N-2 1 n2-skyb.htm INITIAL REGISTRATION STATEMENT

 

As filed with the Securities and Exchange Commission on March 6, 2020

 

1933 Act File No. 333-____

1940 Act File No. 811-23513

U.S. Securities and Exchange Commission

Washington, D.C. 20549

FORM N-2

(Check appropriate box or boxes)

[X] Registration Statement Under the Securities Act of 1933

[  ] Pre-Effective Amendment No. _

[  ] Post-Effective Amendment No. _

and

[X] Registration Statement Under the Investment Company Act of 1940

[  ] Amendment No. _

First Trust SkyBridge Income Fund

Exact Name of Registrant as Specified in Declaration of Trust

120 East Liberty Drive, Suite 400, Wheaton, Illinois 60187

Address of Principal Executive Offices (Number, Street, City, State, Zip Code)

(630) 765-8000

Registrant’s Telephone Number, including Area Code

W. Scott Jardine, Esq.

First Trust Portfolios L.P.

120 East Liberty Drive, Suite 400

Wheaton, Illinois 60187

Name and Address (Number, Street, City, State, Zip Code) of Agent for Service

Copies of Communications to:

Eric F. Fess, Esq.
Chapman and Cutler LLP
111 West Monroe Street
Chicago, Illinois  60603

Approximate Date of Proposed Public Offering: As soon as practicable after the effective date of this Registration Statement

 
 

_______________

If any of the securities being registered on this form are offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933, other than securities offered in connection with a dividend reinvestment plan, check the following box. [  ]

It is proposed that this filing will become effective (check appropriate box)

[  ] when declared effective pursuant to section 8(c)

_______________

Calculation of Registration Fee Under the Securities Act of 1933

 

 

Title of Securities Being Registered Amount Being Registered Proposed Maximum Offering Price
Per Share(1)
Proposed Maximum Aggregate Offering Price(1) Amount of Registration Fee
Common Shares, $0.01 par value
1,000 shares

$20.00

$20,000

$2.60

(1)       Estimated solely for the purpose of determining the registration fee.

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 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 dates as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 
 

 




                             SUBJECT TO COMPLETION
                  PRELIMINARY PROSPECTUS DATED MARCH 6, 2020

The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any jurisdiction where the offer or sale is not permitted.


PROSPECTUS

                                           SHARES

                       FIRST TRUST SKYBRIDGE INCOME FUND

                                 COMMON SHARES
                                $20.00 PER SHARE

      The Fund. First Trust SkyBridge Income Fund (the "Fund") is a newly
organized, non-diversified, closed-end management investment company.

      Investment Objective. The Fund's investment objective is to seek a high
level of current income. There can be no assurance that the Fund will achieve
its investment objective.

      Investment Strategies. The Fund will seek to achieve its investment
objective by investing in a mix of structured credit and other income-producing
instruments in the commercial real estate, residential real estate, corporate
credit and consumer credit markets pursuant to the investment strategies of a
group of portfolio management companies (each, a "Portfolio Sub-Advisor" and,
collectively, the "Portfolio Sub-Advisors") selected by SkyBridge Capital II,
LLC (the "Lead Sub-Advisor"). See "The Fund's Investments--Investment Policies
and Strategies." Under normal market conditions, the Fund expects to invest its
Managed Assets (as defined below) in the following: structured credit
instruments backed by both real estate and non-real estate collateral, including
commercial mortgage-backed securities, agency and non-agency residential
mortgage-backed securities, asset backed securities, collateralized debt
obligations and collateralized loan obligations. In addition, the Fund expects
to invest, to a lesser extent, in non-structured cash flow generating
securities, including direct loans, corporate debt and preferred securities. See
"The Fund's Investments--Portfolio Composition." These investments may include
instruments of foreign issuers.

      The Lead Sub-Advisor will allocate management of the Fund's Managed Assets
to the Portfolio Sub-Advisors (and their respective investment strategies) in
such proportion that it believes will optimize the risk-adjusted return
potential of the Fund. The Lead Sub-Advisor will thereafter adjust such
allocations from time to time in response to changing market conditions and
other considerations. See "The Fund's Investments--Allocation Philosophy and
Process." The Lead Sub-Advisor will limit the amount of assets allocated to a
single Portfolio Sub-Advisor to no more than 20% of the Fund's Managed Assets.

      The Fund may invest, directly or indirectly, in instruments of any credit
quality, and expects to substantially invest in securities rated below
investment grade or securities that are unrated by credit rating agencies.
SECURITIES RATED BELOW INVESTMENT GRADE ARE COMMONLY REFERRED TO AS "JUNK" OR
"HIGH YIELD" SECURITIES AND ARE CONSIDERED SPECULATIVE WITH RESPECT TO THE
ISSUER'S CAPACITY TO PAY INTEREST AND REPAY PRINCIPAL. See "Risks--Credit and
Below Investment Grade Securities Risk" and "Risks--Unrated Securities Risk." In
addition, the Fund may invest in any level of the capital structure of
structured credit instruments, including subordinated or residual tranches and
the equity or "first loss" tranches. The Fund also may invest in structured
credit instruments that are designed to have leveraged investment exposure to
the underlying mortgages or assets. As a result, the Fund's investment
strategies may involve speculative techniques and a high degree of risk. An
investment in the Fund is not appropriate for all investors. See "Risks"
beginning on page   .
                                               (continued on the following page)


      No Prior History. BECAUSE THE FUND IS NEWLY ORGANIZED, ITS COMMON SHARES
OF BENEFICIAL INTEREST ("COMMON SHARES") HAVE NO HISTORY OF PUBLIC TRADING.
SHARES OF CLOSED-END INVESTMENT COMPANIES FREQUENTLY TRADE AT A DISCOUNT FROM
THEIR NET ASSET VALUE. THIS RISK OF LOSS DUE TO THE DISCOUNT MAY BE GREATER FOR
INVESTORS EXPECTING TO SELL THEIR COMMON SHARES IN A RELATIVELY SHORT PERIOD OF
TIME AFTER COMPLETION OF THE PUBLIC OFFERING. The Fund intends to apply to list
its Common Shares on the New York Stock Exchange. The trading or ticker symbol
of the Common Shares is expected to be "    ."

      THIS PROSPECTUS SETS FORTH CONCISELY INFORMATION ABOUT THE FUND THAT A
PROSPECTIVE INVESTOR SHOULD KNOW BEFORE INVESTING, AND SHOULD BE RETAINED FOR
FUTURE REFERENCE. INVESTING IN THE FUND'S COMMON SHARES INVOLVES CERTAIN RISKS
THAT ARE DESCRIBED IN THE "RISKS" SECTION BEGINNING ON PAGE   OF THIS
PROSPECTUS, INCLUDING THE RISK THAT YOU COULD LOSE SOME OR ALL OF YOUR
INVESTMENT.

                                                     PER SHARE      TOTAL (1)
                                                     ---------      ---------
     Public offering price                            $20.00            $
     Sales load (2)                                    $0.00            $
     Proceeds, after expenses, to the Fund            $20.00            $
                                                       (notes on following page)

  NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

  The underwriters expect to deliver the Common Shares to purchasers on or
about                    .

                  The date of this prospectus is        ,   .






(continued from previous page)

      "Managed Assets" means the average daily gross asset value of the Fund
(which includes assets attributable to any reverse repurchase agreements, dollar
roll transactions, or similar transactions, the principal amount of any
borrowings outstanding, and the Fund's preferred shares of beneficial interest
("Preferred Shares"), if any) minus the sum of the Fund's accrued and unpaid
dividends on any outstanding Preferred Shares and accrued liabilities (other
than liabilities in respect of reverse repurchase agreements, dollar roll
transactions, or similar transactions, and the principal amount of any
borrowings of money incurred, including commercial paper or notes issued by the
Fund).

      Investment Advisor, Lead Sub-Advisor and Portfolio Sub-Advisors. The
Fund's investment adviser is First Trust Advisors L.P. (the "Advisor") and the
Fund's sub-adviser is SkyBridge Capital II, LLC. The Lead Sub-Advisor, along
with the Portfolio Sub-Advisors of the Fund, will be responsible for the
day-to-day management of the Fund's Managed Assets. See "Management of the Fund"
in this prospectus and "Investment Advisor, Lead Sub-Advisor and Portfolio
Sub-Advisors" in the Fund's Statement of Additional Information (the "SAI").

      Limited Term and Eligible Tender Offer. The Fund will terminate on or
before      , 2032 (the "Termination Date"); provided, that if the Board of
Trustees of the Fund (the "Board of Trustees") 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      ,
2033), and (ii) once for up to an additional six months (i.e., up to       ), in
each case upon the affirmative vote of a majority of the Board of Trustees 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 Trustees 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 Trustees has established
that, following an Eligible Tender Offer, the Fund must have at least $       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 Trustees may eliminate
the limited term structure of the Fund upon the affirmative vote of a majority
of the Board of Trustees 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. The Fund's investment objective 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.
See "Limited Term and Eligible Tender Offer" and "Risks--Limited Term and
Eligible Tender Offer Risk" below.

      Distributions. The Fund intends to pay quarterly distributions to Common
Shareholders out of legally available funds. The Fund expects to declare its
initial quarterly distribution approximately    to    days following the
completion of this offering and pay such initial quarterly distribution
approximately    to    days after the completion of this offering, depending on
market conditions. There is no assurance the Fund will make this distribution or
continue to pay regular distributions or that it will do so at a particular
rate. See "Distributions" and "Federal Tax Matters."

      Use of Leverage. The Fund currently intends to use leverage to seek to
achieve its investment objective. The Fund initially anticipates that, under
normal market conditions, it will employ leverage through reverse repurchase
agreements and/or dollar roll transactions. The Fund also may use borrowings
from banks or other financial institutions. The Fund currently expects that the
leverage initially obtained through such reverse repurchase agreements, dollar
roll transactions and borrowings will represent approximately    % of the Fund's
Managed Assets. The costs associated with any issuance and use of leverage will
be borne by Common Shareholders. The use of leverage is a speculative technique
and investors should note that there are special risks and costs associated with
the leveraging of the Common Shares. 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--Leverage Risk."

      You should read this prospectus, which contains important information
about the Fund, before deciding whether to invest in the Fund's Common Shares,
and retain it for future reference. The SAI, dated        , as it may be
supplemented, containing additional information about the Fund, has been filed
with the Securities and Exchange Commission and is incorporated by reference in
its entirety into this prospectus. You may request a free copy of the SAI, the
table of contents of which is on page   of this prospectus, annual and semi-
annual reports to shareholders when available, and other information about the
Fund, and make shareholder inquiries by calling (   )   -     , by writing to
the Fund at 120 East Liberty Drive, Wheaton, Illinois 60187, or from the Fund's
or the Advisor's website (http://www.ftportfolios.com). Please note that the
information contained in the Fund's or Advisor's website, whether currently
posted or posted in the future, is not part of this prospectus or the documents
incorporated by reference in this prospectus. You also may obtain a copy of the
SAI (and other information regarding the Fund) from the Securities and Exchange
Commission's website (http://www.sec.gov).





      THE FUND'S COMMON SHARES DO NOT REPRESENT A DEPOSIT OR OBLIGATION OF, AND
ARE NOT GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY
INSTITUTION, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY.

                     --------------------------------------

      Beginning on January 1, 2021, as permitted by regulations adopted by the
SEC, paper copies of the Fund's annual and semi-annual shareholder reports will
no longer be sent by mail, unless you specifically request paper copies of the
reports. Instead, the reports will be made available on the Fund's website
(www.ftportfolios.com), and you will be notified by mail each time a report is
posted and provided with a website link to access the report. If you already
elected to receive shareholder reports electronically, you will not be affected
by this change and you need not take any action. You may elect to receive
shareholder reports and other communications from the Fund electronically
anytime by contacting your financial intermediary (such as a broker-dealer or
bank). You may elect to receive all future reports in paper free of charge. You
can contact your financial intermediary to request that you continue to receive
paper copies of your shareholder reports. Your election to receive reports in
paper will apply to all funds held in your account if you invest through your
financial intermediary.

(notes from previous page)

    (1)  The Fund has granted the underwriters an option to purchase up to
         additional Common Shares at the public offering price, less the
         sales load, within 45 days of the date of this prospectus solely to
         cover overallotments, if any. If such option is exercised in full,
         the total public offering price, sales load and proceeds, after
         expenses, to the Fund will be $     , $0 and $     , respectively. See
         "Underwriters."

    (2)  The Advisor and Lead Sub-Advisor (and not the Fund) have agreed to
         pay, from their own assets, (a) compensation of up to $     per Common
         Share to the underwriters in connection with this offering, and
         separately (b) a structuring fee to each of       ,       , and
         in the amounts of $     , $     and $     , respectively, and a sales
         incentive fee to       ,       , and      in the amounts of $     ,
         $     and $     , respectively. The sum total of all compensation to
         the underwriters in connection with this public offering of Common
         Shares, including all forms of additional compensation or structuring
         or sales incentive fee payments, if any, to the underwriters and other
         expenses, will be limited to not more than    % of the total public
         offering price of the Common Shares sold in this offering. See
         "Underwriters--Additional Underwriter Compensation."

    (3)  The Advisor and Lead Sub-Advisor have agreed to pay all
         organizational expenses of the Fund and all offering costs
         associated with this offering. The Fund is not obligated to repay
         any such organizational expenses or offering costs paid by the
         Advisor and Lead Sub-Advisor. See "Summary of Fund Expenses."






                                    TABLE OF
                                    CONTENTS

[TO BE UPDATED.]



      YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS.
NEITHER THE FUND NOR THE UNDERWRITERS HAVE 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. NEITHER THE FUND NOR THE
UNDERWRITERS ARE MAKING AN OFFER TO SELL THESE SECURITIES IN ANY JURISDICTION
WHERE THE OFFER OR SALE IS NOT PERMITTED.




                               PROSPECTUS SUMMARY

      This is only a summary. This summary does not contain all of the
information that you should consider before investing in the Fund's common
shares of beneficial interest (the "Common Shares"). You should review the more
detailed information contained elsewhere in this prospectus and in the Statement
of Additional Information (the "SAI"), especially the information set forth in
this prospectus under the heading "Risks."


THE FUND                First Trust SkyBridge Income Fund (the "Fund") is a
                        newly organized, non-diversified, closed-end
                        management investment company. See "The Fund."

THE OFFERING            The Fund is offering         Common Shares at $20.00 per
                        share through a group of underwriters (the
                        "Underwriters") led by            . You must purchase at
                        least 100 Common Shares in this offering. The Fund has
                        given the Underwriters an option to purchase up to
                                 additional Common Shares within 45 days of the
                        date of this prospectus solely to cover overallotments.
                        The Advisor (as defined below) and Lead Sub-Advisor (as
                        defined below) have agreed to pay underwriting
                        compensation of up to $     per Common Share to the
                        underwriters in connection with this offering. The
                        Advisor and Lead Sub-Advisor also have agreed to pay all
                        of the Fund's organizational expenses and all offering
                        costs associated with this offering. The Fund is not
                        obligated to repay any such organizational expenses or
                        offering costs paid by the Advisor and Lead Sub-Advisor.
                        See "Underwriters."

INVESTMENT OBJECTIVE    The Fund's investment objective is to seek a high level
                        of current income. There can be no assurance that the
                        Fund will achieve its investment objective.

INVESTMENT POLICIES
AND STRATEGIES          The Fund will seek to achieve its investment objective
                        by investing in a mix of structured credit and other
                        income-producing instruments in the commercial real
                        estate, residential real estate, corporate credit and
                        consumer credit markets pursuant to the investment
                        strategies of a group of portfolio management companies
                        (each, a "Portfolio Sub-Advisor" and, collectively, the
                        "Portfolio Sub-Advisors") selected by SkyBridge Capital
                        II, LLC (the "Lead Sub-Advisor"). See "--Investment
                        Strategies" below. Under normal market conditions, the
                        Fund expects to invest its Managed Assets in structured
                        credit instruments backed by both real estate and
                        non-real estate collateral, including commercial
                        mortgage-backed securities ("CMBS"), agency and
                        non-agency residential mortgage-backed securities, asset
                        backed securities ("ABS"), collateralized debt
                        obligations ("CDOs") and collateralized loan obligations
                        ("CLOs"). In addition, the Fund expects to invest, to a
                        lesser extent, in non-structured cash flow generating
                        securities, including direct loans, corporate debt and
                        preferred securities. These investments may include
                        instruments of foreign issuers. See "--Portfolio
                        Composition" below. The Fund also may use derivative
                        instruments for hedging and other purposes. The Fund
                        anticipates that such transactions, if any, will
                        primarily be utilized to reduce the Fund's interest rate
                        or currency risk.

                        The Lead Sub-Advisor, along with the Portfolio
                        Sub-Advisors, will be responsible for the day-to-day
                        management of the Fund. The Lead Sub-Advisor will
                        allocate management of the Fund's Managed Assets (as
                        defined below) to the Portfolio Sub-Advisors (and their
                        respective investment strategies) in such proportion
                        that it believes will optimize the risk-adjusted return
                        potential of the Fund. The Lead Sub-Advisor will
                        thereafter adjust such allocations from time to time in
                        response to changing market conditions and other
                        considerations. The Lead Sub-Advisor will limit the
                        amount of assets allocated to a single Portfolio
                        Sub-Advisor to no more than 20% of the Fund's Managed
                        Assets.

                        The Lead Sub-Advisor may invest the Fund's Managed
                        Assets directly, including for interest rate hedging
                        purposes.


                                       1



                        "Managed Assets" means the average daily gross asset
                        value of the Fund (which includes assets attributable to
                        any reverse repurchase agreements, dollar roll
                        transactions, or similar transactions, the principal
                        amount of any borrowings outstanding, and the Fund's
                        preferred shares of beneficial interest ("Preferred
                        Shares"), if any) minus the sum of the Fund's accrued
                        and unpaid dividends on any outstanding Preferred Shares
                        and accrued liabilities (other than liabilities in
                        respect of reverse repurchase agreements, dollar roll
                        transactions, or similar transactions, and the principal
                        amount of any borrowings of money incurred, including
                        commercial paper or notes issued by the Fund). For
                        purposes of determining Managed Assets, the liquidation
                        preference of the Preferred Shares would not be treated
                        as a liability.

                        Percentage limitations described in this prospectus are
                        as of the time of investment by the Fund 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, 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 holders of the Fund's Common Shares (the
                        "Common Shareholders"). The Fund's investment objective
                        and certain investment restrictions specifically
                        identified as such in the SAI are considered fundamental
                        and may not be changed without approval of the holders
                        of a "majority of the outstanding voting securities" of
                        the Fund, as defined in the Investment Company Act of
                        1940, as amended (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.

                        Investment Strategies. Through the Lead Sub-Advisor's
                        top-down allocation of Managed Assets to the investment
                        strategies set forth below and corresponding bottom-up
                        allocations to the Portfolio Sub-Advisors, the Lead
                        Sub-Advisor will seek to generate a high level of
                        current income with attractive risk-adjusted yield and
                        risk-adjusted total return properties by seeking to
                        capitalize on perceived inefficiencies in structured
                        credit markets and, to a lesser extent, in
                        non-structured cash flow-generating securities. The Lead
                        Sub-Advisor will periodically rebalance the allocation
                        of Managed Assets, typically monthly but as frequently
                        as daily, to the Portfolio Sub-Advisors (and, as a
                        result, to various investment strategies) based on
                        market and economic developments as well as realized and
                        expected risk-adjusted Portfolio Sub-Advisor
                        performance. The Lead Sub-Advisor, from time to time,
                        may choose not to allocate any of the Fund's Managed
                        Assets to certain Portfolio Sub-Advisors, and there may
                        be lengthy periods of time when there is no allocation
                        to one or more Portfolio Sub-Advisors or investment
                        strategies.

                        The Lead Sub-Advisor believes that while structured
                        credit markets are large, with in excess of $10 trillion
                        outstanding across real estate (including agency
                        mortgage-backed securities) and non-real estate sectors
                        as of the date of this prospectus, structured credit
                        securities are highly heterogeneous with varying
                        collateral and structural properties. The Lead
                        Sub-Advisor believes that this variety results in
                        additional analytical complexity relative to
                        non-structured fixed income markets resulting, often, in
                        inefficient pricing. Specifically, the Lead Sub-Advisor
                        believes that this inefficiency results, often, in
                        higher yields than warranted given the risk of
                        fundamental or permanent loss for structured credit
                        securities. Additionally, the Lead Sub-Advisor believes
                        that structured credit market inefficiencies are best
                        exploited by specialist managers, like the Portfolio
                        Sub-Advisors, that are focused entirely or largely on
                        specific sectors of the structured credit markets.


                                       2



                        Overall, the Fund will generally implement a
                        "diversified structured credit" strategy. This strategy
                        consists of investing pursuant to a diversified mix of
                        investment strategies focused on structured credit
                        instruments backed by real estate and/or non-real estate
                        collateral and, to a lesser extent, non-structured fixed
                        income securities. The Fund may invest in any level of
                        the capital structure of structured credit instruments,
                        including subordinated or residual tranches and the
                        equity or "first loss" tranches. The Fund may invest in
                        structured credit instruments that are designed to have
                        leveraged investment exposure to the underlying
                        mortgages or assets. The Fund may invest, directly or
                        indirectly, in instruments of any credit quality, and
                        expects to substantially invest in securities rated
                        below investment grade (including debt securities
                        commonly referred to as "high yield" securities or "junk
                        bonds") or securities that are unrated by credit rating
                        agencies. See "Risks--Credit and Below Investment Grade
                        Securities Risk" and "Risks--Unrated Securities Risk."

                        The Lead Sub-Advisor will generally utilize a top-down
                        process based on market and economic developments to
                        determine the allocation of Managed Assets to the
                        investment strategies set forth below and will generally
                        utilize a bottom-up manager-research driven process to
                        determine allocations to the Portfolio Sub-Advisors
                        given their respective expertise in executing the
                        identified investment strategies. The Lead Sub-Advisor's
                        bottom up manager research for the Fund will be, in
                        part, informed by the Lead Sub-Advisor's role as a
                        fund-of-hedge-funds (FOFs) manager that, as of the date
                        of this prospectus, oversees in excess of $9 billion
                        allocated to hedge fund strategies, including over $5
                        billion allocated to fixed income-focused strategies
                        (primarily via allocations to structured credit-focused
                        hedge funds). The Lead Sub-Advisor intends to generally
                        select Portfolio Sub-Advisors that utilize a
                        fundamental, bottom-up, research-driven analytic process
                        to in order to generate a high level of current income
                        with attractive risk-adjusted yield and risk-adjusted
                        total return properties consistent with their mandate,
                        as defined by the Lead Sub-Advisor, to pursue one or
                        several of the Fund's investment strategies. The
                        principal strategies that the Lead Sub-Advisor will seek
                        to employ through the selection of and allocation of
                        Managed Assets to Portfolio Sub-Advisors include:

                        o     Commercial mortgage-backed securities (CMBS). This
                              strategy targets investments in securities
                              collateralized by commercial mortgages. The
                              Portfolio Sub-Advisors employing this strategy
                              will seek to generate high level of current income
                              with attractive risk-adjusted yield and
                              risk-adjusted total return properties based
                              primarily on proprietary fundamental analysis.
                              Investments under this strategy may be held for
                              long periods of time or actively traded. A
                              Portfolio Sub-Advisor's approach under this
                              strategy may be based on their forecast of real
                              estate values and potential default and prepayment
                              scenarios. Portfolio Sub-Advisors may choose to
                              invest in senior or junior securities (including
                              in the equity or residual tranche). Securities may
                              be backed by pools of mortgages or a single
                              mortgage.

                        o     Residential mortgage-backed securities (RMBS).
                              This strategy targets investments in securities
                              collateralized by both agency and non-agency
                              residential mortgages. The Portfolio Sub-Advisors
                              employing this strategy will seek to generate a
                              high level of current income with attractive
                              risk-adjusted yield and risk-adjusted total return
                              properties based primarily on proprietary
                              fundamental analysis. Investments under this
                              strategy may be held for long periods of time or
                              actively traded. A Portfolio Sub-Advisor's
                              approach under this strategy may be based on their
                              forecast of real estate values and potential
                              default and prepayment scenarios. Portfolio
                              Sub-Advisors may choose to invest in senior or
                              junior securities (including in the equity or
                              residual tranche).


                                                           3



                        o     Asset-backed securities (ABS). This strategy
                              targets investments in securities generally
                              collateralized by non-mortgage assets, for
                              example, aircraft leases, bank-issued and
                              REIT-issued trust preferred securities (typically
                              referred to as TruPS CDOs), unsecured consumer
                              receivables and auto loans. The Portfolio
                              Sub-Advisors employing this strategy will seek to
                              generate a high level of current income with
                              attractive risk-adjusted yield and risk-adjusted
                              total return properties based primarily on
                              proprietary fundamental analysis. Investments
                              under this strategy may be held for long periods
                              of time or actively traded. A Portfolio
                              Sub-Advisor's approach under this strategy may be
                              based on their forecast of collateral values and
                              potential default and prepayment scenarios.
                              Portfolio Sub-Advisors may choose to invest in
                              senior or junior securities (including in the
                              equity or residual tranche). The Lead Sub-Advisor
                              does not foresee allocating any portion of Managed
                              Assets to CDOs collateralized by credit
                              derivatives, sometimes referred to as synthetic
                              CDOs.

                        o     Collateralized loan obligations (CLOs). This
                              strategy targets investments in securities
                              collateralized by corporate loans. The Portfolio
                              Sub-Advisors employing this strategy will seek to
                              generate a high level of current income with
                              attractive risk-adjusted yield and risk-adjusted
                              total return properties based primarily on
                              proprietary fundamental analysis. Investments
                              under this strategy may be held for long periods
                              of time or actively traded. A Portfolio
                              Sub-Advisor's approach under this strategy may be
                              based on their forecast of collateral values and
                              potential default and prepayment scenarios.
                              Portfolio Sub-Advisors may choose to invest in
                              senior or junior securities (including in the
                              equity or residual tranche).

                        o     Direct loans. This strategy targets investments in
                              loans directly originated by a Portfolio
                              Sub-Advisor. Loans may be collateralized by real
                              estate or non-real estate assets. The Portfolio
                              Sub-Advisors employing this strategy will seek to
                              generate a high level of current income with
                              attractive risk-adjusted yield and risk-adjusted
                              total return properties based primarily on
                              proprietary fundamental analysis. Investments
                              under this strategy will generally be held for
                              long periods of time. A Portfolio Sub-Advisor's
                              approach under this strategy may be based on their
                              forecast of collateral values and default and
                              prepayment scenarios. Portfolio Sub-Advisors may
                              choose to invest in senior or junior securities
                              (including in the equity or residual tranche). The
                              Lead Sub-Advisor foresees allocating a portion of
                              Managed Assets for this Investment Strategy to
                              instruments collateralized by portfolios of loans
                              on financial institution balance sheets (sometimes
                              referred to as "Regulatory Capital Relief" or
                              "Significant Risk Transfer" exposures).

                        o     Corporate debt. This strategy targets investments
                              in securities issued by corporate entities,
                              including senior secured loans, senior unsecured
                              bonds, subordinated bonds, preferred equity and
                              other instruments that may have debt and/or equity
                              characteristics, including convertible bonds. The
                              Portfolio Sub-Advisors employing this strategy
                              will seek to generate a high level of current
                              income with attractive risk-adjusted yield and
                              risk-adjusted total return properties based
                              primarily on proprietary fundamental analysis.
                              Investments under this strategy may be held for
                              long periods of time or actively traded. A
                              Portfolio Sub-Advisor's approach under this
                              strategy may be based on their forecast of
                              issuer-specific fundamentals (including collateral
                              values, when applicable) and potential default and
                              prepayment scenarios. The Lead Sub-Advisor does
                              not foresee allocating a portion of Managed Assets
                              for this investment strategy to corporate
                              securities that are not generating current a high
                              level of current income, for example, defaulted
                              debt instruments not making coupon payments or
                              debt instruments paying in-kind.

                        o     Other cash flow generative exposures. This
                              strategy targets investments in listed securities,
                              including REITs, ETFs and BDCs. The Portfolio


                                       4



                              Sub-Advisors employing this strategy will seek to
                              generate a high level of current income with
                              attractive risk-adjusted yield and risk-adjusted
                              total return properties based primarily on
                              proprietary fundamental analysis.

                        The Lead Sub-Advisor will allocate no more than 30% of
                        the Fund's Managed Assets to a single investment
                        strategy.

                        Allocation Philosophy and Process. As a
                        fund-of-hedge-funds (FOFs) manager with experience
                        allocating to fixed income-focused strategies (primarily
                        via allocations to structured credit-focused hedge
                        funds), the Lead Sub-Advisor has evaluated numerous
                        portfolio management companies based on qualitative and
                        quantitative analyses in order to identify those that
                        have shown the ability to generate consistent
                        skill-based returns (alpha) over time through compelling
                        investment strategies. In addition, the Lead Sub-Advisor
                        has assessed these portfolio management companies
                        through a combination of discussions, on-site visits and
                        reviews of materials provided by such companies. The
                        Lead Sub-Advisor also has experience in directly
                        managing alternative investment strategies. Accordingly,
                        the Lead Sub-Advisor believes that this combination of
                        evaluation expertise and direct investment experience
                        enables it to understand the opportunities and risks
                        associated with the investment strategies employed by
                        the Portfolio Sub-Advisors. Each of the Portfolio
                        Sub-Advisors has successfully passed the Lead
                        Sub-Advisor's initial evaluation and assessment and the
                        Lead Sub-Advisor will continue to conduct comprehensive
                        due diligence reviews of each Portfolio Sub-Advisor,
                        which will include the following components:

                        o     Investment Analysis. The Lead Sub-Advisor combines
                              qualitative and quantitative analyses intended to
                              develop an understanding of a Portfolio
                              Sub-Advisor's ability to generate returns. These
                              analyses focus on a Portfolio Sub-Advisor's
                              investment team, investment process, risk
                              management and performance. Each Portfolio
                              Sub-Advisor's performance track record is examined
                              for consistency and drawdown (i.e., loss) control
                              versus a peer group of portfolio management
                              companies. In doing so, the Lead Sub-Advisor
                              analyzes the Portfolio Sub-Advisor's historical
                              performance returns including its historical
                              distribution of returns and drawdowns and relevant
                              risk ratios and metrics.

                        o     Operational and Business Risk Analysis. The Lead
                              Sub-Advisor's operational risk team employs a
                              disciplined process intended to assess a Portfolio
                              Sub-Advisor's ability to operate efficiently. The
                              key components of this analysis include, but are
                              not limited to, a review of key principals,
                              mid/back office operations, valuation process,
                              accounting practices and internal controls and
                              procedures, cyber preparedness, disaster recovery
                              plans and anti-money laundering policies.

                        The Lead Sub-Advisor will allocate management of the
                        Fund's Managed Assets to the Portfolio Sub-Advisors (and
                        their respective Investment Strategies) in such
                        proportion that it believes will optimize the
                        risk-adjusted return potential of the Fund. The Lead
                        Sub-Advisor will thereafter adjust such allocations from
                        time to time in response to changing market conditions
                        and other considerations. In seeking to optimize the mix
                        of investment strategies in light of current market and
                        economic conditions, the Lead Sub-Advisor combines a
                        top-down approach, including an assessment of the
                        macroeconomic environment that analyzes factors such as
                        economic cycles, credit spread levels and interest rates,
                        and a bottom-up manager selection process that utilizes
                        both fundamental and technical research by asset class.

                        The Lead Sub-Advisor believes it is important to
                        maintain a broad-based portfolio in order to reduce the
                        effect of losses or poor returns by one or more
                        Portfolio Sub-Advisors. There is no guarantee, however,


                                       5



                        that the Fund will be able to avoid substantial losses
                        due to poor returns by one or more of the Portfolio
                        Sub-Advisors.

PORTFOLIO COMPOSITION   The Fund will invest principally among the
                        following instruments:

                        Asset-Backed Securities. Asset-backed securities
                        represent interests in, and obligations backed by, a
                        pool of assets other than mortgages, including aircraft
                        leases, bank-issued and REIT-issued trust preferred
                        securities (typically referred to as TruPS CDOs),
                        unsecured consumer receivables and auto loans. Most
                        asset-backed securities involve consumer or commercial
                        debts with maturities of less than 10 years. However,
                        almost any type of fixed income asset (including other
                        fixed income securities) may be used to create an
                        asset-backed security. Asset-backed securities may take
                        the form of commercial paper, notes or pass-through
                        certificates. See "The Fund's Investments--Portfolio
                        Composition--Asset-Backed Securities" and
                        "Risks--Asset-Backed Securities Risk."

                        Mortgage-Backed Securities. Mortgage-backed securities
                        represent participation interests in pools of adjustable
                        and fixed-rate mortgage loans on residential and
                        commercial real property. The Fund's mortgage-backed
                        securities are expected to consist primarily of
                        commercial mortgage-backed securities and agency and
                        non-agency residential mortgage-backed securities.
                        Commercial mortgage-backed securities are backed by
                        obligations that are principally secured by commercial
                        mortgages on real property or interests therein having a
                        multifamily or commercial use, such as regional malls,
                        other retail space, office buildings, industrial or
                        warehouse properties, hotels, apartments, nursing homes
                        and senior living facilities. Agency mortgage-backed
                        securities are securities for which a U.S. government
                        agency such as Government National Mortgage Association
                        ("Ginnie Mae"), or a federally chartered corporation
                        such as Federal National Mortgage Association ("Fannie
                        Mae") or Federal Home Loan Mortgage Corporation
                        ("Freddie Mac"), guarantees payments of principal and
                        interest on the securities. Non-agency residential
                        mortgage-backed securities are collateralized by pools
                        of mortgage loans secured by residential real property
                        and assembled for sale to investors by non-government
                        entities such as commercial banks, savings and loan
                        associations and specialty finance companies. Non-agency
                        residential mortgage-backed securities are not issued or
                        guaranteed by a U.S. government agency or federally
                        chartered corporations. The Fund's mortgage-backed
                        securities may be structured as collateralized mortgage
                        obligations, which are issued in multiple classes each
                        having a specified fixed or floating interest rate and a
                        final scheduled distribution date, and stripped
                        mortgage-backed securities, including those structured
                        such that payments consist of interest only or principal
                        only. See "The Fund's Investments--Portfolio
                        Composition--Mortgage-Backed Securities" and
                        "Risks--Mortgage-Backed Securities Risk."

                        Collateralized Debt Obligations. Collateralized debt
                        obligations are a type of asset-backed security and
                        include collateralized loan obligations, collateralized
                        bond obligations and other similarly structured
                        securities. The Fund's CDOs are expected to consist
                        primarily of CLOs. A CLO is a trust typically
                        collateralized by a pool of loans, which may include,
                        among others, domestic and foreign senior secured loans,
                        senior unsecured loans, second lien loans or other types
                        of subordinate loans, and mezzanine loans. Other CDOs
                        are trusts backed by other types of assets representing
                        obligations of various parties. The Lead Sub-Advisor
                        does not foresee allocating any portion of Managed
                        Assets to CDOs collateralized by credit derivatives,
                        sometimes referred to as synthetic CDOs. See "The Fund's
                        Investments--Portfolio Composition--Collateralized Debt
                        Obligations," "Risks--Collateralized Debt Obligations
                        Risk" and "Risks--Collateralized Loan Obligations Risk."


                                       6



                        Direct Loans. Direct loans are loans to companies
                        originated directly by a non-bank lender, such as
                        insurance companies, BDCs, asset management firms and
                        specialty finance companies. Direct loans generally pay
                        interest on a monthly or quarterly basis, typically with
                        maturities between three and seven years, and are priced
                        primarily on a floating rate basis. See "The Fund's
                        Investments--Portfolio Composition--Direct Loans" and
                        "Risks--Direct Loan Risk."

                        Corporate Debt. Corporate debt includes a wide variety
                        of debt obligations of varying maturities issued by U.S.
                        and foreign corporations and other business entities.
                        Corporate debt securities also may be acquired with
                        warrants attached to purchase additional fixed income
                        securities at the same coupon rate. Corporate debt is
                        generally used by corporations to borrow money from
                        investors. An issuer of corporate debt typically pays
                        the investor a fixed or floating rate of interest and
                        normally must repay the amount borrowed on or before
                        maturity. The investment return of corporate debt
                        reflects interest on the security and changes in the
                        market value of the security. The market value of fixed
                        rate corporate debt generally may be expected to rise
                        and fall inversely with interest rates. The value of
                        intermediate- and longer-term fixed rate corporate debt
                        normally fluctuates more in response to changes in
                        interest rates than does the value of shorter-term
                        corporate debt. Certain corporate debt is perpetual in
                        nature in that it has no maturity date; to the extent
                        that perpetual corporate debt has a fixed interest rate,
                        it may have heightened sensitivity to changes in
                        interest rates. The Fund may invest in corporate debt
                        issued by U.S. and foreign issuers, which may be U.S.
                        dollar-denominated or non-U.S. dollar denominated. See
                        "The Fund's Investments--Portfolio
                        Composition--Corporate Debt," and "Risks--Corporate Debt
                        Risk."

                        REITs. REITs are pooled investment vehicles that own,
                        and typically operate, income producing real estate.
                        There are three general categories of REITs: equity
                        REITs, mortgage REITs and hybrid REITs. Equity REITs,
                        which invest primarily in direct fee ownership or
                        leasehold ownership of real property and derive most of
                        their income from rents, are generally affected by
                        changes in the values of and incomes from the properties
                        they own. Mortgage REITs invest mostly in mortgages on
                        real estate, which may secure, for example,
                        construction, development or long-term loans, and the
                        main source of their income is mortgage interest
                        payments. A hybrid REIT combines the characteristics of
                        equity REITs and mortgage REITs, generally by holding
                        both ownership interests and mortgage interests in real
                        estate, and thus may be subject to risks associated with
                        both real estate ownership and investments in
                        mortgage-related investments. See "The Fund's
                        Investments--Portfolio Composition--Real Estate
                        Investment Trusts" and "Risks-- Real Estate Investment
                        Trusts and Real Estate Risk."

                        Business Development Companies. BDCs are a type of
                        closed-end fund regulated under the 1940 Act. BDCs
                        typically invest in and lend to small- and medium-sized
                        private and certain public companies that may not have
                        access to public equity markets for capital raising.
                        BDCs may invest in a diverse array of industries. The
                        Fund may invest in both equity and debt securities of
                        BDCs, and is not limited with respect to the specific
                        types of BDCs in which it may invest. The Fund will
                        indirectly bear its proportionate share of any
                        management and other expenses, and of any performance
                        based or incentive fees, charged by the BDCs in which it
                        invests, in addition to the expenses paid by the Fund.
                        See "The Fund's Investments--Portfolio
                        Composition--Business Development Companies" and
                        "Risks-- Business Development Companies Risk."

                        Exchange-Traded Funds. ETFs are pooled investment
                        vehicles listed on an exchange and traded in the
                        secondary market that are typically designed to provide
                        investment results corresponding to a particular market


                                       7



                        segment or index. The values of ETFs are subject to
                        change as the values of their respective component
                        securities fluctuate according to market volatility.
                        Investments in ETFs may not exactly match the
                        performance of a direct investment in the respective
                        indices to which they are intended to correspond due to
                        the temporary unavailability of certain index securities
                        in the secondary market or other extraordinary
                        circumstances, such as discrepancies with respect to the
                        weighting of securities. Typically, an ETF bears its own
                        operational expenses, which are deducted from its
                        assets. To the extent that the Fund invests in ETFs, it
                        must bear these expenses in addition to the expenses of
                        its own operation. See "The Fund's
                        Investments--Portfolio Composition--Exchange-Traded
                        Funds" and "Risks--Exchange-Traded Funds Risk."

                        Below Investment Grade/Unrated Securities. The Fund
                        expects to substantially invest, directly or indirectly,
                        in securities rated below investment grade or, if
                        unrated, determined by the Advisor, the Lead Sub-Advisor
                        or a Portfolio Sub-Advisor to be of comparable credit
                        quality. The Fund's investments in below investment
                        grade securities are commonly referred to as "junk" or
                        "high yield" securities and are considered speculative
                        with respect to the issuer's capacity to pay interest
                        and repay principal. See "Risks--Credit and Below
                        Investment Grade Securities Risk" and "Risks--Unrated
                        Securities Risk."

                        Temporary Defensive Periods. During temporary defensive
                        periods, the period in which the net proceeds of the
                        offering of Common Shares are first being invested or
                        the period in which the Fund is approaching its
                        Termination Date or an Eligible Tender Offer, the Fund
                        may deviate from its investment objective and policies.
                        During such periods, the Fund may invest up to 100% of
                        its Managed Assets in short-term investments, including
                        high quality, short-term securities, or may invest in
                        short- or intermediate-term U.S. Treasury securities.

INVESTMENT ADVISOR,
LEAD SUB-ADVISOR AND
PORTFOLIO SUB-ADVISORS  First Trust Advisors L.P. ("First Trust" or the
                        "Advisor") is an Illinois limited partnership formed in
                        1991 and is registered as an investment adviser under
                        the Investment Advisers Act of 1940, as amended (the
                        "Advisers Act"). First Trust will be the Fund's
                        investment adviser and will be responsible for
                        supervising the Portfolio Advisor and the Portfolio
                        Sub-Advisors, managing the Fund's business affairs and
                        providing certain clerical, bookkeeping and other
                        administrative services. First Trust, in consultation
                        with the Lead Sub-Advisor, will also be responsible for
                        determining the Fund's overall investment strategy and
                        overseeing its implementation. First Trust serves as
                        investment adviser or portfolio supervisor to investment
                        portfolios with approximately $ in assets, which it
                        managed or supervised as of .

                        SkyBridge Capital II, LLC ("SkyBridge" or the "Lead
                        Sub-Advisor") is a limited liability company formed
                        under the laws of the State of Delaware and is
                        registered as an investment adviser under the Advisers
                        Act. SkyBridge will be the Fund's sub-adviser and will
                        be responsible for allocating management of the Fund's
                        assets to the Portfolio Sub-Advisors and their
                        respective investment strategies. See "--Allocation
                        Philosophy and Process."

                        The following Portfolio Sub-Advisors, along with the
                        Lead Sub-Advisor, will be responsible for the day-to-day
                        management of the Fund's Managed Assets:


                                       8



                        See "Management of the Fund" in this prospectus and
                        "Investment Advisor, Lead Sub-Advisor and Portfolio
                        Sub-Advisors" in the SAI.

LIMITED TERM FUND
STRUCTURE AND ELIGIBLE
TENDER OFFER            The Fund will terminate on or before         , 2032 (the
                        "Termination Date"); provided, that if the Board of
                        Trustees of the Fund (the "Board of Trustees") 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          , 2033), and (ii) once for up to an
                        additional six months (i.e., up to          ), in each
                        case upon the affirmative vote of a majority of the
                        Board of Trustees and without the approval of Common
                        Shareholders. In determining whether to extend the
                        Termination Date, the Board of Trustees may consider the
                        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 Trustees 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.

                        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
                        strategies and may not achieve its investment objective.
                        During the wind-down period (or in anticipation of an
                        Eligible Tender Offer (as defined below)), the Fund's
                        portfolio composition may change as more of its
                        portfolio holdings are sold and disposed of in
                        anticipation of liquidation. Rather than reinvesting the
                        proceeds from such sales in accordance with the
                        investment program described above, the Fund may invest
                        in short term or other lower yielding securities or hold
                        the proceeds in cash, which may adversely affect its
                        performance.

                        In addition, within twelve months preceding the
                        Termination Date, the Board of Trustees 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,
                        subject to the terms described below (an "Eligible
                        Tender Offer"). The Board of Trustees has established
                        that, following an Eligible Tender Offer, the Fund must
                        have at least $    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. The Advisor 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 shareholders would be notified thereof, in
                        accordance with the requirements of the 1940 Act, the
                        Securities Exchange Act of 1934, as amended (the
                        "Exchange Act"), and the applicable tender offer rules
                        thereunder (including Rule 13e-4 and Regulation 14E
                        under the Exchange Act).

                        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


                                       9



                        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 Shares 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--Limited Term
                        and Eligible Tender Offer Risk."

                        Following the completion of an Eligible Tender Offer,
                        the Board of Trustees may eliminate the limited term
                        structure of the Fund upon the affirmative vote of a
                        majority of the Board of Trustees and without the
                        approval of Common Shareholders. In making such
                        decision, the Board of Trustees 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
                        Trustees in consultation with the Advisor and the Lead
                        Sub-Advisor, taking into account that the Advisor and
                        the Lead Sub-Advisor 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.

                        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 objective 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. See "Certain Provisions
                        in the Declaration of Trust and By-Laws."


USE OF LEVERAGE         Subject to market conditions, within approximately
                        months after the completion of this offering, the Fund
                        intends to use leverage to seek to enhance its potential
                        to produce a high level of current income.

                        The Fund initially anticipates that, under normal market
                        conditions, it will employ leverage through reverse
                        repurchase agreements and/or dollar roll transactions.
                        The Fund also may use borrowings from banks or other
                        financial institutions. The Fund currently expects that
                        the leverage initially obtained through such reverse
                        repurchase agreements, dollar roll transactions and


                                       10



                        borrowings will represent approximately    % of the
                        Fund's Managed Assets. The Fund does not currently
                        anticipate it will employ leverage through the issuance
                        of Preferred Shares within 12 months after the
                        completion of this offering. Under normal market
                        conditions, the Fund's use of leverage through reverse
                        repurchase agreements, dollar roll transactions,
                        borrowings, and the issuance of Preferred Shares, in the
                        aggregate, will not exceed    % of its Managed Assets.
                               entered into by the Fund for purposes other than
                        creating investment leverage (e.g., for hedging or risk
                        management purposes) will not be subject to such
                        limitation.

                        In general, the Fund is prohibited from engaging in most
                        forms of leverage representing indebtedness unless
                        immediately after the issuance of such leverage the Fund
                        has satisfied the asset coverage requirement with
                        respect to senior securities representing indebtedness
                        prescribed by the 1940 Act--i.e., the value of the
                        Fund's total assets, less all liabilities and
                        indebtedness not represented by senior securities (for
                        these purposes, "total net assets"), is at least 300% of
                        the senior securities representing indebtedness
                        (effectively limiting the use of leverage through senior
                        securities representing indebtedness to 33 1/3% of the
                        Fund's total net assets, including assets attributable
                        to such leverage). 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, this asset coverage requirement is
                        satisfied. The Fund may (but is not required to) cover
                        its commitments under its reverse repurchase agreements,
                        dollar roll transactions, and derivative transactions by
                        segregating liquid assets, or by entering into
                        offsetting transactions or owning positions covering its
                        obligations. To the extent these instruments are so
                        covered, they will not be considered "senior securities"
                        under the 1940 Act and therefore will not be subject to
                        the 300% asset coverage requirement of the 1940 Act
                        otherwise applicable to forms of senior securities
                        representing indebtedness used by the Fund. However, the
                        Securities and Exchange Commission has proposed a new
                        rule that could further limit or otherwise alter the
                        Fund's ability to use certain derivative and other
                        transactions, including reverse repurchase agreements.
                        See "Risks--    ." Moreover, even if such derivative and
                        other transactions of the Fund are covered, they could
                        represent a form of economic leverage and create special
                        risks. See "Risks--Leverage Risk."

                        The Fund will seek to use leverage opportunistically and
                        may determine to increase, decrease, or eliminate its
                        use of leverage over time and from time to time based on
                        various considerations, including the yield curve
                        environment, interest rate trends, and market
                        conditions. There is no assurance that borrowings or
                        other forms of leverage will in fact be established or
                        be maintained in the future. If and when leverage is
                        used, there is no assurance that the Fund's leveraging
                        strategies will be successful. The use of leverage will
                        increase the volatility of the performance of the Fund's
                        investment portfolio and could result in the Fund
                        experiencing greater losses than if leverage were not
                        used. The net proceeds the Fund obtains from the use of
                        leverage will be invested in accordance with the Fund's
                        investment objective and policies as described in this
                        prospectus. So long as the rate of return, net of
                        applicable Fund expenses, on the investments purchased
                        by the Fund exceeds the costs of such leverage to the
                        Fund, the use of leverage should help the Fund to
                        achieve an investment return greater than it would if it
                        were not leveraged, although use of leverage may result
                        in losses greater than if the Fund had not used
                        leverage.

                        Leveraging is a speculative technique and there are
                        special risks and costs involved. See "Risks--Leverage
                        Risk." The Fund cannot assure you that the use of
                        leverage, including through reverse repurchase
                        agreements, dollar roll transactions and borrowings,


                                       11



                        and/or the use of derivatives strategies will result in
                        a higher investment return on your Common Shares, and it
                        may result in losses. When leverage is used, the net
                        asset value ("NAV") and market price of the Common
                        Shares and the yield to Common Shareholders will be more
                        volatile. In addition, the leverage costs will be borne
                        immediately by the Common Shareholders and result in a
                        reduction of the NAV of the Common Shares. See "Summary
                        of Fund Expenses." Any senior securities issued by the
                        Fund will have seniority over the Common Shares and,
                        therefore, have complete priority upon distribution of
                        assets over the Common Shares.

                        Because the fees received by the Advisor, the Lead
                        Sub-Advisor and the Portfolio Sub-Advisors are based on
                        Managed Assets (which includes assets attributable to
                        the Fund's reverse repurchase agreements, dollar roll
                        transactions and borrowings), there is a financial
                        incentive for the Advisor, the Lead Sub-Advisor and the
                        Portfolio Sub-Advisors to cause the Fund to use
                        leverage, which creates a conflict of interest between
                        the Advisor, the Lead Sub-Advisor and the Portfolio
                        Sub-Advisors on the one hand, and the Common
                        Shareholders, on the other hand. See "Risks--Potential
                        Conflicts of Interest Risk."

DISTRIBUTIONS           The Fund intends to distribute quarterly all or a
                        portion of its net investment income to Common
                        Shareholders (after the payment of interest and/or
                        dividends in connection with leverage). In addition, the
                        Fund intends to distribute any net long-term capital
                        gains, if any, to Common Shareholders as long-term
                        capital gain dividends at least annually. The Fund's
                        initial quarterly distribution is expected to be
                        declared approximately     to     days after the
                        completion of this offering and paid approximately    to
                           days after the completion of this offering, depending
                        on market conditions. Unless an election is made to
                        receive dividends in cash, Common Shareholders will
                        automatically have its quarterly distributions
                        reinvested in Common Shares through the Fund's dividend
                        reinvestment plan. See "Dividend Reinvestment Plan."

CUSTODIAN,
ADMINISTRATOR,
FUND ACCOUNTANT AND
TRANSFER AGENT          The Fund has retained             as custodian and
                                 as administrator, fund accountant and transfer
                        agent for the Fund. The Advisor and the Board of
                        Trustees will be responsible for overseeing the
                        activities of the custodian, administrator, fund
                        accountant and transfer agent. See "Custodian,
                        Administrator, Fund Accountant and Transfer Agent."

LISTING                 The Fund intends to apply to list the Common Shares on
                        the New York Stock Exchange. The trading or ticker
                        symbol of the Common Shares is expected to be "    ."

CLOSED-END STRUCTURE    Closed-end funds differ from open-end management
                        investment companies (commonly referred to as mutual
                        funds) in that closed-end funds generally list their
                        shares for trading on a securities exchange and do not
                        redeem their shares at the option of the shareholder. By
                        comparison, mutual funds issue securities redeemable at
                        NAV at the option of the shareholder and typically
                        engage in a continuous offering of their shares. Mutual
                        funds are subject to continuous asset in-flows and
                        out-flows that can complicate portfolio management,
                        whereas closed-end funds can generally stay more fully
                        invested in securities consistent with the closed-end
                        fund's investment objective(s) and policies. In
                        addition, in comparison to open-end funds, closed-end
                        funds have greater flexibility in their ability to make
                        certain types of investments, including investments in
                        illiquid securities.

                        Shares of closed-end funds listed for trading on a
                        securities exchange frequently trade at a discount from
                        NAV, but in some cases trade at a premium. The market
                        price of such shares may be affected by factors such as
                        NAV, dividend or distribution levels and their stability


                                       12



                        (which will in turn be affected by levels of dividend
                        and interest payments by the fund's portfolio holdings,
                        the timing and success of the 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. The foregoing factors, among
                        others, may result in the market price of the Common
                        Shares being greater than, less than or equal to NAV.
                        See "Structure of the Fund; Common Share Repurchases and
                        Conversion to Open-End Fund."

FEDERAL TAX MATTERS     Distributions with respect to the Common Shares will
                        constitute dividends to the extent of the Fund's current
                        and accumulated earnings and profits, as calculated for
                        U.S. federal income tax purposes. Such dividends
                        generally will be taxable as ordinary income to Common
                        Shareholders. Distributions of net capital gain that are
                        designated by the Fund as capital gain dividends will be
                        treated as long-term capital gains in the hands of
                        Common Shareholders receiving such distributions. See
                        "Federal Tax Matters."

SPECIAL RISK
CONSIDERATIONS          RISK IS INHERENT IN ALL INVESTING. Investing in any
                        investment company security involves risks, including
                        the risk that you may lose part or all of your
                        investment. THEREFORE, BEFORE INVESTING IN THE FUND'S
                        COMMON SHARES, YOU SHOULD CONSIDER THE RISKS MORE FULLY
                        SET FORTH UNDER "RISKS" BEGINNING ON PAGE   , WHICH
                        PROVIDES A DISCUSSION OF THE PRINCIPAL RISK FACTORS
                        ASSOCIATED WITH AN INVESTMENT IN THE FUND, AS WELL AS
                        THE OTHER INFORMATION IN THIS PROSPECTUS AND THE SAI.
                        These principal risks include risks associated with
                        investments in structured credit instruments including
                        CMBS, agency and non-agency residential mortgage-backed
                        securities, ABS, CDOs and CLOs; risks associated with
                        other income-generating securities such as direct loans,
                        corporate debt and preferred securities; risks
                        associated with investments in below investment
                        grade-rated securities and unrated securities; risks
                        associated with the use of leverage; and risks
                        associated with employing multiple managers. In
                        addition, the Fund may invest in any level of the
                        capital structure of its structured credit instruments,
                        including subordinated or residual tranches and the
                        equity or "first loss" tranches. The Fund also may
                        invest in structured credit instruments that are
                        designed to have leveraged investment exposure to the
                        underlying mortgages or assets. As a result, the Fund's
                        investment strategies may involve speculative techniques
                        and a high degree of risk. An investment in the Fund is
                        not appropriate for all investors.


                                       13



                            SUMMARY OF FUND EXPENSES

      The purpose of the table and the example below is to help Common
Shareholders understand all fees and expenses that they will bear directly or
indirectly. Expenses borne by the Fund are borne, indirectly, by Common
Shareholders. The expenses shown in the table are based on estimated amounts for
the current fiscal year.

      The table assumes that the Fund issues Common Shares and utilizes leverage
through the use of reverse repurchase agreements, dollar roll transactions and
bank borrowings in an amount equal to % of the Fund's Managed Assets (after its
utilization). The table shows Fund expenses as a percentage of $ in net assets
attributable to Common Shares. The "Other expenses" shown in the table are based
on estimated amounts for the current fiscal year. The Fund's actual expenses may
vary from the estimated expenses shown in the table and, all other things being
equal, will increase as a percentage of net assets attributable to Common Shares
if the Fund issues less than Common Shares.

SHAREHOLDER TRANSACTION EXPENSES
   Sales load paid by Common Shareholders (as a percentage of offering price)              None(1)
   Offering expenses borne by Common Shareholders (as a percentage of offering price)      None(2)
   Dividend reinvestment plan fees                                                         None(3)

                                                                                    PERCENTAGE OF NET ASSETS
                                                                                  ATTRIBUTABLE TO COMMON SHARES
ANNUAL EXPENSES                                                                     (ASSUMES DEBT IS USED)(4)

   Management fees                                                                              %
   Interest on borrowed funds(5)                                                                %
   Acquired fund fees and expenses                                                              %
   Other expenses                                                                               %
                                                                                           ------
             Total annual expenses                                                              %
                                                                                           ------

   (1)   The Advisor and Lead Sub-Advisor, and not the Fund, have agreed to
         pay from their own assets (a) underwriting compensation of up to $
         per Common Share to the underwriters in connection with this
         offering and separately (b) structuring fees to each of       ,       ,
               and       in the amounts of $     , $     , $     and $     ,
         respectively, and a sales incentive fee to         in the amount of
         $        . The sum total of all compensation to the underwriters in
         connection with this public offering of Common Shares, including all
         forms of additional compensation or structuring or sales incentive fee
         payments, if any, to the underwriters, will be limited to not more
         than    % of the total public offering price of the Common Shares sold
         in this offering. See "Underwriters."

   (2)   The Advisor and Lead Sub-Advisor, and not the Fund, have agreed to
         pay from their own assets all organizational expenses of the Fund
         and all offering costs associated with this offering. The Fund is
         not obligated to repay any such organizational expenses or offering
         costs paid by the Advisor and Lead Sub-Advisor.

   (3)   Common Shareholders will pay brokerage charges if they direct         ,
         as agent for the Common Shareholders, to sell their Common Shares held
         in a dividend reinvestment account.

   (4)   The net assets attributable to Common Shares is calculated by
         deducting the assumed amount of leverage to be used by the Fund from
         Managed Assets.

   (5)   Interest on borrowed funds is based upon the assumed borrowing of $
         at an annual interest rate of    %. This amount reflects the assumption
         that there will not be any additional fees payable by the Fund under
         the assumed Borrowings.

EXAMPLE

      Investors would pay the following expenses on a $1,000 investment,
assuming (i) a 5% annual return; (ii) the Fund issues        Common Shares;
(iii) total annual expenses of % of net assets attributable to Common Shares in
years 1 through 10; and (iv) reinvestment of all dividends and distributions
at NAV.

   1 YEAR               3 YEARS               5 YEARS                10 YEARS
   ------               -------               -------                --------
     $                  $                     $                      $

   The example should not be considered a representation of future expenses.
   Actual expenses may be greater or less than those shown. The Fund's actual
   rate of return may be greater or less than the hypothetical 5% return
   shown in the example.


                                       14



                                    THE FUND

      First Trust SkyBridge Income Fund (the "Fund") is a newly organized,
non-diversified, closed-end management investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"). The Fund was
organized on March 3, 2020, as a Massachusetts business trust pursuant to a
Declaration of Trust (the "Declaration"). As a newly organized entity, the Fund
has no operating history. The Fund's principal office is located at 120 East
Liberty Drive, Wheaton, Illinois 60187, and its telephone number is (630)
765-8000. Investment in the Fund involves certain risks and special
considerations. See "Risks."

                                USE OF PROCEEDS

      The net proceeds of the offering of the common shares of beneficial
interest of the Fund (the "Common Shares") will be approximately $
($       if the underwriters exercise the overallotment option in full) after
payment of the estimated offering costs. The Advisor and Lead Sub-Advisor, and
not the Fund, have agreed to pay all of the Fund's organizational expenses and
all offering costs associated with this offering, and the Fund is not obligated
to repay any such organizational expenses or offering costs paid by the Advisor
and Lead Sub-Advisor. The Fund will invest the net proceeds of the offering in
accordance with the Fund's investment objective and policies as stated below.
The Fund expects it will be able to invest substantially all of the net proceeds
in securities that meet the Fund's investment objectives and policies within
to    days after completion of the offering. Pending such investment, it is
anticipated that the proceeds will be invested in cash or cash equivalents.

                             THE FUND'S INVESTMENTS

INVESTMENT OBJECTIVE

      The Fund's investment objective is to seek a high level of current income.
There can be no assurance that the Fund will achieve its investment objective or
that the Fund's investment strategies (as described below) will be successful.

      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 holders of the Fund's Common Shares ("Common Shareholders"). The
Fund's investment objective and certain investment restrictions specifically
identified as such in the Statement of Additional Information (the "SAI") are
considered fundamental and may not be changed without approval by 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 of beneficial
interest of the Fund ("Preferred Shares"), if any, voting together as a single
class, and the holders of the outstanding Preferred Shares voting as a single
class. As defined in the 1940 Act, when used with respect to particular shares
of the Fund, a "majority of the outstanding voting securities" means: (i) 67% or
more of the shares present at a meeting, if the holders of more than 50% of the
shares are present or represented by proxy; or (ii) more than 50% of the shares,
whichever is less.

INVESTMENT POLICIES AND STRATEGIES

      The Fund will seek to achieve its investment objective by investing in a
mix of structured credit and other income-producing instruments in the
commercial real estate, residential real estate, corporate credit and consumer
credit markets pursuant to the investment strategies of a group of portfolio
management companies (each, a "Portfolio Sub-Advisor" and, collectively, the
"Portfolio Sub-Advisors") selected by SkyBridge Capital II, LLC (the "Lead
Sub-Advisor"). See "--Investment Strategies" below. Under normal market
conditions, the Fund expects to invest its Managed Assets in structured credit
instruments backed by both real estate and non-real estate collateral, including
commercial mortgage-backed securities ("CMBS"), agency and non-agency
residential mortgage-backed securities, asset backed securities ("ABS"),
collateralized debt obligations ("CDOs") and collateralized loan obligations
("CLOs"). In addition, the Fund expects to invest, to a lesser extent, in
non-structured cash flow generating securities, including direct loans,
corporate debt, preferred securities, real estate investment trusts ("REITs"),
and exchanged-traded funds ("ETFs") and business development companies ("BDCs")
investing in the commercial real estate, residential real estate, corporate
credit or consumer credit markets. These investments may include instruments of
foreign issuers. The Fund will limit the amount of its investments in emerging
market issuers to no more than 5% of its Managed Assets. See "--Portfolio
Composition" below. The Fund also may use derivative instruments for hedging and
other purposes. The Fund anticipates that such transactions, if any, will
primarily be utilized to reduce the Fund's interest rate or currency risk.

      The Lead Sub-Advisor will allocate management of the Fund's Managed Assets
(as defined below) to the Portfolio Sub-Advisors (and their respective
investment strategies) in such proportion that it believes will optimize the
risk-adjusted return potential of the Fund. The Lead Sub-Advisor will thereafter
adjust such allocations from time to time in response to changing market
conditions and other considerations. The Lead Sub-Advisor will limit the amount
of assets allocated to a single Portfolio Sub-Advisor to no more than 20% of the
Fund's Managed Assets.

      The Lead Sub-Advisor may invest the Fund's Managed Assets directly,
including for interest rate hedging purposes.


                                       15



      "Managed Assets" means the average daily gross asset value of the Fund
(which includes assets attributable to any reverse repurchase agreements, dollar
roll transactions, or similar transactions, the principal amount of any
borrowings outstanding, and the Fund's preferred shares of beneficial interest
("Preferred Shares"), if any) minus the sum of the Fund's accrued and unpaid
dividends on any outstanding Preferred Shares and accrued liabilities (other
than liabilities in respect of reverse repurchase agreements, dollar roll
transactions, or similar transactions, and the principal amount of any
borrowings of money incurred, including commercial paper or notes issued by the
Fund).

      Percentage limitations described in this prospectus are as of the time of
investment by the Fund 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.

      Investment Strategies. Through the Lead Sub-Advisor's top-down allocation
of Managed Assets to the investment strategies set forth below and corresponding
bottom-up allocations to the Portfolio Sub-Advisors, the Lead Sub-Advisor will
seek to generate a high level of current income with attractive risk-adjusted
yield and risk-adjusted total return properties by seeking to capitalize on
perceived inefficiencies in structured credit markets and, to a lesser extent,
in non-structured cash flow-generating securities. The Lead Sub-Advisor will
periodically rebalance the allocation of Managed Assets, typically monthly but
as frequently as daily, to the Portfolio Sub-Advisors (and, as a result, to
various investment strategies) based on market and economic developments as well
as realized and expected risk-adjusted Portfolio Sub-Advisor performance. The
Lead Sub-Advisor, from time to time, may choose not to allocate any of the
Fund's Managed Assets to certain Portfolio Sub-Advisors, and there may be
lengthy periods of time when there is no allocation to one or more Portfolio
Sub-Advisors or investment strategies.

      The Lead Sub-Advisor believes that while structured credit markets are
large, with in excess of $10 trillion outstanding across real estate (including
agency mortgage-backed securities) and non-real estate sectors as of the date of
this prospectus, structured credit securities are highly heterogeneous with
varying collateral and structural properties. The Lead Sub-Advisor believes that
this variety results in additional analytical complexity relative to
non-structured fixed income markets resulting, often, in inefficient pricing.
Specifically, the Lead Sub-Advisor believes that this inefficiency results,
often, in higher yields than warranted given the risk of fundamental or
permanent loss for structured credit securities. Additionally, the Lead
Sub-Advisor believes that structured credit market inefficiencies are best
exploited by specialist managers, like the Portfolio Sub-Advisors, that are
focused entirely or largely on specific sectors of the structured credit
markets.

      Overall, the Fund will generally implement a "diversified structured
credit" strategy. This strategy consists of investing pursuant to a diversified
mix of investment strategies focused on structured credit instruments backed by
real estate and/or non-real estate collateral and, to a lesser extent,
non-structured fixed income securities. The Fund may invest in any level of the
capital structure of structured credit instruments, including subordinated or
residual tranches and the equity or "first loss" tranches. The Fund may invest
in structured credit instruments that are designed to have leveraged investment
exposure to the underlying mortgages or assets. The Fund may invest, directly or
indirectly, in instruments of any credit quality, and expects to substantially
invest in securities rated below investment grade (including debt securities
commonly referred to as "high yield" securities or "junk bonds") or securities
that are unrated by credit rating agencies. See "Risks--Credit and Below
Investment Grade Securities Risk" and "Risks--Unrated Securities Risk."

      The Lead Sub-Advisor will generally utilize a top-down process based on
market and economic developments to determine the allocation of Managed Assets
to the investment strategies set forth below and will generally utilize a
bottom-up manager-research driven process to determine allocations to the
Portfolio Sub-Advisors given their respective expertise in executing the
identified investment strategies. The Lead Sub-Advisor's bottom up manager
research for the Fund will be, in part, informed by the Lead Sub-Advisor's role
as a fund-of-hedge-funds (FOFs) manager that, as of the date of this prospectus,
oversees in excess of $9 billion allocated to hedge fund strategies, including
over $5 billion allocated to fixed income-focused strategies (primarily via
allocations to structured credit-focused hedge funds). The Lead Sub-Advisor
intends to generally select Portfolio Sub-Advisors that utilize a fundamental,
bottom-up, research-driven analytic process to in order to generate a high level
of current income with attractive risk-adjusted yield and risk-adjusted total
return properties consistent with their mandate, as defined by the Lead
Sub-Advisor, to pursue one or several of the Fund's Investment Strategies. The
principal strategies that the Lead Sub-Advisor will seek to employ through the
selection of and allocation of Managed Assets to Portfolio Sub-Advisors include:

      o     Commercial mortgage-backed securities (CMBS). This strategy targets
            investments in securities collateralized by commercial mortgages.
            The Portfolio Sub-Advisors employing this strategy will seek to
            generate high level of current income with attractive risk-adjusted
            yield and risk-adjusted total return properties based primarily on
            proprietary fundamental analysis. Investments under this strategy
            may be held for long periods of time or actively traded. A Portfolio
            Sub-Advisor's approach under this strategy may be based on their
            forecast of real estate values and potential default and prepayment
            scenarios. Portfolio Sub-Advisors may choose to invest in senior or
            junior securities (including in the equity or residual tranche).
            Securities may be backed by pools of mortgages or a single mortgage.

      o     Residential mortgage-backed securities (RMBS). This strategy targets
            investments in securities collateralized by both agency and


                                       16



            non-agency residential mortgages. The Portfolio Sub-Advisors
            employing this strategy will seek to generate a high level of
            current income with attractive risk-adjusted yield and risk-adjusted
            total return properties based primarily on proprietary fundamental
            analysis. Investments under this strategy may be held for long
            periods of time or actively traded. A Portfolio Sub-Advisor's
            approach under this strategy may be based on their forecast of real
            estate values and potential default and prepayment scenarios.
            Portfolio Sub-Advisors may choose to invest in senior or junior
            securities (including in the equity or residual tranche).

      o     Asset-backed securities (ABS). This strategy targets investments in
            securities generally collateralized by non-mortgage assets, for
            example, aircraft leases, bank-issued and REIT-issued trust
            preferred securities (typically referred to as TruPS CDOs),
            unsecured consumer receivables and auto loans. The Portfolio
            Sub-Advisors employing this strategy will seek to generate a high
            level of current income with attractive risk-adjusted yield and
            risk-adjusted total return properties based primarily on proprietary
            fundamental analysis. Investments under this strategy may be held
            for long periods of time or actively traded. A Portfolio
            Sub-Advisor's approach under this strategy may be based on their
            forecast of collateral values and potential default and prepayment
            scenarios. Portfolio Sub-Advisors may choose to invest in senior or
            junior securities (including in the equity or residual tranche). The
            Lead Sub-Advisor does not foresee allocating any portion of Managed
            Assets to CDOs collateralized by credit derivatives, sometimes
            referred to as synthetic CDOs.

      o     Collateralized loan obligations (CLOs). This strategy targets
            investments in securities collateralized by corporate loans. The
            Portfolio Sub-Advisors employing this strategy will seek to generate
            a high level of current income with attractive risk-adjusted yield
            and risk-adjusted total return properties based primarily on
            proprietary fundamental analysis. Investments under this strategy
            may be held for long periods of time or actively traded. A Portfolio
            Sub-Advisor's approach under this strategy may be based on their
            forecast of collateral values and potential default and prepayment
            scenarios. Portfolio Sub-Advisors may choose to invest in senior or
            junior securities (including in the equity or residual tranche).

      o     Direct loans. This strategy targets investments in loans directly
            originated by a Portfolio Sub-Advisor. Loans may be collateralized
            by real estate or non-real estate assets. The Portfolio Sub-Advisors
            employing this strategy will seek to generate a high level of
            current income with attractive risk-adjusted yield and risk-adjusted
            total return properties based primarily on proprietary fundamental
            analysis. Investments under this strategy will generally be held for
            long periods of time. A Portfolio Sub-Advisor's approach under this
            strategy may be based on their forecast of collateral values and
            default and prepayment scenarios. Portfolio Sub-Advisors may choose
            to invest in senior or junior securities (including in the equity or
            residual tranche). The Lead Sub-Advisor foresees allocating a
            portion of Managed Assets for this Investment Strategy to
            instruments collateralized by portfolios of loans on financial
            institution balance sheets (sometimes referred to as "Regulatory
            Capital Relief" or "Significant Risk Transfer" exposures).

      o     Corporate debt. This strategy targets investments in securities
            issued by corporate entities, including senior secured loans, senior
            unsecured bonds, subordinated bonds, preferred equity and other
            instruments that may have debt and/or equity characteristics,
            including convertible bonds. The Portfolio Sub-Advisors employing
            this strategy will seek to generate a high level of current income
            with attractive risk-adjusted yield and risk-adjusted total return
            properties based primarily on proprietary fundamental analysis.
            Investments under this strategy may be held for long periods of time
            or actively traded. A Portfolio Sub-Advisor's approach under this
            strategy may be based on their forecast of issuer-specific
            fundamentals (including collateral values, when applicable) and
            potential default and prepayment scenarios. The Lead Sub-Advisor
            does not foresee allocating a portion of Managed Assets for this
            investment strategy to corporate securities that are not generating
            current a high level of current income, for example, defaulted debt
            instruments not making coupon payments or debt instruments paying
            in-kind.

      o     Other cash flow generative exposures. This strategy targets
            investments in listed securities, including REITs, ETFs and BDCs.
            The Portfolio Sub-Advisors employing this strategy will seek to
            generate a high level of current income with attractive
            risk-adjusted yield and risk-adjusted total return properties based
            primarily on proprietary fundamental analysis.

