over time–the opposite of inflation. Deflation may
have an adverse effect on the creditworthiness of issuers and may make issuer defaults more likely, which may result in a decline
in the value of the Fund’s portfolio.
Tactical Municipal Closed-End Fund Strategy Risk
The Fund invests in
closed-end funds as a principal part of the Tactical Municipal Closed-End Fund Strategy. Shares of closed-end funds listed for
trading on a securities exchange frequently trade at a price per share that is less than the NAV per share, the difference representing
the “market discount” of such shares. The market price of such shares may be affected by factors such as NAV, dividend
or distribution levels and their stability (which will in turn be affected by levels of dividend and interest payments by the closed-end
fund’s portfolio holdings, the timing and success of the closed-end fund’s investment strategies, regulations affecting
the timing and character of fund distributions, fund expenses and other factors), supply of and demand for the shares, trading
volume of the shares, general market, interest rate and economic conditions and other factors beyond the control of the closed-end
fund.
In addition, a market
discount may be due in part to the investment objective of long-term appreciation, which is sought by many closed-end funds, as
well as to the fact that the shares of closed-end funds are not redeemable by the holder upon demand to the issuer at the next
determined NAV but, rather, are subject to supply and demand in the secondary market.
The Fund may invest
in shares of closed-end funds that are trading at a discount to NAV or at a premium to NAV. There can be no assurance that the
market discount on shares of any closed-end fund purchased by the Fund will ever decrease. In fact, it is possible that this market
discount may increase and the Fund may suffer realized or unrealized capital losses due to further decline in the market price
of the securities of such closed-end funds, thereby adversely affecting the NAV of the Fund’s Common Shares. Similarly, there
can be no assurance that any shares of a closed-end fund purchased by the Fund at a premium will continue to trade at a premium
or that the premium will not decrease subsequent to a purchase of such shares by the Fund.
Underlying Fund Risks
The Fund will incur
higher and additional expenses when it invests in Underlying Funds. There is also the risk that the Fund may suffer losses due
to the investment practices or operations of the Underlying Funds. To the extent that the Fund invests in one or more Underlying
Funds that concentrate in a particular industry or state, the Fund would be vulnerable to factors affecting that industry or state
and the concentrating Underlying Funds’ performance, and that of the Fund, may be more volatile than Underlying Funds that
do not concentrate. In addition, one Underlying Fund may purchase a security that another Underlying Fund is selling.
As the Fund will invest
at least a portion of its Managed Assets in closed-end funds and ETFs, the Fund’s performance will depend to a greater extent
on the overall performance of investment companies generally, in addition to the performance of the specific Underlying Funds (and
other assets) in which the Fund invests. The use of leverage by Underlying Funds magnifies gains and losses on amounts invested
and increases the risks associated with investing in Underlying Funds. Further, the Underlying Funds are not subject to the Fund’s
investment policies and restrictions. The Fund generally receives information regarding the portfolio holdings of Underlying Funds
only when that information is made available to the public. The Fund cannot dictate how the Underlying Funds invest their assets.
The Underlying Funds may invest their assets in securities and other instruments, and may use investment techniques and strategies,
that are not described in this Prospectus, and there is risk that the Underlying Funds may not be in compliance with their investment
policies and strategies, including their policy to invest at least 80% of their assets in Municipal Bonds which, in turn, could
result in the Fund’s non-compliance with its own investment policies. Because the Fund expects that most of the Underlying
Funds will publish their portfolio holdings only at intervals, and then only after some delay, the Fund will generally not know
for certain the current holdings of the Underlying Funds.
Common Shareholders
will bear two layers of fees and expenses with respect to the Fund’s investments in Underlying Funds because each of the
Fund and the Underlying Fund will charge fees and incur separate expenses. If those Underlying Funds use leverage, that will likely
increase the amount of fees that the Fund, as an investor in the Underlying Funds, will pay. See “Summary of Fund Expenses”
for a further description of such fees and their impact on the expenses of the Fund. In addition, subject to applicable 1940 Act
limitations, the Underlying Funds themselves may purchase securities issued by registered and unregistered funds (e.g.,
common stock and preferred stock), and those investments would be subject to the risks associated with Underlying Funds and unregistered
funds (including a third layer of fees and expenses, i.e., the Underlying Fund will indirectly bear fees and expenses charged
by the funds in which the Underlying Fund invests, in addition to the Underlying Fund’s own fees and expenses). The Fund’s
investment in an Underlying Fund also may result in the Fund’s receipt of cash in excess of the Underlying Fund’s earnings;
if the Fund distributes these amounts, the distributions could constitute a return of capital to Fund shareholders for federal
income tax purposes but may be characterized as a dividend if the Fund has earnings from other sources. As a result of these factors,
the use of the fund of funds structure by the Fund could therefore affect the amount, timing and character of distributions to
shareholders.
As may be the case
with the Fund, the shares of many closed-end funds in which the Fund may invest frequently trade after their initial public offering
at a price per share that is less than the NAV per share, the difference representing the "market discount" of such shares.
This market discount may be due in part to the investment objective of long-term appreciation, which is sought by many closed-end
funds, as well as to the fact that the shares of closed-end funds are not redeemable by the holder upon demand to the issuer at
the next determined NAV, but rather, are subject to supply and demand in the secondary market. A relative lack of secondary market
purchasers of closed-end fund shares also may contribute to such shares trading at a discount to their NAV.
The Fund may invest
in shares of closed-end funds that are trading at a discount to NAV or at a premium to NAV. There can be no assurance that the
market discount on shares of any closed-end fund purchased by the Fund will ever decrease. In fact, it is possible that this market
discount may increase and the Fund may suffer realized or unrealized capital losses due to further decline in the market price
of the securities of such closed-end funds, thereby adversely affecting the NAV of the Fund's shares. Similarly, there can be no
assurance that any shares of a closed-end fund purchased by the Fund at a premium will continue to trade at a premium or that the
premium will not decrease subsequent to a purchase of such shares by the Fund.
Closed-end funds may
issue senior securities (including preferred stock and debt obligations) for the purpose of leveraging the closed-end fund's common
shares in an attempt to enhance the current return to such closed-end fund's common shareholders. The Fund's investment in the
common shares of closed-end funds that are financially leveraged may create an opportunity for greater total return on its investment,
but in a down market may increase the size and speed of losses. Thus, leveraged funds may be expected to exhibit more volatility
in market price and NAV than an investment in shares of investment companies without a leveraged capital structure. Since the Fund
may use leverage to invest in other funds that are leveraged, the effect of gains and losses in the other funds may be compounded,
especially when events occur that may broadly affect the market for municipal securities. In addition, the Fund may invest in such
senior securities issued by closed-end funds, including auction rate municipal securities and auction rate preferred securities.
In recent market environments, auctions have failed, which adversely affects the liquidity and price of auction rate securities,
and are unlikely to resume. Provided that the auction mechanism is successful, auction rate securities usually permit the holder
to sell the securities in an auction at par value at specified intervals. The dividend is reset by “Dutch” auction
in which bids are made by broker-dealers and other institutions for a certain amount of securities at a specified minimum yield.
The dividend rate set by the auction is the lowest interest or dividend rate that covers all securities offered for sale. While
this process is designed to permit auction rate securities to be traded at par value, there is a risk that an auction will fail
due to insufficient demand for the securities. Moreover, between auctions, there may be no secondary market for these securities,
and sales conducted on a secondary market may not be on terms favorable to the seller. Auction rate securities may be called by
the issuer. Thus, with respect to liquidity and price stability, auction rate securities may differ substantially from cash equivalents,
notwithstanding the frequency of auctions and the credit quality of the security. The Fund’s investments in auction rate
securities of closed-end funds are subject to the limitations prescribed by the 1940 Act.
ETFs may trade at a
price above (premium) or below (discount) their NAV, especially during periods of significant market volatility or stress, which
could cause investors to pay significantly more or less for ETF shares than the value of the ETF’s underlying portfolio.
Certain ETFs traded on exchanges may be thinly traded and experience large spreads between the “ask” price quoted by
a seller and the “bid” price offered by a buyer. While the creation/redemption feature is designed to make it likely
that ETF shares normally will trade close to their NAVs, market prices are not expected to correlate exactly to the shares’
NAVs due to timing reasons, supply and demand imbalances and other factors. In addition, disruptions to creations and redemptions,
adverse developments impacting market makers, authorized participants or other market participants, high market volatility or lack
of an active trading market for an ETF’s shares (including through a trading halt) may result in market prices that differ
significantly from an ETF’s NAV or to the intraday value of the ETF’s holdings. An active trading market for shares
of an ETF may not develop or be maintained. When all or a portion of an ETF’s underlying securities trade in a foreign market
that is closed during the time the domestic market in which the ETF’s shares are listed and traded is open, there may be
changes between the last quote from the closed foreign market and the value of such underlying security during the ETF’s
trading day. In times of market stress, market makers or authorized participants may step away from their respective roles in making
a market in shares of the ETF and in executing purchase or redemption orders. During such times, the ETF’s shares may trade
at a wider than normal discount or premium and may possibly face trading halts. Additionally, the underlying securities of an ETF
may be traded outside of a collateralized settlement system, such as the National Securities Clearing Corporation, a clearing agency
that is registered with the SEC. There are a limited number of financial institutions that may act as authorized participants that
post collateral for certain trades on an agency basis. To the extent that these authorized participants exit the business or are
unable to proceed with creation and/or redemption orders with the ETF, and no other authorized participant is able to step forward,
ETF shares may trade at a discount to NAV and possibly face trading halts and/or delisting. Additionally, in stressed market conditions,
the market for ETF shares may become less liquid in response to deteriorating liquidity in the markets for such ETF’s underlying
portfolio holdings, which may cause the shares of the ETF to trade at a wider than normal discount or premium. Furthermore, purchases
and redemptions of creation units primarily in cash rather than in-kind may cause an ETF to incur certain costs, such as brokerage
costs, taxable gains or other losses that it may not have incurred with an in-kind purchase or redemption. These costs may be borne
by the ETF and decrease the ETF’s NAV to the extent they are not offset by a transaction fee payable by an authorized participant.
Index-based ETFs (and
other index funds) in which the Fund may invest may not be able to replicate exactly the performance of the indices they track
due to transaction costs and other expenses of the ETFs. The Fund may also invest in actively managed ETFs that are subject to
management risk as the ETF’s investment adviser will apply certain investment techniques and risk analyses in making investment
decisions. There can be no guarantee that these will produce the desired results.
The Fund’s investment
in Underlying Funds may be restricted by provisions of the 1940 Act that generally limit the amount the Fund and its affiliates
can invest in any one Underlying Fund to 3% of the Underlying Fund’s outstanding voting stock. As a result, the Fund may
hold a smaller position in an Underlying Fund than if it were not subject to this restriction. In addition, to comply with provisions
of the 1940 Act, in any matter upon which Underlying Fund shareholders are solicited to vote, the Adviser may be required to vote
Underlying Fund shares in the same proportion as shares held by other shareholders of the Underlying Fund. However, pursuant to
Rule 12d1-4, the Fund may be permitted to invest in such Underlying Funds in excess of the limits set forth in the 1940 Act subject
to certain terms and conditions set forth in Rule 12d1-4.
Defaulted and Distressed Securities Risks
The Fund and the Underlying
Funds may invest in defaulted and distressed securities. Legal difficulties and negotiations with creditors and other claimants
are common when dealing with defaulted or distressed issuers. Defaulted or distressed issuers may be insolvent, in bankruptcy or
undergoing some other form of financial restructuring. In the event of a default, the Fund or an Underlying Fund may incur additional
expenses to seek recovery. The repayment of defaulted bonds is subject to significant uncertainties, and in some cases, there may
be no recovery of repayment. Defaulted bonds might be repaid only after lengthy workout or bankruptcy proceedings, during which
the issuer might not make any interest or other payments. Because of the relative illiquidity of defaulted or distressed debt and
equity securities, short sales are difficult, and the Fund and most Underlying Funds primarily maintain long positions. Some relative
value trades are possible, where an investor sells short one class of a defaulted or distressed issuer’s capital structure
and purchases another. With distressed investing, often there is a time lag between when the Fund and an Underlying Fund makes
an investment and when the Fund and the Underlying Fund realizes the value of the investment. In addition, the Fund and an Underlying
Fund may incur legal and other monitoring costs in protecting the value of the Fund’s and the Underlying Fund’s claims.
Illiquid Securities Risks
The Fund and the Underlying
Funds may invest in illiquid securities. It may not be possible to sell or otherwise dispose of illiquid securities both at the
price and within the time period deemed desirable by a fund. Illiquid securities also may be difficult to value. Liquidity may
sometimes be impaired in the municipal market and, because the Fund principally invests in Municipal Bonds, it may find it difficult
to purchase or sell such securities at opportune times. Liquidity can be impaired due to interest rate concerns, credit events,
or general supply and demand imbalances. Depending on the particular issuer and current economic conditions, Municipal Bonds could
be deemed more volatile investments.
Valuation Risk
Unlike publicly traded
common stock which trades on national exchanges, there is no central place or exchange for fixed-income securities trading. Fixed-income
securities generally trade on an “over-the-counter” market which may be anywhere in the world where the buyer and seller
can settle on a price. Due to the lack of centralized information and trading, the valuation of fixed-income securities may carry
more risk than that of common stock. Uncertainties in the conditions of the financial market, unreliable reference data, lack of
transparency and inconsistency of valuation models and processes may lead to inaccurate asset pricing. As a result, the Fund may
be subject to risk that when a fixed-income security is sold in the market, the amount received by the Fund is less than the value
of such fixed-income security carried on the Fund’s books.
Tender Option Bonds Risks
TOB Residuals are derivative
municipal securities that have embedded in them the risk of economic leverage. There is no assurance that the Fund’s strategy
of using the proceeds received from tender option bond transactions to leverage its assets will be successful. TOB transactions
expose the Fund to leverage and credit risk, and generally involve greater risk than investment in fixed rate Municipal Bonds,
including the loss of principal.
Distributions on TOB
Residuals will bear an inverse relationship to short-term municipal bond interest rates. Distributions on the TOB Residuals paid
to the Fund will be reduced or, in the extreme, eliminated as short-term municipal interest rates rise and will increase when short-term
municipal interest rates fall. The amount of such reduction or increase is a function, in part, of the amount of TOB Floaters sold
by the TOB Issuer of these securities relative to the amount of the TOB Residuals that it sells. The greater the amount of TOB
Floaters sold relative to the TOB Residuals, the more volatile the distributions on the TOB Residuals will be. Short-term interest
rates are near historic lows and may be more likely to rise in the current market environment. The value of TOB Residuals may decline
rapidly in times of rising interest rates.
The Fund’s use
of proceeds received from tender option bond transactions will create economic leverage. Any economic leverage achieved through
the Fund’s investment in TOB Residuals will create an opportunity for increased Common Share net income and returns, but
will also create the possibility that Common Share long-term returns will be diminished if the cost of the TOB Floaters exceeds
the return on the securities deposited in the TOB Issuer. If the income and gains earned on Municipal Bonds deposited in a TOB
Issuer that issues TOB Residuals to the Fund are greater than the payments due on the TOB Floaters, the Fund’s returns will
be greater than if it had not invested in the TOB Residuals.
The Fund has no current
intention of investing in recourse TOB Residuals. However, circumstances may change and it is possible that in the future the Fund
may elect to invest in recourse TOB Residuals to leverage its portfolio. If the Fund uses recourse TOB Residuals, the liquidity
provider may seek recourse against assets of the Fund, and the Fund may have to pay the liquidity provider the difference between
the purchase price of any TOB Floaters put to the liquidity provider by third party investors and the proceeds realized by the
liquidity provider from the remarketing of those TOB Floaters or the sale of the assets in the TOB Issuer, which could cause the
Fund to lose money in excess of its investment in a TOB Issuer.
Although the Fund generally
would unwind a tender option bond transaction rather than try to sell a TOB Residual, if it did try to sell a TOB Residual, its
ability to do so would depend on the liquidity of the TOB Residual. TOB Residuals have varying degrees of liquidity based, among
other things, upon the liquidity of the underlying securities deposited in the TOB Issuer. The market price of TOB Residuals are
more volatile than the underlying securities due to leverage. The leverage attributable to TOB Residuals may be “called away”
on relatively short notice and therefore may be less permanent than more traditional forms of leverage. In certain circumstances,
the likelihood of an increase in the volatility of NAV and market price of the Common Shares may be greater for a fund that relies
primarily on tender option bond transactions to achieve a desired effective leverage ratio. The Fund may be required to sell its
TOB Residuals at less than favorable prices, or liquidate other Fund portfolio holdings in certain circumstances, including, but
not limited to, the following:
|
● |
If the Fund has a need for cash and the securities deposited in the TOB Issuer are not actively trading due to adverse market conditions; |
|
● |
If the sponsors of TOB Issuers (as a collective group or individually) experience financial hardship and consequently seek to terminate their sponsorship of TOB Issuers; and |
|
● |
If the value of an underlying security deposited in the TOB Issuer declines significantly (to a level below the notional value of the TOB Floaters issued by the TOB Issuer) and if additional collateral has not been posted by the Fund. |
The Fund may invest
in taxable TOB Residuals, issued by TOB Issuers formed with taxable municipal securities. There may be a limited number of counterparties
for such transactions, which may increase the credit risks, counterparty risks, liquidity risks and other risks of investing in
taxable TOB Residuals. The Fund may not invest more than 30% of its Managed Assets in any single third party sponsor that establishes
a TOB Issuer. See also “Risks—Investment-Related Risks—Legislation and Regulatory Risks.”
Insurance Risks
The Fund may purchase
Municipal Bonds that are secured by insurance, bank credit agreements or escrow accounts. The credit quality of the companies that
provide such credit enhancements will generally affect the value of those securities. Certain significant providers of insurance
for Municipal Bonds have at times incurred significant losses as a result of exposure to sub-prime mortgages and other lower credit
quality investments that have experienced defaults or otherwise suffered credit deterioration. Such losses may reduce the insurers’
capital and may call into question their continued ability to perform their obligations under such insurance if called upon in
the future. While an insured Municipal Bond will typically be deemed to have the rating of its insurer, if the insurer of a Municipal
Bond suffers a downgrade in its credit rating or the market discounts the value of the insurance provided, the rating of the underlying
Municipal Bond will generally be more relevant and the value of the Municipal Bond would more closely, if not entirely, reflect
such rating. In such a case, the value of insurance associated with a Municipal Bond would decline and may not add any value. The
insurance feature of a Municipal Bond does not guarantee the full payment of principal and interest through the life of an insured
obligation, the market value of the insured obligation or the NAV of the Common Shares represented by such insured obligation.
Because there is no limit on the percentage of Managed Assets that may be insured by any one insurance firm other than the tax
diversification rules, there is a risk that a significant portion of the Fund’s holdings may experience a ratings downgrade
and lose value if such an insurance company suffers financial or reputational adversity. Some IRS authority treats a guaranty as
a separate security subject to the diversification rules, which limit the value of securities issued by any one issuer to not more
than 25% of the portfolio.
Tax Risks
To qualify for the
favorable U.S. federal income tax treatment generally accorded to regulated investment companies, among other things, the Fund
must derive in each taxable year at least 90% of its gross income from certain prescribed sources and satisfy a diversification
test on a quarterly basis. If the Fund fails to satisfy the qualifying income or diversification requirements in any taxable year,
the Fund may be eligible for relief provisions if the failures are due to reasonable cause and not willful neglect and if a penalty
tax is paid with respect to each failure to satisfy the applicable requirements. Additionally, relief is provided for certain de
minimis failures of the diversification requirements where the Fund corrects the failure within a specified period. In order to
be eligible for the relief provisions with respect to a failure to meet the diversification requirements, the Fund may be required
to dispose of certain assets. If these relief provisions were not available to the Fund and it were to fail to qualify for treatment
as a regulated investment company (“RIC”) for a taxable year, all of its taxable income (including its net capital
gain) would be subject to tax at regular corporate rates (which the Tax Act (defined below) reduced to 21%) without any deduction
for distributions to shareholders, and such distributions would be taxable as ordinary dividends to the extent of the Fund’s
current and accumulated earnings and profits.
The Fund may qualify
to pay exempt-interest dividends, which are treated as items of interest excludable from gross income for federal income tax purposes,
if at least 50% of the value of the total assets of the Fund consists of obligations exempt from regular income tax as of the close
of each quarter of the Fund’s taxable year. Under this approach, if the proportion of taxable investments held by the Fund
exceeded 50% of the Fund’s total assets as of the close of any quarter of the Fund’s taxable year, the Fund would not,
for that taxable year, satisfy the general eligibility test that would otherwise permit it to pay exempt-interest dividends for
that taxable year. As an alternative, the Fund may qualify to pay exempt-interest dividends if it is a qualified fund-of-funds,
i.e., if at least 50% of the value of its total assets are invested in the shares of underlying RICs as of the close of
each quarter of the Fund’s taxable year.
The Fund may enter
into various types of derivatives transactions, including swap contracts, among others. The use of such derivatives may generate
taxable income. The Fund’s use of derivatives may also affect the amount, timing, and character of distributions to shareholders
and, therefore, may increase the amount of taxes payable by shareholders.
The value of the Fund’s
investments and its NAV may be adversely affected by changes in tax rates and policies. Because interest income from Municipal
Bonds is normally not subject to regular federal income taxation, the attractiveness of Municipal Bonds in relation to other investment
alternatives is affected by changes in federal income tax rates or changes in the tax-exempt status of interest income from Municipal
Bonds. Any proposed or actual changes in such rates or exempt status, therefore, can significantly affect the demand for and supply,
liquidity and marketability of Municipal Bonds. This could in turn affect the Fund’s NAV and ability to acquire and dispose
of Municipal Bonds at desirable yield and price levels. For example, the Tax Act recently repealed the exclusion from gross income
for interest on pre-refunded municipal securities effective for such securities issued after December 31, 2017. Additionally, the
Fund is not a suitable investment for individual retirement accounts, for other tax-exempt or tax-deferred accounts or for investors
who are not sensitive to the federal income tax consequences of their investments.
The Fund will invest
in Municipal Bonds in reliance at the time of purchase on an opinion of bond counsel to the issuer that the interest paid on those
securities will be excludable from gross income for federal income tax purposes, and the Adviser and Subadviser will not independently
verify that opinion. Subsequent to the Fund’s acquisition of such a Municipal Bond, however, the security may be determined
to pay, or to have paid, taxable income. As a result, the treatment of dividends previously paid or to be paid by the Fund as “exempt-interest
dividends” could be adversely affected, subjecting the Fund’s shareholders to increased federal income tax liabilities.
Distributions of ordinary
taxable income (including any net short-term capital gain) will be taxable to shareholders as ordinary income (and not eligible
for favorable taxation as “qualified dividend income”), and capital gain dividends will be taxable as long-term capital
gains. See “U.S. Federal Income Tax Matters.”
Derivatives Risks
The Fund and the Underlying
Funds may enter into derivatives. Derivative transactions involve investment techniques and risks different from those associated
with the Fund’s other investments. 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, and may relate to individual debt or equity instruments,
interest rates, currencies or currency exchange rates, commodities, related indexes and other assets. Derivatives can be volatile
and involve various types and degrees of risk, depending upon the characteristics of a particular derivative. Derivatives may entail
investment exposures that are greater than their cost would suggest, meaning that a small investment in a derivative could have
a large potential impact on the performance of the Fund or an Underlying Fund. The Fund or an Underlying Fund could experience
a loss if derivatives do not perform as anticipated, if they are not correlated with the performance of other investments which
they are used to hedge or if the fund is unable to liquidate a position because of an illiquid secondary market. The market for
many derivatives is, or can suddenly become, illiquid. Changes in liquidity may result in significant, rapid and unpredictable
changes in the prices of derivatives. Except with respect to the Fund’s investments in total return swaps, the Fund expects
its use of derivative instruments will be for hedging purposes. When used for speculative purposes, derivatives will produce enhanced
investment exposure, which will magnify gains and losses. Certain derivatives transactions may give rise to a form of leverage.
The use of leverage may cause a fund to liquidate portfolio positions when it may not be advantageous to do so to satisfy its obligations
or to meet segregation requirements. Leverage may cause a fund to be more volatile than if it had not been leveraged. This is because
leverage tends to exaggerate the effect of any increase or decrease in the value of the fund’s portfolio securities. Further,
using derivatives may include the risk of mispricing or improper valuation of derivatives and the inability of derivatives to correlate
perfectly, or at all, with the value of the assets, reference rates or indexes they are designed to closely track. The Fund and
the Underlying Funds also will be subject to credit risk with respect to the counterparties to the derivatives contracts purchased
by such fund. If a counterparty becomes bankrupt or otherwise fails to perform its obligations under a derivative contract due
to financial difficulties, the Fund or an Underlying Fund may experience significant delays in obtaining any recovery under the
derivative contract in a bankruptcy or other reorganization proceeding. The Fund or an Underlying Fund may obtain only a limited
recovery or may obtain no recovery in such circumstances. See “—Option and Futures Risks” and “—Swap
Risks.” The Adviser has claimed an exclusion from registration as a commodity pool operator with respect to the Fund pursuant
to Commodity Futures Trading Commission (“CFTC”) Rule 4.5. See “Investment Policies and Techniques—Derivatives—Regulation
as a ‘Commodity Pool’” in the SAI.
Options and Futures Risks
The Fund and the Underlying
Funds may invest in options and futures contracts and such contracts are expected to be utilized by the Fund, if at all, for hedging
purposes. The use of futures and options transactions entails certain special risks. In particular, the variable degree of correlation
between price movements of futures contracts and price movements in the related securities position of a fund could create the
possibility that losses on the hedging instrument are greater than gains in the value of a fund’s position. In addition,
futures and options markets could be illiquid in some circumstances and certain over-the-counter options could have no markets.
As a result, in certain markets, a fund might not be able to close out a transaction without incurring substantial losses. Although
a fund’s use of futures and options transactions for hedging should tend to minimize the risk of loss due to a decline in
the value of the hedged position, at the same time it will tend to limit any potential gain to a fund that might result from an
increase in value of the position. Finally, the daily variation margin requirements for futures contracts create a greater ongoing
potential financial risk than would purchases of options, in which case the exposure is limited to the cost of the initial premium.
However, because option premiums paid by the Fund or an Underlying Fund are small in relation to the market value of the investments
underlying the options, buying options can result in large amounts of leverage. This leverage offered by trading in options could
cause the Fund’s or an Underlying Fund’s NAV to be subject to more frequent and wider fluctuation than would be the
case if the Fund or an Underlying Fund did not invest in options.
Options transactions
may be effected on securities exchanges or in the over-the-counter market. When options are purchased over-the-counter, the Fund
or an Underlying Fund bears the risk that the counterparty that wrote the option will be unable or unwilling to perform its obligations
under the option contract. The counterparties to these transactions typically will be major international banks, broker-dealers
and financial institutions. Such options may also be illiquid, and in such cases, the Fund or an Underlying Fund may have difficulty
closing out its position. Banks, broker-dealers or other financial institutions participating in such transactions may fail to
settle a transaction in accordance with the terms of the option as written. In the event of default or insolvency of the counterparty,
the Fund or an Underlying Fund may be unable to liquidate an over-the-counter option position.
An Underlying Fund
may purchase and sell call and put options with respect to specific securities, and may write and sell covered or uncovered call
and put options. A call option gives the purchaser of the call option, in return for a premium paid, the right to buy the security
underlying the option from the writer of the call option at a specified exercise price within a specified time frame. A put option
gives the purchaser of the put option, in return for a premium paid, the right to sell the underlying security to the writer of
the put option at a specified price within a specified time frame. A covered call option is a call option with respect to an underlying
security that a fund owns. A covered put option is a put option with respect to which a fund has segregated cash or liquid securities
to fulfill the obligation of the option. The purchaser of a put or call option runs the risk of losing the purchaser’s entire
investment, paid as the premium, in a relatively short period of time if the option is not sold at a gain or cannot be exercised
at a gain prior to expiration. In selling put options, there is a risk that the Underlying Fund may be required to buy the underlying
security at a disadvantageous price above the market price. The un-covered writer of a call option is subject to a risk of loss
if the price of the underlying security should increase, and the un-covered writer of a put option is subject to a risk of loss
if the price of the underlying security should decrease. The Fund will not treat uncovered options as “senior securities”
under the 1940 Act and instead, to address senior security concerns, will segregate cash or liquid securities to fulfill its obligation
under the options.
The Fund may invest
a significant portion of its total assets in Underlying Funds that write covered call options. To the extent that an Underlying
Fund writes a covered call option, it 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 sum of the premium and the strike price of the call, but has retained
the risk of loss should the price of the underlying security decline. As the writer of the option, the Underlying Fund bears the
market risk of an unfavorable change in the price of the security underlying a written option. As an Underlying Fund writes covered
calls over more of its portfolio, its ability to benefit from capital appreciation becomes more limited and the risk of NAV erosion
increases. To the extent an Underlying Fund experiences NAV erosion (which itself may have an indirect negative effect on the market
price of interests in the Underlying Fund, the Underlying Fund will have a reduced asset base over which to write covered calls,
which may eventually lead to reduced distributions to shareholders such as the Fund. 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.
To the extent that
an Underlying Fund engages in selling options that trade in over-the-counter markets, the Underlying Fund may be subject to additional
risks. Participants in these markets are typically not subject to the same credit evaluation and regulatory oversight as members
of “exchange-based” markets. By engaging in option transactions in these markets, an Underlying Fund may take credit
risk with regard to parties with which it trades and also may bear the risk of settlement default. These risks may differ materially
from those involved in exchange-traded transactions, which generally are characterized by clearing organization guarantees, daily
marking-to-market and settlement, and segregation and minimum capital requirements applicable to intermediaries. Transactions entered
into directly between two counterparties generally do not benefit from these protections, which may subject an Underlying Fund
to the risk that a counterparty will not settle a transaction in accordance with agreed terms and conditions because of a dispute
over the terms of the contract or because of a credit or liquidity problem. Such “counterparty risk” is increased for
contracts with longer maturities when events may intervene to prevent settlement.
There can be no assurance
that a liquid market will exist for any particular futures contract at any particular time. Many futures exchanges and boards of
trade limit the amount of fluctuation permitted in futures contract prices during a single trading day. Once the daily limit has
been reached in a particular contract, no trades may be made that day of a price beyond that limit or trading may be suspended
for specified periods during the trading day.
Swap Risks
The Fund and the Underlying
Funds may enter into various swap agreements and, other than total return swap agreements (as discussed herein), such agreements
are expected to be utilized by the Fund, if at all, for hedging purposes. All of these agreements are considered derivatives. Swap
agreements are two-party contracts under which the fund and a counterparty, such as a broker or dealer, agree to exchange the returns
(or differentials in rates of return) earned or realized on an agreed-upon underlying asset or investment over the term of the
swap. The use of swap transactions is a highly specialized activity which involves strategies and risks different from those associated
with ordinary portfolio security transactions. If the Adviser, Subadviser or an Underlying Fund’s investment adviser is incorrect
in its forecasts of default risks, market spreads, liquidity or other applicable factors or events, the investment performance
of the Fund or Underlying Fund would diminish compared with what it would have been if these techniques were not used. Swaps and
swap options can be used for a variety of purposes, including: to manage fund exposure to changes in interest rates and credit
quality; as an efficient means of adjusting fund overall exposure to certain markets; in an effort to enhance income or total return
or protect the value of portfolio securities; to serve as a cash management tool; and to adjust portfolio duration.
Swaps could result
in losses if interest rates or credit quality changes are not correctly anticipated by the Adviser, Subadviser or Underlying Fund
manager. Total return swaps could result in losses if the reference index, security, or investments do not perform as anticipated.
Total return swaps involve an enhanced risk that the issuer or counterparty will fail to perform its contractual obligations, which
could turn an expected gain into a loss. Total return swaps may effectively add leverage to the Fund’s portfolio because
the Fund would be subject to investment exposure on the full notional amount of the swap. To the extent the Fund or an Underlying
Fund enters into a total return swap on equity securities, the Fund or the Underlying Fund will receive the positive performance
of a notional amount of such securities underlying the total return swap. In exchange, the Fund or the Underlying Fund will be
obligated to pay the negative performance of such notional amount of securities. Therefore, the Fund or the Underlying Fund assumes
the risk of a substantial decrease in the market value of the equity securities. The use of swaps may not always be successful;
using them could lower Fund or Underlying Fund total return, their prices can be highly volatile, and the potential loss from the
use of swaps can exceed the Fund’s or an Underlying Fund’s initial investment in such instruments.
Some, but not all,
swaps may be cleared, in which case a central clearing counterparty stands between each buyer and seller and effectively guarantees
performance of each contract, to the extent of its available resources for such purposes. As a result, the counterparty risk is
now shifted from bilateral risk between the parties to the individual credit risk of the central clearing counterparty. Even in
such case, there can be no assurance that a clearing house, or its members, will satisfy the clearing house’s obligations
to the Fund or an Underlying Fund or that the fund’s use of swaps will be advantageous.
Short Sale Risks
The Fund and the Underlying
Funds may engage in short sales. However, the Fund will not engage in any short sales of securities issued by closed-end funds.
Short sales are expected to be utilized by the Fund, if at all, for hedging purposes. A short sale is a transaction in which a
fund sells a security it does not own in anticipation that the market price of that security will decline. Positions in shorted
securities are speculative and riskier than long positions (purchases) in securities because the maximum sustainable loss on a
security purchased is limited to the amount paid for the security plus the transaction costs, whereas there is no maximum attainable
price of the shorted security. Therefore, in theory, securities sold short have unlimited risk. Short selling will also result
in higher transaction costs (such as interest and dividends), and may result in higher taxes, which reduce a fund’s return.
If a security sold
short increases in price, a fund may have to cover its short position at a higher price than the short sale price, resulting in
a loss. With respect to a fund’s short positions, the fund must borrow those securities to make delivery to the buyer. A
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. As a result, a fund may not be able to successfully
implement its short sale strategy due to the limited availability of desired securities or for other reasons.
When borrowing a security
for delivery to a buyer, a fund also may be required to pay a premium and other transaction costs, which would increase the cost
of the security sold short. A fund must normally repay to the lender an amount equal to any dividends or interest earned while
the loan is outstanding. The amount of any gain will be decreased, and the amount of any loss increased, by the amount of the premium,
dividends, interest or expenses a fund may be required to pay in connection with the short sale. Also, the lender of a security
may terminate the loan at a time when a fund is unable to borrow the same security for delivery. In that case, a fund would need
to purchase a replacement security at the then current market price or “buy in” by paying the lender an amount equal
to the costs of purchasing the security.
Until a fund replaces
a borrowed security, it may be required to maintain a segregated account of cash or liquid assets to cover the fund’s short
position. Securities held in a segregated account cannot be sold while the position they are covering is outstanding, unless they
are replaced with similar securities. Additionally, a fund may be required to maintain sufficient liquid assets (less any additional
collateral held by the broker), marked-to-market daily, to cover its short sale obligations. This may limit a fund’s investment
flexibility, as well as its ability to meet redemption requests or other current obligations.
Because a fund’s
loss on a short sale arises from increases in the value of the security sold short, the loss is theoretically unlimited. In certain
cases, purchasing a security to cover a short position can itself cause the price of the security to rise further, which would
exacerbate the loss. Conversely, gains on short sales, after transaction and related costs, are generally the difference between
the price at which a fund sold the borrowed security and the price it paid to purchase the security for delivery to the buyer.
By contrast, a fund’s 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 drop below zero.
By investing the proceeds
received from selling securities short, a fund is using a form of leverage, which creates special risks. The use of leverage may
increase a fund’s exposure to long equity positions and make any change in a fund’s NAV greater than it would be without
the use of leverage. This could result in increased volatility of returns. There is no guarantee that the Fund or an Underlying
Fund will leverage its portfolio, or if it does, that the leveraging strategy will be successful. The Fund also cannot guarantee
that the use of leverage by the Fund or an Underlying Fund will produce a higher return on an investment. See “—Legislation
and Regulatory Risks” for forthcoming changes to the current treatment of short sales transactions under applicable rules
and regulations that could impact the Fund in the future.
Rating Agency Risk
Ratings agencies such
as S&P, Fitch, Moody’s or other NRSROs provide ratings on debt securities based on their analyses of information they
deem relevant. Ratings are opinions or judgments of the credit quality of an issuer and may prove to be inaccurate. In addition,
there may be a delay between events or circumstances adversely affecting the ability of an issuer to pay interest and/or repay
principal and an NRSRO’s decision to downgrade a security. Further, a rating agency may have a conflict of interest with
respect to a security for which it assigns a particular rating if, for example, the issuer or sponsor of the security pays the
rating agency for the analysis of its security, which could affect the reliability of the rating.
United States Credit Rating Downgrade Risk
On August 5, 2011,
S&P lowered its long-term sovereign credit rating on the United States to “AA+” from “AAA.” In general,
a lower rating could increase the 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 impacts on issuers of securities held by the Fund and the Fund itself. The Adviser and the Subadviser 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
Adviser and the Subadviser may not timely anticipate or manage existing, new or additional risks, contingencies or developments.
Legislation and Regulatory Risks
At any time after the
date of this Prospectus, legislation or additional regulations may be enacted that could negatively affect the assets of the Fund
or the issuers of such assets. Changing approaches to regulation may have a negative impact on the entities and/or securities in
which the Fund or an Underlying Fund invests. Legislation or regulation may also change the way in which the Fund or an Underlying
Fund is regulated. New or amended regulations may be imposed by the CFTC, the Securities and Exchange Commission (“SEC”),
the Federal Reserve or other financial regulators, other governmental regulatory authorities or self-regulatory organizations that
supervise the financial markets that could adversely affect the Fund or the Underlying Funds. There can be no assurance that future
legislation, regulation or deregulation will not have a material adverse effect on the Fund or will not impair the ability of the
Fund to achieve its investment objectives. The Fund and the Underlying Funds also may be adversely affected by changes in the enforcement
or interpretation of existing statutes and rules by these governmental authorities or self-regulatory organizations.
On October 28, 2020,
the SEC adopted new regulations governing the use of derivatives by registered investment companies (“Rule 18f-4”).
The Fund will be required to implement and comply with Rule 18f-4 by the third quarter of 2022. Once implemented, Rule 18f-4 will
impose new limits on the amount of derivatives, short sales, and tender option bond transactions that the Fund can enter into;
eliminate the asset segregation framework the Fund initially intends to use to comply with Section 18 of the 1940 Act; treat certain
derivatives as senior securities so that a failure to comply with the limits might be alleged by a regulator to be a statutory
violation; and potentially require the Fund to establish and maintain a comprehensive derivatives risk management program and appoint
a derivatives risk manager. The extent of the impact of such new regulations on the Fund, including the ability of the Fund to
continue to utilize derivatives, short sales and tender option bond transactions in an amount similar to its initial use of such
transactions, remains uncertain as of the date of this prospectus.
Market Disruption, Geopolitical, Pandemic and Climate Change
Risks
The Fund and Underlying
Funds (as well as their service providers) may be adversely affected by uncertainties and events around the world, such as epidemics
and pandemics, including the spread of infectious illness or other public health issues, natural disasters, terrorism and other
conflicts, social unrest, political developments, and changes in government policies, taxation, restrictions on foreign investment
and currency repatriation, currency fluctuations and other developments in the laws and regulations of the countries in which they
are invested. In December 2019, an initial outbreak of COVID-19 was reported and, since then, a large and growing number of cases
have been confirmed around the world. This has resulted in numerous deaths and the imposition of both local and more widespread
quarantine measures, border closures and other travel restrictions, causing social unrest and commercial disruption on a global
scale. In response to the COVID-19 pandemic, central banks and governments have responded with liquidity injections to ease the
strain on financial systems and stimulus measures to buffer the shock to businesses and consumers. These measures have helped stabilize
the markets over the short term, but volatility will likely remain elevated until the health crisis itself is under control (via
fewer new cases, lower infection rates and/or verified treatments). There are still many unknowns and new information is incoming
daily, compounding the difficulty of modeling outcomes for epidemiologists and economists alike.
Global economies and
financial markets are becoming increasingly interconnected, which increases the possibilities that conditions in one country or
region might adversely impact issuers in a different country or region. The ongoing COVID-19 pandemic has magnified these risks
and has had, and will continue to have, a material adverse impact on local economies in the affected jurisdictions and also on
the global economy, as cross border commercial activity and market sentiment are increasingly impacted by the outbreak and government
and other measures seeking to contain its spread. The effects of the COVID-19 pandemic have contributed to increased volatility
in global financial markets and likely will affect certain countries, regions, companies, industries and market sectors more dramatically
than others. It is not known how long the impact of the COVID-19 pandemic will last or the severity thereof.
The COVID-19 pandemic
and public health measures taken in response have the potential to negatively affect the budgets of many states and municipalities,
and with limited disclosure requirements under the federal securities laws, it may be difficult for investors to discern the full
extent of those effects. Although there is discussion of the federal government assisting municipalities with these financial difficulties,
any such assistance is subject to the political process and it is far from certain that it will be forthcoming or be in the amounts
necessary. Such assistance, if it materializes, may not help the issuers of revenue bonds that finance specific projects.
To the extent the impacts
of COVID-19 continue, the Fund may experience negative impacts to its business that could exacerbate other risks to which the Fund
is subject, including: (1) issuers of municipal securities could be materially impacted by the COVID- 19 pandemic, which may, in
turn, negatively affect the value of such securities or such issuers’ ability to make interest payments or distributions
to the Fund and result in a decrease in the NAV of the Fund; (2) operational impacts on and availability of key personnel of the
Adviser or Subadviser, and/or any of the Fund’s other service providers, vendors and counterparties as they face changed
circumstances and/or illness related to the pandemic; and (3) limitations on the Fund’s ability to make distributions or
dividends, as applicable.
The Fund cannot predict
the effects of or likelihood of such events on the U.S. and world economies, the value of the Common Shares or the NAV of the Fund.
The issuers of securities, including those held in the Fund’s or an Underlying Fund’s portfolio, could be materially
impacted by such events which may, in turn, negatively affect the value of such securities or such issuers’ ability to make
interest payments or distributions to the Fund.
Climate change poses
long-term threats to physical and biological systems. Potential hazards and risks related to climate change for a State or municipality
include, among other things, rising sea levels, more severe coastal flooding and erosion hazards, and more intense storms. Storms
in recent years have demonstrated vulnerabilities in a State's or municipality’s infrastructure to extreme weather events.
Climate change risks, if they materialize, can adversely impact a State’s or municipality’s financial plan in current
or future years. In addition, economists and others have expressed increasing concern about the potential effects of global climate
change on property and security values. A rise in sea levels, an increase in powerful windstorms and/or a climate-driven increase
in sea levels or flooding could cause coastal properties to lose value or become unmarketable altogether. Economists warn that,
unlike previous declines in the real estate market, properties in affected coastal zones may not ever recover their value. Large
wildfires driven by high winds and prolonged drought may devastate businesses and entire communities and may be very costly to
any business found to be responsible for the fire. Regulatory changes and divestment movements tied to concerns about climate change
could adversely affect the value of certain land and the viability of industries whose activities or products are seen as accelerating
climate change.
These losses could
adversely affect the bonds of municipalities that depend on tax or other revenues and tourist dollars generated by affected properties,
and insurers of the property and/or of municipal securities. Since property and security values are driven largely by buyers’
perceptions, it is difficult to know the time period over which these market effects might unfold.
Defensive Measures
The Fund may invest
up to 100% of its assets in cash, cash equivalents and short-term investments as a defensive measure in response to adverse market
conditions or opportunistically at the discretion of the Adviser or Subadviser. During these periods, the Fund may not be pursuing
its investment objectives.
Structural Risks:
Market Discount
Common stock of closed-end
funds frequently trades at a discount from its NAV. This risk may be greater for investors selling their shares in a relatively
short period of time after completion of the initial offering. The Fund’s Common Shares may trade at a price that is less
than the initial offering price. This risk would also apply to the Fund’s investments in closed-end funds.
Limited Operating History Risk
The Fund is a newly organized, diversified, closed-end management
investment company with no operating history.
Limited Term and Eligible Tender Offer Risk
The Fund is scheduled to terminate on or
about the Termination Date (unless it is converted to a perpetual fund). The Fund is not a so called “target date”
or “life cycle” fund whose asset allocation becomes more conservative over time as its target date, often associated
with retirement, approaches. In addition, the Fund is not a “target term” fund whose investment objective is to return
its original NAV on the termination date. The Fund’s investment objectives and policies are not designed to seek to return
to investors that purchase Common Shares in this offering their initial investment of $20.00 per Common Share on the Termination
Date or in an Eligible Tender Offer, and such investors and investors that purchase Common Shares after the completion of this
offering may receive more or less than their original investment upon termination or in an Eligible Tender Offer.
