As filed with the Securities and Exchange Commission on April 28, 2020

1933 Act File No. 333-____

1940 Act File No. 811-23565

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 High Yield Opportunities 2027 Term 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, DATED APRIL 28, 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 HIGH YIELD OPPORTUNITIES 2027 TERM FUND

                                 COMMON SHARES
                                $20.00 PER SHARE

      The Fund. First Trust High Yield Opportunities 2027 Term Fund (the "Fund")
is a newly organized, diversified, closed-end management investment company.

      Investment Objective. The Fund's investment objective is to provide
current income. There can be no assurance that the Fund will achieve its
investment objective.

      The Fund intends to liquidate and distribute substantially all of its net
assets to shareholders on or about August 1, 2027 (the "Termination Date").
There can be no assurance that the Fund will achieve its investment objective
or that the Fund's investment strategies will be successful.

      Investment Strategies. Under normal market conditions, the Fund will seek
to achieve its investment objective by investing at least 80% of its Managed
Assets (as defined below) in high yield debt securities of varying maturities
that are rated below investment grade at the time of purchase or unrated
securities determined by the Advisor (as defined below) to be of comparable
quality. Such securities include U.S. and non-U.S. corporate debt obligations
and senior, secured floating rate loans ("Senior Loans"). See "The Fund's
Investments--Investment Policies and Strategies." 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." Below investment grade securities are securities rated below
"BBB-" by S&P or Fitch (each, as defined below), or below "Baa3" by Moody's, or
comparably rated by another nationally recognized statistical rating
organization or, if unrated, determined by the Advisor to be of comparable
credit quality at the time of purchase.

      Portfolio Holdings Disclosure. After the invest-up period, under normal
market conditions, the Fund currently intends to disclose on its website
(www.ftportfolios.com) its portfolio holdings on a daily basis.

                                               (continued on the following page)

      No Prior History. BECAUSE THE FUND IS NEWLY ORGANIZED, ITS 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 to the Fund (3)                         $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          ,    .





(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 to the Fund will be $     ,
      $0 and $     , respectively. See "Underwriters."

  (2) The Advisor (and not the Fund) has agreed to pay, from its 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 has 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. See "Summary of Fund Expenses."

(continued from previous page)

      "Managed Assets" means the average daily gross asset value of the Fund
(which includes assets attributable to the Fund's preferred shares of beneficial
interest ("Preferred Shares"), if any, and the principal amount of any
borrowings or commercial paper or notes issued by the Fund), 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 of money
incurred or of commercial paper or notes issued by the Fund).

      Investment Advisor. First Trust Advisors L.P. (the "Advisor") will be the
Fund's investment adviser. See "Management of the Fund" in this prospectus and
"Investment Advisor" in the Fund's Statement of Additional Information (the
"SAI").

      Seven-Year Term. On or about the Termination Date, the Fund intends to
cease its investment operations, liquidate its portfolio (to the extent
possible) and retire or redeem its leverage facilities, unless the term is
extended for one period of up to six months by a vote of the Fund's Board of
Trustees. The amount distributed to Common Shareholders at termination will be
based on the Fund's net asset value ("NAV") at that time, which may be more or
less than the public offering price.

      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, 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.

      Distributions. The Fund intends to pay monthly distributions to Common
Shareholders out of legally available funds. The Fund expects to declare its
initial monthly distribution approximately 30 to 45 days following the
completion of this offering and pay such initial monthly distribution
approximately 60 to 90 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 anticipates that, under normal
market conditions, it will employ leverage through borrowings from banks and
other financial institutions in the amount of approximately 30% 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).

      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.

      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.

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





                              TABLE OF CONTENTS


                                                                                              PAGE

Prospectus Summary ...........................................................................  5
Summary of Fund Expenses ..................................................................... 12
The Fund ..................................................................................... 13
Use of Proceeds .............................................................................. 13
Portfolio Holdings Disclosure................................................................. 13
The Fund's Investments ....................................................................... 13
Use of Leverage .............................................................................. 18
Risks  ....................................................................................... 20
Management of the Fund  ...................................................................... 38
Net Asset Value............................................................................... 39
Distributions  ............................................................................... 40
Dividend Reinvestment Plan ................................................................... 40
Description of Shares......................................................................... 41
Certain Provisions in the Declaration of Trust and By-Laws ................................... 42
Structure of the Fund; Common Share Repurchases and Conversion to Open-End Fund .............. 44
Federal Tax Matters  ......................................................................... 45
Underwriting ................................................................................. 48
Custodian, Administrator, Fund Accountant and Transfer Agent ................................. 52
Legal Matters ................................................................................ 52
Table of Contents for the Statement of Additional Information ................................ 53


      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 High Yield Opportunities 2027 Term Fund
                      (the "Fund") is a newly organized, 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) has agreed to pay underwriting compensation
                      of up to $     per Common Share to the underwriters in
                      connection with this offering. The Advisor also has 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. See "Underwriters."

WHO MAY WANT TO
INVEST .............  Investors should consider their financial situation and
                      needs, other investments, investment goals and experience,
                      time horizons, liquidity needs and risk tolerance before
                      investing in the Fund. An investment in the Fund is not
                      appropriate for all investors and is not intended to be a
                      complete investment program. The Fund is designed for
                      investment and not as a trading vehicle. The Fund may be
                      appropriate for investors who are seeking income with
                      significant credit risks with the following features and
                      potential benefits:

                      o   current income;

                      o   a defined term of seven years;

                      o   a diversified portfolio of high yield corporate debt
                          securities; and

                      o   access to the credit expertise of the First Trust
                          Leveraged Finance Investment Team at First Trust
                          Advisors L.P. ("First Trust" or the "Advisor")


PORTFOLIO HOLDINGS
DISCLOSURE .........  After the invest-up period, under normal market
                      conditions, the Fund currently intends to disclose on its
                      website (www.ftportfolios.com) its portfolio holdings on a
                      daily basis.

INVESTMENT
OBJECTIVE ..........  The Fund's investment objective is to provide
                      current income. There can be no assurance that
                      the Fund will achieve its investment objective.

                      The Fund intends to liquidate and distribute substantially
                      all of its net assets to shareholders on or about August
                      1, 2027 (the "Termination Date"). There can be no
                      assurance that the Fund will achieve its investment
                      objective or that the Fund's investment strategies will
                      be successful.

INVESTMENT POLICIES
AND STRATEGIES .....  Under normal market conditions, the Fund will seek to
                      achieve its investment objective by investing at least
                      80% of its Managed Assets (as defined below) in high yield


                                       5



                      debt securities of varying maturities that are rated below
                      investment grade at the time of purchase or unrated
                      securities determined by the Advisor (as defined below) to
                      be of comparable quality. Such securities include U.S. and
                      non-U.S. corporate debt obligations (such as bonds and
                      notes issued by corporations and other business entities)
                      and senior, secured floating rate loans ("Senior Loans")
                      (as well as other types of debt instruments described in
                      this prospectus and the SAI and derivatives that provide
                      comparable economic exposure to the corporate debt
                      market).

                      The corporate debt obligations in which the Fund may
                      invest are generally issued by U.S. and non-U.S. companies
                      to borrow money from investors, typically to finance their
                      operations. These obligations may be either secured or
                      unsecured. Holders of corporate debt obligations, 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. Interest on corporate debt obligations
                      may be fixed or floating, or such obligations may be zero
                      coupon fixed income securities which pay no interest.
                      Interest on corporate debt obligations is typically paid
                      semi-annually and is fully taxable to the security holder.
                      See "Risks--Corporate Debt Obligations Risk."

                      The Senior Loans in which the Fund may invest are
                      generally made to U.S. and non-U.S. corporations,
                      partnerships and other business entities. Senior Loans are
                      generally 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. The Fund will treat all Senior Loans
                      in which it invests as below investment grade securities
                      for purposes of the Fund's investment policy to invest at
                      least 80% of its Managed Assets in high yield debt
                      securities that are rated below investment grade at the
                      time of purchase or unrated securities determined by the
                      Advisor to be of comparable quality. See "Risks--Senior
                      Loan Risk."

                      For purposes of the Fund's investment strategy, other
                      "high yield debt securities" in which the Fund may invest
                      may also include loans other than Senior Loans,
                      asset-backed securities, convertible securities and
                      preferred stock. For a further description of the Fund's
                      principal investments, see "The Fund's
                      Investments--Portfolio Composition."

                      In addition, under normal market conditions:

                      o   The Fund may invest up to 20% of its Managed Assets in
                          (i) investment grade corporate debt obligations, (ii)
                          U.S. and non-U.S. government debt securities, (iii)
                          warrants and equity securities, including common
                          stock, preferred stock, and equity securities acquired
                          in connection with the restructuring of the debt of an
                          issuer, the reorganization of a Senior Loan or as part
                          of a package of securities acquired together with the
                          Senior Loans of an issuer, and (iv) investment
                          companies.

                      o   The Fund will invest no more than 20% of its Managed
                          Assets in corporate debt obligations that, at the time
                          of purchase, either are rated "CCC+" or lower by
                          Standard & Poor's Ratings Services, a Standard &
                          Poor's Financial Services LLC business, or Fitch
                          Ratings, a part of the Fitch Group, or "Caa1" or lower
                          by Moody's Investor Services, Inc., or comparably
                          rated by another nationally recognized statistical
                          rating organization or, if unrated, determined by the
                          Advisor to be of comparable quality. For purposes of
                          determining whether a security is rated "CCC+/Caa1" or
                          its equivalent, the highest available rating will be
                          used. See "Risks--Credit and Below Investment Grade
                          Securities Risk."

                      o   The Fund will invest no more than 25% of its Managed
                          Assets in any single industry in the corporate debt
                          market.

                      o   The Fund will not invest more than 5% of its Managed
                          Assets in securities issued by a single issuer, other
                          than securities issued by the U.S. government.

                      The Fund also may use certain credit derivatives to take
                      on additional credit risk and obtain exposure to the high
                      yield corporate debt market. These instruments, if used,
                      will be considered an investment in high yield debt
                      securities for purposes of the Fund's investment policy to
                      invest, under normal market conditions, at least 80% of
                      its Managed Assets in high yield debt securities that are
                      rated below investment grade at the time of purchase or
                      unrated securities determined by the Advisor to be of


                                       6



                      comparable quality. The Fund anticipates that total return
                      swaps and credit default swaps will be the primary type of
                      credit derivatives used to gain such exposure to high
                      yield debt securities as part of its investment strategy.
                      See "Risks--Total Return Swaps Risk" and "Risks--Credit
                      Default Swaps Risk." The Fund's use of total return swaps,
                      credit default swaps and other derivative transactions
                      other than for hedging purposes, as measured by the total
                      notional amount of such instruments, will not exceed 20%
                      of the Fund's Managed Assets. If the exposure to the
                      underlying instrument of a derivative position of the Fund
                      is negated or offset by another derivative position of the
                      Fund providing exposure to the same underlying instrument,
                      the Fund will include only the net amount of the exposure
                      for purposes of calculating the foregoing limitation. The
                      Fund also may enter into futures contracts and options on
                      futures contracts, and may, but is not required to, use
                      various other derivative transactions to seek to manage
                      the risks of the Fund's portfolio securities or for other
                      purposes to the extent the Advisor determines that the use
                      of such transactions is consistent with the Fund's
                      investment objective, policies and applicable regulatory
                      requirements.

                      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, the Fund may deviate
                      from its investment policies and objective. 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. There can be
                      no assurance that such techniques will be successful.
                      Accordingly, during such periods, the Fund may not achieve
                      its investment objective.

                      "Managed Assets" means the average daily gross asset value
                      of the Fund (which includes assets attributable to the
                      Fund's preferred shares of beneficial interest ("Preferred
                      Shares"), if any, and the principal amount of any
                      borrowings or commercial paper or notes issued by the
                      Fund), 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 of money incurred or of 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 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
ADVISOR ............  First Trust Advisors L.P. will be the Fund's investment
                      adviser and will be responsible for the day-to-day
                      management of the Fund's portfolio, managing the Fund's
                      business affairs and providing certain clerical,
                      bookkeeping and other administrative services.

                      First Trust, a registered investment adviser, is an
                      Illinois limited partnership formed in 1991. It serves as
                      investment adviser or portfolio supervisor to investment
                      portfolios with approximately $     in assets, which it
                      managed or supervised as of      . See "Management of the
                      Fund" in this prospectus and "Investment Advisor" in the
                      SAI.


                                       7



INVESTMENT
PHILOSOPHY
AND PROCESS ........  The investment philosophy for the Advisor's Leveraged
                      Finance Investment Team is based on the belief that deep
                      fundamental credit analysis performed by a highly
                      experienced credit team, within a risk managed framework,
                      will generate higher absolute and risk-adjusted returns in
                      high yield debt strategies. The team's core framework is
                      designed around capturing yield and seeking to avoid loss.
                      This investment philosophy is expressed by the team
                      through an investment process that combines rigorous
                      bottom-up fundamental credit analysis and disciplined
                      portfolio construction. Risk management is a critical
                      component of the entire process and is embedded in both
                      the fundamental credit analysis and portfolio
                      construction.

                      Fundamental analysis involves the evaluation of the
                      macro-economy, industry trends, consistency of cash flows,
                      collateral coverage and management quality.

                      The Advisor's key considerations of portfolio construction
                      include relative value assessment, diversification,
                      liquidity and ongoing monitoring. Through fundamental
                      credit analysis, the Advisor's Leveraged Finance
                      Investment Team can position the Fund's portfolio in high
                      yield debt securities that the Advisor believes provide
                      the most attractive opportunities in the market. See "The
                      Fund's Investments--Investment Philosophy and Process."

SEVEN-YEAR TERM ....  The Fund intends, on or about the Termination Date, to
                      cease its investment operations, liquidate its portfolio
                      (to the extent possible), retire or redeem its leverage
                      facilities, and distribute all its liquidated net assets
                      to Common Shareholders of record. However, if the Board of
                      Trustees determines it is in the best interest of the
                      shareholders to do so, upon provision of at least 60 days'
                      prior written notice to shareholders, the Fund's term may
                      be extended, and the Termination Date deferred, for one
                      period of up to six months by a vote of the Board of
                      Trustees. The Fund's term may not be extended further than
                      one period of up to six months without a shareholder vote.
                      In determining whether to extend the Fund's term beyond
                      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
                      Fund's term may be extended for any length of time as may
                      be approved by the Fund's shareholders.

                      The Fund's final distribution to Common Shareholders will
                      be based upon the Fund's net asset value ("NAV") on the
                      Termination Date, and initial investors and any investors
                      that purchase Common Shares after the completion of this
                      offering (particularly if their purchase price differs
                      meaningfully from the original offering price) may receive
                      more or less in such final distribution than the amount of
                      their original investment. The Fund will make a
                      distribution on or about the Termination Date of all cash
                      raised from the liquidation of the Fund's assets at that
                      time. However, if the Fund is not able to liquidate all of
                      its assets prior to that distribution (for example,
                      because one or more portfolio securities are in workout or
                      receivership on the Termination Date), or to the extent
                      accrued but unpaid interest on the liquidated portfolio
                      securities will be made following such distribution,
                      subsequent to that distribution, the Fund may make one or
                      more small additional distributions of any cash received
                      from ultimate liquidation of those assets and from payment
                      of such accrued interest. The Fund expects that the total
                      of such liquidating distributions, including any
                      additional subsequent distributions, will equal the Fund's
                      NAV on the Termination Date, but the actual total may be
                      more or less than that NAV, depending on the ultimate
                      results of those post-Termination Date asset liquidations.


                                       8



                      The Fund's NAV on the Termination Date will depend upon a
                      variety of factors, including the performance of the
                      Fund's portfolio over the life of the Fund and the amounts
                      of income or gains retained by the Fund that otherwise
                      would have been paid out as income dividends or capital
                      gain distributions over the life of the Fund, and the
                      amount of any taxes paid on such retained amounts.

                      Interest rates, including yields on below investment grade
                      securities (which are commonly referred to as "junk" or
                      "high yield" securities), tend to vary with maturity.
                      Securities with longer maturities tend to have higher
                      yields than otherwise similar securities having shorter
                      maturities. To the extent the average effective maturity
                      of the Fund's portfolio shortens as the Fund approaches
                      its Termination Date, shareholders should expect that the
                      average portfolio yield will also fall during such period.
                      Consequently, the Fund's dividend rate may need to be
                      reduced over time as the yield on portfolio securities
                      declines as they are sold and either not replaced or
                      replaced by lower-yielding securities; and as the portfolio is
                      liquidated prior to and in anticipation of the Termination
                      Date, as described above. See "Risks--Seven-Year Term Risk."

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

USE OF LEVERAGE ....  The Fund 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 borrowings from banks and other financial
                      institutions in an amount equal to approximately 30% of
                      the Fund's Managed Assets. The Fund does not currently
                      anticipate it will issue Preferred Shares within 12 months
                      of the date of this prospectus. The Fund also may enter
                      into derivative and other transactions that have the
                      effect of leverage. Under normal market conditions, the
                      Fund will seek to limit its overall effective leverage to
                      40% of its Managed Assets.

                      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
                      derivative and other 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. 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."


                                       9



                      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, market conditions and
                      time remaining until the Termination Date. 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 was not used. The net proceeds the Fund obtained
                      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 from leverage proceeds
                      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 the use of leverage also 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 borrowings and/or the use of
                      derivatives will result in a higher investment return on
                      the Common Shares, and it may result in losses. When
                      leverage is used, the 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 management fee received by the Advisor is
                      based on Managed Assets (which includes assets
                      attributable to the Fund's borrowings), there is a
                      financial incentive for the Advisor to cause the Fund to
                      use leverage, which creates a conflict of interest between
                      the Advisor and the Common Shareholders. See
                      "Risks--Potential Conflicts of Interest Risk."

DISTRIBUTIONS ......  The Fund intends to distribute monthly 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 monthly distribution is
                      expected to be declared approximately 30 to 45 days after
                      the completion of this offering and paid approximately 60
                      to 90 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 their monthly distributions reinvested
                      in Common Shares through the Fund's dividend reinvestment
                      plan. See "Dividend Reinvestment Plan."

                      The Fund reserves the right to change its distribution
                      policy and the basis for establishing the rate of its
                      monthly distributions at any time upon notice to
                      shareholders. See "Distributions."

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."


                                       10



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
                      (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 the
                      risks associated with recent market circumstances
                      (including those associated with the recent outbreak of
                      the "corona virus") and the resulting adverse developments
                      in the credit markets; risks associated with investing in
                      corporate debt securities and Senior Loans; risks
                      associated with investing in securities rated below
                      investment grade and unrated securities; risks associated
                      with investing in non-U.S. securities; interest rate risk;
                      risks associated with the use of leverage; and risks
                      associated with investing in a seven-year term fund.