      The Lead Sub-Advisor will allocate no more than 30% of the Fund's Managed
Assets to a single investment strategy.

      Allocation Philosophy and Process. As a fund-of-hedge-funds (FOFs) manager
with experience allocating to fixed income-focused strategies (primarily via
allocations to structured credit-focused hedge funds), the Lead Sub-Advisor has
evaluated numerous portfolio management companies based on qualitative and
quantitative analyses in order to identify those that have shown the ability to
generate consistent skill-based returns (alpha) over time through compelling
investment strategies. In addition, the Lead Sub-Advisor has assessed these
portfolio management companies through a combination of discussions, on-site
visits and reviews of materials provided by such companies. The Lead Sub-Advisor
also has experience in directly managing alternative investment strategies.
Accordingly, the Lead Sub-Advisor believes that this combination of evaluation
expertise and direct investment experience enables it to understand the
opportunities and risks associated with the investment strategies employed by
the Portfolio Sub-Advisors. Each of the Portfolio Sub-Advisors has successfully
passed the Lead Sub-Advisor's initial evaluation and assessment and the Lead
Sub-Advisor will continue to conduct comprehensive due diligence reviews of each
Portfolio Sub-Advisor, which will include the following components:

      o     Investment Analysis. The Lead Sub-Advisor combines qualitative and
            quantitative analyses intended to develop an understanding of a


                                       17



            Portfolio Sub-Advisor's ability to generate returns. These analyses
            focus on a Portfolio Sub-Advisor's investment team, investment
            process, risk management and performance. Each Portfolio
            Sub-Advisor's performance track record is examined for consistency
            and drawdown (i.e., loss) control versus a peer group of portfolio
            management companies. In doing so, the Lead Sub-Advisor analyzes the
            Portfolio Sub-Advisor's historical performance returns including its
            historical distribution of returns and drawdowns and relevant risk
            ratios and metrics.

      o     Operational and Business Risk Analysis. The Lead Sub-Advisor's
            operational risk team employs a disciplined process intended to
            assess a Portfolio Sub-Advisor's ability to operate efficiently. The
            key components of this analysis include, but are not limited to, a
            review of key principals, mid/back office operations, valuation
            process, accounting practices and internal controls and procedures,
            cyber preparedness, disaster recovery plans and anti-money
            laundering policies.

   The Lead Sub-Advisor will allocate management of the Fund's Managed Assets to
the Portfolio Sub-Advisors (and their respective Investment Strategies) in such
proportion that it believes will optimize the risk-adjusted return potential of
the Fund. The Lead Sub-Advisor will thereafter adjust such allocations from time
to time in response to changing market conditions and other considerations. In
seeking to optimize the mix of investment strategies in light of current market
and economic conditions, the Lead Sub-Advisor combines a top-down approach,
including an assessment of the macroeconomic environment that analyzes factors
such as economic cycles, credit spread levels and interest rates, and a
bottom-up manager selection process that utilizes both fundamental and technical
research by asset class.

   The Lead Sub-Advisor believes it is important to maintain a broad-based
portfolio in order to reduce the effect of losses or poor returns by one or more
Portfolio Sub-Advisors. There is no guarantee, however, that the Fund will be
able to avoid substantial losses due to poor returns by one or more of the
Portfolio Sub-Advisors.

PORTFOLIO COMPOSITION

      The Fund's portfolio will be composed principally of the following
investments. In addition, see "Use of Leverage" for a description of the
transactions anticipated to be utilized by the Fund to employ leverage.
Additional description of the Fund's investment policies and restrictions and
additional information about the Fund's portfolio investments are contained in
the SAI. See "Additional Information About the Fund's Investments and Investment
Risks" and "Other Investment Policies and Techniques" in the SAI.

      Mortgage-Backed and Asset-Backed Securities. Mortgage-backed securities,
including collateralized mortgage obligations ("CMOs") and certain stripped
mortgage-backed securities, represent a participation in, or are secured by,
mortgage loans. Asset-backed securities are structured like mortgage-backed
securities, but instead of mortgage loans or interests in mortgage loans, the
underlying assets may include such items as credit card and automobile finance
receivables, student loans, consumer loans, installment loan contracts, home
equity loans, mobile home loans, boat loans, business and small business loans,
project finance loans, airplane leases, and leases of various other types of
real and personal property (including those relating to railcars, containers, or
telecommunication, energy, and/or other infrastructure assets and
infrastructure-related assets), and other non-mortgage-related income streams,
such as income from renewable energy projects and franchise rights. The cash
flow generated by the underlying assets is applied to make required payments on
the securities and to pay related administrative expenses. The amount of
residual cash flow resulting from a particular issue of asset-backed or
mortgage-backed securities depends on, among other things, the characteristics
of the underlying assets, the coupon rates on the securities, prevailing
interest rates, the amount of administrative expenses and the actual prepayment
experience on the underlying assets. The Fund may invest in any such instruments
or variations as may be developed, to the extent consistent with its investment
objective and policies and applicable regulatory requirements. In general, the
collateral supporting asset-backed securities is of a shorter maturity than
mortgage loans and is likely to experience substantial prepayments.

      Mortgage-backed securities have yield and maturity characteristics
corresponding to the underlying assets. Unlike traditional debt securities,
which may pay a fixed rate of interest until maturity, when the entire principal
amount comes due, payments on certain mortgage-backed securities include both
interest and a partial repayment of principal. Besides the scheduled repayment
of principal, repayments of principal may result from the voluntary prepayment,
refinancing or foreclosure of the underlying mortgage loans. If property owners
make unscheduled prepayments of their mortgage loans, these prepayments will
result in early payment of the applicable mortgage-backed securities. In that
event the Fund may be unable to invest the proceeds from the early payment of
the mortgage-backed securities in an investment that provides as high a yield as
the mortgage-backed securities. Consequently, early payment associated with
mortgage-backed securities may cause these securities to experience
significantly greater price and yield volatility than that experienced by
traditional fixed income securities. The occurrence of mortgage prepayments is
affected by factors including the level of interest rates, general economic
conditions, the location and age of the mortgage and other social and
demographic conditions. During periods of falling interest rates, the rate of
mortgage prepayments tends to increase, thereby tending to decrease the life of
mortgage-backed securities. During periods of rising interest rates, the rate of
mortgage prepayments usually decreases, thereby tending to increase the life of
mortgage-backed securities. If the life of a mortgage-backed security is
inaccurately predicted, the Fund may not be able to realize the rate of return
it expected.


                                       18



      Adjustable rate mortgages ("ARMs"), like traditional mortgage-backed
securities, are interests in pools of mortgage loans that provide investors with
payments consisting of both principal and interest as mortgage loans in the
underlying mortgage pool are paid off by the borrowers. Unlike fixed-rate
mortgage-backed securities, ARMs are collateralized by or represent interests in
mortgage loans with variable rates of interest. These interest rates are reset
at periodic intervals, usually by reference to an interest rate index or market
interest rate. Although the rate adjustment feature may act as a buffer to
reduce sharp changes in the value of adjustable rate securities, these
securities are still subject to changes in value based on, among other things,
changes in market interest rates or changes in the issuer's creditworthiness.
Because the interest rates are reset only periodically, changes in the interest
rate on ARMs may lag changes in prevailing market interest rates. Also, some
ARMs (or the underlying mortgages) are subject to caps or floors that limit the
maximum change in the interest rate during a specified period or over the life
of the security. As a result, changes in the interest rate on an ARM may not
fully reflect changes in prevailing market interest rates during certain
periods. The Fund may also invest in hybrid ARMs, whose underlying mortgages
combine fixed-rate and adjustable rate features.

      In considering an investment for the Fund in mortgage-backed securities, a
Portfolio Sub-Advisor will consider a number of factors with respect to the
underlying mortgages. These include, but are not limited to, (1) the nature of
the borrowers (e.g., residential vs. commercial); (2) the collateral loan type
(e.g., for residential: First Lien--Jumbo Prime, First Lien--Alt-A, First Lien--
Subprime, First Lien--Pay-Option, or Second Lien; for commercial: Conduit, Large
Loan, or Single Asset/Single Borrower ("SASB")); and (3) in the case of
residential loans, whether they are fixed rate or adjustable mortgages. Each of
these criteria can cause mortgage-backed securities to have differing risk
factors and performance characteristics.

      Mortgage-backed and asset-backed securities are less effective than other
types of securities as a means of "locking in" attractive long-term interest
rates. One reason is the need to reinvest prepayments of principal; another is
the possibility of significant unscheduled prepayments resulting from declines
in interest rates. These prepayments would have to be reinvested at lower rates.
The automatic interest rate adjustment feature of mortgages underlying ARMs
likewise reduces the ability to lock-in attractive rates. As a result,
mortgage-backed and asset-backed securities may have less potential for capital
appreciation during periods of declining interest rates than other securities of
comparable maturities, although they may have a similar risk of decline in
market value during periods of rising interest rates. Prepayments may also
significantly shorten the effective maturities of these securities, especially
during periods of declining interest rates. Conversely, during periods of rising
interest rates, a reduction in prepayments may increase the effective maturities
of these securities, subjecting them to a greater risk of decline in market
value in response to rising interest rates than traditional debt securities,
and, therefore, potentially increasing the volatility of the Fund.

      At times, some mortgage-backed and asset-backed securities will have
higher than market interest rates and therefore will be purchased at a premium
above their par value. Prepayments may cause losses on securities purchased at a
premium.

      CMOs may be issued by a U.S. Government agency or instrumentality or by a
private issuer. Although payment of the principal of, and interest on, the
underlying collateral securing privately issued CMOs may be guaranteed by the
U.S. Government or its agencies or instrumentalities, these CMOs represent
obligations solely of the private issuer and are not insured or guaranteed by
the U.S. Government, its agencies or instrumentalities or any other person or
entity. Government-related guarantors (i.e., not backed by the full faith and
credit of the U.S. Government) include Fannie Mae and Freddie Mac. Fannie Mae is
a government-sponsored corporation the common stock of which is owned entirely
by private stockholders. Fannie Mae purchases conventional (i.e., not insured or
guaranteed by any government agency) residential mortgages from a list of
approved seller/servicers which include state and federally chartered savings
and loan associations, mutual savings banks, commercial banks, and credit unions
and mortgage bankers. Pass-through securities issued by Fannie Mae are
guaranteed as to timely payment of principal and interest by Fannie Mae, but are
not backed by the full faith and credit of the U.S. Government. Freddie Mac was
created by Congress in 1970 for the purpose of increasing the availability of
mortgage credit for residential housing. It is a government-sponsored
corporation that issues Freddie Mac Guaranteed Mortgage Pass-Through
Certificates (also known as "Freddie Macs" or "PCs"), which are pass-through
securities, each representing an undivided interest in a pool of residential
mortgages. Freddie Mac guarantees the timely payment of interest and ultimate
collection of principal, but PCs are not backed by the full faith and credit of
the U.S. Government. The Fund may also invest in bonds, including unguaranteed
mezzanine bonds and subordinate bonds, securitized through Freddie Mac's
"K-Deal" program, which securitizes mortgage loans backed by multi-family
apartment properties. Such bonds are also not backed by the full faith and
credit of the U.S. Government. Prepayments could cause early retirement of CMOs.
CMOs are designed to reduce the risk of prepayment for certain investors by
issuing multiple classes of securities, each having different maturities,
interest rates and payment schedules, and with the principal and interest on the
underlying mortgages allocated among the several classes in various ways.
Payment of interest or principal on some classes or series of CMOs may be
subject to contingencies or some classes or series may bear some or all of the
risk of default on the underlying mortgages. CMOs of different classes or series
are generally retired in sequence as the underlying mortgage loans in the
mortgage pool are repaid. If enough mortgages are repaid ahead of schedule, the
classes or series of a CMO with the earliest maturities generally will be
retired prior to their maturities. Thus, the early retirement of particular
classes or series of a CMO would have the same effect as the prepayment of
mortgages underlying other mortgage-backed securities. Conversely, slower than
anticipated prepayments can extend the effective maturities of CMOs, subjecting
them to a greater risk of decline in market value in response to rising interest
rates than traditional debt securities, and, therefore, potentially increasing
their volatility.


                                       19



      Prepayments could result in losses on stripped mortgage-backed securities.
Stripped mortgage-backed securities are usually structured with two classes that
receive different portions of the interest and principal distributions on a pool
of mortgage loans. The yield to maturity on an interest-only class (the "IO
class") of stripped mortgage-backed securities is extremely sensitive not only
to changes in prevailing interest rates but also to the rate of principal
payments (including prepayments) on the underlying assets. A rapid rate of
principal prepayments may have a measurable adverse effect on the Fund's yield
to maturity to the extent it invests in IOs. If the assets underlying the IO
experience greater than anticipated prepayments of principal, the Fund may fail
to recoup fully its initial investment in these securities. POs tend to increase
in value if prepayments are greater than anticipated and decline if prepayments
are slower than anticipated. The secondary market for stripped mortgage-backed
securities may be more volatile and less liquid than that for other
mortgage-backed securities, potentially limiting the Fund's ability to buy or
sell those securities at any particular time.

      Subprime loans, which typically are made to less creditworthy borrowers,
have a higher risk of default than conventional mortgage loans or other types of
loans made to more creditworthy borrowers. Therefore, the values of asset-backed
securities (whether mortgage-backed securities or other types of asset-backed
securities) backed by subprime loans involve greater risk of price declines due
to the increased risk of default.

      The mortgage loans backing the mortgage-backed securities in which the
Fund may invest may include re-performing loans ("RPLs"), non-performing loans
and non-qualified mortgage ("Non-QM") loans. RPLs are loans that have previously
been delinquent but are current at the time they are securitized. Fannie Mae and
Freddie Mac, among others, securitize RPLs. For example, in Fannie Mae's case,
the RPLs securitized are single-family, fixed rate re-performing loans that
generally were previously placed in a mortgage-backed security trust with
certificates guaranteed by Fannie Mae, purchased from the trust by Fannie Mae
and held as a distressed asset after four or more months of delinquency, and
subsequently became current (i.e. performing) again. Such RPLs may have exited
delinquency through efforts at reducing defaults (e.g., loan modification). In
selecting RPLs for securitization, Fannie Mae follows certain criteria related
to length of time the loan has been performing, the type of loan (single-family,
fixed rate), and the status of the loan as first lien, among other things.
Fannie Mae may include different loan structures and modification programs in
the future. Non-performing loans are mortgage loans where the borrower is in
default or is or has been delinquent, for a potentially significant period of
time, as to the payment of interest and/or principal. Non-QM loans do not comply
with the rules of the Consumer Financial Protection Bureau (the "CFPB") relating
to qualified mortgages ("QM"). To qualify as QM loan under the CFPB's rules, the
loan must meet certain requirements, such as a borrower debt-to-income ratio,
being fully-amortizing, and limits on loan fees. Non-QM loans do not comply with
at least one of these requirements.

      In addition to investing in mortgage-backed securities that are backed by
mortgage loans themselves, the Fund may invest in securities that are backed by
mortgage servicing rights ("MSRs"), including normal MSRs and excess MSRs.
Normal MSRs refer to the contractual right to cash flows payable to the mortgage
servicer of a pool of mortgage loans for their ongoing administrative duties to
the extent such cash flows do not exceed a reasonable amount of consideration
for normal servicing activities. Excess MSRs are the rights to any amount of
cash flows in excess of normal MSRs. The risks associated with other
asset-backed securities (including in particular the risks of issuer default and
of early prepayment) are generally similar to those described above for CMOs. In
addition, because asset-backed securities generally do not have the benefit of a
security interest in the underlying assets that is comparable to a mortgage
(though certain asset-backed securities, such as ETCs and EETCs, may be
structured such that there is a security interest in the underlying asset),
asset-backed securities may present certain additional risks that are not
commonly present with mortgage-backed securities. The ability of an issuer of
asset-backed securities to enforce its security interest in the underlying
assets may be limited. For example, revolving credit receivables are generally
unsecured and the debtors on such receivables are entitled to the protection of
a number of state and federal consumer credit laws, many of which give debtors
the right to set-off certain amounts owed, thereby reducing the balance due.
Automobile receivables generally are secured, but by automobiles, rather than by
real property. Similarly, ETCs and EETCs are often secured by different types of
equipment.

      The values of asset-backed securities may also be substantially dependent
on the servicing of and diligence performed by their servicers or sponsors or
the originating alternative lending platforms. For example, the Fund may suffer
losses due to a servicer's, sponsor's or platform's negligence or malfeasance,
such as through the mishandling of certain documentation affecting security
holders' rights in and to underlying collateral or the failure to update or
collect accurate and complete borrower information. In addition, the values of
asset-backed securities may be adversely affected by the credit quality of the
servicer, sponsor or originating alternative lending platform, as applicable.
Certain services, sponsors or originating alternative lending platforms may have
limited operating histories to evaluate. The insolvency of a servicer, sponsor
or originating alternative lending platform may result in added costs and delays
in addition to losses associated with a decline in the value of underlying
assets. The Fund also may experience delays in payment or losses on its
investments if the full amount due on underlying collateral is not realized,
which may occur because of unanticipated legal or administrative costs of
enforcing the contracts, depreciation or damage to the collateral securing
certain contracts, under-collateralization or other factors.

      Credit risk transfer securities are a type of mortgage-related security
that transfers the credit risk related to certain types of mortgage-backed
securities to the owner of the credit risk transfer security. Credit risk
transfer securities are commonly issued by government sponsored enterprises


                                       20



("GSEs"), such as Fannie Mae or Freddie Mac, but may also be issued by private
entities such as banks or other financial institutions. Credit risk transfer
securities issued by GSEs are unguaranteed and unsecured fixed or floating rate
general obligations and are typically issued at par and have stated final
maturities. In addition, GSE-issued credit risk transfer securities are
structured so that: (i) interest is paid directly by the issuing GSE; and (ii)
principal is paid by the issuing GSE in accordance with the principal payments
and default performance of a pool of residential mortgage loans acquired by the
GSE. In this regard, holders of GSE credit risk transfer securities receive
compensation for providing credit protection to the GSE and, when a specified
level of losses on the underlying mortgage loans occurs, the principal balance
and certain payments owed to the holders of such GSE credit risk transfer
securities may be reduced.

      Federal, state and local government officials and representatives as well
as certain private parties have proposed actions to assist homeowners who own or
occupy property subject to mortgages. Certain of those proposals involve actions
that would affect the mortgages that underlie or relate to certain
mortgage-related securities, including securities or other instruments which the
Fund may hold or in which it may invest. Some of those proposals include, among
other things, lowering or forgiving principal balances; forbearing, lowering or
eliminating interest payments; or utilizing eminent domain powers to seize
mortgages, potentially for below market compensation. The prospective or actual
implementation of one or more of these proposals may significantly and adversely
affect the value and liquidity of securities held by the Fund and could cause
the Fund's NAV to decline, potentially significantly. Uncertainty remains in the
market concerning the resolution of these issues; the range of proposals and the
potential implications of any implemented solution are impossible to predict.

      The Fund may invest in any level of the capital structure of an issuer of
mortgage-backed or asset-backed securities, including the equity or "first loss"
tranche. See "--Collateralized Debt Obligations" below. Consistent with the
Fund's investment objective and policies, a Portfolio Sub-Advisor may also cause
the Fund to invest in other types of mortgage- and asset-backed securities
offered currently or in the future, including certain yet-to-be-developed types
of mortgage- and asset-backed securities which may be created as the market
evolves.

      Collateralized Debt Obligations. Collateralized Debt Obligations are a
type of asset-backed security and include, among other things, collateralized
bond obligations, collateralized loan obligations and other similarly structured
securities. A collateralized bond obligation is a trust which may be backed by a
diversified pool of high risk, below investment grade fixed income securities. A
CLO is a trust typically collateralized by a pool of loans, which may include,
among others, domestic and foreign senior secured loans, senior unsecured loans,
second lien loans or other types of subordinate loans, and mezzanine loans,
including loans that may be rated below investment grade or equivalent unrated
loans and including loans that may be covenant-lite. The cash flows from the CDO
trust are generally split into two or more portions, called tranches, varying in
risk and yield. Senior tranches are paid from the cash flows from the underlying
assets before the junior tranches and equity or "first loss" tranche. Losses are
first borne by the equity tranches, next by the junior tranches, and finally by
the senior tranches. Senior tranches pay the lowest interest rates but are
generally safer investments than more junior tranches because, should there be
any default, senior tranches are typically paid first. The most junior tranches,
such as equity tranches, would attract the highest interest rates but suffer the
highest risk of loss should the holder of an underlying loan default. If some
loans default and the cash collected by the CDO is insufficient to pay all of
its investors, those in the lowest, most junior tranches suffer losses first.

      Since it is partially protected from defaults, a senior tranche from a CDO
trust typically has higher ratings and lower yields than the underlying
securities, and can be rated investment grade. Despite the protection from the
equity tranche, more senior CDO tranches can experience substantial losses due
to actual defaults, increased sensitivity to defaults due to collateral default
and disappearance of protecting tranches, market anticipation of defaults and
aversion to CDO securities as a class. The risks of an investment in a CDO
depend largely on the quality and type of the collateral and the tranche of the
CDO in which the Fund invests. Normally, CBOs, CLOs and other CDOs are privately
offered and sold, and thus are not registered under the securities laws. As a
result, there may be a limited secondary market for investments in CDOs and such
investments may be illiquid. In addition to the risks associated with debt
instruments (e.g., interest rate risk and credit risk), CDOs carry additional
risks including, but not limited to: (i) the possibility that distributions from
collateral securities will not be adequate to make interest or other payments;
(ii) the quality of the collateral may decline in value or default; (iii) the
possibility that the Fund may invest in CDOs that are subordinate to other
classes of the issuer's securities; and (iv) the complex structure of the
security may not be fully understood at the time of investment and may produce
disputes with the issuer or unexpected investment results.

      The Fund may invest in CDOs collateralized by TruPS, which are securities
that are typically issued by banks and other financial institutions that combine
the features of debt securities and preferred securities as well as certain
features of equity securities. TruPS are typically issued by banks and other
financial institutions, generally in the form of interest bearing notes with
preferred securities characteristics, or by an affiliated business trust of a
parent corporation, generally in the form of beneficial interests in
subordinated debentures or similarly structured securities. Many TruPS are
issued by trusts or other special purpose entities established by banks and
other financial institutions and are not a direct obligation of banks and other
financial institutions. The TruPS market consists of both fixed and adjustable
coupon rate securities that are either perpetual in nature or have stated
maturity dates. TruPS are typically issued with a final maturity date, although
some (usually those of foreign issuers) are perpetual in nature. TruPS are


                                       21



typically junior and fully subordinated liabilities of an issuer and benefit
from a guarantee that is junior and fully subordinated to the other liabilities
of the guarantor. In addition, TruPS typically permit an issuer to defer the
payment of income for five years or more without triggering an event of default.
Because of their subordinated position in the capital structure of an issuer,
the ability to defer payments for extended periods of time without default
consequences to the issuer, and certain other features (such as restrictions on
common dividend payments by the issuer or ultimate guarantor when full
cumulative payments on the TruPS have not been made), TruPS are often deemed to
be a close substitute for traditional preferred securities. TruPS also possess
many of the typical characteristics of equity securities due to their
subordinated position in an issuer's capital structure and because their quality
and value are heavily dependent on the issuer's profitability as opposed to any
legal claims to specific assets or cash flows.

      Senior Loans. Senior loans are senior, secured floating rate loans
("Senior Loans") made to U.S. and non-U.S. corporations, partnerships and other
business entities which operate in various industries and geographical regions
(i.e., the borrower). Senior Loans are secured with specific collateral and have
a claim on the assets and/or stock of the borrower that is senior to that held
by unsecured creditors, subordinated debt holders and stockholders of the
borrower. Senior Loans pay interest at rates which are determined periodically
on the basis of a floating base lending rate, plus a risk premium.

      Borrowers may obtain Senior Loans to, among other reasons, refinance
existing debt and for acquisitions, dividends, leveraged buyouts and general
corporate purposes. The Fund may invest in a Senior Loan by acquiring in the
secondary market participations in, assignments of or novations of a Senior
Loan. An assignment involves the sale of a loan by an existing lender to the
Fund and a participation involves the sale of a beneficial interest in a loan by
the lender to the Fund. In an assignment, the Fund becomes a lender of record
and a party to the underlying loan agreement; whereas, in a participation, the
Fund purchases only an economic interest in the loan and does not become a party
to the underlying loan agreement.

      By purchasing a participation, the Fund acquires some or all of the
interest of a bank or other lending institution in a loan to a corporate or
government borrower. The participations typically will result in the Fund having
a contractual relationship only with the lender, not the borrower. The Fund will
have the right to receive payments of principal, interest and any fees to which
it is entitled only from the lender selling the participation and only upon
receipt by the lender of the payments from the borrower. Senior Loans offer the
Fund more protection than an unsecured loan in the event of non-payment of
scheduled interest or principal. However, there is no assurance that the
liquidation of collateral from a secured loan would satisfy the borrower's
obligation, or that the collateral can be liquidated. Direct debt instruments
may involve a risk of loss in case of default or insolvency of the borrower and
may offer less legal protection to the Fund in the event of fraud or
misrepresentation. In addition, loan participations involve a risk of insolvency
of the lending bank or other financial intermediary. The markets in Senior Loans
are not regulated by federal securities laws or the SEC. The Senior Loans in
which the Fund may invest also may include debtor-in-possession financings
pursuant to Chapter 11 of the U.S. Bankruptcy Code. See "--Debtor-in-Possession
Loans" below.

      Senior Loans may be rated in the lower rating categories of the
established rating services (such as "Ba1" or lower by Moody's or "BB+" or lower
by S&P or Fitch), or may be unrated investments determined to be of comparable
quality by the Advisor, Lead Sub-Advisor or a Portfolio Sub-Advisor. As in the
case of other high-yield investments, such Senior Loans can be expected to
provide higher yields than lower yielding, higher rated fixed income securities,
but may be subject to greater risk of loss of principal and income. There are,
however, some significant differences between Senior Loans and high-yield bonds.
Senior Loan obligations are frequently secured by pledges of liens and security
interests in the assets of the borrower, and the holders of Senior Loans are
frequently the beneficiaries of debt service subordination provisions imposed on
the borrower's bondholders. These arrangements are designed to give Senior Loan
investors preferential treatment over high-yield investors in the event of
deterioration in the credit quality of the issuer. Even when these arrangements
exist, however, there can be no assurance that the borrowers of the Senior Loans
will repay principal and/or pay interest in full. Senior Loans generally bear
interest at rates set at a margin above a generally recognized base lending rate
that may fluctuate on a day-to-day basis, in the case of the prime rate of a
U.S. bank, or which may be adjusted on set dates, typically 30 to 90 days but
generally not more than one year. Consequently, the value of Senior Loans held
by the Fund may be expected to fluctuate significantly less than the value of
fixed rate high yield instruments as a result of changes in the interest rate
environment; however, the secondary dealer market for certain Senior Loans may
not be as well developed as the secondary dealer market for high yield bonds
and, therefore, presents increased market risk relating to liquidity and pricing
concerns. See "Risks--Senior Loan Risk."

      On July 27, 2017, the head of the United Kingdom's Financial Conduct
Authority announced a desire to phase out the use of LIBOR by the end of 2021.
There remains uncertainty regarding the future utilization of LIBOR and the
nature of any replacement rate. As such, the potential effect of a transition
away from LIBOR on the Fund or the financial instruments in which the Fund
invests cannot yet be determined. Please see "--LIBOR Risk" for more
information.

      Debtor-in-Possession Loans. The Fund may invest in debtor-in-possession or
"DIP" loans issued by a debtor that has filed for protection under Chapter 11 of
the United States Bankruptcy Code. DIP loans are typically working-capital


                                       22



facilities put into place at the outset of a Chapter 11 case to provide the
debtor with immediate cash and ongoing working capital necessary to fund the
debtor's Chapter 11 case through confirmation of a plan or asset sale. DIP loans
are approved by the bankruptcy court and are entitled to super priority over all
administrative expenses incurred during the bankruptcy and all other claims.
Typically, DIP loans are secured by a priming lien with priority over
pre-bankruptcy secured debt, a second lien on any encumbered property, and/or a
first-priority lien on all of the debtor's unencumbered assets. Consequently,
DIP loans generally must be repaid before other claims in a bankruptcy case.
While such loans are generally viewed as less risky than many other types of
loans as a result of their seniority in the debtor's capital structure, their
super-priority claim status, and because their terms will have been approved by
a bankruptcy court order, the debtor's reorganization efforts may fail and the
proceeds of the ensuing liquidation of the DIP lender's collateral might be
insufficient to repay the DIP loan.

      Direct Loans. Direct loans typically consist of intermediate- to long-term
borrowings by companies that are originated directly by lenders without the
traditional intermediary role of a bank or broker. Traditional direct lenders
include insurance companies, business development companies, asset management
firms (on behalf of their investors), and specialty finance companies. Direct
loans are commonly structured to include fixed payment schedules on a monthly or
quarterly basis, typically with maturities between three and seven years. Direct
loans are priced primarily on a floating rate basis, with interest rates
calculated on the basis of a fixed interest rate spread over a specified base
rate. Consequently, the total rate of interest typically is variable, floating
up or down with the specified base rate. Loan terms may include a yield
enhancement device commonly referred to as a "LIBOR Floor." This feature sets a
minimum rate to be used as the LIBOR or prime rate component of the loan's
interest rate calculation. Relative to the interest spreads on liquid credit
asset classes (such as bank loans), the interest spread on direct loans is
generally higher, reflecting their lack of liquidity, non-rated status, and
level of credit risk equivalent to or greater than that of non-investment grade
loans and bonds. Direct loan pricing is influenced by several factors, including
the borrower's size, whether the borrower is private equity-backed, the position
of the loan in the capital structure, and general market conditions.

      Like bank loans, most direct loans are not rated by any rating agency,
will not be 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 with respect to issuers of direct loans may generally be
less extensive than that available for issuers of registered or exchange listed
securities. If they were rated, direct loans likely would be rated as below
investment grade quality. Loans rated below investment grade quality, which are
often referred to as "junk" loans, are generally regarded as having
predominantly speculative characteristics and may carry a greater risk with
respect to a borrower's capacity to pay interest and repay principal. Direct
loans often are collateralized by a security interest against some or all of the
borrower's tangible and intangible assets, although some direct loans are
unsecured.

      A potential additional component of return on direct loans is upfront or
closing fees. These yield enhancements could also come in the form of a discount
to the purchase price. When in discount form, this component is a form of
deferred income that will be realized over time or upon final repayment of the
loan. Such upfront fees, original issue discount (or "OID"), or closing fees
serve to enhance the return on the investment.

      Middle market companies are typical borrowers of direct loans, although
the companies can range from the lower middle market (companies with
approximately $10 million to $25 million in earnings before interest, taxes,
depreciation and amortization ("EBITDA") to upper middle market (companies with
approximately $75 million to $100 million in EBITDA). Companies with annual
EBITDA larger than $100 million are generally thought to achieve lower costs of
financing by raising capital via the public and quasi-public debt markets,
either through high yield bonds or broadly syndicated leveraged bank loans.
Various inputs regarding a borrower usually are considered by the lender when
deciding whether to make a direct loan, including the borrower's industry,
market position, tangible and intangible assets, earnings, cash flows,
management team, capital structure, and sponsor(s) (if the company is externally
sponsored). See "Risks--Direct Loan Risk."

      Below Investment Grade Securities. The Fund will invest, directly or
indirectly, in securities that are rated below investment grade at the time of
purchase. The ratings of a rating agency represent its opinion as to the quality
of securities it undertakes to rate. Ratings are not absolute standards of
quality; consequently, securities with the same maturity, duration, coupon, and
rating may have different yields.

      If a security owned by the Fund is subsequently downgraded, the Fund will
not be required to dispose of such security. If a downgrade occurs, the Advisor,
Lead Sub-Advisor or a Portfolio Sub-Advisor will consider what action, including
the sale of such security, is in the best interest of the Fund and its Common
Shareholders.

      Because the risk of default is higher for below investment grade
securities than investment grade securities, research and credit analysis will
be an especially important part of managing securities of this type. The
Advisor, Lead Sub-Advisor or a Portfolio Sub-Advisor will attempt to identify
those issuers of below investment grade securities whose financial condition
such adviser believes are adequate to meet future obligations or who have
improved or are expected to improve in the future. An adviser's analysis focuses
on relative values based on such factors as interest or dividend coverage, asset
coverage, earnings prospects and the experience and managerial strength of the
issuer. See "Risks--Credit and Below Investment Grade Securities Risk."


                                       23



      Corporate Debt. The Fund may invest in a wide variety of corporate debt of
varying maturities issued by U.S. and foreign corporations and other business
entities and of any credit rating. Corporate debt generally is used by
corporations to borrow money from investors. The issuer pays the investor a
fixed or variable rate of interest and normally must repay the amount borrowed
on or before maturity. Holders of corporate debt, as creditors, have a prior
legal claim over common and preferred stockholders as to both income and assets
of the issuer for the principal and interest due them and may have a prior claim
over other creditors but are generally subordinate to any existing lenders in
the issuer's capital structure.

      Corporate debt comes in many varieties and may differ in the way that
interest is calculated, the amount and frequency of payments, the type of
collateral, if any, and the presence of special features (e.g., conversion
rights). The Fund's investments in corporate debt may include, but are not
limited to, senior, junior, secured and unsecured bonds, notes and other debt
securities. The investment return of corporate debt reflects interest on the
security and changes in the market value of the security. The fixed rate
corporate debt in which the Fund invests typically will be unsecured, while the
floating rate corporate debt in which the Fund invests typically will be
secured. The market value of fixed rate corporate debt will generally rise and
fall inversely with interest rates. The value of intermediate- and longer-term
fixed rate corporate debt normally fluctuates more in response to changes in
interest rates than does the value of shorter-term fixed rate corporate debt.
The market value of corporate debt may be affected by the credit rating of the
corporation, the corporation's performance and perceptions of the corporation in
the market place. There is a risk that the issuers of the securities may not be
able to meet their obligations on interest or principal payments at the time
called for by an instrument. Corporate debt usually yields more than government
or agency bonds due to the presence of credit risk.

      Illiquid and Restricted Securities. The Fund may invest in securities
that, at the time of investment, are illiquid (i.e., securities that cannot be
disposed of by the Fund within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities). In the
absence of readily available market quotations, the Board of Trustees, a
committee appointed by the Fund's Board of Trustees or a designee of the Board
of Trustees will price illiquid investments at a fair value as determined in
good faith. Valuing illiquid securities typically requires greater judgment than
valuing securities for which there is an active trading market. The market price
of illiquid securities generally is more volatile than that of more liquid
securities, which may adversely affect the price that the Fund pays for or
recovers upon the sale of illiquid securities. Investment of the Fund's assets
in illiquid securities may restrict the Fund's ability to take advantage of
market opportunities. The risks associated with illiquid securities may be
particularly acute in situations in which the Fund's operations require cash,
including in connection with the Fund's termination, and could result in the
Fund borrowing to meet its short-term needs or incurring losses on the sale of
illiquid securities.

      The Fund may invest in restricted securities, which are securities that
may not be sold to the public without an effective registration statement under
the Securities Act of 1933 Act, as amended (the "1933 Act"). The restriction on
public sale may make it more difficult to value such securities, limit the
Fund's ability to dispose of them and lower the amount the Fund could realize
upon their sale. Because they are not registered, restricted securities may be
sold only in a privately negotiated transaction or pursuant to an exemption from
registration. In recognition of the increased size and liquidity of the
institutional market for unregistered securities and the importance of
institutional investors in the formation of capital, the SEC adopted Rule 144A
under the 1933 Act. Rule 144A is designed to facilitate efficient trading among
institutional investors by permitting the sale of certain unregistered
securities to qualified institutional buyers. To the extent privately placed
securities held by the Fund qualify under Rule 144A and an institutional market
develops for those securities, the Fund likely will be able to dispose of the
securities without registering them under the 1933 Act. To the extent that
institutional buyers become, for a time, uninterested in purchasing these
securities, investing in Rule 144A securities could increase the level of the
Fund's illiquidity. See "Risks--Illiquid/Restricted Securities Risk."

      Other Securities. New financial products continue to be developed, and the
Fund may invest in any products that may be developed to the extent consistent
with its investment objective and the regulatory and federal tax requirements
applicable to investment companies.

      Derivative Transactions. The Fund may engage in "Derivative Transactions"
from time to time. To the extent the Fund engages in Derivative Transactions, it
is expected to do so to hedge against interest rate, currency and/or other
risks, or for other investment or risk management purposes. The Fund may use
Derivative Transactions for investment purposes to the extent consistent with
the Fund's investment objectives if the Lead Sub-Advisor or Portfolio
Sub-Advisors, as applicable, deems it appropriate to do so. The Fund may
purchase and sell a variety of derivative instruments, including exchange-listed
and over-the-counter, or "OTC," options, forwards, futures, options on futures,
swaps and similar instruments, various interest rate transactions, such as
swaps, caps, floors or collars, and credit transactions and credit default
swaps. The Fund also may purchase and sell derivative instruments that combine
features of these instruments. Collectively, these financial management
techniques are referred to herein as "Derivative Transactions." The Fund's use
of Derivative Transactions, if any, will generally be deemed to create leverage
for the Fund and involves significant risks. No assurance can be given that the
Fund's strategies and use of derivatives will be successful, and the Fund's
investment performance could diminish compared with what it would have been if
Derivative Transactions were not used.


                                       24



      Segregated Liquid Assets.

      With respect to leverage incurred through investments in reverse
repurchase agreements, dollar rolls and economically similar transactions, the
Fund intends to earmark or segregate cash or liquid securities in accordance
with applicable interpretations of the staff of the SEC. As a result of such
segregation, the Fund's obligations under such transactions will not be
considered indebtedness for purposes of the 1940 Act and the Fund's use of
leverage through reverse repurchase agreements, dollar rolls and economically
similar transactions will not be limited by the 1940 Act. However, the Fund's
use of leverage through reverse repurchase agreements, dollar rolls and
economically similar transactions may be limited by the availability of cash or
liquid securities to earmark or segregate in connection with such transactions.

      In addition, to the extent the terms of derivative transactions obligate
the Fund to make payments, the Fund intends to earmark or segregate cash or
liquid securities in an amount at least equal to the current value of the amount
then payable by the Fund under the terms of such transactions or otherwise cover
such transactions in accordance with applicable interpretations of the staff of
the SEC. As a result of such segregation or cover, the Fund's obligations under
such transactions will not be considered indebtedness for purposes of the 1940
Act. To the extent that the Fund's obligations under such transactions are not
so segregated or covered, such obligations may be considered "senior securities
representing indebtedness" under the 1940 Act and therefore subject to the 300%
asset coverage requirement described above and other requirements of the 1940
Act.

      Short-Term Debt Securities; Temporary Defensive Position; Invest-Up
Period. During the period in which the net proceeds of the offering of Common
Shares are being invested, the period in which the Fund's assets are being
liquidated in anticipation of the Fund's termination or during periods in which
the Advisor or the Lead Sub-Advisor 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 Managed Assets in cash or cash equivalents. A determination by the Advisor
or the Lead Sub-Advisor that it is temporarily unable to follow the Fund's
investment strategy or that it is impractical to do so will generally 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, Common Shareholders of the Fund
may be adversely affected and the Fund may not pursue or achieve its investment
objective. For a further description of these temporary investments, see the SAI
under "Investment Policies and Techniques--Portfolio Composition."

      Preferred Securities. Preferred securities represent an equity interest in
a company that generally entitles the holder to receive, in preference to the
holders of other stocks such as common stocks, dividends and a fixed share of
the proceeds resulting from liquidation of the company. Unlike common stocks,
preferred stocks usually do not have voting rights. Preferred stocks in some
instances are convertible into common stock. Some preferred stocks also entitle
their holders to receive additional liquidation proceeds on the same basis as
holders of a company's common stock, and thus also represent an ownership
interest in the company. Some preferred stocks offer a fixed rate of return with
no maturity date. Because they never mature, these preferred stocks may act like
long-term bonds, can be more volatile than other types of preferred stocks and
may have heightened sensitivity to changes in interest rates. Other preferred
stocks have a variable dividend, generally determined on a quarterly or other
periodic basis, either according to a formula based upon a specified premium or
discount to the yield on particular U.S. Treasury securities or based on an
auction process, involving bids submitted by holders and prospective purchasers
of such stocks. Although they are equity securities, preferred securities have
certain characteristics of both debt securities and common stock. They are like
debt securities in that their stated income is generally contractually fixed.
They are like common stocks in that they do not have rights to precipitate
bankruptcy proceedings or collection activities in the event of missed payments.
Furthermore, preferred securities have many of the key characteristics of equity
due to their subordinated position in an issuer's capital structure and because
their quality and value are heavily dependent on the profitability of the issuer
rather than on any legal claims to specific assets or cash flows. Because
preferred securities represent an equity ownership interest in a company, their
value usually will react more strongly than bonds and other debt instruments to
actual or perceived changes in a company's financial condition or prospects, or
to fluctuations in the equity markets.

      In order to be payable, dividends on preferred securities must be declared
by the issuer's board of directors. In addition, distributions on preferred
securities may be subject to deferral and thus may not be automatically payable.
Income payments on some preferred securities are cumulative, causing dividends
and distributions to accrue even if they are not declared by the board of
directors of the issuer or otherwise made payable. Other preferred securities
are non-cumulative, meaning that skipped dividends and distributions do not
continue to accrue. There is no assurance that dividends on preferred securities
in which the Fund invests will be declared or otherwise made payable.

      Preferred securities have a liquidation value that generally equals their
original purchase price at the date of issuance. The market values of preferred
securities may be affected by favorable and unfavorable changes impacting the
issuers' industries or industry sectors. They also may be affected by actual and
anticipated changes or ambiguities in the tax status of the security and by
actual and anticipated changes or ambiguities in tax laws, such as changes in
corporate and individual income tax rates or the characterization of dividends
as tax-advantaged. Many of the preferred securities in which the Fund may invest
will not pay tax-advantaged dividends. See "Tax Matters." Because the claim on
an issuer's earnings represented by preferred securities may become
disproportionately large when interest rates fall below the rate payable on the
securities or for other reasons, the issuer may redeem preferred securities,
generally after an initial period of call protection in which the security is
not redeemable. Thus, in declining interest rate environments in particular, the
Fund's holdings of higher dividend-paying preferred securities may be reduced
and the Fund may be unable to acquire securities paying comparable rates with
the redemption proceeds.


                                       25



      Real Estate Investment Trusts. The Fund may invest in REITs. REITs are
pooled investment vehicles that own, and typically operate, income-producing
real estate. If a REIT meets certain requirements, including distributing to
shareholders substantially all of its taxable income (other than net capital
gains), then it is not taxed on the income distributed to shareholders. REITs
are subject to management fees and other expenses, and so the Fund will bear its
proportionate share of the costs of the REITs' operations. There are three
general categories of REITs: equity REITs, mortgage REITs and hybrid REITs.
Equity REITs, which invest primarily in direct fee ownership or leasehold
ownership of real property and derive most of their income from rents, are
generally affected by changes in the values of and incomes from the properties
they own. Mortgage REITs invest mostly in mortgages on real estate, which may
secure, for example, construction, development or long-term loans, and the main
source of their income is mortgage interest payments. Mortgage REITs may be
affected by the credit quality of the mortgage loans they hold. A hybrid REIT
combines the characteristics of equity REITs and mortgage REITs, generally by
holding both ownership interests and mortgage interests in real estate, and thus
may be subject to risks associated with both real estate ownership and
investments in mortgage-related investments. Along with the risks common to
different types of real estate-related investments, REITs, no matter the type,
involve additional risk factors, including poor performance by the REIT's
manager, adverse changes to the tax laws, and the possible failure by the REIT
to qualify for the favorable tax treatment applicable to REITs under the Code or
an exemption under the 1940 Act. REITs are not diversified and are heavily
dependent on cash flow earned on the property interests they hold.

      Mortgage REITs are exposed to the risks specific to the real estate market
as well as the risks that relate specifically to the way in which mortgage REITs
are organized and operated. Mortgage REITs receive principal and interest
payments from the owners of the mortgaged properties. Accordingly, mortgage
REITs are subject to the credit risk of the borrowers to whom they extend
credit, and are subject to the risks described under "Mortgage-Backed Securities
Risk" and "Debt Securities Risk." Mortgage REITs are also subject to significant
interest rate risk. Mortgage REITs typically use leverage and many are highly
leveraged, which exposes them to the risks of leverage. Leverage risk refers to
the risk that leverage created from borrowing may impair a mortgage REIT's
liquidity, cause it to liquidate positions at an unfavorable time and increase
the volatility of the values of securities issued by the mortgage REIT. The use
of leverage may not be advantageous to a mortgage REIT. To the extent that a
mortgage REIT incurs significant leverage, it may incur substantial losses if
its borrowing costs increase or if the assets it purchases with leverage
decrease in value.

      The Fund's investment in a REIT may result in the Fund making
distributions that constitute a return of capital to Fund shareholders for
federal income tax purposes. In addition, distributions attributable to REITs
made by the Fund to Fund shareholders will not qualify for the corporate
dividends-received deduction, or, generally, for treatment as qualified dividend
income. Certain distributions made by the Fund attributable to dividends
received by the Fund from REITs may qualify as "qualified REIT dividends" in the
hands of non-corporate shareholders.

      Business Development Companies. BDCs are a type of closed-end fund
regulated under the 1940 Act. BDCs typically invest in and lend to small- and
medium-sized private and certain public companies that may not have access to
public equity markets for capital raising. The interest earned by a BDC flows
through to investors in the form of a dividend, normally without being taxed at
the BDC entity level. BDCs may invest in a diverse array of industries. BDCs are
unique in that generally, at least 70% of their investments must be made in
private and certain public U.S. businesses, and BDCs are required to make
available significant managerial assistance to their portfolio companies. Unlike
corporations, BDCs are not taxed on income distributed to their shareholders
provided they comply with the applicable requirements of the Code. Similar to
REITs, the securities of BDCs, which are required to distribute substantially
all of their income on an annual basis to investors in order to not be subject
to entity level taxation, often offer a yield advantage over securities of other
issuers, such as corporations, that are taxed on income at the entity level and
are able to retain all or a portion of their income rather than distributing it
to investors. The Fund may invest in both equity and debt securities of BDCs,
and is not limited with respect to the specific types of BDCs in which it may
invest. The Fund will indirectly bear its proportionate share of any management
and other expenses, and of any performance based or incentive fees, charged by
the BDCs in which it invests, in addition to the expenses paid by the Fund.

      Exchange-Traded Funds. ETFs are shares of unaffiliated investment
companies issuing shares which are traded like traditional equity securities on
a national stock exchange. Much like an index mutual fund, an ETF represents a
portfolio of securities, which is often designed to track a particular market
segment or index. An investment in an ETF, like one in any investment company,
carries the same risks as those of its underlying securities. An ETF may fail to
accurately track the returns of the market segment or index that it is designed
to track, and the price of an ETF's shares may fluctuate or lose money. In
addition, because they, unlike other investment companies, are traded on an
exchange, ETFs are subject to the following risks: (i) the market price of the
ETF's shares may trade at a premium or discount to the ETF's net asset value;
(ii) an active trading market for an ETF may not develop or be maintained; and
(iii) there is no assurance that the requirements of the exchange necessary to
maintain the listing of the ETF will continue to be met or remain unchanged. In
the event substantial market or other disruptions affecting ETFs should occur in
the future, the liquidity and value of the Fund's shares could also be
substantially and adversely affected.


                                       26



                     LIMITED TERM AND ELIGIBLE TENDER OFFER

      The Fund will terminate on or before the Termination Date; provided, that
if the Board of Trustees 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        , 2033), and
(ii) once for up to an additional six months (i.e., up to        ), in each case
upon the affirmative vote of a majority of the Board of Trustees and without a
vote of Common Shareholders. In addition, as of a date within twelve months
preceding the Termination Date, the Board of Trustees may cause the Fund to
conduct 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, subject to the terms described below
("Eligible Tender Offer"). Following the completion of an Eligible Tender Offer,
the Board of Trustees 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 Trustees 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. The Fund's investment objective 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.

      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 Trustees. 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 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 Trustees 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       , 2033), and
(ii) once for up to an additional six months (i.e. up to        ), in each case
upon the affirmative vote of a majority of the Board of Trustees and without a
vote of Common Shareholders. In determining whether to extend the Termination
Date, the Board of Trustees may consider the 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 Trustees 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 Trustees 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, which shall be as
of a date within twelve months preceding the Termination Date. The Board of
Trustees has established that, following an Eligible Tender Offer, the Fund must
have at least $    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 Shares or debt


                                       27



securities, if any. See "Risks--Limited Term and Eligible Tender Offer Risk."
Following the completion of an Eligible Tender Offer, the Board of Trustees may
eliminate the limited term structure of the Fund upon the affirmative vote of a
majority of the Board of Trustees 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 Trustees 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 Trustees in consultation with the Advisor and the Lead
Sub-Advisor, taking into account that the Advisor and the Lead Sub-Advisor may
have a potential conflict of interest in recommending to the Board of Trustees
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 Advisor 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 Trustees, 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
Declaration are amended with the vote of Common Shareholders, as described
above. See "Certain Provisions of the Declaration of Trust and By-Laws."

                                USE OF LEVERAGE

      Subject to market conditions, within approximately     months after the
completion of this offering, the Fund intends to use leverage to seek to enhance
its potential to produce a high level of current income.

      The Fund currently intends to use leverage to seek to achieve its
investment objective. The Fund initially anticipates that, under normal market
conditions, it will employ leverage through reverse repurchase agreements and/or
dollar roll transactions. The Fund also may use borrowings from banks or other


                                       28



financial institutions. The Fund currently expects that the leverage initially
obtained through such reverse repurchase agreements, dollar roll transactions
and borrowings will represent approximately    % of the Fund's Managed Assets.
The Fund also may, from time to time, enter into additional transactions that
may give rise to a form of leverage, including           . See "The Fund's
Investments--        ." The Fund does not currently anticipate it will employ
leverage through the issuance of Preferred Shares within 12 months after the
completion of this offering. Under normal market conditions, the Fund's use of
leverage through reverse repurchase agreements, dollar roll transactions,
borrowings, and the issuance of Preferred Shares, in the aggregate, will not
exceed    % of its Managed Assets.             entered into by the Fund for
purposes other than creating investment leverage (e.g., for hedging or risk
management purposes) will not be subject to such limitation.

      In general, the Fund is prohibited from engaging in most forms of leverage
representing indebtedness unless immediately after the issuance of such leverage
the Fund has satisfied the asset coverage requirement with respect to senior
securities representing indebtedness prescribed by the 1940 Act--i.e., the value
of the Fund's total assets, less all liabilities and indebtedness not
represented by senior securities (for these purposes, "total net assets"), is at
least 300% of the senior securities representing indebtedness (effectively
limiting the use of leverage through senior securities representing indebtedness
to 33 1/3% of the Fund's total net assets, including assets attributable to such
leverage). 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, this asset coverage requirement is satisfied. The Fund may (but is
not required to) cover its commitments under its reverse repurchase agreements,
dollar roll transactions, and derivative transactions by segregating liquid
assets, or by entering into offsetting transactions or owning positions covering
its obligations. To the extent these instruments are so covered, they will not
be considered "senior securities" under the 1940 Act and therefore will not be
subject to the 300% asset coverage requirement of the 1940 Act otherwise
applicable to forms of senior securities representing indebtedness used by the
Fund. However, the Securities and Exchange Commission has proposed a new rule
that could further limit or otherwise alter the Fund's ability to use certain
derivative and other transactions, including reverse repurchase agreements. See
"Risks--      ." Moreover, even if such derivative and other transactions of the
Fund are covered, they could represent a form of economic leverage and create
special risks. See "Risks--Leverage Risk."

      The Fund will seek to use leverage opportunistically and may determine to
increase, decrease, or eliminate its use of leverage over time and from time to
time based on various considerations, including the yield curve environment,
interest rate trends, and market conditions. There is no assurance that
borrowings or other forms of leverage will in fact be established or be
maintained in the future. If and when leverage is used, there is no assurance
that the Fund's leveraging strategies will be successful. The use of leverage
will increase the volatility of the performance of the Fund's investment
portfolio and could result in the Fund experiencing greater losses than if
leverage were not used. The net proceeds the Fund obtains from the use of
leverage will be invested in accordance with the Fund's investment objective and
policies as described in this prospectus. So long as the rate of return, net of
applicable Fund expenses, on the investments purchased by the Fund exceeds the
costs of such leverage to the Fund, the use of leverage should help the Fund to
achieve an investment return greater than it would if it were not leveraged,
although use of leverage may result in losses greater than if the Fund had not
used leverage.

      Leveraging is a speculative technique and there are special risks and
costs involved. See "Risks--Leverage Risk." The Fund cannot assure you that the
use of leverage, including through reverse repurchase agreements, dollar roll
transactions and borrowings, and/or the use of derivatives strategies will
result in a higher investment return on your Common Shares, and it may result in
losses. When leverage is used, the net asset value ("NAV") and market price of
the Common Shares and the yield to Common Shareholders will be more volatile. In
addition, the leverage costs will be borne immediately by the Common
Shareholders and result in a reduction of the NAV of the Common Shares. See
"Summary of Fund Expenses." Any senior securities issued by the Fund will have
seniority over the Common Shares and, therefore, have complete priority upon
distribution of assets over the Common Shares.

      Because the fees received by the Advisor, the Lead Sub-Advisor and the
Portfolio Sub-Advisors are based on Managed Assets (which includes assets
attributable to the Fund's reverse repurchase agreements, dollar roll
transactions and borrowings), there is a financial incentive for the Advisor,
the Lead Sub-Advisor and the Portfolio Sub-Advisors to cause the Fund to use
leverage, which creates a conflict of interest between the Advisor, the Lead
Sub-Advisor and the Portfolio Sub-Advisors on the one hand, and the Common
Shareholders, on the other hand. See "Risks--Potential Conflicts of Interest
Risk."

      Reverse Repurchase Agreements and Dollar Rolls. Reverse repurchase
agreements involve sales by the Fund of portfolio securities concurrently with
an agreement by the Fund to repurchase the same securities at a later date at a
fixed price. The Fund's use of reverse repurchase agreements, in economic
essence, constitute a securitized borrowing by the Fund from the security
purchaser. See "Risks--Reverse Repurchase Agreement Risk."

      The dollar roll is similar to a reverse repurchase agreement in certain
respects. In a dollar roll transaction, the Fund sells a mortgage-related or
other security to a dealer and simultaneously agrees to repurchase a similar
security (but not the same security) in the future at a pre-determined price. A
dollar roll transaction can be viewed, like a reverse repurchase agreement, as a
collateralized borrowing in which the Fund pledges a mortgage-related or other
security to the dealer to obtain cash. However, unlike reverse repurchase
agreements, the dealer with which the Fund enters into a dollar roll transaction
is not obligated to return the same securities as those originally sold by the
Fund, but rather only securities which are "substantially identical," which
generally means that the securities repurchased will bear the same interest rate
and a similar maturity as those sold, but the pools of mortgages collateralizing
those securities may have different prepayment histories than those sold. During
the period between the sale and repurchase, the Fund will not be entitled to
receive interest and principal payments on the securities sold. See "Risks--Doll
Roll Transaction Risk."

      It is possible that changing government regulation may affect the Fund's
use of these strategies. Changes in regulatory requirements concerning margin
for certain types of financing transactions could impact the Fund's ability to
utilize these investment strategies and techniques in the future.

      Borrowings. The Declaration authorizes the Fund, without prior approval of
the Common Shareholders, to borrow money. It is expected that the Fund's
borrowings, if any, will be made pursuant to a revolving credit facility
established with a bank at a fixed or floating rate. A typical credit facility
may contain various covenants that, among other things, could limit the Fund's
ability to pay dividends in certain circumstances, incur additional debt, change
its fundamental investment policies and engage in certain transactions,
including mergers and consolidations; could limit or prohibit certain
investments otherwise contemplated by the Fund's principal investment
strategies; and may require asset coverage ratios in addition to those required
by the 1940 Act. The Fund may be required to pledge its assets and to maintain a
portion of its assets in cash or high-grade securities, including as a reserve
against interest or principal payments and expenses. Only certain of the Fund's
assets may be eligible to be pledged under the terms of a credit facility.
Consequently, the Fund may be limited in its ability to draw on the credit
facility by the amount of eligible securities the Fund holds in its portfolio
and is able to pledge. The Fund expects that any credit facility would have
customary covenant, negative covenant and default provisions. There can be no
assurance that the Fund will enter into an agreement for a credit facility at
all or on terms and conditions representative of the foregoing, or that
additional material terms will not apply. In addition, if entered into, any such
credit facility may in the future be replaced or refinanced by one or more
credit facilities having substantially different terms or by the issuance of
preferred shares or debt securities. The Fund may be required to maintain
minimum average balances with the lender or to pay a commitment or other fee to
maintain a line of credit.

      The Fund also may borrow money as a temporary measure for extraordinary or
emergency purposes, including the payment of dividends and the settlement of
securities transactions which otherwise might require untimely dispositions of
Fund securities.


                                       29



      Preferred Shares. Although the Fund does not currently anticipate it will
employ leverage through the issuance of Preferred Shares within 12 months after
the completion of this offering., it may do so in the future upon the approval
of the Board of Trustees. Any issued Preferred Shares would have complete
priority upon distribution of assets over the Common Shares. Under the 1940 Act,
the Fund would not be permitted to issue Preferred Shares unless immediately
after such issuance the value of the Fund's total assets, less all liabilities
and indebtedness not represented by senior securities, was at least 200% of the
aggregate amount of senior securities representing indebtedness plus the
aggregate of the involuntary liquidation preference of the Preferred Shares. In
addition, if the Fund issues Preferred Shares, the 1940 Act prohibits the
declaration of any dividend (except a dividend payable in Common Shares of the
Fund) or distribution upon the Common Shares of the Fund, or the purchase of any
such Common Shares, unless in every such case the Preferred Share class 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 200% (as described above)
after deducting the amount of such dividend, distribution, or purchase price, as
the case may be. The 1940 Act requires that the holders of any Preferred Shares,
voting separately as a single class, have the right to elect two Trustees at all
times and, if dividends on Preferred Shares shall be unpaid in an amount equal
to two full years' dividends on such Preferred Shares, to elect a majority of
the Trustees. The Fund might also be subject to certain restrictions imposed by
guidelines of one or more rating agencies that may issue ratings for Preferred
Shares issued by the Fund. These guidelines may impose asset coverage or
portfolio composition requirements that are more stringent than those imposed on
the Fund by the 1940 Act.

EFFECTS OF LEVERAGE

      The following table is furnished in response to requirements of the SEC.
It is designed to illustrate the effect of leverage on Common Share total
return, assuming investment portfolio total returns (comprised of income and
changes in the value of securities 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 the investment portfolio returns
experienced or expected to be experienced by the Fund. See "Risks."

      As assumed in the table below, if the Fund's leverage through reverse
repurchase agreements, dollar roll transactions and borrowings represent
approximately    % of the Fund's Managed Assets at an estimated combined annual
interest expense rate of    %, the return generated by the Fund's portfolio (net
of estimated expenses) must exceed    % in order to cover such costs related to
the Fund's reverse repurchase agreements, dollar roll transactions and
borrowings. Of course, these numbers are merely estimates used for illustration.
Actual interest expense rates on the leverage will vary frequently and may be
significantly higher or lower than the rate estimated above. The information
below does not reflect the Fund's use of certain other forms of economic
leverage achieved through the use of other instruments or transactions not
considered to be senior securities under the 1940 Act.


      Assumed Portfolio Total Return (Net of Expenses)          (5)%       0%        5%      10%      (10)%
      Common Share Total Return                                  %         %         %        %        %

      Common Share total return is composed of two elements: the Common Share
dividends paid by the Fund (the amount of which is largely determined by the net
investment income of the Fund after paying leverage costs) and gains or losses
on the value of the securities the Fund owns. As required by SEC rules, the
table above assumes that the Fund is more likely to suffer capital losses than
to enjoy capital appreciation. For example, to assume a total return of 0% the
Fund must assume that the interest it receives on its investments is entirely
offset by losses in the value of those investments.

                                     RISKS

      Risk is inherent in all investing. The following discussion summarizes the
principal risks that you should consider before deciding whether to invest in
the Fund. For additional information about the risks associated with investing
in the Fund, see "Additional Information About the Fund's Investments and
Investment Risks" in the SAI.

GENERAL

      The value of the Fund's total net assets fluctuates in response to
fluctuations in the value of the securities in which the Fund invests, and the
Fund could sustain losses. An investment in the Fund should only be made by
investors who have sufficient capital to sustain the loss of their entire
investment in the Fund. Discussed below are certain of the investments expected
to be made by the Fund and the principal risks that the Advisor, Lead
Sub-Advisor and Portfolio Sub-Advisors believe are associated with those
investments. These risks will, in turn, have an effect on the Fund.


                                       30



GENERAL ECONOMIC AND MARKET CONDITIONS

      The success of the Fund's activities may be affected by general economic
and market conditions, such as interest rates, availability of credit, inflation
rates, economic uncertainty, changes in laws and national and international
political circumstances. These factors may affect the level and volatility of
security prices and liquidity of the Fund's investments. Unexpected volatility
or illiquidity could impair the Fund's profitability or result in its suffering
losses.

NO OPERATING HISTORY

      The Fund is a newly organized, non-diversified, closed-end management
investment company with no operating history. It is designed for long-term
investing and not as a vehicle for trading. Shares of closed-end investment
companies frequently trade at a discount from their NAV. This risk may be
greater for investors expecting to sell their shares in a relatively short
period of time after completion of the public offering.

INVESTMENT AND MARKET RISK

      An investment in the Fund's Common Shares is subject to investment risk,
including the possible loss of the entire amount that you invest. Your
investment in Common Shares represents an indirect investment in the securities
owned by the Fund. The value of these securities, like other market investments,
may move up or down, sometimes rapidly and unpredictably. The value of the
securities in which the Fund invests will affect the value of the Common Shares.
Your Common Shares at any point in time may be worth less than your original
investment, even after taking into account the reinvestment of Fund dividends
and distributions.

MANAGEMENT RISK AND RELIANCE ON KEY PERSONNEL

      The Fund is subject to management risk because it is an actively managed
portfolio. The Portfolio Sub-Advisors will apply investment techniques and risk
analyses in making investment decisions for the Fund, but there can be no
guarantee that these will produce the desired results. A Portfolio Sub-Advisor's
judgments about the attractiveness, value and potential appreciation of
particular asset classes, sectors, securities, or other investments may prove to
be incorrect and may not anticipate actual market movements or the impact of
economic conditions generally. No matter how well a portfolio manager evaluates
market conditions, the investments a portfolio manager chooses may fail to
produce the intended result, and you could lose money on your investment in the
Fund.

      In addition, implementation of the Fund's investment strategy depends upon
the continued contributions of certain key employees of the Advisor, Lead
Sub-Advisor and Portfolio Sub-Advisors, some of whom have unique talents and
experience and would be difficult to replace. The loss or interruption of the
services of a key member of the portfolio management team could have a negative
impact on the Fund during the transitional period that would be required for a
successor to assume the responsibilities of the position.

MULTI-MANAGER RISK

      The Fund's performance will be dependent upon the success of the Portfolio
Sub-Advisors in implementing the Fund's investment strategies in pursuit of its
investment objective. In addition, to a significant extent, the Fund's
performance will depend on the success of the Lead Sub-Advisor's methodology in
allocating the Fund's assets to the Portfolio Sub-Advisors and its oversight of
the Portfolio Sub-Advisors. The Portfolio Sub-Advisors may underperform the
market generally or other sub-advisers that could have been selected for the
Fund. The Portfolio Sub-Advisors' investment styles may not always be
complementary, which could adversely affect the performance of the Fund. Because
each Portfolio Sub-Advisor makes investment decisions independently, it is
possible that one or more Portfolio Sub-Advisors may, at any time, take
positions that may be opposite of positions taken by other Portfolio
Sub-Advisors. In such cases, the Fund will incur brokerage and other transaction
costs without accomplishing any net investment results. The Portfolio
Sub-Advisors also may be competing with one another for similar positions at the
same time, which could have the result of increasing a security's cost. 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.

ASSET ALLOCATION RISK

      To the extent that the Lead Sub-Advisor's asset allocation among the
Portfolio Sub-Advisors fails 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.


                                       31



CREDIT RISK

      Credit risk is the risk that an issuer or counterparty will fail to pay
its obligations to the Fund when they are due. If an investment's issuer or
counterparty fails to pay interest or otherwise fails to meet its obligations to
the Fund, the Fund's income might be reduced and the value of the investment
might fall or be lost entirely. Financial strength and solvency of an issuer are
the primary factors influencing credit risk. Changes in the financial condition
of an issuer or counterparty, changes in specific economic, social or political
conditions that affect a particular type of security, other instrument or an
issuer, and changes in economic, social or political conditions generally can
increase the risk of default by an issuer or counterparty, which can affect a
security's or other instrument's credit quality or value and an issuer's or
counterparty's ability to pay interest and principal when due. The values of
lower-quality debt securities (including debt securities commonly known as "high
yield" securities or "junk bonds") and floating rate loans, tend to be
particularly sensitive to these changes. The values of securities also may
decline for a number of other reasons that relate directly to the issuer, such
as management performance, financial leverage and reduced demand for the
issuer's goods and services, as well as the historical and prospective earnings
of the issuer and the value of its assets. Credit risk is heightened to the
extent the Fund has fewer counterparties.

      In addition, lack of or inadequacy of collateral or credit enhancements
for a fixed income security may affect its credit risk. Credit risk of a
security may change over time, and securities which are rated by rating agencies
may be subject to downgrade, which may have an indirect impact on the market
price of securities. Ratings are only opinions of the agencies issuing them as
to the likelihood of re-payment. They are not guarantees as to quality and they
do not reflect market risk.

CREDIT AND BELOW INVESTMENT GRADE SECURITIES RISK

      Credit risk is the risk that one or more securities in the Fund's
portfolio will decline in price or fail to pay interest or principal when due
because the issuer of the security experiences a decline in its financial
status. Below investment grade securities are securities rated below "BBB-" by
S&P or Fitch, or below "Baa3" by Moody's, or comparably rated by another NRSRO
or, if unrated, determined by a Portfolio Sub-Advisor to be of comparable credit
quality at the time of purchase. Below investment grade instruments are commonly
referred to as "junk" or "high yield" securities and are considered speculative
with respect to the issuer's capacity to pay interest and repay principal and
are susceptible to default or decline in market value due to adverse economic
and business developments. High yield securities are often unsecured and
subordinated to other creditors of the issuer. The market values for high yield
securities tend to be very volatile, and these securities are generally less
liquid than investment grade securities. For these reasons, your investment in
the Fund is subject to the following specific risks: (i) increased price
sensitivity to changing interest rates and to a deteriorating economic
environment; (ii) greater risk of loss due to default or declining credit
quality; (iii) adverse company specific events more likely to render the issuer
unable to make interest and/or principal payments; (iv) negative perception of
the high yield market which may depress the price and liquidity of high yield
securities; (v) volatility; and (vi) liquidity.

