0001400897
false
NXG Cushing Midstream Energy Fund
N-2/A
false
false
false
false
false
false
false
false
false
false
No
false
false
0
0
0
0
0
0001400897
2023-10-26
2023-10-26
0001400897
dei:BusinessContactMember
2023-10-26
2023-10-26
0001400897
srv:SeniorSecurityMember
2022-12-01
2023-05-31
0001400897
srv:SeniorSecurityMember
2021-12-01
2022-11-30
0001400897
srv:SeniorSecurityMember
2020-12-01
2021-11-30
0001400897
srv:SeniorSecurityMember
2019-12-01
2020-11-30
0001400897
srv:SeniorSecurityMember
2018-12-01
2019-11-30
0001400897
srv:SeniorSecurityMember
2017-12-01
2018-11-30
0001400897
srv:SeniorSecurityMember
2016-12-01
2017-11-30
0001400897
srv:SeniorSecurityMember
2015-12-01
2016-11-30
0001400897
srv:SeniorSecurityMember
2014-12-01
2015-11-30
0001400897
srv:SeniorSecurityMember
2013-12-01
2014-11-30
0001400897
srv:SeniorSecurityMember
2012-12-01
2013-11-30
0001400897
srv:SecurityCommonSharesMember
2023-06-01
2023-08-31
0001400897
srv:SecurityCommonSharesMember
2023-03-01
2023-05-31
0001400897
srv:SecurityCommonSharesMember
2022-12-01
2023-02-28
0001400897
srv:SecurityCommonSharesMember
2022-09-01
2022-11-30
0001400897
srv:SecurityCommonSharesMember
2022-06-01
2022-08-31
0001400897
srv:SecurityCommonSharesMember
2022-03-01
2022-05-31
0001400897
srv:SecurityCommonSharesMember
2021-12-01
2022-02-28
0001400897
srv:SecurityCommonSharesMember
2021-09-01
2021-11-30
0001400897
srv:SecurityCommonSharesMember
2021-06-01
2021-08-31
0001400897
srv:SecurityCommonSharesMember
2021-03-01
2021-05-31
0001400897
srv:SecurityCommonSharesMember
2020-12-01
2021-02-28
0001400897
srv:SecurityCommonSharesMember
2023-10-24
2023-10-24
0001400897
srv:InvestmentAndMarketRiskMember
2023-10-26
2023-10-26
0001400897
srv:CommonStockRiskMember
2023-10-26
2023-10-26
0001400897
srv:ConcentrationRiskMember
2023-10-26
2023-10-26
0001400897
srv:MidstreamEnergyCompanyRisksMember
2023-10-26
2023-10-26
0001400897
srv:RisksAssociatedWithAnInvestmentInIPOsMember
2023-10-26
2023-10-26
0001400897
srv:RisksAssociatedWithAnInvestmentInPIPETransactionsMember
2023-10-26
2023-10-26
0001400897
srv:PrivatelyHeldCompanyRiskMember
2023-10-26
2023-10-26
0001400897
srv:MLPRisksMember
2023-10-26
2023-10-26
0001400897
srv:LiquidityRiskMember
2023-10-26
2023-10-26
0001400897
srv:EquitySecuritiesRiskMember
2023-10-26
2023-10-26
0001400897
srv:SmallCapAndMidCapCompanyRiskMember
2023-10-26
2023-10-26
0001400897
srv:RisksAssociatedWithCanadianRoyaltyTrustsAndCanadianEAndPCompaniesMember
2023-10-26
2023-10-26
0001400897
srv:CanadianRiskMember
2023-10-26
2023-10-26
0001400897
srv:NonUSSecuritiesRiskMember
2023-10-26
2023-10-26
0001400897
srv:InterestRateRiskMember
2023-10-26
2023-10-26
0001400897
srv:InterestRateHedgingRiskMember
2023-10-26
2023-10-26
0001400897
srv:ArbitrageRiskMember
2023-10-26
2023-10-26
0001400897
srv:LeverageRiskMember
2023-10-26
2023-10-26
0001400897
srv:SecuritiesLendingRiskMember
2023-10-26
2023-10-26
0001400897
srv:NonDiversificationRiskMember
2023-10-26
2023-10-26
0001400897
srv:ValuationRiskMember
2023-10-26
2023-10-26
0001400897
srv:PortfolioTurnoverRiskMember
2023-10-26
2023-10-26
0001400897
srv:StrategicTransactionsRiskMember
2023-10-26
2023-10-26
0001400897
srv:ConvertibleInstrumentRiskMember
2023-10-26
2023-10-26
0001400897
srv:CounterpartyRiskMember
2023-10-26
2023-10-26
0001400897
srv:ShortSalesRiskMember
2023-10-26
2023-10-26
0001400897
srv:InflationRiskMember
2023-10-26
2023-10-26
0001400897
srv:DeflationRiskMember
2023-10-26
2023-10-26
0001400897
srv:DebtSecuritiesRiskMember
2023-10-26
2023-10-26
0001400897
srv:PreferredStockRiskMember
2023-10-26
2023-10-26
0001400897
srv:BelowInvestmentGradeSecuritiesJunkBondsRiskMember
2023-10-26
2023-10-26
0001400897
srv:OtherInvestmentCompaniesRiskMember
2023-10-26
2023-10-26
0001400897
srv:ETNAndETFRiskMember
2023-10-26
2023-10-26
0001400897
srv:InvestmentManagementRiskMember
2023-10-26
2023-10-26
0001400897
srv:DependenceOnKeyPersonnelOfTheInvestmentAdviserMember
2023-10-26
2023-10-26
0001400897
srv:ConflictsOfInterestWithTheInvestmentAdviserMember
2023-10-26
2023-10-26
0001400897
srv:RelianceOnServiceProvidersMember
2023-10-26
2023-10-26
0001400897
srv:TechnologyRiskMember
2023-10-26
2023-10-26
0001400897
srv:CyberSecurityRiskMember
2023-10-26
2023-10-26
0001400897
srv:TaxRisksMember
2023-10-26
2023-10-26
0001400897
srv:DistributionsRiskMember
2023-10-26
2023-10-26
0001400897
srv:MarketDiscountFromNetAssetValueMember
2023-10-26
2023-10-26
0001400897
srv:RecentMarketEconomicAndSocialDevelopmentsRiskMember
2023-10-26
2023-10-26
0001400897
srv:LegislationAndRegulatoryRisksMember
2023-10-26
2023-10-26
0001400897
srv:LIBORDiscontinuationRiskMember
2023-10-26
2023-10-26
0001400897
srv:TerrorismMarketDisruptionAndCatastropheRiskMember
2023-10-26
2023-10-26
0001400897
srv:NotACompleteInvestmentProgramMember
2023-10-26
2023-10-26
0001400897
srv:RisksAssociatedWithOfferingsOfAdditionalCommonSharesMember
2023-10-26
2023-10-26
0001400897
srv:AdditionalRisksOfRightsMember
2023-10-26
2023-10-26
0001400897
srv:AntiTakeoverProvisionsRiskMember
2023-10-26
2023-10-26
0001400897
srv:SecurityCommonSharesMember
2023-10-26
2023-10-26
iso4217:USD
xbrli:shares
iso4217:USD
xbrli:shares
xbrli:pure
As filed with the Securities and Exchange
Commission on October 26, 2023
Securities Act File No. 333-273954
Investment Company Act File No. 811-22072
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
N-2
| [X] | Registration Statement under the Securities Act of 1933 |
| [X] | Pre-Effective Amendment No. 2 |
| [ ] | Post-Effective Amendment No. |
and/or
| [X] | Registration Statement under the Investment Company Act
of 1940 |
NXG CUSHING® MIDSTREAM
ENERGY FUND
(Registrant’s Exact Name as Specified in Charter)
600 N. Pearl St., Suite 1205
Dallas, Texas 75201
(Address of Principal Executive Offices)
(214) 692-6334
(Registrant’s Telephone Number,
including Area Code)
John Musgrave
Cushing® Asset Management, LP
600 N. Pearl St., Suite 1205
Dallas, Texas 75201
(Name and
Address of Agent for Service)
Copies to:
Kevin T. Hardy, Esq.
Skadden, Arps, Slate, Meagher
& Flom LLP
155 North Wacker Drive
Chicago, Illinois 60606
Approximate date of proposed public offering:
From time to time after the effective date of this Registration Statement.
| [ ] | Check box if the only securities being registered on this Form are being offered pursuant to dividend
or interest reinvestment plans. |
| [X] | Check box if any securities being registered on this Form will be offered on a delayed or continuous
basis in reliance on Rule 415 under the Securities Act of 1933 (“Securities Act”), other than securities offered in
connection with a dividend reinvestment plan. |
| [X] | Check box if this Form is a registration
statement pursuant to General Instruction A.2 or a post-effective amendment thereto. |
| [ ] | Check box if this Form is a registration statement pursuant to General Instruction B or a post-effective
amendment thereto that will become effective upon filing with the Commission pursuant to Rule 462(e) under the Securities Act. |
| [ ] | Check box if this Form is a post-effective amendment to a registration statement filed pursuant to
General Instruction B to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities
Act. |
It is proposed that this filing will become
effective (check appropriate box):
| [ ] | When declared effective pursuant to Section 8(c) of the Securities Act. |
If appropriate, check the following box:
| [ ] | This [post-effective] amendment designates a new effective date for a previously filed [post-effective
amendment] [registration statement]. |
| [ ] | This Form is filed to register additional securities
for an offering pursuant to Rule 462(b) under the Securities Act, and the Securities Act registration statement number of the
earlier effective registration statement for the same offering is __________. |
| [ ] | This Form is a post-effective amendment filed pursuant
to Rule 462(c) under the Securities Act, and the Securities Act registration statement number of the earlier effective registration
statement for the same offering is __________. |
| [ ] | This Form is a post-effective amendment filed pursuant
to Rule 462(d) under the Securities Act, and the Securities Act registration statement number of the earlier effective registration
statement for the same offering is __________. |
Check each box that appropriately characterizes
the Registrant:
| [X] | Registered Closed-End Fund (closed-end company that is registered under the Investment Company Act
of 1940 (“Investment Company Act”)). |
| [ ] | Business Development Company (closed-end company that intends or has elected to be regulated as a
business development company under the Investment Company Act). |
| [ ] | Interval Fund (Registered Closed-End Fund or a Business Development Company that makes periodic repurchase
offers under Rule 23c-3 under the Investment Company Act). |
| [X] | A.2 Qualified (qualified to register securities pursuant to General Instruction A.2 of this Form). |
| [ ] | Well-Known Seasoned Issuer (as defined by Rule 405 under the Securities Act). |
| [ ] | Emerging Growth Company (as defined by Rule 12b-2 under the Securities Exchange Act of 1934 (“Exchange
Act”)). |
| [ ] | If an Emerging Growth Company, indicate by check mark if the registrant has elected not to use the
extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B)
of Securities Act. |
| [ ] | New Registrant (registered or regulated under the Investment Company Act for less than 12 calendar
months preceding this filing). |
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that the Registration Statement shall thereafter become effective
in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date
as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this
Prospectus is not complete and may be changed. We may not sell these securities until the Registration Statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an offer to sell these securities and is not soliciting
an offer to buy these securities in any state where the offer or sale is not permitted.
Subject To Completion Prospectus dated October 26, 2023
BASE PROSPECTUS
![](https://www.sec.gov/Archives/edgar/data/1400897/000139834423019754/fp0084769-1_01.jpg)
$100,000,000
NXG
Cushing® Midstream Energy Fund
Common Shares
Subscription Rights for Common Shares
Investment Objective. NXG Cushing®
Midstream Energy Fund (formerly, The Cushing® MLP & Infrastructure Total Return Fund) (the “Fund”)
is a non-diversified, closed-end management investment company. The Fund’s investment objective is to obtain a high after-tax
total return from a combination of capital appreciation and current income.
Investment Strategy. The Fund seeks
to achieve its investment objective by investing, under normal market conditions, at least 80% of Managed Assets (as defined in this
Prospectus) in a portfolio of midstream energy investments (the “80% policy”). For purposes of the Fund’s 80% policy,
the Fund considers midstream energy investments to be investments that offer economic exposure to securities of midstream energy companies,
which are companies that provide midstream energy services, including the gathering, transporting, processing, fractionation, storing,
refining and distribution of natural resources, such as natural gas, natural gas liquids, crude oil refined petroleum products, biofuels,
carbon sequestration, solar, and wind. The Fund considers a company to be a midstream energy company if at least 50% of its assets, income,
sales or profits are committed to or derived from otherwise related to midstream energy services.
(continued on inside front cover)
The Fund has previously qualified, and intends
to continue to qualify, to be treated as a regulated investment company (“RIC”) under the Internal Revenue Code of 1986,
as amended (the “Code”). The Fund pursues its investment objective by generally investing in master limited partnerships
(“MLPs”) up to the maximum extent permitted of a RIC under the Code. Accordingly, the Fund will, as of the end of each fiscal
quarter, invest no more than 25% of Managed Assets in securities of MLPs and other entities that are “qualified publicly traded
partnerships” under the Code.
Investment Adviser. The Fund is
managed by Cushing® Asset Management, LP d/b/a NXG Investment Management (the “Investment Adviser”).
Offering. The Fund may offer, from
time to time, up to $100,000,000 aggregate initial offering price of common shares of beneficial interest, par value $0.001 per
share (“Common Shares”), and/or subscription rights to purchase Common Shares (“Rights” and together with
the Common Shares, “Securities”) in one or more offerings in amounts, at prices and on terms set forth in one or more
supplements to this Prospectus (each a “Prospectus Supplement”). You should read this Prospectus and any related Prospectus
Supplement carefully before you decide to invest in the Securities.
The Fund may offer Securities (1) directly
to one or more purchasers, (2) through agents that the Fund may designate from time to time or (3) to or through underwriters or
dealers. The Prospectus Supplement relating to a particular offering of Securities will identify any agents or underwriters involved
in the sale of Securities, and will set forth any applicable purchase price, fee, commission or discount arrangement between the
Fund and agents or underwriters or among underwriters or the basis upon which such amount may be calculated. The Fund may not sell
Securities through agents, underwriters or dealers without delivery of this Prospectus and a Prospectus Supplement. See “Plan
of Distribution.”
Investing in the Fund’s Securities
involves a high degree of risk. See “Risks” on page 39 of this Prospectus.
Neither the Securities and Exchange
Commission nor any state securities commission has approved or disapproved of these securities or determined that this Prospectus
is truthful or complete. Any representation to the contrary is a criminal offense.
Prospectus dated , 2023
(continued from front cover)
Investment Strategy (continued)
The Fund invests in equity and debt securities
of midstream energy companies, and invests in U.S. and non-U.S. securities and in issuers of any market capitalization size.
As an alternative to holding investments
directly, the Fund may obtain investment exposure through derivatives transactions intended to replicate, modify or replace the economic
attributes associated with investment in securities in which the Fund is permitted to invest directly. To the extent that the Fund invests
in synthetic investments with economic characteristics similar to investments in midstream energy companies, the market value (or, if
market value is unavailable, the fair value) of such investments will be counted for purposes of the Fund’s policy of investing
at least 80% of its Managed Assets in a portfolio of midstream energy investments. For a discussion of derivative instruments in which
the Fund may invest, see “Investment Objective and Policies—Additional Investment Practices—Strategic Transactions.”
The Fund invests, without limitation, in debt
securities rated, at the time of investment, at least (i) B3 by Moody’s Investors Service, Inc. (“Moody’s”),
(ii) B- by Standard & Poor’s Ratings Services (“S&P”) or Fitch Ratings (“Fitch”), or (iii) a comparable
rating by another rating agency, and invests no more than 5% of its Managed Assets in debt securities rated below B3 by Moody’s,
B- by S&P or Fitch or a comparable rating by another rating agency. Therefore, the Fund may invest in below investment grade debt
securities. A debt security is considered below investment grade if it is rated below Baa3- by Moody’s or below BBB- by S&P
or Fitch or a comparable rating by another rating agency. Below investment grade debt securities are often referred to as “high
yield” securities or “junk bonds.” Below investment grade debt securities are regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and to repay principal. Debt securities in which the Fund invests may be of
any maturity.
NYSE Listing. The Fund’s currently
outstanding Common Shares are, and the Common Shares offered by this Prospectus, will be, subject to notice of issuance, listed on the
New York Stock Exchange (the “NYSE”) under the symbol “SRV.” As of October 24, 2023, the net asset value of
the Fund’s Common Shares was $36.93 per Common Share, and the last reported sale price for the Fund’s Common Shares on the
NYSE was $38.48 per Common Share, representing a premium to net asset value of 4.20%. In connection with any offering of Rights, the Fund
will provide information in the Prospectus Supplement for the expected trading market, if any, for Rights.
Leverage. The Fund generally seeks to enhance
total return by utilizing leverage. The Fund may utilize leverage through the issuance of commercial paper or notes and other forms of
borrowing (“Indebtedness”) or the issuance of preferred shares, in each case to the maximum extent permitted by the Investment
Company Act of 1940, as amended (the “1940 Act”). Under current market conditions, the Fund currently intends to utilize leverage
principally through Indebtedness. The amount of Indebtedness outstanding is expected to vary over time, but will not exceed 331⁄3%
of the Fund’s Managed Assets (i.e., 50% of its net assets attributable to the Fund’s Common Shares), including the
proceeds of such leverage. The costs associated with the issuance and use of leverage will be borne by the holders of the Common Shares.
Leverage is a speculative technique and investors should note that there are special risks and costs associated with leverage. There can
be no assurance that a leveraging strategy will be successful during any period in which it is employed. As of May 31, 2023, the Fund
had outstanding Indebtedness of approximately $13.315 million, which represents 15% of the Fund’s Managed Assets (or approximately
17% of its net assets attributable to the Fund’s Common Shares). See “Use of Leverage.”
Distributions. The Fund intends to pay
substantially all of its net investment income to Common Shareholders through monthly distributions. In addition, the Fund intends to
distribute any net long-term capital gains to Common Shareholders at least annually. The Fund expects that distributions paid on the
Common Shares will consist primarily of (i) investment company taxable income, which includes, among other things, ordinary income, net
short-term capital gain and income from certain hedging and interest rate transactions, (ii) net capital gain (which is the excess of
net long-term capital gain over net short-term capital loss), and/or (iii) return of capital. Distributions paid by the Fund for any
particular month may be comprised of more or less than the amount of net investment income from that monthly period. As a result, all
or a portion of a distribution may be deemed a return of capital (which is in effect a partial return of the amount a Common Shareholder
invested in the Fund) up to the amount of the Common Shareholder’s tax basis in their Common Shares, which would reduce such tax
basis. The Fund’s distributions have historically included, and may in the future include, a significant portion of return of
capital. For the fiscal year ended November 30, 2022, the Fund’s distributions were comprised of approximately 28% ordinary income
and 72% return of capital. Accordingly, shareholders should not assume that the source of a distribution from the Fund is net income
or profit, and the Fund’s distributions should not be used as a measure of performance or confused with yield or income. Although
a return of capital may not be taxable, it will generally increase the Common Shareholder’s potential gain, or reduce the Common
Shareholder’s potential loss, on any subsequent sale or other disposition of Common Shares. Common Shareholders should not assume
that the source of a distribution from the Fund is net income or profit, and Common Shareholders who receive distributions that include
return of capital should not assume that such return of capital is derived from the Fund’s investments.
Concentration. The Fund’s investments
will be concentrated in issuers in the industry or group of industries that make up the natural resources sector, and specifically in
midstream energy companies within the natural resources sector. See “Risks—Concentration Risk.”
You should read this Prospectus and the documents
incorporated herein by reference, which contain important information about the Fund that you should know before deciding whether to
invest, and retain it for future reference. A Statement of Additional Information, dated , 2023 (“SAI”), containing additional
information about the Fund, has been filed with the Securities and Exchange Commission (the “SEC”) and is incorporated by
reference in its entirety into this Prospectus. You may request a free copy of the Statement of Additional Information, the table of
contents of which is on page 82 of this Prospectus, and the Fund’s annual and semi-annual reports by calling toll-free (855)
862-6092, or you may obtain a copy of such reports, the SAI and other information regarding the Fund from the SEC’s website (http://www.sec.gov).
Free copies of the Fund’s annual and semi-annual reports are also be available from the Fund’s website at www.cushingcef.com.
Information on, or accessible through, the Fund’s website is not a part of, and is not incorporated into, this Prospectus.
The Fund’s securities 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 |
1 |
SUMMARY OF FUND EXPENSES |
23 |
FINANCIAL HIGHLIGHTS |
24 |
SENIOR SECURITIES |
28 |
THE FUND |
29 |
USE OF PROCEEDS |
29 |
MARKET AND NET ASSET VALUE INFORMATION |
29 |
INVESTMENT OBJECTIVE AND POLICIES |
30 |
USE OF LEVERAGE |
37 |
RISKS |
39 |
MANAGEMENT OF THE FUND |
63 |
NET ASSET VALUE |
64 |
DISTRIBUTIONS |
65 |
DIVIDEND REINVESTMENT PLAN |
66 |
DESCRIPTION OF SHARES |
68 |
ANTI-TAKEOVER PROVISIONS IN THE AGREEMENT AND DECLARATION OF TRUST |
71 |
CERTAIN PROVISIONS OF DELAWARE LAW, THE AGREEMENT
AND DECLARATION OF TRUST AND BY-LAWS |
73 |
CLOSED-END FUND STRUCTURE |
75 |
REPURCHASE OF COMMON SHARES |
75 |
U.S. FEDERAL INCOME TAX CONSIDERATIONS |
76 |
PLAN OF DISTRIBUTION |
78 |
OTHER SERVICE PROVIDERS |
80 |
LEGAL MATTERS |
80 |
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
81 |
PRIVACY POLICY |
81 |
You should rely only on the information
contained or incorporated by reference in this Prospectus. The Fund has not authorized any other person to provide you with different
information. If anyone provides you with different or inconsistent information, you should not rely on it. The Fund is not making
an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. The information contained in this
Prospectus and any related Prospectus Supplement is accurate only as of the date of this Prospectus and any related Prospectus
Supplement, regardless of the time of delivery of this Prospectus and any related Prospectus Supplement or of any sale of Securities
of the Fund. The Fund’s business, financial condition and prospects may have changed since that date.
ABOUT THIS PROSPECTUS
This Prospectus is part
of a registration statement on Form N-2 that the Fund filed with the Securities and Exchange Commission (the “SEC”)
using a “shelf” registration process. Under this process, the Fund may offer, from time to time, up to $100,000,000
aggregate initial offering price of Securities in one or more offerings in amounts, at prices and on terms set forth in one or
more Prospectus Supplements. The Prospectus Supplement may also add, update or change information contained in this Prospectus.
You should carefully read this Prospectus and any accompanying Prospectus Supplement, together with the additional information
described under the heading “Where You Can Find More Information.”
This Prospectus, any accompanying
Prospectus Supplement and the Statement of Additional Information, contain (or will contain) or incorporate (or will incorporate)
by reference forward-looking statements, within the meaning of the federal securities laws, that involve risks and uncertainties.
These statements describe the Fund’s plans, strategies, and goals and the Fund’s beliefs and assumptions concerning
future economic and other conditions and the outlook for the Fund, based on currently available information. In this Prospectus
and any accompanying Prospectus Supplement, words such as “anticipates,” “believes,” “expects,”
“objectives,” “goals,” “future,” “intends,” “seeks,” “will,”
“may,” “could,” “should,” and similar expressions, and the negative of such terms, are used
in an effort to identify forward-looking statements, although some forward-looking statements may be expressed differently. By
their nature, all forward looking statements involve risks and uncertainties, and actual results could differ materially from those
contemplated by any forward looking statements. Although the Fund believes that the expectations expressed in these forward looking
statements are (or will be) reasonable, actual results could differ materially from those projected or assumed in these forward
looking statements. The Fund’s future financial condition and results of operations, as well as any forward looking statements,
are subject to change and are subject to inherent risks and uncertainties, such as those disclosed in the “Risks” sections
of this Prospectus and the Fund’s most recent Annual Report, which describe certain currently known risk factors that could
cause actual results to differ materially from the Fund’s expectations, and, if applicable, additional risk considerations
described in an accompanying Prospectus Supplement. The Fund urges you to review carefully that section for a more detailed discussion
of the risks associated with an investment in the Fund’s securities. All forward looking statements contained or incorporated
by reference in this Prospectus and any accompanying Prospectus Supplement are made as of the date of this Prospectus and any accompanying
Prospectus Supplement. The Fund does not intend, and undertakes no obligation, to update any forward looking statement. The Fund
is not entitled to the safe harbor for forward-looking statements pursuant to Section 27A of the Securities Act of 1933.
You should rely only on
the information contained or incorporated by reference in this Prospectus and any accompanying Prospectus Supplement. The Fund
has not authorized any other person to provide you with different information. If anyone provides you with different or inconsistent
information, you should not rely on it. The Fund is not making an offer to sell these securities in any jurisdiction where the
offer or sale is not permitted. You should not assume that the information in this Prospectus and any accompanying Prospectus Supplement
is accurate as of any date other than the date of this Prospectus and any accompanying Prospectus Supplement. The Fund’s
business, financial condition and results of operations may have changed since that date. The Fund will amend this Prospectus and
any accompanying Prospectus Supplement if, during the period that this Prospectus and any accompanying Prospectus Supplement is
required to be delivered, there are any subsequent material changes.
WHERE YOU CAN FIND MORE INFORMATION
The Fund is subject to the informational
requirements of the Securities Exchange Act of 1934 (the “Exchange Act”) and the 1940 Act and in accordance therewith
files, or will file, reports and other information with the SEC. Reports, proxy statements and other information filed by the Fund
with the SEC pursuant to the informational requirements of the Exchange Act and the 1940 Act can be inspected and copied at
the public reference facilities maintained by the SEC, 100 F Street, N.E., Washington, D.C. 20549. The SEC maintains
a web site at www.sec.gov containing reports, proxy and information statements and other information regarding registrants, including
the Fund, that file electronically with the SEC
This Prospectus constitutes part of a Registration
Statement filed by the Fund with the SEC under the Securities Act, and the 1940 Act. This Prospectus omits certain of the information
contained in the Registration Statement, and reference is hereby made to the Registration Statement and related exhibits for further
information with respect to the Fund and the Common Shares offered hereby. Any statements contained herein concerning the provisions
of any document are not necessarily complete, and, in each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement or otherwise filed with the SEC. Each such statement is qualified in its entirety by such
reference. The complete Registration Statement may be obtained from the SEC upon payment of the fee prescribed by its rules and
regulations or free of charge through the SEC’s website (www.sec.gov).
The
Fund will provide without charge to each person, including any beneficial owner, to whom this Prospectus is delivered, upon written
or oral request, a copy of any and all of the information that has been incorporated by reference in this Prospectus or any
accompanying Prospectus Supplement. You may request such information by calling (855) 862-6092 or by writing to NXG
Investment Management at 600 N. Pearl Street, Suite 1205, Dallas, Texas 75201, or you may obtain a copy (and other information
regarding the Trust) from the SEC’s website (www.sec.gov). Free copies of the Fund’s Prospectus, Statement of Additional
Information and any incorporated information will also be available from the Fund’s website at www.cushingcef.com. Information
contained on the Fund’s website is not incorporated by reference into this Prospectus or any Prospectus Supplement and should
not be considered to be part of this Prospectus or any Prospectus Supplement.
INCORPORATION BY REFERENCE
This Prospectus is part of a registration statement
that the Fund has filed with the SEC. The Fund is permitted to “incorporate by reference” the information that it files with
the SEC, which means that the Fund can disclose important information to you by referring you to those documents. The information incorporated
by reference is an important part of this Prospectus, and later information that the Fund files with the SEC will automatically update
and supersede this information.
The documents listed below, and any reports and
other documents subsequently filed by the Fund with the SEC pursuant to Rule 30(b)(2) under the 1940 Act and Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act, prior to the termination of the offering, and any reports and other documents subsequently filed by the
Fund with the SEC pursuant to Rule 30(b)(2) under the 1940 Act and Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date
of the initial registration statement and prior to effectiveness of the registration statement, are incorporated by reference into this
Prospectus and deemed to be part of this Prospectus from the date of the filing of such reports and documents:
| ● | the Fund’s Statement of Additional Information, dated , 2023, filed with this Prospectus (the “SAI”);
|
| ● | the
Fund’s Annual Report for the fiscal year ended November 30, 2022 on Form
N-CSR, filed with the SEC on February 6, 2023, as amended by the Fund’s Form N-CSR/A
filed with the SEC on October 5, 2023 (the “Annual Report”); |
| ● | the
Fund’s Semi-Annual Report on Form
N-CSRS for the period ended May 31, 2023, filed with the SEC on August 7, 2023 (the “Semi-Annual
Report”); |
| ● | the Fund’s definitive proxy statement on Schedule
14A for its 2023 annual meeting of shareholders, filed with the SEC on April 21, 2023 (the “Proxy Statement”);
and
|
| ● | the Fund’s description of Common Shares contained in its Registration Statement on Form
8-A (File No. 001-33641) filed with the SEC on August 2, 2007. |
To
obtain copies of these filings, see “Where You Can Find More Information.”
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING
STATEMENTS
This Prospectus, including
documents incorporated by reference, contain “forward-looking statements.” Forward-looking statements can be identified
by the words “may,” “will,” “intend,” “expect,” “estimate,” “continue,”
“plan,” “anticipate,” and similar terms and the negative of such terms. By their nature, all forward-looking
statements involve risks and uncertainties, and actual results could differ materially from those contemplated by the forward-looking
statements. Many factors that could materially affect the Fund’s actual results are the performance of the portfolio of securities
held by the Fund, the conditions in the U.S. and international financial, petroleum and other markets, the price at which the Fund’s
Common Shares will trade in the public markets and other factors discussed in this Prospectus and to be discussed in the Fund’s
periodic filings with the SEC.
Although the Fund
believes that the expectations expressed in such forward-looking statements are reasonable, actual results could differ materially
from those expressed or implied in such forward-looking statements. The Fund’s future financial condition and results of
operations, as well as any forward-looking statements, are subject to change and are subject to inherent risks and uncertainties,
such as those disclosed in the “Risks” section of this Prospectus. You are cautioned not to place undue reliance on
these forward-looking statements. All forward-looking statements contained or incorporated by reference in this Prospectus are
made as of the date of this Prospectus. Except for the Fund’s ongoing obligations under the federal securities laws, the
Fund does not intend, and the Fund undertakes no obligation, to update any forward-looking statement. The forward-looking statements
contained in this Prospectus are excluded from the safe harbor protection provided by section 27A of the Securities Act of 1933,
as amended.
Currently known risk
factors that could cause actual results to differ materially from the Fund’s expectations include, but are not limited to,
the factors described in the “Risks” section of this Prospectus. The Fund urges you to review carefully this section
for a more detailed discussion of the risks of an investment in the Fund’s securities.
PROSPECTUS
SUMMARY
This is only a
summary of information contained elsewhere in this prospectus (the “Prospectus”). This summary does not contain all
of the information that you should consider before investing in the Fund’s securities. In particular, you should carefully
read the more detailed information contained in this Prospectus and the statement of additional information, dated , 2023 (the
“SAI”), especially the information set forth under the heading “Risks.”
The Fund |
|
NXG Cushing® Midstream Energy Fund is a non-diversified, closed-end management investment company registered under the 1940 Act that commenced investment operations on August 27, 2007. The Fund’s Investment Adviser is Cushing® Asset Management, LP d/b/a NXG Investment Management. |
The Offering |
|
The Fund may offer, from time to time, up to $100,000,000 aggregate initial offering price of common shares of beneficial interest, par value $0.001 per share (“Common Shares”), and/or subscription rights to purchase Common Shares (“Rights” and together with the Common Shares, “Securities”) in one or more offerings in amounts, at prices and on terms set forth in one or more supplements to this Prospectus (each a “Prospectus Supplement”). You should read this Prospectus and any related Prospectus Supplement carefully before you decide to invest in the Securities. |
|
|
The Fund may offer Securities (1) directly to one or more purchasers, (2) through agents that the Fund may designate from time to time or (3) to or through underwriters or dealers. The Prospectus Supplement relating to a particular offering of Securities will identify any agents or underwriters involved in the sale of Securities, and will set forth any applicable purchase price, fee, commission or discount arrangement between the Fund and agents or underwriters or among underwriters or the basis upon which such amount may be calculated. The Fund may not sell Securities through agents, underwriters or dealers without delivery of this Prospectus and a Prospectus Supplement. See “Plan of Distribution.” |
Use of Proceeds |
|
Unless otherwise specified in a Prospectus Supplement, the Fund intends to invest the net proceeds of an offering of Securities in accordance with its investment objective and policies as stated in this Prospectus. It is currently anticipated that the Fund will be able to invest substantially all of the net proceeds of an offering of Securities in accordance with its investment objective and policies within three months after the completion of such offering. Prior to the time the proceeds of each offering are fully invested, such proceeds may temporarily be invested in cash, cash equivalents, or in debt securities that are rated AA or higher. Income received by the Fund from such temporary investments would likely be less than returns sought pursuant to the Fund’s investment objective and policies. A delay in the anticipated use of proceeds could lower returns and reduce the Fund’s distribution to holders of Common Shares (“Common Shareholders”). |
Investment Objective |
|
The Fund’s investment objective is to obtain a high after-tax total return from a combination of capital appreciation and current income. There can be no assurance that the Fund’s investment objective will be achieved. |
Principal Investment Policies |
|
The
Fund seeks to achieve its investment objective by investing, under normal market conditions,
at least 80% of Managed Assets (as defined in this Prospectus) in a portfolio of midstream
energy investments (the “80% policy”). For purposes of the Fund’s 80% policy,
the Fund considers midstream energy investments to be investments that offer economic exposure
to securities of midstream energy companies, which are companies that provide midstream energy
services, including the gathering, transporting, processing, fractionation, storing, refining
and distribution of natural resources, such as natural gas, natural gas liquids, crude oil
refined petroleum products, biofuels, carbon sequestration, solar, and wind. The Fund considers
a company to be a midstream energy company if at least 50% of its assets, income, sales or
profits are committed to or derived from midstream energy services.
The Fund invests in equity and debt securities
of midstream energy companies, and invests in U.S. and non-U.S. securities and in issuers of any market capitalization size. |
|
|
As
an alternative to holding investments directly, the Fund may obtain investment exposure through
derivatives transactions intended to replicate, modify or replace the economic attributes
associated with investment in securities in which the Fund is permitted to invest directly.
To the extent that the Fund invests in synthetic investments with economic characteristics
similar to investments in midstream energy companies, the market value (or, if market value
is unavailable, the fair value) of such investments will be counted for purposes of the Fund’s
policy of investing at least 80% of its Managed Assets in a portfolio of midstream energy
investments. For a discussion of derivative instruments in which the Fund may invest,
see “Investment Objective and Policies—Additional Investment Practices—Strategic
Transactions.” |
|
|
The
Fund has previously qualified, and intends to continue to qualify, to be treated as a regulated
investment company (“RIC”) under the Internal Revenue Code of 1986, as amended
(the “Code”). The Fund pursues its investment objective by generally investing
in MLPs up to the maximum extent permitted of a RIC under the Code. Accordingly, the Fund
will, as of the end of each fiscal quarter, invest no more than 25% of Managed Assets in
securities of MLPs and other entities that are “qualified publicly traded partnerships”
under the Code. |
|
|
The Fund generally seeks to invest no more than 10% of Managed Assets (as
defined below) in any one issue and no more than 15% of Managed Assets in any one issuer, in each case, determined at the time of investment. |
|
|
The Fund seeks attractive investment opportunities by investing in initial
public offerings (“IPOs”) and secondary market issuances, private investment in public equity (“PIPE”) transactions
and privately negotiated transactions, including pre-acquisition and pre-IPO equity issuances and investments in private companies. No
more than 50% of the Fund’s portfolio will be in PIPE or other private or restricted securities at the time of investment.
The
Fund invests up to 20% of its Managed Assets in investments other than mid-stream energy
investments, including equity securities of issuers other than midstream energy companies.
The Fund’s investments in non-U.S. securities include securities
of issuers in emerging markets. The Fund’s investments in non-U.S. securities also includes non-U.S. securities represented by
American Depositary Receipts (“ADRs”), which are certificates evidencing ownership of shares of a non-U.S. issuer that are
issued by depositary banks and generally trade on an established market in the United States or elsewhere.
|
|
|
The
Fund invests, without limitation, in debt securities rated, at the time of investment, at
least (i) B3 by Moody’s Investors Service, Inc. (“Moody’s”), (ii)
B- by Standard & Poor’s Ratings Services (“S&P”) or Fitch Ratings
(“Fitch”), or (iii) a comparable rating by another rating agency, and invests
no more than 5% of its Managed Assets in debt securities rated below B3 by Moody’s,
B- by S&P or Fitch or a comparable rating by another rating agency. Therefore, the Fund
may invest in below investment grade debt securities. A debt security is considered below
investment grade if it is rated below Baa3- by Moody’s or below BBB- by S&P or
Fitch or a comparable rating by another rating agency. Below investment grade debt securities
are often referred to as “high yield” securities or “junk bonds.”
Below investment grade debt securities are regarded as having predominantly speculative characteristics
with respect to capacity to pay interest and to repay principal. Debt securities in which
the Fund invests may be of any maturity. |
|
|
The
Fund’s investments will be concentrated in issuers in the industry or group of industries
that make up the natural resources sector, and specifically in midstream energy companies
within the natural resources sector. See “Risks—Concentration Risk.”
As
used in this Prospectus (excepted as noted below), “Managed Assets” means the
total assets of the Fund, minus all accrued expenses incurred in the normal course of operations
other than liabilities or obligations attributable to investment leverage, including, without
limitation, investment leverage obtained through (i) indebtedness of any type (including,
without limitation, borrowing through a credit facility or the issuance of debt securities),
(ii) the issuance of shares of preferred stock (“preferred shares”) or other
similar preference securities and/or (iii) the reinvestment of collateral received for securities
loaned in accordance with the Fund’s investment objective and policies. Solely for
purposes of the Fund’s 80% policy, “Managed Assets” means net assets, plus
the amount of any borrowings for investment purposes. |
|
|
The Fund’s investment objective and percentage parameters, including
its 80% policy, are not fundamental policies of the Fund and may be changed without shareholder approval. Shareholders, however, will
be notified in writing of any change at least 60 days prior to effecting any such change. |
Leverage |
|
The Fund may seek to enhance its total return by utilizing leverage. The Fund may utilize leverage through the issuance of commercial paper or notes and other forms of borrowing (“Indebtedness”) or the issuance of preferred shares. The Fund may utilize leverage through Indebtedness or preferred shares to the maximum extent permitted by the 1940 Act. Under current market conditions, the Fund intends to utilize leverage principally through Indebtedness. The amount of Indebtedness outstanding is expected to vary over time, but will not exceed 33 1/3% of the Fund’s Managed Assets (i.e., 50% of its net assets attributable to the Fund’s Common Shares), including the proceeds of such leverage. |
|
|
The Fund will only utilize leverage when it expects to be able to invest the proceeds at a higher rate of return than its cost of borrowing. The use of leverage for investment purposes creates opportunities for greater total return, but at the same time increases risk. When leverage is employed, the net asset value, market price of the Common Shares and the yield to holders of Common Shares may be more volatile. Any investment income or gains earned with respect to the amounts borrowed in excess of the interest due on the borrowing will augment the Fund’s income. Conversely, if the investment performance with respect to the amounts borrowed fails to cover the interest on such borrowings, the value of the Fund’s Common Shares may decrease more quickly than would otherwise be the case and distributions on the Common Shares would be reduced or eliminated. Interest payments and fees incurred in connection with such borrowings will reduce the amount of net income available for distribution to Common Shareholders. |
|
|
The Fund currently utilizes Indebtedness pursuant to a borrowing arrangement with ScotiabankTM. The interest rate charged on such Indebtedness approximates the 1-month Secured Overnight Financing Rate (“SOFR”) plus 1.00%. As of May 31, 2023, the principal balance outstanding was approximately $13.315 million, which represented 15% of the Fund’s Managed Assets (or approximately 17% of its net assets attributable to the Fund’s Common Shares). |
|
|
The costs associated with the issuance and use of leverage are borne by the holders of the Common Shares. Leverage is a speculative technique, and investors should note that there are special risks and costs associated with leverage. Because the investment management fee paid to the Investment Adviser is calculated on the basis of the Fund’s Managed Assets, which include the proceeds of leverage, the dollar amount of the management fee paid by the Fund to the Investment Adviser will be higher (and the Investment Adviser will be benefited to that extent) when leverage is utilized. The Investment Adviser will utilize leverage only if it believes such action would result in a net benefit to the Fund’s shareholders after taking into account the higher fees and expenses associated with leverage (including higher management fees). There can be no assurance that a leveraging strategy will be successful during any period in which it is employed. See “Use of Leverage.” |
Tax Treatment of the Fund |
|
The Fund has elected to be treated as, and intends to continue to qualify as, a RIC for U.S. federal income tax purposes. In order to qualify as a RIC, the Fund must, among other things, satisfy income, asset diversification and distribution requirements. As long as it so qualifies, the Fund will generally not be subject to U.S. federal income tax to the extent that it distributes annually its taxable income and gains. There can be no assurance that the Fund will qualify as a RIC for any given year. |
|
|
See “U.S. Federal Income Tax Considerations.” |
Investment Adviser |
|
The Fund’s investments are managed by its Investment Adviser, Cushing® Asset Management, LP d/b/a NXG Investment Management, whose principal business address is 600 N. Pearl Street, Suite 1205, Dallas, Texas 75201. The Investment Adviser is a wholly-owned investment advisory subsidiary of Swank Capital. The Investment Adviser was founded in 2003 and serves as investment adviser to registered and unregistered funds. As of June 30, 2023, the Investment Adviser managed approximately $1.026 billion in assets. |
Distributions |
|
The Fund intends to pay substantially all
of its net investment income to Common Shareholders through monthly distributions. In addition, the Fund intends to distribute
any net long-term capital gains to Common Shareholders at least annually. The Fund expects that distributions paid on the Common
Shares will consist primarily of (i) investment company taxable income, which includes, among other things, ordinary income, net
short-term capital gain and income from certain hedging and interest rate transactions, (ii) net capital gain (which is the excess
of net long-term capital gain over net short-term capital loss), and/or (iii) return of capital.
The Fund's net investment income can vary
significantly over time; however, the Fund seeks to maintain a more stable monthly distribution per share. The distributions paid
by the Fund for any particular month may be more or less than the amount of net investment income for that monthly period.
In any given year, there can be no
guarantee the Fund's investment returns will exceed the amount of distributions. The Fund may distribute more than the entire
amount of the net investment income earned in a particular period, in which case all or a portion of a distribution may be a
return of capital. The Fund's distributions have historically included, and may in the future include, a significant portion
of return of capital. For the fiscal year ended November 30, 2022, the Fund's distributions were comprised of approximately 28%
ordinary income and 72% return of capital. Accordingly, shareholders should not assume that the source of a distribution from
the Fund is net income or profit, and the Fund's distributions should not be used as a measure of performance or confused with
yield or income. Return of capital is the return of a portion of the shareholder's original investment up to the amount of
the Common Shareholder’s tax basis in their Common Shares, which would reduce such tax basis. Although a return of capital
may not be taxable, it will generally increase the Common Shareholder’s potential gain, or reduce the Common Shareholder’s
potential loss, on any subsequent sale or other disposition of Common Shares.
Alternatively, the Fund may also distribute
less than its net investment income in a particular period. The undistributed net investment income may be available to supplement
future common share distributions. Undistributed net investment income is included in the Common Shares' net asset value, and,
correspondingly, distributions from net investment income will reduce the Common Shares' net asset value. |
|
|
With each distribution that does not consist
solely of net investment income, the Fund will issue a notice to shareholders that will provide estimated information regarding
the amount and composition of the distribution. The amounts and sources of distributions reported in each notice will be estimated,
are likely to change over time and are not provided for tax reporting purposes. The final determination of such amounts will be
made and reported to shareholders after the end of the calendar year when the Fund determines its earnings and profits for the
year. The actual amounts and sources of the amounts for accounting and tax reporting purposes will depend upon the Fund's investment
experience during its full fiscal year and may be subject to changes based on tax regulations. The Fund will send each shareholder
a Form 1099-DIV for the calendar year that will tell shareholders how to report distributions for federal income tax purposes.
|
|
|
See “Distributions.” |
Dividend Reinvestment Plan |
|
Shareholders
will automatically have all distributions (including capital gain distributions and return of capital distributions) reinvested in
Common Shares issued by the Fund or Common Shares of the Fund purchased on the open market in accordance with the Fund’s dividend
reinvestment plan unless an election is made to receive cash. Common Shareholders who receive distributions in the form of additional
Common Shares will be subject to the same U.S. federal income tax consequences as Common Shareholders who elect to receive their
distributions in cash. See “Dividend Reinvestment Plan.” |
Listing and Symbol |
|
The
Fund’s currently outstanding Common Shares are, and the Common Shares offered by this Prospectus will be, subject to notice of
issuance, listed on the New York Stock Exchange (the “NYSE”) under the symbol “SRV.” As of October 24, 2023,
the net asset value of the Fund’s Common Shares was $36.93 per Common Share, and the last reported sale price for the Fund’s
Common Shares on the NYSE was $38.48 per Common Share, representing a premium to net asset value of 4.20%. In connection with any
offering of Rights, the Fund will provide information in the Prospectus Supplement for the expected trading market, if any, for
Rights. |
Special Risk Considerations |
|
The following is a summary of the principal risks associated with an investment in Common Shares of the Fund. Investors should also refer to “Risks” in this prospectus for a more detailed explanation of these and other risks associated with investing in the Fund. |
|
|
Investment And Market Risk. An investment in Common Shares of the Fund is subject to investment risk, including the possible loss of the entire principal amount that you invest. An investment in the Common Shares of the Fund represents an indirect investment in the securities owned by the Fund. The value of those securities may fluctuate, sometimes rapidly and unpredictably. The value of the securities owned by the Fund may decline due to general market conditions that are not specifically related to a particular issuer, such as real or perceived economic conditions, changes in interest or currency rates or changes in investor sentiment or market outlook generally. At any point in time, your Common Shares may be worth less than your original investment, including the reinvestment of Fund dividends and distributions. |
|
|
Common
Stock Risk. The Fund will have exposure to common stocks. Although common stocks have historically generated higher average total
returns than fixed-income securities over the long-term, common stocks also have experienced significantly more volatility in those
returns and may significantly under-perform relative to fixed income securities during certain periods. An adverse event, such as
an unfavorable earnings report, may depress the value of a particular common stock held by the Fund. Also, the price of common stocks
is sensitive to general movements in the stock market and a drop in the stock market may depress the price of common stocks to which
the Fund has exposure. Common stock prices fluctuate for several reasons, including changes in investors’ perceptions of the
financial condition of an issuer or the general condition of the relevant stock market, or when political or economic events affecting
the issuers occur. In addition, common stock prices may be particularly sensitive to rising interest rates, as the cost of capital
rises and borrowing costs increase. At times, stock markets can be volatile and stock prices can change substantially. While broad
market measures of common stocks have historically generated higher average returns than income securities, common stocks have also
experienced significantly more volatility in those returns. Common stock in which the Fund invests is structurally subordinated to
preferred stock, bonds and other debt instruments in a company’s capital structure in terms of priority to corporate income
and are therefore inherently more risky than preferred stock or debt instruments of such issuers. |
|
|
Concentration
Risk. The Fund’s investments will be concentrated in issuers in the industry or
group of industries that make up the natural resources sector. The Fund has adopted a fundamental
investment restriction to invest at least 25% of its total assets in natural resources companies.
In addition, in accordance with the Fund’s 80% policy, the Fund invests at least 80%
of its net assets plus borrowings for investment purposes in midstream energy investments.
Midstream energy companies are a specific type of natural resources company. Because the
Fund will be concentrated, it may be subject to more risks than if it were more broadly diversified
over numerous industries and sectors of the economy. General changes in market sentiment
towards companies in the natural resources sector, or midstream energy companies specifically,
may adversely affect the Fund, and the performance of the natural resources sector, or midstream
energy companies specifically, may lag behind the broader market as a whole. Also, the Fund’s
concentration in the natural resources sector, and midstream energy companies specifically,
may subject the Fund to a variety of risks associated with that sector. See “Risks—Midstream
Energy Company Risks.”
The Fund’s investments will be concentrated in issuers in the
industry or group of industries that make up the natural resources sector, and specifically in midstream energy companies within the
natural resources sector. See “Risks—Concentration Risk.”
|
|
|
Midstream Energy Company Risks. Under normal circumstances, the Fund concentrates its investments in midstream energy companies. Midstream energy companies are subject to certain risks, including, but not limited to, the following: |
|
|
Commodity Price Risk. Natural resources commodity prices have been very volatile in the past and such volatility is expected to continue. Fluctuations in commodity prices can result from changes in general economic conditions or political circumstances (especially of key energy-consuming countries); market conditions; weather patterns; domestic production levels; volume of imports; energy conservation; domestic and foreign governmental regulation; international politics; policies of the Organization of Petroleum Exporting Countries (“OPEC”); taxation; tariffs; and the availability and costs of local, intrastate and interstate transportation methods. Midstream energy companies engaged in crude oil and natural gas exploration, development or production, natural gas gathering and processing, crude oil refining and transportation and coal mining or sales may be directly affected by their respective natural resources commodity prices. The volatility of, and interrelationships between, commodity prices can also indirectly affect certain midstream energy companies due to the potential impact on the volume of commodities transported, processed, stored or distributed. Some midstream energy companies that own the underlying energy commodity may be unable to effectively mitigate or manage direct margin exposure to commodity price levels. The prices of midstream energy companies’ securities can be adversely affected by market perceptions that their performance and distributions or dividends are directly tied to commodity prices. |
|
|
Cyclicality
Risk. The highly cyclical nature of the natural resources sector may adversely affect the earnings or operating cash flows of
the midstream energy companies in which the Fund invests. |
|
|
Supply Risk. A significant decrease in the production of natural gas, crude oil, coal or other energy commodities, due to the decline of production from existing resources, import supply disruption, depressed commodity prices or otherwise, would reduce the revenue, operating income and operating cash flows of midstream energy companies and, therefore, their ability to make distributions or pay dividends. |
|
|
Demand Risk. A sustained decline in demand for coal, natural gas, natural gas liquids, crude oil and refined petroleum products could adversely affect a midstream energy company’s revenues and cash flows. |
|
|
Risks Relating to Expansions and Acquisitions. Midstream energy companies employ a variety of means to increase cash flow, including increasing utilization of existing facilities, expanding operations through new construction or development activities, expanding operations through acquisitions, or securing additional long-term contracts. Thus, some midstream energy companies may be subject to construction risk, development risk, acquisition risk or other risks arising from their specific business strategies. Midstream energy companies that attempt to grow through acquisitions may not be able to effectively integrate acquired operations with their existing operations. |
|
|
Competition
Risk. The natural resources sector is highly competitive. To the extent that the midstream energy companies in which the Fund
invests are unable to compete effectively, their operating results, financial position, growth potential and cash flows may be adversely
affected, which could in turn adversely affect the results of the Fund. |
|
|
Weather Risk. Extreme weather conditions could result in substantial damage to the facilities of certain midstream energy companies located in the affected areas and significant volatility in the supply of natural resources, commodity prices and the earnings of midstream energy companies, and could therefore adversely affect their securities. |
|
|
Interest
Rate Risk. The prices of the equity and debt securities of the midstream energy companies the Fund expects to hold in its portfolio
are susceptible in the short-term to a decline when interest rates rise. Rising interest rates could limit the capital appreciation
of securities of certain midstream energy companies as a result of the increased availability of alternative investments with comparable
yields. Rising interest rates could adversely impact the financial performance of midstream energy companies by increasing their
cost of capital. This may reduce their ability to execute acquisitions or expansion projects in a cost effective manner. |
|
|
Cash
Flow Risk. The Fund will derive substantially all of its cash flow from investments in equity securities of midstream energy
companies. The amount of cash that the Fund has available to distribute to shareholders will depend on the ability of the midstream
energy companies in which the Fund has an interest to make distributions or pay dividends to their investors and the tax character
of those distributions or dividends. The Fund will likely have no influence over the actions of the companies in which it invests
with respect to the payment of distributions or dividends. |
|
|
Regulatory
Risk. The profitability of midstream energy companies could be adversely affected by changes in the regulatory environment. Midstream
energy companies are subject to significant foreign, federal, state and local regulation in virtually every aspect of their operations,
including with respect to how facilities are constructed, maintained and operated, environmental and safety controls, and the prices
they may charge for the products and services they provide. Midstream energy companies may be adversely affected by future regulatory
requirements. While the nature of such regulations cannot be predicted at this time, they may impose additional costs or limit certain
operations by midstream energy companies. |
|
|
Environmental Risk. There is an inherent risk that midstream energy companies may incur environmental costs and liabilities due to the nature of their businesses and the substances they handle. For example, an accidental release from wells or gathering pipelines could subject them to substantial liabilities for environmental cleanup and restoration costs, claims made by neighboring landowners and other third parties for personal injury and property damage, and fines or penalties for related violations of environmental laws or regulations. Moreover, the possibility exists that stricter laws, regulations or enforcement policies could significantly increase the compliance costs of midstream energy companies, and the cost of any remediation that may become necessary. Midstream energy companies may not be able to recover these costs from insurance. In addition, regulation can change over time in both scope and intensity, may have adverse effects on midstream energy companies and may be implemented in unforeseen manners on an “emergency” basis in response to catastrophes or other events. |
|
|
Affiliated Party Risk. Certain midstream energy companies are dependent on their parents or sponsors for a majority of their revenues. Any failure by a midstream energy company’s parents or sponsors to satisfy their payments or obligations would impact the company’s revenues and cash flows and ability to make distributions. Moreover, the terms of a midstream energy company’s transactions with its parent or sponsor are typically not arrived at on an arm’s-length basis, and may not be as favorable to the midstream energy company as a transaction with a non-affiliate. |
|
|
Catastrophe Risk. The operations of midstream energy companies are subject to many hazards inherent in the exploration for, and development, production, gathering, transportation, processing, storage, refining, distribution, mining or marketing of coal, natural gas, natural gas liquids, crude oil, refined petroleum products or other hydrocarbons, including: damage to production equipment, pipelines, storage tanks or related equipment and surrounding properties caused by hurricanes, tornadoes, floods, fires and other natural disasters or by acts of terrorism; inadvertent damage from construction or other equipment; leaks of natural gas, natural gas liquids, crude oil, refined petroleum products or other hydrocarbons; and fires and explosions. If a significant accident or event occurs that is not fully insured, it could adversely affect the midstream energy company’s operations and financial condition. |
|
|
Technology Risk. Some midstream energy companies are focused on developing new technologies and are strongly influenced by technological changes. Technology development efforts by midstream energy companies may not result in viable methods or products. Midstream energy companies may bear high research and development costs, which can limit their ability to maintain operations during periods of organizational growth or instability. Some midstream energy companies may be in the early stages of operations and may have limited operating histories and smaller market capitalizations on average than companies in other sectors. As a result of these and other factors, the value of investments in such midstream energy companies may be considerably more volatile than that in more established segments of the economy. |
|
|
Business
Segment Specific Risks. Midstream energy companies are also subject to risks that are specific to the particular business segment
of the natural resources sector in which they operate. |
|
|
● Pipelines. Pipeline companies are subject to the demand for natural gas, natural gas liquids, crude oil or refined products in the markets they serve, changes in the availability of products for gathering, transportation, processing or sale due to natural declines in reserves and production in the supply areas serviced by the companies’ facilities, sharp decreases in crude oil or natural gas prices that cause producers to curtail production or reduce capital spending for exploration activities, and environmental regulation. Demand for gasoline, which accounts for a substantial portion of refined product transportation, depends on price, prevailing economic conditions in the markets served, and demographic and seasonal factors. |
|
|
● Gathering and Processing. Gathering and processing companies are subject to natural declines in the production of oil and natural gas fields, which utilize their gathering and processing facilities as a way to market their production, prolonged declines in the price of natural gas or crude oil, which curtails drilling activity and therefore production, and declines in the prices of natural gas liquids and refined petroleum products, which cause lower processing margins. In addition, some gathering and processing contracts subject the gathering or processing company to direct commodities price risk. |
|
|
● Exploration and Production. Exploration, development and production companies are particularly vulnerable to declines in the demand for and prices of crude oil and natural gas. Reductions in prices for crude oil and natural gas can cause a given reservoir to become uneconomic for continued production earlier than it would if prices were higher, resulting in the plugging and abandonment of, and cessation of production from, that reservoir. In addition, lower commodity prices not only reduce revenues but also can result in substantial downward adjustments in reserve estimates. |
|
|
● Propane. Propane companies are subject to earnings variability based upon weather patterns in the locations where they operate and increases in the wholesale price of propane which reduce profit margins. In addition, propane companies are facing increased competition due to the growing availability of natural gas, fuel oil and alternative energy sources for residential heating. |
|
|
● Coal. Coal companies are subject to declines in the demand for and prices of coal. Demand variability can be based on weather conditions, the strength of the domestic economy, the level of coal stockpiles in their customer base, and the prices of competing sources of fuel for electric generation. They are also subject to supply variability based on geological conditions that reduce the productivity of mining operations, the availability of regulatory permits for mining activities and the availability of coal that meets the standards of the federal Clean Air Act of 1990, as amended (the “Clean Air Act”). |
|
|
● Marine Shipping. Marine shipping companies are subject to supply of and demand for, and level of consumption of, natural gas, liquefied natural gas, crude oil, refined petroleum products and liquefied petroleum gases in the supply and market areas they serve, which affect the demand for marine shipping services and therefore charter rates. Shipping companies’ vessels and cargoes are also subject to the risk of being damaged or lost due to marine disasters, extreme weather, mechanical failures, grounding, fire, explosions, collisions, human error, piracy, war and terrorism. |
|
|
See “Risks—Midstream Energy Company Risks.” |
|
|
Risks
Associated with an Investment in IPOs. Securities purchased by the Fund in initial public offerings (“IPOs”) are often
subject to the general risks associated with investments in companies with small market capitalizations, and typically to a heightened
degree. Securities issued in IPOs have no trading history, and information about the companies may be available for very limited
periods. In addition, the prices of securities sold in an IPO may be highly volatile, thus the Fund cannot predict whether investments
in IPOs will be successful. As the Fund grows in size, the positive effect of IPO investments on the Fund may decrease. See “Risks—Risks
Associated with an Investment in IPOs.” |
|
|
Risks Associated with an Investment in PIPE Transactions. PIPE investors purchase securities directly from a publicly traded company in a private placement transaction, typically at a discount to the market price of the company’s common stock. Because the sale of the securities is not registered under the Securities Act of 1933, as amended (the “Securities Act”), the securities are “restricted” and cannot be immediately resold by the investors into the public markets. Accordingly, the company typically agrees as part of the PIPE deal to register the restricted securities with the SEC. PIPE securities may be deemed illiquid. See “Risks—Risks Associated with an Investment in PIPE Transactions.” |
|
|
Privately Held Company Risk. Investing in privately held companies involves risk. For example, privately held companies are not subject to SEC reporting requirements, are not required to maintain their accounting records in accordance with generally accepted accounting principles, and are not required to maintain effective internal controls over financial reporting. As a result, the Investment Adviser may not have timely or accurate information about the business, financial condition and results of operations of the privately held companies in which the Fund invests. In addition, the securities of privately held companies are generally illiquid, and entail the risks described under “Risks—Liquidity Risk.” |
|
|
MLP Risks. An investment in MLP units involves some risks that differ from an investment in the common stock of a corporation. As compared to common stockholders of a corporation, holders of MLP units have more limited control and limited rights to vote on matters affecting the partnership. In addition, there are certain tax risks associated with an investment in MLP units and conflicts of interest may exist between common unit holders and the general partner, including those arising from incentive distribution payments. |
|
|
A portion of the benefit the Fund derives from its investment in equity securities of MLPs is a result of MLPs generally being treated as partnerships for U.S. federal income tax purposes. A change in current tax law, or a change in the business of a given MLP, could result in an MLP being treated as a corporation for U.S. federal income tax purposes, which would result in such MLP being required to pay U.S. federal income tax on its taxable income, which would have the effect of reducing the amount of cash available for distribution by the MLP and causing any such distributions received by the Fund to be treated as ordinary dividend income to the extent of the MLP’s current or accumulated earnings and profits. |
|
|
Changes in tax laws or regulations, or future interpretations of such laws or regulations, could adversely affect the Fund or the MLP investments in which the Fund invests. |
|
|
Master limited partnership subordinated units are not typically listed on an exchange or publicly traded. Holders of MLP subordinated units are entitled to receive a distribution only after the minimum quarterly distribution (the “MQD”) has been paid to holders of common units, but prior to payment of incentive distributions to the general partner or managing member. Master limited partnership subordinated units generally do not provide arrearage rights. Most MLP subordinated units are convertible into common units after the passage of a specified period of time or upon the achievement by the MLP of specified financial goals. |
|
|
General partner and managing member interests are not publicly traded, though they may be owned by publicly traded entities such as GP MLPs. A holder of general partner or managing member interests can be liable in certain circumstances for amounts greater than the amount of the holder’s investment. In addition, while a general partner or managing member’s incentive distribution rights can mean that general partners and managing members have higher distribution growth prospects than their underlying MLPs, these incentive distribution payments would decline at a greater rate than the decline rate in quarterly distributions to common or subordinated unit holders in the event of a reduction in the MLP’s quarterly distribution. A general partner or managing member interest can be redeemed by the MLP if the MLP unit holders choose to remove the general partner, typically by a supermajority vote of the limited partners or members. |
|
|
See “Risks—MLP Risks.” |
|
|
Liquidity Risk. The investments made by the Fund may be illiquid and consequently the Fund may not be able to sell such investments at prices that reflect the Investment Adviser’s assessment of their value, the value at which the Fund is carrying the securities on its books or the amount paid for such investments by the Fund. Furthermore, the nature of the Fund’s investments may require a long holding period prior to profitability. See “Risks—Liquidity Risk.” |
|
|
Non-U.S. Securities Risk. Investing in non-U.S. securities involves certain risks not involved in domestic investments, including, but not limited to: fluctuations in foreign exchange rates; future foreign economic, financial, political and social developments; different legal systems; the possible imposition of exchange controls or other foreign governmental laws or restrictions, including expropriation; lower trading volume; much greater price volatility and illiquidity of certain non-U.S. securities markets; different trading and settlement practices; less governmental supervision; changes in currency exchange rates; high and volatile rates of inflation; fluctuating interest rates; less publicly available information; and different accounting, auditing and financial recordkeeping standards and requirements. Investing in securities of issuers based in underdeveloped emerging markets entails all of the risks of investing in securities of non-U.S. issuers to a heightened degree. Currencies of certain countries may be volatile and therefore may affect the value of securities denominated in such currencies, which means that the Fund’s net asset value could decline as a result of changes in the exchange rates between foreign currencies and the U.S. dollar. See “Risks—Non-U.S. Securities Risk.” |
|
|
Interest Rate Risk. The costs associated with any leverage used by the Fund are likely to increase when interest rates rise. Accordingly, the market price of the Fund’s Common Shares may decline when interest rates rise. |
|
|
Interest Rate Hedging Risk. The Fund may from time to time hedge against interest rate risk resulting from the Fund’s portfolio holdings and any financial leverage it may incur. Interest rate transactions the Fund may use for hedging purposes will expose the Fund to certain risks that differ from the risks associated with its portfolio holdings. There are economic costs of hedging reflected in the price of interest rate swaps, caps and similar techniques, the cost of which can be significant. In addition, the Fund’s success in using hedging instruments is subject to the Investment Adviser’s ability to correctly predict changes in the relationships of such hedging instruments to the Fund’s leverage risk, and there can be no assurance that the Investment Adviser’s judgment in this respect will be accurate. See “Risks—Interest Rate Hedging Risk.” |
|
|
Arbitrage Risk. A part of the Investment Adviser’s investment operations may involve spread positions between two or more securities, or derivatives positions including commodities hedging positions, or a combination of the foregoing. The Investment Adviser’s trading operations also may involve arbitraging between two securities or commodities, between the security, commodity and related options or derivatives markets, between spot and futures or forward markets, and/or any combination of the above. To the extent the price relationships between such positions remain constant, no gain or loss on the positions will occur. These offsetting positions entail substantial risk that the price differential could change unfavorably, causing a loss to the position. Certain derivatives transactions have economic characteristics similar to leverage. |
|
|
Equity
Securities Risk. Master limited partnership common units and other equity securities of midstream energy companies can be affected
by macroeconomic, political, global and other factors affecting the stock market in general, expectations of interest rates, investor
sentiment towards midstream energy companies specifically or the natural resources sector generally, changes in a particular company’s
financial condition, or the unfavorable or unanticipated poor performance of a particular midstream energy companies. |
|
|
Small-Cap
and Mid-Cap Company Risk. Investing in the securities of companies with small or medium-sized market capitalizations (“small-cap”
and “mid-cap” companies, respectively) presents some particular investment risks. Small-cap and mid-cap midstream energy
companies may have limited product lines and markets, as well as shorter operating histories, less experienced management and more
limited financial resources than larger midstream energy companies, and may be more vulnerable to adverse general market or economic
developments. Stocks of these midstream energy companies may be less liquid than those of larger midstream energy companies, and
may experience greater price fluctuations than larger midstream energy companies. In addition, small-cap or mid-cap company securities
may not be widely followed by investors, which may result in reduced demand. |
|
|
Leverage Risk. The Fund may use leverage through the issuance of Indebtedness or the issuance of preferred shares. The use of leverage magnifies both the favorable and unfavorable effects of price movements in the investments made by the Fund. Insofar as the Fund employs leverage in its investment operations, the Fund will be subject to increased risk of loss. In addition, the Fund pays (and the holders of Common Shares bear) all costs and expenses relating to the issuance and ongoing maintenance of leverage, including higher advisory fees. Similarly, any decline in the net asset value of the Fund’s investments will be borne entirely by the holders of Common Shares. Therefore, if the market value of the Fund’s portfolio declines, the leverage will result in a greater decrease in net asset value to the holders of Common Shares than if the Fund were not leveraged. This greater net asset value decrease will also tend to cause a greater decline in the market price for the Common Shares. See “Risks—Leverage Risk.” |
|
|
Non-Diversification
Risk. The Fund is a non-diversified, closed-end management investment company under the 1940 Act. Accordingly, the Fund invests
a greater portion of its assets in a more limited number of issuers than a diversified fund. An investment in the Fund may present
greater risk to an investor than an investment in a diversified portfolio because changes in the financial condition or market assessment
of a single issuer may cause greater fluctuations in the value of the Fund’s shares. See “Risks—Non-Diversification
Risk.” |
|
|
Portfolio Turnover Risk. Portfolio turnover rate is not considered a limiting factor in the Investment Adviser’s execution of investment decisions. The Fund anticipates that its annual portfolio turnover rate may vary greatly from year to year. A higher portfolio turnover rate results in correspondingly greater brokerage commissions and other transactional expenses that are borne by the Fund. High portfolio turnover may result in an increased realization of net short-term capital gains or capital losses by the Fund. |
|
|
Strategic Transactions Risk. The Fund may, but is not required to, use investment strategies (referred to herein as “Strategic Transactions”) for hedging, risk management or portfolio management purposes or to earn income. The Fund’s use of Strategic Transactions may involve the purchase and sale of derivative instruments. The Fund may purchase and sell exchange-listed and over-the-counter put and call options on securities, indices and other instruments, enter into forward contracts, purchase and sell futures contracts and options thereon, enter into swap, cap, floor or collar transactions, purchase structured investment products and enter into transactions that combine multiple derivative instruments. Strategic Transactions often have risks similar to the securities underlying the Strategic Transactions. However, the use of Strategic Transactions also involves risks that are different from, and possibly greater than, the risks associated with other portfolio investments. Strategic Transactions may involve the use of highly specialized instruments that require investment techniques and risk analyses different from those associated with other portfolio investments. The use of derivative instruments has risks, including the imperfect correlation between the value of the derivative instruments and the underlying assets, the possible default of the counterparty to the transaction or illiquidity of the derivative investments. Furthermore, the ability to successfully use these techniques depends on the Investment Adviser’s ability to predict pertinent market movements, which cannot be assured. Thus, the use of Strategic Transactions 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, amounts paid by the Fund as premiums and cash, or other assets held in margin accounts with respect to Strategic Transactions are not otherwise available to the Fund for investment purposes. It is possible that government regulation of various types of derivative instruments, including regulations enacted pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), which was signed into law in July 2010, may impact the availability, liquidity and cost of derivative instruments. There can be no assurance that such regulation will not have a material adverse effect on the Fund or will not impair the ability of the Fund to implement certain Strategic Transactions or to achieve its investment objective. Although the Investment Adviser seeks to use Strategic Transactions to further the Fund’s investment objective, no assurance can be given that the use of Strategic Transactions will achieve this result. A more complete discussion of Strategic Transactions and their risks is included in the SAI under the heading “Strategic Transactions.” |
|
|
Convertible
Instrument Risk. A convertible instrument is a bond, debenture, note, preferred stock or other security that may be converted
into or exchanged for a prescribed amount of Common Shares of the same or a different issuer within a particular period of time at
a specified price or formula. |
|
|
Convertible debt instruments have characteristics of both fixed income and equity investments. Convertible instruments are subject both to the stock market risk associated with equity securities and to the credit and interest rate risks associated with fixed-income securities. As the market price of the equity security underlying a convertible instrument falls, the convertible instrument tends to trade on the basis of its yield and other fixed-income characteristics. As the market price of such equity security rises, the convertible security tends to trade on the basis of its equity conversion features. See “Risks—Convertible Instruments Risk.” |
|
|
Debt Securities Risk. Debt securities are subject to many of the risks described elsewhere in this section. In addition, they are subject to credit risk, prepayment risk and, depending on their quality, other special risks. Certain debt instruments, particularly below investment grade securities, may contain call or redemption provisions which would allow the issuer of the debt instrument to prepay principal prior to the debt instrument’s stated maturity. This is also sometimes known as prepayment risk. See “Risks— Debt Securities Risk.” |
|
|
Below Investment Grade Securities (Junk Bonds) Risk. Below investment grade and unrated debt securities generally pay a premium above the yields of U.S. government securities or debt securities of investment grade issuers because they are subject to greater risks than these securities. These risks, which reflect their speculative character, include the following: greater yield and price volatility; greater credit risk and risk of default; potentially greater sensitivity to general economic or industry conditions; potential lack of attractive resale opportunities (illiquidity); and additional expenses to seek recovery from issuers who default. Debt securities rated below investment grade are commonly known as “junk bonds” and are regarded as predominantly speculative with respect to the issuer’s capacity to pay interest and repay principal in accordance with the terms of the obligations, and involve major risk exposure to adverse conditions. See “Risks—Below Investment Grade Securities Risk.” |
|
|
Distributions
Risk. The Fund's net investment income can vary significantly over time; however, the
Fund seeks to maintain a more stable monthly distribution per share. The distributions paid
by the Fund for any particular month may be more or less than the amount of net investment
income for that monthly period. The Fund may distribute more than the entire amount of the
net investment income earned in a particular period, in which case all or a portion of a
distribution may be a return of capital. The Fund's distributions have historically included,
and may in the future include, a significant portion of return of capital. For the fiscal
year ended November 30, 2022, the Fund's distributions were comprised of approximately 28%
ordinary income and 72% return of capital. Accordingly, shareholders should not assume that
the source of a distribution from the Fund is net income or profit, and the Fund's distributions
should not be used as a measure of performance or confused with yield or income.
Return
of capital is the return of a portion of the shareholder's original investment up to the
amount of the Common Shareholder’s tax basis in their Common Shares, which would reduce
such tax basis. Although a return of capital may not be taxable, it will generally increase
the Common Shareholder’s potential gain, or reduce the Common Shareholder’s potential
loss, on any subsequent sale or other disposition of Common Shares. In any given year, there
can be no guarantee the Fund's investment returns will exceed the amount of distributions.
To the extent the amount of distributions paid to shareholders in cash exceeds the total
net investment returns of the Fund, the assets of the Fund will decline, which may have the
effect of increasing the Fund's expense ratio. In addition, in order to make such distributions,
the Fund may have to sell a portion of its investment portfolio at a time when independent
investment judgment might not dictate such action. |
|
|
Market Discount from Net Asset Value. Shares of closed-end investment companies frequently trade at a discount from their net asset value, which is a risk separate and distinct from the risk that the Fund’s net asset value could decrease as a result of its investment activities. |
|
|
Although the value of the Fund’s net assets is generally considered by market participants in determining whether to purchase or sell Common Shares, whether investors will realize gains or losses upon the sale of Common Shares will depend entirely upon whether the market price of Common Shares at the time of sale is above or below the investor’s purchase price for Common Shares. Because the market price of Common Shares will be determined by factors such as net asset value, distribution levels (which are dependent, in part, on expenses), supply of and demand for Common Shares, stability of distributions, trading volume of Common Shares, general market and economic conditions and other factors beyond the control of the Fund, the Fund cannot predict whether Common Shares will trade at, below or above net asset value or at, below or above the initial public offering price. This risk may be greater for investors expecting to sell their Common Shares soon after the completion of the public offering, as the net asset value of the Common Shares will be reduced immediately following the offering as a result of the payment of certain offering costs. Common Shares of the Fund are designed primarily for long-term investors; investors in Common Shares should not view the Fund as a vehicle for trading purposes. |
|
|
Risks Associated with Offerings of Additional Common Shares. The voting power of current Common Shareholders will be diluted to the extent that current Common Shareholders do not purchase Common Shares in any future offerings of Common Shares or do not purchase sufficient Common Shares to maintain their percentage interest. If the Fund is unable to invest the proceeds of such offering as intended, the Fund’s per Common Share distribution may decrease and the Fund may not participate in market advances to the same extent as if such proceeds were fully invested as planned. If the Fund sells Common Shares at a price below net asset value per share pursuant to the consent of Common Shareholders, shareholders will experience a dilution of the aggregate net asset value per Common Share because the sale price will be less than the Fund’s then-current net asset value per Common Share. Similarly, were the expenses of the offering to exceed the amount by which the sale price exceeded the Fund’s then current net asset value per Common Share, shareholders would experience a dilution of the aggregate net asset value per Common Share. This dilution will be experienced by all shareholders, irrespective of whether they purchase Common Shares in any such offering. See “Description of Shares—Common Shares—Issuance of Additional Common Shares.” |
|
|
Anti-Takeover
Provisions in the Fund’s Agreement and Declaration of Trust and By-Laws. The Fund’s
Second Amended and Restated Agreement and Declaration of Trust, as amended (the “Declaration
of Trust”), and By-Laws include provisions that could have the effect of limiting the
ability of other entities or persons to acquire control of the Fund or to change the composition
of its Board of Trustees. For example, the Declaration of Trust limits the ability of persons
to beneficially own (within the meaning of Section 382 of the Code) more than 4.99% of the
outstanding Common Shares of the Fund. This restriction was adopted in order to reduce the
risk of the Fund undergoing an “ownership change” within the meaning of Section
382 of the Code, which would limit the Fund’s ability to use a capital loss carryforward
and certain unrealized losses (if such tax attributes exist). See “Anti-Takeover Provisions
in the Declaration of Trust” and “Certain Provisions of Delaware Law, the Declaration
of Trust and By-Laws.”
In addition,
as a Delaware statutory trust, the Fund is subject to the control share acquisition statute
(the “Control Share Statute”) contained in Subchapter III of the Delaware Statutory
Trust Act (the “DSTA”), which became automatically applicable to listed closed-end
funds, such as the Fund, upon its effective date of August 1, 2022 (the “Effective
Date”). The Control Share Statute provides that an acquirer of shares above a series
of voting power thresholds has no voting rights under the DSTA or the governing documents
of the Fund with respect to shares acquired in excess of that threshold (i.e., the “control
shares”) unless approved by shareholders. See “Certain Provisions of Delaware
Law, the Declaration of Trust and By-Laws—Delaware Control Share Statute.”