                                       11



                            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 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 LEVERAGE IS USED)(4)

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

   (1) The Advisor, and not the Fund, has agreed to pay from its 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 not the Fund, has agreed to pay from its 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.

   (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 borrowing.

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 5; and (iv) reinvestment of all dividends and distributions
at NAV.

           1 YEAR                3 YEARS                5 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.


                                       12



                                    THE FUND

      First Trust High Yield Opportunities 2027 Term Fund (the "Fund") is
a newly organized, diversified, closed-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"). The Fund was organized on April 24, 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. An investment in the Fund involves certain risks and
special considerations. See "Risks."

                                USE OF PROCEEDS

      The net proceeds of the offering of the Fund's common shares of beneficial
interest (the "Common Shares") will be approximately $      ($      if the
underwriters exercise the overallotment option in full). The Advisor (as defined
below), and not the Fund, has 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. 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 objective 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.

                         PORTFOLIO HOLDINGS DISCLOSURE

      After the invest-up period, under normal market conditions, the Fund
currently intends to disclose on its website (www.ftportfolios.com) its
portfolio holdings on a daily basis.

                             THE FUND'S INVESTMENTS

INVESTMENT OBJECTIVE

      The Fund's investment objective is to provide 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.

      The Fund intends to liquidate and distribute substantially all of its net
assets to shareholders on or about August 1, 2027 (the "Termination Date").
There can be no assurance that the Fund will achieve its investment objective
or that the Fund's investment strategies 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 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

      Under normal market conditions, the Fund will seek to achieve its
investment objective by investing at least 80% of its Managed Assets (as
defined below) in high yield debt securities of varying maturities that are
rated below investment grade at the time of purchase or unrated securities
determined by the Advisor (as defined below) to be of comparable quality. Such
securities include U.S. and non-U.S. corporate debt obligations (such as bonds
and notes issued by corporations and other business entities) and senior,
secured floating rate loans ("Senior Loans") (as well as other types of debt
instruments described in this prospectus and the SAI and derivatives that
provide comparable economic exposure to the corporate debt market). See
"Risks--Corporate Debt Obligations Risk" and "Risks--Senior Loan Risk." For
purposes of this investment strategy, other "high yield debt securities" in
which the Fund may invest may also include loans other than Senior Loans,
asset-backed securities, convertible securities, and preferred stock. For a
further description of the Fund's principal investments, see "--Portfolio
Composition" below and for a further description of the Fund's non-principal
investments, see "Additional Information About the Fund's Investments and
Investment Risks" and "Other Investment Policies and Techniques" in the SAI.

      In addition, under normal market conditions:

        o   The Fund may invest up to 20% of its Managed Assets in (i)
            investment grade corporate debt obligations, (ii) U.S. and non-U.S.


                                       13



            government debt securities, (iii) warrants and equity securities,
            including common stock, preferred stock, and equity securities
            acquired in connection with the restructuring of the debt of an
            issuer, the reorganization of a Senior Loan or as part of a package
            of securities acquired together with the Senior Loans of an issuer,
            and (iv) investment companies.

        o   The Fund will invest no more than 20% of its Managed Assets in
            corporate debt obligations that, at the time of purchase, either are
            rated "CCC+" or lower by Standard & Poor's Ratings Services, a
            Standard & Poor's Financial Services LLC business ("S&P"), or Fitch
            Ratings, a part of the Fitch Group ("Fitch"), or "Caa1" or lower by
            Moody's Investor Services, Inc. ("Moody's"), or comparably rated by
            another nationally recognized statistical rating organization
            ("NRSRO") or, if unrated, determined by the Advisor to be of
            comparable quality. For purposes of determining whether a security
            is rated "CCC+/Caa1" or its equivalent, the highest available rating
            will be used. See "Risks--Credit and Below Investment Grade
            Securities Risk."

        o   The Fund will invest no more than 25% of its Managed Assets in any
            single industry in the corporate debt market.

        o   The Fund will not invest more than 5% of its Managed Assets in
            securities issued by a single issuer, other than securities issued
            by the U.S. government.

      The Fund also may use certain credit derivatives to take on additional
credit risk and obtain exposure to the high yield corporate debt market. These
instruments, if used, will be considered an investment in high yield debt
securities for purposes of the Fund's investment policy to invest, under normal
market conditions, at least 80% of its Managed Assets in high yield debt
securities that are rated below investment grade at the time of purchase or
unrated securities determined by the Advisor to be of comparable quality. The
Fund anticipates that total return swaps and credit default swaps will be the
primary type of credit derivatives used to gain such exposure to high yield debt
securities as part of its investment strategy. See "Risks--Total Return Swaps
Risk" and "Risks--Credit Default Swaps Risk." The Fund's use of total return
swaps, credit default swaps and other derivative transactions other than for
hedging purposes, as measured by the total notional amount of such instruments,
will not exceed 20% of the Fund's Managed Assets. If the exposure to the
underlying instrument of a derivative position of the Fund is negated or offset
by another derivative position of the Fund providing exposure to the same
underlying instrument, the Fund will include only the net amount of the exposure
for purposes of calculating the foregoing limitation. The Fund also may enter
into futures contracts and options on futures contracts, and may, but is not
required to, use various other derivative transactions to seek to manage the
risks of the Fund's portfolio securities or for other purposes to the extent the
Advisor determines that the use of such transactions is consistent with the
Fund's investment objective, policies and applicable regulatory requirements.

      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 (e.g., the "wind-down" period
during which the Fund may begin liquidating its portfolio in anticipation of the
Termination Date; which period is expected to begin nine to twelve months prior
to the Termination Date), the Fund may deviate from its investment policies and
objective. 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. There can
be no assurance that such techniques will be successful. Accordingly, during
such periods, the Fund may not achieve its investment objective.

      "Managed Assets" means the average daily gross asset value of the Fund
(which includes assets attributable to the Fund's preferred shares of beneficial
interest ("Preferred Shares"), if any, and the principal amount of any
borrowings or commercial paper or notes issued by the Fund), 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 of money
incurred or of 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.

INVESTMENT PHILOSOPHY AND PROCESS

      The investment philosophy for the Advisor's Leveraged Finance Investment
Team is based on the belief that deep fundamental credit analysis performed by a
highly experienced credit team, within a risk managed framework, will generate
higher absolute and risk-adjusted returns in high yield debt strategies. The
team's core framework is designed around capturing yield and seeking to avoid
loss. This investment philosophy is expressed by the team through an investment
process that combines rigorous bottom-up fundamental credit analysis and
disciplined portfolio construction. Risk management is a critical component of
the entire process and is embedded in both the fundamental credit analysis and
portfolio construction.

      Fundamental credit analysis involves the evaluation of macro-economy,
industry trends, consistency of cash flows, collateral coverage and management
quality, among other things. The investment process favors companies that
produce relatively stable cash flows through an economic cycle, companies that
have an appropriate level of assets backing the debt and companies that have
management teams with a sound track record of managing businesses with leveraged
balance sheets and a commitment to deleveraging.


                                       14



      The Advisor's key considerations of portfolio construction include
relative value assessment, portfolio diversification, issuer liquidity and
continuous monitoring. Each approved investment opportunity is evaluated
relative to other opportunities available in the market. This relative value
assessment helps ensure the portfolio is positioned in the credits that offer
the best return relative to risk. Portfolio diversification is a key component
of the portfolio construction process and an important factor in risk
management. The investment process seeks to have a properly diversified
portfolio across individual issuers and industries. The Advisor's Leveraged
Finance Investment Team believes concentrated issuer or industry positions
typically lead to outsized risk and, therefore, the investment team seeks to
construct well diversified portfolios. The potential liquidity of each
investment opportunity is analyzed prior to purchase. Through fundamental credit
analysis, the Advisor's Leveraged Finance Investment Team can position the
Fund's portfolio in high yield debt securities that the Advisor believes provide
the most attractive opportunities in the market.

      Fundamental credit analysis involves:

        o   EVALUATION OF INDUSTRY TRENDS: The Advisor tends to favor industries
            that are either stable or growing. Moreover, the Advisor intends to
            invest in issuers or borrowers that it believes have strong
            positions within a given industry.

        o   MANAGEMENT QUALITY: The investment process favors companies that
            have management teams with a sound track record of managing
            businesses with leveraged balance sheets and a commitment to
            deleveraging. The Advisor believes strong management teams are
            typically able to navigate more challenging business conditions or
            economic environments in a nimble fashion. Additionally, the
            industry analyst will often speak with management teams in order to
            fully understand management's strategy and goals regarding the
            capital structure.

        o   ASSET VALUE: The investment process evaluates the enterprise value,
            the collateral backing the investment opportunity and the priority
            of claims on that collateral within the entire capital structure.
            Importantly, the enterprise value and collateral value are assessed
            not only in a benign credit environment when valuations are highest,
            but assuming the company or collateral will be monetized in a
            recession when valuations are typically at their lowest. The entire
            capital structure is analyzed to determine the level of liabilities
            that may have a claim on the collateral ahead of the debt that is
            under review. The investment process favors companies that have
            strong collateral value so that a positive outcome may be achieved
            even in a situation when cash flows deteriorate.

        o   CONSISTENCY OF CASH FLOWS: The investment process favors companies
            that produce relatively stable cash flows through an economic cycle.
            The Advisor's Leveraged Finance Investment Team believes highly
            cyclical companies or capital intensive industries face a high
            hurdle. A company's cash flow is stressed to determine how resilient
            the company would be in a downside case.

      The Advisor's key considerations of portfolio construction include:

        o   RELATIVE VALUE: The relative value assessment is an ongoing process,
            as market prices and the Advisor's credit outlooks change over time.
            While analysts are focused on individual industries, the portfolio
            managers of the Fund aggregate this information and make decisions
            across the entire portfolio, so as to continually seek to own the
            best relative value opportunities in the market. The industry
            analyst will assign an internal rating to the asset being analyzed.
            The internal rating has two components, a credit rating and a
            relative value rating. The internal ratings system assists in the
            fundamental risk assessment by standardizing the risk level of
            credits across issuers and industries. Credits are scored from 1
            through 6, with 1 the strongest fundamental business profile and 6
            the weakest fundamental business profile.

        o   DIVERSIFICATION: This is a key risk control for any portfolio
            managed by the Advisor's Leveraged Finance Investment Team. The
            portfolio managers seek to ensure the Fund is properly diversified
            across industries and issuers.

        o   LIQUIDITY: Within the high yield debt markets, there can be
            significant differences in the level of secondary market liquidity
            between individual bonds and loans. The portfolio managers, in
            conjunction with the traders, will assess the liquidity of an issue
            prior to purchase to ensure the appropriate liquidity is maintained
            in the Fund.

PORTFOLIO COMPOSITION

      The Fund's portfolio may be composed principally of the following
investments. 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.

      Corporate Debt Obligations. The corporate debt obligations in which the
Fund may invest are generally issued by U.S. and non-U.S. companies to borrow
money from investors, typically to finance their operations, in exchange for
interest payments and repayment of the principal at a set maturity date. These
obligations may fund capital improvements, expansions, debt refinancing or
acquisitions that require more capital than would ordinarily be available from a
single lender.


                                       15



      Corporate debt obligations come 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 obligations may include, but
are not limited to, senior, junior, secured and unsecured bonds, notes and other
debt securities. Collateral used for secured debt may include, but is not
limited to, real property, machinery, equipment, accounts receivable, stocks,
bonds or notes. Holders of corporate debt obligations, 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. Interest on corporate debt
obligations may be fixed or floating, or such obligations may be zero coupon
fixed income securities which pay no interest. Interest on corporate debt
obligations is typically paid semi-annually and is fully taxable to the security
holder.

      The investment return of corporate debt obligations reflects interest on
the security and changes in the market value of the security. The market value
of fixed rate corporate debt obligations will generally rise and fall inversely
with interest rates. The value of intermediate- and longer-term fixed rate
corporate debt obligations normally fluctuates more in response to changes in
interest rates than does the value of shorter-term fixed rate corporate debt
obligations. The market value of a corporate debt obligation may be affected by
the credit rating of the corporation, the corporation's performance and
perceptions of the corporation in the marketplace. 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
obligations usually yield more than government or agency bonds due to the
presence of credit risk. See "Risks--Corporate Debt Obligations Risk."

      Senior Loans. Senior Loans are 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 generally 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 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. The Fund will treat all Senior Loans in which it invests
as below investment grade securities for purposes of the Fund's investment
policy to invest at least 80% of its Managed Assets in high yield debt
securities that are rated below investment grade at the time of purchase or
unrated securities determined by the Advisor to be of comparable quality. As in
the case of other high yield securities, 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 other high yield
securities. 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."


                                       16



      Many Senior Loans had historically paid interest at rates determined
periodically on the basis of the London-Interbank Offered Rate (LIBOR). 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. See "Risks--LIBOR Risk."

      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
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. See "Risks--Defaulted and Distressed
Securities Risk."

      Below Investment Grade Securities. 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 the Advisor to
be of comparable credit quality at the time of purchase. 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. 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
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
will attempt to identify those issuers of below investment grade securities
whose financial condition the Advisor believes is adequate to meet future
obligations or who have improved or are expected to improve in the future. The
Advisor'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." The Fund's investments may include defaulted or distressed
securities--i.e., securities of companies whose financial condition is troubled
or uncertain and that may be involved in bankruptcy proceedings, reorganizations
or financial restructurings. See "Risks--Defaulted and Distressed Securities
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. See "Risks--Liquidity Risk."

      Total Return Swaps. Total return swaps are contracts in which one party
agrees to make payments of the total return from the underlying asset(s), which
may include securities, derivatives or indices, during the specified period in
return for payments equal to a fixed or floating rate of interest or the total
return from other underlying asset(s). The Fund may, for example, enter into
total return swap agreements on certain loan indices to gain exposure to Senior
Loans. The Fund also may utilize total return swaps as a component of
"synthetic" investments. A "synthetic" investment is comprised of two components
that, when combined, replicate or emulate the economic exposure of a third
investment. The Fund may use the combination of a total return swap and cash
equivalents to replicate or emulate exposure to Senior Loans. The cash
equivalent market value effectively represents the "principal" portion of such
"synthetic" Senior Loan exposure, and the total return swap market value (not
notional value) represents the "interest" and/or "return" portion of such Senior


                                       17



Loan exposure. When combined, these two components provide the investment
profile of a direct investment in Senior Loans. See "Risks--Leverage Risk" and
"Risks--Total Return Swaps Risk."

      Credit Default Swaps. The "buyer" in a credit default swap contract is
obligated to pay the "seller" a periodic stream of payments over the term of the
contract, provided that no event of default on an underlying reference
obligation has occurred. If an event of default occurs, the seller must pay the
buyer the full notional value, or "par value," of the reference obligation. The
Fund may be either the buyer or seller in a credit default swap transaction. If
the Fund is a buyer and no event of default occurs, the Fund will have made a
series of periodic payments and recovered 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 through a cash payment in exchange
for the asset or, alternatively, a cash payment representing the difference
between the expected recovery rate and the full notional value. As a seller, the
Fund would receive a fixed rate of income throughout the term of the contract,
which typically is between six months and five years, provided that there is no
event of default. The Fund currently intends to segregate or earmark assets on
the Fund's records in the form of cash, cash equivalents or liquid securities in
an amount equal to the notional value of the credit default swaps of which it is
the seller. If such assets are not fully segregated by the Fund, the use of
credit default swap transactions could then be considered leverage for purposes
of the 1940 Act. If an event of default occurs, the seller must pay the buyer
the full notional value of the reference obligation through either physical
settlement or cash settlement. Whether or not there is a segregation of assets,
the sale of a credit default swap effectively creates leverage and subjects the
Fund to risks such as those described under "Risks--Leverage Risk" and
"Risks--Credit Default Swap Risk."

      Common Stock and Warrants. The Fund may hold common stocks and warrants to
purchase common stock. Common stock represents an equity ownership interest in a
corporation or similar entity, providing voting rights and entitling the holder
to a share of the company's success through dividends and/or capital
appreciation. In the event of liquidation, common stockholders have rights to a
company's remaining assets after bondholders, other debtholders and preferred
stockholders have been paid in full. Typically, common stockholders are entitled
to one vote per share to elect the company's board of directors (although the
number of votes is not always directly proportional to the number of shares
owned). Common stockholders also receive voting rights regarding other company
matters such as mergers and certain important company policies, such as issuing
securities to management. In addition to voting rights, common stockholders
sometimes enjoy what are called "preemptive rights." Preemptive rights allow
common stockholders to maintain their proportional ownership in the company in
the event that the company issues another offering of stock. This means that
common stockholders with preemptive rights have the right but not the obligation
to purchase as many new shares of the stock as it would take to maintain their
proportional ownership in the company. See "Risks-- Common Stock and Warrants
Risk."

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

      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 the periods in which
the 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 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."

                                USE OF LEVERAGE

      The Fund 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 borrowings from banks and other financial
institutions in an amount equal to approximately 30% of the Fund's Managed
Assets. The Fund does not currently anticipate it will issue Preferred Shares
within 12 months of the date of this prospectus. The Fund also may enter into
derivative and other transactions that have the effect of leverage. Under normal
market conditions, the Fund will seek to limit its overall effective leverage to
40% of its Managed Assets.

      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


                                       18


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 derivative and other
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 (the "SEC") has proposed a new rule that could further limit or
otherwise alter the Fund's ability to use certain derivative and other
transactions. 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.

      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, market conditions and time remaining until the Termination
Date. 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 from leverage proceeds 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 the use of
leverage also 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 borrowings and/or the use of derivatives
strategies will result in a higher investment return on the Common Shares, and
it may result in losses. When leverage is used, the 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 are based on Managed Assets
(which includes assets attributable to the Fund's borrowings), there is a
financial incentive for the Advisor to cause the Fund to use leverage, which
creates a conflict of interest between the Advisor and the Common Shareholders.
See "Risks--Potential Conflicts of Interest Risk."

      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.

      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


                                       19



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 borrowings
represent approximately    % of the Fund's Managed Assets at an estimated 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 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)     (10)%     (5)%       0%        5%      10%
      Common Share Total Return                             %         %         %         %        %

      Common Share total return is composed of two elements: 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.

NO OPERATING HISTORY

      The Fund is a newly organized, diversified, closed-end management
investment company with no operating history. It is designed for long-term
investing and not as a vehicle for trading.

INVESTMENT AND MARKET RISK

      An investment in the 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.
Accordingly, 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
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.

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.