      Default, or the market's perception that an issuer is likely to default,
could reduce the value and liquidity of securities held by the Fund, thereby
reducing the value of your investment in the Fund's Common Shares. In addition,
default may cause the Fund to incur expenses in seeking recovery of principal or
interest on its portfolio holdings. In any reorganization or liquidation
proceeding relating to a portfolio company, the Fund may lose its entire
investment or may be required to accept cash or securities with a value less
than its original investment. Among the risks inherent in investments in a
troubled entity is the fact that it frequently may be difficult to obtain
information as to the true financial condition of such issuer. A Portfolio
Sub-Advisor's judgment about the credit quality of an issuer and the relative
value of its securities may prove to be wrong. Investments in below investment
grade 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.

      Adverse changes in economic conditions are more likely to lead to a
weakened capacity of a high-yield issuer to make principal payments and interest
payments than an investment grade issuer. An economic downturn could severely
affect the ability of highly leveraged issuers to service their debt obligations
or to repay their obligations upon maturity. If the recent economic downturn
continues longer than corporate managers anticipate or prepare for, that could
similarly affect many issuers.

      The secondary market for high yield securities may not be as liquid as the
secondary market for more highly rated securities, a factor which may have an
adverse effect on the Fund's ability to dispose of a particular security. There
are fewer dealers in the market for high yield securities than for investment
grade obligations. The prices quoted by different dealers may vary
significantly, and the spread between bid and asked prices is generally much
larger for high yield securities than for higher quality instruments. Under
adverse market or economic conditions, the secondary market for high yield
securities could contract further, independent of any specific adverse changes
in the condition of a particular issuer, and these securities may become
illiquid. As a result, the Fund could find it more difficult to sell these
securities or may be able to sell the securities only at prices lower than if
such securities were widely traded. Prices realized upon the sale of such lower
rated or unrated securities, under these circumstances, may be less than the
prices used in calculating the Fund's NAV.

UNRATED SECURITIES RISK

      Unrated securities (which are not rated by a rating agency) may be less
liquid than comparable rated securities and involve the risk that the Lead
Sub-Advisor or Portfolio Sub-Advisors may not accurately evaluate the security's


                                       32



comparative credit rating and value. To the extent that the Fund invests in
unrated securities, the Fund's success in achieving its investment objective may
depend more heavily on the creditworthiness analysis by the Lead Sub-Advisor or
Portfolio Sub-Advisors than if the Fund invested exclusively in rated
securities. Some or all of the unrated instruments in which the Fund may invest
will involve credit risk comparable to or greater than that of rated debt
securities of below investment grade quality.

INTEREST RATE RISK

      Generally, when market interest rates rise, bond prices fall, and vice
versa. Interest rate risk is the risk that the debt securities in the Fund's
portfolio will decline in value because of increases in market interest rates.
As interest rates decline, issuers of debt 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. In typical market interest rate environments, the prices of
longer-term debt securities generally fluctuate more than prices of shorter-term
debt securities as interest rates change. These risks may be greater in the
current market environment because, as of the date of this prospectus, certain
interest rates are at or near historic lows. The Federal Reserve recently raised
the federal funds rate, and has indicated that it may continue to do so.
Therefore, there is a risk that interest rates will rise, which will likely
drive down bond prices.

STRUCTURED CREDIT PRODUCTS RISK

      Generally, structured investments are interests in entities organized and
operated for the purpose of restructuring the investment characteristics of
underlying investment interests or securities. These investment entities may be
structured as trusts or other types of pooled investment vehicles. This type of
restructuring generally involves the deposit with or purchase by an entity of
the underlying investments and the issuance by that entity of one or more
classes of securities backed by, or representing interests in, the underlying
investments or referencing an indicator related to such investments. The cash
flow or rate of return on the underlying investments may be apportioned among
the newly issued securities to create different investment characteristics, such
as varying maturities, credit quality, payment priorities and interest rate
provisions. Structured credit products include, among other things, CDOs,
mortgage-backed securities, other types of asset-backed securities and certain
types of structured notes.

      The cash flow or rate of return on a structured investment may be
determined by applying a multiplier to the rate of total return on the
underlying investments or referenced indicator. Application of a multiplier is
comparable to the use of financial leverage, a speculative technique. Leverage
magnifies the potential for gain and the risk of loss. As a result, a relatively
small decline in the value of the underlying investments or referenced indicator
could result in a relatively large loss in the value of a structured credit
product. Holders of structured credit products indirectly bear risks associated
with the underlying investments, index or reference obligation, and are subject
to counterparty risk. The Fund generally has the right to receive payments to
which it is entitled only from the structured credit product, and generally does
not have direct rights against the issuer. While certain structured investment
vehicles enable the investor to acquire interests in a pool of securities
without the brokerage and other expenses associated with directly holding the
same securities, investors in structured vehicles generally pay their share of
the investment vehicle's administrative and other expenses.

      Structured credit products are generally privately offered and sold, and
thus, are not registered under the securities laws. Certain structured credit
products may be thinly traded or have a limited trading market and may have the
effect of increasing the Fund's illiquidity to the extent that the Fund, at a
particular point in time, may be unable to find qualified buyers for these
securities. In addition to the general risks associated with fixed income
securities discussed herein, structured credit products carry additional risks
including, but not limited to: (i) the possibility that distributions from
underlying investments will not be adequate to make interest or other payments;
(ii) the quality of the underlying investments may decline in value or default;
(iii) the possibility that the security may be subordinate to other classes of
the issuer's securities; and (iv) the complex structure of the security may not
be fully understood at the time of investment and may produce disputes with the
issuer or unexpected investment results.

      Structured notes are derivative securities for which the amount of
principal repayment and/or interest payments is based on the movement of one or
more "factors." These factors may include, but are not limited to, currency
exchange rates, interest rates (such as the prime lending rate or LIBOR),
referenced bonds and stock indices. Some of these factors may or may not
correlate to the total rate of return on one or more underlying instruments
referenced in such notes. In some cases, the impact of the movements of these
factors may increase or decrease through the use of multipliers or deflators.

      Investments in structured notes involve risks including interest rate
risk, credit risk and market risk. Depending on the factor used and the use of
multipliers or deflators, changes in interest rates and movement of the factor
may cause significant price fluctuations. Additionally, changes in the reference
instrument or security may cause the interest rate on the structured note to be
reduced to zero and any further changes in the reference instrument may then
reduce the principal amount payable on maturity. In the case of structured notes
where the reference instrument is a debt instrument, such as credit-linked
notes, the Fund will be subject to the credit risk of the issuer of the
reference instrument and the issuer of the structured note.


                                       33



MORTGAGE-BACKED SECURITIES RISK

      The Fund may invest in mortgage-backed securities. The investment
characteristics of mortgage-backed securities differ from traditional debt
securities. Among the major differences are that interest and principal payments
on mortgage-backed securities are made more frequently, usually monthly, and
that principal may be prepaid at any time because the underlying loans or other
assets generally may be prepaid at any time. The adverse effects of prepayments
may indirectly affect the Fund in two ways. First, particular investments may
experience outright losses, as in the case of an interest-only security in an
environment of faster-than-expected actual or anticipated prepayments. Second,
particular investments may underperform relative to hedges that the Fund may
have entered into for these investments, resulting in a loss to the Fund. In
particular, prepayments (at par) may limit the potential upside of many
mortgage-backed securities to their principal or par amounts, whereas their
corresponding hedges often have the potential for large losses.


      The Fund may also invest in structured notes, variable rate
mortgage-backed securities, including adjustable-rate mortgage securities, which
are backed by mortgages with variable rates, and certain classes of
collateralized mortgage obligation derivatives, the rate of interest payable
under which varies with a designated rate or index. The value of these
investments is closely tied to the absolute levels of such rates or indices, or
the market's perception of anticipated changes in those rates or indices. This
introduces additional risk factors related to the movements in specific indices
or interest rates that may be difficult or impossible to hedge, and which also
interact in a complex fashion with prepayment risks.

      Credit and Market Risks of Mortgage-Backed Securities.

      Mortgage-backed securities are subject to varying degrees of credit risk,
depending on whether they are issued by agencies or instrumentalities of the
U.S. government (including those whose securities are neither guaranteed nor
insured by the U.S. government) or by non-governmental issuers. Some issuers or
servicers of mortgage-backed securities guarantee timely payment of interest and
principal on the securities, whether or not payments are made when due on the
underlying mortgages. This kind of guarantee generally increases the quality of
a security, but does not mean that the security's market value and yield will
not change. Securities issued by private organizations may not be readily
marketable, and since the deterioration of worldwide economic and liquidity
conditions that became acute in 2008, mortgage-backed securities became subject
to greater liquidity risk. These conditions may occur again. The values of
mortgage-backed securities may change because of changes in the market's
perception of the credit quality of the assets held by the issuer of the
mortgage-backed securities or an entity, if any, providing credit support in
respect of the mortgage-backed securities. In addition, an unexpectedly high
rate of defaults on the mortgages held by a mortgage pool may limit
substantially the pool's ability to make payments of principal or interest to
the Fund as a holder of such securities, reducing the values of those securities
or in some cases rendering them worthless. Also, government actions and
proposals affecting the terms of underlying home loans, changes in demand for
products (e.g., automobiles) financed by those loans, and the inability of
borrowers to refinance existing loans (e.g., sub-prime mortgages), have had, and
may continue to have, adverse valuation and liquidity effects on mortgage-backed
securities. Although liquidity of mortgage-backed securities has improved
recently, there can be no assurance that in the future the market for
mortgage-backed securities will continue to improve and become more liquid. In
addition, mortgage-backed securities are subject to the risk of loss of
principal if the obligors of the underlying obligations default in their payment
obligations. The risk of defaults associated with mortgage-backed securities is
generally higher in the case of mortgage-backed investments that include
sub-prime mortgages. The Fund also may purchase securities that are not
guaranteed or subject to any credit support. An investment in a privately issued
mortgage-backed security is generally less liquid and subject to greater credit
risks than an investment in a mortgage-backed security that is issued or
otherwise guaranteed by a federal government agency or sponsored corporation.

      Mortgage-backed securities may be structured similarly to CDOs and may be
subject to similar risks. For example, the cash flows from the collateral held
by the mortgage-backed security may be split into two or more portions, called
tranches, varying in risk and yield. Senior tranches are paid from the cash
flows from the underlying assets before the junior tranches and equity or "first
loss" tranches. Losses are first borne by the equity tranches, next by the
junior tranches, and finally by the senior tranches. Interest holders in senior
tranches are entitled to the lowest interest rates but are generally subject to
less credit risk than more junior tranches because, should there be any default,
senior tranches are typically paid first. The most junior tranches, such as
equity tranches, typically are due to be paid the highest interest rates but
suffer the highest risk of loss should the holder of an underlying mortgage loan
default. If some loans default and the cash collected by the issuer of the
mortgage-backed security is insufficient to pay all of its investors, those in
the lowest, most junior tranches suffer losses first. See "--Collateralized Debt
Obligations Risk" in this Prospectus.

      Like bond investments, the value of fixed rate mortgage-backed securities
will tend to rise when interest rates fall, and fall when rates rise. Floating
rate mortgage-backed securities generally tend to have more moderate changes in
price when interest rates rise or fall, but their current yield will generally
be affected. In addition, the mortgage-backed securities market in general may


                                       34



be adversely affected by changes in governmental legislation or regulation.
Factors that could affect the value of a mortgage-backed security include, among
other things, the types and amounts of insurance which an individual mortgage or
that specific mortgage-backed security carries, the default and delinquency rate
of the mortgage pool, the amount of time the mortgage loan has been outstanding,
the loan-to-value ratio of each mortgage and the amount of overcollateralization
or undercollateralization of a mortgage pool.

      The residential mortgage market in the United States has experienced
difficulties at times, and the same or similar events may adversely affect the
performance and market value of certain of the Fund's mortgage-related
investments. Delinquencies and losses on residential mortgage loans (especially
subprime and second-lien mortgage loans) generally increased in the last
recession and potentially could begin to increase again. A decline in or
flattening of housing values (as was experienced recently and may continue to be
experienced in many housing markets) may exacerbate such delinquencies and
losses. Borrowers with adjustable rate mortgage loans may be more sensitive to
changes in interest rates, which affect their monthly mortgage payments, and may
be unable to secure replacement mortgages at comparably low interest rates.
Also, a number of residential mortgage loan originators have experienced serious
financial difficulties or bankruptcy. Reduced investor demand for
mortgage-related securities could result in limited new issuances of
mortgage-related securities and limited liquidity in the secondary market for
mortgage-related securities, which can adversely affect the market value of
mortgage-related securities and limit the availability of attractive investment
opportunities for the Fund. It is possible that such limited liquidity in
secondary markets could return and worsen.

      Ongoing developments in the residential mortgage market may have
additional consequences to the market for mortgage-backed securities. In past
years, delinquencies and losses generally increased with respect to
securitizations involving residential mortgage loans and potentially could begin
increasing again as a result of a weakening housing market and the seasoning of
securitized pools of mortgage loans. At times so called sub-prime mortgage pools
were distressed and traded at significant discounts to their face value.

      Additionally, mortgage lenders may adjust their loan programs and
underwriting standards, which may reduce the availability of mortgage credit to
prospective mortgagors. This may result in reduced availability of financing
alternatives for mortgagors seeking to refinance their mortgage loans. The
reduced availability of refinancing options for mortgagors may result in higher
rates of delinquencies, defaults and losses on mortgage loans, particularly in
the case of, but not limited to, mortgagors with ARMs or interest-only mortgage
loans that experience significant increases in their monthly payments following
the adjustment date or the end of the interest-only period (see "Adjustable Rate
Mortgages Risks" below for further discussion of adjustable rate mortgage
risks). These events, alone or in combination with each other and with
deteriorating economic conditions in the general economy contribute to higher
delinquency and default rates on mortgage loans. Tighter underwriting guidelines
for residential mortgage loans, together with lower levels of home sales and
reduced refinance activity, also may contribute to a reduction in the prepayment
rate for mortgage loans generally.

      The values of mortgage-backed securities may be substantially dependent on
the servicing of the underlying mortgage pools, and therefore are subject to
risks associated with the negligence or malfeasance by their servicers and to
the credit risk of their servicers. In certain circumstances, the mishandling of
related documentation also may affect the rights of security holders in and to
the underlying collateral.

      Some government sponsored mortgage-related securities are backed by the
full faith and credit of the United States. The Government National Mortgage
Association ("Ginnie Mae"), the principal guarantor of such securities, is a
wholly owned United States government corporation within the Department of
Housing and Urban Development. Other government-sponsored mortgage-related
securities are not backed by the full faith and credit of the United States
government. Issuers of such securities include Fannie Mae and Freddie Mac.
Fannie Mae is a government-sponsored corporation which is subject to general
regulation by the Secretary of Housing and Urban Development. Pass-through
securities issued by Fannie Mae are guaranteed as to timely payment of principal
and interest by Fannie Mae. Freddie Mac is a stockholder-owned corporation
chartered by Congress and subject to general regulation by the Department of
Housing and Urban Development. Participation certificates representing interests
in mortgages from Freddie Mac's national portfolio are guaranteed as to the
timely payment of interest and ultimate collection of principal by Freddie Mac.
The U.S. government has provided financial support to Fannie Mae and Freddie Mac
in the past, but there can be no assurances that it will support these or other
government-sponsored entities in the future.

      Under the Federal Housing Finance Agency's "Single Security Initiative,"
Fannie Mae and Freddie Mac have entered into a joint initiative to develop a
common securitization platform for the issuance of Uniform Mortgage-Backed
Securities ("UMBS"), which would generally align the characteristics of Fannie
Mae and Freddie Mac participation certificates. In June 2019 Fannie Mae and
Freddie Mac began issuing UMBS in place of their offerings of "to be announced"-
eligible mortgage-backed securities. The long-term effect of the issuance of
UMBS on the market for mortgage-backed securities is uncertain.


                                       35



      Liquidity Risk of Mortgage-Backed Securities.

      The liquidity of mortgage-backed securities varies by type of security; at
certain times the Fund may encounter difficulty in disposing of such
investments. Investments in privately issued mortgage-backed securities may have
less liquidity than mortgage-backed securities that are issued by a federal
government agency or sponsored corporation. Because mortgage-backed securities
have the potential to be less liquid than other securities, the Fund may be more
susceptible to liquidity risks than funds that invest in other securities. In
the past, in stressed markets, certain types of mortgage-backed securities
suffered periods of illiquidity when disfavored by the market. It is possible
that the Fund may be unable to sell a mortgage-backed security at a desirable
time or at the value the Fund has placed on the investment.

      Commercial Mortgage-Backed Securities ("CMBS") Risks.

      CMBS include securities that reflect an interest in, or are secured by,
mortgage loans on commercial real property. Many of the risks of investing in
commercial mortgage backed securities reflect the risks of investing in the real
estate securing the underlying mortgage loans. These risks reflect the effects
of local and other economic conditions on real estate markets, the ability of
tenants to make loan payments and the ability of a property to attract and
retain tenants. Commercial mortgage-backed securities may be less liquid and
exhibit greater price volatility than other types of mortgage- or asset-backed
securities.

      Prepayment, Extension and Redemption Risks of Mortgage-Backed Securities.

      Mortgage-backed securities may reflect an interest in monthly payments
made by the borrowers who receive the underlying mortgage loans. Although the
underlying mortgage loans are for specified periods of time, such as 20 or 30
years, the borrowers can, and historically have often paid them off sooner. When
a prepayment happens, a portion of the mortgage-backed security which represents
an interest in the underlying mortgage loan will be prepaid. A borrower is more
likely to prepay a mortgage which bears a relatively high rate of interest. This
means that in times of declining interest rates, a portion of the Fund's higher
yielding securities are likely to be redeemed and the Fund will probably be
unable to replace them with securities having as great a yield. Prepayments can
result in lower yields to shareholders. The increased likelihood of prepayment
when interest rates decline also limits market price appreciation. This is known
as prepayment risk. Mortgage-backed securities also are subject to extension
risk. Extension risk is the possibility that rising interest rates may cause
prepayments to occur at slower than expected rate. This particular risk may
effectively change a security which was considered short or intermediate term
into a long-term security. The values of long-term securities generally
fluctuate more widely in response to changes in interest rates than short or
intermediate-term securities. In addition, a mortgage-backed security may be
subject to redemption at the option of the issuer. If a mortgage-backed security
held by the Fund is called for redemption, the Fund will be required to permit
the issuer to redeem or pay-off the security, which could have an adverse effect
on the Fund's ability to achieve its investment objective.

      Prepayment-Sensitive Mortgage-Backed Securities

      Prepayment-sensitive mortgage-backed securities are subject to a variety
of risk factors, such as the prevailing level of interest rates as well as
economic, demographic, tax, social, legal and other risks. Generally, obligors
tend to prepay their loans when prevailing interest rates fall below the
interest rates on their loans. In general, "premium" securities (securities
whose market values exceed their principal or par amounts) are adversely
affected by faster than anticipated prepayments, and "discount" securities
(securities whose principal or par amounts exceed market values) are adversely
affected by slower than anticipated prepayments. While prepayment-sensitive MBS
managers will endeavor to hedge interest-rates exposure and real estate
exposure, the correlation between core instruments and hedges may vary,
impacting effectiveness of hedges. Separately, there are very limited options
for hedging regulatory risks.

      Credit Sensitive Mortgage-Backed Securities

      The yields, spreads, prepayment and default rates, average life, responses
to changes in interest rates, credit availability and other variables of Credit
Sensitive Mortgage Backed Securities are based upon a number of assumptions,
such as prepayment, default and interest rates and changes in home prices, which
may or may not be correct. These assumptions are usually derived from
proprietary analytical models utilized by each respective Portfolio Sub-Advisor,
and such models are inherently imperfect and subject to a number of risks,
including risks that the underlying data used by the models is incorrect,
inaccurate or incomplete. Certain models make use of discretionary settings or
parameters which can have a material effect on the output of the model. Credit
Sensitive Mortgage Backed Securities markets have experienced periods of
heightened volatility and reduced liquidity, and such conditions may re-occur.
As such, these investments are subject to the risks associated with
mortgage-backed securities as well as credit spread risk, which is a risk that
investors will require higher yield premiums for the risk of holding Credit
Sensitive Mortgage Backed Securities, as well as default and severity risk, or
the risk that default rates will increase and the severity of the loss in the
case of default will be amplified by a drop in property values.


                                       36



      Collateralized Mortgage Obligations (CMOs").

      CMOs are debt obligations collateralized by mortgage loans or mortgage
pass-through securities. The expected average life of CMOs is determined using
mathematical models that incorporate prepayment assumptions and other factors
that involve estimates of future economic and market conditions. These estimates
may vary from actual future results, particularly during periods of extreme
market volatility. Further, under certain market conditions, such as those that
occurred in 1994, 2007, 2008 and 2009, the average weighted life of certain CMOs
may not accurately reflect the price volatility of such securities. For example,
in periods of supply and demand imbalances in the market for such securities
and/or in periods of sharp interest rate m fovements, the prices of CMOs may
fluctuate to a greater extent than would be expected from interest rate
movements alone. CMOs issued by private entities are not obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and are not
guaranteed by any government agency, although the securities underlying a CMO
may be subject to a guarantee. Therefore, if the collateral securing the CMO, as
well as any third party credit support or guarantees, is insufficient to make
payments when due, the holder could sustain a loss.

      Adjustable Rate Mortgages ("ARMS") Risks.

      ARMs contain maximum and minimum rates beyond which the mortgage interest
rate may not vary over the lifetime of the security. In addition, many ARMs
provide for additional limitations on the maximum amount by which the mortgage
interest rate may adjust for any single adjustment period. Alternatively,
certain ARMs contain limitations on changes in the required monthly payment. In
the event that a monthly payment is not sufficient to pay the interest accruing
on an ARM, any excess interest is added to the principal balance of the mortgage
loan, which is repaid through future monthly payments. If the monthly payment
for such an instrument exceeds the sum of the interest accrued at the applicable
mortgage interest rate and the principal payment required at such point to
amortize the outstanding principal balance over the remaining term of the loan,
the excess is used to reduce the then-outstanding principal balance of the ARM.

      In addition, certain ARMs may provide for an initial fixed, below-market
or teaser interest rate. During this initial fixed-rate period, the payment due
from the related mortgagor may be less than that of a traditional loan. However,
after the teaser rate expires, the monthly payment required to be made by the
mortgagor may increase significantly when the interest rate on the mortgage loan
adjusts. This increased burden on the mortgagor may increase the risk of
delinquency or default on the mortgage loan and in turn, losses on the
mortgage-backed security into which that loan has been bundled.

      Interest and Principal Only Securities Risks.

      Stripped mortgage-backed securities are usually structured with two
classes that receive different portions of the interest and principal
distributions on a pool of debt instruments, such as mortgage loans. In one type
of stripped mortgage-backed security, one class will receive all of the interest
from the mortgage assets (the interest-only, or "IO" class), while the other
class will receive all of the principal from the mortgage assets (the
principal-only, or "PO" class). The yield to maturity (the expected rate of
return on a bond if held until the end of its lifetime) on an IO class is
extremely sensitive to the rate of principal payments (including prepayments) on
the underlying mortgage assets, and a rapid rate of principal payments may have
a material adverse effect on the Fund's yield to maturity from these securities.
If the assets underlying the IO class experience greater than anticipated
prepayments of principal, the Fund may fail to recoup fully, or at all, its
initial investment in these securities. PO class securities tend to decline in
value if prepayments are slower than anticipated.

      Inverse Floaters and Related Securities Risks.

      Investments in inverse floaters and similar instruments expose the Fund to
the same risks as investments in debt securities and derivatives, as well as
other risks, including those associated with increased volatility. An investment
in these securities typically will involve greater risk than an investment in a
fixed rate security. Distributions on inverse floaters and similar instruments
will typically bear an inverse relationship to short-term interest rates and
typically will be reduced or, potentially, eliminated as interest rates rise.
The rate at which interest is paid on an inverse floater may vary by a magnitude
that exceeds the magnitude of the change in a reference rate of interest
(typically a short-term interest rate). The effect of the reference rate
multiplier in inverse floaters is associated with greater volatility in their
market values. Investments in inverse floaters and similar instruments that have
mortgage-backed securities underlying them will expose the Fund to the risks
associated with those mortgage-backed securities and the values of those
investments may be especially sensitive to changes in prepayment rates on the
underlying mortgage-backed securities.

      Credit Risk Transfer Securities Risks.

      Credit risk transfer securities are unguaranteed and unsecured debt
securities issued by government sponsored enterprises and therefore are not
directly linked to or backed by the underlying mortgage loans. As a result, in


                                       37



the event that a government sponsored enterprise fails to pay principal or
interest on its credit risk transfer securities or goes through a bankruptcy,
insolvency or similar proceeding, holders of such credit risk transfer
securities have no direct recourse to the underlying mortgage loans and will
generally receive recovery on par with other unsecured note holders in such a
scenario. The risks associated with an investment in credit risk transfer
securities are different than the risks associated with an investment in
mortgage-backed securities issued by Fannie Mae and Freddie Mac, or other
government sponsored enterprise or issued by a private issuer, because some or
all of the mortgage default or credit risk associated with the underlying
mortgage loans is transferred to investors. As a result, investors in these
securities could lose some or all of their investment in these securities if the
underlying mortgage loans default.

      Mortgage-backed securities are a type of asset-backed security and
therefore are also subject to the risks described below under
"Risks--Asset-Backed Securities Investment Risk."

ASSET-BACKED SECURITIES RISK

      Similar to mortgage-backed securities, other types of asset-backed
securities may be issued by agencies or instrumentalities of the U.S. government
(including those whose securities are neither guaranteed nor insured by the U.S.
government), foreign governments (or their agencies or instrumentalities) or
non-governmental issuers. These securities include securities backed by pools of
automobile loans, installment sales or installment loan contracts; home equity
loans; leases of various types of real, personal and other property (including
those relating to aircrafts, telecommunication, energy, and/or other
infrastructure assets and infrastructure-related assets); receivables from
credit card agreements; student loans; consumer loans; mobile home loans; boat
loans; business and small business loans; project finance loans; airplane
leases; and other non-mortgage-related income streams, such as income from
renewable energy projects and franchise rights. The underlying pools of assets
are securitized through the use of trusts and special purpose entities. They may
also include asset-backed securities backed by whole loans or fractions of whole
loans issued by alternative lending platforms and securitized by those platforms
or other entities (such as third-party originators or brokers). Any of these
loans may be of sub-prime quality or made to an obligor with a sub-prime credit
history. These securities may be subject to risks associated with changes in
interest rates and prepayment of underlying obligations similar to the risks of
investment in mortgage-backed securities described above. The risk of investing
in asset-backed securities becomes increased when performance of the various
sectors in which the assets underlying asset-backed securities are concentrated
(e.g., auto loans, student loans, sub-prime mortgages, credit card receivables,
etc.) become more highly correlated.

      Asset-backed securities involve the risk that borrowers may default on the
obligations backing them and that the values of and interest earned on such
investments will decline as a result. Loans made to lower quality borrowers,
including those of sub-prime quality, involve a higher risk of default. Such
loans, including those made by alternative lending platforms, may be difficult
to value, may have limited payment histories, and may be subject to significant
changes in value over time as economic conditions change. Therefore, the values
of asset-backed securities backed by lower quality loans, including those of
sub-prime quality, may suffer significantly greater declines in value due to
defaults, payment delays or a perceived increased risk of default, especially
during periods when economic conditions worsen. Payment of interest on
asset-backed securities and repayment of principal largely depends on the cash
flows generated by the underlying assets backing the securities and, in certain
cases, may be supported by letters of credit, surety bonds or other credit
enhancements. The amount of market risk associated with asset-backed securities
depends on many factors, including the deal structure, the quality of the
underlying assets, the level of credit support, if any, and the credit quality
of any credit-support provider. Asset-backed securities involve risk of loss of
principal if obligors of the underlying obligations default in payment of the
obligations and the defaulted obligations exceed the securities' credit support.
The obligations of issuers (and obligors of underlying assets) also are subject
to bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors. The impairment of the value of collateral or other assets underlying
an asset-backed security, such as a result of non-payment of loans or
nonperformance of other collateral or underlying assets, may result in a
reduction in the value of such asset-backed securities and losses to the Fund.
In addition, the existence of insurance on an asset-backed security does not
guarantee that principal and/or interest will be paid because the insurer could
default on its obligations. It is possible that many or all asset-backed
securities will fall out of favor at any time or over time with investors,
affecting adversely the values and liquidity of the securities.

      The market value of an asset-backed security may be affected by the
factors described above and other factors, such as the availability of
information concerning the pool and its structure, the creditworthiness of the
servicing agent for the pool, the originator of the underlying assets or the
entities providing the credit enhancement. The market value of asset-backed
securities also can depend on the ability of their servicers to service the
underlying collateral and is, therefore, subject to risks associated with
servicers' performance. In some circumstances, a servicer's or originator's
mishandling of documentation related to the underlying collateral (e.g., failure
to properly document a security interest in the underlying collateral) may
affect the rights of the security holders in and to the underlying collateral.
In addition, the insolvency of entities that generate receivables or that
utilize the underlying assets may result in a decline in the value of the
underlying assets as well as costs and delays.

      Certain types of asset-backed securities may not have the benefit of a
security interest in the related assets. For example, many securities backed by
credit-card receivables are unsecured. In addition, the Fund may invest in
securities backed by pools of corporate or sovereign bonds, bank loans made to
corporations, or a combination of these bonds and loans, many of which may be
unsecured (commonly referred to as "collateralized debt obligations" or


                                       38



"collateralized loan obligations"). Even when security interests are present,
the ability of an issuer of certain types of asset-backed securities to enforce
those interests may be more limited than that of an issuer of mortgage-backed
securities and the volume of underlying obligations may make it impracticable to
recover collateral for the abatement of losses. In addition, certain types of
asset-backed securities may experience losses on the underlying assets as a
result of certain rights provided to consumer debtors under federal and state
law.

      Asset-backed securities tend to increase in value less than traditional
debt securities of similar maturity and credit quality when interest rates
decline, but are subject to a similar risk of decline in market value during
periods of rising interest rates. Certain assets underlying asset-backed
securities are subject to prepayment, which may reduce the overall return to
asset-backed security holders. In a period of declining interest rates,
pre-payments on asset-backed securities may increase and the Fund may be unable
to reinvest those prepaid amounts in investments providing the same rate of
interest as the pre-paid obligations.

COLLATERALIZED DEBT OBLIGATIONS RISK

      The Fund may invest in CDOs, which include collateralized bond
obligations, collateralized loan obligations and other similarly structured
securities. A collateralized bond obligation is a trust which may be backed by a
diversified pool of high risk, below investment grade fixed income securities. A
CLO is a trust typically collateralized by a pool of loans, which may include,
among others, domestic and foreign senior secured loans, senior unsecured loans,
second lien loans or other types of subordinate loans, and mezzanine loans,
including loans that may be rated below investment grade or equivalent unrated
loans and including loans that may be covenant-lite. CDOs may charge management
fees and administrative expenses. The cash flows from these trusts are split
into two or more portions, called tranches, which vary in risk and yield. The
riskier portions are the residual, equity and subordinate tranches, which bear
some or all of the risk of default by the bonds or loans in the trust, and
therefore protect the other, more senior tranches from default in all but the
most severe circumstances. Since it is partially protected from defaults, a
senior tranche from a CBO trust or CLO trust typically has higher ratings and
lower yields than its underlying securities, and can be rated investment grade.
Despite the protection from the riskier tranches, senior CBO or CLO tranches can
experience substantial losses due to actual defaults (including collateral
default), the total loss of the riskier tranches due to losses in the
collateral, market anticipation of defaults, fraud by the trust and the
illiquidity of CBO or CLO securities.

      The risks of an investment in a CDO largely depend on the type of
underlying collateral securities and the tranche in which the Fund invests. The
Fund may invest in any tranche of a CBO or CLO. Typically, CBOs, CLOs and other
CDOs are privately offered and sold, and thus, are not registered under the
securities laws. As a result, the Fund may characterize its investments in CDOs
as illiquid, unless an active dealer market for a particular CDO allows the CDO
to be purchased and sold in Rule 144A transactions. CDOs are subject to the
typical risks associated with debt instruments discussed elsewhere in this
Prospectus, including interest rate risk (which may be exacerbated if the
interest rate payable on a structured financing changes based on multiples of
changes in interest rates or inversely to changes in interest rates), default
risk, prepayment risk, credit risk, liquidity risk, market risk, structural risk
and legal risk. Additional risks of CDOs include: (i) the possibility that
distributions from collateral securities will be insufficient to make interest
or other payments, (ii) the possibility that the quality of the collateral may
decline in value or default, due to factors such as the availability of any
credit enhancement, the level and timing of payments and recoveries on and the
characteristics of the underlying receivables, loans or other assets that are
being securitized, remoteness of those assets from the originator or transferor,
the adequacy of and ability to realize upon any related collateral and the
capability of the servicer of the securitized assets, (iii) market and liquidity
risks affecting the price of a structured finance investment, if required to be
sold, at the time of sale and (iv) if the particular structured credit product
is invested in a security in which the Fund is also invested, this would tend to
increase the Fund's overall exposure to the credit of the issuer of such
securities, at least on an absolute, if not on a relative basis. In addition,
due to the complex nature of a CDO, an investment in a CDO may not perform as
expected. An investment in a CDO also is subject to the risk that the issuer and
the investors may interpret the terms of the instrument differently, giving rise
to disputes.

      The risks associated with CDOs collateralized by TruPS include those risks
typically associated with CDOs collateralized by debt securities and preferred
securities, including the risk of default. TruPS are typically subordinated to
other classes of debt of the bank or other financial institution. As a result,
the risk of recovery in case of default is higher for these securities than
senior debt securities. Because the issuer is typically able to defer or skip
payments for up to five years without being in default, distributions may not be
made for extended periods of time. These securities are also subject to
prepayment risk. Holders of TruPS generally have limited voting rights to
control the activities of the trust and no voting rights with respect to the
parent corporation. The market for TruPS may be limited due to restrictions on
resale, and the market value may be more volatile than those of conventional
debt securities. Many TruPS are issued by trusts or other special purpose
entities established by banks and financial institutions and are not a direct
obligation of banks and other financial institutions.

COLLATERALIZED LOAN OBLIGATIONS RISKS

The Fund's investments in CLOs may be riskier and less transparent than direct
investments in the underlying companies.


                                       39



      Generally, there may be less information available to the Advisor, the
Lead Sub-Advisor or Portfolio Sub-Advisors regarding the underlying debt
investments held by CLOs than if the Fund had invested directly in the debt of
the underlying companies. As a result, shareholders will not know the details of
the underlying securities of the CLOs in which the Fund will invest. The Fund's
CLO investments are subject to the risk of leverage associated with the debt
issued by such CLOs and the repayment priority of senior debt holders in such
CLOs.

      CLOs typically will have no significant assets other than their underlying
senior secured loans. Accordingly, payments on CLO investments are and will be
payable solely from the cash flows from such senior secured loans, net of all
management fees and other expenses. Payments to the Fund as a holder of CLO
junior securities are and will be made only after payments due on the senior
secured notes, and, where appropriate, the junior secured notes, have been made
in full. This means that relatively small numbers of defaults of senior secured
loans may adversely impact the Fund's returns.

Changes in credit spreads may adversely affect the Fund's profitability and
result in realized and unrealized depreciation on the Fund's investments.

      The performance of the Fund's CLO equity investments will depend, in a
large part, upon the spread between the rate at which the CLO borrows funds and
the rate at which it lends these funds. Any reduction of the spread between the
rate at which the CLO invests and the rate at which it borrows may adversely
affect the CLO equity investor's profitability. Additionally, changes in credit
spreads could lead to refinancing (paying off the existing senior secured loan
with the proceeds from a new loan) or repricing (reducing the interest rate on
an existing senior secured loan) of the senior secured loans that make up a
CLO's portfolio, which would result in a decline in the yield to the CLO's
equity investors and a corresponding loss on investment.

      Because CLO equity investors are paid the residual income after the CLO
debt tranches receive contractual interest payments, a reduction in the weighted
average spread of the senior secured loans underlying a CLO will reduce the
income flowing to CLO equity investors. As a result, CLO investors will
experience realized and unrealized depreciation in periods of prolonged spread
compression. If these conditions continue, the CLO investors, such as the Fund,
may lose some or all of their investment.

The Fund's CLO investments are exposed to leveraged credit risk.

      Generally, the Fund is in a subordinated position with respect to realized
losses on the senior secured loans underlying the Fund's investments in CLOs.
The leveraged nature of CLOs, in particular, magnifies the adverse impact of
senior secured loan defaults. CLO investments represent a leveraged investment
with respect to the underlying senior secured loans. Therefore, changes in the
market value of the CLO investments could be greater than the change in the
market value of the underlying senior secured loans, which are subject to
credit, liquidity and interest rate risk.

There is the potential for interruption and deferral of cash flow from CLO
investments.

      If certain minimum collateral value ratios and/or interest coverage ratios
are not met by a CLO, primarily due to senior secured loan defaults, then cash
flow that otherwise would have been available to pay distributions to the Fund
on the Fund's CLO investments may instead be used to redeem any senior notes or
to purchase additional senior secured loans, until the ratios again exceed the
minimum required levels or any senior notes are repaid in full. This could
result in an elimination, reduction or deferral in the distribution and/or
principal paid to the holders of the CLO investments, which would adversely
impact the Fund's returns.

Investments in foreign securities may involve significant risks in addition to
the risks inherent in U.S. investments.

      The Fund is permitted to invest in foreign CLOs. Investing in foreign
entities may expose the Fund to additional risks not typically associated with
investing in U.S. issuers. These risks include changes in exchange control
regulations, political and social instability, expropriation, imposition of
foreign taxes, less liquid markets and less available information than is
generally the case in the United States, higher transaction costs, less
government supervision of exchanges, brokers and issuers, less developed
bankruptcy laws, difficulty in enforcing contractual obligations, lack of
uniform accounting and auditing standards and greater price volatility. Further,
the Fund, and the CLOs in which the Fund invests, may have difficulty enforcing
creditor's rights in foreign jurisdictions. In addition, the underlying
companies of the CLOs in which the Fund invests may be foreign, which may create
greater exposure for the Fund to foreign economic developments.

The payment of underlying portfolio manager fees and other charges on CLO
investments could adversely impact the Fund's returns.


                                       40



      The Fund may invest in CLO investments where the underlying portfolio
securities may be subject to management, administration and incentive or
performance fees, in addition to those payable by the Fund. Payment of such
additional fees could adversely impact the returns the Fund achieves.

The inability of a CLO collateral manager to reinvest the proceeds of the
prepayment of senior secured loans at equivalent rates may adversely affect the
Fund.

      There can be no assurance that for any CLO investment, in the event that
any of the senior secured loans of a CLO underlying such investment are prepaid,
the CLO collateral manager will be able to reinvest such proceeds in new senior
secured loans with equivalent investment returns. If the CLO collateral manager
cannot reinvest in new senior secured loans with equivalent investment returns,
the interest proceeds available to pay interest on the rated liabilities and
investments may be adversely affected.

The Fund's CLO investments are subject to prepayments and calls, increasing
re-investment risk.

      The Fund's CLO investments and/or the underlying senior secured loans may
prepay more quickly than expected, which could have an adverse impact on the
value of the Fund. Prepayment rates are influenced by changes in interest rates
and a variety of economic, geographic and other factors beyond the control of
the Lead Sub-Advisor or Portfolio Sub-Advisors and consequently cannot be
predicted with certainty. In addition, for a CLO collateral manager there is
often a strong incentive to refinance well performing portfolios once the senior
tranches amortize. The yield to maturity of the investments will depend on the
amount and timing of payments of principal on the loans and the price paid for
the investments. Such yield may be adversely affected by a higher or lower than
anticipated rate of prepayments of the debt.

      Furthermore, the Fund's CLO investments generally do not contain optional
call provisions, other than a call at the option of the holders of the equity
tranches for the senior notes and the junior secured notes to be paid in full
after the expiration of an initial period in the deal (referred to as the
"non-call period").

      The exercise of the call option is by the relevant percentage (usually a
majority) of the holders of the equity tranches and, therefore, where the Fund
does not hold the relevant percentage, the Fund will not be able to control the
timing of the exercise of the call option. The equity tranches also generally
have a call at any time based on certain tax event triggers. In any event, the
call can only be exercised by the holders of equity tranches if they can
demonstrate (in accordance with the detailed provisions in the transaction) that
the senior notes and junior secured notes will be paid in full if the call is
exercised.

      Early prepayments and/or the exercise of a call option otherwise than at
the Fund's request may also give rise to increased re-investment risk with
respect to certain investments, as the Fund may realize excess cash earlier than
expected. If the Fund is unable to reinvest such cash in a new investment with
an expected rate of return at least equal to that of the investment repaid, this
may reduce the Fund's net income and, consequently, could have an adverse impact
on the Fund's ability to pay dividends.

The Fund has limited control of the administration and amendment of senior
secured loans owned by the CLOs in which the Fund invests.

      The Fund will not able to directly enforce any rights and remedies in the
event of a default of a senior secured loan held by a CLO vehicle. In addition,
the terms and conditions of the senior secured loans underlying the Fund's CLO
investments may be amended, modified or waived only by the agreement of the
underlying lenders. Generally, any such agreement must include a majority or a
super majority (measured by outstanding loans or commitments) or, in certain
circumstances, a unanimous vote of the lenders. Consequently, the terms and
conditions of the payment obligations arising from senior secured loans could be
modified, amended or waived in a manner contrary to the Fund's preferences.

The Fund has limited control of the administration and amendment of any CLO in
which the Fund invests.

      The terms and conditions of target securities may be amended, modified or
waived only by the agreement of the underlying security holders. Generally, any
such agreement must include a majority or a super majority (measured by
outstanding amounts) or, in certain circumstances, a unanimous vote of the
security holders. Consequently, the terms and conditions of the payment
obligation arising from the CLOs in which the Fund invests be modified, amended
or waived in a manner contrary to the Fund's preferences.

Senior secured loans of CLOs may be sold and replaced resulting in a loss to the
Fund.

      The senior secured loans underlying the Fund's CLO investments may be sold
and replacement collateral purchased within the parameters set out in the
relevant CLO indenture between the CLO and the CLO trustee and those parameters


                                       41



may typically only be amended, modified or waived by the agreement of a majority
of the holders of the senior notes and/or the junior secured notes and/or the
equity tranche once the CLO has been established. If these transactions result
in a net loss, the magnitude of the loss from the perspective of the equity
tranche would be increased by the leveraged nature of the investment.

The Fund's financial results may be affected adversely if one or more of the
Fund's significant equity or junior debt investments in a CLO vehicle defaults
on its payment obligations or fails to perform as expected.

      The Lead Sub-Advisor expects that a portion of the Fund's portfolio will
consist of equity and junior debt investments in CLOs, which involve a number of
significant risks. CLOs are typically highly levered up to approximately 10
times, and therefore the junior debt and equity tranches that the Fund will
invest in are subject to a higher risk of total loss. In particular, investors
in CLOs indirectly bear risks of the underlying debt investments held by such
CLOs. The Fund will generally have the right to receive payments only from the
CLOs, and will generally not have direct rights against the underlying borrowers
or the entities that sponsored the CLOs. Although it is difficult to predict
whether the prices of indices and securities underlying CLOs will rise or fall,
these prices, and, therefore, the prices of the CLOs will be influenced by the
same types of political and economic events that affect issuers of securities
and capital markets generally.

      The investments the Fund makes in CLOs are thinly traded or have only a
limited trading market. CLO investments are typically privately offered and
sold, in the primary and secondary markets. As a result, investments in CLOs may
be characterized as illiquid securities. In addition to the general risks
associated with investing in debt securities, CLOs carry additional risks,
including, but not limited to: (i) the possibility that distributions from the
underlying senior secured loans will not be adequate to make interest or other
payments; (ii) the quality of the underlying senior secured loans may decline in
value or default; and (iii) the complex structure of the security may not be
fully understood at the time of investment and may produce disputes with the CLO
or unexpected investment results. Further, the Fund's investments in equity and
junior debt tranches of CLOs are subordinate to the senior debt tranches
thereof.

      Investments in structured vehicles, including equity and junior debt
instruments issued by CLOs, involve risks, including credit risk and market
risk. Changes in interest rates and credit quality may cause significant price
fluctuations. Additionally, changes in the underlying senior secured loans held
by a CLO may cause payments on the instruments the Fund holds to be reduced,
either temporarily or permanently. Structured investments, particularly the
subordinated interests in which the Fund invests, are less liquid than many
other types of securities and may be more volatile than the senior secured loans
underlying the CLOs in which the Fund invests.

Non-investment grade debt involves a greater risk of default and higher price
volatility than investment grade debt.

      The senior secured loans underlying the Fund's CLO investments typically
are BB or B rated (non-investment grade) and in limited circumstances, unrated,
senior secured loans. Non-investment grade securities are predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal when due and therefore involve a greater risk of default and higher
price volatility than investment grade debt.

The Fund will have no influence on management of underlying investments managed
by non-affiliated third party CLO collateral managers.

      The Advisor, the Lead Sub-Advisor and the Portfolio Sub-Advisors are not
responsible for and have no influence over the asset management of the
portfolios underlying the CLO investments the Fund holds as those portfolios are
managed by non-affiliated third party CLO collateral managers. Similarly, the
Advisor, the Lead Sub-Advisor and the Portfolio Sub-Advisors are not responsible
for and have no influence over the day-to-day management, administration or any
other aspect of the issuers of the individual securities. As a result, the
values of the portfolios underlying the Fund's CLO investments could decrease as
a result of decisions made by third party CLO collateral managers.

The application of the risk retention rules under Section 941 of the Dodd-Frank
Act (defined below) to CLOs may have broader effects on the CLO and loan markets
in general, potentially resulting in fewer or less desirable investment
opportunities for the Fund.

      Section 941 of the Wall Street Reform and Consumer Protection Act, or the
"Dodd-Frank Act," added a provision to the Exchange Act, requiring the seller,
sponsor or securitizer of a securitization vehicle to retain no less than five
percent of the credit risk in assets it sells into a securitization and
prohibiting such securitizer from directly or indirectly hedging or otherwise
transferring the retained credit risk. The responsible federal agencies adopted
final rules implementing these restrictions on October 22, 2014. The risk
retention rules became effective with respect to CLOs two years after
publication in the Federal Register. Under the final rules, the asset manager of
a CLO is considered the sponsor of a securitization vehicle and is required to


                                       42



retain five percent of the credit risk in the CLO, which may be retained
horizontally in the equity tranche of the CLO or vertically as a five percent
interest in each tranche of the securities issued by the CLO. Although the final
rules contain an exemption from such requirements for the asset manager of a CLO
if, among other things, the originator or lead arranger of all of the loans
acquired by the CLO retain such risk at the asset level and, at origination of
such asset, takes a loan tranche of at least 20% of the aggregate principal
balance, it is possible that the originators and lead arrangers of loans in this
market will not agree to assume this risk or provide such retention at
origination of the asset in a manner that would provide meaningful relief from
the risk retention requirements for CLO managers.

      The U.S. risk retention requirements imposed for CLO managers under
Section 941 of the Dodd-Frank Act has created some uncertainty in the market in
regard to future CLO issuance. Given that certain CLO managers may require
capital provider partners to satisfy this requirement, this may create
additional risks for the Fund in the future.

      On February 9, 2018, a panel of the United States Court of Appeals for the
District of Columbia Circuit ruled, which ruling is referred to herein as the
"D.C. Circuit Ruling," that the federal agencies exceeded their authority under
the Dodd-Frank Act in adopting the final rules as applied to asset managers of
open-market CLOs. On April 5, 2018, the United States District Court for the
District of Columbia entered an order implementing the D.C. Circuit Ruling and
thereby vacated the U.S. Risk Retention Rules insofar as they apply to CLO
managers of "open market CLOs".

      As of the date of hereof, there has been no petition for writ of
certiorari filed requesting the case to be heard by the United States Supreme
Court. Since there hasn't been a successful challenge to the D.C. Circuit Ruling
and the United States District Court for the District of Columbia has issued the
above described order implementing the D.C. Circuit Ruling, collateral managers
of open market CLOs are no longer required to comply with the U.S. Risk
Retention Rules at this time. As such, it is possible that some collateral
managers of open market CLOs will decide to dispose of the notes constituting
the "eligible vertical interest" or "eligible horizontal interest" they were
previously required to retain, or decide to take other action with respect to
such notes that is not otherwise permitted by the U.S. risk retention rules. As
a result of this decision, certain CLO managers of "open market CLOs" will no
longer be required to comply with the U.S. risk retention rules solely because
of their roles as managers of "open market CLOs", and there may be no "sponsor"
of such securitization transactions and no party may be required to acquire and
retain an economic interest in the credit risk of the securitized assets of such
transactions.

      There can be no assurance or representation that any of the transactions,
structures or arrangements currently under consideration by or currently used by
CLO market participants will comply with the U.S. risk retention rules to the
extent such rules are reinstated or otherwise become applicable to open market
CLOs. The ultimate impact of the U.S. risk retention rules on the loan
securitization market and the leveraged loan market generally remains uncertain,
and any negative impact on secondary market liquidity for securities comprising
a CLO may be experienced due to the effects of the U.S. risk retention rules on
market expectations or uncertainty, the relative appeal of other investments not
impacted by the U.S. risk retention rules and other factors.

RISKS RELATING TO INVESTING IN THE SUBORDINATED/EQUITY TRANCHE OF STRUCTURED
CREDIT PRODUCTS

      Up to all of the Fund's investments in structured credit products may be
in the subordinated/equity tranches. Investments in the equity tranches of
structured credit products typically represent the first loss position, are
unrated and are subject to greater risk. To the extent that any losses are
incurred by the structured credit product in respect of any collateral, such
losses will be borne first by the owners of the equity interests, which may
include the Fund. Any equity interests that the Fund holds in a structured
credit product will not be secured by the assets of the structured credit
product or guaranteed by any party, and the Fund will rank behind all creditors
of the structured credit product, including the holders of the secured notes
issued by the structured credit product. Equity interests are typically subject
to certain payment restrictions in the indenture governing the senior tranches.
Accordingly, equity interests may not be paid in full, may be adversely impacted
by defaults by a relatively small number of underlying assets held by the
structured credit product and may be subject to up to 100% loss. Structured
credit products may be highly levered, and therefore equity interests may be
subject to a higher risk of loss, including the potential for total loss. The
market value of equity interests may be significantly affected by a variety of
factors, including changes in interest rates, changes in the market value of the
collateral held by the securitization, defaults and recoveries on that
collateral and other risks associated with that collateral. The leveraged nature
of equity interest is likely to magnify these impacts. Equity interests
typically do not have a fixed coupon and payments on equity interests will be
based on the income received from the underlying collateral and the payments
made to the senior tranches, both of which may be based on floating rates. While
the payments on equity interest will be variable, equity interests may not offer
the same level of protection against changes in interest rates as other floating
rate instruments. Equity interests are typically illiquid investments and
subject to extensive transfer restrictions, and no party is under any obligation
to make a market for equity interests. At times, there may be no market for
equity interests, and the Fund may not be able to sell or otherwise transfer
equity interests at their fair value, or at all, in the event that it determines
to sell them.

MEZZANINE INVESTMENTS RISK

      The Fund may invest in mezzanine debt instruments, which are expected to
be unsecured and made in companies with capital structures having significant
indebtedness ranking ahead of the investments, all or a significant portion of


                                       43



which may be secured. While the investments may benefit from the same or similar
financial and other covenants as those applicable to the indebtedness ranking
ahead of the investments and may benefit from cross-default provisions and
security over the company's assets, some or all of such terms may not be part of
particular investments and the mezzanine debt will be subordinated in recovery
to senior classes of debt in the event of a default. Mezzanine investments
generally are subject to various risks, including, without limitation: (i) a
subsequent characterization of an investment as a "fraudulent conveyance"; (ii)
the recovery as a "preference" of liens perfected or payments made on account of
a debt in the 90 days before a bankruptcy filing; (iii) equitable subordination
claims by other creditors; (iv) so-called "lender liability" claims by the
issuer of the obligations; and (v) environmental liabilities that may arise with
respect to any collateral securing the obligations.

LOAN RISK

      Investments in loans are generally subject to the same risks as
investments in other types of debt obligations, including, among others, credit
risk, interest rate risk, prepayment risk, and extension risk. In addition, in
many cases loans are subject to the risks associated with below-investment grade
securities. This means loans are often subject to significant credit risks,
including a greater possibility that the borrower will be adversely affected by
changes in market or economic conditions and may default or enter bankruptcy.
This risk of default will increase in the event of an economic downturn or a
substantial increase in interest rates (which will increase the cost of the
borrower's debt service).

      The interest rates on floating rate loans typically adjust only
periodically. Accordingly, adjustments in the interest rate payable under a loan
may trail prevailing interest rates significantly, especially if there are
limitations placed on the amount the interest rate on a loan may adjust in a
given period. Certain floating rate loans have a feature that prevents their
interest rates from adjusting if market interest rates are below a specified
minimum level. When interest rates are low, this feature could result in the
interest rates of those loans becoming fixed at the applicable minimum level
until interest rates rise above that level. Although this feature is intended to
result in these loans yielding more than they otherwise would when interest
rates are low, the feature might also result in the prices of these loans
becoming more sensitive to changes in interest rates should interest rates rise
but remain below the applicable minimum level.

      In addition, investments in loans may be difficult to value and may be
illiquid. Floating rate loans generally are subject to legal or contractual
restrictions on resale. The liquidity of floating rate loans, including the
volume and frequency of secondary market trading in such loans, varies
significantly over time and among individual floating rate loans. For example,
if the credit quality of the borrower related to a floating rate loan
unexpectedly declines significantly, secondary market trading in that floating
rate loan can also decline. The secondary market for loans may be subject to
irregular trading activity, wide bid/ask spreads, and extended trade settlement
periods, which may increase the expenses of the Fund or cause the Fund to be
unable to realize the full value of its investment in the loan, resulting in a
material decline in the Fund's NAV.

      Opportunities to invest in loans or certain types of loans, such as senior
loans, may be limited. Alternative investments may provide lower yields and may,
in a Portfolio Sub-Advisor's view, offer less attractive investment
characteristics. The limited availability of loans may be due to a number of
reasons, including that direct lenders may allocate only a small number of loans
to new investors, including the Fund. There also may be fewer loans made or
available that a Portfolio Sub-Advisor considers to be attractive investment
opportunities, particularly during economic downturns. Also, lenders or agents
may have an incentive to market only the least desirable loans to investors such
as the Fund. If the market demand for loans increases, the availably of loans
for purchase and the interest paid by borrowers may decrease.

      Investments in loans through a purchase of a loan, loan origination or a
direct assignment of a financial institution's interests with respect to a loan
may involve additional risks to the Fund. For example, if a loan is foreclosed,
the Fund could become owner, in whole or in part, of any collateral, which could
include, among other assets, real estate or other real or personal property, and
would bear the costs and liabilities associated with owning and holding or
disposing of the collateral. In addition, it is conceivable that under emerging
legal theories of lender liability, the Fund as holder of a partial interest in
a loan could be held liable as co-lender for acts of the agent lender.

      Loans and certain other forms of direct indebtedness may not be classified
as "securities" under the federal securities laws and, therefore, when the Fund
purchases such instruments, it may not be entitled to the protections against
fraud and misrepresentation contained in the federal securities laws.

      Additional risks of investments in loans may include:

      Agent/Intermediary Risk. If the Fund holds a loan through another
financial intermediary, as is the case with a participation, or relies on
another financial intermediary to administer the loan, as is the case with most
multi-lender facilities, the Fund's receipt of principal and interest on the
loan and the value of the Fund's loan investment will depend at least in part on
the credit standing of the financial intermediary and therefore will be subject
to the credit risk of the intermediary. The Fund will be required to rely upon
the financial intermediary from which it purchases a participation interest to
collect and pass on to the Fund such payments and to enforce the Fund's rights


                                       44



and may not be able to cause the financial intermediary to take what it
considers to be appropriate action. As a result, an insolvency, bankruptcy or
reorganization of the financial intermediary may delay or prevent the Fund from
receiving principal, interest and other amounts with respect to the Fund's
interest in the loan. In addition, if the Fund relies on a financial
intermediary to administer a loan, the Fund is subject to the risk that the
financial intermediary may be unwilling or unable to demand and receive payments
from the borrower in respect of the loan, or otherwise unwilling or unable to
perform its administrative obligations.

      Equity Securities and Warrants Risk. The acquisition of equity securities
may generally be incidental to the Fund's purchase of a loan. These transactions
may include operating loans, leveraged buyout loans, leveraged capitalization
loans and other types of acquisition financing. The Fund may acquire equity
securities as part of an instrument combining a loan and equity securities of a
borrower or its affiliates. The Fund also may acquire equity securities issued
in exchange for a loan or in connection with the default and/or restructuring of
a loan, including subordinated and unsecured loans, and high-yield securities.
Equity securities include common stocks, preferred stocks and securities
convertible into common stock. Equity securities are subject to market risks and
the risks of changes to the financial condition of the issuer, and fluctuations
in value.

      High Leveraged Transactions Risk. The Fund may invest in loans made in
connection with highly leveraged transactions, which are generally subject to
greater credit and liquidity risks than other types of loans. Such loans may be
issued by companies that have converted from public to private ownership through
leveraged buyout transactions and by companies that have restructured their
balance sheets through leveraged recapitalizations. Loans issued in these
situations may be used primarily to pay existing stockholders for their shares
or to finance special dividend distributions to shareholders. The indebtedness
incurred in connection with these transactions is often substantial and, as a
result, often produces highly leveraged capital structures, which present
greater risks for the holders of such loans as compared to loans of less
leveraged issuers. Also, the market price of such loans may be more volatile. If
the Fund voluntarily or involuntarily sold those types of loans, it might not
receive the full value it expected.

      Stressed, Distressed or Defaulted Borrowers Risk. The Fund can also invest
in loans of borrowers that are experiencing, or are likely to experience,
financial difficulty. These loans are subject to greater credit and liquidity
risks than other types of loans. In addition, the Fund can invest in loans of
borrowers that have filed for bankruptcy protection or that have had involuntary
bankruptcy petitions filed against them by creditors. Various laws enacted for
the protection of debtors may apply to loans. A bankruptcy proceeding or other
court proceeding could delay or limit the ability of the Fund to collect the
principal and interest payments on that borrower's loans or adversely affect the
Fund's rights in collateral relating to a loan. If a lawsuit is brought by
creditors of a borrower under a loan, a court or a trustee in bankruptcy could
take certain actions that would be adverse to the Fund. For example:

      o     Other creditors might convince the court to set aside a loan or the
            collateralization of the loan as a "fraudulent conveyance" or
            "preferential transfer." In that event, the court could recover from
            the Fund the interest and principal payments that the borrower made
            before becoming insolvent. There can be no assurance that the Fund
            would be able to prevent that recapture.

      o     A bankruptcy court may restructure the payment obligations under the
            loan so as to reduce the amount to which the Fund would be entitled.

      o     The court might discharge the amount of the loan that exceeds the
            value of the collateral.

      o     The court could subordinate the Fund's rights to the rights of other
            creditors of the borrower under applicable law, decreasing,
            potentially significantly, the likelihood of any recovery on the
            Fund's investment.

      Limited Information Risk. Because there may be limited public or other
information available regarding loan investments, the Fund's investments in such
instruments may be particularly dependent on the analytical abilities of the
Fund's portfolio managers.

      Interest Rate Benchmarks Risk. Interest rates on loans typically adjust
periodically often based on changes in a benchmark rate plus a premium or spread
over the benchmark rate. The benchmark rate may be LIBOR, the Prime Rate, or
other base lending rates used by commercial lenders (each as defined in the
applicable loan agreement). Some benchmark rates may reset daily; others reset
less frequently. The interest rate on LIBOR-based loans is reset periodically,
typically based on a period between 30 days and one year. Certain floating or
variable rate loans may permit the borrower to select an interest rate reset
period of up to one year or longer. Investing in loans with longer interest rate
reset periods may increase fluctuations in the Fund's NAV as a result of changes
in interest rates. Interest rates on loans with longer periods between benchmark
resets will typically trail market interest rates in a rising interest rate
environment.

      Certain loans may permit the borrower to change the base lending rate
during the term of the loan. One benchmark rate may not adjust to changing
market or interest rates to the same degree or as rapidly as another, permitting
the borrower the option to select the benchmark rate that is most advantageous
to it and less advantageous to the Fund. To the extent the borrower elects this
option, the interest income and total return the Fund earns on the investment
may be adversely affected as compared to other investments where the borrower
does not have the option to change the base lending or benchmark rate.


                                       45



      On July 27, 2017, the head of the United Kingdom's Financial Conduct
Authority announced a desire to phase out the use of LIBOR by the end of 2021.
There remains uncertainty regarding the future utilization of LIBOR and the
nature of any replacement rate. As such, the potential effect of a transition
away from LIBOR on the Fund or the financial instruments in which the Fund
invests cannot yet be determined. Please see "--LIBOR Risk" below for more
information.

      Restrictive Loan Covenants Risk. Borrowers must comply with various
restrictive covenants that may be contained in loan agreements. They may include
restrictions on dividend payments and other distributions to stockholders,
provisions requiring the borrower to maintain specific financial ratios, and
limits on total debt. They may include requirements that the borrower prepay the
loan with any free cash flow. A break of a covenant that is not waived by the
agent bank (or the lenders) is normally an event of default that provides the
agent bank or the lenders the right to call the outstanding amount on the loan.
If a lender accelerates the repayment of a loan because of the borrower's
violation of a restrictive covenant under the loan agreement, the borrower might
default in payment of the loan.

      Some of the loans in which the Fund may invest or to which the Fund may
obtain exposure may be "covenant-lite." Such loans contain fewer or less
restrictive constraints on the borrower than certain other types of loans. Such
loans generally do not include terms which allow the lender to monitor the
performance of the borrower and declare a default or force a borrower into
bankruptcy restructuring if certain criteria are breached. Under such loans,
lenders typically must rely on covenants that restrict a borrower from incurring
additional debt or engaging in certain actions. Such covenants can be breached
only by an affirmative action of the borrower, rather than by a deterioration in
the borrower's financial condition. Accordingly, the Fund may have fewer rights
against a borrower when it invests in or has exposure to such loans and so may
have a greater risk of loss on such investments as compared to investments in or
exposure to loans with additional or more conventional covenants.

      Settlement Risk. Transactions in many loans settle on a delayed basis, and
the Fund may not receive the proceeds from the sale of such loans for a
substantial period after the sale. As a result, sale proceeds related to the
sale of such loans may not be available to make additional investments until
potentially a substantial period after the sale of the loans.

      Inadequate Collateral or Guarantees Risk. Even if a loan to which the Fund
is exposed is secured, there can be no assurance that the collateral will, when
recovered and liquidated, generate sufficient (or any) funds to offset any
losses associated with a defaulting loan. It is possible that the same
collateral could secure multiple loans, in which case the liquidation proceeds
of the collateral may be insufficient to cover the payments due on all the loans
secured by that collateral. This risk is increased if the Fund's loans are
secured by a single asset. There can be no guarantee that the collateral can be
liquidated and any costs associated with such liquidation could reduce or
eliminate the amount of funds otherwise available to offset the payments due
under the loan. The Fund generally will need to rely on the efforts of the
originating lenders, servicers or their designated collection agencies to
collect on defaulted loans and there is no guarantee that such parties will be
successful in their efforts to collect. To the extent that the loan obligations
in which the Fund invests are guaranteed by a third party, there can be no
assurance that the guarantor will perform its payment obligations should the
underlying borrower default on its payments. The Fund could suffer delays or
limitations on its ability to realize the benefits of the collateral to the
extent the borrower becomes bankrupt or insolvent. Moreover, the Fund's security
interests may be unperfected for a variety of reasons, including the failure to
make a required filing by the servicer and, as a result, the Fund may not have
priority over other creditors as it expected.

      Unsecured Loans Risk. Subordinated or unsecured loans are lower in
priority of payment to secured loans and are subject to the additional risk that
the cash flow of the borrower and property securing the loan or debt, if any,
may be insufficient to meet scheduled payments after giving effect to the senior
secured obligations of the borrower. This risk is generally higher for
subordinated unsecured loans or debt, which are not backed by a security
interest in any specific collateral. Subordinated and unsecured loans generally
have greater price volatility than secured loans and may be less liquid. There
is also a possibility that originators will not be able to sell participations
in subordinated or unsecured loans, which would create greater credit risk
exposure for the holders of such loans. Subordinated and unsecured loans share
the same risks as other below investment grade securities.

      Servicer Risk. The Fund's direct and indirect investments in loans are
typically serviced by the originating lender or a third-party servicer. In the
event that the servicer is unable to service the loan, there can be no guarantee
that a backup servicer will be able to assume responsibility for servicing the
loans in a timely or cost-effective manner; any resulting disruption or delay
could jeopardize payments due to the Fund in respect of its investments or
increase the costs associated with the Fund's investments.

      Other Legal Risks. Recent case law has cast doubt on the ability of a
purchaser of a loan, such as the Fund, to charge the same rate of interest as an
originating entity after the loan has been sold by the originating entity. In
2015, the U.S. Court of Appeals for the Second Circuit issued a significant
decision that interpreted the scope of federal preemption under the National
Bank Act (the "NBA") and held that a non-bank assignee of loans sourced by a
national bank was not entitled to the benefits of NBA preemption as to state law
claims of usury. Although the decision is binding only in Connecticut, New York
and Vermont, it may significantly affect non-bank assignees of loans, including,
potentially, the Fund. At a minimum, non-bank assignees/purchasers of bank loans


                                       46



may face uncertainty regarding their ability to rely upon federal preemption of
state usury laws in those three states; in addition, a number of market
participants, including, potentially, the Fund purchase loans from
state-chartered banks promptly after origination and may seek to rely upon
federal preemption to exempt the loans from state usury caps. The decision,
although directly ruling on purchasers of national bank loans, could be applied
by courts considering the scope of federal preemption under the Depository
Institutions Deregulation and Monetary Control Act of 1980 (which generally
preempts state usury laws in favor of federally insured state-chartered banks)
with respect to loans originated by state-chartered banks.

      The Second Circuit's decision appears to be contrary to other federal
circuit court decisions and inconsistent with longstanding commercial practice.
Although the decision was appealed to the U.S. Supreme Court, the Court declined
to consider it, leaving in place the Second Circuit's ruling. In February 2017,
in further action following remand from the Second Circuit, the U.S. District
Court ruled that the choice of law provision, which selected Delaware rather
than New York law, would not be enforced and that New York law should be applied
for determining the applicable usury ceiling. The impact of the case is
uncertain because the case ultimately settled in early 2019 without further
action, and the Supreme Court could ultimately disagree with the ruling in a
different case. In addition, the holding could be overturned, distinguished or
otherwise limited by the subsequent litigation on similar issues in other cases
in the Second Circuit. If the decision in this case were applied to lending
activity more broadly, it is possible that certain loans made to borrowers in
Connecticut, New York and Vermont by originating banks at interest rates in
excess of the local usury ceiling could be in jeopardy if the ruling in this
case is applied to them. As a result, if the Fund purchases or holds such loans
(directly or indirectly) and litigation is brought to challenge their
enforceability on similar grounds as this case, the Fund could suffer
significant losses. Moreover, if the ruling in this case is applied in other
jurisdictions, the enforceability of loans made through originating banks at
interest rates in excess of a local usury ceiling may also be in jeopardy and
the Fund could suffer losses if it purchases or holds such loans.

      Foreign Loan Risk. Loans involving foreign borrowers may involve risks not
ordinarily associated with exposure to loans to U.S. entities and individuals.
The foreign lending industry may be subject to less governmental supervision and
regulation than exists in the U.S.; conversely, foreign regulatory regimes
applicable to the lending industry may be more complex and more restrictive than
those in the U.S., resulting in higher costs associated with such investments,
and such regulatory regimes may be subject to interpretation or change without
prior notice to investors, such as the Fund. Foreign lending may not be subject
to accounting, auditing, and financial reporting standards and practices
comparable to those in the U.S. Due to differences in legal systems, there may
be difficulty in obtaining or enforcing a court judgment outside the U.S. For
example, bankruptcy laws may differ across the jurisdictions in which the Fund
may invest and it may be difficult for a servicer to pursue non-U.S. borrowers.
In addition, to the extent that investments are made in a limited number of
countries, events in those countries will have a more significant impact on the
Fund. Loans to foreign entities and individuals may be subject to risks of
increased transaction costs, potential delays in settlement or unfavorable
differences between the U.S. economy and foreign economies.

      The Fund's exposure to loans of foreign borrowers may be subject to
withholding and other foreign taxes, which may adversely affect the net return
on such investments. In addition, fluctuations in foreign currency exchange
rates and exchange controls may adversely affect the market value of the Fund's
exposure to loans to foreign borrowers. The Fund is unlikely to be able to pass
through to its shareholders foreign income tax credits in respect of any foreign
income taxes it pays.