The Fund is not required
to conduct an Eligible Tender Offer. If the Fund conducts an Eligible Tender Offer, there can be no assurance that the number of
tendered Common Shares would not result in the Fund’s net assets totaling less than the Termination Threshold, in which case
the Eligible Tender Offer will be terminated, no Common Shares will be repurchased pursuant to the Eligible Tender Offer and the
Fund will terminate on or before the Termination Date (subject to possible extensions). Following the completion of an Eligible
Tender Offer in which the number of tendered Common Shares would result in the Fund’s net assets equaling or totaling greater
than the Termination Threshold, the Board of Directors may eliminate the limited term structure of the Fund upon the affirmative
vote of a majority of the Board of Directors and without a vote of Common Shareholders. Thereafter, the Fund will have a perpetual
existence. The Fund is not required to conduct additional tender offers following an Eligible Tender Offer and conversion to a
perpetual structure. Therefore, remaining Common Shareholders may not have another opportunity to participate in a tender offer
or exchange their Common Shares for the then-existing NAV per Common Share. Common Shares of closed-end management investment companies
frequently trade at a discount from their NAV and as a result remaining Common Shareholders may only be able to sell their Common
Shares at a discount to NAV. See “—Market Discount.” The Adviser may have a conflict of interest in recommending
to the Board of Directors that the limited term structure be eliminated and the Fund have a perpetual existence.
In order to pay for
Common Shares to be purchased in an Eligible Tender Offer or to liquidate the portfolio in connection with the Fund’s termination,
the Fund will be required to sell its assets. As a result, the Fund may be required to sell portfolio securities when it otherwise
would not, including at times when market conditions are not favorable, which may cause the Fund to lose money. The Fund may receive
proceeds from the disposition of portfolio investments that are less than the valuations of such investments by the Fund and, in
particular, losses from the disposition of illiquid securities may be significant. The disposition of portfolio investments by
the Fund could also cause market prices of such instruments, and hence the NAV and market price of the Common Shares, to decline.
In addition, disposition of portfolio investments will cause the Fund to incur increased brokerage and related transaction expenses.
Moreover, in conducting
such portfolio transactions, the Fund may need to deviate from its investment policies and may not achieve its investment objectives.
The Fund’s portfolio composition may change as its portfolio holdings mature or are called or sold in anticipation of an
Eligible Tender Offer or the Termination Date. During such period(s), it is possible that the Fund will hold a greater percentage
of its total assets in shorter term and lower yielding securities and cash and cash equivalents than it would otherwise, which
may impede the Fund’s ability to achieve its investment objectives and adversely impact the Fund’s performance and
distributions to Common Shareholders, which may in turn adversely impact the market value of the Common Shares. In addition, the
Fund may be required to reduce its leverage, which could also adversely impact its performance. The additional cash or cash equivalents
held by the Fund could be obtained through reducing the Fund’s distributions to Common Shareholders and/or holding cash in
lieu of reinvesting, which could limit the ability of the Fund to participate in new investment opportunities. The Fund does not
limit its investments to securities having a maturity date prior to or around the Termination Date, which may exacerbate the foregoing
risks and considerations. A Common Shareholder may be subject to the foregoing risks over an extended period of time, particularly
if the Fund conducts an Eligible Tender Offer and is also subsequently terminated by or around the Termination Date.
If the Fund’s
tax basis for the investments sold is less than the sale proceeds, the Fund will recognize capital gains, which the Fund will be
required to distribute to Common Shareholders. In addition, the Fund’s purchase of tendered Common Shares pursuant to a tender
offer will have tax consequences for tendering Common Shareholders and may have tax consequences for non-tendering Common Shareholders.
The purchase of Common Shares by the Fund pursuant to a tender offer will have the effect of increasing the proportionate interest
in the Fund of non-tendering Common Shareholders. All Common Shareholders remaining after a tender offer will be subject to proportionately
higher expenses due to the reduction in the Fund’s total assets resulting from payment for the tendered Common Shares. A
reduction in net assets, and the corresponding increase in the Fund’s expense ratio, could result in lower returns and put
the Fund at a disadvantage relative to its peers and potentially cause the Fund to trade at a wider discount to NAV than it otherwise
would. Such reduction in the Fund’s total assets may also result in less investment flexibility, reduced diversification
and greater volatility for the Fund, and may have an adverse effect on the Fund’s investment performance. Moreover, the resulting
reduction in the number of outstanding Common Shares could cause the Common Shares to become thinly traded or otherwise adversely
impact the secondary market trading of such shares. Furthermore, the portfolio of the Fund following an Eligible Tender Offer could
be significantly different and, therefore, Common Shareholders retaining an investment in the Fund could be subject to greater
risk. For example, the Fund may be required to sell its more liquid, higher quality portfolio investments to purchase Common Shares
that are tendered in an Eligible Tender Offer, which would leave a less liquid, lower quality portfolio for remaining shareholders.
The prospects of an Eligible Tender Offer may attract arbitrageurs who would purchase the Common Shares prior to the tender offer
for the sole purpose of tendering those shares which could have the effect of exacerbating the risks described herein for shareholders
retaining an investment in the Fund following an Eligible Tender Offer.
In connection with
its termination, the Fund may distribute the proceeds from the disposition of portfolio securities in one or more liquidating distributions
prior to the final liquidation, which may cause fixed expenses to increase when expressed as a percentage of assets under management.
Upon a termination, it is anticipated that the Fund will have distributed substantially all of its net assets to Common Shareholders,
although securities for which no market exists, securities trading at depressed prices, if any, and assets recovered following
termination may be placed in a liquidating trust. Common Shareholders will bear the costs associated with establishing and maintaining
a liquidating trust, if necessary. Securities placed in a liquidating trust may be held for an indefinite period of time until
they can be sold or pay out all of their cash flows. The Fund cannot predict the amount, if any, of securities that will be required
to be placed in a liquidating trust.
Investment Style Risk
The Fund is managed
by allocating the Fund’s assets to two different strategies as described in this Prospectus. This may cause the Fund to underperform
funds that do not limit their investments to these two strategies during periods when these strategies underperform other types
of investments.
Not a Complete Investment Program
The Fund is intended
for investors seeking current income and overall total return over the long-term, and is not intended to be a short-term trading
vehicle. An investment in the Common Shares of the Fund should not be considered a complete investment program. Each investor should
take into account the Fund’s investment objectives and other characteristics as well as the investor’s other investments
when considering an investment in the Common Shares. An investment in the Fund may not be appropriate for all investors.
Multi-Manager Risk
Fund performance is
dependent upon the success of the Adviser and the Subadviser in implementing the Fund’s investment strategies in pursuit
of its investment objectives. To a significant extent, the Fund’s performance will depend on the success of the Adviser’s
methodology in allocating the Fund’s assets between each of the principal investment strategies. The Adviser’s and
the Subadviser’s investment styles may not always be complementary, which could adversely affect the performance of the Fund.
Because the Adviser and the Subadviser each makes investment decisions independently, it is possible that the Adviser and the Subadviser
may, at any time, take positions that in effect may be opposite of positions taken by each other. In such cases, the Fund will
incur brokerage and other transaction costs without accomplishing any net investment results. The multi-manager approach could
increase the Fund’s portfolio turnover rates, which may result in higher levels of realized capital gains or losses with
respect to the Fund’s portfolio securities, and higher broker commissions and other transaction costs. The trading costs
and tax consequences associated with portfolio turnover may adversely affect the Fund’s performance. See “—Investment
Style Risk.”
In addition, the Subadviser’s
implementation of the Municipal Bond Income Strategy means that, at any point in time, the Subadviser will manage 35%-75% of the
Fund’s Managed Assets. To the extent the Subadvisory Agreement with the Subadviser is terminated or not renewed, Fund performance
will become dependent on the Adviser or a new subadviser successfully implementing the Municipal Bond Income Strategy. There is
no assurance that a suitable replacement to the Subadviser could be found if the Subadvisory Agreement is terminated or not renewed.
Any such termination or non-renewal of the Subadvisory Agreement can have an adverse effect on an investment in the Fund. In addition,
to the extent the Adviser retains the responsibility of implementing the Municipal Bond Income Strategy of the Fund following the
termination or non-renewal of the Subadvisory Agreement, the approval of the Fund’s stockholders will likely not be required.
Asset Allocation Risk
To the extent that
the Adviser’s asset allocation between the Fund’s principal investment strategies may fail to produce the intended
result, the Fund’s return may suffer. Additionally, the potentially active asset allocation style of the Fund may lead to
changing allocations over time and represent a risk to investors who target fixed asset allocations.
Leverage Risks
Leverage is a speculative
technique that exposes the Fund to greater risk and increased costs than if it were not implemented. Increases and decreases in
the value of the Fund’s portfolio will be magnified when the Fund uses leverage. As a result, leverage may cause greater
changes in the Fund’s NAV. The leverage costs may be greater than the Fund’s return on the underlying investments made
from the proceeds of leverage. The Fund’s leveraging strategy may not be successful. See “Use of Leverage.”
If the Fund were to
utilize leverage in the form of borrowing, it anticipates that the money borrowed for investment purposes will incur interest based
on shorter-term interest rates that would be periodically reset. So long as the Fund’s portfolio provides a higher rate of
return, net of expenses, than the interest rate on borrowed money, as reset periodically, the leverage may cause the holders of
Common Shares to receive a higher current rate of return than if the Fund were not leveraged. If, however, long-term and/or short-term
rates rise, the interest rate on borrowed money could exceed the rate of return on securities held by the Fund, reducing return
to the holders of Common Shares. Developments in the credit markets may adversely affect the ability of the Fund to borrow money
for investment purposes and may increase the costs of such borrowings, which would reduce returns to the holders of Common Shares.
In addition to the
foregoing, the use of leverage involves risks and special considerations for Common Shareholders, including:
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the likelihood of greater volatility of NAV, market price and dividend rate of the Common Shares than a comparable portfolio without leverage; |
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the risk that fluctuations in interest rates on borrowings or on short-term debt or in the interest or dividend rates on any debt securities or Preferred Shares that the Fund must pay will reduce the return to the Common Shareholders; |
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the effect of leverage in a declining market, which is likely to cause a greater decline in the NAV of the Common Shares than if the Fund were not leveraged, may result in a greater decline in the market price of the Common Shares; |
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when the Fund uses financial leverage, the investment management fees payable to the Adviser and the subadvisory fees payable by the Adviser to the Subadviser will be higher than if the Fund did not use leverage. This may create a conflict of interest between the Adviser and the Subadviser, on the one hand, and the holders of Common Shares, on the other; and |
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leverage may increase operating costs, which may reduce total return. |
The use of leverage
may require the Fund to segregate assets to cover its obligations (or, if the Fund borrows money or issues Preferred Shares, to
maintain asset coverage in conformity with the requirements of the 1940 Act). While the segregated assets will be invested in liquid
securities, they may not be used for other operational purposes. Consequently, the use of leverage may limit the Fund’s flexibility
and may require that the Fund sell other portfolio investments to pay Fund expenses, to maintain assets in an amount sufficient
to cover the Fund’s leveraged exposure or to meet other obligations at a time when it may be disadvantageous to sell such
assets. See “—Legislation and Regulatory Risks” for forthcoming changes to the existing asset segregation framework
under applicable rules and regulations that could impact the Fund in the future.
Certain types of borrowings
by the Fund may result in the Fund being subject to covenants in credit agreements relating to asset coverage and portfolio composition
requirements. The Fund may be subject to certain restrictions on investments imposed by guidelines of one or more rating agencies,
which may issue ratings for the short-term debt securities or Preferred Shares issued by the Fund. These guidelines may impose
asset coverage or portfolio composition requirements that are more stringent than those imposed by the 1940 Act. The Adviser does
not believe that these covenants or guidelines will impede it from managing the Fund’s portfolio in accordance with the Fund’s
investment objectives and policies if the Fund were to utilize such leverage.
Leverage risk would
also apply to the Fund’s investments in Underlying Funds to the extent an Underlying Fund uses leverage. To the extent the
Fund uses leverage and invests in Underlying Funds that also use leverage, the risks associated with leverage will be magnified,
potentially significantly.
The Fund currently
anticipates that leverage will initially be obtained through borrowings from banks or other financial institutions and the use
of proceeds received from tender option bond transactions. See “—Investment-Related Risks—Tender Option Bonds
Risks.”
The use of segregation
and cover with respect to a leverage instrument or technique does not prevent the Fund from suffering a loss on such instrument
or technique.
Portfolio Turnover Risk
The Fund’s annual
portfolio turnover rate may vary greatly from year to year. High portfolio turnover may result in the realization of net short-term
capital gains by the Fund which, when distributed to holders of Common Shares, will be taxable as ordinary income. In addition,
a higher portfolio turnover rate results in correspondingly greater brokerage commissions and other transactional expenses that
are borne by the Fund. However, portfolio turnover rate is not considered a limiting factor in the execution of investment decisions
for the Fund. See “U.S. Federal Income Tax Matters.”
Potential Conflicts of Interest Risk
The Adviser, the Subadviser
and the portfolio managers of the Fund have interests which may conflict with the interests of the Fund. In particular, the Adviser
and the Subadviser each manages and/or advises other investment funds or accounts with the same or similar investment objectives
and strategies as the Fund. As a result, the Adviser, the Subadviser and the Fund’s portfolio managers may devote unequal
time and attention to the management of the Fund and those other funds and accounts, and may not be able to formulate as complete
a strategy or identify equally attractive investment opportunities as might be the case if they were to devote substantially more
attention to the management of the Fund. The Adviser, the Subadviser and the Fund’s portfolio managers may identify a limited
investment opportunity that may be suitable for multiple funds and accounts, and the opportunity may be allocated among these several
funds and accounts, which may limit the Fund’s ability to take full advantage of the investment opportunity. Additionally,
transaction orders may be aggregated for multiple accounts for purpose of execution, which may cause the price or brokerage costs
to be less favorable to the Fund than if similar transactions were not being executed concurrently for other accounts. Furthermore,
it is theoretically possible that a portfolio manager could use the information obtained from managing a fund or account to the
advantage of other funds or accounts under management, and also theoretically possible that actions could be taken (or not taken)
to the detriment of the Fund. At times, a portfolio manager may determine that an investment opportunity may be appropriate for
only some of the funds and accounts for which he or she exercises investment responsibility, or may decide that certain of the
funds and accounts should take differing positions with respect to a particular security. In these cases, the portfolio manager
may place separate transactions for one or more funds or accounts which may affect the market price of the security or the execution
of the transaction, or both, to the detriment or benefit of one or more other funds and accounts. For example, a portfolio manager
may determine that it would be in the interest of another account to sell a security that the Fund holds, potentially resulting
in a decrease in the market value of the security held by the Fund.
Conflicts potentially
limiting the Fund’s investment opportunities may also arise when the Fund and other clients of the Adviser or Subadviser
invest in, or even conduct research relating to, different parts of an issuer’s capital structure, such as when the Fund
owns senior debt obligations of an issuer and other clients own junior tranches of the same issuer. In such circumstances, decisions
over whether to trigger an event of default, over the terms of any workout, or how to exit an investment may result in conflicts
of interest. In order to minimize such conflicts, a portfolio manager may avoid certain investment opportunities that would potentially
give rise to conflicts with other clients of the Adviser or Subadviser (as applicable) or result in the Adviser or Subadviser receiving
material, non-public information, or the Adviser and Subadviser may enact internal procedures designed to minimize such conflicts,
which could have the effect of limiting the Fund’s investment opportunities. Additionally, if the Adviser or Subadviser acquires
material non-public confidential information in connection with its business activities for other clients, a portfolio manager
or other investment personnel may be restricted from purchasing securities or selling certain securities for the Fund or other
clients.
The portfolio managers
also may engage in cross trades between funds and accounts, may select brokers or dealers to execute securities transactions based
in part on brokerage and research services provided to the Adviser or the Subadviser which may not benefit all funds and accounts
equally and may receive different amounts of financial or other benefits for managing different funds and accounts. The Adviser,
the Subadviser and their affiliates may provide more services to some types of funds and accounts than others.
The Fund, Adviser and/or
Subadviser (as applicable) have adopted policies and procedures that address the foregoing potential conflicts of interest, including
policies and procedures to address the allocation of investment opportunities, execution of portfolio transactions, personal trading
by employees and other potential conflicts of interest that are designed to ensure that all accounts of the Adviser and Subadviser
are treated equitably. There is no guarantee that the policies and procedures adopted by the Adviser, the Subadviser and the Fund
will be able to identify or mitigate the conflicts of interest that arise between the Fund and any other investment funds or accounts
that the Adviser and/or the Subadviser may manage or advise from time to time. For further information on potential conflicts of
interest, see “Management of the Fund—Conflicts of Interest” in the SAI.
In addition, while
the Fund is using leverage, the amount of the fees paid to the Adviser (and by the Adviser to the Subadviser) for investment advisory
and management services are higher than if the Fund did not use leverage because the fees paid are calculated based on the Fund’s
Managed Assets, which include assets purchased with leverage. Therefore, the Adviser and the Subadviser have a financial incentive
to leverage the Fund, which creates a conflict of interest between the Adviser and the Subadviser on the one hand and the Common
Shareholders of the Fund on the other.
Stockholder Activism
Stockholder activism,
which could take many forms, including making public demands that the Fund consider certain strategic alternatives, engaging in
public campaigns to attempt to influence the Fund’s corporate governance and/or management, and commencing proxy contests
to attempt to elect the activists’ representatives or others to the Fund’s Board of Directors, or arise in a variety
of situations, has been increasing in the closed-end fund space recently. While the Fund is currently not subject to any stockholder
activism, due to the potential volatility of the Fund’s stock price and for a variety of other reasons, the Fund may in the
future become the target of stockholder activism. Stockholder activism could result in substantial costs and divert management’s
and the Fund’s Board’s attention and resources from its business. Also, the Fund may be required to incur significant
legal and other expenses related to any activist stockholder matters. Further, the Fund’s stock price could be subject to
significant fluctuation or otherwise be adversely affected by the events, risks and uncertainties of any stockholder activism.
Cyber Security Risk
With the increased
use of the Internet and because information technology (“IT”) systems and digital data underlie most of the Fund’s
operations, the Fund and the Adviser, Subadviser, transfer agent, and other service providers and the vendors of each (collectively
“Service Providers”) are exposed to the risk that their operations and data may be compromised as a result of internal
and external cyber-failures, breaches or attacks (“Cyber Risk”). This could occur as a result of malicious or criminal
cyber-attacks. Cyber-attacks include actions taken to: (i) steal or corrupt data maintained online or digitally, (ii) gain unauthorized
access to or release confidential information, (iii) shut down the Fund or Service Provider website through denial-of-service attacks,
or (iv) otherwise disrupt normal business operations. However, events arising from human error, faulty or inadequately implemented
policies and procedures or other systems failures unrelated to any external cyber-threat may have effects similar to those caused
by deliberate cyber-attacks.
Successful cyber-attacks
or other cyber-failures or events affecting the Fund or its Service Providers may adversely impact the Fund or its shareholders
or cause an investment in the Fund to lose value. For instance, such attacks, failures or other events may interfere with the processing
of shareholder transactions, impact the Fund’s ability to calculate its NAV, cause the release of private shareholder information
or confidential Fund information, impede trading, or cause reputational damage. Because the Fund does not offer to redeem its Common
Shares at NAV, damage to the reputation of the Fund or its service providers could cause a decline in the value of the Fund’s
Common Shares, perhaps suddenly. Such attacks, failures or other events could also subject the Fund or its Service Providers to
regulatory fines, penalties or financial losses, reimbursement or other compensation costs, and/or additional compliance costs.
Insurance protection and contractual indemnification provisions may be insufficient to cover these losses. The Fund or its Service
Providers may also incur significant costs to manage and control Cyber Risk. While the Fund and its Service Providers have established
IT and data security programs and have in place business continuity plans and other systems designed to prevent losses and mitigate
Cyber Risk, there are inherent limitations in such plans and systems, including the possibility that certain risks have not been
identified or that cyber-attacks may be highly sophisticated.
Cyber Risk is also
present for issuers of securities or other instruments in which the Fund invests, which could result in material adverse consequences
for such issuers, and may cause a Fund’s investment in such issuers to lose value.
Secondary Market for the Common Shares
The issuance of Common
Shares through the Plan may have an adverse effect on the secondary market for the Common Shares. The increase in the number of
outstanding Common Shares resulting from the issuances pursuant to the Plan and the discount to the market price at which such
Common Shares may be issued, may put downward pressure on the market price for the Common Shares. When the Common Shares are trading
at a premium, the Fund may also issue Common Shares that may be sold through private transactions effected on the NYSE or through
broker-dealers. The increase in the number of outstanding Common Shares resulting from these offerings may put downward pressure
on the market price for Common Shares.
Repurchase Plan Risk
There can be no assurance
that repurchases of Common Shares pursuant to the Repurchase Plan will cause the Common Shares to trade at a price equal to or
in excess of NAV or prevent or reduce any decline in the market price of the Common Shares. Any acquisition of Common Shares by
the Fund would decrease the Managed Assets of the Fund and therefore tend to have the effect of increasing the Fund’s gross
expense ratio and decreasing the asset coverage with respect to any leverage outstanding. Because of the nature of the Fund’s
investment objectives, policies and portfolio, the Adviser and the Subadviser do not anticipate that repurchases of Common Shares
should interfere with the ability of the Fund to manage its investments in order to seek its investment objectives, and do not
anticipate any material difficulty in borrowing money or disposing of portfolio securities to consummate repurchases, although
no assurance can be given that this will be the case. The Repurchase Plan is expected to be in effect for the Repurchase Period
only and there is no current expectation or assurance that the Fund will repurchase Common Shares at any time following the Repurchase
Period, which may result in a decline in the market price of the Common Shares following the conclusion of the Repurchase Period
(however, the Board of Directors reserves the right to extend the Repurchase Period or authorize additional repurchases of Common
Shares by the Fund at some time after the conclusion of the Repurchase Plan if the Board of Directors determines such repurchases
are in the best interests of the Fund and the Common Shareholders). Further, the Fund may be required to liquidate portfolio investments
at an inopportune time or price in order to fund share repurchases under the Repurchase Plan and will incur transaction costs borne
by the remaining Common Shareholders. The Fund’s repurchase of shares under the Repurchase Plan will be subject to certain
conditions under Rule 10b-18 of the Exchange Act and other applicable laws, including Regulation M, which may prohibit such repurchases
under certain circumstances.
Anti-Takeover Provisions
Maryland law and the
Fund’s Charter and Bylaws include provisions that could limit the ability of other entities or persons to acquire control
of the Fund or to convert the Fund to open-end status, including the adoption of a staggered Board of Directors and the supermajority
voting requirements discussed herein. These provisions could deprive the holders of Common Shares of opportunities to sell their
Common Shares at a premium over the then current market price of the Common Shares or at NAV. See “Certain Provisions of
the Fund’s Charter and Bylaws and of Maryland Law.” This risk would also apply to many of the Fund’s investments
in Underlying Funds.
MANAGEMENT OF THE FUND
Board of Directors
The Fund’s Board
of Directors has overall responsibility for management of the Fund. The Board of Directors decides upon matters of general policy
and generally oversees the actions of the Adviser, the Subadviser and the other service providers of the Fund. The name and business
address of the Board of Directors and officers of the Fund, and their principal occupations and other affiliations during the past
five years, are set forth under “Board Members and Officers” in the SAI.
Investment Adviser
RiverNorth Capital
Management, LLC (“RiverNorth” or the “Adviser”), a registered investment adviser, is the Fund’s investment
adviser and is responsible for the day-to-day management of the Fund’s Managed Assets allocated to the Tactical Municipal
Closed-End Fund Strategy, managing the Fund’s business affairs and providing certain administrative services. The Adviser
is also responsible for determining the Fund’s overall investment strategy and overseeing its implementation. Subject to
the ranges noted above, the Adviser determines the portion of the Fund’s Managed Assets to allocate to each strategy and
may, from time to time, adjust the allocations.
RiverNorth, founded
in 2000, is a wholly-owned subsidiary of RiverNorth Financial Holdings LLC and is located at 360 South Rosemary Avenue, Suite 1420,
West Palm Beach, FL 33401. As of December 31, 2021, RiverNorth managed approximately $5.8 billion for registered open-end management
investment companies, registered closed-end management investment companies and private investment vehicles. See “Management
of the Fund” in the SAI.
Subadviser
MacKay Shields LLC
is the Fund’s subadviser and is responsible for the day-to-day management of the Fund’s Managed Assets allocated to
the Municipal Bond Income Strategy. The Subadviser is located at 1345 Avenue of the Americas, 43rd Floor, New York, New York 10105.
The Subadviser is registered with the SEC and, as of December 31, 2021, had approximately $163.6 billion in assets under management.
The Subadviser was incorporated in 1969 as an independent investment advisory firm and was privately held until 1984 when it was
acquired by New York Life Insurance Company. The Subadviser is an indirect wholly owned subsidiary of New York Life Insurance Company.
Portfolio Management
Patrick W. Galley,
CFA has been a co-portfolio manager of the Tactical Municipal Closed-End Fund Strategy for the Fund since its inception. Mr. Galley
is the Chief Executive Officer and Chief Investment Officer for the Adviser. Mr. Galley heads the Adviser’s research and
investment team and oversees all portfolio management activities at the Adviser. Mr. Galley also serves as the President and Chairman
of the RiverNorth Funds, a mutual fund complex for which RiverNorth serves as the investment adviser. Prior to joining the Adviser
in 2004, he was most recently a Vice President at Bank of America in the Global Investment Bank’s Portfolio Management group,
where he specialized in analyzing and structuring corporate transactions for investment management firms in addition to closed-end
and open-end funds, hedge funds, funds of funds, structured investment vehicles and insurance/reinsurance companies. Mr. Galley
graduated with honors from Rochester Institute of Technology with a B.S. in Finance. He has received the Chartered Financial Analyst
(CFA) designation, is a member of the CFA Institute and is a member of the CFA Society of Chicago.
Stephen O’Neill,
CFA has been a co-portfolio manager of the Tactical Municipal Closed-End Fund Strategy for the Fund since its inception. Mr. O’Neill
conducts qualitative and quantitative analysis of closed-end funds and their respective asset classes at RiverNorth. Prior to joining
RiverNorth Capital in 2007, Mr. O’Neill was most recently an Assistant Vice President at Bank of America in the Global Investment
Bank’s Portfolio Management group. At Bank of America, he specialized in the corporate real estate, asset management, and
structured finance industries. Mr. O’Neill graduated magna cum laude from Miami University in Oxford, Ohio with a B.S. in
Finance. Mr. O’Neill has received the Chartered Financial Analyst (CFA) designation, is a member of the CFA Institute, and
is a member of the CFA Society of Chicago.
Robert DiMella, CFA
has been a co-portfolio manager of the Municipal Bond Income Strategy for the Fund since its inception. Mr. DiMella is an Executive
Director of the Subadviser. He has managed the MainStay Tax Free Bond Fund since 2009, the MainStay High Yield Municipal Bond Fund
since 2010, the MainStay New York Tax Free Opportunities Fund since May 2012, the MainStay Defined Term Municipal Opportunities
Fund since 2012, the MainStay California Tax Free Opportunities Fund since 2013 and the MainStay Tax Advantaged Short Term Bond
Fund since June 2015. Previously, he co-founded Mariner Municipal Managers LLC (2007 to 2009). Prior to BlackRock’s merger
with Merrill Lynch Investment Managers (“MLIM”), he served as a Senior Portfolio Manager and Managing Director of the
Municipal Products Group. Mr. DiMella earned his Master’s degree at Rutgers University Business School and a Bachelors Degree
at the University of Connecticut, and he has received the CFA designation.
John Loffredo, CFA
has been a co-portfolio manager of the Municipal Bond Income Strategy for the Fund since its inception. Mr. Loffredo is an Executive
Managing Director of the Subadviser. Mr. Loffredo has managed the MainStay Tax Free Bond Fund since 2009, the MainStay High Yield
Municipal Bond Fund since 2010, the MainStay New York Tax Free Opportunities Fund since 2012, the MainStay Defined Term Municipal
Opportunities Fund since 2012, the MainStay California Tax Free Opportunities Fund since 2013 and the MainStay Tax Advantaged Short
Term Bond Fund since June 2015. He has been a municipal portfolio manager and/or municipal analyst on Wall Street since 1990, with
a broad range of portfolio management and analytic experience in the municipal markets. He previously co-founded Mariner Municipal
Managers LLC (2007 to 2009). Prior to BlackRock’s merger with MLIM, he served as Chief Investment Officer of the Municipal
Products Group of MLIM. Mr. Loffredo graduated cum laude with an MBA from Utah State University where he was a Harry S. Truman
Scholar. He also has a Certificate of Public Management from Boston University, and he has received the CFA designation.
Michael Petty has been
a co-portfolio manager of the Municipal Bond Income Strategy for the Fund since its inception. Mr. Petty is a Senior Managing Director
of the Subadviser. Mr. Petty has managed the MainStay High Yield Municipal Bond Fund since 2010, the MainStay Tax Free Bond Fund
since 2011, the MainStay New York Tax Free Opportunities Fund since 2012, the MainStay Defined Term Municipal Opportunities Fund
since 2012, the MainStay California Tax Free Opportunities Fund since 2013 and the MainStay Tax Advantaged Short Term Bond Fund
since June 2015. Before joining the Subadviser in 2009, he was a Portfolio Manager for Mariner Municipal Managers. He has been
a portfolio manager on Wall Street since 1992, and has worked in the municipal products market since 1985. Mr. Petty has a broad
array of trading, portfolio management, and sales experience. Prior to joining Mariner Municipal Managers, he was a Senior Portfolio
Manager at Dreyfus Corporation from 1997 to 2009. From 1992 to 1997, he served as a Portfolio Manager for Merrill Lynch Investment
Managers. Mr. Petty graduated from Hobart College with a B.S. in Mathematics and Economics.
Scott Sprauer has been
a co-portfolio manager of the Municipal Bond Income Strategy for the Fund since its inception. Mr. Sprauer is a Senior Managing
Director of the Subadviser. He joined the Subadviser in 2009 as a Portfolio Manager in the Municipal Bond Division. He has managed
the MainStay New York Tax Free Opportunities Fund since 2012, the MainStay Defined Term Municipal Opportunities Fund since 2012,
the MainStay California Tax Free Opportunities Fund since 2013, the MainStay High Yield Municipal Bond Fund and MainStay Tax Free
Bond Fund since February 2014 and the MainStay Tax Advantaged Short Term Bond Fund since June 2015. Prior to joining the Subadviser,
he was the Head Trader, Fixed Income at Financial Guaranty Insurance Company from 2006 to 2009. He has a BSBA from Villanova University,
and has been in the investment management industry since 1991.
David Dowden has been
a co-portfolio manager of the Municipal Bond Income Strategy for the Fund since its inception. Mr. Dowden is a Managing Director
of the Subadviser. He joined the Subadviser in 2009 as a Portfolio Manager in the Municipal Bond Division. He has managed the MainStay
New York Tax Free Opportunities Fund since 2012, the MainStay Defined Term Municipal Opportunities Fund since 2012, the MainStay
California Tax Free Opportunities Fund since 2013, the MainStay High Yield Municipal Bond Fund and MainStay Tax Free Bond Fund
since February 2014 and the MainStay Tax Advantaged Short Term Bond Fund since June 2015. Prior to joining the Subadviser, he was
the Chief Investment Officer at Financial Guaranty Insurance Company from 2006 to 2009. He has a BA from Brown University and an
MBA from Columbia University. He has been in the investment management industry since 1989.
Robert Burke is a co-portfolio
manager of the Municipal Bond Income Strategy for the Fund. Mr. Burke is a Managing Director of the Subadviser. He joined the Subadviser
in July 2017. Before joining the Subadviser, Mr. Burke held various leadership roles in capital markets, spending the majority
of his time in the municipal markets. In his last role working for Bank of America Merrill Lynch, Mr. Burke managed the Global
Futures, Derivatives Clearing and Foreign Exchange Prime Brokerage businesses. Mr. Burke started his career at Bank of America
Merrill Lynch in the municipal bond department covering insurance, hedge fund, and asset management clients. He holds a Masters
of Business Administration from the Gabelli School at Fordham University, and a Bachelor of Arts with High Honors in Economics
from Colgate University. Mr. Burke has received the CFA designation. He has been in the investment management industry since 1985.
John Lawlor has been
a co-portfolio manager of the Municipal Bond Income Strategy for the Fund since its inception. Mr. Lawlor joined MacKay Shields
in 2016. Before joining the firm, he was Vice President Equity Sales at Deutsche Bank and was previously at Bank of America Merrill
Lynch. From 1997-2011, he was a senior trader on the floor of the New York Stock Exchange. John has a broad and diverse set of
skills in sales, trading, and electronic trading platforms. He earned a Bachelor’s degree in Finance from Lehigh University.
John graduated college in 1997. He has 19 years in the financial services industry.
The Fund’s SAI
provides information about the compensation received by the portfolio managers of the Fund, other accounts that they manage and
their ownership of the Fund’s equity securities.
Investment Advisory and Subadvisory Agreements
Pursuant to an Investment
Advisory Agreement, the Adviser is responsible for managing the Fund’s affairs, subject at all times to the general oversight
of the Fund’s Board of Directors. The Fund has agreed to pay the Adviser a management fee payable on a monthly basis at
the annual rate of 1.40% of the Fund’s average daily Managed Assets for the services it provides. This management fee paid
by the Fund to the Adviser is essentially an all-in fee structure (the “unified management fee”) and, as part of the
unified management fee, the Adviser provides or causes to be furnished all supervisory and administrative and other services reasonably
necessary for the operation of the Fund, except (unless otherwise described in this Prospectus or otherwise agreed to in writing),
the Fund pays, in addition to the unified management fee, taxes and governmental fees, if any, levied against the Fund; brokerage
fees and commissions and other portfolio transaction expenses incurred by or for the Fund; costs, including interest expenses,
of borrowing money or engaging in other types of leverage financing including, without limit, through the use by the Fund of tender
option bond transactions; costs, including dividend and/or interest expenses and other costs (including, without limit, offering
and related legal costs, fees to brokers, fees to auction agents, fees to transfer agents, fees to ratings agencies and fees to
auditors associated with satisfying ratings agency requirements for preferred shares or other securities issued by the Fund and
other related requirements in the Fund’s organizational documents) associated with the Fund’s issuance, offering,
redemption and maintenance of preferred shares or other instruments (such as the use of tender option bond transactions) for the
purpose of incurring leverage; fees and expenses of any Underlying Funds in which the Fund invests; dividend and interest expenses
on short positions taken by the Fund; fees and expenses, including travel expenses and fees and expenses of legal counsel retained
for their benefit, of directors of the Fund who are not officers, employees, partners, shareholders or members of the Adviser
or its affiliates; fees and expenses associated with and incident to shareholder meetings and proxy solicitations involving contested
elections of directors, shareholder proposals or other non-routine matters that are not initiated or proposed by the Adviser;
legal, marketing, printing, accounting and other expenses associated with any future share offerings, such as rights offerings
and shelf offerings, following the Fund’s initial offering; expenses associated with tender offers (other than any Eligible
Tender Offer) and other share repurchases and redemptions; and other extraordinary expenses, including extraordinary legal expenses,
as may arise, including, without limit, expenses incurred in connection with litigation, proceedings, other claims and the legal
obligations of the Fund to indemnify its directors, officers, employees, shareholders, distributors and agents with respect thereto.
Pursuant to a Subadvisory
Agreement, the Adviser has delegated daily management of the Fund’s Managed Assets allocated to the Municipal Bond Income
Strategy to the Subadviser, who is paid by the Adviser from the unified management fee and not the Fund. The Adviser (and not the
Fund) has agreed to pay the Subadviser a subadvisory fee payable on a monthly basis at the annual rate of 0.20% of the Fund’s
average daily Managed Assets for the service it provides.
Because the fees received
by the Adviser and the Subadviser are based on the Managed Assets of the Fund, the Adviser and the Subadviser have a financial
incentive for the Fund to use leverage, which may create a conflict of interest between the Adviser and the Subadviser, on the
one hand, and the holders of Common Shares, on the other. Because leverage costs will be borne by the Fund at a specified interest
rate, the Fund’s investment management fee and other expenses, including expenses incurred as a result of any leverage, are
paid only by the common shareholders and not by holders of Preferred Shares or through borrowings. See “Use of Leverage.”
A discussion of the
basis for the Board of Directors’ approval of the Fund’s Investment Advisory and Subadvisory Agreements is available
in the Fund’s annual report dated June 30, 2021. The basis for subsequent continuations of these agreements will be provided
in annual or semi-annual reports to shareholders for the periods during which such continuations occur.
NET ASSET VALUE
NAV is determined daily
as of the close of the regular trading session on the NYSE (usually 4:00 p.m. Eastern time). NAV is calculated by dividing the
value of all of the securities and other assets of the Fund, less the liabilities (including accrued expenses and indebtedness)
and the aggregate liquidation value of any outstanding Preferred Shares, by the total number of common shares outstanding.
The Fund utilizes an
independent pricing service approved by the Fund’s Board of Directors to value its Municipal Bond investments. The Fund’s
Underlying Fund investments are generally valued at their market value using market quotations. The Fund may use independent pricing
services to provide market quotations. Prices obtained from independent pricing services use various observable inputs and assumptions,
including, but not limited to, information provided by broker-dealers, pricing formulas, such as dividend discount models, option
valuation formulas, estimates of market values obtained from yield data relating to investments or securities with similar characteristics
and discounted cash flow models that might be applicable. In valuing Municipal Bonds, the pricing services may consider, among
other factors, the yields or prices of municipal securities of comparable quality, type of issue, coupon, maturity and rating and
the obligor’s credit characteristics considered relevant by the pricing service of the Board of Directors. If a market valuation
for a security is unavailable or deemed to be an unreliable indicator of current market value, the Fund will seek to obtain a broker
quote from an external data vendor or directly from broker-dealers. Certain fixed income securities purchased on a delayed delivery
basis are marked-to-market daily until settlement at the forward settlement date. Short-term investments having a maturity of 60
days or less are generally valued at amortized cost; however, securities with a demand feature exercisable within seven days are
generally valued at par. Exchange-traded options, futures and options on futures are valued at the settlement price determined
by the relevant exchange. If market quotations are not available or, in the Adviser or Subadviser’s opinion, market quotations
do not reflect market value, or if an event occurs after the close of trading on the domestic or foreign exchange or market on
which the security is principally traded (but prior to the time as of which the NAV is calculated) that materially affects market
value, the security will be valued at fair value according to policies approved by the Fund’s Board of Directors. For example,
if trading in a portfolio security is halted and does not resume before the Fund calculates its NAV, the security may need to be
fair valued using the Fund’s fair value pricing policies. Fair valuation involves subjective judgments and it is possible
that the fair value determined for a security may differ materially from the value that could be realized upon the sale of the
security. The Fund invests in Underlying Funds. The Fund’s NAV is calculated based, in part, upon the market prices of the
Underlying Funds in its portfolio, and the prospectuses of those companies explain the circumstances under which they will use
fair value pricing and the effects of doing so.
DIVIDENDS AND DISTRIBUTIONS
The Fund has implemented
a level distribution policy (the “Level Distribution Policy). Under the Level Distribution Policy, the Fund intends to make
monthly distributions to common shareholders at a constant and fixed (but not guaranteed) rate (which is annually reset) equal
to 6.00% of the average of the Fund’s NAV per share (the “Distribution Amount”) as reported for the final five
trading days of the preceding calendar year. The Board may amend the Level Distribution Policy, the Distribution Amount or distribution
intervals, or the Fund may cease distributions entirely, at any time, without prior notice to common shareholders. The Fund’s
intention under the Level Distribution Policy is that monthly distributions paid to common shareholders throughout a calendar year
will be at least equal to the Distribution Amount (plus any additional amounts that may be required to be included in a distribution
for federal or excise tax purposes).
Under the Level Distribution
Policy, to the extent that sufficient investment income is not available on a monthly basis, the Fund’s distributions could
consist of return of capital in order to maintain the distribution rate. The amount treated as a return of capital will reduce
a shareholder’s adjusted basis in the shareholder’s shares, thereby increasing the potential gain or reducing the potential
loss on the sale of shares. Investors should not make any conclusions about the Fund’s investment performance from the amount
of the Fund’s distributions or from the terms of the Fund’s Level Distribution Policy.
It is expected that
the Fund’s distributions will generally be treated as tax-exempt income for purposes of regular U.S. federal income tax;
however, a portion of the Fund’s distributions may (i) be subject to U.S. federal income tax and such distributions will
generally be subject to state and local taxes, (ii) be includable in taxable income for purposes of the Federal alternative minimum
tax, and (iii) constitute a return of capital. For example, the Fund may invest up to 30% of the Managed Assets allocated to the
Municipal Bond Income Strategy in Municipal Bonds that pay interest that may be includable in taxable income for purposes of the
Federal alternative minimum tax. Moreover, the Underlying Funds in which the Fund invests pursuant to the Tactical Municipal Closed-End
Fund Strategy may themselves invest in municipal bonds that pay interest that may be includable in taxable income for purposes
of the Federal alternative minimum tax.
The Fund will distribute
to common shareholders at least annually all or substantially all of its investment company taxable income and net exempt interest
income after the payment of dividends and interest, if any, owed with respect to any outstanding Preferred Shares or other forms
of leverage utilized by the Fund. The Fund intends to pay any capital gains distributions at least annually. If the Fund realizes
a long-term capital gain, it will be required to allocate such gain between the common shares and any Preferred Shares issued by
the Fund in proportion to the total dividends paid to each class for the year in which the income is realized. A distribution of
an amount in excess of the Fund’s current and accumulated earnings and profits will be treated by a common shareholder as
a return of capital which is applied against and reduces the common shareholder’s tax basis in his or her common shares.
To the extent that the amount of any distribution exceeds the common shareholder’s basis in his or her shares, the excess
will be treated by the common shareholder as gain from a sale or exchange of the common shares.
Under the 1940 Act,
the Fund may not declare any dividend or other distribution upon any class of its capital shares, or purchase any such capital
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.
While any Preferred
Shares are outstanding, the Fund may not declare any cash dividend or other distribution on its common shares, unless at the time
of such declaration, (i) all accumulated preferred dividends have been paid and (ii) the NAV of the Fund’s portfolio (determined
after deducting the amount of such dividend or other distribution) is at least 200% of the liquidation value of the outstanding
Preferred Shares (expected to be equal to the original purchase price per share plus any accumulated and unpaid dividends thereon).
In addition to the
limitations imposed by the 1940 Act described above, certain lenders may impose additional restrictions on the payment of dividends
or distributions on the common shares in the event of a default on the Fund’s borrowings. If the Fund’s ability to
make distributions on its common shares is limited, such limitations could, under certain circumstances, impair the ability of
the Fund to maintain its qualification for federal income tax purposes as a regulated investment company, which would have adverse
tax consequences for shareholders. See “Use of Leverage” and “U.S. Federal Income Tax Matters.”
DIVIDEND REINVESTMENT PLAN
The Fund has an automatic
dividend reinvestment plan commonly referred to as an “opt-out” plan. Unless the registered owner of Common Shares
elects to receive cash by contacting DST Systems, Inc. (the “Plan Administrator”), all dividends declared on Common
Shares will be automatically reinvested by the Plan Administrator for shareholders in the Fund’s Automatic Dividend Reinvestment
Plan (the “Plan”), in additional Common Shares. Common Shareholders who elect not to participate in the Plan will receive
all dividends and other distributions in cash paid by check mailed directly to the shareholder of record (or, if the Common Shares
are held in street or other nominee name, then to such nominee) by the Plan Administrator as dividend disbursing agent. Participation
in the Plan is completely voluntary and may be terminated or resumed at any time without penalty by notice if received and processed
by the Plan Administrator prior to the dividend record date; otherwise such termination or resumption will be effective with respect
to any subsequently declared dividend or other distribution. Such notice will be effective with respect to a particular dividend
or other distribution (together, a “Dividend”). Some brokers may automatically elect to receive cash on behalf of Common
Shareholders and may re-invest that cash in additional Common Shares. Reinvested Dividends will increase the Fund’s Managed
Assets on which the management fee is payable to the Adviser (and by the Adviser to the Subadviser).
Whenever the Fund declares
a Dividend payable in cash, non-participants in the Plan will receive cash and participants in the Plan will receive the equivalent
in Common Shares. The Common Shares will be acquired by the Plan Administrator for the participants’ accounts, depending
upon the circumstances described below, either (i) through receipt of additional unissued but authorized Common Shares from the
Fund (“Newly Issued Common Shares”) or (ii) by purchase of outstanding Common Shares on the open market (“Open-Market
Purchases”) on the NYSE or elsewhere. If, on the payment date for any Dividend, the closing market price plus estimated brokerage
commissions per Common Share is equal to or greater than the NAV per Common Share, the Plan Administrator will invest the Dividend
amount in Newly Issued Common Shares on behalf of the participants. The number of Newly Issued Common Shares to be credited to
each participant’s account will be determined by dividing the dollar amount of the Dividend by the Fund’s NAV per Common
Share on the payment date. If, on the payment date for any Dividend, the NAV per Common Share is greater than the closing market
value plus estimated brokerage commissions (i.e., the Fund’s Common Shares are trading at a discount), the Plan Administrator
will invest the Dividend amount in Common Shares acquired on behalf of the participants in Open-Market Purchases.