                                       20



RECENT MARKET CIRCUMSTANCES

      The Fund (as well as its service providers) may be adversely affected by
uncertainties and events around the world, such as epidemics and pandemics,
including the spread of infectious illness or other public health issues,
natural disasters, terrorism and other conflicts, social unrest, political
developments, and changes in government policies, taxation, restrictions on
foreign investment and currency repatriation, currency fluctuations and other
developments in the laws and regulations of the countries in which they are
invested. The Fund cannot predict the effects or likelihood of such events on
the U.S. and world economies, the value of the Common Shares or the NAV of the
Fund. The issuers of securities, including those held in the Fund's portfolio,
could be materially impacted by such events which may, in turn, negatively
affect the value of such securities or such issuers' ability to make interest
payments or distributions to the Fund.

      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 significantly and
adversely 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.

      As a result of these recent market circumstances, the markets for credit
instruments may currently be experiencing deteriorating conditions that could
cause periods of extreme illiquidity and volatility. These conditions may exist
for a prolonged period of time and could recur from time to time in the future.
Such periods may be subject to market uncertainty and consequent repricing risk
that could lead to market imbalances of sellers and buyers, which in turn could
result in significant valuation uncertainties in a variety of debt securities
and also result in sudden and significant valuation declines in the Fund's
holdings. Moreover, such periods could result in widening credit spreads and a
lack of price transparency. Illiquidity and volatility in the credit markets may
directly and adversely affect the setting of dividend rates on the Fund's Common
Shares. See "--Liquidity Risk."

      During periods of extreme illiquidity and volatility in the credit
markets, issuers of debt 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.

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. Current market conditions could lead to further such actions. See
"--Recent Market Circumstances." 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 will be 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 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 objective.

CREDIT AND BELOW INVESTMENT GRADE SECURITIES 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 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 an instrument's credit


                                       21



quality or value and an issuer's or counterparty's ability to pay interest and
principal when due. 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.

      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 the Advisor to be of comparable credit quality at the
time of purchase. 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 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, an 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 the 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. The 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 current economic downturn
continues longer than corporate managers anticipate or prepare for, that could
similarly affect many issuers. See "--Recent Market Circumstances."

      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. See "--Liquidity Risk."

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, 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.


                                       22



        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, 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 high 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. 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
            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.

CORPORATE DEBT OBLIGATIONS RISK

      The market value of corporate debt obligations generally may be expected
to rise and fall inversely with interest rates. The market value of
intermediate- and longer term corporate debt obligations is generally more
sensitive to changes in interest rates than is the market value of shorter term
corporate debt obligations. The market value of corporate debt obligations 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 marketplace, 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 obligations rated below investment grade quality is often high
risk and has speculative characteristics and may be particularly susceptible to
adverse issuer-specific developments. See "--Credit and Below Investment Grade
Securities Risk." See also "--Debt Securities Risk."

SENIOR LOAN RISK

      Senior Loans are subject to the risk of payment defaults of scheduled
interest or principal. Such payment defaults would result in a reduction of
income to the Fund, a reduction in the value of the investment and a potential
decrease in the NAV of the Fund. Similarly, a sudden and significant increase in
market interest rates may increase the risk of payment defaults and cause a
decline in the value of these investments and in the Fund's NAV. 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
securities or market conditions that reduce liquidity) can reduce the value of
Senior Loans and other debt obligations, impairing the Fund's NAV. If a borrower
under a Senior Loan defaults or goes into bankruptcy, the Fund may recover only
a fraction of what is owed on the Senior Loan or nothing at all.

      The Fund will typically invest in Senior Loans rated below investment
grade, which are commonly referred to as "junk" or "high yield" securities and
considered speculative because of the credit risk of their issuers. Such issuers
are more likely than investment grade issuers to default on their payments of
interest and principal owed to the Fund, and such defaults could reduce the
Fund's NAV and income distributions. See "--Credit and Below Investment Grade
Securities Risk." During an economic downturn, the Fund may experience a higher
non-payment rate, and a Senior Loan may lose significant market value before a
default occurs. Moreover, any specific collateral used to secure a Senior Loan
may decline in value or become illiquid, which would adversely affect the Senior
Loan's value.

      Senior Loans are structured as floating rate instruments in which the
interest rate payable on the obligation fluctuates with interest rate changes.
As a result, the yield on Senior Loans will generally decline in a falling
interest rate environment, causing the Fund to experience a reduction in the
income it receives from a Senior Loan. In addition, the market value of Senior
Loans may fall in a declining interest rate environment and may also fall in a
rising interest rate environment if there is a lag between the rise in interest
rates and the reset.


                                       23



      Senior Loans are generally not registered with the SEC or state securities
commissions, and are generally not listed on any securities exchange. In
addition, the amount of public information available on Senior Loans is
generally less extensive than that available for other types of assets.
Therefore, the Fund will be particularly dependent on the analytical abilities
of the Advisor. In general, the secondary trading market for certain Senior
Loans, particularly smaller Senior Loan facilities, is not well developed. No
active trading market may exist for certain Senior Loans, which may make it
difficult to value them. Illiquidity and adverse market conditions may mean that
the Fund may not be able to sell Senior Loans quickly or at a fair price. To the
extent that a secondary market does exist for certain Senior Loans, the market
for them may be subject to irregular trading activity, wide bid/ask spreads and
extended trade settlement periods.

      Although the Senior Loans in which the Fund will invest will be secured by
collateral, there can be no assurance that such collateral could be readily
liquidated or that the liquidation of such collateral would satisfy the
borrower's obligation in the event of non-payment of scheduled interest or
principal. 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. In the event of a decline in the value of the
already pledged collateral, if the terms of the Senior Loan do not require the
borrower to pledge additional collateral, the Fund will be exposed to the risk
that the value of the collateral will not at all times equal or exceed the
amount of the borrower's obligations under the Senior Loans. Senior Loans that
are under-collateralized involve a greater risk of loss. In the event of the
bankruptcy or insolvency of a borrower, the Fund could experience delays or
limitations with respect to its ability to realize the benefits of the
collateral securing a Senior Loan. For example, 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. To the extent that a Senior Loan is collateralized by
stock in the borrower or its subsidiaries, such stock may lose some or all of
its value in the event of the bankruptcy or insolvency of the borrower.

      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 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.

      Some Senior Loans are subject to the risk that a court, pursuant to
equitable subordination or other similar laws, could subordinate the Senior
Loans to presently existing or future indebtedness of the borrower or take other
action detrimental to lenders, such as the Fund. Such court action could under
certain circumstances include invalidation of Senior Loans. If legislation or
state or federal regulations impose additional requirements or restrictions on
the ability of financial institutions to make loans, the availability of Senior
Loans for investment by the Fund may be adversely affected. In addition, such
requirements or restrictions could reduce or eliminate sources of financing for
certain borrowers. This would increase the risk of default. See "--Lender
Liability Risk."

      Any new legislation or federal or state regulations that require financial
institutions to increase their capital requirements may cause financial
institutions to dispose of Senior Loans on their balance sheets that are
considered highly levered transactions. Such sales could result in prices that,
in the opinion of the Advisor, do not represent fair value. If the Fund attempts
to sell a Senior Loan at a time when a financial institution is engaging in such
a sale, the price the Fund could get for the Senior Loan may be adversely
affected.

      The Fund may acquire Senior Loans through participations or assignments.
The purchaser of a participation typically succeeds to all the rights and
obligations of the participating institution and becomes a lender under the
credit agreement with respect to the debt obligation; however, the purchaser's
rights can be more restricted than those of the participating institution, and
the Fund may not be able to unilaterally enforce all rights and remedies under
the loan and with regard to any associated collateral. A participation typically
results in a contractual relationship only with the institution participating
out the interest, not with 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. Sellers of
participations typically include banks, broker-dealers, other financial
institutions and lending institutions. In purchasing participations, the Fund
generally will have no right to enforce compliance by the borrower with the
terms of the loan agreement against the borrower, and the Fund may not directly
benefit from the collateral supporting the Senior Loan in which it has purchased
the participation. As a result, the Fund will be exposed to the credit risk of
both the borrower and the institution selling the participation. Further, in
purchasing participations in lending syndicates, in certain circumstances the


                                       24



Fund may not be able to conduct the due diligence on the borrower or the quality
of the Senior Loan with respect to which it is buying a participation that the
Fund would otherwise conduct if it were investing directly in the Senior Loan,
which may result in the Fund being exposed to greater credit or fraud risk with
respect to the borrower or the Senior Loan than the Fund expected when initially
purchasing the participation.

      When the Fund is a purchaser of an assignment, it typically succeeds to
all the rights and obligations under the loan agreement of the assigning lender
and becomes a lender under the loan agreement with the same rights and
obligations as the assigning lender. Assignments are arranged through private
negotiations between potential assignees and potential assignors, and the rights
and obligations acquired by the purchaser of an assignment may differ from, and
be more limited than, those held by the assigning lender.

      The Fund may obtain exposure to Senior Loans through the use of derivative
instruments. The Fund may utilize these instruments and similar instruments that
may be available in the future. Derivative transactions involve the risk of loss
due to unanticipated adverse changes in securities prices, interest rates, the
inability to close out a position, imperfect correlation between a position and
the desired hedge, tax constraints on closing out positions and portfolio
management constraints on securities subject to such transactions. The potential
loss on derivative instruments may be substantial relative to the initial
investment therein. The Fund may also be subject to the risk that the
counterparty in a derivative transaction will default on its obligations. See
"--Total Return Swaps Risk" and "--Credit Default Swaps Risk."

SEVEN-YEAR TERM RISK

      The Fund intends to terminate on or about the Termination Date. Because
the assets of the Fund will be liquidated in connection with the termination,
the Fund may be required to sell portfolio securities when it otherwise would
not, including at times when market conditions are not favorable, which may
cause the Fund to lose money. In particular, the Fund's portfolio may still have
significant remaining average maturity and duration, and large exposures to
lower-quality credits, as the Termination Date approaches, and if interest rates
are high (and the value of lower-quality fixed-income securities consequently
low), at the time the Fund needs to liquidate its assets in connection with the
termination, the losses due to portfolio liquidation may be significant.
Moreover, as the Fund approaches the Termination Date, its portfolio composition
may change as more of its portfolio holdings are called or sold, which may cause
the returns to decrease and the NAV of the Common Shares to fall. Rather than
reinvesting the proceeds of matured, called or sold securities, 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, or the Fund may invest the proceeds in
lower yielding securities or hold the proceeds in cash, which may adversely
affect its performance.

      Because the Fund will invest in below investment grade securities (which
are commonly referred to as "junk" or "high yield" securities), it may be
exposed to the greater potential for an issuer of its securities to default, as
compared to a fund that invests solely in investment grade securities. As a
result, should a Fund portfolio holding default, this may significantly reduce
net investment income and, therefore, Common Share dividends, and also may
prevent or inhibit the Fund from fully being able to liquidate its portfolio at
or prior to the Termination Date. See "--Credit and Below Investment Grade
Securities Risk."

      The Fund's investment objective and policies are not designed to return
to investors who purchase Common Shares in this offering their initial
investment on the termination date. When terminated, the Fund's final
distribution will be based upon its NAV at the end of the term and such initial
investors and any investors that purchase Common Shares after the completion of
this offering may receive more or less than their original investment.

SUBORDINATED DEBT INSTRUMENTS RISK

      Issuers of subordinated loans and other subordinated debt instruments in
which the Fund may invest usually will have, or may be permitted to incur, other
debt that ranks equally with, or senior to, the subordinated loans or other
subordinated debt instruments. By their terms, such debt instruments may provide
that the holders are entitled to receive payment of interest or principal on or
before the dates on which the Fund is entitled to receive payments in respect of
subordinated loans or other subordinated debt instruments in which it invests.
Also, in the event of insolvency, liquidation, dissolution, reorganization or
bankruptcy of an issuer, holders of debt instruments ranking senior to the
subordinated loan or other debt instrument in which the Fund invests would
typically be entitled to receive payment in full before the Fund receives any
distribution in respect of its investment. After repaying such senior creditors,
such issuer may not have any remaining assets to use for repaying its obligation
to the Fund. In the case of debt ranking equally with subordinated loans or
other subordinated debt instruments in which the Fund invests, the Fund would
have to share on an equal basis any distributions with other creditors holding
such debt in the event of an insolvency, liquidation, dissolution,
reorganization or bankruptcy of the relevant issuer. In addition, the Fund will
likely not be in a position to control any issuer by investing in its debt
instruments. As a result, the Fund will be subject to the risk that an issuer in


                                       25



which it invests may make business decisions with which the Fund disagrees and
the management of such issuer, as representatives of the holders of their common
equity, may take risks or otherwise act in ways that do not serve the Fund's
interests as a debt investor.

INTEREST RATE RISK

      Generally, when market interest rates rise, prices of debt securities
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. Therefore, there is a risk that
interest rates will rise, which will likely cause debt security prices to fall.
See "--LIBOR Risk."

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. 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.

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.

MANAGEMENT RISK AND RELIANCE ON KEY PERSONNEL

      The Fund is subject to management risk because it is an actively managed
portfolio. The Advisor 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. The 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, 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.

OTHER RISKS ASSOCIATED WITH LOANS

      Investments in loans (including loans other than Senior 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.


                                       26



      Interest Rate and Interest Rate Benchmarks. 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.

   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.

   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.

      Valuation and Liquidity. 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.

      Opportunities to invest in loans or certain types of loans, including
Senior Loans, may be limited. Alternative investments may provide lower yields
and may, in the-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 the 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.

      Equity Securities. The acquisition of equity securities (e.g., common
stock, preferred stock and securities convertible into common stock) may
generally be incidental to the Fund's purchase of a loan. 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 are subject to market risks and the
risks of changes to the financial condition of the issuer, and fluctuations in
value.

      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


                                       27



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.

      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
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.

      In addition, 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.

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."


                                       28



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.

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
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.

DEFAULTED AND DISTRESSED SECURITIES RISK

      The Fund may invest in securities that may be in default or distressed--
i.e., securities of companies whose financial condition is troubled or uncertain
and that may be involved in bankruptcy proceedings, reorganizations or financial
restructurings. Distressed securities 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


                                       29


respect to an issuer of defaulted or distressed securities, the Fund may be
restricted from disposing of such securities.

      The Fund may 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.

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 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.


                                       30



      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.

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.

      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.

EMERGING MARKETS RISK

      Investing in emerging market countries, as compared to foreign developed
markets, involves substantial additional risk due to more limited information
about the issuer and/or the security (including limited financial and accounting
information); higher brokerage costs; different accounting, auditing and
financial reporting standards; less developed legal systems and thinner trading
markets; the possibility of currency blockages or transfer restrictions; an
emerging market country's dependence on revenue from particular commodities or
international aid; and the risk of expropriation, nationalization or other
adverse political or economic developments.

      Emerging market countries may lack the social, political and economic
stability and characteristics of more developed countries, and their political
and economic structures may undergo unpredictable, significant and rapid changes
from time to time, any of which could adversely impact the value of investments
in emerging markets as well as the availability of additional investments in
such markets. Some of these countries have in the past failed to recognize
private property rights and have at times nationalized or expropriated the
assets of private companies. The securities markets of emerging market countries
may be substantially smaller, less developed, less liquid and more volatile than
the major securities markets in the United States and other developed nations,
and the Fund may be required to establish special custodial or other
arrangements before transacting in securities traded in emerging markets. The
limited size of these securities markets and the limited trading volume of
securities issued by emerging market issuers could cause prices to be erratic
and investments in emerging markets can become illiquid. As a result of the
foregoing risks, it may be difficult to assess the value or prospects of an
investment in such securities.

      In addition, emerging market countries' exchanges and broker-dealers may
generally be subject to less regulation than their counterparts in developed
countries. Brokerage commissions and dealer mark-ups, custodial expenses and
other transaction costs are generally higher in emerging market countries than
in developed countries. As a result, funds that invest in emerging market
countries may have operating expenses that are higher than funds investing in
other securities markets. Emerging market countries also may have different
clearance and settlement procedures than in the U.S., including significantly


                                       31



longer settlement cycles for purchases and sales of securities, and in certain
markets there may be times when settlements fail to keep pace with the volume of
securities transactions, making it difficult to conduct such transactions.
Further, satisfactory custodial services for investment securities may not be
available in some emerging market countries, which may result in the Fund
incurring additional costs and delays in transporting and custodying such
securities outside such countries. Delays in settlement or other problems could
result in periods when the Fund's assets are uninvested and no return is earned
thereon. The Fund's inability to make intended security purchases due to
settlement problems or the risk of intermediary counterparty failures could
cause the Fund to miss attractive investment opportunities. The inability to
dispose of a portfolio security due to settlement problems could result either
in losses to the Fund due to subsequent declines in the value of such portfolio
security or, if the Fund has entered into a contract to sell the security, could
result in possible liability to the purchaser.

      The currencies of certain emerging market countries have experienced
devaluations relative to the U.S. dollar, and future devaluations may adversely
affect the value of assets denominated in such currencies. Many emerging market
countries have experienced substantial, and in some periods extremely high,
rates of inflation or deflation for many years, and future inflation may
adversely affect the economies and securities markets of such countries. When
debt and similar obligations issued by foreign issuers are denominated in a
currency (e.g., the U.S. dollar or the Euro) other than the local currency of
the issuer, the subsequent strengthening of the non-local currency against the
local currency will generally increase the burden of repayment on the issuer and
may increase significantly the risk of default by the issuer. Emerging market
countries have and may in the future impose capital controls, foreign currency
controls and repatriation controls. In addition, some currency hedging
techniques may be unavailable in emerging market countries, and the currencies
of emerging market countries may experience greater volatility in exchange rates
as compared to those of developed countries.

FOREIGN CURRENCY RISK

      Currency risk is the risk that fluctuations in exchange rates may
adversely affect the value of the Fund's investments. 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.

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 the 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 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., Senior Loans), 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. 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.


                                       32



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 Advisor 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 SEC recently re-proposed rules governing the use of derivatives by
registered investment companies, which could affect the nature and extent of
derivatives used by the Fund. Such rules have not yet been adopted and therefore
the full extent of the rules and their ultimate impact on the Fund is uncertain
at this time.

SWAPS RISK

      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. 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.

TOTAL RETURN SWAPS RISK

      Total return swaps are contracts in which one party agrees to make
payments of the total return from the underlying asset(s), which may include
securities, derivatives or indices, during the specified period in return for
payments equal to a fixed or floating rate of interest or the total return from
other underlying asset(s). The Fund anticipates that, under its total return
swaps, if any, it will pay the counterparty a regular, set payment at an agreed
rate of return and, in return, will receive a payment which is equal to the
performance of the underlying assets. Total return swaps are subject to the risk
that a counterparty will default on its payment obligations. In the event that
the performance of the relevant assets is less than the agreed rate, the Fund
will be required to make further payments to the total return swap counterparty
in respect of such shortfalls. The Fund will not be able to replicate exactly
the performance of the relevant underlying assets because the total return
generated by the Fund's investment in a total return swap will be reduced by
certain costs and expenses. In addition, total return swaps may effectively add
leverage to the Fund's portfolio because the Fund would be subject to investment
exposure on the full notional amount of the swap. See "--Leverage Risk."