      Lender Liability. A number of judicial decisions have upheld judgments of
borrowers against lending institutions on the basis of various evolving legal
theories, collectively termed "lender liability." Generally, lender liability is
founded on the premise that a lender has violated a duty (whether implied or
contractual) of good faith, commercial reasonableness and fair dealing, or a
similar duty owed to the borrower or has assumed an excessive degree of control
over the borrower resulting in the creation of a fiduciary duty owed to the
borrower or its other creditors or shareholders. If a loan held by the Fund were
found to have been made or serviced under circumstances that give rise to lender
liability, the borrower's obligation to repay that loan could be reduced or
eliminated or the Fund's recovery on that loan could be otherwise impaired,
which would adversely impact the value of that loan. In limited cases, courts
have subordinated the loans of a senior lender to a borrower to claims of other
creditors of the borrower when the senior lender or its agents, such as a loan
servicer, is found to have engaged in unfair, inequitable or fraudulent conduct
with respect to the other creditors. If a loan held by the Fund were subject to
such subordination, it would be junior in right of payment to other indebtedness
of the borrower, which could adversely impact the value of that loan.

      Loan origination and servicing companies are routinely involved in legal
proceedings concerning matters that arise in the ordinary course of their
business. These legal proceedings range from actions involving a single
plaintiff to class action lawsuits with potentially tens of thousands of class
members. In addition, a number of participants in the loan origination and
servicing industry (including control persons of industry participants) have
been the subject of regulatory actions by state regulators, including state
Attorneys General, and by the federal government. Governmental investigations,
examinations or regulatory actions, or private lawsuits, including purported
class action lawsuits, may adversely affect such companies' financial results.
To the extent the Fund engages in origination and/or servicing directly, or has
a financial interest in, or is otherwise affiliated with, an origination or
servicing company, the Fund will be subject to enhanced risks of litigation,
regulatory actions and other proceedings. As a result, the Fund may be required
to pay legal fees, settlement costs, damages, penalties or other charges, any or
all of which could materially adversely affect the Fund and its investments.


                                       47



      The Fund may make loans directly to borrowers or may acquire an interest
in a loan by means of an assignment or a participation. In an assignment, the
Fund may be required generally to rely upon the assigning financial institution
to demand payment and enforce its rights against the borrower, but would
otherwise be entitled to the benefit of all of the financial institution's
rights in the loan. The Fund may also purchase a participating interest in a
portion of the rights of a lending institution in a loan. In such case, the Fund
will generally be entitled to receive from the lending institution amounts equal
to the payments of principal, interest and premium, if any, on the loan received
by the institution, but generally will not be entitled to enforce its rights
directly against the agent bank or the borrower, and must rely for that purpose
on the lending institution. In the case of an assignment or a participation, the
value of the Fund's loan investment will depend at least in part on the credit
standing of the assigning or participating institution. The Fund will in certain
cases be required to rely upon the intermediary from which it purchases an
assignment or participation interest to collect and pass on to the Fund such
payments and to enforce the Fund's rights. As a result, an insolvency,
bankruptcy or reorganization of the intermediary may delay or prevent the Fund
from receiving principal, interest and other amounts with respect to the Fund's
interest in the loan.

SENIOR LOAN RISK

      In addition to the risks typically associated with debt securities and
loans generally, senior loans are also subject to the risk that a court could
subordinate a senior loan, which typically holds a senior position in the
capital structure of a borrower, to presently existing or future indebtedness or
take other action detrimental to the holders of senior loans.

      The Fund's investments in senior loans may be collateralized with one or
more of (1) working capital assets, such as accounts receivable and inventory,
(2) tangible fixed assets, such as real property, buildings and equipment, (3)
intangible assets such as trademarks or patents, or (4) security interests in
shares of stock of the borrower or its subsidiaries or affiliates. In the case
of loans to a non-public company, the company's shareholders or owners may
provide collateral in the form of secured guarantees and/or security interests
in assets they own. However, the value of the collateral may decline after the
Fund buys the senior loan, particularly if the collateral consists of equity
securities of the borrower or its affiliates. If a borrower defaults, insolvency
laws may limit the Fund's access to the collateral, or the lenders may be unable
to liquidate the collateral. A bankruptcy court might find that the collateral
securing the senior loan is invalid or require the borrower to use the
collateral to pay other outstanding obligations. If the collateral consists of
stock of the borrower or its subsidiaries, the stock may lose all of its value
in the event of a bankruptcy, which would leave the Fund exposed to greater
potential loss. As a result, a collateralized senior loan may not be fully
collateralized and can decline significantly in value.

      If a borrower defaults on a collateralized senior loan, the Fund may
receive assets other than cash or securities in full or partial satisfaction of
the borrower's obligation under the senior loan. Those assets may be illiquid,
and the Fund might not be able to realize the benefit of the assets for legal,
practical or other reasons. The Fund might hold those assets until the Portfolio
Sub-Advisor determined it was appropriate to dispose of them. If the collateral
becomes illiquid or loses some or all of its value, the collateral may not be
sufficient to protect the Fund in the event of a default of scheduled interest
or principal payments.

      Due to restrictions on transfers in loan agreements and the nature of the
private syndication of senior loans including, for example, the lack of
publicly-available information, some senior loans are not as easily purchased or
sold as publicly-traded securities. Some senior loans and other Fund investments
are illiquid, which may make it difficult for the Fund to value them or dispose
of them at an acceptable price. Direct investments in senior loans and
investments in participation interests in or assignments of senior loans may be
limited.

DIRECT LOAN RISK

      The Fund may invest in loans originated by alternative lenders (i.e.,
non-bank loans). The Fund's investments in loans are subject to credit risk
(i.e., the ability of borrowers to make principal and interest payments) and are
subject to the risk that such borrowers may decide to prepay all or a portion of
the remaining principal balance due under a borrower loan. If a borrower prepays
a portion of the remaining unpaid principal balance, interest will cease to
accrue on such prepaid portion, and the Fund will not receive all of the
interest payments that it may have otherwise expected to receive on the loan.
The risks of investments in loans are in part driven by unique social and
economic factors. For instance, borrowers' ability to repay loans may be
affected by changes in interest rates, unemployment levels, upward adjustments
in monthly mortgage payments, the rate of inflation and consumer perceptions of
economic conditions generally. Consumer loans also tend to be affected by
consumer confidence and disposable income.


                                       48



      Indebtedness of borrowers whose creditworthiness is poor involves
substantial risks, and may be highly speculative. Borrowers may seek protection
under federal bankruptcy law or similar laws. A loan is often administered by a
financial institution that acts as agent for all holders. The agent administers
the terms of the loan, as specified in the loan agreement. Unless the Fund has
direct recourse against the borrower, under the terms of the loan or other
indebtedness the Fund may have to rely on the agent to pursue appropriate credit
remedies against a borrower.

      If a borrower files for bankruptcy (or becomes the subject of an
involuntary petition), a stay will go into effect that will automatically put
any pending collection actions on hold and prevent further collection action
absent bankruptcy court approval. A lender may attempt to obtain relief from a
bankruptcy stay from the bankruptcy court, but doing so may take several months
(if relief is granted at all) and may cause the lender to incur significant
legal fees and costs. Furthermore, bankruptcy courts have broad powers to permit
the sale of any real property free of any lien that a lender may have, to compel
the lender to accept an amount less than the balance due under a loan and to
permit the borrower to repay the loan over a term which may be substantially
longer than the original term of the loan.

      The interest rates on certain loans reset frequently, and such loans are
therefore subject to interest rate risk. Most loans are not traded on any
national securities exchange. Loans generally have less liquidity than
investment grade bonds and there may be less public information available about
them.

      Some of the loans in which the Fund may invest may be interest-only loans
providing for relatively small monthly payments with a large "balloon" payment
of principal due at the end of the term. Borrowers may be unable to repay such
balloon payments out of their own funds and will be compelled to refinance or
sell their property. Fluctuations in real estate values, interest rates and the
unavailability of mortgage funds could adversely affect the ability of borrowers
to refinance their loans at maturity or successfully sell the property for
enough money to pay off the corresponding loan.

      The Fund's investments in loans include both secured and unsecured loans
made by banks and other financial institutions to corporate customers. Senior
loans typically hold the most senior position in a borrower's capital structure,
may be secured by the borrower's assets and have interest rates that reset
frequently. The proceeds of senior loans primarily are used to finance leveraged
buyouts, recapitalizations, mergers, acquisitions, stock repurchases, dividends,
and, to a lesser extent, to finance internal growth and for other corporate
purposes. These loans may not be rated investment grade by the rating agencies.
Although secured loans are secured by collateral of the borrower, there is no
assurance that the liquidation of collateral from a secured loan would satisfy
the borrower's obligation, or that the collateral can be liquidated. Economic
downturns generally lead to higher non-payment and default rates and a senior
loan could lose a substantial portion of its value prior to a default. Some
senior loans are subject to the risk that a court could subordinate such senior
loans to presently existing or future indebtedness of the borrower or take other
action detrimental to the holders of senior loans, including, in certain
circumstances, invalidating such senior loans or causing interest previously
paid to be refunded to the borrower.

      Large loans to corporations or governments may be shared or syndicated
among several lenders, usually (but often not limited to) banks. The Fund may
participate in the primary syndicate for a loan and may purchase loans from
other lenders (sometimes referred to as loan assignments), in either case
becoming a direct lender. The Fund also may acquire a participation interest in
another lender's portion of the loan. Participation interests involve special
types of risk, including liquidity risk and the risks of being a lender. When
investing in a loan participation, the Fund typically will have the right to
receive payments only from the lender to the extent the lender receives payments
from the borrower, and not from the borrower itself. Likewise, the Fund
typically will be able to enforce its rights only through the lender, and not
directly against the borrower. As a result, the Fund will assume the credit risk
of both the borrower and the lender that is selling the participation.

      Investments in loans through direct assignment of a financial
institution's interests with respect to a loan may involve additional risks to
the Fund. For example, if the loan is foreclosed, the Fund could become part
owner of any collateral, and would bear the costs and liabilities associated
with owning and disposing of the collateral. In addition, it is possible that
the Fund could be held liable as a co-lender. Loans and other debt instruments
that are not in the form of securities may offer less legal protection to the
Fund in certain circumstances.

      In addition to investing in senior secured loans, the Fund may invest in
other loans, such as second lien loans and other secured loans, as well as
unsecured loans. Second lien loans and other secured loans are subject to the
same risks associated with investment in senior loans and lower-rated debt
securities. However, such loans may rank lower in right of payment than senior
secured loans, and are subject to additional risk that the cash flow of the
borrower and any property securing the loan may be insufficient to meet
scheduled payments after giving effect to the higher ranking secured obligations
of the borrower. Second lien loans and other secured loans are expected to have
greater price volatility than more senior loans and may be less liquid. There is
also a possibility that originators will not be able to sell participations in
lower-ranking loans, which would create greater credit risk exposure. Each of
these risks may be increased in the case of unsecured loans, which are not
backed by a security interest in any specific collateral.

      The Fund may enter into regulatory capital relief trades with banks and
other financial institutions. Under these transactions, a third-party investor
(e.g., the Fund), agrees to absorb losses on part of the bank's loan portfolio
in exchange for a fee. The fee is negotiated based on the level of perceived
credit protection the bank is receiving relative to the level of risk the
investor is undertaking as a result of the transaction. In exchange for
transferring the credit risk of these assets away from the bank's balance sheet,
the bank receives capital relief from regulatory requirements without having to,
for instance, sell assets. These trades allow the bank to reduce how much
capital it must hold against such assets. Under any such trades into which the
Fund enters, the Fund will be exposed to the credit risk of the underlying
portfolio, and if the loans in the portfolio default -- which may be more likely


                                       49



if there is a general deterioration in credit markets -- the will make payments
to the bank to cover the losses. There may be a risk that the international
regulatory framework for banks (known as 'Basel III') of the Bank for
International Settlements, when fully implemented, may discourage such
regulatory capital relief trades and might force banks to unwind any existing
transactions on all but the riskiest portfolios.

SECOND LIEN LOAN RISK

      A second lien loan may have a claim on the same collateral pool as the
first lien or it may be secured by a separate set of assets. Second lien loans
are typically secured by a second priority security interest or lien to or on
specified collateral securing the Borrower's obligation under the interest.
Because second lien loans are second to first lien loans, they present a greater
degree of investment risk. Specifically, these loans are subject to the
additional risk that the cash flow of the Borrower and property securing the
loan may be insufficient to meet scheduled payments after giving effect to those
loans with a higher priority. In addition, loans that have a lower than first
lien priority on collateral of the Borrower generally have greater price
volatility than those loans with a higher priority and may be less liquid.
However, second lien loans often pay interest at higher rates than first lien
loans reflecting such additional risks.

      Second lien loans generally give investors priority over general unsecured
creditors in the event of an asset sale. The priority of the collateral claims
of third or lower lien loans ranks below holders of second lien loans and so on.
Such junior loans are subject to the same general risks inherent to any loan
investment, including credit risk, market and liquidity risk, and interest rate
risk. Due to their lower place in the borrower's capital structure and possible
unsecured or partially secured status, such loans involve a higher degree of
overall risk than first lien loans, since cash flow of the Borrower and property
securing the loan, if any, may be insufficient to meet scheduled payments after
giving effect to higher priority secured obligations of the Borrower. Second
lien loans also share the same risks of other below investment grade debt
instruments. See "--Credit and Below Investment Grade Securities Risk."

LOAN PARTICIPATION RISK

      The Fund may purchase a participation interest in a loan and by doing so
acquire some or all of the interest of a bank or other lending institution in a
loan to a Borrower. A participation typically will result in the Fund having a
contractual relationship only with the Lender, not the Borrower. As a result,
the Fund assumes the credit risk of the Lender selling the participation in
addition to the credit risk of the Borrower. By purchasing a participation, the
Fund will have the right to receive payments of principal, interest and any fees
to which it is entitled only from the Lender selling the participation and only
upon receipt by the Lender of the payments from the Borrower. In the event of
insolvency or bankruptcy of the Lender selling the participation, the Fund may
be treated as a general creditor of the Lender and may not have a senior claim
to the Lender's interest in the loan. If the Fund only acquires a participation
in the loan made by a third party, the Fund may not be able to control the
exercise of any remedies that the Lender would have under the loan. Such third
party participation arrangements are designed to give loan investors
preferential treatment over high yield investors in the event of a deterioration
in the credit quality of the Borrower. Even when these arrangements exist,
however, there can be no assurance that the principal and interest owed on the
loan will be repaid in full.

OTHER RISKS ASSOCIATED WITH LOANS

      Many Senior Loans, second lien loans and other loans in which the Fund
invests may not be rated by a NRSRO, will not be registered with the SEC or any
state securities commission and will not be listed on any national securities
exchange. To the extent that a secondary market does exist for certain loans,
the market for them may be subject to irregular trading activity, wide bid/ask
spreads and extended trade settlement periods. In addition, the amount of public
information available with respect to loans generally may be less extensive than
that available for registered or exchange listed securities. As a result, the
Fund is particularly dependent on the analytical abilities of the Portfolio
Sub-Advisors with respect to investments in such loans. The Portfolio
Sub-Advisors' judgment about the credit quality of a Borrower may be wrong.
Economic and other events (whether real or perceived) can reduce the demand for
certain loans or loans generally, which may reduce market prices and cause the
Fund's NAV to fall. The frequency and magnitude of such changes cannot be
predicted. No active trading market may exist for some Senior Loans and some
loans may be subject to restrictions on resale. A secondary market may be
subject to irregular trading activity, wide bid/ask spreads and extended trade
settlement periods, which may impair the ability to realize full value and thus
cause a material decline in the Fund's NAV. During periods of limited supply and
liquidity of loans, the Fund's yield may be lower. Other factors (including, but
not limited to, rating downgrades, credit deterioration, a large downward
movement in stock prices, a disparity in supply and demand of certain loans and
other securities or market conditions that reduce liquidity) can reduce the
value of loans and other debt obligations, impairing the Fund's NAV.

LENDER LIABILITY RISK

      A number of U.S. judicial decisions have upheld judgments of borrowers
against lending institutions on the basis of various evolving legal theories,
collectively termed "lender liability." Generally, lender liability is founded
on the premise that a lender has violated a duty (whether implied or
contractual) of good faith, commercial reasonableness and fair dealing, or a


                                       50



similar duty owed to the borrower or has assumed an excessive degree of control
over the borrower resulting in the creation of a fiduciary duty owed to the
borrower or its other creditors or shareholders. Because of the nature of its
investments, the Fund may be subject to allegations of lender liability.

      In addition, under common law principles that in some cases form the basis
for lender liability claims, if a lender (i) intentionally takes an action that
results in the undercapitalization of a borrower to the detriment of other
creditors of such borrower; (ii) engages in inequitable conduct to the detriment
of the other creditors; (iii) engages in fraud with respect to, or makes
misrepresentations to, the other creditors; or (iv) uses its influence as a
stockholder to dominate or control a borrower to the detriment of other
creditors of the borrower, a court may elect to subordinate the claim of the
offending lender to the claims of the disadvantaged creditor or creditors, a
remedy called "equitable subordination." Because affiliates of, or persons
related to, the Advisor may hold equity or other interests in obligors of the
Fund, the Fund could be exposed to claims for equitable subordination or lender
liability or both based on such equity or other holdings.

"COVENANT-LITE" LOANS RISK.

      Some of the loans in which the Fund may invest or get exposure to through
its investments in CDOs or other types of structured securities may be
"covenant-lite" loans, which means the loans contain fewer maintenance covenants
than other loans (in some cases, none) and do not include terms which allow the
lender to monitor the performance of the borrower and declare a default if
certain criteria are breached. An investment by the Fund in a covenant-lite loan
may potentially hinder the ability to reprice credit risk associated with the
issuer and reduce the ability to restructure a problematic loan and mitigate
potential loss. The Fund may also experience delays in enforcing its rights on
its holdings of covenant-lite loans. As a result of these risks, the Fund's
exposure to losses may be increased, which could result in an adverse impact on
the Fund's net income and NAV.

DEBT SECURITIES RISK

      In addition to certain of the other risks described herein such as
interest rate risk and credit risk, debt securities generally also are subject
to the following risks:

      o     Redemption Risk--Debt securities sometimes contain provisions that
            allow for redemption in the event of tax or security law changes in
            addition to call features at the option of the issuer. In the event
            of a redemption, the Fund may not be able to reinvest the proceeds
            at comparable rates of return.

      o     Extension Risk--This is the risk that if interest rates rise,
            repayments of principal on certain debt securities, including, but
            not limited to, floating rate loans and mortgage-related securities,
            may occur at a slower rate than expected and the expected maturity
            of those securities could lengthen as a result. Securities that are
            subject to extension risk generally have a greater potential for
            loss when prevailing interest rates rise, which could cause their
            values to fall sharply.


      o     Liquidity Risk--Certain debt securities may be substantially less
            liquid than many other securities, such as U.S. Government
            securities or common shares or other equity securities.

      o     Spread Risk--Wider credit spreads and decreasing market values
            typically represent a deterioration of the debt security's credit
            soundness and a perceived greater likelihood or risk of default by
            the issuer.


      o     Limited Voting Rights--Debt securities typically do not provide any
            voting rights, except in some cases when interest payments have not
            been made and the issuer is in default. Even in such cases, such
            rights may be limited to the terms of the debenture or other
            agreements.


      o     Prepayment/Reinvestment Risk--Many types of debt securities,
            including floating rate loans, mortgage-backed securities and
            asset-backed securities, may reflect an interest in periodic
            payments made by borrowers. Although debt securities and other
            obligations typically mature after a specified period of time,
            borrowers may pay them off sooner. When a prepayment happens, all or
            a portion of the obligation will be prepaid. A borrower is more
            likely to prepay an obligation which bears a relatively high rate of
            interest. This means that in times of declining interest rates,
            there is a greater likelihood that the Fund's higher yielding
            securities will be pre-paid and the Fund will probably be unable to
            reinvest those proceeds in an investment with as great a yield,
            causing the Fund's yield to decline. Securities subject to
            prepayment risk generally offer less potential for gains when
            prevailing interest rates fall. If the Fund buys those investments
            at a premium, accelerated prepayments on those investments could
            cause the Fund to lose a portion of its principal investment and
            result in lower yields to shareholders. The increased likelihood of
            prepayment when interest rates decline also limits market price
            appreciation, especially with respect to certain loans,
            mortgage-backed securities and asset-backed securities. The effect
            of prepayments on the price of a security may be difficult to
            predict and may increase the security's price volatility.
            Interest-only and principal only securities are especially sensitive
            to interest rate changes, which can affect not only their prices but
            can also change the income flows and repayment assumptions about
            those investments. Income from the Fund's portfolio may decline when


                                       51



            the Fund invests the proceeds from investment income, sales of
            portfolio securities or matured, traded or called debt obligations.
            A decline in income received by the Fund from its investments is
            likely to have a negative effect on the dividend levels and market
            price, NAV and/or overall return of the Common Shares.

      The Fund's investments in debt securities may include, but are not limited
to, senior, junior, secured and unsecured bonds, notes and other debt
securities, and may be fixed rate, floating rate among other things. The market
value of a debt security may be affected by the credit rating of the issuer, the
issuer's performance, perceptions of the issuer in the market place, management
performance, financial leverage and reduced demand for the issuer's goods and
services. There is a risk that the issuers of the debt securities in which the
Fund may invest may not be able to meet their obligations on interest or
principal payments at the time called for by an instrument.

CORPORATE DEBT RISK

      The market value of corporate debt generally may be expected to rise and
fall inversely with interest rates. The market value of intermediate and longer
term corporate debt is generally more sensitive to changes in interest rates
than is the market value of shorter term corporate debt. The market value of
corporate debt also may be affected by factors directly related to the issuer,
such as investors' perceptions of the creditworthiness of the issuer, the
issuer's financial performance, perceptions of the issuer in the market place,
performance of management of the issuer, the issuer's capital structure and use
of financial leverage and demand for the issuer's goods and services. There is a
risk that the issuers of corporate debt may not be able to meet their
obligations on interest and/or principal payments at the time called for by an
instrument. Corporate debt rated below investment grade quality is often high
risk and has speculative characteristics and may be particularly susceptible to
adverse issuer-specific developments. Corporate Debt of below investment grade
quality is subject to the risks described herein under "Risks--Credit and Below
Investment Grade Securities Risk."

PREFERRED SECURITIES RISK

      In addition to many of the risks associated with both debt securities
(e.g., interest rate risk and credit risk) and common shares or other equity
securities, preferred securities typically contain provisions that allow an
issuer, at its discretion, to defer distributions for an extended period.
Preferred securities also may contain provisions that allow an issuer, under
certain conditions, to skip (in the case of noncumulative preferred securities)
or defer (in the case of cumulative preferred securities) dividend payments. If
the Fund owns a preferred security that is deferring its distributions, the Fund
may be required to report income for tax purposes while it is not receiving any
distributions. Preferred stock in some instances is convertible into common
shares or other securities. Preferred securities typically contain provisions
that allow for redemption in the event of tax or security law changes in
addition to call features at the option of the issuer. In the event of a
redemption, the Fund may not be able to reinvest the proceeds at comparable or
favorable rates of return.

      Preferred securities typically do not provide any voting rights, except in
cases in which dividends are in arrears beyond a certain time period, which
varies by issue. Preferred securities are generally subordinated to bonds and
other debt instruments in a company's capital structure in terms of priority to
corporate income and liquidation payments, and therefore will be subject to
greater credit risk than those debt instruments. Preferred securities may be
substantially less liquid than many other securities.

REAL ESTATE INVESTMENT TRUSTS AND REAL ESTATE RISK

      The Fund may invest in pooled real estate investment funds commonly
referred to as REITs and other real estate-related investments such as
securities of companies principally engaged in the real estate industry. REITs
are pooled investment vehicles that own, and typically operate, income-producing
real estate. If a REIT meets certain requirements, including distributing to
shareholders substantially all of its taxable income (other than net capital
gains), then it is not taxed on the income distributed to shareholders. REITs
are subject to management fees and other expenses, and so the Fund will bear its
proportionate share of the costs of the REITs' operations. There are three
general categories of REITs: Equity REITs, Mortgage REITs and Hybrid REITs.
Equity REITs, which invest primarily in direct fee ownership or leasehold
ownership of real property and derive most of their income from rents, are
generally affected by changes in the values of and incomes from the properties
they own. Mortgage REITs invest mostly in mortgages on real estate, which may
secure, for example, construction, development or long-term loans, and the main
source of their income is mortgage interest payments. Mortgage REITs may be
affected by the credit quality of the mortgage loans they hold. A hybrid REIT
combines the characteristics of equity REITs and mortgage REITs, generally by
holding both ownership interests and mortgage interests in real estate, and thus
may be subject to risks associated with both real estate ownership and
investments in mortgage-related investments. Along with the risks common to
different types of real estate-related investments, REITs, no matter the type,
involve additional risk factors, including poor performance by the REIT's
manager and the manager's inability to manage cash flows generated by the REIT's
assets, prepayments and defaults by borrowers, self-liquidation and adverse
changes in the tax laws. Some REITs have relatively small market
capitalizations, which can tend to increase the volatility of the market price
of their securities. REITs are not diversified and are heavily dependent on cash
flow earned on the property interests they hold.


                                       52



      In addition to REITs, companies in the real estate industry and real
estate-related investments may include, for example, entities that either own
properties or make construction or mortgage loans, real estate developers and
companies with substantial real estate holdings. Each of these types of
investments is subject to risks similar to those associated with direct
ownership of real estate. Factors affecting real estate values include the
supply of real property in particular markets, overbuilding, changes in zoning
laws, casualty or condemnation losses, delays in completion of construction,
changes in real estate values, changes in operations costs and property taxes,
levels of occupancy, adequacy of rent to cover operating expenses, possible
environmental liabilities, regulatory limitations on rent, fluctuations in
rental income, increased competition and other risks related to local and
regional market conditions. The value of real-estate-related investments also
may be affected by changes in interest rates, macroeconomic developments and
social and economic trends. For instance, during periods of declining interest
rates, certain Mortgage REITs may hold mortgages that the mortgagors elect to
prepay, which prepayment may diminish the yield on securities issued by those
REITs.

BUSINESS DEVELOPMENT COMPANIES RISK

      Investments in closed-end funds that elect to be treated as BDCs may be
subject to a high degree of risk and speculative investing. BDCs typically
invest in and lend to small and medium-sized private and certain public
companies that may not have access to public equity markets or capital raising.
As a result, a BDC's portfolio typically will include a substantial amount of
securities purchased in private placements, and its portfolio may carry risks
similar to those of a private equity or private debt fund. Securities that are
not publicly registered may be difficult to value and may be difficult to sell
at a price representative of their intrinsic value. Small and medium-sized
companies also may have fewer lines of business so that changes in any one line
of business may have a greater impact on the value of their stock than is the
case with a larger company. Some BDCs invest substantially, or even exclusively,
in one sector or industry group and therefore carry risk of that particular
sector or industry group. To the extent a BDC focuses its investments in a
specific sector, the BDC will be susceptible to adverse conditions and economic
or regulatory occurrences affecting the specific sector or industry group, which
tends to increase volatility and result in higher risk.

      Investments in BDCs are also subject to the risk that the management team
will be unable to meet the BDC's investment objective or manage the BDC's
portfolio when the underlying securities are redeemed or sold, particularly
during periods of market turmoil and as investors' perceptions regarding a BDC
or its underlying investments change. Common shares of BDCs are not redeemable
at the option of the BDC shareholder and, as with shares of other closed-end
funds, they may trade in the secondary market at a discount to their NAV.

      BDCs may utilize leverage in their portfolios through borrowings or the
issuance of preferred stock. While leverage often serves to increase the yield
of a BDC, this leverage also subjects the BDC to increased risks, including the
likelihood of increased volatility and the possibility that the BDC's common
share income may fall if the interest rate on any borrowings rises.

      Instability in the financial markets or deterioration in credit and
financing conditions could have material and adverse consequences on the
availability of debt and equity capital relied on by certain BDCs, and the
companies in which they invest, to grow or could otherwise increase the costs of
such capital and/or result in less favorable terms and conditions, thereby
decreasing the investment income or otherwise damaging the business of such
BDCs.

      The Fund will indirectly bear its proportionate share of any management
fees and other operating expenses incurred by the BDCs and of any
performance-based or incentive fees payable by the BDCs, in addition to the
expenses paid by the Fund. BDCs generally charge a management fee of up to % and
up to a % incentive fee on income and/or capital gains.

RISKS OF INVESTING IN ETFS

      ETFs are registered investment companies that trade their shares on stock
exchanges (such as the NYSE Arca, Cboe BZX, and NASDAQ) at market prices (rather
than net asset value) and only are redeemable from the fund itself in large
increments or in exchange for baskets of securities. As an exchange traded
security, an ETF's shares are priced continuously and trade throughout the day.
ETFs may track a securities index, a particular market sector, a particular
segment of a securities index or market sector, or they may be actively managed.
An investment in an ETF generally implicates the following risks: (i) the same
primary risks as an investment in the Fund that is not exchange-traded that has
the same investment objectives, strategies and policies of the ETF; (ii) the
risk that the ETF may fail to accurately track the market segment or index that
underlies its investment objective; (iii) the risk that, to the extent the ETF
does not fully replicate the underlying index, the ETF's investment strategy may
not produce the intended results; (iv) the risk of more frequent price
fluctuations due to secondary market trading, which may result in a loss to the
Fund; (v) the risk that an ETF may trade at a price that is lower than its net
asset value; and (vi) the risk that an active market for the ETF's shares may
not develop or be maintained. Also, the Fund will indirectly pay a proportional
share of the asset-based fees of the ETFs in which it invests. ETFs are also
subject to specific risks depending on the nature of the ETF, such as liquidity
risk, sector risk and foreign and emerging market risk, as well as risks
associated with fixed income securities, real estate investments and
commodities. An investment in an ETF presents the risk that the ETF may no
longer meet the listing requirements of any applicable exchanges on which the
ETF is listed. Further, trading in an ETF may be halted if the trading in one or


                                       53



more of the securities held by an ETF is halted. The Fund may pay brokerage
commissions in connection with the purchase and sale of shares of ETFs.

LEVERAGE RISK

      Any senior securities issued by the Fund will have seniority over the
Common Shares and may be secured by the assets of the Fund. 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, the Common Shares' return 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, the return to the Common Shares will be less than if leverage had not
been used. Leverage involves risks and special considerations for Common
Shareholders including:

      o     the likelihood of greater volatility of NAV and market price of the
            Common Shares than a comparable portfolio without leverage;

      o     the risk that fluctuations in interest rates on borrowings and other
            associated costs of leverage will reduce the return to the Common
            Shareholders or will result in fluctuations in the dividends paid on
            the Common Shares;

      o     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, which may result in a greater decline in
            the market price of the Common Shares; and

      o     when the Fund uses certain types of leverage, the investment
            advisory fee payable to the Advisor, the Lead Sub-Advisor and the
            Portfolio Sub-Advisors will be higher than if the Fund did not use
            leverage.

      There is no assurance that a leveraging strategy will be successful. The
Fund may continue to use leverage if the benefits to the Fund's Common
Shareholders of maintaining the leveraged position are believed to outweigh any
current reduced return.

      The funds borrowed pursuant to a leverage borrowing program (such as a
credit line), or obtained through the issuance of Preferred Shares, constitute a
substantial lien and burden by reason of their prior claim against the income of
the Fund and against the net assets of the Fund in liquidation. The rights of
lenders to receive payments of interest on and repayments of principal on any
borrowings made by the Fund under a leverage borrowing program are senior to the
rights of Common Shareholders and the holders of Preferred Shares with respect
to the payment of dividends or upon liquidation. The Fund may not be permitted
to declare dividends or other distributions, including dividends and
distributions with respect to Common Shares or Preferred Shares, or purchase
Common Shares or Preferred Shares, unless at the time thereof the Fund meets
certain asset coverage requirements and no event of default exists under any
leverage program. In addition, the Fund may not be permitted to pay dividends on
Common Shares unless all dividends on the Preferred Shares and/or accrued
interest on borrowings have been paid, or set aside for payment. In an event of
default under a leverage borrowing program, the lenders may have the right to
cause a liquidation of collateral (i.e., sell securities and other assets of the
Fund) and, if any such default is not cured, the lenders may be able to control
the liquidation as well. Certain types of leverage may result in the Fund being
subject to covenants relating to asset coverage and Fund composition
requirements. Generally, covenants to which the Fund may be subject include
affirmative covenants, negative covenants, financial covenants, and investment
covenants. See "Use of Leverage."

      The Fund also may be subject to certain restrictions on investments
imposed by guidelines of one or more rating agencies, which may issue ratings
for the Preferred Shares or other leverage securities issued by the Fund. These
guidelines may impose asset coverage or Fund composition requirements that are
more stringent than those imposed by the 1940 Act.

      While the Fund may from time to time consider reducing leverage in
response to actual or anticipated changes in interest rates in an effort to
mitigate the increased volatility of current income and NAV associated with
leverage, there can be no assurance that the Fund will actually reduce leverage
in the future or that any reduction, if undertaken, will benefit the Common
Shareholders. Changes in the future direction of interest rates are very
difficult to predict accurately. If the Fund were to reduce leverage based on a
prediction about future changes to interest rates, and that prediction turned
out to be incorrect, the reduction in leverage would likely operate to reduce
the income and/or total returns to Common Shareholders relative to the
circumstance if the Fund had not reduced leverage. The Fund may decide that this
risk outweighs the likelihood of achieving the desired reduction to volatility
in income and Common Share price if the prediction were to turn out to be
correct, and determine not to reduce leverage as described above.

REVERSE REPURCHASE AGREEMENT RISK

      Reverse repurchase agreements are speculative techniques involving
leverage. See "--Leverage Risk." Reverse repurchase agreements involve the risk
that the market value of the securities the Fund is obligated to repurchase
under the agreement may decline below the repurchase price. Reverse repurchase


                                       54



agreements involve the risk that the buyer of the securities sold might be
unable to deliver them when the Fund seeks to repurchase the securities. If the
buyer files for bankruptcy or becomes insolvent, the Fund may be delayed or
prevented from recovering the security that it sold. The Fund may be restricted
from taking normal portfolio actions during such time, could be subject to loss
to the extent that the proceeds of the agreement are less than the value of
securities subject to the agreement and may experience adverse tax consequences.

      Reverse repurchase agreements tend to be short-term in tenor, and there
can be no assurances that the purchaser (lender) will commit to extend or "roll"
a given agreement upon its agreed-upon repurchase date or an alternative
purchaser can be identified on similar terms. Unless the Fund covers its
positions in reverse repurchase agreements, its obligations under the agreements
will be subject to the Fund's limitations on borrowings. See "Use of Leverage."

DOLLAR ROLL TRANSACTIONS RISK

      The use of dollar rolls is a speculative technique involving leverage. See
"--Leverage Risk." Dollar roll transactions involve the risk that the market
value of the securities the Fund is required to purchase may decline below the
agreed upon repurchase price of those securities. If the dealer to which the
Fund sells securities becomes insolvent, the Fund's right to purchase or
repurchase securities may be restricted. Successful use of dollar rolls may
depend upon the ability of the Advisor, the Lead Sub-Advisor or a Portfolio
Sub-Advisor to predict correctly interest rates and prepayments. There is no
assurance that dollar rolls can be successfully employed.

NON-U.S. SECURITIES RISK

      The Fund may invest a portion of its assets in securities of non-U.S.
issuers. Investing in securities of non-U.S. issuers, which are generally
denominated in non-U.S. currencies, may involve certain risks not typically
associated with investing in securities of U.S. issuers. These risks include:
(i) there may be less publicly available information about non-U.S. issuers or
markets due to less rigorous disclosure or accounting standards or regulatory
practices; (ii) non-U.S. markets may be smaller, less liquid and more volatile
than the U.S. market; (iii) potential adverse effects of fluctuations in
currency exchange rates or controls on the value of the Fund's investments; (iv)
the economies of non-U.S. countries may grow at slower rates than expected or
may experience a downturn or recession; (v) the impact of economic, political,
social or diplomatic events; (vi) certain non-U.S. countries may impose
restrictions on the ability of non-U.S. issuers to make payments of principal
and interest to investors located in the United States due to blockage of
non-U.S. currency exchanges or otherwise; and (vii) withholding and other
non-U.S. taxes may decrease the Fund's return. Foreign companies are generally
not subject to the same accounting, auditing and financial reporting standards
as are U.S. companies. In addition, there may be difficulty in obtaining or
enforcing a court judgment abroad.

FOREIGN CURRENCY RISK

      Currency risk is the risk that fluctuations in exchange rates may
adversely affect the value of the Fund's investments. Currency risk includes
both the risk that currencies in which the Fund's investments are traded and/or
value relative to other currencies. In the case of hedging positions, currency
risk includes the risk that the currency the Fund is seeking exposure to will
decline in value relative to the foreign currency being hedged. Currency
exchange rates fluctuate significantly for many reasons, including changes in
supply and demand in the currency exchange markets, actual or perceived changes
in interest rates, intervention (or the failure to intervene) by U.S. or foreign
governments, central banks, or supranational agencies such as the International
Monetary Fund, and currency controls or other political and economic
developments in the U.S. or abroad.

      The Fund may use derivatives to acquire positions in currencies the values
to which the Fund is exposed through its investments. This presents the risk
that the Fund could lose money on its exposure to a particular currency and also
lose money on the derivative. The Fund also may take overweighted or
underweighted currency positions and/or hedge the currency exposure of the
securities in which it has invested. As a result, the Fund's currency exposure
may differ (in some cases significantly) from the currency exposure of its
investments and/or its benchmarks.

LIQUIDITY RISK

      Liquidity risk is the risk that the Fund may invest in securities that
trade in lower volumes and may be less liquid than other investments or that the
Fund's investments may become less liquid in response to market developments or
adverse investor perceptions. Illiquidity may be the result of, for example, low
trading volumes, lack of a market maker, or contractual or legal restrictions
that limit or prevent the Fund from selling securities or closing positions.
When there is no willing buyer and investments cannot be readily sold or closed
out, the Fund may have to sell an investment at a lower price than the price at
which the Fund is carrying the investments or may not be able to sell the
investments at all, each of which would have a negative effect on the Fund's
performance and may cause the Fund to hold an investment longer than a Portfolio
Sub-Advisor would otherwise determine. It is possible that the Fund may be
unable to sell a portfolio investment at a desirable time or at the value the
Fund has placed on the investment or that the Fund may be forced to sell large
amounts of securities more quickly than it normally would in the ordinary course


                                       55



of business. In such a case, the sale proceeds received by the Fund may be
substantially less than if the Fund had been able to sell the securities in
more-orderly transactions, and the sale price may be substantially lower than
the price previously used by the Fund to value the securities for purposes of
determining the Fund's NAV. In addition, if the Fund sells investments with
extended settlement times (e.g., certain kinds of loans (see--"Loan Risk")), the
settlement proceeds from the sales will not be available to the Fund for a
substantial period of time. The Fund may be forced to sell other investment
positions with shorter settlement cycles when the Fund would not otherwise have
done so, which may adversely affect the Fund's performance. If another fund or
investment pool in which the Fund invests is not publicly offered or there is no
public market for its shares or accepts investments subject to certain legal
restrictions, such as lock-up periods implemented by private funds, the Fund
will typically be prohibited by the terms of its investment from selling or
redeeming its shares in the fund or pool, or may not be able to find a buyer for
those shares at an acceptable price. Additionally, the market for certain
investments may become illiquid under adverse market or economic conditions
(e.g., if interest rates rise or fall significantly, if there is significant
inflation or deflation, increased selling of debt securities generally across
other funds, pools and accounts, changes in investor perception, or changes in
government intervention in the financial markets) independent of any specific
adverse changes in the conditions of a particular issuer. In such cases, shares
of the Fund, due to the difficulty in purchasing and selling such securities or
instruments, may decline in value or the Fund may be unable to achieve its
desired level of exposure to a certain issuer or sector. During periods of
substantial market disruption, a large portion of the Fund's assets could
potentially experience significant levels of illiquidity. The values of illiquid
investments are often more volatile than the values of more liquid investments.
It may be more difficult for the Fund to determine a fair value of an illiquid
investment than those of more liquid comparable investments. Bond markets have
consistently grown over the past three decades while the growth of capacity for
traditional dealer counterparties to engage in fixed income trading has not kept
pace and in some cases has decreased. As a result, dealer inventories of certain
types of bonds and similar instruments, which provide a core indication of the
ability of financial intermediaries to "make markets," are at or near historic
lows in relation to market size. Because market makers provide stability to a
market through their intermediary services, the significant reduction in dealer
inventories could potentially lead to decreased liquidity and increased
volatility in the fixed income markets. Such issues may be exacerbated during
periods of economic uncertainty.

LIBOR RISK

      The terms of many investments, financings or other transactions to which
the Fund may be a party have been historically tied to the London Interbank
Offered Rate, or "LIBOR." LIBOR is the offered rate at which major international
banks can obtain wholesale, unsecured funding, and LIBOR may be available for
different durations (e.g., 1 month or 3 months) and for different currencies.
LIBOR may be a significant factor in determining the Fund's payment obligations
under a derivative investment, the cost of financing to the Fund or an
investment's value or return to the Fund, and may be used in other ways that
affect the Fund's investment performance. In July 2017, the Financial Conduct
Authority, the United Kingdom's financial regulatory body, announced that after
2021 it will cease its active encouragement of banks to provide the quotations
needed to sustain LIBOR. That announcement suggests that LIBOR may cease to be
published after that time. Various financial industry groups have begun planning
for that transition, but there are obstacles to converting certain securities
and transactions to a new benchmark. Transition planning is at an early stage,
and neither the effect of the transition process nor its ultimate success can
yet be known. The transition process might lead to increased volatility and
illiquidity in markets for instruments whose terms currently include LIBOR. It
could also lead to a reduction in the value of some LIBOR-based investments and
reduce the effectiveness of new hedges placed against existing LIBOR-based
investments. While some LIBOR-based instruments may contemplate a scenario where
LIBOR is no longer available by providing for an alternative rate-setting
methodology and/or increased costs for certain LIBOR-related instruments or
financing transactions, not all may have such provisions and there may be
significant uncertainty regarding the effectiveness of any such alternative
methodologies, resulting in prolonged adverse market conditions for the Fund.
Since the usefulness of LIBOR as a benchmark could deteriorate during the
transition period, these effects could occur prior to the end of 2021. There
also remains uncertainty and risk regarding the willingness and ability of
issuers to include enhanced provisions in new and existing contracts or
instruments. All of the aforementioned may adversely affect the Fund's
performance or NAV.

DURATION RISK

      Duration is the sensitivity, expressed in years, of the price of a fixed
income security to changes in the general level of interest rates (or yields).
Securities with longer durations tend to be more sensitive to interest rate (or
yield) changes than securities with shorter durations. Duration differs from
maturity in that it considers potential changes to interest rates, and a
security's coupon payments, yield, price and par value and call features, in
addition to the amount of time until the security matures. The duration of a
security will be expected to change over time with changes in market factors and
time to maturity

CREDIT RATING AGENCY RISK

      Credit ratings are determined by credit rating agencies such as S&P,
Moody's and Fitch, and are only the opinions of such entities. Ratings assigned
by a rating agency are not absolute standards of credit quality and do not
evaluate market risk or the liquidity of securities. Any shortcomings or
inefficiencies in credit rating agencies' processes for determining credit


                                       56



ratings may adversely affect the credit ratings of securities held by the Fund
and, as a result, may adversely affect those securities' perceived or actual
credit risk.

DEFAULTED AND DISTRESSED SECURITIES RISK

      The Fund may hold investments that at the time of purchase are not in
default or involved in bankruptcy or insolvency proceedings but later become so.
Moreover, the Fund may invest to a limited extent in securities rated "CCC+" or
"Caa1" or lower, or unrated but judged by a Portfolio Sub-Advisor to be of
comparable quality. Some or many of these low-rated securities, although not in
default, may be "distressed," meaning that the issuer is experiencing financial
difficulties or distress at the time of acquisition. Such securities would
present a substantial risk of future default which may cause the Fund to incur
losses, including additional expenses, to the extent it is required to seek
recovery upon a default in the payment of principal or interest on those
securities. In any reorganization or liquidation proceeding relating to a
portfolio security, the Fund may lose its entire investment or may be required
to accept cash or securities with a value less than its original investment.

      The Fund may be required to incur certain extraordinary expenses in order
to protect and recover its investment on defaulted or distressed securities. The
Fund also will be subject to significant uncertainty as to when and in what
manner and for what value the obligations evidenced by the defaulted or
distressed securities will eventually be satisfied (e.g., through a liquidation
of the obligor's assets, an exchange offer or plan of reorganization involving
the defaulted or distressed securities or a payment of some amount in
satisfaction of the obligation). In addition, even if an exchange offer is made
or a plan of reorganization is adopted with respect to defaulted or distressed
securities held by the Fund, there can be no assurance that the securities or
other assets received by the Fund in connection with such exchange offer or plan
of reorganization will not have a lower value or income potential than may have
been anticipated when the investment was made. Moreover, any securities received
by the Fund upon completion of an exchange offer or plan of reorganization may
be restricted as to resale. As a result of the Fund's participation in
negotiations with respect to any exchange offer or plan of reorganization with
respect to an issuer of defaulted or distressed securities, the Fund may be
restricted from disposing of such securities.

RISKS OF INVESTING IN DERIVATIVE TRANSACTIONS

      Investing in Derivative Transactions has risks, including the imperfect
correlation between the value of such instruments and the underlying asset, rate
or index, which creates the possibility that the loss on such instruments may be
greater than the gain in the value of the underlying asset, rate or index; the
loss of principal; the possible default of the other party to the transaction;
and illiquidity of the derivative investments. If a counterparty becomes
bankrupt or otherwise fails to perform its obligations under a derivative
contract due to financial difficulties, the Fund may experience significant
delays in obtaining any recovery under the derivative contract in a bankruptcy
or other reorganization proceeding, or may not recover at all. In addition, in
the event of the insolvency of a counterparty to a derivative transaction, the
derivative contract would typically be terminated at its fair market value. If
the Fund is owed this fair market value in the termination of the derivative
contract and its claim is unsecured, the Fund will be treated as a general
creditor of such counterparty, and will not have any claim with respect to the
underlying security. Certain of the derivative investments in which the Fund may
invest may, in certain circumstances, give rise to a form of financial leverage,
which may magnify the risk of owning such instruments. The ability to
successfully use derivative investments depends on the ability of the Lead
Sub-Advisor or Portfolio Sub-Advisor(s), as applicable, to predict pertinent
market movements, which cannot be assured. In addition, amounts paid by the Fund
as premiums and cash or other assets held in margin accounts with respect to the
Fund's derivative investments would not be available to the Fund for other
investment purposes, which may result in lost opportunities for gain.

      The derivative instruments and techniques that the Fund may use include:

      Futures and Options on Futures. A futures contract is a standardized
agreement to buy or sell a specific quantity of an underlying instrument at a
specific price at a specific future time. The value of a futures contract tends
to increase and decrease in tandem with the value of the underlying instrument.
Depending on the terms of the particular contract, futures contracts are settled
through either physical delivery of the underlying instrument on the settlement
date or by payment of a cash settlement amount on the settlement date. A
decision as to whether, when and how to use futures involves the exercise of
skill and judgment and even a well-conceived futures transaction may be
unsuccessful because of market behavior or unexpected events. In addition to the
derivatives risks discussed above, the prices of futures can be highly volatile,
using futures can lower total return, and the potential loss from futures can
exceed the Fund's initial investment in such contracts. An option on a futures
contract gives the purchaser the right to buy or sell a futures contract in
exchange for the payment of a premium.

      Foreign Currency Forward Contracts and Options. The Fund may use foreign
currency forward contracts and options to hedge the risks that foreign exchange
price movements will be unfavorable for U.S. investors. Generally, these
instruments allow the Fund to lock in a specified exchange rate for a period of
time. Foreign currency forward contracts also may be used to increase the Fund's
exposure to foreign currencies that the Advisor, Lead Sub-Advisor or Portfolio
Sub-Advisors, believe may rise in value relative to the U.S. dollar or to shift
the Fund's exposure to foreign currency fluctuations from one country to
another.


                                       57



      Options. If the Fund buys an option, it buys a legal contract giving it
the right to buy or sell a specific amount of the underlying instrument or
futures contract on the underlying instrument at an agreed-upon price typically
in exchange for a premium paid by the Fund. If the Fund sells an option, it
sells to another person the right to buy from or sell to the Fund a specific
amount of the underlying instrument or futures contract on the underlying
instrument at an agreed-upon price typically in exchange for a premium received
by the Fund. A decision as to whether, when and how to use options involves the
exercise of skill and judgment and even a well-conceived option transaction may
be unsuccessful because of market behavior or unexpected events. The prices of
options can be highly volatile and the use of options can lower total returns.

      Swaps. A swap contract is an agreement between two parties pursuant to
which the parties exchange payments at specified dates on the basis of a
specified notional amount, with the payments calculated by reference to
specified securities, indexes, reference rates, currencies or other instruments.
The Fund may enter into interest rate, equity index, credit, currency, and total
return swap agreements, and swaptions (options on swaps) and similar
transactions. Most swap agreements provide that when the period payment dates
for both parties are the same, the payments are made on a net basis (i.e., the
two payment streams are netted out, with only the net amount paid by one party
to the other). The Fund's obligations or rights under a swap contract entered
into on a net basis will generally be equal only to the net amount to be paid or
received under the agreement, based on the relative values of the positions held
by each counterparty. Swap agreements are particularly subject to counterparty
credit, liquidity, valuation, correlation and leverage risk. Certain
standardized swaps are now subject to mandatory central clearing requirements
and others are now required to be exchange-traded. While central clearing and
exchange-trading are intended to reduce counterparty and liquidity risk, they do
not make swap transactions risk-free. Swaps could result in losses if interest
rate or foreign currency exchange rates or credit quality changes are not
correctly anticipated by the Fund or if the reference index, security or
investments do not perform as expected. The Fund's use of swaps may include
those based on the credit of an underlying security, commonly referred to as
"credit default swaps." Where the Fund is the buyer of a credit default swap
contract, it would be entitled to receive the par (or other agreed-upon) value
of a referenced debt obligation from the counterparty to the contract only in
the event of a default or similar event by a third party on the debt obligation.
If no default occurs, the Fund would have paid to the counterparty a periodic
stream of payments over the term of the contract and received no benefit from
the contract. When the Fund is the seller of a credit default swap contract, it
receives the stream of payments but is obligated to pay an amount equal to the
par (or other agreed-upon) value of a referenced debt obligation upon the
default or similar event of that obligation. The use of credit default swaps can
result in losses if the Fund's assumptions regarding the creditworthiness of the
underlying obligation prove to be incorrect. The Fund will "cover" its swap
positions by segregating an amount of cash and/or liquid securities as required
by the 1940 Act and applicable SEC interpretations and guidance from time to
time. In cases where the Fund is the writer, or seller, of a swap agreement, the
segregated amount will be equal to the full, un-netted amount of the Fund's
contractual obligation (the "notional amount").

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
Trustees may eliminate the limited term structure of the Fund upon the
affirmative vote of a majority of the Board of Trustees 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 from Net Asset Value Risk." The Advisor and Lead Sub-Advisor may have a
conflict of interest in recommending to the Board of Trustees 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


                                       58



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.

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 periods of rising inflation,
the dividend rates or borrowing costs associated with the Fund's use of leverage
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.


                                       59



NEW TYPES OF SECURITIES RISK

      From time to time, new types of securities have been, and may in the
future be, offered that have features other than those described in this
prospectus. The Fund reserves the right to invest in these securities if a
Portfolio Sub-Advisor believes that doing so would be in the best interest of
the Fund in a manner consistent with the Fund's investment objectives and
policies, as may be amended from time to time. Since the market for these
instruments will be new, the Fund may have difficulty disposing of them at a
suitable price and time. In addition to limited liquidity, these instruments may
present other risks, such as high price volatility.

MARKET DISCOUNT FROM NET ASSET VALUE RISK

      Shares of closed-end investment companies frequently trade at a discount
from their NAV. This characteristic is a risk separate and distinct from the
risk that the Fund's NAV could decrease as a result of its investment activities
and may be greater for investors expecting to sell their Common Shares in a
relatively short period of time following completion of this offering. The NAV
of the Common Shares will be reduced immediately following this offering as a
result of the payment of certain offering costs. Although the value of the
Fund's net assets is generally considered by market participants in determining
whether to purchase or sell Common Shares, whether investors will realize gains
or losses upon the sale of the Common Shares will depend entirely upon whether
the market price of the Common Shares at the time of sale is above or below the
investor's purchase price for the Common Shares. Because the market price of the
Common Shares will be determined by factors such as NAV, dividend and
distribution levels and their stability (which will in turn be affected by
levels of dividend and interest payments by the Fund's portfolio holdings, the
timing and success of the Fund's investment strategies, regulations affecting
the timing and character of Fund distributions, Fund expenses and other
factors), supply of and demand for the Common Shares, trading volume of the
Common Shares, general market, interest rate and economic conditions and other
factors beyond the control of the Fund, the Fund cannot predict whether or when
the Common Shares will trade at, below or above NAV or at, below or above the
initial public offering price.

CREDIT CRISIS LIQUIDITY AND VOLATILITY RISK

      Although vastly improved when compared to the depths of the financial
crisis, the markets for credit instruments, including Senior Loans and fixed
income securities, could from time to time experience periods of extreme
illiquidity and volatility. There can be no assurance that conditions such as
those prevalent during the credit crisis will not occur in the future. During
this period, liquidity in the Senior Loan and corporate fixed income securities
market (the ability to buy and sell bonds readily) was significantly reduced.
General market uncertainty and consequent repricing risk led to market
imbalances of sellers and buyers, which in turn resulted in significant
valuation uncertainties in a variety of debt securities, including Senior Loans,
corporate fixed income securities and asset-backed securities. In addition,
several major dealers of corporate fixed income securities exited the market via
acquisition or bankruptcy during this period. These conditions resulted in, and
in certain cases continue to result in, greater volatility, less liquidity,
widening credit spreads and a lack of price transparency, with certain debt
securities remaining illiquid and of uncertain value. Illiquidity and volatility
in the credit markets may directly and adversely affect the setting of dividend
rates on the Fund's Common Shares. These market conditions may make valuation of
some of the Fund's Senior Loan and other securities uncertain and/or result in
sudden and significant valuation increases or declines in the Fund's holdings.
During times of reduced market liquidity, the Fund may not be able to sell
securities readily at prices reflecting the values at which the securities are
carried on the Fund's books. Sales of large blocks of securities by market
participants, such as the Fund, that are seeking liquidity can further reduce
security prices in an illiquid market.

      During periods of extreme illiquidity and volatility in the credit
markets, issuers of Senior Loans or fixed income securities may be subject to
increased costs associated with incurring debt, tightening underwriting
standards and reduced liquidity for the loans they make, the securities they
purchase and the securities they issue. The reduced willingness of some lenders
to extend credit, in general, may make it more difficult for issuers of debt
instruments, including issuers of Senior Loans, to finance their operations, may
adversely affect the ability of the issuers of securities owned by the Fund to
make payments of principal and interest when due, and lead to lower credit
ratings and increased defaults. Such developments could, in turn, reduce the
value of securities owned by the Fund and adversely affect the Fund's NAV.
Deterioration of current market conditions could adversely impact the Fund's
portfolio and may limit the effectiveness of existing market models. See
"--Government Intervention in Financial Markets Risk."

GOVERNMENT INTERVENTION IN FINANCIAL MARKETS RISK

      The instability in the financial markets in the recent past led the U.S.
government and foreign governments to take a number of unprecedented actions
designed to support certain financial institutions and segments of the financial
markets that experienced extreme volatility, and in some cases a lack of
liquidity. U.S. federal and state governments and foreign governments, their
regulatory agencies or self regulatory organizations may take additional actions
that affect the regulation of the securities in which the Fund invests, or the
issuers of such securities, in ways that are unforeseeable and on an "emergency"
basis with little or no notice with the consequence that some market
participants' ability to continue to implement certain strategies or manage the
risk of their outstanding positions has been suddenly and/or substantially
eliminated or otherwise negatively implicated. Given the complexities of the
global financial markets and the limited time frame within which governments
have been able to take action, these interventions have sometimes been unclear
in scope and application, resulting in confusion and uncertainty, which in


                                       60



itself has been materially detrimental to the efficient functioning of such
markets as well as previously successful investment strategies. Decisions made
by government policy makers could exacerbate any economic difficulties. Issuers
might seek protection under the bankruptcy laws. Legislation or regulation may
also change the way in which the Fund itself is regulated. Such legislation or
regulation could limit or preclude the Fund's ability to achieve its investment
objectives.

RECENT MARKET CIRCUMSTANCES

      The financial crisis which affected the U.S. and global economies in the
recent past, including the European sovereign debt crisis, has resulted, and may
continue to result, in an unusually high degree of volatility in the financial
markets, both domestic and foreign. Liquidity in some markets has decreased and
credit has become scarcer worldwide. Regulatory changes, including the
Dodd-Frank Act and the introduction of new international capital and liquidity
requirements set forth by the Basel Committee on Banking Supervision (known as
"Basel III"), may cause lending activity within the financial services sector to
be constrained for several years as Basel III rules phase in and rules and
regulations are promulgated and interpreted under the Dodd-Frank Act.

      Since 2010, the risks of investing in foreign securities have increased
dramatically as a result of the ongoing European debt crisis, which began in
Greece and has spread to varying degrees throughout various other European
countries. These debt crises and the ongoing efforts of governments around the
world to address these debt crises have also resulted in increased volatility
and uncertainty in the global securities markets and it is impossible to predict
the effects of these or similar events in the future on the Fund, though it is
possible that these or similar events could have a significant adverse impact on
the value and risk profile of the Fund.

      Global economies and financial markets are also becoming increasingly
interconnected, which increases the possibilities that conditions in one country
or region might adversely impact issuers in a different country or region. For
example, in a referendum held on June 23, 2016, citizens of the United Kingdom
voted to leave the European Union ("EU"), creating economic and political
uncertainty in its wake. The country's departure from the EU (known as "Brexit")
sparked depreciation in the value of the British pound, short-term declines in
the stock markets and heightened risk of continued economic volatility
worldwide.

      The precise details and the resulting impact of Brexit are not yet known.
The effect on the United Kingdom's economy will likely depend on the nature of
trade relations with the EU and other major economies following its exit, which
are matters to be negotiated. The outcomes may cause increased volatility and
have a significant adverse impact on world financial markets, other
international trade agreements, and the United Kingdom and European economies,
as well as the broader global economy for some time. Additionally, a number of
countries in Europe have suffered terror attacks, and additional attacks may
occur in the future. Ukraine has experienced ongoing military conflict; this
conflict may expand and military attacks could occur elsewhere in Europe. Europe
has also been struggling with mass migration from the Middle East and Africa.
The ultimate effects of these events and other socio-political or geographical
issues are not known but could profoundly affect global economies and markets.

      A recent outbreak of respiratory disease caused by a novel coronavirus was
first detected in Wuhan City, Hubei Province, China and has now been detected
internationally. The virus, named "SARS-CoV-2" (sometimes referred to as the
"corona virus" and abbreviated as "COVID-19") has resulted in closing borders,
enhanced health screenings, healthcare service preparation and delivery,
quarantines, cancellations, disruptions to supply chains and customer activity,
as well as general concern and uncertainty. The impact of COVID-19, and other
epidemics and pandemics that may arise in the future, could affect the economies
of many nations, individual companies and the market in general in ways that
cannot necessarily be foreseen at the present time. The impact may be short term
or may last for an extended period of time.

      The impact of these developments in the near- and long-term is unknown and
could have additional adverse effects on economies, financial markets and asset
valuations around the world.

MARKET DISRUPTION AND GEOPOLITICAL RISK

      Various market risks can affect the price or liquidity of an issuer's
securities in which the Fund may invest. Returns from the securities in which
the Fund invests may underperform returns from the various general securities
markets. Different types of securities tend to go through cycles of
outperformance and underperformance in comparison to the general securities
markets. Adverse events occurring with respect to an issuer's performance or
financial position can depress the value of the issuer's securities. The
liquidity in a market for a particular security will affect its value and may be
affected by factors relating to the issuer, as well as the depth of the market
for that security. Other market risks that can affect value include a market's
current attitudes about types of securities, market reactions to political or
economic events, including litigation, and tax and regulatory effects (including
lack of adequate regulations for a market or particular type of instrument).
During periods of severe market stress, it is possible that the market for
certain investments held by the Fund, such as loans, may become highly illiquid.
In such an event, the Fund may find it difficult to sell the investments it
holds, and, for those investments it is able to sell in such circumstances, the
sale price may be significantly lower than, and the trade settlement period may
be longer than, anticipated.

      Markets may, in response to governmental actions or intervention,
political, economic or market developments, or other external factors,
experience periods of high volatility and reduced liquidity. During those
periods, the Fund may have to sell securities at times when it would otherwise
not do so, and potentially at unfavorable prices. Securities may be difficult to
value during such periods. These risks may be heightened for fixed income
securities due to the current low interest rate environment.


                                       61



      The United States and other governments and the Federal Reserve and
certain foreign central banks have taken steps in the past to support financial
markets. For example, during the last decade, governmental financial regulators,
including the U.S. Federal Reserve, took steps to maintain historically low
interest rates, such as by purchasing bonds. Steps by those regulators,
including, for example, steps to reverse, withdraw, curtail or taper such
activities, could have a material adverse effect on prices for the Fund's
portfolio of investments and on the management of the Fund. The withdrawal of
support, failure of efforts in response to a financial crisis, or investor
perception that those efforts are not succeeding could negatively affect
financial markets generally as well as the values and liquidity of certain
securities. Federal, state, and other governments, their regulatory agencies, or
self-regulatory organizations may take actions that affect the regulation of the
securities in which the Fund invests or the issuers of such securities in ways
that are unforeseeable. Legislation or regulation also may change the way in
which the Fund or the Advisor, Lead Sub-Advisor or Portfolio Sub-Advisors are
regulated. Such legislation, regulation, or other government action could limit
or preclude the Fund's ability to achieve its investment objective and affect
the Fund's performance.

      Political, social or financial instability, civil unrest and acts of
terrorism are other potential risks that could adversely affect an investment in
a security or in markets or issuers generally. In addition, political
developments in foreign countries or the United States may at times subject such
countries to sanctions from the U.S. government, foreign governments and/or
international institutions that could negatively affect the Fund's investments
in issuers located in, doing business in or with assets in such countries.

SHAREHOLDER ACTIVISM RISK

      Shareholder 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 governance and/or
management, and commencing proxy contests to attempt to elect the activists'
representatives or others to the Fund's Board of Trustees or seeking a tender
offer or liquidation of the Fund. Shareholder activism arises in a variety of
situations, and has been increasing in the closed-end fund space recently. While
the Fund is currently not subject to any shareholder 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 shareholder activism.
Shareholder 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 shareholder 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 shareholder activism. Shareholder activists seek
short-term actions that can increase Fund costs per share and be detrimental to
long-term shareholders.

VALUATION RISK

      When market quotations are not readily available or are deemed to be
unreliable, the Fund values its investments at fair value as determined in good
faith pursuant to policies and procedures approved by the Board of Trustees. See
"Net Asset Value." Fair value pricing may require subjective determinations
about the value of a security or other asset. As a result, there can be no
assurance that fair value pricing will result in adjustments to the prices of
securities or other assets, or that fair value pricing will reflect actual
market value, and it is possible that the fair value determined for a security
or other asset will be materially different from quoted or published prices,
from the prices used by others for the same security or other asset and/or from
the value that actually could be or is realized upon the sale of that security
or other asset.

PORTFOLIO TURNOVER RISK

      The Fund's annual portfolio turnover rate may vary greatly from year to
year, as well as within a given year. Although the Fund cannot accurately
predict its annual portfolio turnover rate, it may exceed % under normal
circumstances. High portfolio turnover may result in the realization of net
short-term capital gains by the Fund which, when distributed to Common
Shareholders, will be taxable as ordinary income. A high portfolio turnover may
increase the Fund's expenses as well as current and accumulated earnings and
profits, resulting in a greater portion of the Fund's distributions being
treated as a dividend to the Fund's Common Shareholders. However, portfolio
turnover rate is not considered a limiting factor in the execution of investment
decisions for the Fund. See "Federal Tax Matters."

POTENTIAL CONFLICTS OF INTEREST RISK

      The Advisor, Lead Sub-Advisor, Portfolio Sub-Advisors and the portfolio
managers have interests which may conflict with the interests of the Fund. In
particular, the Advisor, Lead Sub-Advisor and Portfolio Sub-Advisors advise
other investment funds or accounts with the same or substantially similar
investment objective(s) and strategies as the Fund. As a result, the Advisor,
Lead Sub-Advisor, Portfolio Sub-Advisors 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 Advisor, Lead Sub-Advisor, Portfolio Sub-Advisors 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 purposes of execution, which may cause the
price or brokerage costs to be less favorable to the Fund than if similar


                                       62



transactions were not being executed concurrently for other accounts. 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.

      To the extent that the Fund holds interests in an issuer that are
different (or more senior or junior) than, or potentially adverse to, those held
by other accounts managed by the Advisor, Lead Sub-Advisor or Portfolio
Sub-Advisor, as applicable (such person, the "Applicable Advisor"), the
Applicable Advisor may be presented with investment decisions where the outcome
would benefit one account and would not benefit or would harm the other account.
This may include, but is not limited to, an account investing in a different
security of an issuer's capital structure than another account, an account
investing in the same security but on different terms than another account, an
account obtaining exposure to an investment using different types of securities
or instruments than another account, an account engaging in short selling of
securities that another account holds long, an account voting securities in a
different manner than another account, and/or an account acquiring or disposing
of its interests at different times than another account. This could have a
material adverse effect on, or in some instances could benefit, one or more of
such accounts, including accounts that are affiliates of the Applicable Advisor,
accounts in which the Applicable Advisor has an interest, or accounts which pay
the Applicable Advisor higher fees or a performance fee. These transactions or
investments by one or more accounts could dilute or otherwise disadvantage the
values, prices, or investment strategies of such accounts. When the Applicable
Advisor, on behalf of an account, manages or implements a portfolio decision
ahead of, or contemporaneously with, portfolio decisions of another account,
market impact, liquidity constraints, or other factors could result in such
other account receiving less favorable pricing or trading results, paying higher
transaction costs, or being otherwise disadvantaged. In addition, in connection
with the foregoing, the Applicable Advisor, on behalf of an account, is
permitted to pursue or enforce rights or actions, or refrain from pursuing or
enforcing rights or actions, with respect to a particular issuer in which action
could materially adversely affect such other account.

      In addition, when the Fund and other accounts hold investments in the same
issuer (including at the same place in the capital structure), the Fund may be
prohibited by applicable law from participating in restructurings, work- outs or
other activities related to its investment in the issuer. As a result, the Fund
may not be permitted by law to make the same investment decisions as other
accounts in the same or similar situations even if the Applicable Advisor
believes it would be in the Fund's best economic interests to do so. The Fund
may be prohibited by applicable law from investing in an issuer (or an
affiliate) that other accounts are also investing in or currently invest in even
if the Applicable Advisor believes it would be in the best economic interests of
the Fund to do so. Furthermore, entering into certain transactions that are not
deemed prohibited by law when made may potentially lead to a condition that
raises regulatory or legal concerns in the future. This may be the case, for
example, with issuers that the Applicable Advisor considers to be at risk of
default and restructuring or work-outs with debt holders, which may include the
Fund and other accounts. In some cases, to avoid the potential of future
prohibited transactions, the Applicable Advisor may avoid allocating an
investment opportunity to the Fund that it would otherwise recommend, subject to
the Applicable Advisor's then-current allocation policy and any applicable
exemptions.

      In certain circumstances, the Applicable Advisor may be restricted from
transacting in a security or instrument because of material non-public
information received in connection with an investment opportunity that is
offered to the Applicable Advisor or an affiliate of the Applicable Advisor. In
other circumstances, the Applicable Advisor will not participate in an
investment opportunity to avoid receiving material non-public information that
would restrict the Applicable Advisor from transacting in a security or
instrument. These restrictions may adversely impact the Fund's performance.

      The portfolio managers may also 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 Advisor 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. Finally,
the Advisor, Lead Sub-Advisor and Portfolio Sub-Advisors or their affiliates may
provide more services to some types of funds and accounts than others.

      There is no guarantee that the policies and procedures adopted by the
Advisor, Lead Sub-Advisor, Portfolio Sub-Advisors 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 Advisor, Lead Sub-Advisor or
Portfolio Sub-Advisors may manage or advise from time to time. For further
information on potential conflicts of interest, see "Investment Advisor" in the
SAI.

      In addition, while the Fund is using leverage, the amount of the fees paid
to the Advisor and Lead Sub-Advisor 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 Advisor and Lead Sub-Advisor have a
financial incentive to leverage the Fund, which may create a conflict of
interest between the Advisor and Lead Sub-Advisor on the one hand and the Common
Shareholders of the Fund on the other.


                                       63



NON-DIVERSIFICATION RISK

      Because the Fund is a "non-diversified" investment company for purposes of
the 1940 Act, the limitations under the 1940 Act on the percentage of the Fund's
assets that may be invested in the securities of any one issuer do not apply.
Accordingly, the Fund may be more susceptible to any single economic, political,
or regulatory occurrence than a diversified fund investing in a broader range of
issuers. A decline in the market value of one of the Fund's investments may
affect the Fund's value more than if the Fund were a diversified fund. Some of
the issuers in which the Fund invests also may present substantial credit or
other risks. The Fund's net asset value may therefore be subject to greater
volatility than that of an investment company that is subject to such
diversification standards. However, the diversification rules under Subchapter M
of the Internal Revenue Code of 1986, as amended, do apply.