In the event of a market
discount on the payment date for any Dividend, the Plan Administrator will have until the last business day before the next date
on which the Common Shares trade on an “ex-dividend” basis or 30 days after the payment date for such Dividend, whichever
is sooner (the “Last Purchase Date”), to invest the Dividend amount in Common Shares acquired in Open-Market Purchases.
It is contemplated that the Fund will pay monthly income Dividends. If, before the Plan Administrator has completed its Open-Market
Purchases, the market price per Common Share exceeds the NAV per Common Share, the average per Common Share purchase price paid
by the Plan Administrator may exceed the NAV of the Common Shares, resulting in the acquisition of fewer Common Shares than if
the Dividend had been paid in Newly Issued Common Shares on the Dividend payment date. Because of the foregoing difficulty with
respect to Open-Market Purchases, the Plan provides that if the Plan Administrator is unable to invest the full Dividend amount
in Open-Market Purchases during the purchase period or if the market discount shifts to a market premium during the purchase period,
the Plan Administrator may cease making Open-Market Purchases and may invest the uninvested portion of the Dividend amount in Newly
Issued Common Shares at the NAV per Common Share at the close of business on the Last Purchase Date.
The Plan Administrator
maintains all shareholders’ accounts in the Plan and furnishes written confirmation of all transactions in the accounts,
including information needed by shareholders for tax records. Common Shares in the account of each Plan participant will be held
by the Plan Administrator on behalf of the Plan participant, and each shareholder proxy will include those shares purchased or
received pursuant to the Plan. The Plan Administrator will forward all proxy solicitation materials to participants and vote proxies
for shares held under the Plan in accordance with the instructions of the participants.
Beneficial owners of
Common Shares who hold their Common Shares in the name of a broker or nominee should contact the broker or nominee to determine
whether and how they may participate in the Plan. In the case of Common Shareholders such as banks, brokers or nominees which hold
shares for others who are the beneficial owners, the Plan Administrator will administer the Plan on the basis of the number of
Common Shares certified from time to time by the record shareholder’s name and held for the account of beneficial owners
who participate in the Plan.
There will be no brokerage
charges with respect to Common Shares issued directly by the Fund. However, each participant will pay a pro rata share of brokerage
commissions incurred in connection with Open-Market Purchases. The automatic reinvestment of Dividends will not relieve participants
of any federal, state or local income tax that may be payable (or required to be withheld) on such Dividends, even though such
participants have not received any cash with which to pay the resulting tax. See “U.S. Federal Income Tax Matters”
below. Participants that request a sale of Common Shares through the Plan Administrator are subject to brokerage commissions.
The Fund reserves the
right to amend or terminate the Plan. There is no direct service charge to participants with regard to purchases in the Plan; however,
the Fund reserves the right to amend the Plan to include a service charge payable by the participants.
All correspondence
or questions concerning the Plan should be directed to the Plan Administrator at (844) 569-4750.
DESCRIPTION OF THE FUND’S SECURITIES
The following summary
of the terms of the common shares of the Fund does not purport to be complete and is subject to and qualified in its entirety by
reference to the Fund’s Charter and the Fund’s Bylaws, copies of which are filed as exhibits to the Registration Statement.
The Fund’s authorized
capital stock consists of 50,000,000 shares of common stock, $0.0001 par value per share, all of which is classified as common
shares. The Fund’s Board of Directors, with the approval of a majority of the entire Board, but without any action by the
shareholders of the Fund, may amend the Fund’s Charter from time to time to increase or decrease the aggregate number of
shares of stock of the Fund or the number of shares of stock of any class or series that the Fund has authority to issue.
In general, shareholders
or subscribers for the Fund’s stock have no personal liability for the debts and obligations of the Fund because of their
status as shareholders or subscribers, except to the extent that the subscription price or other agreed consideration for the stock
has not been paid.
The common shares have
no preemptive, conversion, exchange, appraisal or redemption rights, and each share has equal voting, dividend, distribution and
liquidation rights.
Common shareholders
are entitled to receive dividends if and when the Board of Directors declares dividends from funds legally available. Whenever
Fund Preferred Shares or borrowings are outstanding, common shareholders will not be entitled to receive any distributions from
the Fund unless all accrued dividends on the Preferred Shares and interest and principal payments on borrowings have been paid,
and unless the applicable asset coverage requirements under the 1940 Act would be satisfied after giving effect to the distribution
as described above.
In the event of the
Fund’s liquidation, dissolution or winding up, common shares 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 Preferred Shares, if any Preferred Shares are outstanding at such time.
Common shareholders
are entitled to one vote per share. All voting rights for the election of directors are noncumulative, which means that, assuming
there are no Preferred Shares are outstanding, the holders of more than 50% of the common shares will elect 100% of the directors
then nominated for election if they choose to do so and, in such event, the holders of the remaining common shares will not be
able to elect any Directors.
The Fund’s Charter
authorizes the Board of Directors to classify and reclassify any unissued shares of common stock into other classes or series of
stock. 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 terms, preferences, conversion and 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 shares of common stock with terms and conditions that 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 Fund’s common shares
or otherwise be in their best interest. As of the date of this Prospectus, the Fund has no plans to classify or reclassify any
unissued shares of common stock.
The Fund’s currently
outstanding common shares are, and the Common Shares offered in this Prospectus will be, subject to notice of issuance, listed
on the NYSE under the trading or “ticker” symbol “RFMZ.” Under the rules of the NYSE applicable to listed
companies, the Fund will be required to hold an annual meeting of shareholders in each year.
The provisions of the
1940 Act generally require that the public offering price (less underwriting commissions and discounts) of common shares sold by
a closed-end investment company must equal or exceed the net asset value of such company’s common shares (calculated within
48 hours of the pricing of such offering), unless such a sale is made in connection with an offering to existing holders of shares
of common stock or with the consent of a majority of its common stockholders. The Fund may, from time to time, seek the consent
of common shareholders to permit the issuance and sale by the Fund of Common Shares at a price below the Fund’s then-current
net asset value, subject to certain conditions. If such consent is obtained, the Fund may, contemporaneous with and in no event
more than one year following the receipt of such consent, sell Common Shares at a price below net asset value in accordance with
any conditions adopted in connection with the giving of such consent. Additional information regarding any consent of common shareholders
obtained by the Fund and the applicable conditions imposed on the issuance and sale by the Fund of Common Shares at a price below
net asset value will be disclosed in the prospectus supplement relating to any such offering of Common Shares at a price below
net asset value. See also “—Subscription Rights” below.
Preferred Stock
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 common shareholders. Prior to issuance of any shares of Preferred Shares, the
Board of Directors is required by Maryland law and by the Fund’s Charter to set the terms, preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions
of redemption for such shares. Thus, the Board of Directors could authorize the issuance of Preferred Shares with terms and conditions
that could have the effect of delaying, deferring or preventing a transaction or a change in control that might involve a premium
price for common shareholders or otherwise be in their best interest. The prospectus supplement for any potential offering of preferred
shares will describe the terms and conditions of those shares, including information regarding the liquidation preference, distribution
rate, any optional or mandatory redemption provisions and whether the preferred shares are convertible into common shares. As of
the date of this Prospectus, the Fund has not issued any Preferred Shares.
Any issuance of Preferred
Shares must comply with the requirements of the 1940 Act. Specifically, the Fund is not permitted under the 1940 Act to issue Preferred
Shares unless immediately after such issuance the total asset value of the Fund’s portfolio is at least 200% of the liquidation
value of the outstanding Preferred Shares. Among other requirements, including other 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. 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 would have the right to elect a majority of the Fund’s directors at any time two years’
dividends on any Preferred Shares are unpaid.
Preferred Shares of
the Fund would be senior to the common shares with respect to the payment of dividends and the distributions of the assets of the
Fund upon liquidation. In addition, all Preferred Shares of the Fund would be pari passu (or on equal footing) with one another
and junior to the Fund’s senior securities representing indebtedness. See “Use of Leverage”.
The applicable prospectus
supplement will set forth whether or not the shares of the Fund’s preferred stock offered in this Prospectus will be listed
or traded on any securities exchange. If the shares of the Fund’s preferred stock are not listed on a securities exchange,
there may be no active secondary trading market for such shares and an investment in such shares may be illiquid.
Subscription Rights
The Fund may issue
Rights to (i) common shareholders to purchase Common Shares and/or Preferred Shares or (ii) preferred shareholders to purchase
Preferred Shares (subject to applicable law). 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 Rights. In connection with a Rights offering to common
and/or preferred shareholders, the Fund would distribute certificates evidencing the Rights and a prospectus supplement, containing
all of the material terms of the Rights agreement relating to such Rights (the “Subscription Rights Agreement”), to
the Fund’s common or preferred shareholders, as applicable, as of the record date that the Fund sets for determining the
shareholders eligible to receive Rights in such Rights offering.
The applicable prospectus
supplement would describe the following terms of 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); |
| ● | the title of such subscription Rights; |
| ● | the exercise price for such Rights (or method of calculation thereof); |
| ● | the number of such Rights issued in respect of each common share; |
| ● | the number of Rights required to purchase a single preferred share; |
| ● | the extent to which such Rights are transferable and the market on which they may be traded if
they are transferable; |
| ● | if applicable, a discussion of the material U.S. federal income tax considerations applicable to
the issuance or exercise of such Rights; |
| ● | the date on which the right to exercise such Rights will commence, and the date on which such right
will expire (subject to any extension); |
| ● | the extent to which such Rights include an over-subscription privilege with respect to unsubscribed
securities and the terms of such over-subscription privilege; |
| ● | any termination right the Fund may have in connection with such Rights offering; |
| ● | the expected trading market, if any, for Rights; and |
| ● | any other terms of such Rights, including exercise, settlement and other procedures and limitations
relating to the transfer and exercise of such Rights. |
Exercise of Rights.
Each Right would entitle the holder of the 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 Rights offered thereby. Rights would
be exercisable at any time up to the close of business on the expiration date for such Rights set forth in the prospectus supplement.
After the close of business on the expiration date, all unexercised Rights would become void.
Upon expiration of
the Rights offering and the receipt of payment and the Rights certificate properly completed and duly executed at the corporate
trust office of the 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.
Subscription Rights
to Purchase Common and Preferred Stock
The Fund may issue
Rights, which would entitle holders to purchase both Common Shares and Preferred Shares in a ratio to be set forth in the applicable
prospectus supplement. In accordance with the 1940 Act, at least three subscription rights to purchase Common Shares would be required
to subscribe for one Common Share. It is expected that Rights to purchase both Common Shares and Preferred Shares would require
holders to purchase an equal number of Common Shares and Preferred Shares, and would not permit holders to purchase an unequal
number of Common Shares or Preferred Shares, or purchase only Common Shares or only Preferred Shares. For example, such an offering
might be structured such that three Rights would entitle an investor to purchase one Common Share and one Preferred Share, and
such investor would not be able to choose to purchase only a Common Share or only a Preferred Share upon the exercise of his, her
or its Rights.
The Common Shares and
Preferred Shares issued pursuant to the exercise of any such Rights, however, would at all times be separately tradeable securities.
Such Common Shares and Preferred Shares would not be issued as a “unit” or “combination” and would not
be listed or traded as a “unit” or “combination” on a securities exchange, such as the NYSE, at any time.
The applicable prospectus supplement will set forth additional details regarding an offering of Rights to purchase Common Shares
and Preferred Shares.
CERTAIN PROVISIONS OF THE FUND’S
CHARTER AND BYLAWS AND OF MARYLAND LAW
The following is a
summary of certain provisions of the Maryland General Corporation Law (the “MGCL”) and of the Charter and Bylaws of
the Fund.
General
The MGCL and the Fund’s
Charter and Bylaws contain provisions that could have the effect of limiting the ability of other entities or persons to acquire
control of the Fund, to cause it to engage in certain transactions or to modify its structure.
These provisions could
have the effect of depriving common shareholders of an opportunity to sell their common shares by discouraging a third party from
seeking to obtain control of the Fund in a tender offer or similar transaction. On the other hand, these provisions may require
persons seeking control of the Fund to negotiate with the Fund’s management regarding the price to be paid for the common
shares required to obtain such control, promote continuity and stability and enhance the Fund’s ability to pursue long-term
strategies that are consistent with its investment objectives.
The Board of Directors
has concluded that the potential benefits of these provisions outweigh their possible disadvantages.
Classified Board of Directors
The Board of Directors
is divided into three classes of directors serving staggered three-year terms. The initial terms of the first, second and third
classes will expire at the first, second and third annual meetings of shareholders, respectively, and, in each case, until their
successors are duly elected and qualify. Upon expiration of their terms, directors of each class will be elected to serve for three-year
terms and until their successors are duly elected and qualify and at each annual meeting one class of directors will be elected
by the shareholders. A classified Board of Directors promotes continuity and stability of management but makes it more difficult
for shareholders to change a majority of the directors because it generally takes at least two annual elections of directors for
this to occur. The Fund believes that classification of the Board of Directors will help to assure the continuity and stability
of the Fund’s strategies and policies as determined by the Board of Directors.
Election of Directors
The MGCL provides that,
unless the charter or bylaws of a corporation provide otherwise, which the Fund’s Charter and the Fund’s Bylaws do
not, a plurality of all the votes cast at a meeting at which a quorum is present is sufficient to elect a director.
Number of Directors; Vacancies
The Fund’s Charter
provides that the number of directors will be set only by the Board of Directors in accordance with the Bylaws. The Bylaws provide
that a majority of the Fund’s entire Board of Directors may at any time increase or decrease the number of directors, provided
that there may be no fewer than three directors and no more than 12 directors.
The Fund’s Charter
provides that the Fund elects, at such time as the Fund becomes eligible to make such an election (i.e., when the Fund has
at least three independent directors and the Common Shares are registered under the Exchange Act), to be subject to the provision
of Subtitle 8 of Title 3 of the MGCL regarding the filling of vacancies on the Board of Directors. Accordingly, at such time, 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 remaining directors in office, 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.
Removal of Directors
The Fund’s Charter
provides that, subject to the rights of the holders of one or more class or series of Preferred Shares to elect or remove directors,
a director may be removed from office only for cause (as defined in the Charter) and then only by the affirmative vote of the holders
of at least two-thirds of the votes entitled to be cast generally in the election of directors.
Absence of Cumulative Voting
There is no cumulative
voting in the election of the Fund’s directors. Cumulative voting means that holders of stock of a corporation are entitled,
in the election of directors, to cast a number of votes equal to the number of shares that they own multiplied by the number of
directors to be elected. Because a shareholder entitled to cumulative voting may cast all of his or her votes for one nominee or
disperse his or her votes among nominees as he or she chooses, cumulative voting is generally considered to increase the ability
of minority shareholders to elect nominees to a corporation’s Board of Directors. In general, the absence of cumulative voting
means that the holders of a majority of the Fund’s shares can elect all of the directors then standing for election and the
holders of the remaining shares will not be able to elect any directors.
Approval of Extraordinary Corporate Actions
The Fund’s Charter
requires the favorable vote of at least two-thirds of the Common Shares and Preferred Shares (if any) entitled to be voted on the
matter, voting together as a single class, to advise, approve, adopt or authorize the following:
| ● | a “Business Combination,” which includes the following: |
| ○ | a merger, consolidation or statutory share exchange of the Fund with or into another person; |
| ○ | an issuance or transfer by the Fund (in one or a series of transactions in any 12-month period) of any securities of the Fund
to any person or entity for cash, securities or other property (or combination thereof) having an aggregate fair market value of
$1,000,000 or more, excluding issuances or transfers of debt securities of the Fund, sales of securities of the Fund in connection
with a public offering, issuances of securities of the Fund pursuant to a dividend reinvestment plan adopted by the Fund, issuances
of securities of the Fund upon the exercise of any stock subscription rights distributed by the Fund and portfolio transactions
effected by the Fund in the ordinary course of business; or |
| ○ | a sale, lease, exchange, mortgage, pledge, transfer or other disposition by the Fund (in one or a series of transactions in
any 12-month period) to or with any person or entity of any assets of the Fund having an aggregate fair market value of $1,000,000
or more except for portfolio transactions (including pledges of portfolio securities in connection with borrowings) effected by
the Fund in the ordinary course of its business; |
| ● | the voluntary liquidation or dissolution of the Fund or charter amendment to terminate the Fund’s existence; |
| ● | the conversion of the Fund from a closed-end company to an open-end company, and any amendments necessary to effect the conversion;
or |
| ● | unless the 1940 Act or federal law requires a lesser vote, any shareholder proposal as to specific investment decisions made
or to be made with respect to the Fund’s assets as to which shareholder approval is required under federal or Maryland law. |
However, unless shareholder
approval is required under federal or Maryland law, the common shareholder vote described above will not be required with respect
to the foregoing transactions if they are approved by a vote of two-thirds of the Continuing Directors (as defined below). If Maryland
law or the 1940 Act requires common shareholder approval (and two-thirds of the Continuing Directors have approved the transaction),
the affirmative vote by common shareholders, at a meeting of such shareholders, of the lesser of (a) 67% or more of the voting
securities present at such meeting, if the holders of more than 50% of the outstanding voting securities of the Fund are present
or represented by proxy; or (b) more than 50% of the outstanding voting securities of the Fund, will be required. In addition,
if the Fund has any Preferred Shares outstanding, the holders of a majority of the outstanding Preferred Shares voting separately
as a class, would be required under the 1940 Act to adopt any plan of reorganization that would adversely affect the holders of
the Preferred Shares, to convert the Fund to an open-end investment company or to deviate from any of the Fund’s fundamental
investment policies.
In no event will the
foregoing provisions affect shareholder rights under the 1940 Act to approve or terminate an advisory contract of the Fund (either
of which may be effectuated by Fund shareholders without the need for approval of any Continuing Director or other member of the
Board of Directors).
“Continuing Director”
means any member of the Board of Directors who is not an Interested Party (as defined below) or an affiliate of an Interested Party
and has been a member of the Board of Directors for a period of at least 12 months, or has been a member of the Board of Directors
since January 15, 2021, or is a successor of a Continuing Director who is unaffiliated with an Interested Party and is recommended
to succeed a Continuing Director by a majority of the Continuing Directors then on the Board of Directors.
“Interested Party”
means any person, other than an investment company advised by the Adviser or any of its affiliates, which enters, or proposes to
enter, into a Business Combination with the Fund.
In addition, the Fund’s
Charter requires the favorable vote of two-thirds of the entire Board of Directors to advise, approve, adopt or authorize any of
the following:
| ● | the election and removal of officers; |
| ● | the creation of and delegation of authority and appointment of members to committees of the Board of Directors; |
| ● | amendments to the Fund’s Bylaws (which may only be effected by the Board of Directors, not the common shareholders);
and |
| ● | Charter amendments not requiring shareholder approval under the 1940 Act. |
The Board of Directors
has determined that the foregoing supermajority requirements applicable to certain votes of the directors and the common shareholders,
which are greater than the minimum requirements permitted under Maryland law or the 1940 Act, are in the best interests of the
Fund. Reference should be made to the Charter on file with the SEC for the full text of these provisions. See also “Conversion
to Open-End Fund.”
Action by Shareholders
Under the MGCL, common
shareholder action can be taken only at an annual or special meeting of common shareholders or, unless the charter provides for
common shareholder action by less than unanimous written consent (which is not the case in 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 common shareholder-requested special meeting, as discussed below, may have the effect of delaying consideration of
a common shareholder proposal until the next annual meeting.
Procedures for Shareholder Nominations and Proposals
The Fund’s Bylaws
provide that any common shareholder desiring to make a nomination for the election of directors or a proposal for new business
at a meeting of common shareholders must comply with the advance notice provisions of the Bylaws. Nominations and proposals that
fail to follow the prescribed procedures will not be considered. The Board of Directors believes that it is in the Fund’s
best interests to provide sufficient time to enable management to disclose to common shareholders information about a slate of
nominations for directors or proposals for new business. This advance notice requirement also may give management time to solicit
its own proxies in an attempt to defeat any slate of nominations should management determine that doing so is in the best interest
of common shareholders generally. Similarly, adequate advance notice of common shareholder proposals will give management time
to study such proposals and to determine whether to recommend to the common shareholders that such proposals be adopted. For common
shareholder proposals to be included in the Fund’s proxy materials, the common shareholder must comply with all timing and
information requirements of the Exchange Act.
Calling of Special Meetings of Shareholders
The Fund’s Bylaws
provide that special meetings of common shareholders may be called by the Board of Directors or by certain of its officers. Additionally,
the Fund’s Bylaws provide that, subject to the satisfaction of certain procedural and informational requirements by the common
shareholders requesting the meeting, a special meeting of common shareholders will be called by the Fund’s Secretary upon
the written request of common shareholders entitled to cast not less than a majority of all the votes entitled to be cast at such
meeting.
No Appraisal Rights
As permitted by the
MGCL, the Fund’s Charter provides that common shareholders will not be entitled to exercise appraisal rights, unless the
Fund’s Board of Directors determines that such rights apply.
Limitations on Liabilities
The Fund’s Charter
provides that the personal liability of the Fund’s directors and officers for monetary damages is eliminated to the fullest
extent permitted by Maryland law. Maryland law currently provides that directors and officers of corporations that have adopted
such a provision will generally not be so liable, except to the extent that (i) it is proven that the person actually received
an improper benefit or profit in money, property, or services for the amount of the benefit or profit in money, property, or services
actually received; and (ii) a judgment or other final adjudication adverse to the person is entered in a proceeding based on a
finding in the proceeding that the person’s action, or failure to act, was the result of active and deliberate dishonesty
and was material to the cause of action adjudicated in the proceeding.
The Fund’s Charter
delegates the Fund, to the maximum extent permitted by Maryland law and the 1940 Act, to indemnify and advance expenses to the
Fund’s directors and officers. The Fund’s Bylaws provide that the Fund will indemnify its officers and directors against
liabilities to the fullest extent permitted by Maryland law and the 1940 Act, and that it shall advance expenses to such persons
prior to a final disposition of an action. The rights of indemnification provided in the Fund’s Charter and Bylaws are not
exclusive of any other rights which may be available under any insurance or other agreement, by resolution of common shareholders
or directors or otherwise.
Authorized Shares
The Fund’s Charter
authorizes the issuance of 50,000,000 common shares, and authorizes a majority of the Fund’s Board of Directors, without
common shareholder approval, to increase the number of authorized common shares and to classify and reclassify any unissued shares
into one or more classes or series of stock and set the terms thereof. The issuance of capital stock or any class or series thereof
without common shareholder approval may be used by the Fund’s Board of Directors consistent with its duties to deter attempts
to gain control of the Fund. Further, the Board of Directors could authorize the issuance Preferred Shares with terms and conditions
that could have the effect of discouraging a takeover or other transaction that some of the Fund’s shareholders might believe
to be in their best interests.
Anti-Takeover Provisions of Maryland Law
Maryland Unsolicited Takeovers Act
Subtitle 8 of Title
3 of the Maryland General Corporation Law permits a Maryland corporation with a class of equity securities registered under the
Exchange Act and at least three independent directors to elect to be subject, by provision in its charter or bylaws or a resolution
of its board of directors and notwithstanding any contrary provision in the charter or bylaws, to any or all of five provisions:
|
● |
a two-thirds vote requirement for removing a director; |
|
● |
a requirement that the number of directors be fixed only by vote of directors; |
|
● |
a requirement that a vacancy on the board be filled only by the remaining directors and for the remainder of the full term of the class of directors in which the vacancy occurred; and |
|
● |
a majority requirement for the calling of a special meeting of shareholders. |
The Fund has elected
to be subject to the classified board provision and the requirement that a vacancy on the Board of Directors be filled only by
the remaining directors and for the remainder of the full term of the class of directors in which the vacancy occurred. The Fund
retains its right to opt into any of the other provisions. The charter of a corporation may contain a provision or the board of
directors may adopt a provision that prohibits the corporation from electing to be subject to any or all of the provisions of Subtitle
8.
Maryland Business Combination Act
The provisions of the
Maryland Business Combination Act (the “MBCA”) do not apply to a closed-end investment company, such as the Fund, unless
the Board of Directors has affirmatively elected to be subject to the MBCA by a resolution. To date, the Fund has not made such
an election but may make such an election under Maryland law at any time.
Under the MBCA, “business
combinations” between a Maryland corporation and an interested shareholder or an affiliate of an interested shareholder are
prohibited for five years after the most recent date on which the interested shareholder becomes an interested shareholder. These
business combinations include a merger, consolidation, share exchange, or, in circumstances specified in the MBCA, an asset transfer
or issuance or reclassification of equity securities. An interested shareholder is defined as:
|
● |
any person who beneficially owns ten percent or more of the voting power of the corporation’s shares; or |
|
● |
an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner of ten percent or more of the voting power of the then outstanding voting stock of the corporation. |
A person is not an
interested shareholder under the MBCA if the board of directors approved in advance the transaction by which he otherwise would
have become an interested shareholder. However, in approving a transaction, the board of directors may provide that its approval
is subject to compliance, at or after the time of approval, with any terms and conditions determined by the board.
After the five-year
prohibition, any business combination between the Maryland corporation and an interested shareholder generally must be recommended
by the board of directors of the corporation and approved by the affirmative vote of at least:
|
● |
80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation; and |
|
● |
two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the interested shareholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested shareholder. |
These super-majority
vote requirements do not apply if the corporation’s common shareholders receive a minimum price, as defined in the MBCA,
for their shares in the form of cash or other consideration in the same form as previously paid by the interested shareholder for
its shares.
The MBCA permits various
exemptions from its provisions, including business combinations that are exempted by the board of directors before the time that
the interested shareholder becomes an interested shareholder.
Maryland Control Share Acquisition Act
The Maryland Control
Share Acquisition Act (the “MCSAA”) provides that control shares of a Maryland corporation acquired in a control share
acquisition have no voting rights except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the
matter. Shares owned by the acquirer, by officers of the acquirer or by an employee of the acquirer who is also a director of the
acquirer are excluded from shares entitled to vote on the matter. Control shares are voting shares of stock which, if aggregated
with all other shares of stock owned by the acquirer or in respect of which the acquirer is able to exercise or direct the exercise
of voting power (except solely by virtue of a revocable proxy), would entitle the acquirer to exercise voting power in electing
directors within one of the following ranges of voting power:
|
● |
one-tenth or more but less than one-third, |
|
● |
one-third or more but less than a majority, or |
|
● |
a majority or more of all voting power. |
Control shares do not
include shares the acquiring person is then entitled to vote as a result of having previously obtained shareholder approval. A
control share acquisition means the acquisition of control shares, subject to certain exceptions.
A person who has made
or proposes to make a control share acquisition may compel the board of directors of the corporation to call a special meeting
of shareholders to be held within 50 days of demand to consider the voting rights of the shares. The right to compel the calling
of a special meeting is subject to the satisfaction of certain conditions, including an undertaking to pay the expenses of the
meeting. If no request for a meeting is made, the corporation may itself present the question at any shareholders meeting.
If voting rights are
not approved at the meeting or if the acquiring person does not deliver an acquiring person statement as required by the MCSAA,
then the corporation may redeem for fair value any or all of the control shares, except those for which voting rights have previously
been approved. The right of the corporation to redeem control shares is subject to certain conditions and limitations. Fair value
is determined, without regard to the absence of voting rights for the control shares, as of the date of the last control share
acquisition by the acquirer or of any meeting of shareholders at which the voting rights of the shares are considered and not approved.
If voting rights for control shares are approved at a shareholders meeting and the acquirer becomes entitled to vote a majority
of the shares entitled to vote, all other shareholders may exercise appraisal rights. The fair value of the shares as determined
for purposes of appraisal rights may not be less than the highest price per share paid by the acquirer in the control share acquisition.
The Staff of the SEC’s
Division of Investment Management (“Staff”) has previously taken the position that, if a closed-end fund opted into
a state control share statute (“control shares statutes”), such as the MCSAA, its actions would be inconsistent with
the requirements in Section 18(i) of the 1940 Act, which generally requires that shares of the fund have equal voting rights. However,
in May 2020, the Staff withdrew its previous position and has stated that it would not recommend enforcement action to the SEC
against a closed-end fund for opting into a control share statute if the decision to do so by the fund’s board was taken
with reasonable care on a basis consistent with other applicable duties and laws and the duty to the fund and its shareholders
generally. The Staff’s current position reflects only the views of the Staff and is not made part of any SEC rule, regulation
or court interpretation or ruling. The Fund’s Board of Directors reserves the right to consider and determine, in the future,
whether the Fund will opt in and be subject to the MCSAA.
REPURCHASE OF SHARES
Shares of closed-end
funds often trade at a discount to NAV, and the Fund’s shares may also trade at a discount to their NAV, although it is possible
that they may trade at a premium above NAV. The market price of the common shares will be determined by such factors as relative
demand for and supply of shares in the market, the Fund’s NAV, general market and economic conditions and other factors beyond
the control of the Fund.
Although common shareholders
will not have the right to redeem their shares, the Fund may (but is not obligated to) take action to repurchase shares in the
open market or make tender offers for its shares at or near NAV. During the pendency of any tender offer, the Fund will publish
how common shareholders may readily ascertain the NAV. Repurchase of the common shares may have the effect of reducing any market
discount to NAV.
There is no assurance
that, if action is undertaken to repurchase or tender for shares, such action will result in the shares trading at a price which
approximates their NAV. Although share repurchases and tenders could have a favorable effect on the market price of the shares,
you should be aware that the acquisition of shares by the Fund will decrease the total assets of the Fund and, therefore, have
the effect of increasing the Fund’s expense ratio and may adversely affect the ability of the Fund to pursue its investment
objectives. To the extent the Fund may need to liquidate investments to fund repurchases of shares, this may result in portfolio
turnover which will result in additional expenses being borne by the Fund and its shareholders. The Board of Directors currently
considers the following factors to be relevant to a potential decision to repurchase shares: the extent and duration of the discount,
the liquidity of the Fund’s portfolio, and the impact of any action on the Fund and market considerations. Such a decision
is a matter on which the Board would exercise its fiduciary judgment, and the Board will consider other factors that may be relevant
at the time it considers the matter. Any share repurchases or tender offers will be made in accordance with the requirements of
the Exchange Act and the 1940 Act.
RIGHTS OFFERINGS
The Fund may in the
future, and at its discretion, choose to make offerings of Rights to (i) common shareholders to purchase Common Shares and/or Preferred
Shares and/or (ii) preferred shareholders to purchase Preferred Shares (subject to applicable law). A future Rights offering may
be transferable or non-transferable. Any such future Rights offering will be made in accordance with the 1940 Act. Under the laws
of Maryland, the Board is authorized to approve rights offerings without obtaining shareholder approval. The staff of the SEC has
interpreted the 1940 Act as not requiring shareholder approval of a transferable rights offering to purchase common stock at a
price below the then current net asset value so long as certain conditions are met, including: (i) a good faith determination by
a fund’s board that such offering would result in a net benefit to existing shareholders; (ii) the offering fully protects
shareholders’ preemptive rights and does not discriminate among shareholders (except for the possible effect of not offering
fractional rights); (iii) management uses its best efforts to ensure an adequate trading market in the rights for use by shareholders
who do not exercise such rights; and (iv) the ratio of a transferable rights offering does not exceed one new share for each three
rights held.
CONVERSION TO OPEN-END FUND
The Fund may be converted
to an open-end investment company at any time if approved by the Board of Directors and the shareholders. See “Certain Provisions
of the Fund’s Charter and Bylaws and of Maryland Law” for a discussion of the voting requirements applicable to conversion
of the Fund to an open-end investment company and any related Charter amendments. If the Fund converted to an open-end investment
company, it would be required to redeem all Preferred Shares then outstanding (possibly requiring in turn that it liquidate a portion
of its investment portfolio). Conversion to open-end status could also require the Fund to modify certain investment restrictions
and policies. Shareholders of an open-end investment company may require the company to redeem their shares at any time (except
in certain circumstances as authorized by or permitted under the 1940 Act) at their NAV, less such redemption charge, if any, as
might be in effect at the time of redemption. In order to avoid maintaining large cash positions or liquidating favorable investments
to meet redemptions, open-end investment companies typically engage in a continuous offering of their shares. Open-end investment
companies are thus subject to periodic asset in-flows and out-flows that can complicate portfolio management. The Board of Directors
may at any time (but is not required to) propose conversion of the Fund to open-end status, depending upon its judgment regarding
the advisability of such action in light of circumstances then prevailing. Before deciding whether to make such a proposal, the
Board of Directors would consider all relevant factors, including the extent and duration of the discount, the liquidity of the
Fund’s portfolio, the impact of the conversion on the Fund or its shareholders, and market considerations. Based on these
considerations, even if the Fund’s shares should trade at a discount, the Board of Directors may determine that, in the interest
of the Fund and its shareholders, no action should be taken.
LIMITED TERM AND ELIGIBLE TENDER OFFER
The Fund will terminate
on or before the Termination Date; provided, that if the Board of Directors believes that under then-current market conditions
it is in the best interests of the Fund to do so, the Fund may extend the Termination Date (i) once for up to one year (i.e., up
to February 26, 2037), and (ii) once for up to an additional six months (i.e., up to August 26, 2037), in each case upon the affirmative
vote of a majority of the Board of Directors and without a vote of common shareholders. In addition, as of a date within twelve
months preceding the Termination Date, the Board of Directors may cause the Fund to conduct an Eligible Tender Offer, which is
a tender offer by the Fund to all common shareholders to purchase common shares of the Fund at a price equal to the NAV per common
share on the expiration date of the tender offer. Following the completion of an Eligible Tender Offer, the Board of Directors
may eliminate the limited term structure of the Fund and convert the Fund to a perpetual fund upon the affirmative vote of a majority
of the Board of Directors and without a vote of common shareholders.
The Fund is not
a so called “target date” or “life cycle” fund whose asset allocation becomes more conservative over time
as its target date, often associated with retirement, approaches. In addition, the Fund is not a “target term” fund
whose investment objective is to return its original NAV on the termination date.
Upon its termination,
the Fund will distribute substantially all of its net assets to common shareholders, after paying or otherwise providing for all
charges, taxes, expenses and liabilities, whether due or accrued or anticipated, of the Fund, as may be determined by the Board of
Directors. In anticipation of an Eligible Tender Offer or the Termination Date, the Fund may begin liquidating all or a
portion of the Fund’s portfolio, and may deviate from its investment policies, including its policy of investing at least 80%
of the value of its Managed Assets in municipal bonds and may not achieve its investment objective. During such period(s), the
Fund’s portfolio composition may change as more of its portfolio holdings are called or sold and portfolio holdings are
disposed of in anticipation of liquidation or an Eligible Tender Offer. Rather than reinvesting the proceeds of matured, called or
sold securities in accordance with the investment program described above, the Fund may invest such proceeds in short term or other
lower yielding securities or hold the proceeds in cash, which may adversely affect its performance. The Fund’s distributions
during the wind-down period may decrease, and such distributions may include a return of capital. The Fund may distribute the
proceeds in one or more liquidating distributions prior to the final liquidation, which may cause fixed expenses to increase when
expressed as a percentage of assets under management. It is expected that common shareholders will receive cash in any liquidating
distribution from the Fund, regardless of their participation in the Fund’s Dividend Reinvestment Plan. However, if on the
Termination Date the Fund owns securities for which no market exists or securities trading at depressed prices, such securities may
be placed in a liquidating trust. Common shareholders generally will realize capital gain or loss upon the termination of the Fund
in an amount equal to the difference between the amount of cash or other property received by the common shareholder (including any
property deemed received by reason of its being placed in a liquidating trust) and the common shareholder’s adjusted tax basis
in the common shares of the Fund for U.S. federal income tax purposes.
If the Board of Directors
believes that under then-current market conditions it is in the best interests of the Fund to do so, the Fund may extend the Termination
Date (i) once for up to one year (i.e., up to February 26, 2037), and (ii) once for up to an additional six months (i.e. up to
August 26, 2037), in each case upon the affirmative vote of a majority of the Board of Directors and without a vote of common shareholders.
In determining whether to extend the Termination Date, the Board of Directors may consider, for example, the Fund’s inability
to sell the Fund’s assets in a time frame consistent with termination due to lack of market liquidity or other extenuating
circumstances. Additionally, the Board of Directors may determine that market conditions are such that it is reasonable to believe
that, with an extension, the Fund’s remaining assets will appreciate and generate income in an amount that, in the aggregate,
is meaningful relative to the cost and expense of continuing the operation of the Fund.
The Board of Directors
may cause the Fund to conduct an Eligible Tender Offer. An Eligible Tender Offer would consist of a tender offer to all common
shareholders to purchase common share of the Fund at a price equal to the NAV per common share on the expiration date of the tender
offer, which shall be as of a date within twelve months preceding the Termination Date. The Board of Directors has established
that, following an Eligible Tender Offer, the Fund must have at least $100 million of net assets to ensure the continued viability
of the Fund (the “Termination Threshold”). In an Eligible Tender Offer, the Fund will offer to purchase all common
shares held by each common shareholder; provided, that if the number of properly tendered common shares would result in the Fund’s
net assets totaling less than the Termination Threshold, the Eligible Tender Offer will be terminated and no common shares will
be repurchased pursuant to the Eligible Tender Offer. Instead, the Fund will begin (or continue) liquidating its portfolio and
proceed to terminate on or before the Termination Date.
If the number of properly
tendered common shares would result in the Fund’s net assets equaling or totaling greater than the Termination Threshold,
all common shares properly tendered and not withdrawn will be purchased by the Fund pursuant to the terms of the Eligible Tender
Offer. The Fund’s purchase of tendered common shares pursuant to a tender offer will have tax consequences for tendering
common shareholders and may have tax consequences for non-tendering common shareholders. In addition, the Fund would continue to
be subject to its obligations with respect to its issued and outstanding preferred stock or debt securities, if any. Following
the completion of an Eligible Tender Offer, the Board of Directors may eliminate the limited term structure of the Fund upon the
affirmative vote of a majority of the Board of Directors and without the approval of common shareholders. In making a decision
to do so to provide for the Fund’s perpetual existence, the Board of Directors will take such actions with respect to the
continued operations of the Fund as it deems to be in the best interests of the Fund, based on market conditions at such time,
the extent of common shareholder participation in the Eligible Tender Offer and all other factors deemed relevant by the Board
of Directors in consultation with the Adviser, taking into account that the Adviser may have a potential conflict of interest in
recommending to the Board of Directors that the limited term structure be eliminated and the Fund have a perpetual existence (or
that the Termination Date be extended). The Fund is not required to conduct additional tender offers following an Eligible Tender
Offer and conversion to a perpetual structure. Therefore, remaining common shareholders may not have another opportunity to participate
in a tender offer or exchange their common shares for the then-existing NAV per common share.
An Eligible Tender
Offer would be made, and common shareholders would be notified thereof, in accordance with the requirements of the 1940 Act, the
Exchange Act and the applicable tender offer rules thereunder (including Rule 13e-4 and Regulation 14E under the Exchange Act or
successor rules to the same general effect). The repurchase of tendered common shares by the Fund in a tender offer would be a
taxable event to common shareholders. The Adviser will pay all costs and expenses associated with the making of an Eligible Tender
Offer, other than brokerage and related transaction costs associated with the disposition of portfolio investments in connection
with the Eligible Tender Offer, which will be borne by the Fund and its common shareholders.
An Eligible Tender
Offer may be commenced upon approval of a majority of the Board of Directors, without a vote of common shareholders. The Fund is
not required to conduct an Eligible Tender Offer. If no Eligible Tender Offer is conducted, the Fund will liquidate on or before
the Termination Date (subject to extension as described above), unless the limited term provisions of the Articles of Incorporation
are amended with the vote of common shareholders, as described above. See “Certain Provisions of the Fund’s Charter
and Bylaws and of Maryland Law.”
U.S. FEDERAL INCOME TAX MATTERS
The following is a
summary discussion of certain U.S. federal income tax consequences that may be relevant to a shareholder that acquires, holds and/or
disposes of common shares of the Fund. This discussion only addresses U.S. federal income tax consequences to U.S. shareholders
who hold their shares as capital assets and does not address all of the U.S. federal income tax consequences that may be relevant
to particular shareholders in light of their individual circumstances. This discussion also does not address the tax consequences
to shareholders who are subject to special rules, including, without limitation, banks or other financial institutions, insurance
companies, dealers in securities or foreign currencies, traders in securities that have elected to mark-to-market their securities
holdings, foreign holders, persons who hold their shares as or in a hedge against currency risk, or as part of a constructive sale,
straddle or conversion transaction, or tax-exempt or tax-deferred plans, accounts, or entities. In addition, the discussion does
not address any state, local, or foreign tax consequences. The discussion reflects applicable income tax laws of the United States
as of the date hereof, which tax laws may be changed or subject to new interpretations by the courts or the Internal Revenue Service
(“IRS”) retroactively or prospectively, which could affect the continued validity of this summary. No attempt is made
to present a detailed explanation of all U.S. federal income tax concerns affecting the Fund and its shareholders, and the discussion
set forth herein does not constitute tax advice. Investors are urged to consult their own tax advisors before making an investment
in the Fund to determine the specific tax consequences to them of investing in the Fund, including the applicable federal, state,
local and foreign tax consequences as well as the effect of possible changes in tax laws. See “California Tax Matters.”
The tax legislation
commonly referred to as Tax Cuts and Jobs Act (the “Tax Act”) made significant changes to the U.S. federal income tax
rules for taxation of individuals and corporations, generally effective for taxable years beginning after December 31, 2017. Many
of the changes applicable to individuals are temporary and would apply only to taxable years beginning after December 31, 2017
and before January 1, 2026. There are only minor changes with respect to the specific rules only applicable to a RIC, such as the
Fund. The Tax Act, however, made numerous other changes to the tax rules that may affect shareholders and the Fund. You are urged
to consult with your own tax advisor regarding how the Tax Act affects your investment in the Fund.
The Fund has elected
to be treated, and intends to qualify each year, as a “regulated investment company” under Subchapter M of the Code,
so that it will generally not pay U.S. federal income tax on income and capital gains timely distributed (or treated as being distributed,
as described below) to shareholders. If the Fund qualifies as a regulated investment company and distributes to its shareholders
at least 90% of the sum of (i) its “investment company taxable income” as that term is defined in the Code (which includes,
among other things, dividends, taxable interest, the excess of any net short-term capital gains over net long-term capital losses
and certain net foreign exchange gains as reduced by certain deductible expenses) without regard to the deduction for dividends
paid, and (ii) the excess of its gross tax-exempt interest, if any, over certain disallowed deductions, the Fund will be relieved
of U.S. federal income tax on any income of the Fund, including long-term capital gains, distributed to shareholders. However,
if the Fund retains any investment company taxable income or “net capital gain” (i.e., the excess of net long-term
capital gain over net short-term capital loss), it will be subject to U.S. federal income tax at regular corporate federal income
tax rates (currently at a maximum rate of 21%) on the amount retained. The Fund intends to distribute at least annually all or
substantially all of its investment company taxable income (determined without regard to the deduction for dividends paid), net
tax-exempt interest, if any, and net capital gain. Under the Code, the Fund will generally be subject to a nondeductible 4% federal
excise tax on the portion of its undistributed ordinary income and capital gains if it fails to meet certain distribution requirements
with respect to each calendar year. In order to avoid the 4% federal excise tax, the required minimum distribution is generally
equal to the sum of 98% of the Fund’s ordinary income (computed on a calendar year basis, and taking into account certain
deferrals and elections), plus 98.2% of the Fund’s capital gain net income (generally computed for the one-year period ending
on October 31) plus undistributed amounts from prior years on which the Fund paid no federal income tax. The Fund generally intends
to make distributions in a timely manner in an amount at least equal to the required minimum distribution and therefore, under
normal circumstances, does not expect to be subject to this excise tax. However, the Fund may also decide to distribute less and
pay the federal excise taxes.
If, for any taxable
year, the Fund did not qualify as a regulated investment company for U.S. federal income tax purposes, it would be treated as a
U.S. corporation subject to U.S. federal income tax, and possibly state and local income tax, and distributions to its shareholders
would not be deductible by the Fund in computing its taxable income.
A Common Shareholder
will have all dividends and distributions automatically reinvested in shares of common stock of the Fund (unless the shareholder
“opts out” of the Plan). For shareholders subject to U.S. federal income tax, Fund dividends that are not “exempt-interest”
dividends will generally be taxable regardless of whether the shareholder takes them in cash or they are reinvested in additional
shares of the Fund. Distributions of the Fund’s investment company taxable income (determined without regard to the deduction
for dividends paid) will generally be taxable as ordinary income to the extent of the Fund’s current and accumulated earnings
and profits. The Fund does not generally expect to pay dividends that qualify for either the dividends received deduction available
to corporate shareholders under Section 243 of the Code or the reduced rates of U.S. federal income taxation for “qualified
dividend income” available to non-corporate shareholders under Section 1(h)(11) of the Code. Distributions of net capital
gain, if any, that are properly reported by the Fund are generally taxable as long-term capital gain for U.S. federal income tax
purposes without regard to the length of time a shareholder has held shares of the Fund. If the Fund received dividends from an
Underlying Fund that qualifies as a regulated investment company, and the Underlying Fund designates such dividends as qualified
dividend income or as eligible for the dividends received deduction, then the Fund is permitted in turn to designate a portion
of its distributions as qualified dividend income and/or as eligible for the dividends received deduction, provided the Fund meets
holding period and other requirements with respect to shares of the Underlying Fund.