The ownership
restrictions set forth in the Fund’s Declaration of Trust and the limitations of the
Control Share Statute could have the effect of depriving shareholders of an opportunity to
sell their shares at a premium over prevailing market prices by discouraging a third party
from seeking to obtain control over the Fund and may reduce market demand for the Fund’s
Common Shares, which could have the effect of increasing the likelihood that the Fund’s
Common Shares trade at a discount to net asset value and increasing the amount of any such
discount. |
Other Service Providers |
|
Under a transfer agent servicing agreement among U.S. Bancorp Global Fund Services and the Fund, U.S. Bancorp Global Fund Services serves as the Fund’s transfer agent, registrar and distribution disbursing agent. U.S. Bancorp Global Fund Services (the “Administrator”) provides the Fund with administrative services. The Administrator also performs fund accounting. |
|
|
U.S. Bank National Association serves as the custodian of the Fund’s securities and other assets. |
SUMMARY OF FUND EXPENSES
The following table contains information
about the costs and expenses that Common Shareholders will bear directly or indirectly. The table is based on the capital structure of
the Fund as of May 31, 2023 (except as noted below). The purpose of the table and the example below is to help you understand the fees
and expenses that you, as a holder of Common Shares, would bear directly or indirectly.
Shareholder
transaction expenses |
|
Sales load (as a percentage
of estimated offering price) |
-%(1) |
Offering expenses borne
by the Fund (as a percentage of estimated offering price) |
-%(1) |
Dividend reinvestment
plan fees (per transaction sales fee) |
$15.00(2) |
Annual
Expenses |
Percentage of
Net Assets
Attributable to Common Shares(3) |
Management fees(4)(5) |
1.52% |
Interest payments on borrowed
funds(6) |
1.08% |
Other expenses(7) |
1.66% |
Total annual expenses(8) |
4.25% |
Annual
Expenses |
Percentage of Net
Assets
Attributable to Common Shares(3) |
Management fees(3)(4) |
1.52% |
Interest payments on borrowed
funds(5) |
1.08% |
Other expenses(6) |
1.66% |
Total annual expenses(4) |
4.25% |
Fee Waiver |
(0.25)% |
Total annual expenses after fee waiver |
4.00% |
| (6) | Based upon the Fund's outstanding borrowings
as of May 31, 2023 of $13.315 million and the interest rate as of May 31, 2023, of 6.19%. |
| (7) | "Other expenses" are estimated
based upon those incurred during the fiscal period ended November 30, 2022. Other expenses
do not include expense related to realized or unrealized investment gains or losses. See
"Management of the Fund—Fund Expenses." |
EXAMPLE
As required by relevant
SEC regulations, the following example illustrates the expenses that you would pay on a $1,000 investment in Common Shares, assuming
(1) Total annualized expenses of 4.25% of net assets attributable to Common Shares and (2) a 5% annual return*:
|
1
Year |
3
Years |
5
Years |
10
Years |
Total expenses incurred |
$43 |
$129 |
$217 |
$443 |
FINANCIAL
HIGHLIGHTS
The
financial highlights table is intended to help you understand the Fund’s financial performance. The information in this
table for the fiscal years ended November 30, 2022, November 30, 2021, November 30, 2020, November 30, 2019 and November 30, 2018
is derived from the Fund’s financial statements audited by Ernst & Young LLP, independent registered public accounting
firm for the Fund, whose report on such financial statements, together with the financial statements of the Fund, are included
in the Fund’s annual report to shareholders for the fiscal year ended November 30, 2022 and are incorporated by reference
into the SAI.
| |
Period
Ended May 31, 2023 (Unaudited) | | |
Fiscal
Year Ended
November 30,
2022 | | |
Fiscal
Year Ended
November 30,
2021 | | |
Fiscal
Year Ended
November 30,
2020 | | |
Fiscal
Year Ended
November 30,
2019(1) | | |
Fiscal
Year Ended
November 30,
2018(1) | |
Per Common Share Data(2) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net Asset Value, beginning of period | |
$ | 42.67 | | |
$ | 37.04 | | |
$ | 27.32 | | |
$ | 41.40 | | |
$ | 45.36 | | |
$ | 48.12 | |
Income from Investment Operations: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net investment loss | |
| 0.03 | | |
| (0.13 | ) | |
| (0.03 | ) | |
| (6.67 | ) | |
| (0.48 | ) | |
| (0.16 | ) |
Net realized and unrealized gain (loss) on investments | |
| (4.98 | ) | |
| 8.40 | | |
| 11.19 | | |
| (4.60 | ) | |
| 0.84 | | |
| 1.72 | |
Total increase (decrease) from investment operations | |
| (4.95 | ) | |
| 8.27 | | |
| 11.16 | | |
| (11.27 | ) | |
| 0.36 | | |
| 1.56 | |
Less Distributions and Dividends to Common Stockholders: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net investment income | |
| — | | |
| (0.73 | ) | |
| (0.44 | ) | |
| (2.81 | ) | |
| (4.32 | ) | |
| (0.04 | ) |
Return of capital | |
| (2.70 | ) | |
| (1.91 | ) | |
| (1.00 | ) | |
| — | | |
| — | | |
| (4.28 | ) |
Total distributions and dividends to common stockholders | |
| (2.70 | ) | |
| (2.64 | ) | |
| (1.44 | ) | |
| (2.81 | ) | |
| (4.32 | ) | |
| (4.32 | ) |
Net Asset Value, end of period | |
$ | 35.02 | | |
$ | 42.67 | | |
$ | 37.04 | | |
$ | 27.32 | | |
$ | 41.40 | | |
$ | 45.36 | |
Per common share fair value, end of period | |
$ | 33.63 | | |
$ | 35.24 | | |
$ | 31.67 | | |
$ | 20.40 | | |
$ | 37.84 | | |
$ | 38.88 | |
Total Investment Return Based on Fair Value(3) | |
| 3.14 | % | |
| 20.17 | % | |
| 63.55 | % | |
| (38.76 | )% | |
| 8.51 | % | |
| (0.58 | )% |
| |
Period
Ended May 31, 2023 (Unaudited) | | |
Fiscal
Year Ended
November 30,
2022 | | |
Fiscal
Year Ended
November 30,
2021 | | |
Fiscal
Year Ended
November 30,
2020 | | |
Fiscal
Year Ended
November 30,
2019(1) | | |
Fiscal
Year Ended
November 30,
2018(1) | |
Supplemental Data and Ratios | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net assets applicable to common stockholders, end of period (000’s) | |
$ | 76,466 | | |
$ | 93,160 | | |
$ | 80,883 | | |
$ | 59,659 | | |
$ | 69,718 | | |
$ | 76,382 | |
Ratio of expenses to average net assets after waiver (4) | |
| 3.36 | % | |
| 2.88 | % | |
| 2.47 | % | |
| 2.81 | % | |
| 3.73 | % | |
| 3.35 | % |
Ratio of net investment income (loss) to average net assets before waiver | |
| (0.17 | )% | |
| (0.66 | )% | |
| (0.41 | )% | |
| (0.74 | )% | |
| (1.40 | )% | |
| (0.63 | )% |
Ratio of net investment income (loss) to average net assets after waiver | |
| 0.14 | % | |
| (0.33 | )% | |
| (0.07 | )% | |
| (0.42 | )% | |
| (1.05 | )% | |
| (0.27 | )% |
Portfolio turnover rate | |
| 71.49 | %(10) | |
| 142.52 | % | |
| 114.06 | % | |
| 77.57 | % | |
| 44.67 | % | |
| 95.57 | % |
Total borrowings outstanding (in thousands) | |
$ | 13,315 | | |
$ | 7,315 | | |
$ | 33,715 | | |
$ | 13,915 | | |
$ | 28,915 | | |
$ | 26,050 | |
Asset coverage per $1,000 of indebtedness(5) | |
$ | 6,743 | | |
$ | 13,736 | | |
$ | 3,399 | | |
$ | 5,287 | | |
$ | 3,411 | | |
$ | 3,932 | |
| |
Fiscal
Year Ended
November 30,
2017 | | |
Fiscal
Year Ended
November 30,
2016 | | |
Fiscal
Year Ended
November 30,
2015 | | |
Fiscal
Year Ended
November 30,
2014(6) | | |
Fiscal
Year Ended
November 30,
2013(6) | |
Per Common Share Data(2) | |
| | | |
| | | |
| | | |
| | | |
| | |
Net Asset Value, beginning of fiscal year | |
$ | 14.84 | | |
$ | 13.76 | | |
$ | 29.70 | | |
$ | 34.90 | | |
$ | 33.10 | |
Income from Investment Operations: | |
| | | |
| | | |
| | | |
| | | |
| | |
Net investment loss | |
| (0.42 | ) | |
| (0.29 | ) | |
| (8.83 | ) | |
| (5.60 | ) | |
| (4.80 | ) |
Net realized and unrealized gain (loss) on investments | |
| (1.31 | ) | |
| 2.45 | | |
| (4.90 | ) | |
| 4.90 | | |
| 11.10 | |
Total increase (decrease) from investment operations | |
| (1.73 | ) | |
| 2.16 | | |
| (13.73 | ) | |
| (0.70 | ) | |
| 6.30 | |
| |
Fiscal
Year Ended
November 30,
2017 | | |
Fiscal
Year Ended
November 30,
2016 | | |
Fiscal
Year Ended
November 30,
2015 | | |
Fiscal
Year Ended
November 30,
2014(6) | | |
Fiscal
Year Ended
November 30,
2013(6) | |
Less
Distributions and Dividends to Common Stockholders: | |
| | | |
| | | |
| | | |
| | | |
| | |
Net investment income | |
| — | | |
| — | | |
| — | | |
| (4.50 | ) | |
| (3.95 | ) |
Return of capital | |
| (1.08 | ) | |
| (1.08 | ) | |
| (2.21 | ) | |
| — | | |
| (0.55 | ) |
Total distributions and dividends to common stockholders | |
| (1.08 | ) | |
| (1.08 | ) | |
| (2.21 | ) | |
| (4.50 | ) | |
| (4.50 | ) |
Net Asset Value, end of fiscal year | |
$ | 12.03 | | |
$ | 14.84 | | |
$ | 13.76 | | |
$ | 29.70 | | |
$ | 34.90 | |
Per common share fair value, end of fiscal year | |
$ | 10.73 | | |
$ | 12.69 | | |
$ | 12.02 | | |
$ | 40.50 | | |
$ | 40.45 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Total Investment Return Based on Fair Value(3) | |
| (8.05 | )% | |
| 15.98 | % | |
| (67.20 | )% | |
| 11.89 | % | |
| 18.86 | % |
Supplemental
Data and Ratios | |
| | | |
| | | |
| | | |
| | | |
| | |
Net assets applicable to common stockholders, end of fiscal year (000’s) | |
$ | 81,002 | | |
$ | 99,970 | | |
$ | 92,651 | | |
$ | 199,847 | | |
$ | 233,620 | |
Ratio of expenses (including current and deferred income tax benefit/expense) to average net assets before waiver(4)(7) | |
| 4.48 | % | |
| 3.91 | % | |
| 2.71 | % | |
| 3.41 | % | |
| 4.64 | % |
Ratio of expenses (including current and deferred income tax benefit/expense) to average net assets after waiver(4)(7) | |
| 4.04 | % | |
| 3.14 | % | |
| 2.11 | % | |
| 3.41 | % | |
| 4.64 | % |
Ratio of net investment income (loss) to average net assets before waiver(4)(7)(8)(9) | |
| (2.60 | )% | |
| (2.85 | )% | |
| (2.19 | )% | |
| (0.07 | )% | |
| (0.05 | )% |
Ratio of net investment income (loss) to average net assets after waiver(4)(7)(8)(9) | |
| (2.16 | )% | |
| (2.08 | )% | |
| (1.58 | )% | |
| (0.07 | )% | |
| (0.05 | )% |
Ratio of net investment income (loss) to average net assets after current and deferred income tax benefit/expense, before waiver(4)(7) | |
| (3.60 | )% | |
| (3.01 | )% | |
| (1.30 | )% | |
| (0.55 | )% | |
| (2.50 | )% |
Ratio of net investment income (loss) to average net assets after current and deferred income tax benefit/expense, after waiver(4)(7) | |
| (3.16 | )% | |
| (2.24 | )% | |
| (0.70 | )% | |
| (0.55 | )% | |
| (2.50 | )% |
Portfolio turnover rate | |
| 62.87 | % | |
| 97.78 | % | |
| 97.30 | % | |
| 137.17 | % | |
| 297.81 | % |
Total borrowings outstanding (in thousands) | |
$ | 33,650 | | |
$ | 49,454 | | |
$ | 43,369 | | |
$ | 95,547 | | |
$ | 72,950 | |
Asset coverage per $1,000 of indebtedness(5) | |
$ | 3,407 | | |
$ | 3,021 | | |
$ | 3,136 | | |
$ | 3,092 | | |
$ | 4,202 | |
(1) | Per
share data adjusted for 1:4 reverse stock split completed as of June 12, 2020. |
(2) | Information
presented relates to a share of common stock outstanding for the entire fiscal year. |
(3) | The
calculation assumes reinvestment of dividends at actual prices pursuant to the Fund’s dividend reinvestment plan. Total
investment return does not reflect brokerage commissions. |
(4) | The
ratio of expenses to average net assets before waiver was 3.21%, 2.80%, 3.13%, 4.08%, and 3.71% for the fiscal years ended November
30, 2022, 2021, 2020, 2019, and 2018, respectively. The ratio of expenses (including current and deferred income tax benefit/expense)
to average net assets before waiver was 4.48%, 3.91%, 2.71%, 3.41% and 4.64% for the fiscal years ended November 30, 2017, 2016,
2015, 2014 and 2013, respectively. |
(5) | Calculated
by subtracting the Fund’s total liabilities (not including borrowings) from the Fund’s total assets and dividing by
the total borrowings. |
(6) | Per
share data adjusted for 1:5 reverse stock split completed as of September 14, 2015. |
(7) | For
the fiscal year ended November 30, 2018, the Fund accrued $0 in net current and deferred tax expense.
For the fiscal year ended November 30, 2017, the Fund
accrued $972,195 in net current and deferred tax expense.
For the fiscal year ended November 30, 2016, the Fund
accrued $141,294 in net current and deferred tax expense.
For the fiscal year ended November 30, 2015, the Fund
accrued $1,289,093 in net current and deferred tax benefit.
For the fiscal year ended November 30, 2014, the Fund
accrued $1,115,507 in net current and deferred tax expense.
For the fiscal year ended November 30, 2013, the Fund
accrued $5,743,456 in net current tax expense. |
(8) | The
ratio of expenses (excluding current and deferred income tax expense) to average net assets before waiver was 3.48%, 3.75%, 3.60%,
2.93% and 2.18% for the fiscal years ended November 30, 2017, 2016, 2015, 2014 and 2013, respectively.
The ratio of expenses (excluding current and deferred
income tax expense) to average net assets after waiver was 3.04%, 2.97%, 2.99%, 2.93% and 2.18% for the fiscal years ended November
30, 2017, 2016, 2015, 2014 and 2013, respectively. |
(9) | This
ratio excludes current and deferred income tax benefit/expense on net investment income. |
SENIOR
SECURITIES
The
following table sets forth information about the Fund’s outstanding senior securities as of the end of each fiscal period
indicated. The information in this table for the fiscal years ended November 30, 2022, November 30, 2021, November 30, 2020, November
30, 2019 and November 30, 2018 is derived from the Fund’s financial statements audited by Ernst & Young LLP, independent
registered public accounting firm for the Fund, whose report on such financial statements, together with the financial statements
of the Fund, are included in the Fund’s annual report to shareholders for the fiscal year ended November 30, 2022 and are
incorporated by reference into the SAI.
Fiscal Period Ended | | |
Title of Security | | |
Total Principal Amount
Outstanding | | |
Asset Coverage Per $1,000
of Principal Amount | |
May 31, 2023
(unaudited) | | |
Borrowings | | |
$ | 13,315,000 | | |
$ | 6,743 | |
November 30, 2022* | | |
Borrowings | | |
$ | 7,315,000 | | |
$ | 13,736 | |
November 30, 2021 | | |
Borrowings | | |
$ | 33,715,000 | | |
$ | 3,399 | |
November 30, 2020 | | |
Borrowings | | |
$ | 13,915,000 | | |
$ | 5,287 | |
November 30, 2019 | | |
Borrowings | | |
$ | 28,915,000 | | |
$ | 3,411 | |
November 30, 2018 | | |
Borrowings | | |
$ | 26,050,000 | | |
$ | 3,932 | |
November 30, 2017 | | |
Borrowings | | |
$ | 33,650,000 | | |
$ | 3,407 | |
November 30, 2016 | | |
Borrowings | | |
$ | 49,454,000 | | |
$ | 3,021 | |
November 30, 2015 | | |
Borrowings | | |
$ | 43,369,000 | | |
$ | 3,136 | |
November 30, 2014 | | |
Borrowings | | |
$ | 95,547,000 | | |
$ | 3,092 | |
November 30, 2013 | | |
Borrowings | | |
$ | 72,950,000 | | |
$ | 4,202 | |
THE
FUND
NXG
Cushing® Midstream Energy Fund (the “Fund”) was formed as a Delaware statutory trust on May 23, 2007
and is a non-diversified, closed-end management investment company registered under the Investment Company Act of 1940 Act (the
“1940 Act”). The Fund commenced investment operations on August 27, 2007. The Fund’s principal office is located
at 600 N. Pearl Street, Suite 1205, Dallas, Texas 75201.
USE
OF PROCEEDS
Unless
otherwise specified in a Prospectus Supplement, the Fund intends to invest the net proceeds of an offering of Securities in accordance
with its investment objective and policies as stated in this Prospectus. It is currently anticipated that the Fund will be able
to invest substantially all of the net proceeds of an offering of Securities in accordance with its investment objective and policies
within three months after the completion of such offering. Prior to the time the proceeds of each offering are fully invested,
such proceeds may temporarily be invested in cash, cash equivalents, or in debt securities that are rated AA or higher. Income
received by the Fund from such temporary investments would likely be less than returns sought pursuant to the Fund’s investment
objective and policies. A delay in the anticipated use of proceeds could lower returns and reduce the Fund’s distribution
to Common Shareholders.
MARKET
AND NET ASSET VALUE INFORMATION
The
Fund’s currently outstanding Common Shares are, and the Common Shares offered by this Prospectus, will be, subject to notice
of issuance, listed on the New York Stock Exchange (the “NYSE”). The Fund’s Common Shares commenced trading
on the NYSE on August 27, 2007. In connection with any offering of Rights, the Fund will provide information in the Prospectus
Supplement for the expected trading market, if any, for Rights.
Historically,
the Common Shares have generally traded at a discount to the Fund’s net asset value per share. Shares of closed-end investment
companies frequently trade at a discount to net asset value. The Fund’s net asset value will be reduced immediately following
an offering of the Common Shares due to the costs of such offering, which will be borne entirely by the Fund. The sale of Common
Shares by the Fund (or the perception that such sales may occur) may have an adverse effect on prices of Common Shares in the
secondary market. An increase in the number of Common Shares available may put downward pressure on the market price for Common
Shares. See “Risks— Market Discount From Net Asset Value.”
The
following table sets forth, for each of the periods indicated, the high and low closing market prices for the Common Shares on
the NYSE, the net asset value per Common Share and the premium or discount to net asset value per Common Share at which the Common
Shares were trading.
| | |
Market
Price | | |
Corresponding
Net Asset Value Per Common Share | | |
Corresponding
Premium (Discount) as a Percentage of Net Asset Value | |
Fiscal Quarter Ended | | |
High | | |
Low | | |
High | | |
Low | | |
High | | |
Low | |
August 31, 2023 | | |
$ | 43.15 | | |
$ | 34.41 | | |
$ | 39.75 | | |
$ | 35.58 | | |
| 8.55 | % | |
| -3.29 | % |
May 31, 2023 | | |
$ | 35.00 | | |
$ | 30.17 | | |
$ | 40.08 | | |
$ | 34.92 | | |
| -12.67 | % | |
| -13.60 | % |
February 28, 2023 | | |
$ | 36.71 | | |
$ | 32.27 | | |
$ | 41.07 | | |
$ | 38.00 | | |
| -10.62 | % | |
| -15.08 | % |
November 30, 2022 | | |
$ | 37.81 | | |
$ | 30.80 | | |
$ | 43.93 | | |
$ | 34.86 | | |
| -13.93 | % | |
| -11.65 | % |
August 31, 2022 | | |
$ | 36.23 | | |
$ | 27.03 | | |
$ | 46.57 | | |
$ | 34.73 | | |
| -22.20 | % | |
| -22.17 | % |
May 31, 2022 | | |
$ | 36.19 | | |
$ | 30.76 | | |
$ | 44.87 | | |
$ | 39.24 | | |
| -19.34 | % | |
| -21.61 | % |
February 28, 2022 | | |
$ | 33.98 | | |
$ | 29.13 | | |
$ | 38.74 | | |
$ | 34.64 | | |
| -12.29 | % | |
| -15.91 | % |
November 30, 2021 | | |
$ | 35.90 | | |
$ | 27.89 | | |
$ | 41.82 | | |
$ | 36.53 | | |
| -14.16 | % | |
| -23.65 | % |
August 31, 2021 | | |
$ | 31.59 | | |
$ | 25.87 | | |
$ | 41.41 | | |
$ | 34.18 | | |
| -23.73 | % | |
| -24.31 | % |
May 31, 2021 | | |
$ | 28.92 | | |
$ | 22.73 | | |
$ | 37.34 | | |
$ | 31.07 | | |
| -22.55 | % | |
| -26.84 | % |
February 28, 2021 | | |
$ | 25.12 | | |
$ | 20.84 | | |
$ | 33.36 | | |
$ | 27.41 | | |
| -24.70 | % | |
| -23.97 | % |
As
of October 24, 2023, the net asset value of the Fund’s Common Shares was $36.93
per Common Share, and the last reported sale price for the Fund’s Common Shares on the NYSE was $38.48
per Common Share, representing a premium to net asset value of 4.20%.
The Fund cannot predict whether its Common Shares will trade in the future at a premium to or discount from net asset value, or the
level of any premium or discount. Shares of closed-end investment companies frequently trade at a discount from net asset value. As
of October 24, 2023, 2,184,204 Common Shares of the Fund were outstanding.
INVESTMENT
OBJECTIVE AND POLICIES
Investment
Objective
The
Fund’s investment objective is to obtain a high after-tax total return from a combination of capital appreciation and current
income. There can be no assurance that the Fund’s investment objective will be achieved.
Principal
Investment Policies
The Fund seeks to achieve its
investment objective by investing, under normal market conditions, at least 80% of Managed Assets (as defined in this Prospectus) in
a portfolio of midstream energy investments (the “80% policy”). For purposes of the Fund’s 80% policy, midstream energy
investments are investments that offer economic exposure to securities of midstream energy companies, which are companies that provide
midstream energy services, including the gathering, transporting, processing, fractionation, storing, refining and distribution of natural
resources, such as natural gas, natural gas liquids, crude oil refined petroleum products, biofuels, carbon sequestration, solar, and
wind. The Fund considers a company to be a midstream energy company if at least 50% of its assets, income, sales or profits are committed
to or derived from midstream energy services.
The Fund invests in equity
and debt securities of midstream energy companies, and invests in U.S. and non-U.S. securities and in issuers of any market capitalization
size.
As an alternative to holding
investments directly, the Fund may obtain investment exposure through derivatives transactions intended to replicate, modify or replace
the economic attributes associated with investment in securities in which the Fund is permitted to invest directly. To the extent that
the Fund invests in synthetic investments with economic characteristics similar to investments in midstream energy companies, the market
value (or, if market value is unavailable, the fair value) of such investments will be counted for purposes of the Fund’s policy
of investing at least 80% of its Managed Assets in a portfolio of midstream energy investments. For a discussion of derivative instruments
in which the Fund may invest, see “Investment Objective and Policies—Additional Investment Practices—Strategic Transactions.”
The
Fund has previously qualified, and intends to continue to qualify, to be treated as a regulated investment company (“RIC”)
under the Internal Revenue Code of 1986, as amended (the "Code"). The Fund pursues its investment objective by generally investing in
MLPs up to the maximum extent permitted of a RIC under the Code. Accordingly, the Fund will, as of the end of each fiscal quarter, invest
no more than 25% of Managed Assets in securities of MLPs and other entities that are “qualified publicly traded partnerships”
under the Code.
The
Fund generally seeks to invest no more than 10% of Managed Assets in any one issue and no more than 15% of Managed Assets in any
one issuer, in each case, determined at the time of investment. For purposes of this limit, with respect to an investment in an
MLP, an “issuer” includes both an issuer and its controlling general partner, managing member or sponsor, and an “issue”
is a class of an issuer’s securities or a derivative security that tracks that class of securities.
The
Fund seeks attractive investment opportunities by investing in initial public offerings (“IPOs”) and secondary market issuances,
private investment in public equity ("PIPE") transactions and privately negotiated transactions, including pre-acquisition and pre-IPO
equity issuances and investments in private companies. Generally, no more than 50% of the Fund’s portfolio will be in PIPE or other
private or restricted securities at the time of investment. “Restricted securities” are securities that are unregistered,
held by control persons of the issuer or are subject to contractual restrictions on resale. The Fund will typically acquire restricted
securities in directly negotiated transactions. The Fund’s investments in restricted securities may include privately issued securities
of both public and private issuers.
The Fund invests up to 20% of
its Managed Assets in investments other than midstream energy investments, including equity securities of issuers other than midstream
energy companies.
The Fund’s investments
in non-U.S. securities include securities of issuers in emerging markets. The Fund’s investments in non-U.S. securities also includes
non-U.S. securities represented by American Depositary Receipts (“ADRs”), which are certificates evidencing ownership of
shares of a non-U.S. issuer that are issued by depositary banks and generally trade on an established market in the United States or
elsewhere.
The Fund invests, without
limitation, in debt securities rated, at the time of investment, at least (i) B3 by Moody’s Investors Service, Inc. (“Moody’s”),
(ii) B- by Standard & Poor’s Ratings Services (“S&P”) or Fitch Ratings (“Fitch”), or (iii) a comparable
rating by another rating agency, and invests no more than 5% of its Managed Assets in debt securities rated below B3 by Moody’s,
B- by S&P or Fitch or a comparable rating by another rating agency. Therefore, the Fund may invest in below investment grade debt
securities. A debt security is considered below investment grade if it is rated below Baa3- by Moody’s or below BBB- by S&P
or Fitch or a comparable rating by another rating agency. Below investment grade debt securities are often referred to as “high
yield” securities or “junk bonds.” Below investment grade debt securities are regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and to repay principal. Debt securities in which the Fund invests may be of
any maturity.
The credit quality policies noted
above apply only at the time a security is purchased, and the Fund is not required to dispose of a security in the event that a rating
agency downgrades its assessment of the credit characteristics of a particular issue. In determining whether to retain or sell such a
security, the Investment Adviser may consider such factors as the Investment Adviser’s assessment of the credit quality of the issuer
of such security, the price at which such security could be sold and the rating, if any, assigned to such security by other rating agencies.
Rating agencies are private services that provide ratings of the credit quality of debt obligations. Ratings assigned by a rating agency
are not absolute standards of credit quality and do not evaluate market risks or the liquidity of securities. Rating agencies may fail
to make timely changes in credit ratings; and an issuer’s current financial condition may be better or worse than a rating indicates.
To the extent that the issuer of a security pays a rating agency for the analysis of its security, an inherent conflict of interest may
exist that could affect the reliability of the rating. See “Appendix A: Description of Securities Ratings” in the SAI.
As
used in this Prospectus (except as noted below), “Managed Assets” means the total assets of the Fund, minus all accrued expenses
incurred in the normal course of operations other than liabilities or obligations attributable to investment leverage, including, without
limitation, investment leverage obtained through (i) indebtedness of any type (including, without limitation, borrowing through a credit
facility or the issuance of debt securities), (ii) the issuance of shares of preferred stock (“preferred shares”) or other
similar preference securities and/or (iii) the reinvestment of collateral received for securities loaned in accordance with the Fund’s
investment objective and policies. Solely for purposes of the Fund's 80% policy, "Managed Assets" means net assets, plus the amount of
any borrowings for investment purposes.
As an alternative to holding
investments directly, the Fund may obtain investment exposure through derivatives transactions intended to replicate, modify or replace
the economic attributes associated with investment in securities in which the Fund is permitted to invest directly. To the extent that
the Fund invests in synthetic investments with economic characteristics similar to investments in midstream energy companies, the market
value (or, if market value is unavailable, the fair value) of such investments will be counted for purposes of the Fund’s policy
of investing at least 80% of its Managed Assets in a portfolio of midstream energy investments. For a discussion of derivative instruments
in which the Fund may invest, see “Investment Objective and Policies—Additional Investment Practices—Strategic Transactions.”
The
Fund’s investment objective and percentage parameters, including its 80% policy, are not fundamental policies of the Fund and may
be changed without shareholder approval. Shareholders, however, will be notified in writing of any change at least 60 days prior to effecting
any such change.
Midstream
Energy Companies
Midstream
energy companies’ operations are often referred to in the context of the following business segments:
| ● | Pipeline
Investments. Pipeline investments are common carrier transporters of natural gas,
natural gas liquids (primarily propane, ethane, butane and natural gasoline), crude oil
or refined petroleum products (gasoline, diesel fuel and jet fuel). Pipeline investments
may also operate ancillary businesses such as storage and marketing of such products.
Revenue is derived from capacity and transportation fees. Historically, in the Investment
Adviser’s view, pipeline output has been less exposed to cyclical economic forces
due in large part to its low cost structure and government-regulated nature. In addition,
pipeline investments do not have much direct commodity price exposure (as opposed to
indirect exposure) because they do not own the product being shipped. |
| ● | Processing
Investments. Processing investments include gatherers and processors of natural gas as
well as providers of natural gas liquid transportation, fractionation and storage services.
Revenue is typically derived from providing services to natural gas producers, which require
treatment or processing before their natural gas commodity can be marketed to utilities and
other end user markets. Revenue for the processor is often fee based, although it is not
uncommon to have some participation in the prices of the natural gas and natural gas liquids
commodities for a portion of revenue. |
| ● | Exploration
and Production Investments (“E&P Investments”). E&P Investments
include midstream energy investments that are engaged in the exploration, development,
production and acquisition of crude oil and natural gas properties. E&P Investment
cash flows generally depend on the volume of crude oil and natural gas produced and the
realized prices received for crude oil and natural gas sales. |
| ● | Propane
Investments. Propane investments include midstream energy investments that are distributors
of propane to end-users for space and water heating. Revenue is typically derived from
the resale of the commodity at a margin over wholesale cost. The ability to maintain
margin is often a key to profitability. Propane serves approximately 3% of the household
energy needs in the United States, largely for homes beyond the geographic reach of natural
gas distribution pipelines. Approximately 70% of annual cash flow can be earned during
the winter heating season (October through March). |
| ● | Coal
Investments. Coal investments include midstream energy investments that own, lease
and manage coal reserves. Revenue is typically derived from production and sale of coal
or from royalty payments related to leases to coal producers. Electricity generation
is the primary use of coal in the United States. Demand for electricity and supply of
alternative fuels to generators are usually the primary drivers of coal demand. Coal
investments are subject to operating and production risks, such as: the company or a
lessee meeting necessary production volumes; federal, state and local laws and regulations
that may limit the ability to produce coal; the company’s ability to manage production
costs and pay mining reclamation costs; and the effect on demand that the Environmental
Protection Agency’s (“EPA”) standards set in the Clean Air Act have
on coal end-users. |
| ● | Marine
Shipping Investments. Marine shipping investments include midstream energy investments
that are primarily marine transporters of natural gas, natural gas liquids, crude oil
or refined petroleum products. Marine shipping investments typically derive revenue from
charging customers for the transportation of these products utilizing the midstream energy
investments’ vessels. Transportation services are typically provided pursuant to
a charter or contract, the terms of which vary depending on, for example, the length
of use of a particular vessel, the amount of cargo transported, the number of voyages
made, the parties operating a vessel or other factors. |
MLPs
The
Fund has previously qualified, and intends to continue to qualify, to be treated as a RIC under the Code. The Fund intends to pursue
its investment objective by generally investing in MLPs up to the maximum extent permitted of a RIC under the Code. Accordingly, the
Fund will, as of the end of each fiscal quarter, invest no more than 25% of Managed Assets in securities of MLPs and other entities that
are “qualified publicly traded partnerships” under the Code.
MLPs
are formed as limited partnerships or limited liability companies and taxed as partnerships for U.S. federal income tax purposes.
The securities issued by many MLPs are listed and traded on a U.S. exchange. An MLP typically issues general partner and limited
partner interests, or managing member and member interests. The general partner or managing member manages and often controls,
has an ownership stake in, and may receive incentive distribution payments from, the MLP. If publicly-traded, to be treated as
a partnership for U.S. federal income tax purposes, an MLP must derive at least 90% of its gross income for each taxable year
from qualifying sources as described in Section 7704 of the Code.
These
qualifying sources include natural resources-based activities such as the exploration, development, mining, production, processing, refining,
transportation, storage and certain marketing of mineral or natural resources. The general partner or managing member may be structured
as a private or publicly-traded corporation or other entity. The general partner or managing member typically controls the operations
and management of the entity and has an up to 2% general partner or managing member interest in the entity plus, in many cases, ownership
of some percentage of the outstanding limited partner or member interests. The limited partners or members, through their ownership of
limited partner or member interests, provide capital to the entity, are intended to have no role in the operation and management of the
entity and receive cash distributions. Due to their structure as partnerships for U.S. federal income tax purposes and the expected character
of their income, MLPs generally do not pay federal income taxes. Thus, unlike investors in corporate securities, direct MLP investors
are generally not subject to double taxation (i.e., corporate level tax and tax on corporate distributions). MLPs in which the
Fund invests may be able to offset a significant portion of their income with tax deductions, such as accelerated depreciation. As a
result, such MLPs may make cash distributions to their limited partners in excess of the amount of their taxable income allocable to
their limited partners. The portion, if any, of the cash distributions received by the Fund with respect to its investment in the equity
securities of an MLP that exceeds the Fund's allocable share of the MLP's net taxable income will not be treated as taxable income to
the Fund, but rather will be treated as a tax deferred return of capital to the extent of the Fund's basis in such MLP equity securities.
MLPs
are typically structured such that common units and general partner interests have first priority to receive the minimum quarterly
distribution (“MQD”). Common and general partner interests also accrue arrearages in distributions to the extent the
MQD is not paid. Once common units and general partner interests have been paid, subordinated units generally receive distributions;
however, subordinated units generally do not accrue arrearages. The subordinated units are normally owned by the owners or affiliates
of the general partner and convert on a one for one basis into common units, generally in three to five years after the MLP’s
initial public offering or after certain distribution levels have been exceeded. Distributable cash in excess of the MQD is distributed
to both common and subordinated units generally on a pro rata basis. The general partner is also normally eligible to receive
incentive distributions if the general partner operates the business in a manner which results in payment of per unit distributions
that exceed threshold levels above the MQD. As the general partner increases cash distributions to the limited partners, the general
partner receives an increasingly higher percentage of the incremental cash distributions. A common arrangement provides that the
general partner can reach a tier where it receives 50% of every incremental dollar distributed by the MLP. These incentive distributions
encourage the general partner to increase the partnership’s cash flow and raise the quarterly cash distribution by pursuing
steady cash flow investment opportunities, streamlining costs and acquiring assets. Such results benefit all security holders
of the MLP.
Equity
securities issued by MLPs typically consist of common and subordinated units (which represent the limited partner or member interests)
and a general partner or managing member interest.
| ● | Common
Units. The common units of many MLPs are listed and traded on national securities
exchanges, including the NYSE, the NYSE American and the NASDAQ Stock Market (the “NASDAQ”).
The Fund will typically purchase such common units through open market transactions and
underwritten offerings, but may also acquire common units through direct placements and
privately negotiated transactions. Holders of MLP common units typically have very limited
control and voting rights. Holders of such common units are typically entitled to receive
the MQD, including arrearage rights, from the issuer. Generally, an MLP must pay (or
set aside for payment) the MQD to holders of common units before any distributions may
be paid to subordinated unit holders. In addition, incentive distributions are typically
not paid to the general partner or managing member unless the quarterly distributions
on the common units exceed specified threshold levels above the MQD. In the event of
a liquidation, common unit holders are intended to have a preference to the remaining
assets of the issuer over holders of subordinated units. Master limited partnerships
also issue different classes of common units that may have different voting, trading,
and distribution rights. The Fund may invest in different classes of common units. |
| ● | Subordinated
Units. Subordinated units, which, like common units, represent limited partner or
member interests, are not typically listed on an exchange or publicly traded. The Fund
will typically purchase outstanding subordinated units through negotiated transactions
directly with holders of such units or newly-issued subordinated units directly from
the issuer. Holders of such subordinated units are generally entitled to receive a distribution
only after the MQD and any arrearages from prior quarters have been paid to holders of
common units. Holders of subordinated units typically have the right to receive distributions
before any incentive distributions are payable to the general partner or managing member.
Subordinated units generally do not provide arrearage rights. Most MLP subordinated units
are convertible into common units after the passage of a specified period of time or
upon the achievement by the issuer of specified financial goals. Master limited partnerships
also issue different classes of subordinated units that may have different voting, trading,
and distribution rights. The Fund may invest in different classes of subordinated units. |
| ● | General
Partner or Managing Member Interests. The general partner or managing member interest
in MLPs or limited liability companies is typically retained by the original sponsors
of an MLP or limited liability company, such as its founders, corporate partners and
entities that sell assets to the MLP or limited liability company. The holder of the
general partner or managing member interest can be liable in certain circumstances for
amounts greater than the amount of the holder’s investment in the general partner
or managing member. General partner or managing member interests often confer direct
board participation rights in, and in many cases control over the operations of, the
MLP. General partner or managing member interests can be privately held or owned by publicly
traded entities. General partner or managing member interests receive cash distributions,
typically in an amount of up to 2% of available cash, which is contractually defined
in the partnership or limited liability company agreement. In addition, holders of general
partner or managing member interests typically receive incentive distribution rights,
which provide them with an increasing share of the entity’s aggregate cash distributions
upon the payment of per common unit distributions that exceed specified threshold levels
above the MQD. Due to the incentive distribution rights, GP MLPs have higher distribution
growth prospects than their underlying MLPs, but quarterly incentive distribution payments
would also decline at a greater rate than the decline rate in quarterly distributions
to common and subordinated unit holders in the event of a reduction in the MLP’s
quarterly distribution. The ability of the limited partners or members to remove the
general partner or managing member without cause is typically very limited. In addition,
some MLPs permit the holder of incentive distribution rights to reset, under specified
circumstances, the incentive distribution levels and receive compensation in exchange
for the distribution rights given up in the reset. |
| ● | I-Shares.
I-Shares represent an ownership interest issued by an MLP affiliate. The MLP affiliate
uses the proceeds from the sale of I-Shares to purchase limited partnership interests
in the MLP in the form of I-units. Thus, I-Shares represent an indirect limited partner
interest in the MLP. I-units have features similar to MLP common units in terms of voting
rights, liquidation preference and distribution. I-Shares differ from MLP common units
primarily in that instead of receiving cash distributions, holders of I-Shares will receive
distributions of additional I-Shares in an amount equal to the cash distributions received
by common unit holders. I-Shares are traded on the NYSE or the AMEX. For purposes of
the Fund’s 80% policy, securities that are derivatives of interests in MLPs are
I-Shares or other derivative securities that have economic characteristics of MLP securities. |
For
purposes of the Fund’s limit on investment in any single issuer, with respect to an investment in an MLP, an “issuer”
includes both an issuer and its controlling general partner, managing member or sponsor, and an “issue” is a class
of an issuer’s securities or a derivative security that tracks that class of securities.
Preferred
Stock
Preferred
stock generally has a preference as to distributions and upon liquidation over an issuer’s common stock but ranks junior
to other income securities in an issuer’s capital structure. Preferred stock generally pays distributions in cash (or additional
shares of preferred stock) at a defined rate but, unlike interest payments on other income securities, preferred stock distributions
are payable only if declared by the issuer’s board of directors. distributions on preferred stock may be cumulative, meaning
that, in the event the issuer fails to make one or more distribution payments on the preferred stock, no distributions may be
paid on the issuer’s common stock until all unpaid preferred stock distributions have been paid. Preferred stock also may
provide that, in the event the issuer fails to make a specified number of distribution payments, the holders of the preferred
stock will have the right to elect a specified number of directors to the issuer’s board. Preferred stock also may be subject
to optional or mandatory redemption provisions.
Convertible
Securities
A
convertible security is a bond, debenture, note, preferred stock or other security that may be converted into or exchanged for
a prescribed amount of common stock or other equity security of the same or a different issuer within a particular period of time
at a specified price or formula. A convertible security entitles the holder to receive interest paid or accrued on debt or the
distribution paid on preferred stock until the convertible security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities have characteristics similar to nonconvertible income securities in that they ordinarily provide a stable
stream of income with generally higher yields than those of common stocks of the same or similar issuers, but lower yields than
comparable nonconvertible securities. The value of a convertible security is influenced by changes in interest rates, with investment
value declining as interest rates increase and increasing as interest rates decline. The credit standing of the issuer and other
factors also may have an effect on the convertible security’s investment value. Convertible securities rank senior to common
stock in a corporation’s capital structure but are usually subordinated to comparable nonconvertible securities. Convertible
securities may be subject to redemption at the option of the issuer at a price established in the convertible security’s
governing instrument.
Additional
Investment Practices
In
addition to holding the portfolio investments described above, the Fund may, but is not required to, use the following investment
practices:
Strategic
Transactions. The Fund may, but is not required to, use investment strategies (referred to herein as “Strategic Transactions”)
for hedging, risk management or portfolio management purposes or to earn income. Strategic Transactions may involve the purchase
and sale of derivative instruments. The Fund may purchase and sell exchange-listed and over-the-counter put and call options on
securities, indices and other instruments, enter into forward contracts, purchase and sell futures contracts and options thereon,
enter into swap, cap, floor or collar transactions, purchase structured investment products and enter into transactions that combine
multiple derivative instruments. The Fund’s use of Strategic Transactions may also include newly developed or permitted
instruments, strategies and techniques, consistent with the Fund’s investment objectives and applicable regulatory requirements.
Strategic
Transactions often have risks similar to the securities underlying the Strategic Transactions. However, the use of Strategic Transactions
also involves risks that are different from, and possibly greater than, the risks associated with other portfolio investments.
Strategic Transactions may involve the use of highly specialized instruments that require investment techniques and risk analyses
different from those associated with other portfolio investments. The Fund complies with applicable regulatory requirements when
implementing Strategic Transactions, as mandated by SEC rules or SEC staff positions. Although the Investment Adviser seeks to
use Strategic Transactions to further the Fund’s investment objective, no assurance can be given that the use of Strategic
Transactions will achieve this result.
Examples
of how the Fund may use Strategic Transactions include, but are not limited to:
| ● | Using
derivative investments to hedge certain risks such as overall market, interest rate and
commodity price risks. The Fund may engage in various interest rate and currency hedging
transactions, including buying or selling options or futures, entering into other transactions
including forward contracts, swaps or options on futures and other derivatives transactions. |
| ● | Using
Strategic Transactions to manage its effective interest rate exposure, including the
effective yield paid on any leverage used by the Fund, protect against possible adverse
changes in the market value of the securities held in or to be purchased for its portfolio,
or otherwise protect the value of its portfolio. |
| ● | Engaging
in Strategic Transactions to hedge the currency risk to which it may be exposed by, for
example, buying or selling options or futures or entering into other foreign currency
transactions, including forward foreign currency contracts, currency swaps or options
on currency and currency futures and other derivatives transactions. |
| ● | Selling
short Treasury securities to hedge its interest rate exposure. When shorting Treasury
securities, the loss is limited to the principal amount that is contractually required
to be repaid at maturity and the interest expense that must be paid at the specified
times. See “Risks—Short Sales Risk.” |
| ● | Engaging
in paired long-short trades to arbitrage pricing disparities in securities issued by
midstream energy companies, write (or sell) covered call options on securities held in
its portfolio, write (or sell) uncovered call options on the securities of midstream
energy companies, purchase call options or enter into swap contracts to increase its
exposure to midstream energy companies, or sell securities short. |
Hedging
transactions can be expensive and have risks, including the imperfect correlation between the value of such instruments and the
underlying assets, the possible default of the other party to the transaction or illiquidity of the derivative instruments. Furthermore,
the ability to successfully use hedging transactions depends on the Investment Adviser’s ability to predict pertinent market
movements, which cannot be assured. A more complete discussion of Strategic Transactions and their risks is included in the SAI
under the heading “Strategic Transactions.”
Other
Investment Companies. The Fund invests in securities of other closed-end or open-end investment companies (including ETFs) that invest
primarily in companies in which the Fund is permitted to invest directly to the extent permitted by the 1940 Act. The Fund may invest
in other investment companies during periods when it has large amounts of uninvested cash, such as the period shortly after the Fund
receives the proceeds of the offering of its Securities, during periods when there is a shortage of attractive midstream energy company
securities available in the market, or when the Investment Adviser believes share prices of other investment companies offer attractive
values. The Fund invests in investment companies that are advised by the Investment Adviser or its affiliates only to the extent permitted
by applicable law and/or pursuant to exemptive relief from the SEC.
As
a stockholder in an investment company, the Fund will bear its ratable share of that investment company’s expenses, and would remain
subject to payment of the Fund’s 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 Investment Adviser will
take expenses into account when evaluating the investment merits of an investment in an investment company relative to other available
investments. To the extent that the Fund invests in investment companies that invest primarily in midstream energy companies, such investments
will be counted for purposes of the Fund’s 80% policy.
Exchange-Traded
Notes. Exchange-traded notes ("ETNs"), which are typically unsecured, unsubordinated debt securities that trade on a securities exchange
and are designed to replicate the returns of market benchmarks minus applicable fees. To the extent that the Fund invests in ETNs that
are designed to replicate indices comprised primarily of midstream energy companies, such investments will be counted for purposes of
the Fund’s 80% policy.
New
Securities and Other Investment Techniques. New types of securities and other investment and hedging practices are developed
from time to time. The Investment Adviser expects, consistent with the Fund’s investment objective and policies, to invest
in such new types of securities and to engage in such new types of investment practices if the Investment Adviser believes that
these investments and investment techniques may assist the Fund in achieving its investment objective. In addition, the Investment
Adviser may use investment techniques and instruments that are not specifically described herein.
Use
of Arbitrage and Other Strategies. The Fund may use short sales, arbitrage and other strategies to try to generate additional
return. As part of such strategies, the Fund may engage in paired long-short trades to arbitrage pricing disparities in securities
issued by midstream energy companies, write (or sell) covered call options on the securities of midstream energy companies or
other securities held in its portfolio, write (or sell) uncovered call options on the securities of midstream energy companies,
purchase call options or enter into swap contracts to increase its exposure to midstream energy companies, or sell securities
short. With a long position, the Fund purchases a stock outright, but with a short position, it would sell a security that it
does not own and must borrow to meet its settlement obligations. The Fund will realize a profit or incur a loss from a short position
depending on whether the value of the underlying stock decreases or increases, respectively, between the time the stock is sold
and when the Fund replaces the borrowed security. To increase its exposure to certain issuers, the Fund may purchase call options
or use swap agreements. The Fund expects to use these strategies on a limited basis. See “Risks—Short Sales Risk”
and “Risks—Strategic Transactions Risk.”
Lending
of Portfolio Securities. The Fund may lend its portfolio securities to broker-dealers and banks. Any such loan must be continuously
secured by collateral in cash or cash equivalents maintained on a current basis in an amount at least equal to 102% of the value
of the securities loaned. The Fund would continue to receive the equivalent of the interest or distributions paid by the issuer
on the securities loaned and would also receive an additional return that may be in the form of a fixed fee or a percentage of
the collateral. The Fund may pay reasonable fees for services in arranging these loans. The Fund would have the right to call
the loan and obtain the securities loaned at any time on notice of not more than five (5) business days. The Fund would not have
the right to vote the securities during the existence of the loan but would call the loan to permit voting of the securities,
if, in the Investment Adviser’s judgment, a material event requiring a shareholder vote would otherwise occur before the
loans were repaid. In the event of bankruptcy or other default of the borrower, the Fund could experience both delays in liquidating
the loan collateral or recovering the loaned securities and losses, including (a) possible decline in the value of the collateral
or in the value of the securities loaned during the period while the Fund seeks to enforce its rights to the collateral or loaned
securities, (b) possible subnormal levels of income and lack of access to income during this period, and (c) expenses of enforcing
its rights.
Temporary
Defensive Investments. When adverse market, economic, political or other conditions dictate a more defensive investment strategy,
the Fund may, on a temporary basis, hold cash or invest a portion or all of its assets in money-market instruments, including obligations
of the U.S. government, its agencies or instrumentalities, other high-quality debt securities, including prime commercial paper, repurchase
agreements and bank obligations, such as bankers’ acceptances and certificates of deposit. Under normal market conditions, the
potential for capital appreciation on these securities will tend to be lower than the potential for capital appreciation on other securities
that may be owned by the Fund. In taking such a defensive position, the Fund would temporarily not be pursuing its principal investment
strategies and may not achieve its investment objective.
Portfolio
Turnover
Portfolio
turnover rate is not considered a limiting factor in the Investment Adviser’s execution of investment decisions. The Fund
anticipates that its annual portfolio turnover rate may vary greatly from year to year. For the fiscal years ended November 30,
2022 and November 30, 2021, the Fund’s portfolio turnover rate was approximately 143% and 114%, respectively. A higher portfolio
turnover rate results in correspondingly greater brokerage commissions and other transactional expenses that are borne by the
Fund.
Investment
Restrictions
The
Fund has adopted certain other investment limitations designed to limit investment risk. These limitations are, unless otherwise
indicated, fundamental and may not be changed without the approval of the holders of a majority of the outstanding voting securities
of the Fund, as defined in the 1940 Act. See “Investment Restrictions” in the SAI for a complete list of the fundamental
investment policies of the Fund. The Fund’s investment objective and percentage parameters are not fundamental policies
of the Fund and may be changed without shareholder approval.
USE
OF LEVERAGE
The
Fund generally seeks to increase income and total return by utilizing leverage. The Fund may utilize leverage through the Indebtedness,
including through the issuance of commercial paper or notes and other forms of borrowing, or the issuance of preferred shares.
The Fund may utilize leverage through Indebtedness or preferred shares to the maximum extent permitted by the 1940 Act. Under
current market conditions, the Fund currently intends to utilize leverage principally through Indebtedness. The amount of Indebtedness
outstanding is expected to vary over time, but will not exceed 331⁄3% of the Fund’s Managed Assets (i.e., 50%
of its net assets attributable to the Fund’s Common Shares), including the proceeds of such leverage.
The
costs associated with the issuance and use of leverage will be borne by the holders of the Common Shares. Leverage is a speculative
technique and investors should note that there are special risks and costs associated with leverage. There can be no assurance
that a leveraging strategy will be successful during any period in which it is employed. The use of leverage creates risks and
involves special considerations. See “Risks—Leverage Risk.” To the extent that the Fund uses leverage, it expects
to utilize hedging techniques such as swaps and caps on a portion of its leverage to mitigate potential interest rate risk. See
“Risks—Interest Rate Hedging Risk.”
Indebtedness
Delaware
trust law and the Fund’s governing documents authorize the Fund, without prior approval of its Common Shareholders, to borrow
money. In this regard, the Fund may issue notes or other evidence of Indebtedness (including bank borrowings or commercial paper)
and may secure any such borrowings by mortgaging, pledging or otherwise subjecting as security its assets. In connection with
any borrowing, 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. Any such requirements will increase the cost of borrowing over the stated interest rate. The rights
of the Fund’s lenders to receive interest on and repayment of principal of borrowings will be senior to those of the Fund’s
Common Shareholders, and the terms of any such borrowings may contain provisions which limit certain of the Fund’s activities,
including the payment of distributions to the Fund’s Common Shareholders in certain circumstances. A borrowing will likely
be ranked senior or equal to all of the Fund’s other existing and future borrowings.
Certain
types of borrowings may result in the Fund being subject to covenants in credit agreements relating to asset coverage and portfolio
composition requirements. The Fund may be subject to certain restrictions on investments imposed by guidelines of one or more
rating agencies, which may issue ratings for Indebtedness issued by the Fund.
These
guidelines may impose asset coverage or portfolio composition requirements that are more stringent than those imposed by the 1940
Act. It is not anticipated that these covenants or guidelines will impede the Investment Adviser from managing the Fund’s
portfolio in accordance with the Fund’s investment objective and policies.
The
Fund may secure any borrowings by mortgaging, pledging or otherwise subjecting as security its assets. Except as set forth below,
under the requirements of the 1940 Act the Fund, immediately after any issuance of Indebtedness, must have “asset coverage”
of at least 300% (331⁄3% of Managed Assets, or 50% of its net assets attributable to the Fund’s Common Shares). With
respect to Indebtedness, asset coverage means the ratio which the value of the Fund’s total assets, less all liabilities
and indebtedness not represented by senior securities (as defined in the 1940 Act), bears to the aggregate amount of such borrowing
represented by senior securities issued by the Fund.
Under
the 1940 Act, the Fund may not declare any distribution or other distribution on any class of its shares, or purchase any such
shares, unless its aggregate Indebtedness has, at the time of the declaration of any such distribution or distribution, or at
the time of any such purchase, an asset coverage of at least 300% after declaring the amount of such distribution, distribution
or purchase price, as the case may be. Furthermore, the 1940 Act (in certain circumstances) grants the Fund’s lenders certain
voting rights in the event of default in the payment of interest on or repayment of principal. Such restrictions do not apply
with respect to evidence of Indebtedness in consideration of a loan, extension or renewal thereof that is privately arranged and
not intended for public distribution.
With
the use of borrowings, there is a risk that the interest rates paid by the Fund on the amount it borrows will be higher than the
return on the Fund’s investments.
The
Fund may also borrow money as a temporary measure for extraordinary or emergency purposes, including the payment of distributions
and the settlement of securities transactions that otherwise might require untimely dispositions of its securities. Temporary
borrowings not exceeding 5% of the Fund’s total assets are not subject to the “asset coverage” limitation under
the 1940 Act.
The
Fund currently utilizes Indebtedness pursuant to a borrowing arrangement with ScotiabankTM (the “Loan Agreements”).
The interest rate charged on such Indebtedness approximates 1-month SOFR plus 1.00%. The Fund’s Indebtedness under the Loan
Agreements is collateralized by portfolio assets which are maintained by the Fund in a separate account with the Fund’s
custodian for the benefit of the lender, which collateral exceeds the amount borrowed. In the event of a default by the Fund under
the Loan Agreements, the lender has the right to sell such collateral assets to satisfy the Fund’s obligation to the lender.
The Loan Agreements include usual and customary covenants. These covenants impose on the Fund asset coverage requirements, collateral
requirements, investment strategy requirements, and certain financial obligations. As of May 31, 2023, the principal balance outstanding
was approximately $13.315 million, which represented 15% of the Fund’s Managed Assets (or approximately 17% of its net assets
attributable to the Fund’s Common Shares).
Preferred
Shares
The
Fund’s Second Amended and Restated Agreement and Declaration of Trust (the "Declaration of Trust") 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 prior approval of the holders of the Common Shares. Common Shareholders have no preemptive right to purchase any
preferred shares that might be issued. Any such preferred share offering would be subject to the limits imposed by the 1940 Act. Under
the 1940 Act, the Fund is not permitted to issue preferred shares unless immediately after such issuance the value of its total assets
is at least 200% of the liquidation value of the outstanding preferred shares (i.e., the liquidation value may not exceed 50%
of the Fund’s total assets). In addition, the Fund is not permitted to declare any cash distribution or other distribution on its
Common Shares unless, at the time of such declaration, the value of its total assets is at least 200% of such liquidation value. If the
Fund issues preferred shares, it intends, to the extent possible, to purchase or redeem them from time to time to the extent necessary
in order to maintain asset coverage on such preferred shares of at least 200%. In addition, as a condition to obtaining ratings on the
preferred shares, the terms of any preferred shares issued are expected to include asset coverage maintenance provisions which will require
the redemption of the preferred shares in the event of non-compliance by the Fund and may also prohibit distributions and other distributions
on the Fund’s Common Shares in such circumstances. In order to meet redemption requirements to maintain asset coverage or otherwise,
the Fund may have to liquidate portfolio securities. Such liquidations and redemptions would cause the Fund to incur related transaction
costs and could result in capital losses to the Fund. If the Fund has preferred shares outstanding, two of its Trustees will be elected
by the holders of preferred shares, voting as a separate class. The Fund’s remaining Trustees will be elected by holders of its
Common Shares and preferred shares voting together as a single class. In the event the Fund fails to pay distributions on its preferred
shares for two years, holders of preferred shares would be entitled to elect a majority of the Fund’s Trustees.
Certain
Portfolio Transactions
The
Fund may engage in certain derivatives transactions that have economic characteristics similar to leverage. Rule 18f-4 under the
1940 Act (the “Derivatives Rule”) permits the Fund to enter into derivatives transactions and certain other transactions
notwithstanding the restrictions on the issuance of “senior securities” under Section 18 of the 1940 Act. The Derivatives
Rule requires registered investment companies that enter into derivatives transactions and certain other transactions that create
future payment or delivery obligations to, among other things, (i) comply with a value-at-risk leverage limit, and (ii) adopt
and implement a derivatives risk management program, unless the Fund qualifies as a “limited derivatives user,” which
the Derivatives Rule defines as a fund that limits its derivatives exposure (excluding certain derivative transactions used to
hedge currency and interest rate risks) to 10% of its net assets. The Derivatives Rule requires a limited derivatives user to
adopt policies and procedures to manage its aggregate derivatives risk. The Fund currently qualifies, and intends to continue
to qualify, as a limited derivatives user and has adopted policies and procedures designed to manage its derivatives risk in accordance
with the Derivatives Rule. In the event that the Fund no longer qualifies as a limited derivatives user, the Fund will comply
with the value-at-risk leverage limit and adopt and implement a derivatives risk management program in accordance with the Derivatives
Rule.
Effects
of Leverage
As
of May 31, 2023, the Fund had outstanding Indebtedness of approximately $13.315 million, which represented 15% of the Fund’s
Managed Assets (or approximately 17% of its net assets attributable to the Fund’s Common Shares). The interest rate charged
on such Indebtedness as of May 31, 2023 was 6.19%. Assuming that the Fund’s leverage costs remain as described above, then
the incremental income generated by the Fund’s portfolio (net of estimated expenses including expenses related to the leverage)
must exceed approximately 0.89% to cover such interest specifically related to the borrowing. These numbers are merely estimates
used for illustration. Actual interest rates may vary frequently and in the future may be significantly higher or lower than the
rate estimated above.
The
following table is designed to assist the investor in understanding the effects of leverage by illustrating the effect on the
return to a holder of the Fund’s Common Shares of leverage in the amount of approximately 331⁄3% of the Fund’s
Managed Assets (i.e., 50% of its net assets attributable to the Fund’s Common Shares), assuming hypothetical annual
returns of the Fund’s portfolio of minus 10% to plus 10%. As the table shows, leverage generally increases the return to
holders of Common Shares when portfolio return is positive and greater than the cost of leverage and decreases the return when
the portfolio return is negative or less than the cost of leverage. The figures appearing in the table are hypothetical and actual
returns may be greater or less than those appearing in the table.
Assumed
portfolio total return (net of expenses) |
(10.00)% |
(5.00)% |
0.00% |
5.00% |
10.00% |
|
|
|
— |
|
|
Common
Share total return |
(18.10)% |
(10.60)% |
(3.10)% |
4.41% |
11.91% |
Common
Share total return is composed of two elements: distributions on Common Shares paid by the Fund (the amount of which is largely
determined by the Fund’s net investment income after paying distributions or interest on its outstanding leverage) 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 distributions it receives on its investments are entirely offset by losses in the value of those securities.
During
the time in which the Fund is utilizing leverage, the amount of the fees paid to the Investment Adviser for investment advisory
services will be higher than if the Fund did not utilize such leverage because the fees paid will be calculated based on the Fund’s
Managed Assets, which may create a conflict of interest between the Investment Adviser and the Common Shareholders. Because the
Fund’s leverage costs will be borne by the Fund at a specified rate, only the Fund’s Common Shareholders will bear
the cost associated with such leverage.
RISKS
Investors
should consider the specific risk factors and special considerations associated with investing in the Fund. An investment in the
Fund is subject to investment risk, including the possible loss of your entire investment. A Prospectus Supplement relating to
an offering of the Fund’s securities may identify additional risk associated with such offering.
Investment
and Market Risk
An investment in common shares of the Fund is subject to investment risk, including the possible loss of the entire principal amount
that you invest. An investment in the common shares of the Fund represents an indirect investment in the securities owned by the
Fund. The value of those securities may fluctuate, sometimes rapidly and unpredictably, particularly under current economic, financial,
labor, and health conditions. The value of the securities owned by the Fund may decline due to general market conditions that
are not specifically related to a particular issuer, such as real or perceived economic conditions, changes in interest or currency
rates or changes in investor sentiment or market outlook generally. At any point in time, your common shares may be worth less
than your original investment, including the reinvestment of Fund dividends and distributions.
Common
Stock Risk
The
Fund will have exposure to common stocks. Although common stocks have historically generated higher average total returns than
fixed-income securities over the long-term, common stocks also have experienced significantly more volatility in those returns
and may significantly under-perform relative to fixed income securities during certain periods. An adverse event, such as an unfavorable
earnings report, may depress the value of a particular common stock held by the Fund. Also, the price of common stocks is sensitive
to general movements in the stock market and a drop in the stock market may depress the price of common stocks to which the Fund
has exposure. Common stock prices fluctuate for several reasons, including changes in investors’ perceptions of the financial
condition of an issuer or the general condition of the relevant stock market, or when political or economic events affecting the
issuers occur. In addition, common stock prices may be particularly sensitive to rising interest rates, as the cost of capital
rises and borrowing costs increase. At times, stock markets can be volatile and stock prices can change substantially. While broad
market measures of common stocks have historically generated higher average returns than income securities, common stocks have
also experienced significantly more volatility in those returns. Common stock in which the Fund invests is structurally subordinated
to preferred stock, bonds and other debt instruments in a company’s capital structure in terms of priority to corporate
income and are therefore inherently more risky than preferred stock or debt instruments of such issuers.
Concentration
Risk
The Fund’s investments
will be concentrated in issuers in the industry or group of industries that make up the natural resources sector. The Fund has adopted
a fundamental investment restriction to invest at least 25% of its total assets in natural resources companies. In addition, in accordance
with the Fund’s 80% policy, the Fund invests at least 80% of its net assets plus borrowings for investment purposes in midstream
energy investments. Midstream energy companies are a specific type of natural resources company. Because the Fund will be concentrated,
it may be subject to more risks than if it were more broadly diversified over numerous industries and sectors of the economy. General
changes in market sentiment towards companies in the natural resources sector, or midstream energy companies specifically, may adversely
affect the Fund, and the performance of the natural resources sector, or midstream energy companies specifically, may lag behind the
broader market as a whole. Also, the Fund’s concentration in the natural resources sector, and midstream energy companies specifically,
may subject the Fund to a variety of risks associated with that sector. See “Risks—Midstream Energy Company Risks.”
Midstream
Energy Company Risks
Midstream
energy companies are subject to certain risks, including, but not limited to, the following:
Commodity
Price Risk. Midstream energy companies may be affected by fluctuations in the prices of commodities, including, for example, natural
gas, natural gas liquids and crude oil, in the short- and long-term. Natural resources commodity prices have been very volatile in the
past and such volatility is expected to continue. Fluctuations in commodity prices can result from changes in general economic conditions
or political circumstances (especially of key energy-consuming countries); market conditions; weather patterns; domestic production levels;
volume of imports; energy conservation; domestic and foreign governmental regulation; international politics; policies of the Organization
of Petroleum Exporting Countries (“OPEC”); taxation; tariffs; and the availability and costs of local, intrastate and interstate
transportation methods. Midstream energy companies engaged in crude oil and natural gas exploration, development or production, natural
gas gathering and processing, crude oil refining and transportation and coal mining or sales may be directly affected by their respective
natural resources commodity prices. The volatility of, and interrelationships between, commodity prices can also indirectly affect certain
other midstream energy companies due to the potential impact on the volume of commodities transported, processed, stored or distributed.
Some midstream energy companies that own the underlying energy commodity may be unable to effectively mitigate or manage direct margin
exposure to commodity price levels. The natural resources sector as a whole may also be impacted by the perception that the performance
of natural resources sector companies is directly linked to commodity prices. The prices of companies’ securities can be adversely
affected by market perceptions that their performance and distributions or distributions are directly tied to commodity prices. High
commodity prices may drive further energy conservation efforts and a slowing economy may adversely impact energy consumption which may
adversely affect the performance of midstream energy companies.
Prices
of oil and other energy commodities have experienced significant volatility during recent years, including as a result of the pandemic
spread of infectious respiratory illness caused by a novel coronavirus known as “COVID-19,” during which demand for energy
commodities fell sharply and energy commodity prices reached historic lows, and may continue to experience relatively high volatility
for a prolonged period. Companies engaged in crude oil and natural gas exploration, development or production, natural gas gathering
and processing, crude oil refining and transportation and coal mining or sales may be directly affected by their respective natural resources
commodity prices. The volatility of commodity prices may also indirectly affect certain companies engaged in the transportation, processing,
storage or distribution of such commodities. Some companies that own the underlying commodities may be unable to effectively mitigate
or manage direct margin exposure to commodity price levels. The natural resources sector as a whole may also be impacted by the perception
that the performance of natural resources sector companies is directly linked to commodity prices. As a result, many companies in which
the Fund invests may have been and may continue to be adversely impacted by volatility of prices of energy commodities. Reductions in
production of oil and other energy commodities may lag decreases in demand or declines in commodity prices, resulting in global oversupply
in such commodities. Slower global growth may lower demand for oil and other energy commodities and increased exports by Iran with the
end of sanctions may increase supply, exacerbating oversupply of such commodities and further reducing commodity prices. Continued volatility
of commodity prices could further erode such companies’ growth prospects and negatively impact such companies’ ability to
sustain attractive distribution levels.
Cyclicality
Risk. The operating results of companies in the broader natural resources sector are cyclical, with fluctuations in commodity prices
and demand for commodities driven by a variety of factors. The highly cyclical nature of the natural resources sector may adversely affect
the earnings or operating cash flows of the midstream energy companies in which the Fund invests.
Supply
Risk. The profitability of midstream energy companies, particularly those involved in processing, gathering and pipeline transportation,
may be materially impacted by the volume of natural gas or other energy commodities available for transportation, processing,
storage or distribution. A significant decrease in the production of natural gas, crude oil, coal or other energy commodities,
due to the decline of production from existing resources, import supply disruption, depressed commodity prices or otherwise, would
reduce the revenue, operating income and operating cash flows of midstream energy companies and, therefore, their ability to make
distributions or pay dividends. The volume of production of energy commodities and the volume of energy commodities available
for transportation, storage, processing or distribution could be affected by a variety of factors, including depletion of resources;
depressed commodity prices; catastrophic events; labor relations; increased environmental or other governmental regulation; equipment
malfunctions and maintenance difficulties; import volumes; international politics; policies of OPEC; and increased competition
from alternative energy sources.
Demand
Risk. A sustained decline in demand for coal, natural gas, natural gas liquids, crude oil and refined petroleum products could
adversely affect a midstream energy company’s revenues and cash flows. Factors that could lead to a sustained decrease in
market demand include a recession or other adverse economic conditions, an increase in the market price of the underlying commodity
that is not, or is not expected to be, merely a short-term increase, higher taxes or other regulatory actions that increase costs,
or a shift in consumer demand for such products. Demand may also be adversely affected by consumer sentiment with respect to global
warming and by state or federal legislation intended to promote the use of alternative energy sources.
Depletion
Risk. Companies engaged in the exploration, development, management or production of energy commodities face the risk that
commodity reserves are depleted over time. Such companies seek to increase their reserves through expansion of their current businesses,
acquisitions, further development of their existing sources of energy commodities, exploration of new sources of energy commodities
or by entering into long-term contracts for additional reserves; however, there are risks associated with each of these potential
strategies. If such companies fail to acquire additional reserves in a cost-effective manner and at a rate at least equal to the
rate at which their existing reserves decline, their financial performance may suffer. Additionally, failure to replenish reserves
could reduce the amount and affect the tax characterization of the distributions paid by such companies.
Risks
Related to Expansions and Acquisitions. Midstream energy companies employ a variety of means to increase cash flow, including
increasing utilization of existing facilities, expanding operations through new construction or development activities, expanding
operations through acquisitions, or securing additional long-term contracts. Thus, some midstream energy companies may be subject
to construction risk, development risk, acquisition risk or other risks arising from their specific business strategies. Midstream
energy companies that attempt to grow through acquisitions may not be able to effectively integrate acquired operations with their
existing operations. In addition, acquisition or expansion projects may not perform as anticipated. A significant slowdown in
merger and acquisition activity in the natural resources sector could reduce the growth rate of cash flows received by the Fund
from midstream energy companies that grow through acquisitions.
Competition
Risk. The natural resources sector is highly competitive. The midstream energy companies in which the Fund invests face substantial
competition from other companies, many of which will have greater financial, technological, human and other resources, in acquiring natural
resources assets, obtaining and retaining customers and contracts and hiring and retaining qualified personnel. Larger companies may
be able to pay more for assets and may have a greater ability to continue their operations during periods of low commodity prices. To
the extent that the midstream energy companies in which the Fund invests are unable to compete effectively, their operating results,
financial position, growth potential and cash flows may be adversely affected, which could in turn adversely affect the results of the
Fund.
Weather
Risk. Extreme weather conditions could result in substantial damage to the facilities of certain midstream energy companies
located in the affected areas and significant volatility in the supply of natural resources, commodity prices and the earnings
of midstream energy companies and could therefore adversely affect their securities.
Interest
Rate Risk. The prices of the equity and debt securities of the midstream energy companies the Fund expects to hold in its portfolio
are susceptible in the short-term to a decline when interest rates rise. Rising interest rates could limit the capital appreciation of
securities of certain midstream energy companies as a result of the increased availability of alternative investments with comparable
yields. Rising interest rates could adversely impact the financial performance of midstream energy companies by increasing their cost
of capital. This may reduce their ability to execute acquisitions or expansion projects in a cost-effective manner. The risk of interest
rates rising is more pronounced in the current market environment because of recent monetary policy measures and the low interest rate
environment in recent years.
Business
Segment Specific Risk. Midstream energy companies are also subject to risks that are specific to the particular business segment
of the natural resources sector in which they operate.
Pipelines.
Pipeline companies are subject to the demand for natural gas, natural gas liquids, crude oil or refined products in the markets
they serve, changes in the availability of products for gathering, transportation, processing or sale due to natural declines
in reserves and production in the supply areas serviced by the companies’ facilities, sharp decreases in crude oil or natural
gas prices that cause producers to curtail production or reduce capital spending for exploration activities, and environmental
regulation. Demand for gasoline, which accounts for a substantial portion of refined product transportation, depends on price,
prevailing economic conditions in the markets served, and demographic and seasonal factors. Companies that own interstate pipelines
that transport natural gas, natural gas liquids, crude oil or refined petroleum products are subject to regulation by FERC with
respect to the tariff rates they may charge for transportation services. An adverse determination by FERC with respect to the
tariff rates of such a company could have a material adverse effect on its business, financial condition, results of operations
and cash flows of those companies and their ability to pay cash distributions or dividends. In addition, FERC has a tax allowance
policy, which permits such companies to include in their cost of service an income tax allowance to the extent that their owners
have an actual or potential tax liability on the income generated by them. If FERC’s income tax allowance policy were to
change in the future to disallow a material portion of the income tax allowance taken by such interstate pipeline companies, it
would adversely impact the maximum tariff rates that such companies are permitted to charge for their transportation services,
which would in turn adversely affect the results of operations and cash flows of those companies and their ability to pay cash
distributions or dividends to their unit holders or shareholders.
Gathering
and Processing. Gathering and processing companies are subject to natural declines in the production of oil and natural gas
fields, which utilize their gathering and processing facilities as a way to market their production, prolonged declines in the
price of natural gas or crude oil, which curtails drilling activity and therefore production and declines in the prices of natural
gas liquids and refined petroleum products, which cause lower processing margins. In addition, some gathering, and processing
contracts subject the gathering or processing company to direct commodities price risk.
Exploration
and Production. Exploration, development and production companies are particularly vulnerable to declines in the demand for
and prices of crude oil and natural gas. Reductions in prices for crude oil and natural gas can cause a given reservoir to become
uneconomic for continued production earlier than it would if prices were higher, resulting in the plugging and abandonment of,
and cessation of production from, that reservoir. In addition, lower commodity prices not only reduce revenues but also can result
in substantial downward adjustments in reserve estimates. The accuracy of any reserve estimate is a function of the quality of
available data, the accuracy of assumptions regarding future commodity prices and future exploration and development costs and
engineering and geological interpretations and judgments. Different reserve engineers may make different estimates of reserve
quantities and related revenue based on the same data. Actual oil and gas prices, development expenditures and operating expenses
will vary from those assumed in reserve estimates, and these variances may be significant. Any significant variance from the assumptions
used could result in the actual quantity of reserves and future net cash flow being materially different from those estimated
in reserve reports. In addition, results of drilling, testing and production and changes in prices after the date of reserve estimates
may result in downward revisions to such estimates. Substantial downward adjustments in reserve estimates could have a material
adverse effect on a given exploration and production company’s financial position and results of operations. In addition,
due to natural declines in reserves and production, exploration and production companies must economically find or acquire and
develop additional reserves in order to maintain and grow their revenues and distributions.
Propane.
Propane companies are subject to earnings variability based upon weather patterns in the locations where they operate and increases
in the wholesale price of propane which reduce profit margins. In addition, propane companies are facing increased competition
due to the growing availability of natural gas, fuel oil and alternative energy sources for residential heating.
Coal.
Coal companies are subject to declines in the demand for and prices of coal. Demand variability can be based on weather conditions,
the strength of the domestic economy, the level of coal stockpiles in their customer base, and the prices of competing sources
of fuel for electric generation. They are also subject to supply variability based on geological conditions that reduce the productivity
of mining operations, the availability of regulatory permits for mining activities and the availability of coal that meets the
standards of the federal Clean Air Act of 1990, as amended (the “Clean Air Act”). Demand and prices for coal may also
be affected by current and proposed regulatory limitations on emissions from coal-fired power plants and the facilities of other
coal end users. Such limitations may reduce demand for the coal produced and transported by coal companies. Certain coal companies
could face declining revenues if they are unable to acquire additional coal reserves or other mineral reserves that are economically
recoverable.
Marine
Shipping. Marine shipping companies are subject to supply of and demand for, and level of consumption of, natural gas, liquefied
natural gas, crude oil, refined petroleum products and liquefied petroleum gases in the supply areas and market areas they serve,
which affect the demand for marine shipping services and therefore charter rates. Shipping companies’ vessels and cargoes
are also subject to the risk of being damaged or lost due to marine disasters, extreme weather, mechanical failures, grounding,
fire, explosions, collisions, human error, piracy, war and terrorism. Some vessels may also require replacement or significant
capital improvements earlier than otherwise required due to changing regulatory standards. Shipping companies or their ships may
be chartered in any country and the Fund’s investments in such issuers may be subject to risks similar to risks related
to investments in non-U.S. securities.