TAX RISKS

      The Fund intends to elect to be treated and to qualify each year as a RIC
under the Internal Revenue Code of 1986, as amended (the "Code"). As a RIC, the
Fund is not expected to be subject to U.S. federal income tax to the extent that
it distributes its investment company taxable income and net capital gains. To
qualify for the special tax treatment available to a RIC, the Fund must comply
with certain investment, distribution, and diversification requirements. Under
certain circumstances, the Fund may be forced to sell certain assets when it is
not advantageous in order to meet these requirements, which may reduce the
Fund's overall return. If the Fund fails to meet any of these requirements,
subject to the opportunity to cure such failures under applicable provisions of
the Code, the Fund's income would be subject to a double level of U.S. federal
income tax. The Fund's income, including its net capital gain, would first be
subject to U.S. federal income tax at regular corporate rates, even if such
income were distributed to shareholders and, second, all distributions by the
Fund from earnings and profits, including distributions of net capital gain (if
any), would be taxable to shareholders as dividends. Although the Fund currently
intends to distribute sufficient amounts to qualify for treatment as a RIC, it
will be subject to U.S. federal excise taxes and U.S. federal corporate income
taxes to the extent it sets aside and retains in its net assets (and therefore
its NAV) a portion of its net investment income in pursuit of its objective of
returning Original NAV. See "Federal Tax Matters."

ANTI-TAKEOVER PROVISIONS

      The Fund's Declaration of Trust and By-Laws include provisions that could
limit the ability of other entities or persons to acquire control of the Fund or
convert the Fund to an open-end fund. These provisions could have the effect of
depriving the Common Shareholders of opportunities to sell their Common Shares
at a premium over the then-current market price of the Common Shares. See
"Certain Provisions in the Declaration of Trust and By-Laws."

TEMPORARY DEFENSIVE STRATEGIES RISK

      When the Lead Sub-Advisor anticipates unusual market or other conditions,
the Fund may temporarily depart from its principal investment strategies as a
defensive measure and invest all or a portion of its Managed Assets in cash or
cash equivalents or accept lower current income from short-term investments
rather than investing in high-yielding long-term securities. In such a case,
Common Shareholders of the Fund may be adversely affected and the Fund may not
pursue or achieve its investment objectives.

TECHNOLOGY RISK

      As the use of Internet technology has become more prevalent, the Fund and
its service providers and markets generally have become more susceptible to
potential operational risks related to intentional and unintentional events that
may cause the Fund or a service provider to lose proprietary information, suffer
data corruption or lose operational capacity. There can be no guarantee that any
risk management systems established by the Fund, its service providers, or
issuers of the securities in which the Fund invests to reduce technology and
cyber security risks will succeed, and the Fund cannot control such systems put
in place by service providers, issuers or other third parties whose operations
may affect the Fund.

CYBER SECURITY RISK

      The Fund and its service providers are susceptible to cyber security risks
that include, among other things, theft, unauthorized monitoring, release,
misuse, loss, destruction or corruption of confidential and highly restricted
data; denial of service attacks; unauthorized access to relevant systems,
compromises to networks or devices that the Fund and its service providers use
to service the Fund's operations; or operational disruption or failures in the
physical infrastructure or operating systems that support the Fund and its
service providers. Cyber-attacks against or security breakdowns of the Fund or
its service providers may adversely impact the Fund and its shareholders,
potentially resulting in, among other things, financial losses; the inability of
Fund shareholders to transact business and the Fund to process transactions;
inability to calculate the Fund's NAV; violations of applicable privacy and
other laws; regulatory fines, penalties, reputational damage, reimbursement or
other compensation costs; and/or additional compliance costs. The Fund may incur
additional costs for cyber security risk management and remediation purposes. In
addition, cyber security risks may also impact issuers of securities in which


                                       64



the Fund invests, which may cause the Fund's investment in such issuers to lose
value. There can be no assurance that the Fund or its service providers will not
suffer losses relating to cyber-attacks or other information security breaches
in the future.

SECONDARY MARKET FOR THE FUND'S COMMON SHARES

      The issuance of Common Shares through the Fund's dividend reinvestment
plan may have an adverse effect on the secondary market for the Fund's Common
Shares. The increase in the number of outstanding Common Shares resulting from
issuances pursuant to the Fund's dividend reinvestment 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. Common Shares will not be
issued pursuant to the dividend reinvestment plan at any time when Common Shares
are trading at a lower price than the Fund's NAV per Common Share. When the
Fund's 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.

                             MANAGEMENT OF THE FUND

TRUSTEES AND OFFICERS

      General oversight of the duties performed by the Advisor, the Lead
Sub-Advisor and the Portfolio Sub-Advisors is the responsibility of the Board of
Trustees. There are five Trustees of the Fund, one of whom is an "interested
person" (as defined in the 1940 Act) and four of whom are not "interested
persons." The names and business addresses of the Trustees and officers of the
Fund and their principal occupations and other affiliations during the past five
years are set forth under "Management of the Fund" in the SAI.

INVESTMENT ADVISOR

      First Trust Advisors L.P., 120 East Liberty Drive, Wheaton, Illinois
60187, is the investment adviser to the Fund. First Trust Advisors L.P. serves
as investment advisor or portfolio supervisor to investment portfolios with
approximately $ billion in assets which it managed or supervised as of .

      First Trust Advisors L.P. is responsible for supervising the Lead
Sub-Advisor and the Portfolio Sub-Advisors, managing the Fund's business affairs
and providing certain clerical, bookkeeping and other administrative services.
First Trust, in consultation with the Lead Sub-Advisor, will also be responsible
for determining the Fund's overall investment strategy and overseeing its
implementation.

      First Trust Advisors L.P. is an Illinois limited partnership formed in
1991 and an investment adviser registered with the SEC under the Advisers Act.
First Trust Advisors L.P. is a limited partnership with one limited partner,
Grace Partners of DuPage L.P. ("Grace Partners"), and one general partner, The
Charger Corporation. Grace Partners is a limited partnership with one general
partner, The Charger Corporation, and a number of limited partners. Grace
Partners' and The Charger Corporation's primary business is investment advisory
and broker-dealer services through their ownership interests. The Charger
Corporation is an Illinois corporation controlled by James A. Bowen, Chief
Executive Officer of the Advisor. First Trust Advisors L.P. is controlled by
Grace Partners and The Charger Corporation.

LEAD SUB-ADVISOR

      SkyBridge Capital II, LLC ("SkyBridge" or the "Lead Sub-Advisor") is a
limited liability company formed under the laws of the State of Delaware and is
registered as an investment adviser under the Advisers Act. SkyBridge will be
the Fund's sub-adviser and will be responsible for allocating management of the
Fund's assets to the Portfolio Sub-Advisors and their respective investment
strategies.

PORTFOLIO SUB-ADVISORS

      The following Portfolio Sub-Advisors, along with the Lead Sub-Advisor,
will be responsible for the day-to-day management of the Fund's Managed Assets:

      For additional information about the Advisor, the Lead Sub-Advisor and the
Portfolio Sub-Advisors, including a description of the services provided and
additional information about the Fund's portfolio managers, including portfolio
managers' compensation, other accounts managed by the portfolio managers and the
portfolio managers' ownership of Fund shares, see "Investment Advisor, Lead
Sub-Advisor and Portfolio Sub-Advisors" in the SAI.


                                       65



INVESTMENT MANAGEMENT AND SUB-ADVISORY AGREEMENTS

      Pursuant to an investment management agreement between the Advisor and the
Fund, the Fund has agreed to pay a fee for the services and facilities provided
by the Advisor at the annual rate of    % of Managed Assets.

      For purposes of calculating the management fee, the Fund's "Managed
Assets" means the average daily gross asset value of the Fund (which includes
assets attributable to any reverse repurchase agreements, dollar roll
transactions, or similar transactions, the principal amount of any borrowings
outstanding, and the Fund's Preferred Shares, if any) minus the sum of the
Fund's accrued and unpaid dividends on any outstanding Preferred Shares and
accrued liabilities (other than liabilities in respect of reverse repurchase
agreements, dollar roll transactions, or similar transactions, and the principal
amount of any borrowings of money incurred, including commercial paper or notes
issued by the Fund). For purposes of determining Managed Assets, the liquidation
preference of the Preferred Shares would not be treated as a liability.

      In addition to the management fee, the Fund pays all other costs and
expenses of its operations including the compensation of its Trustees (other
than those affiliated with the Advisor), custodian, transfer agency,
administrative, accounting and dividend disbursing expenses, legal fees,
leverage expenses, rating agency fees, listing fees and expenses, expenses of
independent auditors, expenses of repurchasing Common Shares, expenses of
preparing, printing and distributing shareholder reports, notices, proxy
statements and reports to governmental agencies and taxes, if any.

      The Fund has entered into a lead sub-advisory agreement with the Advisor
and the Lead Sub-Advisor, and investment sub-sub-advisory agreements with .

      Because the fee paid to the Advisor, the Lead Sub-Advisor and the
Portfolio Sub-Advisors will be calculated on the basis of the Fund's Managed
Assets, which include the proceeds of leverage, the dollar amount of their fees
will be higher (and the Advisor, the Lead Sub-Advisor and the Portfolio
Sub-Advisors will be benefited to that extent) when leverage is utilized. In
this regard, if the Fund uses leverage in the amount equal to    % of the Fund's
Managed Assets (after the issuance of leverage), the Fund's management fee would
be    % of net assets attributable to Common Shares.

      A discussion regarding the basis for approval by the Board of Trustees of
the Fund's Investment Management Agreement with the Advisor and the Sub-Advisory
Agreements with the Lead Sub-Advisor and the Portfolio Sub-Advisors will be
available in the Fund's       Report to Shareholders for the period ended .

                                NET ASSET VALUE

      The NAV of the Common Shares of the Fund will be computed based upon the
value of the Fund's portfolio securities and other assets. The NAV will be
determined as of the close of regular trading on the NYSE (normally 4:00 p.m.
New York City time) on each day the NYSE is open for trading. Domestic debt
securities and foreign securities will normally be priced using data reflecting
the earlier closing of the principal markets for those securities. The Fund
calculates NAV per Common Share by subtracting the Fund's liabilities (including
accrued expenses, dividends payable and any borrowings of the Fund) and the
liquidation value of any outstanding Preferred Shares from the Fund's Managed
Assets (the value of the securities and other investments the Fund holds plus
cash or other assets, including interest accrued but not yet received) and
dividing the result by the total number of Common Shares outstanding.

      The assets in the Fund's portfolio will be valued daily in accordance with
valuation procedures adopted by the Board of Trustees. The Advisor anticipates
that a majority of the Fund's assets will be valued using market information
supplied by third parties. In the event that market quotations are not readily
available, a pricing service does not provide a valuation for a particular
asset, or the valuations are deemed unreliable, or if events occurring after the
close of the principal markets for particular securities (e.g., domestic debt
and foreign securities), but before the Fund values its assets, would call into
doubt whether the market quotations or pricing service valuations represent fair
value, the Fund may use a fair value method in good faith to value the Fund's
securities and investments. The use of fair value pricing by the Fund will be
governed by valuation procedures established by the Fund's Board of Trustees,
and in accordance with the provisions of the 1940 Act.

      The senior loans in which the Fund may invest are not listed on any
securities exchange or board of trade. Senior loans are typically bought and
sold by institutional investors in individually negotiated private transactions
that function in many respects like an over the counter secondary market,
although typically no formal market-makers exist. Some senior loans have few or
no trades, or trade infrequently, and information regarding a specific senior
loan may not be widely available or may be incomplete.

      Accordingly, determinations of the market value of senior loans may be
based on infrequent and dated information. Because there is less reliable,
objective data available, elements of judgment may play a greater role in
valuation of senior loans held by the Fund than for other types of assets held
by the Fund. For further information, see "Risks--Credit Crisis Liquidity and
Volatility Risk" and "Risks--Senior Loan Risk."

      Typically, senior loans are valued using information provided by an
independent third party pricing service. If the pricing service cannot or does
not provide a valuation for a particular senior loan (which is the case for
most, if not all, unlisted investments) or such valuation is deemed unreliable,
the Fund may value such senior loan at a fair value as determined in good faith
under procedures established by the Board of Trustees, and in accordance with
the provisions of the 1940 Act.


                                       66



      Fair Value. When applicable, fair value of securities of an issuer is
determined by the Board of Trustees or a committee of the Board of Trustees or a
designee of the Board of Trustees. In fair valuing the Fund's investments,
consideration is given to several factors, which may include, among others, the
following:

      o     the fundamental business data relating to the issuer;
      o     an evaluation of the forces which influence the market in which the
            securities of the issuer are purchased and sold;
      o     the type, size and cost of the security;
      o     the financial statements of the issuer;
      o     the credit quality and cash flow of the issuer, based on the
            Advisor's or external analysis;
      o     the information as to any transactions in or offers for the
            security;
      o     the price and extent of public trading in similar securities (or
            equity securities) of the issuer, or comparable companies;
      o     the coupon payments;
      o     the quality, value and saleability of collateral, if any, securing
            the security;
      o     the business prospects of the issuer, including any ability to
            obtain money or resources from a parent or affiliate and an
            assessment of the issuer's management;
      o     the prospects for the issuer's industry, and multiples (of earnings
            and/or cash flow) being paid for similar businesses in that
            industry; and
      o     other relevant factors.

      Other Securities. Securities for which the primary market is a national
securities exchange are valued at the last reported sales price on the day of
valuation. Listed securities for which no sale was reported on that date are
valued at the mean between the most recent bid and asked prices. Securities
traded on the over-the-counter market are valued at their closing bid prices.
Valuation of short-term cash equivalent investments will be at amortized cost.

                                 DISTRIBUTIONS

      The Fund intends to distribute quarterly all or a portion of its net
investment income to Common Shareholders (after the payment of interest and/or
dividends in connection with leverage). In addition, the Fund intends to
distribute any net long-term capital gains, if any, to Common Shareholders as
long-term capital gain dividends at least annually. The Fund's initial quarterly
distribution is expected to be declared approximately     to     days after the
completion of this offering and paid approximately     to     days after the
completion of this offering, depending on market conditions. Unless an election
is made to receive dividends in cash, Common Shareholders will automatically
have its quarterly distributions reinvested in Common Shares through the Fund's
dividend reinvestment plan. See "Dividend Reinvestment Plan" below.

      The Fund will continue to pay at least the percentage of its net
investment income and any gains necessary to maintain its status as a regulated
investment company for U.S. federal income tax purposes.

                           DIVIDEND REINVESTMENT PLAN

      If your Common Shares are registered directly with the Fund or if you hold
your Common Shares with a brokerage firm that participates in the Fund's
dividend reinvestment plan (the "Plan"), unless you elect, by written notice to
the Fund, to receive cash distributions, all dividends, including any capital
gain dividends, on your Common Shares will be automatically reinvested by
(the "Plan Agent"), in additional Common Shares under the Plan. If you elect to
receive cash distributions, you will receive all distributions in cash paid by
check mailed directly to you by         , as dividend paying agent.

      You are automatically enrolled in the Plan when you become a shareholder
of the Fund. As a participant in the Plan, the number of Common Shares you will
receive will be determined as follows:

      (1) If the Common Shares are trading at or above NAV at the time of
valuation, the Fund will issue new shares at a price equal to the greater of (i)
NAV per Common Share on that date or (ii) 95% of the market price on that date;

      (2) If Common Shares are trading below NAV at the time of valuation, the
Plan Agent will receive the dividend or distribution in cash and will purchase
Common Shares in the open market, on the NYSE or elsewhere, for the
participants' accounts. It is possible that the market price for the Common
Shares may increase before the Plan Agent has completed its purchases.
Therefore, the average purchase price per share paid by the Plan Agent may
exceed the market price at that time of valuation, resulting in the purchase of
fewer shares than if the dividend or distribution had been paid in Common Shares
issued by the Fund. The Plan Agent will use all dividends and distributions
received in cash to purchase Common Shares in the open market within 30 days of
the valuation date except where temporary curtailment or suspension of purchases
is necessary to comply with federal securities laws. Interest will not be paid
on any uninvested cash payments.


                                       67



      You may elect to opt-out of or withdraw from the Plan at any time by
giving written notice to the Plan Agent, or by telephone at      , in accordance
with such reasonable requirements as the Plan Agent and Fund may agree upon. If
you withdraw or the Plan is terminated, you will receive a book entry statement
for each whole share in your account under the Plan and you will receive a cash
payment for any fraction of a share in your account. If you wish, the Plan Agent
will sell your shares and send you the proceeds minus brokerage commissions
incurred by the Plan Agent in selling your shares.

      The Plan Agent maintains all Common Shareholders' accounts in the Plan and
gives written confirmation of all transactions in the accounts, including
information you may need for tax records. Common Shares in your account will be
held by the Plan Agent in non-certificated form. The Plan Agent will forward to
each participant any proxy solicitation material and will vote any shares so
held only in accordance with proxies returned to the Fund. Any proxy you receive
will include all Common Shares you have received under the Plan.

      There is no brokerage charge for reinvestment of your dividends or
distributions in Common Shares. However, all participants will pay a pro rata
share of brokerage commissions incurred by the Plan Agent when it makes open
market purchases.

      Automatically reinvesting dividends and distributions will not affect a
Common Shareholder's tax liability on those dividends and distributions. See
"Federal Tax Matters."

      If you hold your Common Shares with a brokerage firm that does not
participate in the Plan, you will not be able to participate in the Plan and any
dividend reinvestment may be effected on different terms than those described
above. Consult your financial advisor for more information.

      Neither the Fund nor the Plan Agent shall be liable with respect to the
Plan for any act done in good faith or for any good faith omission to act,
including, without limitation, any claim of liability: (i) arising out of
failure to terminate any participant's account upon such participant's death
prior to receipt of notice in writing of such death; and (ii) with respect to
the prices at which Common Shares are purchased and sold for the participant's
account and the times such purchases and sales are made.

      The Fund reserves the right to amend or terminate the Plan if in the
judgment of the Board of Trustees the change is warranted. There is no direct
service charge to participants in the Plan; however, the Fund reserves the right
to amend the Plan to include a service charge payable by the participants.
Additional information about the Plan may be obtained from .

                             DESCRIPTION OF SHARES

COMMON SHARES

      The Declaration authorizes the issuance of an unlimited number of Common
Shares. The Common Shares being offered have a par value of $.01 per share and,
subject to the rights of the holders of Preferred Shares, if issued, have equal
rights to the payment of dividends and the distribution of assets upon
liquidation. The Common Shares being offered will, when issued, be fully paid
and, subject to matters discussed in "Certain Provisions in the Declaration of
Trust and By-Laws," non-assessable, and currently have no preemptive or
conversion rights (except as may otherwise be determined by the Board of
Trustees in their sole discretion) or rights to cumulative voting.

      The Fund intends to apply to list the Common Shares on the New York Stock
Exchange. The trading or "ticker" symbol of the Common Shares is expected to be
"    ." The Fund intends to hold annual meetings of shareholders so long as the
Common Shares are listed on a national securities exchange and such meetings are
required as a condition to such listing.

      Unlike open-end funds, closed-end funds like the Fund do not continuously
offer shares and do not provide daily redemptions. Rather, if a shareholder
determines to buy additional Common Shares or sell shares already held, the
shareholder may conveniently do so by trading on the exchange through a broker
or otherwise. Shares of closed-end investment companies may frequently trade on
an exchange at prices lower than NAV. Shares of closed-end investment companies
like the Fund have during some periods traded at prices higher than NAV and
during other periods have traded at prices lower than NAV. Because the market
value of the Common Shares may be influenced by such factors as dividend levels
(which are in turn affected by expenses), dividend stability, portfolio credit
quality, NAV, relative demand for and supply of such shares in the market,
general market and economic conditions, and other factors beyond the control of
the Fund, the Fund cannot assure you that Common Shares will trade at a price
equal to or higher than NAV in the future. The Common Shares are designed
primarily for long-term investors, and investors in the Common Shares should not
view the Fund as a vehicle for trading purposes.

PREFERRED SHARES

      The Declaration provides that the Fund's Board of Trustees may authorize
and issue Preferred Shares with rights as determined by the Board of Trustees,
by action of the Board of Trustees without the approval of the Common
Shareholders. Common Shareholders have no preemptive right to purchase any
Preferred Shares that might be issued.


                                       68



      The Fund may elect to issue Preferred Shares as part of its leverage
strategy. The Fund currently has the ability to issue leverage, which may
include Preferred Shares, representing up to 331/3% of the Fund's Managed Assets
immediately after the leverage is issued. The Board of Trustees also reserves
the right to authorize the Fund to issue Preferred Shares to the extent
permitted by the 1940 Act, which currently limits the aggregate liquidation
preference of all outstanding Preferred Shares plus the principal amount of any
outstanding leverage consisting of debt to 50% of the value of the Fund's
Managed Assets less liabilities and indebtedness of the Fund (other than
leverage consisting of debt). However, under current conditions it is unlikely
that the Fund will issue Preferred Shares. Although the terms of any Preferred
Shares, including dividend rate, liquidation preference and redemption
provisions, will be determined by the Board of Trustees, subject to applicable
law and the Declaration, it is likely that the Preferred Shares will be
structured to carry a relatively short-term dividend rate reflecting interest
rates on short-term bonds, by providing for the periodic redetermination of the
dividend rate at relatively short intervals through an auction, remarketing or
other procedure. The Fund also believes that it is likely that the liquidation
preference, voting rights and redemption provisions of the Preferred Shares will
be similar to those stated below.

      Liquidation Preference. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Fund, the holders of Preferred
Shares will be entitled to receive a preferential liquidating distribution,
which is expected to equal the original purchase price per Preferred Share plus
accrued and unpaid dividends, whether or not declared, before any distribution
of assets is made to Common Shareholders. After payment of the full amount of
the liquidating distribution to which they are entitled, the holders of
Preferred Shares will not be entitled to any further participation in any
distribution of assets by the Fund.

      Voting Rights. The 1940 Act requires that the holders of any Preferred
Shares, voting separately as a single class, have the right to elect at least
two trustees at all times. The remaining trustees will be elected by holders of
Common Shares and Preferred Shares, voting together as a single class. In
addition, subject to the prior rights, if any, of the holders of any other class
of senior securities outstanding, the holders of any Preferred Shares have the
right to elect a majority of the trustees of the Fund at any time that two years
of dividends on any Preferred Shares are unpaid. The 1940 Act also requires
that, in addition to any approval by shareholders that might otherwise be
required, the approval of the holders of a majority of any outstanding Preferred
Shares, voting separately as a class, would be required to: (i) adopt any plan
of reorganization that would adversely affect the Preferred Shares; and (ii)
take any action requiring a vote of security holders under Section 13(a) of the
1940 Act, including, among other things, changes in the Fund's subclassification
as a closed-end investment company or changes in its fundamental investment
restrictions. See "Certain Provisions in the Declaration of Trust and By-Laws."
As a result of these voting rights, the Fund's ability to take any such actions
may be impeded to the extent that there are any Preferred Shares outstanding.
The Board of Trustees presently intends that, except as otherwise indicated in
this prospectus and except as otherwise required by applicable law or the
Declaration, holders of Preferred Shares will have equal voting rights with
Common Shareholders (one vote per share, unless otherwise required by the 1940
Act) and will vote together with Common Shareholders as a single class.

      The affirmative vote of the holders of a majority of the outstanding
Preferred Shares, voting as a separate class, will be required to amend, alter
or repeal any of the preferences, rights or powers of holders of Preferred
Shares so as to affect materially and adversely such preferences, rights or
powers, or to increase or decrease the authorized number of Preferred Shares.
The class vote of holders of Preferred Shares described above will in each case
be in addition to any other vote required to authorize the action in question.

      Redemption, Purchase and Sale of Preferred Shares by the Fund. The terms
of any Preferred Shares issued are expected to provide that: (i) they are
redeemable by the Fund in whole or in part at the original purchase price per
share plus accrued dividends per share; (ii) the Fund may tender for or purchase
Preferred Shares; and (iii) the Fund may subsequently resell any shares so
tendered for or purchased. Any redemption or purchase of Preferred Shares by the
Fund will reduce any leverage applicable to the Common Shares, while any resale
of shares by the Fund will increase that leverage.

      The discussion above describes the possible offering of Preferred Shares
by the Fund. If the Board of Trustees determines to proceed with such an
offering, the terms of the Preferred Shares may be the same as, or different
from, the terms described above, subject to applicable law and the Fund's
Declaration. The Board of Trustees, without the approval of the Common
Shareholders, may authorize an offering of Preferred Shares or may determine not
to authorize such an offering, and may fix the terms of the Preferred Shares to
be offered.

               CERTAIN PROVISIONS IN THE DECLARATION OF TRUST AND
                                    BY-LAWS

      Under Massachusetts law, shareholders could, in certain circumstances, be
held personally liable for the obligations of the Fund. However, the Declaration
contains an express disclaimer of shareholder liability for debts or obligations
of the Fund and requires that notice of such limited liability be given in each
agreement, obligation or instrument entered into or executed by the Fund or the
Trustees. The Declaration further provides for indemnification out of the assets
and property of the Fund for all loss and expense of any shareholder held
personally liable for the obligations of the Fund solely by reason of his or her
being a shareholder. Thus, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which the Fund
would be unable to meet its obligations. The Fund believes that the likelihood
of such circumstances is remote.


                                       69



      The Declaration and By-Laws 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. The number of trustees is currently five,
but by action of two-thirds of the trustees, the Board of Trustees may from time
to time be increased or decreased. Under the By-Laws, the Board of Trustees is
divided into three classes of trustees serving staggered three-year terms, with
the terms of one class expiring at each annual meeting of shareholders. If the
Fund issues Preferred Shares, the Fund may establish a separate class for the
trustees elected by the holders of the Preferred Shares. Subject to applicable
provisions of the 1940 Act, vacancies on the Board of Trustees may be filled by
a majority action of the remaining trustees. Removal of a trustee requires
either (a) a vote of two-thirds of the outstanding shares (or if the trustee was
elected or appointed with respect to a particular class, two-thirds of the
outstanding shares of such class), or (b) the action of at least two-thirds of
the remaining trustees. Such provisions may work to delay a change in the
majority of the Board of Trustees. The provisions of the Declaration relating to
the election and removal of trustees may be amended only by a vote of two-thirds
of the trustees then in office. The By-Laws may be amended only by the Board of
Trustees.

      The Declaration generally requires a Common Shareholder vote only on those
matters where the 1940 Act or the Fund's listing with an exchange require a
Common Shareholder vote, but otherwise permits the Board of Trustees to take
action without seeking the consent of Common Shareholders. For example, the
Declaration gives the Board of Trustees broad authority to approve most
reorganizations between the Fund and another entity, such as another closed-end
fund, and the sale of all or substantially all of its assets without Common
Shareholder approval if the 1940 Act would not require such approval. The
Declaration further provides that the Board of Trustees may amend the
Declaration in any respect without Common Shareholder approval. The Declaration,
however, prohibits amendments that impair the exemption from personal liability
granted in the Declaration to persons who are or have been shareholders,
trustees, officers or employees of the Fund or that limit the rights to
indemnification or insurance provided in the Declaration with respect to actions
or omissions of persons entitled to indemnification under the Declaration prior
to the amendment.

      Generally, the Declaration requires the affirmative vote or consent by
holders of at least two-thirds of the shares outstanding and entitled to vote,
except as described below, to authorize (1) a conversion of the Fund from a
closed-end to an open-end management investment company, if required pursuant to
the provisions of the 1940 Act, (2) a merger or consolidation of the Fund with
any corporation, association, trust or other organization, including a series or
class of such other organization (only in the limited circumstances where a vote
by shareholders is otherwise required under the 1940 Act or the Declaration),
(3) a sale, lease or exchange of all or substantially all of the Fund's assets
(only in the limited circumstances where a vote by shareholders is otherwise
required under the 1940 Act and the Declaration), or (4) certain transactions in
which a Principal Shareholder (as defined below) is a party to the transactions.
However, with respect to items (1), (2) and (3) above, if the applicable
transaction has been already approved by the affirmative vote of two-thirds of
the Trustees, then the majority of the outstanding voting securities as defined
in the 1940 Act (a "Majority Shareholder Vote") is required. In addition, if
there are then Preferred Shares outstanding, with respect to (1) above,
two-thirds of the Preferred Shares voting as a separate class shall also be
required unless the action has already been approved by two-thirds of the
Trustees, in which case then a Majority Shareholder Vote is required. Such
affirmative vote or consent shall be in addition to the vote or consent of the
holders of the shares otherwise required by law or by the terms of any class or
series of Preferred Shares, whether now or hereafter authorized, or any
agreement between the Fund and any national securities exchange. Further, in the
case of items (2) or (3) that constitute a plan of reorganization (as such term
is used in the 1940 Act) which adversely affects the Preferred Shares within the
meaning of section 18(a)(2)(D) of the 1940 Act, except as may otherwise be
required by law, the approval of the action in question will also require the
affirmative vote of two-thirds of the Preferred Shares voting as a separate
class; provided, however, that such separate class vote shall be by a Majority
Shareholder Vote if the action in question has previously been approved by the
affirmative vote of two-thirds of the Trustees.

      As noted above, pursuant to the Declaration, the affirmative approval of
two-thirds of the Shares outstanding and entitled to vote, subject to certain
exceptions, shall be required for the following transactions in which a
Principal Shareholder is a party: (1) the merger or consolidation of the Fund or
any subsidiary of the Fund with or into any Principal Shareholder; (2) the
issuance of any securities of the Fund to any Principal Shareholder for cash
other than pursuant to a dividend reinvestment or similar plan available to all
shareholders; (3) the sale, lease or exchange of all or any substantial part of
the assets of the Fund to any Principal Shareholder (except assets having an
aggregate fair market value of less than $1,000,000, aggregating for the purpose
of such computation all assets sold, leased or exchanged in any series of
similar transactions within a twelve-month period); (4) the sale, lease or
exchange to the Fund or any subsidiary thereof, in exchange for securities of
the Fund, of any assets of any Principal Shareholder (except assets having an
aggregate fair market value of less than $1,000,000, aggregating for the
purposes of such computation all assets sold, leased or exchanged in any series
of similar transactions within a twelve month period). However, shareholder
approval for the foregoing transactions shall not be applicable to (1) any
transaction, including, without limitation, any rights offering, made available
on a pro rata basis to all shareholders of the Fund or class thereof unless the
Trustees specifically make such transaction subject to this voting provision,
(2) any transaction if the Trustees shall by resolution have approved a
memorandum of understanding with such Principal Shareholder with respect to and
substantially consistent with such transaction or (3) any such transaction with
any corporation of which a majority of the outstanding shares of all classes of
stock normally entitled to vote in elections of directors is owned of record or
beneficially by the Fund and its subsidiaries. As described in the Declaration,
a Principal Shareholder shall mean any corporation, person or other entity which
is the beneficial owner, directly or indirectly, of more than 5% of the


                                       70



outstanding shares and shall include any affiliate or associate (as such terms
are defined in the Declaration) of a Principal Shareholder. The above
affirmative vote shall be in addition to the vote of the shareholders otherwise
required by law or by the terms of any class or series of Preferred Shares,
whether now or hereafter authorized, or any agreement between the Fund and any
national securities exchange.

      The provisions of the Declaration described above could have the effect of
depriving the Common Shareholders of opportunities to sell their Common Shares
at a premium over market value by discouraging a third party from seeking to
obtain control of the Fund in a tender offer or similar transaction. The overall
effect of these provisions is to render more difficult the accomplishment of a
merger or the assumption of control by a third party. They provide, however, the
advantage of potentially requiring persons seeking control of a fund to
negotiate with its management regarding the price to be paid and facilitating
the continuity of the Fund's investment objectives and policies. The Board of
Trustees of the Fund has considered the foregoing anti-takeover provisions and
concluded that they are in the best interests of the Fund and its Common
Shareholders.

      The Declaration provides that the obligations of the Fund are not binding
upon the Trustees of the Fund individually, but only upon the assets and
property of the Fund, and that the Trustees shall not be liable to any person in
connection with the Fund property or the affairs of the Fund for any action or
failure to act, errors of judgment or mistakes of fact or law or for any neglect
or wrongdoing of any officer, employee or agent of the Fund or for the act or
omission of any other Trustee. Nothing in the Declaration, however, protects a
Trustee against any liability to which he or she would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office with or on behalf of the
Fund.

      The Declaration provides that the Fund in ordinary circumstances will
terminate on        , 2032. The Board of Trustees may terminate the Fund prior
to this date. The Declaration provides also that the Fund's term may be extended
by the Board of Trustees, without a vote of shareholders (i) once for up to one
year (i.e., up to          , 2033), and (ii) once for up to an additional six
months (i.e., up to          ).

      Reference should be made to the Declaration on file with the SEC for the
full text of these provisions.

STRUCTURE OF THE FUND; COMMON SHARE REPURCHASES AND CONVERSION TO OPEN-END FUND

CLOSED-END STRUCTURE

      Closed-end funds differ from open-end management investment companies
(commonly referred to as mutual funds) in that closed-end funds generally list
their shares for trading on a securities exchange and do not redeem their shares
at the option of the shareholder. By comparison, mutual funds issue securities
redeemable at NAV at the option of the shareholder and typically engage in a
continuous offering of their shares. Mutual funds are subject to continuous
asset in-flows and out-flows that can complicate portfolio management, whereas
closed-end funds generally can stay more fully invested in securities consistent
with the closed-end fund's investment objective(s) and policies. In addition, in
comparison to open-end funds, closed-end funds have greater flexibility in their
ability to make certain types of investments, including investments in illiquid
securities.

      However, shares of closed-end investment companies listed for trading on a
securities exchange frequently trade at a discount from NAV, but in some cases
trade at a premium. The market price 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 fund's portfolio
holdings, the timing and success of the 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. The foregoing factors, among
others, may result in the market price of the Common Shares being greater than,
less than or equal to NAV. The Board of Trustees has reviewed the structure of
the Fund in light of its investment objective and policies and has determined
that the closed-end structure is in the best interests of the shareholders. As
described below, however, the Board of Trustees will review periodically the
trading range and activity of the Fund's shares with respect to its NAV, and the
Board of Trustees may take certain actions to seek to reduce or eliminate any
such discount. Such actions may include open market repurchases or tender offers
for the Common Shares at NAV or the possible conversion of the Fund to an
open-end fund. There can be no assurance that the Board will decide to undertake
any of these actions or that, if undertaken, such actions would result in the
Common Shares trading at a price equal to or close to their NAV. In addition, as
noted above, the Board of Trustees has determined in connection with this
initial offering of Common Shares of the Fund that the closed-end structure is
desirable, given the Fund's investment objectives and policies. Investors should
assume, therefore, that it is highly unlikely that the Board would vote to
propose to shareholders that the Fund convert to an open-end investment company.

REPURCHASE OF COMMON SHARES AND TENDER OFFERS

      Shares of closed-end funds frequently trade at a discount to their NAV.
Because of this possibility and the recognition that any such discount may not
be in the interest of Common Shareholders, the Board of Trustees might consider
from time to time engaging in open-market repurchases, tender offers for shares
or other programs intended to reduce the discount. The Fund cannot guarantee or
assure, however, that the Board of Trustees will decide to engage in any of
these actions. After any consideration of potential actions to seek to reduce


                                       71



any significant market discount, the Board of Trustees may, subject to its
fiduciary obligations and compliance with applicable state and federal laws and
the requirements of the principal stock exchange on which the Common Shares are
listed, authorize the commencement of a share-repurchase program or tender
offer. The size and timing of any such share repurchase program or tender offer
will be determined by the Board of Trustees in light of the market discount of
the Common Shares, trading volume of the Common Shares, information presented to
the Board of Trustees regarding the potential impact of any such share
repurchase program or tender offer, and general market and economic conditions.
There can be no assurance that the Fund will in fact effect repurchases of or
tender offers for any of its Common Shares. The Fund may, subject to its
investment limitation with respect to borrowings, incur debt to finance such
repurchases or a tender offer or for other valid purposes. Interest on any such
borrowings would increase the Fund's expenses and reduce the Fund's net income.

      There can be no assurance that repurchases of Common Shares or tender
offers, if any, will cause the Common Shares to trade at a price equal to or in
excess of their NAV. Nevertheless, the possibility that a portion of the Fund's
outstanding Common Shares may be the subject of repurchases or tender offers may
reduce the spread between market price and NAV that might otherwise exist. In
the opinion of the Fund, sellers may be less inclined to accept a significant
discount in the sale of their Common Shares if they have a reasonable
expectation of being able to receive a price of NAV for a portion of their
Common Shares in conjunction with an announced repurchase program or tender
offer for the Common Shares.

      Although the Board of Trustees believes that repurchases or tender offers
may have a favorable effect on the market price of the Common Shares, the
acquisition of Common Shares by the Fund will decrease the Managed Assets of the
Fund and therefore will have the effect of increasing the Fund's expense ratio
and decreasing the asset coverage with respect to any Preferred Shares
outstanding. Because of the nature of the Fund's investment objective, policies
and portfolio, the Advisor does not anticipate that repurchases of Common Shares
or tender offers should interfere with the ability of the Fund to manage its
investments in order to seek its investment objective, and do not anticipate any
material difficulty in borrowing money or disposing of portfolio securities to
consummate repurchases of or tender offers for Common Shares, although no
assurance can be given that this will be the case.

CONVERSION TO OPEN-END FUND

      The Fund may be converted to an open-end investment company at any time if
approved by the holders of two-thirds of the Fund's shares outstanding and
entitled to vote, provided that, unless otherwise required by law, if there are
Preferred Shares outstanding, the affirmative vote of the holders of two-thirds
of the Preferred Shares voting as a separate class shall also be required;
provided, however, that such votes shall be by Majority Shareholder Vote if the
action in question was previously approved by the affirmative vote of two-thirds
of the Board of Trustees. Such affirmative vote or consent shall be in addition
to the vote or consent of the holders of the shares otherwise required by law or
any agreement between the Fund and any national securities exchange. In the
event of conversion, the Common Shares would cease to be listed on the NYSE or
other national securities exchange. Any Preferred Shares or borrowings would
need to be redeemed or repaid upon conversion to an open-end investment company.
The Board of Trustees believes, however, that the closed-end structure is
desirable, given the Fund's investment objective and policies. Investors should
assume, therefore, that it is unlikely that the Board of Trustees would vote to
propose to shareholders that the Fund convert to an open-end investment company.
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
under the 1940 Act) at their net asset value, less such redemption charge or
contingent deferred sales charge, if any, as might be in effect at the time of a
redemption. The Fund would expect to pay all such redemption requests in cash,
but would intend to reserve the right to pay redemption requests in a
combination of cash or securities. If such partial payment in securities were
made, investors may incur brokerage costs in converting such securities to cash.
If the Fund were converted to an open-end fund, it is likely that new Common
Shares would be sold at NAV plus a sales load.

                              FEDERAL TAX MATTERS

      This section summarizes some of the main federal income tax consequences
of owning Common Shares of the Fund. This section is current as of the date of
this prospectus. Tax laws and interpretations change frequently, and these
summaries do not describe all of the tax consequences to all taxpayers. For
example, except as specifically provided below, these summaries generally do not
describe your situation if you are a corporation, a non-U.S. person, a
broker/dealer, or other investor with special circumstances. In addition, this
section does not describe your state, local or foreign tax consequences.

      This federal income tax summary is based in part on the advice of counsel
to the Fund. The Internal Revenue Service could disagree with any conclusions
set forth in this section. In addition, the Fund's counsel was not asked to
review, and has not reached a conclusion with respect to the federal income tax
treatment of the assets to be deposited in the Fund. This may not be sufficient
for you to use for the purpose of avoiding penalties under federal tax law.

      As with any investment, you should seek advice based on your individual
circumstances from your own tax advisor.

      Fund Status. The Fund intends to elect and to qualify annually as a
"regulated investment company," commonly known as a "RIC," under the federal tax
laws. To qualify, the Fund must, among other things, satisfy certain


                                       72



requirements relating to the source and nature of its income and the
diversification of its assets. If the Fund qualifies as a RIC and distributes
its income as required by the tax law, the Fund generally will not pay federal
income taxes.

      For federal income tax purposes, you are treated as the owner of Common
Shares and not of the assets held by the Fund. Taxability issues are taken into
account at the Fund level. Your federal income tax treatment from the Fund is
based on the distributions paid by the Fund.

      Distributions. Fund distributions will generally be taxable. After the end
of each year, you will receive a tax statement that separates the Fund's
distributions into ordinary dividends, capital gains dividends and returns of
capital. Income reported is generally net of expenses (but see "Deductibility of
Fund Expenses," below). Ordinary income distributions are generally taxed at
your ordinary tax rate, however, as further discussed below, certain ordinary
income distributions received from the Fund may be taxed at the capital gains
tax rates. Generally, you will treat all capital gains dividends as long-term
capital gains regardless of how long you have owned your Common Shares. To
determine your actual tax liability for your capital gains dividends, you must
calculate your total net capital gain or loss for the tax year after considering
all of your other taxable transactions, as described below. In addition, the
Fund may make distributions that represent a return of capital for tax purposes
and thus will generally not be taxable to you. The tax status of your
distributions from the Fund is not affected by whether you reinvest your
distributions in additional Common Shares or receive them in cash. The income
from the Fund that you must take into account for federal income tax purposes is
not reduced by amounts used to pay a deferred sales charge, if any. The tax laws
may require you to treat distributions made to you in January as if you had
received them on December 31 of the previous year.

      Income from the Fund may also be subject to a 3.8% "Medicare tax" imposed
for taxable years beginning after 2012. This tax will generally apply to your
net investment income if your adjusted gross income exceeds certain threshold
amounts, which are $250,000 in the case of married couples filing joint returns
and $200,000 in the case of single individuals.

      Deemed Distributions. The Fund currently intends to distribute, at least
annually, realized capital gains. However, the Fund may elect to retain capital
gains and provide a notice to Common Shareholders within 60 days of the taxable
year that the Common Shareholders of record as of the end of the Fund's taxable
will be required to include their attributable share of the retained gain in
their income for the year as long-term capital gain. Common Shareholders
required to include such retained gain in their income will be entitled to a
credit or a refund for the tax deemed paid on their behalf by the Fund and will
increase their increase their basis in their Common Shares in an amount equal to
the excess of their share of the retained gains included in their income over
the taxes deemed paid on their behalf by the Fund.

      Dividends Received Deduction. A corporation that owns Common Shares
generally will not be entitled to the dividends received deduction with respect
to dividends received from the Fund because the dividends received deduction is
generally not available for distributions from regulated investment companies.
However, certain ordinary income dividends on Common Shares that are
attributable to dividends received by the Fund (if any) from certain domestic
corporations may be designated by the Fund as being eligible for the dividends
received deduction.

      If You Sell Shares. If you sell your Common Shares, you will generally
recognize a taxable gain or loss. To determine the amount of this gain or loss,
you must subtract your tax basis in your Common Shares from the amount you
receive in the transaction. Your tax basis in your Common Shares is generally
equal to the cost of your Common Shares, generally including sales charges. In
some cases, however, you may have to adjust your tax basis after you purchase
your Common Shares, such as to account for any distributions which are a return
of capital as discussed above. Any loss realized upon a taxable disposition of
the Common Shares may be disallowed if other substantially identical shares are
acquired within a 61-day period beginning 30 days before and ending 30 days
after the date the original Common Shares are disposed of. If disallowed, the
loss will be reflected by an upward adjustment to the basis of the Common Shares
acquired. In addition, the ability to deduct capital losses may otherwise be
limited.

      Taxation of Capital Gains and Losses and Certain Ordinary Income
Dividends. If you are an individual, the maximum marginal federal tax rate for
net capital gain is generally 20% (generally 0% for certain taxpayers in the 10%
and 15% tax brackets).

      Net capital gain equals net long-term capital gain minus net short-term
capital loss for the taxable year. Capital gain or loss is long-term if the
holding period for the asset is more than one year and is short-term if the
holding period for the asset is one year or less. You must exclude the date you
purchase your Common Shares to determine your holding period. However, if you
receive a capital gain dividend from the Fund and sell your Common Shares at a
loss after holding it for six months or less, the loss will be recharacterized
as long-term capital loss to the extent of the capital gain dividend received.
The tax rates for capital gains realized from assets held for one year or less
are generally the same as for ordinary income. The Code treats certain capital
gains as ordinary income in special situations.

      A portion of the ordinary income dividends received by an individual
shareholder from a regulated investment company such as the Fund generally will
be taxed at the same rates that apply to net capital gain (as discussed above),
but only if certain holding period requirements are satisfied and the dividends
are attributable to qualified dividends received by the Fund itself. The Fund
does not expect to receive significant amounts of such dividend income. The Fund
will provide notice to its shareholders of the amount of any distribution which
may be taken into account as a dividend which is eligible for the capital gains
tax rates.

      Deductibility of Fund Expenses. Expenses incurred and deducted by the Fund
will generally not be treated as income taxable to you. In some cases, however,
you may be required to treat your portion of these Fund expenses as income. In
these cases you may be able to take a deduction for these expenses. However,
certain miscellaneous itemized deductions, such as investment expenses, may be


                                       73



deducted by individuals only to the extent that all of these deductions exceed
2% of the individual's adjusted gross income. Also, certain individuals may also
be subject to a phase out of the deductibility of itemized deductions based upon
their income.

      Foreign Tax Credit. If at least 50% of the value of the total assets of
the Fund (at the close of the taxable year) is represented by foreign securities
or at least 50% of the value of the total assets of the Fund (at the close of
each quarter of the taxable year) is represented by interests in other RICs, the
tax statement that you receive may include an item showing foreign taxes the
Fund paid to other countries. In this case, dividends taxed to you will include
your share of the taxes the Fund paid to other countries. You may be able to
deduct or receive a tax credit for your share of these taxes.

      You should consult your tax advisor regarding potential foreign, state or
local taxation with respect to your Common Shares.

      Investments in Certain Foreign Corporations. The Fund may invest a portion
of its portfolio in Senior Loans of non-U.S. borrowers. Because of the nature of
Senior Loans, there is an increased risk that a portion of the Senior Loans may
be recharacterized as equity for U.S. federal income tax purposes. If the Fund
holds an equity interest in any "passive foreign investment companies"
("PFICs"), which are generally certain foreign corporations that receive at
least 75% of their annual gross income from passive sources (such as interest,
dividends, certain rents and royalties or capital gains) or that hold at least
50% of their assets in investments producing such passive income, the Fund could
be subject to U.S. federal income tax and additional interest charges on gains
and certain distributions with respect to those equity interests, even if all
the income or gain is timely distributed to its shareholders. The Fund will not
be able to pass through to its shareholders any credit or deduction for such
taxes. The Fund may be able to make an election that could ameliorate these
adverse tax consequences. In this case, the Fund would recognize as ordinary
income any increase in the value of such PFIC shares, and as ordinary loss any
decrease in such value to the extent it did not exceed prior increases included
in income. Under this election, the Fund might be required to recognize in a
year income in excess of its distributions from PFICs and its proceeds from
dispositions of PFIC stock during that year, and such income would nevertheless
be subject to the distribution requirement and would be taken into account for
purposes of the 4% excise tax. Dividends paid by PFICs will not be treated as
qualified dividend income.

      Backup Withholding. The Fund may be required to withhold, for U.S. federal
income taxes, a portion of all taxable dividends and redemption proceeds payable
to shareholders who fail to provide the Fund with their correct taxpayer
identification numbers or who otherwise fail to make required certifications, or
if the Fund or a shareholder has been notified by the Internal Revenue Service
that such shareholder is subject to backup withholding. Corporate shareholders
and certain other shareholders under federal tax laws are generally exempt from
such backup withholding. Backup withholding is not an additional tax. Any
amounts withheld will be allowed as a refund or credit against the shareholder's
federal income tax liability if the appropriate information is provided to the
Internal Revenue Service.

      FATCA Withholding. Under the Foreign Account Tax Compliance Act ("FATCA"),
distributions after December 31, 2013 may be subject to a U.S. withholding tax
of 30% in the case of distributions to or dispositions by (i) certain non-U.S.
financial institutions that have not entered into an agreement with the U.S.
Treasury to collect and disclose certain 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. Dispositions of Common Shares by
such persons may be subject to such withholding after December 31, 2016.

      Alternative Minimum Tax. As with any taxable investment, investors may be
subject to the federal alternative minimum tax on their income (including
taxable income from the Fund), depending on their individual circumstances.

      Further Information. The SAI summarizes further federal income tax
considerations that may apply to the Fund and its shareholders and may qualify
the considerations discussed herein.


                                       74



                                  UNDERWRITING

      Under the terms and subject to the conditions stated in an underwriting
agreement, dated the date of this Prospectus, the Underwriters named below, for
which is acting as representatives (the "Representatives"), has severally agreed
to purchase, and the Fund has agreed to sell to them, the number of Common
Shares indicated below.

                                                                     NUMBER OF
      UNDERWRITER                                                  COMMON SHARES






      Total


      The Underwriters are offering the Common Shares subject to their
acceptance of the Common Shares from the Fund and subject to prior sale. The
underwriting agreement provides that the obligations of the several Underwriters
to pay for and accept delivery of the Common Shares offered by this prospectus
are subject to the approval of certain legal matters by their counsel and to
certain other conditions. The Underwriters are obligated to take and pay for all
of the Common Shares offered by this prospectus if any such shares are taken.
However, the Underwriters are not required to take or pay for the Common Shares
covered by the Underwriters' over-allotment option described below.

      The Underwriters initially propose to offer part of the Common Shares
directly to the public at the public offering price listed on the cover page of
this prospectus and part to certain dealers at a price that represents a
concession not in excess of $    per Common Share under the public offering
price. Investors must pay for any Common Shares purchased in this offering on or
before               .

      The Fund has granted to the Underwriters an option, exercisable for 45
days from the date of this prospectus, to purchase up to       additional Common
Shares at the public offering price listed on the cover page of this prospectus.
The Underwriters may exercise this option solely for the purpose of covering
over-allotments, if any, made in connection with the offering of the Common
Shares offered by this prospectus. To the extent the option is exercised, each
Underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of the additional Common Shares as the number
listed next to the Underwriter's name in the preceding table bears to the total
number of Common Shares listed next to the names of all Underwriters in the
preceding table.

      The following table shows the per share and total public offering price,
underwriting discounts and commissions (sales load) and proceeds to the Fund.
These amounts are shown assuming both no exercise and full exercise of the
Underwriters' option to purchase up to an additional        Common Shares.

                                 PER SHARE      NO EXERCISE     FULL EXERCISE
                                 ---------      -----------     -------------
      Public offering price       $20.00            $                $
      Sales load                   None           None             None
      Proceeds to the Fund        $20.00            $                $

      The compensation and fees paid to the Underwriters described below under
"Additional Compensation Paid by the Advisor, the Lead Sub-Advisor and the
Portfolio Sub-Advisors" are not reimbursable to the Advisor, the Lead
Sub-Advisor and the Portfolio Sub-Advisors by the Fund and are therefore not
reflected in the table above.

      The Advisor and Lead Sub-Advisor (and not the Fund) will pay all
organizational expenses of the Fund and all offering costs associated with this
offering. The Fund is not obligated to repay any such organizational expenses or
offering costs paid by the Advisor and Lead Sub-Advisor.

      The Underwriters have informed the Fund that they do not intend sales to
discretionary accounts to exceed five percent of the total number of Common
Shares offered by them.


                                       75



      In order to meet requirements for listing the Common Shares on the NYSE,
the Underwriters have undertaken to sell lots of 100 or more shares to a minimum
of 400 beneficial owners in the United States. The minimum investment
requirement is 100 common shares ($2,000).

      The Fund intends to apply to list its Common Shares on the NYSE, subject
to notice of issuance, under the symbol "    ".

      The Fund has agreed that, without the prior written consent of the
Representatives on behalf of the Underwriters, it will not, during the period
ending 180 days after the date of this prospectus:

      o     offer, pledge, sell, contract to sell, sell any option or contract
            to purchase, purchase any option or contract to sell, grant any
            option, right or warrant to purchase, lend or otherwise transfer or
            dispose of, directly or indirectly, any Common Shares or any
            securities convertible into or exercisable or exchangeable for
            Common Shares;

      o     file any registration statement with the SEC relating to the
            offering of any Common Shares or any securities convertible into or
            exercisable or exchangeable for Common Shares; or

      o     enter into any swap or other arrangement that transfers to another,
            in whole or in part, any of the economic consequences of ownership
            of the Common Shares;

      whether any such transaction described above is to be settled by delivery
of Common Shares or such other securities, in cash or otherwise.

      The restrictions described in the immediately preceding paragraph do not
apply to:

      o     the sale of Common Shares to the Underwriters;

      o     any Common Shares issued pursuant to the Plan; or

      o     any Preferred Share issuance.

      The Representatives, in their sole discretion, may release the Common
Shares and other securities subject to the lock-up agreement described above in
whole or in part at any time with or without notice.

      In order to facilitate the offering of the Common Shares, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Shares. Specifically, the Underwriters may sell more Common
Shares than they are obligated to purchase under the underwriting agreement,
creating a short position. A short sale is covered if the short position is no
greater than the number of Common Shares available for purchase by the
Underwriters under the over-allotment option. The Underwriters can close out a
covered short sale by exercising the over-allotment option or purchasing Common
Shares in the open market. In determining the source of Common Shares to close
out a covered short sale, the Underwriters will consider, among other things,
the open market price of the Common Shares compared to the price available under
the over-allotment option. The Underwriters may also sell Common Shares in
excess of the over-allotment option, creating a naked short position. The
Underwriters must close out any naked short position by purchasing Common Shares
in the open market. A naked short position is more likely to be created if the
Underwriters are concerned that there may be downward pressure on the price of
the Common Shares in the open market after pricing that could adversely affect
investors who purchase in the offering. As an additional means of facilitating
the offering, the Underwriters may bid for, and purchase, Common Shares in the
open market to stabilize the price of the Common Shares. Finally, the
underwriting syndicate may also reclaim selling concessions allowed to an
Underwriter or a dealer for distributing the Common Shares in the offering. Any
of these activities may raise or maintain the market price of the Common Shares
above independent market levels or prevent or retard a decline in the market
price of the Common Shares. The Underwriters are not required to engage in these
activities, and may end any of these activities at any time.

      The Fund, the Advisor, the Lead Sub-Advisor, the Portfolio Sub-Advisors
and the Underwriters have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act.

      A prospectus in electronic format may be made available on websites
maintained by one or more Underwriters, or selling group members, if any,
participating in this offering. The Representatives may agree to allocate a
number of Common Shares to Underwriters for sale to their online brokerage
account holders. Internet distributions will be allocated by the Representatives
to Underwriters that may make Internet distributions on the same basis as other
allocations.


                                       76



      Prior to this offering, there has been no public market for the Common
Shares. The initial public offering price for the Common Shares was determined
by negotiation among the Fund, the Advisor, the Lead Sub-Advisor, the Portfolio
Sub-Advisors and the Representatives. There can be no assurance, however, that
the price at which the Common Shares trade after this offering will not be lower
than the price at which they are sold by the Underwriters or that an active
trading market in the Common Shares will develop and continue after this
offering.

      Prior to the public offering of the common shares,          , an affiliate
of the Advisor ("FTP"), purchased Common Shares from the Fund in an amount
satisfying the net worth requirements of Section 14(a) of the 1940 Act, which
requires the Fund to have a net worth of at least $100,000 prior to making a
public offering. As of the date of this prospectus, FTP owned 100% of the Fund's
outstanding Common Shares and therefore may be deemed to control the Fund until
such time as it owns less than 25% of the Fund's outstanding Common Shares,
which is expected to occur upon the closing of this offering.

      The Fund anticipates that the Representatives and certain other
Underwriters may from time to time act as brokers and dealers in connection with
the execution of its portfolio transactions after they have ceased to be
Underwriters and, subject to certain restrictions, may act as such brokers while
they are Underwriters.

      The Underwriters and their respective affiliates are full service
financial institutions engaged in various activities, which may include
securities trading, commercial lending, investment banking, financial advisory,
investment management, principal investment, hedging, derivatives, financing and
brokerage activities. Certain of the Underwriters or their respective affiliates
from time to time have provided in the past, and may provide in the future,
securities trading, commercial lending, investment banking, financial advisory,
investment management, principal investment, hedging, derivatives, financing and
brokerage services to the Fund, certain of its executive officers and affiliates
and the Advisor, the Lead Sub-Advisor and the Portfolio Sub-Advisors and their
respective affiliates in the ordinary course of business, for which they have
received, and may receive, customary fees and expenses.

      No action has been taken in any jurisdiction (except in the United States)
that would permit a public offering of the Common Shares, or the possession,
circulation or distribution of this prospectus or any other material relating to
the Fund or the Common Shares where action for that purpose is required.
Accordingly, the Common Shares may not be offered or sold, directly or
indirectly, and neither this prospectus nor any other offering material or
advertisements in connection with the Common Shares may be distributed or
published, in or from any country or jurisdiction except in compliance with the
applicable rules and regulations of any such country or jurisdiction.

      The principal business address of             is                   . The
principal business address of                is               .

ADDITIONAL COMPENSATION PAID BY THE ADVISOR AND LEAD SUB-ADVISOR

      The Advisor and the Lead Sub-Advisor (and not the Fund) have agreed to pay
          , from their own assets, an upfront structuring and syndication fee in
the amount of          $ for advice and services relating to the structure and
design of the Fund as well as services related to the sale and distribution of
the Common Shares. If the over-allotment option is not exercised, the upfront
structuring and syndication fee paid to              will not exceed    % of the
total public offering price of the Common Shares. These services provided by
             to the Advisor and Lead Sub-Advisor are unrelated to their function
of advising the Fund as to its investments in securities or use of investment
strategies and investment techniques.

      The Advisor and Lead Sub-Advisor (and not the Fund) have agreed to pay
each of         ,         and         , from their own assets, an upfront
structuring fee in the amount of $     , $     and $     , respectively, for
advice relating to the structure, design and organization of the Fund as well as
services related to the sale and distribution of the Common Shares. If the
over-allotment option is not exercised, the upfront structuring fee paid to each
of       ,       and       will not exceed    %,    % and    %, respectively, of
the total public offering price of the Common Shares. These services provided by
these Underwriters to the Advisor and Lead Sub-Advisor are unrelated to their
function of advising the Fund as to its investments in securities or use of
investment strategies and investment techniques.

      The Advisor and Lead Sub-Advisor (and not the Fund) have agreed to pay
each of       ,       and       , from their own assets, an upfront fee in the
amount of $    , $    and $    , respectively, for services related to the
distribution of the Common Shares. If the over-allotment option is not
exercised, the upfront fee paid to each of       ,      and       will not
exceed    %,    % and    %, respectively, of the total public offering price
of the Common Shares. These services provided by these Underwriters to the
Advisor and Lead Sub-Advisor are unrelated to their function of advising the
Fund as to its investments in securities or use of investment strategies and
investment techniques.


                                       77



      The amount of these structuring, syndication and other fees are calculated
based on the total respective sales of Common Shares by these Underwriters,
including those Common Shares included in the Underwriters' over-allotment
option, and will be paid regardless of whether some or all of the over-allotment
option is exercised.

      In addition, the Advisor and Lead Sub-Advisor (and not the Fund) have
agreed to pay from their own assets, compensation of $     per Common Share to
the Underwriters in connection with the offering, which aggregate amount will
not exceed    % of the total public offering price of the Common Shares.

      Total underwriting compensation determined in accordance with Financial
Industry Regulatory Authority, Inc. ("FINRA") rules is summarized as follows.
The Advisor and Lead Sub-Advisor have agreed to reimburse the Underwriters for
the reasonable fees and disbursements of counsel to the Underwriters in
connection with the review by FINRA of the terms of the sale of the Common
Shares in an amount not to exceed $      in the aggregate, which amount will not
exceed    % of the total public offering price of the Common Shares if the
over-allotment option is not exercised. The sum total of all compensation to the
Underwriters in connection with this public offering of the Common Shares,
including expense reimbursement and all forms of structuring, syndication and
other fee payments to the Underwriters, will not exceed    % of the total public
offering price of the Common Shares.


                                       78



          CUSTODIAN, ADMINISTRATOR, FUND ACCOUNTANT AND TRANSFER AGENT

      The custodian of the assets of the Fund is          . The Fund's transfer,
shareholder services and dividend paying agent is               . Pursuant to an
administration and accounting services agreement, also provides certain
administrative and accounting services to the Fund, including maintaining the
Fund's books of account, records of the Fund's securities transactions, and
certain other books and records; acting as liaison with the Fund's independent
registered public accounting firm by providing such accountant with various
audit-related information with respect to the Fund; and providing other
continuous accounting and administrative services. As compensation for these
services, the Fund has agreed to pay             an annual fee, calculated daily
and payable on a monthly basis, of    % of the Fund's average net assets,
subject to decrease with respect to additional Fund net assets.

                                 LEGAL MATTERS

      Certain legal matters in connection with the Common Shares will be passed
upon for the Fund by Chapman and Cutler LLP, Chicago, Illinois, and for the
Underwriters by            . Chapman and Cutler LLP and may rely as to certain
matters of Massachusetts law on the opinion of             . Simpson Thacher &
Bartlett LLP, Washington, D.C., serves as counsel to the Lead Sub-Advisor.


                                       79



                     TABLE OF CONTENTS FOR THE STATEMENT OF
                             ADDITIONAL INFORMATION


                                                                            PAGE

Investment Objective...........................................................1
Investment Restrictions........................................................1
Investment Policies and Techniques.............................................3
Other Investment Policies and Techniques......................................19
Management of the Fund........................................................35
Investment Advisor, Lead Sub-Advisor and Portfolio Sub-Advisors...............44
Proxy Voting Policies and Procedures..........................................50
Portfolio Transactions and Brokerage..........................................50
Repurchase of Fund Shares; Conversion to Open-End Fund........................52
Certain Provisions in the Declaration of Trust................................54
Federal Tax Matters...........................................................56
Independent Registered Public Accounting Firm.................................65
Custodian, Administrator, Fund Accountant and Transfer Agent..................65
Additional Information........................................................66

Appendix A -- Ratings Of Investments.........................................A-1
Appendix B -- ...............................................................B-1


                                       80



      Until           (25 days after the date of this prospectus), all dealers
that buy, sell or trade the Common Shares, whether or not participating in this
offering, may be required to deliver a prospectus. This is in addition to the
dealers' obligation to deliver a prospectus when acting as Underwriters and with
respect to their unsold allotments or subscriptions.





                                               SHARES


                       FIRST TRUST SKYBRIDGE INCOME FUND

                                 COMMON SHARES
                                $20.00 PER SHARE






                              P R O S P E C T U S







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 MARCH 6, 2020


                       FIRST TRUST SKYBRIDGE INCOME FUND
                      STATEMENT OF ADDITIONAL INFORMATION


      First Trust SkyBridge Income Fund (the "Fund") was organized on March 3,
2020 as a Massachusetts business trust pursuant to a Declaration of Trust. The
Fund is a non-diversified, closed-end management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act").

      This Statement of Additional Information relating to the common shares of
beneficial interest in the Fund (the "Common Shares") is not a prospectus, but
should be read in conjunction with the Fund's Prospectus dated          (the
"Prospectus"). This Statement of Additional Information does not include all
information that a prospective investor should consider before purchasing Common
Shares. Investors should obtain and read the Prospectus prior to purchasing such
Common Shares. A copy of the Fund's Prospectus may be obtained without charge by
calling (800) 988-5891. You also may obtain a copy of the Prospectus on the
Securities and Exchange Commission's ("SEC") website (http://www.sec.gov).
Capitalized terms used but not defined in this Statement of Additional
Information have the meanings ascribed to them in the Prospectus.

      This Statement of Additional Information is dated       .



                               TABLE OF CONTENTS

                                                                            Page
                                                                            ----

INVESTMENT OBJECTIVE...........................................................1

INVESTMENT RESTRICTIONS........................................................1

INVESTMENT POLICIES AND TECHNIQUES.............................................3

OTHER INVESTMENT POLICIES AND TECHNIQUES......................................19

MANAGEMENT OF THE FUND........................................................35

INVESTMENT ADVISOR, LEAD SUB-ADVISOR AND PORTFOLIO SUB-ADVISORS...............44

PROXY VOTING POLICIES AND PROCEDURES..........................................50

PORTFOLIO TRANSACTIONS AND BROKERAGE..........................................50

REPURCHASE OF FUND SHARES; CONVERSION TO OPEN-END FUND........................52

CERTAIN PROVISIONS IN THE DECLARATION OF TRUST................................54

FEDERAL TAX MATTERS...........................................................56

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.................................65

CUSTODIAN, ADMINISTRATOR, FUND ACCOUNTANT AND TRANSFER AGENT..................65

ADDITIONAL INFORMATION........................................................66



APPENDIX A -- RATINGS OF INVESTMENTS.........................................A-1

APPENDIX B -- ...............................................................B-1


                                      -i-




                              INVESTMENT OBJECTIVE

      Investment Objective. The Fund's investment objective is to seek a high
level of current income. There can be no assurance that the Fund will achieve
its investment objective. The Fund will seek to achieve its investment objective
by investing in a mix of structured credit and other income-producing
instruments in the commercial real estate, residential real estate, corporate
credit and consumer credit markets pursuant to the investment strategies of a
group of portfolio management companies (each, a "Portfolio Sub-Advisor" and,
collectively, the "Portfolio Sub-Advisors") selected by SkyBridge Capital II,
LLC (the "Lead Sub-Advisor").

      Under normal market conditions, the Fund expects to invest its Managed
Assets in structured credit instruments backed by both real estate and non-real
estate collateral, including commercial mortgage-backed securities ("CMBS"),
agency and non-agency residential mortgage-backed securities, asset backed
securities ("ABS"), collateralized debt obligations ("CDOs") and collateralized
loan obligations ("CLOs"). In addition, the Fund expects to invest, to a lesser
extent, in non-structured cash flow generating securities, including direct
loans, corporate debt, preferred securities, real estate investment trusts
("REITs"), and exchanged-traded funds ("ETFs") and business development
companies ("BDCs") investing in the commercial real estate, residential real
estate, corporate credit or consumer credit markets. These investments may
include instruments of foreign issuers. The Fund will limit the amount of its
investments in emerging market issuers to no more than 5% of its Managed Assets.
The Fund also may use derivative instruments for hedging and other purposes. The
Fund anticipates that such transactions, if any, will primarily be utilized to
reduce the Fund's interest rate or currency risk.

                            INVESTMENT RESTRICTIONS

FUNDAMENTAL INVESTMENT POLICIES

      The Fund's investment objective and certain investment policies are
described in the Prospectus. The Fund, as a fundamental policy, may not:

              1. Purchase or sell real estate except to the extent the Fund is
      prohibited from doing so by applicable law, and this shall not prevent the
      Fund from investing in securities of companies that deal in real estate or
      are engaged in the real estate business, including real estate investment
      trusts, and securities secured by real estate or interests therein and the
      Fund may hold and sell real estate or mortgages on real estate acquired
      through default, liquidation, or other distributions of an interest in
      real estate as a result of the Fund's ownership of such securities;

              2. Purchase or sell physical commodities unless acquired as a
      result of ownership of securities or other instruments and this shall not
      prevent the Fund from purchasing or selling options, futures contracts and
      related options thereon, forward contracts, swaps, caps, floors, collars
      and other derivative instruments or from investing in securities or other
      instruments backed by physical commodities or as otherwise permitted by
      (i) the 1940 Act and the rules and regulations thereunder, or other





      successor law governing the regulation of registered investment companies,
      or interpretations or modifications thereof by the SEC, SEC staff or other
      authority of competent jurisdiction, or (ii) exemptive or other relief or
      permission from the SEC, SEC staff or other authority of competent
      jurisdiction;

              3. Borrow money except as permitted by (i) the 1940 Act and the
      rules and regulations thereunder, or other successor law governing the
      regulation of registered investment companies, or interpretations or
      modifications thereof by the SEC, SEC staff or other authority of
      competent jurisdiction, or (ii) exemptive or other relief or permission
      from the SEC, SEC staff or other authority of competent jurisdiction;

              4. Issue senior securities except as permitted by (i) the 1940 Act
      and the rules and regulations thereunder, or other successor law governing
      the regulation of registered investment companies, or interpretations or
      modifications thereof by the SEC, SEC staff or other authority of
      competent jurisdiction, or (ii) exemptive or other relief or permission
      from the SEC, SEC staff or other authority of competent jurisdiction;

              5. Underwrite the securities of other issuers except (a) to the
      extent that the Fund may be deemed to be an underwriter within the meaning
      of the Securities Act of 1933, as amended, in connection with the purchase
      and sale of portfolio securities; and (b) as permitted by (i) the 1940 Act
      and the rules and regulations thereunder, or other successor law governing
      the regulation of registered investment companies, or interpretations or
      modifications thereof by the SEC, SEC staff or other authority of
      competent jurisdiction, or (ii) exemptive or other relief or permission
      from the SEC, SEC staff or other authority of competent jurisdiction;

              6. Make loans except as permitted by (i) the 1940 Act and the
      rules and regulations thereunder, or other successor law governing the
      regulation of registered investment companies, or interpretations or
      modifications thereof by the SEC, SEC staff or other authority of
      competent jurisdiction, or (ii) exemptive or other relief or permission
      from the SEC, SEC staff or other authority of competent jurisdiction; or

              7. Purchase any security if as a result 25% or more of the Fund's
      total assets (taken at current value) would be invested in securities of
      issuers in a single industry, except that such limitation shall not apply
      to obligations issued or guaranteed by the United States Government or by
      its agencies or instrumentalities.