A distribution of an
amount in excess of the Fund’s current and accumulated earnings and profits, if any, will be treated by a shareholder as
a tax-free return of capital, which is applied against and reduces the shareholder’s basis in his, her or its shares. To
the extent that the amount of any such distribution exceeds the shareholder’s basis in his, her, or its shares, the excess
will be treated by the shareholder as gain from the sale or exchange of such shares. The U.S. federal income tax status of all
dividends and distributions will be designated by the Fund and reported to shareholders annually. The Fund can provide no assurance
regarding the portion of its dividends that will qualify for the dividends received deduction or for qualified dividend income
treatment. As long as the Fund qualifies as a RIC under the Code, it is not expected that any significant part of its distributions
to Common Shareholders from its investments will so qualify.
The Fund intends to
distribute all realized net capital gains, if any, at least annually. If, however, the Fund were to retain any net capital gain,
the Fund may designate the retained amount as undistributed capital gains in a notice to shareholders who, if subject to U.S. federal
income tax on long-term capital gains, (i) will be required to include in income as long-term capital gain, their proportionate
share of such undistributed amount, and (ii) will be entitled to credit their proportionate share of the federal income tax paid
by the Fund on the undistributed amount against their U.S. federal income tax liabilities, if any, and to claim refunds to the
extent the credit exceeds such liabilities. If such an event occurs, the tax basis of shares owned by a shareholder of the Fund
will, for U.S. federal income tax purposes, generally be increased by the difference between the amount of undistributed net capital
gain included in the shareholder’s gross income and the tax deemed paid by the shareholder.
Any dividend declared
by the Fund in October, November or December with a record date in such a month and paid during the following January will be treated
for U.S. federal income tax purposes as paid by the Fund and received by shareholders on December 31 of the calendar year in which
it is declared.
If a shareholder’s
distributions are automatically reinvested in additional Common Shares, for U.S. federal income tax purposes, the shareholder will
be treated as having received a distribution in the amount of the cash dividend that the shareholder would have received if the
shareholder had elected to receive cash, unless the distribution is in newly issued shares of the Fund that are trading at or above
NAV, in which case the shareholder will be treated as receiving a distribution equal to the fair market value of the stock the
shareholder receives.
Certain of the investment
practices of the Fund or an Underlying Fund are subject to special and complex federal income tax provisions that may, among other
things, (i) disallow, suspend or otherwise limit the allowance of certain losses or deductions, (ii) convert tax-advantaged, long-term
capital gains and qualified dividend income into higher taxed short-term capital gain or ordinary income, (iii) convert an ordinary
loss or a deduction into a capital loss (the deductibility of which is more limited), (iv) cause the Fund or an Underlying Fund
to recognize income or gain without a corresponding receipt of cash, (v) adversely affect the timing as to when a purchase or sale
of stock or securities is deemed to occur, (vi) produce income that will not be qualifying income for purposes of the 90% income
test and (vii) adversely alter the intended characterization of certain complex financial transactions. These rules could therefore
affect the character, amount and timing of distributions to shareholders. The Fund will monitor its investments and transactions
and may make certain federal income tax elections where applicable in order to mitigate the effect of these provisions, if possible.
The Fund will not be
able to offset gains distributed by one Underlying Fund in which it invests against losses realized by another Underlying Fund
in which the Fund invests. Redemptions of shares in an Underlying Fund, including those resulting from changes in the allocation
among Underlying Funds, could also cause additional distributable gains to shareholders of the Fund. A portion of any such gains
may be short-term capital gains that would be distributable as ordinary income to shareholders of the Fund. Further, a portion
of losses on redemptions of shares in the Underlying Funds may be deferred under the wash sale rules. Additionally, the Fund’s
investment in an Underlying Fund may result in the Fund’s receipt of cash in excess of the Underlying Fund’s earnings;
if the Fund distributes these amounts, the distributions could constitute a return of capital to Fund shareholders for federal
income tax purposes. As a result of these factors, the use of the fund of funds structure by the Fund could therefore affect the
amount, timing and character of distributions to shareholders.
Investments in distressed
debt obligations that are at risk of or in default may present special federal income tax issues for the Fund. The federal income
tax consequences to a holder of such securities are not entirely certain. If the Fund’s characterization of such investments
were successfully challenged by the IRS or the IRS issues guidance regarding investments in such securities, it may affect whether
the Fund has made sufficient distributions or otherwise satisfied the requirements to maintain its qualification as a regulated
investment company and avoid federal income and excise taxes.
The Fund may qualify
to pay “exempt-interest” dividends, as defined in the Code, on its Common Shares by satisfying the requirement that,
at the close of each quarter of its taxable year, at least 50% of the value of its total assets consists of municipal securities.
Exempt-interest dividends are dividends or any part thereof (other than a capital gain dividend) paid by the Fund which are attributable
to interest on municipal securities and which are so reported by the Fund. As an alternative, the Fund may qualify to pay exempt-interest
dividends if it is a qualified fund-of-funds, i.e., if at least 50% of the value of its total assets are invested in the shares
of Underlying RICs at the close of each quarter of its taxable year. Exempt-interest dividends will be exempt from federal income
tax, subject to the possible application of the federal alternative minimum tax applicable to individuals.
The Fund or an Underlying
Fund may be subject to withholding and other taxes imposed by foreign countries, including taxes on interest, dividends and capital
gains with respect to its investments in those countries, which would, if imposed, reduce the yield on or return from those investments.
Tax treaties between certain countries and the U.S. may reduce or eliminate such taxes in some cases.
Sales, exchanges and
other dispositions of the Fund’s shares generally are taxable events for shareholders that are subject to U.S. federal income
tax. Shareholders should consult their own tax advisors with reference to their individual circumstances to determine whether any
particular transaction in the Fund’s shares is properly treated as a sale or exchange for federal income tax purposes, as
the following discussion assumes, and the tax treatment of any gains or losses recognized in such transactions. Gain or loss will
generally be 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 shares sold or exchanged. Such gain or loss will generally be characterized as capital gain or loss and
will be long-term if the shareholder’s holding period for the shares is more than one year and short-term if it is one year
or less. However, any loss realized by a shareholder upon the sale or other disposition of shares with a tax holding period of
six months or less will be treated as a long-term capital loss to the extent of any amounts treated as distributions of long-term
capital gain with respect to such shares. Additionally, any loss realized by a shareholder of the Fund upon the sale of shares
held for six months or less may be disallowed to the extent of any exempt-interest dividends received with respect to such shares.
For the purposes of calculating the six-month period, the holding period is suspended for any periods during which the shareholder’s
risk of loss is diminished as a result of holding one or more other positions in substantially similar or related property or through
certain options, short sales or contractual obligations to sell. The ability to deduct capital losses may be limited. In addition,
losses on sales or other dispositions of shares may be disallowed under the “wash sale” rules in the event that substantially
identical stock or securities are acquired (including those made pursuant to reinvestment of dividends) within a period of 61 days
beginning 30 days before and ending 30 days after a sale or other disposition of shares. In such a case, the disallowed portion
of any loss generally would be included in the U.S. federal income tax basis of the shares acquired.
An additional 3.8%
Medicare tax is imposed on certain net investment income (including ordinary dividends and capital gain distributions received
from the Fund and net gains from redemptions or other taxable dispositions of Fund shares) of U.S. individuals, estates and trusts
to the extent that such person’s “modified adjusted gross income” (in the case of an individual) or “adjusted
gross income” (in the case of an estate or trust) exceeds certain threshold amounts.
The Fund is required
in certain circumstances to backup withhold at a current rate of 24% on reportable payments including dividends, capital gain distributions,
and proceeds of sales or other dispositions of the Fund’s shares paid to certain holders of the Fund’s shares who do
not furnish the Fund with their correct social security number or other taxpayer identification number and certain certifications,
or who are otherwise subject to backup withholding. Backup withholding is not an additional tax. Any amounts withheld from payments
made to a shareholder 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.
This Prospectus does
not address the U.S. federal income tax consequences to a non-U.S. shareholder of an investment in common stock. Non-U.S. shareholders
should consult their tax advisors concerning the tax consequences of ownership of shares of the Fund, including the possibility
that distributions may be subject to a 30% U.S. withholding tax (or a reduced rate of withholding provided by an applicable treaty
if the investor provides proper certification of its non-U.S. status).
A separate U.S. withholding
tax may apply in the case of distributions to (i) certain non-U.S. financial institutions that have not agreed to collect and disclose
certain account holder information and are not resident in a jurisdiction that has entered into such an agreement with the U.S.
Treasury and (ii) certain other non-U.S. entities that do not provide certain certifications and information about the entity’s
U.S. owners.
The foregoing is a
general and abbreviated summary of the provisions of the Code and the Treasury regulations thereunder currently in effect as they
directly govern the taxation of the Fund and its shareholders. These provisions are subject to change by legislative or administrative
action, and any such change may be retroactive. A more complete discussion of the federal income tax rules applicable to the Fund
can be found in the SAI, which is incorporated by reference into this Prospectus. Shareholders are urged to consult their tax advisors
regarding specific questions as to U.S. federal, foreign, state, and local income or other taxes before making an investment in
the Fund.
CALIFORNIA TAX MATTERS
The assets of the Fund
may consist of one or more of the following: (i) interest bearing obligations issued by or on behalf of a state or a local government
(the “Bonds”), and (ii) shares (the “RIC Shares”) in funds qualifying as regulated investment
companies (“RICs”) that are treated as interests in regulated investment companies for federal income tax purposes.
A portion of the Bonds may be issued by the State of California or a local government in California (the “California Bonds”).
The discussion in this section is based on the assumption that: (i) the California Bonds were validly issued by the State of California
or a local government in California, and (ii) the interest on the Bonds is excludable from gross income for federal income tax
purposes. This portion of the disclosure does not address the taxation of taxpayers other than individuals who are full-time residents
of the State of California and corporations that are subject to California corporate income or franchise tax.
If you are an individual,
you may be able to exclude from taxable income for purposes of the California personal income tax dividends received from the Fund
that are properly reported by the Fund as exempt-interest dividends for California personal income tax purposes in written statements
furnished to you. The portion of the Fund’s dividends reported as California exempt-interest dividends may not exceed the
amount of interest the Fund receives during its taxable year on obligations the interest on which, if held by an individual, is
exempt from taxation by the State of California and the amount of California exempt-interest dividends the Fund receives from the
RIC Shares, reduced by certain non-deductible expenses. The Fund may designate California exempt-interest dividends only if the
Fund qualifies as a regulated investment company under the Code, and, if at the close of each quarter of its taxable year, (i)
at least 50 percent of the value of the total assets of the Fund consists of obligations the interest on which, when held by an
individual, is exempt from taxation by the State of California or (ii) at least 50 percent of the value of the total assets of
the Fund consists of interests in other entities qualifying as regulated investment companies for federal income tax purposes in
a taxable year. It is not anticipated that at least 50 percent of the value of the total assets of the Fund will consist of obligations
the interest on which, when held by an individual, is exempt from taxation by the State of California. However, at least 50 percent
of the value of the total assets of the Fund may consist of interests in other entities qualifying as regulated investment companies
for federal income tax purposes. Depending upon the nature and source of the income from the Bonds and the RICs, the Fund may be
eligible to distribute dividends that are properly reported by the Fund as exempt-interest dividends for purposes of the California
personal income tax.
Distributions from
the Fund, other than those properly reported by the Fund as exempt-interest dividends for California personal income tax purposes,
will generally be subject to the California personal income tax. Please note that all distributions from the Fund, including California
exempt-interest dividends, received by taxpayers subject to the California corporation tax laws may be subject to the California
corporate franchise tax or the California corporate income tax. If a taxpayer is subject to California personal income tax, corporate
franchise tax or corporate income tax, any gain recognized on the sale or redemption of shares of the Fund generally will be taxable
for purposes of such taxes. Interest on indebtedness incurred or continued to purchase or carry shares of the Fund, if the Fund
distributes California exempt-interest dividends during a tax year, is generally not deductible for purposes of the California
personal income tax.
Fund counsel has not
independently examined the RIC Shares, the Bonds or the opinions of bond counsel rendered in connection with the issuance of the
Bonds. Ownership of shares in the Fund may result in other California tax consequences to certain taxpayers, and prospective investors
should consult their tax advisors.
PLAN OF DISTRIBUTION
The Fund may sell up to [ ] in
aggregate initial offering price of (i) Common Shares, (ii) Preferred Shares, and/or (iii) Rights, from time to time under this
Prospectus and any related prospectus supplement in any one or more of the following ways: (1) directly to one or more purchasers;
(2) through agents; (3) to or through underwriters; or (4) through dealers. See also “Dividend Reinvestment Plan” above.
Each prospectus supplement relating to an
offering of the Securities will state the terms of the offering, including as applicable:
| ● | the names of any agents, underwriters or dealers; |
| ● | any sales loads or other items constituting underwriters’ compensation; |
| ● | any discounts, commissions, fees or concessions allowed or reallowed or paid to dealers or agents; |
| ● | the public offering or purchase price of the offered Securities and the estimated net proceeds the Fund will receive from the
sale; and |
| ● | any securities exchange on which the offered Securities may be listed. |
Any public offering price and any discounts
or concessions allowed or reallowed or paid to dealers may be changed from time to time.
In the case of a Rights offering, the applicable
prospectus supplement will set forth the number of Common Shares and/or Preferred Shares issuable upon the exercise of each Right
and the other terms of such Rights offering. The transferable Rights offered by means of this Prospectus and applicable prospectus
supplement, including any related over-subscription privilege and any follow-on offering, if applicable, may be convertible or
exchangeable into Common Shares at a ratio not to exceed one Common Share received for every three subscription rights to purchase
Common Shares converted, exercised or exchanged on an aggregate basis such that the exercise of all subscription rights to purchase
Common Shares in any transferable subscription Rights offering will not cumulatively result in more than a 33 1/3 percentage increase
in the outstanding common shares of the Fund.
Direct Sales
The Fund may sell Securities directly to,
and solicit offers from, purchasers, including institutional investors or others who may be deemed to be underwriters as defined
in the 1933 Act for any resales of the Securities. In this case, no underwriters or agents would be involved. The Fund may use
electronic media, including the Internet, to sell Securities directly. The terms of any of those sales will be described in a prospectus
supplement.
By Agents
The Fund may offer Securities through agents
that the Fund designates. Any agent involved in the offer and sale will be named and any commissions payable by the Fund will be
described 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.
The Fund 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 one or more underwriters or dealers acting as principal or agent for the Fund.
By Underwriters
The Fund 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 the Fund sells Securities to underwriters, the Fund 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 the Fund in the form of underwriting discounts and commissions. The underwriters
also may receive commissions from purchasers of Securities for whom they may act as 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 agent. Any public offering price and any discounts or concessions allowed or reallowed
or paid to dealers may be changed from time to time.
In connection with an offering of Common
Shares, if a prospectus supplement so indicates, the Fund 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 overallotments.
By Dealers
The Fund 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. The names of the dealers and
the terms of the transaction will be set forth in the prospectus supplement.
General Information
Agents, underwriters, or dealers participating
in an offering 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 1933 Act.
The Fund 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.
To facilitate an offering of the Common
Shares in an underwritten transaction and in accordance with industry practice, the underwriters may engage in transactions that
stabilize, maintain, or otherwise affect the market price of the Common Shares or other Security. Those transactions may include
overallotment, entering stabilizing bids, effecting syndicate covering transactions, and reclaiming selling concessions allowed
to an underwriter or a dealer.
| ● | An overallotment in connection with an offering creates a short position in the Common Shares for the underwriters’ own
account. |
| ● | An underwriter may place a stabilizing bid to purchase the Common Shares for the purpose of pegging, fixing, or maintaining
the price of the Common Shares. |
| ● | Underwriters may engage in syndicate covering transactions to cover overallotments or to stabilize the price of the Common
Shares by bidding for, and purchasing, the Common Shares or any other Securities in the open market in order to reduce a short
position created in connection with the offering. |
| ● | The managing underwriter may impose a penalty bid on a syndicate member to reclaim a selling concession in connection with
an offering when the Common Shares originally sold by the syndicate member are purchased in syndicate covering transactions or
otherwise. |
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.
In connection with any Rights offering,
the Fund may also enter into a standby underwriting agreement with one or more underwriters pursuant to which the underwriter(s)
will purchase Common Shares and/or Preferred Shares remaining unsubscribed for after the Rights offering.
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. There can be no assurance that there will be a liquid trading
market for the offered Securities.
Under agreements entered into with the Fund,
underwriters and agents may be entitled to indemnification by the Fund against certain civil liabilities, including liabilities
under the 1933 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 the Fund and its subsidiaries, if any, in the
ordinary course of business.
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.
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.
The Prospectus and accompanying prospectus
supplement in electronic form may be made available on the website maintained by the underwriters. The underwriters may agree to
allocate a number of Securities for sale to their online brokerage account holders. Such allocations of Securities for internet
distributions will be made on the same basis as other allocations. In addition, Securities may be sold by the underwriters to securities
dealers who resell Securities to online brokerage account holders.
ADMINISTRATOR, FUND ACCOUNTANT, TRANSFER
AGENT, DIVIDEND DISBURSING AGENT AND CUSTODIAN
The Fund’s administrator
is ALPS Fund Services, Inc. (“AFS”), an affiliate of the Fund’s transfer agent. AFS is a service company and
SEC-registered transfer agent. Under the Administration, Bookkeeping and Pricing Services Agreement, AFS is responsible for calculating
NAVs, providing additional fund accounting and tax services, and providing fund administration and compliance-related services.
The address of AFS is 1290 Broadway, Suite 1000, Denver, CO 80203. For its services, the Adviser pays AFS customary fees, out of
its unified management fee, based on the Fund’s net assets plus out of pocket expenses.
State Street Bank and
Trust Company, located at State Street Financial Center, One Lincoln Street, Boston, MA 02111, serves as the Fund’s custodian
and will maintain custody of the securities and cash of the Fund. For its services, the custodian receives a monthly fee based
upon, among other things, the average value of the net assets of the Fund, plus certain charges for securities transactions.
DST Systems, Inc.,
an affiliate of the Fund’s administrator, located at 333 West 9th Street, 2nd floor, Kansas City, Missouri 64105, will serve
as the Fund’s transfer agent, registrar, Plan Administrator and dividend disbursing agent.
LEGAL MATTERS
Certain legal matters
in connection with the Common Shares will be passed upon for the Fund by Faegre Drinker Biddle & Reath LLP. Faegre Drinker
Biddle & Reath LLP may rely as to certain matters of Maryland law on the opinion of Shapiro Sher Guinot & Sandler, P.A.
CONTROL PERSONS
Based on a review of Schedule 13D and Schedule 13G filings as
of the date of this Prospectus, there are no persons who control the Fund. For purposes of the foregoing statement, “control”
means (1) the beneficial ownership, either directly or through one or more controlled companies, of more than 25% of the voting
securities of a company; (2) the acknowledgement or assertion by either the controlled or controlling party of the existence of
control; or (3) an adjudication under Section 2(a)(9) of the 1940 Act, which has become final, that control exists.
ADDITIONAL INFORMATION
The Fund is subject
to the informational requirements of the Exchange Act and the 1940 Act and in accordance therewith files reports and other information
with the SEC. The SEC maintains a website at http://www.sec.gov containing reports, proxy and information statements and other
information regarding registrants, including the Fund (when available), that file electronically with the SEC.
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. 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 website (http://www.sec.gov).
THE FUND’S PRIVACY POLICY
The Fund is committed
to ensuring your financial privacy. This notice is being sent to comply with privacy regulations of the SEC. The Fund has in effect
the following policy with respect to nonpublic personal information about its customers:
| ● | Only such information received from you, through application forms or otherwise, and information about your Fund transactions
will be collected. |
| ● | None of such information about you (or former customers) will be disclosed to anyone, except as permitted by law (which includes
disclosure to employees necessary to service your account). |
| ● | Policies and procedures (including physical, electronic and procedural safeguards) are in place that are designed to protect
the confidentiality of such information. |
| ● | The Fund does not currently obtain consumer information. If the Fund were to obtain consumer information at any time in the
future, it would employ appropriate procedural safeguards that comply with federal standards to protect against unauthorized access
to and properly dispose of consumer information. |
For more information
about the Fund’s privacy policies call (855) 830-1222 (toll-free).
The Fund does not control
the safeguarding, use or disposition of the personal and financial information about investors that is in the possession of the Underwriters
and dealers. Investors should look to the privacy policies of those entities for information about how they treat investors’ personal
and financial information.
The information in this Statement
of Additional Information 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 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 or other jurisdiction where the offer or
sale is not permitted.
Subject
to Completion, Dated August 8, 2022
RIVERNORTH
FLEXIBLE MUNICIPAL INCOME FUND II, INC.
STATEMENT
OF ADDITIONAL INFORMATION
RiverNorth Flexible
Municipal Income Fund II, Inc. (the “Fund”) is a Maryland corporation that is registered under the Investment Company
Act of 1940, as amended (the “1940 Act”), as a newly organized, diversified, closed-end management investment company.
The Fund’s primary investment objective is current income exempt from regular U.S. Federal income taxes (but which may be
includable in taxable income for purposes of the Federal alternative minimum tax). The Fund’s secondary investment objective
is total return. RiverNorth Capital Management, LLC, the investment adviser of the Fund (“RiverNorth” or the “Adviser”),
and MacKay Shields LLC, the subadviser of the Fund (“MacKay Shields” or the “Subadviser”), attempt to achieve
the Fund’s investment objectives by allocating the Fund’s assets among two principal investment strategies: Tactical
Municipal Closed-End Fund Strategy and Municipal Bond Income Strategy. See “Investment Objectives, Strategies and Policies—Principal
Investment Strategies” in the Fund’s Prospectus (as defined below). There is no assurance that the Fund will achieve
its investment objectives.
This Statement of Additional
Information (“SAI”) relates to the Fund’s (i) shares of common stock, $0.0001 par value per share (the “Common
Shares” and holders of such Common Shares, “Common Shareholders”), (ii) shares of preferred stock (the “Preferred
Shares”) and (iii) subscription rights to purchase Common Shares (“Rights” and, together with the Common Shares
and Preferred Shares, “Securities”). This SAI is not a prospectus, but should be read in conjunction with the Prospectus
dated [ ], 2022 (the “Prospectus”) and the applicable prospectus supplement. This SAI does not include all of the information
that a prospective investor should consider before purchasing Securities. Investors should obtain and read the Prospectus and the
applicable prospectus supplement prior to purchasing Securities. A copy of the Prospectus may be obtained without charge by calling
the Fund at (844) 569-4750.
The Prospectus and
this SAI omit certain of the information contained in the registration statement filed with the Securities and Exchange Commission
(“SEC”), Washington, D.C. The Fund’s filings with the SEC are available to the public on the SEC’s website
at www.sec.gov. Copies of these filings may be obtained, after paying a duplicating fee, by electronic request at the following
e-mail address: publicinfo@sec.gov. Capitalized terms used but not defined herein have the meanings ascribed to them in
the Prospectus.
This Statement of
Additional Information is dated [ ], 2022.
TABLE OF CONTENTS
|
Page |
INVESTMENT RESTRICTIONS |
1 |
INVESTMENT POLICIES AND TECHNIQUES |
3 |
MANAGEMENT OF THE FUND |
25 |
Investment Adviser |
25 |
Investment Subadviser |
25 |
Investment Advisory Agreement and Subadvisory Agreement |
25 |
Portfolio Managers |
26 |
Compensation of Portfolio Managers |
28 |
Portfolio Manager Ownership of Fund Shares |
29 |
Conflicts of Interest |
29 |
Other Accounts Managed |
31 |
Administrator |
31 |
Codes of Ethics |
32 |
FUND SERVICE PROVIDERS |
32 |
Independent Registered Public Accounting Firm |
32 |
Legal Counsel |
32 |
Custodian and Transfer Agent |
32 |
PORTFOLIO TRANSACTIONS |
32 |
U.S. FEDERAL INCOME TAX MATTERS |
34 |
Fund Taxation |
34 |
Common Shareholder Taxation |
37 |
Preferred Shareholder Taxation |
42 |
Other Taxes |
42 |
BOARD MEMBERS AND OFFICERS |
43 |
Director Ownership in the Fund |
53 |
Securities Beneficially Owned |
54 |
PROXY VOTING GUIDELINES |
54 |
ADDITIONAL INFORMATION |
55 |
FINANCIAL STATEMENTS |
55 |
APPENDIX A – PROXY VOTING GUIDELINES OF THE ADVISER |
A-1 |
APPENDIX B – PROXY VOTING GUIDELINES OF THE SUBADVISER |
B-1 |
INVESTMENT RESTRICTIONS
Except as otherwise
indicated, the Fund’s investment policies are not fundamental and may be changed without a vote of Common Shareholders. There
can be no assurance the Fund’s investment objectives will be met.
Any investment restrictions
herein that involve a maximum percentage of securities or assets shall not be considered to be violated unless an excess over the
percentage occurs immediately after and is caused by an acquisition or encumbrance of securities or assets of, or borrowings by,
the Fund. However, the asset coverage requirement applicable to borrowings will be maintained as required under the 1940 Act.
The Fund’s primary
investment objective and 80% policy (as set forth in the Prospectus) are considered fundamental. In addition, as a matter of fundamental
policy, the Fund will not:
(1) with respect to
75% of its total assets, purchase any securities (other than Government securities (as defined in the 1940 Act) and securities
issued by other investment companies), if, as a result, more than 5% of the Fund’s total assets would then be invested in
securities of any single issuer or if, as a result, the Fund would hold more than 10% of the outstanding voting securities of any
single issuer;
(2) borrow money, except
as permitted under the 1940 Act, as it may be amended, interpreted or modified from time to time by Congress or regulatory authorities
having jurisdiction, including, for the avoidance of doubt, SEC staff interpretations;
(3) issue senior securities,
except as permitted under the 1940 Act, as it may be amended, interpreted or modified from time to time by Congress or regulatory
authorities having jurisdiction, including, for the avoidance of doubt, SEC staff interpretations;
(4) purchase any security
if, as a result, 25% or more of the Fund’s total assets (taken at current value) would be invested in any single industry
or group of industries, except that the Fund’s investments in Underlying Funds shall not be deemed to be investments in a
single industry or group of industries, and except that this limitation shall not apply to municipal securities other than those
municipal securities backed principally by the assets and revenues of non-governmental users. (For purposes of this restriction,
governments and their political subdivisions are not members of any industry.);
(5) engage in the business
of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter in connection
with the disposition of portfolio securities;
(6) purchase or sell
real estate; provided that this restriction shall not prevent the Fund from investing in municipal securities secured by
real estate or interests therein or foreclosing upon and selling such real estate or from managing and maintaining it in the interim;
(7) purchase or sell
commodities, unless acquired as a result of ownership of securities or other instruments; provided that this restriction
shall not prohibit the Fund from purchasing or selling options, futures contracts and related options thereon, forward contracts,
swaps, caps, floors, collars and any other financial instruments or from investing in securities or other instruments backed by
physical commodities or as otherwise permitted by the 1940 Act, as amended, interpreted or modified from time to time by Congress
or regulatory authorities having jurisdiction, including, for the avoidance of doubt, SEC staff interpretations, or pursuant to
an exemption or other relief applicable to the Fund from the provisions of the 1940 Act, as amended from time to time; or
(8) make loans, except
as permitted under the 1940 Act, as it may be amended, interpreted or modified from time to time by Congress or regulatory authorities
having jurisdiction, including, for the avoidance of doubt, SEC staff interpretations, or except as may be permitted by exemptive
orders granted under the 1940 Act.
A fundamental policy
may not be changed without the approval of a majority of the outstanding voting securities of the Fund which, under the 1940 Act
and the rules thereunder and as used in this SAI, means the lesser of (1) 67% or more of the voting securities present at such
meeting, if the holders of more than 50% of the outstanding voting securities of the Fund are present or represented by proxy,
or (2) more than 50% of the outstanding voting securities of the Fund.
Fundamental Investment Restriction (1)
For the purpose of
applying the limitation in fundamental investment restriction (1), an issuer shall be deemed the sole issuer of a security when
its assets and revenues are separate from other governmental entities and its securities are backed only by its assets and revenues.
Similarly, in the case of a non-governmental issuer, such as an industrial corporation or a privately owned or operated hospital,
if the security is backed only by the assets and revenues of the non-governmental issuer, then such non-governmental issuer would
be deemed to be the sole issuer. Where a security is also backed by the enforceable obligation of a superior or unrelated governmental
or other entity (other than a bond insurer), it shall also be included in the computation of securities owned that are issued
by such governmental or other entity. Where a security is guaranteed by a governmental entity or some other facility, such as
a bank guarantee or letter of credit, such a guarantee or letter of credit would be considered a separate security and would be
treated as an issue of such government, other entity or bank. When a municipal bond is insured by bond insurance, it shall not
be considered a security that is issued or guaranteed by the insurer; instead, the issuer of such municipal bond will be determined
in accordance with the principles set forth above. The foregoing restrictions do not limit the percentage of the Fund’s
assets that may be invested in municipal securities insured by any given insurer.
Fundamental Investment Restriction (2)
The 1940 Act permits
the Fund to borrow money in an amount up to one-third of its total assets (including the amount borrowed) less its liabilities
(not including any borrowings but including the fair market value at the time of computation of any other senior securities then
outstanding). The Fund may also borrow an additional 5% of its total assets without regard to the foregoing limitation for temporary
purposes such as clearance of portfolio transactions.
Practices and investments
that may involve leverage but are not considered to be borrowings are not subject to the policy. For more information on leverage
and the risks relating thereto, see “Risks—Structural Risk—Leverage Risk” in the Prospectus.
Fundamental Investment Restriction (3)
The ability of a closed-end
fund to issue senior securities is severely circumscribed by complex regulatory constraints under the 1940 Act that restrict, for
instance, the amount, timing, and form of senior securities that may be issued. Certain portfolio management techniques, such as
reverse repurchase agreements, credit default swaps, futures contracts, the purchase of securities on margin, short sales, or the
writing of puts on portfolio securities, may be considered senior securities unless appropriate steps are taken to segregate assets
or otherwise cover obligations. To the extent the Fund covers its commitment under these transactions, including by the segregation
of liquid assets, such instrument will not be considered a “senior security” by the Fund and therefore will not be
subject to the 300% asset coverage requirement otherwise applicable to borrowings by the Fund (or, as the case may be, the 200%
asset coverage requirement applicable to preferred stock issued by the Fund). However, forthcoming changes under Rule 18f-4 of
the 1940 Act will, among other things, eliminate the current asset segregation framework the Fund initially intends to use by the
third quarter of 2022. See “Investment Policies and Techniques—Derivatives—Segregation and Cover Requirements”
below.
Under the 1940 Act,
the issuance by the Fund of a senior security representing an indebtedness is subject to a requirement that provision is made
that, (i) if on the last business day of each of 12 consecutive calendar months the asset coverage with respect to the senior
security is less than 100%, the holders of such securities voting as a class shall be entitled to elect at least a majority of
the Board with such voting right to continue until the asset coverage for such class of senior security is at least 110% on the
last business day of each of 3 consecutive calendar months or, (ii) if on the last business day of each of 24 consecutive calendar
months the asset coverage for such class of senior security is less than 100%, an event of default shall be deemed to have occurred.
Fundamental Investment Restriction (4)
The limitation in
fundamental investment restriction (4) will apply to municipal securities if the payment of principal and interest for such securities
is derived principally from a specific project associated with an issuer that is not a governmental entity or a political subdivision
of a government, and in that situation the Fund will consider such municipal securities to be in an industry associated with the
project. Although the Fund’s investments in Underlying Funds are not deemed to be investments in a particular industry,
to the extent that the Fund is aware of the investments held by the Underlying Funds, the Fund will consider such information
when determining compliance with fundamental investment restriction (4).
Fundamental Investment Restriction (7)
The ability of the
Fund to invest directly in commodities, and in certain commodity-related securities and other instruments, is subject to significant
limitations in order to enable the Fund to maintain its status as a regulated investment company under the Internal Revenue Code
of 1986, as amended (the “Code”).
Fundamental Investment Restriction (8)
The 1940 Act does not
prohibit a fund from making loans; however, SEC staff interpretations currently prohibit funds from lending more than one-third
of their total assets, except through the purchase of debt obligations or the use of repurchase agreements. A repurchase agreement
is an agreement to purchase a security, coupled with an agreement to sell that security back to the original seller on an agreed-upon
date at a price that reflects current interest rates. The SEC frequently treats repurchase agreements as loans.
INVESTMENT POLICIES AND TECHNIQUES
The following describes
certain investment practices and techniques in which the Fund may engage, and certain of the risks associated with such practices
and techniques, and includes a discussion of the spectrum of investments that the Adviser and the Subadviser in their discretion
may, but are not required to, use in managing the Fund’s assets. Certain risks may only apply to a particular investment
strategy of the Fund, or may apply to both investment strategies. The following descriptions supplement the descriptions of the
investment objectives, policies, strategies and risks as set forth in the Fund’s Prospectus.
These same investment
practices or techniques may be used by the Underlying Funds in which the Fund invests (as described in the Prospectus) and, therefore,
the risks described below may apply to the Underlying Funds as well. The Underlying Funds are not subject to the Fund’s investment
policies and restrictions, and the Underlying Funds may invest their assets in securities and other instruments, and may use investment
techniques and strategies, that are not described in the Prospectus.
Furthermore, it is
possible that certain types of financial instruments or investment techniques described herein may not be available, permissible,
economically feasible or effective for their intended purposes in all markets. Certain practices, techniques or instruments may
not be principal activities of the Fund but, to the extent employed, could from time to time have a material impact on the Fund’s
performance.
Municipal Securities.
Municipal securities are either general obligation or revenue bonds and typically are issued to finance public projects (such
as roads or public buildings), to pay general operating expenses or to refinance outstanding debt.
Municipal securities
may also be issued on behalf of private entities or for private activities, such as housing, medical and educational facility construction,
or for privately owned industrial development and pollution control projects. General obligation bonds are backed by the full faith
and credit, or taxing authority, of the issuer and may be repaid from any revenue source; revenue bonds may be repaid only from
the revenues of a specific facility or source. The Fund and the Underlying Funds may also purchase municipal securities that represent
lease obligations, municipal notes, pre-refunded municipal bonds, private activity bonds, tender option bonds and other forms of
municipal bonds and securities.
Municipal securities
of below investment grade quality (Ba/BB or below) are commonly referred to as junk bonds. Issuers of securities rated Ba/BB or
B are regarded as having current capacity to make principal and interest payments but are subject to business, financial or economic
conditions which could adversely affect such payment capacity. Municipal securities rated Baa or BBB or above are considered “investment
grade” securities; municipal securities rated Baa are considered medium grade obligations that lack outstanding investment
characteristics and have speculative characteristics, while municipal securities rated BBB are regarded as having adequate capacity
to pay principal and interest. Municipal securities rated Aaa or AAA in which the Fund may invest may have been so rated on the
basis of the existence of insurance guaranteeing the timely payment, when due, of all principal and interest. Municipal securities
rated below investment grade quality are obligations of issuers that are considered predominately speculative with respect to the
issuer’s capacity to pay interest and repay principal according to the terms of the obligation and, therefore, carry greater
investment risk, including the possibility of issuer default and bankruptcy and increased market price volatility. Municipal securities
rated below investment grade tend to be less marketable than higher-quality securities because the market for them is less broad.
The market for municipal securities unrated by any NRSRO is even narrower. During periods of thin trading in these markets, the
spread between bid and asked prices is likely to increase significantly and the Fund may have greater difficulty selling its portfolio
securities. The Fund will be more dependent on the Adviser’s and the Subadviser’s research and analysis when investing
in these securities.
The Fund and the Underlying
Funds may invest in distressed securities which are securities of issuers that may be experiencing financial difficulties, such
as being in default on their obligations to pay principal or interest thereon when due or that are involved in bankruptcy or insolvency
proceedings. The issuers of such securities may be in transition, out of favor, financially leveraged or troubled, or potentially
troubled, and may be or have recently been involved in major strategic actions, restructurings, bankruptcy, reorganization or liquidation.
These characteristics of these issuers can cause their securities to be particularly risky, although they also may offer the potential
for high returns. These issuers’ securities may be considered speculative, and the ability of the issuers to pay their debts
on schedule could be affected by adverse interest rate movements, changes in the general economic climate, economic factors affecting
a particular industry or specific developments within the issuers. 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.
See “—Below Investment Grade Securities Risk.”
Investments in lower
rated or unrated securities may present special tax issues for the Fund to the extent that the issuers of these securities default
on their obligations pertaining thereto, and the federal income tax consequences to the Fund as a holder of such distressed securities
may not be clear.
The ratings of S&P,
Moody’s and Fitch represent their opinions as to the quality of the municipal securities they rate. It should be emphasized,
however, that ratings are general and are not absolute standards of quality. Consequently, municipal securities with the same
maturity, coupon and rating may have different yields while obligations of the same maturity and coupon with different ratings
may have the same yield.
During temporary defensive
periods (e.g., times when, in the Adviser’s or the Subadviser’s opinion, temporary imbalances of supply and demand
or other temporary dislocations in the tax-exempt securities market adversely affect the price at which long-term or intermediate-term
Municipal Bonds are available), and in order to keep the Fund’s cash fully invested, including the period during which the
net proceeds of an offering are being invested, the Fund may invest any percentage of its net assets in short-term investments
including high quality, short-term securities that may be either tax-exempt or taxable. Tax-exempt short-term investments include
various obligations issued by state and local governmental issuers, such as tax-exempt notes (bond anticipation notes, tax anticipation
notes and revenue anticipation notes or other such Municipal Bonds maturing in three years or less from the date of issuance) and
municipal commercial paper. Taxable short-term investments of the Fund may include certificates of deposit issued by U.S. banks
with assets of at least $1 billion, or commercial paper or corporate notes, bonds or debentures with a remaining maturity of one
year or less, or repurchase agreements. To the extent the Fund invests in taxable investments, the Fund will not at such times
be in a position to achieve its investment objective of tax-exempt income.
The Fund may also invest
in securities of other open- or closed-end investment companies that invest primarily in municipal bonds of the types in which
the Fund may invest directly. See “—Investment Company Securities.”
Obligations of issuers
of municipal securities are subject to the provisions of bankruptcy, insolvency and other laws affecting the rights and remedies
of creditors. In addition, the obligations of such issuers may become subject to the laws enacted in the future by Congress, state
legislatures or referenda extending the time for payment of principal or interest, or both, or imposing other constraints upon
enforcement of such obligations or upon municipalities to levy taxes. There is also the possibility that, as a result of legislation
or other conditions, the power or ability of any issuer to pay, when due, the principal of, and interest on, its municipal securities
may be materially affected.
Subject to the concentration
limits of the Fund’s investment policies and guidelines, the Fund may invest a significant portion of its total assets in
certain sectors of the municipal securities market, such as hospitals and other health care facilities, charter schools and other
private educational facilities, special taxing districts and start-up utility districts and private activity bonds including industrial
development bonds on behalf of transportation companies such as airline companies, whose credit quality and performance may be
more susceptible to economic, business, political, regulatory and other developments than other sectors of municipal issuers. If
the Fund invests a significant portion of its total assets in one or more particular sectors, the Fund’s performance may
be subject to additional risk and variability. To the extent that the Fund focuses its total assets in the hospital and healthcare
facilities sector, for example, the Fund will be subject to risks associated with such sector, including adverse government regulation
and reduction in reimbursement rates, as well as government approval of products and services and intense competition. Securities
issued with respect to special taxing districts will be subject to various risks, including real-estate development related risks
and taxpayer concentration risk. Further, the fees, special taxes or tax allocations and other revenues established to secure the
obligations of securities issued with respect to special taxing districts are generally limited as to the rate or amount that may
be levied or assessed and are not subject to increase pursuant to rate covenants or municipal or corporate guarantees. Charter
schools and other private educational facilities will be subject to various risks, including the reversal of legislation authorizing
or funding charter schools, the failure to renew or secure a charter, the failure of a funding entity to appropriate necessary
funds and competition from alternatives such as voucher programs. Issuers of municipal utility securities can be significantly
affected by government regulation, financing difficulties, supply and demand of services or fuel and natural resource conservation.
The transportation sector, including airports, airlines, ports and other transportation facilities, can be significantly affected
by changes in the economy, fuel prices, labor relations, insurance costs and government regulation.
Municipal Leases
and Certificates of Participation. Also included within the general category of municipal securities are municipal leases,
certificates of participation in such lease obligations or installment purchase contract obligations (collectively, “Municipal
Lease Obligations”) of municipal authorities or entities. Although a Municipal Lease Obligation does not constitute a general
obligation of the municipality for which the municipality’s taxing power is pledged, a Municipal Lease Obligation is ordinarily
backed by the municipality’s covenant to budget for, appropriate and make the payments due under the Municipal Lease Obligation.
However, certain Municipal Lease Obligations contain “nonappropriation” clauses which provide that the municipality
has no obligation to make lease or installment purchase payments in future years unless money is appropriated for such purpose
on a yearly basis. In the case of a “non-appropriation” lease, the Fund’s ability to recover under the lease
in the event of non-appropriation or default will be limited solely to the repossession of the leased property, without recourse
to the general credit of the lessee, and disposition or releasing of the property might prove difficult. To the extent that the
Fund invests directly in unrated municipal leases or participates in such leases, the credit quality rating and risk of cancellation
of such unrated leases will be monitored on an ongoing basis. In order to reduce this risk, the Fund will only purchase Municipal
Lease Obligations where the Adviser or Subadviser believes the issuer has a strong incentive to continue making appropriations
until maturity.
Below Investment
Grade Securities. The Fund and the Underlying Funds may invest in below investment grade securities, which are commonly referred
to as “junk” or “high yield” securities. These securities are considered to be high-risk investments. The
risks include the following:
Greater Risk of
Loss. These securities are regarded as predominately speculative. There is a greater risk that issuers of lower-rated securities
will default than issuers of higher-rated securities. Issuers of lower-rated securities generally are less creditworthy and may
be highly indebted, financially distressed or bankrupt. These issuers are more vulnerable to real or perceived economic changes,
political changes or adverse industry developments. In addition, below investment grade securities are frequently subordinated
to the prior payment of senior indebtedness. If an issuer fails to pay principal or interest, the Fund would experience a decrease
in income and a decline in the market value of its investments. The Fund also may incur additional expenses in seeking recovery
from the issuer.
Sensitivity to Interest
Rate and Economic Changes. The income and market value of lower-rated securities may fluctuate more than higher-rated securities.
Although certain below investment grade securities may be less sensitive to interest rate changes than investment grade securities,
below investment grade securities generally are more sensitive to short-term corporate, economic and market developments. During
periods of economic uncertainty and change, the market price of the investments in lower-rated securities may be volatile. The
default rate for high yield bonds tends to be cyclical, with defaults rising in periods of economic downturn.
Valuation Difficulties.
It is often more difficult to value lower-rated securities than higher-rated securities. If an issuer’s financial condition
deteriorates, accurate financial and business information may be limited or unavailable. In addition, the lower-rated investments
may be thinly traded and there may be no established secondary market. Because of the lack of market pricing and current information
for investments in lower-rated securities, valuation of such investments is much more dependent on judgment than is the case with
higher-rated securities.
Liquidity. There
may be no established secondary or public market for investments in lower-rated securities. Such securities are frequently traded
in markets that may be relatively less liquid than the market for higher-rated securities. In addition, relatively few institutional
purchasers may hold a major portion of an issue of lower-rated securities at times. As a result, lower-rated securities may be
required to be sold at substantial losses or retained indefinitely even where an issuer’s financial condition is deteriorating.
Credit Quality.
Credit quality of below investment grade securities can change suddenly and unexpectedly, and even recently-issued credit ratings
may not fully reflect the actual risks posed by a particular below investment grade security.
New Legislation.
Future legislation may have a possible negative impact on the market for below investment grade securities.
Borrowing. The
Fund may borrow funds and/or issue preferred stock, notes or other debt securities to the extent permitted by the 1940 Act for
investment and other purposes, such as to provide the Fund with liquidity. The Fund’s use of leverage may include borrowing
through a line of credit with a bank or other financial institution. In addition, the Fund may enter into derivative and other
transactions that have the effect of leverage. Such other transactions may include investing in inverse floating rate securities
issued by tender option bond trusts. Under the requirements of the 1940 Act, the Fund, immediately after any borrowing, must have
an “asset coverage” of at least 300% (i.e., such indebtedness may not exceed 33-1/3% of the value of the Fund’s
total assets including the amount borrowed). With respect to such borrowing, asset coverage means the ratio which the value of
the total assets of the Fund, less all liabilities and indebtedness not represented by senior securities (as defined in the 1940
Act), bears to the aggregate amount of such borrowing represented by senior securities issued by the Fund. Under the 1940 Act,
the Fund is also not permitted to issue preferred stock unless immediately after such issuance the total asset value of the Fund’s
portfolio is at least 200% of the liquidation value of the outstanding preferred stock (i.e., such liquidation value may
not exceed 50% of the Fund’s total assets).