CREDIT DEFAULT SWAPS RISK

      The "buyer" in a credit default contract is obligated to pay the "seller"
a periodic stream of payments over the term of the contract, provided that no
event of default on an underlying reference obligation has occurred. If an event
of default occurs, the seller must pay the buyer the full notional value, or
"par value," of the reference obligation through either physical settlement or
cash settlement. The Fund may be either the buyer or seller in a credit default
swap transaction. If the Fund is a buyer and no event of default occurs, the
Fund will have made a series of periodic payments and recover nothing of
monetary value. However, if an event of default occurs, the Fund (if the buyer)
will receive the full notional value of the reference obligation through a cash
payment in exchange for the asset or, alternatively, a cash payment representing
the difference between the expected recovery rate and the full notional value.
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


                                       33



there is no event of default. The sale of a credit default swap effectively
creates leverage and subjects the Fund to the risks described under "--Leverage
Risk." The Fund currently intends to segregate assets on the Fund's records in
the form of cash, cash equivalents or liquid securities in an amount equal to
the notional value of the credit default swaps of which it is the seller. If
such assets are not fully segregated by the Fund, the use of credit default swap
transactions could then be considered leverage for purposes of the 1940 Act.
Asset segregation affects the regulatory treatment but does not diminish the
effective leverage in such instruments. Credit default swap transactions involve
greater risks than if the Fund had invested in the reference obligation
directly. In addition to general market risk, credit default swaps are subject
to illiquidity risk, counterparty risk and credit risk.

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 Advisor
may not accurately evaluate the security's 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 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.

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.

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.

      The United States and other governments and the Federal Reserve and
certain foreign central banks have taken steps to support financial markets. For
example, governmental financial regulators, including the U.S. Federal Reserve,
have taken 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 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


                                       34



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.

      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.

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
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.

SENIOR LOAN AGENT RISK

      Senior Loans generally are negotiated between a borrower and several
financial institution lenders represented by one or more lenders acting as agent
of all the lenders. A financial institution's employment as an agent under a
Senior Loan might be terminated in the event that it fails to observe a
requisite standard of care or becomes insolvent. A successor agent would
generally be appointed to replace the terminated agent, and assets held by the
agent under the loan agreement would likely remain available to holders of such
indebtedness. However, if assets held by the terminated agent for the benefit of
the Fund were determined to be subject to the claims of the agent's general
creditors, the Fund might incur certain costs and delays in realizing payment on
a Senior Loan or loan participation and could suffer a loss of principal and/or
interest. In situations involving other interposed financial institutions (e.g.,
an insurance company or government agency), similar risks may arise.

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.

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.

POTENTIAL CONFLICTS OF INTEREST RISK

      The Advisor and the portfolio managers have interests which may conflict
with the interests of the Fund. In particular, the Advisor advises other
investment funds or accounts with the same or substantially similar investment
objective(s) and strategies as the Fund. As a result, the Advisor 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 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 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.


                                       35



      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, the 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 Advisor, accounts in which the Advisor has an
interest, or accounts which pay the 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 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 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 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 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. In some cases, to avoid the potential of future
prohibited transactions, the Advisor may avoid allocating an investment
opportunity to the Fund that it would otherwise recommend, subject to the
Advisor's then-current allocation policy and any applicable exemptions.

      In certain circumstances, the 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 Advisor or
an affiliate of the Advisor. In other circumstances, the Advisor will not
participate in an investment opportunity to avoid receiving material non-public
information that would restrict the 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 or its 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 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 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 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 has a financial incentive to leverage the Fund, which may
create a conflict of interest between the Advisor and the Common Shareholders of
the Fund.

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.


                                       36



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
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.

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."

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. See "Federal Tax Matters."

TEMPORARY DEFENSIVE STRATEGIES RISK

      When the 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 objective.

ANTI-TAKEOVER PROVISIONS

      The Fund's Declaration 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."

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.


                                       37



                             MANAGEMENT OF THE FUND

TRUSTEES AND OFFICERS

      General oversight of the duties performed by the Advisor 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 adviser or portfolio supervisor to investment portfolios with
approximately $    billion in assets which it managed or supervised as of      .

      First Trust Advisors L.P. will be responsible for the day-to-day
management of the Fund's portfolio, managing the Fund's business affairs and
providing certain clerical, bookkeeping and other administrative services.

      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. 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 L.P. is controlled by Grace Partners and The
Charger Corporation.

      William Housey, CFA, Senior Portfolio Manager, Orlando Purpura, CFA,
Co-Portfolio Manager, and Jeffrey Scott, CFA, Co-Portfolio Manager, will be
responsible for implementing portfolio management decisions for the Fund.

      WILLIAM HOUSEY, CFA -- MANAGING DIRECTOR OF FIXED INCOME, SENIOR PORTFOLIO
MANAGER. Mr. Housey joined First Trust Advisors L.P. in June 2010 as the Senior
Portfolio Manager for the Leveraged Finance Investment Team and has 24 years of
investment experience. Mr. Housey is a Managing Director of Fixed Income and is
also a member of the First Trust Strategic Model Investment Committee and the
Fixed Income Sub-Committee. Prior to joining First Trust, Mr. Housey was at
Morgan Stanley Investment Management and its wholly owned subsidiary, Van Kampen
Funds, Inc., for 11 years where he last served as Executive Director and
Co-Portfolio Manager. Mr. Housey has extensive experience in the portfolio
management of both leveraged and unleveraged credit products, including senior
loans, high yield bonds, credit derivatives and corporate restructurings. Mr.
Housey received a B.S. in Finance from Eastern Illinois University and an M.B.A.
in Finance as well as Management and Strategy from Northwestern University's
Kellogg School of Business. He also holds the FINRA Series 7, Series 52 and
Series 63 licenses. Mr. Housey also holds the Chartered Financial Analyst
designation. He is a member of the CFA Institute and the CFA Society of Chicago.
Mr. Housey also serves on the Village of Glen Ellyn, IL Police Pension Board.

      ORLANDO PURPURA, CFA, CMT -- SENIOR VICE PRESIDENT, CHIEF CREDIT OFFICER,
PORTFOLIO MANAGER. Mr. Purpura joined First Trust Advisors L.P. in May 2013 as
Chief Credit Officer and Portfolio Manager for the Leveraged Finance Investment
Team and has 30 years of investment industry experience. Mr. Purpura is also a
member of the First Trust Strategic Model Fixed Income Sub-Committee. Prior to
joining First Trust, Mr. Purpura was at Allstate Investments LLC where he served
as Portfolio Manager in the Equity Special Situations Group that invested in the
public equity of companies in various stages of distress. Additionally, he also
was a Portfolio Manager in the Private Placement Group where he completed
corporate restructurings and workouts for troubled credits held in the
investment portfolio. Prior to Allstate Investments, Mr. Purpura was a founding
partner at Tall Tree Investment Management LLC, an institutional money manager
that focuses on Senior Secured Bank Loans in structured finance vehicles. Before
moving to Tall Tree, Mr. Purpura was a Senior Distressed Debt Analyst and
Workout specialist at Van Kampen Investments where he specialized in leading the
credit oversight and trading strategy for workouts and restructurings across
various industries. In the early 1990s, Mr. Purpura began his credit career at
Sanwa Business Credit Corporation that specialized in below investment grade
non-traditional lending and leasing. Mr. Purpura received a B.S. in Finance from
Elmhurst College and an M.B.A. in Finance from DePaul University. Mr. Purpura
holds the Chartered Financial Analyst designation and is a member of the CFA
Institute and the CFA Society of Chicago. He also holds the Chartered Market
Technician designation and is a member of the Market Technicians Association,
Chicago Chapter.

      JEFFREY SCOTT, CFA -- SENIOR VICE PRESIDENT, DEPUTY CREDIT OFFICER,
PORTFOLIO MANAGER. Mr. Scott is Deputy Credit Officer and Portfolio Manager for
the Leveraged Finance Investment Team at First Trust Advisors L.P. He has 30
years of experience in the investment management industry and has extensive
experience in credit analysis, product development, and product management.
Prior to joining First Trust, Mr. Scott served as an Assistant Portfolio Manager
and as a Senior Credit Analyst for Morgan Stanley/Van Kampen from October 2008
to June 2010. As Assistant Portfolio Manager, Mr. Scott served on a team that
managed over $4.0 billion of Senior Loan assets in three separate funds: Van


                                       38



Kampen Senior Loan Fund; Van Kampen Senior Income Trust; and Van Kampen Dynamic
Credit Opportunities Fund. His responsibilities included assisting with
portfolio construction, buy and sell decision making, and monitoring fund
liquidity and leverage. Mr. Scott earned a B.S. in Finance and Economics from
Elmhurst College and an M.B.A. with specialization in Analytical Finance and
Econometrics and Statistics from the University of Chicago. He also holds the
Chartered Financial Analyst designation and is a member of the CFA Institute and
the CFA Society of Chicago.

      For additional information about the Advisor, 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" in the SAI.

INVESTMENT MANAGEMENT AGREEMENT

      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 the Fund's Preferred Shares, if any, and the principal
amount of any borrowings or commercial paper or notes issued by the Fund), 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 of money incurred or of 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.

      Because the fee paid to the Advisor 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 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 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.


                                       39



      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.

      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 monthly 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 monthly
distribution is expected to be declared approximately 30 to 45 days after the
completion of this offering and paid approximately 60 to 90 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 their monthly distributions reinvested in Common Shares through the Fund's
dividend reinvestment plan. See "Dividend Reinvestment Plan" below.

      Various factors will affect the level of the Fund's income, including the
asset mix, the average maturity of the Fund's portfolio, the amount of leverage
utilized by the Fund and the Fund's use of hedging. The Fund may from time to
time distribute less than the entire amount of income earned in a particular
period. The undistributed income would be available to supplement future
distributions. As a result, the distributions paid by the Fund for any
particular monthly period may be more or less than the amount of income actually
earned by the Fund during that period. Undistributed income will add to the
Fund's NAV and, correspondingly, distributions from undistributed income will
decrease the Fund's NAV. 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
RIC for U.S. federal income tax purposes. See "Federal Tax Matters."

      The Fund reserves the right to change its distribution policy and the
basis for establishing the rate of its monthly distribution at any time upon
notice to Common Shareholders.

                           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:


                                       40




      (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.

      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 $0.01 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 its 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 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


                                       41



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.

      The Fund may elect to issue Preferred Shares as part of its leverage
strategy. See "Use of Leverage--Preferred Shares." However, the Fund does not
currently anticipate it will issue Preferred Shares within 12 months of the date
of this prospectus. 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


                                       42



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 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.

      The Declaration provides that the Fund in ordinary circumstances will
terminate on or about August 1, 2027. The Fund's 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 Common Shareholders,
for one period of up to six months. The Fund's term may only be extended further
than one period with a vote of Common Shareholders.

      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


                                       43



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
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 objective 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.

      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 objective 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.


                                       44



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
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, the 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 currently 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 does 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.


                                       45



      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
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 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
year 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 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.


                                       46



      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
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.


                                       47



                                  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             , and            are 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" are not reimbursable to the
Advisor by the Fund and are therefore not reflected in the table above.

   The 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.

   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.

   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).


                                       48



      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, 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.

      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 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.


                                       49



      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 and its 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

      The Advisor (and not the Fund) has agreed to pay          , from its 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 are
unrelated to its function of advising the Fund as to its investments in
securities or use of investment strategies and investment techniques.

      The Advisor (and not the Fund) has agreed to pay each of          ,
         and          , from its 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 are unrelated to its function of advising the Fund
as to its investments in securities or use of investment strategies and
investment techniques.

      The Advisor (and not the Fund) has agreed to pay each of          ,
         and          , from its 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 are
unrelated to its function of advising the Fund as to its investments in
securities or use of investment strategies and investment techniques.

      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 not the Fund) has agreed to pay from its 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.


                                       50



      Total underwriting compensation determined in accordance with Financial
Industry Regulatory Authority, Inc. ("FINRA") rules is summarized as follows.
The Advisor has 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.


                                       51



          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          .


                                       52



                      TABLE OF CONTENTS FOR THE STATEMENT
                           OF ADDITIONAL INFORMATION


                                                                            PAGE
Investment Objective..........................................................1
Investment Restrictions.......................................................1
Investment Policies and Techniques............................................3
Additional Information about the Fund's Investments and Investment Risks......5
Other Investment Policies, and Techniques....................................17
Management of the Fund.......................................................33
Investment Advisor...........................................................43
Proxy Voting Policies and Procedures.........................................49
Portfolio Transactions and Brokerage.........................................50
Repurchase of Fund Shares; Conversion to Open-end Fund.......................51
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.......................................................65
Appendix A--Ratings of Investments..........................................A-1
Appendix B--ISS Proxy Voting Guidelines.....................................B-1


                                       53



      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 HIGH YIELD OPPORTUNITIES 2027 TERM 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 APRIL 28, 2020


           FIRST TRUST HIGH YIELD OPPORTUNITIES 2027 TERM FUND
                      STATEMENT OF ADDITIONAL INFORMATION

      First Trust High Yield Opportunities 2027 Term Fund (the "Fund") was
organized on April 24, 2020 as a Massachusetts business trust pursuant to a
Declaration of Trust. The Fund is a 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

ADDITIONAL INFORMATION ABOUT THE FUND'S
   INVESTMENTS AND INVESTMENT RISKS..........................................5

OTHER INVESTMENT POLICIES, AND TECHNIQUES...................................14

MANAGEMENT OF THE FUND......................................................31

INVESTMENT ADVISOR..........................................................40

PROXY VOTING POLICIES AND PROCEDURES........................................45

PORTFOLIO TRANSACTIONS AND BROKERAGE........................................46

REPURCHASE OF FUND SHARES; CONVERSION TO OPEN-END FUND......................47

CERTAIN PROVISIONS IN THE DECLARATION OF TRUST..............................50

FEDERAL TAX MATTERS.........................................................52

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM...............................61

CUSTODIAN, ADMINISTRATOR, FUND ACCOUNTANT AND TRANSFER AGENT................61

ADDITIONAL INFORMATION......................................................61


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

APPENDIX B -- ISS PROXY VOTING GUIDELINES..................................B-1


                                      -i-



                             INVESTMENT OBJECTIVE

      Investment Objective. The Fund's investment objective is to
provide 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 high yield debt securities and other instruments.

      Under normal market conditions, the Fund will seek to achieve its
investment objective by investing at least 80% of its Managed Assets in high
yield debt securities of varying maturities that are rated below investment
grade at the time of purchase or unrated securities determined by the Advisor
(as defined below) to be of comparable quality. The portfolio will be selected
using a combination of fundamental credit selection process with a relative
value analysis. Such securities include U.S. and non-U.S. corporate debt
obligations, senior, secured floating rate loans and convertible securities. The
Fund will limit the amount of its investment in corporate bonds that are rated
at or below Caa1 by Moody's (as defined below) or CCC+ by S&P Fitch (as defined
below) to no more than 20% of its Managed Assets and the Fund will not invest
more than 5% of its Managed Assets in the Securities issued by a single issuer,
other than securities issued by the U.S. government. The Fund also may use
derivative instruments that provide comparable economic exposure to the
corporate debt market.

                            INVESTMENT RESTRICTIONS

FUNDAMENTAL INVESTMENT POLICIES

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

              1. With respect to 75% of its total assets, purchase any
      securities if, as a result (i) more than 5% of the Fund's total assets
      would then be invested in securities of any single issuer, or (ii) the
      Fund would hold more than 10% of the outstanding voting securities of any
      single issuer; provided, that Government securities (as defined in the
      1940 Act), securities issued by other investment companies and cash items
      (including receivables) shall not be counted for purposes of this
      limitation;

              2. Purchase or sell real estate or commodities 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;

              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)
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.


                                      -2-



                       INVESTMENT POLICIES AND TECHNIQUES

      The following information supplements the discussion of the Fund's
investment objective, policies, and techniques that are described in the Fund's
Prospectus.

PORTFOLIO COMPOSITION

      Short-Term Debt Securities; Temporary Investments and Defensive Position;
Invest-Up Period. During the period in which the net proceeds of the offering of
Common Shares are being invested, periods in which the proceeds from the
issuance of Preferred Shares, if any, commercial paper or notes and/or other
Borrowings are being invested, periods in which First Trust Advisors L.P. (the
"Advisor") determines that it is temporarily unable to follow the Fund's
investment strategy or that it is impractical to do so, or the period in which
the Fund is approaching its Termination Date, including when its assets are
being liquidated in anticipation of its termination, the Fund may deviate from
its investment strategy and invest all or any portion of its net assets in cash,
cash equivalents or other securities. The Advisor's determination that it is
temporarily unable to follow the Fund's investment strategy or that it is
impracticable to do so generally will occur only in situations in which a market
disruption event has occurred and where trading in the securities selected
through application of the Fund's investment strategy is extremely limited or
absent. In such a case, the Fund may not pursue or achieve its investment
objective.

      Cash and cash equivalents are defined to include, without limitation, the
following:

              1. Non-U.S. government securities which have received the highest
      investment-grade credit rating and U.S. government securities, including
      bills, notes and bonds differing as to maturity and rates of interest that
      are either issued or guaranteed by the U.S. Treasury or by U.S. government
      agencies or instrumentalities. U.S. government agency securities include
      securities issued by: (i) the Federal Housing Administration, Farmers Home
      Administration, Export-Import Bank of the United States, Small Business
      Administration, and the Government National Mortgage Association, whose
      securities are supported by the full faith and credit of the U.S.
      government; (ii) the Federal Home Loan Banks, Federal Intermediate Credit
      Banks, and the Tennessee Valley Authority, whose securities are supported
      by the right of the agency to borrow from the U.S. Treasury; (iii) the
      Federal National Mortgage Association and the Federal Home Loan Mortgage
      Corporation; and (iv) the Student Loan Marketing Association, whose
      securities are supported only by its credit. While the U.S. government
      provides financial support to such U.S. government-sponsored agencies or
      instrumentalities, no assurance can be given that it always will do so
      since it is not so obligated by law. The U.S. government, its agencies and
      instrumentalities do not guarantee the market value of their securities.
      Consequently, the value of such securities may fluctuate.