      For a discussion of the limitations imposed on the Fund's borrowings by
the 1940 Act, please see the section entitled "Use of Leverage" in the Fund's
Prospectus.

      Except as noted above, the foregoing fundamental investment policies
cannot be changed without approval by 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 of beneficial interest in the Fund
("Preferred Shares"), if any, voting together as a single class, and of the
holders of the outstanding Preferred Shares, if any, voting as a single class.
Under the 1940 Act, a "majority of the outstanding voting securities" means (i)


                                      -2-



67% or more of the Fund's shares present at a meeting, if the holders of more
than 50% of the Fund's shares are present or represented by proxy, or (ii) more
than 50% of the Fund's shares, whichever is less.

      The foregoing restrictions and limitations will apply only at the time of
purchase of securities, and the percentage limitations will not be considered
violated unless an excess or deficiency occurs or exists immediately after and
as a result of an acquisition of securities, unless otherwise indicated.

                       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 Advisor, Lead Sub-Advisor and the Portfolio Sub-Advisors 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 multiple investment strategies. The following descriptions
supplement the descriptions of the investment objective, policies, strategies
and risks as set forth in the Fund's 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.

      Below Investment Grade and Unrated Investments. The Fund expects to
substantially invest in securities rated below investment grade or securities
that are unrated by credit rating agencies (but may be considered by the
Advisor, Lead Sub-Advisor or a Portfolio Sub-Advisor to be of comparable quality
to below investment grade-rated securities). Below investment grade securities
are commonly referred to as "high yield" securities or "junk bonds."

      Investments in high yield securities generally provide greater income and
increased opportunity for capital appreciation than investments in higher
quality securities, but they also typically entail greater price volatility and
principal and income risk, including the possibility of issuer default and
bankruptcy. High yield securities are regarded as predominantly speculative with
respect to the issuer's continuing ability to meet principal and interest
payments. Debt securities in the lowest investment grade category also may be
considered to possess some speculative characteristics by certain rating
agencies. In addition, analysis of the creditworthiness of issuers of high yield
securities may be more complex than for issuers of higher quality securities.

      High yield securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than investment grade securities. A
projection of an economic downturn or of a period of rising interest rates, for
example, could cause a decline in high yield security prices because the advent
of a recession could lessen the ability of an issuer to make principal and
interest payments on its debt obligations. If an issuer of high yield securities


                                      -3-



defaults, in addition to risking non-payment of all or a portion of interest and
principal, the Fund may incur additional expenses to seek recovery. The market
prices of high yield securities structured as zero-coupon, step-up or
payment-in-kind securities will normally be affected to a greater extent by
interest rate changes, and therefore tend to be more volatile than the prices of
securities that pay interest currently and in cash.

      The secondary market on which high yield securities are traded may be less
liquid than the market for investment grade securities. Less liquidity in the
secondary trading market could adversely affect the price at which the Fund
could sell a high yield security, and could adversely affect the net asset value
of the shares. Adverse publicity and investor perceptions, whether or not based
on fundamental analysis, may decrease the values and liquidity of high yield
securities, especially in a thinly-traded market. When secondary markets for
high yield securities are less liquid than the market for investment grade
securities, it may be more difficult to value the securities because such
valuation may require more research, and elements of judgment may play a greater
role in the valuation because there is less reliable, objective data available.
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.

      A general description of the ratings of securities by Moody's Investors
Services, Inc. ("Moody's"), S&P Global Ratings ("S&P") and Fitch, Inc. ("Fitch")
is set forth in Appendix A. The ratings of Moody's, S&P and Fitch represent
their opinions as to the quality of the securities they rate. It should be
emphasized, however, that ratings are general and are not absolute standards of
quality. Consequently, debt obligations with the same maturity, coupon and
rating may have different yields while obligations with the same maturity and
coupon with different ratings may have the same yield. For these reasons, the
use of credit ratings as the sole method of evaluating high yield securities can
involve certain risks. For example, credit ratings evaluate the safety of
principal and interest payments, not the market value risk of high yield
securities. Also, credit rating agencies may fail to change credit ratings in a
timely fashion to reflect events since the security was last rated.

      The lower ratings of the high yield securities which the Fund will
purchase reflect a greater possibility that the financial condition of the
issuers, or adverse changes in general economic conditions, or both, may impair
the ability of the issuers to make payments of principal and interest. The
market value of a single lower-rated debt security may fluctuate more than the
market value of higher rated securities, since changes in the creditworthiness
of lower rated issuers and in market perceptions of the issuers'
creditworthiness tend to occur more frequently and in a more pronounced manner
than in the case of higher rated issuers. High yield debt securities also tend
to reflect individual corporate developments to a greater extent than higher
rated securities.

      The economy and interest rates affect high yield securities differently
from other securities. The prices of high yield bonds have been found to be more
sensitive to adverse economic changes or individual corporate developments.
During an economic downturn or substantial period of rising interest rates,
highly leveraged issuers may experience financial stress which would adversely
affect their ability to service their principal and interest payment
obligations, to meet projected business goals, and to obtain additional


                                      -4-



financing. If the issuer of a bond owned by the Fund defaults, the Fund may
incur additional expenses to seek recovery. In addition, periods of economic
uncertainty and changes can be expected to result in increased volatility of
market prices of high yield bonds and the Fund's net asset value. Furthermore,
the market prices of high yield bonds structured as zero coupon or pay-in-kind
securities are affected to a greater extent by interest rate changes and thereby
tend to be more volatile than securities which pay interest periodically and in
cash.

      Analysis of the creditworthiness of issuers of high yield securities may
be more complex than for issuers of higher-quality fixed income securities.
Accordingly, the Fund's success in achieving its investment objective may depend
heavily on the analysis of the Lead Sub-Advisor and/or a Portfolio Sub-Advisor
than if the Fund invested exclusively in higher-quality securities.

      High yield securities include securities issued by emerging credit
companies and companies which have experienced a leveraged buyout or
recapitalization. Although the small and medium size companies that constitute
emerging credit issuers typically have significant operating histories, these
companies generally do not have strong enough operating results to secure
investment grade ratings from the rating agencies. In addition, at times there
has been a substantial volume of high yield securities issued by companies that
have converted from public to private ownership through leveraged buyout
transactions and by companies that have restructured their balance sheets
through leveraged recapitalizations. High yield securities issued in these
situations are used primarily to pay existing stockholders for their shares or
to finance special dividend distributions to shareholders. The indebtedness
incurred in connection with these transactions is often substantial and, as a
result, often produces highly leveraged capital structures which present special
risks for the holders of such securities. Also, the market price of such
securities may be more volatile to the extent that expected benefits from the
restructuring do not materialize. The second category of high yield securities
consists of securities of former investment grade companies that have
experienced poor operating performance due to such factors as cyclical
downtrends in their industry, poor management or increased foreign competition.

      Special tax considerations are associated with investing in lower rated
debt securities structured as zero coupon or pay-in-kind securities. The Fund
accrues income on these securities prior to the receipt of cash payments. The
Fund must distribute substantially all of its income to shareholders to qualify
for the favorable tax treatment afforded regulated investment companies ("RICs")
and their shareholders under the Internal Revenue Code of 1986, as amended (the
"Code"), and may, therefore, have to dispose of portfolio securities to satisfy
distribution requirements.

      Underwriting and dealer spreads associated with the purchase of lower
rated bonds are typically higher than those associated with the purchase of high
grade bonds.

      Unrated securities involve the risks associated with investments in rated
securities of equivalent credit quality, though they may be less liquid than
comparable rated securities and involve the risk that the Advisor, Lead
Sub-Advisor or a Portfolio Sub-Advisor may not accurately evaluate the
security's creditworthiness. Accordingly, the Fund's success in achieving its
investment objective may depend heavily on the analysis of the Lead Sub-Adviosr


                                      -5-



or a Portfolio Sub-Advisor than if the Fund invested exclusively in rated
securities. Some or all of the unrated instruments in which the Fund may invest
will involve credit risk comparable to or greater than that of rated debt
securities of below investment grade quality.

      Fixed Income Securities. The Fund may invest in fixed income securities,
which generally also refers to debt securities, debt obligations and fixed
income instruments. These terms should be considered to include any evidence of
indebtedness, including, by way of example, a security or instrument having one
or more of the following characteristics: a security or instrument issued at a
discount to its face value, a security or instrument that pays interest at a
fixed, floating, or variable rate, or a security or instrument with a stated
principal amount that requires repayment of some or all of that principal amount
to the holder of the security. These terms are interpreted broadly to include
any instrument or security evidencing what is commonly referred to as an IOU
rather than evidencing the corporate ownership of equity unless that equity
represents an indirect or derivative interest in one or more debt securities.
For this purpose, the terms also include instruments that are intended to
provide one or more of the characteristics of a direct investment in one or more
debt securities. As new fixed income instruments are developed, the Advisor,
Lead Sub-Advisor or a Portfolio Sub-Advisor may seek to invest in those
opportunities for the Fund as well.

      Fixed income securities include a broad array of short-, medium-, and
long-term obligations issued by the U.S. or foreign governments, government or
international agencies and instrumentalities, and corporate and private issuers
of various types. The maturity date is the date on which a fixed income security
matures. This is the date on which the borrower must pay back the borrowed
amount, which is known as the principal. Some fixed income securities represent
uncollateralized obligations of their issuers; in other cases, the securities
may be backed by specific assets (such as mortgages or other receivables) that
have been set aside as collateral for the issuer's obligation. Fixed income
securities generally involve an obligation of the issuer to pay interest or
dividends on either a current basis or at the maturity of the security, as well
as the obligation to repay the principal amount of the security at maturity. The
rate of interest on fixed income securities may be fixed, floating, or variable.
Some securities pay a higher interest rate than the current market rate. An
investor may have to pay more than the security's principal to compensate the
seller for the value of the higher interest rate. This additional payment is a
premium.

      Fixed income securities are subject to, among other risks, credit risk,
market risk and interest rate risk. Except to the extent values are affected by
other factors such as developments relating to a specific issuer, generally the
value of a fixed income security can be expected to rise when interest rates
decline and, conversely, the value of such a security can be expected to fall
when interest rates rise. Some fixed income securities may be subject to
extension risk. This is the risk that if interest rates rise, repayments of
principal on certain debt securities, including, but not limited to, floating
rate loans and mortgage-related securities, may occur at a slower rate than
expected and the expected maturity of those securities could lengthen as a
result. Some fixed income securities also involve prepayment or call risk. This
is the risk that the issuer will repay the Fund the principal on the security
before it is due, thus depriving the Fund of a favorable stream of future
interest or dividend payments. The Fund could buy another security, but that
other security might pay a lower interest rate. In addition, many fixed income
securities contain call or buy-back features that permit their issuers to call


                                      -6-



or repurchase the securities from their holders. Such securities may present
risks based on payment expectations. If an issuer were to exercise a call option
and redeem the security during times of declining interest rates, the Fund may
realize a capital loss on its investment if the security was purchased at a
premium and the Fund may be forced to replace the called security with a lower
yielding security.

      Changes by nationally recognized securities rating organizations
("NRSROs") in their ratings of any fixed income security or the issuer of a
fixed income security and changes in the ability of an issuer to make payments
of interest and principal may also affect the value of these investments.
Changes in the value of portfolio securities generally will not affect income
derived from these securities, but will affect the Fund's performance.

      Because interest rates vary, it is impossible to predict the income, if
any, for any particular period for the Fund that invests in fixed income
securities. Fluctuations in the value of the Fund's investments in fixed income
securities may adversely affect the Fund's performance.

      Duration is an estimate of how much a bond fund's share price will
fluctuate in response to a change in interest rates. In general, the value of a
fixed income security with positive duration will generally decline if interest
rates increase, whereas the value of a security with negative duration will
generally decline if interest rates decrease. If interest rates rise by one
percentage point, the value of a portfolio of debt securities with an average
duration of five years would be expected to decline by approximately 5%. If
rates decrease by a percentage point, the value of portfolio of debt securities
with an average duration of five years would be expected to rise by
approximately 5%. The greater the duration of a bond (whether positive or
negative), the greater its percentage price volatility due to changes in
interest rates. Only a pure discount bond--i.e., one with no coupon or
sinking-fund payments--has a duration equal to the remaining maturity of the
bond, because only in this case does the present value of the final redemption
payment represent the entirety of the present value of the bond. For all other
bonds, duration is less than maturity.

      The Fund may invest in variable- or floating-rate securities that bear
interest at rates subject to periodic adjustment or provide for periodic
recovery of principal on demand. Variable- and floating-rate securities may
include, without limitations, unsecured bank loans, corporate bonds, money
market instruments and certain types of mortgage-backed and other asset-backed
securities. The value of the Fund's investment in certain of these securities
may depend on the Fund's right to demand that a specified bank, broker-dealer,
or other financial institution either purchase such securities from the Fund at
par or make payment on short notice to the Fund of unpaid principal and/or
interest on the securities. These securities are subject to, among others,
interest rate risk and credit risk.

      Collateralized Mortgage Obligations and Multiclass Pass-Through
Securities. Collateralized Mortgage Obligations ("CMOs") are debt obligations
collateralized by mortgage loans or mortgage pass-through securities. CMOs may
be collateralized by Government National Mortgage Association ("Ginnie Mae"),
Federal National Mortgage Association ("Fannie Mae") or Federal Home Loan
Mortgage Corporation ("Freddie Mac") certificates, but also may be


                                      -7-



collateralized by whole loans or private mortgage pass-through securities (such
collateral is collectively hereinafter referred to as "Mortgage Assets").
Mortgage Assets may be collateralized by commercial or residential uses.
Multiclass pass-through securities are equity interests in a trust composed of
Mortgage Assets. Payments of principal of and interest on the Mortgage Assets,
and any reinvestment income thereon, may require the Fund to pay debt service on
the CMOs or make scheduled distributions on the multiclass pass-through
securities. CMOs may be issued by federal agencies, or by private originators
of, or investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks, investment banks and special purpose
subsidiaries of the foregoing. The issuer of a series of mortgage pass-through
securities may elect to be treated as a REMIC. REMICs include governmental
and/or private entities that issue a fixed pool of mortgages secured by an
interest in real property. REMICs are similar to CMOs in that they issue
multiple classes of securities, but unlike CMOs, which are required to be
structured as debt securities, REMICs may be structured as indirect ownership
interests in the underlying assets of the REMICs themselves. Although CMOs and
REMICs differ in certain respects, characteristics of CMOs described below apply
in most cases to REMICs, as well.

      In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often referred to as a "tranche," is issued at a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final distribution
dates. Interest is paid or accrues on all classes of the CMOs on a monthly,
quarterly or semiannual basis. Certain CMOs may have variable or floating
interest rates and others may be Stripped Mortgage Securities. See "--Stripped
Mortgage Securities" below. The Fund's investment in CMOs may include investment
in Z Bonds. Interest on a Z Bond is accrued and added to principal and a like
amount is paid as principal on the other tranches of the CMO currently being
paid off. When the other tranches of the CMO are paid in full, interest and
principal on the Z Bond begin to be paid currently; as a result, Z Bonds
typically have a longer average life relative to other tranches of the CMO.

      The principal of and interest on the Mortgage Assets may be allocated
among the several classes of a CMO series in a number of different ways.
Generally, the purpose of the allocation of the cash flow of a CMO to the
various classes is to obtain a more predictable cash flow to certain of the
individual tranches than exists with the underlying collateral of the CMO. As a
general rule, the more predictable the cash flow is on a CMO tranche, the lower
the anticipated yield will be on that tranche at the time of issuance relative
to prevailing market yields on other mortgage-backed securities. As part of the
process of creating more predictable cash flows on most of the tranches in a
series of CMOs, one or more tranches generally must be created that absorb most
of the volatility in the cash flows on the underlying mortgage loans. The yields
on these tranches are generally higher than prevailing market yields on
mortgage-backed securities with similar maturities. As a result of the
uncertainty of the cash flows of these tranches, the market prices of and yield
on these tranches generally are more volatile.

      CMO Residuals. CMO residuals are mortgage securities issued by agencies or
instrumentalities of the U.S. Government or by private originators of, or
investors in, mortgage loans, including savings and loan associations,
homebuilders, mortgage banks, commercial banks, investment banks and special
purpose entities of the foregoing. The cash flow generated by the mortgage


                                      -8-



assets underlying a series of a CMO is applied first to make required payments
of principal and interest on the securities or certificates issued by the CMO
and second to pay the related administrative expenses and any management fee of
the issuer. The residual in a CMO structure generally represents the interest in
any excess cash flow remaining after making the foregoing payments. Each payment
of such excess cash flow to a holder of the related CMO residual represents
income and/or a return of capital. The amount of residual cash flow resulting
from a CMO will depend on, among other things, the characteristics of the
Mortgage Assets, the coupon rate of each class of CMO, prevailing interest
rates, the amount of administrative expenses and the pre-payment experience on
the Mortgage Assets. In particular, the yield to maturity on CMO residuals is
extremely sensitive to prepayments on the related underlying Mortgage Assets. In
addition, if a series of a CMO includes a class that bears interest at an
adjustable rate, the yield to maturity on the related CMO residual will also be
extremely sensitive to changes in the level of the index upon which interest
rate adjustments are based. As described below with respect to stripped
mortgage-backed securities, in certain circumstances the Fund may fail to recoup
fully its initial investment in a CMO residual. CMO residuals are generally
purchased and sold by institutional investors through several investment banking
firms acting as brokers or dealers. In addition, CMO residuals may, or pursuant
to an exemption therefrom, may not have been registered under the Securities Act
of 1933, as amended (the "Securities Act"). CMO residuals, whether or not
registered under the Securities Act, may be subject to certain restrictions on
transferability, and may be deemed illiquid.

      Stripped Mortgage Securities. Stripped mortgage securities may be issued
by federal agencies, or by private originators of, or investors in, mortgage
loans, including savings and loan associations, mortgage banks, commercial
banks, investment banks and special purpose subsidiaries of the foregoing.
Stripped mortgage securities usually are structured with two classes that
receive different proportions of the interest and principal distribution of a
pool of mortgage assets. A common type of stripped mortgage security will have
one class receiving some of the interest and most of the principal from the
mortgage assets, while the other class will receive most of the interest and the
remainder of the principal. In the most extreme case, one class will receive all
of the interest from the mortgage assets (the interest-only or "IO" class),
while the other class will receive all of the principal from the mortgage assets
(the principal-only or "PO" class). PO classes generate income through the
accretion of the deep discount at which such securities are purchased, and,
while PO classes do not receive periodic payments of interest, they receive
monthly payments associated with scheduled amortization and principal prepayment
from the mortgage assets underlying the PO class. The yield to maturity (the
expected rate of return on a bond if held until the end of its lifetime) on a PO
or an IO class security is extremely sensitive to the rate of principal payments
(including prepayments) on the related underlying mortgage assets. A slower than
expected rate of principal payments may have an adverse effect on a PO class
security's yield to maturity. If the underlying mortgage assets experience
slower than anticipated principal repayment, the Fund may fail to fully recoup
its initial investment in these securities. Conversely, a rapid rate of
principal payments may have a material adverse effect on an IO class security's
yield to maturity. If the underlying mortgage assets experience greater than
anticipated prepayments or principal, the Fund may fail to fully recoup its
initial investment in these securities.


                                      -9-



      The Fund may purchase stripped mortgage securities for income, or for
hedging purposes to protect the Fund's portfolio against interest rate
fluctuations. For example, since an IO class will tend to increase in value as
interest rates rise, it may be utilized to hedge against a decrease in value of
other fixed income securities in a rising interest rate environment.

      Privacy and Data Security Laws. U.S. Federal Gramm-Leach-Bliley Act
("GLBA") and other laws limit the disclosure of certain non-public personal
information about a consumer to non-affiliated third parties and require
financial institutions to disclose certain privacy policies and practices with
respect to information sharing with both affiliates and non-affiliated third
parties. Many states and a number of foreign jurisdictions have enacted privacy
and data security laws requiring safeguards on the privacy and security of
consumers' personally identifiable information. Other laws deal with obligations
to safeguard and dispose of private information in a manner designed to avoid
its dissemination. Privacy rules adopted by the U.S. Federal Trade Commission
implement GLBA and other requirements and govern the disclosure of consumer
financial information by certain financial institutions, ranging from banks to
private investment funds. U.S. platforms following certain models generally are
required to have privacy policies that conform to these GLBA and other
requirements. In addition, such platforms typically have policies and procedures
intended to maintain personal information of consumers securely and dispose of
it properly. Service providers to the Fund, including the Advisor, Lead
Sub-Advisor,Portfolio Sub-Advisors and custodian, and, potentially, the Fund may
obtain, hold or process such information in connection with providing services
to the Fund. The Fund cannot guarantee the security or confidentiality of that
data and cannot guarantee that service providers have been and will continue to
comply with GLBA, other data security and privacy laws and any other related
regulatory requirements. Violations of GLBA and other laws could subject the
Fund to litigation and/or fines, penalties or other regulatory action, which,
individually or in the aggregate, could have an adverse effect on the Fund.
The Fund may also face regulations related to privacy and data security in the
other jurisdictions in which the Fund invests.

      Private Mortgage Pass-Through Securities. Private mortgage pass-through
securities are structured similarly to the Ginnie Mae, Fannie Mae and Freddie
Mac mortgage pass-through securities but are issued by domestic and foreign
private issuers such as originators of and investors in mortgage loans,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose subsidiaries of the foregoing. These
securities usually are backed by a pool of conventional fixed rate or adjustable
rate mortgage loans. Since private mortgage pass-through securities typically
are not guaranteed by an entity having the credit status of Ginnie Mae, Fannie
Mae and Freddie Mac, such securities generally are structured with one or more
types of credit enhancement.

      Mortgage Assets often consist of a pool of assets representing the
obligations of a number of different parties. There are usually fewer properties
in a pool of assets backing commercial mortgage-backed securities than in a pool
of assets backing residential mortgage-backed securities hence they may be more
sensitive to the performance of fewer Mortgage Assets. To lessen the effect of
failures by obligors on underlying assets to make payments, those securities may
contain elements of credit support, which fall into two categories: (i)
liquidity protection and (ii) protection against losses resulting from ultimate


                                      -10-



default by an obligor on the underlying assets. Liquidity protection refers to
the provision of advances, generally by the entity administering the pool of
assets, to ensure that the receipt of payments on the underlying pool occurs in
a timely fashion. Protection against losses resulting from default ensures
ultimate payment of the obligations on at least a portion of the assets in the
pool. This protection may be provided through guarantees, insurance policies or
letters of credit obtained by the issuer or sponsor from third parties, through
various means of structuring the transaction or through a combination of such
approaches. The degree of credit support provided for each issue is generally
based on historical information respecting the level of credit risk associated
with the underlying assets. Delinquencies or losses in excess of those
anticipated could adversely affect the return on an investment in a security.

      Government Mortgage Pass-Through Securities. Mortgage pass-through
securities represent participation interests in pools of residential mortgage
loans purchased from individual lenders by an agency, instrumentality or
sponsored corporation of the United States government ("Federal Agency") or
originated by private lenders and guaranteed, to the extent provided in such
securities, by a Federal Agency. Such securities, which are ownership interests
in the underlying mortgage loans, provide for payments (not necessarily in fixed
amounts) that are a "pass-through" of the monthly interest and principal
payments (including any prepayments) made by the individual borrowers on the
pooled mortgage loans, net of any fees paid to the guarantor of such securities
and the servicer of the underlying mortgage loans.

      Under the Federal Housing Finance Agency's "Single Security Initiative,"
Fannie Mae and Freddie Mac have entered into a joint initiative to develop a
common securitization platform for the issuance of uniform mortgage-backed
securities ("UMBS"), which would generally align the characteristics of Fannie
Mae and Freddie Mac participation certificates. In June 2019 Fannie Mae and
Freddie Mac began issuing UMBS in place of their offerings of "to be announced"-
eligible mortgage-backed securities. The long-term effect of the issuance of
UMBS on the market for mortgage-backed securities is uncertain.

      Residential Loans. The Fund may acquire residential loans and mortgages
(including through participations, assignments and whole loans) from third-party
mortgage originators. In addition to interest rate, default and other risks of
fixed income securities, residential loans and mortgages carry additional risks,
including the possibility that the quality of the collateral may decline in
value and the potential for the liquidity of residential loans and mortgages to
vary over time. In addition, in the event that a loan is foreclosed on, the Fund
could become the owner (in whole or in part) of any collateral, which may
include, among other things, real estate or other real or personal property, and
the Fund would bear the costs and liabilities of owning, holding or disposing of
such property. These risks are greater for subprime residential and mortgage
loans.

      The Fund may also experience difficulty disposing of loans, which do not
trade in a liquid market and typically can only be sold to a limited universe of
institutional investors. The absence of a liquid market for these instruments
could adversely impact their value and may inhibit the Fund's ability to dispose
of them at times when it would be desirable to do so, including in response to
particular economic events, such as a deterioration in the creditworthiness of
the borrower. Because they do not trade in a liquid market residential loans may
also be difficult for the Fund to value.


                                      -11-



      Investing in loans may subject the Fund to greater levels of credit risk,
call risk, settlement risk and liquidity risk than other types of fixed income
instruments. Transactions involving loans may also involve greater costs than
transactions involving more actively traded securities. In addition, a number of
factors, including restrictions on transfers, irregular trading activity, wide
bid/ask spreads and extended trade settlement periods may make it more difficult
for the Fund to acquire, dispose of or accurately price such instruments
compared with other types of investments. As a result, the Fund may not be able
to realize the full value for loans and there may be extended delays in the
Fund's receipt of proceeds from the sale of a loan, which could adversely impact
the Fund's performance. Because transactions in many loans are subject to
extended trade settlement periods, proceeds from the sale of a loan may not be
immediately available to the Fund. As a result, proceeds related to the sale of
loans may not be available to make additional investments or to meet the Fund's
share repurchase obligations for a period after the sale of the loans, and, as a
result, the Fund may have to sell other investments or engage in borrowing
transactions if necessary to raise cash to meet its obligations.

      When acquiring residential loans, the Fund relies on third-party mortgage
originators to originate mortgage loans that comply with applicable law.
Mortgage loan originators and brokers are subject to strict and evolving
consumer protection laws and other legal obligations with respect to the
origination of residential mortgage loans. These laws may be highly subjective
and open to interpretation and, as a result, a regulator or court may determine
that that there has been a violation where an originator or servicer of mortgage
loans reasonably believed that the law or requirement had been satisfied.
Failure or alleged failure of originators or servicers to comply with these laws
and regulations could subject the Fund, as an assignee or purchaser of these
loans or securities backed by these loans, to, among other things, delays in
foreclosure proceedings, increased litigation expenses, monetary penalties and
defenses to foreclosure, including by recoupment or setoff of finance charges
and fees collected, and in some cases could also result in rescission of the
affected residential mortgage loans, which could adversely impact the Fund's
business and financial results. While some of these laws may not explicitly hold
the Fund responsible for the legal violations of these third parties, federal
and state agencies and private litigants have increasingly sought to impose such
liability. Various regulators and plaintiffs' lawyers have also sought to hold
assignees of mortgage loans liable for the alleged violations of the originating
lender under theories of express or implied assignee liability. Accordingly, the
Fund may be subject to fines, penalties or civil liability based upon the
conduct of the mortgage lenders that originated the mortgage loans the Fund
holds.

      Despite the Fund's efforts to manage credit risk related to the
residential mortgage loans the Fund acquires, there are many aspects of credit
risk that the Fund cannot control. The Fund could incur losses if a counterparty
that sold the Fund a loan is unwilling or unable (e.g., due to its financial
condition) to repurchase that loan or asset or pay damages to the Fund if the
Fund determines subsequent to purchase that one or more of the representations
or warranties made to the Fund in connection with the sale was inaccurate. There
may be less readily available information about loans and their underlying
borrowers than is the case for other types of investments and issuers. In
addition, because loans may not be considered "securities," investors in loans,
such as the Fund, may not be entitled to rely on the anti-fraud protections of
the federal securities laws, although they may be entitled to certain
contractual remedies.


                                      -12-



      The mortgage loans that the Fund purchases, and in which the Fund directly
and indirectly invests through mortgage-backed securities or other investments,
may be concentrated in a specific state or states. Weak economic conditions in
these locations or any other location (which may or may not affect real property
values), may affect the ability of borrowers to repay their mortgage loans on
time. Properties in certain jurisdictions may be more susceptible than homes
located in other parts of the country to certain types of uninsurable hazards,
such as earthquakes, floods, hurricanes, wildfires and other natural disasters.
Declines in the residential real estate market of a particular jurisdiction may
reduce the values of properties located in that jurisdiction, which would result
in an increase in the loan-to-value ratios. Any increase in the market value of
properties located in a particular jurisdiction would reduce the loan-to-value
ratios of the mortgage loans and could, therefore, make alternative sources of
financing available to the borrowers at lower interest rates, which could result
in an increased rate of prepayment of the mortgage loans.

      Real Estate Loans. The Fund may acquire commercial whole mortgage loans
secured by a first mortgage lien on commercial property, which may be structured
to either permit the Fund to retain the entire loan, or sell the lower yielding
senior portions of the loans and retain the higher yielding subordinate
investment. Typically, borrowers under these loans are institutions and real
estate operating companies and investors. These loans are generally secured by
commercial real estate assets in a variety of industries with a variety of
characteristics. In addition to interest, the Fund may receive origination fees,
extension fees, modification or similar fees in connection with whole mortgage
loans.

      The Fund may also acquire residential mortgage loans secured by a first
mortgage lien on residential property. Typically, borrowers of these loans are
individuals rather than institutions, and the quality of residential real estate
loans can depend largely on the credit characteristics of the underlying
borrowers. In the last decade, the residential mortgage market in the United
States experienced difficulties that resulted in losses on residential mortgage
loans (especially subprime and second-lien mortgage loans). There can be no
assurance that such difficulties would not be experienced again, which could
result in losses as a result of investments in residential real estate loans.

      B-Notes. A B-Note is a mortgage loan typically (i) secured by a first
mortgage on a single large commercial property or group of related properties
and (ii) subordinated to an A-Note secured by the same first mortgage on the
same collateral. As a result, if a borrower defaults, there may not be
sufficient funds remaining for B-Note holders after payment to the A-Note
holders. Since each transaction is privately negotiated, B-Notes can vary in
their structural characteristics and risks. For example, the rights of holders
of B-Notes to control the process following a borrower default may be limited in
certain investments. Further, B-Notes typically are secured by a single
property, and so reflect the increased risks associated with a single property
compared to a pool of properties.

      Inverse Floaters. An inverse floater is a type of instrument that bears a
floating or variable interest rate that moves in the opposite direction to
interest rates generally or the interest rate on another security or index.
Changes in interest rates generally, or the interest rate of the other security
or index, inversely affect the interest rate paid on the inverse floater, with


                                      -13-



the result that the inverse floater's price will be considerably more volatile
than that of a fixed-rate bond. Brokers typically create inverse floaters by
depositing an income-producing instrument, which may be a mortgage-backed
security, in a trust. The trust in turn issues a variable rate security and
inverse floaters. The returns on the inverse floaters may be leveraged,
increasing substantially their volatility and interest rate sensitivity. The
rate at which interest is paid by the trust on an inverse floater may vary by a
magnitude that exceeds the magnitude of the change in a reference rate of
interest (typically a short term interest rate), and the market prices of
inverse floaters may as a result be highly sensitive to changes in interest
rates and in prepayment rates on the underlying securities, and may decrease
significantly when interest rates increase or prepayment rates change. The
interest rate for the variable rate security is typically determined by an index
or an auction process, while the inverse floater holder receives the balance of
the income from the underlying income-producing instrument less an auction fee.

      Senior Loans. Senior floating rate loans may be made to or issued by U.S.
or non-U.S. banks or other corporations ("Senior Loans"). Senior Loans include
senior floating rate loans and institutionally traded senior floating rate debt
obligations issued by asset-backed pools and other issues, and interests
therein. Senior Loan interests may be acquired from U.S. or foreign commercial
banks, insurance companies, finance companies or other financial institutions
that have made loans or are members of a lending syndicate or from other holders
of loan interests. Senior Loans typically pay interest at rates which are
re-determined periodically on the basis of a floating base lending rate plus a
premium. Senior Loans generally (but not always) hold the most senior position
in the capital structure of a borrower and, if below investment grade quality,
are often secured with collateral.

      From time to time, the Advisor, Lead Sub-Advisor or Portfolio Sub-Advisors
and their related parties may borrow money from various banks in connection with
their business activities. Such banks may also sell Senior Loans to or acquire
them from the Fund or may be intermediate participants with respect to Senior
Loans in which the Fund owns interests. Such banks may also act as Agents for
Senior Loans held by the Fund.

      To the extent that the collateral, if any, securing a Senior Loan consists
of the stock of the borrower's subsidiaries or other affiliates, the Fund will
be subject to the risk that this stock will decline in value. Such a decline,
whether as a result of bankruptcy proceedings or otherwise, could cause the
Senior Loan to be undercollateralized or unsecured. In most credit agreements
there is no requirement to pledge additional collateral. In addition, a Senior
Loan may be guaranteed by, or fully secured by assets of, shareholders or
owners, even if the Senior Loans are not otherwise collateralized by assets of
the borrower. There may be temporary periods when the principal asset held by a
borrower is the stock of a related company, which may not legally be pledged to
secure a secured Senior Loan. On occasions when such stock cannot be pledged,
the secured Senior Loan will be temporarily unsecured until the stock can be
pledged or is exchanged for or replaced by other assets, which will be pledged
as security for such Senior Loan. However, the borrower's ability to dispose of
such securities, other than in connection with such pledge or replacement, will
be strictly limited for the protection of the holders of secured Senior Loans.


                                      -14-



      If a borrower becomes involved in bankruptcy proceedings, a court under
certain circumstances potentially could invalidate the Fund's security interest
in any loan collateral or subordinate the Fund's rights under a secured Senior
Loan to the interests of the borrower's unsecured creditors. Such action by a
court could be based, for example, on a "fraudulent conveyance" claim to the
effect that the borrower did not receive "reasonably equivalent value" for
granting the security interest in the loan collateral to the Fund. For secured
Senior Loans made in connection with a highly leveraged transaction,
consideration for granting a security interest may be deemed inadequate if the
proceeds of such loan were not received or retained by the borrower, but were
instead paid to other persons, such as shareholders of the borrower, in an
amount which left the borrower insolvent or without sufficient working capital.
There are also other events, such as the failure to perfect a security interest
due to faulty documentation or faulty official filings, which could lead to the
invalidation of the Fund's security interest in any loan collateral. If the
Fund's security interest in loan collateral is invalidated or a secured Senior
Loan is subordinated to other debt of a borrower in bankruptcy or other
proceedings, it is unlikely that the Fund would be able to recover the full
amount of the principal and interest due on the secured Senior Loan, if at all.

      Loan Pool Investments. The Fund may invest in pools of loans. The Fund's
direct investments in pools of loans present risks that may differ from the
Fund's investments in mortgage and other asset-backed securities. For example,
if it were to invest directly in such pools, the Fund would share in all losses
incurred on the loans in the pool. However, if the Fund were to invest in a
senior tranche of a mortgage- or other asset-backed security, it might have a
more limited exposure to losses on the loans. In connection with the Fund's
purchase of certain loan portfolios, the Fund will incur costs, which may
include the costs of various diligence-related services. The costs associated
with investments in a pool of loans may be significant and will reduce the
performance contribution of such loans and the Fund's performance.

      Debtor-in-Possession Loans. The Fund may invest in or extend loans to
companies that have filed for protection under Chapter 11 of the United States
Bankruptcy Code. Debtor-in-possession financings allow the entity to continue
its business operations while reorganizing under Chapter 11 and such financings
must be approved by the bankruptcy court. These debtor-in-possession loans are
most often working-capital facilities put into place at the outset of a Chapter
11 case to provide the debtor with both immediate cash and the ongoing working
capital that will be required during the reorganization process.
Debtor-in-possession financings are typically fully secured by a lien on the
debtor's otherwise unencumbered assets or secured by a junior lien on the
debtor's encumbered assets (so long as the loan is fully secured based on the
most recent current valuation or appraisal report of the debtor).
Debtor-in-possession financings are often required to close with certainty and
in a rapid manner in order to satisfy existing creditors and to enable the
issuer to emerge from bankruptcy or to avoid a bankruptcy proceeding. There is a
risk that the borrower will not emerge from Chapter 11 bankruptcy proceedings
and be forced to liquidate its assets under Chapter 7 of the U.S. Bankruptcy
Code. In the event of liquidation, the Fund's only recourse will be against the
property securing the debtor-in-possession financing.

      Delayed Funding Loans and Revolving Credit Facilities. Delayed funding
loans and revolving credit facilities are borrowing arrangements in which the
lender agrees to make loans up to a maximum amount upon demand by the borrower
during a specified term. A revolving credit facility differs from a delayed


                                      -15-



funding loan in that as the borrower repays the loan, an amount equal to the
repayment may be borrowed again during the term of the revolving credit
facility. Delayed funding loans and revolving credit facilities usually provide
for floating or variable rates of interest. These commitments may have the
effect of requiring the Fund to increase its exposure to a company at a time
when it might not otherwise be desirable to do so (including a time when the
company's financial condition makes it unlikely that such amounts will be repaid
or which the Fund needs to sell other assets to raise cash to satisfy its
obligor).

      Delayed funding loans and revolving credit facilities may be subject to
restrictions on transfer, and only limited opportunities may exist to resell
such instruments. As a result, the Fund may be unable to sell such investments
at an opportune time or may have to resell them at less than fair market value.
Delayed funding loans and revolving credit facilities are subject to credit,
interest rate and liquidity risk.

      Zero-Coupon Bonds, Step-Ups and Payment-In-Kind Securities. Zero-coupon
securities are debt obligations that do not entitle the holder to any periodic
payments of interest either for the entire life of the obligation or for an
initial period after the issuance of the obligations. Like zero-coupon bonds,
"step-up" bonds pay no interest initially but eventually begin to pay a coupon
rate prior to maturity, which rate may increase at stated intervals during the
life of the security. Payment-in-kind securities ("PIKs") pay dividends or
interest in the form of additional securities of the issuer, rather than in
cash. Zero-coupon bonds, step-ups and PIKs 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.
Each of these instruments is typically issued and traded at a deep discount from
its face amount. The amount of the discount varies depending on such factors as
the time remaining until maturity of the securities, prevailing interest rates,
the liquidity of the security and the perceived credit quality of the issuer.
The market prices of zero-coupon bonds, step-ups and PIKs generally are more
volatile than the market prices of debt instruments that pay interest currently
and in cash and are likely to respond to changes in interest rates to a greater
degree than do other types of securities having similar maturities and credit
quality. Because the Fund will not, on a current basis, receive cash payments
from the issuer of these securities in respect of any accrued original issue
discount, in some years the Fund may have to distribute cash obtained from
selling other portfolio holdings of the Fund in order to satisfy the
distribution requirement for treatment as a "regulated investment company" under
the Code. In some circumstances, such sales might be necessary in order to
satisfy cash distribution requirements even though investment considerations
might otherwise make it undesirable for the Fund to sell securities at such
time. Under many market conditions, investments in zero-coupon bonds, step-ups
and PIKs may be illiquid, making it difficult for the Fund to dispose of them or
determine their current value.

      Preferred Securities. Preferred securities represent an equity interest in
a company that generally entitles the holder to receive, in preference to the
holders of other stocks such as common stocks, dividends and a fixed share of
the proceeds resulting from a liquidation of the company. Some preferred
securities also entitle their holders to receive additional liquidation proceeds
on the same basis as holders of a company's common stock, and thus also
represent an ownership interest in that company. Preferred securities are
subject to issuer-specific and market risks applicable generally to equity


                                      -16-



securities. The value of a company's preferred securities may fall as a result
of factors relating directly to that company's products or services. A preferred
security's value may also fall because of factors affecting not just the
company, but companies in the same industry or in a number of different
industries, such as increases in production costs. The value of preferred
securities may also be affected by changes in financial markets that are
relatively unrelated to the company or its industry, such as changes in interest
rates or currency exchange rates. In addition, a company's preferred securities
generally pay dividends only after the company makes required payments to
holders of its bonds and other debt. For this reason, the value of preferred
securities will usually react more strongly than bonds and other debt to actual
or perceived changes in the company's financial condition or prospects.
Preferred securities of smaller companies may be more vulnerable to adverse
developments than those of larger companies.

      Real Estate Investment Trusts ("REITs"). Exposure to the real estate
sector may be gained by investing in a variety of ways, including through REIT
securities. Each of these types of investments are subject to risks similar to
those associated with direct ownership of real estate, including loss to
casualty or condemnation, increases in property taxes and operating expenses,
zoning law amendments, changes in interest rates, overbuilding and increased
competition, variations in market value, and possible environmental liabilities.
Real estate related investments may entail leverage and may be highly volatile.

      Exchange-Traded Funds ("ETFs") and Closed-End Funds. The Fund may invest
in shares of ETFs. As the shareholder of another investment company, the Fund
would bear, along with other shareholders, its pro rata portion of the other
investment company's expenses, including advisory fees. Such expenses are in
addition to the expenses the Fund pays in connection with its own operations.
The Fund's investments in other investment companies may be limited by
applicable law. It is possible that, under certain circumstances, the Fund may
be prevented by applicable law from investing in other investment companies when
doing so may otherwise be the most efficient way for the Fund to obtain exposure
to a portfolio of securities.

      Disruptions in the markets for the securities held by ETFs could result in
losses on investments in ETFs. ETFs also carry the risk that the price the Fund
pays or receives may be higher or lower than the ETF's net asset value. ETFs are
also subject to certain additional risks, including the risks of illiquidity and
of possible trading halts due to market conditions or other reasons, based on
the policies of the relevant exchange. ETFs in which the Fund may invest may be
leveraged, which would increase the volatility of the value of the Fund's Common
Shares.

      Illiquid/Restricted Securities. The Fund may invest in securities that, at
the time of investment, are illiquid. The Fund may also invest in restricted
securities, which refers to securities that have not been registered under the
Securities Act, and continue to be subject to restrictions on resale, securities
held by control persons of the issuer and securities that are subject to
contractual restrictions on their resale. As a result, restricted securities may
be more difficult to value and the Fund may have difficulty disposing of such
assets either in a timely manner or for a reasonable price. In order to dispose
of an unregistered security, the Fund, where it has contractual rights to do so,
may have to cause such security to be registered. A considerable period may


                                      -17-



elapse between the time the decision is made to sell the security and the time
the security is registered in order for the Fund to sell it. Contractual
restrictions on the resale of securities vary in length and scope and are
generally the result of a negotiation between the issuer and acquiror of the
securities. The Fund would, in either case, bear market risks during that
period.

      Limitations on resale may have an adverse effect on the marketability of
portfolio securities, and the Fund might be unable to dispose of restricted or
other illiquid securities promptly or at reasonable prices. The Fund might also
have to register the restricted securities to dispose of them, thereby resulting
in additional expense and delay. Adverse market conditions could impede the
public offering of securities.

      In recent years, a large institutional market has developed for certain
securities that are not registered under the Securities Act, including private
placements, repurchase agreements, commercial paper, foreign securities, and
corporate bonds and notes. These instruments are often restricted securities
because the securities are either themselves exempt from registration or sold in
transactions not requiring registration, such as Rule 144A transactions (as
described below). Institutional investors generally will not seek to sell these
instruments to the general public, but instead will often depend on an efficient
institutional market in which such unregistered securities can be readily resold
or on an issuer's ability to honor a demand for repayment. Therefore, the fact
that there are contractual or legal restrictions on resale to the general public
or to certain institutions may not be dispositive of the liquidity of such
investments. The Advisor, Lead Sub-Advisor, and/or Portfolio Sub-Advisors, under
the supervision of the Board of Trustees, will determine whether restricted
securities are illiquid.

      Rule 144A under the Securities Act establishes a "safe harbor" from the
registration requirements of the Securities Act for resales of certain
securities to qualified institutional buyers. Institutional markets for
restricted securities that exist or may develop as a result of Rule 144A may
provide both readily ascertainable values for restricted securities and the
ability to liquidate an investment. An insufficient number of qualified
institutional buyers interested in purchasing Rule 144A eligible securities held
by the Fund, however, could affect adversely the marketability of such portfolio
securities and the Fund might be unable to dispose of such securities promptly
or at reasonable prices.

      Reverse Repurchase Agreements and Dollar Rolls. A reverse repurchase
agreement involves the sale of a portfolio-eligible security by the Fund,
coupled with its agreement to repurchase the instrument at a specified time and
price. Under a reverse repurchase agreement, the Fund continues to be entitled
to receive any principal and interest payments on the underlying security during
the term of the agreement. Reverse repurchase agreements involve leverage risk;
the Fund may lose money as a result of declines in the values both of the
security subject to the reverse repurchase agreement and the instruments in
which the Fund invested the proceeds of the reverse repurchase agreement.

      A "dollar roll" is similar to a reverse repurchase agreement in certain
respects. In a "dollar roll" transaction, the Fund sells a mortgage-related
security, such as a security issued by Ginnie Mae, to a dealer and
simultaneously agrees to repurchase a similar security (but not the same
security) in the future at a pre-determined price. A "dollar roll" can be


                                      -18-



viewed, like a reverse repurchase agreement, as a collateralized borrowing in
which the Fund pledges a mortgage-related security to a dealer to obtain cash.
However, unlike reverse repurchase agreements, the dealer with which the Fund
enters into a dollar roll transaction is not obligated to return the same
securities as those originally sold by the Fund, but only securities which are
"substantially identical." To be considered "substantially identical," the
securities returned to the Fund generally must: (1) be collateralized by the
same types of underlying mortgages; (2) be issued by the same agency and be part
of the same program; (3) have a similar original stated maturity; (4) have
identical net coupon rates; (5) have similar market yields (and therefore
price); and (6) satisfy "good delivery" requirements, meaning that the aggregate
principal amounts of the securities delivered and received back must be within
2.5% of the initial amount delivered.

      The Fund also may effect simultaneous purchase and sale transactions that
are known as "sale-buybacks." A sale-buyback is similar to a reverse repurchase
agreement, except that in a sale-buyback, the counterparty who purchases the
security is entitled to retain any principal or interest payments made on the
underlying security pending settlement of the Fund's repurchase of the
underlying security.

      In addition to the risks associated with leverage, the Fund's use of
reverse repurchase agreements, dollar rolls and similar transactions is subject
to the risk that the market value of the securities that the Fund is obligated
to purchase or repurchase under the agreement may decline below the purchase or
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement or dollar roll files for bankruptcy or becomes insolvent,
the Fund's use of the proceeds of the agreement may be restricted pending a
determination by the other party, or its trustee or receiver, whether to enforce
the Fund's obligation to purchase or repurchase the securities. Furthermore,
these instruments may be "illiquid."

            OTHER INVESTMENT POLICIES, TECHNIQUES AND CONSIDERATIONS

DERIVATIVE AND OTHER TRANSACTIONS

      The Fund may, but is not required to, enter into various transactions to
seek to (i) reduce interest rate risks arising from the use of leverage by the
Fund, (ii) to facilitate portfolio management and/or (iii) mitigate other risks,
including, without limitation, interest rate, currency and credit risks and
equity security price risk. Certain of these transactions involve derivative
instruments. Generally, derivatives are financial contracts whose value depends
upon, or is derived from, the value of an underlying asset, reference rate or
index, and may relate to individual debt instruments, interest rates, currencies
or currency exchange rates and related indexes. The Fund may use any or all of
these instruments at any time, and the use of any particular derivative
transaction may depend on market conditions. The values of certain derivatives
can be affected dramatically by even small market movements, sometimes in ways
that are difficult to predict. There are many different types of derivatives,
with many different uses. Subject to the restrictions set forth in the Fund's
Prospectus, the Fund may engage in the types of derivative instruments described
below. The Fund also may engage in derivative instruments that combine features


                                      -19-



of these instruments and other similar transactions which may be developed in
the future to the extent the Portfolio Sub-Advisors determine that they are
consistent with the Fund's investment objectives and policies and applicable
regulatory requirements.

      Transactions involving derivative instruments generally provide for the
transfer from one counterparty to another of certain risks inherent in the
ownership of a financial asset such as a common stock or debt instrument. The
transfer of risk may be complete or partial, and may be for the life of the
related asset or for a shorter period. Such transactions may provide the Fund
with the opportunity to gain or reduce exposure to one or more reference
securities or other financial assets without actually owning or selling such
assets in order, for example, to increase or reduce a concentration risk or to
diversify a portfolio.

      The Fund may seek to use derivatives and other transactions as a portfolio
management or hedging technique to generate income, protect against possible
adverse changes in the market value of securities held in or to be purchased for
the Fund's portfolio, protect the value of the Fund's portfolio, facilitate the
sale of certain securities for investment purposes, manage the effective
interest rate and currency exposure of the Fund, including the effective yield
paid on any leverage issued by the Fund, protect against changes in currency
exchange rates or establish positions in the derivatives markets as a temporary
substitute for purchasing or selling particular securities. Certain transactions
may provide investment leverage to the Fund's portfolio. See "Use of Leverage"
in the Fund's Prospectus. Market conditions will determine whether and in what
circumstances the Fund would employ any of these techniques. The Fund will incur
brokerage and other costs in connection with such transactions. No assurance can
be given that these practices will achieve the desired result. The successful
utilization of such transactions requires skills different from those needed in
the selection of the Fund's portfolio securities.

      Hedging Strategies. Hedging is an attempt to establish with more certainty
than would otherwise be possible the effective price or rate of return on
portfolio securities or securities that the Fund proposes to acquire or the
exchange rate of currencies in which the portfolio securities are quoted or
denominated. Derivative instruments may be used to hedge against price movements
in one or more particular securities positions that the Fund owns or acquires.
Such instruments may also be used to "lock-in" recognized but unrealized gains
in the value of portfolio securities. Hedging strategies, if successful, can
reduce the risk of loss by wholly or partially offsetting the negative effect of
unfavorable price movements in the investments being hedged. However, hedging
strategies also can reduce the opportunity for gain by offsetting the positive
effect of favorable price movements in the hedged investments. The use of
hedging instruments is subject to applicable regulations of the SEC, the several
options and futures exchanges upon which they are traded, the Commodity Futures
Trading Commission (the "CFTC") and various state regulatory authorities.

      The Fund may enter into derivative instruments and other transactions to
seek to preserve a return on a particular investment or portion of its portfolio
and also may enter into such transactions to seek to protect against decreases
in the anticipated rate of return on floating or variable rate financial
instruments the Fund owns or anticipates purchasing at a later date, or for
other risk management strategies such as managing the effective dollar weighted
average duration of the Fund's portfolio. The Fund also may engage in such


                                      -20-



transactions to seek to protect the value of its portfolio against declines in
net asset value resulting from changes in interest rates or other market
changes.

      Futures Contracts. A futures contract may generally be described as an
agreement between two parties to buy and sell particular financial instruments
or currencies for an agreed price during a designated month (or to deliver the
final cash settlement price, in the case of a contract relating to an index or
otherwise not calling for physical delivery at the end of trading in the
contract). The price at which the contract trades (the "contract price") is
determined by relative buying and selling interest on a regulated exchange. The
Fund will not enter into futures contracts which are prohibited under the
Commodity Exchange Act and will, to the extent required by regulatory
authorities, enter only into futures contracts that are traded on exchanges and
are standardized as to maturity date and underlying financial instrument.

      Transaction costs are incurred when a futures contract is bought or sold
and margin deposits must be maintained. Margin is the amount of funds equal to a
specified percentage of the current market value of the contract that must be
deposited by the Fund with its custodian in the name of the futures commodities
merchant in order to initiate futures trading and to maintain the Fund's open
positions in futures contracts. A margin deposit is intended to ensure the
Fund's performance of the futures contract. The margin required for a particular
futures contract is set by the exchange on which the futures contract is traded
and may be significantly modified from time to time by the exchange during the
term of the futures contract.

      In entering into futures contracts, the Fund may, for example, take a
"short" position in the futures market by selling futures contracts in an
attempt to hedge against an anticipated decline in market prices that would
adversely affect the value of the Fund's portfolio securities. Such futures
contracts may include contracts for the future delivery of securities held by
the Fund or securities with characteristics similar to those of the Fund's
portfolio securities. When a short hedging position is successful, any
depreciation in the value of portfolio securities will be substantially offset
by appreciation in the value of the futures position. On the other hand, any
unanticipated appreciation in the value of the Fund's portfolio securities would
be substantially offset by a decline in the value of the futures position. On
other occasions, the Fund may take a "long" position by purchasing futures
contracts. When securities prices are rising, the Fund, through the purchase of
futures contracts, can attempt to secure better rates or prices than might later
be available in the market when it effects anticipated purchases.

      Positions taken in the futures markets are not normally held to maturity
but are instead liquidated through offsetting transactions which may result in a
profit or a loss. If the offsetting purchase price is less than the original
sale price, a gain will be realized. Conversely, if the offsetting sale price is
more than the original purchase price, a gain will be realized; if it is less, a
loss will be realized. The transaction costs must also be included in these
calculations. There can be no assurance, however, that the Fund will be able to
enter into an offsetting transaction with respect to a particular futures
contract at a particular time. If the Fund is not able to enter into an
offsetting transaction, the Fund will continue to be required to maintain the
margin deposits on the futures contract and the Fund may not be able to realize
a gain in the value of its future position or prevent losses from mounting. This
inability to liquidate could occur, for example, if trading is halted due to
unusual trading activity in either the security futures contract or the


                                      -21-



underlying security; if trading is halted due to recent news events involving
the issuer of the underlying security; if systems failures occur on an exchange
or at the firm carrying the position; or, if the position is on an illiquid
market. Even if the Fund can liquidate its position, it may be forced to do so
at a price that involves a large loss.

      While futures contracts on securities will usually be liquidated through
offsetting transactions prior to the settlement date, the Fund may instead make,
or take, delivery of the underlying securities or currency whenever it appears
economically advantageous to do so. A clearing organization associated with the
exchange on which futures contracts are traded guarantees that, if still open,
the sale or purchase will be performed on the settlement date. Some futures
contracts are settled by physical delivery of the underlying financial
instrument. For example, at the expiration of a security futures contract that
is settled through physical delivery, a person who is long the contract must pay
the final settlement price set by the regulated exchange or the clearing
organization and take delivery of the underlying shares. Conversely, a person
who is short the contract must make delivery of the underlying shares in
exchange for the final settlement price. Settlement with physical delivery may
involve additional costs. Other futures contracts are settled through cash
settlement. In this case, the underlying security is not delivered. Instead, any
positions in such security futures contracts that are open at the end of the
last trading day are settled through a final cash payment based on a final
settlement price determined by the exchange or clearing organization. Once this
payment is made, neither party has any further obligations on the contract.

      Margin Requirements for Futures Contracts and Associated Risks. If the
price of an open futures contract changes (by increase in the case of a sale or
by decrease in the case of a purchase) so that the loss on the futures contract
reaches a point at which the margin on deposit does not satisfy margin
requirements, the broker will require an increase in the margin. However, if the
value of a position increases because of favorable price changes in the futures
contract so that the margin deposit exceeds the required margin, the broker will
pay the excess to the Fund. In computing daily NAV, the Fund will mark to market
the current value of its open futures contract. The Fund expects to earn
interest income on its margin deposits.

      Because of the low margin deposits required, futures contracts trading
involves an extremely high degree of leverage. As a result, a relatively small
price movement in a futures contract may result in immediate and substantial
loss, as well as gain, to the investor. For example, if at the time of purchase,
10% of the value of the futures contract is deposited as margin, a subsequent
10% decrease in the value of the futures contract would result in a total loss
of the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit, if the futures contracts were closed out.
Thus, a purchase or sale of a futures contract may result in losses in excess of
the amount initially invested in the futures contract. However, the Fund would
presumably have sustained comparable losses if, instead of the futures contract,
it had invested in the underlying financial instrument and sold it after the
decline.

      Risks Associated with Futures Contracts. While transactions in futures
contracts may reduce certain risks, these transactions themselves entail certain
other risks. For example, unanticipated changes in interest rates or securities
prices may result in a poorer overall performance for the Fund than if it had


                                      -22-



not entered into any futures contracts. Moreover, perfect correlation between
the Fund's futures positions and portfolio positions will be impossible to
achieve. In the event of an imperfect correlation between a futures position and
a portfolio position which is intended to be protected, the desired protection
may not be obtained and the Fund may be exposed to risk of loss. Under certain
market conditions, the prices of security futures contracts may not maintain
their customary or anticipated relationships to the prices of the underlying
security or index. These pricing disparities could occur, for example, when the
market for the security futures contract is illiquid, when the primary market
for the underlying security is closed, or when the reporting of transactions in
the underlying security has been delayed.

      Under certain market conditions, it may also be difficult or impossible to
manage the risk from open security futures positions by entering into an
equivalent but opposite position in another contract month, on another market,
or in the underlying security. This inability to take positions to limit the
risk could occur, for example, if trading is halted across markets due to
unusual trading activity in the security futures contract or the underlying
security or due to recent news events involving the issuer of the underlying
security.

      There can be no assurance that a liquid market will exist at a time when
the Fund seeks to close out a futures contract position. The Fund would continue
to be required to meet margin requirements until the position is closed,
possibly resulting in a decline in the Fund's NAV. In addition, many of the
contracts discussed above are relatively new instruments without a significant
trading history. As a result, there can be no assurance that an active secondary
market will develop or continue to exist.

      Some futures contracts may become illiquid under adverse market
conditions. In addition, the value of a position in security futures contracts
could be affected if trading is halted in either the futures contract or the
underlying security. In certain circumstances such as during periods of market
volatility, a commodity exchange may suspend or limit trading in a futures
contract, which may make the instrument temporarily illiquid and difficult to
price and, thus, expose the Fund to a potential loss. The regulated exchanges
may also have discretion under their rules to halt trading in other
circumstances, such as when the exchange determines that the halt would be
advisable in maintaining a fair and orderly market. Commodity exchanges also may
establish daily limits on the amount that the price of a futures contract can
vary from the previous day's settlement price. Once the daily limit is reached,
no trades may be made that day at a price beyond the limit. This may prevent the
Fund from closing out positions and limiting its losses.

      Each regulated exchange trading a security futures contract may also open
and close for trading at different times than other regulated exchanges trading
security futures contracts or markets trading the underlying security or
securities. Trading in security futures contracts prior to the opening or after
the close of the primary market for the underlying security may be less liquid
than trading during regular market hours.

      As further discussed in this Statement of Additional Information,
transactions in futures contracts involve brokerage costs, require margin
deposits and, in the case of contracts obligating the Fund to purchase


                                      -23-



securities, require the Fund to establish a segregated account consisting of
cash or liquid securities in an amount equal to the underlying value of such
contracts.

      Swap Agreements. The Fund may enter into swap agreements. A swap is a
financial instrument that typically involves the exchange of cash flows between
two parties on specified dates (settlement dates), where the cash flows are
based on agreed-upon prices, rates, indices, etc. The nominal amount on which
the cash flows are calculated is called the notional amount. Swaps are
individually negotiated and structured to include exposure to a variety of
different types of investments or market factors, such as interest rates,
commodity prices, non-U.S. currency rates, mortgage securities, corporate
borrowing rates, security prices, indexes or inflation rates.

      Swap agreements may increase or decrease the overall volatility of the
investments of the Fund and its share price. The performance of swap agreements
may be affected by a change in the specific interest rate, currency or other
factors that determine the amounts of payments due to and from the Fund. If a
swap agreement calls for payments by the Fund, the Fund must be prepared to make
such payments when due. In addition, if the counterparty's creditworthiness
declines, the value of a swap agreement would be likely to decline, potentially
resulting in losses.

      Generally, swap agreements have fixed maturity dates that are agreed upon
by the parties to the swap. The agreement can be terminated before the maturity
date only under limited circumstances, such as default by one of the parties or
insolvency, among others, and can be transferred by a party only with the prior
written consent of the other party. The Fund may be able to eliminate its
exposure under a swap agreement either by assignment or by other disposition, or
by entering into an offsetting swap agreement with the same party or a similarly
creditworthy party. If the counterparty is unable to meet its obligations under
the contract, declares bankruptcy, defaults or becomes insolvent, the Fund may
not be able to recover the money it expected to receive under the contract.

      Total Return Swaps. Total return swap agreements are contracts in which
one party agrees to make periodic payments to another party based on the change
in market value of the assets underlying the contract, which may include a
specified security, basket of securities or securities indices during the
specified period, in return for periodic payments based on a fixed or variable
interest rate or the total return from other underlying assets. Total return
swap agreements may be used to obtain exposure to a security or market without
owning or taking physical custody of such security or investing directly in such
market.

      Equity Swaps and Interest Rate Swaps, Collars, Caps and Floors. In order
to hedge the value of the Fund's portfolio against fluctuations in the market
value of equity securities or interest or to enhance the Fund's income, the Fund
may, but is not required to, enter into equity swaps and various interest rate
transactions such as interest rate swaps and the purchase or sale of interest
rate caps and floors. To the extent that the Fund enters into these
transactions, the Fund expects to do so primarily to preserve a return or spread
on a particular investment or portion of its portfolio, to protect against any
increase in the price of securities the Fund anticipates purchasing at a later
date or to manage the Fund's interest rate exposure on any debt securities,
including notes, or Preferred Shares issued by the Fund for leverage purposes.
The Fund uses these transactions primarily as a hedge. However, the Fund also


                                      -24-



may invest in equity and interest rate swaps to enhance income or to increase
the Fund's yield, for example, during periods of steep interest rate yield
curves (i.e., wide differences between short-term and long-term interest rates).
The Fund is not required to hedge its portfolio and may choose not to do so. The
Fund cannot guarantee that any hedging strategies it uses will work.

      In a typical equity swap, one party agrees to pay another party the return
on a security, security index or basket of securities in return for a specified
interest rate. By entering into an equity index swap, for example, the index
receiver can gain exposure to securities making up the index of securities
without actually purchasing those securities. Equity index swaps involve not
only the risk associated with investment in the securities represented in the
index, but also the risk that the performance of such securities, including
dividends, will not exceed the interest that the Fund will be committed to pay
under the swap.

      In an interest rate swap, the Fund exchanges with another party their
respective commitments to pay or receive interest (e.g., an exchange of an
obligation to make fixed rate payments for an obligation to make floating rate
payments). For example, the Fund may seek to shorten the effective interest rate
determination period of a Senior Loan in its portfolio with an interest rate
redetermination period of one year. The Fund could exchange the Borrower's
obligation to make fixed rate payments for one year for an obligation to make
payments that readjust monthly. This would enable the Fund to offset a decline
in the value of the Senior Loan due to rising interest rates but would also
limit its ability to benefit from falling interest rates. Conversely, if the
Fund holds a debt instrument with an interest rate that is reset every week and
it would like to lock in what it believes to be a high interest rate for one
year, it may swap the right to receive interest at this variable weekly rate for
the right to receive interest at a rate that is fixed for one year. Such a swap
would protect the Fund from a reduction in yield due to falling interest rates
and may permit the Fund to enhance its income through the positive differential
between one week and one year interest rates, but would preclude it from taking
full advantage of rising interest rates.

      The Fund also may engage in interest rate transactions in the form of
purchasing or selling interest rate caps or floors. The purchase of an interest
rate cap entitles the purchaser, to the extent that a specified index exceeds a
predetermined interest rate, to receive payments of interest at the difference
of the index and the predetermined rate on a notional principal amount (i.e.,
the reference amount with respect to which interest obligations are determined
although no actual exchange of principal occurs) from the party selling such
interest rate cap. The purchase of an interest rate floor entitles the
purchaser, to the extent that a specified index falls below a predetermined
interest rate, to receive payments of interest at the difference of the index
and the predetermined rate on a notional principal amount from the party selling
such interest rate floor. The Fund may also engage in interest rate collars,
which is the combination of a cap and a floor that preserves a certain return
within a predetermined range of interest rates.

      In circumstances in which the Portfolio Sub-Advisors anticipate that
interest rates will decline, the Fund might, for example, enter into an interest
rate swap as the floating rate payor or, alternatively, purchase an interest
rate floor. In the case of purchasing an interest rate floor, if interest rates
declined below the floor rate, the Fund would receive payments from its
counterparty which would wholly or partially offset the decrease in the payments


                                      -25-



it would receive in respect of the portfolio assets being hedged. In the case
where the Fund purchases an interest rate swap, if the floating rate payments
fell below the level of the fixed rate payment set in the swap agreement, the
Fund's counterparty would pay the Fund amounts equal to interest computed at the
difference between the fixed and floating rates over the notional principal
amount. Such payments would offset or partially offset the decrease in the
payments the Fund would receive in respect of floating rate portfolio assets
being hedged.

      Depending on whether the Fund would be entitled to receive net payments
from the counterparty on a swap or cap, which in turn would depend on the
general state of short-term interest rates at that point in time, a default by a
counterparty could negatively impact the performance of the Common Shares. In
addition, at the time an interest rate swap or cap transaction reaches its
scheduled termination date, there is a risk that the Fund would not be able to
obtain a replacement transaction or that the terms of the replacement would not
be as favorable as on the expiring transaction. If this occurs, it could have a
negative impact on the performance of the Common Shares. If the Fund fails to
maintain any required asset coverage ratios in connection with any use by the
Fund of leverage, the Fund may be required to redeem or prepay some or all of
the leverage. Such redemption or prepayment would likely result in the Fund
seeking to terminate early all or a portion of any swap or cap transactions.
Early termination of a swap could result in a termination payment by or to the
Fund. Early termination of a cap could result in a termination payment to the
Fund.

      Buying interest rate caps could enhance the performance of the Common
Shares by providing a maximum leverage expense. Buying interest rate caps could
also decrease the net earnings of the Common Shares in the event that the
premium paid by the Fund to the counterparty exceeds the additional amount of
interest the Fund would have been required to pay had it not entered into the
cap agreement.

      Interest rate swaps and caps do not involve the delivery of securities or
other underlying assets or principal. Accordingly, the risk of loss with respect
to interest rate swaps is limited to the net amount of interest payments that
the Fund is contractually obligated to make. If the counterparty defaults, the
Fund would not be able to use the anticipated net receipts under the swap or cap
to offset any declines in the value of the Fund's portfolio assets being hedged
or the increase in the Fund's cost of financial leverage. Depending on whether
the Fund would be entitled to receive net payments from the counterparty on the
swap or cap, which in turn would depend on the general state of the market rates
at that point in time, such a default could negatively impact the performance of
the common shares.


                                      -26-



      The successful use of swaps, caps and floors to preserve the rate of
return on a portfolio of financial instruments depends on the Portfolio
Sub-Advisor's ability to predict correctly the direction and extent of movements
in interest rates. Although the Fund believes that use of the hedging and risk
management techniques described above may benefit the Fund, if the Portfolio
Sub-Advisor's judgment about the direction or extent of the movement in interest
rates is incorrect, the Fund's overall performance would be worse than if it had
not entered into any such transactions.

      Typically, the parties with which the Fund will enter into equity and
interest rate transactions will be broker-dealers and other financial
institutions. If there is a default by the other party to such a transaction,
the Fund will have contractual remedies pursuant to the agreements related to
the transaction but remedies may be subject to bankruptcy and insolvency laws
which could affect the Fund's right as a creditor. There can be no assurance,
however, that the Fund will be able to enter into interest rate swaps or to
purchase interest rate caps or floors at prices or on terms the Portfolio
Sub-Advisor believes are advantageous to the Fund. In addition, although the
terms of interest rate swaps, caps and floors may provide for termination, there
can be no assurance that the Fund will be able to terminate an interest rate
swap or to sell or offset interest rate caps or floors that it has purchased.
The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become relatively liquid in comparison with other similar instruments traded in
the interbank market. Caps and floors, however, are less liquid than swaps.

      Credit Derivatives. Default risk derivatives are linked to the price of
reference securities or loans after a default by the issuer or borrower,
respectively. Market spread derivatives are based on the risk that changes in
market factors, such as credit spreads, can cause a decline in the value of a
security, loan or index. There are three basic transactional forms for credit
derivatives: swaps, options and structured instruments. The use of credit
derivatives is a highly specialized activity which involves strategies and risks
different from those associated with ordinary portfolio security transactions.
If the Portfolio Sub-Advisor is incorrect in its forecasts of default risks,
market spreads or other applicable factors, the investment performance of the
Fund would diminish compared with what it would have been if these techniques
were not used. Moreover, even if the Portfolio Sub-Advisor is correct in its
forecasts, there is a risk that a credit derivative position may correlate
imperfectly with the price of the asset or liability being hedged. Credit
derivative transaction exposure will be attained through the use of derivatives
and through credit default swap transactions and credit linked securities, as
discussed below.

      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 "par
value" (full notional 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 the 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
default event. The Fund currently intends to segregate assets on the Fund's


                                      -27-



records in the form of cash, cash equivalents or liquid securities in an amount
equal to the notional value of the credit default swaps. If an event of default
occurs, the seller must pay the buyer the full notional value of the reference
obligation.

      Credit default swaps 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. 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.