The use of borrowing
and other leverage by the Fund involves special risk considerations that may not be associated with other funds having similar
policies. Because substantially all of the Fund’s assets fluctuate in value, whereas the interest obligation resulting from
a borrowing may be fixed by the terms of the Fund’s agreement with its lender, the net asset value (“NAV”) per
share of Common Shares of the Fund will tend to increase more when its portfolio securities increase in value and decrease more
when its portfolio securities decrease in value than would otherwise be the case if the Fund did not use leverage. 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 investment considerations would not favor such sales. The interest that the Fund must pay on
borrowed money, together with any additional fees to establish and maintain a borrowing facility, are additional costs that will
reduce or eliminate any net investment income and may also offset any potential capital gains. Unless appreciation and income,
if any, on assets acquired with borrowed funds exceed the costs of borrowing, the use of leverage will diminish the investment
performance of the Fund compared with what it would have been without leverage. See “Use of Leverage” and “Risks—Structural
Risk—Leverage Risk” in the Fund’s Prospectus.
Closed-End Funds.
The Fund may invest in shares of closed-end funds offered in initial or secondary offerings or through purchasing shares in the
secondary market. An initial public offering of closed-end fund shares is typically distributed by a group of underwriters who
retain a spread or underwriting commission based on the initial public offering price. Such shares are then listed for trading
on an exchange and, in some cases, may be traded in other over-the-counter markets. Because the shares of closed-end funds cannot
be redeemed upon demand to the issuer like the shares of an open-end fund, investors seek to buy and sell shares of closed-end
funds in the secondary market. The Fund will incur normal brokerage costs on its secondary purchases similar to the expenses the
Fund would incur for the purchase of securities of any other type of issuer in the secondary market.
The shares of many
closed-end funds, after their initial public offering, frequently trade at a price per share that is less than the NAV per share,
the difference representing the “market discount” of such shares. This market discount may be due in part to the investment
objective of long-term appreciation, which is sought by many closed-end funds, as well as to the fact that the shares of closed-end
funds are not redeemable by the holder upon demand to the issuer at the next determined NAV but, rather, are subject to supply
and demand in the secondary market. A relative lack of secondary market purchasers of closed-end fund shares also may contribute
to such shares trading at a discount to their NAV.
The Fund may invest
in shares of closed-end funds that are trading at a discount to NAV or at a premium to NAV. There can be no assurance that the
market discount on shares of any closed-end fund purchased by the Fund will ever decrease. In fact, it is possible that this market
discount may increase and the Fund may suffer realized or unrealized capital losses due to further decline in the market price
of the securities of such closed-end funds, thereby adversely affecting the NAV of the Common Shares. Similarly, there can be no
assurance that any shares of a closed-end fund purchased by the Fund at a premium will continue to trade at a premium or that the
premium will not decrease subsequent to a purchase of such shares by the Fund.
Closed-end funds may
issue senior securities (including preferred stock and debt obligations) for the purpose of leveraging the closed-end fund’s
common shares in an attempt to enhance the current return to such closed-end fund’s common shareholders. The Fund’s
investment in the common shares of closed-end funds that are financially leveraged may create an opportunity for greater total
return on its investment, but in a down market may also lose money at a faster rate. In general, leveraged funds may be expected
to exhibit more volatility in market price and NAV than an investment in shares of investment companies without a leveraged capital
structure.
Derivatives.
The Fund may utilize various other investment strategies as described below for a variety of purposes, such as hedging various
market risks or enhancing return. These strategies may be executed through the use of derivative contracts. The Underlying Funds
may also utilize derivative contracts and are thus subject to the same risks described below.
In the course of pursuing
these investment strategies, the Fund may purchase and sell exchange-listed and over-the-counter put and call options on securities,
equity and fixed-income indices and other instruments, purchase and sell futures contracts and options thereon, enter into various
transactions such as swaps, caps, floors or collars, (collectively, all the above are called “Derivative Transactions”).
In addition, Derivative Transactions may also include new techniques, instruments or strategies that are permitted as regulatory
changes occur. Derivative Transactions may be used without limit (subject to certain limits imposed by the 1940 Act) to attempt
to protect against possible changes in the market value of securities held in or to be purchased for the Fund’s portfolio
resulting from securities markets fluctuations, to protect the Fund’s unrealized gains in the value of its portfolio securities,
to facilitate the sale of such securities for investment purposes, to manage the effective maturity or duration of the Fund’s
portfolio, or to establish a position in the derivatives markets as a substitute for purchasing or selling particular securities.
Some Derivative Transactions may also be used to enhance potential gain. Any or all of these investment techniques may be used
at any time and in any combination, and there is no particular strategy that dictates the use of one technique rather than another,
as use of any Derivative Transaction is a function of numerous variables including, but not limited to, market conditions. The
ability of the Fund to utilize these Derivative Transactions successfully will depend on the Adviser’s or Subadviser’s
ability to predict pertinent market movements, which cannot be assured. The Fund’s use of Derivative Transactions may also
be limited by the requirements of the Code for qualification as a regulated investment company for U.S. federal income tax purposes.
The Fund will comply with applicable regulatory requirements when implementing these strategies, techniques and instruments. Derivative
Transactions will not be used to alter fundamental investment purposes and characteristics of the Fund, and the Fund will segregate
assets (or as provided by applicable regulations, enter into certain offsetting positions) to cover its obligations under options,
futures and swaps to limit leveraging of the Fund to the extent described in the Prospectus and this SAI. See forthcoming changes
to the current asset segregation framework the Fund initially intends to use as described below under “—Segregation
and Cover Requirements.”
Derivative Transactions,
including derivative contracts, have risks associated with them including, but not limited to, possible default by the other party
to the transaction, illiquidity and, to the extent the Adviser’s or Subadviser’s view as to certain market movements
is incorrect, the risk that the use of such Derivative Transactions could result in losses greater than if they had not been used.
Use of Derivative Transactions may result in losses to the Fund, force the sale or purchase of portfolio securities at inopportune
times or for prices higher than or lower than current market values, limit the amount of appreciation the Fund can realize on
its investments or cause the Fund to hold a security it might otherwise sell.
The use of options
and futures transactions entails certain other risks. In particular, the variable degree of correlation between price movements
of futures contracts and price movements in the related portfolio position of the Fund creates the possibility that losses on the
hedging instrument may be greater than gains in the value of the position the Fund is attempting to hedge. In addition, futures
and options markets may not be liquid in all circumstances and certain over-the-counter options may have no markets. As a result,
in certain markets, the Fund might not be able to close out a transaction without incurring substantial losses, if at all. Although
the use of futures and options transactions for hedging should tend to reduce the risk of loss due to a decline in the value of
the hedged position, at the same time they tend to limit any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts would create a greater ongoing potential financial
risk than would purchases of options, where the exposure is limited to the cost of the initial premium. Losses resulting from the
use of Derivative Transactions would reduce NAV, and possibly income, and such losses can be greater than if the Derivative Transactions
had not been utilized.
On October 28, 2020,
the SEC adopted new regulations governing the use of derivatives and certain other instruments by registered investment companies
(“Rule 18f-4”). The Fund will be required to implement and comply with Rule 18f-4 by August 19, 2022. Once implemented,
Rule 18f-4 will impose new limits on the amount of derivatives, short sales, and tender option bond transactions that the Fund
can enter into; eliminate the asset segregation framework available for certain derivative and related transactions; and require
the Fund to establish and maintain a comprehensive derivatives risk management program and appoint a derivatives risk manager.
As the Fund comes into compliance with Rule 18f-4, the Fund’s ability to continue to utilize derivatives, short sales and
tender option bond transactions in an amount similar to its initial use of such transactions could be impacted—e.g., the
Fund may need to reduce the amount of such derivatives and transactions and/or the cost of such transactions could increase, either
of which could adversely affect the value or performance of the Fund.
General Characteristics
of Options. Put options and call options typically have similar structural characteristics and operational mechanics regardless
of the underlying instrument on which they are purchased or sold. Thus, the following general discussion relates to each of the
particular types of options discussed in greater detail below. In addition, many Derivative Transactions involving options require
segregation of Fund assets in special accounts, as described below under “—Segregation and Cover Requirements.”
A put option gives
the purchaser of the option, upon payment of a premium, the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index or other instrument at the exercise price. For instance, the Fund’s purchase of a put option
on a security might be designed to protect its holdings in the underlying instrument (or, in some cases, a similar instrument)
against a substantial decline in the market value by giving the Fund the right to sell such instrument at the option exercise
price. A call option, upon payment of a premium, gives the purchaser of the option the right to buy, and the seller the obligation
to sell, the underlying instrument at the exercise price. The Fund’s purchase of a call option on a security, financial
future, index or other instrument might be intended to protect the Fund against an increase in the price of the underlying instrument
that it intends to purchase in the future by fixing the price at which it may purchase such instrument. An American style put
or call option may be exercised at any time during the option period while a European style put or call option may be exercised
only upon expiration or during a fixed period prior thereto. The Fund is authorized to purchase and sell exchange listed options
and over-the-counter options (“OTC options”). Exchange listed options are issued by a regulated intermediary such
as the Options Clearing Corporation (“OCC”), which guarantees the performance of the obligations of the parties to
such options. The discussion below uses the OCC as an example, but is also applicable to other financial intermediaries.
With certain exceptions,
OCC issued and exchange listed options generally settle by physical delivery of the underlying security, although in the future
cash settlement may become available. Index options are cash settled for the net amount, if any, by which the option is “in-the-money”
(i.e., where the value of the underlying instrument 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) at the time the option is exercised. Frequently, rather than taking or making
delivery of the underlying instrument through the process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of the new option.
The Fund’s ability
to close out its position as a purchaser or seller of an OCC or exchange listed put or call option is dependent, in part, upon
the liquidity of the option market. Among the possible reasons for the absence of a liquid option market on an exchange are: (i)
insufficient trading interest in certain options; (ii) restrictions on transactions imposed by an exchange; (iii) trading halts,
suspensions or other restrictions imposed with respect to particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the OCC or an exchange; (v) inadequacy of the facilities
of an exchange or OCC to handle current trading volume; or (vi) a decision by one or more exchanges to discontinue the trading
of options (or a particular class or series of options), in which event the relevant market for that option on that exchange would
cease to exist, although outstanding options on that exchange would generally continue to be exercisable in accordance with their
terms.
The hours of trading
for listed options may not coincide with the hours during which the underlying financial instruments are traded. To the extent
that the option markets close before the markets for the underlying financial instruments, significant price and rate movements
can take place in the underlying markets that cannot be reflected in the option markets.
OTC options are purchased
from or sold to securities dealers, financial institutions or other parties (“Counterparties”) through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which generally have standardized terms and performance
mechanics, all the terms of an OTC option, including such terms as method of settlement, term, exercise price, premium, guarantees
and security, are set by negotiation of the parties. The Fund will only sell OTC options that are subject to a buy-back provision
permitting the Fund to require the Counterparty to sell the option back to the Fund at a formula price within seven days. The Fund
expects generally to enter into OTC options that have cash settlement provisions, although it is not required to do so.
Unless the parties
provide for it, there is no central clearing or guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security or other instrument underlying an OTC option it has entered into with the Fund or fails
to make a cash settlement payment due in accordance with the terms of that option, the Fund will lose any premium it paid for
the option as well as any anticipated benefit of the transaction. Accordingly, the Adviser or Subadviser, as applicable, must
assess the creditworthiness of each such Counterparty or any guarantor or credit enhancement of the Counterparty’s credit
to determine the likelihood that the terms of the OTC option will be satisfied. The Fund will engage in OTC option transactions
only with U.S. government securities dealers recognized by the Federal Reserve Bank of New York as “primary dealers”
or broker/dealers, domestic or foreign banks or other financial institutions which have received (or the guarantors of the obligation
of which have received) a short-term credit rating of “A-1” from S&P Global Ratings (“S&P”) or
“P-1” from Moody’s Investor Services, Inc. (“Moody’s”) or an equivalent rating from any nationally
recognized statistical rating organization (“NRSRO”) or, in the case of OTC currency options, are determined to be
of equivalent credit quality by the Adviser or Subadviser, as applicable. The staff of the SEC currently takes the position that
OTC options purchased by the Fund, and portfolio securities “covering” the amount of the Fund’s obligation pursuant
to an OTC option sold by it (the cost of the sell-back plus the in-the-money amount, if any) are illiquid.
If the Fund sells a
call option, the premium that it receives may serve as a partial hedge, to the extent of the option premium, against a decrease
in the value of the underlying securities or instruments in its portfolio or will increase the Fund’s income. The sale of
put options can also provide income.
The Fund may purchase
and sell call options on securities including U.S. Treasury and agency securities, corporate debt securities and equity securities
(including convertible securities) that are traded on U.S. securities exchanges and in the over-the-counter markets, and on securities
indices and futures contracts. All calls sold by the Fund must be “covered” (i.e., the Fund must own the securities
or futures contract subject to the call) or must meet the asset segregation requirements described below as long as the call is
outstanding. However, see forthcoming changes to the current asset segregation framework the Fund initially intends to use as described
below under “—Segregation and Cover Requirements.” Even though the Fund will receive the option premium to help
protect it against loss, a call sold by the Fund exposes the Fund during the term of the option to possible loss of opportunity
to realize appreciation in the market price of the underlying security or instrument and may require the Fund to hold a security
or instrument which it might otherwise have sold.
The Fund may purchase
and sell put options on securities including U.S. Treasury and agency securities, corporate debt securities and equity securities
(including convertible securities), whether or not it holds the above securities in its portfolio, and on securities indices and
futures contracts other than futures on individual corporate debt and individual equity securities. In selling put options, there
is a risk that the Fund may be required to buy the underlying security at a disadvantageous price above the market price.
General Characteristics
of Futures. The Fund may enter into futures contracts or purchase or sell put and call options on such futures as a hedge against
anticipated interest rate or equity market changes or to enhance returns. Futures are generally bought and sold on the commodities
exchanges where they are listed with payment of initial and variation margin as described below. The sale of a futures contract
creates a firm obligation by the Fund, as seller, to deliver to the buyer the specific type of financial instrument called for
in the contract at a specific future time for a specified price (or, with respect to index futures, the net cash amount). Options
on futures contracts are similar to options on securities except that 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 and obligates the seller to deliver such position.
Typically, maintaining
a futures contract or selling an option thereon requires the Fund to deposit with a financial intermediary as security for its
obligations an amount of cash or other specified assets (initial margin), which initially is typically 1% to 10% of the face amount
of the contract (but may be higher in some circumstances). Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark-to-market value of the contract fluctuates. The purchase of an option on financial futures
involves payment of a premium for the option without any further obligation on the part of the Fund. If the Fund exercises an option
on a futures contract it will be obligated to post initial margin (and potential subsequent variation margin) for the resulting
futures position just as it would for any position. Futures contracts and options thereon are generally settled by entering into
an offsetting transaction but there can be no assurance that the position can be offset prior to settlement at an advantageous
price, nor that delivery will occur.
Options on Securities
Indices and Other Financial Indices. The Fund also may purchase and sell call and put options on securities indices and other
financial indices and in so doing can achieve many of the same objectives it would achieve through the sale or purchase of options
on individual securities or other instruments. Options on securities indices and other financial indices are similar to options
on a security or other instrument except that, rather than settling by physical delivery of the underlying instrument, they settle
by cash settlement, i.e., an option on an index gives the holder the right to receive, upon exercise of the option, an
amount of cash if the closing level of the index upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case of an OTC option, physical delivery is specified).
This amount of cash is equal to the excess of the closing price of the index over the exercise price of the option, which also
may be multiplied by a formula value. The seller of the option is obligated, in return for the premium received, to make delivery
of this amount. The gain or loss on an option on an index depends on price movements in the instruments making up the market,
market segment, industry or other composite on which the underlying index is based, rather than price movements in individual
securities, as is the case with respect to options on securities.
Swaps, Caps, Floors
and Collars. Among the Derivative Transactions into which the Fund may enter are interest rate, index and other swaps and the
purchase or sale of related caps, floors and collars. The Fund expects to enter into these transactions primarily to preserve a
return or spread on a particular investment or portion of its portfolio, as a duration management technique or to protect against
any increase in the price of securities the Fund anticipates purchasing at a later date. The Fund will not sell interest rate caps
or floors where it does not own securities or other instruments providing the income stream the Fund may be obligated to pay. Interest
rate swaps involve the exchange by the Fund with another party of their respective commitments to pay or receive interest, e.g.,
an exchange of floating rate payments for fixed rate payments with respect to a notional amount of principal. An index swap
is an agreement to swap cash flows on a notional amount based on changes in the values of the reference indices. The purchase of
a cap entitles the purchaser to receive payments on a notional principal amount from the party selling such cap to the extent that
a specified index exceeds a predetermined interest rate or amount. The purchase of a floor entitles the purchaser to receive payments
on a notional principal amount from the party selling such floor to the extent that a specified index falls below a predetermined
interest rate or amount. A collar is a combination of a cap and a floor that preserves a certain return within a predetermined
range of interest rates or values.
The Fund will usually
enter into swaps on a net basis, i.e., the two payment streams are netted out in a cash settlement on the payment date or
dates specified in the instrument, with the Fund receiving or paying, as the case may be, only the net amount of the two payments.
Inasmuch as the Fund will segregate assets (or enter into offsetting positions) to cover its obligations under swaps, the Fund
believes such obligations do not, as of the date of this statement of additional information, constitute senior securities under
the 1940 Act and, accordingly, will not treat them as being subject to its borrowing restrictions. However, see forthcoming changes
to the current asset segregation framework the Fund initially intends to use as described below under “—Segregation
and Cover Requirements.” If there is a default by the Counterparty, the Fund may have contractual remedies pursuant to the
agreements related to the transaction.
Credit Default Swap
Agreements. The Fund may enter into credit default swap agreements. The “buyer” in a credit default contract is
obligated to pay the “seller” a periodic stream of payments over the term of the contract provided that no event
of default on an underlying reference obligation has occurred. If an event of default occurs, the seller must pay the buyer the
full notional value, or “par value,” of the reference obligation. Credit default swap transactions are either “physical
delivery” settled or “cash” settled. Physical delivery entails the actual delivery of the reference asset to
the seller in exchange for the payment of the full par value of the reference asset. Cash settled entails a net cash payment from
the seller to the buyer based on the difference of the par value of the reference asset and the current value of the reference
asset that may have, through default, lost some, most or all of its value. The Fund may be either the buyer or seller in a credit
default swap transaction. If the Fund is a buyer and no event of default occurs, the Fund will have made a series of periodic payments
and recover nothing of monetary value. However, if an event of default occurs, the Fund (if the buyer) will receive the full notional
value of the reference obligation either through a cash payment in exchange for the asset or a cash payment in addition to owning
the reference assets. As a seller, the Fund receives a fixed rate of income throughout the term of the contract, which typically
is between six months and five years, provided that there is no event of default. If an event of default occurs, the seller
must pay the buyer the full notional value of the reference obligation.
Credit default swap
transactions involve greater risks than if the Fund had invested in the reference obligation directly. In addition to general
market risks, credit default swaps are subject to liquidity risk, counterparty risk and credit risks, each as further described
below. Moreover, if the Fund is a buyer, it will lose its investment and recover nothing should no event of default occur. If
an event of default were to occur, the value of the reference obligation received by the seller, coupled with the 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 Fund.
When the Fund acts as a seller of a credit default swap agreement it is exposed to the risks of leverage since if an event of
default occurs the seller must pay the buyer the full notional value of the reference obligation. Accordingly, when the Fund acts
as a seller of a credit default swap agreement, it will segregate assets equal to the full notional amount of the reference obligation.
However, see forthcoming changes to the current asset segregation framework the Fund initially intends to use as described below
under “—Segregation and Cover Requirements.”
A credit default index
swap is a swap on an index of credit default swaps. Credit default index swaps allow an investor to manage credit risk or to take
a position on a basket of credit default swaps (or other instruments) in a more efficient manner than transacting in single name
credit default swaps. If a credit event occurs in one of the underlying companies, the protection is paid out via the delivery
of the defaulted bond by the buyer of protection in return for payment of the notional value of the defaulted bond by the seller
of protection or it may be settled through a cash settlement between the two parties. The underlying company is then removed from
the index.
Structured Notes.
Structured notes are derivative debt securities, the interest rate or principal of which is determined by reference to changes
in value of a specific security, reference rate, or index. Indexed securities, similar to structured notes, are typically, but
not always, debt securities whose value at maturity or coupon rate is determined by reference to other securities. The performance
of a structured note or indexed security is based upon the performance of the underlying instrument, but may involve a formula
that multiplies the effect of certain aspects of the performance of that instrument, so that the performance of the derivative
is more or less volatile than that of the underlying instrument.
The terms of a structured
note may provide that, in certain circumstances, no principal is due on maturity and, therefore, may result in loss of investment.
Structured notes may be indexed positively or negatively to the performance of the underlying instrument such that the appreciation
or deprecation of the underlying instrument will move in the same direction as the value of the structured note at maturity or
of any coupon payment. In addition, changes in the interest rate and value of the principal at maturity may be fixed at a specific
multiple of the change in value of the underlying instrument, making the value of the structured note more volatile than the underlying
instrument. In addition, structured notes may be less liquid and more difficult to price accurately than less complex securities
or traditional debt securities.
Commodity-Linked
Derivatives. The Fund may invest in instruments with principal and/or coupon payments linked to the value of commodities, commodity
futures contracts, or the performance of commodity indices such as “commodity-linked” or “index-linked”
notes. These instruments are sometimes referred to as “structured notes” because the terms of the instrument may be
structured by the issuer of the note and the purchaser of the note, such as the Fund.
The values of these
notes will rise and fall in response to changes in the underlying commodity or related index or investment. These notes expose
the Fund economically to movements in commodity prices, but a particular note has many features of a debt obligation. These notes
also are subject to credit and interest rate risks that in general affect the value of debt securities. Therefore, at the maturity
of the note, the Fund may receive more or less principal than it originally invested. The Fund might receive interest payments
on the note that are more or less than the stated coupon interest rate payments.
Structured notes may
involve leverage, meaning that the value of the instrument will be calculated as a multiple of the upward or downward price movement
of the underlying commodity future or index. The prices of commodity-linked instruments may move in different directions than
investments in traditional equity and debt securities in periods of rising inflation, which may provide the Fund with a desired
degree of diversity. Of course, there can be no guarantee that the Fund’s commodity-linked investments would not be correlated
with traditional financial assets under any particular market conditions.
Commodity-linked notes
may be issued by U.S. and foreign banks, brokerage firms, insurance companies and other corporations. These notes, in addition
to fluctuating in response to changes in the underlying commodity assets, will be subject to credit and interest rate risks that
typically affect debt securities.
The commodity-linked
instruments may be wholly principal protected, partially principal protected or offer no principal protection. With a wholly principal
protected instrument, the Fund will receive at maturity the greater of the par value of the note or the increase in value of the
underlying index. Partially protected instruments may suffer some loss of principal up to a specified limit if the underlying index
declines in value during the term of the instrument. For instruments without principal protection, there is a risk that the instrument
could lose all of its value if the index declines sufficiently. The Adviser’s or Subadviser’s decision on whether and
to what extent to use principal protection depends in part on the cost of the protection. In addition, the ability of the Fund
to take advantage of any protection feature depends on the creditworthiness of the issuer of the instrument.
Commodity-linked derivatives
are generally hybrid instruments which are excluded from regulation under the Commodity Exchange Act (the “CEA”) and
the rules thereunder. Additionally, from time to time the Fund may invest in other hybrid instruments that do not qualify for exemption
from regulation under the CEA.
Segregation and
Cover Requirements. As an investment company registered with the SEC, the Fund must segregate liquid assets, or engage in other
measures to “cover” open positions with respect to certain kinds of derivatives and other transactions. The Fund or
the Underlying Funds may incur losses on derivatives and other leveraged investments (including the entire amount of a fund’s
investment in such investments) even if they are covered. To the extent that a fund does not segregate liquid assets or otherwise
cover its obligations under any such transactions (e.g., through offsetting positions), certain types of these transactions
will be treated as senior securities representing leverage for purposes of the requirements under the 1940 Act; and, therefore,
a fund may not enter into any such transactions if the fund’s leverage would thereby exceed the limits of the 1940 Act. The
Fund may employ a combination of segregation and cover with respect to any particular derivative or other transaction.
The Fund’s derivative
transactions are generally subject to earmarking and coverage requirements of either the Commodity Futures Trading Commission (the
“CFTC”) or the SEC, with the result that, if the Fund does not hold the security or futures contract underlying the
instrument, the Fund intends to designate on its books and records on an ongoing basis, cash or liquid securities in an amount
at least equal to the Fund’s obligations with respect to such instruments. Such amounts may fluctuate as the obligations
increase or decrease. The earmarking requirement can result in the Fund maintaining securities positions it would otherwise liquidate,
segregating assets at a time when it might be disadvantageous to do so and otherwise restrict portfolio management.
In general, either
the full amount of any obligation by the Fund to pay or deliver securities or assets must be covered at all times by the securities
or instruments required to be delivered, or, subject to any regulatory restrictions, an amount of liquid assets at least equal
to the current amount of the obligation must be segregated with the custodian or sub-custodian of the Fund in accordance with
established procedures. The segregated assets cannot be sold or transferred unless equivalent assets are substituted in their
place or it is no longer necessary to segregate them. A call option on securities written by the Fund, for example, may require
the Fund to hold the securities subject to the call (or securities convertible into the needed securities without additional consideration)
or to segregate liquid high grade debt obligations sufficient to purchase and deliver the securities if the call is exercised.
A call option sold by the Fund on an index may require the Fund to own portfolio securities that correlate with the index or to
segregate liquid high grade debt obligations equal to the excess of the index value over the exercise price on a current basis.
A put option on securities written by the Fund may require the Fund to segregate liquid high grade debt obligations equal to the
exercise price.
Over-the-counter options
entered into by the Fund, including those on securities, financial instruments or indexes, and OCC-issued and exchange-listed index
options will generally provide for cash settlement, although the Fund will not be required to do so. As a result, when the Fund
sells these instruments it will segregate an amount of assets equal to its obligations under the options. OCC-issued and exchange-listed
options sold by the Fund other than those described above generally settle with physical delivery, and the Fund will segregate
an amount of assets equal to the full value of the option. OTC options settling with physical delivery or with an election of either
physical delivery or cash settlement will be treated the same as other options settling with physical delivery.
In the case of a futures
contract or an option on a futures contract, the Fund must deposit the initial margin and, in some instances, the daily variation
margin in addition to segregating liquid assets sufficient to meet its obligations to purchase or provide securities or currencies,
or to pay the amount owed at the expiration of an index-based futures contract. The Fund will accrue the net amount of the excess,
if any, of its obligations relating to swaps over its entitlements with respect to each swap on a daily basis and will segregate
with its custodian, or designated sub-custodian, an amount of liquid assets having an aggregate value equal to at least the accrued
excess. Caps, floors and collars require segregation of liquid assets with a value equal to the Fund’s net obligation, if
any.
In the case of forward
currency contracts that are not contractually required to cash settle, the Fund must set aside liquid assets equal to such contracts’
full notional value while the positions are open. With respect to forward currency 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 marked-to-market
net obligations (i.e., the Fund’s daily net liability) under the contracts, if any, rather than such contracts’
full notional value.
In the case of swaps
that do not cash settle, for example, the Fund must set aside liquid assets equal to the full notional amount of the swaps while
the positions are open. With respect to swaps that cash settle, however, the Fund may set aside liquid assets in an amount equal
to the Fund’s daily marked-to-market net obligations (i.e., the Fund’s daily net liability) under the swaps,
if any, rather than their full notional amount.
Derivatives may be
covered by means other than those described above when consistent with applicable regulatory policies. The Fund may also enter
into offsetting transactions so that its combined position, coupled with any segregated assets, equals its net outstanding obligation
in related derivatives. Other derivatives may also be offset in combinations. If the offsetting transaction terminates at the time
of or after the primary transaction, no segregation is required, but if it terminates prior to that time, assets equal to any remaining
obligation would need to be segregated. The Fund reserves the right to modify its asset segregation policies in the future to comply
with any changes in the positions from time to time articulated by the SEC or its staff regarding asset segregation.
The use of segregation
and cover does not eliminate the risk of loss on a derivative or other leveraging position.
Notwithstanding the
foregoing, the current framework for asset segregation described above will no longer apply to the Fund by the third quarter of
2022. On October 28, 2020, the SEC adopted new regulations governing the use of derivatives by registered investment companies
(“Rule 18f-4”). The Fund will be required to implement and comply with Rule 18f-4 by the third quarter of 2022. Once
implemented, Rule 18f-4 will impose new limits on the amount of derivatives, short sales, and tender option bond transactions
that the Fund can enter into; eliminate the asset segregation framework the Fund initially intends to use to comply with Section
18 of the 1940 Act; treat certain derivatives as senior securities so that a failure to comply with the limits might be alleged
by a regulator to be a statutory violation; and potentially require the Fund to establish and maintain a comprehensive derivatives
risk management program and appoint a derivatives risk manager. The extent of the impact of such new regulations on the Fund,
including the ability of the Fund to continue to utilize derivatives, short sales and tender option bond transactions in an amount
similar to its intended initial use of such transactions, remains uncertain as of the date of this statement of additional information.
Combined Transactions.
The Fund may enter into multiple transactions, including multiple options transactions, multiple futures transactions, multiple
currency transactions (including forward currency contracts) and multiple interest rate transactions and any combination of futures,
options, currency and interest rate transactions (“component” transactions), instead of a single Derivative Transaction,
as part of a single or combined strategy when, in the opinion of the Adviser or Subadviser, it is in the best interests of the
Fund to do so. A combined transaction will usually contain elements of risk that are present in each of its component transactions.
Although combined transactions are normally entered into based on the Adviser’s or Subadviser’s judgment that the combined
strategies will reduce risk or otherwise more effectively achieve the desired portfolio management goal, it is possible that the
combination will instead increase such risks or hinder achievement of the portfolio management objectives.
Regulation as a
“Commodity Pool.” CFTC Rule 4.5 requires operators of registered investment companies to either limit such investment
companies’ use of futures, options on futures and swaps or register as a commodity pool operator (“CPO”) and
submit to dual regulation by the CFTC and the SEC. In order to be able to comply with the exclusion from the CPO definition pursuant
to CFTC Rule 4.5 with respect to the Fund, the Adviser must limit the Fund’s transactions in commodity futures, commodity
option contracts and swaps for non-hedging purposes by either (a) limiting the aggregate initial margin and premiums required to
establish non-hedging commodities positions to not more than 5% of the liquidation value of the Fund’s portfolio after taking
into account unrealized profits and losses on any such contract or (b) limiting the aggregate net notional value of non-hedging
commodities positions to not more than 100% of the liquidation value of the Fund’s portfolio after taking into account unrealized
profits and losses on such positions. In the event that the Fund’s investments in such instruments exceed such thresholds,
the Adviser would no longer be excluded from the CPO definition and may be required to register as a CPO, and the Subadviser may
be required to register as a commodity trading advisor (“CTA”). In the event the Adviser or Subadviser is required
to register as a CPO or CTA, as applicable, it will become subject to additional recordkeeping and reporting requirements with
respect to the Fund. The Adviser has claimed an exclusion from the definition of a CPO with respect to the Fund under the amended
rules. The Fund reserves the right to engage in transactions involving futures, options thereon and swaps in accordance with the
Fund’s policies. The Fund does not anticipate that it will invest in commodity futures, commodity options contracts and swaps
to an extent or in a manner that would require the Adviser and the Subadviser to register as a CPO or CTA (as applicable) in connection
with their management of the Fund.
Exchange-Traded
Funds. To the extent the Fund invests a portion of its Managed Assets (as defined below) in exchange-traded funds (“ETFs”),
those assets will be subject to the risks of the purchased funds’ portfolio securities, and a Common Shareholder will bear
not only his or her proportionate share of the Fund’s expenses, but also indirectly the expenses of the purchased funds.
Common Shareholders would therefore be subject to duplicative expenses to the extent the Fund invests in other funds. The Fund’s
investments in other funds also are subject to the ability of the managers of those funds to achieve the funds’ investment
objective(s).
Risks associated with
investments in ETFs may generally include the risks described in the Prospectus associated with the Fund’s structure as
a closed-end fund, including market risk. Most ETFs are investment companies that aim to track or replicate a desired index, such
as a sector, market or global segment. Most ETFs are passively managed and their shares are traded on a national exchange. ETFs
do not sell individual shares directly to investors and only issue their shares in large blocks known as “creation units.”
The investor purchasing a creation unit may sell the individual shares on a secondary market. Therefore, the liquidity of ETFs
depends on the adequacy of the secondary market. There can be no assurance that an ETF’s investment objective(s) will be
achieved, as ETFs based on an index may not replicate and maintain exactly the composition and relative weightings of securities
in the index. ETFs are subject to the risks of investing in the underlying securities. ETF shares may trade at a premium or discount
to their NAV. As ETFs trade on an exchange, they are subject to the risks of any exchange-traded instrument, including: (i) an
active trading market for its shares may not develop or be maintained, (ii) trading of its shares may be halted by the exchange,
and (iii) its shares may be delisted from the exchange. Some ETFs are highly leveraged and therefore will expose the Fund to risks
posed by leverage, including the risk that the use of leverage by an ETF can magnify the effect of any of its losses.
The Fund may invest
in a range of ETFs. When the Fund invests in sector ETFs, there is a risk that securities within the same group of industries will
decline in price due to sector-specific market or economic developments. If the Fund invests more heavily in a particular sector,
the value of its Common Shares may be especially sensitive to factors and economic risks that specifically affect that sector.
As a result, the Fund’s Common Share price may fluctuate more widely than the value of shares of a mutual fund that invests
in a broader range of industries. Additionally, some sectors could be subject to greater government regulation than other sectors.
Therefore, changes in regulatory policies for those sectors may have a material effect on the value of securities issued by companies
in those sectors. The sectors in which the Fund may be more heavily invested will vary.
There is a risk that
the underlying ETFs in which the Fund invests may terminate due to extraordinary events that may cause any of the service providers
to the ETFs, such as the trustee or sponsor, to close or otherwise fail to perform their obligations to the ETF. Also, because
the ETFs in which the Fund may invest may be granted licenses by agreement to use the indices as a basis for determining their
compositions and/or otherwise to use certain trade names, the ETFs may terminate if such license agreements are terminated. In
addition, an ETF may terminate if its entire net asset value falls below a certain amount. Although the Fund believes that, in
the event of the termination of an underlying ETF they will be able to invest instead in shares of an alternate ETF tracking the
same market index or another market index with the same general market, there is no guarantee that shares of an alternate ETF would
be available for investment at that time. To the extent the Fund invests in a sector product, the Fund will be subject to the risks
associated with that sector.
High Yield Securities.
The Fund and the Underlying Funds may invest in high yield securities. High yield, high risk bonds are securities that are generally
rated below investment grade by the primary rating agencies (BB+ or lower by S&P and Ba1 or lower by Moody’s). Other
terms used to describe such securities include “lower rated bonds,” “non-investment grade bonds,” “below
investment grade bonds,” and “junk bonds.” These securities are considered to be high-risk investments.
Illiquid Securities
and Restricted Securities. Certain securities may be subject to legal or contractual restrictions on resale (“restricted
securities”). Generally speaking, restricted securities may be sold: (i) only to qualified institutional buyers; (ii) in
a privately negotiated transaction to a limited number of purchasers; (iii) in limited quantities after they have been held for
a specified period of time and other conditions are met pursuant to an exemption from registration; or (iv) in a public offering
for which a registration statement is in effect under the Securities Act of 1933, as amended (“1933 Act”). Issuers
of restricted securities may not be subject to the disclosure and other investor protection requirements that would be applicable
if their securities were publicly traded.
Restricted securities
are often illiquid, but they may also be liquid. For example, restricted securities that are eligible for resale under Rule 144A
are often deemed to be liquid. The Fund and Underlying Funds may also purchase securities that are not subject to legal or contractual
restrictions on resale, but that are deemed illiquid. Such securities may be illiquid, for example, because there is a limited
trading market for them.
The Fund or an Underlying
Fund may be unable to sell a restricted or illiquid security. In addition, it may be more difficult to determine a market value
for restricted or illiquid securities. Moreover, if adverse market conditions were to develop during the period between the Fund’s
or an Underlying Fund’s decision to sell a restricted or illiquid security and the point at which the Fund or an Underlying
Fund is permitted or able to sell such security, the Fund or an Underlying Fund might obtain a price less favorable than the price
that prevailed when it decided to sell.
Investment Company
Securities. The Fund and the Underlying Funds may invest in the securities of other investment companies, including closed-end
funds, open-end funds, ETFs, unit investment trusts and BDCs registered under the 1940 Act (collectively, the “Investment
Companies”), to the extent permitted under applicable law and subject to certain restrictions.
Under Section 12(d)(1)(A)
of the 1940 Act, the Fund may hold securities of an Investment Company in amounts which (i) do not exceed 3% of the total outstanding
voting stock of the Investment Company, (ii) do not exceed 5% of the value of the Fund’s total assets and (iii) when added
to all other Investment Company securities held by the Fund, do not exceed 10% of the value of the Fund’s total assets. These
limits may be exceeded when permitted under Rule 12d1-4. The Fund intends to rely on Section 12(d)(1)(F) of the 1940 Act, which
provides that the provisions of paragraph 12(d)(1)(A) shall not apply to securities purchased or otherwise acquired by the Fund
if (i) immediately after such purchase or acquisition not more than 3% of the total outstanding stock of such Investment Company
is owned by the Fund and all affiliated persons of the Fund, and (ii) certain requirements are met with respect to sales charges,
or Rule 12d1-4.
In addition, to comply
with provisions of the 1940 Act, in any matter upon which Investment Company stockholders are solicited to vote, the Adviser or
Subadviser, as applicable, may be required to vote Investment Company shares in the same proportion as shares held by other stockholders
of the Investment Company.
Acquired funds typically
incur fees that are separate from those fees incurred directly by the Fund or an Underlying Fund. The Fund’s or an Underlying
Fund’s purchase of Investment Company securities results in the layering of expenses as Common Shareholders would indirectly
bear a proportionate share of the operating expenses of such Investment Companies, including advisory fees, in addition to paying
Fund or Underlying Fund expenses. In addition, the securities of Investment Companies may also be leveraged and will therefore
will be subject to certain leverage risks. The NAV and market value of leveraged securities will be more volatile and the yield
to Common Shareholders will tend to fluctuate more than the yield generated by unleveraged securities. Investment Companies may
also have investment policies that differ from those of the Fund or an Underlying Fund.
Under certain circumstances
an open-end investment company in which the Fund or an Underlying Fund invests may determine to make a payment of a redemption
by the Fund or an Underlying Fund wholly or in part by a distribution in kind of securities from its portfolio, instead of in cash.
As a result, the Fund or an Underlying Fund may hold such securities until the Adviser, Subadviser or manager of the Underlying
Fund, as applicable, determines it is appropriate to dispose of them. Such disposition will impose additional costs on the Fund
or an Underlying Fund.
Investment decisions
by the investment advisers to the registered investment companies in which the Fund invests are made independently of the Fund.
At any particular time, an Underlying Fund may be purchasing shares of an issuer whose shares are being sold by another Underlying
Fund. As a result, under these circumstances the Fund indirectly would incur certain transactional costs without accomplishing
any investment purpose. See also “—Exchange Traded Funds.”
Investment Grade
Debt Securities. Investment grade securities are those rated “Baa” or higher by Moody’s or “BBB”
or higher by S&P or rated similarly by another NRSRO or, if unrated, judged to be of equivalent quality as determined by the
Adviser or Subadviser, as applicable. Moody’s considers bonds it rates “Baa” to have speculative elements as
well as investment-grade characteristics. To the extent that the Fund invests in higher-grade securities, the Fund will not be
able to avail itself of opportunities for higher income which may be available at lower grades.
Inverse Floating
Rate Securities. Inverse floating rate securities (sometimes referred to as “inverse floaters”) are securities
whose interest rates bear an inverse relationship to the interest rate on another security or the value of an index. Generally,
inverse floating rate securities represent beneficial interests in a special purpose trust formed for the purpose of holding municipal
bonds. The special purpose trust typically sells two classes of beneficial interests or securities: floating rate securities (sometimes
referred to as short-term floaters or tender option bonds) and inverse floating rate securities (sometimes referred to as inverse
floaters). Both classes of beneficial interests are represented by certificates. The short-term floating rate securities have first
priority on the cash flow from the municipal bonds held by the special purpose trust. Typically, a third party, such as a bank,
broker-dealer or other financial institution, grants the floating rate security holders the option, at periodic intervals, to tender
their securities to the institution and receive the face value thereof. As consideration for providing the option, the financial
institution receives periodic fees. The holder of the short-term floater effectively holds a demand obligation that bears interest
at the prevailing short-term, tax-exempt rate. However, the institution granting the tender option will not be obligated to accept
tendered short-term floaters in the event of certain defaults or a significant downgrade in the credit rating assigned to the bond
issuer. For its inverse floating rate investment, the Fund receives the residual cash flow from the special purpose trust. Because
the holder of the short-term floater is generally assured liquidity at the face value of the security, the Fund as the holder of
the inverse floater assumes the interest rate cash flow risk and the market value risk associated with the municipal security deposited
into the special purpose trust. The volatility of the interest cash flow and the residual market value will vary with the degree
to which the trust is leveraged. This is expressed in the ratio of the total face value of the short-term floaters in relation
to the value of the residual inverse floaters that are issued by the special purpose trust. In addition, all voting rights and
decisions to be made with respect to any other rights relating to the municipal bonds held in the special purpose trust are passed
through to the Fund, as the holder of the residual inverse floating rate securities.
Because increases in
the interest rate on the short-term floaters reduce the residual interest paid on inverse floaters, and because fluctuations in
the value of the municipal bond deposited in the special purpose trust affect the value of the inverse floater only, and not the
value of the short-term floater issued by the trust, inverse floaters’ value is generally more volatile than that of fixed
rate bonds. The market price of inverse floating rate securities is generally more volatile than the underlying securities due
to the leveraging effect of this ownership structure. These securities generally will underperform the market of fixed rate bonds
in a rising interest rate environment (i.e., when bond values are falling), but tend to outperform the market of fixed rate bonds
when interest rates decline or remain relatively stable. Although volatile, inverse floaters typically offer the potential for
yields exceeding the yields available on fixed rate bonds with comparable credit quality, coupon, call provisions and maturity.
Inverse floaters have varying degrees of liquidity based upon, among other things, the liquidity of the underlying securities deposited
in a special purpose trust.
The Fund may invest
in TOB Residuals that have recourse to the Fund. In the Adviser’s or Subadviser’s discretion, the Fund may enter into
a separate shortfall and forbearance agreement with the third party granting liquidity to the floating rate security holders of
the special purpose trust. The Fund may enter into such recourse agreements (i) when the liquidity provider to the special purpose
trust requires such an agreement because the level of leverage in the special purpose trust exceeds the level that the liquidity
provider is willing to support absent such an agreement; and/or (ii) to seek to prevent the liquidity provider from collapsing
the special purpose trust in the event that the municipal obligation held in the trust has declined in value. Such an agreement
would require the Fund to reimburse the third party granting liquidity to the floating rate security holders of the special purpose
trust, upon termination of the trust issuing the inverse floater, the difference between the liquidation value of the bonds held
in the trust and the principal amount due to the holders of floating rate interests. In such instances, the Fund may be at risk
of loss that exceeds its investment in the inverse floating rate securities. Absent a shortfall and forbearance agreement, the
Fund would not be required to make such a reimbursement. If the Fund chooses not to enter into such an agreement, the special
purpose trust could be liquidated and the Fund could incur a loss.
The Fund will segregate
or earmark liquid assets with its custodian in accordance with the 1940 Act to cover its obligations with respect to its investments
in special purpose trusts. See also “Derivatives—Segregation and Cover Requirements” in this SAI.
The Fund may invest
in both inverse floating rate securities and floating rate securities (as discussed below) issued by the same special purpose trust.
Investments in inverse
floating rate securities have the economic effect of leverage. The use of leverage creates special risks for Common Shareholders.
See the Prospectus under “Risks—Structural Risk—Leverage Risks.”
Floating Rate Securities.