Cash
Flow Risk. The Fund will derive substantially all of its cash flow from investments in equity securities of midstream energy companies.
The amount of cash that the Fund has available to distribute to shareholders will depend on the ability of the midstream energy companies
in which the Fund has an interest to make distributions or pay dividends to their investors and the tax character of those distributions
or dividends. The Fund will likely have no influence over the actions of the companies in which it invests with respect to the payment
of distributions or dividends. The amount of cash that any individual midstream energy company can distribute to its investors, including
the Fund, will depend on the amount of cash it generates from operations, which will vary from quarter to quarter depending on factors
affecting the natural resources sector generally and the particular business lines of the issuer. Available cash will also depend on
the midstream energy company’s operating costs, capital expenditures, debt service requirements, acquisition costs (if any), fluctuations
in working capital needs and other factors. With respect to the Fund's investments in MLPs, the cash that an MLP will have available
for distribution will also depend on the incentive distributions payable to its general partner or managing member in connection with
distributions paid to its equity investors.
Regulatory
Risk. The profitability of midstream energy companies could be adversely affected by changes in the regulatory environment.
Midstream energy companies are subject to significant foreign, federal, state and local regulation in virtually every aspect of
their operations, including with respect to how facilities are constructed, maintained and operated, environmental and safety
controls, and the prices they may charge for the products and services they provide. Such regulation can change over time in both
scope and intensity. For example, a particular by-product may be declared hazardous by a regulatory agency and unexpectedly increase
production costs. Various governmental authorities have the power to enforce compliance with these regulations and the permits
issued under them, and violators are subject to administrative, civil and criminal penalties, including civil fines, injunctions
or both. Stricter laws, regulations or enforcement policies could be enacted in the future which would likely increase compliance
costs and may adversely affect the financial performance of midstream energy companies.
Midstream
energy companies may be adversely affected by future regulatory requirements. While the nature of such regulations cannot be predicted
at this time, they may impose additional costs or limit certain operations by midstream energy companies.
Specifically,
the operations of wells, gathering systems, pipelines, refineries and other facilities are subject to stringent and complex federal,
state and local environmental laws and regulations. These include, for example:
| ● | the
federal Clean Air Act and comparable state laws and regulations that impose obligations
related to air emissions. |
| ● | the
federal Clean Water Act and comparable state laws and regulations that impose obligations
related to discharges of pollutants into regulated bodies of water. |
| ● | the
federal Resource Conservation and Recovery Act (“RCRA”) and comparable state
laws and regulations that impose requirements for the handling and disposal of waste
from facilities; and |
| ● | the
federal Comprehensive Environmental Response, Compensation and Liability Act of 1980
(“CERCLA”), also known as “Superfund,” and comparable state laws
and regulations that regulate the cleanup of hazardous substances that may have been
released at properties currently or previously owned or operated by midstream energy
companies or at locations to which they have sent waste for disposal. |
Failure
to comply with these laws and regulations may trigger a variety of administrative, civil and criminal enforcement measures, including
the assessment of monetary penalties, the imposition of remedial requirements, and the issuance of orders enjoining future operations.
Certain environmental statutes, including RCRA, CERCLA, the federal Oil Pollution Act and analogous state laws and regulations,
impose strict, joint and several liability for costs required to clean up and restore sites where hazardous substances have been
disposed or otherwise released. Moreover, it is not uncommon for neighboring landowners and other third parties to file claims
for personal injury and property damage allegedly caused by the release of hazardous substances or other waste products into the
environment.
There
is an inherent risk that midstream energy companies may incur environmental costs and liabilities due to the nature of their businesses
and the substances they handle. For example, an accidental release from wells or gathering pipelines could subject them to substantial
liabilities for environmental cleanup and restoration costs, claims made by neighboring landowners and other third parties for
personal injury and property damage, and fines or penalties for related violations of environmental laws or regulations. Moreover,
the possibility exists that stricter laws, regulations or enforcement policies could significantly increase the compliance costs
of midstream energy companies, and the cost of any remediation that may become necessary. Midstream energy companies may not be
able to recover these costs from insurance.
Proposals
for voluntary initiatives and mandatory controls are being discussed both in the United States and worldwide to reduce emissions of “greenhouse
gases” such as carbon dioxide, a by-product of burning fossil fuels, and methane, the major constituent of natural gas, which many
scientists and policymakers believe contribute to global climate change. These measures, if adopted, could result in increased costs
to certain companies in which the Fund invests to operate and maintain natural resources facilities and administer and manage a greenhouse
gas emissions program.
In
the wake of a Supreme Court decision holding that the EPA has some legal authority to deal with climate change under the Clean
Air Act, the federal government announced on May 14, 2007 that the EPA and the Departments of Transportation, Energy, and Agriculture
would jointly write regulations to cut gasoline use and control greenhouse gas emissions from cars and trucks. These measures
if adopted could reduce demand for energy or raise prices, which may adversely affect the total return of certain of the Fund’s
investments.
Environmental
Risk. There is an inherent risk that midstream energy companies may incur environmental costs and liabilities due to the nature
of their businesses and the substances they handle. For example, an accidental release from wells or gathering pipelines could
subject them to substantial liabilities for environmental cleanup and restoration costs, claims made by neighboring landowners
and other third parties for personal injury and property damage, and fines or penalties for related violations of environmental
laws or regulations. Moreover, the possibility exists that stricter laws, regulations or enforcement policies could significantly
increase the compliance costs of midstream energy companies, and the cost of any remediation that may become necessary. Midstream
energy companies may not be able to recover these costs from insurance.
In
the wake of a Supreme Court decision holding that the EPA has some legal authority to deal with climate change under the Clean
Air Act, the EPA and the Department of Transportation jointly wrote regulations to cut gasoline use and control greenhouse gas
emissions from cars and trucks. These measures, and other programs addressing greenhouse gas emissions, could reduce demand for
energy or raise prices, which may adversely affect the total return of certain of the Fund’s investments.
The
types of regulations described above can change over time in both scope and intensity, may have adverse effects on midstream energy
companies and may be implemented in unforeseen manners on an “emergency” basis in response to catastrophes or other
events.
Affiliated
Party Risk. Certain midstream energy companies are dependent on their parents or sponsors for a majority of their revenues.
Any failure by a midstream energy company’s parents or sponsors to satisfy their payments or obligations would impact the
midstream energy company’s revenues and cash flows and ability to make distributions. Moreover, the terms of a midstream
energy company’s transactions with its parent or sponsor are typically not arrived at on an arm’s-length basis and
may not be as favorable to the midstream energy company as a transaction with a non-affiliate.
Catastrophe
Risk. The operations of midstream energy companies are subject to many hazards inherent in the exploration for, and development,
production, gathering, transportation, processing, storage, refining, distribution, mining or marketing of, coal, natural gas,
natural gas liquids, crude oil, refined petroleum products or other hydrocarbons, including: damage to production equipment, pipelines,
storage tanks or related equipment and surrounding properties or other adverse impacts resulting from hurricanes, tornadoes, floods,
fires, climate conditions, extreme weather events and other natural disasters and the responses thereto or acts of terrorism;
inadvertent damage from construction or other equipment; leaks of natural gas, natural gas liquids, crude oil, refined petroleum
products or other hydrocarbons; and fires and explosions. Since the September 11th terrorist attacks, the U.S. government
has issued warnings that energy assets, specifically U.S. pipeline infrastructure, may be targeted in future terrorist attacks.
These dangers give rise to risks of substantial losses as a result of loss or destruction of commodity reserves; damage to or
destruction of property, facilities and equipment; pollution and environmental damage; and personal injury or loss of life. Any
occurrence of such catastrophic events could bring about a limitation, suspension or discontinuation of the operations of midstream
energy companies. Midstream energy companies may not be fully insured against all risks inherent in their business operations
and therefore accidents and catastrophic events could adversely affect such companies’ operations, financial conditions
and ability to pay distributions to shareholders.
Legislation
Risk. There have been proposals in Congress to eliminate certain tax incentives widely used by oil and gas companies and to impose
new fees on certain energy producers. The elimination of such tax incentives and imposition of such fees could adversely affect the natural
sector generally or specific midstream energy companies in which the Fund invests.
Technology
Risk. Some midstream energy companies are focused on developing new technologies and are strongly influenced by technological
changes. Technology development efforts by midstream energy companies may not result in viable methods or products. Midstream
energy companies may bear high research and development costs, which can limit their ability to maintain operations during periods
of organizational growth or instability. Some midstream energy companies may be in the early stages of operations and may have
limited operating histories and smaller market capitalizations on average than companies in other sectors. As a result of these
and other factors, the value of investments in such midstream energy companies may be considerably more volatile than that in
more established segments of the economy.
Risks
Associated with an Investment in IPOs
Securities
purchased by the Fund in initial public offerings (“IPOs”) are often subject to the general risks associated with investments
in companies with small market capitalizations, and typically to a heightened degree. Securities issued in IPOs have no trading history,
and information about the companies may be available for very limited periods. In addition, the prices of securities sold in an IPO may
be highly volatile. At any particular time or from time to time, the Fund may not be able to invest in IPOs, or to invest to the extent
desired, because, for example, only a small portion (if any) of the securities being offered in an IPO may be available to the Fund.
In addition, under certain market conditions, a relatively small number of companies may issue securities in IPOs. The investment performance
of the Fund during periods when it is unable to invest significantly or at all in IPOs may be lower than during periods when the Fund
is able to do so. IPO securities may be volatile, and the Fund cannot predict whether investments in IPOs will be successful.
Risks
Associated with an Investment in PIPE Transactions
In
private investment in public equity (“PIPE”) transactions, the Fund purchases securities directly from a publicly traded
company in a private placement transaction, typically at a discount to the market price of the company’s common stock. Because
the sale of the securities is not registered under the Securities Act of 1933, as amended (the “Securities Act”), the securities
are “restricted” and cannot be immediately resold by the investors into the public markets. Accordingly, the company typically
agrees as part of the PIPE deal to register the restricted securities with the SEC. PIPE securities may be deemed illiquid.
Privately
Held Company Risk
Investing
in privately held companies involves risk. For example, privately held companies are not subject to SEC reporting requirements,
are not required to maintain their accounting records in accordance with generally accepted accounting principles and are not
required to maintain effective internal controls over financial reporting. As a result, the Investment Adviser may not have timely
or accurate information about the business, financial condition and results of operations of the privately held companies in which
the Fund invests. In addition, the securities of privately held companies are generally illiquid, and entail the risks described
under “—Liquidity Risk” below.
MLP
Risks
An
investment in MLP units involves some risks that differ from an investment in the common stock of a corporation. As compared to
common stockholders of a corporation, holders of MLP units have more limited control and limited rights to vote on matters affecting
the partnership. In addition, there are certain tax risks associated with an investment in MLP units and conflicts of interest
may exist between common unit holders and the general partner, including those arising from incentive distribution payments.
A
portion of the benefit the Fund derives from its investment in equity securities of MLPs is a result of MLPs generally being treated
as partnerships for U.S. federal income tax purposes. Partnerships generally do not pay U.S. federal income tax at the partnership
level. Rather, each partner of a partnership, in computing its U.S. federal income tax liability, will include its allocable share
of the partnership’s income, gains, losses, deductions and expenses. A change in current tax law, or a change in the business
of a given MLP, could result in an MLP being treated as a corporation for U.S. federal income tax purposes, which would result
in such MLP being required to pay U.S. federal income tax on its taxable income. The classification of an MLP as a corporation
for U.S. federal income tax purposes would have the effect of reducing the amount of cash available for distribution by the MLP
and causing any such distributions received by the Fund to be treated as dividend income to the extent of the MLP’s current
or accumulated earnings and profits. Thus, if any of the MLPs owned by the Fund were treated as corporations for U.S. federal
income tax purposes, the after-tax return to the Fund with respect to its investment in such MLPs would be materially reduced,
which could cause a decline in the value of the common shares. Recently, a number of MLPs have reduced, suspended or eliminated
their distributions. In addition, changes in tax laws or regulations, or future interpretations of such laws or regulations, could
adversely affect the Fund or the MLP investments in which the Fund invests.
To
the extent that the Fund invests in the equity securities of an MLP treated as a partnership under the Code, the Fund will be
a partner in such MLP. Accordingly, the Fund will be required to include in its taxable income the Fund’s allocable share
of the income, gains, losses, deductions and credits recognized by each such MLP, regardless of whether the MLP distributes cash
to the Fund. Historically, MLPs have been able to offset a significant portion of their income with tax deductions. The Fund will
recognize taxable income on its allocable share of an MLP’s income and gains that is not offset by the MLP’s tax deductions,
losses and credits. The portion, if any, of a distribution received by the Fund from an MLP that is offset by the MLP’s
tax deductions, losses or credits is essentially treated as a return of capital. However, those distributions will reduce the
Fund’s adjusted tax basis in the equity securities of the MLP, which will result in an increase in the amount of gain (or
decrease in the amount of loss) that will be recognized by the Fund for tax purposes upon the sale of any such equity securities
and may increase the amount of income or gain that will be recognized by the Fund upon subsequent distributions in respect of
such equity securities. The percentage of an MLP’s income and gains that is offset by tax deductions, losses and credits
will fluctuate over time for various reasons. For example, a significant slowdown in acquisition activity or capital spending
by MLPs held in the Fund’s portfolio could result in a reduction of accelerated depreciation generated by new acquisitions,
which may result in a decrease in the portion of the MLP’s distributions that is offset by tax deductions.
Because
of the Fund’s investments in equity securities of MLPs, the Fund’s earnings and profits may be calculated using accounting
methods that are different from those used for calculating taxable income. Because of these differences, the Fund may make distributions
out of its current or accumulated earnings and profits, which will be treated as dividends, in years in which the Fund’s
distributions exceed its taxable income.
Adverse
developments in the natural resources sector may result in MLPs seeking to restructure debt or file for bankruptcy. Limited partners
in such MLPs, such as the Fund, may owe taxes on debt that is forgiven in a bankruptcy or an out-of-court restructuring, as cancellation
of debt income, which creates a tax liability for investors without an associated cash distribution. While an MLP facing a debt restructuring
may seek to implement structures that would limit the tax liability associated with the debt restructuring, there can be no assurance
that such structures could be successfully implemented or would not have other adverse impacts on the Fund as an investor in the MLP.
Adverse
developments in the natural resources sector may result in MLPs seeking to restructure debt or file for bankruptcy. Limited partners
in such MLPs, such as the Fund, may owe taxes on debt that is forgiven in a bankruptcy or an out-of-court restructuring, as cancellation
of debt income, which creates a tax liability for investors without an associated cash distribution. While an MLP facing a debt
restructuring may seek to implement structures that would limit the tax liability associated with the debt restructuring, there
can be no assurance that such structures could be successfully implemented or would not have other adverse impacts on the Fund
as an investor in the MLP.
MLP
Subordinated Units. Master limited partnership subordinated units are not typically listed on an exchange or publicly traded.
Holders of MLP subordinated units are entitled to receive a distribution only after the MQD has been paid to holders of common
units, but prior to payment of incentive distributions to the general partner or managing member. Master limited partnership subordinated
units generally do not provide arrearage rights. Most MLP subordinated units are convertible into common units after the passage
of a specified period of time or upon the achievement by the MLP of specified financial goals.
General
Partner and Managing Member Interests. General partner and managing member interests are not publicly traded, though they
may be owned by publicly traded entities such as GP MLPs. A holder of general partner or managing member interests can be liable
in certain circumstances for amounts greater than the amount of the holder’s investment. In addition, while a general partner
or managing member’s incentive distribution rights can mean that general partners and managing members have higher distribution
growth prospects than their underlying MLPs, these incentive distribution payments would decline at a greater rate than the decline
rate in quarterly distributions to common or subordinated unit holders in the event of a reduction in the MLP’s quarterly
distribution. A general partner or managing member interest can be redeemed by the MLP if the MLP unit holders choose to remove
the general partner, typically by a supermajority vote of the limited partners or members.
Liquidity
Risk
The
investments made by the Fund may be illiquid and consequently the Fund may not be able to sell such investments at prices that
reflect the Investment Adviser’s assessment of their value, the amount paid for such investments by the Fund or at prices
approximating the value at which the Fund is carrying the securities on its books. Furthermore, the nature of the Fund’s
investments may require a long holding period prior to profitability.
Although
the equity securities of the companies in which the Fund invests generally trade on major stock exchanges, certain securities
may trade less frequently, particularly those with smaller capitalizations. Securities with limited trading volumes may display
volatile or erratic price movements. Investment of the Fund’s capital in securities that are less actively traded or over
time experience decreased trading volume may restrict the Fund’s ability to take advantage of other market opportunities.
Unregistered
securities are securities that cannot be sold publicly in the United States without registration under the Securities Act, unless an
exemption from such registration is available. 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 so that the Fund could 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
acquirer of the securities. The Fund would, in either case, bear the risks of any downward price fluctuation during that period. The
difficulties and delays associated with selling restricted securities could result in the Fund’s inability to realize a favorable
price upon disposition of such securities, and at times might make disposition of such securities impossible.
Equity
Securities Risk
Master
limited partnership common units and other equity securities of midstream energy companies can be affected by macroeconomic, political,
global and other factors affecting the stock market in general, expectations of interest rates, investor sentiment towards midstream
energy companies or the natural resources sector, changes in a particular company’s financial condition, or the unfavorable or
unanticipated poor performance of a particular midstream energy company. Prices of common units and other equity securities of individual
midstream energy companies can also be affected by fundamentals unique to the partnership or company, including earnings power and coverage
ratios.
Small-Cap
and Mid-Cap Company Risk
Investing in the securities
of companies with small or medium-sized market capitalizations (“small-cap” and “mid-cap” companies, respectively)
presents some particular investment risks. Small-cap and
mid-cap midstream energy companies may have limited product lines and markets, as well as shorter operating histories, less experienced
management and more limited financial resources than larger midstream energy companies and may be more vulnerable to adverse general
market or economic developments. Stocks of these midstream energy companies may be less liquid than those of larger midstream energy
companies and may experience greater price fluctuations than larger midstream energy companies. In addition, small-cap or mid-cap company
securities may not be widely followed by investors, which may result in reduced demand.
Risks
Associated with Canadian Royalty Trusts and Canadian E&P Companies
With respect to investments
in royalty trusts, potential growth may be sacrificed because revenue is passed on to a royalty trust’s unitholders (such as the
Fund), rather than reinvested in the business. Royalty trusts generally do not guarantee minimum distributions or even return of capital.
If the assets underlying a royalty trust do not perform as expected, the royalty trust may reduce or even eliminate distributions. The
declaration of such distributions generally depends upon various factors, including the operating performance and financial condition
of the royalty trust and general economic conditions.
Unlike
U.S. royalty trusts, Canadian royalty trusts and E&P companies may engage in the acquisition, development and production of
natural gas and crude oil to replace depleting reserves. They may have employees, issue new shares, borrow money, acquire additional
properties, and manage the resources themselves. As a result, Canadian royalty trusts and Canadian E&P companies are exposed
to commodity risk and production and reserve risk, as well as operating risk.
Canadian
Risk
The
Canadian economy is very dependent on the demand for, and supply and price of, natural resources. The Canadian market is relatively concentrated
in issuers involved in the production and distribution of natural resources. There is a risk that any changes in the natural resources
sector could have an adverse impact on the Canadian economy. The Canadian economy is dependent on the economy of the United States as
a key trading partner. Reduction in spending on Canadian products and services or changes in the U.S. economy may cause an impact in
the Canadian economy. The Canadian economy may be significantly affected by the U.S. economy, given that the United States is Canada’s
largest trading partner and foreign investor. Since the implementation of the North American Free Trade Agreement (“NAFTA”)
in 1994, total two-way merchandise trade between the United States and Canada has more than doubled. To further this relationship, all
three NAFTA countries entered into The Security and Prosperity Partnership of North America in March 2005, which addressed economic and
security related issues, and the US-Mexico-Canada Agreement, which replaced NAFTA effective July 1, 2020. These agreements may further
affect Canada’s dependency on the U.S. economy. Past periodic demands by the Province of Quebec for sovereignty have significantly
affected equity valuations and foreign currency movements in the Canadian market.
Non-U.S.
Securities Risk
Investing
in non-U.S. securities involves certain risks not involved in domestic investments, including, but not limited to: fluctuations
in foreign exchange rates; future foreign economic, financial, political and social developments; different legal systems; the
possible imposition of exchange controls or other foreign governmental laws or restrictions, including expropriation; lower trading
volume; much greater price volatility and illiquidity of certain non-U.S. securities markets; different trading and settlement
practices; less governmental supervision; changes in currency exchange rates; high and volatile rates of inflation; fluctuating
interest rates; less publicly available information; and different accounting, auditing and financial recordkeeping standards
and requirements.
Certain
non-U.S. countries, especially emerging market countries, historically have experienced, and may continue to experience, high rates of
inflation, high interest rates, exchange rate fluctuations, large amounts of external debt, balance of payments and trade difficulties
and extreme poverty and unemployment. Many of these countries are also characterized by political uncertainty and instability. The cost
of servicing external debt will generally be adversely affected by rising international interest rates because many external debt obligations
bear interest at rates that are adjusted based upon international interest rates. In addition, with respect to certain foreign countries,
there is a risk of: the possibility of expropriation or nationalization of assets; confiscatory taxation; difficulty in obtaining or
enforcing a court judgment; restrictions on currency repatriation; economic, political or social instability; and diplomatic developments
that could affect investments in those countries.
Changes in foreign currency
exchange rates may affect the value of securities denominated or quoted in currencies other than the U.S. dollar and the unrealized appreciation
or depreciation of investments. Currencies of certain countries may be volatile and therefore may affect the value of securities denominated
in such currencies, which means that the Fund’s net asset value or current income could decline as a result of changes in the exchange
rates between foreign currencies and the U.S. dollar. Certain investments in non-U.S. securities also may be subject to foreign withholding
taxes. Dividend income from non-U.S. corporations may not be eligible for the reduced U.S. income tax rate currently available for qualified
dividend income. These risks often are heightened for investments in smaller, emerging capital markets. In addition, individual foreign
economies may differ favorably or unfavorably from the U.S. economy in such respects as: growth of gross domestic product; rates of inflation;
capital reinvestment; resources; self-sufficiency; and balance of payments position.
Investing
in securities of issuers based in underdeveloped emerging markets entails all of the risks of investing in securities of non-U.S.
issuers to a heightened degree. “Emerging market countries” generally include every nation in the world except developed
countries, that is the United States, Canada, Japan, Australia, New Zealand and most countries located in Western Europe. These
heightened risks include: greater risks of expropriation, confiscatory taxation, nationalization, and less social, political and
economic stability; the smaller size of the market for such securities and a lower volume of trading, resulting in lack of liquidity
and an increase in price volatility; and certain national policies that may restrict the Fund’s investment opportunities
including restrictions on investing in issuers or industries deemed sensitive to relevant national interests. As a result of these
potential risks, the Investment Adviser may determine that, notwithstanding otherwise favorable investment criteria, it may not
be practicable or appropriate to invest in a particular country.
Interest
Rate Risk
Interest
rate risk is the risk that fixed rate securities such as preferred and debt securities will decline in value because of increases
in market interest rates. When market interest rates rise, the market value of such securities generally will fall. Longer-term
fixed rate securities are generally more sensitive to interest rate changes. Greater sensitivity to changes in interest rates
typically corresponds to increased volatility and increased risk. The Fund’s investment in such securities means that the
net asset value and market price of, and distributions on, common shares will tend to decline if the market interest rates rise.
Duration is a measure of sensitivity to changes in interest rates and reflects a variety of factors, including the maturity and
variability, if any, of the interest rate and the call potential of the security. For this reason, duration should not be confused
with maturity. If a portfolio has a duration of three years and interest rates increase by 1%, then, all else being equal, the
portfolio would decline in value by approximately 3%. These risks may be greater in the current market environment because while
interest rates were historically low in recent years, the Federal Reserve has been increasing the Federal Funds rate to address
inflation. Any interest rate increases in the future could cause the value of the Fund to decrease.
The
risk of loss on preferred securities due to rising market interest rates may be exacerbated by extension risk, which is the risk
of a preferred security’s expected maturity and duration lengthening, and therefore the interest rate risk that it presents
increasing, if and when market interest rates rise. Extension risk is caused by the fact that preferred securities are typically
callable by the issuer, and callable fixed rate securities are more likely to be called in a lower market interest rate environment
(because the issuer can refinance those securities at low current market rates); conversely, callable fixed rate securities become
less likely to be called if market interest rates rise. Because rising market interest rates reduce the likelihood that an issuer
will exercise its right to call a preferred security, such an interest rate rise causes the duration of that security, and therefore
its interest rate risk going forward, to increase, thus increasing, in an accelerating manner, the degree to which any further
interest rate rise will cause the security to lose value.
Additionally,
the costs associated with any leverage used by the Fund are likely to increase when interest rates rise. Accordingly, the market
price of the Fund’s common shares may decline when interest rates rise. The risk of interest rates rising is more pronounced
in the current market environment because of recent monetary policy measures and the low interest rate environment in recent years.
Interest
Rate Hedging Risk
The
Fund may from time-to-time hedge against interest rate risk resulting from the Fund’s portfolio holdings and any leverage
it may incur. Interest rate transactions the Fund may use for hedging purposes will expose the Fund to certain risks that differ
from the risks associated with its portfolio holdings. There are economic costs of hedging reflected in the price of interest
rate swaps, caps and similar techniques, the cost of which can be significant. In addition, the Fund’s success in using
hedging instruments is subject to the Investment Adviser’s ability to correctly predict changes in the relationships of
such hedging instruments to the Fund’s leverage risk, and there can be no assurance that the Investment Adviser’s
judgment in this respect will be accurate. Depending on the state of interest rates in general, the Fund’s use of interest
rate hedging instruments could enhance or decrease investment company taxable income available to the holders of its common shares.
To the extent there is a decline in interest rates, the value of interest rate swaps or caps could decline, and result in a decline
in the net asset value of the Fund’s common shares. In addition, if the counterparty to an interest rate swap or cap defaults,
the Fund would not be able to use the anticipated net receipts under the interest rate swap or cap to offset its cost of leverage.
Arbitrage
Risk
A
part of the Investment Adviser’s investment operations may involve spread positions between two or more securities, or derivatives
positions including commodities hedging positions, or a combination of the foregoing. The Investment Adviser’s trading operations
also may involve arbitraging between two securities or commodities, between the security, commodity and related options or derivatives
markets, between spot and futures or forward markets, and/or any combination of the above. To the extent the price relationships
between such positions remain constant, no gain or loss on the positions will occur. These offsetting positions entail substantial
risk that the price differential could change unfavorably, causing a loss to the position. Certain derivatives transactions have
economic characteristics similar to leverage.
Leverage
Risk
The
Fund may use leverage through the issuance of indebtedness or the issuance of preferred shares. The use of leverage magnifies
both the favorable and unfavorable effects of price movements in the investments made by the Fund. Insofar as the Fund employs
leverage in its investment operations, the Fund will be subject to increased risk of loss. In addition, the Fund will pay (and
the holders of common shares will bear) all costs and expenses relating to the issuance and ongoing maintenance of leverage, including
higher advisory fees. Similarly, any decline in the net asset value of the Fund’s investments will be borne entirely by
the holders of common shares. Therefore, if the market value of the Fund’s portfolio declines, the leverage will result
in a greater decrease in net asset value to the holders of common shares than if the Fund were not leveraged. This greater net
asset value decrease will also tend to cause a greater decline in the market price for the common shares.
Leverage
creates a greater risk of loss, as well as potential for more gain, for the Fund’s common shares than if leverage is not
used. Preferred shares or debt issued by the Fund would have complete priority upon distribution of assets over common shares.
Depending on the type of leverage involved, the Fund’s use of leverage may require the approval of its Board of Trustees.
The Fund expects to invest the net proceeds derived from any leveraging according to the investment objective and policies described
in this Prospectus. So long as the Fund’s portfolio is invested in securities that provide a higher rate of return than
the distribution rate or interest rate of the leverage instrument or other borrowing arrangements, after taking its related expenses
into consideration, the leverage will cause the Fund’s common shareholders to receive a higher rate of income than if it
were not leveraged. There is no assurance that any Fund will continue to utilize leverage or, if leverage is utilized, that it
will be successful in enhancing the level of the Fund’s total return. The net asset value of the Fund’s common shares
will be reduced by the fees and issuance costs of any leverage.
Leverage
creates risk for holders of the Fund’s common shares, including the likelihood of greater volatility of net asset value
and market price of the shares. Risk of fluctuations in distribution rates or interest rates on leverage instruments or other
borrowing arrangements may affect the return to the holders of the Fund’s common shares. To the extent the return on securities
purchased with funds received from the use of leverage exceeds the cost of leverage (including increased expenses to the Fund),
the Fund’s returns will be greater than if leverage had not been used. Conversely, if the return derived from such securities
is less than the cost of leverage (including increased expenses to the Fund), the Fund’s returns will be less than if leverage
had not been used, and therefore, the amount available for distribution to the Fund’s common shareholders will be reduced.
In the latter case, the Investment Adviser in its best judgment nevertheless may determine to maintain the Fund’s leveraged
position if it expects that the benefits to the Fund’s common shareholders of so doing will outweigh the current reduced
return. Under normal market conditions, the Fund anticipates that it will be able to invest the proceeds from leverage at a higher
rate than the costs of leverage (including increased expenses to the Fund), which would enhance returns to the Fund’s common
shareholders. The fees paid to the Investment Adviser will be calculated on the basis of the Fund’s Managed Assets, which
include proceeds from leverage instruments and other borrowings. During periods in which the Fund uses leverage, the investment
management fee payable to the Investment Adviser will be higher than if the Fund did not use a leveraged capital structure. Consequently,
the Fund and the Investment Adviser may have differing interests in determining whether to leverage the Fund’s assets. The
Board of Trustees will monitor the Fund’s use of leverage and this potential conflict.
Securities
Lending Risk
The
Fund may lend its portfolio securities (up to a maximum of one-third of Managed Assets) to banks or dealers which meet the creditworthiness
standards established by the Board of Trustees of the Fund. Securities lending is subject to the risk that loaned securities may
not be available to the Fund on a timely basis and the Fund may, therefore, lose the opportunity to sell the securities at a desirable
price. Any loss in the market price of securities loaned by the Fund that occurs during the term of the loan would be borne by
the Fund and would adversely affect the Fund’s performance. In addition, there may be delays in recovery, or no recovery,
of securities loaned or even a loss of rights in the collateral should the borrower of the securities fail financially while the
loan is outstanding. These risks may be greater for non-U.S. securities.
Non-Diversification
Risk
The
Fund is a non-diversified, closed-end management investment company under the 1940 Act. Accordingly, the Fund invests a greater portion
of its assets in a more limited number of issuers than a diversified fund. An investment in the Fund may present greater risk to an investor
than an investment in a diversified portfolio because changes in the financial condition or market assessment of a single issuer may
cause greater fluctuations in the value of the Fund’s shares.
Valuation
Risk
Market
prices may not be readily available for certain of the Fund’s investments, and the value of such investments will ordinarily
be determined based on fair valuations determined by the Investment Adviser pursuant to procedures adopted by the Board of Trustees
and the Investment Adviser as valuation designee. Restrictions on resale or the absence of a liquid secondary market may adversely
affect the Fund’s ability to determine such investment’s net asset value. The sale price of securities that are not
readily marketable may be lower or higher than the Fund’s most recent determination of their fair value.
In
addition, the value of these securities typically requires more reliance on the judgment of the Investment Adviser than that required
for securities for which there is an active trading market. Due to the difficulty in valuing these securities and the absence
of an active trading market for these investments, the Fund may not be able to realize these securities’ true value or may
have to delay their sale in order to do so.
When
determining the fair value of an asset, the Investment Adviser seeks to determine the price that the Fund might reasonably expect
to receive from the current sale of that asset in an arm’s length transaction. Fair value pricing, however, involves judgments
that are inherently subjective and inexact, since fair valuation procedures are used only when it is not possible to be sure what
value should be attributed to a particular asset or when an event will affect the market price of an asset and to what extent.
As a result, there can be no assurance that fair value pricing will reflect actual market value, and it is possible that the fair
value determined for a security will be materially different from the value that actually could be or is realized upon the sale
of that asset.
Portfolio
Turnover Risk
Portfolio
turnover rate is not considered a limiting factor in the Investment Adviser’s execution of investment decisions. The Fund
anticipates that its annual portfolio turnover rate may vary greatly from year to year. A higher portfolio turnover rate results
in correspondingly greater brokerage commissions and other transactional expenses that are borne by the Fund. High portfolio turnover
may result in an increased realization of net short-term capital gains or capital losses by the Fund.
Strategic
Transactions Risk
The
Fund’s use of Strategic Transactions may involve the purchase and sale of derivative instruments. The Fund may purchase
and sell exchange-listed and over the counter put and call options on securities, indices and other instruments, enter into forward
contracts, purchase and sell futures contracts and options thereon, enter into swap, cap, floor or collar transactions, purchase
structured investment products and enter into transactions that combine multiple derivative instruments. Strategic Transactions
often have risks similar to the securities underlying the Strategic Transactions. However, the use of Strategic Transactions also
involves risks that are different from, and possibly greater than, the risks associated with other portfolio investments. Strategic
Transactions may involve the use of highly specialized instruments that require investment techniques and risk analyses different
from those associated with other portfolio investments. The use of derivative instruments has risks, including the imperfect correlation
between the value of the derivative instruments and the underlying assets, the possible default of the counterparty to the transaction
or illiquidity of the derivative investments. Furthermore, the ability to successfully use these techniques depends on the Investment
Adviser’s ability to predict pertinent market movements, which cannot be assured. Thus, the use of Strategic Transactions
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, amounts paid by the Fund as
premiums and cash, or other assets held in margin accounts with respect to Strategic Transactions, are not otherwise available
to the Fund for investment purposes. It is possible that government regulation of various types of derivative instruments, including
regulations enacted pursuant to the Dodd-Frank Act, which was signed into law in July 2010, may impact the availability, liquidity
and cost of derivative instruments. There can be no assurance that such regulation will not have a material adverse effect on
the Fund or will not impair the ability of the Fund to implement certain Strategic Transactions or to achieve their investment
objectives. Although the Investment Adviser seeks to use Strategic Transactions to further the Fund’s investment objective,
no assurance can be given that the use of Strategic Transactions will achieve this result.
Convertible
Instrument Risk
A convertible instrument
is a bond, debenture, note, preferred stock or other security that may be converted into or exchanged for a prescribed number of common
shares of the same or a different issuer within a particular period of time at a specified price or formula. Convertible debt instruments
have characteristics of both fixed income and equity investments. Convertible instruments are subject both to the stock market risk associated
with equity securities and to the credit and interest rate risks associated with fixed-income securities. As the market price of the
equity security underlying a convertible instrument falls, the convertible instrument tends to trade on the basis of its yield and other
fixed-income characteristics. As the market price of such equity security rises, the convertible security tends to trade on the basis
of its equity conversion features. Some convertible instruments have varying conversion values. Convertible instruments are typically
issued at prices that represent a premium to their conversion value. Accordingly, the value of a convertible instrument increases (or
decreases) as the price of the underlying equity security increases (or decreases). If a convertible instrument held by the Fund is called
for redemption, the Fund will be required to permit the issuer to redeem the instrument, or convert it into the underlying stock, and
will hold the stock to the extent the Investment Adviser determines that such equity investment is consistent with the investment objective
of that Fund.
Counterparty
Risk
The
Fund will be subject to credit risk with respect to the counterparties to the derivative contracts entered into by the Fund. 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 bankruptcy or other reorganization
proceedings. The Fund may obtain only a limited recovery, or may obtain no recovery, in such circumstances.
Short
Sales Risk
Short
selling involves selling securities which may or may not be owned and borrowing the same securities for delivery to the purchaser,
with an obligation to replace the borrowed securities at a later date. Short selling allows the short seller to profit from declines
in market prices to the extent such declines exceed the transaction costs and the costs of borrowing the securities. A naked short
sale creates the risk of an unlimited loss because the price of the underlying security could theoretically increase without limit,
thus increasing the cost of buying those securities to cover the short position. There can be no assurance that the securities
necessary to cover a short position will be available for purchase. Purchasing securities to close out the short position can
itself cause the price of the securities to rise, further exacerbating the loss.
The
Fund’s obligation to replace the borrowed security will be secured by collateral deposited with the broker-dealer, usually
cash, U.S. government securities or other liquid securities similar to those borrowed. The Fund also will be required to segregate
similar collateral to the extent, if any, necessary so that the value of both collateral amounts in the aggregate is at all times
equal to at least 100% of the current market value of the security sold short. Depending on arrangements made with the broker-dealer
from which the Fund borrowed the security regarding repaying amounts received by the Fund on such security, the Fund may not receive
any payments (including interest) on the Fund’s collateral deposited with such broker-dealer.
Inflation
Risk
Inflation
risk is the risk that the value of assets or income from investment will be worth less in the future as inflation decreases the
value of money. As inflation increases, the real value of the Fund’s common shares and distributions can decline. Inflation
risk is more pronounced in the current market environment because of recent monetary policy measures and the low interest rate
environment in recent years.
Deflation
Risk
Deflation
risk is the risk that prices throughout the economy decline over time, which may have an adverse effect on the market valuation
of companies, their assets and their revenues. In addition, deflation may have an adverse effect on the creditworthiness of issuers
and may make issuer default more likely, which may result in a decline in the value of the Fund’s portfolio.
Debt
Securities Risk
Debt
securities are subject to many of the risks described elsewhere in this section. In addition, they are subject to credit risk,
prepayment risk and, depending on their quality, other special risks.
Credit
Risk. An issuer of a debt security may be unable to make interest payments and repay principal. A Fund could lose money if
the issuer of a debt obligation is, or is perceived to be, unable or unwilling to make timely principal and/or interest payments,
or to otherwise honor its obligations. The downgrade of a security may further decrease its value.
Prepayment
Risk. Certain debt instruments, particularly below investment grade securities, may contain call or redemption provisions
which would allow the issuer of the debt instrument to prepay principal prior to the debt instrument’s stated maturity.
This is also sometimes known as prepayment risk. Prepayment risk is greater during a falling interest rate environment as issuers
can reduce their cost of capital by refinancing higher yielding debt instruments with lower yielding debt instruments. An issuer
may also elect to refinance its debt instruments with lower yielding debt instruments if the credit standing of the issuer improves.
To the extent debt securities in the Fund’s portfolio are called or redeemed, that Fund may be forced to reinvest in lower
yielding securities.
Preferred
Stock Risk
Preferred
stocks combine some of the characteristics of both common stocks and debt securities. Preferred stocks generally pay a fixed rate of
return and are sold on the basis of current yield, like debt securities. However, because they are equity securities, preferred stock
provides equity ownership of a company, and the income is paid in the form of distributions. Preferred stocks typically have a yield
advantage over common stocks as well as comparably rated fixed income investments. Preferred stocks are typically subordinated to bonds
and other debt instruments in a company’s capital structure, in terms of priority to corporate income, and therefore will be subject
to greater credit risk than those debt instruments. Unlike interest payments on debt securities, preferred stock distributions are payable
only if declared by the issuer’s board of directors. Preferred stocks also may be subject to optional or mandatory redemption provisions.
Convertible preferred stocks have risks similar to convertible securities as described above in “—Convertible Instrument
Risk.”
Below
Investment Grade Securities (Junk Bonds) Risk
Below
investment grade and unrated debt securities generally pay a premium above the yields of U.S. government securities or debt securities
of investment grade issuers because they are subject to greater risks than those securities. These risks, which reflect their
speculative character, include the following: greater yield and price volatility; greater credit risk and risk of default; potentially
greater sensitivity to general economic or industry conditions; potential lack of attractive resale opportunities (illiquidity);
and additional expenses to seek recovery from issuers who default. Debt securities rated below investment grade are commonly known
as “junk bonds” and are regarded as predominantly speculative with respect to the issuer’s capacity to pay interest
and repay principal in accordance with the terms of the obligations and involve major risk exposure to adverse conditions.
The
prices of these below investment grade and unrated debt securities are more sensitive to negative developments, such as a decline in
the issuer’s revenues, downturns in profitability in the natural resources sector or a general economic downturn, than are the
prices of higher-grade securities. Below investment grade and unrated debt securities tend to be less liquid than investment grade securities
and the market for below investment grade and unrated debt securities could contract further under adverse market or economic conditions.
In such a scenario, it may be more difficult for the Fund to sell these securities in a timely manner or for as high a price as could
be realized if such securities were more widely traded. The market value of below investment grade and unrated debt securities may be
more volatile than the market value of investment grade securities and generally tends to reflect the market’s perception of the
creditworthiness of the issuer and short-term market developments to a greater extent than investment grade securities, which primarily
reflect fluctuations in general levels of interest rates. In the event of a default by a below investment grade or unrated debt security
held in the Fund’s portfolio in the payment of principal or interest, the Fund may incur additional expense to the extent the Fund
is required to seek recovery of such principal or interest.
Other
Investment Companies Risk
Investments in investment
company securities are subject to the risks of the purchased investment company’s portfolio securities. In addition, Fund shareholders
will bear not only their proportionate share of the expenses of the Fund (including operating expenses and the fees of the investment
adviser), but also will indirectly bear similar expenses of the underlying investment company in which the Fund invests. Certain investments
company securities, including other closed-end funds and ETFs, may trade at market prices that differ from the net asset value of the
particular fund. In addition, the securities of other investment companies may also be leveraged and will therefore be subject to the
same leverage risks described herein. As described in the section entitled “—Leverage Risk,” the net asset value and
market value of leveraged shares will be more volatile and the yield to stockholders 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 and the value of such
investments will be dependent upon the investment and research abilities of persons other than the Investment Adviser.
ETN
and ETF Risk
An
exchange-traded note (“ETN”) or exchange-traded fund (“ETF”) that is based on a specific index may not
be able to replicate and maintain exactly the composition and relative weighting of securities in the index. An ETN or ETF also
incurs certain expenses not incurred by its applicable index. The market value of an ETN or ETF share may differ from its net
asset value; the share may trade at a premium or discount to its net asset value, which may be due to, among other things, differences
in the supply and demand in the market for the share and the supply and demand in the market for the underlying assets of the
ETN or ETF. In addition, certain securities that are part of the index tracked by an ETN or ETF may, at times, be unavailable,
which may impede the ETN’s or ETF’s ability to track its index. An ETF that uses leverage can, at times, be relatively
illiquid, which can affect whether its share price approximates net asset value. As a result of using leverage, an ETF is subject
to the risk of failure in the futures and options markets it uses to obtain leverage and the risk that a counterparty will default
on its obligations, which can result in a loss to the Fund. If the Fund invests in ETFs, the Fund’s shareholders will bear
not only their proportionate share of the expenses of the Fund, but also will indirectly bear similar expenses of the underlying
ETF. Although an ETN is a debt security, it is unlike a typical bond, in that there are no periodic interest payments and principal
is not protected.
Investment
Management Risk
The
Fund’s portfolio is subject to investment management risk because it will be actively managed. The Investment Adviser will
apply investment techniques and risk analyses in making investment decisions for the Fund, but there can be no guarantee that
they will produce the desired results.
The
decisions with respect to the management of the Fund are made exclusively by the Investment Adviser, subject to the oversight
of the Board of Trustees. Investors have no right or power to take part in the management of the Fund. The Investment Adviser
also is responsible for all of the trading and investment decisions of the Fund. In the event of the withdrawal or bankruptcy
of the Investment Adviser, generally the affairs of the Fund will be wound-up, and its assets will be liquidated.
Dependence
on Key Personnel of the Investment Adviser
The
Fund is dependent upon the Investment Adviser’s key personnel for its future success and upon their access to certain individuals
and investments in the natural resources sector. In particular, the Fund will depend on the diligence, skill and network of business
contacts of the personnel of the Investment Adviser and its portfolio managers, who will evaluate, negotiate, structure, close and monitor
the Fund’s investments. The portfolio managers have equity interests and other financial incentives to remain with the firm. The
Fund will also depend on the senior management of the Investment Adviser. The departure of a member or members of the Investment Adviser’s
senior management could have a material adverse effect on the Fund’s ability to achieve its investment objective. In addition,
the Fund can offer no assurance that the Investment Adviser will remain its investment adviser, or that the Fund will continue to have
access to the Investment Adviser’s natural resources sector contacts and deal flow.
Conflicts
of Interest with the Investment Adviser
Conflicts
of interest may arise because the Investment Adviser and its affiliates generally will be carrying on substantial investment activities
for other clients, including, but not limited to, other client accounts and funds managed or advised by the Investment Adviser,
in which the Fund will have no interest. The Investment Adviser or its affiliates may have financial incentives to favor certain
of such accounts over the Fund. Any of their proprietary accounts and other customer accounts may compete with the Fund for specific
trades. The Investment Adviser or its affiliates may buy or sell securities for the Fund which differ from securities bought or
sold for other accounts and customers, even though their investment objectives and policies may be similar to the Fund’s.
Situations may occur when the Fund could be disadvantaged because of the investment activities conducted by the Investment Adviser
and its affiliates for their other accounts. Such situations may be based on, among other things, legal or internal restrictions
on the combined size of positions that may be taken for the Fund and the other accounts, limiting the size of the Fund’s
position, or the difficulty of liquidating an investment for the Fund and the other accounts where the market cannot absorb the
sale of the combined position. Notwithstanding these potential conflicts of interest, the Fund’s Board of Trustees and officers
have a fiduciary obligation to act in the Fund’s best interest.
The
Fund’s investment opportunities may be limited by affiliations of the Investment Adviser or its affiliates with midstream
energy companies. In addition, to the extent that the Investment Adviser sources and structures private investments in midstream
energy companies, certain employees of the Investment Adviser may become aware of actions planned by midstream energy companies,
such as acquisitions that may not be announced to the public. It is possible that the Fund could be precluded from investing in
a company about which the Investment Adviser has material non-public information; however, it is the Investment Adviser’s
intention to ensure that any material non-public information available to certain of the Investment Adviser’s employees
not be shared with those employees responsible for the purchase and sale of publicly traded securities.
The
Investment Adviser manages several other client accounts and funds. Some of these other client accounts and funds have investment
objectives that are similar to or overlap with the Fund. Furthermore, the Investment Adviser may at some time in the future manage
additional client accounts and investment funds with the same investment objective as the Fund.
The
Investment Adviser and its affiliates generally will be carrying on substantial investment activities for other clients’
accounts and funds in which the Fund will have no interest. Investment decisions for the Fund are made independently from those
of such other clients; however, from time to time, the same investment decision may be made for more than one fund or account.
When two or more clients advised by the Investment Adviser or its affiliates seek to purchase or sell the same publicly traded
securities, the securities actually purchased or sold will be allocated among the clients on a good faith equitable basis by the
Investment Adviser in its discretion in accordance with the clients’ various investment objectives and procedures adopted
by the Investment Adviser and approved by the Fund’s Board of Trustees. In some cases, this system may adversely affect
the price or size of the position the Fund may obtain.
The
Fund’s investment opportunities may be limited by investment opportunities that the Investment Adviser is evaluating for
other clients’ accounts and funds. To the extent a potential investment is appropriate for the Fund and one or more of the
Investment Adviser’s other client accounts or funds, the Investment Adviser will need to fairly allocate that investment
to the Fund or another client account or fund, or both, depending on its allocation procedures and applicable law related to combined
or joint transactions. There may occur an attractive limited investment opportunity suitable for the Fund in which the Fund cannot
invest under the particular allocation method being used for that investment.
Under
the 1940 Act, the Fund and such other client accounts or funds managed or advised by the Investment Adviser may be precluded from
co-investing in certain private placements of securities. Except as permitted by law or positions of the staff of the SEC, the
Investment Adviser will not co-invest its other clients’ assets in private transactions in which the Fund invests. To the
extent the Fund is precluded from co-investing, the Investment Adviser will allocate private investment opportunities among its
clients, including but not limited to the Fund and its other client accounts and funds, based on allocation policies that take
into account several suitability factors, including the size of the investment opportunity, the amount each client has available
for investment and the client’s investment objectives. These allocation policies may result in the allocation of investment
opportunities to another client account or fund managed or advised by the Investment Adviser rather than to the Fund.
The
management fees payable to the Investment Adviser are based on the value of the Fund’s Managed Assets, as periodically determined.
A portion of the Fund’s Managed Assets may be illiquid securities acquired in private transactions for which market quotations
will not be readily available. Although the Fund and the Investment Adviser as valuation designee have adopted valuation procedures
designed to determine valuations of illiquid securities in a manner that reflects their fair value, there typically is a range
of possible prices that may be established for each individual security. See “—Valuation Risk.”
Skadden,
Arps, Slate, Meagher & Flom LLP, counsel to the Fund, also represents the Investment Adviser. Such counsel does not purport
to represent the separate interests of the investors and has assumed no obligation to do so. Accordingly, the investors have not
had the benefit of independent counsel in the structuring of the Fund or determination of the relative interests, rights and obligations
of the Investment Adviser and the investors.
Reliance
on Service Providers
The
Fund relies upon service providers to perform certain functions, which may include functions that are integral to the operations
and financial performance of the Fund. Fees and expenses of these service providers are borne by the Fund, and therefore indirectly
by common shareholders. Failure by any service provider to carry out its obligations to the Fund in accordance with the terms
of its appointment, to exercise due care and skill, or to perform its obligations to the Fund at all as a result of insolvency,
bankruptcy or other causes could have a material adverse effect on the Fund’s performance and ability to achieve its investment
objective. The termination of the Fund’s relationship with any service provider, or any delay in appointing a replacement
for such service provider, could materially disrupt the business of that Fund and could have a material adverse effect on the
Fund’s performance and ability to achieve its investment objective.
Technology
Risk
As
the use of Internet technology has become more prevalent, the Fund and its service providers and markets generally have become
more susceptible to potential operational risks related to intentional and unintentional events that may cause the Fund or a service
provider to lose proprietary information, suffer data corruption or lose operational capacity. There can be no guarantee that
any risk management systems established by the Fund, its service providers, or issuers of the securities in which the Fund invests
to reduce technology and cyber security risks will succeed, and the Fund cannot control such systems put in place by service providers,
issuers or other third parties whose operations may affect the Fund.
Cyber
Security Risk
As
the use of technology has become more prevalent in the course of business, the Fund has become potentially more susceptible to operational
and informational security risks resulting from breaches in cyber security. A breach in cyber security refers to both intentional and
unintentional cyber events that may, among other things, cause the Fund to lose proprietary information, suffer data corruption and/or
destruction, lose operational capacity, result in the unauthorized release or other misuse of confidential information, or otherwise
disrupt normal business operations. In addition, cyber security breaches involving the Fund’s third-party service providers (including
but not limited to advisers, administrators, transfer agents, custodians, distributors and other third parties), trading counterparties
or issuers in which the Fund invests in can also subject the Fund to many of the same risks associated with direct cyber security breaches.
Like with operational risk in general, the Fund has established risk management systems and business continuity plans designed to reduce
the risks associated with cyber security. However, there are inherent limitations in these plans and systems, including that certain
risks may not have been identified, in large part because different or unknown threats may emerge in the future. As such, there is no
guarantee that such efforts will succeed, especially because the Fund does not directly control the cyber security systems of issuers
in which the Fund invests, trading counterparties or third-party service providers to the Fund. There is also a risk that cyber security
breaches may not be detected. The Fund and its shareholders could be negatively impacted as a result.
Tax
Risks
The
Fund has elected to be treated, and intends to continue to qualify to be treated, as a RIC under section 851 of the Code. In order
to continue to qualify as a RIC, the Fund must, among other things, satisfy income, asset diversification and distribution requirements.
As long as the Fund so qualifies, it will generally not be subject to U.S. federal income tax to the extent that it distributes
annually the Fund taxable income and gains. There can be no assurance that the Fund will qualify as a RIC for any given year.
Distributions
Risk
The
Fund’s net investment income can vary significantly over time; however, the Fund seeks to maintain a more stable monthly distribution
per share. The distributions paid by the Fund for any particular month may be more or less than the amount of net investment income for
that monthly period. The Fund may distribute more than the entire amount of the net investment income earned in a particular period,
in which case all or a portion of a distribution may be a return of capital. The Fund's distributions have historically included,
and may in the future include, a significant portion of return of capital. For the fiscal year ended November 30, 2022, the Fund's distributions
were comprised of approximately 28% ordinary income and 72% return of capital. Accordingly, shareholders should not assume that the source
of a distribution from the Fund is net income or profit, and the Fund's distributions should not be used as a measure of performance
or confused with yield or income.
Return
of capital is the return of a portion of the shareholder’s original investment up to the amount of the Common Shareholder’s
tax basis in their Common Shares, which would reduce such tax basis. Although a return of capital may not be taxable, it will generally
increase the Common Shareholder’s potential gain, or reduce the Common Shareholder’s potential loss, on any subsequent sale
or other disposition of Common Shares. In any given year, there can be no guarantee the Fund’s investment returns will exceed the
amount of distributions. To the extent the amount of distributions paid to shareholders in cash exceeds the total net investment returns
of the Fund, the assets of the Fund will decline, which may have the effect of increasing the Fund’s expense ratio. In addition,
in order to make such distributions, the Fund may have to sell a portion of its investment portfolio at a time when independent investment
judgment might not dictate such action. Shareholders should not assume that the source of a distribution from the Fund is net income
or profit, and the Fund’s distributions should not be used as a measure of performance or confused with yield or income.
Market
Discount from Net Asset Value
Shares
of closed-end investment companies frequently trade at a discount from their net asset value, which is a risk separate and distinct
from the risk that the Fund’s net asset value could decrease as a result of its investment activities. Although the value
of the Fund’s net assets is generally considered by market participants in determining whether to purchase or sell common
shares, whether investors will realize gains or losses upon the sale of common shares will depend entirely upon whether the market
price of common shares at the time of sale is above or below the investor’s purchase price for common shares. Because the
market price of common shares will be determined by factors such as net asset value, distribution and distribution levels (which
are dependent, in part, on expenses), supply of and demand for common shares, stability of distributions or distributions, trading
volume of common shares, general market and economic conditions and other factors beyond the control of the Fund, the Fund cannot
predict whether common shares will trade at, below or above net asset value or at, below or above the initial public offering
price. Common shares of the Fund are designed primarily for long-term investors; investors in common shares should not view their
Fund as a vehicle for trading purposes.
Recent
Market, Economic and Social Developments Risk
Periods
of market volatility remain, and may continue to occur in the future, in response to various political, social and economic events
both within and outside of the United States. These conditions have resulted in, and in many cases continue to result in, greater
price volatility, less liquidity, widening credit spreads and a lack of price transparency, with many securities remaining illiquid
and of uncertain value. Such market conditions may adversely affect the Fund, including by making valuation of some of the Fund’s
securities uncertain and/or result in sudden and significant valuation increases or declines in the Fund’s holdings. If
there is a significant decline in the value of the Fund’s portfolio, this may impact the asset coverage levels for the Fund’s
outstanding leverage.
Risks
resulting from any future debt or other economic crisis could also have a detrimental impact on the global economic recovery,
the financial condition of financial institutions and the Fund’s business, financial condition and results of operation.
Market and economic disruptions have affected, and may in the future affect, consumer confidence levels and spending, personal
bankruptcy rates, levels of incurrence and default on consumer debt and home prices, among other factors. To the extent uncertainty
regarding the U.S. or global economy negatively impacts consumer confidence and consumer credit factors, the Fund’s business,
financial condition and results of operations could be significantly and adversely affected. Downgrades to the credit ratings
of major banks could result in increased borrowing costs for such banks and negatively affect the broader economy. Moreover, Federal
Reserve policy, including with respect to certain interest rates, may also adversely affect the value, volatility and liquidity
of dividend- and interest-paying securities. Market volatility, rising interest rates and/or unfavorable economic conditions could
impair the Fund’s ability to achieve its investment objective.
The
occurrence of events similar to those in recent years, such as localized wars, instability, new and ongoing pandemics (such as
COVID-19), epidemics or outbreaks of infectious diseases in certain parts of the world, natural/environmental disasters, terrorist
attacks in the U.S. and around the world, social and political discord, debt crises sovereign debt downgrades, increasingly strained
relations between the U.S. and a number of foreign countries, new and continued political unrest in various countries, the exit
or potential exit of one or more countries from the EU or the EMU, continued changes in the balance of political power among and
within the branches of the U.S. government, government shutdowns, among others, may result in market volatility, may have long
term effects on the U.S. and worldwide financial markets, and may cause further economic uncertainties in the U.S. and worldwide.
In
particular, the consequences of the Russian military invasion of Ukraine, including comprehensive international sanctions, the
impact on inflation and increased disruption to supply chains and energy resources may impact our portfolio companies, result
in an economic downturn or recession either globally or locally in the U.S. or other economies, reduce business activity, spawn
additional conflicts (whether in the form of traditional military action, reignited “cold” wars or in the form of
virtual warfare such as cyberattacks) with similar and perhaps wider ranging impacts and consequences and have an adverse impact
on the Fund’s returns and net asset value. We have no way to predict the duration or outcome of the situation, as the conflict
and government reactions are rapidly developing and beyond our control. Prolonged unrest, military activities, or broad-based
sanctions could have a material adverse effect on our portfolio companies. Such consequences also may increase our funding cost
or limit our access to the capital markets.
The
current political climate has intensified concerns about a potential trade war between China and the U.S., as each country has
imposed tariffs on the other country’s products. These actions may trigger a significant reduction in international trade,
the oversupply of certain manufactured goods, substantial price reductions of goods and possible failure of individual companies
and/or large segments of China’s export industry, which could have a negative impact on our performance. U.S. companies
that source material and goods from China and those that make large amounts of sales in China would be particularly vulnerable
to an escalation of trade tensions. Uncertainty regarding the outcome of the trade tensions and the potential for a trade war
could cause the U.S. dollar to decline against safe haven currencies, such as the Japanese yen and the euro. Events such as these
and their consequences are difficult to predict and it is unclear whether further tariffs may be imposed or other escalating actions
may be taken in the future. Any of these effects could have a material adverse effect on the business, financial condition and
results of operations of the Fund.
Legislation
and Regulatory Risks
At
any time after the date of this Prospectus, legislation may be enacted that could negatively affect the companies in which the
Fund invests. Changing approaches to regulation may also have a negative impact on companies in which the Fund invests. In addition,
legislation or regulation may change the way in which the Fund is regulated. There can be no assurance that future legislation,
regulation or deregulation will not have a material adverse effect on the Fund or will not impair the ability of the Fund to achieve
its investment objective.
The
Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), which was signed into law in July
2010, has resulted in significant revisions to the U.S. financial regulatory framework. The Dodd-Frank Act covers a broad range
of topics, including, among many others: a reorganization of federal financial regulators; the creation of a process designed
to ensure financial system stability and the resolution of potentially insolvent financial firms; the enactment of new rules for
derivatives trading; the creation of a consumer financial protection watchdog; the registration and regulation of managers of
private funds; the regulation of rating agencies; and the enactment of new federal requirements for residential mortgage loans.
The regulation of various types of derivative instruments pursuant to the Dodd-Frank Act may adversely affect the Fund or its
counterparties.
The
SEC and its staff are also reportedly engaged in various initiatives and reviews that seek to improve and modernize the regulatory
structure governing investment companies. These efforts appear to be focused on risk identification and controls in various areas,
including embedded leverage through the use of derivatives and other trading practices, cybersecurity, liquidity, enhanced regulatory
and public reporting requirements and the evaluation of systemic risks. Any new rules, guidance or regulatory initiatives resulting
from these efforts could increase the Fund’s expenses and impact its returns to shareholders or, in the extreme case, impact
or limit the Fund’s use of various portfolio management strategies or techniques and adversely impact the Fund.
Changes
enacted by the current presidential administration could significantly impact the regulation of financial markets in the United
States. Areas subject to potential change, amendment or repeal include trade and foreign policy, corporate tax rates, energy and
infrastructure policies, the environment and sustainability, criminal and social justice initiatives, immigration, healthcare
and the oversight of certain federal financial regulatory agencies and the Federal Reserve. Certain of these changes can, and
have, been effectuated through executive order. For example, the current administration has taken steps to address the COVID-19
pandemic, rejoin the Paris climate accord of 2015, cancel the Keystone XL pipeline, change immigration enforcement priorities
and increase spending on clean energy and infrastructure. Other potential changes that could be pursued by the current presidential
administration could include an increase in the corporate income tax rate and changes to regulatory enforcement priorities. It
is not possible to predict which, if any, of these actions will be taken or, if taken, their effect on the economy, securities
markets or the financial stability of the United States. The Fund may be affected by governmental action in ways that are not
foreseeable, and there is a possibility that such actions could have a significant adverse effect on the Fund and its ability
to achieve its investment objective.
Although
the Fund cannot predict the impact, if any, of these changes to the Fund’s business, they could adversely affect the Fund’s
business, financial condition, operating results and cash flows. Until the Fund knows what policy changes are made and how those
changes impact the Fund’s business and the business of the Fund’s competitors over the long term, the Fund will not
know if, overall, the Fund will benefit from them or be negatively affected by them. The Investment Adviser intends to monitor
developments and seeks to manage the Fund’s portfolio in a manner consistent with achieving the Fund’s investment
objectives, but there can be no assurance that it will be successful in doing so.
LIBOR
Discontinuation Risk
In
July 2017, the head of the United Kingdom Financial Conduct Authority announced the desire to phase out the use of LIBOR by the
end of 2021. LIBOR can no longer be used to calculate new deals as of December 31, 2021. Since December 31, 2021, all sterling,
euro, Swiss franc and Japanese yen LIBOR settings and the 1-week and 2-month U.S. dollar LIBOR settings have ceased to be published
or are no longer representative, and since June 30, 2023, the overnight, 1-month, 3-month, 6-month and 12-month U.S. dollar LIBOR
settings ceased to be published or are no longer representative.
On
June 22, 2017, the Alternative Reference Rates Committee (the “ARRC”) convened by the Federal Reserve and the Federal
Reserve Bank of New York identified the Secured Overnight Financing Rate (“SOFR”) as the rate that, in the consensus
view of the ARRC, represented best practice for use in certain new U.S. dollar derivatives and other financial contracts. SOFR
is a broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury securities, and has been published
by the Federal Reserve Bank of New York since April 2018. The Federal Reserve Bank of New York has also been publishing historical
indicative Secured Overnight Financing Rates from 2014. Investors should not rely on any historical changes or trends in SOFR
as an indicator of future changes in SOFR.
The
composition and characteristics of SOFR are not the same as those of LIBOR, and SOFR is fundamentally different from LIBOR for
two key reasons. First, SOFR is a secured rate, while LIBOR is an unsecured rate. Second, SOFR is an overnight rate, while LIBOR
is a forward-looking rate that represents interbank funding over different maturities (e.g., three months). As a result,
there can be no assurance that SOFR will perform in the same way as LIBOR would have at any time, including, without limitation,
as a result of changes in interest and yield rates in the market, market volatility or global or regional economic, financial,
political, regulatory, judicial or other events. Additionally, there can be no guarantee that SOFR will gain market acceptance
as a replacement for U.S. dollar LIBOR. Any failure of SOFR to gain market acceptance could negatively affect financial markets
in general and present heightened risks, including with respect to the Fund’s investments. As a result of this uncertainty
and developments relating to the transition process, the Fund and its investments may be adversely affected.
Terrorism,
Market Disruption, and Catastrophe Risk
Terrorist
attacks, catastrophes, pandemics and other geopolitical events have led to, and may in the future lead to, increased short-term
market volatility and may have long-term effects on U.S. and world economies and markets. Global political and economic instability
could affect the operations of companies in which the Fund invests in unpredictable ways, including through disruptions of natural
resources supplies and markets and the resulting volatility in commodity prices. The operation of infrastructure assets in which
the Fund invests is subject to many hazards including damage to equipment and surrounding properties caused by hurricanes, tornadoes,
floods, fires and other natural disasters or by acts of terrorism; inadvertent damage from construction or other equipment; leaks;
and fires and explosions. The U.S. government has issued warnings that infrastructure assets may be future targets of terrorist
activities. In addition, changes in the insurance markets have made certain types of insurance more difficult, if not impossible,
to obtain and have generally resulted in increased premium costs.
Not
a Complete Investment Program
The
Fund is intended for investors seeking a high level of total return with an emphasis on current income. The Fund is not meant
to provide a vehicle for those who wish to exploit short-term swings in the stock market and is intended for long-term investors.
An investment in shares of the Fund should not be considered a complete investment program. Each shareholder should take into
account their Fund’s investment objective as well as the shareholder’s other investments when considering an investment
in the Fund.
Risks
Associated with Offerings of Additional Common Shares
The
voting power of current Common Shareholders will be diluted to the extent that current Common Shareholders do not purchase Common
Shares in any future offerings of Common Shares or do not purchase sufficient Common Shares to maintain their percentage interest.
If the Fund is unable to invest the proceeds of such offering as intended, the Fund’s per Common Share distribution may
decrease and the Fund may not participate in market advances to the same extent as if such proceeds were fully invested as planned.
If the Fund sells Common Shares at a price below net asset value per share pursuant to the consent of Common Shareholders, shareholders
will experience a dilution of the aggregate net asset value per Common Share because the sale price will be less than the Fund’s
then-current net asset value per Common Share. Similarly, were the expenses of the offering to exceed the amount by which the
sale price exceeded the Fund’s then current net asset value per Common Share, shareholders would experience a dilution of
the aggregate net asset value per Common Share. This dilution will be experienced by all shareholders, irrespective of whether
they purchase Common Shares in any such offering. See “Description of Shares—Common Shares—Issuance of Additional
Common Shares.”
Additional
Risks of Rights
There
are additional risks associated with an offering of Rights. Shareholders who do not exercise their Rights may, at the completion
of such an offering, own a smaller proportional interest in the Fund than if they exercised their Rights. As a result of such
an offering, a shareholder may experience dilution in net asset value per share if the subscription price per share is below the
net asset value per share on the expiration date. If the subscription price per share is below the net asset value per share of
the Fund’s Common Shares on the expiration date, a shareholder will experience an immediate dilution of the aggregate net
asset value of such shareholder’s Common Shares if the shareholder does not participate in such an offering and the shareholder
will experience a reduction in the net asset value per share of such shareholder’s Common Shares whether or not the shareholder
participates in such an offering. Such a reduction in net asset value per share may have the effect of reducing market price of
the Common Share. The Fund cannot state precisely the extent of this dilution (if any) if the shareholder does not exercise such
shareholder’s Rights because the Fund does not know what the net asset value per share will be when the offer expires or
what proportion of the Rights will be exercised. If the subscription price is substantially less than the then current net asset
value per Common Share at the expiration of a rights offering, such dilution could be substantial. Any such dilution or accretion
will depend upon whether (i) such shareholders participate in the Rights offering and (ii) the Fund’s net asset
value per Common Share is above or below the subscription price on the expiration date of the Rights offering. In addition to
the economic dilution described above, if a Common Shareholder does not exercise all of their rights, the Common Shareholder will
incur voting dilution as a result of this rights offering. This voting dilution will occur because the Common Shareholder will
own a smaller proportionate interest in the Fund after the rights offering than prior to the rights offering. There is a risk
that changes in market conditions may result in the underlying Common Shares purchasable upon exercise of the subscription rights
being less attractive to investors at the conclusion of the subscription period. This may reduce or eliminate the value of the
subscription rights. If investors exercise only a portion of the rights, the number of Common Shares issued may be reduced, and
the Common Shares may trade at less favorable prices than larger offerings for similar securities. Subscription rights issued
by the Fund may be transferable or non-transferable rights. In a non-transferable rights offering, Common
Shareholders who do not wish to exercise their rights will be unable to sell their rights. In a transferrable rights offering,
the Fund will use its best efforts to ensure an adequate trading market for the rights; however, investors may find that there
is no market to sell rights they do not wish to exercise.
Anti-Takeover Provisions in the Fund’s Agreement
and Declaration of Trust and By-Laws
The Fund’s Second
Amended and Restated Agreement and Declaration of Trust, as amended (the “Declaration of Trust”), and By-Laws include provisions
that could have the effect of limiting the ability of other entities or persons to acquire control of the Fund or to change the composition
of its Board of Trustees. For example, the Declaration of Trust limits the ability of persons to beneficially own (within the meaning
of Section 382 of the Code) more than 4.99% of the outstanding Common Shares of the Fund. This restriction was adopted in order to reduce
the risk of the Fund undergoing an “ownership change” within the meaning of Section 382 of the Code, which would limit the
Fund’s ability to use a capital loss carryforward and certain unrealized losses (if such tax attributes exist). See “Anti-Takeover
Provisions in the Declaration of Trust” and “Certain Provisions of Delaware Law, the Declaration of Trust and By-Laws.”
In addition, as a Delaware
statutory trust, the Fund is subject to the control share acquisition statute (the “Control Share Statute”) contained in
Subchapter III of the Delaware Statutory Trust Act (the “DSTA”), which became automatically applicable to listed closed-end
funds, such as the Fund, upon its effective date of August 1, 2022 (the “Effective Date”). The Control Share Statute provides
that an acquirer of shares above a series of voting power thresholds has no voting rights under the DSTA or the governing documents of
the Fund with respect to shares acquired in excess of that threshold (i.e., the “control shares”) unless approved by shareholders.
See “Certain Provisions of Delaware Law, the Declaration of Trust and By-Laws—Delaware Control Share Statute.”
The ownership restrictions
set forth in the Fund’s Declaration of Trust and the limitations of the Control Share Statute could have the effect of depriving
shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging a third party from seeking
to obtain control over the Fund and may reduce market demand for the Fund’s Common Shares, which could have the effect of increasing
the likelihood that the Fund’s Common Shares trade at a discount to net asset value and increasing the amount of any such discount.
MANAGEMENT
OF THE FUND
Trustees
and Officers
The
Board of Trustees of the Fund provides broad oversight over the operations and affairs of the Fund and protects the interests
of shareholders. The Board of Trustees has overall responsibility to manage and control the business affairs of the Fund, including
the complete and exclusive authority to establish policies regarding the management, conduct and operation of the Fund’s
business. The Fund’s officers, who are all officers or employees of the Investment Adviser or its affiliates, are responsible
for the day-to-day management and administration of the Fund’s operations. The names and ages of the Trustees and officers
of the Fund, the year each was first elected or appointed to office, their principal business occupations during the last five
years, the number of funds overseen by each Trustee and other directorships or trusteeships during the last five years are set
forth under “Management of the Fund” in the SAI.
Investment
Adviser
Subject
to the overall supervision of the Board of Trustees, the Fund is managed by Cushing® Asset Management, LP d/b/a
NXG Investment Management, whose principal business address is 600 N. Pearl Street, Suite 1205, Dallas, Texas 75201. The Investment
Adviser is a wholly-owned investment advisory subsidiary of Swank Capital. The Investment Adviser was founded in 2003 and serves
as investment adviser to registered and unregistered funds. As of June 30, 2023, the Investment Adviser managed approximately
$1.026 billion in assets.
The Investment Adviser acts
as the investment adviser to the Fund pursuant to an investment management agreement (the “Investment Management Agreement”).
Pursuant to the Investment Management Agreement, the Fund has agreed to pay the Investment Adviser a fee, payable at the end of each
calendar month, at an annual rate equal to 1.25% of the average weekly value of the Fund’s Managed Assets during such month (the
“Management Fee”) for the services and facilities provided by the Investment Adviser to the Fund. For purposes of the Management
Fee, “Managed Assets” means the total assets of the Fund, minus all accrued expenses incurred in the normal course of operations
other than liabilities or obligations attributable to investment leverage, including, without limitation, investment leverage obtained
through (i) indebtedness of any type (including, without limitation, borrowing through a credit facility or the issuance of debt securities),
(ii) the issuance of shares of preferred stock or other similar preference securities and/or (iii) the reinvestment of collateral received
for securities loaned in accordance with the Fund’s investment objective and policies.
Pursuant to a fee waiver
agreement by and between the Fund and the Investment Adviser, effective February 1, 2023, the Investment Adviser has contractually agreed to waive
a portion of the management fee in an amount equal to 0.25% of the Fund’s Managed Assets through May 31, 2024.
Because
the Management Fee is based upon a percentage of the Fund’s Managed Assets, the Management Fee will be higher if the Fund
employs leverage. Therefore, the Investment Adviser will have a financial incentive to use leverage, which may create a conflict
of interest between the Investment Adviser and the Fund’s Common Shareholders.
Pursuant
to the Investment Management Agreement, the Investment Adviser is responsible for managing the portfolio of the Fund in accordance
with its stated investment objective and policies, making investment decisions for the Fund, placing orders to purchase and sell
securities on behalf of the Fund and managing the other business and affairs of the Fund, all subject to the supervision and direction
of the Fund’s Board of Trustees. In addition, the Investment Adviser furnishes offices, necessary facilities and equipment
on behalf of the Fund; provides personnel, including certain officers required for the Fund’s administrative management;
and pays the compensation of all officers and Trustees of the Fund who are its affiliates.
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 Investment Adviser); the fees and expenses of the Fund’s administrator, the
custodian and transfer and distribution disbursing agent; legal fees; leverage expenses (if any); rating agency fees (if any);
listing fees and expenses; fees 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.
A
discussion regarding the basis for the approval of the Investment Management Agreement by the Board of Trustees is available in
the Fund’s semi-annual report to shareholders for the period ended May 31, 2023.
Portfolio
Management
John Musgrave, Chief Executive
Officer and President and Chief Investment Officer of the Investment Adviser, and Todd Sunderland, Chief Risk Officer and Chief Operating
Officer of the Investment Adviser are primarily responsible for the day-to-day management of the Fund’s portfolio.
Mr. Musgrave has been Chief
Executive Officer of the Investment Adviser since 2023, Co-Chief Investment Officer of the Investment Adviser since 2016 and a Portfolio
Manager of the Investment Adviser since 2007.
Mr.
Sunderland has been Chief Risk Officer and Chief Operating Officer of the Investment Adviser since December 1, 2022. Mr. Sunderland joined
the Investment Adviser in 2007.
The SAI provides additional
information about the portfolio manager’s compensation, other accounts managed by the portfolio managers and the portfolio managers’
ownership of securities of the Fund.
Fund
Expenses
The
Fund pays all costs and expenses of its operations (in addition to the Management Fee), including fund administration and fund accounting
fees, custodian fees, transfer agency fees, administration fees, legal fees, expenses of its independent registered public accounting
firm, expenses of pricing services or valuation agents, expenses of preparing, printing and distributing shareholder reports, notices,
proxy statements and reports to governmental agencies, listing fees and taxes, if any. Fund expenses are indirectly borne by common shareholders.
NET
ASSET VALUE
The
Fund will determine the net asset value of its Common Shares as of the close of regular session trading on the New York Stock
Exchange (normally 4:00 p.m. Eastern Time) on each day on which there is a regular trading session on the NYSE. The Fund calculates
net asset value per Common Share by subtracting liabilities (including accrued expenses or distributions) from the total assets
of the Fund (the value of the securities plus cash or other assets, including interest accrued but not yet received) and dividing
the result by the total number of outstanding Common Shares of the Fund.
The
Board of Trustees has designated the Investment Adviser as the “valuation designee” for the Fund pursuant to Rule
2a-5 under the 1940 Act. The valuation designee is responsible for making fair value determinations pursuant to valuation policies
and procedures adopted by the Investment Adviser and the Fund (the “Valuation Policy”). A committee of voting members
comprised of senior personnel of the Investment Adviser considers various pricing issues and establishes fair valuations of portfolio
securities and other instruments held by the Fund in accordance with the Valuation Policy (the “Valuation Committee”).