      Structured Notes and Related Instruments. The Fund may invest in
"structured" notes and other related instruments, which are privately negotiated
debt obligations where the principal and/or interest is determined by reference
to the performance of a benchmark asset, market or interest rate (an "embedded"
index), such as selected securities or debt investments, an index thereof, or
specified interest rates, or the differential performance of two assets or
markets, such as indexes reflecting bonds. The terms of structured instruments
normally provide that their principal and/or interest payments are to be
adjusted upwards or downwards (but ordinarily not below zero) to reflect changes
in the embedded index while the structured instruments are outstanding. As a
result, the interest and/or principal payments that may be made on a structured
product may vary widely, depending on a variety of factors, including the
volatility of the embedded index and the effect of changes in the embedded index
on principal and/or interest payments. The rate of return on structured notes
may be determined by applying a multiplier to the performance or differential
performance of the referenced index(es) or other assets. Application of a
multiplier involves leverage that will serve to magnify the potential for gain
and the risk of loss. As a result, a relatively small decline in the value of a
referenced instrument or basket of instruments could result in a relatively
large loss in the value of a structured note. In addition to the derivatives
risks set forth herein, structured notes may be subject to additional risks such
as opaque fees, poor liquidity, and a high degree of complexity. In addition,
because of their uniqueness, each structured note may have additional specific
risks that may not be immediately apparent.

      Currency Exchange Transactions. The Fund may enter into currency exchange
transactions to hedge the Fund's exposure to foreign currency exchange rate risk
to the extent the Fund invests in non-U.S. denominated securities of non-U.S.
issuers. The Fund's currency transactions, if any, will likely be limited to
portfolio hedging involving portfolio positions. Portfolio hedging is the use of
a forward contract with respect to a portfolio security position denominated or
quoted in a particular currency. A forward contract is an agreement to purchase
or sell a specified currency at a specified future date (or within a specified
time period) and price set at the time of the contract. Forward contracts are
usually entered into with banks, foreign exchange dealers or broker-dealers, are
not exchange-traded, and are usually for less than one year, but may be renewed.


                                      -28-



      At the maturity of a forward contract to deliver a particular currency,
the Fund may either sell the portfolio security related to such contract and
make delivery of the currency, or it may retain the security and either acquire
the currency on the spot market or terminate its contractual obligation to
deliver the currency by purchasing an offsetting contract with the same currency
trader obligating it to purchase on the same maturity date the same amount of
the currency.

      It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of a forward contract. Accordingly, it
may be necessary for the Fund to purchase additional currency on the spot market
(and bear the expense of such purchase) if the market value of the security is
less than the amount of currency that the Fund is obligated to deliver and if a
decision is made to sell the security and make delivery of the currency.
Conversely, it may be necessary to sell on the spot market some of the currency
received upon the sale of the portfolio security if its market value exceeds the
amount of currency the Fund is obligated to deliver.

      If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices. If the Fund engages in an offsetting
transaction, it may subsequently enter into a new forward contract to sell the
currency. Should forward prices decline during the period between the Fund's
entering into a forward contract for the sale of a currency and the date it
enters into an offsetting contract for the purchase of the currency, the Fund
will realize a gain to the extent the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, the Fund will suffer a loss to the extent the price of the
currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell. A default on the contract would deprive the Fund of unrealized
profits or force the Fund to cover its commitments for purchase or sale of
currency, if any, at the current market price.

      Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for the Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to sell the currency
at a price above the devaluation level it anticipates. The cost to the Fund of
engaging in currency exchange transactions varies with such factors as the
currency involved, the length of the contract period, and prevailing market
conditions. Since currency exchange transactions are usually conducted on a
principal basis, no fees or commissions are involved.

      Asset Coverage and Asset Segregation. The Fund will comply with the
regulatory requirements of the SEC and the CFTC with respect to coverage of
futures positions by registered investment companies and, if the guidelines so
require, will set aside cash, U.S. government securities, high grade liquid debt
securities and/or other liquid assets permitted by the SEC and CFTC in a
segregated custodial account, or otherwise earmark such cash, cash equivalents
and liquid assets, in the amount prescribed. Securities held in a segregated
account cannot be sold while the futures position is outstanding, unless
replaced with other permissible assets, and will be marked-to-market daily.


                                      -29-



      A swap agreement can be a form of leverage, which can magnify the Fund's
gains or losses. In order to reduce the risk associated with leveraging, the
Fund will cover its current obligations under swap agreements according to
guidelines established by the SEC. If the Fund enters into a swap agreement on a
net basis, it will be required to segregate assets with a daily value at least
equal to the excess, if any, of the Fund's accrued obligations under the swap
agreement over the accrued amount the Fund is entitled to receive under the
agreement. If the Fund enters into a swap agreement on other than a net basis,
it will be required to segregate assets with a value equal to the full amount of
the Fund's accrued obligations under the agreement.

      To the extent these hedging transactions are entered into for good-faith
risk management purposes, the Portfolio Sub-Advisors and the Fund believe these
obligations would not constitute senior securities. The Fund usually will enter
into equity and interest rate swaps on a net basis (i.e., where the two parties
make net payments with the Fund receiving or paying, as the case may be, only
the net amount of the two payments). The net amount of the excess, if any, of
the Fund's obligations over its entitlements with respect to each swap contract
will be accrued and an amount of cash or liquid securities having an aggregate
net asset value at least equal to the accrued excess will be maintained in a
segregated account by the Fund's custodian. If the Fund enters into a swap on
other than a net basis, the Fund will maintain in the segregated account the
full amount of the Fund's obligations under each swap. Accordingly, the Fund
would not treat swaps as senior securities.

      Risks and Special Considerations Concerning Derivative and Other
Transactions. In addition to the risks described above, the use of derivative
and other transactions involves certain general risks and considerations,
including the imperfect correlation between the value of such instruments and
the underlying assets of the Fund, which creates the possibility that the loss
on such instruments may be greater than the gain in the value of the underlying
assets in the Fund's portfolio; the loss of principal; the possible default and
insolvency of the other party to the transaction; and illiquidity of the
derivative instruments. Certain of the derivative instruments and other
transactions in which the Fund may engage may, in certain circumstances, give
rise to a form of financial leverage, which may magnify the risk of owning such
instruments. See "Risks--Leverage Risk" in the Prospectus.

      Furthermore, the ability to successfully use derivative instruments
depends on the ability of the Portfolio Sub-Advisors to predict pertinent market
movements, which cannot be assured. Thus, the use of derivative instruments to
generate income, for hedging, for currency or interest rate management or other
purposes may result in losses greater than if they had not been used, may
require the Fund to sell or purchase portfolio securities at inopportune times
or for prices other than current market values, may limit the amount of
appreciation the Fund can realize on an investment or may cause the Fund to hold
a security that it might otherwise sell. In addition, there may be situations in
which the Portfolio Sub-Advisors elect not to use derivative instruments and
other transactions that result in losses greater than if they had been used.
Amounts paid by the Fund as premiums and cash or other assets held in margin
accounts with respect to the Fund's derivative transactions are not otherwise
available to the Fund for investment purposes.


                                      -30-



      With respect to some of its derivative positions, if any, the Fund will
segregate or earmark an amount of cash, cash equivalents or liquid securities on
the Fund's records in an amount equal to the face value of those positions or
otherwise in accordance with SEC staff guidance. The Fund also may offset
derivatives positions against one another or against other assets to manage the
effective market exposure resulting from derivatives in its portfolio. To the
extent that the Fund does not segregate or earmark 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, the Fund may not enter into any such transactions if the
Fund's leverage would thereby exceed the limits of the 1940 Act. In addition, to
the extent that any offsetting positions do not perform in relation to one
another as expected, the Fund may perform as if it were leveraged. The foregoing
risks concerning derivative and other transactions are more fully described
below.

             (1) Market Risk. Market risk is the risk that the value of the
      underlying assets may go up or down. Adverse movements in the value of an
      underlying asset can expose the Fund to losses. Derivative instruments and
      other transactions may include elements of leverage and, accordingly,
      fluctuations in the value of such transactions in relation to the
      underlying asset may be magnified. The successful use of derivative
      instruments depends upon a variety of factors, particularly the Portfolio
      Sub-Advisor's ability to predict correctly market movements or changes in
      the relationships of such hedge instruments to the Fund's portfolio
      holdings, and there can be no assurance the Portfolio Sub-Advisor's
      judgment in this respect will be accurate. Consequently, the use of
      derivatives for investment or hedging purposes might result in a poorer
      overall performance for the Fund, whether or not adjusted for risk, than
      if the Fund had not used derivatives.

             (2) Credit/Counterparty Risk. Credit risk is the risk that a loss
      is sustained as a result of the failure of a counterparty to comply with
      the terms of a derivative instrument. The counterparty risk for
      exchange-traded derivatives is generally lower than for over-the-counter
      derivatives not cleared through a central counterparty, since generally a
      clearing organization provides a guarantee of performance and cleared
      derivative transactions benefit form daily mark-to-market and settlement
      as well as from segregation and minimum capital requirements applicable to
      intermediaries. For privately-negotiated instruments not cleared through a
      central counterparty, there are no similar protections. In all
      transactions, the Fund will bear the risk that the counterparty will
      default, and this could result in a loss of the expected benefit of the
      derivative transactions and possibly other losses to the Fund. Such
      counterparty risk is accentuated in the case of contracts with longer
      maturities where there is a greater risk that a specific event may prevent
      or delay settlement, or where the Fund has concentrated its transactions
      with a single or small group of counterparties. The Fund is not restricted
      from dealing with any particular counterparty or from concentrating any or
      all of its transactions with one counterparty. The Fund will enter into
      transactions in derivative instruments only with counterparties that the
      Portfolio Sub-Advisors reasonably believe are capable of performing under
      the contract.


                                      -31-



             (3) Correlation Risk. Correlation risk is the risk that there might
      be an imperfect correlation, or even no correlation, between price
      movements of a derivative instrument and price movements of investments
      being hedged. When a derivative transaction is used to completely hedge
      another position, changes in the market value of the combined position
      (the derivative instrument plus the position being hedged) result from an
      imperfect correlation between the price movements of the two instruments.
      With a perfect hedge, the value of the combined position remains unchanged
      with any change in the price of the underlying asset. With an imperfect
      hedge, the value of the derivative instrument and its hedge are not
      perfectly correlated. For example, if the value of a derivative instrument
      used in a short hedge (such as selling a futures contract) increased by
      less than the decline in value of the hedged investments, the hedge would
      not be perfectly correlated. This might occur due to factors unrelated to
      the value of the investments being hedged, such as speculative or other
      pressures on the markets in which these instruments are traded. In
      addition, the Fund's success in using hedging instruments is subject to
      the Portfolio Sub-Advisors' ability to correctly predict changes in
      relationships of such hedge instruments to the Fund's portfolio holdings,
      and there can be no assurance that the Portfolio Sub-Advisors' judgment in
      this respect will be accurate. An imperfect correlation may prevent the
      Fund from achieving the intended hedge or expose the Fund to a risk of
      loss.

             (4) Liquidity Risk. Liquidity risk is the risk that a derivative
      instrument cannot be sold, closed out, or replaced quickly at or very
      close to its fundamental value. Generally, exchange contracts are more
      liquid than over-the-counter transactions. The illiquidity of the
      derivatives markets may be due to various factors, including congestion,
      disorderly markets, limitations on deliverable supplies, the participation
      of speculators, government regulation and intervention, and technical and
      operational or system failures. In addition, daily limits on price
      fluctuations and speculative position limits on exchanges on which the
      Fund may conduct its transactions in derivative instruments may prevent
      prompt liquidation of positions, subjecting the Fund to the potential of
      greater losses. The Fund might be required by applicable regulatory
      requirements to maintain assets as "cover," maintain segregated accounts
      and/or make margin payments when it takes positions in derivative
      instruments involving obligations to third parties (i.e., instruments
      other than purchase options). If the Fund is unable to close out its
      positions in such instruments, it might be required to continue to
      maintain such accounts or make such payments until the position expires,
      matures, or is closed out. These requirements might impair the Fund's
      ability to sell a security or make an investment at a time when it would
      otherwise be favorable to do so, or require that the Fund sell a portfolio
      security at a disadvantageous time. The Fund's ability to sell or close
      out a position in an instrument prior to expiration or maturity depends
      upon the existence of a liquid secondary market or, in the absence of such
      a market, the ability and willingness of the counterparty to enter into a
      transaction closing out the position. Due to liquidity risk, there is no
      assurance that any derivatives position can be sold or closed out at a
      time and price that is favorable to the Fund.

             (5) Legal Risk. Legal risk is the risk of loss caused by the
      unenforceability of a party's obligations under the derivative instrument.
      While a party seeking price certainty agrees to surrender the potential


                                      -32-



      upside in exchange for downside protection, the party taking the risk is
      looking for a positive payoff. Despite this voluntary assumption of risk,
      a counterparty that has lost money in a derivative transaction may try to
      avoid payment by exploiting various legal uncertainties about certain
      derivative products.

             (6) Volatility. The prices of many derivative instruments,
      including many swaps, are highly volatile. Payments pursuant to swap
      agreements are influenced by, among other things, interest rates, changing
      supply and demand relationships, trade, fiscal, monetary and exchange
      control programs and policies of governments, and national and
      international political and economic events and policies. The value of
      swap agreements also depends upon the price of the securities or
      currencies underlying them.

             (7) Systemic or "Interconnection" Risk. Systemic or interconnection
      risk is the risk that a disruption in the financial markets will cause
      difficulties for all market participants. In other words, a disruption in
      one market will spill over into other markets, perhaps creating a chain
      reaction. Much of the OTC derivatives market takes place among the OTC
      dealers themselves, thus creating a large interconnected web of financial
      obligations. This interconnectedness raises the possibility that a default
      by one large dealer could create losses for other dealers and destabilize
      the entire market for OTC derivative instruments.

      In addition to these risks, the derivatives markets have become subject to
      comprehensive statutes, regulations and margin requirements. In
      particular, the implementation of the Dodd-Frank Wall Street Reform and
      Consumer Protection Act (the "Dodd-Frank Act") has impacted the
      availability, liquidity and cost of derivative transactions, including
      potentially limiting or restricting the ability of the Fund to use certain
      derivative transactions or certain counterparties as a part of its
      investment strategy, increasing the costs of using these derivative
      transactions or making them less effective. The SEC has proposed new rules
      on the use of derivative transactions by registered investment companies.
      Such rules, if adopted, could affect the nature and extent of derivative
      transactions entered into by the Fund. See "Legislation Risk" below.

LEVERAGE PROGRAM

      With respect to a leverage borrowing program instituted by the Fund, the
credit agreements governing such a program (the "Credit Agreements") will likely
include usual and customary covenants for this type of transaction, including,
but not limited to, limits on the Fund's ability to: (i) issue Preferred Shares;
(ii) incur liens or pledge portfolio securities or investments; (iii) change the
Advisor, investment objective or fundamental investment restrictions without the
approval of lenders; (iv) make changes in any of its business objectives,
purposes or operations that could result in a material adverse effect; (v) make
any changes in its capital structure; (vi) amend the Fund documents in a manner
which could adversely affect the rights, interests or obligations of any of the
lenders; (vii) engage in any business other than the business currently engaged
in; and (viii) create, incur, assume or permit to exist certain specific types


                                      -33-



of debt. In addition, the Credit Agreements may contain covenants relating to
asset coverage and portfolio composition requirements. Covenants contained in
the Credit Agreements may place additional restrictions on the Fund's ability to
invest, which could impact Fund performance. See "Use of Leverage" in the Fund's
Prospectus.

LEGISLATION RISK

      At any time after the date of this Statement of Additional Information,
legislation 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 entities in which the Fund invests. 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 issuers of the
assets held in the Fund to achieve their business goals, and hence, for the Fund
to achieve its investment objectives.

TAX RISKS

      The Fund intends to elect to be treated and to qualify each year as a RIC
under the Code. As a RIC, the Fund is not expected to be subject to U.S. federal
income tax to the extent that it distributes its investment company taxable
income and net capital gains. To qualify for the special tax treatment available
to a RIC, the Fund must comply with certain investment, distribution, and
diversification requirements. Under certain circumstances, the Fund may be
forced to sell certain assets when it is not advantageous in order to meet these
requirements, which may reduce the Fund's overall return. If the Fund fails to
meet any of these requirements, subject to the opportunity to cure such failures
under applicable provisions of the Code, the Fund's income would be subject to a
double level of U.S. federal income tax. The Fund's income, including its net
capital gain, would first be subject to U.S. federal income tax at regular
corporate rates, even if such income were distributed to shareholders and,
second, all distributions by the Fund from earnings and profits, including
distributions of net capital gain (if any), would be taxable to shareholders as
dividends.

PORTFOLIO TURNOVER RISK

      The Fund's annual portfolio turnover rate may vary greatly from year to
year, as well as within a given year. Although the Fund cannot accurately
predict its annual portfolio turnover rate, it is believed by the Lead
Sub-Advisor and Portfolio Sub-Advisors that the annual rate may exceed % under
normal circumstances. Portfolio turnover rate is not considered a limiting
factor in the execution of investment decisions for the Fund. There are no
limits on the rate of portfolio turnover, and investments may be sold without
regard to length of time held when the Lead Sub-Advisor and Portfolio
Sub-Advisors believe it to be necessary or appropriate.

      High portfolio turnover may result in the realization of net short-term
capital gains by the Fund which, when distributed to Common Shareholders, will
be taxable as ordinary income. A high portfolio turnover may increase the Fund's
expenses as well as current and accumulated earnings and profits, resulting in a
greater portion of the Fund's distributions being treated as a dividend to the
Fund's Common Shareholders. However, portfolio turnover rate is not considered a
limiting factor in the execution of investment decisions for the Fund.


                                      -34-



                             MANAGEMENT OF THE FUND

TRUSTEES AND OFFICERS

      The general supervision of the duties performed for the Fund under the
investment management agreement is the responsibility of the Board of Trustees.
There are five Trustees of the Trust, one of whom is an "interested person" (as
the term is defined in the 1940 Act) and four of whom are Trustees who are not
officers or employees of First Trust or any of its affiliates ("Independent
Trustees"). The Trustees set broad policies for the Fund, choose the Trust's
officers and hire the Trust's investment advisor. The officers of the Fund
manage its day-to-day operations and are responsible to the Board of Trustees.
The following is a list of the Trustees and executive officers of the Fund and a
statement of their present positions and principal occupations during the past
five years, the number of portfolios each Trustee oversees and the other
directorships they have held during the past five years, if applicable. Each
Trustee has been elected for an indefinite term. The officers of the Fund serve
indefinite terms. Each Trustee, except for           , is an Independent Trustee
                 . is deemed an "interested person" (as that term is defined in
the 1940 Act) ("Interested Trustee") of the Fund due to his position as Chief
Executive Officer of First Trust, investment advisor to the Fund. The following
table identifies the Trustees and Officers of the Trust. Unless otherwise
indicated, the address of all persons below is c/o First Trust Advisors L.P.,
120 East Liberty Drive, Suite 400, Wheaton, IL 60187.


                                                                                              NUMBER OF
                                                                                            PORTFOLIOS IN            OTHER
                                                                                              THE FIRST         TRUSTEESHIPS OR
                                                   TERM OF OFFICE                             TRUST FUND         DIRECTORSHIPS
                                  POSITION AND     AND YEAR FIRST  PRINCIPAL OCCUPATIONS       COMPLEX              HELD BY
                                    OFFICES          ELECTED OR      DURING THE PAST 5       OVERSEEN BY         TRUSTEE DURING
   NAME AND YEAR OF BIRTH          WITH FUND         APPOINTED             YEARS               TRUSTEE          THE PAST 5 YEARS

Trustee who is an Interested
Person of the Fund
----------------------------
                    (1)        Chairman of the    o Indefinite     Chief Executive           172 Portfolios      None
1955                           Board and            term           Officer, First Trust
                               Trustee            o Since          Advisors L.P. and
                                                    inception      First Trust
                                                                   Portfolios L.P.;
                                                                   Chairman of the Board
                                                                   of Directors,
                                                                   BondWave LLC
                                                                   (Software Development
                                                                   Company) and
                                                                   Stonebridge Advisors
                                                                   LLC (Investment
                                                                   Advisor)

Independent Trustees
----------------------------
                               Trustee            o Indefinite     Physician; Officer,       172 Portfolios      None
1951                                                term           Wheaton Orthopedics;
                                                  o Since          Limited Partner,
                                                    inception      Gundersen Real Estate
                                                                   Limited Partnership
                                                                   (June 1992 to
                                                                   December 2016);
                                                                   Member, Sportsmed LLC
                                                                   (April 2007 to
                                                                   November 2015)



                                      -35-




                                                                                              NUMBER OF
                                                                                            PORTFOLIOS IN            OTHER
                                                                                              THE FIRST         TRUSTEESHIPS OR
                                                   TERM OF OFFICE                             TRUST FUND         DIRECTORSHIPS
                                  POSITION AND     AND YEAR FIRST  PRINCIPAL OCCUPATIONS       COMPLEX              HELD BY
                                    OFFICES          ELECTED OR      DURING THE PAST 5       OVERSEEN BY         TRUSTEE DURING
   NAME AND YEAR OF BIRTH          WITH FUND         APPOINTED             YEARS               TRUSTEE          THE PAST 5 YEARS

                               Trustee            o Indefinite     President, ADM            172 Portfolios      Director of ADM
1957                                                term           Investor Services,                            Investor
                                                  o Since          Inc. (Futures                                 Services, Inc.,
                                                    inception      Commission Merchant)                          ADM Investor
                                                                                                                 Services
                                                                                                                 International,
                                                                                                                 Futures
                                                                                                                 Industry
                                                                                                                 Association,
                                                                                                                 and National
                                                                                                                 Futures
                                                                                                                 Association

                               Trustee            o Indefinite     President, Hibs           172 Portfolios      Director of
1956                                                term           Enterprises                                   Trust Company
                                                  o Since          (Financial and                                of Illinois
                                                    inception      Management
                                                                   Consulting)


                               Trustee            o Indefinite     Senior Advisor            172 Portfolios      None
1954                                                term           (August 2018 to
                                                  o Since          present), Managing
                                                    inception      Director and Chief
                                                                   Operating Officer
                                                                   (January 2015 to
                                                                   August 2018), Pelita
                                                                   Harapan Educational
                                                                   Foundation
                                                                   (Educational Products
                                                                   and Services);
                                                                   President and Chief
                                                                   Executive Officer
                                                                   (June 2012 to
                                                                   September 2014),
                                                                   Servant Interactive
                                                                   LLC (Educational
                                                                   Products and
                                                                   Services); President
                                                                   and Chief Executive
                                                                   Officer (June 2012 to
                                                                   September 2014), Dew
                                                                   Learning LLC
                                                                   (Educational Products
                                                                   and Services)

Officers of the Fund
----------------------------
James M. Dykas                 President and      o Indefinite     Managing Director and     N/A                 N/A
1966                           Chief Executive      term           Chief Financial
                               Officer            o Since          Officer (January 2016
                                                    January 2016   to present),
                                                                   Controller (January
                                                                   2011 to January
                                                                   2016), Senior Vice
                                                                   President (April 2007
                                                                   to January 2016),
                                                                   First Trust Advisors
                                                                   L.P. and First Trust
                                                                   Portfolios L.P.;
                                                                   Chief Financial
                                                                   Officer (January 2016
                                                                   to present), BondWave
                                                                   LLC (Software
                                                                   Development Company)
                                                                   and Stonebridge
                                                                   Advisors LLC
                                                                   (Investment Advisor)



                                      -36-




                                                                                              NUMBER OF
                                                                                            PORTFOLIOS IN            OTHER
                                                                                              THE FIRST         TRUSTEESHIPS OR
                                                   TERM OF OFFICE                             TRUST FUND         DIRECTORSHIPS
                                  POSITION AND     AND YEAR FIRST  PRINCIPAL OCCUPATIONS       COMPLEX              HELD BY
                                    OFFICES          ELECTED OR      DURING THE PAST 5       OVERSEEN BY         TRUSTEE DURING
   NAME AND YEAR OF BIRTH          WITH FUND         APPOINTED             YEARS               TRUSTEE          THE PAST 5 YEARS

W. Scott Jardine               Secretary and      o Indefinite     General Counsel,          N/A                 N/A
1960                           Chief Legal          term           First Trust Advisors
                               Officer            o Since          L.P. and First Trust
                                                    inception      Portfolios L.P.;
                                                                   Secretary and General
                                                                   Counsel, BondWave
                                                                   LLC; and Secretary,
                                                                   Stonebridge Advisors
                                                                   LLC

Daniel J. Lindquist            Vice President     o Indefinite     Managing Director,        N/A                 N/A
1970                                                term           First Trust Advisors
                                                  o Since          L.P. and First Trust
                                                    inception      Portfolios L.P.


Kristi A. Maher                Assistant          o Indefinite     Deputy General            N/A                 N/A
1966                           Secretary and        term           Counsel, First Trust
                               Chief Compliance   o Since          Advisors L.P. and
                               Officer              inception      First Trust
                                                                   Portfolios L.P.

Donald P. Swade                Treasurer, Chief   o Indefinite     Senior Vice President     N/A                 N/A
1972                           Financial Officer    term           (July 2016 to
                               and Chief          o Since          Present), Vice
                               Accounting           inception      President (April 2012
                               Officer                             to July 2016), First
                                                                   Trust Advisors L.P.
                                                                   and First Trust
                                                                   Portfolios L.P.

Roger F. Testin                Vice President     o Indefinite     Senior Vice
1966                                                term           President, First            N/A               N/A
                                                  o Since          Trust Advisors L.P.
                                                    inception      and First Trust
                                                                   Portfolios L.P.

Stan Ueland                    Vice President     o Indefinite     Senior Vice
1970                                                term           President, First            N/A               N/A
                                                  o Since          Trust Advisors L.P.
                                                    inception      and First Trust
                                                                   Portfolios L.P.
--------------------
(1)   is deemed an "interested person" of the Fund due to his position as Chief
      Executive Officer of First Trust Advisors, the investment advisor of the
      Fund.

      Each Trustee serves as a trustee of all open-end and closed-end funds in
the First Trust Fund Complex (as defined below), which is known as a "unitary"
board leadership structure. Each Trustee currently serves as a trustee of First
Trust Series Fund and First Trust Variable Insurance Trust, open-end funds with
six portfolios advised by First Trust; First Trust Senior Floating Rate Income
Fund II, Macquarie/First Trust Global Infrastructure/Utilities Dividend & Income
Fund, First Trust Energy Income and Growth Fund, First Trust Enhanced Equity
Income Fund, First Trust/Aberdeen Global Opportunity Income Fund, First Trust
Mortgage Income Fund, First Trust/Aberdeen Emerging Opportunity Fund, First
Trust Specialty Finance and Financial Opportunities Fund, First Trust High
Income Long/Short Fund, First Trust Energy Infrastructure Fund, First Trust MLP
and Energy Income Fund, First Trust Intermediate Duration Preferred & Income
Fund, First Trust Dynamic Europe Equity Income Fund, First Trust New
Opportunities MLP & Energy Fund and First Trust Senior Floating Rate 2022 Target
Term Fund, closed-end funds advised by First Trust; and First Trust
Exchange-Traded Fund, First Trust Exchange-Traded Fund II, First Trust
Exchange-Traded Fund III, First Trust Exchange-Traded Fund IV, First Trust
Exchange-Traded Fund V, First Trust Exchange-Traded Fund VI, First Trust


                                      -37-



Exchange-Traded Fund VII, First Trust Exchange-Traded Fund VIII, First Trust
Exchange-Traded AlphaDEX(R) Fund and First Trust Exchange-Traded AlphaDEX(R)
Fund II, exchange-traded funds with ___ portfolios advised by First Trust (each
a "First Trust Fund" and collectively, the "First Trust Fund Complex"). None of
the Trustees who are not "interested persons" of the Trust, nor any of their
immediate family members, has ever been a director, officer or employee of, or
consultant to, First Trust, First Trust Portfolios L.P. or their affiliates.

UNITARY BOARD LEADERSHIP STRUCTURE

      The management of the Fund, including general supervision of the duties
performed for the Fund under the investment management agreement between the
Trust, on behalf of the Fund, and the Advisor, is the responsibility of the
Board of Trustees. The Trustees set broad policies for the Fund, choose the
Trust's officers and hire the Fund's investment advisor, sub-advisors and other
service providers. The officers of the Fund manage the day-to-day operations and
are responsible to the Board. The Board is composed of four Independent Trustees
and one Interested Trustee. The Interested Trustee, James A. Bowen, serves as
the Chairman of the Board for each fund in the First Trust Fund Complex.

      The same five persons serve as Trustees on the Board and on the Boards of
all other First Trust Funds. The unitary board structure was adopted for the
First Trust Funds because of the efficiencies it achieves with respect to the
governance and oversight of the First Trust Funds. Each First Trust Fund is
subject to the rules and regulations of the 1940 Act (and other applicable
securities laws), which means that many of the First Trust Funds face similar
issues with respect to certain of their fundamental activities, including risk
management, portfolio liquidity, portfolio valuation and financial reporting.
Because of the similar and often overlapping issues facing the First Trust
Funds, including among the First Trust exchange-traded funds, the Board of the
First Trust Funds believes that maintaining a unitary board structure promotes
efficiency and consistency in the governance and oversight of all First Trust
Funds and reduces the costs, administrative burdens and possible conflicts that
may result from having multiple boards. In adopting a unitary board structure,
the Trustees seek to provide effective governance through establishing a board
the overall composition of which will, as a body, possess the appropriate
skills, diversity, independence and experience to oversee the Fund's business.

      Annually, the Board reviews its governance structure and the committee
structures, their performance and functions, and it reviews any processes that
would enhance Board governance over the Fund's business. The Board has
determined that its leadership structure, including the unitary board and
committee structure, is appropriate based on the characteristics of the funds it
serves and the characteristics of the First Trust Fund Complex as a whole.

      In order to streamline communication between the Advisor and the
Independent Trustees and create certain efficiencies, the Board has a Lead
Independent Trustee who is responsible for: (i) coordinating activities of the
Independent Trustees; (ii) working with the Advisor, Fund counsel and the
independent legal counsel to the Independent Trustees to determine the agenda
for Board meetings; (iii) serving as the principal contact for and facilitating
communication between the Independent Trustees and the Fund's service providers,
particularly the Advisor; and (iv) any other duties that the Independent


                                      -38-



Trustees may delegate to the Lead Independent Trustee. The Lead Independent
Trustee is selected by the Independent Trustees and serves a three-year term or
until his or her successor is selected.

      The Board has established four standing committees (as described below)
and has delegated certain of its responsibilities to those committees. The Board
and its committees meet frequently throughout the year to oversee the Fund's
activities, review contractual arrangements with and performance of service
providers, oversee compliance with regulatory requirements and review Fund
performance. The Independent Trustees are represented by independent legal
counsel at all Board and committee meetings (other than meetings of the Dividend
and Pricing Committee). Generally, the Board acts by majority vote of all the
Trustees, including a majority vote of the Independent Trustees if required by
applicable law.

      The three Committee Chairmen and the Lead Independent Trustee rotate every
three years in serving as Chairman of the Audit Committee, the Nominating and
Governance Committee or the Valuation Committee, or as Lead Independent Trustee.
The Lead Independent Trustee and immediately preceding Lead Independent Trustee
also serve on the Executive Committee with the Interested Trustee.

      The four standing committees of the First Trust Fund Complex are: the
Executive Committee (and Dividend and Pricing Committee), the Nominating and
Governance Committee, the Valuation Committee and the Audit Committee. The
Executive Committee, which meets between Board meetings, is authorized to
exercise all powers of and to act in the place of the Board of Trustees to the
extent permitted by the Trust's Declaration of Trust and By Laws. Such Committee
is also responsible for the declaration and setting of dividends.            are
members of the Executive Committee. During the last fiscal year, the Executive
Committee held four meetings.

      The Nominating and Governance Committee is responsible for appointing and
nominating non-interested persons to the Board of Trustees.                  are
members of the Nominating and Governance Committee. If there is no vacancy on
the Board of Trustees, the Board will not actively seek recommendations from
other parties, including shareholders. The Board of Trustees adopted a mandatory
retirement age of 75 for Trustees, beyond which age Trustees are ineligible to
serve. The Committee will not consider new trustee candidates who are 72 years
of age or older or will turn 72 years old during the initial term. When a
vacancy on the Board of Trustees occurs or is anticipated to occur and
nominations are sought to fill such vacancy, the Nominating and Governance
Committee may seek nominations from those sources it deems appropriate in its
discretion, including shareholders of the Fund. To submit a recommendation for
nomination as a candidate for a position on the Board of Trustees, shareholders
of the Fund should mail such recommendation to W. Scott Jardine, Secretary, at
the Trust's address, 120 East Liberty Drive, Suite 400, Wheaton, Illinois 60187.
Such recommendation shall include the following information: (i) evidence of
Fund ownership of the person or entity recommending the candidate (if a Fund
shareholder); (ii) a full description of the proposed candidate's background,
including education, experience, current employment and date of birth; (iii)
names and addresses of at least three professional references for the candidate;
(iv) information as to whether the candidate is an "interested person" in


                                      -39-



relation to the Fund, as such term is defined in the 1940 Act, and such other
information that may be considered to impair the candidate's independence; and
(v) any other information that may be helpful to the Committee in evaluating the
candidate. If a recommendation is received with satisfactorily completed
information regarding a candidate during a time when a vacancy exists on the
Board or during such other time as the Nominating and Governance Committee is
accepting recommendations, the recommendation will be forwarded to the Chairman
of the Nominating and Governance Committee and to counsel to the Independent
Trustees. During the last fiscal year, the Nominating and Governance Committee
held four meetings.

      The Valuation Committee is responsible for the oversight of the valuation
procedures of the Fund (the "Valuation Procedures"), for determining the fair
value of the Fund's securities or other assets under certain circumstances as
described in the Valuation Procedures and for evaluating the performance of any
pricing service for the Fund.                      are members of the Valuation
Committee. During the last fiscal year, the Valuation Committee held four
meetings.

      The Audit Committee is responsible for overseeing the Fund's accounting
and financial reporting process, the system of internal controls and audit
process and for evaluating and appointing independent auditors (subject also to
Board approval).                   serve on the Audit Committee. During the last
fiscal year, the Audit Committee held seven meetings.

EXECUTIVE OFFICERS

      The executive officers of the Fund hold the same positions with each fund
in the First Trust Fund Complex (representing 172 portfolios) as they hold with
the Trust, except Mr. Ueland who is an executive officer of only the ETFs
advised by First Trust and Mr. Testin who is an executive officer of only the
ETFs and open-end funds advised by First Trust.

RISK OVERSIGHT

      As part of the general oversight of the Fund, the Board is involved in the
risk oversight of the Fund. The Board has adopted and periodically reviews
policies and procedures designed to address the Fund's risks. Oversight of
investment and compliance risk is performed primarily at the Board level in
conjunction with the Advisor's investment oversight group and the Trust's Chief
Compliance Officer ("CCO"). Oversight of other risks also occurs at the
committee level. The Advisor's investment oversight group reports to the Board
at quarterly meetings regarding, among other things, Fund performance and the
various drivers of such performance. The Board reviews reports on the Fund's and
the service providers' compliance policies and procedures at each quarterly
Board meeting and receives an annual report from the CCO regarding the
operations of the Fund's and the service providers' compliance programs. In
addition, the Independent Trustees meet privately each quarter with the CCO. The
Audit Committee reviews with the Advisor the Fund's major financial risk
exposures and the steps the Advisor has taken to monitor and control these
exposures, including the Fund's risk assessment and risk management policies and
guidelines.

      The Audit Committee also, as appropriate, reviews in a general manner the
processes other Board committees have in place with respect to risk assessment


                                      -40-



and risk management. The Nominating and Governance Committee monitors all
matters related to the corporate governance of the Trust. The Valuation
Committee monitors valuation risk and compliance with the Fund's Valuation
Procedures and oversees the pricing services and actions by the Advisor's
Pricing Committee with respect to the valuation of portfolio securities.

      Not all risks that may affect the Fund can be identified nor can controls
be developed to eliminate or mitigate their occurrence or effects. It may not be
practical or cost effective to eliminate or mitigate certain risks, the
processes and controls employed to address certain risks may be limited in their
effectiveness, and some risks are simply beyond the reasonable control of the
Fund or the Advisor or other service providers. For instance, as the use of
Internet technology has become more prevalent, the Fund and its service
providers have become more susceptible to potential operational risks through
breaches in cyber security (generally, intentional and unintentional events that
may cause the Fund or a service provider to lose proprietary information, suffer
data corruption or lose operational capacity). There can be no guarantee that
any risk management systems established by the Fund, its service providers, or
issuers of the securities in which the Fund invests to reduce cyber security
risks will succeed, and the Fund cannot control such systems put in place by
service providers, issuers or other third parties whose operations may affect
the Fund and/or its shareholders. Moreover, it is necessary to bear certain
risks (such as investment related risks) to achieve the Fund's goals. As a
result of the foregoing and other factors, the Fund's ability to manage risk is
subject to substantial limitations.

BOARD DIVERSIFICATION AND TRUSTEE QUALIFICATIONS

      As described above, the Nominating and Governance Committee of the Board
oversees matters related to the selection and nomination of Trustees. The
Nominating and Governance Committee seeks to establish an effective Board with
an appropriate range of skills and diversity, including, as appropriate,
differences in background, professional experience, education, vocation, and
other individual characteristics and traits in the aggregate. Each Trustee must
meet certain basic requirements, including relevant skills and experience, time
availability and, if qualifying as an Independent Trustee, independence from the
Advisor and any sub-advisors, underwriters or other service providers, including
any affiliates of these entities.

      Listed below for each current Trustee are the experiences, qualifications
and attributes that led to the conclusion, as of the date of this SAI, that each
current Trustee should serve as a Trustee in light of the Trust's business and
structure.

                           , M.D., is  an orthopedic surgeon. He  also has been
President of Wheaton Orthopedics, a co-owner and director of a fitness center
and a limited partner of two real estate companies. has served as a Trustee of
each First Trust Fund since its inception and of the First Trust Funds since
1999.               has also served as the Lead Independent Trustee (2008 - 2009
and 2017 - 2019) and on the Executive Committee (2008 - 2009 and 2017 -
present), Chairman of the Nominating and Governance Committee (2003 - 2007 and
2014 - 2016), Chairman of the Audit Committee (2012 - 2013) and Chairman of the
Valuation Committee (June 2006 - 2007 and 2010 - 2011) of the First Trust Funds.
He currently serves as Chairman of the Valuation Committee (since January 1,
2020) of the First Trust Funds.


                                      -41-



                   is  President  of   ADM  Investor  Services  Inc.  ("ADMIS"),
a futures commission merchant and wholly-owned subsidiary of the Archer Daniels
Midland Company ("ADM").           has been employed by ADMIS and its affiliates
since 1990 in various accounting, financial, operations and risk management
capacities.             serves on the boards of several international affiliates
of ADMIS and served as a member of ADM's Integrated Risk Committee from 2008 -
2018, which was tasked with the duty of implementing and communicating
enterprise-wide risk management. In 2014,        was elected to the board of the
Futures Industry Association. In 2017,          was elected to the board of the
National Futures Association.             has served as a Trustee of each First
Trust Fund since its inception.          also served on the Executive Committee
from the organization of the first First Trust closed-end fund in 2003 through
2005 (and 2014 - 2019) until he was elected as the first Lead Independent
Trustee in December 2005, serving as such through 2007 (and 2014 - 2016). He
also served as Chairman of the Valuation Committee (2008 - 2009 and 2017 -
2019), Chairman of the Audit Committee (2010 - 2011) and Chairman of the
Nominating and Governance Committee (2012 - 2013). He currently serves as
Chairman of the Audit Committee (since January 1, 2020) of the First Trust
Funds.

                   is President of Hibs Enterprises, a financial and management
consulting firm. has been with Hibs Enterprises since 2003. Prior thereto,
spent 18 years with ServiceMaster and Aramark, including three years as
President and COO of ServiceMaster Consumer Services, where he led the initial
expansion of certain products overseas; five years as President and COO of
ServiceMaster Management Services; and two years as President of Aramark
ServiceMaster Management Services.         is a certified public accountant and
also has held the positions of Treasurer and Chief Financial Officer of
ServiceMaster, at which time he oversaw the financial aspects of ServiceMaster's
expansion of its Management Services division into Europe, the Middle East and
Asia.          has served as a Trustee of the First Trust Funds since June 2006.
          has also served as the Chairman of the Audit Committee (2008 - 2009
and 2017 - 2019), Chairman of the Nominating and Governance Committee (2010 -
2011) and Chairman of the Valuation Committee (2014 - 2016) of the First Trust
Funds. He served as Lead Independent Trustee and on the Executive Committee
(2012 - 2016) and currently serves as Chairman of the Nominating and Governance
Committee (since January 1, 2020) of the First Trust Funds.

              , Ph.D., has been the Senior Advisor of Pelita Harapan Educational
Foundation, a global provider of educational products and services since August
2018. Prior thereto,        served as the Managing Director and Chief Operating

Officer of Pelita Harapan Educational Foundation for three years.       formerly
served as the President and Chief Executive Officer of Dew Learning LLC from
June 2012 through September 2014.       formerly served as President of Covenant
College (2002 - 2012), and as a partner and trader (of options and futures
contracts for hedging options) for Ritchie Capital Markets Group (1996 - 1997),
where he held an administrative management position at this proprietary
derivatives trading company. He also held prior positions in new business
development for ServiceMaster Management Services Company and in personnel and
human resources for NationsBank of North Carolina, N.A. and Chicago Research and
Trading Group, Ltd. ("CRT"). His international experience includes serving as a
director of CRT Europe, Inc. for two years, directing out of London all aspects
of business conducted by the U.K. and European subsidiary of CRT. Prior to that,
           was a trader and manager at CRT in Chicago.          has served as a
Trustee of each First Trust Fund since its inception and of the First Trust
Funds since 1999.         has also served as the Chairman of the Audit Committee


                                      -42-



(2003 - 2006 and 2014 - 2016), Chairman of the Valuation Committee (2007 -
2008), Chairman of the Nominating and Governance Committee (2008 - 2009 and 2017
- 2019) and Lead Independent Trustee and a member of the Executive Committee
(2010 - 2011). He currently serves as Lead Independent Trustee and on the
Executive Committee (since January 1, 2020) of the First Trust Funds.

                  is Chief Executive Officer of First Trust Advisors L.P. and
First Trust Portfolios L.P.         is involved in the day-to-day management of
the First Trust Funds and serves on the Executive Committee. He has over 35
years of experience in the investment company business in sales, sales
management and executive management.            has served as a Trustee of each
First Trust Fund since its inception and of the First Trust Funds since 1999.

      Effective January 1, 2020, the fixed annual retainer paid to the
Independent Trustees is $255,000 per year and an annual per fund fee of $2,500
for each closed-end fund and actively managed fund, $750 for each defined
outcome fund and $250 for each index fund. The fixed annual retainer is
allocated equally among each fund in the First Trust Fund Complex rather than
being allocated pro rata based on each fund's net assets. Additionally, the Lead
Independent Trustee is paid $30,000 annually, the Chairman of the Audit
Committee or Valuation Committee are each paid $20,000 annually and the Chairman
of the Nominating and Governance Committee is paid $10,000 annually to serve in
such capacities with compensation allocated pro rata among each fund in the
First Trust Fund Complex based on its net assets.

      The following table sets forth the compensation (including reimbursement
for travel and out-of-pocket expenses) paid by the Fund and the First Trust
Fund Complex to each of the Independent Trustees for the fiscal year ended
          and the calendar year ended December 31, 2019, respectively. The Fund
has no retirement or pension plans. The officers and Trustee who are "interested
persons" as designated above serve without any compensation from the Trust. The
Fund has no employees. Its officers are compensated by First Trust.

                                                   ESTIMATED TOTAL COMPENSATION
                          TOTAL COMPENSATION           FROM THE FIRST TRUST
 NAME OF TRUSTEE           FROM THE FUND(1)               FUND COMPLEX(2)
                                   $                             $
                                   $                             $
                                   $                             $
                                   $                             $
--------------------
(1)   The compensation estimated to be paid by the Fund to the Independent
      Trustees for the first full fiscal year for services to the Fund.

(2)   The total compensation paid to the Independent Trustees for the calendar
      year ended December 31, 2019 for services to the 171 portfolios existing
      in 2019, which consisted of 7 open-end mutual funds, 15 closed-end funds
      and 149 exchange-traded funds.


                                      -43-



      The following table sets forth the dollar range of equity securities
beneficially owned by the Trustees in the Fund and in other funds overseen by
the Trustees in the First Trust Fund Complex as of December 31, 2019:

                                                  AGGREGATE DOLLAR RANGE OF
                                                    EQUITY SECURITIES IN
                        DOLLAR RANGE OF      ALL REGISTERED INVESTMENT COMPANIES
                       EQUITY SECURITIES         OVERSEEN BY TRUSTEE IN THE
TRUSTEE                   IN THE FUND             FIRST TRUST FUND COMPLEX

Interested Trustee
                              None                      Over $100,000

Independent Trustee
                              None                      Over $100,000
                              None                      Over $100,000
                              None                      Over $100,000
                              None                      Over $100,000

      As of December 31, 2019, the Independent Trustees of the Fund and their
immediate family members did not own beneficially or of record any class of
securities of an investment advisor or principal underwriter of the Fund or any
person directly or indirectly controlling, controlled by or under common control
with an investment advisor or principal underwriter of the Fund.

      As of December 31, 2019, the officers and Trustees, in the aggregate,
owned less than 1% of the shares of the Fund.

        INVESTMENT ADVISOR, LEAD SUB-ADVISOR AND PORTFOLIO SUB-ADVISORS

INVESTMENT ADVISOR

      First Trust Advisors L.P., 120 East Liberty Drive, Suite 400, Wheaton,
Illinois 60187, is the investment advisor to the Fund. First Trust Advisors
serves as investment advisor or portfolio supervisor to investment portfolios
with approximately $    billion in assets which it managed or supervised as of
            , 2020. As investment advisor, First Trust Advisors provides the
Fund with professional investment supervision and selects the Fund's Sub-Advisor
(with the approval of the Board of Trustees) and permits any of its officers or
employees to serve without compensation as Trustees or officers of the Fund if
elected to such positions. First Trust Advisors supervises the activities of the
Fund's Sub-Advisor and provides the Fund with certain other services necessary
with the management of the portfolio.

          First Trust Advisors is an Illinois limited partnership formed in 1991
and an investment advisor registered with the Commission under the Investment
Advisers Act of 1940 (the "Advisers Act"). First Trust Advisors has one limited
partner, Grace Partners of DuPage L.P. ("Grace Partners"), and one general
partner, The Charger Corporation. Grace Partners is a limited partnership with
one general partner, The Charger Corporation, and a number of limited partners.
Grace Partners' and The Charger Corporation's primary business is investment
advisory and broker/dealer services through their ownership interests. The
Charger Corporation is an Illinois corporation controlled by James A. Bowen,
Chief Executive Officer of the Advisor. First Trust Advisors is controlled by
Grace Partners and The Charger Corporation.


                                      -44-



      First Trust Advisors is advisor or sub-advisor to      mutual funds,
exchange-traded funds consisting of    series and    closed-end funds (including
the Fund) and is the portfolio supervisor of certain unit investment trusts
sponsored by First Trust Portfolios L.P. First Trust Portfolios L.P. specializes
in the underwriting, trading and distribution of unit investment trusts and
other securities. First Trust Portfolios L.P., an Illinois limited partnership
formed in 1991, took over the First Trust product line and acts as sponsor for
successive series of The First Trust Combined Series, FT Series (formerly known
as The First Trust Special Situations Trust), The First Trust Insured Corporate
Trust, The First Trust of Insured Municipal Bonds and The First Trust GNMA. The
First Trust product line commenced with the first insured unit investment trust
in 1974, and as of           , 2020, more than $    billion in gross assets have
been deposited in First Trust Portfolios L.P. unit investment trusts.

      First Trust Advisors acts as investment advisor to the Fund pursuant to an
Investment Management Agreement. The Investment Management Agreement continues
in effect from year to year after its initial two-year term so long as its
continuation is approved at least annually by the Trustees including a majority
of the Independent Trustees, or the vote of a majority of the outstanding voting
securities of the Fund. It may be terminated at any time without the payment of
any penalty upon 60 days' written notice by either party, or by a majority vote
of the outstanding voting securities of the Fund or by the Board of Trustees
(accompanied by appropriate notice), and will terminate automatically upon its
assignment. The Investment Management Agreement may also be terminated, at any
time, without payment of any penalty, by the Board or by vote of a majority of
the outstanding voting securities of the Fund, in the event that it shall have
been established by a court of competent jurisdiction that the Advisor, or any
officer or director of the Advisor, has taken any action which results in a
breach of the material covenants of the Advisor set forth in the Investment
Management Agreement. The Investment Management Agreement provides that First
Trust Advisors shall not be liable for any loss sustained by reason of the
purchase, sale or retention of any security, whether or not such purchase, sale
or retention shall have been based upon the investigation and research made by
any other individual, firm or corporation, if the recommendation shall have been
selected with due care and in good faith, except loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Advisor in
performance of its obligations and duties, or by reason of its reckless
disregard of its obligations and duties under the Investment Management
Agreement.

          The Investment Management Agreement between the Advisor and the Fund
has been approved by the Board of Trustees of the Fund, including a majority of
the Independent Trustees, and the sole shareholder of the Fund. Information
regarding the Board of Trustees' approval of the Investment Management and
Sub-Advisory Agreements is available in the Fund's annual report for the fiscal
year ended           , 2020. Pursuant to the Investment Management Agreement,
the Fund has agreed to pay for the services and facilities provided by the
Advisor and Lead Sub-Advisor an annual management fee, payable on a monthly
basis, equal to      % of the Fund's Managed Assets. For purposes of calculation
of the management fee, the Fund's "Managed Assets" means the average daily gross
asset value of the Fund (which includes assets attributable to the Fund's
Preferred Shares, if any, and the principal amount of borrowings), minus the sum
of the Fund's accrued and unpaid dividends on any outstanding Preferred Shares
and accrued liabilities (other than the principal amount of any borrowings


                                      -45-



incurred, commercial paper or notes or other forms of indebtedness issued by the
Fund and the liquidation preference of any outstanding Preferred Shares).

      In addition to the management fee, the Fund pays all other costs and
expenses of the Fund's operations, except for the Lead Sub-Advisor and Portfolio
Sub-Advisors' fees which will be paid by the Advisor out of the management fee.
The costs and expenses include: compensation of its Trustees (other than the
Trustee affiliated with the Advisor), custodian, transfer agent, administrative,
accounting and dividend disbursing expenses, legal fees, leverage expenses,
expenses of independent auditors, expenses of repurchasing shares, expenses of
preparing, printing and distributing shareholder reports, notices, proxy
statements and reports to governmental agencies, and taxes, if any. All fees and
expenses are accrued daily and deducted before payment of dividends to
investors.

      Pursuant to sub-advisory agreement among the Fund, the Advisor and the
Lead Sub-Advisor, the Lead Sub-Advisor receives a portfolio management fee equal
to % of the Fund's Managed Assets. Pursuant to sub-advisory agreements among the
Fund, the Advisor, the Lead Sub-Advisor and each of the Portfolio Sub-Advisors,
(each, a "Portfolio Sub-Advisory Agreement" and collectively, the "Portfolio
Sub-Advisory Agreements"), each Portfolio Sub-Advisor receives a portfolio
management fee equal to      % of the Fund's Managed Assets for which they have
been allocated responsibility by the Lead Sub-Advisor. The Lead Sub-Advisor and
Portfolio Sub-Advisors' fees are paid by the Advisor out of the Advisor's
management fee. Because the fee paid to the Advisor and by the Advisor to the
Lead-Sub Advisor and the Portfolio Sub-Advisors will be calculated on the basis
of the Fund's Managed Assets, which include the proceeds of leverage, the dollar
amount of the Advisor's, Lead Sub-Advisor's and Portfolio Sub-Advisors' fees
will be higher (and the Advisor, Lead Sub-Advisor and Portfolio Sub-Advisors
will be benefited to that extent) when leverage is utilized. In this regard, if
the Fund uses leverage in the amount equal to     % of the Fund's Managed Assets
(after their issuance), the Fund's management fee would be     % of net assets
attributable to common shares. See "Summary of Fund Expenses" in the Fund's
Prospectus.

CODE OF ETHICS

          The Fund, the Advisor, the Lead Sub-Advisor and the Portfolio
Sub-Advisors have each adopted codes 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 Commission's Public Reference Room in Washington,
D.C. Information on the operation of the Public Reference Room may be obtained
by calling the Commission at (202) 942-8090. The codes of ethics are available
on the EDGAR Database on the Commission'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, or by
writing the Commission Public Reference Section, Washington, D.C. 20549-0102.


                                      -46-



LEAD SUB-ADVISOR

      SkyBridge serves as the Fund's Lead Sub-Advisor. In this capacity,
SkyBridge is responsible for allocating management of the Fund's assets to the
Portfolio Sub-Advisors and their respective investment strategies.

      SkyBridge is organized as a limited liability company under the laws of
the State of Delaware and is a registered investment adviser under the Advisers
Act. Personnel of SkyBridge serve as portfolio managers to certain clients and
registered and unregistered investment funds (including SkyBridge Multi-Adviser
Hedge Fund Portfolios LLC). SkyBridge currently serves, and may in the future
serve, as an investment adviser to other investment funds (including SkyBridge
Multi-Adviser Hedge Fund Portfolios LLC). The offices of SkyBridge are located
at 527 Madison Avenue, 4th Floor, New York, New York 10022, and its telephone
number is (212) 485-3100.

PORTFOLIO SUB-ADVISORS

      The Portfolio Sub-Advisors will be responsible for the day-to-day
management of the Fund's Managed Assets. The Portfolio Sub-Advisors will be
comprised of the following investment advisers registered under the Advisers
Act:

      The portfolio managers also have responsibility for the day-to-day
management and supervision of accounts other than the Fund, including separate
accounts. Information regarding those other accounts is set forth below.

---------------------------------------------------------------------------------------------------------------------------
                                NUMBER OF OTHER ACCOUNTS MANAGED AND ASSETS BY ACCOUNT TYPE
                                           AS OF           , 2020 (IN MILLIONS)
---------------------------------------------------------------------------------------------------------------------------
                                        REGISTERED                      OTHER POOLED
                      REGISTERED        INVESTMENT     OTHER POOLED      INVESTMENT
                      INVESTMENT         COMPANIES      INVESTMENT        VEHICLES                         OTHER ACCOUNTS
                      COMPANIES         SUBJECT TO       VEHICLES        SUBJECT TO                          SUBJECT TO
   PORTFOLIO       (OTHER THAN THE   PERFORMANCE-BASED               PERFORMANCE-BASED                   PERFORMANCE-BASED
    MANAGER             FUND)          ADVISORY FEES                   ADVISORY FEES     OTHER ACCOUNTS    ADVISORY FEES
----------------- ------------------ ----------------- ------------- ------------------ ---------------- ------------------
                  Number:            Number:           Number:       Number:            Number:          Number:
                  Assets: $          Assets: $         Assets: $     Assets: $          Assets: $        Assets: $
----------------- ------------------ ----------------- ------------- ------------------ ---------------- ------------------
                  Number:            Number:           Number:       Number:            Number:          Number:
                  Assets: $          Assets: $         Assets: $     Assets: $          Assets: $        Assets: $
---------------------------------------------------------------------------------------------------------------------------

      As shown in the table above, the portfolio managers may manage other
accounts. Fees earned by the Advisor may vary among these accounts. 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 account.
More specifically, portfolio managers who manage multiple funds and/or other
accounts may be presented with one or more of the potential conflicts described
below. The Fund and the Advisor 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.


                                      -47-



      The management of multiple funds and/or other accounts may result in a
portfolio manager devoting unequal time and attention to the management of each
fund and/or other account. The Advisor generally seeks to manage such competing
interests for the time and attention of a portfolio manager by having the
portfolio manager focus on a particular investment discipline. Most other
accounts managed by the portfolio managers are managed using the same investment
models that are used in connection with their management of the Fund.

      A conflict of interest could arise if a portfolio manager identifies a
limited investment opportunity that may be appropriate for more than one
account, but the Fund is not able to take full advantage of that opportunity due
to the need to allocate that opportunity among multiple accounts. In addition,
the portfolio manager may execute transactions for other accounts that may
adversely impact the value of securities held by the Fund. However, the Advisor
believes that these risks are mitigated by the fact that: (i) accounts with like
investment strategies managed by a particular portfolio manager are generally
managed in a similar fashion, subject to exceptions to account for particular
investment restrictions or policies applicable only to certain accounts,
differences in cash flows and account sizes, and similar factors; and (ii)
portfolio manager personal trading is monitored to avoid potential conflicts. In
addition, the Advisor has adopted trade allocation procedures requiring that all
clients will be treated fairly and equitably and no one client will receive over
time preferential treatment over another.

      Securities considered as investments for the Fund may also be appropriate
for other investment accounts managed by the Advisor or its affiliates. Whenever
decisions are made to buy or sell securities by the Fund and one or more of the
other accounts simultaneously, the Advisor may aggregate the purchases and sales
of the securities and will allocate the securities transactions in a manner that
it believes to be equitable under the circumstances. As a result of the
allocations, there may be instances where the Fund will not participate in a
transaction that is allocated among other accounts. While these aggregation and
allocation policies could have a detrimental effect on the price or amount of
the securities available to the Fund from time to time, it is the opinion of the
Board of Trustees of the Fund that the benefits from association with the
Advisor outweigh any disadvantages that may arise from exposure to simultaneous
transactions.

      As of             , 2020, the compensation structure for the portfolio
managers is based upon a fixed salary as well as a discretionary bonus
determined by the management of the Advisor. Salaries are determined by
management and are based upon an individual's position and overall value to the
firm. Bonuses are also determined by management and are generally based upon an
individual's overall contribution to the success of the firm and the
profitability of the firm; however, assets under management may be a factor in
determining bonus pool size for certain portfolio manager groups of the Advisor.
Salaries and bonuses are not based on Fund performance.

      As of the date of this Statement of Additional Information, none of the
portfolio managers beneficially owned (as determined pursuant to Rule
16a-1(a)(2) under the Securities Exchange Act of 1934, as amended (the "1934
Act")) any shares of the Fund. After completion of the initial Fund offering,
the portfolio managers may purchase Common Shares of the Fund for their personal
accounts.


                                      -48-



      The Advisor, subject to the Board of Trustees' supervision, provides the
Fund with discretionary investment services. Specifically, the Advisor is
responsible for managing the investments and reinvestments of the Fund's assets
in accordance with the Fund's investment objectives, policies, and restrictions
as provided in the Prospectus and this Statement of Additional Information, as
may be subsequently changed by the Board of Trustees. The Advisor further agrees
to conform to all applicable laws and regulations of the SEC in all material
respects and to conduct its activities under the Investment Management Agreement
in accordance with applicable regulations of any governmental authority
pertaining to its investment advisory services. In the performance of its
duties, the Advisor will satisfy its fiduciary duties to the Fund, will monitor
the Fund's investments, and will comply with the provisions of the Fund's
Declaration of Trust and By-Laws, and the stated investment objectives, policies
and restrictions of the Fund. The Advisor is responsible for effecting all
security transactions for the Fund's assets.

      First Trust Advisors acts as investment adviser to the Fund pursuant to an
Investment Management Agreement. The Investment Management Agreement continues
in effect from year-to-year after its initial two-year term so long as its
continuation is approved at least annually by the Trustees including a majority
of the Independent Trustees, or the vote of a majority of the outstanding voting
securities of the Fund. It may be terminated at any time without the payment of
any penalty upon 60 days' written notice by either party, or by a majority vote
of the outstanding voting securities of the Fund or by the Board of Trustees
(accompanied by appropriate notice), and will terminate automatically upon its
assignment. The Investment Management Agreement may also be terminated, at any
time, without payment of any penalty, by the Board or by vote of a majority of
the outstanding voting securities of the Fund, in the event that it shall have
been established by a court of competent jurisdiction that the Advisor, or any
officer or director of the Advisor, has taken any action which results in a
breach of the material covenants of the Advisor set forth in the Investment
Management Agreement. The Investment Management Agreement provides that First
Trust Advisors shall not be liable for any loss sustained by reason of the
purchase, sale or retention of any security, whether or not such purchase, sale
or retention shall have been based upon the investigation and research made by
any other individual, firm or corporation, if the recommendation shall have been
selected with due care and in good faith, except loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Advisor in
performance of its obligations and duties, or by reason of its reckless
disregard of its obligations and duties under the Investment Management
Agreement. As compensation for its services, the Fund pays First Trust Advisors
a fee as described in the Prospectus. See "Management of the Fund--Investment
Management Agreement" in the Prospectus.

      In addition to the fee of the Advisor, the Fund pays all other costs and
expenses of its operations, including: compensation of its Trustees (other than
the Trustee affiliated with First Trust Advisors); custodian, transfer agent,
administrative, accounting and dividend disbursing expenses; legal fees;
expenses of independent auditors; expenses of preparing, printing and
distributing shareholder reports, notices, proxy statements and reports to
governmental agencies; and taxes, if any. All fees and expenses are accrued
daily and deducted before payment of dividends to investors.


                                      -49-



      The Investment Management Agreement has been approved by the Board of
Trustees of the Fund, including a majority of the Independent Trustees, and the
sole shareholder of the Fund. Information regarding the Board of Trustees'
approval of the Investment Management Agreement will be available in the Fund's
annual report for the period ending                 , 2020.

                      PROXY VOTING POLICIES AND PROCEDURES

      The Fund has adopted a proxy voting policy that seeks to ensure that
proxies for securities held by the Fund are voted consistently and solely in the
best economic interests of the Fund.

      The Board of Trustees is responsible for oversight of the Fund's proxy
voting process. The Board has delegated day-to-day proxy voting responsibility
to                 .              Proxy Voting Policy is set forth in Appendix B
to the Statement of Additional Information.

      Information regarding how the Fund voted proxies (if any) relating to
portfolio securities will be available: (i) without charge, upon request, by
calling (800) 988-5891; (ii) on the Fund's website at
http://www.ftportfolios.com; and (iii) by accessing the SEC's website at
http://www.sec.gov.

                      PORTFOLIO TRANSACTIONS AND BROKERAGE

      Subject to the supervision of the Board of Trustees, the Portfolio
Sub-Advisors shall have authority and discretion to select brokers and dealers
to execute transactions initiated by the Portfolio Sub-Advisors and to select
the market in which the transactions will be executed. In placing orders for the
sale and purchase of securities for the Fund, the Portfolio Sub-Advisors'
primary responsibility shall be to seek the best execution of orders at the most
favorable prices. However, this responsibility shall not obligate the Portfolio
Sub-Advisors to solicit competitive bids for each transaction or to seek the
lowest available commission cost to the Fund, so long as such Portfolio
Sub-Advisor reasonably believes that the broker or dealer selected by it can be
expected to obtain a "best execution" market price on the particular transaction
and determines in good faith that the commission cost is reasonable in relation
to the value of the brokerage and research services (within the meaning of
Section 28(e)(3) of the 1934 Act) provided by such broker or dealer to the
Portfolio Sub-Advisor, viewed in terms of either that particular transaction or
of the overall responsibilities with respect to its clients, including the Fund,
as to which the Portfolio Sub-Advisors exercise investment discretion,
notwithstanding that the Fund may not be the direct or exclusive beneficiary of
any such services or that another broker may be willing to charge the Fund a
lower commission on the particular transaction.

      The Portfolio Sub-Advisors' objective in selecting brokers and dealers and
in effecting portfolio transactions is to seek to obtain the best combination of
price and execution with respect to its clients' portfolio transactions. Steps
associated with seeking best execution include, but are not limited to, the
following: (i) determine each client's trading requirements; (ii) select
appropriate trading methods, venues, and agents to execute the trades under the
circumstances; (iii) evaluate market liquidity of each security and take
appropriate steps to avoid excessive market impact; (iv) maintain client


                                      -50-



confidentiality and proprietary information inherent in the decision to trade;
and (v) review the results on a periodic basis.

      In arranging for the purchase and sale of clients' portfolio securities,
the Portfolio Sub-Advisors take numerous factors into consideration. The best
net price, giving effect to brokerage commissions, spreads and other costs, is
normally an important factor in this decision, but a number of other judgmental
factors are considered as they are deemed relevant. The factors include, but are
not limited to: the execution capabilities required by the transactions; the
ability and willingness of the broker or dealer to facilitate the accounts'
portfolio transactions by participating therein for its own account; the
importance to the account of speed, efficiency and confidentiality; the broker
or dealer's apparent familiarity with sources from or to whom particular
securities might be purchased or sold; the reputation and perceived soundness of
the broker or dealer; the Portfolio Sub-Advisors' knowledge of negotiated
commission rates and spreads currently available; the nature of the security
being traded; the size and type of the transaction; the nature and character of
the markets for the security to be purchased or sold; the desired timing of the
trade; the activity existing and expected in the market for the particular
security; confidentiality; the execution, clearance and settlement capabilities
as well as the reputation and perceived soundness of the broker-dealer selected
and others which are considered; the Portfolio Sub-Advisors' knowledge of actual
or apparent operational problems of any broker-dealer; the broker-dealer's
execution services rendered on a continuing basis and in other transactions; the
reasonableness of spreads or commissions; as well as other matters relevant to
the selection of a broker or dealer for portfolio transactions for any account.
The Portfolio Sub-Advisors do not adhere to any rigid formula in making the
selection of the applicable broker or dealer for portfolio transactions, but
weighs a combination of the preceding factors.

      When buying or selling securities in dealer markets, the Portfolio
Sub-Advisors generally prefer to deal directly with market makers in the
securities. The Portfolio Sub-Advisors will typically effect these trades on a
"net" basis, and will not pay the market maker any commission, commission
equivalent or markup/markdown other than the "spread." Usually, the market maker
profits from the "spread," that is, the difference between the price paid (or
received) by the Portfolio Sub-Advisors and the price received (or paid) by the
market maker in trades with other broker-dealers or other customers.

      The Portfolio Sub-Advisors may use Electronic Communications Networks
("ECN") or Alternative Trading Systems ("ATS") to effect such over-the-counter
trades for equity securities when, in the Portfolio Sub-Advisors' judgment, the
use of an ECN or ATS may result in equal or more favorable overall executions
for the transactions.

      Portfolio transactions for each client account will generally be completed
independently, except when the Portfolio Sub-Advisors are in the position of
buying or selling the same security for a number of clients at approximately the
same time. Because of market fluctuations, the prices obtained on such
transactions within a single day may vary substantially. In order to avoid
having clients receive different prices for the same security on the same day,
the Portfolio Sub-Advisors endeavors, when possible, to use an "averaging"
procedure.


                                      -51-



      Under this procedure, purchases or sales of a particular security for
clients' accounts will at times be combined or "batched" with purchases or sales
for other advisory clients by the Portfolio Sub-Advisors unless the client has
expressly directed otherwise. Such batched trades may be used to facilitate best
execution, including negotiating more favorable prices, obtaining more timely or
equitable execution or reducing overall commission charges. In such cases, the
price shown on confirmations of clients' purchases or sales will be the average
execution price on all of the purchases and sales that are aggregated for this
purpose.

      The Portfolio Sub-Advisors may also consider the following when deciding
on allocations: (i) cash flow changes (including available cash, redemptions,
exchanges, capital additions and capital withdrawals) may provide a basis to
deviate from a pre-established allocation as long as it does not result in an
unfair advantage to specific accounts or types of accounts over time; (ii)
accounts with specialized investment objectives or restrictions emphasizing
investment in a specific category of securities may be given priority over other
accounts in allocating such securities; and (iii) for bond trades, street
convention and good delivery often dictate the minimum size and par amounts and
may result in deviations from pro rata distribution.

             REPURCHASE OF FUND SHARES; CONVERSION TO OPEN-END FUND

      The Fund is a closed-end investment company and as such its shareholders
will not have the right to cause the Fund to redeem their shares. Instead, the
Fund's Common Shares will trade in the open market at a price that will be a
function of several factors, including dividend levels (which are in turn
affected by expenses), NAV, call protection, price, dividend stability, relative
demand for and supply of such shares in the market, general market and economic
conditions and other factors. Because shares of a closed-end investment company
may frequently trade at prices lower than NAV, the Trustees, in consultation
with the Fund's Advisor and any corporate finance services and consulting agent
that the Advisor may retain from time to time may review possible actions to
reduce any such discount. Actions may include the repurchase of such shares in
the open market or in private transactions, the making of a tender offer for
such shares, or the conversion of the Fund to an open-end investment company.
There can be no assurance, however, that the Trustees will decide to take any of
these actions, or that share repurchases or tender offers, if undertaken, will
reduce a market discount. After any consideration of potential actions to seek
to reduce any significant market discount, the Trustees may, subject to their
fiduciary obligations and compliance with applicable state and federal laws,
authorize the commencement of a share-repurchase program or tender offer. The
size and timing of any such share repurchase program or tender offer will be
determined by the Trustees in light of the market discount of the common shares,
trading volume of the common shares, information presented to the Trustees
regarding the potential impact of any such share repurchase program or tender
offer, and general market and economic conditions, among other things. There can
be no assurance that the Fund will in fact effect repurchases of or tender
offers for any of its Common Shares. Before deciding whether to take any action
if the Fund's Common Shares trade below NAV, the Trustees would consider all
relevant factors, including the extent and duration of the discount, the
liquidity of the Fund's portfolio, the impact of any action that might be taken
on the Fund or its shareholders and market considerations. Based on these


                                      -52-



considerations, even if the Fund's shares should trade at a discount, the
Trustees may determine that, in the interest of the Fund and its shareholders,
no action should be taken.