The Fund may also invest in floating rate securities, as described above, issued by special purpose trusts. Floating rate securities
may take the form of short-term floating rate securities or the option period may be substantially longer. Generally, the interest
rate earned will be based upon the market rates for municipal securities with maturities or remarketing provisions that are comparable
in duration to the periodic interval of the tender option, which may vary from weekly, to monthly, to extended periods of one
year or multiple years. Since the option feature has a shorter term than the final maturity or first call date of the underlying
bond deposited in the trust, the Fund as the holder of the floating rate security relies upon the terms of the agreement with
the financial institution furnishing the option as well as the credit strength of that institution. As further assurance of liquidity,
the terms of the trust provide for a liquidation of the municipal security deposited in the trust and the application of the proceeds
to pay off the floating rate security. The trusts that are organized to issue both short-term floating rate securities and inverse
floaters generally include liquidation triggers to protect the investor in the floating rate security.
Auction Rate Securities.
Municipal securities also include auction rate municipal securities and auction rate preferred securities issued by closed-end
investment companies that invest primarily in municipal securities (collectively, “auction rate securities”). In recent
market environments, auctions have failed, which adversely affects the liquidity and price of auction rate securities, and are
unlikely to resume. Provided that the auction mechanism is successful, auction rate securities usually permit the holder to sell
the securities in an auction at par value at specified intervals. The dividend is reset by “Dutch” auction in which
bids are made by broker-dealers and other institutions for a certain amount of securities at a specified minimum yield. The dividend
rate set by the auction is the lowest interest or dividend rate that covers all securities offered for sale. While this process
is designed to permit auction rate securities to be traded at par value, there is a risk that an auction will fail due to insufficient
demand for the securities. Moreover, between auctions, there may be no secondary market for these securities, and sales conducted
on a secondary market may not be on terms favorable to the seller. Auction rate securities may be called by the issuer. Thus,
with respect to liquidity and price stability, auction rate securities may differ substantially from cash equivalents, notwithstanding
the frequency of auctions and the credit quality of the security. The Fund’s investments in auction rate securities of closed-end
funds are subject to the limitations prescribed by the 1940 Act. The Fund will indirectly bear its proportionate share of any
management and other fees paid by such closed-end funds in addition to the advisory fees payable directly by the Fund.
Taxable Municipal
Securities. The Fund and the Underlying Funds may invest in taxable municipal securities, which include obligations issued
pursuant to the legislation providing for the issuance of taxable municipal debt on which the issuer receives federal support.
The Fund’s investments in taxable municipal bonds will result in taxable income, and the Fund may elect to pass through
to Common Shareholders the corresponding tax credits. The tax credits can generally be used to offset federal income taxes and
the alternative minimum tax, but such credits are generally not refundable. Taxable municipal bonds involve similar risks as tax-exempt
municipal bonds. See “Risks—Investment-Related Risks—Municipal Bond Risks” in the Prospectus and “—Municipal
Securities” in this SAI.
Temporary Investments
and Defensive Position. During the period where the net proceeds of an offering of Securities are being invested or
during periods in which the Adviser or Subadviser determines that it is temporarily unable to follow the Fund’s investment
strategy or that it is impractical to do so, the Fund may deviate from its investment strategy and invest all or any portion of
its net assets in cash, cash equivalents or other securities. The Adviser’s or Subadviser’s determination that it
is temporarily unable to follow the Fund’s investment strategy or that it is impracticable to do so generally will occur
only in situations in which a market disruption event has occurred and where trading in the securities selected through application
of the Fund’s investment strategy is extremely limited or absent. In such a case, the Fund may not pursue or achieve its
investment objectives.
Cash and cash equivalents
are defined to include, without limitation, the following:
(1) U.S. Government
securities, including bills, notes and bonds differing as to maturity and rates of interest that are either issued or guaranteed
by the U.S. Treasury or by U.S. Government agencies or instrumentalities. U.S. Government agency securities include securities
issued by: (a) the Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United States, Small
Business Administration, and the Government National Mortgage Association, whose securities are supported by the full faith and
credit of the United States; (b) the Federal Home Loan Banks, Federal Intermediate Credit Banks, and the Tennessee Valley Authority,
whose securities are supported by the right of the agency to borrow from the U.S. Treasury; (c) the Federal National Mortgage Association;
and (d) the Student Loan Marketing Association. While the U.S. Government typically provides financial support to such U.S. Government-sponsored
agencies or instrumentalities, no assurance can be given that it always will do so since it is not so obligated by law. The U.S.
Government, its agencies, and instrumentalities do not guarantee the market value of their securities. Consequently, the value
of such securities may fluctuate.
(2) Certificates
of deposit issued against funds deposited in a bank or a savings and loan association. Such certificates are for a definite period
of time, earn a specified rate of return, and are normally negotiable. The issuer of a certificate of deposit agrees to pay the
amount deposited plus interest to the bearer of the certificate on the date specified thereon. Under current Federal Deposit Insurance
Corporation (“FDIC”) regulations, the maximum insurance payable as to any one certificate of deposit is $250,000, therefore,
certificates of deposit purchased by the Fund may not be fully insured.
(3) Repurchase
agreements, which involve purchases of debt securities. At the time the Fund purchases securities pursuant to a repurchase agreement,
it simultaneously agrees to resell and redeliver such securities to the seller, who also simultaneously agrees to buy back the
securities at a fixed price and time. This assures a predetermined yield for the Fund during its holding period, since the resale
price is always greater than the purchase price and reflects an agreed-upon market rate. Such actions afford an opportunity for
the Fund to invest temporarily available cash. Pursuant to the Fund’s policies and procedures, the Fund may enter into repurchase
agreements only with respect to obligations of the U.S. Government, its agencies or instrumentalities; certificates of deposit;
or bankers’ acceptances in which the Fund may invest. Repurchase agreements may be considered loans to the seller, collateralized
by the underlying securities. The risk to the Fund is limited to the ability of the seller to pay the agreed-upon sum on the repurchase
date; in the event of default, the repurchase agreement provides that the Fund is entitled to sell the underlying collateral.
If the seller defaults under a repurchase agreement when the value of the underlying collateral is less than the repurchase price,
the Fund could incur a loss of both principal and interest. The Adviser or Subadviser, as applicable, monitors the value of the
collateral at the time the action is entered into and at all times during the term of the repurchase agreement. The Adviser or
Subadviser does so in an effort to determine that the value of the collateral always equals or exceeds the agreed-upon repurchase
price to be paid to the Fund. If the seller were to be subject to a federal bankruptcy proceeding, the ability of the Fund to
liquidate the collateral could be delayed or impaired because of certain provisions of the bankruptcy laws.
(4) Commercial
paper, which consists of short-term unsecured promissory notes, including variable rate master demand notes issued by corporations
to finance their current operations. Master demand notes are direct lending arrangements between the Fund and a corporation. There
is no secondary market for such notes. However, they are redeemable by the Fund at any time. The Adviser or Subadviser, as applicable,
will consider the financial condition of the corporation (e.g., earning power, cash flow, and other liquidity measures)
and will continuously monitor the corporation’s ability to meet all its financial obligations, because the Fund’s liquidity
might be impaired if the corporation were unable to pay principal and interest on demand. Investments in commercial paper will
be limited to commercial paper rated in the highest categories by a NRSRO and which mature within one year of the date of purchase
or carry a variable or floating rate of interest.
(5) The Fund
may invest in bankers’ acceptances which are short-term credit instruments used to finance commercial transactions. Generally,
an acceptance is a time draft drawn on a bank by an exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then “accepted” by a bank that, in effect, unconditionally guarantees to pay the face value
of the instrument on its maturity date. The acceptance may then be held by the accepting bank as an asset or it may be sold in
the secondary market at the going rate of interest for a specific maturity.
(6) The Fund
may invest in bank time deposits, which are monies kept on deposit with banks or savings and loan associations for a stated period
of time at a fixed rate of interest. There may be penalties for the early withdrawal of such time deposits, in which case the yields
of these investments will be reduced.
(7) The Fund
may invest in shares of money market funds in accordance with the provisions of the 1940 Act.
Zero Coupon Bonds.
A zero coupon bond is a bond that typically does not pay interest either for the entire life of the obligation or for an initial
period after the issuance of the obligation. When held to its maturity, the holder receives the par value of the zero coupon bond,
which generates a return equal to the difference between the purchase price and its maturity value. A zero coupon bond is normally
issued and traded at a deep discount from face value. This original issue discount (“OID”) approximates the total
amount of interest the security will accrue and compound prior to its maturity and reflects the payment deferral and credit risk
associated with the instrument. Because zero coupon securities and other OID instruments do not pay cash interest at regular intervals,
the instruments’ ongoing accruals require ongoing judgments concerning the collectability of deferred payments and the value
of any associated collateral. As a result, these securities may be subject to greater value fluctuations and less liquidity in
the event of adverse market conditions than comparably rated securities that pay cash on a current basis. Because zero coupon
bonds, and OID instruments generally, allow an issuer to avoid or delay the need to generate cash to meet current interest payments,
they may involve greater payment deferral and credit risk than coupon loans and bonds that pay interest currently or in cash.
The Fund generally will be required to distribute dividends to Common Shareholders representing the income of these instruments
as it accrues, even though the Fund will not receive all of the income on a current basis or in cash. Thus, the Fund may have
to sell other investments, including when it may not be advisable to do so, and use the cash proceeds to make income distributions
to Common Shareholders. For accounting purposes, these cash distributions to Common Shareholders will not be treated as a return
of capital.
Further, the Adviser
collects management fees on the value of a zero coupon bond or OID instrument attributable to the ongoing non-cash accrual of
interest over the life of the bond or other instrument. As a result, the Adviser receives non-refundable cash payments based on
such non-cash accruals while investors incur the risk that such non-cash accruals ultimately may not be realized.
Additional Risks
of Investing in the Fund
Below Investment
Grade Securities Risk. The Fund or the Underlying Funds may invest in below investment grade securities, which are commonly
referred to as “junk” or “high yield” securities. These securities are considered to be high-risk investments.
The risks include the following:
These securities are
regarded as predominately speculative. There is a greater risk that issuers of lower-rated securities will default than issuers
of higher-rated securities. Issuers of lower-rated securities generally are less creditworthy and may be highly indebted, financially
distressed or bankrupt. These issuers are more vulnerable to real or perceived economic changes, political changes or adverse industry
developments. In addition, below investment grade securities are frequently subordinated to the prior payment of senior indebtedness.
If an issuer fails to pay principal or interest, the Fund would experience a decrease in income and a decline in the market value
of its investments. The Fund or the Underlying Funds also may incur additional expenses in seeking recovery from the issuer.
The income and market
value of lower-rated securities may fluctuate more than higher-rated securities. Although certain below investment grade securities
may be less sensitive to interest rate changes than investment grade securities, below investment grade securities generally are
more sensitive to short-term corporate, economic and market developments. During periods of economic uncertainty and change, the
market price of the investments in lower-rated securities may be volatile. The default rate for high yield bonds tends to be cyclical,
with defaults rising in periods of economic downturn.
It is often more difficult
to value lower-rated securities than higher-rated securities. If an issuer’s financial condition deteriorates, accurate financial
and business information may be limited or unavailable. In addition, the lower-rated investments may be thinly traded and there
may be no established secondary market. Because of the lack of market pricing and current information for investments in lower-rated
securities, valuation of such investments is much more dependent on judgment than is the case with higher-rated securities.
There may be no established
secondary or public market for investments in lower-rated securities. Such securities are frequently traded in markets that may
be relatively less liquid than the market for higher-rated securities. In addition, relatively few institutional purchasers may
hold a major portion of an issue of lower-rated securities at times. As a result, lower-rated securities may be required to be
sold at substantial losses or retained indefinitely even where an issuer’s financial condition is deteriorating.
Credit quality of below
investment grade securities can change suddenly and unexpectedly, and even recently-issued credit ratings may not fully reflect
the actual risks posed by a particular below investment grade security.
Future legislation
may have a possible negative impact on the market for below investment grade securities. Because of the substantial risks associated
with below investment grade securities, you could lose money on your investment in Common Shares, both in the short term and the
long term.
Call Risk. If
interest rates fall, it is possible that issuers of securities with high interest rates will prepay or “call” their
securities before their maturity dates. In this event, the proceeds from the called securities would likely be reinvested by the
Fund in securities bearing the new, lower interest rates, resulting in a possible decline in the Fund’s income and distributions
to Common Shareholders.
Deflation Risk.
Deflation risk is the risk that prices throughout the economy decline over time, which may have an adverse effect on the market
valuation of companies, their assets and revenues. In addition, deflation may have an adverse effect on the creditworthiness of
issuers and may make issuer default more likely, which may result in a decline in the value of the Fund’s portfolio.
Inflation Risk.
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. As inflation increases, the real value of the Common Shares and distributions can decline.
Interest Rate Risk.
Interest rate risk is the risk that the value of the debt securities held by the Fund will decline because of rising market interest
rates. Interest rate risk is generally lower for shorter-term investments and higher for longer-term investments. Duration is a
common measure of interest rate risk, which measures a bond’s expected life on a present value basis, taking into account
the bond’s yield, interest payments and final maturity. Duration is a reasonably accurate measure of a bond’s price
sensitivity to changes in interest rates. The longer the duration of a bond, the greater the bond’s price sensitivity is
to changes in interest rates.
Reinvestment Risk.
Reinvestment risk is the risk that income from the Fund’s portfolio will decline if and when the Fund invests the proceeds
from matured, traded or called bonds at market interest rates that are below the portfolio’s current earnings rate. A decline
in income could affect the Common Shares’ market price or their overall returns.
Legislation and
Regulatory Risks. The Fund and the Underlying Funds are subject to legislation and regulatory risks. On July 21, 2010, the
Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) was enacted. The Dodd-Frank Act, among
other things, grants regulatory authorities such as the U.S. Commodity Futures Trading Commission (the “CFTC”) and
the SEC broad rulemaking authority to promulgate rules under the Dodd-Frank Act, including comprehensive regulation of the over-the-counter
derivatives market. It is unclear to what extent these regulators will exercise these revised and expanded powers and whether they
will undertake rulemaking, supervisory or enforcement actions that would adversely affect the Fund or Underlying Funds or investments
made by the Fund or Underlying Funds. Possible regulatory actions taken under these revised and expanded powers may include actions
related to financial consumer protection, proprietary trading and derivatives.
While some rules have
been promulgated by the CFTC and the SEC, a number of important rulemakings have not yet been finalized and there can be no assurance
that future regulatory actions authorized by the Dodd-Frank Act will not significantly reduce the returns of the Fund. The implementation
of the Dodd-Frank Act could adversely affect the Fund by increasing transaction and/or regulatory compliance costs and may affect
the availability, liquidity and cost of entering into derivatives, including potentially limiting or restricting the ability of
the Fund to use certain derivatives or certain counterparties as a part of its investment strategy, increasing the costs of using
these instruments or making these instruments less effective. In addition, greater regulatory scrutiny may increase the Fund’s,
the Adviser’s or Subadviser’s exposure to potential liabilities. Increased regulatory oversight can also impose administrative
burdens on the Fund, the Adviser and Subadviser, including, without limitation, responding to examinations or investigations and
implementing new policies and procedures.
At any time after
the date of this prospectus, legislation by U.S. and foreign governments may be enacted that could negatively affect the assets
of the Fund or the issuers of such assets. Changing approaches to regulation may have a negative impact on the entities in which
the Fund invests. Legislation or regulation may also change the way in which the Fund itself is regulated. There can be no assurance
that future legislation, regulation or deregulation will not have a material adverse effect on the Fund or Underlying Funds or
will not impair the ability of the Fund or Underlying Funds to achieve its investment objective.
MANAGEMENT OF THE FUND
Investment Adviser
RiverNorth Capital
Management, LLC is the investment adviser for the Fund pursuant to an Investment Advisory Agreement. RiverNorth is headquartered
at 360 South Rosemary Avenue, Suite 1420, West Palm Beach, FL 33401. Under the oversight of the Board of Directors, the Adviser
is responsible for the day-to-day management of the Fund’s portfolio, managing the Fund’s business affairs and providing
certain clerical, bookkeeping and other administrative services. The Adviser is also responsible for determining the Fund’s
overall investment strategy and overseeing its implementation. Subject to the ranges noted above, the Adviser determines the portion
of the Fund’s Managed Assets to allocate to each strategy and may, from time to time, adjust the allocations. Founded in
2000, RiverNorth is registered with the SEC and as of December 31, 2021, RiverNorth managed approximately $5.8 billion for registered
open-end management investment companies, registered closed-end management investment companies and private investment vehicles.
Patrick W. Galley, a portfolio manager of the Fund, and Brian H. Schmucker, each own, directly or indirectly, more than 25% of
RiverNorth Holding Co., the indirect parent company of the Adviser and each may be deemed to control the Adviser.
Investment Subadviser
MacKay Shields LLC
is the Fund’s subadviser and will be responsible for the day-to-day management of the Fund’s Managed Assets allocated
to the Municipal Bond Income Strategy. The Subadviser is registered with the SEC and as of December 31, 2021, had approximately
$163.6 billion billion in assets under management. The Subadviser was incorporated in 1969 as an independent investment advisory
firm and was privately held until 1984 when it was acquired by New York Life Insurance Company. The Subadviser is an indirect
wholly owned subsidiary of New York Life Insurance Company.
Investment Advisory Agreement and Subadvisory Agreement
For its services under
the Investment Advisory Agreement, the Fund pays the Adviser a monthly management fee computed at the annual rate of 1.40% of the
average daily Managed Assets. Pursuant to a Subadvisory Agreement, the Adviser has delegated daily management of the Fund’s
Municipal Bond Income Strategy to the Subadviser, who is paid by the Adviser and not the Fund. The Adviser (and not the Fund) has
agreed to pay the Subadviser a subadvisory fee payable on a monthly basis at the annual rate of 0.20% of the Fund’s average
daily Managed Assets for the service it provides. “Managed Assets” means the total assets of the Fund, including assets
attributable to leverage, minus liabilities (other than debt representing leverage and any preferred stock that may be outstanding).
The Fund pays, in addition to the unified management fee, taxes and governmental fees, if any, levied against the Fund; brokerage fees
and commissions and other portfolio transaction expenses incurred by or for the Fund; costs, including interest expenses, of borrowing
money or engaging in other types of leverage financing including, without limit, through the use by the Fund of tender option bond transactions;
costs, including dividend and/or interest expenses and other costs (including, without limit, offering and related legal costs, fees to
brokers, fees to auction agents, fees to transfer agents, fees to ratings agencies and fees to auditors associated with satisfying ratings
agency requirements for preferred shares or other securities issued by the Fund and other related requirements in the Fund’s organizational
documents) associated with the Fund’s issuance, offering, redemption and maintenance of preferred shares or other instruments (such
as the use of tender option bond transactions) for the purpose of incurring leverage; fees and expenses of any Underlying Funds in which
the Fund invests; dividend and interest expenses on short positions taken by the Fund; fees and expenses, including travel expenses and
fees and expenses of legal counsel retained for their benefit, of directors of the Fund who are not officers, employees, partners, shareholders
or members of the Adviser or its affiliates; fees and expenses associated with and incident to shareholder meetings and proxy solicitations
involving contested elections of directors, shareholder proposals or other non-routine matters that are not initiated or proposed by the
Adviser; legal, marketing, printing, accounting and other expenses associated with any future share offerings, such as rights offerings
and shelf offerings, following the Fund’s initial offering; expenses associated with tender offers (other than any Eligible Tender
Offer) and other share repurchases and redemptions; and other extraordinary expenses, including extraordinary legal expenses, as may arise,
including, without limit, expenses incurred in connection with litigation, proceedings, other claims and the legal obligations of the
Fund to indemnify its directors, officers, employees, shareholders, distributors and agents with respect thereto.
If the Fund determines
to use, the fees paid to the Adviser and Subadviser for investment management services will be higher than if the Fund did not
use leverage because the fees paid will be calculated based on Managed Assets, which would include assets attributable to leverage.
Because the fees paid to the Adviser and Subadviser are determined on the basis of Managed Assets, this creates a conflict of
interest for the Adviser and Subadviser. The Board of Directors monitors the Fund’s use of leverage and in doing so monitors
this potential conflict.
The Investment Advisory
Agreement provides that the Adviser shall not be liable for any act or omission connected with or arising out of any services to
be rendered under such agreement, except by reason of willful misfeasance, bad faith or gross negligence on the part of the Adviser
in the performance of its duties or from reckless disregard by the Adviser of its obligations and duties under such agreement.
The Adviser will make
available, without additional expense to the Fund, the services of such of its officers, directors and employees as may be duly
elected as officers or directors of the Fund, subject to the individual consent of such persons to serve and to any limitations
imposed by law. The Adviser will pay all expenses incurred in performing its services under the Investment Advisory Agreement,
including compensation of and office space for directors, officers and employees of the Adviser connected with management of the
Fund. The Fund pays brokerage and other expenses of executing the Fund’s portfolio transactions; taxes or governmental fees;
interest charges and other costs of borrowing funds; litigation and indemnification expenses and other extraordinary expenses not
incurred in the ordinary course of the Fund’s business.
The Investment Advisory
Agreement and the Subadvisory Agreement will remain in effect for an initial term ending two years from the effective date of
that agreement (unless sooner terminated). The Investment Advisory Agreement shall remain in effect from year to year thereafter
if approved annually (i) by a majority of the outstanding voting securities of the Fund or by a vote of the Fund’s Board
of Directors, cast in person at a meeting called for the purpose of voting on such approval, and (ii) by vote of a majority of
the Board of Directors who are not parties to the Investment Advisory Agreement, or “interested persons” of any party
to the Investment Advisory Agreement, cast in person at a meeting called for the purpose of voting on such approval. The Subadvisory
Agreement shall remain in effect from year to year after its initial two year term if approved annually by the Fund’s Board
of Directors or a vote of the lesser of (x) 67% of the shares of the Fund represented at a meeting if Common Shareholders of more
than 50% of the outstanding shares of the Fund are present in person or by proxy or (y) more than 50% of the outstanding shares
of the Fund; provided that in either event its continuance is also approved by a majority of the Fund’s directors who are
not “interested persons” of any party to the Subadvisory Agreement, by vote cast in person at a meeting called for
the purpose of voting on such approval. Information regarding the Board of Directors’ approval of the Investment Advisory
Agreement and the Subadvisory Agreement is available in the Fund’s semi-annual report to Common Shareholders for the period
ended December 31, 2021. The Investment Advisory Agreement and the Subadvisory Agreement will terminate upon assignment by any
party and is terminable, without penalty, on 60 days’ written notice by the Board of Directors or by vote of a majority
of the outstanding voting securities (as defined in the 1940 Act) of the Fund or upon 60 days’ written notice by the Adviser
or, as applicable, the Subadviser.
The total dollar amount
paid by the Fund to the Adviser for the fiscal period from February 24, 2021 (commencement of operations) through June 30, 2021 was
$3,011,437. The total dollar amount paid by the Adviser to the Subadviser for the fiscal period from February 24, 2021
(commencement of operations) through June 30, 2021 was $430,205. The Adviser (and not the Fund) pays all sub-advisory fees to the Sub-Adviser. See "Summary of Fund Expenses" in the Prospectus.
Portfolio Managers
Patrick W. Galley,
CFA has been a co-portfolio manager of the Tactical Municipal Closed-End Fund Strategy for the Fund since its inception. Mr. Galley
is the Chief Executive Officer and Chief Investment Officer for the Adviser. Mr. Galley heads the Adviser’s research and
investment team and oversees all portfolio management activities at the Adviser. Mr. Galley also serves as the President and Chairman
of the RiverNorth Funds, a mutual fund complex for which RiverNorth serves as the investment adviser. Prior to joining the Adviser
in 2004, he was most recently a Vice President at Bank of America in the Global Investment Bank’s Portfolio Management group,
where he specialized in analyzing and structuring corporate transactions for investment management firms in addition to closed-end
and open-end funds, hedge funds, funds of funds, structured investment vehicles and insurance/reinsurance companies. Mr. Galley
graduated with honors from Rochester Institute of Technology with a B.S. in Finance. He has received the Chartered Financial Analyst
(CFA) designation, is a member of the CFA Institute and is a member of the CFA Society of Chicago.
Stephen O’Neill,
CFA has been a co-portfolio manager of the Tactical Municipal Closed-End Fund Strategy for the Fund since its inception. Mr. O’Neill
conducts qualitative and quantitative analysis of closed-end funds and their respective asset classes at RiverNorth. Prior to joining
RiverNorth Capital in 2007, Mr. O’Neill was most recently an Assistant Vice President at Bank of America in the Global Investment
Bank’s Portfolio Management group. At Bank of America, he specialized in the corporate real estate, asset management, and
structured finance industries. Mr. O’Neill graduated magna cum laude from Miami University in Oxford, Ohio with a B.S. in
Finance. Mr. O’Neill has received the Chartered Financial Analyst (CFA) designation, is a member of the CFA Institute, and
is a member of the CFA Society of Chicago.
Robert DiMella, CFA
has been a co-portfolio manager of the Municipal Bond Income Strategy for the Fund since its inception. Mr. DiMella is an Executive
Director of the Subadviser. He has managed the MainStay Tax Free Bond Fund since 2009, the MainStay High Yield Municipal Bond Fund
since 2010, the MainStay New York Tax Free Opportunities Fund since May 2012, the MainStay Defined Term Municipal Opportunities
Fund since 2012, the MainStay California Tax Free Opportunities Fund since 2013 and the MainStay Tax Advantaged Short Term Bond
Fund since June 2015. Previously, he co-founded Mariner Municipal Managers LLC (2007 to 2009). Prior to BlackRock’s merger
with Merrill Lynch Investment Managers (“MLIM”), he served as a Senior Portfolio Manager and Managing Director of the
Municipal Products Group. Mr. DiMella earned his Master’s degree at Rutgers University Business School and a Bachelors Degree
at the University of Connecticut, and he has received the CFA designation.
John Loffredo, CFA
has been a co-portfolio manager of the Municipal Bond Income Strategy for the Fund since its inception. Mr. Loffredo is an Executive
Managing Director of the Subadviser. Mr. Loffredo has managed the MainStay Tax Free Bond Fund since 2009, the MainStay High Yield
Municipal Bond Fund since 2010, the MainStay New York Tax Free Opportunities Fund since 2012, the MainStay Defined Term Municipal
Opportunities Fund since 2012, the MainStay California Tax Free Opportunities Fund since 2013 and the MainStay Tax Advantaged Short
Term Bond Fund since June 2015. He has been a municipal portfolio manager and/or municipal analyst on Wall Street since 1990, with
a broad range of portfolio management and analytic experience in the municipal markets. He previously co-founded Mariner Municipal
Managers LLC (2007 to 2009). Prior to BlackRock’s merger with MLIM, he served as Chief Investment Officer of the Municipal
Products Group of MLIM. Mr. Loffredo graduated cum laude with an MBA from Utah State University where he was a Harry S. Truman
Scholar. He also has a Certificate of Public Management from Boston University, and he has received the CFA designation.
Michael Petty has been
a co-portfolio manager of the Municipal Bond Income Strategy for the Fund since its inception. Mr. Petty is a Senior Managing Director
of the Subadviser. Mr. Petty has managed the MainStay High Yield Municipal Bond Fund since 2010, the MainStay Tax Free Bond Fund
since 2011, the MainStay New York Tax Free Opportunities Fund since 2012, the MainStay Defined Term Municipal Opportunities Fund
since 2012, the MainStay California Tax Free Opportunities Fund since 2013 and the MainStay Tax Advantaged Short Term Bond Fund
since June 2015. Before joining the Subadviser in 2009, he was a Portfolio Manager for Mariner Municipal Managers. He has been
a portfolio manager on Wall Street since 1992, and has worked in the municipal products market since 1985. Mr. Petty has a broad
array of trading, portfolio management, and sales experience. Prior to joining Mariner Municipal Managers, he was a Senior Portfolio
Manager at Dreyfus Corporation from 1997 to 2009. From 1992 to 1997, he served as a Portfolio Manager for Merrill Lynch Investment
Managers. Mr. Petty graduated from Hobart College with a B.S. in Mathematics and Economics.
Scott Sprauer has
been a co-portfolio manager of the Municipal Bond Income Strategy for the Fund since its inception. Mr. Sprauer is a Senior Managing
Director of the Subadviser. He joined the Subadviser in 2009 as a Portfolio Manager in the Municipal Bond Division. He has managed
the MainStay New York Tax Free Opportunities Fund since 2012, the MainStay Defined Term Municipal Opportunities Fund since 2012,
the MainStay California Tax Free Opportunities Fund since 2013, the MainStay High Yield Municipal Bond Fund and MainStay Tax Free
Bond Fund since February 2014 and the MainStay Tax Advantaged Short Term Bond Fund since June 2015. Prior to joining the Subadviser,
he was the Head Trader, Fixed Income at Financial Guaranty Insurance Company from 2006 to 2009. He has a BSBA from Villanova University,
and has been in the investment management industry since 1991.
David Dowden has been
a co-portfolio manager of the Municipal Bond Income Strategy for the Fund since its inception. Mr. Dowden is a Managing Director
of the Subadviser. He joined the Subadviser in 2009 as a Portfolio Manager in the Municipal Bond Division. He has managed the MainStay
New York Tax Free Opportunities Fund since 2012, the MainStay Defined Term Municipal Opportunities Fund since 2012, the MainStay
California Tax Free Opportunities Fund since 2013, the MainStay High Yield Municipal Bond Fund and MainStay Tax Free Bond Fund
since February 2014 and the MainStay Tax Advantaged Short Term Bond Fund since June 2015. Prior to joining the Subadviser, he was
the Chief Investment Officer at Financial Guaranty Insurance Company from 2006 to 2009. He has a BA from Brown University and an
MBA from Columbia University. He has been in the investment management industry since 1989.
Robert Burke is a co-portfolio
manager of the Municipal Bond Income Strategy for the Fund. Mr. Burke is a Managing Director of the Subadviser. He joined the Subadviser
in July 2017. Before joining the Subadviser, Mr. Burke held various leadership roles in capital markets, spending the majority
of his time in the municipal markets. In his last role working for Bank of America Merrill Lynch, Mr. Burke managed the Global
Futures, Derivatives Clearing and Foreign Exchange Prime Brokerage businesses. Mr. Burke started his career at Bank of America
Merrill Lynch in the municipal bond department covering insurance, hedge fund, and asset management clients. He holds a Masters
of Business Administration from the Gabelli School at Fordham University, and a Bachelor of Arts with High Honors in Economics
from Colgate University. Mr. Burke has received the CFA designation. He has been in the investment management industry since 1985.
John Lawlor has been
a co-portfolio manager of the Municipal Bond Income Strategy for the Fund since its inception. Mr. Lawlor joined MacKay Shields
in 2016. Before joining the firm, he was Vice President Equity Sales at Deutsche Bank and was previously at Bank of America Merrill
Lynch. From 1997-2011, he was a senior trader on the floor of the New York Stock Exchange. John has a broad and diverse set of
skills in sales, trading, and electronic trading platforms. He earned a Bachelor’s degree in Finance from Lehigh University.
John graduated college in 1997. He has 19 years in the financial services industry.
Compensation of Portfolio Managers
RiverNorth Capital Management, LLC
Mr. Galley’s
and Mr. O’Neill’s total compensation package, like others in the Adviser’s business, is a package designed to
attract and retain investment professionals. The compensation package includes a base salary fixed from year to year. The amount
of the base salary is assessed for its competitiveness in the industry and geographic location of the Adviser. The compensation
package also provides for an annual but variable performance bonus. The performance bonus reflects individual performance of the
portfolio manager in his or her allocated duties and responsibilities. While performance of the funds managed by the portfolio
managers is considered in determining the annual performance bonus, it is but one factor. The overall success of the Adviser in
its business objectives and the performance of the Adviser’s business as a whole are more important factors than the investment
performance of a particular fund or account. Mr. Galley and Mr. O’Neill also participate in a 401K program on the same basis
as other officers of the Adviser, which includes matching of employee contributions up to a certain percent of the portfolio managers
base salary. Those portfolio managers that are also equity stakeholders in the Adviser or its affiliates may also receive periodic
distribution of profits from business operations.
MacKay Shields LLC
The Subadviser establishes
salaries at competitive levels, verified through industry surveys, to attract and maintain the best professional talent. Incentives
are paid annually to the firm’s employees based upon an individual’s performance and the profitability of the firm,
and in some instances may be fixed and guaranteed for a period of time. Incentive bonuses (both cash and deferred) are an integral
portion of total compensation at MacKay Shields and vary based upon an individual’s role, responsibility and performance.
A significant percentage of the compensation program for the Fund’s portfolio managers is incentive based.
The Subadviser has
a phantom equity program and awards are an integral component of the firm’s compensation structure. Awards vest and pay out
after several years. Thus, eligible professionals share in the results and success of the firm.
The compensation received
by portfolio managers is generally based on both quantitative and qualitative factors. The quantitative factors may include: (i)
investment performance; (ii) assets under management; (iii) revenues and profitability; and (iv) industry benchmarks. The qualitative
factors may include, among others, leadership, adherence to the firm’s policies and procedures, and contribution to the firm’s
goals and objectives.
To the extent that
an increase in the size of the Fund or another account managed by a portfolio manager has a positive impact on revenues/profitability,
a portfolio manager’s compensation may also increase. There is no difference between the method used in determining portfolio
managers’ compensation with respect to the Fund and other accounts they manage. The Subadviser does not believe the compensation
structure provides an incentive for an employee who provides services to the Fund to take undue risks in managing the assets of
the Fund.
Portfolio Manager Ownership of Fund Shares
The following table sets forth the dollar range of equity securities
in the Fund beneficially owned, as of June 30, 2021, by each of the portfolio managers identified above.
Name of the Portfolio Manager |
Dollar Range of Equity Securities of the Fund1 |
Patrick W. Galley |
$0 |
Stephen A. O’Neill |
$0 |
Robert DiMella |
$0 |
John Loffredo |
$0 |
Michael Petty |
$0 |
Scott Sprauer |
$0 |
David Dowden |
$0 |
Robert Burke |
$0 |
John Lawlor |
$10,0001-50,000 |
(1) | “Beneficial Ownership” is determined in accordance with section 16a-1(a)(2) of
the Securities Exchange Act of 1934, as amended. |
Conflicts of Interest
Actual or apparent
conflicts of interest may arise when a portfolio manager has day-to-day management responsibilities with respect to more than
one fund or other accounts. More specifically, portfolio managers who manage multiple funds are presented with the following potential
conflicts, among others:
The management of multiple
accounts may result in a portfolio manager devoting unequal time and attention to the management of each account. The management
of multiple funds and accounts also may give rise to potential conflicts of interest if the funds and accounts have different objectives,
benchmarks, time horizons and fees as the portfolio manager must allocate his time and investment ideas across multiple funds and
accounts. Another potential conflict of interest may arise where another account has the same or similar investment objective as
the Fund, whereby the portfolio manager could favor one account over another.
With respect to securities
transactions for the Fund, the Adviser or Subadviser determines which broker to use to execute each order, consistent with the
duty to seek best execution of the transaction. A portfolio manager may execute transactions for another fund or account that may
adversely impact the value of securities held by the Fund. Securities selected for funds or accounts other than the Fund may outperform
the securities selected for the Fund. Further, a potential conflict could include a portfolio manager’s knowledge about the
size, timing and possible market impact of Fund trades, whereby they could use this information to the advantage of other accounts
and to the disadvantage of the Fund. These potential conflicts of interest could create the appearance that a portfolio manager
is favoring one investment vehicle over another.
The management of personal
accounts also may give rise to potential conflicts of interest. Although a portfolio manager generally does not trade securities
in his or her own personal account, the Adviser, the Subadviser and the Fund have each adopted a code of ethics that, among other
things, permits personal trading by employees (including trading in securities that can be purchased, sold or held by the Fund)
under conditions where it has been determined that such trades would not adversely impact client accounts. Nevertheless, the management
of personal accounts may give rise to potential conflicts of interest, and there is no assurance that these codes of ethics will
adequately address such conflicts.
Conflicts potentially
limiting the Fund’s investment opportunities may also arise when the Fund and other clients of the Adviser or Subadviser
invest in, or even conduct research relating to, different parts of an issuer’s capital structure, such as when the Fund
owns senior debt obligations of an issuer and other clients own junior tranches of the same issuer. In such circumstances, decisions
over whether to trigger an event of default, over the terms of any workout, or how to exit an investment may result in conflicts
of interest. In order to minimize such conflicts, a portfolio manager may avoid certain investment opportunities that would potentially
give rise to conflicts with other clients of the Adviser or Subadviser or result in the Adviser or Subadviser receiving material,
non-public information, or the Adviser or Subadviser may enact internal procedures designed to minimize such conflicts, which could
have the effect of limiting the Fund’s investment opportunities. Additionally, if the Adviser or Subadviser acquires material
non-public confidential information in connection with its business activities for other clients, a portfolio manager or other
investment personnel may be restricted from purchasing securities or selling certain securities for the Fund or other clients.
When making investment decisions where a conflict of interest may arise, the Adviser and Subadviser will endeavor to act in a fair
and equitable manner between the Fund and other clients; however, in certain instances the resolution of the conflict may result
in the Adviser or Subadviser acting on behalf of another client in a manner that may not be in the best interest, or may be opposed
to the best interest, of the Fund.
The Adviser and Subadviser
have adopted certain compliance procedures which are designed to address these types of conflicts. However, there is no guarantee
that such procedures will detect each and every situation in which a conflict arises.
The Underlying Funds
in which the Fund invests will not include those that are advised or subadvised by the Adviser, the Subadviser or their affiliates.
Other Accounts Managed
As of June 30, 2021,
the portfolio managers of the Fund were responsible for the management of the following other accounts (in addition to the Fund):
|
Number of Other Accounts Managed and Assets by Account Type
As of June 30, 2021 |
Portfolio Manager |
Registered Investment Companies (other than the Fund) |
Registered Investment Companies Subject to Performance-Based Advisory Fees |
Other Pooled Investment Vehicles |
Other Pooled Investment Vehicles Subject to Performance-Based Advisory Fees |
Other Accounts |
Other Accounts Subject to Performance-Based Advisory Fees |
Patrick W. Galley |
11
$4.36 Billion |
0
$0 |
4
$826 million |
4
$826 Million |
3
$59 million |
2
$30 million |
Stephen O’Neill |
10
$4.22 Billion |
0
$0 |
4
$826 Million |
4
$826 Million |
3
$59 million |
2
$30 million |
Robert DiMella |
13
$33.37 Billion |
8
$11.8 Billion |
75
$29.2 Billion |
0
$0 |
2
$788 million |
2
$588 Million |
John Loffredo |
12
$31.26 Billion |
8
$11.8 Billion |
75
$29.2 Billion |
0
$0 |
2
$788 million |
2
$588 Million |
Michael Petty |
12
$31.26 Billion |
8
$11.8 Billion |
75
$29.2 Billion |
0
$0 |
2
$788 million |
2
$588 Million |
Scott Sprauer |
12
$31.26 Billion |
8
$11.8 Billion |
75
$29.2 Billion |
0
$0 |
2
$788 million |
2
$588 Million |
David Dowden |
12
$31.26 Billion |
8
$11.8 Billion |
75
$29.2 Billion |
0
$0 |
2
$788 million |
2
$588 Million |
Robert Burke |
3
$3.8 Billion |
8
$911.8 Billion |
75
$29.2 Billion |
0
$0 |
2
$788 million |
2
$588 Million |
John Lawlor |
12
$31.26 Billion |
8
$11.8 Billion |
75
$29.2 Billion |
0
$0 |
2
$788 million |
2
$588 Million |
Administrator
Under the Administration,
Bookkeeping and Pricing Services Agreement (the “Administration Agreement”), subject to the supervision of the Board
of Directors, ALPS Fund Services, Inc. (“AFS” or the “Administrator”) is responsible for calculating NAVs,
providing additional fund accounting and tax services, and providing fund administration and compliance-related services. AFS
will bear all expenses in connection with the performance of its services under the Administration Agreement, except for certain
out-of-pocket expenses described therein. AFS will not bear any expenses incurred by the Fund, including but not limited to, initial
organization and offering expenses; litigation expenses; costs of preferred shares (if any); expenses of conducting repurchase
offers for the purpose of repurchasing Fund shares; transfer agency and custodial expenses; taxes; interest; Fund directors’
fees; compensation and expenses of Fund officers who are not associated with AFS or its affiliates; brokerage fees and commissions;
state and federal registration fees; advisory fees; insurance premiums; fidelity bond premiums; Fund legal and audit fees and
expenses; costs of maintenance of Fund existence; printing and delivery of materials in connection with meetings of the Fund’s
directors; printing and mailing shareholder reports, offering documents, and proxy materials; securities pricing and data services;
and expenses in connection with electronic filings with the SEC.
AFS, an affiliate
of the Fund’s transfer agent, is entitled to receive a monthly fee based on the Fund’s net assets plus certain out
of pocket expenses. See “Summary of Fund Expenses” in the prospectus.
Codes of Ethics
The Fund, Adviser
and Subadviser have each adopted a code of ethics under Rule 17j-1 under the 1940 Act. These codes permit personnel subject to
the code to invest in securities, including securities that may be purchased or held by the Fund. These codes can be reviewed
and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room
may be obtained by calling the SEC at (202) 942-8090. The codes of ethics are available on the EDGAR Database on the SEC’s
website (http://www.sec.gov), and copies of these codes may be obtained, after paying a duplicating fee, by electronic request
at the following e-mail address: publicinfo@sec.gov.
FUND SERVICE PROVIDERS
Independent Registered Public Accounting Firm
[ ], located at [ ], serves as the independent registered public
accounting firm for the Fund [ ] audits the financial statements of the Fund and provides other audit, tax and related services.
Legal Counsel
Faegre Drinker Biddle
& Reath LLP serves as legal counsel to the Fund and legal counsel to the independent directors of the Fund.
Custodian and Transfer Agent
State Street Bank and
Trust Company, located at State Street Financial Center, One Lincoln Street, Boston, MA 02111, will serve as the Fund’s custodian
and will maintain custody of the securities and cash of the Fund 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 based upon, among other things, the average value of the total assets of the Fund, plus certain charges for securities transactions.
DST Systems, Inc.,
located at 333 West 9th Street, 2nd Floor, Kansas City, Missouri 64105, and an affiliate of the Administrator, will serve as the
transfer agent and registrar for the Fund.
PORTFOLIO TRANSACTIONS
Subject to policies
established by the Board of Directors of the Fund, the Adviser or Subadviser is responsible for the Fund’s portfolio decisions
and the placing of the Fund’s portfolio transactions. In placing portfolio transactions, the Adviser or Subadviser seeks
the best qualitative execution for the Fund, taking into account such factors as price (including the applicable brokerage commission
or dealer spread), the execution capability, financial responsibility and responsiveness of the broker or dealer and the brokerage
and research services provided by the broker or dealer. The Adviser or Subadviser generally seeks favorable prices and commission
rates that are reasonable in relation to the benefits received under the circumstances under which that particular trade is placed.
The Adviser or Subadviser
is specifically authorized to select brokers or dealers who also provide brokerage and research services to the Fund and/or the
other accounts over which the Adviser or Subadviser exercises investment discretion, and to pay such brokers or dealers a commission
in excess of the commission another broker or dealer would charge if the Adviser or Subadviser determines in good faith that the
commission is reasonable in relation to the value of the brokerage and research services provided. The determination may be viewed
in terms of a particular transaction or the Adviser’s or Subadviser’s overall responsibilities with respect to the
Fund and to other accounts over which it exercises investment discretion. The Adviser or Subadviser may not give consideration
to sales of Common Shares of the Fund as a factor in the selection of brokers and dealers to execute portfolio transactions. However,
the Adviser or Subadviser may place portfolio transactions with brokers or dealers that promote or sell the Fund’s Common
Shares so long as such placements are made pursuant to policies approved by the Board of Directors that are designed to ensure
that the selection is based on the quality of the broker’s execution and not on its sales efforts.
Research services include
supplemental research, securities and economic analyses, statistical services and information with respect to the availability
of securities or purchasers or sellers of securities and analyses of reports concerning performance of accounts. Much, if not all,
of this information is the usual and customary research provided to the Adviser and Subadviser irrespective of any trading activity
effected with that broker. The research services and other information furnished by brokers through whom the Fund effects securities
transactions may also be used by the Adviser or Subadviser in servicing other accounts. Similarly, research and information provided
by brokers or dealers when serving other clients may be useful to the Adviser or Subadviser in connection with its services to
the Fund. Although research services and other information are useful to the Fund and the Adviser or Subadviser, it is not possible
to place a dollar value on the research and other information received. It is the opinion of the Board of Directors and the Adviser
or Subadviser that the review and study of the research and other information will not increase or reduce the overall cost to the
Adviser or Subadviser of performing its duties to the Fund under the Agreement.
Over-the-counter transactions
will be placed either directly with principal market makers or with broker-dealers, if the same or a better price, including commissions
and executions, is available. Fixed income securities are normally purchased directly from the issuer, an underwriter or a market
maker. Purchases include a concession paid by the issuer to the underwriter and the purchase price paid to a market maker may include
the spread between the bid and asked prices.