              2. Certificates of deposit issued against funds deposited in a
      bank or a savings and loan association. Such certificates are for a
      definite period of time, earn a specified rate of return, and are normally
      negotiable. The issuer of a certificate of deposit agrees to pay the
      amount deposited plus interest to the bearer of the certificate on the


                                      -3-



      date specified thereon. Under current Federal Deposit Insurance
      Corporation ("FDIC") regulations, the maximum insurance payable as to any
      one certificate of deposit is $250,000; therefore, certificates of deposit
      purchased by the Fund may not be fully insured.

              3. Repurchase agreements, which involve purchases of debt
      securities. At the time the Fund purchases securities pursuant to a
      repurchase agreement, it simultaneously agrees to resell and redeliver
      such securities to the seller, who also simultaneously agrees to buy back
      the securities at a fixed price and time. This assures a predetermined
      yield for the Fund during its holding period, since the resale price is
      always greater than the purchase price and typically reflects current
      market rates. Such actions afford an opportunity for the Fund to invest
      temporarily available cash. Pursuant to the Fund's policies and
      procedures, the Fund may enter into repurchase agreements for temporary or
      defensive purposes only with respect to obligations of the U.S.
      government, its agencies or instrumentalities; certificates of deposit; or
      bankers' acceptances in which the Fund may invest. Repurchase agreements
      may be considered loans to the seller, collateralized by the underlying
      securities. The risk to the Fund is limited to the ability of the seller
      to pay the agreed-upon sum on the repurchase date; in the event of
      default, the repurchase agreement provides that the Fund is entitled to
      sell the underlying collateral. If the seller defaults under a repurchase
      agreement when the value of the underlying collateral is less than the
      repurchase price, the Fund could incur a loss of both principal and
      interest. The Advisor monitors the value of the collateral at the time the
      action is entered into and at all times during the term of the repurchase
      agreement. The Advisor does so in an effort to determine that the value of
      the collateral always equals or exceeds the agreed-upon repurchase price
      to be paid to the Fund. If the seller were to be subject to a federal
      bankruptcy proceeding, the ability of the Fund to liquidate the collateral
      could be delayed or impaired because of certain provisions of the
      bankruptcy laws.

              4. Commercial paper, which consists of short-term unsecured
      promissory notes, including variable rate master demand notes, issued by
      corporations to finance their current operations. Master demand notes are
      direct lending arrangements between the Fund and a corporation. There is
      no secondary market for such notes. However, they are redeemable by the
      Fund at any time. The Advisor will consider the financial condition of the
      corporation (e.g., earning power, cash flow, and other liquidity measures)
      and will continuously monitor the corporation's ability to meet all its
      financial obligations, because the Fund's liquidity might be impaired if
      the corporation were unable to pay principal and interest on demand.
      Investments in commercial paper for temporary or defensive purposes will
      be limited to commercial paper rated in the highest categories by a NRSRO
      and which mature within one year of the date of purchase or carry a
      variable or floating rate of interest.

              5. Bankers' acceptances, which are short-term credit instruments
      used to finance commercial transactions. Generally, an acceptance is a
      time draft drawn on a bank by an exporter or an importer to obtain a
      stated amount of funds to pay for specific merchandise. The draft is then
      "accepted" by a bank that, in effect, unconditionally guarantees to pay
      the face value of the instrument on its maturity date. The acceptance may


                                      -4-



      then be held by the accepting bank as an asset or it may be sold in the
      secondary market at the going rate of interest for a specific maturity.

              6. The Fund may invest in bank time deposits, which are monies
      kept on deposit with banks or savings and loan associations for a stated
      period of time at a fixed rate of interest. There may be penalties for the
      early withdrawal of such time deposits, in which case the yields of these
      investments will be reduced.

              7. The Fund may invest in shares of money market funds in
      accordance with the provisions of the 1940 Act, the rules thereunder and
      interpretations thereof.

                    ADDITIONAL INFORMATION ABOUT THE FUND'S
                        INVESTMENTS AND INVESTMENT RISKS

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 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
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


                                      -5-



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
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 Advisor than if the Fund invested exclusively in
higher-quality securities.


                                      -6-



      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 may not
accurately evaluate the security's creditworthiness. Accordingly, the Fund's
success in achieving its investment objective may depend more heavily on the
analysis of the 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.

DEBT SECURITIES

      Debt securities are generally 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 on or before maturity. Certain debt securities in
which the Fund may invest may be "perpetual" in that they have no maturity date
and some may be convertible into equity securities of the issuer or its
affiliates. The Fund may invest in debt securities of any quality and of any
maturity or duration, and such debt securities may be secured or unsecured. In


                                      -7-



addition, certain debt securities in which the Fund may invest may be
subordinated to the payment of an issuer's senior debt.

      Corporate Debt Obligations. Corporate debt securities are fully taxable
debt obligations issued by corporations. These securities fund capital
improvements, expansions, debt refinancing or acquisitions that require more
capital than would ordinarily be available from a single lender. Investors in
corporate debt securities lend money to the issuing corporation in exchange for
interest payments and repayment of the principal at a set maturity date. Rates
on corporate debt securities are set according to prevailing interest rates at
the time of the issue, the credit rating of the issuer, the length of the
maturity and other terms of the security, such as a call feature. Corporate debt
securities are subject to the risk of an issuer's inability to meet principal
and interest payments on the obligations and may also be subject to price
volatility due to such factors as market interest rates, market perception of
the creditworthiness of the issuer and general market liquidity. In addition,
corporate restructurings, such as mergers, leveraged buyouts, takeovers or
similar corporate transactions are often financed by an increase in a corporate
issuer's debt securities. As a result of the added debt burden, the credit
quality and market value of an issuer's existing debt securities may decline
significantly. The Fund's investments in corporate debt securities may include,
but are not limited to, senior, secured and unsecured bonds, notes and other
debt securities, and may be fixed rate, variable rate or floating rate, among
other things.

BONDS

      The Fund may invest in a wide variety of bonds of varying maturities
issued by U.S. and foreign corporations and other business entities, governments
and municipalities (during the initial investment period or for temporary
defensive measures) and other issuers. Bonds are fixed or variable-rate debt
obligations, including bills, notes, debentures, money market instruments and
similar instruments and securities. Bonds generally are used by corporations as
well as governments and other issuers 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. Corporate bonds come 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).

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


                                      -8-



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
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.


                                      -9-



      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.

SENIOR LOANS

       Senior Loans are made to U.S. and non-U.S. corporations, partnerships and
other business entities which operate in various industries and geographical
regions, including entities from emerging market countries, (collectively,
"Borrowers"). Senior Loans generally hold one of the most senior positions in
the capital structure of the Borrower, 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. Collateral for Senior Loans may include (i) working capital assets,
such as accounts receivable and inventory; (ii) tangible fixed assets, such as
real property, buildings and equipment; (iii) intangible assets, such as
trademarks and patent rights; and/or (iv) security interests in shares of stock
of subsidiaries or affiliates.

      Senior Loans generally are negotiated between a Borrower and several
financial institution lenders ("Lenders") represented by one or more Lenders
acting as agent of all the Lenders ("Agent"). The Agent is responsible for
negotiating the loan agreement (the "Loan Agreement") that establishes the terms
and conditions of the Senior Loan and the rights of the Borrower and the
Lenders. The Fund may purchase assignments of portions of Senior Loans from


                                      -10-



third parties and may invest in participations in Senior Loans. The Fund's
investments in Senior Loans will primarily consist of assignments. Investments
in participations are expected to represent a minor portion of the Fund's
portfolio.

      The Fund will generally acquire Senior Loans of Borrowers that, among
other things, the Advisor believes can make timely payments on their Senior
Loans and that satisfy other credit standards established by the Advisor. Senior
Loans generally have one of the most senior positions in a Borrower's capital
structure or share the senior position with other senior debt securities of the
Borrower. This capital structure position generally gives holders of Senior
Loans a priority claim on some or all of the Borrower's assets in the event of
default. All of the Fund's Senior Loan investments will be secured and will have
a first lien priority on collateral of the Borrower.

      Senior Loans are typically rated below-investment grade. 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. Below-investment grade securities are rated below
"BBB-" by S&P or Fitch, below "Baa3" by Moody's or comparably rated by another
NRSRO or, if unrated, determined by the Advisor to be of comparable credit
quality at the time of purchase. See Appendix A to this Statement of Additional
Information for a description of Moody's, S&P's and Fitch's ratings.

SECOND LIEN LOANS

      The Fund may invest in second lien loans and unsecured loans. Such loans
are made by public and private corporations and other non-governmental Borrowers
for a variety of purposes. As in the case of senior loans, the Fund may purchase
interests in second lien loans and unsecured loans through assignments or
participations. Second lien loans have similar characteristics as senior loans
except that such interests are second in lien property rather than first. Second
lien loans are second in priority of payment to one or more senior loans of the
related Borrower and are typically secured by a second priority security
interest or lien to or on specified collateral securing the Borrower's
obligation under the interest. They typically have similar protections and
rights as senior loans. Second lien loans are not (and by their terms cannot
become) subordinate in priority of payment to any obligation of the related
Borrower other than senior loans of such Borrower. Second lien loans may feature
fixed or floating rate interest payments. Because second lien loans are second
to senior loans, they present a greater degree of investment risk but often pay
interest at higher rates reflecting this additional risk. In addition, second
lien loans of below investment grade quality share many of the risk
characteristics of other below investment grade debt instruments.

Unsecured loans generally have lower priority in right of payment compared to
holders of secured interests of the Borrower. Unsecured loans are not secured by
a security interest or lien to or on specified collateral securing the
Borrower's obligation under the interest. Unsecured loans by their terms may be
or may become subordinate in right of payment to other obligations of the
Borrower, including senior loans, second lien loans and other interests.
Unsecured loans may have fixed or adjustable floating rate interest payments.
Because unsecured loans are subordinate to senior loans and other secured debt
of the Borrower, they present a greater degree of investment risk but often pay


                                      -11-



interest at higher rates reflecting this additional risk. Such investments
generally are of below investment grade quality. Unsecured loans of below
investment grade quality share the same risks of other below investment grade
debt instruments.

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.

CONVERTIBLE SECURITIES

      The Fund's investments in convertible securities may include convertible
debt, convertible preferred stock, synthetic convertible securities and may also
include secured and unsecured debt, based upon the judgment of the Advisor. The
convertible securities may pay interest or dividends that are based on a fixed
or floating rate.

      A convertible security is a preferred stock, warrant or other security
that may be converted into or exchanged for a prescribed amount of common stock
or other security of the same or a different issuer or into cash within a
particular period of time at a specified price or formula. A convertible
security generally entitles the holder to receive the dividend paid on preferred
stock until the convertible security matures or is redeemed, converted or
exchanged. Before conversion, convertible securities generally have
characteristics similar to both fixed-income and equity securities. The value of
convertible securities tends to decline as interest rates rise and, because of
the conversion feature, tends to vary with fluctuations in the market value of
the underlying securities. Convertible securities ordinarily provide a stream of
income with generally higher yields than those of common stock of the same or
similar issuers. Convertible securities generally rank senior to common stock in
a corporation's capital structure but are usually subordinated to comparable
non-convertible securities. Convertible securities generally do not participate
directly in any dividend increases or decreases of the underlying securities
although the market prices of convertible securities may be affected by any
dividend changes or other changes in the underlying securities.


                                      -12-



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 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.

NON-U.S. AND EMERGING MARKET ISSUERS

      The Fund's investments in foreign securities may include investments in
securities which are purchased and sold in foreign currencies. Foreign
securities may include debt securities of governmental and corporate issuers,
preferred stock and convertible securities of corporate issuers evidencing
ownership of shares of a foreign issuer or that provide exposure to foreign
issuers.

      Investing in the securities of foreign issuers involves special
considerations which are not typically associated with investing in the
securities of U.S. issuers. Investments in securities of foreign issuers may
involve risks arising from differences between U.S. and foreign securities
markets, including less volume, much greater price volatility in and illiquidity
of certain foreign securities markets, different trading and settlement
practices and less governmental supervision and regulation, from changes in
currency exchange rates, from high and volatile rates of inflation, from
economic, social and political conditions such as wars, terrorism, civil unrest
and uprisings, and, as with domestic multinational corporations, from
fluctuating interest rates.

      There may be less publicly-available information about a foreign issuer
than about a U.S. issuer, and foreign issuers may not be subject to the same
accounting, auditing and financial record-keeping standards and requirements as
U.S. issuers. In particular, the assets and profits appearing on the financial
statements of an emerging market country issuer may not reflect its financial
position or results of operations in the way they would be reflected had the
financial statements been prepared in accordance with U.S. generally accepted
accounting principles. In addition, for an issuer that keeps accounting records
in local currency, inflation accounting rules may require, for both tax and
accounting purposes, that certain assets and liabilities be restated on the
issuer's balance sheet in order to express items in terms of currency of
constant purchasing power. Inflation accounting may indirectly generate losses
or profits. Consequently, financial data may be materially affected by


                                      -13-



restatements for inflation and may not accurately reflect the real condition of
those issuers and securities markets. Finally, in the event of a default in any
such foreign obligations, it may be more difficult for the Fund to obtain or
enforce a judgment against the issuers of such obligations.

      Other investment risks include the possible imposition of foreign
withholding taxes on certain amounts of the Fund's income, the possible seizure
or nationalization of foreign assets and the possible establishment of exchange
controls, expropriation, confiscatory taxation, other foreign governmental laws
or restrictions which might affect adversely payments due on securities held by
the Fund, the lack of extensive operating experience of eligible foreign
subcustodians and legal limitations on the ability of the Fund to recover assets
held in custody by a foreign subcustodian in the event of the subcustodian's
bankruptcy.

      There generally is less governmental supervision and regulation of
exchanges, brokers and issuers in foreign countries than there is in the United
States. For example, there may be no comparable provisions under certain foreign
laws to insider trading and similar investor protection securities laws that
apply with respect to securities transactions consummated in the United States.
Further, brokerage commissions and other transaction costs on foreign securities
exchanges generally are higher than in the United States.

      Certain of the risks associated with international investments and
investing in smaller capital markets are heightened for investments in emerging
market countries. For example, some of the currencies of emerging market
countries have experienced devaluation relative to the U.S. dollar, and major
adjustments have been made periodically in certain of such currencies. Certain
of such countries face serious exchange constraints. In addition, governments of
many emerging market countries have exercised and continue to exercise
substantial influence over many aspects of the private sector. In certain cases,
the government owns or controls many companies. Accordingly, government actions
in the future could have a significant effect on economic conditions in
developing countries which could affect private sector companies and
consequently, the value of certain securities held in the Fund's portfolio.

OTHER INVESTMENT COMPANIES

      The Fund may invest in securities of investment companies to the extent
permissible under the 1940 Act and the rules and regulations thereunder. The
1940 Act generally imposes the following restrictions on investments in other
investment companies: (i) the Fund may not purchase more than 3% of the total
outstanding voting stock of another investment company; (ii) the Fund may not
invest more than 5% of its total assets in securities issued by any one
investment company; and (iii) the Fund may not invest more than 10% of its total
assets in securities issued by investment companies. These limitations do not
apply to the purchase of shares of any investment company (i) in connection with
a merger, consolidation, reorganization or acquisition of substantially all the
assets of another investment company or (ii) pursuant to any exemptive rules or
exemption granted under the 1940 Act. The Fund may invest in common shares of
money market funds.

      As a shareholder in an investment company, the Fund would indirectly bear
its proportionate share of the advisory fees and other operating expenses of
such investment company, and would remain subject to payment of the Fund's


                                      -14-



management fees and other expenses with respect to assets so invested. Common
Shareholders would therefore be subject to duplicative expenses to the extent
the Fund invests in other investment companies. The Advisor will take expenses
into account when evaluating the merits of an investment in an investment
company relative to available alternative opportunities. In addition, the
securities of other investment companies may also be leveraged and will
therefore be subject to the same leverage risks described in the Prospectus. The
NAV and market value of leveraged shares will be more volatile and the yield
will tend to fluctuate more than the yield generated by unleveraged shares.
Other investment companies may have investment policies that differ from those
of the Fund. In addition, to the extent the Fund invests in other investment
companies, the Fund will be dependent upon the investment and research abilities
of persons other than the Advisor.

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 of 1933, as
amended (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 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,
municipal securities, convertible 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, under the supervision of the Board of Trustees, will determine whether
restricted securities are illiquid.


                                      -15-



      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.

OTHER INVESTMENTS

      Commercial Paper. Commercial paper represents short-term unsecured
promissory notes issued in bearer form by corporations, such as banks or bank
holding companies and finance companies. The rate of return on commercial paper
may be linked or indexed to the level of exchange rates between the U.S. dollar
and a foreign currency or currencies.

      Certificates of Deposit. Certificates of deposit are negotiable
certificates that are issued against funds deposited in a commercial bank for a
definite period of time and that earn a specified return and are normally
negotiable. The issuer of a certificate of deposit agrees to pay the amount
deposited plus interest to the bearer of the certificate on the date specified
thereon. Certificates of deposit purchased by the Fund may not be fully insured
by the Federal Deposit Insurance Corporation.

      Fixed Time Deposits. Fixed time deposits are bank obligations payable at a
stated maturity date and bearing interest at a fixed rate. Fixed time deposits
may be withdrawn on demand by the investor, but may be subject to early
withdrawal penalties which vary depending upon market conditions and the
remaining maturity of the obligation. There are generally no contractual
restrictions on the right to transfer a beneficial interest in a fixed time
deposit to a third party, although there is no market for such deposits. The
Fund may also hold funds on deposit with its custodian bank in an
interest-bearing account for temporary purposes.

      Zero Coupon Securities and Payment-In-Kind Securities. The Fund may invest
in zero coupon securities and payment-in-kind securities. Zero coupon securities
are debt securities that pay no cash income and are sold at substantial
discounts from their value at maturity. When a zero coupon security is held to
maturity, its entire return, which consists of the amortization discount, comes
from the difference between its purchase price and its maturity value. This
difference is known at the time of purchase, so that investors holding zero
coupon securities until maturity know at the time of their investment what the
expected return on their investment will be, assuming full repayment of the
bond. The Fund also may purchase payment-in-kind securities. Payment-in-kind
securities pay all or a portion of their interest in the form of debt or equity
securities rather than cash. Zero coupon securities and payment-in-kind
securities tend to be subject to greater price fluctuations in response to
changes in interest rates than are ordinary interest-paying debt securities with
similar maturities. The value of zero coupon securities appreciates more during
periods of declining interest rates and depreciates more during periods of
rising interest rates than ordinary interest-paying debt securities with similar


                                      -16-



maturities. Zero coupon securities and payment-in-kind securities may be issued
by a wide variety of corporate and governmental issuers.