      Any service fees incurred in connection with any tender offer made by the
Fund will be borne by the Fund and will not reduce the stated consideration to
be paid to tendering shareholders.

      Subject to its investment limitations, the Fund may borrow to finance the
repurchase of shares or to make a tender offer. Interest on any borrowings to
finance share repurchase transactions or the accumulation of cash by the Fund in
anticipation of share repurchases or tenders will increase the Fund's expenses
and reduce the Fund's net income. Any share repurchase, tender offer or
borrowing that might be approved by the Trustees would have to comply with the
1934 Act and the 1940 Act and the rules and regulations thereunder.

      Although the decision to take action in response to a discount from NAV
will be made by the Trustees at the time they consider such issue, it is the
Trustees' present policy, which may be changed by the Trustees, not to authorize
repurchases of Common Shares or a tender offer for such shares if (i) such
transactions, if consummated, would (a) result in the delisting of the Common
Shares from the NYSE, or (b) impair the Fund's status as a registered closed-end
investment company under the 1940 Act; (ii) the Fund would not be able to
liquidate portfolio securities in an orderly manner and consistent with the
Fund's investment objective and policies in order to repurchase shares; or (iii)
there is, in the Board of Trustees' judgment, any (a) material legal action or
proceeding instituted or threatened challenging such transactions or otherwise
materially adversely affecting the Fund, (b) general suspension of or limitation
on prices for trading securities on the NYSE, (c) declaration of a banking
moratorium by federal or state authorities or any suspension of payment by
United States or state banks in which the Fund invests, (d) material limitation
affecting the Fund or the issuers of its portfolio securities by federal or
state authorities on the extension of credit by lending institutions or on the
exchange of non-U.S. currency, (e) commencement of war, armed hostilities or
other international or national calamity directly or indirectly involving the
United States or (f) other event or condition which would have a material
adverse effect (including any adverse tax effect) on the Fund or its
shareholders if shares were repurchased. The Trustees may in the future modify
these conditions in light of experience with respect to the Fund.

      Conversion to an open-end company would require the approval of the
holders of at least two-thirds of the Fund's shares outstanding and entitled to
vote; provided, however, that unless otherwise provided by law, if there are
Preferred Shares outstanding, the affirmative vote of two-thirds of the
Preferred Shares voting as a separate class shall be required; provided,
however, that such votes shall be by the affirmative vote of the majority of the
outstanding voting securities, as defined in the 1940 Act, if the action in
question was previously approved by the affirmative vote of two-thirds of the
Trustees. Such affirmative vote or consent shall be in addition to the vote or
consent of the holders of the shares otherwise required by law or by the terms
of any class or series of Preferred Shares, whether now or hereafter authorized,
or any agreement between the Fund and any national securities exchange. See the
Prospectus under "Structure of the Fund; Common Share Repurchases and Conversion
to Open-End Fund" for a discussion of voting requirements applicable to
conversion of the Fund to an open-end company. If the Fund converted to an


                                      -53-



open-end company, the Fund's Common Shares would no longer be listed on the
NYSE. Any Preferred Shares would need to be redeemed and any Borrowings may need
to be repaid upon conversion to an open-end investment company. Additionally,
the 1940 Act imposes limitations on open-end funds' investments in illiquid
securities, which could restrict the Fund's ability to invest in certain
securities discussed in the Prospectus to the extent discussed therein. Such
limitations could adversely affect distributions to Common Shareholders in the
event of conversion to an open-end fund. Shareholders of an open-end investment
company may require the company to redeem their shares on any business day
(except in certain circumstances as authorized by or 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 companies
typically engage in a continuous offering of their shares. Open-end companies
are thus subject to periodic asset in-flows and out-flows that can complicate
portfolio management. The Trustees may at any time propose conversion of the
Fund to an open-end company depending upon their judgment as to the advisability
of such action in light of circumstances then prevailing.

      The repurchase by the Fund of its shares at prices below NAV will result
in an increase in the NAV of those shares that remain outstanding. However,
there can be no assurance that share repurchases or tenders at or below NAV will
result in the Fund's shares trading at a price equal to their NAV. Nevertheless,
the fact that the Fund's shares may be the subject of repurchase or tender
offers from time to time may reduce any spread between market price and NAV that
might otherwise exist.

      In addition, a purchase by the Fund of its Common Shares will decrease the
Fund's Managed Assets which would likely have the effect of increasing the
Fund's expense ratio.

                 CERTAIN PROVISIONS IN THE DECLARATION OF TRUST

      The Fund is organized under Massachusetts law as an entity commonly
referred to as a Massachusetts business trust, and is governed by its
Declaration of Trust (the "Declaration") and By-laws. Under Massachusetts law,
shareholders of a business trust could, in certain circumstances, be held
personally liable for the obligations of the Fund. However, the Declaration
contains an express disclaimer of shareholder liability for debts or obligations
of the Fund and requires that notice of such limited liability be given in each
agreement, obligation or instrument entered into or executed by the Fund or the
Board of Trustees. The Declaration further provides for indemnification out of
the assets and property of the Fund for all loss and expense of any shareholder
held personally liable for the obligations of the Fund solely by reason of his
or her being a shareholder. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which
the Fund would be unable to meet its obligations. The Fund believes that the
likelihood of such circumstances is remote.

      The Declaration provides that, by becoming a shareholder of the Fund, each
shareholder shall be expressly held to have agreed to be bound by the provisions
of the Declaration and to any By-laws adopted by the Fund. The provisions of the
Declaration state that shareholders have no rights, privileges, claims or
remedies under any contract or agreement entered into by the Fund with any


                                      -54-



service provider or other agent to or contractor with the Fund including,
without limitation, any third party beneficiary rights. In addition, under the
Declaration, shareholders do not have appraisal rights with respect to their
shares and, except as the Trustees may determine from time to time, shall have
no right to acquire, purchase or subscribe for any shares or securities of the
Fund that it may issue or sell, or have any preference, preemptive, conversion
or exchange rights.

      The Declaration provides that the obligations of the Fund are not binding
upon the Trustees of the Fund individually, but only upon the assets and
property of the Fund, and that the Trustees shall not be liable to any person in
connection with the Fund property or the affairs of the Fund for any action or
failure to act, errors of judgment or mistakes of fact or law or for any neglect
or wrongdoing of any officer, employee or agent of the Fund or for the act or
omission of any other Trustee. Nothing in the Declaration, however, protects a
Trustee against any liability to which he or she would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office with or on behalf of the
Fund. The Declaration further provides that a Trustee acting in his or her
capacity as Trustee is not personally liable to any person other than the Fund
in connection with the affairs of the Fund or for any act, omission, or
obligation of the Fund. The Declaration requires the Fund to indemnify any
persons who are or who have been Trustees, officers or employees of the Fund for
any liability for actions or failure to act except to the extent prohibited by
applicable federal law. In making any determination as to whether any person is
entitled to the advancement of expenses in connection with a claim for which
indemnification is sought, such person is entitled to a rebuttable presumption
that he or she did not engage in conduct for which indemnification is not
available. The Declaration provides that any Trustee who serves as chair of the
Board of Trustees or of a committee of the Board of Trustees, lead independent
Trustee, or audit committee financial expert, or in any other similar capacity
will not be subject to any greater standard of care or liability because of such
position.

      The Declaration provides a detailed process for the bringing of derivative
actions by shareholders, and provides that actions that are derivative in nature
may not be brought directly, in order to permit legitimate inquiries and claims
while avoiding the time, expense, distraction and other harm that can be caused
to the Fund or its shareholders as a result of spurious shareholder claims,
demands and derivative actions. Prior to bringing a derivative action, a demand
must first be made on the Trustees by no less than three shareholders who
together hold not less than 5% of the voting power of the Fund or, if brought in
the right of or name of or on behalf of a class, the affected class none of
which shall be related to (by blood or by marriage) or otherwise affiliated with
any other complaining shareholder (other than as shareholders of the Fund. The
Declaration details various information, certifications, undertakings and
acknowledgements that must be included in the demand. Following receipt of the
demand, the Trustees have a period of 90 days, which may be extended by an
additional 60 days, to consider the demand. If a majority of the Trustees who
are considered independent for the purposes of considering the demand determine
that maintaining the suit would not be in the best interests of the Fund, the
Trustees are required to reject the demand and the complaining shareholder may
not proceed with the derivative action unless the shareholder is able to sustain
the burden of proof to a court that the decision of the Trustees not to pursue
the requested action was not a good faith exercise of their business judgment on
behalf of the Fund. In making such a determination, a Trustee is not considered


                                      -55-



to have a personal financial interest by virtue of being compensated for his or
her services as a Trustee.

      If a demand is rejected as set forth above, the complaining shareholders
will be responsible, jointly and severally, for the costs and expenses
(including attorneys' fees) incurred by the Fund in connection with the
consideration of the demand under a number of circumstances. In addition, if a
court determines that a derivative action was made without reasonable cause or
for an improper purpose, or if a derivative or direct action is dismissed on the
basis of a failure to comply with the procedural provisions relating to
shareholder actions as set forth in the Declaration, or if a direct action is
dismissed by a court for failure to state a claim, the shareholders bringing the
action may be jointly and severally responsible for the Fund's costs, including
attorneys' fees.

      The provisions of the Declaration provide that any direct or derivative
action commenced by a shareholder must be brought only in the U.S. District
Court for the District of Massachusetts (Boston Division) or if any such action
may not be brought in that court, then in the Business Litigation Session of
Suffolk Superior Court in Massachusetts (the "Chosen Courts"). Except as
prohibited by applicable law, if a shareholder commences an applicable action in
a court other than a Chosen Court, then such shareholder may be obligated to
reimburse the Fund and any Trustee or officer of the Fund made party to such
proceeding for the costs and expenses (including attorneys' fees) incurred in
connection with any successful motion to dismiss, stay or transfer of the
action. The Declaration also provides that any shareholder bringing an action
against the Fund waives the right to trial by jury to the fullest extent
permitted by law.

      The provisions of the Declaration, any By-laws of the Fund and any
contract or agreement entered into by the Fund governed by applicable state law
do not affect the rights of any shareholder under any provision of the 1933 Act,
the 1934 Act or the 1940 Act, or any rule, regulation or order of the Securities
Exchange Commission thereunder.

      Reference should be made to the Declaration of Trust on file with the SEC
for the full text of these provisions. See also "Certain Provisions of the
Declaration of Trust and By-Laws" in the Prospectus.

                              FEDERAL TAX MATTERS

      This section summarizes certain U.S. federal income tax consequences of
owning common shares of the Fund. This section is current as of the date of this
Statement of Additional Information. Tax laws and interpretations change
frequently, and these summaries do not describe all of the tax consequences to
all taxpayers. For example, except as specifically provided below, these
summaries generally do not describe your situation if you are a non-U.S. person,
a broker/dealer, or other investor with special circumstances. In addition, this
section does not describe your state, local or foreign tax consequences.

      This federal income tax summary is based in part on the advice of counsel
to the Fund. The Internal Revenue Service ("IRS") could disagree with any
conclusions set forth in this section. In addition, our counsel was not asked to


                                      -56-



review, and has not reached a conclusion with respect to the federal income tax
treatment of the assets to be deposited in the Fund. This summary may not be
sufficient for you to use for the purpose of avoiding penalties under federal
tax law.

      You should seek advice based on your individual circumstances from your
own tax advisor.

      The Fund intends to elect and to qualify annually to be treated as a
regulated investment company, commonly known as a "RIC," under the Code, and to
comply with applicable distribution requirements so that it will not pay federal
income tax on income and capital gains distributed to its common shareholders.

      To qualify for the favorable U.S. federal income tax treatment generally
accorded to regulated investment companies, the Fund must, among other things,
(i) derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stock, securities or foreign currencies, other income
derived with respect to its business of investing in such stock, securities or
currencies or net income derived from interests in certain publicly traded
partnerships; (ii) diversify its holdings so that, at the end of each quarter of
the taxable year, (a) at least 50% of the value of the Fund's total assets is
represented by cash and cash items (including receivables), U.S. government
securities, the securities of other regulated investment companies and other
securities, with such other securities of any one issuer generally limited for
the purposes of this calculation to an amount not greater than 5% of the value
of the Fund's total assets and not greater than 10% of the outstanding voting
securities of such issuer, (b) not more than 25% of the value of its total
assets is invested in the securities (other than U.S. government securities or
the securities of other regulated investment companies) of any one issuer, the
securities (other than the securities of other regulated investment companies)
of two or more issuers which the Fund controls (i.e., owns 20% or more of the
total combined voting power of all classes of stock entitled to vote) and which
are engaged in the same, similar or related trades or businesses or the
securities of one or more certain publicly traded partnerships, and (c) not more
than 25% of the value of its total assets is invested in certain publicly traded
partnerships; and (iii) distribute at least 90% of its investment company
taxable income (determined without regard to capital gain dividends and exempt
interest dividends) and at least 90% of its net tax-exempt interest income each
taxable year. There are certain exceptions for failure to qualify if the failure
is for reasonable cause or is de minimis.

      As a regulated investment company, the Fund generally will not be subject
to U.S. federal income tax on its investment company taxable income (as that
term is defined in the Code, but without regard to the deduction for dividends
paid) and net capital gain (the excess of net long-term capital gain over net
short-term capital loss), if any, that it distributes to its common
shareholders. If the Fund retains any net capital gain or investment company
taxable income, it will generally be subject to federal income tax at regular
corporate rates on the amount retained. In addition, amounts not distributed on
a timely basis in accordance with a calendar year distribution requirement are
subject to a nondeductible 4% excise tax unless, generally, the Fund distributes
during each calendar year an amount equal to the sum of (i) at least 98% of its
ordinary income (not taking into account any capital gains or losses) for the
calendar year, (ii) at least 98.2% of its capital gains in excess of its capital


                                      -57-



losses (adjusted for certain ordinary losses) for the one-year period ending
October 31 of the calendar year, and (iii) any ordinary income and capital gains
for previous years that were not distributed during those years. A distribution
will be treated as paid on December 31 of the current calendar year if it is
declared by the Fund in October, November or December with a record date in such
a month and paid by the Fund during January of the following calendar year.
These distributions will be taxable to shareholders in the calendar year in
which the distributions are declared, rather than the calendar year in which the
distributions are received.

      Subject to the reasonable cause and de minimis exceptions described above,
if the Fund fails to qualify as a regulated investment company or fails to
satisfy the 90% distribution requirement in any taxable year, the Fund will be
taxed as an ordinary corporation on its taxable income (even if such income were
distributed to its shareholders) and all distributions out of earnings and
profits will be taxed to common shareholders as dividend income, which, in
general and subject to limitations under the Code, will constitute qualified
dividend income in the case of individual shareholders, and would be eligible
for the corporate dividends received deduction. Before qualifying as a regulated
investment company again, the Fund could be required to recognize unrealized
gains, pay taxes and make distributions (which could be subject to interest
charges).

DISTRIBUTIONS

      Distributions paid out of the Fund's investment company taxable income
(computed without regard to deduction for dividends paid) generally are taxable
to a common shareholder as ordinary income to the extent of the Fund's earnings
and profits, whether paid in cash or reinvested in additional common shares.
However, if the Fund holds certain equity securities, certain ordinary income
distributions that are specifically designated by the Fund may constitute
qualified dividend income eligible for taxation at capital gains tax rates. In
particular, a portion of the ordinary income dividends received by an individual
shareholder from a regulated investment company such as the Fund are generally
taxed at the same rates that apply to net capital gain (generally, a maximum
rate of 20%), provided certain holding period and other requirements are
satisfied by both the Fund and the shareholder and provided the dividends are
attributable to "qualified dividends" received by the Fund itself. The Fund does
not expect to receive significant amounts of such dividend income. Dividends
received by the Fund from real estate investment trusts and foreign corporations
are qualified dividends eligible for this lower tax rate only in certain
circumstances.

      Distributions of net capital gain (the excess of net long-term capital
gain over net short-term capital loss), if any, properly designated as capital
gain dividends are taxable to a common shareholder as long-term capital gain,
regardless of how long the common shareholder has held common shares of the
Fund. Common shareholders receiving distributions in the form of additional
common shares, rather than cash, generally will have a cost basis in each such
share equal to the value of a common share of the Fund on the reinvestment date.
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


                                      -58-



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 Fund's dividend reinvestment plan (the "Plan"), if a common
shareholder owns common shares in his or her own name, the common shareholder
will have all dividends (including any capital gain dividends) automatically
reinvested in additional common shares unless the common shareholder opts out of
the Plan by delivering a written notice to the Paying Agent prior to the record
date of the next dividend or distribution. See "Dividend Reinvestment Plan" in
the prospectus. If a common shareholder's dividend distributions are
automatically reinvested pursuant to the Plan and the Plan Agent invests the
distributions in common shares acquired on behalf of the common shareholder in
open-market purchases, for U.S. federal income tax purposes, the common
shareholder will be treated as having received a taxable distribution in the
amount of the cash dividend that the shareholder would have received if the
common shareholder had elected to receive cash. If a common shareholder's
dividend distributions are automatically reinvested pursuant to the Plan and the
Plan Agent invests the distribution in newly issued common shares of the Fund,
the common shareholder will be treated as receiving a taxable distribution equal
to the fair market value of the common shares the common shareholder receives.
The common shareholder will have an adjusted basis in additional common shares
purchased through the Plan equal to the amount of the taxable distribution. The
additional common shares will have a new holding period commencing on the day
following the day on which the common shares are credited to the common
shareholder's account.

      A common shareholder may elect not to have all dividends automatically
reinvested in additional common shares pursuant to the Plan. If a common
shareholder elects not to participate in the Plan, such common shareholder will
receive distributions in cash. For taxpayers subject to U.S. federal income tax,
all dividends will generally be taxable, as discussed above, regardless of
whether a common shareholder takes them in cash or they are reinvested pursuant
to the Plan in additional common shares of the Fund.

      Common shareholders will be notified annually as to the U.S. federal
income tax status of distributions, and common shareholders receiving
distributions in the form of additional common shares will receive a report as
to the value of those shares.

      Income from the Fund may also be subject to a 3.8% "Medicare tax". This
tax generally applies to your net investment income if your adjusted gross
income exceeds certain threshold amounts, which are $250,000 in the case of
married couples filing joint returns and $200,000 in the case of single
individuals.

      The Fund currently intends to distribute, at least annually, realized
capital gains. However, the Fund may elect to retain capital gains and provide a
notice to Common Shareholders within 60 days of the taxable year that the Common
Shareholders of record as of the end of the Fund's taxable will be required to
include their attributable share of the retained gain in their income for the
year as long-term capital gain. Common Shareholders required to include such
retained gain in their income will be entitled to a credit or a refund for the
tax deemed paid on their behalf by the Fund and will increase their increase


                                      -59-



their basis in their Common Shares in an amount equal to the excess of their
share of the retained gains included in their income over the taxes deemed paid
on their behalf by the Fund.

MULTIPLE CLASSES OF SHARES

      The IRS has taken the position that if a regulated investment company has
two classes or more of shares, it must designate distributions made to each
class in any year as consisting of no more than such class's proportionate share
of particular types of income, including ordinary income and net capital gain. A
class's proportionate share of a particular type of income is determined
according to the percentage of total dividends paid by the regulated investment
company to such class. Consequently, if both common shares and preferred shares
are outstanding, the Fund intends to designate distributions made to the classes
of particular types of income in accordance with the classes' proportionate
shares of such income. Thus, the Fund will designate dividends constituting
capital gain dividends and other taxable dividends 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 the taxable year, or
otherwise as required by applicable law.

DIVIDENDS RECEIVED DEDUCTION

      A corporation that owns common shares generally will not be entitled to
the dividends received deduction with respect to dividends received from the
Fund because the dividends received deduction is generally not available for
distributions from regulated investment companies. However, if the Fund holds
equity securities, certain ordinary income dividends on common shares that are
attributable to dividends received by the Fund from certain domestic
corporations may be reported by the Fund as being eligible for the dividends
received deduction.

SALE OR EXCHANGE OF COMMON SHARES OF THE FUND

      Upon the sale or other disposition of common shares of the Fund, which a
common shareholder holds as a capital asset, a common shareholder may realize a
capital gain or loss which will be long-term or short-term, depending upon the
common shareholder's holding period for the common shares. Generally, a common
shareholder's gain or loss will be a long-term gain or loss if the common shares
have been held for more than one year.

      Any loss realized on a sale or exchange will be disallowed to the extent
that common shares disposed of are replaced (including through reinvestment of
dividends) within a period of 61 days beginning 30 days before and ending 30
days after disposition of common shares or to the extent that the common
shareholder, during such period, acquires or enters into an option or contract
to acquire substantially identical stock or securities. In this case, the basis
of the common shares acquired will be adjusted to reflect the disallowed loss.
Any loss realized by a common shareholder on a disposition of common shares of
the Fund held by the common shareholder for six months or less will be treated
as a long-term capital loss to the extent of any distributions of net capital
gain received by the common shareholder with respect to the common shares.


                                      -60-



NATURE OF THE FUND'S INVESTMENTS

      Certain of the Fund's investment practices may be 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 lower taxed long-term capital gain 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 to recognize income
or gain without a corresponding receipt of cash, (v) adversely affect the time
as to when a purchase or sale of stock or securities is deemed to occur, (vi)
adversely alter the characterization of certain complex financial transactions
and (vii) produce income that will not qualify as good income under the
regulated investment company rules. The Fund will monitor its transactions, will
make the appropriate tax elections and take appropriate actions in order to
mitigate the effect of these rules and prevent disqualification of the Fund from
being taxed as a regulated investment company (including disposing of certain
investments to generate cash or borrowing cash to satisfy its distribution
requirements).

      Certain income trusts (such as U.S. royalty trusts) and master limited
partnerships that are not "qualified publicly traded partnerships" (as defined
for U.S. federal income tax purposes) generally pass through tax items such as
income, gain or loss to interest holders. In such cases, the Fund will be
required to monitor the individual underlying items of income that it receives
from such entities to determine how it will characterize such income for
purposes of meeting the 90% gross income requirement. In addition, in certain
circumstances, the Fund will be deemed to own the assets of such entities and
would need to look to such assets in determining the Fund's compliance with the
asset diversification rules applicable to regulated investment companies. Thus,
the extent to which the Fund may invest in securities issued by such entities
may be limited by the Fund's intention to qualify as a regulated investment
company under the Code. Prospective investors should be aware that if, contrary
to the Fund's intention, the Fund fails to limit its direct and indirect
investments in such entities, or if such investments are re-characterized for
U.S. federal income tax purposes, the Fund's status as a regulated investment
company may be jeopardized.

      Investing in Below Investment Grade Securities. The Fund may invest
significantly in debt obligations that are in the lowest rating categories
(commonly referred to as "junk" securities) 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 for the Fund. Tax rules are not entirely clear about issues
such as when the 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 workout context are taxable. These and other issues will be
addressed by the Fund, in the event 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 tax.


                                      -61-



      Foreign Currency Transactions. Foreign exchange gains and losses realized
by the Fund in connection with certain transactions involving foreign
currency-denominated debt securities, certain options and futures contracts
relating to foreign currency, foreign currency forward contracts, foreign
currencies, or payables or receivables denominated in a foreign currency are
subject to Section 988 of the Code, which generally causes such gains and losses
to be treated as ordinary income and losses and may affect the amount, timing
and character of distributions to common shareholders. Under Treasury
regulations that may be promulgated in the future, any gains from such
transactions that are not directly related to the Fund's principal business of
investing in stock or securities (or its options contracts or futures contracts
with respect to stock or securities) may have to be limited in order to enable
the Fund to satisfy the 90% income test. If the net foreign exchange loss for a
year were to exceed the Fund's investment company taxable income (computed
without regard to such loss), the resulting ordinary loss for such year would
not be deductible by the Fund or its common shareholders in future years.

      Investments in Non-U.S. Securities. The 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 conventions between certain countries and the U.S. may reduce or eliminate
such taxes in some cases. The Fund does not expect to satisfy the requirements
for passing through to its common shareholders their pro rata shares of
qualified foreign taxes paid by the Fund, with the general result that common
shareholders will not be entitled to any deduction or credit for such taxes on
their own tax returns.

      Interests in REMICs. If the Fund holds a residual interest in a real
estate mortgage investment conduit ("REMIC"), some distributions from the Fund
may be considered excess inclusion income when received by common shareholders
of the Fund which will be subject to U.S. federal income tax in all events.
Further, in some circumstances, the Fund may be required to pay a tax on the
amount of excess inclusions allocable to common shareholders of the Fund that
are considered disqualified organizations. In addition, the withholding tax
provisions will be applied to the excess inclusion portion of dividends paid to
foreign shareholders without regard to any exemption or reduction in tax rate.

      Original Issue Discount And Market Discount. The Fund may invest in
instruments with original issue discount or market discount. In the case of
original issue discount instruments, the Fund will be required to accrue taxable
income without necessarily receiving payments on the instruments, and the amount
of original issue discount will be included in determining the amount of income
that the Fund must distribute to maintain its qualification for the favorable
U.S. federal income tax treatment generally accorded to regulated investment
companies and to avoid the payment of U.S. federal income tax and the
nondeductible 4% excise tax. In regard to instruments with market discount, the
Fund may make an election to accrue the market discount over the term of the
instrument. If the Fund holds original issue discount instruments or the Fund
makes the election to accrue market discount, the Fund may be required to
distribute income in excess of the cash it has received. If the Fund does not
make the election to accrue market discount on a current basis, common
shareholders who redeem their common shares prior to the time the market
discount instruments are sold or mature may receive the economic benefit of such
instruments accrual of market discount, but the common shareholders who redeem


                                      -62-



or sell their common shares after the time the market discounts instruments are
sold or mature may bear the economic burden of the taxes on such market
discount.

      Investment in Securities of Uncertain Tax Character. The Fund may invest
in preferred securities or other securities the U.S. federal income tax
treatment of which may not be clear or may be subject to recharacterization by
the IRS. To the extent the tax treatment of such securities or the income from
such securities differs from the tax treatment expected by the Fund, it could
affect the timing or character of income recognized by the Fund, requiring the
Fund to purchase or sell securities, or otherwise change its portfolio, in order
to comply with the tax rules applicable to regulated investment companies under
the Code.

      Use of Leverage. If the Fund utilizes leverage through borrowing or
issuing Preferred Shares, a failure by the Fund to meet the asset coverage
requirements imposed by the 1940 Act or by any rating organization that has
rated such leverage, or additional restrictions that may be imposed by certain
lenders on the payment of dividends or distributions potentially could limit or
suspend the Fund's ability to make distributions on its common shares. Such a
limitation or suspension could prevent the Fund from distributing at least 90%
of its investment company taxable income and net tax-exempt interest as is
required under the Code and therefore might jeopardize the Fund's qualification
for taxation as a regulated investment company under the Code and/or might
subject the Fund to the 4% excise tax discussed above. Upon any failure to meet
such asset coverage requirements, the Fund may, in its sole discretion, purchase
or redeem Preferred Shares 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 satisfy the distribution requirement. There can be no
assurance, however, that any such action would achieve these objectives. The
Fund will endeavor to avoid restrictions on its ability to distribute dividends.

BACKUP WITHHOLDING

      The Fund may be required to withhold U.S. federal income tax from all
taxable distributions and sale proceeds payable to common shareholders who fail
to provide the Fund with their correct taxpayer identification number or make
required certifications, or who have been notified by the IRS that they are
subject to backup withholding. The withholding percentage is 28%. Certain common
shareholders specified in the Code generally are exempt from backup withholding.
This withholding is not an additional tax. Any amounts withheld may be credited
against the common shareholder's U.S. federal income tax liability provided the
required information is timely furnished to the IRS.

NON-U.S. SHAREHOLDERS

      U.S. taxation of a common shareholder who, for U.S. federal income tax
purposes, is a nonresident alien individual, a foreign trust or estate, a
foreign corporation or foreign partnership ("non-U.S. shareholder") depends on
whether the income of the Fund is "effectively connected" with a U.S. trade or
business carried on by the common shareholder.


                                      -63-



      Income Not Effectively Connected. If the income from the Fund is not
"effectively connected" with a U.S. trade or business carried on by the non-U.S.
shareholder, distributions of investment company taxable income will generally
be subject to U.S. tax of 30% (or lower treaty rate), except in the case of any
excess inclusion income allocated to the non-U.S. shareholder (see "Federal
Income Tax Matters--Nature of the Fund's Investments"), which tax is generally
withheld from such distributions, subject to certain exceptions described below.
This U.S. withholding tax is imposed on dividends paid by regulated investment
companies even to the extent that the dividends are paid out of ''portfolio
interest'' income or short-term capital gains that would not have been subject
to U.S. withholding tax if they had been received directly by a foreign
shareholder. Such ''interest-related dividends'' and ''short-term capital gain
dividends'' satisfying certain requirements are exempt from the withholding tax.

      Except as described below in regard to FATCA Witholding, distributions of
capital gain dividends and any amounts retained by the Fund which are designated
as undistributed capital gains will not be subject to U.S. tax at the rate of
30% (or lower treaty rate) unless the non-U.S. shareholder is a nonresident
alien individual and is physically present in the United States for a period or
periods aggregating 183 or more days during the taxable year of the capital gain
dividend and meets certain other requirements. However, this 30% tax (or lower
rate under an applicable treaty) on capital gains of nonresident alien
individuals who are physically present in the United States for 183 or more days
only applies in exceptional cases because any individual present in the United
States for 183 or more days during the taxable year is generally treated as a
resident for U.S. income tax purposes; in that case, he or she would be subject
to U.S. income tax on his or her worldwide income at the graduated rates
applicable to U.S. citizens. In the case of a non-U.S. shareholder who is a
nonresident alien individual, the Fund may be required to withhold U.S. income
tax from distributions of net capital gain unless the non-U.S. shareholder
certifies his or her non-U.S. status under penalties of perjury or otherwise
establishes an exemption. If a non-U.S. shareholder is a nonresident alien
individual, any gain such shareholder realizes upon the sale or exchange of such
shareholder's common shares of the Fund in the United States will ordinarily be
exempt from U.S. tax unless the gain is U.S. source income and such shareholder
is physically present in the United States for a period or periods aggregating
183 or more days during the taxable year of the sale or exchange and meets
certain other requirements.

      Income Effectively Connected. If the income from the Fund is "effectively
connected" with a U.S. trade or business carried on by a non-U.S. shareholder,
then distributions of investment company taxable income, capital gain dividends,
any amounts retained by the Fund which are designated as undistributed capital
gains and any gains realized upon the sale or exchange of common shares of the
Fund will be subject to U.S. income tax at the graduated rates applicable to
U.S. citizens, residents and domestic corporations. Non-U.S. corporate
shareholders may also be subject to the branch profits tax imposed by the Code.
The tax consequences to a non-U.S. shareholder entitled to claim the benefits of
an applicable tax treaty may differ from those described herein. Non-U.S.
shareholders are advised to consult their own tax advisors with respect to the
particular tax consequences to them of an investment in the Fund.

      FATCA Withholding. Under the Foreign Account Tax Compliance Act ("FATCA"),
distributions may be subject to a U.S. withholding tax of 30% in the case of
distributions to or dispositions by (i) certain non-U.S. financial institutions


                                      -64-



that have not entered into an agreement with the U.S. Treasury to collect and
disclose certain 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. Dispositions of common shares by such persons
may be subject to such withholding after December 31, 2018.

ALTERNATIVE MINIMUM TAX

      As with any taxable investment, investors may be subject to the federal
alternative minimum tax on their income (including taxable income from the
Fund), depending on their individual circumstances.

LOSS TRANSACTIONS

      Under Treasury regulations, if a stockholder recognizes a loss with
respect to shares of $2 million or more for an individual stockholder, or $10
million or more for a corporate stockholder, in any single taxable year (or a
greater amount over a combination of years), the stockholder must file with the
IRS a disclosure statement on Form 8886. Common shareholders who own portfolio
securities directly are in many cases excepted from this reporting requirement
but, under current guidance, common shareholders of RICs are not excepted. A
stockholder who fails to make the required disclosure to the IRS may be subject
to substantial penalties. The fact that a loss is reportable under these
Treasury regulations does not affect the legal determination of whether or not
the taxpayer's treatment of the loss is proper. Common shareholders should
consult with their tax advisers to determine the applicability of these Treasury
regulations in light of their individual circumstances.

                 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

      The Statement of Assets and Liabilities of the Fund as of          , 2020,
appearing in this Statement of Additional Information has been audited by
            , an independent registered public accounting firm, as stated in
their report appearing herein, and is included in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
audits and reports on the Fund's annual financial statements, and performs other
professional accounting, auditing and advisory services when engaged to do so by
the Fund. The principal business address of               is                  .


          CUSTODIAN, ADMINISTRATOR, FUND ACCOUNTANT AND TRANSFER AGENT

                    , serves as custodian for the Fund. As such, has custody of
all securities and cash of the Fund and attends to the collection of principal
and income and payment for and collection of proceeds of securities bought and
sold by the Fund.              , is the transfer agent, registrar, dividend
disbursing agent and shareholder servicing agent for the Fund and provides
certain clerical, bookkeeping, shareholder servicing and administrative
services necessary for the operation of the Fund and maintenance of shareholder
accounts.                also provides certain accounting and administrative


                                      -65-



services to the Fund pursuant to an Administration and Accounting Services
Agreement, including maintaining the Fund's books of account, records of the
Fund's securities transactions, and certain other books and records; acting as
liaison with the Fund's independent registered public accounting firm and
providing the independent registered public accounting firm with certain Fund
accounting information; and providing other continuous accounting and
administrative services.

                             ADDITIONAL INFORMATION

      A Registration Statement on Form N-2, including amendments thereto,
relating to the shares of the Fund offered hereby, has been filed by the Fund
with the SEC. The Fund's Prospectus and this Statement of Additional Information
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 shares offered hereby, reference is made to the
Fund's Registration Statement. Statements contained in the Fund's Prospectus and
this Statement of Additional Information 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, such statement being qualified in all
respects by such reference. Copies of the Registration Statement may be
inspected without charge at the SEC's principal office in Washington, D.C., and
copies of all or any part thereof may be obtained from the SEC upon the payment
of certain fees prescribed by the SEC.


                                      -66-



                       FIRST TRUST SKYBRIDGE INCOME FUND

                                 COMMON SHARES

                      STATEMENT OF ADDITIONAL INFORMATION

                                           , 2020



                                   APPENDIX A

                             RATINGS OF INVESTMENTS

      STANDARD & POOR'S RATINGS GROUP -- A BRIEF DESCRIPTION OF CERTAIN S&P'S
GLOBAL RATINGS AND ITS AFFILIATES ("STANDARD & POOR'S" OR "S&P") RATING SYMBOLS
AND THEIR MEANINGS (AS PUBLISHED BY S&P) FOLLOWS:

      A Standard & Poor's issue credit rating is a forward-looking opinion about
the creditworthiness of an obligor with respect to a specific financial
obligation, a specific class of financial obligations, or a specific financial
program (including ratings on medium-term note programs and commercial paper
programs). It takes into consideration the creditworthiness of guarantors,
insurers, or other forms of credit enhancement on the obligation and takes into
account the currency in which the obligation is denominated. The opinion
reflects Standard & Poor's view of the obligor's capacity and willingness to
meet its financial commitments as they become due, and may assess terms, such as
collateral security and subordination, which could affect ultimate payment in
the event of default.

      Issue credit ratings can be either long term or short term. Short-term
ratings are generally assigned to those obligations considered short-term in the
relevant market. In the U.S., for example, that means obligations with an
original maturity of no more than 365 days--including commercial paper.
Short-term ratings are also used to indicate the creditworthiness of an obligor
with respect to put features on long-term obligations. The result is a dual
rating, in which the short-term rating addresses the put feature, in addition to
the usual long-term rating. Medium-term notes are assigned long-term ratings.

LONG-TERM ISSUE CREDIT RATINGS

      Issue credit ratings are based, in varying degrees, on Standard & Poor's
analysis of the following considerations:

      o     Likelihood of payment--capacity and willingness of the obligor to
            meet its financial commitment on a financial obligation in
            accordance with the terms of the obligation;

      o     Nature of and provisions of the obligation, and the promise S&P
            imputes; and

      o     Protection afforded by, and relative position of, the financial
            obligation in the event of bankruptcy, reorganization, or other
            arrangement under the laws of bankruptcy and other laws affecting
            creditors' rights.

      Issue ratings are an assessment of default risk, but may incorporate an
assessment of relative seniority or ultimate recovery in the event of default.
Junior obligations are typically rated lower than senior obligations, to reflect
the lower priority in bankruptcy as noted above. (Such differentiation may apply
when an entity has both senior and subordinated obligations, secured and
unsecured obligations, or operating company and holding company obligations.)


                                      A-1



AAA

      An obligation rated 'AAA' has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.

AA

      An obligation rated 'AA' differs from the highest-rated obligations only
to a small degree. The obligor's capacity to meet its financial commitment on
the obligation is very strong.

A

      An obligation rated 'A' is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.

BBB

      An obligation rated 'BBB' exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.

BB, B, CCC, CC, AND C

      Obligations rated 'BB', 'B', 'CCC', 'CC', and 'C' are regarded as having
significant speculative characteristics. 'BB' indicates the least degree of
speculation and 'C' the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.

BB

      An obligation rated 'BB' is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions, which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.

B

      An obligation rated 'B' is more vulnerable to nonpayment than obligations
rated 'BB', but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.


                                      A-2



CCC

      An obligation rated 'CCC' is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.

CC

      An obligation rated 'CC' is currently highly vulnerable to nonpayment. The
'CC' rating is used when a default has not yet occurred, but S&P expects default
to be a virtual certainty, regardless of the anticipated time to default.

C

      A 'C' is currently highly vulnerable to nonpayment, and the obligation is
expected to have lower relative seniority or lower ultimate recovery compared to
obligations that are rated higher.

D

      An obligation rated 'D' is in default or in breach of an imputed promise.
For non-hybrid capital instruments, the 'D' rating category is used when
payments on an obligation are not made on the date due, unless S&P Global
Ratings believes that such payments will be made within five business days in
the absence of a stated grace period or within the earlier of the stated grace
period or 30 calendar days. The 'D' rating also will be used upon the filing of
a bankruptcy petition or the taking of similar action and where default on an
obligation is a virtual certainty, for example due to automatic stay provisions.
An obligation's rating is lowered to 'D' if it is subject to a distressed
exchange offer.

PLUS (+) OR MINUS (-)

      The ratings from 'AA' to 'CCC' may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within the major rating
categories.

NR

      This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular obligation as a matter of policy.


                                      A-3



SHORT-TERM ISSUE CREDIT RATINGS

A-1

      A short-term obligation rated 'A-1' is rated in the highest category by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is strong. Within this category, certain obligations are
designated with a plus sign (+). This indicates that the obligor's capacity to
meet its financial commitment on these obligations is extremely strong.

A-2

      A short-term obligation rated 'A-2' is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.

A-3

      A short-term obligation rated 'A-3' exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.

B

      A short-term obligation rated 'B' is regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.

C

      A short-term obligation rated 'C' is currently vulnerable to nonpayment
and is dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation.

D

      A short-term obligation rated 'D' is in default or in breach of an imputed
promise. For non-hybrid capital instruments, the 'D' rating category is used
when payments on an obligation are not made on the date due, unless S&P believes
that such payments will be made within any stated grace period. However, any
stated grace period longer than five business days will be treated as five
business days. The 'D' rating also will be used upon the filing of a bankruptcy
petition or the taking of a similar action and where default on an obligation is
a virtual certainty, for example due to automatic stay provisions. An
obligation's rating is lowered to 'D' if it is subject to a distressed exchange
offer.


                                      A-4



SPUR (STANDARD & POOR'S UNDERLYING RATING)

      This is a rating of a stand-alone capacity of an issue to pay debt service
on a credit-enhanced debt issue, without giving effect to the enhancement that
applies to it. These ratings are published only at the request of the debt
issuer/obligor with the designation SPUR to distinguish them from the
credit-enhanced rating that applies to the debt issue. Standard & Poor's
maintains surveillance of an issue with a published SPUR.

MUNICIPAL SHORT-TERM NOTE RATINGS DEFINITIONS

      A Standard & Poor's U.S. municipal note rating reflects Standard & Poor's
opinion about the liquidity factors and market access risks unique to the notes.
Notes due in three years or less will likely receive a note rating. Notes with
an original maturity of more than three years will most likely receive a
long-term debt rating. In determining which type of rating, if any, to assign,
Standard & Poor's analysis will review the following considerations:

      o     Amortization schedule--the larger the final maturity relative to
            other maturities, the more likely it will be treated as a note; and

      o     Source of payment--the more dependent the issue is on the market for
            its refinancing, the more likely it will be treated as a note.

      Note rating symbols are as follows:

SP-1

      Strong capacity to pay principal and interest. An issue determined to
possess a very strong capacity to pay debt service is given a plus (+)
designation.

SP-2

      Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.

SP-3

      Speculative capacity to pay principal and interest.

DUAL RATINGS

      Standard and Poor's assigns "dual" ratings to all debt issues that have a
put option or demand feature as part of their structure. The first rating
addresses the likelihood of repayment of principal and interest as due, and the
second rating addresses only the demand feature. The long-term rating symbols
are used for bonds to denote the long-term maturity and the short-term rating


                                      A-5



symbols for the put option (for example, 'AAA/A-1+'). With U.S. municipal
short-term demand debt, note rating symbols are used with the short-term issue
credit rating symbols (for example, 'SP-1+/A-1+').

ACTIVE QUALIFIERS (CURRENTLY APPLIED AND/OR OUTSTANDING)

I

      This suffix is used for issues in which the credit factors, terms, or
both, that determine the likelihood of receipt of payment of interest are
different from the credit factors, terms or both that determine the likelihood
of receipt of principal on the obligation. The 'i' subscript indicates that the
rating addresses the interest portion of the obligation only. The 'i' subscript
will always be used in conjunction with the 'p' subscript, which addresses the
likelihood of receipt of principal. For example, a rated obligation could be
assigned ratings of 'AAAp NRi' indicating that the principal portion is rated
'AAA' and the interest portion of the obligation is not rated.

L

      Ratings qualified with 'L' apply only to amounts invested up to federal
deposit insurance limits.

P

      This suffix is used for issues in which the credit factors, the terms, or
both, that determine the likelihood of receipt of payment of principal are
different from the credit factors, terms or both that determine the likelihood
of receipt of interest on the obligation. The 'p' subscript indicates that the
rating addresses the principal portion of the obligation only. The 'p' subscript
will always be used in conjunction with the 'i' subscript, which addresses
likelihood of receipt of interest. For example, a rated obligation could be
assigned ratings of 'AAAp NRi' indicating that the principal portion is rated
'AAA' and the interest portion of the obligation is not rated.

PI

      Ratings with a 'pi' suffix are based on an analysis of an issuer's
published financial information, as well as additional information in the public
domain. They do not, however, reflect in-depth meetings with an issuer's
management and therefore may be based on less comprehensive information than
ratings without a 'pi' subscript. Ratings with a 'pi' subscript are reviewed
annually based on a new year's financial statement, but may be reviewed on an
interim basis if a major event occurs that may affect the issuer's credit
quality.

PRELIMINARY

      Preliminary ratings, with the 'prelim' suffix, may be assigned to obligors
or obligations, including financial programs, in the circumstances described
below. Assignment of a final rating is conditional on the receipt by Standard &


                                      A-6



Poor's of appropriate documentation. Standard & Poor's reserves the right not to
issue a final rating. Moreover, if a final rating is issued, it may differ from
the preliminary rating.

      o     Preliminary ratings may be assigned to obligations, most commonly
            structured and project finance issues, pending receipt of final
            documentation and legal opinions.

      o     Preliminary ratings are assigned to Rule 415 Shelf Registrations. As
            specific issues, with defined terms, are offered from the master
            registration, a final rating may be assigned to them in accordance
            with Standard & Poor's policies.

      o     Preliminary ratings may be assigned to obligations that will likely
            be issued upon the obligor's emergence from bankruptcy or similar
            reorganization, based on late-stage reorganization plans,
            documentation and discussions with the obligor. Preliminary ratings
            may also be assigned to the obligors. These ratings consider the
            anticipated general credit quality of the reorganized or post
            bankruptcy issuer as well as attributes of the anticipated
            obligation(s).

      o     Preliminary ratings may be assigned to entities that are being
            formed or that are in the process of being independently established
            when, in Standard & Poor's opinion, documentation is close to final.
            Preliminary ratings may also be assigned to these entities'
            obligations.

      o     Preliminary ratings may be assigned when a previously unrated entity
            is undergoing a well-formulated restructuring, recapitalization,
            significant financing or other transformative event, generally at
            the point that investor or lender commitments are invited. The
            preliminary rating may be assigned to the entity and to its proposed
            obligation(s). These preliminary ratings consider the anticipated
            general credit quality of the obligor, as well as attributes of the
            anticipated obligation(s) assuming successful completion of the
            transformative event. Should the transformative event not occur,
            Standard & Poor's would likely withdraw these preliminary ratings.

      o     A preliminary recovery rating may be assigned to an obligation that
            has a preliminary issue credit rating.

SF

      The (sf) suffix is assigned to all issues and issuers to which a
regulation, such as the European Union Regulation on Credit Rating Agencies,
requires the assignment of an additional symbol which distinguishes a structured
finance instrument or obligor (as defined in the regulation) from any other
instrument or obligor. The addition of this subscript to a credit rating does
not change the definition of that rating or our opinion about the issue's or
issuer's creditworthiness.


                                      A-7



T

      This symbol indicates termination structures that are designed to honor
their contracts to full maturity or, should certain events occur, to terminate
and cash settle all of their contracts before their final maturity date.

UNSOLICITED

      Unsolicited ratings are those credit ratings assigned at the initiative of
Standard & Poor's and not at the request of the issuer or its agents.

INACTIVE QUALIFIERS (NO LONGER APPLIED OR
   OUTSTANDING)

*

      This symbol indicated continuance of the ratings is contingent upon
Standard & Poor's receipt of an executed copy of the escrow agreement or closing
documentation confirming investments and cash flows. Discontinued use in August
1998.

C

      This qualifier was used to provide additional information to investors
that the bank may terminate its obligation to purchase tendered bonds if the
long-term credit rating of the issuer is below an investment-grade level and/or
the issuer's bonds are deemed taxable. Discontinued use in January 2001.

PR

      The letters 'pr' indicate that the rating is provisional. A provisional
rating assumes the successful completion of the project financed by the debt
being rated and indicates that payment of debt service requirements is largely
or entirely dependent upon the successful, timely completion of the project.
This rating, however, while addressing credit quality subsequent to completion
of the project, makes no comment on the likelihood of or the risk of default
upon failure of such completion. The investor should exercise his own judgment
with respect to such likelihood and risk.

Q

      A 'q' subscript indicates that the rating is based solely upon
quantitative analysis of publicly available information. Discontinued use in
April 2001.

R

      The 'r' modifier was assigned to securities containing extraordinary
risks, particularly market risks, that are not covered in the credit rating. The
absence of an 'r' modifier should not be taken as an indication that an


                                      A-8



obligation will not exhibit extraordinary non-credit related risks. Standard &
Poor's discontinued the use of the 'r' modifier for most obligations in June
2000 and for the balance of the obligations (mainly structured finance
transactions) in November 2002.

      MOODY'S INVESTORS SERVICE, INC. -- A BRIEF DESCRIPTION OF CERTAIN MOODY'S
INVESTORS SERVICE, INC. ("MOODY'S") RATING SYMBOLS AND THEIR MEANINGS (AS
PUBLISHED BY MOODY'S) FOLLOWS:

LONG-TERM OBLIGATION RATINGS

      Moody's long-term ratings are opinions of the relative credit risk of
financial obligations with an original maturity of one year or more. They
address the possibility that a financial obligation will not be honored as
promised. Such ratings use Moody's Global Scale and reflect both the likelihood
of default and any financial loss suffered in the event of default.

Aaa

      Obligations rated Aaa are judged to be of the highest quality, subject to
the lowest level of credit risk.

Aa

      Obligations rated Aa are judged to be of high quality and are subject to
very low credit risk.

A

      Obligations rated A are judged to be upper-medium grade and are subject to
low credit risk.

Baa

      Obligations rated Baa are judged to be medium-grade and subject to
moderate credit risk and as such may possess certain speculative
characteristics.

Ba

      Obligations rated Ba are judged to be speculative and are subject to
substantial credit risk.

B

      Obligations rated B are considered speculative and are subject to high
credit risk.


                                      A-9



Caa

      Obligations rated Caa are judged to be speculative of poor standing and
are subject to very high credit risk.

Ca

      Obligations rated Ca are highly speculative and are likely in, or very
near, default, with some prospect of recovery of principal and interest.

C

      Obligations rated C are the lowest rated and are typically in default with
little prospect for recovery of principal or interest.

Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of
that generic rating category. Additionally, a "(hyb)" indicator is appended to
all ratings of hybrid securities issued by banks, insurers, finance companies,
and securities firms.

MEDIUM-TERM NOTE PROGRAM RATINGS

      Moody's assigns ratings to medium-term note (MTN) programs and to the
individual debt securities issued from them (referred to as drawdowns or notes).

      MTN program ratings are intended to reflect the ratings likely to be
assigned to drawdowns issued from the program with the specific priority of
claim (e.g., senior or subordinated). To capture the contingent nature of a
program rating, Moody's assigns provisional ratings to MTN programs. A
provisional rating is denoted by (P) in front of the rating when the assignment
of a final rating is subject to the fulfillment of contingencies but is highly
likely that the rating will become definitive after all document are received or
an obligation is issued into the market.

      The rating assigned to a drawdown from a rated MTN or bank/deposit note
program is definitive in nature, and may differ from the program rating if the
drawdown is exposed to additional credit risks besides the issuer's default,
such as links to the defaults of other issuers, or has other structural features
that warrant a different rating. In some circumstances, no rating may be
assigned to a drawdown.

      Moody's encourages market participants to contact Moody's Ratings Desks or
visit www.moody's.com directly if they have questions regarding ratings for
specific notes issued under a medium-term note program. Unrated notes issued
under an MTN program may be assigned an NR (not rated) symbol.


                                      A-10



SHORT-TERM OBLIGATION RATINGS

      Moody's short-term ratings are opinions of the ability of issuers to honor
short-term financial obligations. Ratings may be assigned to issuers, short-term
programs or to individual short-term debt instruments. Such obligations
generally have an original maturity not exceeding thirteen months, unless
explicitly noted.

      Moody's employs the following designations to indicate the relative
repayment ability of rated issuers:

P-1

      Issuers (or supporting institutions) rated Prime-1 have a superior ability
to repay short-term debt obligations.

P-2

      Issuers (or supporting institutions) rated Prime-2 have a strong ability
to repay short-term debt obligations.

P-3

      Issuers (or supporting institutions) rated Prime-3 have an acceptable
ability to repay short-term obligations.

NP

      Issuers (or supporting institutions) rated Not Prime do not fall within
any of the Prime rating categories.

Note: Canadian issuers rated P-1 or P-2 have their short-term ratings enhanced
by the senior-most long-term rating of the issuer, its guarantor or
support-provider.

U.S. MUNICIPAL SHORT-TERM OBLIGATION RATINGS

      There are three rating categories for short-term municipal obligations
that are considered investment grade. These ratings are designated as Municipal
Investment Grade (MIG) and are divided into three levels -- MIG 1 through MIG 3.
In addition, those short-term obligations that are of speculative quality are
designated SG, or speculative grade. MIG ratings expire at the maturity of the
obligation.


                                      A-11



MIG 1

      This designation denotes superior credit quality. Excellent protection is
afforded by established cash flows, highly reliable liquidity support, or
demonstrated broad-based access to the market for refinancing.

MIG 2

      This designation denotes strong credit quality. Margins of protection are
ample, although not as large as in the preceding group.

MIG 3

      This designation denotes acceptable credit quality. Liquidity and
cash-flow protection may be narrow, and market access for refinancing is likely
to be less well-established.

SG

      This designation denotes speculative-grade credit quality. Debt
instruments in this category may lack sufficient margins of protection.

U.S. MUNICIPAL DEMAND OBLIGATION RATINGS

      In the case of variable rate demand obligations (VRDOs), a two-component
rating is assigned; a long or short-term debt rating and a demand obligation
rating. The first element represents Moody's evaluation of the degree of risk
associated with scheduled principal and interest payments. The second element
represents Moody's evaluation of the degree of risk associated with the ability
to receive purchase price upon demand ("demand feature"). The second element
uses a rating variation of the MIG scale called the Variable Municipal
Investment Grade or VMIG rating.

VMIG 1

      This designation denotes superior credit quality. Excellent protection is
afforded by the superior short-term credit strength of the liquidity provider
and structural and legal protections that ensure the timely payment of purchase
price upon demand.

VMIG 2

      This designation denotes strong credit quality. Good protection is
afforded by the strong short-term credit strength of the liquidity provider and
structural and legal protections that ensure the timely payment of purchase
price upon demand.


                                      A-12



VMIG 3

      This designation denotes acceptable credit quality. Adequate protection is
afforded by the satisfactory short-term credit strength of the liquidity
provider and structural and legal protections that ensure the timely payment of
purchase price upon demand.

SG

      This designation denotes speculative-grade credit quality. Demand features
rated in this category may be supported by a liquidity provider that does not
have an investment grade short-term rating or may lack the structural and/or
legal protections necessary to ensure the timely payment of purchase price upon
demand.

      FITCH RATINGS -- A BRIEF DESCRIPTION OF CERTAIN FITCH RATINGS ("FITCH")
RATINGS SYMBOLS AND THEIR MEANINGS (AS PUBLISHED BY FITCH) FOLLOWS:

INTERNATIONAL ISSUER AND CREDIT RATING SCALES

      The Primary Credit Rating Scales (those featuring the symbols 'AAA'-'D'
and 'F1'-'D') are used for debt and financial strength ratings.

LONG-TERM RATING SCALES--ISSUER CREDIT RATING SCALES

      Rated entities in a number of sectors, including financial and
non-financial corporations, sovereigns and insurance companies, are generally
assigned Issuer Default Ratings (IDRs). IDRs opine on an entity's relative
vulnerability to default on financial obligations. The "threshold" default risk
addressed by the IDR is generally that of the financial obligations whose
non-payment would best reflect the uncured failure of that entity. As such, IDRs
also address relative vulnerability to bankruptcy, administrative receivership
or similar concepts, although the agency recognizes that issuers may also make
pre-emptive and therefore voluntary use of such mechanisms.

      In aggregate, IDRs provide an ordinal ranking of issuers based on the
agency's view of their relative vulnerability to default, rather than a
prediction of a specific percentage likelihood of default.

AAA

      Highest credit quality. 'AAA' ratings denote the lowest expectation of
default risk. They are assigned only in cases of exceptionally strong capacity
for payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.


                                      A-13



AA

      Very high credit quality. 'AA' ratings denote expectations of very low
default risk. They indicate very strong capacity for payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.

A

      High credit quality. 'A' ratings denote expectations of low default risk.
The capacity for payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to adverse business or economic
conditions than is the case for higher ratings.

BBB

      Good credit quality. 'BBB' ratings indicate that expectations of default
risk are currently low. The capacity for payment of financial commitments is
considered adequate but adverse business or economic conditions are more likely
to impair this capacity.

BB

      Speculative. 'BB' ratings indicate an elevated vulnerability to default
risk, particularly in the event of adverse changes in business or economic
conditions over time; however, business or financial flexibility exists which
supports the servicing of financial commitments.

B

      Highly speculative. 'B' ratings indicate that material default risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued payment is vulnerable to
deterioration in the business and economic environment.

CCC

      Substantial credit risk. Default is a real possibility.

CC

      Very high levels of credit risk. Default of some kind appears probable.

C

      Exceptionally high levels of credit risk. Default is imminent or
inevitable, or the issuer is in standstill. Conditions that are indicative of a
'C' category rating of an issuer include:

      a.    the issuer has entered into a grace or cure period following
            non-payment of a material financial obligation;


                                      A-14



      b.    the issuer has entered into a temporary negotiated waiver or
            standstill agreement following a payment default on a material
            financial obligation; or

      c.    Fitch Ratings otherwise believes a condition of 'RD' or 'D' to be
            imminent or inevitable, including through the formal announcement of
            a coercive debt exchange.

RD

      Restricted default. 'RD' ratings indicate an issuer that in Fitch Ratings'
opinion has experienced an uncured payment default on a bond, loan or other
material financial obligation but which has not entered into bankruptcy filings,
administration, receivership, liquidation or other formal winding-up procedure,
and which has not otherwise ceased business. This would include:

      a.    the selective payment default on a specific class or currency of
            debt;

      b.    the uncured expiry of any applicable grace period, cure period or
            default forbearance period following a payment default on a bank
            loan, capital markets security or other material financial
            obligation;

      c.    the extension of multiple waivers or forbearance periods upon a
            payment default on one or more material financial obligations,
            either in series or in parallel; or

      d.    execution of a coercive debt exchange on one or more material
            financial obligations.

D

      Default. 'D' ratings indicate an issuer that in Fitch Ratings' opinion has
entered into bankruptcy filings, administration, receivership, liquidation or
other formal winding-up procedure, or which has otherwise ceased business.

      Default ratings are not assigned prospectively to entities or their
obligations; within this context, non-payment on an instrument that contains a
deferral feature or grace period will generally not be considered a default
until after the expiration of the deferral or grace period, unless a default is
otherwise driven by bankruptcy or other similar circumstance, or by a coercive
debt exchange.

      "Imminent" default typically refers to the occasion where a payment
default has been intimated by the issuer, and is all but inevitable. This may,
for example, be where an issuer has missed a scheduled payment, but (as is
typical) has a grace period during which it may cure the payment default.
Another alternative would be where an issuer has formally announced a coercive
debt exchange, but the date of the exchange still lies several days or weeks in
the immediate future.

      In all cases, the assignment of a default rating reflects the agency's
opinion as to the most appropriate rating category consistent with the rest of


                                      A-15



its universe of ratings, and may differ from the definition of default under the
terms of an issuer's financial obligations or local commercial practice.

Note: The modifiers "+" or "-" may be appended to a rating to denote relative
status within the major rating categories. Such suffixes are not added to the
'AAA' Long-Term IDR category, or to Long-Term IDR categories below 'B'.

      Limitations of the Issuer Credit Rating Scale:

      Specific limitations relevant to the issuer credit rating scale include:

      o     The ratings do not predict a specific percentage of default
            likelihood over any given time period.

      o     The ratings do not opine on the market value of any issuer's
            securities or stock, or the likelihood that this value may change.

      o     The ratings do not opine on the liquidity of the issuer's securities
            or stock.

      o     The ratings do not opine on the possible loss severity on an
            obligation should an issuer default.

      o     The ratings do not opine on the suitability of an issuer as
            counterparty to trade credit.

      o     The ratings do not opine on any quality related to an issuer's
            business, operational or financial profile other than the agency's
            opinion on its relative vulnerability to default.

      Ratings assigned by Fitch Ratings articulate an opinion on discrete and
specific areas of risk. The above list is not exhaustive, and is provided for
the reader's convenience.

        SHORT-TERM RATINGS -- SHORT-TERM RATINGS ASSIGNED TO ISSUERS OR
            OBLIGATIONS IN CORPORATE, PUBLIC AND STRUCTURED FINANCE

      A short-term issuer or obligation rating is based in all cases on the
short-term vulnerability to default of the rated entity or security stream and
relates to the capacity to meet financial obligations in accordance with the
documentation governing the relevant obligation. Short-Term Ratings are assigned
to obligations whose initial maturity is viewed as "short term" based on market
convention. Typically, this means up to 13 months for corporate, sovereign, and
structured obligations, and up to 36 months for obligations in U.S. public
finance markets.

F1

      Highest short-term credit quality. Indicates the strongest intrinsic
capacity for timely payment of financial commitments; may have an added "+" to
denote any exceptionally strong credit feature.


                                      A-16



F2

      Good short-term credit quality. Good intrinsic capacity for timely payment
of financial commitments.

F3

      Fair short-term credit quality. The intrinsic capacity for timely payment
of financial commitments is adequate.

B

      Speculative short-term credit quality. Minimal capacity for timely payment
of financial commitments, plus heightened vulnerability to near term adverse
changes in financial and economic conditions.

C

      High short-term default risk. Default is a real possibility.

RD

      Restricted default. Indicates an entity that has defaulted on one or more
of its financial commitments, although it continues to meet other financial
obligations. Applicable to entity ratings only.

D

      Default. Indicates a broad-based default event for an entity, or the
default of a short-term obligation.

      Limitations of the Short-Term Ratings Scale:

      Specific limitations relevant to the Short-Term Ratings scale include:

      o     The ratings do not predict a specific percentage of default
            likelihood over any given time period.

      o     The ratings do not opine on the market value of any issuer's
            securities or stock, or the likelihood that this value may change.

      o     The ratings do not opine on the liquidity of the issuer's securities
            or stock.

      o     The ratings do not opine on the possible loss severity on an
            obligation should an obligation default.


                                      A-17



      o     The ratings do not opine on any quality related to an issuer or
            transaction's profile other than the agency's opinion on the
            relative vulnerability to default of the rated issuer or obligation.

      Ratings assigned by Fitch Ratings articulate an opinion on discrete and
specific areas of risk. The above list is not exhaustive, and is provided for
the reader's convenience.

ADDITIONAL INFORMATION

      'Not Rated' or 'NR': A designation of 'Not Rated' or 'NR' is used to
denote securities not rated by Fitch where Fitch has rated some, but not all,
securities comprising an issuance capital structure.

      'Withdrawn': The rating has been withdrawn and the issue or issuer is no
longer rated by Fitch. Indicated in rating databases with the symbol 'WD'.


                                      A-18



                                   APPENDIX B















                                      B-1



 

PART C - OTHER INFORMATION

Item 25: Financial Statements and Exhibits

1.Financial Statements:

Registrant has not conducted any business as of the date of this filing, other than in connection with its organization. Financial Statements indicating that the Registrant has met the net worth requirements of Section 14(a) of the Investment Company Act of 1940 will be filed by Pre-effective Amendment to the Registration Statement.

2.Exhibits:
a.Declaration of Trust.**
b.By-Laws of Fund.*
c.None.
d.None.
e.Terms and Conditions of the Dividend Reinvestment Plan.*
f.None.
g.1Form of Investment Management Agreement between Registrant and First Trust Advisors L.P.*
g.2Form of Investment Lead Sub-Advisory Agreement.*
g.3Form of Investment Sub-Sub-Advisory Agreement.*
h.1Form of Underwriting Agreement.*
i.None.
j.Form of Custody Agreement between Registrant and Fund Custodian.*
k.1Form of Service Agreement for Transfer Agent Services between Registrant and Fund Transfer Agent.*
k.2Form of Administration and Accounting Services Agreement.*
l.1Opinion and consent of Chapman and Cutler LLP.*
l.2Opinion and consent of Morgan, Lewis & Bockius LLP.*
m.None.
n.Consent of Independent Registered Public Accounting Firm.*
o.None.
p.Subscription Agreement between Registrant and First Trust Portfolios L.P.*
q.None.
r.1Code of Ethics of Registrant.*
r.2Code of Ethics of First Trust Portfolios L.P.*
r.3Code of Ethics of First Trust Advisors L.P.*
r.4Code of Ethics of SkyBridge Capital II, LLC.*
r.5Code of Ethics of Sub-Sub-Advisors.*
s.Powers of Attorney.*
----------------------------
*To be filed by amendment.
**Filed herewith.

       

Item 26: Marketing Arrangements

 

[To come]

 

Item 27: Other Expenses of Issuance and Distribution

 

Securities and Exchange Commission Fees $ *
Financial Industry Regulatory Authority, Inc. Fees $ *
Printing and Engraving Expenses $ *
Legal Fees $ *
Listing Fees $ *
Accounting Expenses $ *
Blue Sky Filing Fees and Expenses $ *
Miscellaneous Expenses $ *
Total $ *

* To be completed by amendment.

Item 28: Persons Controlled by or under Common Control with Registrant

Not applicable.

Item 29: Number of Holders of Securities

At ________________, 2020

 

Title of Class Number of Record Holders
Common Shares, $0.01 par value *

* To be completed by amendment.

Item 30: Indemnification

Section 9.5 of the Registrant’s Declaration of Trust provides as follows:

Indemnification and Advancement of Expenses. Subject to the exceptions and limitations contained in this Section 9.5, every person who is, or has been, a Trustee, officer or employee of the Trust, including persons who serve at the request of the Trust as directors, trustees, officers, employees or agents of another organization in which the Trust has an interest as a shareholder, creditor or otherwise (hereinafter referred to as a "Covered Person"), shall be indemnified by the Trust to the fullest extent permitted by law against liability and against all expenses reasonably incurred or paid by him in connection with any claim, action, suit or proceeding in which he becomes involved as a party or otherwise by virtue of his being or having been such a Trustee, director, officer, employee or agent and against amounts paid or incurred by him in settlement thereof.

No indemnification shall be provided hereunder to a Covered Person to the extent such indemnification is prohibited by applicable federal law.

The rights of indemnification herein provided may be insured against by policies maintained by the Trust, shall be severable, shall not affect any other rights to which any Covered Person may now or hereafter be entitled, shall continue as to a person who has ceased to be such a Covered Person and shall inure to the benefit of the heirs, executors and administrators of such a person.

Subject to applicable federal law, expenses of preparation and presentation of a defense to any claim, action, suit or proceeding subject to a claim for indemnification under this Section 9.5 shall be advanced by the Trust prior to final disposition thereof upon receipt of an undertaking by or on behalf of the recipient to repay such amount if it is ultimately determined that he is not entitled to indemnification under this Section 9.5.

To the extent that any determination is required to be made as to whether a Covered Person engaged in conduct for which indemnification is not provided as described herein, or as to whether there is reason to believe that a Covered Person ultimately will be found entitled to indemnification, the Person or Persons making the determination shall afford the Covered Person a rebuttable presumption that the Covered Person has not engaged in such conduct and that there is reason to believe that the Covered Person ultimately will be found entitled to indemnification.

As used in this Section 9.5, the words “claim,” “action,” “suit” or “proceeding” shall apply to all claims, demands, actions, suits, investigations, regulatory inquiries, proceedings or any other occurrence of a similar nature, whether actual or threatened and whether civil, criminal, administrative or other, including appeals, and the words “liability” and “expenses” shall include without limitation, attorneys’ fees, costs, judgments, amounts paid in settlement, fines, penalties and other liabilities.

Item 31: Business and Other Connections of Investment Advisers

The information in the Statement of Additional Information under the captions “Management of the Fund – Trustees and Officers” is hereby incorporated by reference.

Item 32: Location of Accounts and Records.

First Trust Advisors L.P. maintains the Declaration of Trust, By-Laws, minutes of trustees 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.
2.Not applicable.
3.Not applicable.
4.The Registrant undertakes
(a)to file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement:
(1)to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(2)to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; and
(3)to include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement;
(b)to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering;
(c)that, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, if the Registrant is subject to Rule 430C: each prospectus filed pursuant to Rule 497(b), (c), (d) or (e) under the Securities Act of 1933, as part of a Registration Statement relating to an offering other than prospectuses filed in reliance on Rule 430A under the Securities Act of 1933, shall be deemed to be part of and included in this Registration Statement as of the date it is first used after effectiveness. Provided, however, that no statement made in this Registration Statement or prospectus that is part of this Registration Statement or made in a document incorporated or deemed incorporated by reference into this Registration Statement or prospectus that is part of this Registration Statement will, as to a purchaser with a time of contract of sale prior to such first use, supercede or modify any statement that was made in this Registration Statement or prospectus that was part of this Registration Statement or made in any such document immediately prior to such date of first use;
(d)that for the purpose of determining liability of the Registrant under the Securities Act of 1933 to any purchaser in the initial distribution of securities:

The undersigned Registrant undertakes that in a primary offering of securities of the undersigned Registrant pursuant to this Registration Statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned Registrant will be a seller to the purchaser and will be considered to offer or sell such securities to the purchaser:

(1)any preliminary prospectus or prospectus of the undersigned Registrant relating to the offering required to be filed pursuant to Rule 497 under the Securities Act of 1933;
(2)the portion of any advertisement pursuant to Rule 482 under the Securities Act of 1933 relating to the offering containing material information about the undersigned Registrant or its securities provided by or on behalf of the undersigned Registrant; and
(3)any other communication that is an offer in the offering made by the undersigned Registrant to the purchaser.
5.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 this Registration Statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant under Rule 497(h) under the Securities Act of 1933 shall be deemed to be part of this 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.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 Statement of Additional Information.
 
 

 

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 Wheaton, and State of Illinois, on the 6th day of March, 2020.

First Trust SkyBridge Income Fund

By: /s/ James M. Dykas

James M. Dykas, President and
Chief Executive Officer

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
/s/ James M. Dykas President and Chief Executive Officer March 6, 2020
 James M. Dykas (Principal Executive Officer)  
/s/ Donald P. Swade Chief Financial Officer, Chief Accounting Officers and March 6, 2020
 Donald P. Swade Treasurer (Principal Financial and Accounting Officer)  

 

 
 

 

INDEX TO EXHIBITS

a.Declaration of Trust.