When the Fund and
another of the Adviser’s or Subadviser’s clients seek to purchase or sell the same security at or about the same time,
the Adviser or Subadviser may execute the transaction on a combined (“blocked”) basis. Blocked transactions can produce
better execution for the Fund because of the increased volume of the transaction. If the entire blocked order is not filled, the
Fund may not be able to acquire as large a position in such security as it desires or it may have to pay a higher price for the
security. Similarly, the Fund may not be able to obtain as large an execution of an order to sell or as high a price for any particular
portfolio security if the other client desires to sell the same portfolio security at the same time. In the event that the entire
blocked order is not filled, the purchase or sale will normally be allocated on a pro rata basis. The Adviser or Subadviser may
adjust the allocation when, taking into account such factors as the size of the individual orders and transaction costs, the Adviser
or Subadviser believes an adjustment is reasonable.
The Fund paid brokerage
commissions in the aggregate amount of $86,646 for the fiscal period from February 24, 2021 (commencement of operations) through June
30, 2021 not including the gross underwriting spread on securities purchased in underwritten public offerings.
The Fund did not pay
any brokerage commissions during the period from February 24, 2021 (commencement of operations) through June 30, 2021 to any broker
that (1) is an affiliated person of the Fund, (2) is an affiliated person of an affiliated person of the Fund or (3) has an affiliated
person that is an affiliated person of the Fund or the Adviser.
U.S. FEDERAL INCOME TAX MATTERS
The following is a
summary discussion of certain U.S. federal income tax consequences that may be relevant to a shareholder that acquires, holds and/or
disposes of Securities of the Fund. This discussion only addresses U.S. federal income tax consequences to U.S. Common Shareholders
who hold their Securities as capital assets and does not address all of the U.S. federal income tax consequences that may be relevant
to particular shareholders in light of their individual circumstances. This discussion also does not address the tax consequences
to shareholders who are subject to special rules, including, without limitation, banks and other financial institutions, insurance
companies, dealers in securities or foreign currencies, traders in securities that have elected to mark-to-market their securities
holdings, foreign holders, persons who hold their Common Shares as or in a hedge against currency risk, or as part of a constructive
sale, straddle or conversion transaction, or tax-exempt or tax-deferred plans, accounts, or entities. In addition, the discussion
does not address any state, local, or foreign tax consequences. The discussion reflects applicable income tax laws of the United
States as of the date hereof, which tax laws may be changed or subject to new interpretations by the courts or the Internal Revenue
Service (“IRS”) retroactively or prospectively, which could affect the continued validity of this summary. No attempt
is made to present a detailed explanation of all U.S. federal income tax concerns affecting the Fund and its shareholders, and
the discussion set forth herein does not constitute tax advice. Investors are urged to consult their own tax advisors before
making an investment in the Fund to determine the specific tax consequences to them of investing in the Fund, including the applicable
federal, state, local and foreign tax consequences as well as the effect of possible changes in tax laws.
The tax legislation
commonly referred to as Tax Cuts and Jobs Act (the “Tax Act”) made significant changes to the U.S. federal income
tax rules for taxation of individuals and corporations, generally effective for taxable years beginning after December 31, 2017.
Many of the changes applicable to individuals are temporary and would apply only to taxable years beginning after December 31,
2017 and before January 1, 2026. There are only minor changes with respect to the specific rules only applicable to a RIC, such
as the Fund. The Tax Act, however, made numerous other changes to the tax rules that may affect Common Shareholders and the Fund.
You are urged to consult with your own tax advisor regarding how the Tax Act affects your investment in the Fund.
Fund Taxation
The Fund has elected
to be treated, and intends to qualify each year, as a “regulated investment company” under Subchapter M of the Code,
so that it will generally not pay U.S. federal income tax on income and capital gains timely distributed (or treated as being
distributed, as described below) to Common Shareholders. If the Fund qualifies as a regulated investment company and distributes
to its Common Shareholders at least 90% of the sum of (i) its “investment company taxable income” as that term is
defined in the Code (which includes, among other things, dividends, taxable interest, the excess of any net short-term capital
gains over net long-term capital losses and certain net foreign exchange gains as reduced by certain deductible expenses) without
regard to the deduction for dividends paid, and (ii) the excess of its gross tax-exempt interest, if any, over certain disallowed
deductions, the Fund will be relieved of U.S. federal income tax on any income of the Fund, including long-term capital gains,
distributed to Common Shareholders. However, if the Fund retains any investment company taxable income or “net capital gain”
(i.e., the excess of net long-term capital gain over net short-term capital loss), it will be subject to U.S. federal income
tax at regular corporate federal income tax rates (currently at the rate of 21%) on the amount retained. The Fund intends to distribute
at least annually all or substantially all of its investment company taxable income (determined without regard to the deduction
for dividends paid), net tax-exempt interest, and net capital gain. Under the Code, the Fund will generally be subject to a nondeductible
4% federal excise tax on the portion of its undistributed ordinary income and capital gains if it fails to meet certain distribution
requirements with respect to each calendar year. In order to avoid the 4% federal excise tax, the required minimum distribution
is generally equal to the sum of 98% of the Fund’s ordinary income (computed on a calendar year basis, and taking into account
certain deferrals and elections), plus 98.2% of the Fund’s capital gain net income (generally computed for the one-year
period ending on October 31) plus undistributed amounts from prior years on which the Fund paid no federal income tax. The Fund
generally intends to make distributions in a timely manner in an amount at least equal to the required minimum distribution and
therefore, under normal circumstances, does not expect to be subject to this excise tax. However, the Fund may also decide to
distribute less and pay the federal excise taxes.
If for any taxable
year the Fund does not qualify as a regulated investment company for U.S. federal income tax purposes, it would be treated as a
U.S. corporation subject to U.S. federal income tax, and possibly state and local income tax, and distributions to its Common Shareholders
would not be deductible by the Fund in computing its taxable income. In such event, the Fund’s distributions, to the extent
derived from the Fund’s current or accumulated earnings and profits, would generally constitute ordinary dividends, which
generally would be eligible for the dividends received deduction available to corporate Common Shareholders under Section 243 of
the Code, discussed below, and non-corporate Common Shareholders of the Fund generally would be able to treat such distributions
as qualified dividend income eligible for reduced rates of U.S. federal income taxation, as discussed below, provided in each case
that certain holding period and other requirements are satisfied.
If the Fund or an Underlying
Fund invests in certain positions such as pay-in-kind securities, zero coupon securities, deferred interest securities or, in general,
any other securities with original issue discount (or with market discount if the Fund or Underlying Fund elects to include market
discount in income currently), the Fund or Underlying Fund must accrue income on such investments for each taxable year, which
generally will be prior to the receipt of the corresponding cash payments. However, the Fund must distribute, at least annually,
all or substantially all of its net investment income, including such accrued income, to Common Shareholders to avoid U.S. federal
income and excise taxes. Therefore, the Fund may have to dispose of its portfolio securities under disadvantageous circumstances
to generate cash, or may have to leverage itself by borrowing the cash, to satisfy distribution requirements.
The Fund or an Underlying
Fund may also acquire market discount bonds. A market discount bond is a security acquired in the secondary market at a price below
its stated redemption price at maturity (or its adjusted issue price if it is also an original issue discount bond). If the Fund
or an Underlying Fund invests in a market discount bond, it will be required for federal income tax purposes to treat any gain
recognized on the disposition of such market discount bond as ordinary income (instead of capital gain) to the extent of the accrued
market discount unless the Fund or Underlying Fund elects to include the market discount in income as it accrues.
The Fund or an Underlying
Fund may invest in debt obligations that are in the lowest rating categories or are unrated, including debt obligations of issuers
not currently paying interest or who are in default. Investments in debt obligations that are at risk of or in default present
special tax issues. Tax rules are not entirely clear about issues such as when the Fund or an Underlying Fund may cease to accrue
interest, original issue discount or market discount, when and to what extent deductions may be taken for bad debts or worthless
securities, how payments received on obligations in default should be allocated between principal and income and whether exchanges
of debt obligations in a bankruptcy or workout context are taxable. These and other related issues will be addressed by the Fund
when, as and if it invests in such securities, in order to seek to ensure that it distributes sufficient income to preserve its
status as a regulated investment company and does not become subject to U.S. federal income or excise taxes.
The Fund will not be
able to offset gains distributed by one Underlying Fund in which it invests against losses realized by another Underlying Fund
in which the Fund invests. Redemptions of shares in an Underlying Fund, including those resulting from changes in the allocation
among Underlying Funds, could also cause additional distributable gains to Common Shareholders. A portion of any such gains may
be short-term capital gains that would be distributable as ordinary income to Common Shareholders. Further, a portion of losses
on redemptions of shares in the Underlying Funds may be deferred under the wash sale rules. Additionally, the Fund’s investment
in an Underlying Fund may result in the Fund’s receipt of cash in excess of the Underlying Fund’s earnings; if the
Fund distributes these amounts, the distributions could constitute a return of capital to Common Shareholders for federal income
tax purposes. As a result of these factors, the use of the fund of funds structure by the Fund could therefore affect the amount,
timing and character of distributions to Common Shareholders.
The Fund or an Underlying
Fund may engage in various transactions utilizing options, futures contracts, forward contracts, hedge instruments, straddles,
and other similar transactions. Such transactions may be subject to special provisions of the Code that, among other things, affect
the character of any income realized by the Fund from such investments, accelerate recognition of income to the Fund, defer Fund
losses and affect the determination of whether capital gain or loss is characterized as long-term or short-term capital gain or
loss. These rules could therefore affect the character, amount and timing of distributions to Common Shareholders. These provisions
may also require the Fund to mark-to-market certain positions in its portfolio (i.e., treat them as if they were closed
out), which may cause the Fund to recognize income without receiving cash with which to make distributions in amounts necessary
to satisfy the distribution requirements for avoiding U.S. federal income and excise taxes. In addition, certain Fund investments
may produce income that will not be qualifying income for purposes of the 90% income test. The Fund will monitor its investments
and transactions, will make the appropriate tax elections, and will make the appropriate entries in its books and records when
it acquires an option, futures contract, forward contract, hedge instrument or other similar investment in order to mitigate the
effect of these rules, prevent disqualification of the Fund as a regulated investment company and minimize the imposition of U.S.
federal income and excise taxes, if possible.
The Fund’s transactions
in broad based equity index futures contracts, exchange-traded options on such indices and certain other futures contracts (if
any) are generally considered “Section 1256 contracts” for federal income tax purposes. Any unrealized gains or losses
on such Section 1256 contracts are treated as though they were realized at the end of each taxable year. The resulting gain or
loss is treated as sixty percent long-term capital gain or loss and forty percent short-term capital gain or loss. Gain or loss
recognized on actual sales of Section 1256 contracts is treated in the same manner. As noted below, distributions of net short-term
capital gain are taxable to Common Shareholders as ordinary income while distributions of net long-term capital gain are generally
taxable to Common Shareholders as long-term capital gain, regardless of how long the Common Shareholder has held Common Shares
of the Fund.
The Fund’s entry
into a short sale transaction, an option or certain other contracts (if any) could be treated as the constructive sale of an appreciated
financial position, causing the Fund to realize gain, but not loss, on the position.
If the Fund utilizes
leverage through borrowing, asset coverage limitations imposed by the 1940 Act as well as additional restrictions that may be
imposed by certain lenders on the payment of dividends or distributions could potentially limit or eliminate the Fund’s
ability to make distributions on its common stock until the asset coverage is restored. These limitations could prevent the Fund
from distributing at least 90% of its investment company taxable income as is required under the Code and therefore might jeopardize
the Fund’s qualification as a regulated investment company and/or might subject the Fund to the nondeductible 4% federal
excise tax discussed above. Upon any failure to meet the asset coverage requirements imposed by the 1940 Act, the Fund may, in
its sole discretion and to the extent permitted under the 1940 Act, purchase or redeem shares of preferred stock, if any, in order
to maintain or restore the requisite asset coverage and avoid the adverse consequences to the Fund and its Common Shareholders
of failing to meet the distribution requirements. There can be no assurance, however, that any such action would achieve these
objectives. The Fund generally will endeavor to avoid restrictions on its ability to distribute dividends.
Common Shareholder Taxation
Distributions of investment
company taxable income are generally taxable as ordinary income to the extent of the Fund’s current and accumulated earnings
and profits. Distributions of net investment income designated by the Fund as derived from qualified dividend income will be taxed
in the hands of individuals and other non-corporate taxpayers at the rates applicable to long-term capital gain, provided certain
holding period and other requirements are met at both the shareholder and Fund levels. A dividend will not be treated as qualified
dividend income (at either the Fund or shareholder level) (i) if the dividend is received with respect to any share of stock held
for fewer than 61 days during the 121-day period beginning on the date which is 60 days before the date on which such share becomes
ex-dividend with respect to such dividend (or, in the case of certain preferred stock, 91 days during the 181-day period beginning
90 days before such date), (ii) to the extent that the recipient is under an obligation (whether pursuant to a short sale or otherwise)
to make related payments with respect to positions in substantially similar or related property, (iii) if the recipient elects
to have the dividend income treated as investment income for purposes of the limitation on deductibility of investment interest,
or (iv) if the dividend is received from a foreign corporation that is (a) not eligible for the benefits of a comprehensive income
tax treaty with the U.S. which the IRS has approved for these purposes (with the exception of dividends paid on stock of such a
foreign corporation that is readily tradable on an established securities market in the U.S.) or (b) treated as a passive foreign
investment company. If the Fund received dividends from an Underlying Fund that qualifies as a regulated investment company, and
the Underlying Fund designates such dividends as qualified dividend income, then the Fund is permitted in turn to designate a portion
of its distributions as qualified dividend income, provided the Fund meets holding period and other requirements with respect to
shares of the Underlying Fund. Qualified dividend income does not include interest from fixed income securities and generally does
not include income from REITs. If the Fund lends portfolio securities, amounts received by the Fund that is the equivalent of the
dividends paid by the issuer on the securities loaned will not be eligible for qualified dividend income treatment. The Fund can
provide no assurance regarding the portion of its dividends that will qualify for qualified dividend income treatment.
Distributions of net
capital gain, if any, that are properly reported by the Fund are taxable at long-term capital gain rates for U.S. federal income
tax purposes without regard to the length of time the Common Shareholder has held Common Shares of the Fund. A distribution of
an amount in excess of the Fund’s current and accumulated earnings and profits, if any, will be treated by a Common Shareholder
as a tax-free return of capital, which is applied against and reduces the Common Shareholder’s basis in his, her or its
Common Shares. To the extent that the amount of any such distribution exceeds the Common Shareholder’s basis in his, her
or its Common Shares, the excess will be treated by the Common Shareholder as gain from the sale or exchange of such Common Shares.
The U.S. federal income tax status of all distributions will be designated by the Fund and reported to Common Shareholders annually.
The Fund may qualify
to pay “exempt-interest” dividends, as defined in the Code, on its Common Shares by satisfying the requirement that,
at the close of each quarter of its taxable year, at least 50% of the value of its total assets consists of municipal securities.
As an alternative, the Fund may qualify to pay exempt-interest dividends if it is a qualified fund-of-funds, i.e., if at least
50% of the value of its total assets are invested in the shares of underlying RICs at the close of each quarter of its taxable
year. Exempt-interest dividends are dividends or any part thereof (other than a capital gain dividend) paid by the Fund which are
attributable to interest on municipal securities and which are so reported by the Fund. Exempt-interest dividends will be exempt
from federal income tax, subject to the possible application of the federal alternative minimum tax applicable to individuals.
Interest paid on a municipal bond issued after December 31, 2017 to advance refund another municipal bond is subject to federal
income tax. Insurance proceeds received by the Fund under any insurance policies in respect of scheduled interest payments on defaulted
municipal bonds, as described herein, will generally be correspondingly excludable from federal gross income. In the case of non-appropriation
by a political subdivision, however, there can be no assurance that payments made by the issuer representing interest on municipal
lease obligations will be excludable from gross income for federal income tax purposes. Any gains of the Fund that are attributable
to market discount on municipal securities are treated as ordinary income to the extent of accrued market discount on those securities.
A portion of the Fund’s
expenditures that would otherwise be deductible may not be allowed as deductions by reason of the Fund’s investment in municipal
securities (such disallowed portion, in general, being the same percentage of the Fund’s aggregate expenses as the percentage
of the Fund’s aggregate gross income that constitutes exempt interest income from municipal securities). A similar disallowance
rule also applies to interest expense paid or incurred by the Fund, if any. Any such disallowed deductions will offset the Fund’s
gross exempt-interest income for purposes of calculating the dividends that the Fund can report as exempt-interest dividends. Interest
on indebtedness incurred or continued to purchase or carry the Fund’s shares is not deductible to the extent the interest
relates to exempt-interest dividends. Under rules used by the IRS for determining when borrowed funds are considered used for the
purpose of purchasing or carrying particular assets, the purchase or ownership of shares may be considered to have been made with
borrowed funds even though such funds are not directly used for the purchase or ownership of such shares.
Distributions to Common
Shareholders of net investment income received by the Fund from taxable investments, if any, including temporary taxable investments,
and of net short-term capital gains realized by the Fund, if any, will be taxable to Common Shareholders as ordinary income. Distributions
by the Fund of net capital gain (i.e., the excess of net long-term capital gain over net short-term capital loss), if any, are
taxable as long-term capital gain, regardless of the length of time the Common Shareholder has owned the shares with respect to
which such distributions are made. The amount of taxable income allocable to the Fund’s shares will depend upon the amount
of such income realized by the Fund. Distributions, if any, in excess of the Fund’s earnings and profits will first reduce
the adjusted tax basis of a Common Shareholder’s shares and, after that basis has been reduced to zero, will constitute capital
gain to the Common Shareholder (assuming the shares are held as a capital asset). As long as the Fund qualifies as a RIC under
the Code, it is not expected that any part of its distributions to Common Shareholders from its investments will qualify as “qualified
dividend income” taxable to non-corporate Common Shareholders at reduced rates.
The interest on private
activity bonds in most instances is not federally tax-exempt to a person who is a “substantial user” of a facility
financed by such bonds or a “related person” of such “substantial user.” As a result, the Fund may not
be an appropriate investment for a Common Shareholder who is considered either a “substantial user” or a “related
person” within the meaning of the Code. In general, a “substantial user” of a facility includes a “nonexempt
person who regularly uses a part of such facility in his trade or business.” “Related persons” are in general
defined to include persons among whom there exists a relationship, either by family or business, which would result in a disallowance
of losses in transactions among them under various provisions of the Code (or if they are members of the same controlled group
of corporations under the Code), including a partnership and each of its partners (and certain members of their families), an
S corporation and each of its shareholders (and certain members of their families) and various combinations of these and other
relationships. The foregoing is not a complete description of all of the provisions of the Code covering the definitions of “substantial
user” and “related person.”
Federal income tax
law imposes an alternative minimum tax with respect to individuals, trusts, and estates. Interest on certain municipal securities,
such as bonds issued to make loans for housing purposes or to private entities (but not to certain tax-exempt organizations such
as universities and non-profit hospitals), is included as an item of tax preference in determining the amount of a taxpayer’s
alternative minimum taxable income. To the extent that the Fund receives income from such municipal securities, a portion of the
dividends paid by the Fund, although otherwise exempt from federal income tax, will be taxable to Common Shareholders whose tax
liabilities are determined under the federal alternative minimum tax. The Fund will annually provide a report indicating the percentage
of the Fund’s income attributable to municipal securities and the portion thereof the interest on which is a tax preference
item.
The Fund may invest
in municipal securities that pay interest that is taxable under the federal alternative minimum tax applicable to individuals.
If you are, or as a result of investment in the Fund would become, subject to the federal alternative minimum tax, the Fund may
not be a suitable investment for you. In addition, distributions of taxable ordinary income (including any net short-term capital
gain) will be taxable to Common Shareholders as ordinary income (and not eligible for favorable taxation as “qualified dividend
income”), and capital gain dividends will be taxable as long-term capital gains.
Any loss realized by
a shareholder of the Fund upon the sale of shares held for six months or less may be disallowed to the extent of any exempt-interest
dividends received with respect to such shares.
Certain distributions
by the Fund may qualify for the dividends received deduction available to corporate Common Shareholders under Section 243 of the
Code, subject to certain holding period and other requirements, but generally only to the extent the Fund earned dividend income
from stock investments in U.S. domestic corporations (but not including real estate investment trusts). Additionally, if the Fund
received dividends from an Underlying Fund that qualifies as a regulated investment company, and the Underlying Fund designates
such dividends as eligible for the dividends received deduction, then the Fund is permitted in turn to designate a portion of its
distributions as eligible for the dividends received deduction, provided the Fund meets holding period and other requirements with
respect to shares of the Underlying Fund. As long as the Fund qualifies as a RIC under the Code, it is not expected that any significant
part of its distributions to Common Shareholders from its investments will qualify for the dividends-received deduction available
to corporate Common Shareholders.
A Common Shareholder
may elect to have all dividends and distributions automatically reinvested in Common Shares of the Fund. For U.S. federal income
tax purposes, all dividends are generally taxable regardless of whether a Common Shareholder takes them in cash or they are reinvested
in additional Common Shares of the Fund.
If a Common Shareholder’s
distributions are automatically reinvested in additional Common Shares, for U.S. federal income tax purposes, the Common Shareholder
will be treated as having received a distribution in the amount of the cash dividend that the Common Shareholder would have received
if the Common Shareholder had elected to receive cash, unless the distribution is in newly issued Common Shares of the Fund that
are trading at or above net asset value, in which case the Common Shareholder will be treated as receiving a distribution equal
to the fair market value of the stock the Common Shareholder receives.
The Fund intends to
distribute all realized net capital gains, if any, at least annually. If, however, the Fund were to retain any net capital gain,
the Fund may designate the retained amount as undistributed capital gains in a notice to Common Shareholders who, if subject to
U.S. federal income tax on long-term capital gains, (i) will be required to include in income, as long-term capital gain, their
proportionate share of such undistributed amount, and (ii) will be entitled to credit their proportionate share of the federal
income tax paid by the Fund on the undistributed amount against their U.S. federal income tax liabilities, if any, and to claim
refunds to the extent the credit exceeds such liabilities. For U.S. federal income tax purposes, the tax basis of Common Shares
owned by a Common Shareholder will be increased by the difference between the amount of undistributed net capital gain included
in the Common Shareholder’s gross income and the federal income tax deemed paid by the Common Shareholder.
Any dividend declared
by the Fund in October, November or December with a record date in such a month and paid during the following January will be treated
for U.S. federal income tax purposes as paid by the Fund and received by Common Shareholders on December 31 of the calendar year
in which it is declared.
At the time of an investor’s
purchase of the Fund’s Common Shares, a portion of the purchase price may be attributable to realized or unrealized appreciation
in the Fund’s portfolio or undistributed taxable income of the Fund. Consequently, subsequent distributions by the Fund with
respect to these Common Shares from such appreciation or income may be taxable to such investor even if the net asset value of
the investor’s Common Shares is, as a result of the distributions, reduced below the investor’s cost for such Common
Shares and the distributions economically represent a return of a portion of the investment. Investors should consider the tax
implications of purchasing Common Shares just prior to a distribution.
The IRS has taken the
position that if a regulated investment company has two or more classes of shares, it must designate distributions made to each
class in any year as consisting of no more than such class’ proportionate share of particular types of income (e.g.,
ordinary income and net capital gains). Consequently, if both common stock and preferred stock are outstanding, the Fund intends
to designate distributions made to each class of particular types of income in accordance with each class’ proportionate
share of such income. Thus, the Fund will designate to the extent applicable, dividends qualifying for the corporate dividends
received deduction (if any), income not qualifying for the dividends received deduction, qualified dividend income, ordinary income,
exempt interest and net capital gain in a manner that allocates such income between the holders of common stock and preferred stock
in proportion to the total dividends paid to each class during or for the taxable year, or otherwise as required by applicable
law. However, for purposes of determining whether distributions are out of the Fund’s current or accumulated earnings and
profits, the Fund’s earnings and profits will be allocated first to the Fund’s preferred stock, if any, and then to
the Fund’s common stock. In such a case, since the Fund’s current and accumulated earnings and profits will first be
used to pay dividends on the preferred stock, distributions in excess of such earnings and profits, if any, will be made disproportionately
to holders of common stock.
In addition, solely
for the purpose of satisfying the 90% distribution requirement and the distribution requirement for avoiding federal income taxes,
certain distributions made after the close of a taxable year of the Fund may be “spilled back” and treated as paid
during such taxable year. In such case, Common Shareholders will be treated as having received such dividends in the taxable year
in which the distribution was actually made.
Sales, exchanges and
other dispositions of the Fund’s Common Shares generally are taxable events for Common Shareholders that are subject to
federal income tax. Common Shareholders should consult their own tax advisors regarding their individual circumstances to determine
whether any particular transaction in the Fund’s Common Shares is properly treated as a sale or exchange for federal income
tax purposes (as the following discussion assumes) and the tax treatment of any gains or losses recognized in such transactions.
Generally, gain or loss will be equal to the difference between the amount of cash and the fair market value of other property
received (including securities distributed by the Fund) and the Common Shareholder’s adjusted tax basis in the Common Shares
sold or exchanged. In general, any gain or loss realized upon a taxable disposition of Common Shares will be treated as long-term
capital gain or loss if the Common Shares have been held for more than one year. Otherwise, the gain or loss on the taxable disposition
of the Fund’s Common Shares will be treated as short-term capital gain or loss. However, any loss realized by a Common Shareholder
upon the sale or other disposition of Common Shares with a tax holding period of six months or less will be treated as a long-term
capital loss to the extent of any amounts treated as distributions of long-term capital gain with respect to such Common Shares.
For the purposes of calculating the six-month period, the holding period is suspended for any periods during which the Common
Shareholder’s risk of loss is diminished as a result of holding one or more other positions in substantially similar or
related property or through certain options, short sales or contractual obligations to sell. The maximum individual rate applicable
to long-term capital gains is generally either 15% or 20%, depending on whether the individual’s income exceeds certain
threshold amounts. The ability to deduct capital losses may be subject to limitations. In addition, losses on sales or other dispositions
of Common Shares may be disallowed under the “wash sale” rules in the event a Common Shareholder acquires substantially
identical stock or securities (including those made pursuant to reinvestment of dividends) within a period of 61 days beginning
30 days before and ending 30 days after a sale or other disposition of Common Shares. In such a case, the disallowed portion of
any loss generally would be included in the U.S. federal income tax basis of the Common Shares acquired.
An additional 3.8%
Medicare tax is imposed on certain net investment income (including ordinary dividends and capital gain distributions received
from the Fund and net gains from redemptions or other taxable dispositions of Common Shares) of U.S. individuals, estates and trusts
to the extent that such person’s “modified adjusted gross income” (in the case of an individual) or “adjusted
gross income” (in the case of an estate or trust) exceeds certain threshold amounts.
From time to time,
the Fund may repurchase its Common Shares. Common Shareholders who tender all Common Shares held, and those considered to be held
(through attribution rules contained in the Code), by them will be treated as having sold their Common Shares and generally will
realize a capital gain or loss. If a Common Shareholder tenders fewer than all of his, her or its Common Shares (including those
considered held through attribution), such Common Shareholder may be treated as having received a taxable dividend upon the tender
of its Common Shares. If a tender offer is made, there is a risk that non-tendering Common Shareholders will be treated as having
received taxable distributions from the Fund. To the extent that the Fund recognizes net gains on the liquidation of portfolio
securities to meet such tenders of Common Shares, the Fund will be required to make additional distributions to its Common Shareholders.
If the Board of Directors determines that a tender offer will be made by the Fund, the federal income tax consequences of such
offer will be discussed in materials that will be available at such time in connection with the specific tender offer, if any.
The Code requires
that the Fund withhold, as “backup withholding,” 24% of reportable payments, including dividends, capital gain distributions
and the proceeds of sales or other dispositions of the Fund’s stock paid to Common Shareholders who have not complied with
IRS regulations. In order to avoid this withholding requirement, Common Shareholders must certify on their account applications,
or on a separate IRS Form W-9, that the social security number or other taxpayer identification number they provide is their correct
number and that they are not currently subject to backup withholding, or that they are exempt from backup withholding. The Fund
may nevertheless be required to withhold if it receives notice from the IRS or a broker that the number provided is incorrect
or backup withholding is applicable. Backup withholding is not an additional tax. Any amount withheld may be allowed as a refund
or a credit against the Common Shareholder’s U.S. federal income tax liability if the appropriate information (such as the
timely filing of the appropriate federal income tax return) is provided to the IRS.
Under Treasury regulations,
if a Common Shareholder recognizes a loss with respect to Common Shares of $2 million or more in a single taxable year (or $4
million or more in any combination of taxable years) for an individual Common Shareholder, S corporation or trust or $10 million
or more in a single taxable year (or $20 million or more in any combination of years) for a Common Shareholder who is a C corporation,
such Common Shareholder will generally be required to file with the IRS a disclosure statement on Form 8886. Direct shareholders
of portfolio securities are generally excepted from this reporting requirement, but under current guidance, shareholders of a
regulated investment company are not excepted. Future guidance may extend the current exception from this reporting requirement
to shareholders of most or all regulated investment companies. The fact that a loss is reportable under these regulations does
not affect the legal determination of whether the taxpayer’s treatment of the loss is proper. Common Shareholders should
consult their tax advisors to determine the applicability of these regulations in light of their individual circumstances.
Preferred Shareholder Taxation
The IRS has taken the position that if
a regulated investment company has two or more classes of shares, it must designate distributions made to each class in any year
as consisting of no more than such class’ proportionate share of particular types of income (e.g., ordinary income
and net capital gains). Consequently, if both Common Shares and Preferred Shares are outstanding, the Fund intends to designate
distributions made to each class of particular types of income in accordance with each class’ proportionate share of such
income. Thus, the Fund will designate to the extent applicable, dividends qualifying for the corporate dividends received deduction
(if any), income not qualifying for the dividends received deduction, qualified dividend income, Section 199A dividends, ordinary
income and net capital gain in a manner that allocates such income between the holders of Common Shares and Preferred Shares in
proportion to the total dividends paid to each class during or for the taxable year, or otherwise as required by applicable law.
However, for purposes of determining whether distributions are out of the Fund’s current or accumulated earnings and profits,
the Fund’s earnings and profits will be allocated first to the Fund’s Preferred Shares, if any, and then to the Fund’s
Common Shares. In such a case, since the Fund’s current and accumulated earnings and profits will first be used to pay dividends
on the Preferred Shares, distributions in excess of such earnings and profits, if any, will be made disproportionately to holders
of Common Shares.
Other Taxes
The description of
certain U.S. federal income tax provisions above relates only to U.S. federal income tax consequences for Common Shareholders who
are U.S. persons (i.e., U.S. citizens or residents or U.S. corporations, partnerships, trusts or estates). Non-U.S. Common
Shareholders should consult their tax advisors concerning the tax consequences of ownership of Common Shares of the Fund, including
the possibility that distributions may be subject to a 30% U.S. withholding tax (or a reduced rate of withholding provided by an
applicable treaty if the investor provides proper certification of its non-U.S. status).
A separate U.S. withholding
tax may apply in the case of distributions to (i) certain non-U.S. financial institutions that have not agreed to collect and disclose
certain account holder information and are not resident in a jurisdiction that has entered into such an agreement with the U.S.
Treasury and (ii) certain other non-U.S. entities that do not provide certain certifications and information about the entity’s
U.S. owners.
Shareholders should
consult their own tax advisors on these matters and on any specific question of U.S. federal, state, local, foreign and other
applicable tax laws before making an investment in the Fund.
BOARD MEMBERS AND OFFICERS
The following table
presents certain information regarding the members of the Board of Directors (each, a “Board Member”). Each Board Member’s
year of birth is set forth in parentheses after his or her name. The Board of Directors is divided into three classes of directors
serving staggered three-year terms. The initial terms of the first, second and third classes of directors will expire at the first,
second and third annual meetings of Common Shareholders, respectively, and, in each case, until their successors are duly elected
and qualify, or until a director sooner dies, retires, resigns or is removed as provided in the governing documents of the Fund.
Upon expiration of their initial terms, directors of each class will be elected to serve for three-year terms and until their successors
are duly elected and qualify, and at each annual meeting one class of directors will be elected by the Common Shareholders.
Except as otherwise
noted, the address for all directors and officers is 360 South Rosemary Avenue, Suite 1420, West Palm Beach, FL 33401. The “independent
directors” consist of those directors who are not “interested persons” of the Fund, as that term is defined
under the 1940 Act (each, an “Independent Director” and collectively, the “Independent Directors”).
Name
Address and
Year of
Birth |
Position(s)
Held with
Registrant |
Term of
Office and
Length of
Time Served |
Principal
Occupation(s)
During Past 5
Years |
Number of
Portfolios in
Fund
Complex(1)
Overseen by
Director |
Other Directorships
Held (2) by Director
During Past 5 Years |
Independent Directors |
|
|
|
|
John K. Carter (1961) |
Director |
Initial term expires in 2024. Has served since 2021. |
Partner, Law Office of John K. Carter, P.A. dba Carter Reymann
Law, P.A. (a general practice and corporate law firm) (2015 to present); Managing Partner, Global Recruiters of St. Petersburg
(a financial services consulting and recruiting firm) (2012 to 2015).
|
11 |
Carillon Mutual Funds (14 funds) (2016 to present); RiverNorth Specialty Finance Corporation (1 fund) (2016 to present); RiverNorth/DoubleLine Strategic Opportunity Fund, Inc. (1 fund) (2016 to present); RiverNorth Funds (3 funds) (2013 to present); RiverNorth Opportunities Fund, Inc. (1 fund)(2013 to present); RiverNorth Opportunistic Municipal Income Fund, Inc. (1 fund) (2018 to present); RiverNorth Managed Duration Municipal Income Fund, Inc. (2019 to present)(1 fund); RiverNorth Flexible Municipal Income Fund, Inc. (2020 to present)(1 Fund); RiverNorth Managed Duration Municipal Income Fund II, Inc. (2022 to present)(1 fund). |
Name
Address and
Year of
Birth |
Position(s)
Held with
Registrant |
Term of
Office and
Length of
Time Served |
Principal
Occupation(s)
During Past 5
Years |
Number of
Portfolios in
Fund
Complex(1)
Overseen by
Director |
Other
Directorships(2) Held
by Director During
Past 5 Years |
John S. Oakes
(1943)
|
Director |
Initial term expires in 2024. Has served since 2021. |
Currently retired; Principal, Financial Search and Consulting (a recruiting and consulting firm) 2013 to 2017). |
10 |
RiverNorth Specialty Finance Corporation (1 fund) (2016 to present); RiverNorth/DoubleLine Strategic Opportunity Fund, Inc. (1 fund) (2016 to present); RiverNorth Funds (3 funds) (2010 to present); RiverNorth Opportunities Fund, Inc. (1 fund)(2013 to present); RiverNorth Opportunistic Municipal Income Fund, Inc. (1 fund) (2018 to present); RiverNorth Managed Duration Municipal Income Fund, Inc. (2019 to present)(1 fund); RiverNorth Flexible Municipal Income Fund, Inc. (2020 to present)(1 Fund); RiverNorth Managed Duration Municipal Income Fund II, Inc. (2022 to present)(1 fund). |
Name
Address
and Year
of Birth |
Position(s)
Held with
Registrant |
Term of
Office
and
Length
of Time
Served |
Principal
Occupation(s)
During Past 5 Years |
Number of
Portfolios in
Fund
Complex(1)
Overseen by
Director |
Other Directorships(2)
Held by Director During
Past 5 Years |
J. Wayne Hutchens
(1944)
|
Director |
Initial term expires in 2022. Has served since 2021. |
Currently retired. Mr. Hutchens is Trustee of the Denver Museum of Nature and Science (2000 to present); Director of AMG National Trust Bank (June 2012 to 2020) and Trustee of Children’s Hospital Colorado (May 2012 to 2020). |
11 |
RiverNorth Opportunities Fund, Inc. (1 fund)(2013 to present), RiverNorth/ DoubleLine Strategic Opportunity Fund, Inc. (1 fund)(2016 to present), RiverNorth Opportunistic Municipal Income Fund, Inc. (1 fund)(2018 to present), RiverNorth Managed Duration Municipal Income Fund, Inc. (1 fund)(2019 to present), RiverNorth Specialty Finance Corporation (1 fund)(2016 to present), RiverNorth Flexible Municipal Income Fund, Inc. (1 fund)(2020 to present), RiverNorth Funds (three funds), and ALPS Series Trust (11 funds)(2012 to present), RiverNorth Managed Duration Municipal Income Fund II, Inc. (2022 to present)(1 fund). |
Name
Address and
Year of
Birth |
Position(s)
Held with
Registrant |
Term of
Office and
Length of
Time Served |
Principal
Occupation(s)
During Past 5
Years |
Number of Portfolios in
Fund
Complex(1)
Overseen by
Director |
Other
Directorships(2) Held
by Director During
Past 5 Years |
David M. Swanson
(1957)
|
Director |
Initial term expires in 2022. Has served since 2021. |
Founder & Managing Partner of Swan Dog Strategic Marketing
(marketing consulting firm) since 2006.
|
11 |
RiverNorth Opportunities Fund, Inc. (one fund)(2013 to present), RiverNorth/ DoubleLine Strategic Opportunity Fund, Inc. (1 fund)(2016 to present), RiverNorth Opportunistic Municipal Income Fund, Inc. (1 fund)(2018 to present), RiverNorth Managed Duration Municipal Income Fund, Inc. (1 fund)(2019 to present), RiverNorth Specialty Finance Corporation (1 fund)(2016 to present), RiverNorth Funds (3 funds)(2019 to present) and ALPS Variable Investment Trust (7 funds) (2006 to present)RiverNorth Flexible Municipal Income Fund, Inc. (1 fund)(2020 to present), RiverNorth Managed Duration Municipal Income Fund II, Inc. (2022 to present)(1 fund). |
Name
Address and
Year of
Birth |
Position(s)
Held with
Registrant |
Term of
Office and
Length of
Time Served |
Principal
Occupation(s)
During Past 5
Years |
Number of
Portfolios in
Fund
Complex(1)
Overseen by
Director |
Other
Directorships(2) Held
by Director During
Past 5 Years |
Interested Directors and Officers |
|
|
|
|
Patrick W. Galley (3)
(1975)
|
Director, Chairman and President |
Initial term expires in 2023. Has served since 2021. |
Chief Executive Officer, RiverNorth Capital Management, LLC (2020 to present); Chief Investment Officer, RiverNorth Capital Management, LLC (2004 to present). |
11 |
RiverNorth Specialty Finance Corporation (1 fund) (2016 to present); RiverNorth/DoubleLine Strategic Opportunity Fund, Inc. (1 fund) (2016 to present); RiverNorth Funds (3 funds) (2006 to present); RiverNorth Opportunities Fund, Inc. (1 fund)(2013 to present); RiverNorth Opportunistic Municipal Income Fund, Inc. (1 fund) (2018 to present); RiverNorth Managed Duration Municipal Income Fund, Inc. (2019 to present)(1 fund); RiverNorth Flexible Municipal Income Fund, Inc. (2020 to present)(1 fund); RiverNorth Managed Duration Municipal Income Fund II, Inc. (2022 to present)(1 fund). |
Name
Address and
Year of
Birth |
Position(s)
Held with
Registrant |
Term of
Office and
Length of
Time Served |
Principal
Occupation(s)
During Past 5
Years |
Number of
Portfolios in
Fund
Complex(1)
Overseen by
Director |
Other
Directorships(2) Held
by Director During
Past 5 Years |
Jerry Raio (4)
(1965)
|
Director |
Initial term expires in 2023. Has served since 2021. |
President, Arbor Lane Advisors, Inc. (Since 2018);
Board Member of each of FLX Distribution, (2020 to present); Qudos Technologies (2019 to present); and Quantify Crypto (2021 to
present); Head of Capital Markets, ClickIPO (2018-2019); Managing Director, Head of Retail Origination, Wells Fargo Securities,
LLC (2005 to 2018). |
8 |
RiverNorth Opportunistic Municipal Income Fund, Inc. (1 fund) (2018 to present); RiverNorth/DoubleLine Strategic Opportunity Fund, Inc. (1 fund) (2018 to present); RiverNorth Specialty Finance Corporation (2018 to present)(1 fund); RiverNorth Managed Duration Municipal Income Fund, Inc. (2019 to present)(1 fund); RiverNorth Flexible Municipal Income Fund, Inc. (2020 to present)(1 fund); RiverNorth Managed Duration Municipal Income Fund II, Inc. (2022 to present)(1 fund). |
Name
Address
and Year
of Birth |
Position(s)
Held with
Registrant |
Term of
Office
and
Length
of Time
Served |
Principal
Occupation(s) During Past 5 Years |
Number of
Portfolios in
Fund
Complex(1)
Overseen by
Director |
Other
Directorships(2)
Held by Director
During Past 5
Years |
Jonathan M. Mohrhardt (1974) |
Chief Financial Officer and Treasurer |
Has served since. |
President (since 2020) and Chief Operating Officer (2011 to present), RiverNorth Capital Management, LLC. |
N/A |
N/A |
Marcus L. Collins (1968) |
Chief Compliance Officer and Secretary |
Has served since. |
General Counsel, RiverNorth Capital Management, LLC (2012 to present); Chief Compliance Officer, RiverNorth Capital Management, LLC (2012 to present). |
N/A |
N/A |
| (1) | The Fund Complex consists of the RiverNorth Core Opportunity
Fund, the RiverNorth/DoubleLine Strategic Income Fund, and the RiverNorth/Oaktree High Income Fund, each a series of the RiverNorth
Funds Trust, RiverNorth Opportunities Fund, Inc., RiverNorth DoubleLine Strategic Opportunity Fund, Inc., RiverNorth Opportunistic
Municipal Income Fund, Inc., RiverNorth Flexible Municipal Income Fund, Inc., RiverNorth Flexible Municipal Income Fund II, Inc.,
and RiverNorth Specialty Finance Corporation. |
| (2) | The numbers enclosed in the parentheticals represent the
number of funds overseen in each respective directorship held by the director. |
| (3) | Mr. Galley is deemed an “interested person”
of the Fund due to his position as Chief Executive Officer and Chief Investment Officer of RiverNorth Capital Management, LLC,
investment adviser to the Fund. |
| (4) | Mr. Raio is deemed an “interested person” of
the Fund because of his current position as a director of FLX Distribution, which the Adviser is an investor in and Mr. Galley
is a Director of; and because of his prior position as Managing Director – Head of Retail Origination at Wells Fargo, which
had previously served as a broker and principal underwriter for certain funds advised by the Adviser. |
Board Leadership
Structure. The Board of Directors, which has overall responsibility for the oversight of the Fund’s investment programs
and business affairs, believes that it has structured itself in a manner that allows it to effectively perform its oversight obligations.
Mr. Patrick W. Galley, the Chairman of the Board (“Chairman”), is not an Independent Director. The Board believes
that the use of an interested director as Chairman is the appropriate leadership structure for the Fund given (i) Mr. Patrick
Galley’s role in the day to day operations of the Adviser, (ii) the extent to which the work of the Board of Directors is
conducted through the Audit Committee of the Board of Directors (the “Audit Committee”) and the Nominating and Corporate
Governance Committee of the Board of Directors (the “Nominating and Corporate Governance Committee”), each of whose
meetings is chaired by an Independent Director, (iii) the frequency that Independent Directors meet with their independent legal
counsel and auditors in the absence of members of the Board of Directors who are interested directors of the Fund and management,
and (iv) the overall sophistication of the Independent Directors, both individually and collectively. The members of Board of
Directors also complete an annual self-assessment during which the directors review their overall structure and consider where
and how its structure remains appropriate in light of the Fund’s current circumstances. The Chairman’s role is to
preside at all meetings of the Board of Directors and in between meetings of the Board of Directors to generally act as the liaison
between the Board of Directors and the Fund’s officers, attorneys and various other service providers, including but not
limited to the Adviser and other such third parties servicing the Fund. The Board of Directors believes that having an interested
person serve as Chairman of the Board of Directors enables Mr. Patrick Galley to more effectively carry out these liaison activities.
The Board of Directors also believes that it benefits during its meetings from having a person intimately familiar with the operation
of the Fund to set the agenda for meetings of the Board of Directors to ensure that important matters are brought to the attention
of and considered by the Board of Directors.
The Fund has two standing
committees, each of which enhances the leadership structure of the Board of Directors: the Audit Committee and the Nominating and
Corporate Governance Committee. The Audit Committee and Nominating and Corporate Governance Committee are each chaired by, and
composed of, members who are Independent Directors.