                    OTHER INVESTMENT POLICIES AND TECHNIQUES

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, including to take on additional
credit risk and obtain exposure to Senior Loans; (iii) mitigate other risks,
including, without limitation, interest rate, currency and credit risks and
equity security price risk; and/or (iv) earn income. 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 of these instruments and other
similar transactions which may be developed in the future to the extent the
Advisor determines that they are consistent with the Fund's investment
objective 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.


                                      -17-



      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
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


                                      -18-



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
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


                                      -19-



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
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.


                                      -20-



      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
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


                                      -21-



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
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


                                      -22-



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 Advisor anticipates 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 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


                                      -23-



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.

      The successful use of swaps, caps and floors to preserve the rate of
return on a portfolio of financial instruments depends on the 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 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 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 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 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


                                      -24-



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
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


                                      -25-



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.

      Special Purpose Vehicles ("SPVs"). SPVs are limited-purpose entities that
are created solely for the purpose of holding assets. SPVs serve as passthrough
conduits in creating securities backed by mortgages, credit card and auto loans,
leases, and other financial assets. Payment of interest and repayment of
underlying securities may be largely dependent upon the cash flows generated by
the assets backing the securities and, in certain cases, supported by letters of
credit, surety bonds or other credit enhancements. In addition, SPVs may be
affected by the creditworthiness of the servicing agent for the pool, the
originator of the loans or receivables, or the entities providing the credit
enhancement and prepayment risk.

      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.

      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


                                      -26-



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.

      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 Advisor 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


                                      -27-



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.

      Regulation as a "Commodity Pool." CFTC Rule 4.5 requires operators of
registered investment companies to either limit such investment companies' use
of futures, options on futures and swaps or register as a "commodity pool
operator" ("CPO") and submit to dual regulation by the CFTC and the SEC. In
order to be able to comply with the exclusion from the CPO definition pursuant
to CFTC Rule 4.5 with respect to the Fund, the Advisor must limit the Fund's
transactions in commodity futures, commodity option contracts and swaps for
non-bona fide hedging purposes by either (a) limiting the aggregate initial
margin and premiums required to establish non-bona fide hedging commodities
positions to not more than 5% of the liquidation value of the Fund's portfolio
after taking into account unrealized profits and losses on any such contract or
(b) limiting the aggregate net notional value of non-bona fide hedging
commodities positions to not more than 100% of the liquidation value of the
Fund's portfolio after taking into account unrealized profits and losses on such
positions. In the event that the Fund's investments in such instruments exceed
one of these thresholds, the Advisor would no longer be excluded from the CPO
definition and may be required to register as a CPO. In the event the Advisor is
required to register as a CPO, it will become subject to additional
recordkeeping and reporting requirements with respect to the Fund and the Fund
may incur additional expenses as a result of the CFTC's regulatory requirements.
The Advisor has claimed an exclusion from the definition of a CPO with respect
to the Fund under the amended rules. If, in the future, the Advisor is not able
to rely on an exclusion from the definition of CPO, it will register as a CPO,
with respect to the Fund. The Fund reserves the right to engage in transactions
involving futures, options thereon and swaps in accordance with the Fund's
policies.

      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 Advisor 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 Advisor
elects not to use derivative instruments and other transactions that result in


                                      -28-



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.

      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 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 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


                                      -29-



      transactions in derivative instruments only with counterparties that the
      Advisor reasonably believes are capable of performing under the contract.

             (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 Advisor's 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 Advisor's 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.


                                      -30-



             (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
      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.

REPURCHASE AGREEMENTS

      Repurchase agreements typically involve the acquisition by the Fund of
debt securities from a selling financial institution such as a bank, savings and
loan association or broker-dealer. The agreement provides that the Fund will
sell the securities back to the institution within a specified time at the
Fund's cost plus interest. The Fund does not bear the risk of a decline in the
value of the underlying security unless the seller defaults under its repurchase
obligation. If the party agreeing to repurchase should default, the Fund will
seek to sell the securities which it holds. In the event of the bankruptcy or
other default of a seller of a repurchase agreement, the Fund could experience
both delays in liquidating the underlying securities and losses, including
possible decline in the value of the underlying security during the period in


                                      -31-



which the Fund seeks to enforce its rights thereto; possible lack of access to
income on the underlying security during this period; and expenses of enforcing
its rights.

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 its
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
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 objective.

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.


                                      -32-



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 Advisor that
the annual rate will not 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
Advisor believes 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.

                             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 Fund, 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 Fund's
officers and hire the Fund'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.


                                      -33-



                                                                                                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 term        Chief Executive        176          None
1955                         Board and                                  Officer, First Trust   Portfolios
                             Trustee           o Since inception        Advisors L.P. and
                                                                        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 term        Physician; Officer,    176          None
1951                                                                    Wheaton Orthopedics;   Portfolios
                                               o Since inception        Limited Partner,
                                                                        Gundersen Real Estate
                                                                        Limited Partnership
                                                                        (June 1992 to
                                                                        December 2016);
                                                                        Member, Sportsmed LLC
                                                                        (April 2007 to
                                                                        November 2015)

                             Trustee           o Indefinite term        President, ADM         176          Director of ADM
1957                                                                    Investor Services,     Portfolios   Investor
                                               o Since inception        Inc. (Futures                       Services, Inc.,
                                                                        Commission Merchant)                ADM Investor
                                                                                                            Services
                                                                                                            International,
                                                                                                            Futures
                                                                                                            Industry
                                                                                                            Association,
                                                                                                            and National
                                                                                                            Futures
                                                                                                            Association

                             Trustee           o Indefinite term        President, Hibs        176          Director of
1956                                                                    Enterprises            Portfolios   Trust Company
                                               o Since inception        (Financial and                      of Illinois
                                                                        Management
                                                                        Consulting)


                                      -34-



                                                                                                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 term        Senior Advisor         176          None
1954                                                                    (August 2018 to        Portfolios
                                               o Since inception        present), Managing
                                                                        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 term        Managing Director and  N/A          N/A
1966                         Chief Executive                            Chief Financial
                             Officer           o Since inception        Officer (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)

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

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



                                      -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

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

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

UNITARY BOARD LEADERSHIP STRUCTURE

      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
eight 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
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 153 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 Fund, 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.

      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


                                      -36-



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
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.


                                      -37-



      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 Fund'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.

      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 Fund'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
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.

      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.


                                      -38-



      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.

EXECUTIVE OFFICERS

      The executive officers of the Fund hold the same positions with each fund
in the First Trust Fund Complex (representing 176 portfolios) as they hold with
the 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 Fund'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
and risk management. The Nominating and Governance Committee monitors all
matters related to the corporate governance of the Fund. 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


                                      -39-



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 Fund'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.

                      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.


                                      -40-



                    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 (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


                                      -41-



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 Fund. 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.

      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


                                      -42-



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

      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 will, among
other things, manage the investment and reinvestment of the Fund's assets,
monitor the Fund's investments and comply with the stated investment objective,
policies and restrictions of the Fund. First Trust Advisors also provides the
Fund with professional investment supervision 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 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.

      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


                                      -43-



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 Agreement
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 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 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. 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.

      William Housey, CFA, Senior Portfolio Manager, Orlando Purpura, CFA,
Co-Portfolio Manager, and Jeffrey Scott, CFA, Co-Portfolio Manager, will be
responsible for implementing portfolio management decisions for the Fund. 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.


                                      -44-



      WILLIAM HOUSEY, CFA, MANAGING DIRECTOR OF FIXED INCOME, SENIOR PORTFOLIO
MANAGER.

      Mr. Housey joined First Trust Advisors L.P. in June 2010 as the Senior
Portfolio Manager for the Leveraged Finance Investment Team and has 24 years of
investment experience. Mr. Housey is a Managing Director of Fixed Income and is
also a member of the First Trust Strategic Model Investment Committee and the
Fixed Income Sub-Committee. Prior to joining First Trust, Mr. Housey was at
Morgan Stanley Investment Management and its wholly owned subsidiary, Van Kampen
Funds, Inc., for 11 years where he last served as Executive Director and
Co-Portfolio Manager. Mr. Housey has extensive experience in the portfolio
management of both leveraged and unleveraged credit products, including senior
loans, high yield bonds, credit derivatives and corporate restructurings. Mr.
Housey received a B.S. in Finance from Eastern Illinois University and an M.B.A.
in Finance as well as Management and Strategy from Northwestern University's
Kellogg School of Business. He also holds the FINRA Series 7, Series 52 and
Series 63 licenses. Mr. Housey also holds the Chartered Financial Analyst
designation. He is a member of the CFA Institute and the CFA Society of Chicago.
Mr. Housey also serves on the Village of Glen Ellyn, IL Police Pension Board.

      ORLANDO PURPURA, CFA, CMT, SENIOR VICE PRESIDENT, CHIEF CREDIT OFFICER,
PORTFOLIO MANAGER.

      Mr. Purpura joined First Trust Advisors L.P. in May 2013 as Chief Credit
Officer and Portfolio Manager for the Leveraged Finance Investment Team and has
30 years of investment industry experience. Mr. Purpura is also a member of the
First Trust Strategic Model Fixed Income Sub-Committee. Prior to joining First
Trust, Mr. Purpura was at Allstate Investments LLC where he served as Portfolio
Manager in the Equity Special Situations Group that invested in the public
equity of companies in various stages of distress. Additionally, he also was a
Portfolio Manager in the Private Placement Group where he completed corporate
restructurings and workouts for troubled credits held in the investment
portfolio. Prior to Allstate Investments, Mr. Purpura was a founding partner at
Tall Tree Investment Management LLC, an institutional money manager that focuses
on Senior Secured Bank Loans in structured finance vehicles. Before moving to
Tall Tree, Mr. Purpura was a Senior Distressed Debt Analyst and Workout
specialist at Van Kampen Investments where he specialized in leading the credit
oversight and trading strategy for workouts and restructurings across various
industries. In the early 1990s, Mr. Purpura began his credit career at Sanwa
Business Credit Corporation that specialized in below investment grade
non-traditional lending and leasing. Mr. Purpura received a B.S. in Finance from
Elmhurst College and an M.B.A. in Finance from DePaul University. Mr. Purpura
holds the Chartered Financial Analyst designation and is a member of the CFA
Institute and the CFA Society of Chicago. He also holds the Chartered Market
Technician designation and is a member of the Market Technicians Association,
Chicago Chapter.

      JEFFREY SCOTT, CFA, SENIOR VICE PRESIDENT, DEPUTY CREDIT OFFICER,
PORTFOLIO MANAGER.

      Mr. Scott is Deputy Credit Officer and Portfolio Manager for the Leveraged
Finance Investment Team at First Trust Advisors L.P. He has 30 years of
experience in the investment management industry and has extensive experience in


                                      -45-



credit analysis, product development, and product management. Prior to joining
First Trust, Mr. Scott served as an Assistant Portfolio Manager and as a Senior
Credit Analyst for Morgan Stanley/Van Kampen from October 2008 to June 2010. As
Assistant Portfolio Manager, Mr. Scott served on a team that managed over $4.0
billion of Senior Loan assets in three separate funds: Van Kampen Senior Loan
Fund; Van Kampen Senior Income Trust; and Van Kampen Dynamic Credit
Opportunities Fund. His responsibilities included assisting with portfolio
construction, buy and sell decision making, and monitoring fund liquidity and
leverage. Mr. Scott earned a B.S. in Finance and Economics from Elmhurst College
and an M.B.A. with specialization in Analytical Finance and Econometrics and
Statistics from the University of Chicago. He also holds the Chartered Financial
Analyst designation and is a member of the CFA Institute and the CFA Society of
Chicago.

-------------------------------------------------------------------------------------------------------------------------
                               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.

      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.


                                      -46-



      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.

      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 objective, 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


                                      -47-


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 objective, 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 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. 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.

      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.


                                      -48-



CODE OF ETHICS

      The Fund and the Advisor 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.

                      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 of Trustees has delegated day-to-day proxy voting
responsibilities to the Advisor. The Advisor has engaged the services of
Institutional Shareholder Services, Inc. ("ISS") to make recommendations to the
Advisor on the voting of proxies relating to securities held by the Fund. ISS
provides voting recommendations based upon established guidelines and practices.
The Advisor reviews ISS recommendations and frequently follows the ISS
recommendations. However, on selected issues, the Advisor may not vote in
accordance with the ISS recommendations when the Advisor believes that specific
ISS recommendations are not in the best economic interest of the Fund. If the
Advisor manages the assets of a company or its pension plan and any of the
Advisor's clients hold any securities in that company, the Advisor will vote
proxies relating to that company's securities in accordance with the ISS
recommendations to avoid any conflict of interest. If a client requests the
Advisor to follow specific voting guidelines or additional guidelines, the
Advisor will review the request and inform the client only if the Advisor is not
able to follow the client's request.

      The Advisor has adopted the ISS Proxy Voting Guidelines. These guidelines
are set forth in Appendix B to this Statement of Additional Information. While
these guidelines are not intended to be all-inclusive, they do provide guidance
on the Advisor's general voting policies.

      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.


                                      -49-



                      PORTFOLIO TRANSACTIONS AND BROKERAGE

      Subject to the supervision of the Board of Trustees, the Advisor shall
have authority and discretion to select brokers and dealers to execute
transactions initiated by the Advisor 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 Advisor's primary responsibility shall be to seek
the best execution of orders at the most favorable prices. However, this
responsibility shall not obligate the Advisor to solicit competitive bids for
each transaction or to seek the lowest available commission cost to the Fund, so
long as the 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 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 Advisor exercises 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 Advisor's 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 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 Advisor takes 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 Advisor's 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 Advisor's 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 Advisor does not adhere


                                      -50-



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 Advisor generally
prefers to deal directly with market makers in the securities. The Advisor 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 Advisor and the price
received (or paid) by the market maker in trades with other broker-dealers or
other customers.

      The Advisor may use Electronic Communications Networks ("ECN") or
Alternative Trading Systems ("ATS") to effect such over-the-counter trades for
equity securities when, in the Advisor's 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 Advisor is 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 Advisor endeavors,
when possible, to use an "averaging" procedure.

      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 Advisor 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 Advisor 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


                                      -51-



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
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


                                      -52-



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
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.


                                      -53-



                 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
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.


                                      -54-



      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
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,


                                      -55-



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
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


                                      -56-



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
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


                                      -57-



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
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


                                      -58-



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
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.


                                      -59-



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.

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


                                      -60-



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.

      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


                                      -61-



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
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.

      Investments in Certain Foreign Corporations. 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 common shareholders. The Fund will not be able
to pass through to its common shareholders any credit or deduction for such
taxes. The Fund may be able to make an election that could mitigate 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 (described above). Dividends paid by PFICs will
not be treated as qualified dividend income.


                                      -62-



      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.

      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.


                                      -63-



      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
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.


                                      -64-



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
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


                                      -65-



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 HIGH YIELD OPPORTUNITIES 2027 TERM 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
symbols for the put option (for example, 'AAA/A-1+'). With U.S. municipal


                                      A-5



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

UNITED STATES

Concise Proxy Voting Guidelines

Benchmark Policy Recommendations

Effective for Meetings on or after February 1, 2020
Published December 11, 2019

ISSGOVERNANCE.COM

© 2019 | Institutional Shareholder Services and/or its affiliates

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U.S. Concise Proxy Voting Guidelines

The policies contained herein are a sampling only of selected key ISS U.S. proxy voting guidelines,
and are not intended to be exhaustive. The complete guidelines can be found at:
https://www.issgovernance.com/policy-gateway/voting-policies/

BOARD OF DIRECTORS

Voting on Director Nominees in Uncontested Elections

➤ General Recommendation: Generally vote for director nominees, except under the following circumstances (with new nominees¹ considered on case-by-case basis):

Independence

Vote against² or withhold from non-independent directors (Executive Directors and Non-Independent Non-Executive Directors per ISS’ Classification of Directors) when:

➤	Independent directors comprise 50 percent or less of the board;
➤	The non-independent director serves on the audit, compensation, or nominating committee;
➤	The company lacks an audit, compensation, or nominating committee so that the full board functions as that committee; or
➤	The company lacks a formal nominating committee, even if the board attests that the independent directors fulfill the functions of such a committee.

Composition

Attendance at Board and Committee Meetings: Generally vote against or withhold from directors (except nominees who served only part of the fiscal year³) who attend less than 75 percent of the aggregate of their board and committee meetings for the period for which they served, unless an acceptable reason for absences is disclosed in the proxy or another SEC filing. Acceptable reasons for director absences are generally limited to the following:

➤	Medical issues/illness;
➤	Family emergencies; and
➤	Missing only one meeting (when the total of all meetings is three or fewer).

In cases of chronic poor attendance without reasonable justification, in addition to voting against the director(s) with poor attendance, generally vote against or withhold from appropriate members of the nominating/governance committees or the full board.

If the proxy disclosure is unclear and insufficient to determine whether a director attended at least 75 percent of the aggregate of his/her board and committee meetings during his/her period of service, vote against or withhold from the director(s) in question.

1	A "new nominee" is a director who is being presented for election by shareholders for the first time. Recommendations on new nominees who have served for less than one year are made on a case-by-case basis depending on the timing of their appointment and the problematic governance issue in question.
2	In general, companies with a plurality vote standard use “Withhold” as the contrary vote option in director elections; companies with a majority vote standard use “Against”. However, it will vary by company and the proxy must be checked to determine the valid contrary vote option for the particular company.

³ Nominees who served for only part of the fiscal year are generally exempted from the attendance policy.

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ISSGOVERNANCE.COM

U.S. Concise Proxy Voting Guidelines

Overboarded Directors: Generally vote against or withhold from individual directors who:

➤	Sit on more than five public company boards; or
➤	Are CEOs of public companies who sit on the boards of more than two public companies besides their own— withhold only at their outside boards4.

Diversity: For companies in the Russell 3000 or S&P 1500 indices, generally vote against or withhold from the chair of the nominating committee (or other directors on a case-by-case basis) at companies when there are no women on the company's board. Mitigating factors include:

➤	Until Feb. 1, 2021, a firm commitment, as stated in the proxy statement, to appoint at least one woman to the board within a year;
➤	The presence of a woman on the board at the preceding annual meeting and a firm commitment to appoint at least one woman to the board within a year; or
➤	Other relevant factors as applicable.

Responsiveness

Vote case-by-case on individual directors, committee members, or the entire board of directors as appropriate if:

➤ The board failed to act on a shareholder proposal that received the support of a majority of the shares cast in the previous year or failed to act on a management proposal seeking to ratify an existing charter/bylaw provision that received opposition of a majority of the shares cast in the previous year. Factors that will be considered are:

➤	Disclosed outreach efforts by the board to shareholders in the wake of the vote;
➤	Rationale provided in the proxy statement for the level of implementation;
➤	The subject matter of the proposal;
➤	The level of support for and opposition to the resolution in past meetings;
➤	Actions taken by the board in response to the majority vote and its engagement with shareholders;
➤	The continuation of the underlying issue as a voting item on the ballot (as either shareholder or management proposals); and
➤	Other factors as appropriate.