The Investment Adviser as valuation designee is subject to monitoring and oversight by the Board of Trustees. As a general principle,
the fair value of a portfolio instrument is the amount that an owner might reasonably expect to receive upon the instrument’s
current sale. A range of factors and analysis may be considered when determining fair value, including relevant market data, interest
rates, credit considerations and/or issuer specific news. The Valuation Committee may consult with and receive input from third
parties and will utilize a variety of market data including yields or prices of investments of comparable quality, type of issue,
coupon, maturity, rating, indications of value from security dealers, evaluations of anticipated cash flows or collateral, spread
over U.S. Treasury obligations, and other information and analysis. In addition, the Valuation Committee may consider valuations
provided by valuation firms retained to assist in the valuation of certain of the Fund’s investments. Fair valuation involves
subjective judgments. While the Fund’s use of fair valuation is intended to result in calculation of net asset value that
fairly reflects values of the Fund’s portfolio securities as of the time of pricing, the Fund cannot guarantee that any
fair valuation will, in fact, approximate the amount the Fund would actually realize upon the sale of the securities in question.
It is possible that the fair value determined for a portfolio instrument may be materially different from the value that could
be realized upon the sale of that instrument.
The
valuation designee uses the following valuation methods to determine fair value as either fair value for investments for which
market quotations are available, or if not available, the fair value, as determined in good faith pursuant to the Valuation Policy.
The valuation of the portfolio securities of the Fund currently includes the following processes:
| ● | The
market value of each security listed or traded on any recognized securities exchange
or automated quotation system will be the last reported sale price at the relevant valuation
date on the composite tape or on the principal exchange on which such security is traded
except those listed on the NASDAQ Global Market®, NASDAQ Global Select Market®
and the NASDAQ Capital Market® exchanges (collectively, “NASDAQ”). Securities
traded on NASDAQ will be valued at the NASDAQ Official Closing Price (“NOCP”).
If no sale is reported on that date, the security will be valued at the last reported
bid price. If the Valuation Committee (the “Committee”) determines that price
is not representative of the actual market price, the Committee may determine the fair
value of the security. |
| ● | Securities
not traded on a U.S. exchange or NASDAQ and foreign securities that are traded on foreign
exchanges whose operations are similar to the U.S. over-the-counter market will be valued
at prices supplied by a pricing service. If the Committee determines that price is not
representative of the actual market price, the Committee may determine the fair value
of the security. |
| ● | Debt
securities will be valued based on evaluated mean prices by an outside pricing service
that employs a pricing model that takes into account bids, yield spreads, and/or other
market data and specific security characteristics (e.g., credit quality, maturity and
coupon rate). If a price cannot be obtained from pricing services, quotes from market
makers or brokers may be used. When possible, more than one market maker or broker should
be utilized and the mean of bid and ask prices should be used. |
| ● | Private
Placements in Public Entities (“PIPES”) will be valued using the price of
the publicly traded common stock as a baseline, deducting the discount realized on the
original purchase and amortizing the difference over the restricted period. |
| ● | Listed
options on debt or equity securities are valued at the last sale price or, if there are
no trades for the day, the mean of the closing bid price and ask price. Unlisted options
on debt or equity securities are valued based upon their composite bid prices if held
long, or their composite ask prices if held short. Futures are valued at the settlement
price. Premiums for the sale of options written by an investment company registered under
the 1940 Act (a “Registered Fund”) will be included in the assets of such
Registered Fund, and the market value of such options will be included as a liability. |
| ● | For
valuation purposes, quotations of foreign portfolio securities, other assets and liabilities
and forward contracts stated in foreign currency are as of the close of regular trading
on the Exchange each day the Exchange is open for trading (or earlier as may be specified
by the Registered Fund) and translated into U.S. dollar equivalents at the current prevailing
market rates as quoted by a pricing service. |
| ● | Foreign
securities are valued using “fair value factors”. Fair value factors consider
daily trade activity and price changes for depositary receipts, exchange-traded funds,
index futures, foreign currency exchange activity, or other relevant market data. |
| ● | Over-the-counter
options on foreign securities and currencies are fair valued by obtaining the “last
available bid” from a single dealer that is either the writer or purchaser of the
option. |
| ● | Swaps
will be valued using market-based prices provided by pricing services or broker-dealer
bid counterparty quotations. |
| ● | Whenever
trading in a listed security held in a portfolio is temporarily suspended, halted or
delisted from an exchange, the security may be priced using the last closing price for
a period of up to 5 business days. The Committee will continue to monitor the security
during this period and, if there is a belief that the last closing price does not reflect
the fair value of such security, then the value of such security will be determined by
the Committee based on factors the Committee deems relevant. Whenever any such valuation
determination is made, the Committee will monitor the market and other sources of information
available to it in order to ascertain whether any change in circumstance would suggest
a change in the value so determined. |
DISTRIBUTIONS
The
Fund intends to pay substantially all of its net investment income to Common Shareholders through monthly distributions. In addition,
the Fund intends to distribute any net long-term capital gains to Common Shareholders at least annually. The Fund expects that
distributions paid on the Common Shares will consist primarily of (i) investment company taxable income, which includes, among
other things, ordinary income, net short-term capital gain and income from certain hedging and interest rate transactions, (ii)
net capital gain (which is the excess of net long-term capital gain over net short-term capital loss), and/or (iii) return of
capital.
The
Fund's net investment income can vary significantly over time; however, the Fund seeks to maintain a more stable monthly distribution
per share. The distributions paid by the Fund for any particular month may be more or less than the amount of net investment income for
that monthly period.
In
any given year, there can be no guarantee the Fund's investment returns will exceed the amount of distributions. The Fund may distribute
more than the entire amount of the net investment income earned in a particular period, in which case all or a portion of a distribution
may be a return of capital. Return of capital is the return of a portion of the shareholder’s original investment up to the amount
of the Common Shareholder’s tax basis in their Common Shares, which would reduce such tax basis. Although a return of capital may
not be taxable, it will generally increase the Common Shareholder’s potential gain, or reduce the Common Shareholder’s potential
loss, on any subsequent sale or other disposition of Common Shares. The Fund's distributions have historically included, and may in
the future include, a significant portion of return of capital. For the fiscal year ended November 30, 2022, the Fund's distributions
were comprised of approximately 28% ordinary income and 72% return of capital. Accordingly, shareholders should not assume that the source
of a distribution from the Fund is net income or profit, and the Fund's distributions should not be used as a measure of performance
or confused with yield or income.
Alternatively, the Fund
may also distribute less than its net investment income in a particular period. The undistributed net investment income may be available
to supplement future common share distributions. Undistributed net investment income is included in the Common Shares’ net asset
value, and, correspondingly, distributions from net investment income will reduce the Common Shares’ net asset value.
With
each distribution that does not consist solely of net investment income, the Fund will issue a notice to shareholders that will
provide estimated information regarding the amount and composition of the distribution. The amounts and sources of distributions
reported in each notice will be estimated, are likely to change over time and are not provided for tax reporting purposes. The
final determination of such amounts will be made and reported to shareholders after the end of the calendar year when the Fund
determines its earnings and profits for the year. The actual amounts and sources of the amounts for accounting and tax reporting
purposes will depend upon the Fund’s investment experience during its full fiscal year and may be subject to changes based
on tax regulations. The Fund will send each shareholder a Form 1099-DIV for the calendar year that will tell shareholders how
to report distributions for federal income tax purposes.
The
Fund reserves the right to change its distribution policy and the basis for establishing the rate of distributions at any time
and may do so without prior notice to Common Shareholders.
Payment
of future distributions is subject to approval by the Fund’s Board of Trustees, as well as meeting the covenants of any
outstanding Indebtedness or preferred shares and the asset coverage requirements of the 1940 Act.
DIVIDEND
REINVESTMENT PLAN
Unless
the registered owner of Common Shares elects to receive cash by contacting the Plan Agent, all distributions declared for your Common
Shares of the Fund (including capital gain distributions and return of capital distributions) will be automatically reinvested by U.S.
Bank Global Fund Services (the “Plan Agent”), agent for shareholders in administering the Fund’s dividend reinvestment
plan (the “Plan”), in additional Common Shares of the Fund. If a registered owner of Common Shares elects not to participate
in the Plan, you will receive all distributions in cash paid by check mailed directly to you (or, if the shares are held in street or
other nominee name, then to such nominee) by the Plan Agent, as distribution disbursing agent. You may elect not to participate in the
Plan and to receive all distributions in cash by sending written instructions or by contacting the Plan Agent, as distribution disbursing
agent, at the address set out below. Participation in the Plan is completely voluntary and may be terminated or resumed at any time without
penalty by contacting the Plan Agent before the distribution record date; otherwise such termination or resumption will be effective
with respect to any subsequently declared distribution. Some brokers may automatically elect to receive cash on your behalf and may reinvest
that cash in additional Common Shares of the Fund for you.
Whenever
the Fund declares a distribution payable in cash, non-participants in the Plan will receive cash and participants in the Plan
will receive the equivalent in Common Shares. The Common Shares will be acquired by the Plan Agent for the participants’
accounts, depending upon the circumstances described below, either (i) through receipt of additional unissued but authorized Common
Shares from the Fund (“newly-issued Common Shares”) or (ii) by purchase of outstanding Common Shares on the open market
(“open-market purchases”) on the New York Stock Exchange or elsewhere.
If,
on the payment date for any distribution, the market price per Common Share plus estimated brokerage commissions is greater than
the net asset value per Common Share (such condition being referred to in this Prospectus as “market premium”), the
Plan Agent will invest the distribution amount in newly-issued Common Shares, including fractions, on behalf of the participants.
The number of newly-issued Common Shares to be credited to each participant’s account will be determined by dividing the
dollar amount of the distribution by the net asset value per Common Share on the payment date; provided that, if the net asset
value per Common Share is less than 95% of the market price per Common Share on the payment date, the dollar amount of the distribution
will be divided by 95% of the market price per Common Share on the payment date.
If,
on the payment date for any distribution, the net asset value per Common Share is greater than the market value per Common Share
plus estimated brokerage commissions (such condition being referred to in this Prospectus as “market discount”), the
Plan Agent will invest the distribution amount in Common Shares acquired on behalf of the participants in open-market purchases.
In
the event of a market discount on the payment date for any distribution, the Plan Agent will have until the last business day
before the next date on which the Common Shares trade on an “ex-distribution” basis or 120 days after the payment
date for such distribution, whichever is sooner (the “last purchase date”), to invest the distribution amount in Common
Shares acquired in open-market purchases. The period during which open-market purchases can be made will exist only from the payment
date of each distribution through the date before the “ex-distribution” date of the following distribution. If, before
the Plan Agent has completed its open-market purchases, the market price of a Common Share exceeds the net asset value per Common
Share, the average per Common Share purchase price paid by the Plan Agent may exceed the net asset value of the Common Shares,
resulting in the acquisition of fewer Common Shares than if the distribution had been paid in newly-issued Common Shares on the
distribution payment date. Because of the foregoing difficulty with respect to open market purchases, if the Plan Agent is unable
to invest the full distribution amount in open market purchases during the purchase period or if the market discount shifts to
a market premium during the purchase period, the Plan Agent may cease making open-market purchases and may invest the uninvested
portion of the distribution amount in newly-issued Common Shares at the net asset value per Common Share at the close of business
on the last purchase date; provided that, if the net asset value per Common Share is less than 95% of the market price per Common
Share on the payment date, the dollar amount of the distribution will be divided by 95% of the market price per Common Share on
the payment date.
The
Plan Agent maintains all shareholders’ accounts in the Plan and furnishes written confirmation of all transactions in the
accounts, including information needed by shareholders for tax records. Common Shares in the account of each Plan participant
will be held by the Plan Agent on behalf of the Plan participant, and each shareholder proxy will include those shares purchased
or received pursuant to the Plan. The Plan Agent or its designee will forward all proxy solicitation materials to participants
and vote proxies for shares held under the Plan in accordance with the instructions of the participants.
In
the case of shareholders such as banks, brokers or nominees which hold shares for others who are the beneficial owners, the Plan
Agent will administer the Plan on the basis of the number of Common Shares certified from time to time by the record shareholder’s
name and held for the account of beneficial owners who participate in the Plan.
There
will be no brokerage charges with respect to Common Shares issued directly by the Fund. However, each participant will pay a pro
rata share of brokerage commissions incurred in connection with open-market purchases. The automatic reinvestment of distributions
will not relieve participants of any federal, state or local income tax that may be payable (or required to be withheld) on such
distributions. Accordingly, any taxable distribution received by a participant that is reinvested in additional Common Shares
will be subject to federal (and possibly state and local) income tax even though such participant will not receive a corresponding
amount of cash with which to pay such taxes. See “U.S. Federal Income Tax Considerations.”
In
addition, participants who request a sale of shares through the Plan Agent are subject to a $15.00 per transaction sales fee and pay
a brokerage commission of $0.12 per share sold.
To the extent that reinvested distributions are invested in newly-issued Common Shares
(which occurs when a market premium exists on the payment date for any distribution) the reinvestment of distributions will increase
the Managed Assets of the Fund, and thus the Management Fee paid to the Investment Adviser.
The
Fund reserves the right to amend or terminate the Plan. 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. The Fund will provide written
notice to participants at least 60 days in advance of implementing any such amendment.
For
more information about the Plan you may contact the Plan Agent in writing at PO Box 708, Milwaukee, Wisconsin 53201-0701, or by
calling the Plan Agent.
DESCRIPTION
OF SHARES
The
following is a brief description of the terms of the securities which may be issued by the Fund. This description does not purport
to be complete and is qualified by reference to the Fund’s governing documents. The Fund is a statutory trust organized
under the laws of Delaware pursuant to a Certificate of Trust dated May 23, 2007, as filed with the State of Delaware on May 23,
2007 and as amended through the date hereof.
Common
Shares
The
Fund is authorized to issue an unlimited number of Common Shares of beneficial interest, par value $0.001 per share. Each Common Share
has one vote. Pursuant to the Declaration of Trust, when issued and paid for in accordance with the terms of this offering, will be fully
paid and non-assessable. The Declaration of Trust provides that the Board of Trustees will have the power to cause shareholders to pay
expenses of the Fund by setting off charges due from shareholders from declared but unpaid distributions owed the shareholders and/or
by reducing the number of Common Shares owned by each respective shareholder. No expenses have been paid or are being paid pursuant to
such provision, and the Board of Trustees has no intention to cause expenses to be paid pursuant to such provision, which in any event
may only be utilized to the extent permitted by the 1940 Act.
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. All Common Shares are equal as to distributions, assets and voting privileges and
have no conversion, preemptive or other subscription rights. The Fund will furnish annual and semi-annual reports, including financial
statements, to all holders of its shares.
Unlike
open-end funds, closed-end funds like the Fund do not continuously offer shares and do not provide daily redemptions. Rather,
if a shareholder determines to buy additional Common Shares or sell shares already held, the shareholder may do so by trading
through a broker on the NYSE or otherwise. Shares of closed-end funds frequently trade on an exchange at prices lower than net
asset value. Because the market value of the Common Shares may be influenced by such factors as distribution levels (which are
in turn affected by expenses), distribution stability, net asset value, 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 net asset value in the future. The Common Shares are designed primarily for
long-term investors, and you should not purchase the Common Shares if you intend to sell them soon after purchase.
Issuance
of Additional Common Shares. The provisions of the 1940 Act generally require that the public offering price (less underwriting
commissions and discounts) of common shares sold by a closed-end investment company must equal or exceed the net asset value of
such company’s common shares (calculated within 48 hours of the pricing of such offering), unless such sale is made with
the consent of a majority of its common shareholders. The Fund may, from time to time, seek the consent of Common Shareholders
to permit the issuance and sale by the Fund of Common Shares at a price below the Fund’s then-current net asset value, subject
to certain conditions. If such consent is obtained, the Fund may, contemporaneous with and in no event more than one year following
the receipt of such consent, sell Common Shares at price below net asset value in accordance with any conditions adopted in connection
with the giving of such consent. Additional information regarding any consent of Common Shareholders obtained by the Fund and
the applicable conditions imposed on the issuance and sale by the Fund of Common Shares at a price below net asset value will
be disclosed in the Prospectus Supplement relating to any such offering of Common Shares at a price below net asset value. Until
such consent of Common Shareholders, if any, is obtained, the Fund may not sell Common Shares at a price below net asset value.
Because the Fund’s advisory fee is based upon average Managed Assets, the Investment Adviser’s interest in recommending
the issuance and sale of Common Shares at a price below net asset value may conflict with the interests of the Fund and its Common
Shareholders.
The
Fund will not sell Common Shares at a price below its net asset value per Common Share (including with shareholder approval or
pursuant to rights to purchase Common Shares) under this Prospectus or an accompanying prospectus supplement without first filing
a new post-effective amendment to the registration statement if the cumulative dilution to the Fund’s net asset value per
share from offerings under the registration statement exceeds 15%.
Subscription
Rights to Purchase Common Shares
The
Fund may issue subscription rights to holders of Common Shares to purchase Common Shares. Subscription rights may be issued independently
or together with any other offered security and may or may not be transferable by the person purchasing or receiving the subscription
rights. In connection with a subscription rights offering to holders of Common Shares, the Fund would distribute certificates
evidencing the subscription rights and a Prospectus Supplement to our common or preferred shareholders as of the record date that
we set for determining the shareholders eligible to receive subscription rights in such subscription rights offering. For complete
terms of the subscription rights, please refer to the actual terms of such subscription rights which will be set forth in the
subscription rights agreement and/or subscription certificate relating to such subscription rights. The Fund may only conduct
a subscription rights offering to the extent that the Board of Trustees makes a good faith determination that the offering would
result in a net benefit to existing shareholders.
The
applicable Prospectus Supplement would describe the following terms of subscription rights in respect of which this Prospectus
is being delivered:
| ● | the
period of time the offering would remain open (which will be open a minimum number of
days such that all record holders would be eligible to participate in the offering and
will not be open longer than 120 days); |
| ● | the
exercise price for such subscription rights (or method of calculation thereof); |
| ● | the
number of such subscription rights issued in respect of each Common Share; |
| ● | the
extent to which such subscription rights are transferable and the market on which they
may be traded if they are transferable; |
| ● | if
applicable, a discussion of the material U.S. federal income tax considerations applicable
to the issuance or exercise of such subscription rights; |
| ● | the
date on which the right to exercise such subscription rights will commence, and the date
on which such right will expire (subject to any extension); |
| ● | the
extent to which such subscription rights include an over-subscription privilege with
respect to |
unsubscribed
securities and the terms of such over-subscription privilege;
| ● | any
termination right the Fund may have in connection with such subscription rights offering; |
| ● | the
expected trading market, if any, for rights; and |
| ● | any
other terms of such subscription rights, including exercise, settlement and other procedures
and limitations relating to the transfer and exercise of such subscription rights. |
Exercise
of Subscription Rights. Each subscription right would entitle the holder of the subscription right to purchase for cash such
number of shares at such exercise price as in each case is set forth in, or be determinable as set forth in the Prospectus Supplement
relating to the subscription rights offered thereby. Subscription rights would be exercisable at any time up to the close of business
on the expiration date for such subscription rights set forth in the Prospectus Supplement. After the close of business on the
expiration date, all unexercised subscription rights would become void.
Upon
expiration of the rights offering and the receipt of payment and the subscription rights certificate properly completed and duly
executed at the corporate trust office of the subscription rights agent or any other office indicated in the Prospectus Supplement,
the Fund would issue, as soon as practicable, the Common Shares purchased as a result of such exercise. To the extent permissible
under applicable law, the Fund may determine to offer any unsubscribed offered securities directly to persons other than shareholders,
to or through agents, underwriters or dealers or through a combination of such methods, as set forth in the applicable Prospectus
Supplement
Transferable
Rights Offering. Subscription rights issued by the Fund may be transferrable. The terms of a transferrable rights offering will fully
protect shareholders’ preemptive rights, if any, and will not discriminate among shareholders (except for the possible de minimis
effect of not issuing fractional rights). The distribution to Common Shareholders of transferable rights, which may themselves have intrinsic
value, also will afford non-participating Common Shareholders the potential of receiving cash payment upon the sale of the rights, receipt
of which may be viewed as partial compensation for any dilution of their interests that may occur as a result of the rights offering.
In a transferrable rights offering, Fund management will use its best efforts to ensure an adequate trading market in the rights for
use by shareholders who do not exercise such rights. However, there can be no assurance that a market for transferable rights will develop
or, if such a market does develop, what the price of the transferable rights will be. In a transferrable rights offering, the subscription
ratio will not be less than 1-for-3, that is the holders of Common Shares of record on the record date of the rights offering will receive
one right for each outstanding Common Share owned on the record date and the rights will entitle their holders to purchase one new Common
Share for every three rights held (provided that any Common Shareholder who owns fewer than three Common Shares as of the record date
may subscribe for one full Common Share). Assuming the exercise of all rights, such a rights offering would result in an approximately
331⁄3% increase in the Fund’s Common Shares outstanding.
Preferred
Shares
The
Declaration of Trust provides that the 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 holders of the Common Shares. Holders of Common Shares have
no preemptive right to purchase any preferred shares that might be issued pursuant to such provision. Whenever preferred shares are outstanding,
the holders of Common Shares will not be entitled to receive any distributions from the Fund unless all accrued distributions on preferred
shares have been paid, unless asset coverage (as defined in the 1940 Act) with respect to preferred shares would be at least 200% after
giving effect to the distributions and unless certain other requirements imposed by any rating agencies rating the preferred shares have
been met. 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 below, subject to applicable law and the Declaration of Trust. The Board of Trustees, without
the approval of the holders of Common Shares, 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. As of the date of this Prospectus, the Fund has not issued any
preferred shares and has no current expectation to issue preferred shares in the next 12 months.
Distributions.
Holders of preferred shares will be entitled to receive cash distributions, when, as and if authorized by the Board of Trustees
and declared by the Fund, out of funds legally available therefor. The Prospectus Supplement for any offering of preferred shares
will describe the distributions payment provisions for those shares. Distributions so declared and payable shall be paid to the
extent permitted under Delaware law and to the extent available and in preference to and priority over any distribution declared
and payable on the Common Shares.
Limitations
on Distributions. So long as the Fund has Indebtedness outstanding, holders of preferred shares will not be entitled to receive
any distributions unless asset coverage (as defined in the 1940 Act) with respect to outstanding Indebtedness would be at least
300% after giving effect to such distributions.
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 distributions, whether or not declared, before any distribution of
assets is made to holders of Common Shares. After payment of the full amount of the liquidating distribution to which they are
entitled, the holders of preferred shares will not be entitled to any further participation in any distribution of assets by the
Fund.
Voting
Rights. The 1940 Act requires that the holders of any preferred shares, voting separately as a single class, have the right
to elect at least two 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 two years of distributions 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 sub-classification as a closed-end fund or changes in its fundamental investment
restrictions. As a result of these voting rights, the Fund’s ability to take any such actions may be impeded to the extent
that there are any preferred shares outstanding.
Debt
Securities
The
Board of Trustees (subject to applicable law and the Declaration of Trust) may authorize an offering, without the approval of the holders
of either Common Shares or preferred shares, of other classes of shares, or other classes or series of shares, as they determine to be
necessary, desirable or appropriate, having such terms, rights, preferences, privileges, limitations and restrictions as the Board of
Trustees deems appropriate. The Fund currently does not expect to issue any other classes of shares, or series of shares, except for
the Common Shares.
Under
Delaware law and the Declaration of Trust, the Board of Trustees may cause the Fund to borrow money, without prior approval of holders
of common and preferred stock to the extent permitted by the Fund’s investment restrictions and the 1940 Act. The Fund may issue
debt securities or other evidence of Indebtedness (including bank borrowings or commercial paper) and may secure any such notes or borrowings
by mortgaging, pledging or otherwise subjecting as security Fund assets to the extent permitted by the 1940 Act or rating agency guidelines.
Any borrowings will rank senior to the preferred shares and the Common Shares. Under the 1940 Act, the Fund may only issue one class
of senior securities representing Indebtedness.
Limitations.
Under the requirements of the 1940 Act the Fund, immediately after any issuance of debt securities, must have “asset coverage”
of at least 300% (i.e., for every dollar of Indebtedness outstanding, the Fund is required to have at least three dollars
of assets). The issuance of debt securities also may result in the Fund being subject to covenants that may be more stringent
than the restrictions imposed by the 1940 Act.
Voting
Rights. Debt securities are not expected to have any voting rights, except to the extent required by law or as otherwise provided
in any documents governing the debt securities. The 1940 Act does, in certain circumstances, grant to the lenders certain voting
rights in the event of default in the payment of interest on or repayment of principal.
Capitalization
The
following information regarding the Fund’s authorized shares is as of May 31, 2023:
Title
of Class |
Amount
Authorized |
Amount
Held
by Fund
for its
own Account |
Amount
Outstanding
Exclusive of
Amounts held
by Fund |
Common
Shares of Beneficial Interest |
Unlimited |
None |
2,183,391 |
ANTI-TAKEOVER
PROVISIONS IN THE DECLARATION OF TRUST
The
Declaration of Trust includes provisions that could have the effect of limiting the ability of other entities or persons to acquire control
of the Fund or to change the composition of its Board of Trustees. This could have the effect of depriving shareholders of an opportunity
to sell their shares at a premium over prevailing market prices by discouraging a third party from seeking to obtain control over the
Fund. Such attempts could have the effect of increasing the expenses of the Fund and disrupting the normal operation of the Fund. In
addition, these ownership restrictions may reduce market demand for the Fund’s Common Shares, which could have the effect of increasing
the likelihood that the Fund’s Common Shares trade at a discount to net asset value and increasing the amount of any such discount.
The
Board of Trustees is divided into two classes, with the terms of one class expiring at each annual meeting of shareholders. At
each annual meeting, one class of Trustees is elected to a two-year term. This provision could delay for up to two years the replacement
of a majority of the Board of Trustees. A Trustee may be removed from office (with or without cause) by the action of a majority
of the remaining Trustees followed by a vote of the holders of at least 75% of the shares then entitled to vote for the election
of the respective Trustee.
In
addition, the Agreement and Declaration of Trust requires the favorable vote of a majority of the Fund’s Board of Trustees followed
by the favorable vote of the holders of at least 75% of the outstanding shares of each affected class or series of the Fund, voting separately
as a class or series, to approve, adopt or authorize certain transactions with 5% or greater holders of a class or series of shares and
their associates, unless the transaction has been approved by at least 75% of the Trustees, in which case “a majority of the outstanding
voting securities” (as defined in the 1940 Act) of the Fund will be required. For purposes of these provisions, a 5% or greater
holder of a class or series of shares (a “Principal Shareholder”) refers to any person who, whether directly or indirectly
and whether alone or together with its affiliates and associates, beneficially owns 5% or more of the outstanding shares of all outstanding
classes or series of shares of beneficial interest of the Fund.
The
5% holder transactions subject to these special approval requirements are: the merger or consolidation of the Fund or any subsidiary
of the Fund with or into any Principal Shareholder; the issuance of any securities of the Fund to any Principal Shareholder for
cash, except pursuant to any automatic dividend reinvestment plan; the sale, lease or exchange of any 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; or
the sale, lease or exchange to the Fund or any subsidiary of the Fund, in exchange for securities of the Fund, of any assets of
any Principal Shareholder, except assets having an aggregate fair market value of less than $1,000,000, aggregating for purposes
of such computation all assets sold, leased or exchanged in any series of similar transactions within a twelve-month period.
The
Declaration of Trust limits the ability of persons to beneficially own (within the meaning of Section 382 of the Code) more than 4.99%
of the outstanding Common Shares of the Fund and could have an anti-takeover effect on the Fund, which could decrease the Fund’s
market price in certain circumstances or limit the ability of certain shareholders to influence the management of the Fund. This restriction
was adopted in order to reduce the risk of the Fund undergoing an “ownership change” within the meaning of Section 382 of
the Code, which would limit the Fund’s ability to use a capital loss carryforward and certain unrealized losses (if such tax attributes
exist). These ownership restrictions could have the effect of depriving shareholders of an opportunity to sell their shares at a premium
over prevailing market prices by discouraging a third party from seeking to obtain control over the Fund. Such attempts could have the
effect of increasing the expenses of the Fund and disrupting the normal operation of the Fund. In addition, these ownership restrictions
may reduce market demand for the Fund’s Common Shares, which could have the effect of increasing the likelihood that the Fund’s
Common Shares trade at a discount to net asset value and increasing the amount of any such discount.
To
convert the Fund to an open-end investment company, the Declaration of Trust requires the favorable vote of a majority of the board of
the Trustees followed by the favorable vote of the holders of at least 75% of the outstanding shares of each affected class or series
of shares of the Fund, voting separately as a class or series, unless such amendment has been approved by 75% of the Trustees, in which
case “a majority of the outstanding voting securities” (as defined in the 1940 Act) of the Fund will be required. The foregoing
vote would satisfy a separate requirement in the 1940 Act that any conversion of the Fund to an open-end investment company be approved
by the shareholders.
For
the purposes of calculating “a majority of the outstanding voting securities” under the Declaration of Trust, each class
and series of the Fund will vote together as a single class, except to the extent required by the 1940 Act or the Declaration of Trust,
with respect to any class or series of shares. If a separate class vote is required, the applicable proportion of shares of the class
or series, voting as a separate class or series, also will be required.
The
Declaration of Trust also provides that the Fund may be dissolved and terminated upon the approval of 75% of the Trustees by written
notice to the shareholders.
The
Board of Trustees has determined that provisions with respect to the Board of Trustees and the shareholder voting requirements described
above, which voting requirements are greater than the minimum requirements under Delaware law or the 1940 Act, are in the best interest
of shareholders generally. Reference should be made to the Declaration of Trust, on file with the SEC for the full text of these provisions.
In addition, as a Delaware
statutory trust, the Fund is subject to the Control Share Statute contained in Subchapter III of the DSTA, which became automatically
applicable to listed closed-end funds, such as the Fund, upon its Effective Date of August 1, 2022. The Control Share Statute provides
that an acquirer of shares above a series of voting power thresholds has no voting rights under the DSTA or the governing documents of
the Fund with respect to shares acquired in excess of that threshold (i.e., the “control shares”) unless approved by shareholders.
See “Certain Provisions of Delaware Law, the Declaration of Trust and By-Laws—Delaware Control Share Statute.”
CERTAIN
PROVISIONS OF DELAWARE LAW, THE DECLARATION OF TRUST
AND BY-LAWS
Classified
Board of Trustees
The
Board of Trustees is divided into two classes of trustees serving staggered two-year terms. Upon expiration of their current terms, Trustees
of each class will be elected to serve for two-year terms and until their successors are duly elected and qualified or the Fund terminates,
and each year one class of Trustees will be elected by the shareholders. A classified board may render a change in control of the Fund
or removal of the Fund’s incumbent management more difficult. The Fund believes, however, that the longer time required to elect
a majority of a classified Board of Trustees will help to ensure the continuity and stability of its management and policies.
Election
of Trustees
The
Declaration of Trust provides that the affirmative vote of the holders of a plurality of the outstanding shares entitled to vote in the
election of Trustees will be required to elect a Trustee.
Number
of Trustees; Vacancies; Removal
The
Declaration of Trust provides that the number of Trustees will be set by the Board of Trustees. The Declaration of Trust provides that
a majority of the Fund’s Trustees then in office may at any time increase or decrease the number of Trustees provided there will
be at least one Trustee. As soon as any such Trustee has accepted his appointment in writing, the trust estate will vest in the new Trustee,
together with the continuing Trustees, without any further act or conveyance, and he will be deemed a Trustee thereunder. The Trustees’
power of appointment is subject to Section 16(a) of the 1940 Act. Whenever a vacancy in the number of Trustees will occur, until such
vacancy is filled as provided, the Trustees in office, regardless of their number, will have all the powers granted to the Trustees and
will discharge all the duties imposed upon the Trustees by the Declaration of Trust.
Action
by Shareholders
Shareholder
action can be taken only at an annual or special meeting of shareholders or by written consent in lieu of a meeting.
Advance
Notice Provisions for Shareholder Nominations and Shareholder Proposals
The
Fund’s By-Laws provide that with respect to an annual meeting of shareholders, nominations of persons for election to the
Board of Trustees and the proposal of business to be considered by shareholders may be made only (1) pursuant to the Fund’s
notice of the meeting, (2) by the Board of Trustees or (3) by a shareholder of record both at the time of giving of notice and
at the time of the annual meeting who is entitled to vote at the meeting and who has complied with the advance notice procedures
of the By-Laws. With respect to special meetings of shareholders, only the business specified in the Fund’s notice of the
meeting may be brought before the meeting. Nominations of persons for election to the Board of Trustees at a special meeting may
be made only (1) pursuant to the Fund’s notice of the meeting, (2) by the Board of Trustees or (3) provided that the Board
of Trustees has determined that Trustees will be elected at the meeting, by a shareholder of record both at the time of giving
of notice and at the time of the annual meeting who is entitled to vote at the meeting and who has complied with the advance notice
provisions of the By-Laws.
Calling
of Special Meetings of Shareholders
The
Fund’s By-Laws provide that special meetings of shareholders may be called at any time by the Chairman, the President or
the Trustees of the Fund. By following certain procedures, a special meeting of shareholders will also be called by the Secretary
of the Fund upon the written request of the Common Shareholders entitled to cast not less than a majority of all the votes entitled
to be cast at such meeting.
Additional Provisions of the Declaration of Trust
The Declaration of Trust provides that there shall
not be applicable to the Fund, the Fund's trustees or the Declaration of Trust the establishment of fiduciary or other standards of responsibilities
or limitations on the acts or powers of trustees, which are inconsistent with the limitations or liabilities or authorities and powers
of the Trustees set out or referenced in the Declaration of Trust. Notwithstanding the foregoing, no provision of the Declaration of
Trust shall limit, waive or modify the duties of the Fund's trustees, officers, members of any advisory board, investment adviser or
depositor arising under the federal securities laws.
Under the Declaration of Trust and By-Laws, and
under Delaware law, the Trustees, officers, employees and certain agents of the Fund are entitled to indemnification under certain circumstances
against liabilities, claims and expenses arising from any threatened, pending or completed action, suit or proceeding to which they are
made parties by reason of the fact that they are or were such Trustees, officers, employees or agents of the Fund, subject to the limitations
of the 1940 Act that prohibit indemnification that would protect such persons against liabilities to the Fund or its shareholders to
which they would otherwise be subject by reason of their own bad faith, willful misfeasance, gross negligence or reckless disregard of
duties.
Pursuant to the Declaration
of Trust, in order to bring a derivative action on behalf of the Trust a shareholder or shareholders must make a pre-suit demand upon
the Trustees to bring the subject action unless an effort to cause the Trustees to bring such an action is not likely to succeed. A demand
shall only be deemed not likely to succeed and therefore excused if a majority of the Board of Trustees, or a majority of any committee
established to consider the merits of such action, is composed of Trustees who are not “independent trustees” (as that term
is defined in the DSTA). Unless a demand is not required pursuant to the foregoing, shareholders eligible to bring such derivative action
who hold at least 10% of the outstanding shares of the Fund must join in the request for the Board Trustees to commence such action and
the Board of Trustees must be afforded a reasonable amount of time to consider such shareholder request and to investigate the basis
of such claim. The Trustees shall be entitled to retain counsel or other advisers in considering the merits of the request and shall
require an undertaking by the shareholders making such request to reimburse the Trust for the expense of any such advisers in the event
that the Trustees determine not to bring such action. The Fund is aware that it is the view of the Staff of the SEC that such limitations
do not apply to claims under the federal securities laws.
Delaware Control Share Statute
Because the Fund is organized
as a Delaware statutory trust it is subject to the Control Share Statute contained in Subchapter III of the DSTA, which became automatically
applicable to listed closed-end funds, such as the Fund, upon its Effective Date of August 1, 2022.
The Control Share Statute provides for a series
of voting power thresholds above which shares are considered control shares. These thresholds are:
| · | 10% or more, but less
than 15% of all voting power; |
| · | 15% or more, but less
than 20% of all voting power; |
| · | 20% or more, but less
than 25% of all voting power; |
| · | 25% or more, but less
than 30% of all voting power; |
| · | 30% or more, but less
than a majority of all voting power; or |
| · | a majority or more
of all voting power. |
Voting power is defined by the Control Share Statute
as the power to directly or indirectly exercise or direct the exercise of the voting power of Fund shares in the election of Trustees.
Whether a voting power threshold is met is determined by aggregating the holdings of the acquirer as well as those of its "associates,"
as defined by the Control Share Statute.
Once a threshold is reached, an acquirer has no
voting rights under the DSTA or the governing documents of the Fund with respect to shares acquired in excess of that threshold (i.e.,
the "control shares") unless approved by shareholders. Approval by shareholders requires the affirmative vote of two-thirds of
all votes entitled to be cast on the matter, excluding shares held by the acquirer and its associates as well as shares held by certain
insiders of a Fund. The Control Share Statute provides procedures for an acquirer to request a shareholder meeting for the purpose of
considering whether voting rights shall be accorded to control shares. Further approval by a Fund's shareholders would be required with
respect to additional acquisitions of control shares above the next applicable threshold level.
The Control Share Statute effectively allows non-interested
shareholders to evaluate the intentions and plans of an acquiring person above each threshold level.
Alternatively, the Board of Trustees is permitted,
but not obligated, to exempt specific acquisitions or classes of acquisitions of control shares, either in advance or retroactively.
As of the date hereof, the Board of Trustees has considered the Control Share Statute and has not exempted, and has no present intention
to exempt, any acquisition or class of acquisitions.
The Fund should not be viewed
as a vehicle for trading purposes. It is designed primarily for risk-tolerant long-term investors. If the Board of Trustees receive a
request to exempt any acquisition, it will consider whether such an exemption would be in the best interest of the Fund and its shareholders.
The Control Share Statute does not retroactively
apply to acquisitions of shares that occurred prior to the Effective Date. However, such shares will be aggregated with any shares acquired
after the Effective Date for purposes of determining whether a voting power threshold is exceeded, resulting in the newly acquired shares
constituting control shares.
The Control Share Statute requires shareholders
to disclose to the Fund any control share acquisition within 10 days of such acquisition and, upon request, to provide any information
that the Board of Trustees reasonably believes is necessary or desirable to determine whether a control share acquisition has occurred.
Some uncertainty around the
general application under the 1940 Act of state control share statutes exists as a result of recent federal and state court decisions
that have found that certain control share by-laws adopted by Massachusetts business trusts violated the 1940 Act. Additionally, in some
circumstances uncertainty may also exist in how to enforce the control share restrictions contained in state control share statutes against
beneficial owners who hold their shares through financial intermediaries. The Board has considered the Control Share Statute and the
uncertainty around the general application under the 1940 Act of state control share statutes and enforcement of statute control share
statutes. The Board intends to continue to monitor developments relating to the Control Share Statute and state control share statutes
generally.
The foregoing is only a summary of certain aspects
of the Control Share Statute. Shareholders should consult their own legal counsel to determine the application of the Control Share Statute
with respect to their shares of the Fund and any subsequent acquisitions of shares.
CLOSED-END
FUND STRUCTURE
Closed-end
funds differ from open-end management investment companies (commonly referred to as “mutual funds”). 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.
In contrast, mutual funds issue securities redeemable at net asset value at the option of the shareholder and typically engage
in a continuous offering of their shares. Although mutual funds are subject to continuous asset in-flows and out-flows that can
complicate portfolio management, closed-end funds generally can stay more fully invested in securities consistent with the closed-end
fund’s investment objective and policies. Accordingly, closed-end funds have greater flexibility than open-end funds 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 discounts to their net asset value, but in
some cases trade at a premium. The market price may be affected by net asset value, distribution levels (which are dependent,
in part, on expenses), supply of and demand for the shares, stability of distributions, trading volume of the shares, general
market and economic conditions and other factors beyond the control of the closed-end fund. The foregoing factors may result in
the market price of the Fund’s Common Shares being greater than, less than or equal to net asset value. The Board of Trustees
has reviewed the Fund’s structure in light of its investment objective and policies and has determined that the closed-end
structure is in the best interests of the Fund’s shareholders. However, the Board of Trustees may periodically review the
trading range and activity of the Fund’s shares with respect to their net asset value and 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 Fund’s
Common Shares at net asset value or the Fund’s possible conversion to an open-end mutual fund. There can be no assurance
that the Board of Trustees will decide to undertake any of these actions or that, if undertaken, such actions would result in
the Fund’s Common Shares trading at a price equal to or close to net asset value per share of its Common Shares.
To
convert the Fund to an open-end investment company, the Declaration of Trust requires the favorable vote of a majority of the board of
the Trustees followed by the favorable vote of the holders of at least 75% of the outstanding shares of each affected class or series
of shares of the Fund, voting separately as a class or series, unless such amendment has been approved by 75% of the Trustees, in which
case “a majority of the outstanding voting securities” (as defined in the 1940 Act) of the Fund will be required. The foregoing
vote would satisfy a separate requirement in the 1940 Act that any conversion of the Fund to an open-end investment company be approved
by the shareholders. Following any such conversion, it is possible that certain of the Fund’s investment policies and strategies
would have to be modified to assure sufficient portfolio liquidity. In the event of conversion, the Fund would be required to redeem
any preferred shares then outstanding (requiring in turn that it liquidate a portion of its investment portfolio) and the Common Shares
would cease to be listed on the New York Stock Exchange or other national securities exchanges or market systems. Shareholders of an
open-end investment company may require the investment company to redeem their shares at any time (except in certain circumstances as
authorized by or permitted under the 1940 Act) at their net asset value, less such redemption charge, if any, as might be in effect at
the time of redemption. In order to avoid maintaining large cash positions or liquidating favorable investments to meet redemptions,
open-end investment companies typically engage in a continuous offering of their shares. Open-end investment companies are thus subject
to periodic asset in-flows and out-flows that can complicate portfolio management. The Fund’s Board of Trustees may at any time
propose the Fund’s conversion to open-end status, depending upon its judgment regarding the advisability of such action in light
of circumstances then prevailing. However, based on the determination of the Board of Trustees in connection with this initial offering
of the Fund’s Common Shares that the closed-end structure is desirable in light of the Fund’s investment objective and policies,
it is highly unlikely that the Board of Trustees would vote to convert the Fund to an open-end investment company.
REPURCHASE
OF COMMON SHARES
In
recognition of the possibility that the Fund’s Common Shares might trade at a discount to net asset value and that any such
discount may not be in the interest of the Fund’s Common Shareholders, the Board of Trustees, in consultation with the Investment
Adviser, from time to time may, but is not required to, review possible actions to reduce any such discount. The Board of Trustees
also may, but is not required to, consider from time to time open market repurchases of and/or tender offers for the Fund’s
Common Shares, as well as other potential actions, to seek to reduce any market discount from net asset value that may develop.
After any consideration of potential actions to seek to reduce any significant market discount, the Board of Trustees may, subject
to its applicable duties and compliance with applicable U.S. 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 Board
of Trustees in light of the market discount of the Fund’s Common Shares, trading volume of the Fund’s Common Shares,
information presented to the Board of Trustees regarding the potential impact of any such share repurchase program or tender offer,
general market and economic conditions and applicable law. 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 its net income.
There
can be no assurance that repurchases of the Fund’s Common Shares or tender offers, if any, will cause its Common Shares
to trade at a price equal to or in excess of their net asset value. 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 net
asset value that might otherwise exist. 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 net asset value for a portion of their Common
Shares in conjunction with an announced repurchase program or tender offer for the Fund’s Common Shares.
Although
the Board of Trustees believes that repurchases or tender offers generally would have a favorable effect on the market price of
the Fund’s Common Shares, the acquisition of Common Shares by the Fund will decrease its total assets and therefore will
have the effect of increasing its 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, particularly its investment in illiquid
or otherwise restricted securities, it is possible that repurchases of Common Shares or tender offers could interfere with the
Fund’s ability to manage its investments in order to seek its investment objective. Further, it is possible that the Fund
could experience difficulty in borrowing money or be required to dispose of portfolio securities to consummate repurchases of
or tender offers for Common Shares.
U.S.
FEDERAL INCOME TAX CONSIDERATIONS
The
following is a discussion of the U.S. federal income tax considerations generally applicable to the ownership and disposition
of Common Shares of the Fund. A more detailed discussion of the tax rules applicable to the Fund and its Common Shareholders can
be found in the SAI that is incorporated by reference into this Prospectus. This discussion is based upon current provisions of
the Code, the Treasury regulations promulgated thereunder and judicial and administrative authorities, all of which are subject
to change or differing interpretations by the courts or the Internal Revenue Service (“IRS”), possibly with retroactive
effect. This discussion does not address any other U.S. federal tax considerations (such as estate, gift or net investment taxes)
or any state, local or non-U.S. tax considerations. No ruling has been or will be sought from the IRS regarding any matter discussed
herein. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position different from
any of the tax aspects set forth below. This discussion assumes that you are taxable as a U.S. person (as defined for U.S. federal
income tax purposes) and that you hold Common Shares as capital assets for U.S. federal income tax purposes (generally, assets
held for investment). No attempt is made to present a detailed explanation of all U.S. federal, state, local and foreign tax concerns
affecting the Fund and its Common Shareholders (including Common Shareholders subject to special provisions of the Code). The
discussion set forth herein does not constitute tax advice. Investors are urged to consult their tax advisors to determine the
tax consequences to them of investing in the Fund.
Taxation
of the Fund
Since
its inception and through the Fund’s fiscal year ended November 30, 2017, the Fund was treated as a regular corporation,
or a “C” corporation, for U.S. federal income tax purposes and, as a result, unlike most investment companies, was
subject to corporate income tax to the extent the Fund recognized taxable income. In conjunction with certain changes to the Fund’s
non-fundamental investment policies that became effective on February 20, 2018, the Fund has managed its portfolio in a manner
intended to allow the Fund to qualify as, and elected to be treated as, a RIC for U.S. federal income tax purposes beginning with
the Fund’s fiscal year ending November 30, 2018. Except as otherwise expressly indicated, the remainder of this discussion
assumes the Fund has qualified and will continue to qualify for taxation as a RIC for its fiscal year ending November 30, 2018,
and thereafter.
In
order to qualify as a RIC, the Fund must, among other things, satisfy certain income, asset diversification and distribution requirements.
As long as it so qualifies, and subject to the discussion of built-in gains below, the Fund will generally not be subject to U.S.
federal income tax to the extent that it distributes annually its investment company taxable income (which includes ordinary income
and the excess of net short-term capital gain over net long-term capital loss) and its “net capital gain” (i.e.,
the excess of net long-term capital gain over net short-term capital loss). The Fund intends to distribute at least annually substantially
all of such income and gain. If the Fund retains any investment company taxable income or net capital gain, it will be subject
to U.S. federal income tax on the retained amount at regular corporate tax rates. In addition, if the Fund fails to qualify as
a RIC for any taxable year and relief is not available, it will be subject to U.S. federal income tax on all of its income and
gains at regular corporate tax rates. Furthermore, the Fund will be subject to regular U.S. federal income tax on any built-in
gains that existed in its assets as of the time of its conversion to a RIC, to the extent such gains were recognized within five
years of that time.
Taxation
of Common Shareholders
For
each taxable year the Fund is treated as a RIC for U.S. federal income tax purposes, distributions paid to you by the Fund from
its investment company taxable income are generally taxable to you as ordinary income to the extent of the Fund’s current
and accumulated earnings and profits. Certain properly reported distributions may, however, qualify (provided that holding period
and other requirements are met by both the Fund and the Common Shareholder) (i) for the dividends received deduction in the case
of corporate Common Shareholders to the extent that the Fund’s income consists of dividend income from U.S. corporations
or (ii) in the case of individual Common Shareholders, as qualified dividend income eligible to be taxed at a reduced maximum
rate to the extent that the Fund receives qualified dividend income. Qualified dividend income is, in general, dividend income
from taxable domestic corporations and certain non-U.S. corporations. There can be no assurance as to what portion of the Fund’s
dividends will qualify for the dividends received deduction or for treatment as qualified dividend income.
Distributions
made to you from an excess of net long-term capital gain over net short-term capital loss (“capital gain distributions”),
including capital gain distributions credited to you but retained by the Fund, are taxable to you as long-term capital gains if
they have been properly reported by the Fund, regardless of the length of time you have owned Common Shares. For individuals,
long-term capital gains are generally taxed at a reduced maximum rate.
If,
for any calendar year, the Fund’s total distributions exceed both the current taxable year’s earnings and profits
and accumulated earnings and profits from prior years, the excess will generally be treated as a tax-free return of capital up
to the amount of a Common Shareholder’s tax basis in the Common Shares, reducing that basis accordingly. Such distributions
exceeding the Common Shareholder’s basis will be treated as gain from the sale or exchange of the Common Shares. When you
sell your Common Shares, the amount, if any, by which your sales price exceeds your basis in the Common Shares is gain subject
to tax. Because a return of capital reduces your basis in the Common Shares, it will increase the amount of your gain or decrease
the amount of your loss when you sell the Common Shares. Generally, after the end of each year, you will be provided with a written
notice reporting the amount of ordinary dividend income, capital gain distributions and other distributions (if relevant).
The
sale or other disposition of Common Shares will generally result in capital gain or loss to you which will be long-term capital
gain or loss if the Common Shares have been held for more than one year at the time of sale. Any loss upon the sale or exchange
of Common Shares held for six months or less will be treated as long-term capital loss to the extent of any capital gain dividends
received by you (including amounts credited to you as an undistributed capital gain distribution). Any loss realized on a sale
or exchange of Common Shares will be disallowed if other substantially identical shares are acquired (whether through the automatic
reinvestment of distributions or otherwise) within a 61-day period beginning 30 days before and ending 30 days after the date
of disposition of Common Shares. In such case, the basis of the Common Shares acquired will be adjusted to reflect the disallowed
loss. Present law taxes both long-term and short-term capital gain of corporations at the rates applicable to ordinary income.
For non-corporate taxpayers, under current law short-term capital gain is taxed at the U.S. federal income tax rates applicable
to ordinary income, while long-term capital gain generally is taxed at a reduced maximum U.S. federal income tax rate.
Dividends
and other taxable distributions are generally taxable to Common Shareholders when paid. If, however, the Fund pays you a distribution
in January that was declared in the previous October, November or December to Common Shareholders of record on a specified date
in one of such months, then such distribution will be treated for tax purposes as being paid by the Fund and received by you on
December 31 of the year in which the distribution was declared.
Backup
Withholding
The
Fund may be required to withhold, for U.S. federal backup withholding purposes, on all taxable distributions to any non-corporate
holders of the Common Shares who (1) do not furnish the Fund with their correct taxpayer identification number (in the case of
individuals, generally their social security number) or a certificate that such Common Shareholder is exempt from backup withholding,
or (2) with respect to whom the IRS notifies the Fund that such Common Shareholder has failed to properly report certain interest
and dividend income to the IRS and to respond to notices to that effect. Backup withholding is not an additional tax. Any amounts
withheld from payments made to you may be refunded or credited against your U.S. federal income tax liability, if any, provided
that the required information is timely furnished to the IRS. In addition, the Fund may be required to withhold on distributions
to non-U.S. shareholders.
The
foregoing is a general and abbreviated summary of the provisions of the Code and the Treasury regulations in effect as they directly
govern the taxation of the Fund and its Common Shareholders. These provisions are subject to change by legislative, judicial or
administrative action, and any such change may be retroactive. A more complete discussion of the tax rules applicable to the Fund
and its Common Shareholders can be found in the SAI that is incorporated by reference into this Prospectus. Investors are urged
to consult their tax advisors regarding the U.S. federal, foreign, state and local tax consequences of investing in the Fund.
PLAN
OF DISTRIBUTION
The
Fund may sell up to $100,000,000 in aggregate initial offering price of Common Shares or Rights from time to time under this Prospectus
and any related Prospectus Supplement (1) directly to one or more purchases, including existing shareholders in a Rights offering;
(2) through agents; (3) through underwriters; (4) through dealers; or (5) pursuant to the Plan. Each Prospectus Supplement relating
to an offering of securities will state the terms of the offering, including:
| ● | the
names of any agents, underwriters or dealers; |
| ● | any
sales loads or other items constituting underwriters’ compensation; |
| ● | any
discounts, commissions, or fees allowed or paid to dealers or agents; |
| ● | the
public offering or purchase price of the offered Securities and the net proceeds the
Fund will receive from the sale; and |
| ● | any
securities exchange on which the offered Securities may be listed. |
In
the case of a Rights offering, the applicable Prospectus Supplement will set forth the number of Common Shares issuable upon the
exercise of each right and the other terms of such rights offering.
Direct
Sales
The
Fund may sell Securities directly to, and solicit offers from, institutional investors or others who may be deemed to be underwriters
as defined in the Securities Act for any resales of the securities. In this case, no underwriters or agents would be involved.
The Fund may use electronic media, including the Internet, to sell offered securities directly. The Fund will describe the terms
of any of those sales in a Prospectus Supplement.
By
Agents
The
Fund may offer Securities through agents that the Fund may designate. The Fund will name any agent involved in the offer and sale
and describe any commissions payable by the Fund in the Prospectus Supplement. Unless otherwise indicated in the Prospectus Supplement,
the agents will be acting on a best efforts basis for the period of their appointment.
By
Underwriters
The
Fund may offer and sell Securities from time to time to one or more underwriters who would purchase the Securities as principal
for resale to the public, either on a firm commitment or best efforts basis. If the Fund sells Securities to underwriters, the
Fund will execute an underwriting agreement with them at the time of the sale and will name them in the Prospectus Supplement.
In connection with these sales, the underwriters may be deemed to have received compensation from the Fund in the form of underwriting
discounts and commissions. The underwriters also may receive commissions from purchasers of Securities for whom they may act as
agent. Unless otherwise stated in the Prospectus Supplement, the underwriters will not be obligated to purchase the Securities
unless the conditions set forth in the underwriting agreement are satisfied, and if the underwriters purchase any of the Securities,
they will be required to purchase all of the offered Securities. The underwriters may sell the offered Securities to or through
dealers, and those dealers may receive discounts, concessions or commissions from the underwriters as well as from the purchasers
for whom they may act as agent. Any public offering price and any discounts or concessions allowed or reallowed or paid to dealers
may be changed from time to time.
In
connection with an offering of Common Shares, if a Prospectus Supplement so indicates, the Fund may grant the underwriters an
option to purchase additional Common Shares at the public offering price, less the underwriting discounts and commissions, within
45 days from the date of the Prospectus Supplement, to cover any overallotments.
By
Dealers
The
Fund may offer and sell Securities from time to time to one or more dealers who would purchase the securities as principal. The
dealers then may resell the offered Securities to the public at fixed or varying prices to be determined by those dealers at the
time of resale. The Fund will set forth the names of the dealers and the terms of the transaction in the Prospectus Supplement.
General
Information
Agents,
underwriters or dealers participating in an offering of Securities may be deemed to be underwriters, and any discounts and commission
received by them and any profit realized by them on resale of the offered Securities for whom they act as agent, may be deemed
to be underwriting discounts and commissions under the Securities Act.
The
Fund may offer to sell securities either at a fixed price or at prices that may vary, at market prices prevailing at the time
of sale, at prices related to prevailing market prices or at negotiated prices.
To
facilitate an offering of Common Shares in an underwritten transaction and in accordance with industry practice, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the market price of the Common Shares or any other Security.
Those transactions may include overallotment, entering stabilizing bids, effecting syndicate covering transactions and reclaiming
selling concessions allowed to an underwriter or a dealer.
| ● | An
overallotment in connection with an offering creates a short position in the common stock
for the underwriter’s own account. |
| ● | An
underwriter may place a stabilizing bid to purchase the Common Shares for the purpose
of pegging, fixing or maintaining the price of the Common Shares. |
| ● | Underwriters
may engage in syndicate covering transactions to cover overallotments or to stabilize
the price of the Common Shares by bidding for, and purchasing, the Common Shares or any
other Securities in the open market in order to reduce a short position created in connection
with the offering. |
| ● | The
managing underwriter may impose a penalty bid on a syndicate member to reclaim a selling
concession in connection with an offering when the Common Shares originally sold by the
syndicate member is purchased in syndicate covering transactions or otherwise. |
Any
of these activities may stabilize or maintain the market price of the Securities above independent market levels. The underwriters
are not required to engage in these activities, and may end any of these activities at any time.
In
connection with any Rights offering, the Fund may also enter into a standby underwriting arrangement with one or more underwriters
pursuant to which the underwriter(s) will purchase Common Shares remaining unsubscribed for after the Rights offering.
Any
underwriters to whom the offered Securities are sold for offering and sale may make a market in the offered Securities, but the
underwriters will not be obligated to do so and may discontinue any market-making at any time without notice. There can be no
assurance that there will be a liquid trading market for the offered Securities.
Under
agreements entered into with the Fund, underwriters and agents may be entitled to indemnification by the Fund and the Investment
Adviser against certain civil liabilities, including liabilities under the Securities Act, or to contribution for payments the
underwriters or agents may be required to make.
The
underwriters, agents and their affiliates may engage in financial or other business transactions with the Fund in the ordinary
course of business.
Pursuant
to a requirement of the Financial Industry Regulatory Authority, Inc. (“FINRA”) the maximum compensation to be received
by any FINRA member or independent broker-dealer may not be greater than eight percent (8%) of the gross proceeds received by
the Fund for the sale of any securities being registered pursuant to SEC Rule 415 under the Securities Act.
The
aggregate offering price specified on the cover of this Prospectus relates to the offering of the Securities not yet issued as
of the date of this Prospectus.
To
the extent permitted under the 1940 Act and the rules and regulations promulgated thereunder, the underwriters may from time to
time act as a broker or dealer and receive fees in connection with the execution of portfolio transactions on behalf of the Fund
after the underwriters have ceased to be underwriters and, subject to certain restrictions, each may act as a broker while it
is an underwriter.
A
Prospectus and accompanying Prospectus Supplement in electronic form may be made available on the websites maintained by underwriters.
The underwriters may agree to allocate a number of Securities for sale to their online brokerage account holders. Such allocations
of Securities for internet distributions will be made on the same basis as other allocations. In addition, Securities may be sold
by the underwriters to securities dealers who resell Securities to online brokerage account holders.
OTHER
SERVICE PROVIDERS
U.S.
Bancorp Global Fund Services, located at 615 East Michigan Street, Milwaukee, Wisconsin 53202, has entered into a transfer agent
servicing agreement with the Fund. Under this agreement, U.S. Bank Global Fund Services serves as the Fund’s transfer agent,
registrar and distribution disbursing agent.
U.S.
Bank National Association, which is located at 1555 N. RiverCenter Drive, Suite 302, Milwaukee, Wisconsin 53212, acts as custodian
of the Fund’s securities and other assets.
U.S.
Bancorp Global Fund Services, the Administrator, which is located at 615 East Michigan Street, Milwaukee, Wisconsin 53202, serves
as the Fund’s administrator pursuant to a fund administration servicing agreement. Pursuant to this agreement, the Administrator
provides the Fund with, among other things, compliance oversight, financial reporting oversight and tax reporting. The Administrator
acts as the Fund’s fund accountant. The Administrator will assist in the calculation of the Fund’s net asset value.
The Administrator will also maintain and keep current the accounts, books, records and other documents relating to the Fund’s
financial and portfolio transactions.
LEGAL
MATTERS
Certain
legal matters will be passed on for the Fund by Skadden, Arps, Slate, Meagher & Flom LLP, Chicago, Illinois.
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP, Dallas, Texas, is the independent registered public accounting firm of the Fund and is expected to render an
opinion annually on the financial statements of the Fund.
PRIVACY
POLICY
In
order to conduct its business, the Fund collects and maintains certain nonpublic personal information about its shareholders with
respect to their transactions in shares of the Fund. This information includes:
| ● | information
the Fund receives from you on or in applications or other forms, correspondence, or conversations,
including, but not limited to, your name, address, phone number, social security number,
assets, income and date of birth; and |
| ● | information
about your transactions with the Fund, its affiliates or others, including, but not limited
to, your account number and balance, payment history, parties to transactions, cost basis
information and other financial information. |
The
Fund does not disclose any nonpublic personal information about you, the Fund’s other shareholders or the Fund’s former
shareholders to third parties unless necessary to process a transaction, service an account, or as otherwise permitted by law.
To protect your personal information internally, the Fund restricts access to nonpublic personal information about the Fund’s
shareholders to those employees who need to know that information to provide services to the Fund’s shareholders. The Fund
also maintains certain other safeguards to protect your nonpublic personal information.
In
the event that you hold shares of the Fund through a financial intermediary, including, but not limited to, a broker-dealer, bank
or trust company, the privacy policy of your financial intermediary would govern how your non-public personal information would
be shared with nonaffiliated third parties.
TABLE
OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
THE
FUND |
S-1 |
INVESTMENT
STRATEGIES AND RISKS |
S-1 |
STRATEGIC
TRANSACTIONS |
S-3 |
INVESTMENT
RESTRICTIONS |
S-12 |
MANAGEMENT
OF THE FUND |
S-14 |
PORTFOLIO
MANAGEMENT |
S-19 |
INVESTMENT
MANAGEMENT AGREEMENT |
S-21 |
PORTFOLIO
TRANSACTIONS AND BROKERAGE |
S-22 |
U.S.
FEDERAL INCOME TAX CONSIDERATIONS |
S-23 |
SERVICE
PROVIDERS |
S-29 |
GENERAL
INFORMATION |
S-30 |
FINANCIAL
STATEMENTS |
S-32 |
The
information in this Statement of Additional Information is not complete and may be changed. The Fund may not sell these securities
until the registration statement filed with the Securities and Exchange Commission is effective. This Statement of Additional
Information is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where
the offer or sale is not permitted.
Subject
to Completion, dated October 26, 2023
![](https://www.sec.gov/Archives/edgar/data/1400897/000139834423019754/fp0084769-1_01.jpg)
$100,000,000
NXG
Cushing® Midstream Energy Fund
Common
Shares
Subscription Rights for Common Shares
Statement
of Additional Information
NXG
Cushing® Midstream Energy Fund (formerly, The Cushing® MLP & Infrastructure Total Return Fund)
(the “Fund”) was formed as a Delaware statutory trust on May 23, 2007 and is a non-diversified, closed-end management
investment company. The Fund’s investment objective is to obtain a high after-tax total return from a combination of capital
appreciation and current income. No assurance can be given that the Fund’s investment objective will be achieved.
This
Statement of Additional Information (“SAI”) is not a prospectus, but should be read in conjunction with the prospectus for
the Fund dated , 2023 (the “Prospectus”). Investors should obtain
and read the Prospectus prior to purchasing common shares. A copy of the Prospectus may be obtained, without charge, by calling the Fund
at (855) 862-6092.
The
Prospectus and this SAI omit certain of the information contained in the registration statement filed with the Securities and
Exchange Commission (“SEC”). The registration statement may be obtained from the Securities and Exchange Commission
upon payment of the fee prescribed, or inspected at the Securities and Exchange Commission’s office or via its website (www.sec.gov)
at no charge. Capitalized terms used but not defined herein have the meanings ascribed to them in the Prospectus.
The
Fund is managed by Cushing® Asset Management, LP d/b/a NXG Investment Management (the “Investment Adviser”).
This
Statement of Additional Information is dated , 2023.
TABLE
OF CONTENTS
THE
FUND |
S-1 |
INVESTMENT
STRATEGIES AND RISKS |
S-1 |
STRATEGIC
TRANSACTIONS |
S-3 |
INVESTMENT
RESTRICTIONS |
S-12 |
MANAGEMENT
OF THE FUND |
S-14 |
PORTFOLIO
MANAGEMENT |
S-19 |
INVESTMENT
MANAGEMENT AGREEMENT |
S-21 |
PORTFOLIO
TRANSACTIONS AND BROKERAGE |
S-22 |
U.S.
FEDERAL INCOME TAX CONSIDERATIONS |
S-23 |
SERVICE
PROVIDERS |
S-29 |
GENERAL
INFORMATION |
S-30 |
FINANCIAL
STATEMENTS |
S-32 |
THE
FUND
The
Fund was formed as a Delaware statutory trust on May 23, 2007 and is a non-diversified, closed-end management investment company
registered under the Investment Company Act of 1940, as amended (the “1940 Act”). The Fund commenced investment operations
on August 27, 2007.
INVESTMENT
STRATEGIES AND RISKS
The
sections below describe, in greater detail than in the Prospectus, some of the different types of investments that may be made
by the Fund and the investment practices in which the Fund may engage. The Fund may make the following investments, among others,
some of which are part of its principal investment strategies and some of which are not. The principal risks of the Fund’s
principal investment strategies are discussed in the Prospectus and the Annual Report. The Fund may not buy all of the types of
securities or use all of the investment techniques that are described.
Repurchase
Agreements
The
Fund may engage in repurchase agreements with broker-dealers, banks and other financial institutions to earn a return on temporarily
available cash. A repurchase agreement is a short-term investment in which the purchaser (i.e., the Fund) acquires ownership
of a security and the seller agrees to repurchase the obligation at a future time and set price, thereby determining the yield
during the holding period. Repurchase agreements involve certain risks in the event of default by the other party. The Fund may
enter into repurchase agreements with broker-dealers, banks and other financial institutions deemed to be creditworthy by the
Investment Adviser under guidelines approved by the Board of Trustees. The Fund does not bear the risk of a decline in the value
of the underlying security unless the seller defaults under its repurchase obligation. In the event of the bankruptcy or other
default of a seller of a repurchase agreement, the Fund could experience both delays in liquidating the underlying securities
and losses including: (a) possible decline in the value of the underlying security during the period while the Fund seeks to enforce
its rights thereto; (b) possible lack of access to income on the underlying security during this period; and (c) expenses of enforcing
its rights.
Repurchase
agreements are fully collateralized by the underlying securities and are considered to be loans under the 1940 Act. The Fund pays
for such securities only upon physical delivery or evidence of book entry transfer to the account of a custodian or bank acting
as agent. The seller under a repurchase agreement will be required to maintain the value of the underlying securities marked-to-market
daily at not less than the repurchase price. The underlying securities (normally securities of the U.S. government, its agencies
or instrumentalities) may have maturity dates exceeding one year.
Reverse
Repurchase Agreements
A
reverse repurchase agreement involves the sale of a portfolio-eligible security by the Fund, coupled with its agreement to repurchase
the instrument at a specified time and price. Under a reverse repurchase agreement, the Fund continues to receive any principal
and interest payments on the underlying security during the term of the agreement. The Fund typically will segregate cash and/or
liquid securities equal (on a daily mark-to-market basis) to its obligations under reverse repurchase agreements. However, reverse
repurchase agreements involve the risk that the market value of securities retained by the Fund may decline below the repurchase
price of the securities sold by the Fund which it is obligated to repurchase. To the extent that positions in reverse repurchase
agreements are not covered through the segregation of cash and/or liquid securities at least equal to the amount of any purchase
commitment, such transactions would be subject to the Fund’s limitations on borrowings.
Rights
and Warrants
Warrants
are in effect longer-term call options. They give the holder the right to purchase a given number of shares of a particular company at
specified prices within certain periods of time. Rights are similar to warrants except that they have a substantially shorter term. The
purchaser of a warrant expects that the market price of the security will exceed the purchase price of the warrant plus the exercise
price of the warrant, thus producing a profit. Of course, since the market price may never exceed the exercise price before the expiration
date of the warrant, the purchaser of the warrant risks the loss of the entire purchase price of the warrant. Warrants generally trade
in the open market and may be sold rather than exercised.
Warrants
are sometimes sold in unit form with other securities of an issuer. Units of warrants and common stock may be employed in financing
young, unseasoned companies. The purchase price of a warrant varies with the exercise price of the warrant, the current market
value of the underlying security, the life of the warrant and various other investment factors. Rights and warrants may be considered
more speculative and less liquid than certain other types of investments in that they do not entitle a holder to dividends or
voting rights with respect to the underlying securities nor do they represent any rights in the assets of the issuing company
and may lack a secondary market.
Depositary
Receipts
Non-U.S.
securities include American Depositary Receipts (“ADRs”), European Depositary Receipts (“EDRs”), Global Depositary
Receipts (“GDRs”) and other similar global instruments. ADRs typically are issued by an American bank or trust company and
evidence ownership of underlying securities issued by a non-U.S. corporation. EDRs, which are sometimes referred to as Continental Depositary
Receipts, are receipts issued in Europe, typically by non-U.S. banks and trust companies, that evidence ownership of either non-U.S.
or domestic underlying securities. GDRs are depositary receipts structured like global debt issues to facilitate trading on an international
basis. Unsponsored ADR, EDR and GDR programs are organized independently and without the cooperation of the issuer of the underlying
securities. As a result, available information concerning the issuer may not be as current as for sponsored ADRs, EDRs and GDRs, and
the prices of unsponsored ADRs, EDRs and GDRs may be more volatile than if such instruments were sponsored by the issuer. Investments
in ADRs, EDRs and GDRs present additional investment considerations of non-U.S. securities.
When-Issued
and Delayed Delivery Transactions
The
Fund may purchase and sell portfolio securities on a when-issued and delayed delivery basis. No income accrues to the Fund on
securities in connection with such purchase transactions prior to the date the Fund actually takes delivery of such securities.
These transactions are subject to market fluctuation; the value of the securities at delivery may be more or less than their purchase
price, and yields generally available on comparable securities when delivery occurs may be higher or lower than yields on the
securities obtained pursuant to such transactions. Because the Fund relies on the buyer or seller, as the case may be, to consummate
the transaction, failure by the other party to complete the transaction may result in the Fund missing the opportunity of obtaining
a price or yield considered to be advantageous. When the Fund is the buyer in such a transaction, however, it will segregate cash
and/or liquid securities having an aggregate value at least equal to the amount of such purchase commitments until payment is
made unless the Fund intends to physically settle the transaction and the transaction will settle within 35 days of its trade
date, in which case the transaction will be treated as a derivatives transaction in accordance with Rule 18f-4 under the 1940
Act (the “Derivatives Rule”). The Fund will make commitments to purchase securities on such basis only with the intention
of actually acquiring these securities, but the Fund may sell such securities prior to the settlement date if such sale is considered
to be advisable. To the extent the Fund engages in when-issued and delayed delivery transactions, it will do so for the purpose
of acquiring securities for the Fund’s portfolio consistent with the Fund’s investment objectives and policies and
not for the purpose of investment leverage.
Since
the market value of both the securities or currency subject to the commitment and the securities or currency held as segregated
assets may fluctuate, the use of commitments may magnify the impact of interest rate changes on the Fund’s net asset value.
A commitment sale is covered if the Fund owns or has the right to acquire the underlying securities or currency subject to the
commitment. A commitment sale is for cross-hedging purposes if it is not covered, but is designed to provide a hedge against a
decline in value of a security or currency which the Fund owns or has the right to acquire. By entering into a commitment sale
transaction, the Fund foregoes or reduces the potential for both gain and loss in the security which is being hedged by the commitment
sale.
Short
Sales Against the Box
The
Fund may from time to time make short sales of securities it owns or has the right to acquire. A short sale is “against
the box” to the extent that the Fund contemporaneously owns or has the right to obtain at no added cost securities identical
to those sold short. In a short sale, the Fund does not immediately deliver the securities sold and does not receive the proceeds
from the sale. The Fund is required to recognize gain from the short sale for U.S. federal income tax purposes at the time it
enters into the short sale, even though it does not receive the sales proceeds until it delivers the securities. The Fund is said
to have a short position in the securities sold until it delivers such securities at which time it receives the proceeds of the
sale. The Fund may close out a short position by purchasing and delivering an equal amount of the securities sold short, rather
than by delivering securities already held by the Fund, because the Fund may want to continue to receive interest and dividend
payments on securities in its portfolio.
STRATEGIC
TRANSACTIONS
The
Fund may, but is not required to, use various investment strategies as described below (“Strategic Transactions”).
Strategic Transactions may be used for a variety of purposes including hedging, risk management, portfolio management or to earn
income. Any or all of the investment techniques described herein may be used at any time and there is no particular strategy that
dictates the use of one technique rather than another, as the use of any Strategic Transaction by the Fund is a function of numerous
variables including market conditions. The Fund complies with applicable regulatory requirements when implementing Strategic Transactions,
including the Derivatives Rule. Although the Investment Adviser seeks to use Strategic Transactions to further the Fund’s
investment objective, no assurance can be given that the use of Strategic Transactions will achieve this result.
General
Risks of Derivatives
Strategic
Transactions may involve the purchase and sale of derivative instruments. A derivative is a financial instrument the value of
which depends upon (or derives from) the value of another asset, security, interest rate, or index. Derivatives may relate to
a wide variety of underlying instruments, including equity and debt securities, indexes, interest rates, currencies and other
assets. Certain derivative instruments which the Fund may use and the risks of those instruments are described in further detail
below. The Fund may in the future also utilize derivatives techniques, instruments and strategies that may be newly developed
or permitted as a result of regulatory changes, consistent with the Fund’s investment objective and policies. Such newly
developed techniques, instruments and strategies may involve risks different than or in addition to those described herein. No
assurance can be given that any derivatives strategy employed by the Fund will be successful.
The
risks associated with the use of derivatives are different from, and possibly greater than, the risks associated with investing
directly in the instruments underlying such derivatives. Derivatives are highly specialized instruments that require investment
techniques and risk analyses different from other portfolio investments. The use of derivative instruments requires an understanding
not only of the underlying instrument but also of the derivative itself. Certain risk factors generally applicable to derivative
transactions are described below.
| ● | Derivatives
are subject to the risk that the market value of the derivative itself or the market
value of underlying instruments will change in a way adverse to the Fund’s interests.
The Fund bears the risk that the Investment Adviser may incorrectly forecast future market
trends and other financial or economic factors or the value of the underlying security,
index, interest rate or currency when establishing a derivatives position for the Fund. |
| ● | Derivatives
may be subject to pricing or “basis” risk, which exists when a derivative
becomes extraordinarily expensive (or inexpensive) relative to historical prices or corresponding
instruments. Under such market conditions, it may not be economically feasible to initiate
a transaction or liquidate a position at an advantageous time or price. |
| ● | Many
derivatives are complex and often valued subjectively. Improper valuations can result
in increased payment requirements to counterparties or a loss of value to the Fund. |
| ● | Using
derivatives as a hedge against a portfolio investment presents the risk that the derivative
will have imperfect correlation with the portfolio investment, which could result in
the Fund incurring substantial losses. This correlation risk may be greater in the case
of derivatives based on an index or other basket of securities, as the portfolio securities
being hedged may not duplicate the components of the underlying index or the basket may
not be of exactly the same type of obligation as those underlying the derivative. The
use of derivatives for “cross hedging” purposes (using a derivative based
on one instrument as a hedge on a different instrument) may also involve greater correlation
risks. |
| ● | While
using derivatives for hedging purposes can reduce the Fund’s risk of loss, it may
also limit the Fund’s opportunity for gains or result in losses by offsetting or
limiting the Fund’s ability to participate in favorable price movements in portfolio
investments. |
| ● | Derivatives
transactions for non-hedging purposes involve greater risks and may result in losses
which would not be offset by increases in the value of portfolio securities or declines
in the cost of securities to be acquired. In the event that the Fund enters into a derivatives
transaction as an alternative to purchasing or selling the underlying instrument or in
order to obtain desired exposure to an index or market, the Fund will be exposed to the
same risks as are incurred in purchasing or selling the underlying instruments directly. |
| ● | The
use of certain derivatives transactions involves the risk of loss resulting from the
insolvency or bankruptcy of the other party to the contract (the “counterparty”)
or the failure by the counterparty to make required payments or otherwise comply with
the terms of the contract. In the event of default by a counterparty, the Fund may have
contractual remedies pursuant to the agreements related to the transaction. |
| ● | Liquidity
risk exists when a particular derivative is difficult to purchase or sell. If a derivative
transaction is particularly large or if the relevant market is illiquid, the Fund may
be unable to initiate a transaction or liquidate a position at an advantageous time or
price. |
| ● | Certain
derivatives transactions, including over-the-counter (“OTC”) options, swaps,
forward contracts, certain options on foreign currencies and other OTC derivatives, are
not entered into or traded on exchanges or in markets regulated by the U.S. Commodity
Futures Trading Commission (“CFTC”) or the SEC. Instead, such OTC derivatives
are entered into directly by the counterparties and may be traded only through financial
institutions acting as market makers. OTC derivatives transactions can only be entered
into with a willing counterparty. Where no such counterparty is available, the Fund will
be unable to enter into a desired transaction. There also may be greater risk that no
liquid secondary market in the trading of OTC derivatives will exist, in which case the
Fund may be required to hold such instruments until exercise, expiration or maturity.