The Audit Committee
is comprised of Messrs. Carter, Oakes, Hutchens, and Swanson, all of whom are “independent” as defined in the listing
standard of the NYSE. Mr. Hutchens is the Chair of the Audit Committee and has been determined to qualify as an “audit committee
financial expert” as such term is defined in Form N-CSR. The role of the Audit Committee is to assist the Board of Directors
in its oversight of (i) the quality and integrity of the Fund’s financial statements, reporting process and the independent
registered public accounting firm (the “independent accountants”) and reviews thereof, (ii) the Fund’s accounting
and financial reporting policies and practices, its internal controls and, as appropriate, the internal controls of certain service
providers, (iii) the Fund’s compliance with certain legal and regulatory requirements, and (iv) the independent accountants’
qualifications, independence and performance. The Audit Committee is also required to prepare an audit committee report pursuant
to the rules of the SEC for inclusion in the Fund’s annual proxy statement. The Audit Committee operates pursuant to the
Audit Committee Charter. The Audit Committee Charter is available at the Fund’s website, www.rivernorth.com. As set forth
in the Audit Committee Charter, management is responsible for maintaining appropriate systems for accounting and internal control,
and the Fund’s independent accountants are responsible for planning and carrying out proper audits and reviews. The independent
accountants are ultimately accountable to the Board of Directors and to the Audit Committee, as representatives of the Common Shareholders.
The independent accountants for the Fund report directly to the Audit Committee. During the last fiscal year, the Audit Committee
held no meetings.
The Nominating and
Corporate Governance Committee is comprised of Messrs. Carter, Oaks, Hutchens, and Swanson. Mr. Carter is the Chair of the Nominating
and Corporate Governance Committee. The Nominating and Corporate Governance Committee is responsible for identifying and recommending
to the Board of Directors individuals believed to be qualified to become members of the Board of Directors in the event that a
position is vacated or created. The Nominating and Corporate Governance Committee will consider director candidates recommended
by Common Shareholders. In considering candidates submitted by Common Shareholders, the Nominating and Corporate Governance Committee
will take into consideration the needs of the Board of Directors, the qualifications of the candidate and the interests of Common
Shareholders. Common Shareholders wishing to recommend candidates to the Nominating and Corporate Governance Committee should
submit such recommendations to the Secretary of the Fund, who will forward the recommendations to the committee for consideration.
The submission must include: (i) whether the Common Shareholder proposing such nominee believes the proposed nominee is, or is
not, an “interested person”, (ii) the name and address, as they appear on the Fund’s books, of the Common Shareholder
proposing such business or nomination, (iii) a representation that the Common Shareholder is a holder of record of Shares entitled
to vote at such meeting and intends to appear in person or by proxy at the meeting to present such nomination; (iv) whether the
Common Shareholder plans to deliver or solicit proxies from other Common Shareholders; (v) the class and number of Shares of the
capital stock of the Fund, which are beneficially owned by the Common Shareholder and the proposed nominee to the Board of Directors,
(vi) any material interest of the Common Shareholder or nominee in such business; (vii) the extent to which such Common Shareholder
(including such Common Shareholder’s principals) or the proposed nominee to the Board of Directors has entered into any
hedging transaction or other arrangement with the effect or intent of mitigating or otherwise managing profit, loss or risk of
changes in the value of the Shares or the daily quoted market price of the Fund held by such Common Shareholder (including the
Common Shareholder’s principals) or the proposed nominee, including independently verifiable information in support of the
foregoing; (viii) any substantial interest, direct or indirect, of such Common Shareholder or the proposed nominee in the Fund
other than interest arising from ownership of Common Shares; (ix) to the extent known by such Common Shareholder, the name and
address of any other Common Shareholder supporting the proposed nominee; (x) the nominee holder for, and number of, Common Shares
owned beneficially but not of record by such Common Shareholder; (xi) the investment strategy or objective, if any, of such Common
Shareholder who is not an individual and a copy of the prospectus, offering memorandum, or similar document, if any; and (xii)
such other information regarding such nominee proposed by such Common Shareholder as would be required to be included in a proxy
statement filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended. Each eligible Common Shareholder
or Common Shareholder group may submit no more than one Independent Director nominee each calendar year. The Nominating and Corporate
Governance Committee has not determined any minimum qualifications necessary to serve as a director of the Fund. During the last
fiscal year, the Nominating and Corporate Governance Committee held no meetings.
Director Qualifications.
Mr. Patrick Galley is the Chief Investment Officer for the Fund’s investment adviser and a portfolio manager of the Fund.
His knowledge regarding the investment strategy of the Fund, more specifically the closed-end mutual fund industry makes him uniquely
qualified to serve as the Fund’s President.
Risk Oversight.
The Fund is confronted with a multitude of risks, such as investment risk, counterparty risk, valuation risk, political risk, risk
of operational failures, business continuity risk, regulatory risk, legal risk and other risks not listed here. The Board of Directors
recognizes that not all risk that may affect the Fund can be known, eliminated or even mitigated. In addition, there are some risks
that may not be cost effective or an efficient use of the Fund’s limited resources to moderate. As a result of these realities,
the Board of Directors, through its oversight and leadership, has and will continue to deem it necessary for Common Shareholders
to bear certain and undeniable risks, such as investment risk, in order for the Fund to operate in accordance with its Prospectus,
SAI and other related documents.
However, the Board
of Directors has adopted on the Fund’s behalf a vigorous risk program that mandates the Fund’s various service providers,
including the Adviser and Subadviser, to adopt a variety of processes, procedures and controls to identify various risks, mitigate
the likelihood of adverse events from occurring and/or attempt to limit the effects of such adverse events on the Fund. The Board
of Directors fulfills its leadership role by receiving a variety of quarterly written reports prepared by the Fund’s Chief
Compliance Officer (“CCO”) that (i) evaluate the operation, policies and procedures of the Fund’s service providers,
(ii) make known any material changes to the policies and procedures adopted by the Fund or its service providers since the CCO’s
last report, and (iii) disclose any material compliance matters that occurred since the date of the last CCO report. In addition,
the Independent Directors meet quarterly in executive sessions without the presence of any interested directors, the Adviser or
Subadviser, or any of their affiliates. This configuration permits the Independent Directors to effectively receive the information
and have private discussions necessary to perform their risk oversight role, exercise independent judgment and allocate areas
of responsibility between the full Board of Directors, its committees and certain officers of the Fund. Furthermore, the Independent
Directors have engaged independent legal counsel and auditors to assist the Independent Directors in performing their oversight
responsibilities. As discussed above and in consideration of other factors not referenced herein, the Board of Directors has determined
its leadership role concerning risk management as one of oversight and not active management of the Fund’s day-to-day risk
management operations.
Compensation.
The Fund pays no salaries or compensation to any its officers or to any Interested Directors affiliated with the Adviser or Subadviser,
and the Fund has no employees. For their services, the Directors of the Fund, who are not affiliated with the Adviser or Subadviser,
receive an annual retainer in the amount of $16,500, and an additional $ 1,500 for attending each quarterly meeting of the Board
of Directors. In addition, the lead Independent Director receives $250 annually, the Chair of the Audit Committee receives $500
annually and the Chair of the Nominating and Corporate Governance Committee receives $ annually. The Directors not affiliated with
the Adviser or Subadviser are also reimbursed for all reasonable out-of-pocket expenses relating to attendance at meetings of the
Board of Directors. The following tables show compensation with respect to the Fund and the Fund Complex. Patrick W. Galley is
an interested person of the Fund and has not received any compensation from the Fund.
Name of Board Member |
Estimated Compensation
with respect to the Fund (1) |
Estimated Total
Compensation with respect
to the Fund and Fund Complex (2) |
John K. Carter |
$22,750 |
$230,250 |
John S. Oakes |
$22,750 |
$240,500 |
J. Wayne Hutchens |
$23,000 |
$233,000 |
David M. Swanson |
$22,500 |
$228,500 |
Jerry Raio |
$22,500 |
$186,500 |
| (1) | The compensation estimated for the first full fiscal year
for services to the Fund. |
| (2) | The total estimated compensation estimated to be paid to
the Director with respect to the Fund and the Fund Complex for a full calendar year. |
Director Ownership in the Fund
The following table
shows the dollar range of equity securities beneficially owned by each director in the Fund and Fund Complex as of December 31,
2021.
Director |
Dollar Range of Beneficial
Ownership in Fund |
Aggregate Dollar Range of
Ownership in all Funds
Overseen by Director in the Fund Complex (1) |
Independent Director: |
|
|
John K. Carter |
None |
$50,001 - $100,000 |
John S. Oakes |
None |
Over $100,000 |
J. Wayne Hutchens |
None |
Over $100,000 |
David M. Swanson |
None |
Over $100,000 |
Interested Director: |
|
|
Patrick W. Galley |
None |
Over $100,000 |
Jerry Raio |
None |
$10,001 - $50,000 |
| (1) | The term “Fund Complex” means two or more registered
investment companies that: |
(a) hold themselves out to investors
as related companies for purposes of investment and investor services; or
(b) have a common investment
adviser or that have an investment adviser that is an affiliated person of the investment adviser of any of the other registered
investment companies.
The Fund Complex consists of the Fund,
RiverNorth/DoubleLine Strategic Opportunity Fund, Inc., RiverNorth Specialty Finance Corporation, RiverNorth Opportunistic Municipal
Income Fund, Inc., RiverNorth Managed Duration Municipal Income Fund, Inc., RiverNorth Flexible Municipal Income Fund, Inc., RiverNorth
Funds (3 Funds), RiverNorth Opportunities Fund, Inc. and RiverNorth Flexible Municipal Income Fund II, Inc. for all Directors,
except for Mr. Raio. For Mr. Raio, the Fund Complex consists of the Fund, RiverNorth/DoubleLine Strategic Opportunity Fund, Inc.,
RiverNorth Specialty Finance Corporation, RiverNorth Opportunistic Municipal Income Fund, Inc., RiverNorth Managed Duration Municipal
Income Fund, Inc., RiverNorth Flexible Municipal Income Fund, Inc., RiverNorth Opportunities Fund, Inc. and RiverNorth Managed
Duration Municipal Income Fund II, Inc.
As of the date of this
SAI, the Independent Directors of the Fund and immediate family members do not own beneficially or of record any class of securities
of the investment adviser or principal underwriter of the Fund or any person directly or indirectly controlling, controlled by,
or under common control with an investment adviser or principal underwriter of the Fund.
As of the date of this
SAI, the directors and officers of the Fund owned, as a group, less than 1% of the outstanding Common Shares of the Fund.
Securities Beneficially Owned
To the knowledge of the Fund, as of July 27, 2022, no single shareholder
or “group” (as that term is used in Section 13(d) of the Securities Exchange Act of 1934, as amended (the “1934
Act”)) beneficially owned more than 5% of the Fund’s outstanding Common Shares. A
control person is one who owns, either directly or indirectly, more than 25% of the voting securities of the Fund or acknowledges
the existence of control.
PROXY VOTING GUIDELINES
The Board of Directors
of the Fund has delegated responsibilities for decisions regarding proxy voting for securities held by the Fund to the Adviser
or Subadviser. The Adviser or Subadviser will vote such proxies in accordance with its proxy policies and procedures. In some
instances, the Adviser or Subadviser may be asked to cast a proxy vote that presents a conflict between the interests of the Fund’s
shareholders, and those of the Adviser or Subadviser or an affiliated person of the Adviser or Subadviser. In such a case, the
Adviser or Subadviser will abstain from making a voting decision and will forward all necessary proxy voting materials to the
Fund to enable the Board of Directors to make a voting decision. The Adviser or Subadviser shall make a written recommendation
of the voting decision to the Board of Directors, which shall include: (i) an explanation of why it has a conflict of interest;
(ii) the reasons for its recommendation; and (iii) an explanation of why the recommendation is consistent with the Adviser’s
(or Subadviser’s) proxy voting policies. The Board of Directors shall make the proxy voting decision that in its judgment,
after reviewing the recommendation of the Adviser or Subadviser, is most consistent with the Adviser’s or Subadviser’s
proxy voting policies and in the best interests of shareholders. When the Board of Directors of the Fund is required to make a
proxy voting decision, only the directors without a conflict of interest with regard to the security in question or the matter
to be voted upon shall be permitted to participate in the decision of how the Fund’s vote will be cast. The Adviser and
Subadviser vote proxies pursuant to the proxy voting policies and guidelines set forth in Appendix A and B, respectively, to this
SAI.
You may also obtain
information about how the Fund voted proxies related to its portfolio securities during the 12-month period ended June 30 by visiting
the SEC’s website at www.sec.gov or by visiting the Fund’s website at www.rivernorth.com (this reference to the Fund’s
website does not incorporate the contents of the website into this SAI).
ADDITIONAL INFORMATION
A Registration Statement
on Form N-2, including amendments thereto, relating to the Securities offered hereby, has been filed by the Fund with the SEC.
The Fund’s Prospectus and this SAI do not contain all of the information set forth in the Registration Statement, including
any exhibits and schedules thereto. For further information with respect to the Fund and the Securities offered hereby, reference
is made to the Fund’s Registration Statement. Statements contained in the Fund’s Prospectus and this SAI as to the
contents of any contract or other document referred to are not necessarily complete and in each instance reference is made to the
copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference.
The Registration Statement
is available on the Edgar Database on the SEC’s website, http://www.sec.gov, or may be obtained, after paying a duplicating
fee, by electronic request to publicinfo@sec.gov.
FINANCIAL STATEMENTS
The audited financial statements and financial highlights included
in the annual report to the Fund's shareholders for the fiscal year ended June 30, 2021 (the “2021 Annual Report”),
together with the report of [ ], the Fund's independent registered public accounting firm, on the financial statements and financial highlights included in the Fund's 2021 Annual Report,
and the unaudited financial statements and financial highlights included in the Fund's semi-annual report to the Fund's shareholders
for the six months ended December 31, 2021, are incorporated herein.
APPENDIX A
PROXY VOTING POLICY OF THE ADVISER
Proxy Voting
RiverNorth Capital Management, LLC
PROXY VOTING POLICIES AND PROCEDURES
Pursuant to the recent
adoption by the Securities and Exchange Commission (the “Commission”) of Rule 206(4)-6 (17 CFR 275.206(4)-6) and amendments
to Rule 204-2 (17 CFR 275.204-2) under the Investment Advisers Act of 1940 (the “Act”), it is a fraudulent, deceptive,
or manipulative act, practice or course of business, within the meaning of Section 206(4) of the Act, for an investment adviser
to exercise voting authority with respect to client securities, unless (i) the adviser has adopted and implemented written policies
and procedures that are reasonably designed to ensure that the adviser votes proxies in the best interests of its clients, (ii)
the adviser describes its proxy voting procedures to its clients and provides copies on request, and (iii) the adviser discloses
to clients how they may obtain information on how the adviser voted their proxies.
In its standard investment
advisory agreement, RiverNorth Capital Management, LLC (RiverNorth Capital) specifically states that it does not vote proxies and
the client, including clients governed by ERISA, is responsible for voting proxies. Therefore, RiverNorth Capital will not vote
proxies for these clients. However, RiverNorth Capital will vote proxies on behalf of investment company clients (“Funds”).
RiverNorth Capital has instructed all custodians, other than Fund custodians, to forward proxies directly to its clients, and if
RiverNorth Capital accidentally receives a proxy for any non-Fund client, current or former, the Chief Compliance Officer will
promptly forward the proxy to the client. In order to fulfill its responsibilities to Funds, RiverNorth Capital Management, LLC
(hereinafter “we” or “our”) has adopted the following policies and procedures for proxy voting with regard
to companies in any Fund’s investment portfolios.
KEY OBJECTIVES
The key objectives
of these policies and procedures recognize that a company’s management is entrusted with the day-to-day operations and longer
term strategic planning of the company, subject to the oversight of the company’s board of directors. While “ordinary
business matters” are primarily the responsibility of management and should be approved solely by the corporation’s
board of directors, these objectives also recognize that the company’s shareholders must have final say over how management
and directors are performing, and how shareholders’ rights and ownership interests are handled, especially when matters could
have substantial economic implications to the shareholders.
Therefore, we will
pay particular attention to the following matters in exercising our proxy voting responsibilities as a fiduciary for our clients:
Accountability.
Each company should have effective means in place to hold those entrusted with running a company’s business accountable for
their actions. Management of a company should be accountable to its board of directors and the board should be accountable to shareholders.
Alignment of Management
and Shareholder Interests. Each company should endeavor to align the interests of management and the board of directors with
the interests of the company’s shareholders. For example, we generally believe that compensation should be designed to reward
management for doing a good job of creating value for the shareholders of the company.
Transparency.
Promotion of timely disclosure of important information about a company’s business operations and financial performance enables
investors to evaluate the performance of a company and to make informed decisions about the purchase and sale of a company’s
securities.
DECISION METHODS
We generally believe
that the individual portfolio managers that invest in and track particular companies are the most knowledgeable and best suited
to make decisions with regard to proxy votes. Therefore, we rely on those individuals to make the final decisions on how to cast
proxy votes.
No set of proxy voting
guidelines can anticipate all situations that may arise. In special cases, we may seek insight from our managers and analysts on
how a particular proxy proposal will impact the financial prospects of a company, and vote accordingly.
In some instances,
a proxy vote may present a conflict between the interests of a client, on the one hand, and our interests or the interests of a
person affiliated with us, on the other. In such a case, we will abstain from making a voting decision and will forward all of
the necessary proxy voting materials to the client to enable the client to cast the votes.
Notwithstanding the
forgoing, the following policies will apply to investment company shares owned by a Fund. Under Section 12(d)(1) of the Investment
Company Act of 1940, as amended, (the “1940 Act”), a fund may only invest up to 5% of its total assets in the securities
of any one investment company, but may not own more than 3% of the outstanding voting stock of any one investment company or invest
more than 10% of its total assets in the securities of other investment companies. However, Section 12(d)(1)(F) of the 1940 Act
provides that the provisions of paragraph 12(d)(1) shall not apply to securities purchased or otherwise acquired by a fund if (i)
immediately after such purchase or acquisition not more than 3% of the total outstanding stock of such registered investment company
is owned by the fund and all affiliated persons of the fund; and (ii) the fund is not proposing to offer or sell any security issued
by it through a principal underwriter or otherwise at a public or offering price which includes a sales load of more than 1½%
percent. Therefore, each Fund (or the Adviser acting on behalf of the Fund) must comply with the following voting restrictions
unless it is determined that the Fund is not relying on Section 12(d)(1)(F):
–when the Fund
exercises voting rights, by proxy or otherwise, with respect to any investment company owned by the Fund, the Fund will either
–seek instruction
from the Fund’s shareholders with regard to the voting of all proxies and vote in accordance with such instructions, or
–vote the shares
held by the Fund in the same proportion as the vote of all other holders of such security.
PROXY VOTING GUIDELINES
Election of the Board of Directors
We believe that good
corporate governance generally starts with a board composed primarily of independent directors, unfettered by significant ties
to management, all of whose members are elected annually. We also believe that turnover in board composition promotes independent
board action, fresh approaches to governance, and generally has a positive impact on shareholder value. We will generally vote
in favor of non-incumbent independent directors.
The election of a company’s
board of directors is one of the most fundamental rights held by shareholders. Because a classified board structure prevents shareholders
from electing a full slate of directors annually, we will generally support efforts to declassify boards or other measures that
permit shareholders to remove a majority of directors at any time, and will generally oppose efforts to adopt classified board
structures.
Approval of Independent Auditors
We believe that the
relationship between a company and its auditors should be limited primarily to the audit engagement, although it may include certain
closely related activities that do not raise an appearance of impaired independence.
We will evaluate on
a case-by-case basis instances in which the audit firm has a substantial non-audit relationship with a company to determine whether
we believe independence has been, or could be, compromised.
Equity-based compensation
plans
We believe that appropriately
designed equity-based compensation plans, approved by shareholders, can be an effective way to align the interests of shareholders
and the interests of directors, management, and employees by providing incentives to increase shareholder value. Conversely, we
are opposed to plans that substantially dilute ownership interests in the company, provide participants with excessive awards,
or have inherently objectionable structural features.
We will generally support
measures intended to increase stock ownership by executives and the use of employee stock purchase plans to increase company stock
ownership by employees. These may include:
1. Requiring senior executives to hold stock
in a company.
2. Requiring stock acquired through option
exercise to be held for a certain period of time.
These are guidelines,
and we consider other factors, such as the nature of the industry and size of the company, when assessing a plan’s impact
on ownership interests.
Corporate Structure
We view the exercise
of shareholders’ rights, including the rights to act by written consent, to call special meetings and to remove directors,
to be fundamental to good corporate governance.
Because classes of
common stock with unequal voting rights limit the rights of certain shareholders, we generally believe that shareholders should
have voting power equal to their equity interest in the company and should be able to approve or reject changes to a company’s
by-laws by a simple majority vote.
We will generally support
the ability of shareholders to cumulate their votes for the election of directors.
Shareholder Rights Plans
While we recognize
that there are arguments both in favor of and against shareholder rights plans, also known as poison pills, such measures may
tend to entrench current management, which we generally consider to have a negative impact on shareholder value. Therefore, while
we will evaluate such plans on a case by case basis, we will generally oppose such plans.
CLIENT INFORMATION
A copy of these Proxy
Voting Policies and Procedures is available to our clients, without charge, upon request, by calling 1-800-646-0148. We will send
a copy of these Proxy Voting Policies and Procedures within three business days of receipt of a request, by first-class mail or
other means designed to ensure equally prompt delivery.
In addition, we will
provide each client, without charge, upon request, information regarding the proxy votes cast by us with regard to the client’s
securities.
APPENDIX B
MacKay
Shields LLC
Proxy Voting Policies and Procedures
Revised February 2020
MacKay Shields LLC
(“MacKay Shields” or the “Firm”), has adopted these “Proxy Voting Policy and Procedures” (the
“Policy”) to ensure the Firm’s compliance with Rule 206(4)-6 under the Investment Advisers Act of 1940, as amended
(the “Advisers Act”) and other applicable fiduciary obligations. The Policy applies to proxies relating to securities
held by clients of MacKay Shields who have delegated the responsibility of voting proxies to the Firm. The Policy is designed to
assist Firm employees in meeting their specific responsibilities in this area and to reasonably ensure that proxies are voted in
the best interests of the Firm’s clients.
2.1 It is the policy of MacKay Shields that where the Firm has voting authority, all proxies are to be voted in the best
interest of the client without regard to the interests of MacKay Shields or other related parties. Specifically, MacKay Shields
shall not subordinate the interests of clients to unrelated objectives, including MacKay Shields’ interests. MacKay Shields
shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in
a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.
For purposes of the Policy, the “best interests of clients” shall mean, unless otherwise specified by the client, the
clients’ best economic interests over the long term – that is, the common interest that all MacKay Shields clients
share in seeing the value of a common investment increase over time. It is further the policy of the Firm that complete and accurate
disclosure concerning its proxy voting policies and procedures and proxy voting records as required by the Advisers Act, be made
available to its clients.
2.2 When proxies with respect to securities held by clients of MacKay Shields have not been received by MacKay Shields or
its proxy voting service provider, MacKay Shields will make reasonable efforts to obtain missing proxies. MacKay Shields is not
responsible for voting proxies it or its proxy voting service provider does not receive.
2.3 MacKay Shields may choose not to vote proxies under the following circumstances:
| ● | If the effect on the client’s economic interests or the value of the portfolio holding is indeterminable or insignificant; |
| ● | If the cost of voting the proxy outweighs the possible benefit to the client; or |
| ● | If a jurisdiction imposes share blocking restrictions which prevent the Firm from trading shares. |
| 3. | Use of Third Party Proxy Voting Service Provider |
To discharge its responsibility,
MacKay Shields has examined third-party services that assist in the researching and voting of proxies and the development of voting
guidelines. After such review, the Firm has selected Institutional Shareholder Services, Inc., (“ISS”), to research
voting proposals, analyze the financial implications of voting proposals and vote proxies. MacKay Shields utilizes the research
and analytical services, operational implementation, administration, record-keeping and reporting services provided by ISS.
| 4. | Proxy Voting Guidelines |
4.1 MacKay Shields has determined that, except as set forth in Sections 6 and 7, proxies for non-union clients who so specify
will be voted in accordance with the voting recommendations contained in the applicable ISS non-union domestic or global proxy
voting guidelines, as in effect from time to time (“Non-Union Guidelines”). Refer to Exhibit A for the current U.S.
Summary Proxy Voting Guidelines.
4.2 MacKay Shields has determined that, except as set forth in Sections 6 and 7, proxies for union or Taft-Hartley clients
who so specify will be voted in accordance with the voting recommendations contained in the applicable ISS Taft-Hartley domestic
or international proxy voting guidelines, as in effect from time to time (“Union Guidelines”). A summary of the current
Taft-Hartley U.S. Voting Guidelines and Taft- Hartley International Voting Guidelines are attached as Exhibit B.
4.3 For purposes of the Policy, the Non-Union and Union Guidelines are collectively referred to as the Standard Guidelines.
4.4 A client may choose to use proxy voting guidelines different from the Standard Guidelines (“Custom Guidelines”).
Any Custom Guidelines must be furnished by the client to MacKay Shields in writing.
4.5 In the event the Standard Guidelines or any client’s Custom Guidelines do not address how a proxy should be voted
or state that the vote is to be determined on a “case- by-case” basis, the proxy will be voted in accordance with ISS
recommendations, subject to Section 6. In the event that ISS has not made a recommendation, MacKay Shields will follow the procedure
set forth in Section 7.
4.6 Notwithstanding the foregoing, MacKay Shields will vote a proxy with respect to a particular security held by a client
in accordance with such client’s specific request even if it is in a manner inconsistent with the Standard Guidelines or
the client’s Custom Guidelines, as the case may be. Any such specific requests must be furnished to MacKay Shields by the
client in writing and must be received by MacKay on a timely basis for instructing ISS how to cast the vote.
4.7 In order to avoid possible conflicts of interest, MacKay Shields votes proxies based on the Standard Guidelines or a
client’s Custom Guidelines, as the case may be. However, it is recognized that the Firm’s portfolio management team
has the ultimate responsibility for proxy voting.
4.8 For clients using the Standard Guidelines, the Firm will instruct ISS to cast votes in accordance with the Standard
Guidelines. For clients using Custom Guidelines, the Firm will provide ISS with a copy of such Custom Guidelines and will instruct
ISS to cast votes in accordance with such Custom Guidelines. ISS will cast votes in accordance with the Standard Guidelines or
Custom Guidelines, as the case may be, unless instructed otherwise by MacKay Shields as set forth in Sections 6 and 7. Upon receipt
of a specific request from a client pursuant to Section 4.6, the Firm will instruct ISS to cast such client’s proxy in accordance
with such request.
| 5. | Client Account Set-up and Review |
5.1 Initially,
MacKay Shields must determine whether the client seeks to retain the responsibility of voting proxies, or seeks to delegate that
responsibility to the Firm. The marketing or client service person responsible for setting up the account, in conjunction with
MacKay’s Legal/Compliance Department, will have primary responsibility for making that determination. In its sole discretion,
the Firm may decline to accept authority to vote a client’s proxies. Any such refusal shall be in writing.
5.2 If MacKay Shields has authority to vote a client’s proxies, the marketing or client service person responsible
for setting up the account will ask the client to specify in writing (which may be by e-mail) whether the Firm should vote proxies
in accordance with the Non-Union Guidelines, Union Guidelines or Custom Guidelines, unless specified in the client’s investment
management agreement.
5.3 In most cases, the delegation of voting authority to MacKay Shields, and the Firm’s use of a third-party proxy
voting service provider shall be memorialized in the client’s investment management agreement.
5.4 MacKay Shields shall notify ISS of new client accounts using such form as ISS shall specify from time to time. Designated
personnel within the Firm will be responsible for ensuring that each new client’s account for which the Firm has proxy voting
authority is established on the appropriate systems and that each such account is properly coded for voting under the appropriate
Non-Union Guidelines, Union Guidelines or Custom Guidelines, as the case may be.
A portfolio manager
may propose that a particular proxy vote be cast in a manner different from the Standard Guidelines or an ISS voting recommendation,
or may propose an abstention from voting, if he/she believes that to do so, based on all facts and circumstances, is in the best
interest of the Firm’s clients as a whole. Any portfolio manager who proposes to override the Standard Guidelines or an ISS
voting recommendation on a particular vote or to abstain from voting must complete a Proxy Vote Override/Decision Form, which is
set forth in Schedule C.
| 7. | Referral of Voting Decision by ISS to MacKay Shields |
7.1 In the event that the Standard Guidelines or a client’s Custom Guidelines do not address how a proxy should be
voted on a specific proposal for an issuer and ISS has not made a recommendation as to how such proxy should be voted, ISS will
so advise MacKay Shields. In that event, the Legal/Compliance Department will request that the appropriate portfolio manager make
a voting recommendation and complete a Proxy Vote Override/Decision Form.
7.2 In the event that the Standard Guidelines or a client’s Custom Guidelines require a “case-by-case”
determination on a particular proxy vote and ISS has not made a recommendation as to how such proxy should be voted, ISS will so
advise MacKay Shields. In that event, the Legal/Compliance Department will request that the appropriate portfolio manager make
a voting recommendation and complete a Proxy Vote Override/Decision Form.
7.3 In the event that ISS determines that a conflict of interest exists as a result of which ISS is precluded from making
a recommendation as to how a proxy should be voted on a specific proposal for an issuer, ISS will so advise MacKay Shields. In
that event, the Legal/Compliance Department will request that the appropriate portfolio manager make a voting recommendation and
complete a Proxy Vote Override/Decision Form.
8.1 The
Firm’s portfolio managers may make proxy voting decisions in connection with (i) overriding the Standard Guidelines or an
ISS voting recommendation pursuant to Section 6, or (ii) deciding on a vote pursuant to Section 7. In such event, the portfolio
managers have an affirmative duty to disclose any potential conflict of interest known to them that exists between the Firm and
the client on whose behalf the proxy is to be voted (“Conflict”).
8.2 By way of example, Conflicts may exist in situations where the Firm is called to vote on a proxy involving an issuer
or proponent of a proxy proposal regarding the issuer where MacKay Shields or an affiliated person of the Firm also:
| ● | Manages the issuer’s or proponent’s pension plan; |
| ● | Administers the issuer’s or proponent’s employee benefit plan; |
| ● | Provided brokerage, underwriting, insurance or banking services to the issuer or proponent; or |
| ● | Manages money for an employee group. |
Additional Conflicts
may exist, among others, if an executive of the Firm or its control affiliates is a close relative of, or has a personal or business
relationship with:
| ● | An executive of the issuer or proponent; |
| ● | A director of the issuer or proponent; |
| ● | A person who is a candidate to be a director of the issuer; |
| ● | A participant in the proxy contest; or |
| ● | A proponent of a proxy proposal. |
8.3 Whether a relationship creates a Conflict will depend on the facts and circumstances. Even if these parties do not attempt
to influence the Firm with respect to voting, the value of the relationship to MacKay Shields or an affiliate can create a Conflict.
8.4 After a Proxy Vote Override/Decision Form is completed pursuant to Sections 6 or 7, such Form, which elicits information
as to whether a potential Conflict exists, must be submitted to the Legal/Compliance Department for review. If the Firm’s
General Counsel (“GC”) or Chief Compliance Officer (“CCO”) determines that there is no potential Conflict,
the GC or CCO or their designee may instruct ISS to vote the proxy issue as set forth in the completed Form.
8.5 If the GC or CCO determines that there exists or may exist a Conflict, he or she will refer the issue to the Compliance
Committee for consideration by convening (in person or via telephone) an emergency meeting of the Compliance Committee. For purposes
of this Policy, a majority vote of those members present shall resolve any Conflict. The Compliance Committee will consider the
facts and circumstances of the pending proxy vote and the potential or actual Conflict and make a determination as to how to vote
the proxy – i.e., whether to permit or deny the recommendation of the portfolio manager, or whether to take other action,
such as delegating the proxy vote to an independent third party or obtaining voting instructions from clients.
8.6 In considering the proxy vote and potential Conflict, the Compliance Committee may review the following factors, including
but not limited to:
| ● | The percentage of outstanding securities of the issuer held on behalf of clients by the Firm. |
| ● | The nature of the relationship of the issuer or proponent with the Firm, its affiliates or its executive officers. |
| ● | Whether there has been any attempt to directly or indirectly influence the portfolio manager’s
decision. |
| ● | Whether the direction (for or against) of the proposed vote would appear to benefit the Firm or
a related party. |
| ● | Whether an objective decision to vote in a certain way will still create a strong appearance of a Conflict. |
MacKay Shields may
not abstain from voting any such proxy for the purpose of avoiding Conflict.
If MacKay Shields portfolio
managers or their designees become aware of an upcoming shareholder meeting where there is an important vote to be taken, or become
aware of a request for consent of security holders on a material matter affecting the investment, MacKay Shields will consider
whether to request that clients call back securities loans, if applicable. In determining whether to request that clients call
back securities loans, the relevant portfolio manager(s) shall consider whether the benefit to the client in voting the matter
or giving or withholding consent outweighs the benefit to the client in keeping the security on loan. There may be instances when
MacKay Shields may not be aware of the upcoming shareholder meeting or request for consent with sufficient time in advance to make
such a request, or when MacKay Shields’ request that a client call back a securities loan in sufficient time to vote or give
or withhold consent may not be successful.
Upon request, MacKay
Shields shall report annually (or more frequently if specifically requested) to its clients on proxy votes cast on their behalf.
MacKay Shields will provide any client who makes a written or verbal request with a copy of a report disclosing how MacKay Shields
voted securities held in that client’s portfolio. The report will generally contain the following information:
| ● | The name of the issuer of the security; |
| ● | The security’s exchange ticker symbol; |
| ● | The security’s CUSIP number; |
| ● | The shareholder meeting date; |
| ● | A brief identification of the matter voted on; |
| ● | Whether the matter was proposed by the issuer or by a security holder; |
| ● | Whether MacKay Shields cast its vote on the matter on behalf of the client; |
| ● | How MacKay Shields voted on behalf of the client; and |
| ● | Whether MacKay Shields voted for or against management on behalf of the client. |
Either MacKay Shields
or ISS as indicated below will maintain the following records:
| ● | A copy of the Policy and MacKay’s Standard Guidelines and Custom Guidelines; |
| ● | A copy of each proxy statement received by MacKay Shields or forwarded to ISS by the client’s
custodian regarding client securities; |
| ● | A record of each vote cast by MacKay Shields on behalf of a client; |
| ● | A copy of all documents created by MacKay Shields that were material to making a decision on the
proxy voting (or abstaining from voting) of client securities or that memorialize the basis for that decision including the resolution
of any Conflict, a copy of all guideline override requests and all supporting documents; and |
| ● | A copy of each written request by a client for information on how MacKay Shields voted proxies
on behalf of the client, as well as a copy of any written response by MacKay Shields to any request by a client for information
on how MacKay Shields voted proxies on behalf of the client; records of oral requests for information or oral responses will not
be kept. |
Such records must be maintained for at
least eight years, the first two years in an appropriate office of MacKay Shields.
| 12. | Review of Voting and Guidelines |
As part of its periodic
reviews, MacKay Shields’ Legal/Compliance Department will conduct an annual review of the prior year’s proxy voting
as well as the guidelines established for proxy voting. Documentation shall be maintained of this review and a report setting forth
the results of the review will be presented annually to the Compliance Committee.
| 13. | How to Request Information On How the Firm Voted Proxies |
Clients may, at anytime,
request and receive information from MacKay Shields as to how the Firm voted proxies for securities held in their account. Any
such proxy information request should be in writing and mailed or faxed [(212) 303-6397] to MacKay Shields Client Services Department
at:
MacKay Shields LLC
1345 Avenue of the Americas
New York, NY 10105
ATTN: Client Services
Exhibits:
Exhibit A
- 2020 U.S. Summary Proxy Voting Guidelines (Standard Guidelines for non-union clients) – published November 18, 2019. Effective
for Meetings on or after February 1, 2020
Exhibit B
(Part I and II) - 2020 U.S. Taft-Hartley Proxy Voting Guidelines and 2020 International Taft-Hartley Proxy Voting Guidelines (Standard
Guidelines for union clients (Taft-Hartley) (US and International)) – published December 31, 2019
Schedule C- Proxy Vote Override/Decision
Form
Access to the ISS Voting Guidelines mentioned
above and other ISS Voting Guidelines are available at https://www.issgovernance.com/policy-gateway/voting-policies/
PART C - OTHER INFORMATION
Item 25: Financial Statements and Exhibits
The Registrant's
unaudited financial statements for the period ended December 31, 2021, have been incorporated by reference into Part B of the Registration
Statement by reference to the Registrant's semi-annual report for the period ended December 31, 2021. The Registrant's audited financial
statements for the fiscal year ended June 30, 2021, have been incorporated by reference into Part B of the Registration Statement by
reference to the Registrant's annual report for the period ended June 30, 2021.
h.1 |
Form of Underwriting Agreement. * |
h.2 |
Form of Master Agreement Among Underwriters. * |
n. |
Consent of Independent Registered Public Accounting Firm.
* |
(1) |
Filed on July 10, 2020 with Registrant's Registration
Statement on Form N-2 (File No. 333- 239784) and incorporated herein by reference. |
(2) |
Filed on January 14, 2021 with Registrant's Registration
Statement on Form N-2 (File No. 333-239784) and incorporated herein by reference. |
(3) |
Filed on February
22, 2021 with Registrant's Registration Statement on Form N-2 (File No. 333-239784) and incorporated herein by reference. |
(4) |
Filed herewith. |
* |
To be filed by amendment. |
Item 26: Marketing Arrangements
The
information contained under the heading "Plan of Distribution" on page 82 of the Prospectus is incorporated by reference,
and any information concerning any underwriters will be contained in the accompanying prospectus supplement, if any.
Item 27: Other Expenses of Issuance and Distribution*
Securities
and Exchange Commission Fees |
$13,905 |
Financial Industry
Regulatory Authority, Inc. Fees |
$23,000 |
Printing and
Engraving Expenses |
$25,000 |
Legal Fees |
$443,000 |
Listing Fees |
$26,250 |
Accounting Expenses |
$2,500 |
Blue Sky Filing
Fees and Expenses |
-- |
Miscellaneous
Expenses |
-- |
Total |
$533,655 |
|
* |
These items are paid by RiverNorth Capital Management,
LLC, not the Registrant. |
Item 28: Persons Controlled
by or under Common Control with Registrant
Not applicable.
Item 29: Number of Holders
of Securities
At June 22,
2022
Title
of Class |
Number
of Record Holders |
Common Shares,
$0.0001 par value |
1 |
Item 30: Indemnification
Section 7.2 of the Articles
of Amendment and Restatement of the Registrant provides as follows:
Any person who is made
a party or is threatened to be made a party in any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, by reason of the fact that such person is a current or former director or officer of the Corporation,
or is or was serving while a director or officer of the Corporation as a director, officer, partner, trustee, employee, agent, or fiduciary
of another corporation, partnership, joint venture, trust, enterprise, or employee benefit plan, shall be indemnified by the Corporation
against judgments, penalties, fines, excise taxes, settlements, and reasonable expenses (including attorneys' fees) actually incurred
by such person in connection with such action, suit, or proceeding to the fullest extent permissible under Maryland law, the Securities
Act, and the 1940 Act, as such statutes are now or hereinafter in force. In addition, the Corporation shall advance expenses to its current
and former directors and officers who are made, or are threatened to be made, parties to any action, suit, or proceeding described above
to the fullest extent that advancement of expenses is permitted by Maryland law, the Securities Act and the 1940 Act. The Board of Directors,
by Bylaw, resolution, or agreement, may make further provision for indemnification of directors, officers, employees, and agents to the
fullest extent permitted by Maryland law. No provision of this Article VII shall be effective to protect or purport to protect any director
or officer of the Corporation against any liability to the Corporation or its security holders to which she or he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of
her or his office. Upon the direction of the Board of Directors, an advancement-of-costs agreement may be required in order to require
the repayment of reimbursed expenses in the event that the foregoing exclusion was later determined to apply.
Insofar as indemnification
for liability arising under the Securities Act of 1933 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 of 1933 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 Securities Act of 1933 and will be governed
by the final adjudication of such issue.
Item 31: Business and
Other Connections of Investment Advisers
The information in the
Statement of Additional Information under the captions "Board Members and Officers" is hereby incorporated by reference.
The principal occupation
of the directors and officers of RiverNorth Capital Management, LLC (the "Adviser") are their services as directors and officers
of the Adviser. The address of the Adviser is 360 South Rosemary Avenue, Suite 1420, West Palm Beach, FL 33401.
Set forth below is information
as to any other business, profession, vocation and employment of a substantial nature in which each officer of the Adviser is, or at
any during the last two fiscal years has been, engaged for their own account or in the capacity of director, officer, employee partner
or trustee:
Name* |
Positions
with RiverNorth Capital Management, LLC |
Other
Business Connections |
Type
of Business |
Patrick
W. Galley |
Chief Executive Officer, Chief Investment
Officer and Board of Managers |
President and Trustee, RiverNorth Funds; Board
of Directors, RiverNorth Holdings, Co.; Board of Managers, RiverNorth Financial Holdings, LLC. |
Investments |
Jonathan
M. Mohrhardt |
President, Chief Operating Officer and Board
of Managers |
Treasurer, RiverNorth Funds; Board of Directors,
RiverNorth Holdings, Co.; Board of Managers, RiverNorth Financial Holdings, LLC |
Investments |
Marcus
L. Collins |
Secretary, General Counsel and Chief Compliance
Officer |
Chief Compliance Officer, Secretary, RiverNorth
Funds and RiverNorth advised Closed-End Funds |
Investments |
Stephen
A. O'Neill |
Portfolio Manager |
Portfolio Manager, RiverNorth Funds and RiverNorth
advised Closed-End Funds, RiverNorth Opportunities Fund, Inc. |
Investments |
|
* |
The address for each of the named is 360 South Rosemary
Avenue, Suite 1420, West Palm Beach, FL 33401. |
Mackay Shields LLC
The Registrant's sub-adviser,
Mackay Shields LLC (the "Subadviser"), is a Delaware limited liability company. The list required by this Item 31 of officers
and trustees of the Subadviser, together with information as to any other business, profession, vocation or employment of a substantial
nature engaged in by the Subadviser and such officers and trustees during the past two years, is incorporated by reference to Form ADV
(SEC File No. 801-5594) filed by the Subadviser pursuant to the Investment Advisers Act of 1940, as amended.
Item 32: Location of Accounts
and Records.
RiverNorth Capital Management,
LLC maintains the Charter, By-Laws, minutes of directors and shareholders meetings and contracts of the Registrant, all advisory material
of the investment adviser, all general and subsidiary ledgers, journals, trial balances, records of all portfolio purchases and sales,
and all other required records.
Item 33: Management Services
Not applicable.
Item 34: Undertakings
1. |
Registrant undertakes to suspend the offering of its
shares until it amends its prospectus if (1) subsequent to the effective date of its Registration Statement, the net asset value
declines more than 10 percent from its net asset value as of the effective date of the Registration Statement, or (2) the net asset
value increases to an amount greater than its net proceeds as stated in the prospectus. |
4. |
The Registrant undertakes that: |
a. |
For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as part of a registration statement in reliance upon Rule
430A and contained in the form of prospectus filed by the Registrant under Rule 424(b)(1) under the Securities Act of 1933 shall
be deemed to be part of the Registration Statement as of the time it was declared effective; and |
b. |
For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial
bona fide offering thereof. |
6. |
Insofar as indemnification for liabilities arising under
the Securities Act of 1933 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 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. |
7. |
The Registrant undertakes to send by first class mail
or other means designed to ensure equally prompt delivery, within two business days of receipt of a written or oral request, any
prospectus or Statement of Additional Information. |
8. |
The Registrant undertakes
to only offer rights to purchase common and preferred shares together after a post-effective amendment to the Registration Statement
relating to such rights has been declared effective. |
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in this City of West Palm Beach, and State of Florida,
on the 8th day of August 2022.
|
RiverNorth Flexible Municipal Income
Fund II, Inc. |
|
|
|
|
|
|
By: |
/s/ Patrick W. Galley |
|
|
|
Patrick W. Galley, President |
|
Pursuant
to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
Signature |
Title |
Date |
By: /s/ Patrick W. Galley |
President (Principal Executive Officer) |
August 8, 2022 |
Patrick W. Galley |
|
|
By: /s/ Jonathan M Mohrhardt |
Chief Financial Officer and Treasurer (Principal Financial Officer/Principal
Accounting Officer) |
August 8, 2022 |
Jonathan M Mohrhardt |
|
|
By: /s/ Patrick W. Galley |
Chairman of the Board and Director |
August 8, 2022 |
Patrick W. Galley |
|
|
John K. Carter(1) |
Director |
By: /s/ Patrick W. Galley |
John S. Oakes(1) |
Director |
Patrick W. Galley |
J. Wayne Hutchens(1) |
Director |
Attorney-In-Fact |
David M. Swanson(1) |
Director |
August 8, 2022 |
Jerry Raio(1) |
Director |
|
(1) Original powers of attorney authorizing
Joshua B. Deringer, David L. Williams and Patrick W. Galley to execute Registrant's Registration Statement, and Amendments thereto, for
the directors of the Registrant on whose behalf this Registration Statement is filed, are filed herewith as Exhibit t.
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