➤	The board failed to act on takeover offers where the majority of shares are tendered;
➤	At the previous board election, any director received more than 50 percent withhold/against votes of the shares cast and the company has failed to address the issue(s) that caused the high withhold/against vote.

Vote case-by-case on Compensation Committee members (or, in exceptional cases, the full board) and the Say on Pay proposal if:

➤ The company’s previous say-on-pay received the support of less than 70 percent of votes cast. Factors that will be considered are:

➤ The company's response, including:

➤	Disclosure of engagement efforts with major institutional investors, including the frequency and timing of engagements and the company participants (including whether independent directors participated);
➤	Disclosure of the specific concerns voiced by dissenting shareholders that led to the say-on-pay opposition;
➤	Disclosure of specific and meaningful actions taken to address shareholders' concerns;

➤	Other recent compensation actions taken by the company;
➤	Whether the issues raised are recurring or isolated;

⁴ Although all of a CEO’s subsidiary boards with publicly-traded common stock will be counted as separate boards, ISS will not recommend a withhold vote for the CEO of a parent company board or any of the controlled (>50 percent ownership) subsidiaries of that parent but may do so at subsidiaries that are less than 50 percent controlled and boards outside the parent/subsidiary relationships.

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U.S. Concise Proxy Voting Guidelines

➤	The company's ownership structure; and
➤	Whether the support level was less than 50 percent, which would warrant the highest degree of responsiveness.

➤ The board implements an advisory vote on executive compensation on a less frequent basis than the frequency that received the plurality of votes cast.

Accountability

Problematic Takeover Defenses/Governance Structure

Poison Pills: Vote against or withhold from all nominees (except new nominees¹, who should be considered case-by-case) if:

➤	The company has a poison pill that was not approved by shareholders5. However, vote case-by-case on nominees if the board adopts an initial pill with a term of one year or less, depending on the disclosed rationale for the adoption, and other factors as relevant (such as a commitment to put any renewal to a shareholder vote).
➤	The board makes a material adverse modification to an existing pill, including, but not limited to, extension, renewal, or lowering the trigger, without shareholder approval.

Classified Board Structure: The board is classified, and a continuing director responsible for a problematic governance issue at the board/committee level that would warrant a withhold/against vote recommendation is not up for election. All appropriate nominees (except new) may be held accountable.

Removal of Shareholder Discretion on Classified Boards: The company has opted into, or failed to opt out of, state laws requiring a classified board structure.

Director Performance Evaluation: The board lacks mechanisms to promote accountability and oversight, coupled with sustained poor performance relative to peers. Sustained poor performance is measured by one-, three-, and five-year total shareholder returns in the bottom half of a company’s four-digit GICS industry group (Russell 3000 companies only). Take into consideration the company’s operational metrics and other factors as warranted. Problematic provisions include but are not limited to:

➤	A classified board structure;
➤	A supermajority vote requirement;
➤	Either a plurality vote standard in uncontested director elections, or a majority vote standard in contested elections;
➤	The inability of shareholders to call special meetings;
➤	The inability of shareholders to act by written consent;
➤	A multi-class capital structure; and/or
➤	A non-shareholder-approved poison pill.

Unilateral Bylaw/Charter Amendments and Problematic Capital Structures: Generally vote against or withhold from directors individually, committee members, or the entire board (except new nominees, who should be considered case-by-case) if the board amends the company's bylaws or charter without shareholder approval¹ in a manner that materially diminishes shareholders' rights or that could adversely impact shareholders, considering the following factors:

➤	The board's rationale for adopting the bylaw/charter amendment without shareholder ratification;
➤	Disclosure by the company of any significant engagement with shareholders regarding the amendment;
➤	The level of impairment of shareholders' rights caused by the board's unilateral amendment to the bylaws/charter;
➤	The board's track record with regard to unilateral board action on bylaw/charter amendments or other entrenchment provisions;
➤	The company's ownership structure;

⁵ Public shareholders only, approval prior to a company’s becoming public is insufficient.

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ISSGOVERNANCE.COM

U.S. Concise Proxy Voting Guidelines

➤	The company's existing governance provisions;
➤	The timing of the board's amendment to the bylaws/charter in connection with a significant business development; and,
➤	Other factors, as deemed appropriate, that may be relevant to determine the impact of the amendment on shareholders.

Unless the adverse amendment is reversed or submitted to a binding shareholder vote, in subsequent years vote case-by-case on director nominees. Generally vote against (except new nominees¹, who should be considered case-by-case) if the directors:

➤	Classified the board;
➤	Adopted supermajority vote requirements to amend the bylaws or charter; or
➤	Eliminated shareholders' ability to amend bylaws.

Problematic Capital Structure – Newly Public Companies: For newly public companies⁶ , generally vote against or withhold from the entire board (except new nominees¹, who should be considered case-by-case) if, prior to or in connection with the company's public offering, the company or its board implemented a multi-class capital structure in which the classes have unequal voting rights without subjecting the multi-class capital structure to a reasonable time-based sunset. In assessing the reasonableness of a time-based sunset provision, consideration will be given to the company’s lifespan, its post-IPO ownership structure and the board’s disclosed rationale for the sunset period selected. No sunset period of more than seven years from the date of the IPO will be considered to be reasonable.

Continue to vote against or withhold from incumbent directors in subsequent years, unless the problematic capital structure is reversed or removed.

Problematic Governance Structure – Newly Public Companies: For newly public companies⁶, generally vote against or withhold from directors individually, committee members, or the entire board (except new nominees¹, who should be considered case-by-case) if, prior to or in connection with the company's public offering, the company or its board adopted the following bylaw or charter provisions that are considered to be materially adverse to shareholder rights:

➤	Supermajority vote requirements to amend the bylaws or charter;
➤	A classified board structure; or
➤	Other egregious provisions.

A reasonable sunset provision will be considered a mitigating factor.

Unless the adverse provision is reversed or removed, vote case-by-case on director nominees in subsequent years.

Management Proposals to Ratify Existing Charter or Bylaw Provisions: Vote against/withhold from individual directors, members of the governance committee, or the full board, where boards ask shareholders to ratify existing charter or bylaw provisions considering the following factors:

➤	The presence of a shareholder proposal addressing the same issue on the same ballot;
➤	The board's rationale for seeking ratification;
➤	Disclosure of actions to be taken by the board should the ratification proposal fail;
➤	Disclosure of shareholder engagement regarding the board’s ratification request;
➤	The level of impairment to shareholders' rights caused by the existing provision;
➤	The history of management and shareholder proposals on the provision at the company’s past meetings;
➤	Whether the current provision was adopted in response to the shareholder proposal;
➤	The company's ownership structure; and
➤	Previous use of ratification proposals to exclude shareholder proposals.

⁶ Newly-public companies generally include companies that emerge from bankruptcy, spin-offs, direct listings, and those who complete a traditional initial public offering^.

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Restrictions on Shareholders’ Rights

Restricting Binding Shareholder Proposals: Generally vote against or withhold from the members of the governance committee if:

➤ The company’s governing documents impose undue restrictions on shareholders’ ability to amend the bylaws. Such restrictions include but are not limited to: outright prohibition on the submission of binding shareholder proposals or share ownership requirements, subject matter restrictions, or time holding requirements in excess of SEC Rule 14a-8. Vote against or withhold on an ongoing basis.

Submission of management proposals to approve or ratify requirements in excess of SEC Rule 14a-8 for the submission of binding bylaw amendments will generally be viewed as an insufficient restoration of shareholders' rights. Generally continue to vote against or withhold on an ongoing basis until shareholders are provided with an unfettered ability to amend the bylaws or a proposal providing for such unfettered right is submitted for shareholder approval.

Problematic Audit-Related Practices

Generally vote against or withhold from the members of the Audit Committee if:

➤	The non-audit fees paid to the auditor are excessive;
➤	The company receives an adverse opinion on the company’s financial statements from its auditor; or
➤	There is persuasive evidence that the Audit Committee entered into an inappropriate indemnification agreement with its auditor that limits the ability of the company, or its shareholders, to pursue legitimate legal recourse against the audit firm.

Vote case-by-case on members of the Audit Committee and potentially the full board if:

➤ Poor accounting practices are identified that rise to a level of serious concern, such as: fraud; misapplication of GAAP; and material weaknesses identified in Section 404 disclosures. Examine the severity, breadth, chronological sequence, and duration, as well as the company’s efforts at remediation or corrective actions, in determining whether withhold/against votes are warranted.

Problematic Compensation Practices

In the absence of an Advisory Vote on Executive Compensation (Say on Pay) ballot item or in egregious situations, vote against or withhold from the members of the Compensation Committee and potentially the full board if:

➤	There is an unmitigated misalignment between CEO pay and company performance (pay for performance);
➤	The company maintains significant problematic pay practices; or
➤	The board exhibits a significant level of poor communication and responsiveness to shareholders.

Generally vote against or withhold from the Compensation Committee chair, other committee members, or potentially the full board if:

➤	The company fails to include a Say on Pay ballot item when required under SEC provisions, or under the company’s declared frequency of say on pay; or
➤	The company fails to include a Frequency of Say on Pay ballot item when required under SEC provisions.

Generally vote against members of the board committee responsible for approving/setting non-employee director compensation if there is a pattern (i.e. two or more years) of awarding excessive non-employee director compensation without disclosing a compelling rationale or other mitigating factors.

Problematic Pledging of Company Stock:

Vote against the members of the committee that oversees risks related to pledging, or the full board, where a significant level of pledged company stock by executives or directors raises concerns. The following factors will be considered:

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➤	The presence of an anti-pledging policy, disclosed in the proxy statement, that prohibits future pledging activity;
➤	The magnitude of aggregate pledged shares in terms of total common shares outstanding, market value, and trading volume;
➤	Disclosure of progress or lack thereof in reducing the magnitude of aggregate pledged shares over time;
➤	Disclosure in the proxy statement that shares subject to stock ownership and holding requirements do not include pledged company stock; and
➤	Any other relevant factors.

Governance Failures

Under extraordinary circumstances, vote against or withhold from directors individually, committee members, or the entire board, due to:

➤	Material failures of governance, stewardship, risk oversight7, or fiduciary responsibilities at the company;
➤	Failure to replace management as appropriate; or
➤	Egregious actions related to a director’s service on other boards that raise substantial doubt about his or her ability to effectively oversee management and serve the best interests of shareholders at any company.

Voting on Director Nominees in Contested Elections

Vote-No Campaigns

➤ General Recommendation: In cases where companies are targeted in connection with public “vote-no” campaigns, evaluate director nominees under the existing governance policies for voting on director nominees in uncontested elections. Take into consideration the arguments submitted by shareholders and other publicly available information.

Proxy Contests/Proxy Access — Voting for Director Nominees in Contested Elections

➤ General Recommendation: Vote case-by-case on the election of directors in contested elections, considering the following factors:

➤	Long-term financial performance of the company relative to its industry;
➤	Management’s track record;
➤	Background to the contested election;
➤	Nominee qualifications and any compensatory arrangements;
➤	Strategic plan of dissident slate and quality of the critique against management;
➤	Likelihood that the proposed goals and objectives can be achieved (both slates); and
➤	Stock ownership positions.

In the case of candidates nominated pursuant to proxy access, vote case-by-case considering any applicable factors listed above or additional factors which may be relevant, including those that are specific to the company, to the nominee(s) and/or to the nature of the election (such as whether there are more candidates than board seats).

⁷ Examples of failure of risk oversight include but are not limited to: bribery; large or serial fines or sanctions from regulatory bodies; significant adverse legal judgments or settlement; or hedging of company stock.

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Independent Board Chair

➤ General Recommendation: Generally vote for shareholder proposals requiring that the chair position be filled by an independent director, taking into consideration the following:

➤	The scope and rationale of the proposal;
➤	The company's current board leadership structure;
➤	The company's governance structure and practices;
➤	Company performance; and
➤	Any other relevant factors that may be applicable.

The following factors will increase the likelihood of a “for” recommendation:

➤	A majority non-independent board and/or the presence of non-independent directors on key board committees;
➤	A weak or poorly-defined lead independent director role that fails to serve as an appropriate counterbalance to a combined CEO/chair role;
➤	The presence of an executive or non-independent chair in addition to the CEO, a recent recombination of the role of CEO and chair, and/or departure from a structure with an independent chair;
➤	Evidence that the board has failed to oversee and address material risks facing the company;
➤	A material governance failure, particularly if the board has failed to adequately respond to shareholder concerns or if the board has materially diminished shareholder rights; or
➤	Evidence that the board has failed to intervene when management’s interests are contrary to shareholders' interests.

Proxy Access

➤ General Recommendation: Generally vote for management and shareholder proposals for proxy access with the following provisions:

➤	Ownership threshold: maximum requirement not more than three percent (3%) of the voting power;
➤	Ownership duration: maximum requirement not longer than three (3) years of continuous ownership for each member of the nominating group;
➤	Aggregation: minimal or no limits on the number of shareholders permitted to form a nominating group;
➤	Cap: cap on nominees of generally twenty-five percent (25%) of the board.

Review for reasonableness any other restrictions on the right of proxy access.

Generally vote against proposals that are more restrictive than these guidelines.

Shareholder Rights & Defenses

Ratification Proposals: Management Proposals to Ratify Existing Charter or Bylaw Provisions

➤ General Recommendation: Generally vote against management proposals to ratify provisions of the company’s existing charter or bylaws, unless these governance provisions align with best practice.

In addition, voting against/withhold from individual directors, members of the governance committee, or the full board may be warranted, considering:

➤	The presence of a shareholder proposal addressing the same issue on the same ballot;
➤	The board's rationale for seeking ratification;
➤	Disclosure of actions to be taken by the board should the ratification proposal fail;
➤	Disclosure of shareholder engagement regarding the board’s ratification request;

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➤	The level of impairment to shareholders' rights caused by the existing provision;
➤	The history of management and shareholder proposals on the provision at the company’s past meetings;
➤	Whether the current provision was adopted in response to the shareholder proposal;
➤	The company's ownership structure; and
➤	Previous use of ratification proposals to exclude shareholder proposals.

CAPITAL/RESTRUCTURING

Common Stock Authorization

➤ General Recommendation: Vote for proposals to increase the number of authorized common shares where the primary purpose of the increase is to issue shares in connection with a transaction on the same ballot that warrants support.

Vote against proposals at companies with more than one class of common stock to increase the number of authorized shares of the class of common stock that has superior voting rights.

Vote against proposals to increase the number of authorized common shares if a vote for a reverse stock split on the same ballot is warranted despite the fact that the authorized shares would not be reduced proportionally.

Vote case-by-case on all other proposals to increase the number of shares of common stock authorized for issuance. Take into account company-specific factors that include, at a minimum, the following:

➤ Past Board Performance:

➤ The company's use of authorized shares during the last three years

➤ The Current Request:

➤	Disclosure in the proxy statement of the specific purposes of the proposed increase;
➤	Disclosure in the proxy statement of specific and severe risks to shareholders of not approving the request; and
➤	The dilutive impact of the request as determined relative to an allowable increase calculated by ISS (typically 100 percent of existing authorized shares) that reflects the company's need for shares and total shareholder returns.

ISS will apply the relevant allowable increase below to requests to increase common stock that are for general corporate purposes (or to the general corporate purposes portion of a request that also includes a specific need):

A.	Most companies: 100 percent of existing authorized shares.
B.	Companies with less than 50 percent of existing authorized shares either outstanding or reserved for issuance: 50 percent of existing authorized shares.
C.	Companies with one- and three-year total shareholder returns (TSRs) in the bottom 10 percent of the U.S. market as of the end of the calendar quarter that is closest to their most recent fiscal year end: 50 percent of existing authorized shares.
D.	Companies at which both conditions (B and C) above are both present: 25 percent of existing authorized shares.

If there is an acquisition, private placement, or similar transaction on the ballot (not including equity incentive plans) that ISS is recommending FOR, the allowable increase will be the greater of (i) twice the amount needed to support the transactions on the ballot, and (ii) the allowable increase as calculated above.

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Share Repurchase Programs

➤ General Recommendation: For U.S.-incorporated companies, and foreign-incorporated U.S. Domestic Issuers that are traded solely on U.S. exchanges, vote for management proposals to institute open-market share repurchase plans in which all shareholders may participate on equal terms, or to grant the board authority to conduct open-market repurchases, in the absence of company-specific concerns regarding:

➤	Greenmail,
➤	The use of buybacks to inappropriately manipulate incentive compensation metrics,
➤	Threats to the company's long-term viability, or
➤	Other company-specific factors as warranted.

Vote case-by-case on proposals to repurchase shares directly from specified shareholders, balancing the stated rationale against the possibility for the repurchase authority to be misused, such as to repurchase shares from insiders at a premium to market price.

Share Repurchase Programs Shareholder Proposals

➤ General Recommendation: Generally vote against shareholder proposals prohibiting executives from selling shares of company stock during periods in which the company has announced that it may or will be repurchasing shares of its stock. Vote for the proposal when there is a pattern of abuse by executives exercising options or selling shares during periods of share buybacks.

➤	Financial issues – company’s financial situation; degree of need of capital; use of proceeds; effect of the financing on the company’s cost of capital;
➤	Management efforts to pursue other alternatives;
➤	Control issues – change in management; change in control, guaranteed board and committee seats; standstill provisions; voting agreements; veto power over certain corporate actions; and
➤	Conflict of interest – arm’s length transaction, managerial incentives.

Vote for the debt restructuring if it is expected that the company will file for bankruptcy if the transaction is not approved.

Mergers and Acquisitions

➤ General Recommendation: Vote case-by-case on mergers and acquisitions. Review and evaluate the merits and drawbacks of the proposed transaction, balancing various and sometimes countervailing factors including:

➤	Valuation - Is the value to be received by the target shareholders (or paid by the acquirer) reasonable? While the fairness opinion may provide an initial starting point for assessing valuation reasonableness, emphasis is placed on the offer premium, market reaction, and strategic rationale.
➤	Market reaction - How has the market responded to the proposed deal? A negative market reaction should cause closer scrutiny of a deal.
➤	Strategic rationale - Does the deal make sense strategically? From where is the value derived? Cost and revenue synergies should not be overly aggressive or optimistic, but reasonably achievable. Management should also have a favorable track record of successful integration of historical acquisitions.
➤	Negotiations and process - Were the terms of the transaction negotiated at arm's-length? Was the process fair and equitable? A fair process helps to ensure the best price for shareholders. Significant negotiation "wins" can also signify the deal makers' competency. The comprehensiveness of the sales process (e.g., full auction, partial auction, no auction) can also affect shareholder value.