Many of the protections afforded to exchange participants will not be available to participants
in OTC derivatives transactions. OTC derivatives transactions are not subject to the
guarantee of an exchange or clearinghouse and as a result the Fund would bear greater
risk of default by the counterparties to such transactions. |
| ● | The
Fund may be required to make physical delivery of portfolio securities underlying a derivative
in order to close out a derivatives position or to sell portfolio securities at a time
or price at which it may be disadvantageous to do so in order to obtain cash to close
out or to maintain a derivatives position. |
| ● | As
a result of the structure of certain derivatives, adverse changes in the value of the
underlying instrument can result in a losses substantially greater than the amount invested
in the derivative itself. Certain derivatives have the potential for unlimited loss,
regardless of the size of the initial investment. |
| ● | Certain
derivatives, including certain OTC options and swap agreements, may be considered illiquid. |
| ● | Certain
derivative transactions may give rise to a form of leverage. Leverage associated with
derivative transactions may cause the Fund to sell portfolio securities when it may not
be advantageous to do so to satisfy its obligations or may cause the Fund to be more
volatile than if the Fund had not been leveraged. |
| ● | Derivatives
transactions conducted outside the United States may not be conducted in the same manner
as those entered into on U.S. exchanges, and may be subject to different margin, exercise,
settlement or expiration procedures. Many of the risks of OTC derivatives transactions
are also applicable to derivatives transactions conducted outside the United States.
Derivatives transactions conducted outside the United States are subject to the risk
of governmental action affecting the trading in, or the prices of, foreign securities,
currencies and other instruments The value of such positions could be adversely affected
by foreign political and economic factors; lesser availability of data on which to make
trading decisions; delays the Fund’s ability to act upon economic events occurring
in foreign markets; and less liquidity than U.S. markets. |
| ● | Currency
derivatives are subject to additional risks. Currency derivatives transactions may be
negatively affected by government exchange controls, blockages, and manipulations. Currency
exchange rates may be influenced by factors extrinsic to a country’s economy. There
is no systematic reporting of last sale information with respect to foreign currencies.
As a result, the available information on which trading in currency derivatives will
be based may not be as complete as comparable data for other transactions. Events could
occur in the foreign currency market which will not be reflected in currency derivatives
until the following day, making it more difficult for the Fund to respond to such events
in a timely manner. |
| ● | Legislation
regarding regulation of the financial sector, including the Dodd-Frank Wall Street Reform
and Consumer Protection Act (the “Dodd-Frank Act”), which was signed into
law in July 2010, will change the way in which certain derivative instruments are regulated
and/or traded. Such regulation may impact the availability, liquidity and cost of derivative
instruments. While many provisions of the Dodd-Frank Act must be implemented through
future rulemaking, and any regulatory or legislative activity may not necessarily have
a direct, immediate effect upon the Fund, it is possible that, upon implementation of
these measures or any future measures, they could potentially limit or completely restrict
the ability of the Fund to use certain derivative instruments as a part of its investment
strategy, increase the costs of using these instruments or make them less effective.
Limits or restrictions applicable to the counterparties with which the Fund engages in
derivatives transactions could also prevent the Fund from using these instruments or
affect the pricing or other factors relating to these instruments, or may change the
availability of certain investments. The Financial CHOICE Act, which was passed by the
U.S. House of Representatives in June 2017, would, if enacted, roll back parts of the
Dodd-Frank Act. There can be no assurance that such legislation or regulation will not
have a material adverse effect on the Fund or will not impair the ability of the Fund
to utilize certain derivatives transactions or achieve its investment objective. |
| ● | The
Investment Adviser has claimed an exclusion from the definition of the term “commodity
pool operator” under the Commodity Exchange Act pursuant to CFTC Rule 4.5. Accordingly,
the Investment Adviser is currently not subject to registration or regulation as a commodity
pool operator under the Commodity Exchange Act with respect to the Fund. If the Investment
Adviser was unable to claim the exclusion with respect to the Fund, the Investment Adviser
would become subject to registration and regulation as a commodity pool operator, which
would subject the Investment Adviser and the Fund to additional registration and regulatory
requirements and increased operating expenses. The Fund intends to limit its investments
such that the Investment Adviser may continue to claim the exclusion with respect to
the Fund, which may limit the Fund’s ability to use certain Strategic Transactions,
including futures, options on futures and swaps. |
Options
An
option is a contract that gives the holder of the option the right, but not the obligation, to buy from (in the case of a call
option) or sell to (in the case of a put option) the seller of the option (the “option writer”) the underlying security
at a specified fixed price (the “exercise price”) prior to a specified date (the “expiration date”). The
buyer of the option pays to the option writer the option premium, which represents the purchase price of the option.
Exchange-traded
options are issued by a regulated intermediary such as the Options Clearing Corporation (“OCC”), which guarantees
the performance of the obligations of the parties to such option. OTC options are purchased from or sold to counterparties through
direct bilateral agreement between the counterparties. Certain options, such as options on individual securities, are settled
through physical delivery of the underlying security, whereas other options, such as index options, are settled in cash in an
amount based on the value of the underlying instrument multiplied by a specified multiplier.
Writing
Options. The Fund may write call and put options. As the writer of a call option, the Fund receives the premium from the purchaser
of the option and has the obligation, upon exercise of the option, to deliver the underlying security upon payment of the exercise
price. If the option expires without being exercised the Fund is not required to deliver the underlying security but retains the
premium received.
The
Fund may write call options that are “covered.” A call option on a security is covered if (a) the Fund owns the security
underlying the call or has an absolute and immediate right to acquire that security without additional cash consideration upon
conversion or exchange of other securities held by the Fund; or (b) the Fund has purchased a call on the underlying security,
the exercise price of which is equal to or less than the exercise price of the call written.
Selling
call options involves the risk that the Fund may be required to sell the underlying security at a disadvantageous price, below
the market price of such security, at the time the option is exercised. As the writer of a covered call option, the Fund gives
up the opportunity during the option’s life to profit from increases in the market value of the security covering the call
option above the sum of the premium and the strike price of the call, but the Fund retains the risk of loss should the price of
the underlying security decline.
The
Fund may also write uncovered call options (i.e., where the Fund does not own the underlying security or index). Similar
to a naked short sale, writing an uncovered call creates the risk of an unlimited loss, in that the price of the underlying security
could theoretically increase without limit, thus increasing the cost of buying those securities to cover the call option if it
is exercised before it expires. There can be no assurance that the securities necessary to cover the call option will be available
for purchase. Purchasing securities to cover an uncovered call option can itself cause the price of the securities to rise, further
exacerbating the loss.
The
Fund may write put options. As the writer of a put option, the Fund receives the premium from the purchaser of the option and
has the obligation, upon exercise of the option, to pay the exercise price and receive delivery of the underlying security. If
the option expires without being exercised, the Fund is not required to receive the underlying security in exchange for the exercise
price but retains the option premium.
The
Fund may write put options that are “covered.” A put option on a security is covered if the Fund has purchased a put
on the same security as the put written, the exercise price of which is equal to or greater than the exercise price of the put
written.
Selling
put options involves the risk that the Fund may be required to buy the underlying security at a disadvantageous price, above the
market price of such security, at the time the option is exercised. While the Fund’s potential gain in writing a covered
put option is limited to the premium received, the Fund’s risk of loss is equal to the entire value of the underlying security,
offset only by the amount of the premium received.
The
Fund may also write uncovered put options. The seller of an uncovered put option theoretically could lose an amount equal to the
entire aggregate exercise price of the option if the underlying security were to become valueless.
The
Fund may close out an options position which it has written through a closing purchase transaction. The Fund would execute a closing
purchase transaction with respect to a call option written by purchasing a call option on the same underlying security and having
the same exercise price and expiration date as the call option written by the Fund. The Fund would execute a closing purchase
transaction with respect to a put option written by purchasing a put option on the same underlying security and having the same
exercise price and expiration date as the put option written by the Fund. A closing purchase transaction may or may not result
in a profit to the Fund. The Fund could close out its position as an option writer only if a liquid secondary market exists for
options of that series and there is no assurance that such a market will exist with respect to any particular option.
The
writer of an option generally has no control over the time when the option is exercised and the option writer is required to deliver
or acquire the underlying security. Once an option writer has received an exercise notice, it cannot effect a closing purchase
transaction in order to terminate its obligation under the option. Thus, the use of options may require the Fund to buy or sell
portfolio securities at inopportune times or for prices other than the current market values of such securities, 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.
Purchasing
Options. The Fund may purchase call and put options. As the buyer of a call option, the Fund pays the premium to the option
writer and has the right to purchase the underlying security from the option writer at the exercise price. If the market price
of the underlying security rises above the exercise price, the Fund could exercise the option and acquire the underlying security
at a below market price, which could result in a gain to the Fund, minus the premium paid. As the buyer of a put option, the Fund
pays the premium to the option writer and has the right to sell the underlying security to the option writer at the exercise price.
If the market price of the underlying security declines below the exercise price, the Fund could exercise the option and sell
the underlying security at an above market price, which could result in a gain to the Fund, minus the premium paid. The Fund may
buy call and put options whether or not it holds the underlying securities.
As
a buyer of a call or put option, the Fund may sell put or call options that it has purchased at any time prior to such option’s
expiration date through a closing sale transaction. The principal factors affecting the market value of a put or a call option
include supply and demand, interest rates, the current market price of the underlying security in relation to the exercise price
of the option, the volatility of the underlying security, the underlying security’s dividend policy, and the time remaining
until the expiration date. A closing sale transaction may or may not result in a profit to the Fund. The Fund’s ability
to initiate a closing sale transaction is dependent upon the liquidity of the options market and there is no assurance that such
a market will exist with respect to any particular option. If the Fund does not exercise or sell an option prior to its expiration
date, the option expires and becomes worthless.
OTC
Options. Unlike exchange-traded options, which are standardized with respect to the underlying instrument, expiration date,
contract size and strike price, the terms of OTC options generally are established through negotiation between the parties to
the options contract. This type of arrangement allows the purchaser and writer greater flexibility to tailor the option to their
needs. OTC options are available for a greater variety of securities or baskets of securities, and in a wider range of expiration
dates and exercise prices than exchange-traded options. However, unlike exchange-traded options, which are issued and guaranteed
by a regulated intermediary, such as the OCC, OTC options are entered into directly with the counterparty. Unless the counterparties
provide for it, there is no central clearing or guaranty function for an OTC option. Therefore, OTC options are subject to the
risk of default or non-performance by the counterparty. Accordingly, the Investment Adviser must assess the creditworthiness of
the counterparty to determine the likelihood that the terms of the option will be satisfied. There can be no assurance that a
continuous liquid secondary market will exist for any particular OTC option at any specific time. As a result, the Fund may be
unable to enter into closing sale transactions with respect to OTC options.
Index
Options. Call and put options on indices operate similarly to options on securities. Rather than the right to buy or sell
a single security at a specified price, options on an index give the holder the right to receive, upon exercise of the option,
an amount of cash determined by reference to the value of the underlying index. The underlying index may be a broad-based index
or a narrower market index. Unlike options on securities, all settlements are in cash. The settlement amount, which the writer
of an index option must pay to the holder of the option upon exercise, is generally equal to the difference between the fixed
exercise price of the option and the value of the underlying index, multiplied by a specified multiplier. The multiplier determines
the size of the investment position the option represents. Gain or loss to the Fund on index options transactions will depend
on price movements in the underlying securities market generally or in a particular segment of the market rather than price movements
of individual securities. As with other options, the Fund may close out its position in index options through closing purchase
transactions and closing sale transactions provided that a liquid secondary market exists for such options.
Index
options written by the Fund may be covered in a manner similar to the covering of other types of options, by holding an offsetting
financial position. The Fund may cover call options written on an index by owning securities whose price changes, in the opinion
of the Investment Adviser, are expected to correlate to those of the underlying index.
Foreign
Currency Options. Options on foreign currencies operate similarly to options on securities. Rather than the right to buy or
sell a single security at a specified price, options on foreign currencies give the holder the right to buy or sell foreign currency
for a fixed amount in U.S. dollars. Options on foreign currencies are traded primarily in the OTC market, but may also be traded
on United States and foreign exchanges. The value of a foreign currency option is dependent upon the value of the underlying foreign
currency relative to the U.S. dollar. The price of the option may vary with changes in the value of either or both currencies
and has no relationship to the investment merits of a foreign security. Options on foreign currencies are affected by all of those
factors which influence foreign exchange rates and foreign investment generally. As with other options, the Fund may close out
its position in foreign currency options through closing purchase transactions and closing sale transactions provided that a liquid
secondary market exists for such options. Foreign currency options written by the Fund may be covered in a manner similar to the
covering of other types of options, by holding an offsetting financial position.
Additional
Risks of Options Transactions. The risks associated with options transactions are different from, and possibly greater than,
the risks associated with investing directly in the underlying instruments. Options are highly specialized instruments that require
investment techniques and risk analyses different from those associated with other portfolio investments. The use of options requires
an understanding not only of the underlying instrument but also of the option itself. Options may be subject to the risk factors
generally applicable to derivatives transactions described herein, and may also be subject to certain additional risk factors,
including:
| ● | The
exercise of options written or purchased by the Fund could cause the Fund to sell portfolio
securities, thus increasing the Fund’s portfolio turnover. |
| ● | The
Fund pays brokerage commissions each time it writes or purchases an option or buys or
sells an underlying security in connection with the exercise of an option. Such brokerage
commissions could be higher relative to the commissions for direct purchases of sales
of the underlying securities. |
| ● | The
Fund’s options transactions may be limited by limitations on options positions
established by the exchanges on which such options are traded. |
| ● | The
hours of trading for exchange listed options may not coincide with the hours during which
the underlying securities are traded. To the extent that the options markets close before
the markets for the underlying securities, significant price and rate movements can take
place in the underlying securities that cannot be reflected in the options markets. |
| ● | Index
options based upon a narrower index of securities may present greater risks than options
based on broad market indexes, as narrower indexes are more susceptible to rapid and
extreme fluctuations as a result of changes in the values of a small number of securities. |
| ● | The
Fund is subject to the risk of market movements between the time that an option is exercised
and the time of performance thereunder, which could increase the extent of any losses
suffered by the Fund in connection with options transactions. |
Futures
Contracts
A
futures contract is a standardized agreement between two parties to buy or sell a specific quantity of an underlying instrument
at a specific price at a specific future time (the “settlement date”). Futures contracts may be based on a specified
equity security (securities futures), a specified debt security or reference rate (interest rate futures), the value of a specified
securities index (index futures) or the value of a foreign currency (forward contracts and currency futures). The value of a futures
contract tends to increase and decrease in tandem with the value of the underlying instrument. The buyer of a futures contract
agrees to purchase the underlying instrument on the settlement date and is said to be “long” the contract. The seller
of a futures contract agrees to sell the underlying instrument on the settlement date and is said to be “short” the
contract. Futures contracts differ from options in that they are bilateral agreements, with both the purchaser and the seller
equally obligated to complete the transaction. Futures contracts call for settlement only on the expiration date and cannot be
“exercised” at any other time during their term.
Depending
on the terms of the particular contract, futures contracts are settled through either physical delivery of the underlying instrument
on the settlement date (such as in the case of securities futures and interest rate futures based on a specified debt security)
or by payment of a cash settlement amount on the settlement date (such as in the case of futures contracts relating to interest
rates, foreign currencies and broad-based securities indexes). In the case of cash settled futures contracts, the settlement amount
is equal to the difference between the reference instrument’s price on the last trading day of the contract and the reference
instrument’s price at the time the contract was entered into. Most futures contracts, particularly futures contracts requiring
physical delivery, are not held until the settlement date, but instead are offset before the settlement date through the establishment
of an opposite and equal futures position (buying a contract that had been sold, or selling a contract that had been purchased).
All futures transactions (except currency forward contracts) are effected through a clearinghouse associated with the exchange
on which the futures are traded.
The
buyer and seller of a futures contract are not required to deliver or pay for the underlying commodity unless the contract is
held until the settlement date. However, both the buyer and seller are required to deposit “initial margin” with a
futures commodities merchant when the futures contract is entered into. Initial margin deposits are typically calculated as a
percentage of the contract’s market value. If the value of either party’s position declines, the party will be required
to make additional “variation margin” payments to settle the change in value on a daily basis. The process is known
as “marking-to-market.” Upon the closing of a futures position through the establishment of an offsetting position,
a final determination of variation margin will be made and additional cash will be paid by or released to the Fund.
Currency
Forward Contracts and Currency Futures. A foreign currency forward contract is a negotiated agreement between two parties
to exchange specified amounts of two or more currencies at a specified future time at a specified rate. The rate specified by
the forward contract can be higher or lower than the spot rate between the currencies that are the subject of the contract. Settlement
of a foreign currency forward contract for the purchase of most currencies typically must occur at a bank based in the issuing
nation. Currency futures are similar to currency forward contracts, except that they are traded on an exchange and standardized
as to contract size and delivery date. Most currency futures call for payment or delivery in U.S. dollars. Unanticipated changes
in currency prices may result in losses to the Fund and poorer overall performance for the Fund than if it had not entered into
forward contracts.
Options
on Futures Contracts. Options on futures contracts are similar to options on securities except that options on futures contracts
give the purchasers the right, in return for the premium paid, to assume a position in a futures contract (a long position in
the case of a call option and a short position in the case of a put option) at a specified exercise price at any time prior to
the expiration of the option. Upon exercise of the option, the parties will be subject to all of the risks associated with futures
transactions and subject to margin requirements. As the writer of options on futures contracts, the Fund would also be subject
to initial and variation margin requirements on the option position.
Options
on futures contracts written by the Fund may be covered in a manner similar to the covering of other types of options, by holding
an offsetting financial position. The Fund may cover an option on a futures contract by purchasing or selling the underlying futures
contract. In such instances the exercise of the option will serve to close out the Fund’s futures position.
Additional
Risks of Futures Transactions. The risks associated with futures contract transactions are different from, and possibly greater
than, the risks associated with investing directly in the underlying instruments. Futures are highly specialized instruments that
require investment techniques and risk analyses different from those associated with other portfolio investments. The use of futures
requires an understanding not only of the underlying instrument but also of the futures contract itself. Futures may be subject
to the risk factors generally applicable to derivatives transactions described herein, and may also be subject to certain additional
risk factors, including:
| ● | The
risk of loss in buying and selling futures contracts can be substantial. Small price
movements in the commodity underlying a futures position may result in immediate and
substantial loss (or gain) to the Fund. |
| ● | Buying
and selling futures contracts may result in losses in excess of the amount invested in
the position in the form of initial margin. In the event of adverse price movements in
the underlying commodity, security, index, currency or instrument, the Fund would be
required to make daily cash payments to maintain its required margin. The Fund may be
required to sell portfolio securities in order to meet daily margin requirements at a
time when it may be disadvantageous to do so. The Fund could lose margin payments deposited
with a futures commodities merchant if the futures commodities merchant breaches its
agreement with the Fund, becomes insolvent or declares bankruptcy. |
| ● | Most
exchanges limit the amount of fluctuation permitted in futures contract prices during
any single trading day. Once the daily limit has been reached in a particular futures
contract, no trades may be made on that day at prices beyond that limit. If futures contract
prices were to move to the daily limit for several trading days with little or no trading,
the Fund could be prevented from prompt liquidation of a futures position and subject
to substantial losses. The daily limit governs only price movements during a single trading
day and therefore does not limit the Fund’s potential losses. |
| ● | Index
futures based upon a narrower index of securities may present greater risks than futures
based on broad market indexes, as narrower indexes are more susceptible to rapid and
extreme fluctuations as a result of changes in value of a small number of securities. |
Swap
Contracts and Related Derivative Instruments
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 not entered into or traded on exchanges and there is no central clearing or guaranty function for swaps. Therefore,
swaps are subject to the risk of default or non-performance by the counterparty. Accordingly, the Investment Adviser must assess
the creditworthiness of the counterparty to determine the likelihood that the terms of the swap will be satisfied.
Swap
agreements allow for a wide variety of transactions. For example, fixed rate payments may be exchanged for floating rate payments,
U.S. dollar denominated payments may be exchanged for payments denominated in foreign currencies, and payments tied to the price
of one security, index, reference rate, currency or other instrument may be exchanged for payments tied to the price of a different
security, index, reference rate, currency or other instrument. Swap contracts are typically individually negotiated and structured
to provide exposure to a variety of particular types of investments or market factors. Swap contracts can take many different
forms and are known by a variety of names. To the extent consistent with the Fund’s investment objectives and policies,
the Fund is not limited to any particular form or variety of swap contract. The Fund may utilize swaps to increase or decrease
their exposure to the underlying instrument, reference rate, foreign currency, market index or other asset. The Fund may also
enter into related derivative instruments including caps, floors and collars.
Interest
Rate Swaps, Caps, Floors and Collars. Interest rate swaps consist of an agreement between two parties to exchange their respective
commitments to pay or receive interest (e.g., an exchange of floating rate payments for fixed rate payments). Interest
rate swaps are generally entered into on a net basis.
The
Fund may also buy or sell interest rate caps, floors and collars. 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 on a specified notional
amount from the party selling the 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 on a specified notional amount
from the party selling the interest rate floor. A collar is a combination of a cap and a floor that preserves a certain return
within a predetermined range of interest rate of values. Caps, floors and collars may be less liquid that other types of swaps.
Index
Swaps. An index swap consists of an agreement between two parties in which a party exchanges a cash flow based on a notional
amount of a reference index for a cash flow based on a different index or on another specified instrument or reference rate. Index
swaps are generally entered into on a net basis.
Currency
Swaps. A currency swap consists of an agreement between two parties to exchange cash flows on a notional amount of two or
more currencies based on the relative value differential among them, such as exchanging a right to receive a payment in foreign
currency for the right to receive U.S. dollars. Currency swap agreements may be entered into on a net basis or may involve the
delivery of the entire principal value of one designated currency in exchange for the entire principal value of another designated
currency. In such cases, the entire principal value of a currency swap is subject to the risk that the counterparty will default
on its contractual delivery obligations.
Credit
Default Swaps. The Fund may enter into credit default swap contracts and options thereon. A credit default swap consists of
an agreement between two parties in which the “buyer” agrees to pay to the “seller” a periodic stream
of payments over the term of the contract and the seller agrees to pay the buyer the par value (or other agreed-upon value ) of
a referenced debt obligation upon the occurrence of a credit event with respect to the issuer of the referenced debt obligation.
Generally, a credit event means bankruptcy, failure to pay, obligation acceleration or modified restructuring. The Fund may be
either the buyer or seller in a credit default swap. As the buyer in a credit default swap, the Fund would pay to the counterparty
the periodic stream of payments. If no default occurs, the Fund would receive no benefit from the contract. As the seller in a
credit default swap, the Fund would receive the stream of payments but would be subject to exposure on the notional amount of
the swap, which it would be required to pay in the event of default. The use of credit default swaps could result in losses to
the Fund if the Investment Adviser fails to correctly evaluate the creditworthiness of the issuer of the referenced debt obligation.
Inflation
Swaps. Inflation swap agreements are contracts in which one party agrees to pay the cumulative percentage increase in a price
index, such as the Consumer Price Index, over the term of the swap (with some lag on the referenced inflation index), and the
other party pays a compounded fixed rate. Inflation swap agreements may be used to protect the net asset value of the Fund against
an unexpected change in the rate of inflation measured by an inflation index. The value of inflation swap agreements is expected
to change in response to changes in real interest rates. Real interest rates are tied to the relationship between nominal interest
rates and the rate of inflation. If nominal interest rates increase at a faster rate than inflation, real interest rates may rise,
leading to a decrease in value of an inflation swap agreement.
Swaptions.
An option on a swap agreement, also called a “swaption,” is an option that gives the buyer the right, but not the
obligation, to enter into a swap on a future date in exchange for paying a market based “premium.” A receiver swaption
gives the owner the right to receive the total return of a specified asset, reference rate, or index. A payer swaption gives the
owner the right to pay the total return of a specified asset, reference rate, or index. Swaptions also include options that allow
an existing swap to be terminated or extended by one of the counterparties.
General
Risks of Swaps. The risks associated with swap transactions are different from, and possibly greater than, the risks associated
with investing directly in the underlying instruments. Swaps are highly specialized instruments that require investment techniques
and risk analyses different from those associated with other portfolio investments. The use of swaps requires an understanding
not only of the underlying instrument but also of the swap contract itself. Swap transactions may be subject to the risk factors
generally applicable to derivatives transactions described above, and may also be subject to certain additional risk factors,
including:
| ● | Swap
agreements are not traded on exchanges and not subject to government regulation like
exchange-traded derivatives. As a result, parties to a swap agreement are not protected
by such government regulations as participants in transactions in derivatives traded
on organized exchanges. |
| ● | In
addition to the risk of default by the counterparty, if the creditworthiness of a counterparty
to a swap agreement declines, the value of the swap agreement would be likely to decline,
potentially resulting in losses. |
| ● | The
swaps market is a relatively new market and is largely unregulated. It is possible that
further developments in the swaps market, including potential governmental regulation,
could adversely affect the Fund’s ability to utilize swaps, terminate existing
swap agreements or realize amounts to be received under such agreements. |
Structured
Products
The
Fund also may invest a portion of its assets in structured notes and other types of structured investments (referred to collectively
as “structured products”). A structured note is a derivative security for which the amount of principal repayment
and/or interest payments is based on the movement of one or more “factors.” These factors include, but are not limited
to, currency exchange rates, interest rates (such as the prime lending rate or SOFR), referenced bonds and stock indices. The
cash flow or rate of return on a structured note may be determined by applying a multiplier to the rate of total return on the
referenced factor. Application of a multiplier is comparable to the use of financial leverage, a speculative technique. Leverage
magnifies the potential for gain and the risk of loss. As a result, a relatively small decline in the value of the referenced
factor could result in a relatively large loss in the value of a structured note.
Investments
in structured notes involve risks including interest rate risk, credit risk and market risk. Where the Fund’s investments
in structured notes are based upon the movement of one or more factors, including currency exchange rates, interest rates, referenced
bonds and stock indices, depending on the factor used and the use of multipliers or deflators, changes in interest rates and movement
of the factor may cause significant price fluctuations. Additionally, changes in the reference factor may cause the interest rate
on the structured note to be reduced to zero and any further changes in the reference factor may then reduce the principal amount
payable on maturity. Structured notes may be less liquid than other types of securities and more volatile than the reference factor
underlying the note.
Generally,
structured investments are interests in entities organized and operated for the purpose of restructuring the investment characteristics
of underlying investment interests or securities. These investment entities may be structured as trusts or other types of pooled
investment vehicles. This type of restructuring generally involves the deposit with or purchase by an entity of the underlying
investments and the issuance by that entity of one or more classes of securities backed by, or representing interests in, the
underlying investments. The cash flow or rate of return on the underlying investments may be apportioned among the newly issued
securities to create different investment characteristics, such as varying maturities, credit quality, payment priorities and
interest rate provisions. The Fund may have the right to receive payments to which it is entitled only from the structured investment,
and generally does not have direct rights against the issuer. Holders of structured investments bear risks of the underlying investment
and are subject to counterparty risk. While certain structured investment vehicles enable the investor to acquire interests in
a pool of securities without the brokerage and other expenses associated with directly holding the same securities, investors
in structured investment vehicles generally pay their share of the investment vehicle’s administrative and other expenses.
Certain
structured products may be thinly traded or have a limited trading market and may have the effect of increasing the Fund’s
illiquidity to the extent that the Fund, at a particular point in time, may be unable to find qualified buyers for these securities.
Combined
Transactions
Combined
transactions involve entering into multiple derivatives transactions (such as multiple options transactions, including purchasing
and writing options in combination with each other; multiple futures transactions; and combinations of options, futures, forward
and swap transactions) instead of a single derivatives transaction in order to customize the risk and return characteristics of
the overall position. Combined transactions typically contain elements of risk that are present in each of the component transactions.
The Fund may enter into a combined transaction instead of a single derivatives transaction when, in the opinion of the Investment
Adviser, it is in the best interest of the Fund to do so. Because combined transactions involve multiple transactions, they may
result in higher transaction costs and may be more difficult to close out.
Regulatory
Matters
The
Derivatives Rule permits the Fund to enter into derivatives transactions and certain other transactions notwithstanding the restrictions
on the issuance of “senior securities” under Section 18 of the 1940 Act. The Derivatives Rule requires registered
investment companies that enter into derivatives transactions and certain other transactions that create future payment or delivery
obligations to, among other things, (i) comply with a value-at-risk leverage limit, and (ii) adopt and implement a derivatives
risk management program, unless the Fund qualifies as a “limited derivatives user,” which the Derivatives Rule defines
as a fund that limits its derivatives exposure (excluding certain derivative transactions used to hedge currency and interest
rate risks) to 10% of its net assets. The Derivatives Rule requires a limited derivatives user to adopt policies and procedures
to manage its aggregate derivatives risk. The Fund currently qualifies, and intends to continue to qualify, as a limited derivatives
user and has adopted policies and procedures designed to manage its derivatives risk in accordance with the Derivatives Rule.
In the event that the Fund no longer qualifies as a limited derivatives user, the Fund will comply with the value-at-risk leverage
limit and adopt and implement a derivatives risk management program in accordance with the Derivatives Rule.
In
addition, each of the exchanges and other trading facilitates on which options are traded has established limitations on the maximum
number of put or call options on a given underlying security that may be written by a single investor or group of investors acting
in concert, regardless of whether the options are written on different exchanges or through one or more brokers. These position
limits may restrict the number of listed options which the Fund may write. Option positions of all investment companies advised
by the Investment Adviser are combined for purposes of these limits. An exchange may order the liquidation of positions found
to be in excess of these limits and may impose certain other sanctions or restrictions.
INVESTMENT
RESTRICTIONS
The
Fund operates under the following restrictions that constitute fundamental policies that, except as otherwise noted, cannot be
changed without the affirmative vote of the holders of a majority of the outstanding voting securities of the Fund voting together
as a single class, which is defined by the 1940 Act as the lesser of (i) 67% or more of the Fund’s voting securities present
at a meeting, if the holders of more than 50% of the Fund’s outstanding voting securities are present or represented by
proxy; or (ii) more than 50% of the Fund’s outstanding voting securities. Except as otherwise noted, all percentage limitations
set forth below apply immediately after a purchase or initial investment and any subsequent change in any applicable percentage
resulting from market fluctuations does not require any action. These restrictions provide that the Fund shall not:
| 1. | Purchase
or sell real estate unless acquired as a result of ownership of securities or other instruments,
provided that this restriction does not prevent the Fund from investing in issuers which
invest, deal or otherwise engage in transactions in real estate or interests in real
estate, or investing in securities that are secured by real estate or interests in real
estate. |
| 2. | Concentrate
the Fund’s investments in a particular “industry,” as that term is
used in the 1940 Act, and as interpreted, modified or otherwise permitted by regulatory
authority having jurisdiction from time to time; provided, however, that the Fund will,
in normal circumstances, invest more than 25% of its assets in the natural resources
industry, including MLPs operating in such industry, and may invest to an unlimited degree
in securities issued or guaranteed by the U.S. Government or any of its agencies or instrumentalities. |
| 3. | Borrow
money or issue senior securities, except to the extent permitted by the 1940 Act, or
any rules, exemptions or interpretations under the 1940 Act that may be adopted, granted
or issued by the SEC or its staff. |
| 4. | Make
loans to other persons except (a) through the lending of the Fund’s portfolio securities,
(b) through the purchase of debt obligations, loan participations and/or engaging in
direct corporate loans in accordance with the Fund’s investment objective and policies,
and (c) to the extent the entry into a repurchase agreement is deemed to be a loan. The
Fund may also make loans to other investment companies to the extent permitted by the
1940 Act, or any rules, exemptions or interpretations under the 1940 Act that may be
adopted, granted or issued by the SEC or its staff. |
| 5. | Act
as an underwriter except to the extent that, in connection with the disposition of portfolio
securities, the Fund may be deemed to be an underwriter under applicable securities laws. |
| 6. | Purchase
or sell physical commodities and commodity contracts, except that it may: (i) enter into
futures contracts and options on commodities in accordance with applicable law; and (ii)
purchase or sell physical commodities that it acquires as a result of ownership of securities
or other instruments. The Fund will not consider stock index, currency and other financial
futures contracts, swaps or hybrid instruments to be commodities for purposes of this
investment policy. |
The
rest of the Fund’s investment policies, including the Fund’s investment objective and percentage parameters described
in the Fund’s Prospectus, are not fundamental policies of the Fund and may be changed without shareholder approval.
With
respect to investment restriction #2 above, in normal circumstances, the Fund invests more than 25% of its assets (which for purposes
of such limitation means the total assets of the Fund) in issuers in the natural resources industry, which for purposes of investment
restriction #2 includes the industry or group of related industries that make up the natural resources sector. Midstream energy companies,
including MLPs, in which the Fund invests typically operate in the industry or group of related industries that make up the natural resources
sector.
MANAGEMENT
OF THE FUND
Board
of Trustees
The
Board of Trustees of the Fund provides broad oversight over the operations and affairs of the Fund and protects the interests
of shareholders. The Board of Trustees of the Fund has overall responsibility for monitoring the operations of the Fund and for
supervising the services provided by the Investment Adviser and other organizations. The officers of the Fund are responsible
for managing the day-to-day operations of the Fund.
The
names and ages of the Trustees and officers of the Fund, the year each was first elected or appointed to office, their principal
business occupations during the last five years, the number of funds overseen by each Trustee and other directorships or trusteeships
during the last five years are shown below. The business address of the Fund, its Trustees and officers is 600 N. Pearl Street,
Suite 1205, Dallas, Texas 75201.
Name
and Year of Birth |
Position(s)
Held With the Fund |
Term
of Office and Length of Time Served (1) |
Principal
Occupations During Past Five Years |
Number
of Portfolios in Fund Complex(2) Overseen by Trustee |
Other
Directorships Held by Trustee During the Past Five Years |
Brian
R. Bruce
(1955) |
Chair
of the Board |
Trustee
since 2007 |
Retired.
Previously, Chief Executive Officer, Hillcrest Asset Management, LLC (2008–2022) (registered investment adviser). |
4 |
CM
Advisers Family of Funds (2 series) (2003-2020). |
Andrea
N. Mullins
(1967) |
Trustee
and Chair of Audit Committee |
Trustee
since 2021 |
Private
Investor; Independent Contractor, SWM Advisors (2014-present) |
4 |
Valued
Advisers Trust (14 portfolios) (2013-present); Angel Oak Family of Funds (9 portfolios) (2019-present). |
Name
and Year of Birth |
Position(s)
Held With the Fund |
Term
of Office and Length of Time Served (1) |
Principal
Occupations During Past Five Years |
Number
of Portfolios in Fund Complex(2) Overseen by Trustee |
Other
Directorships Held by Trustee During the Past Five Years |
Ronald
P. Trout
(1939) |
Trustee
and Chair of the Nominating and Corporate Governance Committee |
Trustee
since 2007 |
Retired.
Previously, a founding partner and Senior Vice President of Hourglass Capital Management, Inc. (1989-2002) (investment management
company). |
4 |
Dorchester
Minerals LP (2008-present) (acquisition, ownership and administration of natural gas and crude oil royalty, net profits and
leasehold interests in the U.S.). |
Interested
Trustee |
|
|
|
|
|
John
H. Alban*
(1963) |
Trustee |
Trustee
since April 2023 |
Retired.
Previously, Chief Executive Officer (2019-2022) and Chief Operating Officer (2010-2022) of the Adviser; Chief Executive
Officer and President of funds in the Fund Complex (2021-2022).
|
4 |
None. |
| (1) | Each
Trustee serves a two year term concurrent with the class of Trustees for which he serves. |
| ● | Brian
R. Bruce and John H. Alban, as Class I Trustees, are expected to stand for re-election
at the Fund’s 2026 annual meeting of shareholders. |
| ● | Andrea
N. Mullins, as Class II Trustee, is expected to stand for re-election at the Fund’s
2024 annual meeting of shareholders. |
| ● | Ronald
P. Trout, as Class III Trustee, is expected to stand for re-election at the Fund’s
2025 annual meeting of shareholders. |
| (2) | The
“Fund Complex” includes each other registered investment company for which the Investment Adviser serves as investment
adviser. As of the date of this SAI, there are four funds (including the Fund) in the “Fund Complex.” |
| * | Mr.
Alban is an “interested person” of the Fund, as defined under the 1940 Act,
by virtue of his position as Chief Executive Officer and Chief Operating Officer of the
Investment Adviser prior to November 30, 2022. |
Trustee
Qualifications
The
Board of Trustees has determined that each Trustee should serve as such based on several factors (none of which alone is decisive).
Among the factors the Board of Trustees considered when concluding that an individual should serve on the Board of Trustees were
the following: (i) availability and commitment to attend meetings and perform the responsibilities of a Trustee, (ii) personal
and professional background, (iii) educational background, (iv) financial expertise, and (v) ability, judgment, attributes and
expertise. In respect of each current Trustee, the individual’s professional accomplishments and prior experience, including,
in some cases, in fields related to the operations of the Fund, were a significant factor in the determination that the individual
should serve as a trustee of the Fund.
Following
is a summary of various qualifications, experiences and skills of each Trustee (in addition to business experience during the
past five years as set forth in the table above) that contributed to the Board of Trustee’s conclusion that an individual
should serve on the Board of Trustees. References to the qualifications, attributes and skills of Trustees do not constitute the
holding out of any Trustee as being an expert under Section 7 of the Securities Act of 1933, as amended (“Securities Act”)
or the rules and regulations of the SEC.
Brian
R. Bruce. Mr. Bruce has served as a Trustee of the Fund since the Fund’s inception, and has served as a Trustee of the
portfolios in the Fund Complex since 2007. Through his experience as a Trustee of and Chairman of the Audit Committee of funds
in the Fund Complex and certain other registered investment companies, as a professor at Southern Methodist University’s
Cox School of Business and Director of the ENCAP Investments & LCM Group Alternative Asset Management Center and as a chief
executive officer, and formerly chief investment officer, of investment management firms, Mr. Bruce is experienced in financial,
accounting, regulatory and investment matters.
Andrea
N. Mullins. Ms. Mullins has served as a Trustee of funds in the Fund Complex since 2021 and since 2021 has served as Chair
of the Audit Committee. Ms. Mullins has served as a trustee of a family of investment companies since 2013. Through her experience
as a Trustee of funds in the Fund Complex and Chair of the Audit Committee of funds in the Fund Complex and her former positions
in senior financial roles at asset management companies, her service as a trustee of other investment companies, including as
a member of the audit and pricing committees and her experience as an independent contractor with a registered investment adviser,
Ms. Mullins is experienced in financial, accounting, regulatory and investment matters.
Ronald
P. Trout. Mr. Trout has served as a Trustee of funds in the Fund Complex since 2007. Through his experience as a Trustee of
and Chair of the Nominating and Corporate Governance Committee of funds in the Fund Complex, as founding partner and senior vice
president of an investment management firm and his service on the board of a publicly traded natural resources company, Mr. Trout
is experienced in financial, regulatory and investment matters.
John
H. Alban. Mr. Alban has served as a Trustee of funds in the Fund Complex since January 2023. Through his former positions
as the Chief Executive Officer of the Investment Adviser from 2019-2022 and as Chief Operating Officer of the Investment Adviser
from 2010-2019 and his experience as Chief Executive Officer and President of funds in the Fund complex from 2021-2022, Mr. Alban
is experienced in financial, regulatory and investment matters.
Board
Leadership Structure
The
primary responsibility of the Board is to represent the interests of the Funds and to provide oversight of the management of the
Funds. The Funds’ day-to-day operations are managed by the Adviser and other service providers who have been approved by
the Board. The Board is currently comprised of four Trustees, three of whom are classified under the 1940 Act as “non-interested”
persons of the Funds and one of whom is classified as an “interested person” of the Funds. Generally, the Board acts
by majority vote of all the Trustees, including a majority vote of the Independent Trustees, if required by applicable law.
An
Independent Trustee, Mr. Brian R Bruce, currently serves as Chair of the Board. The Chair of the Board presides at meetings of
the Board and acts as a liaison with service providers, officers, attorneys and other Trustees generally between meetings, and
performs such other functions as may be requested by the Board from time to time.
The
Board meets regularly meets four times each year to discuss and consider matters concerning the Fund, and also holds special meetings
to address matters arising between regular meetings. Regular meetings generally take place in-person; other meetings may take
place in-person or by telephone. The Independent Trustees are advised by independent legal counsel and regularly meet outside
the presence of Fund management.
The
Trustees have determined that the efficient conduct of the Trustees’ affairs makes it desirable to delegate responsibility
for certain specific matters to committees of the Board. The committees meet as often as necessary, either in conjunction with
regular meetings of the Board or otherwise. The committees of the Board are the Audit Committee and the Nominating and Corporate
Governance Committee (each a “Committee”). The functions and role of each Committee are described below under “—Board
Committees.” The membership of each Committee consists of all of the Independent Trustees, which the Board believes allows
them to participate in the full range of the Board’s oversight duties.
The
Board has determined that this leadership structure, including a Chairman of the Board who is an Independent Trustee, a supermajority
of Independent Trustees and Committee membership limited to Independent Trustees, is appropriate in light of the characteristics
and circumstances of the Fund. In reaching this conclusion, the Board considered, among other things, the role of the Investment
Adviser in the day-to-day management of Fund affairs, the extent to which the work of the Board will be conducted through the
Committees, the projected net assets of the Fund and the management, distribution and other service arrangements of the Fund.
The Board also believes that its structure, including the presence of one Trustee who is or was previously an executive
officer of the Investment Adviser, facilitates an efficient flow of information concerning the management of the Fund to the Independent
Trustees.
Board
Committees
Nominating
and Corporate Governance Committee. Brian R. Bruce, Ronald P. Trout and Andrea N. Mullins, who are not “interested persons”
of the Fund, as defined in the 1940 Act, serve on the Fund’s Nominating and Corporate Governance Committee. Ronald P. Trout
serves as chair of the Nominating and Corporate Governance Committee. As part of its duties, the Nominating and Corporate Governance
Committee makes recommendations to the full Board with respect to candidates for the Board in the event that a position is vacated
or created. The Nominating and Corporate Governance Committee would consider Trustee candidates recommended by Shareholders if
a vacancy were to exist. Such recommendations should be forwarded to the Secretary of the Fund. In considering candidates submitted
by Shareholders, the Nominating and Corporate Governance Committee will take into consideration the needs of the Board and the
qualifications of the candidate.
Audit
Committee. Brian R. Bruce, Andrea N. Mullins and Ronald P. Trout, who are not “interested persons” of the Fund,
as defined in the 1940 Act, serve on the Fund’s Audit Committee. Andrea N. Mullins serves as chair of the Audit Committee.
The Audit Committee is generally responsible for reviewing and evaluating issues related to the accounting and financial reporting
policies and internal controls of the Fund and, as appropriate, the internal controls of certain service providers, overseeing
the quality and objectivity of the Fund’s financial statements and the audit thereof and acting as a liaison between the
Board and the Fund’s independent registered public accounting firm.
Board
and Committee Meetings. During the Fund’s fiscal year ended November 30, 2022, the Board held four meetings, the Audit
Committee held one meeting and the Nominating and Corporate Governance Committee held two meetings.
Board’s
Role in Risk Oversight
The
Fund has retained the Investment Adviser to provide investment advisory services and certain administrative services. The Investment
Adviser is primarily responsible for the management of risks that may arise from Fund investments and operations. Certain employees
of the Investment Adviser serve as the Fund’s officers, including the
Fund’s
President, Chief Executive Officer and Chief Financial Officer. The Board of Trustees oversees the performance of these functions
by the Investment Adviser, both directly and through the Committee structure the Board of Trustees has established. The Board
of Trustees will receive from the Investment Adviser reports on a regular and as-needed basis relating to the Fund’s investment
activities and to the actual and potential risks of the Fund, including reports on investment risks, compliance with applicable
laws, and the Fund’s financial accounting and reporting. In addition, the Board of Trustees will meet periodically with
the portfolio managers of the Fund to receive reports regarding the portfolio management of the Fund and its performance and investment
risks.
In
addition, the Board of Trustees has appointed a Chief Compliance Officer (“CCO”). The CCO oversees the development
of compliance policies and procedures of the Fund that are reasonably designed to minimize the risk of violations of the federal
securities laws (“Compliance Policies”). The CCO reports directly to the Independent Trustees, and will provide presentations
to the Board of Trustees at its quarterly meetings and an annual report on the application of the Compliance Policies. The Board
of Trustees will discuss relevant risks affecting the Fund with the CCO at these meetings. The Board of Trustees has approved
the Compliance Policies and will review the CCO’s reports. Further, the Board of Trustees will annually review the sufficiency
of the Compliance Policies, as well as the appointment and compensation of the CCO.
Executive
Officers
The
following information relates to the executive officers of the Funds who are not Trustees. The officers of the Fund were appointed
by the Board of Trustees and will serve until their respective successors are chosen and qualified.
Name
and Year of Birth |
Position |
Principal
Occupation During the Past Five Years |
John Musgrave (1982) |
Chief Executive Officer
and President |
Chief Executive Officer and President (2023-Present),
Co-Chief Investment Officer (2016-2023), Managing Director (2016-2023), Chief Investment Officer (2023-present) and Portfolio Manager
(2007-Present) of the Investment Adviser. |
Blake R. Nelson (1986) |
Chief Financial Officer
and Treasurer |
Chief
Financial Officer (2021-present) and Controller (2013-2021) of the Adviser. Previously, fund accountant at JD Clark & Company
(2011-2013). Mr. Nelson is a Certified Public Accountant. |
Mathew J. Calabro (1966) |
Chief Compliance Officer |
Chief Compliance Officer
of the Adviser and funds in the fund complex (2021-present); Executive Director, Compliance Services at Confluence Technologies (2022-present);
Director of Institutional Manager Services at Ascendant Compliance Management, LLC (a subsidiary of Confluence Technologies) (2016-2022). |
Shareholder
Communications
Shareholders
may send communications to the Fund’s Board of Trustees. Shareholders should send communications intended for the Fund’s
Board of Trustees by addressing the communications directly to the Board of Trustees (or individual Board member(s)) and/or otherwise
clearly indicating in the salutation that the communication is for the Board of Trustees (or individual Board members) and by
sending the communication to either the Fund’s office or directly to such Board member(s) at the address specified above
for each Trustee. Other shareholder communications received by the Fund not directly addressed and sent to the Board of Trustees
will be reviewed and generally responded to by management and will be forwarded to the Board of Trustees only at management’s
discretion based on the matters contained in those communications.
Remuneration
of Trustees and Officers
The
following table provides information regarding compensation of the Trustees of the Fund and for the Fund Complex, each for the
fiscal year ended November 30, 2022. Officers of the Funds do not receive any compensation from the Funds. The Trustees do not
receive any pension or retirement benefits from the Fund Complex.
Trustee(1) | |
Aggregate Estimated Compensation From Fund | | |
Pension or Retirement Benefits Accrued as Part of Fund Expenses(2) | |
Estimated Annual Benefits Upon Retirement(2) | |
Total Compensation from Fund and Fund Complex Paid to Trustees(3) | |
Independent Trustees: | |
| | | |
| |
| |
| | |
Brian R. Bruce | |
$ | 30,119 | | |
None | |
None | |
$ | 94,000 | |
Andrea N. Mullins | |
$ | 30,119 | | |
None | |
None | |
$ | 94,000 | |
Ronald P. Trout | |
$ | 30,119 | | |
None | |
None | |
$ | 94,000 | |
Interested Trustee | |
| | | |
| |
| |
| | |
John H. Alban | |
| None | | |
None | |
None | |
| None | |
| (1) | Trustees
not entitled to compensation are not included in the table. |
| (2) | The
Fund does not accrue or pay retirement or pension benefits to Trustees as of the date of this SAI. |
| (3) | As
of the end of the most recently completed fiscal year. The “Fund Complex” includes the Fund and each other registered
investment company for which the Investment Adviser serves as investment adviser. As of the date of this SAI, there are four funds
(including the Fund) in the Fund Complex. |
Trustee
Share Ownership
As
of March 1, 2023, each Trustee of the Fund beneficially owned equity securities of the Fund and all of the registered investment
companies in the family of investment companies overseen by the Trustee in the dollar range amounts specified below.
Name
of Trustee |
Dollar
Range of Equity Securities in the Fund |
Aggregate
Dollar Range of Equity Securities in All Registered Investment Companies Overseen by Trustee in Family of Investment Companies(1) |
Independent
Trustees: |
|
|
Brian
R. Bruce |
$10,001-$50,000 |
$10,001-$50,000 |
Andrea
N. Mullins |
None |
None |
Ronald
P. Trout |
$1-
$10,000 |
$1-
$10,000 |
Interested
Trustee: |
|
|
John
H. Alban |
None |
$10,001-$50,000 |
| (1) | The
“Family of Investment Companies” includes the Fund and each other registered investment company for which the Investment
Adviser serves as investment adviser. As of the date of this SAI, there are four funds (including the Fund) in the Family of Investment
Companies. |
As
of March 1, 2023, the Trustees and officers of the Fund as a group owned less than 1% of the outstanding common shares of the
Fund.
PORTFOLIO
MANAGEMENT
John Musgrave and Todd Sunderland
(the “portfolio managers”) are primarily responsible for the day-to-day management of the Fund’s portfolio. The following
section discusses the accounts managed by the portfolio manager, the structure and method of their compensation and potential conflicts
of interest.
Other
accounts managed by the portfolio managers
The
following table reflects information regarding accounts for which a portfolio manager has day-to-day management responsibilities (other
than the Fund). Accounts are grouped into three categories: (a) registered investment companies, (b) other pooled investment accounts,
and (c) other accounts. To the extent that any of these accounts pay advisory fees that are based on account performance, this information
will be reflected in a separate table below. Asset amounts are approximate and have been rounded.
As
of November 30, 2022, Mr. Musgrave managed or was a member of the management team for the following client accounts (excluding
the Fund):
| |
Number
of Accounts | | |
Assets
of Accounts | | |
Number
of Accounts Subject to a Performance Fee | | |
Assets
Subject to a Performance Fee | |
Registered Investment Companies | |
| 1 | | |
$ | 776,596,751 | | |
| 0 | | |
$ | 0 | |
Pooled Investment Vehicles Other Than Registered Investment Companies | |
| 1 | | |
$ | 42,915,156 | | |
| 1 | | |
$ | 42,915,156 | |
Other Accounts | |
| 19 | | |
$ | 15,951,285 | | |
| 0 | | |
$ | 0 | |
As of November 30, 2022,
Mr. Sunderland did not manage any client accounts nor was he a member of the management team. Mr. Sunderland is also the Chief Risk Officer and Chief Operating Officer of the Investment Adviser and joined the Investment Adviser
in 2007. Mr. Sunderland was appointed portfolio manager on October 9, 2023.
Each portfolio manager is
compensated by the Investment Adviser. Each portfolio manager receives a base salary and is eligible to receive incentive compensation
based on the profits of the Investment Adviser. The incentive compensation is affected by the amount of assets the Investment Adviser
manages and the appreciation of those assets, particularly over the long-term, but are not determined with specific reference to any
particular performance benchmark or time period. Some of the other accounts managed by the portfolio manager, including the Affiliated
Funds, have investment strategies that are similar to the registrant’s investment strategy. However, the Investment Adviser manages
potential material conflicts of interest by allocating investment opportunities in accordance with its allocation policies and procedures.
Securities
Ownership of the Portfolio Manager
As of November 30, 2022,
the dollar range of equity securities in the Fund beneficially owned by the portfolio managers was as follows:
| Mr. Musgrave: | $10,001-$50,000 |
INVESTMENT
MANAGEMENT AGREEMENT
Cushing®
Asset Management, LP d/b/a NXG Investment Management acts as the investment adviser to the Fund. The Investment Adviser’s
principal business address is 600 N. Pearl Street, Suite 1205, Dallas, Texas 75201.
The
Investment Adviser provides investment advisory services to the Fund pursuant to the terms of an Investment Advisory Agreement
(the “Investment Management Agreement”), dated August 6, 2007, between the Investment Adviser and the Fund. The Investment
Management Agreement has an initial term expiring two years after the date of its execution, and may be continued in effect from
year to year thereafter subject to the approval thereof by (1) the Board of Trustees or (2) vote of a majority (as defined by
the 1940 Act) of the outstanding voting securities of the Fund, provided that in either event the continuance must also be approved
by a majority of the Independent Trustees, by vote cast in person at a meeting called for the purpose of voting on such approval.
The
Investment Management Agreement may be terminated at any time, without the payment of any penalty, upon 60 days’ written
notice by either party. The Fund may terminate by action of the Board of Trustees or by a vote of a majority of the Fund’s
outstanding voting securities (accompanied by appropriate notice), and the Investment Management Agreement will terminate automatically
upon its assignment (as defined in the 1940 act and the rules thereunder). The Investment Management Agreement may also be terminated,
at any time, without payment of any penalty, by the Board of Trustees or by vote of a majority of outstanding voting securities,
in the event that it is established by a court of competent jurisdiction that the Investment Adviser or any principal, officer
or employee of the Investment Adviser has taken any action that results in a breach of the covenants of the Investment Adviser
set out in the Investment Management Agreement. The Investment Management Agreement will provide that the Investment Adviser will
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 will have been based upon the investigation and research made by any other individual, firm or corporation,
if such recommendation will 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 Investment Adviser in performance of its obligations and duties, or by reason
of its reckless disregard of its obligations and duties under the Investment Management Agreement.
Pursuant
to the Investment Management Agreement, the Investment Adviser is responsible for managing the portfolio of the Fund in accordance
with its stated investment objective and policies, makes investment decisions for the Fund, placing orders to purchase and sell
securities on behalf of the Fund and managing the other business and affairs of the Fund, all subject to the supervision and direction
of the Fund’s Board of Trustees. Although the Investment Adviser intends to devote such time and effort to the business
of the Fund as is reasonably necessary to perform its duties to the Fund, the services of the Investment Adviser are not exclusive,
and the Investment Adviser provides similar services to other clients and may engage in other activities.
Pursuant to the Investment
Management Agreement, the Fund has agreed to pay the Investment Adviser a fee, payable at the end of each calendar month, at an annual
rate equal to 1.25% of the average weekly value of the Fund’s Managed Assets during such month (the “Management Fee”)
for the services and facilities provided by the Investment Adviser to the Fund. For purposes of the Management Fee, “Managed Assets”
means the total assets of the Fund, minus all accrued expenses incurred in the normal course of operations other than liabilities or
obligations attributable to investment leverage, including, without limitation, investment leverage obtained through (i) indebtedness
of any type (including, without limitation, borrowing through a credit facility or the issuance of debt securities), (ii) the issuance
of shares of preferred stock or other similar preference securities and/or (iii) the reinvestment of collateral received for securities
loaned in accordance with the Fund’s investment objective and policies.
Pursuant to a fee waiver
agreement by and between the Fund and the Investment Adviser, effective February 1, 2023, the Investment Adviser has contractually agreed to waive
a portion of the management fee in an amount equal to 0.25% of the Fund’s Managed Assets through May 31, 2024.
Because
the Management Fee is based upon a percentage of the Fund’s Managed Assets, the Management Fee will be higher if the Fund employs
leverage. Therefore, the Investment Adviser will have a financial incentive to use leverage, which may create a conflict of interest
between the Investment Adviser and the Fund’s common shareholders.
The
Investment Adviser also provides such additional administrative services as the Fund may require beyond those furnished by the
Administrator and furnishes, at its own expense, such office space, facilities, equipment, clerical help, and other personnel
and services as may reasonably be necessary in connection with the operations of the Fund.
In
addition, the Investment Adviser pays the salaries of officers of the Fund who are employees of the Investment Adviser and any
fees and expenses of Trustees of the Fund who are also officers, directors, or employees of the Investment Adviser or who are
officers or employees of any company affiliated with the Investment Adviser and bears the cost of telephone service, heat, light,
power, and other utilities associated with the services it provides.
Advisory
Fees Paid
The
following summarizes the investment advisory fees, less any fees waived by the Investment Adviser, paid pursuant to the investment
advisory fee agreement in effect during the last three fiscal years ended November 30:
|
2022 |
2021 |
2020 |
Contractual Advisory
Fee |
$1,441,315 |
$1,291,759 |
$884,834 |
Fees Waived |
($288,263) |
($258,352) |
($176,832) |
Net Fee Paid |
$1,153,052 |
$1,033,407 |
$708,002 |
PORTFOLIO
TRANSACTIONS AND BROKERAGE
Subject
to the oversight of the Board of Trustees, the Investment Adviser is responsible for decisions to buy and sell securities for
the Fund, the negotiation of the commissions to be paid on brokerage transactions, the prices for principal trades in securities,
and the allocation of portfolio brokerage and principal business. It is the policy of the Investment Adviser to seek the best
execution at the best security price available with respect to each transaction in light of the overall quality of brokerage and
research services provided to the Investment Adviser. In selecting broker/dealers and in negotiating commissions, the Investment
Adviser will consider, among other things, the firm’s reliability, the quality of its execution services on a continuing
basis and its financial condition.
Section
28(e) of the Securities Exchange Act of 1934, as amended, permits an investment adviser, under certain circumstances, to cause
an account to pay a broker or dealer who supplies brokerage and research services a commission for effecting a transaction in
excess of the amount of commission another broker or dealer would have charged for effecting the transaction. Brokerage and research
services include (a) furnishing advice as to the value of securities, the advisability of investing, purchasing or selling securities,
and the availability of securities or purchasers or sellers of securities; (b) furnishing analyses and reports concerning issuers,
industries, securities, economic factors and trends, portfolio strategy, and the performance of accounts; and (c) effecting securities
transactions and performing functions incidental to those transactions (such as clearance, settlement and custody).
In
light of the above, in selecting brokers, the Investment Adviser may consider investment and market information and other research,
such as economic, securities and performance measurement research, provided by such brokers, and the quality and reliability of
brokerage services, including execution capability, performance, and financial responsibility. Accordingly, the commissions charged
by any such broker may be greater than the amount another firm might charge if the Investment Adviser determines in good faith
that the amount of such commissions is reasonable in relation to the value of the research information and brokerage services
provided by such broker to the Investment Adviser or to the Fund. The Investment Adviser believes that the research information
received in this manner provides the Fund with benefits by supplementing the research otherwise available to the Investment Adviser.
The
Investment Adviser seeks to allocate portfolio transactions equitably whenever concurrent decisions are made to purchase or sell
securities on behalf of the Fund and another advisory account. In some cases, this procedure could have an adverse effect on the
price or the amount of securities available to the Fund. In making such allocations between the Fund and other advisory accounts,
the main factors considered by the Investment Adviser are the investment objective, the relative size of portfolio holding of
the same or comparable securities, the availability of cash for investment and the size of investment commitments generally held,
and the views of the persons responsible for recommending investments to the Fund and such other accounts and funds.
Commissions
Paid
The
Fund paid approximately the following commissions to brokers during the fiscal years shown:
Fiscal Year Ended November 30 | | |
All Brokers | |
Affiliated Brokers |
2022 | | |
$ |
589,325 | |
None |
2021 | | |
$ |
449,780 | |
None |
2020 | | |
$ |
302,038 | |
None |
Fiscal Year Ended November 30, 2022 Percentages: | | |
| |
|
Commissions with affiliate to total transactions: | | |
| |
None |
Value of brokerage transactions with affiliate to total transactions: | | |
| |
None |
During
the fiscal period ended November 30, 2022, the Fund paid $131,785 in brokerage commissions on transactions totaling $71,413,552 to brokers
selected primarily on the basis of research services provided to the Investment Adviser.
U.S.
FEDERAL INCOME TAX CONSIDERATIONS
The
following discussion is a summary of the U.S. federal income tax considerations generally applicable to the ownership and disposition
of Common Shares. This discussion is based upon current provisions of the Code, the Treasury regulations promulgated thereunder
and judicial and administrative authorities, all of which are subject to change or differing interpretations by the courts or
the Internal Revenue Service (the “IRS”), possibly with retroactive effect. This discussion does not address any other
U.S. federal tax considerations (such as estate, gift, or net investment taxes) or any state, local or non-U.S. tax considerations.
No ruling has been or will be sought from the IRS regarding any matter discussed herein. No assurance can be given that the IRS
would not assert, or that a court would not sustain, a position different from any of the tax aspects set forth below. Unless
otherwise noted, this discussion assumes that the Common Shares are held by U.S. persons and that Common Shareholders hold their
Common Shares as capital assets for U.S. federal income tax purposes (generally, assets held for investment). No attempt is made
to present a detailed explanation of all U.S. federal income tax concerns affecting the Fund and its Common Shareholders (including
Common Shareholders that are subject to special provisions of the Code, such as financial institutions, insurance companies, a
partnership or other pass-through entity for U.S. federal income tax purposes, Common Shareholders whose “functional currency”
is not the U.S. dollar, tax-exempt organizations, a controlled foreign corporation or a passive foreign investment company, dealers
in securities or currencies, traders in securities or commodities that elect mark-to-market treatment, persons that will hold
Common Shares as a position in a “straddle,” “hedge” or as part of a “constructive sale” for
federal income tax purposes, persons subject to special rules or exemptions under the Foreign Investment in Real Property Tax
Act of 1980, persons that actually or constructively own or have owned a large position in the Fund, and, except as otherwise
expressly indicated, non-U.S. persons), and the discussions set forth here and in the Prospectus do not constitute tax advice.
Investors are urged to consult their tax advisors regarding the U.S. federal, state, local and foreign tax consequences of investing
in the Fund.
Taxation
of the Fund
Since
its inception and through the Fund’s fiscal year ended November 30, 2017, the Fund was treated as a regular corporation,
or a “C” corporation, for U.S. federal income tax purposes and, as a result, unlike most investment companies, was
subject to corporate income tax to the extent the Fund recognized taxable income. In conjunction with certain changes to the Fund’s
non-fundamental investment policies that became effective on February 20, 2018, the Fund has managed its portfolio in a manner
intended to allow the Fund to qualify as, and the Fund elected to be treated as, a RIC for U.S. federal income tax purposes beginning
with the Fund’s fiscal year ending November 30, 2018. Except as otherwise expressly indicated, the remainder of this discussion
assumes the Fund has qualified, and will continue to qualify, for taxation as a RIC for its fiscal year ending November 30, 2018,
and thereafter.
In
order to qualify to be taxed as a RIC, the Fund must, among other things: (i) derive in each taxable year at least 90% of its
gross income from the following sources, which are referred herein as “Qualifying Income”: (a) dividends, interest
(including tax-exempt interest), payments with respect to certain securities loans, gains from the sale or other disposition of
stock, securities, or foreign currencies, or other income (including but not limited to gain from options, futures and forward
contracts) derived with respect to its business of investing in such stock, securities or currencies and (b) net income derived
from interests in certain publicly traded partnerships that are treated as partnerships for U.S. federal income tax purposes and
derive less than 90% of their gross income from the items described in clause (a) above (each a “Qualified Publicly Traded
Partnership”), which includes most MLPs; and (ii) diversify its holdings so that, at the end of each quarter of each taxable
year (a) at least 50% of the value of the Fund’s total assets is represented by cash and cash items, U.S. government securities,
the securities of other RICs and other securities, with such other securities limited, in respect of any one issuer, to an amount
not greater than 5% of the value of the Fund’s total assets and not more than 10% of the outstanding voting securities of
such issuer and (b) not more than 25% of the value of the Fund’s total assets is invested in the securities of (I) any one
issuer (other than U.S. government securities and the securities of other RICs), (II) any two or more issuers (other than RICs)
that the Fund controls and that are determined to be engaged in the same business or similar or related trades or businesses or
(III) any one or more Qualified Publicly Traded Partnerships. The Fund may generate certain income that might not qualify as good
income for purposes of the 90% annual gross income requirement described above. The Fund will monitor the Fund’s transactions
to endeavor to prevent the Fund’s disqualification as a RIC.
Income
from the Fund’s investments in equity interests of partnerships that are not Qualified Publicly Traded Partnerships (if
any) will be Qualifying Income only to the extent it is attributable to items of income of such MLP that would be Qualifying Income
if earned directly by the Fund.
The
Fund’s investments in partnerships, including in Qualified Publicly Traded Partnerships, may result in the Fund being subject
to state, local or foreign income, franchise or withholding tax liabilities.
If
the Fund fails to satisfy the 90% annual gross income requirement or the asset diversification requirements discussed above in
any taxable year, it may be eligible for relief provisions if the failures are due to reasonable cause and not willful neglect
and if a penalty tax is paid with respect to each failure to satisfy the applicable requirements. Additionally, relief is provided
for certain de minimis failures of the asset diversification requirements where the Fund corrects the failure within a specified
period. If the applicable relief provisions are not available or cannot be met, all of the Fund’s income would be subject
to corporate-level U.S. federal income tax as described below. The fund cannot provide assurance that the Fund would qualify for
any such relief should the Fund fail the 90% annual gross income requirement or the asset diversification requirements discussed
above.
For
each taxable year the Fund is treated as a RIC for U.S. federal income tax purposes, subject to the discussion of built-in gains
below the Fund generally will not be subject to U.S. federal income tax on income and gains that it distributes each taxable year
to its Common Shareholders, provided that in such taxable year it distributes at least 90% of the sum of (i) its investment company
taxable income (which includes, among other items, dividends, interest, the excess of any net short-term capital gain over net
long-term capital loss and other taxable income, other than net capital gain (as defined below), reduced by deductible expenses)
determined without regard to the deduction for dividends paid and (ii) its net tax-exempt interest income (the excess of its gross
tax-exempt interest income over certain disallowed deductions), if any (the “Annual Distribution Requirement”). The
Fund intends to distribute annually all or substantially all of such income and gain on a timely basis. If the Fund retains any
investment company taxable income or net capital gain (as defined below), it will be subject to U.S. federal income tax on the
retained amount at regular corporate tax rates. In addition, the Fund will be subject to regular U.S. federal income tax or any
built-in gains that existed in its assets as of the time of its conversion to a RIC, to the extent such gains were recognized
within five years of that time.
The
Fund may retain for investment its net capital gain (which consists of the excess of its net long-term capital gain over its net
short-term capital loss). However, if the Fund retains any net capital gain or any investment company taxable income, it will
be subject to a tax on such amount at regular corporate tax rates. If the Fund retains any net capital gain, it may designate
the retained amount as undistributed capital gains in a notice to its Common Shareholders, each of whom, if subject to U.S. federal
income tax on long-term capital gains, (i) will be required to include in income for U.S. federal income tax purposes its share
of such undistributed net capital gain, (ii) will be entitled to credit its proportionate share of the tax paid by the Fund against
its U.S. federal income tax liability, if any, and to claim refunds to the extent that the credit exceeds such liability and (iii)
will increase its tax basis in its Common Shares by the excess of the amount described in clause (i) over the amount described
in clause (ii). A Common Shareholder that is not subject to U.S. federal income tax or otherwise is not required to file a U.S.
federal income tax return would be required to file a U.S. federal income tax return on the appropriate form in order to claim
a refund for the taxes paid by the Fund.
Amounts
not distributed on a timely basis in accordance with a calendar year distribution requirement are subject to a nondeductible 4%
U.S. federal excise tax at the Fund level. To avoid the excise tax, the Fund must distribute (or be deemed to have distributed)
during each calendar year an amount at least equal to the sum of (i) 98% of its ordinary income (not taking into account any capital
gains or losses) for the calendar year and (ii) 98.2% of its capital gains in excess of its capital losses (adjusted for certain
ordinary losses) for a one-year period generally ending on October 31 of the calendar year (unless an election is made to use
the Fund’s taxable year instead). In addition, the minimum amounts that must be distributed in any year to avoid the excise
tax will be increased or decreased to reflect any under-distribution or over-distribution, as the case may be, from previous years.
While the Fund intends to distribute any income and capital gain in the manner necessary to minimize imposition of the 4% federal
excise tax, there can be no assurance that sufficient amounts of the Fund’s taxable income and capital gains will be distributed
to avoid entirely the imposition of the tax. In that event, the Fund will be liable for the tax only on the amount by which it
does not meet the foregoing distribution requirement.
Dividends
and distributions will be treated as paid during the calendar year if they are paid during the calendar year or declared by the
Fund in October, November or December of the year, payable to Common Shareholders of record on a date during such a month and
paid by the Fund during January of the following year. Any such dividend or distribution paid during January of the following
year will be deemed to be received by Common Shareholders on December 31 of the year the dividend or distribution was declared,
rather than when the dividend or distribution is actually received.
If
the Fund were unable to satisfy the 90% distribution requirement or otherwise were to fail to qualify as a RIC in any year, it
would be taxed on all of its taxable income in the same manner as an ordinary corporation and distributions to Common Shareholders
would not be deductible by the Fund in computing its taxable income.
To
qualify again to be taxed as a RIC in a subsequent year following the Fund’s failure to qualify as a RIC, the Fund would
be required to distribute to its Common Shareholders its accumulated earnings and profits attributable to non-RIC years. In addition,
if the Fund failed to qualify as a RIC for a period greater than two taxable years, then, in order to qualify as a RIC in a subsequent
year, the Fund would be required to elect to recognize and pay tax on any net built-in gain (the excess of aggregate gain, including
items of income, over aggregate loss that would have been realized if the Fund had been liquidated) or, alternatively, be subject
to taxation on such built-in gain recognized for a period of five years.
Gain
or loss on the sale of securities by the Fund will generally be long-term capital gain or loss if the securities have been held
by the Fund for more than one year. Gain or loss on the sale of securities held for one year or less will be short-term capital
gain or loss. If the Fund realizes a net capital loss, the excess of the Fund’s net short-term capital loss over the Fund’s
net long-term capital gain is treated as a short-term capital loss arising on the first day of the Fund’s next taxable year
and the excess of the Fund’s net long-term capital loss over the Fund’s net short-term capital gain is treated as
a long-term capital loss arising on the first day of the Fund’s next taxable year. If future capital gain is offset by carried
forward capital losses, such future capital gain is not subject to Fund-level U.S. federal income tax, regardless of whether they
are distributed to Common Shareholders. Accordingly, the Fund does not expect to distribute any such offsetting capital gain.
A RIC cannot carry back or carry forward any net operating losses.
The
Fund may decide to be taxed as a regular corporation even if the Fund would otherwise qualify as a RIC if the Fund determines
that treatment as a corporation for a particular year would be in the Fund’s best interests.
Certain
Fund Investments
Certain
of the Fund’s investment practices are subject to special and complex U.S. federal income tax provisions that may, among
other things, (i) disallow, suspend or otherwise limit the allowance of certain losses or deductions (including the dividends
received deduction), (ii) convert lower taxed long-term capital gains or qualified dividend income into higher taxed short-term
capital gains or ordinary income, (iii) convert ordinary loss or a deduction into capital loss (the deductibility of which is
more limited), (iv) cause the Fund to recognize income or gain without a corresponding receipt of cash, (v) adversely affect the
time as to when a purchase or sale of stock or securities is deemed to occur, (vi) adversely alter the characterization of certain
complex financial transactions and (vii) produce income that will not qualify as good income for purposes of the 90% annual gross
income requirement described above. The Fund will monitor its transactions and may make certain tax elections and may be required
to borrow money or dispose of securities to mitigate the effect of these rules and prevent disqualification of the Fund as a RIC.
Certain
investment practices could limit the Fund’s ability to make sufficient distributions to satisfy the Annual Distribution
Requirement and to eliminate the imposition of Fund-level income and excise taxes. For example, the MLPs in which the Fund intends
to invest are expected to be treated as partnerships for U.S. federal income tax purposes. The cash distributions received by
the Fund from an MLP may not correspond to the amount of income allocated to the Fund by the MLP in any given taxable year, and
the amount of income allocated by an MLP to the Fund may exceed the amount of cash received by the Fund from such MLP. In addition,
certain other investments by the Fund may require the Fund to recognize income or gains without a corresponding receipt of cash.
Moreover, if the Fund utilizes leverage, it may be prevented by 1940 Act requirements or loan covenants from declaring and paying
dividends in certain circumstances. For the foregoing reasons, among others, the Fund may have difficulty making distributions
to its Common Shareholders in the amounts necessary to satisfy the requirements for maintaining its status as a RIC or avoiding
U.S. federal income or excise taxes. Accordingly, the Fund may have to dispose of securities under disadvantageous circumstances
in order to generate sufficient cash to satisfy the distribution requirements.
The
Fund expects that the income derived by the Fund from the MLPs in which it invests will be Qualifying Income. If, however, an
MLP in which the Fund invests is not a Qualified Publicly Traded Partnership, the income derived by the Fund from such investment
may not be Qualifying Income and, therefore, could adversely affect the Fund’s status as a RIC. The Fund intends to monitor
its investments in MLPs to prevent to disqualification of the Fund as a RIC.
If
the Fund invests in foreign securities, its income from such securities may be subject to withholding and other non-U.S. taxes.
The Fund will not be eligible to elect to “pass through” to Common Shareholders of the Fund the ability to use the
foreign tax deduction or foreign tax credit for foreign taxes paid with respect to qualifying taxes.
Taxation
of U.S. Shareholders
For
purposes of this discussion, a “U.S. shareholder” (or in this section, a “shareholder”) is a beneficial
owner of Common Shares which is for U.S. federal income tax purposes (1) an individual who is a citizen or resident of the United
States, (2) a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized
in or under the laws of the United States, any state thereof, or the District of Columbia, (3) an estate whose income is subject
to U.S. federal income tax regardless of its source, or (4) a trust if (a) a U.S. court is able to exercise primary supervision
over the trust’s administration and one or more U.S. persons are authorized to control all substantial decisions of the
trust or (b) the trust has in effect a valid election to be treated as a domestic trust for U.S. federal income tax purposes.
If a partnership or other entity or arrangement classified as a partnership for U.S. tax purposes holds the Common Shares, the
tax treatment of the partnership and each partner generally will depend on the activities of the partnership and the status of
the partner. Partnerships acquiring Common Shares, and partners in such partnerships, should consult their tax advisors. Prospective
investors that are not U.S. shareholders should refer to the section “Non-U.S. shareholders” below and are urged to
consult their tax advisors with respect to the U.S. federal income tax consequences of an investment in the Fund’s Common
Shares, including the potential application of U.S. withholding taxes.
Distributions
paid by the Fund from its investment company taxable income (as defined above) (dividends from investment company taxable income
referred to hereinafter as “ordinary income dividends”), whether paid in cash or reinvested in Common Shares, will
generally be taxable to you as ordinary income to the extent of the Fund’s current or accumulated earnings and profits.
Certain properly reported distributions may, however, qualify (provided that holding period and other requirements are met by
both the Fund and U.S. shareholders) (i) for the dividends received deduction in the case of corporate U.S. shareholders to the
extent that the Fund’s income consists of dividend income from U.S. corporations or (ii) in the case of individual U.S.
shareholders, as qualified dividend income eligible to be taxed at a reduced maximum rate to the extent that the Fund receives
qualified dividend income. Qualified dividend income is, in general, dividend income from taxable domestic corporations and certain
foreign corporations. There can be no assurance as to what portion of the Fund’s distributions will qualify for the dividends
received deduction or for treatment as qualified dividend income.
Distributions
made from net capital gain, which is the excess of net long-term capital gains over net short-term capital losses (“capital
gain dividends”), including capital gain dividends credited to a U.S. shareholder but retained by the Fund, are taxable
to U.S. shareholder as long-term capital gains if they have been properly reported by the Fund, regardless of the length of time
the U.S. shareholder has owned Common Shares of the Fund. Net long-term capital gain of individuals is generally taxed at a reduced
maximum rate. For corporate taxpayers, net long-term capital gain is taxed at ordinary income rates.
Subject
to any future regulatory guidance to the contrary, any distribution of income attributable to income from the Fund’s investment
in an MLP will not qualify for the 20% deduction for “qualified PTP income” that would generally be available to a
non-corporate U.S. shareholder were the shareholder to own such MLP directly. As a result, it is possible that a non-corporate
U.S. shareholder will be subject to a higher effective tax rate on any such distributions received from the Fund compared to the
effective rate applicable to any income the U.S. shareholder would receive if the shareholder invested directly in an MLP.
If,
for any calendar year, the Fund’s total distributions exceed both current earnings and profits and accumulated earnings
and profits, the excess will generally be treated as a tax-free return of capital up to the amount of a U.S. shareholder’s
tax basis in the Common Shares, reducing that basis accordingly. Such distributions exceeding the U.S. shareholder’s basis
will be treated as gain from the sale or exchange of the Common Shares. When you sell your Common Shares, the amount, if any,
by which your sales price exceeds your basis in the Fund’s Common Shares is gain subject to tax. Because a return of capital
reduces your basis in the Common Shares, it will increase the amount of your gain or decrease the amount of your loss when you
sell the Common Shares, all other things being equal.
Generally,
after the close of its taxable year, the Fund will provide its U.S. shareholders with a written notice reporting the amount of
any ordinary income dividends or capital gain dividends and other distributions.
The
sale or other disposition of Common Shares will generally result in capital gain or loss to U.S. shareholders measured by the
difference between the sale price and the U.S. shareholder’s tax basis in its Common Shares. Generally, a U.S. shareholder’s
gain or loss will be long-term gain or loss if the Common Shares have been held for more than one year. Any loss upon the sale
or exchange of Common Shares held for six months or less will be treated as long-term capital loss to the extent of any capital
gain dividends received (including amounts credited as an undistributed capital gain) by the U.S. shareholder. Any loss a U.S.
shareholder realizes on a sale or exchange of Common Shares will be disallowed if the U.S. shareholder acquires other Common Shares
(whether through the automatic reinvestment of dividends or otherwise) within a 61-day period beginning 30 days before and ending
30 days after the U.S. shareholder’s sale or exchange of the Common Shares. In such case, the basis of the Common Shares
acquired will be adjusted to reflect the disallowed loss. Present law taxes both long-term and short-term capital gains of corporations
at the rates applicable to ordinary income. For non-corporate taxpayers, short-term capital gain is taxed at the U.S. federal
income tax rates applicable to ordinary income, while long-term capital gain generally is taxed at a reduced maximum U.S. federal
income tax rate.
U.S.
shareholders may be entitled to offset their capital gains with capital losses. There are several provisions of the Code affecting
when capital losses may offset capital gain, and limiting the use of losses from certain investments and activities. Accordingly,
U.S. shareholders with capital losses are urged to consult their tax advisors.
An
investor should be aware that if Common Shares are purchased shortly before the record date for any taxable distribution (including
a capital gain dividend), the purchase price likely will reflect the value of the distribution and the investor then would receive
a taxable distribution likely to reduce the trading value of such Common Shares, in effect resulting in a taxable return of some
of the purchase price.
Dividends
and other taxable distributions will be taxable to you even though they are reinvested in additional Common Shares. The Fund has
the ability to declare distributions payable in cash or Common Shares at the election of each U.S. shareholder. As long as a large
enough portion of such dividend is available to be paid in cash (20% under current guidance) and certain requirements are met,
the entire distribution will be treated as a dividend for U.S. federal income tax purposes. As a result, U.S. shareholders will
be taxed on 100% of the dividend in the same manner as a cash dividend, even though most of the dividend was paid in Common Shares.
Dividends
and other distributions paid by the Fund will generally be treated for U.S. federal income tax purposes as received by you at
the time the dividend or distribution is made. If, however, the Fund pays you a dividend in January that was declared in the previous
October, November or December and you were the U.S. shareholder of record on a specified date in one of such months, then such
dividend will be treated for U.S. federal income tax purposes as being paid by the Fund and received by you on December 31 of
the year in which the dividend was declared. In addition, certain other distributions made after the close of the Fund’s
taxable year may be “spilled back” and treated as paid by the Fund (except for purposes of the 4% nondeductible excise
tax) during such taxable year. In such case, you will be treated as having received such dividends in the taxable year in which
the distributions were actually made.
Certain
U.S. shareholders who are individuals, estates or trusts and whose income exceeds certain thresholds will be required to pay a
3.8% Medicare tax on all or a portion of their “net investment income,” which ordinarily includes dividends received
from the Fund and capital gain from the sale or other disposition of the Fund’s common shares.
Withholding
at a rate of 30% will be required on dividends in respect of Common Shares held by or through foreign accounts or foreign intermediaries
if certain disclosure requirements related to U.S. accounts or ownership are not satisfied. The Fund will not pay any additional
amounts in respect to any amounts withheld.
Taxation
of Non-U.S. Shareholders
For
purposes of this discussion, a “non-U.S. shareholder” is a beneficial owner of Common Shares, other than a partnership
(or other entity or arrangement treated as a partnership for U.S. federal income tax purposes), that is not a U.S. shareholder
for U.S. federal income tax purposes. Whether an investment in Common Shares is appropriate for a non-U.S. shareholder will depend
on that non-U.S. shareholder’s particular circumstances. An investment in Common Shares by a non-U.S. shareholder may have
adverse tax consequences. Non-U.S. shareholders should consult their tax advisors before investing in the Common Shares.
A
non-U.S. shareholder generally will be subject to U.S. federal withholding tax at a rate of 30% (or possibly a lower rate provided
by an applicable tax treaty) on ordinary income dividends to the extent of the Fund’s current or accumulated earnings and
profits (except as discussed below). Actual or deemed distributions of the Fund’s net capital gain to a non-U.S. shareholder,
and gains recognized by a non-U.S. shareholder upon the sale of Common Shares, will generally not be subject to U.S. federal withholding
tax and will not be subject to U.S. federal income tax. Different tax consequences may result if (i) the non-U.S. shareholder
is engaged in a trade or business in the United States (and, if an income tax treaty applies, the non-U.S. shareholder’s
income or gains are attributable to a permanent establishment maintained by the shareholder in the United States), (ii) the non-U.S.
shareholder is an individual that is present in the United States for 183 days or more during a taxable year and certain other
conditions are met, or (iii) in the case of gain on the disposition of Common Shares, the Fund is or has been a “United
States real property holding corporation” (“USRPHC”) at any time within the shorter of the five-year period
ending on the date the Common Shares are sold or the period that such non-U.S. shareholder held the shares (and as long as the
Common Shares are treated as regularly traded on an established securities market, such non-U.S. shareholder owns or owned (actually
or constructively) more than five percent of the Common Shares at any time during the shorter of the two periods mentioned above),
or (iv) in the case of distributions that are attributable to the Fund’s gain on the disposition of a “U.S. real property
interest” (which may include equity securities in companies that own significant interests in U.S. real estate), the Fund
is a “qualified investment entity” (generally, an entity that either is a USRPHC or would be a USRPHC but for the
operation of certain exceptions to the definition thereof). The determination of whether the Fund is a USRPHC or qualified investment
entity will depend on the exact nature of its assets, and no assurances can be given in that regard. Though the Fund expects that
its Common Shares will be treated as “regularly traded” on an established securities market, no assurance can be given
in this regard. Special certification requirements apply to a non-U.S. shareholder that is a foreign partnership or a foreign
trust, and such entities are urged to consult their tax advisors.
Subject
to the discussion of FATCA below, properly reported dividends paid by the Fund to non-U.S. shareholders are generally exempt from
U.S. federal withholding tax where they (i) are paid in respect of the Fund’s “qualified net interest income”
(generally, the Fund’s U.S.-source interest income, other than certain contingent interest and interest from obligations
of a corporation or partnership in which the Fund is at least a 10% shareholder, reduced by expenses that are allocable to such
income) or (ii) are paid in respect of the Fund’s “qualified short-term capital gains” (generally, the excess
of the Fund’s net short-term capital gain over the Fund’s long-term capital loss for such taxable year). In order
to qualify for this exemption from withholding, a non-U.S. shareholder must comply with applicable certification requirements
relating to its non-U.S. status (including, in general, furnishing an IRS Form W-8BEN or W8BEN-E or substitute form). In the case
of Common Shares held through an intermediary, the intermediary may withhold even if the Fund designates the payment as qualified
net interest income or qualified short-term capital gain. Non-U.S. shareholders should contact their intermediaries with respect
to the application of these rules to their accounts. There can be no assurance as to what portion, if any, of the Fund’s
distributions would qualify for favorable treatment as “qualified net interest income” or “qualified short-term
capital gains.”
Notwithstanding
the foregoing, under certain provisions of the Code referred to as “FATCA,” withholding at a rate of 30% will be required
on dividends in respect of Common Shares held by or through certain foreign financial institutions (including investment funds),
unless such institution enters into an agreement with the Treasury to report, on an annual basis, information with respect to
interests in, and accounts maintained by, the institution to the extent such interests or accounts are held by certain United
States persons or by certain non-U.S. entities that are wholly or partially owned by United States persons and to withhold on
certain payments. Accordingly, the entity or entities through which Common Shares are held will affect the determination of whether
such withholding is required. Similarly, withholding at a rate of 30% will be required on dividends in respect of Common Shares
held by an investor that is a non-financial non-U.S. entity that does not qualify under certain exemptions, unless such entity
either (i) certifies that such entity does not have any “substantial United States owners” or (ii) provides certain
information regarding the entity’s “substantial United States owners,” which the applicable withholding agent
will in turn provide to the Secretary of the Treasury. An intergovernmental agreement between the United States and an applicable
foreign country, or future Treasury regulations or other guidance, may modify these requirements. The Fund will not pay any additional
amounts to Common Shareholders in respect of any amounts withheld. Non-U.S. shareholders are encouraged to consult with their
tax advisors regarding the possible withholding implications of an investment in Common Shares.
Furthermore,
if the Fund distributes its net capital gains in the form of deemed rather than actual distributions (which the Fund may do in
the future), a non-U.S. shareholder will be entitled to a U.S. federal income tax credit or tax refund equal to the shareholder’s
allocable share of the tax the Fund pays on the capital gains deemed to have been distributed. In order to obtain the refund,
the non-U.S. shareholder must obtain a U.S. taxpayer identification number and file a federal income tax return even if the non-U.S.
shareholder is not otherwise required to obtain a U.S. taxpayer identification number or file a federal income tax return. For
a corporate non-U.S. shareholder, distributions (both actual and deemed), and gains realized upon the sale of Common Shares that
are effectively connected with a U.S. trade or business (or, where an applicable treaty applies, are attributable to a permanent
establishment in the United States) may, under certain circumstances, be subject to an additional “branch profits tax”
at a 30% rate (or at a lower rate if provided for by an applicable tax treaty). Accordingly, investment in Common Shares may not
be appropriate for certain non-U.S. shareholders.
Backup
Withholding
The
Fund may be required to withhold, for U.S. federal backup withholding purposes, on all taxable distributions to any non-corporate
holders of Common Shares who (1) do not furnish the Fund with their correct taxpayer identification number (in the case of individuals,
generally their social security number) or a certificate that such Common Shareholder is exempt from backup withholding, or (2)
with respect to whom the IRS notifies the Fund that such Common Shareholder has failed to properly report certain interest and
dividend income to the IRS and to respond to notices to that effect. A non-U.S. shareholder who is a nonresident alien individual,
and who is otherwise subject to withholding of federal income tax, may be subject to backup withholding of federal income tax
on dividends unless the non-U.S. shareholder provides the Fund or the dividend paying agent with an IRS Form W-8BEN or IRS Form
W-8BEN-E (or an acceptable substitute form) or otherwise meets documentary evidence requirements for establishing that it is a
non-U.S. shareholder or otherwise establishes an exemption from backup withholding. Backup withholding is not an additional tax.
Any amounts withheld from payments made to a Common Shareholder may be refunded or credited against such Common Shareholder’s
U.S. federal income tax liability, if any, provided that the required information is generally furnished to the IRS.
The
foregoing is a general summary of the provisions of the Code and the Treasury regulations in effect as they directly govern the
taxation of the Fund and its Common Shareholders. These provisions are subject to change by legislative, judicial or administrative
action, and any such change may be retroactive. Ordinary income and capital gain dividends may also be subject to state, local
and foreign taxes. Investors are urged to consult their tax advisors regarding U.S. federal, state, local and foreign tax consequences
of investing in the Fund.
SERVICE
PROVIDERS
Administrator
U.S.
Bancorp Global Fund Services, the Administrator, which is located at 615 East Michigan Street, Milwaukee, Wisconsin 53202, serves
as the Fund’s administrator pursuant to a fund administration servicing agreement. Pursuant to this agreement, the Administrator
provides the Fund with, among other things, compliance oversight, financial reporting oversight and tax reporting. The Fund pays
the Administrator a monthly fee computed at an annual rate of 0.09% of the first $100 million of Managed Assets, 0.07% on the
next $200 million of Managed Assets and 0.04% on the balance of Managed Assets, subject to a minimum annual fee of $70,000. The
Fund will also pay for the Administrator’s out-of-pocket expenses. The Administrator also serves as fund accountant pursuant
to a fund accounting servicing agreement.
Custodian
U.S.
Bank National Association (the “Custodian”), Custody Operations, 1555 N. RiverCenter Drive, Suite 302, Milwaukee,
Wisconsin 53212, serves as custodian for the Fund pursuant to the Custodian Agreement with the Fund (the “Custodian Agreement”).
The Custodian and the Administrator are affiliates of each other. Under the Custodian Agreement, the Custodian will be responsible
for, among other things, receipt of and disbursement of funds from the Fund’s accounts, establishment of segregated accounts
as necessary, and transfer, exchange and delivery of Fund portfolio securities.
Transfer
Agent
U.S.
Bancorp Global Fund Services, located at 615 East Michigan Street, Milwaukee, Wisconsin 53202, has entered into a transfer agent
servicing agreement with the Fund. Under this agreement, U.S. Bancorp Global Fund Services serves as the Fund’s transfer
agent, registrar and dividend disbursing agent.
GENERAL
INFORMATION
Additional
Information
The
Prospectus and this SAI constitutes part of a Registration Statement filed by the Fund with the SEC under the Securities Act,
and the 1940 Act. The Prospectus and this SAI omit certain of the information contained in the Registration Statement, and reference
is hereby made to the Registration Statement and related exhibits for further information with respect to the Fund and the common
shares offered hereby. Any statements contained in the Prospectus and herein concerning the provisions of any document are not
necessarily complete, and, in each instance, reference is made to the copy of such document filed as an exhibit to the Registration
Statement or otherwise filed with the SEC. Each such statement is qualified in its entirety by such reference. The complete Registration
Statement may be obtained from the SEC upon payment of the fee prescribed by its rules and regulations or free of charge through
the SEC’s website (http://www.sec.gov).
Principal
Holders
As
of the date of this SAI, to the knowledge of the Fund, no person beneficially owned more than 5% of the voting securities of any
class of equity securities of the Fund, except as follows:
Shareholder
Name and Address |
Class
of
Shares |
Share
Holdings |
Percentage
Owned |
Morgan
Stanley(1)
Morgan
Stanley Smith Barney LLC
1585
Broadway
New
York, NY 10036 |
Common
Shares |
129,914 |
6.00
% |
Philip
Goldstein(2)
Andrew Dakos
250 Pehle Ave. Suite 708
Saddle
Brook, NJ 07663 |
Common
Shares |
120,623 |
5.52% |
| (1) | Based
on Schedule 13G/A filed on February 9, 2023. |
| (2) | Based
on Schedule 13G filed on February 13, 2023. |
Legal
Matters
Certain
legal matters will be passed on for the Fund by Skadden, Arps, Slate, Meagher & Flom LLP, Chicago, Illinois, in connection
with the offering of the Securities.
Independent
registered public accounting firm
Ernst & Young LLP, Dallas, Texas, serves as the independent registered public accounting firm of the Fund and will annually render
an opinion on the financial statements of the Fund. The Fund’s audited financial statements appearing in the Fund’s
annual report to shareholders for the period ended November 30, 2022, including accompanying notes thereto and the report of Ernst & Young LLP thereon, have been incorporated by reference herein in reliance on their report given on their authority as experts
in accounting and auditing.
Proxy
Voting Policy and Procedures and Proxy Voting Record
The
Fund has delegated authority to vote proxies to the Investment Adviser, subject to the supervision of the Board of Trustees. Attached
hereto as Appendix B is the Proxy Voting Policy which is currently in effect as of the date of this Statement of Additional Information.
The
Proxy Voting Policy is subject to change over time and investors seeking the most current copy of the Proxy Voting Policy should
call the Fund toll free at (877) 965-7386. The Fund’s most recent proxy voting record for the period ended June 30 which
has been filed with the SEC is available without charge by calling the Fund toll free at (877) 965-7386.
Code
of Ethics
The
Fund and the Investment Adviser have adopted a code of ethics under Rule 17j -1 of the 1940 Act. This code permits personnel subject
to the code to invest in securities, including securities that may be purchased or held by the Fund. This code of ethics can be reviewed
and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the SEC’s Public Reference
Room may be obtained by calling the SEC at 1-202-551-8090. The code of ethics is available on the EDGAR Database on the SEC’s website
(http://www.sec.gov), and copies of this code may be obtained, after paying a duplicating fee, by electronic request at
the following e-mail address: publicinfo@sec.gov, or by writing the SEC’s Public Reference Section, Washington, D.C.
20549-0102.
FINANCIAL
STATEMENTS
The Fund’s audited
financial statements, including accompanying notes thereto and the report of Ernst & Young LLP thereon, appearing in the Fund’s
annual report to shareholders for the period ended November 30, 2022, as contained in the Fund’s Form N-CSR filed with the Securities
and Exchange Commission (the “Commission”) on February 6, 2023, as amened by the Fund’s Form N-CSR/A filed with the
SEC on October 5, 2023, are incorporated by reference in this Statement of Additional Information. The Fund’s unaudited financial
statements, including accompanying notes thereto, appearing in the Fund’s semi-annual report to shareholders for the period ended
May 31, 2023, as contained in the Fund’s Form N-CSRS filed with the Commission on August 7, 2023, are incorporated by reference
in this Statement of Additional Information. Shareholder reports are available upon request and without charge by calling toll-free (877)
965-7386, or you may obtain a copy of such reports from the SEC’s website (http://www.sec.gov) or from the Fund’s
website at www.cushingcef.com. Information on, or accessible through, the Fund’s website is not a part of, and is
not incorporated into, this Statement of Additional Information, the Prospectus or any Prospectus Supplement.
Appendix
A
Description
of Securities Ratings
STANDARD
& POOR’S CORPORATION
A
brief description of the applicable Standard & Poor’s Corporation (“S&P”) rating symbols and their meanings
(as published by S&P) follows.
Issue
Credit Ratings Definition
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 S&P’s view of the obligor’s capacity and willingness to meet its financial commitments as
they come 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 S&P’s analysis of the following considerations:
| ● | Likelihood
of payment—capacity and willingness of the obligor to meet its financial commitment
on an obligation in accordance with the terms of the obligation. |
| ● | Nature
of and provisions of the obligation. |
| ● | Protection
afforded by, and relative position of, the 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.)
AAA
An obligation rated ‘AAA’ has the highest rating assigned by S&P. The obligor’s capacity to meet its
financial commitment on the obligation is extremely strong.
AA
An obligation rated ‘AA’ differs from the highest-rated obligations only 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.
| * | 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. |
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.
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.
C
A ‘C’ rating is assigned to obligations that are currently highly vulnerable to nonpayment, obligations that have
payment arrearages allowed by the terms of the documents, or obligations of an issuer that is the subject of a bankruptcy petition
or similar action which have not experienced a payment default. Among others, the ‘C’ rating may be assigned to subordinated
debt, preferred stock or other obligations on which cash payments have been suspended in accordance with the instrument’s
terms or when preferred stock is the subject of a distressed exchange offer, whereby some or all of the issue is either repurchased
for an amount of cash or replaced by other instruments having a total value that is less than par.
D
An obligation rated ‘D’ is in payment default. The ‘D’ rating category is used when payments on an
obligation are not made on the date due, unless Standard & Poor’s believes that such payments will be made within five
business days, irrespective of any grace period. The ‘D’ rating also will be used upon the filing of a bankruptcy
petition or the taking of similar action if payments on an obligation are jeopardized. An obligation’s rating is lowered
to ‘D’ upon completion of a distressed exchange offer, whereby some or all of the issue is either repurchased for
an amount of cash or replaced by other instruments having a total value that is less than par.
NR
This indicates that no rating has been requested, that there is insufficient information on which to base a rating, or that
S&P does not rate a particular obligation as a matter of policy.
Short-Term
Issue Credit Ratings
A-1
A short-term obligation rated ‘A-1’ is rated in the highest category by S&P. 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 vulnerable and has significant speculative characteristics. The
obligor currently has the capacity to meet its financial commitments; however, it faces major ongoing uncertainties which could
lead to the obligor’s inadequate capacity to meet its financial commitments.
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 payment default. The ‘D’ rating category is used when payments
on an obligation are not made on the date due, unless Standard & Poor’s 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 if payments
on an obligation are jeopardized.
SPUR
(S&Ps Underlying Rating) A SPUR rating 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.
S&P maintains surveillance of an issue with a published SPUR.
Municipal
Short-Term Note Ratings Definitions
A
S&P’s U.S. Municipal note rating reflects S&P’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, S&P’s
analysis will review the following considerations:
| ● | Amortization
schedule — the larger the final maturity relative to other maturities, the more
likely it will be treated as a note; and |
| ● | 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 S&P 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 short-term demand debt, note rating symbols
are used with the short-term issue credit rating symbols (for example, ‘SP-1+/A-1+’).
The
ratings and other credit related opinions of S&P and its affiliates are statements of opinion as of the date they are expressed
and not statements of fact or recommendations to purchase, hold, or sell any securities or make any investment decisions. S&P
assumes no obligation to update any information following publication. Users of ratings and credit related opinions should not
rely on them in making any investment decision. S&P’s opinions and analyses do not address the suitability of any security.
S&P’s Financial Services LLC does not act as a fiduciary or an investment advisor. While S&P has obtained information
from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent
verification of any information it receives. Ratings and credit related opinions may be changed, suspended, or withdrawn at any
time.
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’ suffix indicates that the rating addresses the interest portion of the obligation only. The ‘i’
suffix will always be used in conjunction with the ‘p’ suffix, which addresses 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’ suffix indicates that the rating addresses the principal portion of the obligation only.
The ‘p’ suffix will always be used in conjunction with the ‘i’ suffix, 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’ suffix. Ratings with a ‘pi’
suffix are reviewed annually based on a new year’s financial statements, 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 S&P of appropriate
documentation. S&P reserves the right not to issue a final rating. Moreover, if a final rating is issued, it may differ from
the preliminary rating.
| ● | Preliminary
ratings may be assigned to obligations, most commonly structured and project finance
issues, pending receipt of final documentation and legal opinions. |
| ● | 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. |
| ● | 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). |
| ● | Preliminary
ratings may be assigned to entities that are being formed or that are in the process
of being independently established when, in S&P’s opinion, documentation is
close to final. |
| ● | Preliminary
ratings may also be assigned to these entities’ obligations. |
| ● | 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, S&P would likely withdraw these
preliminary ratings. |
| ● | 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 suffix to a credit rating does not change
the definition of that rating or our opinion about the issue’s or issuer’s creditworthiness.
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 their contracts before their final maturity date.
unsolicited
Unsolicited ratings are those credit ratings assigned at the initiative of S&P and not at the request of the issuer or
its agents.
MOODY’S
INVESTORS SERVICE, INC.
A
brief description of the applicable Moody’s Investors Service, Inc. (“Moody’s”) rating symbols and their
meanings (as published by Moody’s) follows.
Global
Rating Scales
Ratings
assigned on Moody’s global long-term and short-term rating scales are forward-looking opinions of the relative credit risks
of financial obligations issued by non-financial corporates, financial institutions, structured finance vehicles, project finance
vehicles and public sector entities. Long-term ratings are assigned to issuers or obligations with an original maturity of one
year or more and reflect both on the likelihood of a default on contractually promised payments and the expected financial loss
suffered in the event of default. Short-term ratings are assigned to obligations with an original maturity of thirteen months
or less and reflect both on the likelihood of a default on contractually promised payments and the expected financial loss suffered
in the event of default.
Moody’s
differentiates structured finance ratings from fundamental ratings (i.e., ratings on nonfinancial corporate, financial
institution and public sector entities) on the global long-term scale by adding (sf ) to all structured finance ratings. The addition
of (sf ) to structured finance ratings should eliminate any presumption that such ratings and fundamental ratings at the same
letter grade level will behave the same. The (sf ) indicator for structured finance security ratings indicates that otherwise
similarly rated structured finance and fundamental securities may have different risk characteristics. Through its current methodologies,
however, Moody’s aspires to achieve broad expected equivalence in structured finance and fundamental rating performance
when measured over a long period of time.
Global
Long-Term Rating Scale
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.
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
appends numerical modifiers 1, 2 and 3 to 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.
By
their terms, hybrid securities allow for the omission of scheduled dividends, interest, or principal payments, which can potentially
result in impairment if such an omission occurs. Hybrid securities may also be subject to contractually allowable write-downs
of principal that could result in impairment. Together with the hybrid indicator, the long-term obligation rating assigned to
a hybrid security is an expression of the relative credit risk associated with that security.
Global
Short-Term Rating Scale
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.
Short-Term
Obligation Ratings. While the global short-term ‘prime’ rating scale is applied to US municipal tax-exempt
commercial paper, these programs are typically backed by external letters of credit or liquidity facilities and their short-term
prime ratings usually map to the long-term rating of the enhancing bank or financial institution and not the municipality’s
rating. Other short-term municipal obligations, which generally have different funding sources for repayment, are rated using
two additional short-term rating scales (i.e., the MIG and VMIG scales discussed below).
The
Municipal Investment Grade (MIG) scale is used to rate US municipal bond anticipation notes of up to three years maturity. Municipal
notes rated on the MIG scale may be secured by either pledged revenues or proceeds of a take-out financing received prior to note
maturity. MIG ratings expire at the maturity of the obligation, and the issuer’s long-term rating is only one consideration
in assigning the MIG rating. MIG ratings are divided into three levels—MIG1 through MIG3—while speculative grade short-term
obligations are designated SG.
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.
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 risk associated
with scheduled principal and interest payments. The second element represents Moody’s evaluation of risk associated with
the ability to receive purchase price upon demand (“demand feature”), using a variation of the MIG rating scale, the
Variable Municipal Investment Grade or VMIG rating. The rating transitions on the VMIG scale differ from those on the Prime scale
to reflect the risk that external liquidity support generally will terminate if the issuer’s long-term rating drops below
investment grade.
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.
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.
Other
Ratings Symbols
e
Expected Ratings Indicator. To address market demand for timely information on particular types of credit ratings, Moody’s
has licensed to certain third parties the right to generate “Expected Ratings.” Expected Ratings are designated by
an “e” after the rating code, and are intended to anticipate Moody’s forthcoming rating assignments based on
reliable information from third party sources (such as the issuer or underwriter associated with the particular securities) or
established Moody’s rating practices (i.e., medium term notes are typically, but not always, assigned the same rating
as the note’s program rating). Expected Ratings will exist only until Moody’s confirms the Expected Rating, or issues
a different rating for the relevant instrument. Moody’s encourages market participants to contact Moody’s Ratings
Desk or visit www.moodys.com if they have questions, or wish Moody’s to confirm an Expected Rating.
(P)
Provisional Ratings. As a service to the market and at the request of an issuer, Moody’s will often assign a provisional
rating when the assignment of a final rating is subject to the fulfillment of contingencies but it is highly likely that the rating
will become definitive after all documents are received or an obligation is issued into the market. A provisional rating is denoted
by placing a (P) in front of the rating. Such ratings are typically assigned to shelf registrations under SEC rule 415 or transaction-based
structures that require investor education. When a transaction uses a well-established structure and the transaction’s structure
and terms are not expected to change prior to sale in a manner that would affect the rating, a definitive rating may be assigned
directly.
#
Refunded. Issues that are secured by escrowed funds held in trust, reinvested in direct, non-callable US government obligations
or non-callable obligations unconditionally guaranteed by the US Government or Resolution Funding Corporation are identified with
a # (hatch mark) symbol, e.g., #Aaa.
WR
Withdrawn. When Moody’s no longer rates an obligation on which it previously maintained a rating, the symbol WR is employed.
NR
Not Rated. The symbol NR is assigned to unrated obligations, issuers and/or programs. NAV Not Available. An issue that
Moody’s has not yet rated is denoted by the NAV symbol.
TWR
Terminated Without Rating. The symbol TWR applies primarily to issues that mature or are redeemed without having been rated.
FITCH
RATINGS, INC.
A
brief description of the applicable Fitch Ratings, Inc. (“Fitch”) ratings symbols and meanings (as published by Fitch)
follows.
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. For historical information on the default experience
of Fitch-rated issuers, please consult the transition and default performance studies available from the Fitch Ratings website.
Long-Term
Credit Ratings Scales
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.
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 for an issuer include:
| (a) | the
issuer has entered into a grace or cure period following non-payment of a material financial
obligation; |
| (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 distressed debt exchange. |
RD
Restricted default. ‘RD’ ratings indicate an issuer that in Fitch’s 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 operating. 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 distressed 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 distressed 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 distressed 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 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 major rating
categories. Such suffixes are not added to the ‘AAA’ Long-Term IDR category, or to Long-Term IDR categories below
‘B’.
Limitations
for the Issuer Credit Rating Scale:
Specific
limitations relevant to the issuer credit rating scale include:
| ● | The
ratings do not predict a specific percentage of default likelihood over any given time
period. |
| ● | The
ratings do not opine on the market value of any issuer’s securities or stock, or
the likelihood that this value may change. |
| ● | The
ratings do not opine on the liquidity of the issuer’s securities or stock. |
| ● | The
ratings do not opine on the possible loss severity on an obligation should an issuer
default. |
| ● | The
ratings do not opine on the suitability of an issuer as counterparty to trade credit. |
| ● | 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 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.
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:
| ● | The
ratings do not predict a specific percentage of default likelihood over any given time
period. |
| ● | The
ratings do not opine on the market value of any issuer’s securities or stock, or
the likelihood that this value may change. |
| ● | The
ratings do not opine on the liquidity of the issuer’s securities or stock. |
| ● | The
ratings do not opine on the possible loss severity on an obligation should an obligation
default. |
| ● | 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.
Appendix
B
PROXY
VOTING POLICY AND PROCEDURES
Cushing®
Asset Management, LP (the “Investment Manager”) serves as the investment adviser and general partner, respectively,
of certain the investment accounts and pooled investment (each a “Client” and collectively, the “Clients”).
Through these relationships the Investment Manager is sometimes delegated the right to vote, on behalf of the Clients, proxies
received from companies, the securities of which are owned by the Clients.
Purpose
The
Investment Manager follows this proxy voting policy (the “Policy”) to ensure that proxies the Investment Manager votes,
on behalf of each Client, are voted to further the best interest of that Client. The Policy establishes a mechanism to address
any conflicts of interests between the Investment Manager and the Client. Further, the Policy establishes how Clients may obtain
information on how the proxies have been voted.
Determination
of Vote
The
Investment Manager determines how to vote after studying the proxy materials and any other materials that may be necessary or
beneficial to voting. The Investment Manager votes in a manner that the Investment Manager believes reasonably furthers the best
interests of the Client and is consistent with the Client’s investment philosophy as set forth in the relevant investment
management documents.
The
major proxy-related issues generally fall within five categories: corporate governance, takeover defenses, compensation plans,
capital structure, and social responsibility. The Investment Manager will cast votes for these matters on a case-by-case basis.
The Investment Manager will generally vote in favor of matters which follow an agreeable corporate strategic direction, support
an ownership structure that enhances shareholder value without diluting management’s accountability to shareholders and/or
present compensation plans that are commensurate with enhanced manager performance and market practices.
Resolution
of any Conflicts of Interest
If
a proxy vote creates a material conflict between the interests of the Investment Manager and a Client, the Investment Manager
will resolve the conflict before voting the proxies. The Investment Manager will either disclose the conflict to the Client and
obtain a consent or take other steps designed to ensure that a decision to vote the proxy was based on the Investment Manager’s
determination of the Client’s best interest and was not the product of the conflict.
Records
The
Investment Manager maintains records of (i) all proxy statements and materials the Investment Manager receives on behalf of Clients;
(ii) all proxy votes that are made on behalf of the Clients; (iii) all documents that were material to a proxy vote; (iv) all
written requests from Clients regarding voting history; and (v) all responses (written and oral) to Clients’ requests. Such
records are available to the Clients (and owners of a Client that is an investment vehicle) upon request.
PART
C
OTHER
INFORMATION
Item
25. Financial Statements And Exhibits
(1) Included
in Part A: Financial highlights
Incorporated by reference into
Part B:
The Registrant’s audited
financial statements, notes to such financial statements and the report of independent registered public accounting firm thereon, by reference
to the Registrant’s Annual Report for the period ended November 30, 2022, as contained in the Registrant’s Form N-CSR filed
with the Securities and Exchange Commission (the “Commission”) on February 6, 2023, as amened by the Fund’s Form N-CSR/A
filed with the SEC on October 5, 2023.
The Registrant’s unaudited
financial statements and notes to such financial statements and the report of independent registered public accounting firm thereon, by
reference to the Registrant’s Semi-Annual Report for the period ended May 31, 2023, as contained in the Registrant’s Form
N-CSRS filed with the Securities and Exchange Commission (the “Commission”) on August 7, 2023.
(2) Exhibits
| (d) | Form
of Subscription Documents for Rights++ |
| (h) | Form
of Underwriting/Sales/Dealer Manager Agreement++ |
| ++ | To
be filed by post-effective amendment. |
| (1) | Incorporated
by reference to the Registrant’s Registration Statement on Form N-2 under the Securities
Act of 1933, as amended, and the Investment Company Act of 1940, as amended (Securities
Act File No. 333- 143305 and Investment Company Act File No. 811-22072), on Form N-2,
filed on July 20, 2007. |
| (2) | Incorporated
by reference to the Registrant’s Registration Statement on Form N-2 under the Securities
Act of 1933, as amended, and the Investment Company Act of 1940, as amended (Securities
Act File No. 333- 143305 and Investment Company Act File No. 811-22072), on Form N-2,
filed on August 23, 2007. |
| (3) | Incorporated
by reference to Exhibit 3.1 to the Registrant’s Form 8-K filed on May 16, 2011. |
| (4) | Incorporated
by reference to the Registrant’s Registration Statement on Form N-2 under the Securities
Act of 1933, as amended, and the Investment Company Act of 1940, as amended (Securities
Act File No. 333- 225523 and Investment Company Act File No. 811-22072), on Form N-2,
filed on June 8, 2018. |
| (5) | Incorporated by reference to the Registrant’s Registration Statement on Form N-2 under the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended (Securities Act File No. 333-273954 and Investment Company Act File No. 811-22072), filed
on August 11, 2023. |
Item
26. Marketing Arrangements
The
information contained under the heading “Plan of Distribution” in this Registration Statement is incorporated herein
by reference and any information concerning any underwriters for a particular offering will be contained in the Prospectus Supplement
related to that offering.
Item
27. Other Expenses of Issuance and Distribution
The
following table sets forth the estimated expenses to be incurred in connection with the offering described in this Registration
Statement:
SEC Fees | |
$ | 12,450 | |
FINRA Fees | |
| 15,500 | |
Printing and Mailing Expenses | |
| 50,000 | |
Legal Fees | |
| 200,000 | |
Exchange Listing Fees | |
| 40,000 | |
Audit Fees | |
| 50,000 | |
Miscellaneous Expenses | |
| 150,000 | |
Total | |
| 517,950 | |
Item
28. Persons Controlled by or Under Common Control with Registrant
None
Item
29. Number of Holders of Securities
Title
Class |
Number
of
Record
Shareholders
as of
August 4, 2023 |
Common
shares of beneficial interest, par value $0.001 per share |
6 |
Item
30. Indemnification
Article
IV of the Registrant’s Second Amended and Restated Agreement and Declaration of Trust provides as follows:
Section
2. Limitation of Liability. All persons contracting with or having any claim against the Trust or a particular Series shall
look only to the assets of the Trust or, as applicable, all Series or such particular Series for payment under such contract or
claim; and neither the Trustees nor, when acting in such capacity, any of the Trust’s officers, employees or agents, whether
past, present or future, shall be personally liable therefor. Every written instrument or obligation on behalf of the Trust or
any Series shall contain a statement to the foregoing effect, but the absence of such statement shall not operate to make any
Trustee or officer of the Trust liable thereunder. Provided they have exercised reasonable care and have acted under the reasonable
belief that their actions are in the best interest of the Trust, the Trustees and officers of the Trust shall not be responsible
or liable for any act or omission or for neglect or wrongdoing of them or any officer, agent, employee, investment adviser or
independent contractor of the Trust, but nothing contained in this Declaration or in the Delaware Act shall protect any Trustee
or officer of the Trust against liability to the Trust or to Shareholders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office.
Section
3. Indemnification.
(a)
Subject to the exceptions and limitations contained in subsection (b) below:
(i) every
person who is, or has been, a Trustee or an officer, employee or agent of the Trust (including any individual who serves at its
request as director, officer, partner, employee, trustee, agent or the like of another organization in which it has any interest
as a shareholder, creditor or otherwise) (“Covered Person”) shall be indemnified by the Trust or the appropriate Series
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 a Covered Person and against amounts paid or incurred by him in the settlement thereof; and
(ii) as
used herein, the words “claim,” “action,” “suit,” or “proceeding” shall apply
to all claims, actions, suits or proceedings (civil, criminal, administrative, investigative, arbitration or other, including
appeals), actual or threatened, and the words “liability” and “expenses” shall include, without limitation,
attorneys’ fees, costs, judgments, amounts paid in settlement, fines, penalties and other liabilities.
(b)
No indemnification shall be provided hereunder to a Covered Person:
(i) who
shall have been adjudicated by a court or body before which the proceeding was brought (A) to be liable to the Trust or its Shareholders
by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his
office, or (B) not to have acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best
interests of the Trust; or
(ii) in
the event of a settlement, unless there has been a determination that such Covered Person did not engage in willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office; (A) by the court or other
body approving the settlement; (B) by at least a majority of those Trustees who are neither Interested Persons of the Trust nor
are parties to the matter based upon a review of readily available facts (as opposed to a full trial-type inquiry); (C) by written
opinion of independent legal counsel based upon a review of readily available facts (as opposed to a full trial-type inquiry)
or (D) by a vote of a majority of the Outstanding Shares entitled to vote (excluding any Outstanding Shares owned of record or
beneficially by such individual).
(c)
The rights of indemnification herein provided may be insured against by policies maintained by the Trust, shall be severable,
shall not be exclusive of or affect any other rights to which any Covered Person may now or hereafter be entitled, and shall inure
to the benefit of the heirs, executors and administrators of a Covered Person.
(d) To
the maximum extent permitted by applicable law, expenses in connection with the preparation and presentation of a defense to any
claim, action, suit or proceeding of the character described in subsection (a) of this Section may be paid by the Trust or applicable
Series from time to time prior to final disposition thereof upon receipt of an undertaking by or on behalf of such Covered Person
that such amount will be paid over by him to the Trust or applicable Series if it is ultimately determined that he is not entitled
to indemnification under this Section; provided, however, that either (i) such Covered Person shall have provided appropriate
security for such undertaking, (ii) the Trust is insured against losses arising out of any such advance payments or (iii) either
a majority of a quorum of the Trustees who are neither Interested Persons of the Trust nor parties to the matter, or independent
legal counsel in a written opinion, shall have determined, based upon a review of readily available facts (as opposed to a full
trial-type inquiry) that there is reason to believe that such Covered Person will not be disqualified from indemnification under
this Section. Independent counsel retained for the purpose of rendering an opinion regarding advancement of expenses and/or a
majority of a quorum of the Trustees who are neither Interested Persons of the Trust nor parties to the matter, may proceed under
a rebuttable presumption that the Covered Person has not engaged in willful misfeasance, bad faith, gross negligence or reckless
disregard of the Covered Person’s duties to the Trust and were based on the Covered Person’s determination that those
actions were in the best interests of the Trust and its Shareholders; provided that the Covered Person is not an Interested Person
(or is an Interested Person solely by reason of being an officer of the Trust).
(e) Any
repeal or modification of this Article IV by the Shareholders, or adoption or modification of any other provision of the Declaration
or By-Laws inconsistent with this Article, shall be prospective only, to the extent that such repeal, or modification would, if
applied retrospectively, adversely affect any limitation on the liability of any Covered Person or indemnification available to
any Covered Person with respect to any act or omission which occurred prior to such repeal, modification or adoption. Any such
repeal or modification by the Shareholders shall require a vote of at least two-thirds of the Outstanding Shares entitled to vote
and present in person or by proxy at any meeting of the Shareholders.
Section
4. Indemnification of Shareholders.
(a) If
any Shareholder or former Shareholder of the Trust (as opposed to a Shareholder or former Shareholder of any Series) shall be
held personally liable solely by reason of his being or having been a Shareholder and not because of his acts or omissions or
for some other reason, the Shareholder or former Shareholder (or his heirs, executors, administrators or other legal representatives
or in the case of any entity, its general successor) shall be entitled out of the assets belonging to the Trust to be held harmless
from and indemnified against all loss and expense arising from such liability. The Trust shall, upon request by such Shareholder,
assume the defense of any claim made against such Shareholder for any act or obligation of the Trust and satisfy any judgment
thereon from the assets of the Series.
(b) If
any Shareholder or former Shareholder of any Series shall be held personally liable solely by reason of his being or having been
a Shareholder and not because of his acts or omissions or for some other reason, the Shareholder or former Shareholder (or his
heirs, executors, administrators or other legal representatives or in the case of any entity, its general successor) shall be
entitled out of the assets belonging to the applicable Series to be held harmless from and indemnified against all loss and expense
arising from such liability. The Trust, on behalf of the affected Series, shall, upon request by such Shareholder, assume the
defense of any claim made against such Shareholder for any act or obligation of the Series and satisfy any judgment thereon from
the assets of the Series.
Section
5. No Bond Required of Trustees. No Trustee shall be obligated to give any bond or other security for the performance of
any of his duties hereunder.
Section
6. No Duty of Investigation; Notice in Trust Instruments, Etc. No purchaser, lender, transfer agent or other Person dealing
with the Trustees or any officer, employee or agent of the Trust or a Series thereof shall be bound to make any inquiry concerning
the validity of any transaction purporting to be made by the Trustees or by said officer, employee or agent or be liable for the
application of money or property paid, loaned, or delivered to or on the order of the Trustees or of said officer, employee or
agent. Every obligation, contract, instrument, certificate, Share, other security of the Trust or a Series thereof or undertaking,
and every other act or thing whatsoever executed in connection with the Trust shall be conclusively presumed to have been executed
or done by the executors thereof only in their capacity as Trustees under this Declaration or in their capacity as officers, employees
or agents of the Trust or a Series thereof. Every written obligation, contract, instrument, certificate, Share, other security
of the Trust or a Series thereof or undertaking made or issued by the Trustees may recite that the same is executed or made by
them not individually, but as Trustees under the Declaration, and that the obligations of the Trust or a Series thereof under
any such instrument are not binding upon any of the Trustees or Shareholders individually, but bind only the Trust Property or
the Trust Property of the applicable Series, and may contain any further recital which they may deem appropriate, but the omission
of such recital shall not operate to bind the Trustees individually. The Trustees may maintain insurance for the protection of
the Trust Property or the Trust Property of the applicable Series, its Shareholders, Trustees, officers, employees and agents
in such amount as the Trustees shall deem adequate to cover possible tort liability, and such other insurance as the Trustees
in their sole judgment shall deem advisable.
Section
7. Reliance on Experts, Etc. Each Trustee, officer or employee of the Trust or a Series thereof shall, in the performance
of his duties, powers and discretions hereunder be fully and completely justified and protected with regard to any act or any
failure to act resulting from reliance in good faith upon the books of account or other records of the Trust or a Series thereof,
upon an opinion of counsel, or upon reports made to the Trust or a Series thereof by any of its officers or employees or by the
Investment Adviser, the Administrator, the Distributor, the Principal Underwriter, Transfer Agent, selected dealers, accountants,
appraisers or other experts or consultants selected with reasonable care by the Trustees, officers or employees of the Trust,
regardless of whether such counsel or expert may also be a Trustee.
Section
18 of the Investment Management Agreement between Registrant and Cushing® Asset Management, LP provides as follows:
18.
Limitation of Liability of the Fund and the Shareholders. None of the Trustees, officers, agents or shareholders of the
Fund will be personally liable under this Agreement. The name “The Cushing® MLP & Infrastructure Total Return Fund”
is the designation of the Fund for the time being under the Amended and Restated Agreement and Declaration of Trust and all persons
dealing with the Fund must look solely to the property of the Fund for the enforcement of any claims against the Fund, as none
of the Trustees, officers, agents or shareholders assume any personal liability for obligations entered into on behalf of the
Fund.
Insofar as indemnification for
liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant
to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
Item
31. Business and Other Connections of the Advisor
The
Investment Adviser is not engaged in any other business, profession, vocation or employment of a substantial nature. A description
of any other business, profession, vocation or employment of a substantial nature in which each limited partner or executive officer
of the Investment Adviser is or has been during the past two fiscal years engaged in for his or her own account or in his or her
capacity as trustee, officer, or portfolio manager of the Fund, is set forth in Part A and Part B of this Registration Statement
in the sections entitled “Management of the Fund” or in the Investment Adviser’s Form ADV, as filed with the
SEC (SEC File No. 801-63255), and which Form ADV is incorporated herein by reference.
Item
32. Location of Accounts and Records
The
accounts, books or other documents required to be maintained by Section 31(a) of the 1940 Act, and the rules promulgated under
the 1940 Act, are kept by the Registrant or its custodian, transfer agent, administrator and fund accountant. The Registrant is
located at the following address: NXG Cushing® Midstream Energy Fund, 600 N. Pearl Street, Suite 1205, Dallas,
Texas 75201. The Fund’s custodian is located at the following address: U.S. Bank National Association, 1555 N. RiverCenter
Drive, Suite 302, Milwaukee, Wisconsin 53212. The Fund’s transfer agent, registrar and administrator is located at the following
address: U.S. Bancorp Global Fund Services, 615 East Michigan Street, Milwaukee, Wisconsin 53202.
Item
33. Management Services
Not
applicable.
Item
34. Undertakings
1. Not
applicable.
2. Not
applicable.
3. Registrant
undertakes:
| (a) | to
file, during any period in which offers or sales are being made, a post-effective amendment
to the registration statement: |
(1) to include any prospectus required by Section 10(a)(3) of the Securities Act;
(2) to reflect in the prospectus any facts or events 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. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective 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.
Provided,
however, that paragraphs a(1), a(2), and a(3) of this section do not apply if the registration statement is filed pursuant to
General Instruction A.2 of this Form and the information required to be included in a post-effective amendment by those paragraphs
is contained in reports filed with or furnished to the Commission by the Registrant pursuant to Section 13 or Section 15(d) of
the Exchange Act that are incorporated by reference into the registration statement, or is contained in a form of prospectus filed
pursuant to Rule 424(b) that is part of the registration statement.
| (b) | that,
for the purpose of determining any liability under the Securities Act, each post-effective
amendment shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof; |
| (c) | 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; |
| (d) | that,
for the purpose of determining liability under the Securities Act to any purchaser: |
(1) if
the Registrant is relying on Rule 430B
(A) Each
prospectus filed by the Registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the
date the filed prospectus was deemed part of and included in the registration statement; and
(B) Each
prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance
on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (x), or (xi) for the purpose of providing the information
required by Section 10(a) of the Securities Act shall be deemed to be part of and included in the registration statement as of
the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of
securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any
person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement
relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration
statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by
reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with
a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement
or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date;
or
(2) If
the Registrant is subject to Rule 430C: Each prospectus filed pursuant to Rule 424(b) under the Securities Act as part of a registration
statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in
reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used
after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration
statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus
that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede
or modify any statement that was made in the registration statement or prospectus that was part of the registration statement
or made in any such document immediately prior to such date of first use.
| (e) | that
for the purpose of determining liability of the Registrant under the Securities Act 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 424 under the Securities Act;
(2)
free writing prospectus relating to the offering prepared by or on behalf of the undersigned
Registrant or used or referred to by the undersigned Registrants;
(3)
the portion of any other free writing prospectus or advertisement pursuant to Rule 482
under the Securities Act relating to the offering containing material information about the undersigned Registrant or its securities
provided by or on behalf of the undersigned Registrant; and
(4)
any other communication that is an offer in the offering made by the undersigned Registrant
to the purchaser.
| 4. | Registrant
undertakes that, for the purpose of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of the Registration
Statement in reliance upon Rule 430A and contained in the form of prospectus filed by
the Registrant pursuant to Rule 424(b)(1) will be deemed to be a part of the Registration
Statement as of the time it was declared effective. |
Registrant
undertakes that, for the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment
that contains a form of prospectus will be deemed to be a new Registration Statement relating to the securities offered therein,
and the offering of such securities at that time will be deemed to be the initial bona fide offering thereof.
| 5. | Registrant
undertakes that, for the purpose of determining any liability under the Securities Act
of 1933, each filing of the Registrant’s annual report pursuant to Section 13(a)
or Section 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference
into the registration statement shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof. |
| 7. | 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 constituting Part B of this Registration Statement. |
SIGNATURES
As required by the Securities
Act of 1933, as amended, and the Investment Company Act of 1940, as amended, this Registrant’s Registration Statement has been
signed on behalf of the Registrant, in the City of Dallas, State of Texas, on the 26th day of October, 2023
| NXG
CUSHING® MIDSTREAM ENERGY FUND |
|
| | |
|
| By: | /s/ John Musgrave |
|
| | Name: |
John Musgrave |
|
| | Title: |
Chief
Executive Officer and President |
|
As required by the Securities
Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities set forth below
on the 26th day of October, 2023.
Principal
Executive Officer
/s/ John Musgrave |
|
John Musgrave |
|
Chief Executive Officer and President |
|
Principal
Financial Officer
/s/ Blake Nelson |
|
Blake Nelson |
|
Chief Financial Officer and Treasurer |
|
Trustees
* |
|
Andrea N. Mullins |
|
Trustee |
|
* |
|
Ronald P. Trout |
|
Trustee |
|
| * | Signed
by Blake Nelson, an attorney-in-fact, pursuant to a power of attorney filed herewith. |
By: |
/s/ Blake Nelson |
|
|
Blake Nelson |
|
|
Attorney-In-Fact |
|
|
October 26, 2023 |
|
EXHIBIT
INDEX
C-10
NXG Investment Management
600 N. Pearl Street
Suite 1205
Dallas, Texas 75201
The Cushing® MLP & Infrastructure Total Return Fund
(“SRV”)
600 N. Pearl Street
Dallas, Texas 75201
Ladies and Gentlemen:
This letter agreement (the "Agreement")
confirms the temporary fee waiver by NXG Investment Management (the "Adviser") with respect to the management fee payable
in connection with the management of The Cushing® MLP & Infrastructure Total Return Fund (the "Fund").
The Fund and the Adviser have entered into an Investment
Management Agreement, dated as of August 6, 2007 (the "Management Agreement"). Pursuant to the Management Agreement,
the Fund pays to the Adviser a monthly fee (the "Management Fee") at an annual rate equal to 1.25% of the Fund’s
Managed Assets (as defined in the Management Agreement).
1. Fee Waiver. The Adviser has agreed to waive a portion of the Management Fee equal to 0.25% of the Fund’s Managed Assets.
2. Effective Date. The fee waiver is effective as of February 1, 2023.
3. Recoupment.
Amounts waived by the Adviser are not subject to recoupment from the Fund in future years.
4. Term
and Termination. This Agreement shall continue for a 12-month term. This Agreement will terminate automatically in the event of the
termination of the Management Agreement.
5. Governing
Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware for contracts to be performed
entirely therein without reference to choice of law principles thereof and in accordance with the applicable provisions of the 1940 Act.
|
Very truly yours, |
|
|
|
|
|
Cushing MLP Asset Management, LP |
|
|
|
|
|
/s/ Blake Nelson |
|
|
Name: Blake Nelson |
|
|
Title: Chief Financial Officer |
|
Accepted and Agreed:
THE CUSHING® MLP & INFRASTRUCTURE
TOTAL RETURN FUND
By: |
/s/ Blake Nelson |
|
|
Name: Blake Nelson |
|
|
Title: Chief Financial Officer and Treasurer |
|
1
Consent of Independent Registered Public Accounting Firm
We consent to the references to our firm under the captions “Financial
Highlights”, “Senior Securities”, and “Independent Registered Public Accounting Firm” in the
Prospectus, and “Financial Statements” and “Independent Registered Public Accounting Firm” in the Statement
of Additional Information each dated October 26, 2023, and each included in this Pre-Effective Amendment No. 2 to the Registration
Statement (Form N-2) of NXG Cushing Midstream Energy Fund (Formerly, The Cushing MLP & Infrastructure Total Return Fund) (the
“Registration Statement”).
We also consent to
the incorporation by reference of our report dated January 27, 2023, with respect to the financial statements and financial highlights
of NXG Cushing Midstream Energy Fund included in the Annual Report to Shareholders (Form N-CSR) for the year ended November 30, 2022 into
this Registration Statement, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Dallas, Texas
October 26,
2023
Exhibit
(s)
Calculation
of Filing Fee Tables
FORM
N-2
(Form
Type)
NXG
Cushing Midstream Energy Fund
(Exact
Name of Registrant as Specified in its Charter)
Table
1: Newly Registered and Carry Forward Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
Type |
Security
Class
Title |
Fee
Calculation
or Carry
Forward
Rule |
Amount
Registered |
Proposed
Maximum
Offering
Price Per
Unit |
Maximum
Aggregate
Offering Price |
Fee
Rate |
Amount
of
Registration
Fee(2) |
Carry
Forward
Form
Type |
Carry
Forward
File
Number |
Carry
Forward
Initial
effective
date |
Filing Fee Previously Paid In Connection with Unsold Securities to be Carried Forward |
Newly
Registered Securities |
|
Fees
Previously paid |
Equity |
Common
Shares of Beneficial Interest |
Rule
457(o) |
N/A |
N/A |
100,000,000(1) |
0.0001102 |
$
11,020.00 |
|
|
|
|
|
Other |
Subscription
Rights to Purchase Common Shares of Beneficial Interest |
Rule
457(o) |
|
|
|
0.0001102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Offering Amounts |
|
$
100,000,000 |
|
$
11,020.00 |
|
|
|
|
Total Fees Previously Paid |
|
|
|
$
11,020.00 |
|
|
|
|
Total Fee Offsets |
|
|
|
N/A |
|
|
|
|
Net Fee Due |
|
|
|
$
0.00 |
|
|
|
|
(1) |
Estimated pursuant to Rule 457(o) under the Securities Act of 1933, solely for purposes of determining the registration fee. |
(2) |
Calculated pursuant to Rule 457(o) under the Securities Act of 1933 and paid in connection with the filing of this Registration Statement. |
The
information in this Prospectus Supplement is not complete and may be changed. A Registration Statement relating to these securities
has been filed with and declared effective by the Securities and Exchange Commission. This Prospectus Supplement and the accompanying
Prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction
where the offer or sale is not permitted.
Subject
to Completion, dated [●], 2023
FORM OF PRELIMINARY PROSPECTUS
SUPPLEMENT TO BE USED IN CONNECTION WITH OFFERINGS OF COMMON SHARES1
(to Prospectus dated ,
2023)
![](https://www.sec.gov/Archives/edgar/data/1400897/000139834423019754/fp0084769-1_01.jpg)
Shares
NXG
Cushing® Midstream Energy Fund
Common
Shares
$
per Share
Investment
Objective. NXG Cushing® Midstream Energy Fund (formerly, The Cushing® MLP & Infrastructure
Total Return Fund) (the “Fund”) is a non-diversified, closed-end management investment company. The Fund’s investment
objective is to obtain a high after-tax total return from a combination of capital appreciation and current income. There can
be no assurance that the Fund will achieve its investment objective.
Investment
Strategy. The Fund seeks to achieve its investment objective by investing, under normal conditions, at least 80% of its Managed
Assets (as defined in the accompanying Prospectus) in a portfolio of midstream energy investments (the “80% policy”).
For purposes of the Fund’s 80% policy, the Fund considers midstream energy investments to be investments that offer economic
exposure to securities of midstream energy companies, which are companies that provide midstream energy services, including the gathering, transporting, processing, fractionation, storing, refining and distribution of
natural resources, such as natural gas, natural gas liquids, crude oil refined petroleum products, biofuels, carbon sequestration,
solar, and wind. The Fund considers a company to be a midstream energy company if at least 50% of its assets, income, sales or
profits are committed to or derived from midstream energy services.
The
Fund has previously qualified, and intends to continue to qualify, to be treated as a regulated investment company (“RIC”)
under the Internal Revenue Code of 1986, as amended (the "Code"). The Fund pursues its investment objective by generally investing in master limited
partnerships ("MLPs") up to the maximum extent permitted of a RIC under the Code. Accordingly, the Fund will, as of the end of each fiscal quarter, invest no more than 25% of Managed Assets in securities
of MLPs and other entities that are “qualified publicly traded partnerships”
under the Code.
The Fund invests in equity and debt securities of midstream
energy companies, and invests in U.S. and non-U.S. securities and in issuers of any market capitalization size.
(continued
on inside front cover)
1 | In
addition to the sections outlined in this form of prospectus supplement, each prospectus supplement actually used in connection
with an offering conducted pursuant to the registration statement to which this form of prospectus supplement is attached will
be updated to include such other information as may then be required to be disclosed therein pursuant to applicable law or regulation
as in effect as of the date of each such prospectus supplement, including, without limitation, information particular to the terms
of each security offered thereby and any related risk factors or tax considerations pertaining thereto. This form of prospectus
supplement is intended only to provide a rough approximation of the nature and type of disclosure that may appear in any actual
prospectus supplement used for the purposes of offering securities pursuant to the registration statement to which this form of
prospectus supplement is attached, and is not intended to and does not contain all of the information that would appear in any
such actual prospectus supplement, and should not be used or relied upon in connection with any offer or sale of securities. |
Investing
in the Fund’s Common Shares involves certain risks. See “Risks” on page of the accompanying Prospectus.
Neither
the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or
determined if this Prospectus Supplement or the accompanying Prospectus is truthful or complete. Any representation to the contrary
is a criminal offense.
| |
Per
Share | | |
Total(1) | |
Public offering price | |
$ | | | |
$ | | |
Underwriting discount | |
$ | | | |
$ | | |
Proceeds, before expenses,
to the Fund(2) | |
$ | | | |
$ | | |
(1) | [The
Fund has granted the underwriters an option to purchase up to an additional Common Shares at the public offering price, less the
sales load, within days of the date of this prospectus solely to cover overallotments, if any. If such option is exercised in
full, the public offering price, sales load, estimated offering expenses and proceeds, before expenses, to the Fund will be $
, $ and $ , respectively. See “Underwriting.”] |
(2) | [Offering
expenses payable by the Fund will be deducted from the Proceeds, before expenses, to the Fund. Total offering expenses (other
than sales load) are estimated to be $ , which will be paid by the Fund.] |
(continued
from front cover)
Investment Strategy (continued)
As an alternative to holding investments directly,
the Fund may obtain investment exposure through derivatives transactions intended to replicate, modify or replace the economic attributes
associated with investment in securities in which the Fund is permitted to invest directly. To the extent that the Fund invests in synthetic
investments with economic characteristics similar to investments in midstream energy companies, the market value (or, if market value
is unavailable, the fair value) of such investments will be counted for purposes of the Fund’s policy of investing at least 80%
of its Managed Assets in a portfolio of midstream energy investments. For a discussion of derivative instruments in which the Fund may
invest, see “Investment Objective and Policies—Additional Investment Practices—Strategic Transactions.”
The Fund invests, without limitation, in debt securities
rated, at the time of investment, at least (i) B3 by Moody’s Investors Service, Inc. (“Moody’s”), (ii) B- by Standard
& Poor’s Ratings Services (“S&P”) or Fitch Ratings (“Fitch”), or (iii) a comparable rating by another
rating agency, and invests no more than 5% of its Managed Assets in debt securities rated below B3 by Moody’s, B- by S&P or
Fitch or a comparable rating by another rating agency. Therefore, the Fund may invest in below investment grade debt securities. A debt
security is considered below investment grade if it is rated below Baa3- by Moody’s or below BBB- by S&P or Fitch or a comparable
rating by another rating agency. Below investment grade debt securities are often referred to as “high yield” securities or
“junk bonds.” Below investment grade debt securities are regarded as having predominantly speculative characteristics with
respect to capacity to pay interest and to repay principal. Debt securities in which the Fund invests may be of any maturity.
NYSE
Listing. The Fund’s currently outstanding Common Shares are, and the Common Shares offered by this Prospectus, will
be, subject to notice of issuance, listed on the New York Stock Exchange (the “NYSE”) under the symbol “SRV.”
As of , the last reported sale price for the Fund’s Common Shares on the NYSE was $ per Common Share, and the net asset
value of the Fund’s Common Shares was $ per Common Share, representing a [discount/premium] to net asset value of %.
This
Prospectus Supplement, together with the accompanying Prospectus, dated , 2023, sets forth concisely the information that you
should know before investing in the Fund’s Common Shares. You should read this Prospectus, which contains important information
about the Fund, together with any Prospectus Supplement, before deciding whether to invest, and retain it for future reference.
A Statement of Additional Information, dated , 2023, containing additional information about the Fund, has been filed with the
SEC and is incorporated by reference in its entirety into the accompanying Prospectus. You may request a free copy of the Statement
of Additional Information, the table of contents of which is on page of the accompanying Prospectus, or request other information
about the Fund (including the Fund’s annual and semi-annual reports) or make shareholder inquiries by calling (800) 345-7999
or by writing the Fund, or you may obtain a copy (and other information regarding the Fund) from the SEC’s website (www.sec.gov).
Free copies of the Fund’s Prospectus, SAI, reports and any incorporated information will also be available from the Fund’s
website at www.cushingcef.com.
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.
Capitalized
terms used herein that are not otherwise defined shall have the meanings assigned to them in the accompanying Prospectus.
The
underwriters expect to deliver the Common Shares to purchasers on or about .
This
Prospectus Supplement is dated .
TABLE
OF CONTENTS
|
Page |
Prospectus Supplement |
|
PROSPECTUS SUPPLEMENT SUMMARY |
S- |
SUMMARY OF FUND EXPENSES |
S- |
CAPITALIZATION |
S- |
USE OF PROCEEDS |
S- |
RECENT DEVELOPMENTS |
S- |
UNDERWRITERS |
S- |
LEGAL MATTERS |
S- |
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
S- |
ADDITIONAL INFORMATION |
S- |
Prospectus |
|
Prospectus Summary |
1 |
Summary of Fund Expenses |
27 |
Financial Highlights |
28 |
Senior Securities |
31 |
The Fund |
31 |
Use of Proceeds |
31 |
Market and Net Asset Value Information |
31 |
Investment Objective and Policies |
32 |
The Fund’s Investments |
33 |
Use of Leverage |
40 |
Risks |
43 |
Management of the Fund |
67 |
Net Asset Value |
69 |
Distributions |
71 |
Dividend Reinvestment Plan |
73 |
Description of Shares |
75 |
Anti-Takeover Provisions in the Agreement and Declaration of Trust |
79 |
Certain Provisions of Delaware Law, the Agreement and Declaration of Trust and Bylaws |
81 |
Closed-End Fund Structure |
82 |
Repurchase of Common Shares |
83 |
U.S. Federal Income Tax Considerations |
84 |
Plan of Distribution |
86 |
Other Service Providers |
89 |
Legal Matters |
89 |
Independent Registered Public Accounting Firm |
89 |
Additional Information |
89 |
Privacy Policy |
89 |
Table of Contents of the Statement of Additional Information |
90 |
FORWARD-LOOKING
STATEMENTS
This
prospectus supplement contains or incorporates by reference forward-looking statements, within the meaning of the federal securities
laws, that involve risks and uncertainties. These statements describe the Fund’s plans, strategies, and goals and our beliefs
and assumptions concerning future economic and other conditions and the outlook for the Fund, based on currently available information.
In this prospectus, words such as “anticipates,” “believes,” “expects,” “objectives,”
“goals,” “future,” “intends,” “seeks,” “will,” “may,”
“could,” “should,” and similar expressions are used in an effort to identify forward-looking statements,
although some forward-looking statements may be expressed differently. The Fund is not entitled to the safe harbor for forward-looking
statements pursuant to Section 27A of the Securities Act of 1933, as amended.
PROSPECTUS
SUPPLEMENT SUMMARY
This
is only a summary of information contained elsewhere in this Prospectus Supplement and the accompanying Prospectus. This
summary does not contain all of the information that you should consider before investing in the Fund’s Common Shares.
You should carefully read the more detailed information contained in this Prospectus Supplement and the accompanying Prospectus
and the Statement of Additional Information, dated , 2023 (the “SAI”), especially the information set forth
under the headings “Investment Objective and Policies” and “Risks.”
|
The
Fund |
NXG
Cushing® Midstream Energy Fund (the “Fund”) is a non-diversified, closed-end management investment
company registered under the 1940 Act that commenced investment operations on August 27, 2007. The Fund’s Investment
Adviser is Cushing® Asset Management, LP. |
Investment
Adviser |
The
Fund’s investments are managed by its Investment Adviser, Cushing® Asset Management, LP d/b/a NXG Investment
Management, whose principal business address is 600 N. Pearl Street, Suite 1205, Dallas, Texas 75201. The Investment Adviser
is a wholly-owned investment advisory subsidiary of Swank Capital. The Investment Adviser was founded in 2003 and serves as
investment adviser to registered and unregistered funds. As of [ ], 2023, the Investment Adviser managed approximately $[
] billion in assets. |
Listing
and Symbol |
The
Fund’s currently outstanding Common Shares are, and the Common Shares offered by this Prospectus, will be, subject to
notice of issuance, listed on the New York Stock Exchange (the “NYSE”) under the symbol “SRV.” As
of , the last reported sale price for the Fund’s Common Shares on the NYSE was $ per Common Share, and the net asset
value of the Fund’s Common Shares was $ per Common Share, representing a [premium/discount] to net asset value of %. |
Distributions
|
The
Fund intends to pay substantially all of its net investment income to Common Shareholders
through monthly distributions. In addition, the Fund intends to distribute any net long-term
capital gains to Common Shareholders at least annually. The Fund expects that distributions
paid on the Common Shares will consist primarily of (i) investment company taxable income,
which includes, among other things, ordinary income, net short-term capital gain and
income from certain hedging and interest rate transactions, (ii) net capital gain (which
is the excess of net long-term capital gain over net short-term capital loss), and/or
(iii) return of capital.
The
Fund's net investment income can vary significantly over time; however, the Fund seeks to maintain a more stable monthly
distribution per share. The distributions paid by the Fund for any particular month may be more or less than the amount
of net investment income for that monthly period.
In
any given year, there can be no guarantee the Fund's investment returns will exceed the amount of distributions. The Fund may distribute more than
the entire amount of the net investment income earned in a particular period, in which case all or a portion of a distribution
may be a return of capital. The Fund's distributions have historically included, and may in the future include, a significant
portion of return of capital. For the fiscal year ended November 30, 2022, the Fund's distributions were comprised of approximately
28% ordinary income and 72% return of capital. Accordingly, shareholders should not assume that the source of a distribution
from the Fund is net income or profit, and the Fund's distributions should not be used as a measure of performance or confused
with yield or income. Return of capital is the return of a portion of the shareholder's original investment up to the amount
of the Common Shareholder’s tax basis in their Common Shares, which would reduce such tax basis. Although a return of capital
may not be taxable, it will generally increase the Common Shareholder’s potential gain, or reduce the Common Shareholder’s
potential loss, on any subsequent sale or other disposition of Common Shares.
Alternatively,
the Fund may also distribute less than its net investment income in a particular period. The undistributed net investment income may
be available to supplement future common share distributions. Undistributed net investment income is included in the Common Shares' net
asset value, and, correspondingly, distributions from net investment income will reduce the Common Shares' net asset value.
|
|
With
each distribution that does not consist solely of net investment income, the Fund will issue a notice to shareholders that will provide
estimated information regarding the amount and composition of the distribution. The amounts and sources of distributions reported in
each notice will be estimated, are likely to change over time and are not provided for tax reporting purposes. The final determination
of such amounts will be made and reported to shareholders after the end of the calendar year when the Fund determines its earnings and
profits for the year. The actual amounts and sources of the amounts for accounting and tax reporting purposes will depend upon the Fund's
investment experience during its full fiscal year and may be subject to changes based on tax regulations. The Fund will send each shareholder
a Form 1099-DIV for the calendar year that will tell shareholders how to report distributions for federal income tax purposes.
See
“Distributions” in the accompanying Prospectus. |
The
Offering |
Common
Shares Offered by the Fund
Common
Shares Outstanding after the Offering
The
number of Common Shares offered and outstanding after the offering assumes the underwriters’ over-allotment option
is not exercised. If the over-allotment option is exercised in full, the Fund will issue an additional Common Shares and
will have Common Shares outstanding after the Offering.
The
Fund’s Common Shares have recently traded at a premium to net asset value (“NAV”) per share and the
price of the Common Shares is expected to be above net asset value per share. Therefore, investors in this offering are
likely to experience immediate dilution of their investment. Furthermore, shares of closed-end investment companies, such
as the Fund, frequently trade at a price below their NAV. The Fund cannot predict whether its Common Shares will trade
at a premium or a discount to NAV.
|
Risks
|
See
“Risks” beginning on page of the accompanying Prospectus for a discussion of factors you should consider carefully
before deciding to invest in the Fund’s Common Shares. |
Use
of Proceeds |
The
Fund intends to invest the net proceeds of the offering in accordance with its investment objective and policies as stated
in the accompanying Prospectus. It is currently anticipated that the Fund will be able to invest substantially all of the
net proceeds of the offering in accordance with its investment objective and policies within months after the completion
of the offering. Pending such investment, it is anticipated that the proceeds will be invested in cash, cash equivalents or
other securities, including U.S. government securities or high quality, short-term debt securities. The Fund may also use
the proceeds for working capital purposes, including the payment of distributions, interest and operating expenses, although
the Fund currently has no intent to issue Securities primarily for these purposes. |
SUMMARY
OF FUND EXPENSES
The
following table contains information about the costs and expenses that Common Shareholders will bear directly or indirectly. The
table is based on the capital structure of the Fund as of (except as noted below) after giving effect to the anticipated net proceeds
of the Common Shares offered by this Prospectus Supplement and assuming the Fund incurs the estimated offering expenses. The purpose
of the table and the example below is to help you understand the fees and expenses that you, as a holder of Common Shares, would
bear directly or indirectly.
Shareholder
Transaction Expenses | |
| |
Sales load (as a percentage
of offering price) | % |
Offering expenses borne
by the Fund (as a percentage of offering price) | % |
Dividend
Reinvestment Plan fees (per transaction sales fee) | 15.00(1) |
Annual Expenses |
Percentage
of Net Assets Attributable to Common Shares(2) |
Management
fees(3)(4) |
% |
Interest
payments on borrowed funds(5) |
% |
Other
expenses(6) |
% |
Total
annual expenses |
% |
| (1) | There will be no brokerage charges with respect to Common Shares issued directly by the Fund. However, each participant will pay a pro
rata share of brokerage commissions incurred in connection with open-market purchases. In addition, participants who request a sale of
shares through the Plan Agent are subject to a $15.00 per transaction sales fee and pay a brokerage commission of $0.12 per share sold.
The Fund’s transfer agent serves as Plan Agent. Fees paid by the Fund to the transfer agent are included in “Other expenses”
below, which are ultimately borne by common shareholders. For additional information, see “Distribution Reinvestment Plan”
in the accompanying Prospectus. |
| (2) | Based upon net assets attributable to common shares as of . |
(3) | The Fund pays the Investment Adviser an annual fee,
payable monthly, in an amount equal to 1.25% of the Fund’s average weekly Managed Assets (net assets plus any assets
attributable to Financial Leverage). The fee shown above is based upon outstanding Financial Leverage
of % of the Fund’s Managed Assets (or % of the Fund's net assets attributable to common
shares). If Financial Leverage of more than
% of the Fund’s Managed Assets (or %
of the Fund's net assets attributable to common shares) is used, the management fees, as a percentage of net assets attributable to
common shares, would be higher than as shown above. |
| (4) | The Investment Adviser has contractually agreed to waive a portion of the management fee in an
amount equal to % of the Fund's Managed Assets through . The Fund’s annual expenses after giving effect to such
management fee waiver are: |
Annual Expenses |
Percentage of Net Assets Attributable
to Common Shares(2) |
Management fees(2)(3) |
% |
Interest payments on borrowed funds(4) |
% |
Other expenses(5) |
% |
Total annual expenses(3) |
% |
(5) | Based upon the Fund’s outstanding borrowings as
of
of
approximately $ million and the interest rate as
of
,
of %. |
(6) | “Other
expenses” are estimated based upon those incurred during the fiscal year ended . Other expenses do not include expense related
to realized or unrealized investment gains or losses. See "Management of the Fund—Fund Expenses" in the accompanying prospectus. |
Example
The
following example illustrates the expenses that you would pay on a $1,000 investment in Common Shares, assuming (1) “Total
annual expenses” of % of net assets attributable to Common Shares, (2) the sales load of $ and estimated offering expenses
of $ , and (3) a 5% annual return*:
|
1
Year |
3
Years |
5
Years |
10
Years |
Total
Expenses Incurred |
$ |
$ |
$ |
$ |
* | The
example should not be considered a representation of future expenses or returns. Actual expenses may be higher or lower than those
assumed. Moreover, the Fund’s actual rate of return may be higher or lower than the hypothetical 5% return shown in the
example. The example assumes that the estimated “Other expenses” set forth in the Annual Expenses table are accurate
and that all dividends and distributions are reinvested at net asset value. |
CAPITALIZATION
The
following table sets forth the Fund’s capitalization at :
| (i) | on
a historical basis; |
| (ii) | on
an as adjusted basis to reflect the issuance of an aggregate of Common Shares pursuant
to the Fund’s Automatic Dividend Reinvestment Plan, and the application of the
net proceeds from such issuances of Common Shares; and |
| (iii) | on
an as further adjusted basis to reflect the assumed sale of of Common Shares at a price of $ per share in an offering under this
Prospectus Supplement and the accompanying Prospectus less the aggregate underwriting discount of $ and estimated offering expenses
payable by the Fund of $ (assuming no exercise of the underwriters’ over-allotment option). |
| |
Actual | | |
As
Adjusted (unaudited) | | |
As
Further Adjusted (unaudited) | |
Short-Term Debt: | |
| | | |
| | | |
| | |
Borrowings | |
$ | | | |
$ | | | |
$ | | |
Common Shareholder’s Equity: | |
| | | |
| | | |
| | |
Common Shares of beneficial interest, par value $0.01 per share; unlimited shares authorized, shares issued and outstanding (actual), shares issued and outstanding (as adjusted), and shares issued and outstanding (as further adjusted) | |
| | | |
| | | |
| | |
Additional paid-in capital | |
| | | |
| | | |
| | |
Net unrealized appreciation on investments, net of tax | |
| | | |
| | | |
| | |
Accumulated net realized gain on investments, net of tax | |
| | | |
| | | |
| | |
Accumulated net investment loss, net of tax | |
| | | |
| | | |
| | |
Net assets | |
| | | |
| | | |
| | |
USE
OF PROCEEDS
The
Fund estimates that the net proceeds to the Fund from this offering will be approximately $ million (or $ million if the underwriters
exercise their over-allotment option to purchase additional Common Shares in full), after deducting underwriting discounts and
commissions and estimated offering expenses borne by the Fund.