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➤

Conflicts of interest - Are insiders benefiting from the transaction disproportionately and inappropriately as compared to non-insider shareholders? As the result of potential conflicts, the directors and officers of the company may be more likely to vote to approve a merger than if they did not hold these interests. Consider whether these interests may have influenced these directors and officers to support or recommend the merger. The CIC figure presented in the "ISS Transaction Summary" section of this report is an aggregate figure that can in certain cases be a misleading indicator of the true value transfer from shareholders to insiders. Where such figure appears to be excessive, analyze the underlying assumptions to determine whether a potential conflict exists.

➤

Governance - Will the combined company have a better or worse governance profile than the current governance profiles of the respective parties to the transaction? If the governance profile is to change for the worse, the burden is on the company to prove that other issues (such as valuation) outweigh any deterioration in governance.

COMPENSATION

Executive Pay Evaluation

Underlying all evaluations are five global principles that most investors expect corporations to adhere to in designing and administering executive and director compensation programs:

1.	Maintain appropriate pay-for-performance alignment, with emphasis on long-term shareholder value: This principle encompasses overall executive pay practices, which must be designed to attract, retain, and appropriately motivate the key employees who drive shareholder value creation over the long term. It will take into consideration, among other factors, the link between pay and performance; the mix between fixed and variable pay; performance goals; and equity-based plan costs;
2.	Avoid arrangements that risk “pay for failure”: This principle addresses the appropriateness of long or indefinite contracts, excessive severance packages, and guaranteed compensation;
3.	Maintain an independent and effective compensation committee: This principle promotes oversight of executive pay programs by directors with appropriate skills, knowledge, experience, and a sound process for compensation decision-making (e.g., including access to independent expertise and advice when needed);
4.	Provide shareholders with clear, comprehensive compensation disclosures: This principle underscores the importance of informative and timely disclosures that enable shareholders to evaluate executive pay practices fully and fairly;
5.	Avoid inappropriate pay to non-executive directors: This principle recognizes the interests of shareholders in ensuring that compensation to outside directors is reasonable and does not compromise their independence and ability to make appropriate judgments in overseeing managers’ pay and performance. At the market level, it may incorporate a variety of generally accepted best practices.

Advisory Votes on Executive Compensation—Management Proposals (Say-on-Pay)

➤	General Recommendation: Vote case-by-case on ballot items related to executive pay and practices, as well as certain aspects of outside director compensation.
	Vote against Advisory Votes on Executive Compensation (Say-on-Pay or “SOP”) if:

➤	There is an unmitigated misalignment between CEO pay and company performance (pay for performance);
➤	The company maintains significant problematic pay practices;
➤	The board exhibits a significant level of poor communication and responsiveness to shareholders.

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Vote against or withhold from the members of the Compensation Committee and potentially the full board if:

➤	There is no SOP on the ballot, and an against vote on an SOP would otherwise be warranted due to pay-for-performance misalignment, problematic pay practices, or the lack of adequate responsiveness on compensation issues raised previously, or a combination thereof;
➤	The board fails to respond adequately to a previous SOP proposal that received less than 70 percent support of votes cast;
➤	The company has recently practiced or approved problematic pay practices, such as option repricing or option backdating; or
➤	The situation is egregious.

Primary Evaluation Factors for Executive Pay

Pay-for-Performance Evaluation

ISS annually conducts a pay-for-performance analysis to identify strong or satisfactory alignment between pay and performance over a sustained period. With respect to companies in the S&P1500, Russell 3000, or Russell 3000E Indices⁸, this analysis considers the following:

1. Peer Group⁹ Alignment:

➤	The degree of alignment between the company's annualized TSR rank and the CEO's annualized total pay rank within a peer group, each measured over a three-year period.
➤	The rankings of CEO total pay and company financial performance within a peer group, each measured over a three-year period.
➤	The multiple of the CEO's total pay relative to the peer group median in the most recent fiscal year.

2. Absolute Alignment¹⁰– the absolute alignment between the trend in CEO pay and company TSR over the prior five fiscal years – i.e., the difference between the trend in annual pay changes and the trend in annualized TSR during the period.

If the above analysis demonstrates significant unsatisfactory long-term pay-for-performance alignment or, in the case of companies outside the Russell indices, a misalignment between pay and performance is otherwise suggested, our analysis may include any of the following qualitative factors, as relevant to an evaluation of how various pay elements may work to encourage or to undermine long-term value creation and alignment with shareholder interests:

➤	The ratio of performance- to time-based incentive awards;
➤	The overall ratio of performance-based compensation to fixed or discretionary pay;
➤	The rigor of performance goals;
➤	The complexity and risks around pay program design;
➤	The transparency and clarity of disclosure;
➤	The company's peer group benchmarking practices;
➤	Financial/operational results, both absolute and relative to peers;
➤	Special circumstances related to, for example, a new CEO in the prior FY or anomalous equity grant practices (e.g., bi-annual awards);

⁸ The Russell 3000E Index includes approximately 4,000 of the largest U.S. equity securities.

⁹ The revised peer group is generally comprised of 14-24 companies that are selected using market cap, revenue (or assets for certain financial firms), GICS industry group, and company's selected peers' GICS industry group, with size constraints, via a process designed to select peers that are comparable to the subject company in terms of revenue/assets and industry, and also within a market-cap bucket that is reflective of the company's. For Oil, Gas & Consumable Fuels companies, market cap is the only size determinant.

¹⁰ Only Russell 3000 Index companies are subject to the Absolute Alignment analysis.

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➤	Realizable pay11 compared to grant pay; and
➤	Any other factors deemed relevant.
➤	Any other factors deemed relevant.

Problematic Pay Practices

The focus is on executive compensation practices that contravene the global pay principles, including:

➤	Problematic practices related to non-performance-based compensation elements;
➤	Incentives that may motivate excessive risk-taking or present a windfall risk; and
➤	Pay decisions that circumvent pay-for-performance, such as options backdating or waiving performance requirements.

Problematic Pay Practices related to Non-Performance-Based Compensation Elements

Pay elements that are not directly based on performance are generally evaluated case-by-case considering the context of a company's overall pay program and demonstrated pay-for-performance philosophy. Please refer to ISS' U.S. Compensation Policies FAQ document for detail on specific pay practices that have been identified as potentially problematic and may lead to negative recommendations if they are deemed to be inappropriate or unjustified relative to executive pay best practices. The list below highlights the problematic practices that carry significant weight in this overall consideration and may result in adverse vote recommendations:

➤	Repricing or replacing of underwater stock options/SARS without prior shareholder approval (including cash buyouts and voluntary surrender of underwater options);
➤	Extraordinary perquisites or tax gross-ups;
➤	New or materially amended agreements that provide for:

➤	Excessive termination or CIC severance payments (generally exceeding 3 times base salary and average/target/most recent bonus);
➤	CIC severance payments without involuntary job loss or substantial diminution of duties ("single" or "modified single" triggers) or in connection with a problematic Good Reason definition;
➤	CIC excise tax gross-up entitlements (including "modified" gross-ups);
➤	Multi-year guaranteed awards that are not at risk due to rigorous performance conditions;

➤	Liberal CIC definition combined with any single-trigger CIC benefits;
➤	Insufficient executive compensation disclosure by externally-managed issuers (EMIs) such that a reasonable assessment of pay programs and practices applicable to the EMI's executives is not possible;
➤	Any other provision or practice deemed to be egregious and present a significant risk to investors.

Compensation Committee Communications and Responsiveness

Consider the following factors case-by-case when evaluating ballot items related to executive pay on the board’s responsiveness to investor input and engagement on compensation issues:

➤	Failure to respond to majority-supported shareholder proposals on executive pay topics; or
➤	Failure to adequately respond to the company's previous say-on-pay proposal that received the support of less than 70 percent of votes cast, taking into account:

➤	Disclosure of engagement efforts with major institutional investors, including the frequency and timing of engagements and the company participants (including whether independent directors participated);
➤	Disclosure of the specific concerns voiced by dissenting shareholders that led to the say-on-pay opposition;
➤	Disclosure of specific and meaningful actions taken to address shareholders’ concerns;
➤	Other recent compensation actions taken by the company;

¹¹ ISS research reports include realizable pay for S&P1500 companies.

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➤	Whether the issues raised are recurring or isolated;
➤	The company's ownership structure; and
➤	Whether the support level was less than 50 percent, which would warrant the highest degree of responsiveness.

Equity-Based and Other Incentive Plans

Please refer to ISS' U.S. Equity Compensation Plans FAQ document for additional details on the Equity Plan Scorecard policy.

➤ General Recommendation: Vote case-by-case on certain equity-based compensation plans¹² depending on a combination of certain plan features and equity grant practices, where positive factors may counterbalance negative factors, and vice versa, as evaluated using an "Equity Plan Scorecard" (EPSC) approach with three pillars:

➤ Plan Cost: The total estimated cost of the company’s equity plans relative to industry/market cap peers, measured by the company's estimated Shareholder Value Transfer (SVT) in relation to peers and considering both:

➤	SVT based on new shares requested plus shares remaining for future grants, plus outstanding unvested/unexercised grants; and
➤	SVT based only on new shares requested plus shares remaining for future grants.

➤ Plan Features:

➤	Quality of disclosure around vesting upon a change in control (CIC);
➤	Discretionary vesting authority;
➤	Liberal share recycling on various award types;
➤	Lack of minimum vesting period for grants made under the plan;
➤	Dividends payable prior to award vesting.

➤ Grant Practices:

➤	The company’s three-year burn rate relative to its industry/market cap peers;
➤	Vesting requirements in CEO's recent equity grants (3-year look-back);
➤	The estimated duration of the plan (based on the sum of shares remaining available and the new shares requested, divided by the average annual shares granted in the prior three years);
➤	The proportion of the CEO's most recent equity grants/awards subject to performance conditions;
➤	Whether the company maintains a sufficient claw-back policy;
➤	Whether the company maintains sufficient post-exercise/vesting share-holding requirements.

Generally vote against the plan proposal if the combination of above factors indicates that the plan is not, overall, in shareholders' interests, or if any of the following egregious factors ("overriding factors") apply:

➤	Awards may vest in connection with a liberal change-of-control definition;
➤	The plan would permit repricing or cash buyout of underwater options without shareholder approval (either by expressly permitting it—for NYSE and Nasdaq listed companies—or by not prohibiting it when the company has a history of repricing—for non-listed companies);
➤	The plan is a vehicle for problematic pay practices or a significant pay-for-performance disconnect under certain circumstances;
➤	The plan is excessively dilutive to shareholders' holdings;
➤	The plan contains an evergreen (automatic share replenishment) feature; or
➤	Any other plan features are determined to have a significant negative impact on shareholder interests.

²¹ Proposals evaluated under the EPSC policy generally include those to approve or amend (1) stock option plans for employees and/or employees and directors, (2) restricted stock plans for employees and/or employees and directors, and (3) omnibus stock incentive plans for employees and/or employees and directors; amended plans will be further evaluated case-by-case.

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SOCIAL AND ENVIRONMENTAL ISSUES

Global Approach

Issues covered under the policy include a wide range of topics, including consumer and product safety, environment and energy, labor standards and human rights, workplace and board diversity, and corporate political issues. While a variety of factors goes into each analysis, the overall principle guiding all vote recommendations focuses on how the proposal may enhance or protect shareholder value in either the short or long term.

➤ General Recommendation: Generally vote case-by-case, examining primarily whether implementation of the proposal is likely to enhance or protect shareholder value. The following factors will be considered:

➤	If the issues presented in the proposal are more appropriately or effectively dealt with through legislation or government regulation;
➤	If the company has already responded in an appropriate and sufficient manner to the issue(s) raised in the proposal;
➤	Whether the proposal's request is unduly burdensome (scope or timeframe) or overly prescriptive;
➤	The company's approach compared with any industry standard practices for addressing the issue(s) raised by the proposal;
➤	Whether there are significant controversies, fines, penalties, or litigation associated with the company's environmental or social practices;
➤	If the proposal requests increased disclosure or greater transparency, whether reasonable and sufficient information is currently available to shareholders from the company or from other publicly available sources; and
➤	If the proposal requests increased disclosure or greater transparency, whether implementation would reveal proprietary or confidential information that could place the company at a competitive disadvantage.

Climate Change/Greenhouse Gas (GHG) Emissions

➤ General Recommendation: Generally vote for resolutions requesting that a company disclose information on the financial, physical, or regulatory risks it faces related to climate change on its operations and investments or on how the company identifies, measures, and manages such risks, considering:

➤	Whether the company already provides current, publicly-available information on the impact that climate change may have on the company as well as associated company policies and procedures to address related risks and/or opportunities;
➤	The company’s level of disclosure compared to industry peers; and
➤	Whether there are significant controversies, fines, penalties, or litigation associated with the company’s climate change-related performance.

Generally vote for proposals requesting a report on greenhouse gas (GHG) emissions from company operations and/or products and operations, unless:

➤	The company already discloses current, publicly-available information on the impacts that GHG emissions may have on the company as well as associated company policies and procedures to address related risks and/or opportunities;
➤	The company's level of disclosure is comparable to that of industry peers; and
➤	There are no significant, controversies, fines, penalties, or litigation associated with the company's GHG emissions.

Vote case-by-case on proposals that call for the adoption of GHG reduction goals from products and operations, taking into account:

➤	Whether the company provides disclosure of year-over-year GHG emissions performance data;
➤	Whether company disclosure lags behind industry peers;

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➤	The company's actual GHG emissions performance;
➤	The company's current GHG emission policies, oversight mechanisms, and related initiatives; and
➤	Whether the company has been the subject of recent, significant violations, fines, litigation, or controversy related to GHG emissions.

Board Diversity

➤ General Recommendation: Generally vote for requests for reports on a company's efforts to diversify the board, unless:

➤	The gender and racial minority representation of the company’s board is reasonably inclusive in relation to companies of similar size and business; and
➤	The board already reports on its nominating procedures and gender and racial minority initiatives on the board and within the company.

Vote case-by-case on proposals asking a company to increase the gender and racial minority representation on its board, taking into account:

➤	The degree of existing gender and racial minority diversity on the company’s board and among its executive officers;
➤	The level of gender and racial minority representation that exists at the company’s industry peers;
➤	The company’s established process for addressing gender and racial minority board representation;
➤	Whether the proposal includes an overly prescriptive request to amend nominating committee charter language;
➤	The independence of the company’s nominating committee;
➤	Whether the company uses an outside search firm to identify potential director nominees; and
➤	Whether the company has had recent controversies, fines, or litigation regarding equal employment practices.

Gender, Race, or Ethnicity Pay Gap

➤ General Recommendation: Generally vote case-by-case on requests for reports on a company's pay data by gender, race, or ethnicity, or a report on a company’s policies and goals to reduce any gender, race, or ethnicity pay gap, taking into account:

➤	The company's current policies and disclosure related to both its diversity and inclusion policies and practices and its compensation philosophy and fair and equitable compensation practices;
➤	Whether the company has been the subject of recent controversy, litigation, or regulatory actions related to gender, race, or ethnicity pay gap issues; and
➤	Whether the company's reporting regarding gender, race, or ethnicity pay gap policies or initiatives is lagging its peers.

Sustainability Reporting

➤ General Recommendation: Generally vote for proposals requesting that a company report on its policies, initiatives, and oversight mechanisms related to social, economic, and environmental sustainability, unless:

➤	The company already discloses similar information through existing reports or policies such as an environment, health, and safety (EHS) report; a comprehensive code of corporate conduct; and/or a diversity report; or
➤	The company has formally committed to the implementation of a reporting program based on Global Reporting Initiative (GRI) guidelines or a similar standard within a specified time frame.

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U.S. Concise Proxy Voting Guidelines

Lobbying

➤ General Recommendation: Vote case-by-case on proposals requesting information on a company’s lobbying (including direct, indirect, and grassroots lobbying) activities, policies, or procedures, considering:

➤	The company’s current disclosure of relevant lobbying policies, and management and board oversight;
➤	The company’s disclosure regarding trade associations or other groups that it supports, or is a member of, that engage in lobbying activities; and
➤	Recent significant controversies, fines, or litigation regarding the company’s lobbying-related activities.

Political Contributions

➤ General Recommendation: Generally vote for proposals requesting greater disclosure of a company's political contributions and trade association spending policies and activities, considering:

➤	The company's policies, and management and board oversight related to its direct political contributions and payments to trade associations or other groups that may be used for political purposes;
➤	The company's disclosure regarding its support of, and participation in, trade associations or other groups that may make political contributions; and
➤	Recent significant controversies, fines, or litigation related to the company's political contributions or political activities.

Vote against proposals barring a company from making political contributions. Businesses are affected by legislation at the federal, state, and local level; barring political contributions can put the company at a competitive disadvantage.

Vote against proposals to publish in newspapers and other media a company's political contributions. Such publications could present significant cost to the company without providing commensurate value to shareholders.

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ISSGOVERNANCE.COM

U.S. Concise Proxy Voting Guidelines

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The Information has not been submitted to, nor received approval from, the United States Securities and Exchange Commission or any other regulatory body. None of the Information constitutes an offer to sell (or a solicitation of an offer to buy), or a promotion or recommendation of, any security, financial product or other investment vehicle or any trading strategy, and ISS does not endorse, approve, or otherwise express any opinion regarding any issuer, securities, financial products or instruments or trading strategies.

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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 Amended and Restated Declaration of Trust.**

b. By-Laws of Fund.*

c. None.

d. None.

e. Terms and Conditions of the Dividend Reinvestment Plan.*

f. None.

g.1 Form of Investment Management Agreement between Registrant and First Trust Advisors L.P.*

h.1 Form of Underwriting Agreement.*

i. None.

j. Form of Custody Agreement between Registrant and Fund Custodian.*

k.1 Form of Service Agreement for Transfer Agent Services between Registrant and Fund Transfer Agent.*

k.2 Form of Administration and Accounting Services Agreement.*

l.1 Opinion and consent of Chapman and Cutler LLP.*

l.2 Opinion 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.1 Code of Ethics of Registrant.*

r.2 Code of Ethics of First Trust Portfolios L.P.*

r.3 Code of Ethics of First Trust Advisors L.P.*

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 28th day of April, 2020.

First Trust High Yield Opportunities 2027 Term 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	April 28, 2020
James M. Dykas	(Principal Executive Officer)
/s/ Donald P. Swade	Chief Financial Officer, Chief Accounting Officers and	April 28, 2020
Donald P. Swade	Treasurer (Principal Financial and Accounting Officer)

INDEX TO EXHIBITS

a Amended and Restated Declaration of Trust.