The
Fund intends to invest the net proceeds of the offering in accordance with its investment objective and policies as stated in
the accompanying Prospectus. It is currently anticipated that the Fund will be able to invest substantially all of the net proceeds
of the offering in accordance with its investment objective and policies within months after the completion of the offering. Pending
such investment, it is anticipated that the proceeds will be invested in cash, cash equivalents or other securities, including
U.S. government securities or high quality, short-term debt securities. The Fund may also use the proceeds for working capital
purposes, including the payment of distributions, interest and operating expenses, although the Fund currently has no intent to
issue Securities primarily for these purposes.
RECENT
DEVELOPMENTS
[TO
COME, IF ANY]
UNDERWRITERS
[TO
COME]
LEGAL
MATTERS
Certain
legal matters will be passed on by Skadden, Arps, Slate, Meagher & Flom LLP, Chicago, Illinois, as special counsel to the
Fund in connection with the offering of Common Shares. Certain legal matters will be passed on by , , , as special counsel to
the underwriters in connection with the offering of Common Shares.
ADDITIONAL
INFORMATION
This
Prospectus Supplement and the accompanying Prospectus constitute part of a Registration Statement filed by the Fund with the SEC
under the Securities Act and the 1940 Act. This Prospectus Supplement and the accompanying Prospectus omit certain of the information
contained in the Registration Statement, and reference is hereby made to the Registration Statement and related exhibits for further
information with respect to the Fund and the Common Shares offered hereby. Any statements contained herein concerning the provisions
of any document are not necessarily complete, and, in each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement or otherwise filed with the SEC. Each such statement is qualified in its entirety by such
reference. The complete Registration Statement may be obtained from the SEC upon payment of the fee prescribed by its rules and
regulations or free of charge through the SEC’s web site (http://www.sec.gov)
![](https://www.sec.gov/Archives/edgar/data/1400897/000139834423019754/fp0084769-1_01.jpg)
Shares
NXG
Cushing® Midstream Energy Fund
Common
Shares
FORM
OF
PROSPECTUS
SUPPLEMENT
The
information in this Prospectus Supplement is not complete and may be changed. A Registration Statement relating to these securities
has been filed with and declared effective by the Securities and Exchange Commission. This Prospectus Supplement and the accompanying
Prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction
where the offer or sale is not permitted.
Subject
to Completion, dated [●], 2023
FORM
OF PROSPECTUS SUPPLEMENT TO BE USED IN CONNECTION WITH RIGHTS OFFERINGS1
(to Prospectus dated , 2023)
![](https://www.sec.gov/Archives/edgar/data/1400897/000139834423019754/fp0084769-1_01.jpg)
Common
Shares
NXG
Cushing® Midstream Energy Fund
Subscription
Rights for Common Shares
NXG
Cushing® Midstream Energy Fund (formerly, The Cushing® MLP & Infrastructure Total Return Fund)
(the “Fund”) is a non-diversified, closed-end management investment company.
The
Fund is issuing [transferable/non-transferable] rights (“Rights”) to its common shareholders of record (“Record
Date Shareholders”) as of 5:00 p.m., Eastern time, on (the “Record Date”), entitling the holders of those
Rights to subscribe for up to an aggregate of of the Fund’s common shares of beneficial interest (the “Offer”).
Record Date Shareholders will receive one Right for each outstanding whole common share held on the Record Date. The Rights entitle
their holders to purchase one new common share for every Rights held (1-for- ). Any Record Date Shareholder who is issued
fewer than Rights may subscribe for one full common share in the Offer. [In addition, Record Date Shareholders who fully exercise
their Rights (other than those Rights that cannot be exercised because they represent the right to acquire less than one common
share) will be entitled to subscribe for additional common shares of the Fund that remain unsubscribed as a result of any unexercised
Rights. This over-subscription privilege is subject to a number of limitations and subject to allotment.]
The
subscription price (the “Subscription Price”) will be determined based upon a formula equal to (the “Formula
Price”). The Offer will expire at , on , unless extended as described in this prospectus (the “Expiration Date”).
Rights
holders may not know the Subscription Price at the time of exercise and will be required initially to pay for both the common
shares subscribed for pursuant to the primary subscription [and, if eligible, any additional common shares subscribed for pursuant
to the over-subscription privilege] at the estimated Subscription Price of $ per common share and, except in limited circumstances,
will not be able to rescind their subscription.
Exercising
your Rights and investing in the Fund’s common shares involves a high degree of risk . See “Risks” on page of
the accompanying Prospectus.
This
offering will dilute the ownership interest and voting power of the Common Shares owned by shareholders who do not fully exercise
their Rights. Shareholders who do not fully exercise their Rights should expect, upon completion of the offering, to own a smaller
proportional interest in the Fund than before the offering.
Further, if the net proceeds per share from the offering are at a discount to the Fund’s net asset value per share, this
offering will reduce the Fund’s net asset value per share.
1 | This
document is a form of prospectus supplement for an offering of common shares pursuant
to subscription rights. In addition to the sections outlined in this form of prospectus
supplement, each prospectus supplement actually used in connection with an offering conducted
pursuant to the registration statement to which this form of prospectus supplement is
attached will be updated to include such other information as may then be required to
be disclosed therein pursuant to applicable law or regulation as in effect as of the
date of each such prospectus supplement, including, without limitation, information particular
to the terms of each security offered thereby and any related risk factors or tax considerations
pertaining thereto. This form of prospectus supplement is intended only to provide a
rough approximation of the nature and type of disclosure that may appear in any actual
prospectus supplement used for the purposes of offering securities pursuant to the registration
statement to which this form of prospectus supplement is attached, and is not intended
to and does not contain all of the information that would appear in any such actual prospectus
supplement, and should not be used or relied upon in connection with any offer or sale
of securities. |
Neither
the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or
determined if this Prospectus Supplement or the accompanying Prospectus is truthful or complete. Any representation to the contrary
is a criminal offense.
(continued
on following page)
| |
| Per
Share | | |
| Total(1) | |
Estimated
Subscription Price(2) | |
| $ | | |
| $ | |
Estimated Sales Load(2)(3) | |
| $ | | |
| $ | |
Proceeds, before expenses,
to the Fund(2) | |
| $ | | |
| $ | |
(notes
on following page)
The
Common Shares are expected to be delivered on or about . If the offer is extended, the Common Shares are expected to be delivered
on or about .
This
Prospectus Supplement is dated .
(notes
from previous page)
| (1) | Assumes
that all Rights are exercised at the estimated Subscription Price. All of the Rights
may not be exercised. |
(2) | Estimated
on the basis of [ ]. |
(3) | [ will
act as dealer manager for the Offer (the “Dealer Manager”). The Fund has agreed to pay the Dealer Manager a fee for
its financial structuring and soliciting services equal to % of the Subscription Price per common share for each common share
issued pursuant to the exercise of Rights, including the over-subscription privilege. The Dealer Manager will reallow to broker-dealers
in the selling group to be formed and managed by the Dealer Manager selling fees equal to % of the Subscription Price per
common share for each common share issued pursuant to the exercise of Rights as a result of their selling efforts. In addition,
the Dealer Manager will reallow to other broker-dealers that have executed and delivered a soliciting dealer agreement and have
solicited the exercise of Rights solicitation fees equal to % of the Subscription Price per common share for each common share
issued pursuant to the exercise of Rights as a result of their soliciting efforts, subject to a maximum fee based on the number
of common shares held by each broker-dealer through The Depository Trust Company (“DTC”) on the Record Date. The fees
and expenses of the Offer, including the Dealer Manager fee, will be borne by the Fund and indirectly by all of its common shareholders,
including those who do not exercise their Rights.] |
| (4) | Offering
expenses borne by the Fund are estimated to be $ . |
(continued
from previous page)
NAV
dilution resulting from the Offer is not currently determinable because it is not known how many common shares will be subscribed
for, what the net asset value or market price of the common shares will be on the Expiration Date or what the Subscription Price
will be. Any such dilution will disproportionately affect non-exercising common shareholders. If the Subscription Price is substantially
less than the then current net asset value, this dilution could be substantial. However, assuming all of the common shares are
sold at the estimated Subscription Price, the Fund's current net asset value per common share would be reduced by approximately
$ , or %. [The distribution to common shareholders of transferable Rights, which themselves have intrinsic value, will
afford non-participating Record Date Shareholders the potential of receiving cash payment upon the sale of the Rights, receipt
of which may be viewed as partial compensation for any dilution of their interests that may occur as a result of the Offer. There
can be no assurance that a market for the Rights will develop or, if such a market develops, what the price of the Rights will
be.] See "Risks Related to the Offer" in this prospectus supplement.
Investment
Objective. NXG Cushing® Midstream Energy Fund (formerly, The Cushing® MLP & Infrastructure
Total Return Fund) (the “Fund”) is a non-diversified, closed-end management investment company. The Fund’s investment
objective is to obtain a high after-tax total return from a combination of capital appreciation and current income. There can
be no assurance that the Fund will achieve its investment objective.
Investment
Strategy. The Fund seeks to achieve its investment objective by investing, under
normal conditions, at least 80% of its Managed Assets (as defined in the accompanying Prospectus) in a portfolio of midstream energy investments
(the “80% policy”). For purposes of the Fund’s 80% policy, the Fund considers midstream energy investments to be investments
that offer economic exposure to securities of midstream energy companies, which are companies that engage provide midstream energy services,
including the gathering, transporting, processing, fractionation, storing, refining and distribution of natural resources, such as natural
gas, natural gas liquids, crude oil refined petroleum products, biofuels, carbon sequestration, solar, and wind. The Fund considers a
company to be a midstream energy company if at least 50% of its assets, income, sales or profits are committed to or derived from midstream
energy services.
The Fund invests in equity and debt securities of midstream energy companies, and invests in U.S. and non-U.S. securities and in issuers
of any market capitalization size.
As an alternative to holding investments directly,
the Fund may obtain investment exposure through derivatives transactions intended to replicate, modify or replace the economic attributes
associated with investment in securities in which the Fund is permitted to invest directly. To the extent that the Fund invests in synthetic
investments with economic characteristics similar to investments in midstream energy companies, the market value (or, if market value
is unavailable, the fair value) of such investments will be counted for purposes of the Fund’s policy of investing at least 80%
of its Managed Assets in a portfolio of midstream energy investments. For a discussion of derivative instruments in which the Fund may
invest, see “Investment Objective and Policies—Additional Investment Practices—Strategic Transactions.”
The Fund invests, without limitation, in debt securities
rated, at the time of investment, at least (i) B3 by Moody’s Investors Service, Inc. (“Moody’s”), (ii) B- by Standard
& Poor’s Ratings Services (“S&P”) or Fitch Ratings (“Fitch”), or (iii) a comparable rating by another
rating agency, and invests no more than 5% of its Managed Assets in debt securities rated below B3 by Moody’s, B- by S&P or
Fitch or a comparable rating by another rating agency. Therefore, the Fund may invest in below investment grade debt securities. A debt
security is considered below investment grade if it is rated below Baa3- by Moody’s or below BBB- by S&P or Fitch or a comparable
rating by another rating agency. Below investment grade debt securities are often referred to as “high yield” securities or
“junk bonds.” Below investment grade debt securities are regarded as having predominantly speculative characteristics with
respect to capacity to pay interest and to repay principal. Debt securities in which the Fund invests may be of any maturity.
The
Fund has previously qualified, and intends to continue to qualify, to be treated as a regulated investment company (“RIC”)
under the Internal Revenue Code of 1986, as amended (the "Code"). The Fund pursues its investment objective by generally investing in master limited
partnerships ("MLPs") up to the maximum extent permitted of a RIC under the Code. Accordingly, the Fund will, as of the end of each fiscal quarter, invest no more than 25% of Managed Assets in securities
of MLPs and other entities that are “qualified publicly traded partnerships”
under the Code.
Listing
and Symbol. The Fund’s currently outstanding Common Shares are, and the Common Shares offered by the accompanying Prospectus,
will be, subject to notice of issuance, listed on the New York Stock Exchange (the “NYSE”) under the symbol “SRV.”
As of , the last reported sale price for the Fund’s Common Shares on the NYSE was $ per Common Share, and the net
asset value of the Fund’s Common Shares was $ per Common Share, representing a [discount/premium] to net asset value
of %. [The Rights will be, subject to notice of issuance, admitted for trading on the under the symbol “ ”
during the course of the offer. Trading in the Rights on the may be conducted until the close of trading on the on the
last business day prior to the expiration date.]
This
Prospectus Supplement, together with the accompanying Prospectus, dated , 2023, sets forth concisely the information that you
should know before investing in the Fund’s Securities. You should read this Prospectus, which contains important information
about the Fund, together with any Prospectus Supplement, before deciding whether to invest, and retain it for future reference.
A Statement of Additional Information, dated , 2023, containing additional information about the Fund, has been filed with
the SEC and is incorporated by reference in its entirety into the accompanying Prospectus. You may request a free copy of the
Statement of Additional Information, the table of contents of which is on page of the accompanying Prospectus, or request other
information about the Fund (including the Fund’s annual and semi-annual reports) or make shareholder inquiries by calling
[(800) 345-7999] or by writing the Fund, or you may obtain a copy (and other information regarding the Fund) from the SEC’s
website (www.sec.gov). Free copies of the Fund’s Prospectus, SAI reports and any incorporated information will also be available
from the Fund’s website at www.cushingcef.com.
The
Fund’s Securities 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.
Capitalized
terms used herein that are not otherwise defined shall have the meanings assigned to them in the accompanying Prospectus.
TABLE OF CONTENTS
|
Page |
Prospectus Supplement |
|
Prospectus Supplement Summary |
S- |
Summary of Fund Expenses |
S- |
Capitalization |
S- |
Use of Proceeds |
S- |
Recent Developments |
S- |
Terms of the Offer |
S- |
Risks Related to the Offer |
S- |
Legal Matters |
S- |
Independent Registered Public Accounting Firm
|
S- |
Additional Information |
S- |
Prospectus |
|
Prospectus Summary |
1 |
Summary of Fund Expenses |
27 |
Financial Highlights |
28 |
Senior Securities |
31 |
The Fund |
31 |
Use of Proceeds |
31 |
Market and Net Asset Value Information |
31 |
Investment Objective and Policies |
32 |
The Fund’s Investments |
33 |
Use of Leverage |
40 |
Risks |
43 |
Management of the Fund |
67 |
Net Asset Value |
69 |
Distributions |
71 |
Dividend Reinvestment Plan |
73 |
Description of Shares |
75 |
Anti-Takeover Provisions in the Agreement and
Declaration of Trust |
79 |
Certain Provisions of Delaware Law, the Agreement
and Declaration of Trust and Bylaws |
81 |
Closed-End Fund Structure |
82 |
Repurchase of Common Shares |
83 |
U.S. Federal Income Tax Considerations |
84 |
Plan of Distribution |
86 |
Other Service Providers |
89 |
Legal Matters |
89 |
Independent Registered Public Accounting Firm |
89 |
Additional Information |
89 |
Privacy Policy |
89 |
Table of Contents of the Statement of Additional
Information |
90 |
FORWARD-LOOKING
STATEMENTS
This
prospectus supplement contains or incorporates by reference forward-looking statements, within the meaning of the federal securities
laws, that involve risks and uncertainties. These statements describe the Fund’s plans, strategies, and goals and our beliefs
and assumptions concerning future economic and other conditions and the outlook for the Fund, based on currently available information.
In this prospectus, words such as “anticipates,” “believes,” “expects,” “objectives,”
“goals,” “future,” “intends,” “seeks,” “will,” “may,”
“could,” “should,” and similar expressions are used in an effort to identify forward-looking statements,
although some forward-looking statements may be expressed differently. The Fund is not entitled to the safe harbor for forward-looking
statements pursuant to Section 27A of the Securities Act of 1933, as amended.
PROSPECTUS
SUPPLEMENT SUMMARY
This
is only a summary of information contained elsewhere in this Prospectus Supplement and the accompanying Prospectus. This
summary does not contain all of the information that you should consider before investing in the Fund’s Common Shares.
You should carefully read the more detailed information contained in this Prospectus Supplement and the accompanying Prospectus
and the Statement of Additional Information, dated , 2023 (the “SAI”), especially the information set
forth under the headings “Investment Objective and Policies” and “Risks.”
|
The
Fund |
NXG
Cushing® Midstream Energy Fund (the “Fund”) is a non-diversified, closed-end management investment
company registered under the 1940 Act that commenced investment operations on August 27, 2007. |
Purpose
of the Offer |
[ ] |
Important
Terms of the Offer |
The
Fund is issuing [transferable/non-transferable] rights (“Rights”) to its
Common Shareholders of record (“Record Date Shareholders”) as of , on (the
“Record Date”), entitling the holders of those Rights to subscribe for up
to an aggregate of of the Fund’s common shares (the “Shares”) (the
“Offer”). Record Date Shareholders will receive one Right for each outstanding
whole common share held on the Record Date. The Rights entitle their holders to purchase
one Share for every Rights held (1-for- ). Fractional Shares will not be issued
upon the exercise of Rights; accordingly, Rights may be exercised only in integer multiples
of , except that any Record Date Shareholder who is issued fewer than Rights may
subscribe, at the Subscription Price (defined below), for one full Share. Assuming the
exercise of all Rights, the Offer will result in an approximately % increase in the
Fund’s common shares outstanding. The Offer is not contingent upon any number of
Rights being exercised. The subscription period commences on and ends at , on ,
unless otherwise extended (the “Expiration Date”). See “The Offer—Important
Terms of the Offer.”
[The
Fund expects to declare a monthly common share distribution in . Such distribution will not be payable with respect to
Shares that are issued pursuant to the Offer after the record date for such distribution.]
The
Fund will bear the expenses of the Offer and all such expenses will be borne indirectly by the Fund’s Common Shareholders,
including those who do not exercise their Rights. These expenses include, but are not limited to, [the dealer manager
fee and reimbursement of dealer manager expenses], the expenses of preparing, printing and mailing the prospectus and
Rights subscription materials for the Offer and the expenses of Fund counsel and the Fund’s independent registered
public accounting firm in connection with the Offer.
|
Important
Dates to Remember |
Record
Date:
Subscription
Period: *
Final
Date Rights Will Trade: *
Expiration
Date and Pricing Date: *
Payment
for Shares or Notice of Guarantees of Delivery Due:
Payment
for Guarantees of Delivery Due:
Confirmation
Mailed to Participants:
Final
Payment for Shares Due: †
|
|
*
Unless the Offer is extended.
†
See “The Offer––Payment for Shares.” |
Subscription
Price |
The subscription price for the Shares (the “Subscription Price”) will be determined based on a formula equal to (the “Formula Price”). Because the Expiration Date of the subscription period will be (unless the subscription period is extended), Rights holders may not know the Subscription Price at the time of exercise and will be required initially to pay for both the Shares subscribed for pursuant to the primary subscription [and, if eligible, any additional Shares subscribed for pursuant to the over-subscription privilege] at the estimated Subscription Price of $ per Share and, except in limited circumstances, will not be able to rescind their subscription. See “The Offer—Subscription Price.”
|
[Oversubscription
Privilege |
Record Date Shareholders who exercise all the Rights issued to them (other than those Rights that cannot be exercised because they represent the right to acquire less than one Share) are entitled to subscribe for additional Shares at the same Subscription Price pursuant to the over-subscription privilege, subject to certain limitations and subject to allotment. If sufficient remaining Shares are available following the primary subscription, all Record Date Shareholders’ over-subscription requests will be honored in full. Investors who are not Record Date Shareholders, but who otherwise acquire Rights pursuant to the Offer, are not entitled to subscribe for any Shares pursuant to the over-subscription privilege. If sufficient Shares are not available to honor all over-subscription requests, unsubscribed Shares will be allocated pro rata among those Record Date Shareholders who over-subscribe based on the number of common shares of the Fund they owned on the Record Date. See “The Offer—Over-Subscription Privilege.”]
|
[Sale
and Transferability of Rights |
The
Rights will be, subject to notice of issuance, admitted for trading on under the
symbol during the course of the Offer. Trading in the Rights on the may be conducted
until the close of trading on the on the last business day prior to the Expiration
Date. The Fund will use its best efforts to ensure that an adequate trading market for
the Rights will exist, although there can be no assurance that a market for the Rights
will develop. Assuming a market exists for the Rights, the Rights may be purchased and
sold through usual brokerage channels or sold through the Subscription Agent.
Record
Date Shareholders who do not wish to exercise any of the Rights issued to them pursuant to the Offer may instruct the
Subscription Agent to try to sell any unexercised Rights. Although the Rights are expected to trade on the through
the last business day prior to the Expiration Date, Subscription certificates representing the Rights to be sold through
the Subscription Agent must be received by the Subscription Agent by 5:00 p.m., Eastern time, on (or, if the subscription
period is extended, by 5:00 p.m., Eastern time, on the business day prior to the extended Expiration Date). Upon
the timely receipt by the Subscription Agent of appropriate instructions to sell Rights, the Subscription Agent will ask
the Dealer Manager it if will purchase the Rights. If the Dealer Manager purchases the Rights, the sales price paid by
the Dealer Manager will be based upon the then-current market price for the Rights. If the Dealer Manager declines to
purchase the Rights of a Record Date Shareholder that have been duly submitted to the Subscription Agent for sale, the
Subscription Agent will attempt to sell such Rights in the open market.
Alternatively,
the Rights evidenced by a subscription certificate may be transferred until the Expiration Date in whole or in part by
endorsing the subscription certificate for transfer in accordance with the accompanying instructions. See “The Offer—Sale
and Transferability of Rights.”]
|
Method
for Exercising Rights |
Rights
are evidenced by subscription certificates that will be mailed to Record Date Shareholders
(except as described below under “The Offer—Requirements for Foreign Shareholders”)
or, if their common shares are held by Cede & Co. or any other depository or nominee,
to Cede & Co. or such other depository or nominee. Rights may be exercised by completing
and signing the subscription certificate and mailing it in the envelope provided, or
otherwise delivering the completed and signed subscription certificate to the Subscription
Agent, together with payment in full of the estimated Subscription Price for the Shares
subscribed for. Completed subscription certificates and payments must be received by
the Subscription Agent by , on the Expiration Date at the offices of the Subscription
Agent. Rights also may be exercised by contacting your broker, banker, trust company
or other intermediary, which can arrange, on your behalf, to guarantee delivery of payment
and of a properly completed and executed subscription certificate. A fee may be charged
for this service by your broker, bank, trust company or other intermediary. In addition,
your broker, bank, trust company or other intermediary may impose a deadline for exercising
Rights earlier than 5:00 p.m., Eastern time, on the Expiration Date. See “The Offer—Method
for Exercising Rights” and “The Offer—Payment for Shares.”
Rights
holders who have exercised their Rights will have no right to rescind their subscription after receipt by the Subscription
Agent of the completed subscription certificate together with payment for Shares subscribed for, except as described under
“The Offer.”
|
Requirements
for Foreign Shareholders |
Subscription certificates will not be mailed to Record Date Shareholders whose addresses are outside the United States (for
these purposes, the United States includes the District of Columbia and the territories and possessions of the United States)
(“Foreign Shareholders”). The Subscription Agent will send a letter via regular mail to Foreign Shareholders to
notify them of the Offer. The Rights of Foreign Shareholders will be held by the Subscription Agent for their accounts until
instructions are received to exercise the Rights. If instructions have not been received by , on , business
days prior to the Expiration Date (or, if the subscription period is extended, on or before the business day prior
to the extended Expiration Date), the Subscription Agent will ask the Dealer Manager if it will purchase the Rights of Foreign
Shareholders. If the Dealer Manager declines to purchase the Rights, the Subscription Agent will attempt to sell such Rights
in the open market. The net proceeds, if any, from the sale of those Rights will be remitted to these Foreign Shareholders.
|
U.S.
Federal Income Tax Considerations |
We urge
you to consult your own tax adviser with respect to the particular tax consequences of the Offer. See “Terms of the
Offer—U.S. Federal Income Tax Considerations” for more information on the tax consequences of the Offer. |
[Distribution
Arrangements |
(the
“Dealer Manager”) will act as Dealer Manager for this Offer. Under the terms
and subject to the conditions contained in the Dealer Manager Agreement among the Dealer
Manager, the Fund and the Investment Adviser, the Dealer Manager will provide financial
structuring services in connection with the Offer and will solicit the exercise of Rights
and participation in the over-subscription privilege. The Fund has agreed to pay the
Dealer Manager a fee for its financial structuring and soliciting services equal to %
of the aggregate Subscription Price for the Shares issued pursuant to the exercise of
Rights and the over-subscription privilege. The fees paid to the Dealer Manager and other
expenses of the Offer will be borne by the Fund and indirectly by all of its Common Shareholders,
including those who do not exercise their Rights. The Dealer Manager will reallow a portion
of its fees to other broker-dealers who have assisted in soliciting the exercise of Rights.
The Fund and the Investment Adviser have each agreed to indemnify the Dealer Manager
for losses arising out of certain liabilities, including liabilities under the Securities
Act of 1933, as amended (the “Securities Act”).
|
|
Prior to the expiration of the Offer, the Dealer Manager may independently offer for sale Shares it has acquired through purchasing and exercising the Rights, at prices it sets. Although the Dealer Manager may realize gains and losses in connection with purchases and sales of Shares, such offering of Shares is intended by the Dealer Manager to facilitate the Offer, and any such gains or losses are not expected to be material to the Dealer Manager. The Dealer Manager’s fee for its financial structuring and soliciting services is independent of any gains or losses that may be realized by the Dealer Manager through the purchase and exercise of the Rights and the sale of Shares. See “The Offer—Distribution Arrangements.”]
|
Investment
Adviser |
The Fund’s investments are managed by its Investment Adviser, Cushing® Asset Management, LP d/b/a NXG Investment Management, whose principal business address is 600 N. Pearl Street, Suite 1205, Dallas, Texas 75201. The Investment Adviser is a wholly-owned investment advisory subsidiary of Swank Capital. The Investment Adviser was founded in 2003 and serves as investment adviser to registered and unregistered funds. As of [ ], 2023, the Investment Adviser managed approximately $[ ] billion in assets.
|
Benefits
to the Investment Adviser |
The Investment Adviser will benefit from the Offer, in part, because the investment management fee paid by the Fund to the Investment Adviser is based on “Managed Assets” of the Fund. It is not possible to state precisely the amount of additional compensation the Investment Adviser will receive as a result of the Offer because it is not known how many Shares of the Fund will be subscribed for and because the proceeds of the Offer will be invested in additional portfolio securities which will fluctuate in value. However, assuming (i) all Rights are exercised, (ii) the Fund’s average net asset value during the twelve-month period beginning is $ per common share (the net asset value per common share on ) (iii) the Subscription Price is $ per Share , and (iv) for purposes of this example, the Fund increases the amount of leverage it has outstanding (through the use of reverse repurchase agreements) while maintaining approximately the same percentage of total assets attributable to leverage, and after giving effect to the Dealer Manager fee and other estimated offering expenses, the Investment Adviser would receive additional investment management fees of approximately $ , for the twelve-month period beginning , and would continue to receive additional investment management fees, as a result of the Offer, based on the Fund’s Managed Assets attributable to the Shares issued in the Offer and related additional leverage, thereafter.
|
Listing
and Symbol |
The
Fund’s currently outstanding Common Shares are, and the Common Shares offered by this Prospectus, will be, subject to notice
of issuance, listed on the New York Stock Exchange (the “NYSE”) under the symbol “SRV.” As of
, the last reported sale price for the Fund’s Common Shares on the NYSE
was $ per Common Share, and the net asset value of the
Fund’s Common Shares was $ per Common Share, representing a [premium/discount] to net asset value of %.
[The Subscription Rights for Common Shares offered by this Prospectus Supplement and the accompanying Prospectus, will be, subject
to notice of issuance, admitted for trading on the under
the symbol “ ”
during the course of the offer. Trading in the Rights on the
may be conducted until the close of business on the
on the last business day prior to the expiration
date.] |
Risks
|
See “Risks” beginning on page of this Prospectus Supplement and page of the accompanying Prospectus for a discussion of factors you should consider carefully before deciding to invest in the Fund’s Common Shares.
|
Use
of Proceeds |
The
Fund estimates the net proceeds of the Offering to be approximately $ . This figure
is based on the Subscription Price per Common Share of $ and assumes all new Common
Shares offered are sold and that the expenses related to the Offering, estimated at approximately
$ , are paid.
The
Fund intends to invest the net proceeds of the offering in accordance with its investment objective and policies as stated
in the accompanying Prospectus. It is currently anticipated that the Fund will be able to invest substantially all of
the net proceeds of the offering in accordance with its investment objective and policies within months after the
completion of the offering. Pending such investment, it is anticipated that the proceeds will be invested in cash, cash
equivalents or other securities, including U.S. government securities or high quality, short-term debt securities. The
Fund may also use the proceeds for working capital purposes, including the payment of distributions, interest and operating
expenses, although the Fund currently has no intent to issue Securities primarily for these purposes.
|
SUMMARY
OF FUND EXPENSES
The
following table contains information about the costs and expenses that Common Shareholders will bear directly or indirectly. The
table is based on the capital structure of the Fund as of (except as noted below) after giving effect to the Offering, assuming
that the Offer is fully subscribed resulting in the receipt of net proceeds from the Offer of approximately $ million. If
the Fund issues fewer Shares in the Offer and the net proceeds to the Fund are less, all other things being equal, the total annual
expenses shown would increase. The purpose of the table and the example below is to help you understand the fees and expenses
that you, as a holder of Common Shares, would bear directly or indirectly.
Shareholder
Transaction Expenses
Sales load (as a percentage
of offering price) |
%(1) |
Offering expenses borne by the Fund (as a percentage
of offering price) |
%(2) |
Dividend Reinvestment Plan fees (per transaction sales fee) |
$15.00(3) |
Annual Expenses |
Percentage
of Net Assets Attributable to Common Shares(4) |
Management fees(5)(6) |
% |
Interest expense(7) |
% |
Other expenses(8) |
% |
Total annual expenses |
% |
(1) | The
Dealer Manager will receive a fee for its financial structuring and soliciting services equal to % of the aggregate Subscription
Price for Shares issued pursuant to the Offer. The Dealer Manager will reallow to broker-dealers in the selling group to be formed
and managed by the Dealer Manager selling fees equal to % of the Subscription Price per Share for each Share issued pursuant
to the Offer as a result of their selling efforts. In addition, the Dealer Manager will reallow to other broker-dealers that have
executed and delivered a soliciting dealer agreement and have solicited the exercise of Rights solicitation fees equal to %
of the Subscription Price per Share for each Share issued pursuant to the exercise of Rights as a result of their soliciting efforts,
subject to a maximum fee based on the number of Shares held by each broker-dealer through The Depository Trust Company (“DTC”)
on the Record Date. |
(2) | The
fees and expenses of the Offer will be borne by the Fund and indirectly by all of its Common Shareholders, including those who
do not exercise their Rights. |
(3) | There will be no brokerage charges with respect to Common Shares issued
directly by the Fund. However, each participant will pay a pro rata share of brokerage commissions incurred in connection with open-market
purchases. In addition, participants who request a sale of shares through the Plan Agent are subject to a $15.00 per transaction sales
fee and pay a brokerage commission of $0.12 per share sold. The Fund’s transfer agent serves as Plan Agent. Fees paid by the Fund
to the transfer agent are included in “Other expenses” below, which are ultimately borne by common shareholders. For additional
information, see “Distribution Reinvestment Plan” in the accompanying Prospectus. |
(4) | Based
on net assets attributable to Common Shares during the period ended . |
(5) | The Fund pays the
Investment Adviser an annual fee, payable monthly, in an amount equal to 1.25% of the Fund’s average weekly Managed Assets
(net assets plus any assets attributable to Financial Leverage). The fee shown above is based upon outstanding Financial Leverage of
% of the Fund’s Managed Assets (or % of the Fund's net assets attributable to common shares). If
Financial Leverage of more than % of the
Fund’s Managed Assets (or % of the Fund's net assets attributable to common shares) is used, the management fees shown would
be higher. Management fees
calculated based on management fees earned for the year ended
divided
by average net assets attributable to Common Shareholders for the period ended
. |
(6) | The Investment Adviser has contractually agreed to waive a portion of the management fee in an
amount equal to % of the Fund's Managed Assets through . The Fund’s annual expenses after giving effect to such
management fee waiver are: |
Annual Expenses |
Percentage of Net Assets
Attributable to Common Shares(4) |
Management fees(2)(3) |
% |
Interest payments on borrowed funds(4) |
% |
Other expenses(5) |
% |
Total annual expenses(3) |
% |
(7) | Based
upon the Fund’s outstanding borrowings as of of approximately $ million and the borrowing rate on the facility as
of , of %. |
(8) | Other expenses are
estimated based upon those incurred during the fiscal year ended
. Other expenses do not include expenses related to realized or unrealized investment gains or losses. See "Management of the Fund—Fund
Expenses" in the accompanying prospectus. |
Example
As
required by relevant SEC regulations, the following Example illustrates the expenses that you would pay on a $1,000 investment
in Common Shares, assuming (1) “Total annual expenses” of % of net assets attributable to Common Shares, (2)
the sales load of $ and estimated offering expenses of $ , and (3) a 5% annual return*:
|
1 Year |
3 Years |
5 Years |
10
Years |
Total
Expenses Incurred |
$ |
$ |
$ |
$ |
* | The
Example should not be considered a representation of future expenses or returns. Actual expenses may be higher or lower than those
assumed. Moreover, the Fund’s actual rate of return may be higher or lower than the hypothetical 5% return shown
in the Example. The Example assumes that all dividends and distributions are reinvested at net asset value. |
CAPITALIZATION
The
following table sets forth the Fund’s capitalization at :
| (i) | on
a historical basis; |
| (ii) | on
an as adjusted basis to reflect the issuance of an aggregate of Common Shares pursuant to the Fund’s Automatic Dividend
Reinvestment Plan, and the application of the net proceeds from such issuances of Common Shares; and |
| (iii) | on
an as further adjusted basis to reflect the assumed sale of of Rights to purchase Common Shares at a price of $ per share in an
offering under this Prospectus Supplement and the accompanying Prospectus less the [aggregate underwriting discount of $ and]
estimated offering expenses payable by the Fund of $ . |
| |
| Actual
| | |
As
Adjusted (unaudited) | | |
As
Further Adjusted (unaudited) |
Short-Term Debt: | |
| | | |
| | |
|
Borrowings | |
| $ | | |
$ | | |
$ |
Common Shareholder’s Equity: | |
| | | |
| | |
|
Common Shares of beneficial interest, par value $0.01 per share; unlimited shares authorized,
shares issued and outstanding (actual),
shares issued and outstanding (as adjusted),
and shares issued and outstanding (as further adjusted) | |
| | | |
| | |
|
Additional paid-in capital | |
| | | |
| | |
|
Net unrealized appreciation on investments, net of tax | |
| | | |
| | |
|
Accumulated net realized gain on investments, net of tax | |
| | | |
| | |
|
Accumulated net investment loss, net of tax | |
| | | |
| | |
|
Net assets | |
| | | |
| | |
|
USE
OF PROCEEDS
The
Fund estimates the net proceeds of the Offering to be approximately $ . This figure is based on the Subscription Price per
Common Share of $ and assumes all new Common Shares offered are sold and that the expenses related to the Offering, estimated
at approximately $ , are paid.
The
Fund intends to invest the net proceeds of the offering in accordance with its investment objective and policies as stated in
the accompanying Prospectus. It is currently anticipated that the Fund will be able to invest substantially all of the net proceeds
of the offering in accordance with its investment objective and policies within months after the completion of the offering.
Pending such investment, it is anticipated that the proceeds will be invested in cash, cash equivalents or other securities, including
U.S. government securities or high quality, short-term debt securities. The Fund may also use the proceeds for working capital
purposes, including the payment of distributions, interest and operating expenses, although the Fund currently has no intent to
issue Securities primarily for these purposes.
RECENT
DEVELOPMENTS
[TO
COME, IF ANY]
TERMS
OF THE OFFER
Purpose
of the Offer
[TO
COME]
The
Offer may not be successful. The completion of the Offer may result in an immediate dilution of the net asset value per common
share for all existing Common Shareholders, including those who fully exercise their Rights (as defined below).
Important
Terms of The Offer
The
Fund is issuing [transferable/non-transferable] rights (“Rights”) to its Common Shareholders of record (“Record
Date Shareholders”) as of , Eastern time, on (the “Record Date”), entitling the holders of those Rights
to subscribe for up to an aggregate of of the Fund’s common shares (the “Shares”) (the “Offer”).
Record Date Shareholders will receive one Right for each outstanding whole common share of the Fund held on the Record Date. The
Rights entitle their holders to purchase one Share for every Rights held (1-for- ). Fractional Shares will not be issued
upon the exercise of Rights; accordingly, Rights may be exercised only in integer multiples of , except that any Record Date
Shareholder who is issued fewer than Rights may subscribe, at the Subscription Price (as defined on the next page), for one
full Share. Assuming the exercise of all Rights, the Offer will result in an approximately % increase in the Fund’s
common shares outstanding.
[Record
Date Shareholders who exercise all the Rights issued to them (other than those Rights that cannot be exercised because they represent
the right to acquire less than one Share) are entitled to subscribe for additional Shares at the same Subscription Price pursuant
to the over-subscription privilege, subject to certain limitations and subject to allotment. Investors who are not Record Date
Shareholders, but who otherwise acquire Rights to purchase Shares pursuant to the Offer, are not entitled to subscribe for any
Shares pursuant to the over-subscription privilege. See “—Over-Subscription Privilege” below. The distribution
to Record Date Shareholders of transferable Rights may afford non-participating Record Date Shareholders the opportunity to sell
their Rights for some cash value, receipt of which may be viewed as partial compensation for any economic dilution of their interests
resulting from the Offer.]
The
subscription period commences on and ends at , Eastern time, on , unless otherwise extended (the “Expiration
Date”).
The
Fund expects to declare a monthly distribution in . Such distribution will not be payable with respect to Shares that are
issued pursuant to the Offer after the record date for such distribution.
For
purposes of determining the maximum number of Shares a Rights holder may acquire pursuant to the Offer, broker-dealers, trust
companies, banks or others whose shares are held of record by Cede & Co., the nominee for the Depository Trust Company (“DTC”),
or by any other depository or nominee, will be deemed to be the holders of the Rights that are held by Cede & Co. or such
other depository or nominee on their behalf.
[The
Rights are transferable and, subject to notice of issuance, will be admitted for trading on under the symbol “ ”
during the course of the Offer. Trading in the Rights on the may be conducted until the close of trading on on the last
business day prior to the Expiration Date. See “—Sale and Transferability of Rights.” The Shares, once issued,
will be listed on the under the symbol “ ” The Rights will be evidenced by subscription certificates which
will be mailed to Record Date Shareholders, except as discussed under “—Requirements for Foreign Shareholders.”]
Rights
may be exercised by filling in and signing the subscription certificate and mailing it in the envelope provided, or otherwise
delivering the completed and signed subscription certificate to , the subscription agent for the Offer (the “Subscription
Agent”), together with payment at the estimated Subscription Price for the Shares subscribed for. For a discussion of the
method by which Rights may be exercised and Shares may be paid for, see “—Method for Exercising Rights” and
“—Payment for Shares.”
[The
Fund has retained ( “Dealer Manager”) to provide the Fund with financial structuring and soliciting services
relating to the Offer, including advice with respect to the structure, timing and terms of the Offer. In determining the structure
of the Offer, the Board considered, among other things, using a fixed-pricing versus a variable-pricing mechanism, the benefits
and drawbacks of conducting a non-transferable versus a transferable rights offering, the anticipated effect on the Fund and its
existing Common Shareholders if the Offer is not fully subscribed, the anticipated dilutive effects on the Fund and its existing
Common Shareholders of the Offer and the experience of the Dealer Manager in conducting rights offerings. The Board also considered
that the Investment Adviser would benefit from the Offer because the advisory fee paid to the Investment Adviser is based on the
Fund’s Managed Assets, which would increase as a result of the Offer. See “—Benefits to the Investment Adviser.”]
Important
Dates to Remember
Record
Date: |
|
Subscription
Period: through |
* |
Final
Date Rights Will Trade on the Exchange: |
* |
Expiration
Date and Pricing Date: |
* |
Payment
for Shares Due or Notices of Guarantees of Delivery Due: |
* |
Payment
for Guarantees of Delivery Due: |
* |
Confirmation
Mailed to Participants: |
* |
Final
Payment for Shares Due: |
*† |
* | Unless
the Offer is extended. |
† | See
“—Payment for Shares.” |
Subscription
Price
The
subscription price for the Shares (the “Subscription Price”) will be determined based on a formula equal to (the
“Formula Price”). In each case, net asset value will be calculated as of the close of trading on the NYSE on the applicable
day.
Because
the Expiration Date of the subscription period will be (unless the subscription period is extended), Rights holders may not
know the Subscription Price at the time of exercise and will be required initially to pay for both the Shares subscribed for pursuant
to the primary subscription [and, if eligible, any additional Shares subscribed for pursuant to the over-subscription privilege]
at the estimated Subscription Price of $ per Share. See “—Payment for Shares.” A Rights holder will have
no right to rescind his subscription after the Subscription Agent has received a completed subscription certificate together with
payment for the Shares subscribed for, except as provided under “—Notice of Net Asset Value Decline.” The Fund
does not have the right to withdraw the Rights or to cancel the Offer after the Rights have been distributed.
The
net asset value per share of the Fund’s common shares at the close of business on (the last trading date prior to the
date of this prospectus on which the Fund determined its net asset value) was $ , and the last reported sale price of a common
share on the NYSE on that day was $ .
[Over-Subscription
Privilege
Record
Date Shareholders who exercise all the Rights issued to them (other than those Rights that cannot be exercised because they represent
the right to acquire less than one Share) are entitled to subscribe for additional Shares that were not subscribed for by other
holders of Rights at the same Subscription Price pursuant to the over-subscription privilege, subject to certain limitations and
subject to allotment. If sufficient remaining Shares are available following the primary subscription, all Record Date Shareholders’
over-subscription requests will be honored in full. Investors who are not Record Date Shareholders, but who otherwise acquire
Rights pursuant to the Offer, are not entitled to subscribe for any Shares pursuant to the over-subscription privilege. If sufficient
Shares are not available to honor all over-subscription requests, unsubscribed Shares will be allocated pro rata among those Record
Date Shareholders who over-subscribe based on the number of common shares of the Fund they owned on the Record Date. The allocation
process may involve a series of allocations in order to ensure that the total number of Shares available for over-subscriptions
is distributed on a pro rata basis.
Record
Date Shareholders who are fully exercising their Rights during the subscription period should indicate, on the subscription certificate
that they submit with respect to the exercise of the Rights issued to them, how many Shares they desire to acquire pursuant to
the over-subscription privilege.
Banks,
broker-dealers, trustees and other nominee holders of Rights will be required to certify to the Subscription Agent, before any
over-subscription privilege may be exercised with respect to any particular beneficial owner, as to the aggregate number of Rights
exercised during the subscription period and the number of Shares subscribed for pursuant to the over-subscription privilege by
such beneficial owner, and that such beneficial owner’s primary subscription was exercised in full. Nominee holder over-subscription
forms will be distributed to banks, brokers, trustees and other nominee holders of Rights with the subscription certificates.
The
Fund will not offer or sell any Shares that are not subscribed for during the subscription period or pursuant to the over-subscription
privilege.
The
Fund has been advised that one or more of the officers or employees of the Investment Adviser may exercise all of the Rights initially
issued to them and may request additional Shares pursuant to the over-subscription privilege. An exercise of the over-subscription
privilege by such persons will increase their proportionate voting power and share of the Fund’s assets.]
[Sale
and Transferability of Rights
The
Rights will be, subject to notice of issuance, admitted for trading on under the symbol “ ” during the course
of the Offer. Trading in the Rights on may be conducted until the close of trading on on the last business day prior
to the Expiration Date. The Fund will use its best efforts to ensure that an adequate trading market for the Rights will exist,
although there can be no assurance that a market for the Rights will develop. Assuming a market exists for the Rights, the Rights
may be purchased and sold through usual brokerage channels or sold through the Subscription Agent.
Sales
through the Subscription Agent. Record Date Shareholders who do not wish to exercise any or all of the Rights issued to them
pursuant to the Offer may instruct the Subscription Agent to try to sell any unexercised Rights. Although the Rights are expected
to trade on through the last business day prior to the Expiration Date, subscription certificates representing the Rights
to be sold by the Subscription Agent must be received by the Subscription Agent on or before 5:00 p.m., Eastern time, on
(or, if the subscription period is extended, by 5:00 p.m., Eastern time, on the business day prior to the extended Expiration
Date).
Upon
the timely receipt by the Subscription Agent of appropriate instructions to sell Rights, the Subscription Agent will ask the Dealer
Manager if it will purchase the Rights. The sale price of any Rights sold to the Dealer Manager will be based upon the then-current
market price for the Rights. The proceeds from each of such sales to the Dealer Manager will be remitted to the Subscription Agent,
which will hold such proceeds in an account segregated from the Subscription Agent's own funds pending distribution to each selling
Record Date Shareholder. It is expected that following each such sale of Rights to the Dealer Manager, the proceeds from each
such sale will be received by the Subscription Agent within business days of the sale and that the proceeds will then be
remitted to the selling Record Date Shareholder within business days following the Expiration Date by the Subscription Agent.
If
the Dealer Manager declines to purchase the Rights of a Record Date Shareholder that have been duly submitted to the Subscription
Agent for sale, the Subscription Agent will attempt to sell such Rights in the open market. If the Rights can be sold in such
manner, all of such sales will be deemed to have been effected at the weighted-average price of all Rights sold by the Subscription
Agent in such open market transactions throughout the subscription period. The proceeds from such sales will be held by the Subscription
Agent in an account segregated from the Subscription Agent's own funds pending distribution to the selling Record Date Shareholders.
It is expected that the proceeds of such open market sales will be remitted by the Subscription Agent to the selling Record Date
Shareholders within business days following the Expiration Date.
The
Subscription Agent will also attempt to sell (either to the Dealer Manager or in open market transactions) all Rights that remain
unclaimed as a result of subscription certificates being returned by the postal authorities to the Subscription Agent as undeliverable
as of the business day prior to the Expiration Date. The Subscription Agent will hold the proceeds from those sales for the
benefit of those non-claiming Common Shareholders until the proceeds are either claimed or revert to their state of residence.
There
can be no assurance that the Subscription Agent will be able to complete the sale of any Rights, and neither the Fund nor the
Subscription Agent have guaranteed any minimum sale price for the Rights. If a Record Date Shareholder does not utilize the services
of the Subscription Agent and chooses to use another broker-dealer or other financial institution to sell Rights issued to that
shareholder pursuant to the Offer, then the other broker-dealer or financial institution may charge a fee to sell the Rights.
Other
Transfers. The Rights evidenced by a subscription certificate may be transferred in whole by endorsing the subscription certificate
for transfer in accordance with the instructions accompanying the subscription certificate. A portion of the Rights evidenced
by a single subscription certificate (but not fractional Rights) may be transferred by delivering to the Subscription Agent a
subscription certificate properly endorsed for transfer, with instructions to register such portion of the Rights evidenced thereby
in the name of the transferee and to issue a new subscription certificate to the transferee evidencing the transferred Rights.
If this occurs, a new subscription certificate evidencing the balance of the Rights, if any, will be issued to the Record Date
Shareholder or, if the Record Date Shareholder so instructs, to an additional transferee. The signature on the subscription certificate
must correspond with the name as written upon the face of the subscription certificate in every particular, without alteration
or enlargement or any other change. A signature guarantee must be provided by an “eligible guarantor institution”
(as defined in Rule 17Ad-15 of the Securities Exchange Act of 1934).
Record
Date Shareholders wishing to transfer all or a portion of their Rights should allow at least business days prior to the Expiration
Date for: (i) the transfer instructions to be received and processed by the Subscription Agent; (ii) a new subscription certificate
to be issued and transmitted to the transferee or transferees with respect to transferred Rights and to the transferor with respect
to retained Rights, if any; and (iii) the Rights evidenced by the new subscription certificate to be exercised or sold by the
recipients of the subscription certificate. Neither the Fund nor the Subscription Agent nor the Dealer Manager shall have any
liability to a transferee or transferor of Rights if subscription certificates are not received in time for exercise or sale prior
to the Expiration Date.
Except
for the fees charged by , the information agent for the Offer (the “Information Agent”), the Subscription Agent
and the Dealer Manager (which are expected to be paid from the proceeds of the Offer by the Fund), all commissions, fees and other
expenses (including brokerage commissions and transfer taxes) incurred or charged in connection with the purchase, sale or transfer
of Rights will be for the account of the transferor of the Rights, and none of these commissions, fees or other expenses will
be paid by the Fund, the Investment Adviser, the Information Agent, the Subscription Agent or the Dealer Manager. Rights holders
who wish to purchase, sell, exercise or transfer Rights through a broker, bank or other party should first inquire about any fees
and expenses that the holder will incur in connection with the transactions.
The
Fund anticipates that the Rights will be eligible for transfer through, and that the exercise of the primary subscription and
the over-subscription may be effected through, the facilities of DTC or the Subscription Agent until 5:00 p.m., Eastern time,
on the Expiration Date. Your broker, bank, trust company or other intermediary may impose a deadline for transferring Rights earlier
than 5:00 p.m. Eastern time, on the Expiration Date.]
Method
for Exercising Rights
Rights
are evidenced by subscription certificates that will be mailed to Record Date Shareholders (except as described under “—Requirements
for Foreign Shareholders” below) or, if their common shares are held by Cede & Co. or any other depository or nominee
on their behalf, to Cede & Co. or such other depository or nominee. Rights may be exercised by completing and signing the
subscription certificate and mailing it in the envelope provided, or otherwise delivering the completed and signed subscription
certificate to the Subscription Agent, together with payment in full at the estimated Subscription Price for the Shares subscribed
for by the Expiration Date as described under “—Payment For Shares.” Rights may also be exercised by contacting
your broker, banker, trust company or other intermediary, which can arrange, on your behalf, to guarantee delivery of payment
and of a properly completed and executed subscription certificate pursuant to a notice of guaranteed delivery by the close of
business on the business day after the Expiration Date. A fee may be charged for this service. Completed subscription certificates
and payments must be received by the Subscription Agent by , Eastern time, on the Expiration Date (unless delivery of subscription
certificate and payment is effected by means of a notice of guaranteed delivery as described below under “—Payment
for Shares”) at the offices of the Subscription Agent at one of the addresses set forth below under “—Subscription
Agent.” Your broker, bank, trust company or other intermediary may impose a deadline for transferring Rights earlier than
5:00 p.m. Eastern time, on the Expiration Date. Fractional Shares will not be issued upon exercise of Rights.
Shareholders
who are Record Owners. Shareholders who are record owners of common shares can choose between either option set forth under
“—Payment For Shares.” If time is of the essence, option (2) will permit delivery of the subscription certificate
and payment after the Expiration Date.
Investors
whose Common Shares are Held by a Nominee. Investors whose common shares are held by a nominee, such as a bank, broker, trustee
or other intermediary, must contact that nominee to exercise their Rights. In that case, the nominee will complete the subscription
certificate on behalf of the investor and arrange for proper payment by one of the methods set forth below under “—Payment
For Shares.”
Nominees.
Nominees, such as banks, brokers, trustees or depositories for securities, who hold common shares of the Fund for the account
of others should notify the respective beneficial owners of such common shares as soon as possible to ascertain those beneficial
owners’ intentions and to obtain instructions with respect to the Rights. If the beneficial owner so instructs, the nominee
should complete the subscription certificate and submit it to the Subscription Agent with the proper payment as described under
“—Payment For Shares.”
[Banks,
brokers, trustees and other nominee holders of Rights will be required to certify to the Subscription Agent, before any over-subscription
privilege may be exercised with respect to any particular beneficial owner who is a Record Date Shareholder, as to the aggregate
number of Rights exercised during the subscription period and the number of Shares subscribed for pursuant to the over-subscription
privilege by the beneficial owner, and that the beneficial owner exercised all the Rights issued to it pursuant to the Offer.]
Requirements
for Foreign Shareholders. Subscription certificates will not be mailed to Record Date Shareholders whose addresses are outside
the United States (for these purposes, the United States includes the District of Columbia and the territories and possessions
of the United States) (“Foreign Shareholders”). The Subscription Agent will send a letter via regular mail to Foreign
Shareholders to notify them of the Offer. The Rights of Foreign Shareholders will be held by the Subscription Agent for their
accounts until instructions are received to exercise the Rights. If instructions have not been received by , Eastern time,
on , business days prior to the Expiration Date (or, if the subscription period is extended, on or before the business
day prior to the extended Expiration Date), the Subscription Agent will ask the Dealer Manager if it will purchase the Rights.
If the Dealer Manager declines to purchase the Rights, the Subscription Agent will attempt to sell such Rights in the open market.
The net proceeds, if any, from the sale of those Rights will be remitted to those Foreign Shareholders.
Subscription
Agent
is the Subscription Agent for the Offer. The Subscription Agent will receive for its administrative, processing, invoicing and
other services a fee estimated to be approximately $ , plus reimbursement for all out-of-pocket expenses related to the Offer.
The fees and expenses of the Subscription Agent are included in the fees and expenses of the Offer and therefore will be borne
by the Fund and indirectly by all Common Shareholders, including those who do not exercise their Rights. Questions regarding the
subscription certificates should be directed by mail to . Shareholders may also subscribe for the Offer by contacting
their broker dealer, trust company, bank or other nominee.
Completed
subscription certificates must be sent together with proper payment of the estimated Subscription Price for all Shares subscribed
for in the primary subscription and the over-subscription privilege (for Record Date Shareholders) to the Subscription Agent by
one of the methods described below. Alternatively, Rights holders may arrange for their financial intermediaries to send notices
of guaranteed delivery by facsimile to DTC to be received by the Subscription Agent prior to , Eastern time, on the Expiration
Date. Facsimiles should be confirmed by telephone at DTC. The Fund will accept only properly completed and executed subscription
certificates actually received at any of the addresses listed below, prior to , Eastern time, on the Expiration Date, or by
the close of business on the business day after the Expiration Date following timely receipt of a notice of guaranteed delivery.
See “—Payment for Shares.”
Subscription
Certificate Delivery Method |
Address/Number |
Notice of Guaranteed Delivery: |
Contact your broker-dealer, trust company, bank
or other nominee to notify the Fund of your intent to exercise the Rights. |
First Class Mail Only |
|
(No Express Mail or Overnight Courier): |
|
|
|
Hand: |
|
|
|
Express Mail or Overnight Courier: |
|
The
Fund will honor only subscription certificates received by the Subscription Agent prior to , Eastern Time, on the Expiration
Date at one of the addresses listed above. Delivery to an address other than those listed above will not constitute good delivery.
Information
Agent
The
Information Agent for the Offer is . If you have questions or need further information about the Offer, please write the Information
Agent at or call . Any questions or requests for assistance concerning the method of subscribing for Shares or additional
copies of this prospectus or subscription certificates should be directed to the Information Agent. Shareholders may also contact
their brokers or nominees for information with respect to the Offer.
The
Information Agent will receive a fee estimated to be approximately $ for its services, plus reimbursement for all out-of-pocket
expenses related to the Offer. The fees and expenses of the Information Agent are included in the fees and expenses of the Offer
and therefore will be borne by the Fund and indirectly by all of its Common Shareholders, including those who do not exercise
their Rights.
Expiration
of the Offer
The
Offer will expire at , Eastern time, on , unless the Fund extends the subscription period. Rights will expire on the Expiration
Date and may not be exercised after that date. If the Fund extends the subscription period, the Fund will make an announcement
as promptly as practicable. This announcement will be issued no later than 9:00 a.m., Eastern time, on the next business day following
the previously scheduled Expiration Date. Without limiting the manner in which the Fund may choose to make this announcement,
the Fund will not, unless otherwise required by law, have any obligation to publish, advertise or otherwise communicate this announcement
other than by making a release to the Dow Jones News Service or any other means of public announcement as the Fund may deem proper.
Payment
for Shares
Rights
holders who wish to acquire Shares pursuant to the Offer may choose between the following methods of payment:
(1)
A Rights holder can send the properly completed and executed subscription certificate together with payment for the Shares
subscribed for during the subscription period [and, if eligible, for any additional Shares subscribed for pursuant to the over-subscription
privilege] to the Subscription Agent based upon an estimated Subscription Price of $ per Share. A subscription will be accepted
when payment, together with the executed subscription certificate, is received by the Subscription Agent at one of the addresses
set forth under “--Subscription Agent”, the payment and the properly completed and executed subscription certificate
must be received by the Subscription Agent by , Eastern time, on the Expiration Date. The Subscription Agent will deposit
all checks received by it for the purchase of Shares into a segregated interest-bearing account of the Fund (the interest from
which will belong to the Fund) pending proration and distribution of Shares. A payment pursuant to this method must be in U.S.
dollars by money order or check drawn on a bank located in the United States, must be payable to and must accompany a
properly completed and executed subscription certificate for such subscription to be accepted.
(2)
Alternatively, a subscription will be accepted by the Subscription Agent if, by , Eastern time, on the Expiration
Date, the Subscription Agent has received a notice of guaranteed delivery by facsimile (telecopy) or otherwise from a bank, a
trust company or an NYSE member guaranteeing delivery of (i) payment of the full Subscription Price at the estimated Subscription
Price for the Shares subscribed for during the subscription period and, if eligible, any additional Shares subscribed for pursuant
to the over-subscription privilege and (ii) a properly completed and executed subscription certificate. The Subscription Agent
will not honor a notice of guaranteed delivery unless a properly completed and executed subscription certificate and full payment
for the Shares at the estimated Subscription Price are received by the Subscription Agent by the close of business on the
business day after the Expiration Date.
On
the confirmation date, which will be business days following the Expiration Date, a confirmation will be sent by the Subscription
Agent to each Rights holder exercising its Rights (or, if a Rights holder’s common shares are held by DTC or any other depository
or nominee, to DTC and/or that other depository or nominee) showing (i) the number of Shares acquired during the subscription
period, (ii) the number of Shares, if any, acquired pursuant to the over-subscription privilege, (iii) the per Share and total
purchase price for the Shares and (iv) any additional amount payable to the Fund by the Rights holder or any excess to be refunded
by the Fund to the Rights holder, in each case based on the Subscription Price as determined on the Expiration Date. Any additional
payment required from a Rights holder must be received by the Subscription Agent within business days after the confirmation
date ( , unless the subscription period is extended). Any excess payment to be refunded by the Fund to a Rights holder will
be mailed by the Subscription Agent to such Rights holder as promptly as practicable. All payments by a Rights holder must be
in U.S. dollars by money order or check drawn on a bank located in the United States and payable to “ ”
Whichever
of the two methods described above is used, issuance and delivery of the Shares subscribed for are contingent upon actual payment
for such Shares. No certificates will be issued or delivered with respect to Shares issued and sold in the Offer.
Rights
holders who have exercised their Rights will have no right to rescind their subscription after receipt of the completed subscription
certificate together with payment for Shares by the Subscription Agent, except as described under “—Notice of Net
Asset Value Decline” below.
If
a Rights holder who acquires Shares during the subscription period [or pursuant to the over-subscription privilege (for Record
Date Shareholders)] does not make payment of any amounts due by the Expiration Date or the date payment is due under a notice
of guaranteed delivery, the Fund reserves the right to take any or all of the following actions through all appropriate means:
(i) find other Record Date Shareholders for the subscribed and unpaid-for Shares; [(ii) apply any payment actually received by
the Fund toward the purchase of the greatest whole number of Shares that could be acquired by the Rights holder upon exercise
of such Rights acquired during the subscription period or pursuant to the over-subscription privilege;] and/or (iii) exercise
any and all other rights or remedies to which the Fund may be entitled, including, without limitation, the right to set off against
payments actually received by it with respect to such subscribed Shares.
The
method of delivery of completed subscription certificates and payment of the Subscription Price to the Subscription Agent will
be at the election and risk of exercising Rights holders, but if sent by mail it is recommended that such forms and payments be
sent by registered mail, properly insured, with return receipt requested, and that a sufficient number of days be allowed to ensure
delivery to the Subscription Agent and clearance of payment by , Eastern time, on the Expiration Date. Because uncertified
personal checks may take at least business days to clear, exercising Rights holders are strongly urged to pay, or arrange
for payment, by means of certified or cashier’s check with the Right holder’s name and Subscription Agent account
number identified on the check.
All
questions concerning the timeliness, validity, form and eligibility of any exercise of Rights will be determined by the Fund,
which determinations will be final and binding. The Fund, in its sole discretion, may waive any defect or irregularity, or permit
a defect or irregularity to be corrected within such time as it may determine, or reject the purported exercise of any Right.
Subscriptions will not be deemed to have been received or accepted until substantially all irregularities have been waived or
cured within such time as the Fund determines in its sole discretion. The Fund will not be under any duty to give notification
of any defect or irregularity in connection with the submission of subscription certificates or incur any liability for failure
to give such notification.
Notice
of Net Asset Value Decline
The
Fund has, pursuant to the SEC’s regulatory requirements, undertaken to suspend the Offer until the Fund amends this prospectus
if, after , the effective date of the Fund’s registration statement relating to the offer, the Fund’s net asset
value declines more than % from the Fund’s net asset value as of that date. In that event, the Expiration Date will
be extended and the Fund will notify Record Date Shareholders of any such decline and permit Rights holders to cancel their exercise
of Rights.
Delivery
of Shares
Participants
in the Fund’s dividend reinvestment plan (the “Plan”) will have any Shares acquired pursuant to the Offer credited
to their shareholder dividend reinvestment accounts in the Plan. Common Shareholders whose shares are held of record by DTC or
by any other depository or nominee on their behalf or their broker-dealers’ behalf will have any Shares acquired during
the subscription period credited to the account of DTC or other depository or nominee. No certificates will be issued or delivered
with respect to Shares issued and sold in the Offer.
U.S.
Federal Income Tax Consequences
[TO
COME]
Employee
Plan Considerations
[TO
COME]
Benefits
to the Investment Adviser
The
Investment Adviser will benefit from the Offer, in part, because the investment advisory fee paid by the Fund to the Investment
Adviser is based on the Fund’s Managed Assets. It is not possible to state precisely the amount of additional compensation
the Investment Adviser will receive as a result of the Offer because it is not known how many Shares of the Fund will be subscribed
for and because the proceeds of the Offer will be invested in additional portfolio securities which will fluctuate in value. However,
assuming (i) all Rights are exercised, (ii) the Fund’s average daily net asset value during the twelve-month period beginning
is $ per common share (the net asset value per common share on ) (iii) the Subscription Price is $ per Share,
and (iv) for purposes of this example, the Fund increases the amount of leverage outstanding while maintaining approximately the
same percentage of total assets attributable to leverage, and after giving effect to Dealer Manager fee and other estimated offering
expenses, the Investment Adviser would receive additional investment advisory fees of approximately $ for the twelve-month
period beginning , and would continue to receive additional investment advisory fees as a result of the Offer, based on the
Fund’s Managed Assets attributable to the Shares issued in the Offer and related additional leverage, thereafter.
Investment
Considerations and Dilution
Upon
completion of the Offer, Common Shareholders who do not exercise their Rights fully will own a smaller proportional interest in
the Fund than would be the case if the Offer had not been made. Furthermore, if you do not participate in the Over-Subscription
Privilege, if it is available, your percentage ownership may also be diluted.
In
addition, because the Subscription Price per Share is likely to be less than the Fund’s net asset value per common share,
the Offer will likely result in a dilution of the Fund’s net asset value per common share for all Common Shareholders, irrespective
of whether they exercise all or any portion of their Rights. Although it is not possible to state precisely the amount of such
a decrease in value, because it is not known at this time what the Subscription Price will be, what the net asset value per common
share will be on the Expiration Date or what proportion of Shares will be subscribed for, the dilution could be substantial.
The
impact of the Offer on NAV per share is shown by the following example, assuming a $[ ] Subscription Price and assuming full exercise
of the Rights:
Example:(1)
NAV(2) |
$[ ] |
Subscription Price |
$[ ] |
Reduction in NAV ($)(3) |
$[ ] |
Reduction in NAV ($) |
$[ ] |
(1) | Assumes
that all Rights are exercised |
(2) | Assumes
that the Fund’s net asset value on the Expiration Date is $ per common share (the net asset value per common share on
.. |
(3) | Assumes
$ in estimated offering expenses and Dealer Manager fee of $ . |
Record
Date Shareholders will experience a decrease in the net asset value per common share held by them, irrespective of whether they
exercise all or any portion of their Rights.
[The
distribution of transferable Rights, which may themselves have value, will afford non-participating Common Shareholders the potential
of receiving a cash payment upon the sale of the Rights, receipt of which may be viewed as partial compensation for the economic
dilution of their interests, although there can be no assurance that a market for the Rights will develop.]
RISKS
RELATING TO THE OFFER
Dilution
Risk
As
a result of this Offer, it is anticipated that even if you fully exercise your Rights, you should expect to incur immediate economic
dilution and, if you do not exercise all of your Rights, you will incur voting dilution. Further, both the sales load and the
expenses associated with the Offer paid by the Fund will immediately reduce the NAV of each Common Shareholder’s common
shares. To the extent that the number of Common Shares outstanding after the Offer will have increased proportionately more than
the increase in the size of the Fund’s net assets, you will, at the completion of the Offer, experience immediate dilution
of net asset value. The percentage increase in common shares outstanding that will occur if all the Rights are exercised is %.
In addition, if the Subscription Price for the Offer is less than the Fund’s net asset value per share as of the Expiration
Date, you would experience additional immediate dilution of net asset value as a result of the Offer. If the Subscription Price
is substantially less than the current net asset value per share at the expiration of the Offer, such dilution could be substantial.
It is anticipated that the existing Common Shareholders will experience immediate dilution even if they fully exercise their Rights.
In addition, whether or not you exercise your Rights, you will experience a dilution of net asset value of the common shares because
you will indirectly bear the expenses of this Offer, which include, among other items, SEC registration fees, printing expenses
and the fees assessed by service providers (including the cost of the Fund’s counsel and independent registered public accounting
firm). This dilution of net asset value will disproportionately affect Common Shareholders who do not exercise their Rights. The
Fund cannot state precisely the amount of any decrease because it is not known at this time how many common shares will be subscribed
for or what the net asset value or market price of the Fund’s common shares will be on the Expiration Date or what the Subscription
Price will be. For example, based on the Fund’s net asset value and market price on , the Subscription Price would be
less than net asset value and there would be dilution. Assuming full exercise of the Rights being offered at the Subscription
Price and assuming that the Expiration Date were , it is estimated that the per share dilution resulting from the Offer, as
of , would be $ .
In
addition to the economic dilution described above, if you do not exercise all of your Rights, you will incur voting dilution as
a result of this Offer. This voting dilution will occur because you will own a smaller proportionate interest in the Fund after
the Offer than you owned prior to the Offer.
[The
fact that the Rights are transferable may reduce the effects of dilution as a result of the Offer. Rights holders can transfer
or sell their Rights. The cash received from the sale of Rights may be viewed as partial compensation for any possible dilution.
There can be no assurances, however, that a market for the Rights will develop or that the Rights will have any value in that
market.]
Increase
in Share Price Volatility; Decrease in Share Price
The
Offer may result in an increase in trading of the Common Shares, which may increase volatility in the market price of the Common
Shares. The Offer may result in an increase in the number of shareholders wishing to sell their Common Shares, which would exert
downward price pressure on the price of Common Shares.
Under-Subscription
It
is possible that the Offer will not be fully subscribed. Under-subscription of the Offer could have an impact on the net proceeds
of the Offer and whether the Fund achieves any benefits.
Risks
of Acquiring Rights to Purchase Common Shares
Shares
of closed-end funds such as the Fund frequently trade at a discount to net asset value. Since inception, the Fund’s Common
Shares have frequently traded at a discount in relation to NAV. See “Description of Common Shares.” If the Formula
Price is less than % of net asset value on the Expiration Date, then the Subscription Price will likely be greater than the
market price of a Common Share on that date. In addition, the Formula Price, even if above % of net asset value, may still
be above the market price of a Common Share on the Expiration Date. If either event occurs, the Rights will have no value, and
a person who exercises Rights will experience an immediate loss of value.
There
can be no assurance that a market for the Rights will develop or, if such a market develops, what the price of the Rights will
be. Changes in market conditions may result in the Common Shares purchasable upon exercise of the Rights being less attractive
to investors at the Expiration Date. This may reduce or eliminate the value of the Rights. Investors who receive or acquire Rights
may find that there is no market to sell Rights that they do not wish to excise.
PLAN
OF DISTRIBUTION
Distribution
Arrangements
[
will act as Dealer Manager for this Offer. Under the terms and subject to the conditions contained in the Dealer Manager Agreement
among the Dealer Manager, the Fund and the Investment Adviser, the Dealer Manager will provide financial structuring and solicitation
services in connection with the Offer and will solicit the exercise of Rights and participation in the Over-Subscription Privilege.
The Offer is not contingent upon any number of Rights being exercised. The Dealer Manager will also be responsible for forming
and managing a group of selling broker-dealers (each a "Selling Group Member" and collectively the "Selling Group
Members"), whereby each Selling Group Member will enter into a Selling Group Agreement with the Dealer Manager to solicit
the exercise of Rights and to sell Common Shares purchased by the Selling Group Member from the Dealer Manager. In addition, the
Dealer Manager will enter into a Soliciting Dealer Agreement with other soliciting broker-dealers (each a "Soliciting Dealer"
and collectively the "Soliciting Dealers") to solicit the exercise of Rights. See "—Compensation to Dealer
Manager" for a discussion of fees and other compensation to be paid to the Dealer Manager, Selling Group Members and Soliciting
Dealers in connection with the Offer.
The
Fund and the Investment Adviser have each agreed to indemnify the Dealer Manager for losses arising out of certain liabilities,
including liabilities under the Securities Act. The Dealer Manager Agreement also provides that the Dealer Manager will not be
subject to any liability to the Fund in rendering the services contemplated by the Dealer Manager Agreement except for any act
of willful misfeasance, bad faith or gross negligence of the Dealer Manager or reckless disregard by the Dealer Manager of its
obligations and duties under the Dealer Manager Agreement.
Prior
to the expiration of the Offer, the Dealer Manager may purchase Rights in the open-market and may purchase Rights offered to it
by the Subscription Agent from electing Record Date Shareholders, that remain unclaimed as a result of subscription certificates
being returned by the postal authorities and/or unexercised Rights of Record Date Shareholders whose record addresses are outside
the United States that are held by the Subscription Agent and for which no instructions are received. The Dealer Manager may purchase
such Rights as principal or act as agent on behalf of its clients for the purchase (and resale) of such Rights. The Dealer Manager
is authorized to exercise Rights it acquires prior to the expiration of the Offer for delivery of Common Shares prior to the expiration
of the Offer at a subscription price equal to [ ]. Prior to the expiration of the Offer, the Dealer Manager may independently
offer for sale Common Shares it has acquired through purchasing and exercising the Rights to the public or to Selling Group Members
at the offering price set by the Dealer Manager from time to time.
Although
the Dealer Manager may realize gains and losses in connection with purchases and sales of Common Shares, such offering of Common
Shares is intended by the Dealer Manager to facilitate the Offer, and any such gains or losses are not expected to be material
to the Dealer Manager. The Dealer Manager's fee for its financial structuring and soliciting services is independent of any gains
or losses that may be realized by the Dealer Manager through the purchase and exercise of the Rights and the sale of Common Shares.
Record
Date Shareholders who do not wish to exercise any or all of their Rights may instruct the Subscription Agent to try to sell any
Rights they do not intend to exercise themselves. Although Rights are expected to trade on the NYSE through the last business
day prior to the Expiration Date, Subscription certificates evidencing the Rights to be sold by the Subscription Agent must be
received by the Subscription Agent on or before 5:00 p.m., Eastern time, on (or, if the subscription period is extended,
on or before 5:00 p.m., Eastern time, business days prior to the extended Expiration Date). Upon the timely receipt by the
Subscription Agent of appropriate instructions to sell Rights, the Subscription Agent will ask the Dealer Manager if it will purchase
the Rights. If the Dealer Manager purchases the Rights, the sales price paid by the Dealer Manager will be based upon the then-current
market price for the Rights. The proceeds from each of such sales to the Dealer Manager will be remitted to the Subscription Agent,
which will hold such proceeds in an account segregated from the Subscription Agent's own funds pending distribution to each selling
Record Date Shareholder. It is expected that following each such sale of Rights to the Dealer Manager, the proceeds from each
such sale will be received by the Subscription Agent within business days of the sale and that the proceeds will then be
remitted to the selling Record Date Shareholder within business days following the Expiration Date by the Subscription
Agent.
In
the ordinary course of their businesses, the Dealer Manager and/or its affiliates may engage in investment banking or financial
transactions with the Fund, the Investment Adviser and their affiliates. In addition, in the ordinary course of their businesses,
the Dealer Manager and/or its affiliates may, from time to time, own securities of the Fund or its affiliates.
The
principal business address of the Dealer Manager is .]
Compensation
to Dealer Manager
[Pursuant
to the Dealer Manager Agreement, the Fund, has agreed to pay the Dealer Manager a fee for its financial structuring and solicitation
services equal to % of the aggregate Subscription Price for Shares issued pursuant to the Offer and the Over-Subscription
Privilege.
The
Dealer Manager will reallow to Selling Group Members in the Selling Group to be formed and managed by the Dealer Manager selling
fees equal to % of the Subscription Price for each Common Share issued pursuant to the Offer or the Over-Subscription Privilege
as a result of their selling efforts. In addition, the Dealer Manager will reallow to Soliciting Dealers that have executed and
delivered a Soliciting Dealer Agreement and have solicited the exercise of Rights, solicitation fees equal to % of the Subscription
Price for each Common Share issued pursuant to the exercise of Rights as a result of their soliciting efforts, subject to a maximum
fee based on the number of Common Shares held by such Soliciting Dealer through DTC on the Record Date. Fees will be paid to the
broker-dealer designated on the applicable portion of the subscription certificates or, in the absence of such designation, to
the Dealer Manager.
In
addition, the Fund, has agreed to pay the Dealer Manager an amount up to $ as a partial reimbursement of its expenses incurred
in connection with the Offer. The fees described above are one-time fees payable on each date on which the Fund issues Common
Shares after the Expiration Date with respect to the Dealer Manager, and on or before the business day following the day
the Fund issues Common Shares after the Expiration Date with respect to a Selling Group Member or Soliciting Dealer. The Fund
will also pay expenses relating to the printing or other production, mailing and delivery expenses incurred in connection with
materials related to the Offer, including all reasonable out-of-pocket fees and expenses, if any and not to exceed $ , incurred
by the Dealer Manager, Selling Group Members, Soliciting Dealers and other brokers, dealers and financial institutions in connection
with their customary mailing and handling of materials related to the Offer to their customers. No other fees will be payable
by the Fund or the Investment Adviser to the Dealer Manager in connection with the Offer.]
LEGAL
MATTERS
Certain
legal matters will be passed on by Skadden, Arps, Slate, Meagher & Flom LLP, Chicago, Illinois, as special counsel to the
Fund in connection with the Offer. Certain legal matters will be passed on by , , , as special counsel to the Dealer
Manager in connection with the Offer.
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
, serves as the independent registered public accounting firm of the Fund and will annually render
an opinion on the financial statements of the Fund.
ADDITIONAL
INFORMATION
This
Prospectus Supplement and the accompanying Prospectus constitute part of a Registration Statement filed by the Fund with the SEC
under the Securities Act and the 1940 Act. This Prospectus Supplement and the accompanying Prospectus omit certain of the information
contained in the Registration Statement, and reference is hereby made to the Registration Statement and related exhibits for further
information with respect to the Fund and the Common Shares offered hereby. Any statements contained herein concerning the provisions
of any document are not necessarily complete, and, in each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement or otherwise filed with the SEC. Each such statement is qualified in its entirety by such
reference. The complete Registration Statement may be obtained from the SEC upon payment of the fee prescribed by its rules and
regulations or free of charge through the SEC’s web site (http://www.sec.gov).
![](https://www.sec.gov/Archives/edgar/data/1400897/000139834423019754/fp0084769-1_01.jpg)
Rights
NXG
Cushing® Midstream Energy Fund
Subscription
Rights to Purchase Common Shares
FORM
OF
PROSPECTUS
SUPPLEMENT
S-22
v3.23.3
N-2 - USD ($)
|
|
|
3 Months Ended |
6 Months Ended |
12 Months Ended |
Oct. 26, 2023 |
Oct. 24, 2023 |
Aug. 31, 2023 |
May 31, 2023 |
Feb. 28, 2023 |
Nov. 30, 2022 |
Aug. 31, 2022 |
May 31, 2022 |
Feb. 28, 2022 |
Nov. 30, 2021 |
Aug. 31, 2021 |
May 31, 2021 |
Feb. 28, 2021 |
May 31, 2023 |
Nov. 30, 2022 |
[7] |
Nov. 30, 2021 |
Nov. 30, 2020 |
Nov. 30, 2019 |
Nov. 30, 2018 |
Nov. 30, 2017 |
Nov. 30, 2016 |
Nov. 30, 2015 |
Nov. 30, 2014 |
Nov. 30, 2013 |
Cover [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entity Central Index Key |
|
0001400897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amendment Flag |
|
false
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entity Inv Company Type |
|
N-2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Act File Number |
|
333-273954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Company Act File Number |
|
811-22072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Document Type |
|
N-2/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Document Registration Statement |
|
true
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-Effective Amendment |
|
true
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-Effective Amendment Number |
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Company Act Registration |
|
true
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Company Registration Amendment |
|
true
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Company Registration Amendment Number |
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entity Registrant Name |
|
NXG Cushing Midstream Energy Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entity Address, Address Line One |
|
600 N. Pearl St.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entity Address, Address Line Two |
|
Suite 1205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entity Address, City or Town |
|
Dallas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entity Address, State or Province |
|
TX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entity Address, Postal Zip Code |
|
75201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
City Area Code |
|
(214)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Local Phone Number |
|
692-6334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate Date of Commencement of Proposed Sale to Public |
|
From time to time after the effective date of this Registration Statement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend or Interest Reinvestment Plan Only |
|
false
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delayed or Continuous Offering |
|
true
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Shelf [Flag] |
|
true
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective Upon Filing, 462(e) |
|
false
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional Securities Effective, 413(b) |
|
false
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective when Declared, Section 8(c) |
|
false
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Effective Date for Previous Filing |
|
false
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional Securities. 462(b) |
|
false
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No Substantive Changes, 462(c) |
|
false
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exhibits Only, 462(d) |
|
false
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Registered Closed-End Fund [Flag] |
|
true
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Development Company [Flag] |
|
false
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interval Fund [Flag] |
|
false
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Shelf Qualified [Flag] |
|
true
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entity Well-known Seasoned Issuer |
|
No
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entity Emerging Growth Company |
|
false
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New CEF or BDC Registrant [Flag] |
|
false
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee Table [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholder Transaction Expenses [Table Text Block] |
|
Shareholder
transaction expenses |
|
Sales load (as a percentage
of estimated offering price) |
-%(1) |
Offering expenses borne
by the Fund (as a percentage of estimated offering price) |
-%(1) |
Dividend reinvestment
plan fees (per transaction sales fee) |
$15.00(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales Load [Percent] |
[1] |
(1.00%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend Reinvestment and Cash Purchase Fees |
[2] |
$ 15.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Transaction Expenses [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Transaction Expenses [Percent] |
[1] |
(1.00%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Expenses [Table Text Block] |
|
Annual
Expenses |
Percentage of
Net Assets
Attributable to Common Shares(3) |
Management fees(4)(5) |
1.52% |
Interest payments on borrowed
funds(6) |
1.08% |
Other expenses(7) |
1.66% |
Total annual expenses(8) |
4.25% |
| (1) | If Common Shares to which this Prospectus relates are sold to or through
underwriters, the Prospectus Supplement will set forth any applicable sales load and the
estimated offering expenses borne by the Fund. |
| (2) | There
will be no brokerage charges with respect to Common Shares issued directly by the Fund. However,
each participant will pay a pro rata share of brokerage commissions incurred in connection
with open-market purchases. In addition, participants who request a sale of shares through
the Plan Agent are subject to a $15.00 per transaction sales fee and pay a brokerage commission
of $0.12 per share sold. The Fund’s transfer agent serves as Plan Agent. Fees paid
by the Fund to the transfer agent are included in “Other Expenses” below, which
are ultimately borne by common shareholders. For additional information, see "Distribution
Reinvestment Plan." |
| (3) | Based upon net assets attributable to common shares as of May 31,
2023. |
| (4) | The Fund pays the Investment Adviser an annual fee, payable monthly,
in an amount equal to 1.25% of the Fund's average weekly Managed Assets. The fee shown above
is based upon outstanding leverage of 15% of the Fund's Managed Assets (or 17% of the
Fund's net assets attributable to common shares). If leverage of more than 15% of the Fund's
Managed Assets (or 17% of the Fund's net assets attributable to common shares) is used,
the management fees, as a percentage of net assets attributable to common shares would be
higher than as shown above. |
| (5) | The
Investment Adviser has contractually agreed to waive a portion of the management fee in the
amount equal to 0.25% of the Fund's Managed Assets through February 1, 2024. The Fund's annual
expenses after giving effect to such management fee waiver are: |
Annual
Expenses |
Percentage of Net
Assets
Attributable to Common Shares(3) |
Management fees(3)(4) |
1.52% |
Interest payments on borrowed
funds(5) |
1.08% |
Other expenses(6) |
1.66% |
Total annual expenses(4) |
4.25% |
Fee Waiver |
(0.25)% |
Total annual expenses after fee waiver |
4.00% |
| (6) | Based upon the Fund's outstanding borrowings
as of May 31, 2023 of $13.315 million and the interest rate as of May 31, 2023, of 6.19%. |
| (7) | "Other expenses" are estimated
based upon those incurred during the fiscal period ended November 30, 2022. Other expenses
do not include expense related to realized or unrealized investment gains or losses. See
"Management of the Fund—Fund Expenses." |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management Fees [Percent] |
[3],[4],[5] |
1.52%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expenses on Borrowings [Percent] |
[3] |
1.08%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Annual Expenses [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Annual Expenses [Percent] |
[3] |
1.66%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Annual Expenses [Percent] |
[3] |
4.25%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense Example [Table Text Block] |
|
EXAMPLE
As required by relevant
SEC regulations, the following example illustrates the expenses that you would pay on a $1,000 investment in Common Shares, assuming
(1) Total annualized expenses of 4.25% of net assets attributable to Common Shares and (2) a 5% annual return*:
|
1
Year |
3
Years |
5
Years |
10
Years |
Total expenses incurred |
$43 |
$129 |
$217 |
$443 |
| * | The example should not be considered a representation of future expenses or returns. Actual expenses may be greater or less than those shown. Moreover, the Funds actual rate of return may be greater or less than the hypothetical 5% return shown in the example. The example assumes that all distributions are reinvested at net asset value. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense Example, Year 01 |
[6] |
$ 43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense Example, Years 1 to 3 |
[6] |
129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense Example, Years 1 to 5 |
[6] |
217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense Example, Years 1 to 10 |
[6] |
$ 443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purpose of Fee Table , Note [Text Block] |
|
The following table contains information
about the costs and expenses that Common Shareholders will bear directly or indirectly. The table is based on the capital structure of
the Fund as of May 31, 2023 (except as noted below). The purpose of the table and the example below is to help you understand the fees
and expenses that you, as a holder of Common Shares, would bear directly or indirectly.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis of Transaction Fees, Note [Text Block] |
|
as a percentage
of estimated offering price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Highlights [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Securities [Table Text Block] |
|
SENIOR
SECURITIES
The
following table sets forth information about the Fund’s outstanding senior securities as of the end of each fiscal period
indicated. The information in this table for the fiscal years ended November 30, 2022, November 30, 2021, November 30, 2020, November
30, 2019 and November 30, 2018 is derived from the Fund’s financial statements audited by Ernst & Young LLP, independent
registered public accounting firm for the Fund, whose report on such financial statements, together with the financial statements
of the Fund, are included in the Fund’s annual report to shareholders for the fiscal year ended November 30, 2022 and are
incorporated by reference into the SAI.
Fiscal Period Ended | | |
Title of Security | | |
Total Principal Amount
Outstanding | | |
Asset Coverage Per $1,000
of Principal Amount | |
May 31, 2023
(unaudited) | | |
Borrowings | | |
$ | 13,315,000 | | |
$ | 6,743 | |
November 30, 2022* | | |
Borrowings | | |
$ | 7,315,000 | | |
$ | 13,736 | |
November 30, 2021 | | |
Borrowings | | |
$ | 33,715,000 | | |
$ | 3,399 | |
November 30, 2020 | | |
Borrowings | | |
$ | 13,915,000 | | |
$ | 5,287 | |
November 30, 2019 | | |
Borrowings | | |
$ | 28,915,000 | | |
$ | 3,411 | |
November 30, 2018 | | |
Borrowings | | |
$ | 26,050,000 | | |
$ | 3,932 | |
November 30, 2017 | | |
Borrowings | | |
$ | 33,650,000 | | |
$ | 3,407 | |
November 30, 2016 | | |
Borrowings | | |
$ | 49,454,000 | | |
$ | 3,021 | |
November 30, 2015 | | |
Borrowings | | |
$ | 43,369,000 | | |
$ | 3,136 | |
November 30, 2014 | | |
Borrowings | | |
$ | 95,547,000 | | |
$ | 3,092 | |
November 30, 2013 | | |
Borrowings | | |
$ | 72,950,000 | | |
$ | 4,202 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Objectives and Practices [Text Block] |
|
INVESTMENT
OBJECTIVE AND POLICIES
Investment
Objective
The
Fund’s investment objective is to obtain a high after-tax total return from a combination of capital appreciation and current
income. There can be no assurance that the Fund’s investment objective will be achieved.
Principal
Investment Policies
The Fund seeks to achieve its
investment objective by investing, under normal market conditions, at least 80% of Managed Assets (as defined in this Prospectus) in
a portfolio of midstream energy investments (the “80% policy”). For purposes of the Fund’s 80% policy, midstream energy
investments are investments that offer economic exposure to securities of midstream energy companies, which are companies that provide
midstream energy services, including the gathering, transporting, processing, fractionation, storing, refining and distribution of natural
resources, such as natural gas, natural gas liquids, crude oil refined petroleum products, biofuels, carbon sequestration, solar, and
wind. The Fund considers a company to be a midstream energy company if at least 50% of its assets, income, sales or profits are committed
to or derived from midstream energy services.
The Fund invests in equity
and debt securities of midstream energy companies, and invests in U.S. and non-U.S. securities and in issuers of any market capitalization
size.
As an alternative to holding
investments directly, the Fund may obtain investment exposure through derivatives transactions intended to replicate, modify or replace
the economic attributes associated with investment in securities in which the Fund is permitted to invest directly. To the extent that
the Fund invests in synthetic investments with economic characteristics similar to investments in midstream energy companies, the market
value (or, if market value is unavailable, the fair value) of such investments will be counted for purposes of the Fund’s policy
of investing at least 80% of its Managed Assets in a portfolio of midstream energy investments. For a discussion of derivative instruments
in which the Fund may invest, see “Investment Objective and Policies—Additional Investment Practices—Strategic Transactions.”
The
Fund has previously qualified, and intends to continue to qualify, to be treated as a regulated investment company (“RIC”)
under the Internal Revenue Code of 1986, as amended (the "Code"). The Fund pursues its investment objective by generally investing in
MLPs up to the maximum extent permitted of a RIC under the Code. Accordingly, the Fund will, as of the end of each fiscal quarter, invest
no more than 25% of Managed Assets in securities of MLPs and other entities that are “qualified publicly traded partnerships”
under the Code.
The
Fund generally seeks to invest no more than 10% of Managed Assets in any one issue and no more than 15% of Managed Assets in any
one issuer, in each case, determined at the time of investment. For purposes of this limit, with respect to an investment in an
MLP, an “issuer” includes both an issuer and its controlling general partner, managing member or sponsor, and an “issue”
is a class of an issuer’s securities or a derivative security that tracks that class of securities.
The
Fund seeks attractive investment opportunities by investing in initial public offerings (“IPOs”) and secondary market issuances,
private investment in public equity ("PIPE") transactions and privately negotiated transactions, including pre-acquisition and pre-IPO
equity issuances and investments in private companies. Generally, no more than 50% of the Fund’s portfolio will be in PIPE or other
private or restricted securities at the time of investment. “Restricted securities” are securities that are unregistered,
held by control persons of the issuer or are subject to contractual restrictions on resale. The Fund will typically acquire restricted
securities in directly negotiated transactions. The Fund’s investments in restricted securities may include privately issued securities
of both public and private issuers.
The Fund invests up to 20% of
its Managed Assets in investments other than midstream energy investments, including equity securities of issuers other than midstream
energy companies.
The Fund’s investments
in non-U.S. securities include securities of issuers in emerging markets. The Fund’s investments in non-U.S. securities also includes
non-U.S. securities represented by American Depositary Receipts (“ADRs”), which are certificates evidencing ownership of
shares of a non-U.S. issuer that are issued by depositary banks and generally trade on an established market in the United States or
elsewhere.
The Fund invests, without
limitation, in debt securities rated, at the time of investment, at least (i) B3 by Moody’s Investors Service, Inc. (“Moody’s”),
(ii) B- by Standard & Poor’s Ratings Services (“S&P”) or Fitch Ratings (“Fitch”), or (iii) a comparable
rating by another rating agency, and invests no more than 5% of its Managed Assets in debt securities rated below B3 by Moody’s,
B- by S&P or Fitch or a comparable rating by another rating agency. Therefore, the Fund may invest in below investment grade debt
securities. A debt security is considered below investment grade if it is rated below Baa3- by Moody’s or below BBB- by S&P
or Fitch or a comparable rating by another rating agency. Below investment grade debt securities are often referred to as “high
yield” securities or “junk bonds.” Below investment grade debt securities are regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and to repay principal. Debt securities in which the Fund invests may be of
any maturity.
The credit quality policies noted
above apply only at the time a security is purchased, and the Fund is not required to dispose of a security in the event that a rating
agency downgrades its assessment of the credit characteristics of a particular issue. In determining whether to retain or sell such a
security, the Investment Adviser may consider such factors as the Investment Adviser’s assessment of the credit quality of the issuer
of such security, the price at which such security could be sold and the rating, if any, assigned to such security by other rating agencies.
Rating agencies are private services that provide ratings of the credit quality of debt obligations. Ratings assigned by a rating agency
are not absolute standards of credit quality and do not evaluate market risks or the liquidity of securities. Rating agencies may fail
to make timely changes in credit ratings; and an issuer’s current financial condition may be better or worse than a rating indicates.
To the extent that the issuer of a security pays a rating agency for the analysis of its security, an inherent conflict of interest may
exist that could affect the reliability of the rating. See “Appendix A: Description of Securities Ratings” in the SAI.
As
used in this Prospectus (except as noted below), “Managed Assets” means the total assets of the Fund, minus all accrued expenses
incurred in the normal course of operations other than liabilities or obligations attributable to investment leverage, including, without
limitation, investment leverage obtained through (i) indebtedness of any type (including, without limitation, borrowing through a credit
facility or the issuance of debt securities), (ii) the issuance of shares of preferred stock (“preferred shares”) or other
similar preference securities and/or (iii) the reinvestment of collateral received for securities loaned in accordance with the Fund’s
investment objective and policies. Solely for purposes of the Fund's 80% policy, "Managed Assets" means net assets, plus the amount of
any borrowings for investment purposes.
As an alternative to holding
investments directly, the Fund may obtain investment exposure through derivatives transactions intended to replicate, modify or replace
the economic attributes associated with investment in securities in which the Fund is permitted to invest directly. To the extent that
the Fund invests in synthetic investments with economic characteristics similar to investments in midstream energy companies, the market
value (or, if market value is unavailable, the fair value) of such investments will be counted for purposes of the Fund’s policy
of investing at least 80% of its Managed Assets in a portfolio of midstream energy investments. For a discussion of derivative instruments
in which the Fund may invest, see “Investment Objective and Policies—Additional Investment Practices—Strategic Transactions.”
The
Fund’s investment objective and percentage parameters, including its 80% policy, are not fundamental policies of the Fund and may
be changed without shareholder approval. Shareholders, however, will be notified in writing of any change at least 60 days prior to effecting
any such change.
Midstream
Energy Companies
Midstream
energy companies’ operations are often referred to in the context of the following business segments:
| ● | Pipeline
Investments. Pipeline investments are common carrier transporters of natural gas,
natural gas liquids (primarily propane, ethane, butane and natural gasoline), crude oil
or refined petroleum products (gasoline, diesel fuel and jet fuel). Pipeline investments
may also operate ancillary businesses such as storage and marketing of such products.
Revenue is derived from capacity and transportation fees. Historically, in the Investment
Adviser’s view, pipeline output has been less exposed to cyclical economic forces
due in large part to its low cost structure and government-regulated nature. In addition,
pipeline investments do not have much direct commodity price exposure (as opposed to
indirect exposure) because they do not own the product being shipped. |
| ● | Processing
Investments. Processing investments include gatherers and processors of natural gas as
well as providers of natural gas liquid transportation, fractionation and storage services.
Revenue is typically derived from providing services to natural gas producers, which require
treatment or processing before their natural gas commodity can be marketed to utilities and
other end user markets. Revenue for the processor is often fee based, although it is not
uncommon to have some participation in the prices of the natural gas and natural gas liquids
commodities for a portion of revenue. |
| ● | Exploration
and Production Investments (“E&P Investments”). E&P Investments
include midstream energy investments that are engaged in the exploration, development,
production and acquisition of crude oil and natural gas properties. E&P Investment
cash flows generally depend on the volume of crude oil and natural gas produced and the
realized prices received for crude oil and natural gas sales. |
| ● | Propane
Investments. Propane investments include midstream energy investments that are distributors
of propane to end-users for space and water heating. Revenue is typically derived from
the resale of the commodity at a margin over wholesale cost. The ability to maintain
margin is often a key to profitability. Propane serves approximately 3% of the household
energy needs in the United States, largely for homes beyond the geographic reach of natural
gas distribution pipelines. Approximately 70% of annual cash flow can be earned during
the winter heating season (October through March). |
| ● | Coal
Investments. Coal investments include midstream energy investments that own, lease
and manage coal reserves. Revenue is typically derived from production and sale of coal
or from royalty payments related to leases to coal producers. Electricity generation
is the primary use of coal in the United States. Demand for electricity and supply of
alternative fuels to generators are usually the primary drivers of coal demand. Coal
investments are subject to operating and production risks, such as: the company or a
lessee meeting necessary production volumes; federal, state and local laws and regulations
that may limit the ability to produce coal; the company’s ability to manage production
costs and pay mining reclamation costs; and the effect on demand that the Environmental
Protection Agency’s (“EPA”) standards set in the Clean Air Act have
on coal end-users. |
| ● | Marine
Shipping Investments. Marine shipping investments include midstream energy investments
that are primarily marine transporters of natural gas, natural gas liquids, crude oil
or refined petroleum products. Marine shipping investments typically derive revenue from
charging customers for the transportation of these products utilizing the midstream energy
investments’ vessels. Transportation services are typically provided pursuant to
a charter or contract, the terms of which vary depending on, for example, the length
of use of a particular vessel, the amount of cargo transported, the number of voyages
made, the parties operating a vessel or other factors. |
MLPs
The
Fund has previously qualified, and intends to continue to qualify, to be treated as a RIC under the Code. The Fund intends to pursue
its investment objective by generally investing in MLPs up to the maximum extent permitted of a RIC under the Code. Accordingly, the
Fund will, as of the end of each fiscal quarter, invest no more than 25% of Managed Assets in securities of MLPs and other entities that
are “qualified publicly traded partnerships” under the Code.
MLPs
are formed as limited partnerships or limited liability companies and taxed as partnerships for U.S. federal income tax purposes.
The securities issued by many MLPs are listed and traded on a U.S. exchange. An MLP typically issues general partner and limited
partner interests, or managing member and member interests. The general partner or managing member manages and often controls,
has an ownership stake in, and may receive incentive distribution payments from, the MLP. If publicly-traded, to be treated as
a partnership for U.S. federal income tax purposes, an MLP must derive at least 90% of its gross income for each taxable year
from qualifying sources as described in Section 7704 of the Code.
These
qualifying sources include natural resources-based activities such as the exploration, development, mining, production, processing, refining,
transportation, storage and certain marketing of mineral or natural resources. The general partner or managing member may be structured
as a private or publicly-traded corporation or other entity. The general partner or managing member typically controls the operations
and management of the entity and has an up to 2% general partner or managing member interest in the entity plus, in many cases, ownership
of some percentage of the outstanding limited partner or member interests. The limited partners or members, through their ownership of
limited partner or member interests, provide capital to the entity, are intended to have no role in the operation and management of the
entity and receive cash distributions. Due to their structure as partnerships for U.S. federal income tax purposes and the expected character
of their income, MLPs generally do not pay federal income taxes. Thus, unlike investors in corporate securities, direct MLP investors
are generally not subject to double taxation (i.e., corporate level tax and tax on corporate distributions). MLPs in which the
Fund invests may be able to offset a significant portion of their income with tax deductions, such as accelerated depreciation. As a
result, such MLPs may make cash distributions to their limited partners in excess of the amount of their taxable income allocable to
their limited partners. The portion, if any, of the cash distributions received by the Fund with respect to its investment in the equity
securities of an MLP that exceeds the Fund's allocable share of the MLP's net taxable income will not be treated as taxable income to
the Fund, but rather will be treated as a tax deferred return of capital to the extent of the Fund's basis in such MLP equity securities.
MLPs
are typically structured such that common units and general partner interests have first priority to receive the minimum quarterly
distribution (“MQD”). Common and general partner interests also accrue arrearages in distributions to the extent the
MQD is not paid. Once common units and general partner interests have been paid, subordinated units generally receive distributions;
however, subordinated units generally do not accrue arrearages. The subordinated units are normally owned by the owners or affiliates
of the general partner and convert on a one for one basis into common units, generally in three to five years after the MLP’s
initial public offering or after certain distribution levels have been exceeded. Distributable cash in excess of the MQD is distributed
to both common and subordinated units generally on a pro rata basis. The general partner is also normally eligible to receive
incentive distributions if the general partner operates the business in a manner which results in payment of per unit distributions
that exceed threshold levels above the MQD. As the general partner increases cash distributions to the limited partners, the general
partner receives an increasingly higher percentage of the incremental cash distributions. A common arrangement provides that the
general partner can reach a tier where it receives 50% of every incremental dollar distributed by the MLP. These incentive distributions
encourage the general partner to increase the partnership’s cash flow and raise the quarterly cash distribution by pursuing
steady cash flow investment opportunities, streamlining costs and acquiring assets. Such results benefit all security holders
of the MLP.
Equity
securities issued by MLPs typically consist of common and subordinated units (which represent the limited partner or member interests)
and a general partner or managing member interest.
| ● | Common
Units. The common units of many MLPs are listed and traded on national securities
exchanges, including the NYSE, the NYSE American and the NASDAQ Stock Market (the “NASDAQ”).
The Fund will typically purchase such common units through open market transactions and
underwritten offerings, but may also acquire common units through direct placements and
privately negotiated transactions. Holders of MLP common units typically have very limited
control and voting rights. Holders of such common units are typically entitled to receive
the MQD, including arrearage rights, from the issuer. Generally, an MLP must pay (or
set aside for payment) the MQD to holders of common units before any distributions may
be paid to subordinated unit holders. In addition, incentive distributions are typically
not paid to the general partner or managing member unless the quarterly distributions
on the common units exceed specified threshold levels above the MQD. In the event of
a liquidation, common unit holders are intended to have a preference to the remaining
assets of the issuer over holders of subordinated units. Master limited partnerships
also issue different classes of common units that may have different voting, trading,
and distribution rights. The Fund may invest in different classes of common units. |
| ● | Subordinated
Units. Subordinated units, which, like common units, represent limited partner or
member interests, are not typically listed on an exchange or publicly traded. The Fund
will typically purchase outstanding subordinated units through negotiated transactions
directly with holders of such units or newly-issued subordinated units directly from
the issuer. Holders of such subordinated units are generally entitled to receive a distribution
only after the MQD and any arrearages from prior quarters have been paid to holders of
common units. Holders of subordinated units typically have the right to receive distributions
before any incentive distributions are payable to the general partner or managing member.
Subordinated units generally do not provide arrearage rights. Most MLP subordinated units
are convertible into common units after the passage of a specified period of time or
upon the achievement by the issuer of specified financial goals. Master limited partnerships
also issue different classes of subordinated units that may have different voting, trading,
and distribution rights. The Fund may invest in different classes of subordinated units. |
| ● | General
Partner or Managing Member Interests. The general partner or managing member interest
in MLPs or limited liability companies is typically retained by the original sponsors
of an MLP or limited liability company, such as its founders, corporate partners and
entities that sell assets to the MLP or limited liability company. The holder of the
general partner or managing member interest can be liable in certain circumstances for
amounts greater than the amount of the holder’s investment in the general partner
or managing member. General partner or managing member interests often confer direct
board participation rights in, and in many cases control over the operations of, the
MLP. General partner or managing member interests can be privately held or owned by publicly
traded entities. General partner or managing member interests receive cash distributions,
typically in an amount of up to 2% of available cash, which is contractually defined
in the partnership or limited liability company agreement. In addition, holders of general
partner or managing member interests typically receive incentive distribution rights,
which provide them with an increasing share of the entity’s aggregate cash distributions
upon the payment of per common unit distributions that exceed specified threshold levels
above the MQD. Due to the incentive distribution rights, GP MLPs have higher distribution
growth prospects than their underlying MLPs, but quarterly incentive distribution payments
would also decline at a greater rate than the decline rate in quarterly distributions
to common and subordinated unit holders in the event of a reduction in the MLP’s
quarterly distribution. The ability of the limited partners or members to remove the
general partner or managing member without cause is typically very limited. In addition,
some MLPs permit the holder of incentive distribution rights to reset, under specified
circumstances, the incentive distribution levels and receive compensation in exchange
for the distribution rights given up in the reset. |
| ● | I-Shares.
I-Shares represent an ownership interest issued by an MLP affiliate. The MLP affiliate
uses the proceeds from the sale of I-Shares to purchase limited partnership interests
in the MLP in the form of I-units. Thus, I-Shares represent an indirect limited partner
interest in the MLP. I-units have features similar to MLP common units in terms of voting
rights, liquidation preference and distribution. I-Shares differ from MLP common units
primarily in that instead of receiving cash distributions, holders of I-Shares will receive
distributions of additional I-Shares in an amount equal to the cash distributions received
by common unit holders. I-Shares are traded on the NYSE or the AMEX. For purposes of
the Fund’s 80% policy, securities that are derivatives of interests in MLPs are
I-Shares or other derivative securities that have economic characteristics of MLP securities. |
For
purposes of the Fund’s limit on investment in any single issuer, with respect to an investment in an MLP, an “issuer”
includes both an issuer and its controlling general partner, managing member or sponsor, and an “issue” is a class
of an issuer’s securities or a derivative security that tracks that class of securities.
Preferred
Stock
Preferred
stock generally has a preference as to distributions and upon liquidation over an issuer’s common stock but ranks junior
to other income securities in an issuer’s capital structure. Preferred stock generally pays distributions in cash (or additional
shares of preferred stock) at a defined rate but, unlike interest payments on other income securities, preferred stock distributions
are payable only if declared by the issuer’s board of directors. distributions on preferred stock may be cumulative, meaning
that, in the event the issuer fails to make one or more distribution payments on the preferred stock, no distributions may be
paid on the issuer’s common stock until all unpaid preferred stock distributions have been paid. Preferred stock also may
provide that, in the event the issuer fails to make a specified number of distribution payments, the holders of the preferred
stock will have the right to elect a specified number of directors to the issuer’s board. Preferred stock also may be subject
to optional or mandatory redemption provisions.
Convertible
Securities
A
convertible security is a bond, debenture, note, preferred stock or other security that may be converted into or exchanged for
a prescribed amount of common stock or other equity security of the same or a different issuer within a particular period of time
at a specified price or formula. A convertible security entitles the holder to receive interest paid or accrued on debt or the
distribution paid on preferred stock until the convertible security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities have characteristics similar to nonconvertible income securities in that they ordinarily provide a stable
stream of income with generally higher yields than those of common stocks of the same or similar issuers, but lower yields than
comparable nonconvertible securities. The value of a convertible security is influenced by changes in interest rates, with investment
value declining as interest rates increase and increasing as interest rates decline. The credit standing of the issuer and other
factors also may have an effect on the convertible security’s investment value. Convertible securities rank senior to common
stock in a corporation’s capital structure but are usually subordinated to comparable nonconvertible securities. Convertible
securities may be subject to redemption at the option of the issuer at a price established in the convertible security’s
governing instrument.
Additional
Investment Practices
In
addition to holding the portfolio investments described above, the Fund may, but is not required to, use the following investment
practices:
Strategic
Transactions. The Fund may, but is not required to, use investment strategies (referred to herein as “Strategic Transactions”)
for hedging, risk management or portfolio management purposes or to earn income. Strategic Transactions may involve the purchase
and sale of derivative instruments. The Fund may purchase and sell exchange-listed and over-the-counter put and call options on
securities, indices and other instruments, enter into forward contracts, purchase and sell futures contracts and options thereon,
enter into swap, cap, floor or collar transactions, purchase structured investment products and enter into transactions that combine
multiple derivative instruments. The Fund’s use of Strategic Transactions may also include newly developed or permitted
instruments, strategies and techniques, consistent with the Fund’s investment objectives and applicable regulatory requirements.
Strategic
Transactions often have risks similar to the securities underlying the Strategic Transactions. However, the use of Strategic Transactions
also involves risks that are different from, and possibly greater than, the risks associated with other portfolio investments.
Strategic Transactions may involve the use of highly specialized instruments that require investment techniques and risk analyses
different from those associated with other portfolio investments. The Fund complies with applicable regulatory requirements when
implementing Strategic Transactions, as mandated by SEC rules or SEC staff positions. Although the Investment Adviser seeks to
use Strategic Transactions to further the Fund’s investment objective, no assurance can be given that the use of Strategic
Transactions will achieve this result.
Examples
of how the Fund may use Strategic Transactions include, but are not limited to:
| ● | Using
derivative investments to hedge certain risks such as overall market, interest rate and
commodity price risks. The Fund may engage in various interest rate and currency hedging
transactions, including buying or selling options or futures, entering into other transactions
including forward contracts, swaps or options on futures and other derivatives transactions. |
| ● | Using
Strategic Transactions to manage its effective interest rate exposure, including the
effective yield paid on any leverage used by the Fund, protect against possible adverse
changes in the market value of the securities held in or to be purchased for its portfolio,
or otherwise protect the value of its portfolio. |
| ● | Engaging
in Strategic Transactions to hedge the currency risk to which it may be exposed by, for
example, buying or selling options or futures or entering into other foreign currency
transactions, including forward foreign currency contracts, currency swaps or options
on currency and currency futures and other derivatives transactions. |
| ● | Selling
short Treasury securities to hedge its interest rate exposure. When shorting Treasury
securities, the loss is limited to the principal amount that is contractually required
to be repaid at maturity and the interest expense that must be paid at the specified
times. See “Risks—Short Sales Risk.” |
| ● | Engaging
in paired long-short trades to arbitrage pricing disparities in securities issued by
midstream energy companies, write (or sell) covered call options on securities held in
its portfolio, write (or sell) uncovered call options on the securities of midstream
energy companies, purchase call options or enter into swap contracts to increase its
exposure to midstream energy companies, or sell securities short. |
Hedging
transactions can be expensive and have risks, including the imperfect correlation between the value of such instruments and the
underlying assets, the possible default of the other party to the transaction or illiquidity of the derivative instruments. Furthermore,
the ability to successfully use hedging transactions depends on the Investment Adviser’s ability to predict pertinent market
movements, which cannot be assured. A more complete discussion of Strategic Transactions and their risks is included in the SAI
under the heading “Strategic Transactions.”
Other
Investment Companies. The Fund invests in securities of other closed-end or open-end investment companies (including ETFs) that invest
primarily in companies in which the Fund is permitted to invest directly to the extent permitted by the 1940 Act. The Fund may invest
in other investment companies during periods when it has large amounts of uninvested cash, such as the period shortly after the Fund
receives the proceeds of the offering of its Securities, during periods when there is a shortage of attractive midstream energy company
securities available in the market, or when the Investment Adviser believes share prices of other investment companies offer attractive
values. The Fund invests in investment companies that are advised by the Investment Adviser or its affiliates only to the extent permitted
by applicable law and/or pursuant to exemptive relief from the SEC.
As
a stockholder in an investment company, the Fund will bear its ratable share of that investment company’s expenses, and would remain
subject to payment of the Fund’s 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 Investment Adviser will
take expenses into account when evaluating the investment merits of an investment in an investment company relative to other available
investments. To the extent that the Fund invests in investment companies that invest primarily in midstream energy companies, such investments
will be counted for purposes of the Fund’s 80% policy.
Exchange-Traded
Notes. Exchange-traded notes ("ETNs"), which are typically unsecured, unsubordinated debt securities that trade on a securities exchange
and are designed to replicate the returns of market benchmarks minus applicable fees. To the extent that the Fund invests in ETNs that
are designed to replicate indices comprised primarily of midstream energy companies, such investments will be counted for purposes of
the Fund’s 80% policy.
New
Securities and Other Investment Techniques. New types of securities and other investment and hedging practices are developed
from time to time. The Investment Adviser expects, consistent with the Fund’s investment objective and policies, to invest
in such new types of securities and to engage in such new types of investment practices if the Investment Adviser believes that
these investments and investment techniques may assist the Fund in achieving its investment objective. In addition, the Investment
Adviser may use investment techniques and instruments that are not specifically described herein.
Use
of Arbitrage and Other Strategies. The Fund may use short sales, arbitrage and other strategies to try to generate additional
return. As part of such strategies, the Fund may engage in paired long-short trades to arbitrage pricing disparities in securities
issued by midstream energy companies, write (or sell) covered call options on the securities of midstream energy companies or
other securities held in its portfolio, write (or sell) uncovered call options on the securities of midstream energy companies,
purchase call options or enter into swap contracts to increase its exposure to midstream energy companies, or sell securities
short. With a long position, the Fund purchases a stock outright, but with a short position, it would sell a security that it
does not own and must borrow to meet its settlement obligations. The Fund will realize a profit or incur a loss from a short position
depending on whether the value of the underlying stock decreases or increases, respectively, between the time the stock is sold
and when the Fund replaces the borrowed security. To increase its exposure to certain issuers, the Fund may purchase call options
or use swap agreements. The Fund expects to use these strategies on a limited basis. See “Risks—Short Sales Risk”
and “Risks—Strategic Transactions Risk.”
Lending
of Portfolio Securities. The Fund may lend its portfolio securities to broker-dealers and banks. Any such loan must be continuously
secured by collateral in cash or cash equivalents maintained on a current basis in an amount at least equal to 102% of the value
of the securities loaned. The Fund would continue to receive the equivalent of the interest or distributions paid by the issuer
on the securities loaned and would also receive an additional return that may be in the form of a fixed fee or a percentage of
the collateral. The Fund may pay reasonable fees for services in arranging these loans. The Fund would have the right to call
the loan and obtain the securities loaned at any time on notice of not more than five (5) business days. The Fund would not have
the right to vote the securities during the existence of the loan but would call the loan to permit voting of the securities,
if, in the Investment Adviser’s judgment, a material event requiring a shareholder vote would otherwise occur before the
loans were repaid. In the event of bankruptcy or other default of the borrower, the Fund could experience both delays in liquidating
the loan collateral or recovering the loaned securities and losses, including (a) possible decline in the value of the collateral
or in the value of the securities loaned during the period while the Fund seeks to enforce its rights to the collateral or loaned
securities, (b) possible subnormal levels of income and lack of access to income during this period, and (c) expenses of enforcing
its rights.
Temporary
Defensive Investments. When adverse market, economic, political or other conditions dictate a more defensive investment strategy,
the Fund may, on a temporary basis, hold cash or invest a portion or all of its assets in money-market instruments, including obligations
of the U.S. government, its agencies or instrumentalities, other high-quality debt securities, including prime commercial paper, repurchase
agreements and bank obligations, such as bankers’ acceptances and certificates of deposit. Under normal market conditions, the
potential for capital appreciation on these securities will tend to be lower than the potential for capital appreciation on other securities
that may be owned by the Fund. In taking such a defensive position, the Fund would temporarily not be pursuing its principal investment
strategies and may not achieve its investment objective.
Portfolio
Turnover
Portfolio
turnover rate is not considered a limiting factor in the Investment Adviser’s execution of investment decisions. The Fund
anticipates that its annual portfolio turnover rate may vary greatly from year to year. For the fiscal years ended November 30,
2022 and November 30, 2021, the Fund’s portfolio turnover rate was approximately 143% and 114%, respectively. A higher portfolio
turnover rate results in correspondingly greater brokerage commissions and other transactional expenses that are borne by the
Fund.
Investment
Restrictions
The
Fund has adopted certain other investment limitations designed to limit investment risk. These limitations are, unless otherwise
indicated, fundamental and may not be changed without the approval of the holders of a majority of the outstanding voting securities
of the Fund, as defined in the 1940 Act. See “Investment Restrictions” in the SAI for a complete list of the fundamental
investment policies of the Fund. The Fund’s investment objective and percentage parameters are not fundamental policies
of the Fund and may be changed without shareholder approval.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Factors [Table Text Block] |
|
RISKS
Investors
should consider the specific risk factors and special considerations associated with investing in the Fund. An investment in the
Fund is subject to investment risk, including the possible loss of your entire investment. A Prospectus Supplement relating to
an offering of the Fund’s securities may identify additional risk associated with such offering.
Investment
and Market Risk
An investment in common shares of the Fund is subject to investment risk, including the possible loss of the entire principal amount
that you invest. An investment in the common shares of the Fund represents an indirect investment in the securities owned by the
Fund. The value of those securities may fluctuate, sometimes rapidly and unpredictably, particularly under current economic, financial,
labor, and health conditions. The value of the securities owned by the Fund may decline due to general market conditions that
are not specifically related to a particular issuer, such as real or perceived economic conditions, changes in interest or currency
rates or changes in investor sentiment or market outlook generally. At any point in time, your common shares may be worth less
than your original investment, including the reinvestment of Fund dividends and distributions.
Common
Stock Risk
The
Fund will have exposure to common stocks. Although common stocks have historically generated higher average total returns than
fixed-income securities over the long-term, common stocks also have experienced significantly more volatility in those returns
and may significantly under-perform relative to fixed income securities during certain periods. An adverse event, such as an unfavorable
earnings report, may depress the value of a particular common stock held by the Fund. Also, the price of common stocks is sensitive
to general movements in the stock market and a drop in the stock market may depress the price of common stocks to which the Fund
has exposure. Common stock prices fluctuate for several reasons, including changes in investors’ perceptions of the financial
condition of an issuer or the general condition of the relevant stock market, or when political or economic events affecting the
issuers occur. In addition, common stock prices may be particularly sensitive to rising interest rates, as the cost of capital
rises and borrowing costs increase. At times, stock markets can be volatile and stock prices can change substantially. While broad
market measures of common stocks have historically generated higher average returns than income securities, common stocks have
also experienced significantly more volatility in those returns. Common stock in which the Fund invests is structurally subordinated
to preferred stock, bonds and other debt instruments in a company’s capital structure in terms of priority to corporate
income and are therefore inherently more risky than preferred stock or debt instruments of such issuers.
Concentration
Risk
The Fund’s investments
will be concentrated in issuers in the industry or group of industries that make up the natural resources sector. The Fund has adopted
a fundamental investment restriction to invest at least 25% of its total assets in natural resources companies. In addition, in accordance
with the Fund’s 80% policy, the Fund invests at least 80% of its net assets plus borrowings for investment purposes in midstream
energy investments. Midstream energy companies are a specific type of natural resources company. Because the Fund will be concentrated,
it may be subject to more risks than if it were more broadly diversified over numerous industries and sectors of the economy. General
changes in market sentiment towards companies in the natural resources sector, or midstream energy companies specifically, may adversely
affect the Fund, and the performance of the natural resources sector, or midstream energy companies specifically, may lag behind the
broader market as a whole. Also, the Fund’s concentration in the natural resources sector, and midstream energy companies specifically,
may subject the Fund to a variety of risks associated with that sector. See “Risks—Midstream Energy Company Risks.”
Midstream
Energy Company Risks
Midstream
energy companies are subject to certain risks, including, but not limited to, the following:
Commodity
Price Risk. Midstream energy companies may be affected by fluctuations in the prices of commodities, including, for example, natural
gas, natural gas liquids and crude oil, in the short- and long-term. Natural resources commodity prices have been very volatile in the
past and such volatility is expected to continue. Fluctuations in commodity prices can result from changes in general economic conditions
or political circumstances (especially of key energy-consuming countries); market conditions; weather patterns; domestic production levels;
volume of imports; energy conservation; domestic and foreign governmental regulation; international politics; policies of the Organization
of Petroleum Exporting Countries (“OPEC”); taxation; tariffs; and the availability and costs of local, intrastate and interstate
transportation methods. Midstream energy companies engaged in crude oil and natural gas exploration, development or production, natural
gas gathering and processing, crude oil refining and transportation and coal mining or sales may be directly affected by their respective
natural resources commodity prices. The volatility of, and interrelationships between, commodity prices can also indirectly affect certain
other midstream energy companies due to the potential impact on the volume of commodities transported, processed, stored or distributed.
Some midstream energy companies that own the underlying energy commodity may be unable to effectively mitigate or manage direct margin
exposure to commodity price levels. The natural resources sector as a whole may also be impacted by the perception that the performance
of natural resources sector companies is directly linked to commodity prices. The prices of companies’ securities can be adversely
affected by market perceptions that their performance and distributions or distributions are directly tied to commodity prices. High
commodity prices may drive further energy conservation efforts and a slowing economy may adversely impact energy consumption which may
adversely affect the performance of midstream energy companies.
Prices
of oil and other energy commodities have experienced significant volatility during recent years, including as a result of the pandemic
spread of infectious respiratory illness caused by a novel coronavirus known as “COVID-19,” during which demand for energy
commodities fell sharply and energy commodity prices reached historic lows, and may continue to experience relatively high volatility
for a prolonged period. Companies engaged in crude oil and natural gas exploration, development or production, natural gas gathering
and processing, crude oil refining and transportation and coal mining or sales may be directly affected by their respective natural resources
commodity prices. The volatility of commodity prices may also indirectly affect certain companies engaged in the transportation, processing,
storage or distribution of such commodities. Some companies that own the underlying commodities may be unable to effectively mitigate
or manage direct margin exposure to commodity price levels. The natural resources sector as a whole may also be impacted by the perception
that the performance of natural resources sector companies is directly linked to commodity prices. As a result, many companies in which
the Fund invests may have been and may continue to be adversely impacted by volatility of prices of energy commodities. Reductions in
production of oil and other energy commodities may lag decreases in demand or declines in commodity prices, resulting in global oversupply
in such commodities. Slower global growth may lower demand for oil and other energy commodities and increased exports by Iran with the
end of sanctions may increase supply, exacerbating oversupply of such commodities and further reducing commodity prices. Continued volatility
of commodity prices could further erode such companies’ growth prospects and negatively impact such companies’ ability to
sustain attractive distribution levels.
Cyclicality
Risk. The operating results of companies in the broader natural resources sector are cyclical, with fluctuations in commodity prices
and demand for commodities driven by a variety of factors. The highly cyclical nature of the natural resources sector may adversely affect
the earnings or operating cash flows of the midstream energy companies in which the Fund invests.
Supply
Risk. The profitability of midstream energy companies, particularly those involved in processing, gathering and pipeline transportation,
may be materially impacted by the volume of natural gas or other energy commodities available for transportation, processing,
storage or distribution. A significant decrease in the production of natural gas, crude oil, coal or other energy commodities,
due to the decline of production from existing resources, import supply disruption, depressed commodity prices or otherwise, would
reduce the revenue, operating income and operating cash flows of midstream energy companies and, therefore, their ability to make
distributions or pay dividends. The volume of production of energy commodities and the volume of energy commodities available
for transportation, storage, processing or distribution could be affected by a variety of factors, including depletion of resources;
depressed commodity prices; catastrophic events; labor relations; increased environmental or other governmental regulation; equipment
malfunctions and maintenance difficulties; import volumes; international politics; policies of OPEC; and increased competition
from alternative energy sources.
Demand
Risk. A sustained decline in demand for coal, natural gas, natural gas liquids, crude oil and refined petroleum products could
adversely affect a midstream energy company’s revenues and cash flows. Factors that could lead to a sustained decrease in
market demand include a recession or other adverse economic conditions, an increase in the market price of the underlying commodity
that is not, or is not expected to be, merely a short-term increase, higher taxes or other regulatory actions that increase costs,
or a shift in consumer demand for such products. Demand may also be adversely affected by consumer sentiment with respect to global
warming and by state or federal legislation intended to promote the use of alternative energy sources.
Depletion
Risk. Companies engaged in the exploration, development, management or production of energy commodities face the risk that
commodity reserves are depleted over time. Such companies seek to increase their reserves through expansion of their current businesses,
acquisitions, further development of their existing sources of energy commodities, exploration of new sources of energy commodities
or by entering into long-term contracts for additional reserves; however, there are risks associated with each of these potential
strategies. If such companies fail to acquire additional reserves in a cost-effective manner and at a rate at least equal to the
rate at which their existing reserves decline, their financial performance may suffer. Additionally, failure to replenish reserves
could reduce the amount and affect the tax characterization of the distributions paid by such companies.
Risks
Related to Expansions and Acquisitions. Midstream energy companies employ a variety of means to increase cash flow, including
increasing utilization of existing facilities, expanding operations through new construction or development activities, expanding
operations through acquisitions, or securing additional long-term contracts. Thus, some midstream energy companies may be subject
to construction risk, development risk, acquisition risk or other risks arising from their specific business strategies. Midstream
energy companies that attempt to grow through acquisitions may not be able to effectively integrate acquired operations with their
existing operations. In addition, acquisition or expansion projects may not perform as anticipated. A significant slowdown in
merger and acquisition activity in the natural resources sector could reduce the growth rate of cash flows received by the Fund
from midstream energy companies that grow through acquisitions.
Competition
Risk. The natural resources sector is highly competitive. The midstream energy companies in which the Fund invests face substantial
competition from other companies, many of which will have greater financial, technological, human and other resources, in acquiring natural
resources assets, obtaining and retaining customers and contracts and hiring and retaining qualified personnel. Larger companies may
be able to pay more for assets and may have a greater ability to continue their operations during periods of low commodity prices. To
the extent that the midstream energy companies in which the Fund invests are unable to compete effectively, their operating results,
financial position, growth potential and cash flows may be adversely affected, which could in turn adversely affect the results of the
Fund.
Weather
Risk. Extreme weather conditions could result in substantial damage to the facilities of certain midstream energy companies
located in the affected areas and significant volatility in the supply of natural resources, commodity prices and the earnings
of midstream energy companies and could therefore adversely affect their securities.
Interest
Rate Risk. The prices of the equity and debt securities of the midstream energy companies the Fund expects to hold in its portfolio
are susceptible in the short-term to a decline when interest rates rise. Rising interest rates could limit the capital appreciation of
securities of certain midstream energy companies as a result of the increased availability of alternative investments with comparable
yields. Rising interest rates could adversely impact the financial performance of midstream energy companies by increasing their cost
of capital. This may reduce their ability to execute acquisitions or expansion projects in a cost-effective manner. The risk of interest
rates rising is more pronounced in the current market environment because of recent monetary policy measures and the low interest rate
environment in recent years.
Business
Segment Specific Risk. Midstream energy companies are also subject to risks that are specific to the particular business segment
of the natural resources sector in which they operate.
Pipelines.
Pipeline companies are subject to the demand for natural gas, natural gas liquids, crude oil or refined products in the markets
they serve, changes in the availability of products for gathering, transportation, processing or sale due to natural declines
in reserves and production in the supply areas serviced by the companies’ facilities, sharp decreases in crude oil or natural
gas prices that cause producers to curtail production or reduce capital spending for exploration activities, and environmental
regulation. Demand for gasoline, which accounts for a substantial portion of refined product transportation, depends on price,
prevailing economic conditions in the markets served, and demographic and seasonal factors. Companies that own interstate pipelines
that transport natural gas, natural gas liquids, crude oil or refined petroleum products are subject to regulation by FERC with
respect to the tariff rates they may charge for transportation services. An adverse determination by FERC with respect to the
tariff rates of such a company could have a material adverse effect on its business, financial condition, results of operations
and cash flows of those companies and their ability to pay cash distributions or dividends. In addition, FERC has a tax allowance
policy, which permits such companies to include in their cost of service an income tax allowance to the extent that their owners
have an actual or potential tax liability on the income generated by them. If FERC’s income tax allowance policy were to
change in the future to disallow a material portion of the income tax allowance taken by such interstate pipeline companies, it
would adversely impact the maximum tariff rates that such companies are permitted to charge for their transportation services,
which would in turn adversely affect the results of operations and cash flows of those companies and their ability to pay cash
distributions or dividends to their unit holders or shareholders.
Gathering
and Processing. Gathering and processing companies are subject to natural declines in the production of oil and natural gas
fields, which utilize their gathering and processing facilities as a way to market their production, prolonged declines in the
price of natural gas or crude oil, which curtails drilling activity and therefore production and declines in the prices of natural
gas liquids and refined petroleum products, which cause lower processing margins. In addition, some gathering, and processing
contracts subject the gathering or processing company to direct commodities price risk.
Exploration
and Production. Exploration, development and production companies are particularly vulnerable to declines in the demand for
and prices of crude oil and natural gas. Reductions in prices for crude oil and natural gas can cause a given reservoir to become
uneconomic for continued production earlier than it would if prices were higher, resulting in the plugging and abandonment of,
and cessation of production from, that reservoir. In addition, lower commodity prices not only reduce revenues but also can result
in substantial downward adjustments in reserve estimates. The accuracy of any reserve estimate is a function of the quality of
available data, the accuracy of assumptions regarding future commodity prices and future exploration and development costs and
engineering and geological interpretations and judgments. Different reserve engineers may make different estimates of reserve
quantities and related revenue based on the same data. Actual oil and gas prices, development expenditures and operating expenses
will vary from those assumed in reserve estimates, and these variances may be significant. Any significant variance from the assumptions
used could result in the actual quantity of reserves and future net cash flow being materially different from those estimated
in reserve reports. In addition, results of drilling, testing and production and changes in prices after the date of reserve estimates
may result in downward revisions to such estimates. Substantial downward adjustments in reserve estimates could have a material
adverse effect on a given exploration and production company’s financial position and results of operations. In addition,
due to natural declines in reserves and production, exploration and production companies must economically find or acquire and
develop additional reserves in order to maintain and grow their revenues and distributions.
Propane.
Propane companies are subject to earnings variability based upon weather patterns in the locations where they operate and increases
in the wholesale price of propane which reduce profit margins. In addition, propane companies are facing increased competition
due to the growing availability of natural gas, fuel oil and alternative energy sources for residential heating.
Coal.
Coal companies are subject to declines in the demand for and prices of coal. Demand variability can be based on weather conditions,
the strength of the domestic economy, the level of coal stockpiles in their customer base, and the prices of competing sources
of fuel for electric generation. They are also subject to supply variability based on geological conditions that reduce the productivity
of mining operations, the availability of regulatory permits for mining activities and the availability of coal that meets the
standards of the federal Clean Air Act of 1990, as amended (the “Clean Air Act”). Demand and prices for coal may also
be affected by current and proposed regulatory limitations on emissions from coal-fired power plants and the facilities of other
coal end users. Such limitations may reduce demand for the coal produced and transported by coal companies. Certain coal companies
could face declining revenues if they are unable to acquire additional coal reserves or other mineral reserves that are economically
recoverable.
Marine
Shipping. Marine shipping companies are subject to supply of and demand for, and level of consumption of, natural gas, liquefied
natural gas, crude oil, refined petroleum products and liquefied petroleum gases in the supply areas and market areas they serve,
which affect the demand for marine shipping services and therefore charter rates. Shipping companies’ vessels and cargoes
are also subject to the risk of being damaged or lost due to marine disasters, extreme weather, mechanical failures, grounding,
fire, explosions, collisions, human error, piracy, war and terrorism. Some vessels may also require replacement or significant
capital improvements earlier than otherwise required due to changing regulatory standards. Shipping companies or their ships may
be chartered in any country and the Fund’s investments in such issuers may be subject to risks similar to risks related
to investments in non-U.S. securities.
Cash
Flow Risk. The Fund will derive substantially all of its cash flow from investments in equity securities of midstream energy companies.
The amount of cash that the Fund has available to distribute to shareholders will depend on the ability of the midstream energy companies
in which the Fund has an interest to make distributions or pay dividends to their investors and the tax character of those distributions
or dividends. The Fund will likely have no influence over the actions of the companies in which it invests with respect to the payment
of distributions or dividends. The amount of cash that any individual midstream energy company can distribute to its investors, including
the Fund, will depend on the amount of cash it generates from operations, which will vary from quarter to quarter depending on factors
affecting the natural resources sector generally and the particular business lines of the issuer. Available cash will also depend on
the midstream energy company’s operating costs, capital expenditures, debt service requirements, acquisition costs (if any), fluctuations
in working capital needs and other factors. With respect to the Fund's investments in MLPs, the cash that an MLP will have available
for distribution will also depend on the incentive distributions payable to its general partner or managing member in connection with
distributions paid to its equity investors.
Regulatory
Risk. The profitability of midstream energy companies could be adversely affected by changes in the regulatory environment.
Midstream energy companies are subject to significant foreign, federal, state and local regulation in virtually every aspect of
their operations, including with respect to how facilities are constructed, maintained and operated, environmental and safety
controls, and the prices they may charge for the products and services they provide. Such regulation can change over time in both
scope and intensity. For example, a particular by-product may be declared hazardous by a regulatory agency and unexpectedly increase
production costs. Various governmental authorities have the power to enforce compliance with these regulations and the permits
issued under them, and violators are subject to administrative, civil and criminal penalties, including civil fines, injunctions
or both. Stricter laws, regulations or enforcement policies could be enacted in the future which would likely increase compliance
costs and may adversely affect the financial performance of midstream energy companies.
Midstream
energy companies may be adversely affected by future regulatory requirements. While the nature of such regulations cannot be predicted
at this time, they may impose additional costs or limit certain operations by midstream energy companies.
Specifically,
the operations of wells, gathering systems, pipelines, refineries and other facilities are subject to stringent and complex federal,
state and local environmental laws and regulations. These include, for example:
| ● | the
federal Clean Air Act and comparable state laws and regulations that impose obligations
related to air emissions. |
| ● | the
federal Clean Water Act and comparable state laws and regulations that impose obligations
related to discharges of pollutants into regulated bodies of water. |
| ● | the
federal Resource Conservation and Recovery Act (“RCRA”) and comparable state
laws and regulations that impose requirements for the handling and disposal of waste
from facilities; and |
| ● | the
federal Comprehensive Environmental Response, Compensation and Liability Act of 1980
(“CERCLA”), also known as “Superfund,” and comparable state laws
and regulations that regulate the cleanup of hazardous substances that may have been
released at properties currently or previously owned or operated by midstream energy
companies or at locations to which they have sent waste for disposal. |
Failure
to comply with these laws and regulations may trigger a variety of administrative, civil and criminal enforcement measures, including
the assessment of monetary penalties, the imposition of remedial requirements, and the issuance of orders enjoining future operations.
Certain environmental statutes, including RCRA, CERCLA, the federal Oil Pollution Act and analogous state laws and regulations,
impose strict, joint and several liability for costs required to clean up and restore sites where hazardous substances have been
disposed or otherwise released. Moreover, it is not uncommon for neighboring landowners and other third parties to file claims
for personal injury and property damage allegedly caused by the release of hazardous substances or other waste products into the
environment.
There
is an inherent risk that midstream energy companies may incur environmental costs and liabilities due to the nature of their businesses
and the substances they handle. For example, an accidental release from wells or gathering pipelines could subject them to substantial
liabilities for environmental cleanup and restoration costs, claims made by neighboring landowners and other third parties for
personal injury and property damage, and fines or penalties for related violations of environmental laws or regulations. Moreover,
the possibility exists that stricter laws, regulations or enforcement policies could significantly increase the compliance costs
of midstream energy companies, and the cost of any remediation that may become necessary. Midstream energy companies may not be
able to recover these costs from insurance.
Proposals
for voluntary initiatives and mandatory controls are being discussed both in the United States and worldwide to reduce emissions of “greenhouse
gases” such as carbon dioxide, a by-product of burning fossil fuels, and methane, the major constituent of natural gas, which many
scientists and policymakers believe contribute to global climate change. These measures, if adopted, could result in increased costs
to certain companies in which the Fund invests to operate and maintain natural resources facilities and administer and manage a greenhouse
gas emissions program.
In
the wake of a Supreme Court decision holding that the EPA has some legal authority to deal with climate change under the Clean
Air Act, the federal government announced on May 14, 2007 that the EPA and the Departments of Transportation, Energy, and Agriculture
would jointly write regulations to cut gasoline use and control greenhouse gas emissions from cars and trucks. These measures
if adopted could reduce demand for energy or raise prices, which may adversely affect the total return of certain of the Fund’s
investments.
Environmental
Risk. There is an inherent risk that midstream energy companies may incur environmental costs and liabilities due to the nature
of their businesses and the substances they handle. For example, an accidental release from wells or gathering pipelines could
subject them to substantial liabilities for environmental cleanup and restoration costs, claims made by neighboring landowners
and other third parties for personal injury and property damage, and fines or penalties for related violations of environmental
laws or regulations. Moreover, the possibility exists that stricter laws, regulations or enforcement policies could significantly
increase the compliance costs of midstream energy companies, and the cost of any remediation that may become necessary. Midstream
energy companies may not be able to recover these costs from insurance.
In
the wake of a Supreme Court decision holding that the EPA has some legal authority to deal with climate change under the Clean
Air Act, the EPA and the Department of Transportation jointly wrote regulations to cut gasoline use and control greenhouse gas
emissions from cars and trucks. These measures, and other programs addressing greenhouse gas emissions, could reduce demand for
energy or raise prices, which may adversely affect the total return of certain of the Fund’s investments.
The
types of regulations described above can change over time in both scope and intensity, may have adverse effects on midstream energy
companies and may be implemented in unforeseen manners on an “emergency” basis in response to catastrophes or other
events.
Affiliated
Party Risk. Certain midstream energy companies are dependent on their parents or sponsors for a majority of their revenues.
Any failure by a midstream energy company’s parents or sponsors to satisfy their payments or obligations would impact the
midstream energy company’s revenues and cash flows and ability to make distributions. Moreover, the terms of a midstream
energy company’s transactions with its parent or sponsor are typically not arrived at on an arm’s-length basis and
may not be as favorable to the midstream energy company as a transaction with a non-affiliate.
Catastrophe
Risk. The operations of midstream energy companies are subject to many hazards inherent in the exploration for, and development,
production, gathering, transportation, processing, storage, refining, distribution, mining or marketing of, coal, natural gas,
natural gas liquids, crude oil, refined petroleum products or other hydrocarbons, including: damage to production equipment, pipelines,
storage tanks or related equipment and surrounding properties or other adverse impacts resulting from hurricanes, tornadoes, floods,
fires, climate conditions, extreme weather events and other natural disasters and the responses thereto or acts of terrorism;
inadvertent damage from construction or other equipment; leaks of natural gas, natural gas liquids, crude oil, refined petroleum
products or other hydrocarbons; and fires and explosions. Since the September 11th terrorist attacks, the U.S. government
has issued warnings that energy assets, specifically U.S. pipeline infrastructure, may be targeted in future terrorist attacks.
These dangers give rise to risks of substantial losses as a result of loss or destruction of commodity reserves; damage to or
destruction of property, facilities and equipment; pollution and environmental damage; and personal injury or loss of life. Any
occurrence of such catastrophic events could bring about a limitation, suspension or discontinuation of the operations of midstream
energy companies. Midstream energy companies may not be fully insured against all risks inherent in their business operations
and therefore accidents and catastrophic events could adversely affect such companies’ operations, financial conditions
and ability to pay distributions to shareholders.
Legislation
Risk. There have been proposals in Congress to eliminate certain tax incentives widely used by oil and gas companies and to impose
new fees on certain energy producers. The elimination of such tax incentives and imposition of such fees could adversely affect the natural
sector generally or specific midstream energy companies in which the Fund invests.
Technology
Risk. Some midstream energy companies are focused on developing new technologies and are strongly influenced by technological
changes. Technology development efforts by midstream energy companies may not result in viable methods or products. Midstream
energy companies may bear high research and development costs, which can limit their ability to maintain operations during periods
of organizational growth or instability. Some midstream energy companies may be in the early stages of operations and may have
limited operating histories and smaller market capitalizations on average than companies in other sectors. As a result of these
and other factors, the value of investments in such midstream energy companies may be considerably more volatile than that in
more established segments of the economy.
Risks
Associated with an Investment in IPOs
Securities
purchased by the Fund in initial public offerings (“IPOs”) are often subject to the general risks associated with investments
in companies with small market capitalizations, and typically to a heightened degree. Securities issued in IPOs have no trading history,
and information about the companies may be available for very limited periods. In addition, the prices of securities sold in an IPO may
be highly volatile. At any particular time or from time to time, the Fund may not be able to invest in IPOs, or to invest to the extent
desired, because, for example, only a small portion (if any) of the securities being offered in an IPO may be available to the Fund.
In addition, under certain market conditions, a relatively small number of companies may issue securities in IPOs. The investment performance
of the Fund during periods when it is unable to invest significantly or at all in IPOs may be lower than during periods when the Fund
is able to do so. IPO securities may be volatile, and the Fund cannot predict whether investments in IPOs will be successful.
Risks
Associated with an Investment in PIPE Transactions
In
private investment in public equity (“PIPE”) transactions, the Fund purchases securities directly from a publicly traded
company in a private placement transaction, typically at a discount to the market price of the company’s common stock. Because
the sale of the securities is not registered under the Securities Act of 1933, as amended (the “Securities Act”), the securities
are “restricted” and cannot be immediately resold by the investors into the public markets. Accordingly, the company typically
agrees as part of the PIPE deal to register the restricted securities with the SEC. PIPE securities may be deemed illiquid.
Privately
Held Company Risk
Investing
in privately held companies involves risk. For example, privately held companies are not subject to SEC reporting requirements,
are not required to maintain their accounting records in accordance with generally accepted accounting principles and are not
required to maintain effective internal controls over financial reporting. As a result, the Investment Adviser may not have timely
or accurate information about the business, financial condition and results of operations of the privately held companies in which
the Fund invests. In addition, the securities of privately held companies are generally illiquid, and entail the risks described
under “—Liquidity Risk” below.
MLP
Risks
An
investment in MLP units involves some risks that differ from an investment in the common stock of a corporation. As compared to
common stockholders of a corporation, holders of MLP units have more limited control and limited rights to vote on matters affecting
the partnership. In addition, there are certain tax risks associated with an investment in MLP units and conflicts of interest
may exist between common unit holders and the general partner, including those arising from incentive distribution payments.
A
portion of the benefit the Fund derives from its investment in equity securities of MLPs is a result of MLPs generally being treated
as partnerships for U.S. federal income tax purposes. Partnerships generally do not pay U.S. federal income tax at the partnership
level. Rather, each partner of a partnership, in computing its U.S. federal income tax liability, will include its allocable share
of the partnership’s income, gains, losses, deductions and expenses. A change in current tax law, or a change in the business
of a given MLP, could result in an MLP being treated as a corporation for U.S. federal income tax purposes, which would result
in such MLP being required to pay U.S. federal income tax on its taxable income. The classification of an MLP as a corporation
for U.S. federal income tax purposes would have the effect of reducing the amount of cash available for distribution by the MLP
and causing any such distributions received by the Fund to be treated as dividend income to the extent of the MLP’s current
or accumulated earnings and profits. Thus, if any of the MLPs owned by the Fund were treated as corporations for U.S. federal
income tax purposes, the after-tax return to the Fund with respect to its investment in such MLPs would be materially reduced,
which could cause a decline in the value of the common shares. Recently, a number of MLPs have reduced, suspended or eliminated
their distributions. In addition, changes in tax laws or regulations, or future interpretations of such laws or regulations, could
adversely affect the Fund or the MLP investments in which the Fund invests.
To
the extent that the Fund invests in the equity securities of an MLP treated as a partnership under the Code, the Fund will be
a partner in such MLP. Accordingly, the Fund will be required to include in its taxable income the Fund’s allocable share
of the income, gains, losses, deductions and credits recognized by each such MLP, regardless of whether the MLP distributes cash
to the Fund. Historically, MLPs have been able to offset a significant portion of their income with tax deductions. The Fund will
recognize taxable income on its allocable share of an MLP’s income and gains that is not offset by the MLP’s tax deductions,
losses and credits. The portion, if any, of a distribution received by the Fund from an MLP that is offset by the MLP’s
tax deductions, losses or credits is essentially treated as a return of capital. However, those distributions will reduce the
Fund’s adjusted tax basis in the equity securities of the MLP, which will result in an increase in the amount of gain (or
decrease in the amount of loss) that will be recognized by the Fund for tax purposes upon the sale of any such equity securities
and may increase the amount of income or gain that will be recognized by the Fund upon subsequent distributions in respect of
such equity securities. The percentage of an MLP’s income and gains that is offset by tax deductions, losses and credits
will fluctuate over time for various reasons. For example, a significant slowdown in acquisition activity or capital spending
by MLPs held in the Fund’s portfolio could result in a reduction of accelerated depreciation generated by new acquisitions,
which may result in a decrease in the portion of the MLP’s distributions that is offset by tax deductions.
Because
of the Fund’s investments in equity securities of MLPs, the Fund’s earnings and profits may be calculated using accounting
methods that are different from those used for calculating taxable income. Because of these differences, the Fund may make distributions
out of its current or accumulated earnings and profits, which will be treated as dividends, in years in which the Fund’s
distributions exceed its taxable income.
Adverse
developments in the natural resources sector may result in MLPs seeking to restructure debt or file for bankruptcy. Limited partners
in such MLPs, such as the Fund, may owe taxes on debt that is forgiven in a bankruptcy or an out-of-court restructuring, as cancellation
of debt income, which creates a tax liability for investors without an associated cash distribution. While an MLP facing a debt restructuring
may seek to implement structures that would limit the tax liability associated with the debt restructuring, there can be no assurance
that such structures could be successfully implemented or would not have other adverse impacts on the Fund as an investor in the MLP.
Adverse
developments in the natural resources sector may result in MLPs seeking to restructure debt or file for bankruptcy. Limited partners
in such MLPs, such as the Fund, may owe taxes on debt that is forgiven in a bankruptcy or an out-of-court restructuring, as cancellation
of debt income, which creates a tax liability for investors without an associated cash distribution. While an MLP facing a debt
restructuring may seek to implement structures that would limit the tax liability associated with the debt restructuring, there
can be no assurance that such structures could be successfully implemented or would not have other adverse impacts on the Fund
as an investor in the MLP.
MLP
Subordinated Units. Master limited partnership subordinated units are not typically listed on an exchange or publicly traded.
Holders of MLP subordinated units are entitled to receive a distribution only after the MQD has been paid to holders of common
units, but prior to payment of incentive distributions to the general partner or managing member. Master limited partnership subordinated
units generally do not provide arrearage rights. Most MLP subordinated units are convertible into common units after the passage
of a specified period of time or upon the achievement by the MLP of specified financial goals.
General
Partner and Managing Member Interests. General partner and managing member interests are not publicly traded, though they
may be owned by publicly traded entities such as GP MLPs. A holder of general partner or managing member interests can be liable
in certain circumstances for amounts greater than the amount of the holder’s investment. In addition, while a general partner
or managing member’s incentive distribution rights can mean that general partners and managing members have higher distribution
growth prospects than their underlying MLPs, these incentive distribution payments would decline at a greater rate than the decline
rate in quarterly distributions to common or subordinated unit holders in the event of a reduction in the MLP’s quarterly
distribution. A general partner or managing member interest can be redeemed by the MLP if the MLP unit holders choose to remove
the general partner, typically by a supermajority vote of the limited partners or members.
Liquidity
Risk
The
investments made by the Fund may be illiquid and consequently the Fund may not be able to sell such investments at prices that
reflect the Investment Adviser’s assessment of their value, the amount paid for such investments by the Fund or at prices
approximating the value at which the Fund is carrying the securities on its books. Furthermore, the nature of the Fund’s
investments may require a long holding period prior to profitability.
Although
the equity securities of the companies in which the Fund invests generally trade on major stock exchanges, certain securities
may trade less frequently, particularly those with smaller capitalizations. Securities with limited trading volumes may display
volatile or erratic price movements. Investment of the Fund’s capital in securities that are less actively traded or over
time experience decreased trading volume may restrict the Fund’s ability to take advantage of other market opportunities.
Unregistered
securities are securities that cannot be sold publicly in the United States without registration under the Securities Act, unless an
exemption from such registration is available. 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 so that the Fund could 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
acquirer of the securities. The Fund would, in either case, bear the risks of any downward price fluctuation during that period. The
difficulties and delays associated with selling restricted securities could result in the Fund’s inability to realize a favorable
price upon disposition of such securities, and at times might make disposition of such securities impossible.
Equity
Securities Risk
Master
limited partnership common units and other equity securities of midstream energy companies can be affected by macroeconomic, political,
global and other factors affecting the stock market in general, expectations of interest rates, investor sentiment towards midstream
energy companies or the natural resources sector, changes in a particular company’s financial condition, or the unfavorable or
unanticipated poor performance of a particular midstream energy company. Prices of common units and other equity securities of individual
midstream energy companies can also be affected by fundamentals unique to the partnership or company, including earnings power and coverage
ratios.
Small-Cap
and Mid-Cap Company Risk
Investing in the securities
of companies with small or medium-sized market capitalizations (“small-cap” and “mid-cap” companies, respectively)
presents some particular investment risks. Small-cap and
mid-cap midstream energy companies may have limited product lines and markets, as well as shorter operating histories, less experienced
management and more limited financial resources than larger midstream energy companies and may be more vulnerable to adverse general
market or economic developments. Stocks of these midstream energy companies may be less liquid than those of larger midstream energy
companies and may experience greater price fluctuations than larger midstream energy companies. In addition, small-cap or mid-cap company
securities may not be widely followed by investors, which may result in reduced demand.
Risks
Associated with Canadian Royalty Trusts and Canadian E&P Companies
With respect to investments
in royalty trusts, potential growth may be sacrificed because revenue is passed on to a royalty trust’s unitholders (such as the
Fund), rather than reinvested in the business. Royalty trusts generally do not guarantee minimum distributions or even return of capital.
If the assets underlying a royalty trust do not perform as expected, the royalty trust may reduce or even eliminate distributions. The
declaration of such distributions generally depends upon various factors, including the operating performance and financial condition
of the royalty trust and general economic conditions.
Unlike
U.S. royalty trusts, Canadian royalty trusts and E&P companies may engage in the acquisition, development and production of
natural gas and crude oil to replace depleting reserves. They may have employees, issue new shares, borrow money, acquire additional
properties, and manage the resources themselves. As a result, Canadian royalty trusts and Canadian E&P companies are exposed
to commodity risk and production and reserve risk, as well as operating risk.
Canadian
Risk
The
Canadian economy is very dependent on the demand for, and supply and price of, natural resources. The Canadian market is relatively concentrated
in issuers involved in the production and distribution of natural resources. There is a risk that any changes in the natural resources
sector could have an adverse impact on the Canadian economy. The Canadian economy is dependent on the economy of the United States as
a key trading partner. Reduction in spending on Canadian products and services or changes in the U.S. economy may cause an impact in
the Canadian economy. The Canadian economy may be significantly affected by the U.S. economy, given that the United States is Canada’s
largest trading partner and foreign investor. Since the implementation of the North American Free Trade Agreement (“NAFTA”)
in 1994, total two-way merchandise trade between the United States and Canada has more than doubled. To further this relationship, all
three NAFTA countries entered into The Security and Prosperity Partnership of North America in March 2005, which addressed economic and
security related issues, and the US-Mexico-Canada Agreement, which replaced NAFTA effective July 1, 2020. These agreements may further
affect Canada’s dependency on the U.S. economy. Past periodic demands by the Province of Quebec for sovereignty have significantly
affected equity valuations and foreign currency movements in the Canadian market.
Non-U.S.
Securities Risk
Investing
in non-U.S. securities involves certain risks not involved in domestic investments, including, but not limited to: fluctuations
in foreign exchange rates; future foreign economic, financial, political and social developments; different legal systems; the
possible imposition of exchange controls or other foreign governmental laws or restrictions, including expropriation; lower trading
volume; much greater price volatility and illiquidity of certain non-U.S. securities markets; different trading and settlement
practices; less governmental supervision; changes in currency exchange rates; high and volatile rates of inflation; fluctuating
interest rates; less publicly available information; and different accounting, auditing and financial recordkeeping standards
and requirements.
Certain
non-U.S. countries, especially emerging market countries, historically have experienced, and may continue to experience, high rates of
inflation, high interest rates, exchange rate fluctuations, large amounts of external debt, balance of payments and trade difficulties
and extreme poverty and unemployment. Many of these countries are also characterized by political uncertainty and instability. The cost
of servicing external debt will generally be adversely affected by rising international interest rates because many external debt obligations
bear interest at rates that are adjusted based upon international interest rates. In addition, with respect to certain foreign countries,
there is a risk of: the possibility of expropriation or nationalization of assets; confiscatory taxation; difficulty in obtaining or
enforcing a court judgment; restrictions on currency repatriation; economic, political or social instability; and diplomatic developments
that could affect investments in those countries.
Changes in foreign currency
exchange rates may affect the value of securities denominated or quoted in currencies other than the U.S. dollar and the unrealized appreciation
or depreciation of investments. Currencies of certain countries may be volatile and therefore may affect the value of securities denominated
in such currencies, which means that the Fund’s net asset value or current income could decline as a result of changes in the exchange
rates between foreign currencies and the U.S. dollar. Certain investments in non-U.S. securities also may be subject to foreign withholding
taxes. Dividend income from non-U.S. corporations may not be eligible for the reduced U.S. income tax rate currently available for qualified
dividend income. These risks often are heightened for investments in smaller, emerging capital markets. In addition, individual foreign
economies may differ favorably or unfavorably from the U.S. economy in such respects as: growth of gross domestic product; rates of inflation;
capital reinvestment; resources; self-sufficiency; and balance of payments position.
Investing
in securities of issuers based in underdeveloped emerging markets entails all of the risks of investing in securities of non-U.S.
issuers to a heightened degree. “Emerging market countries” generally include every nation in the world except developed
countries, that is the United States, Canada, Japan, Australia, New Zealand and most countries located in Western Europe. These
heightened risks include: greater risks of expropriation, confiscatory taxation, nationalization, and less social, political and
economic stability; the smaller size of the market for such securities and a lower volume of trading, resulting in lack of liquidity
and an increase in price volatility; and certain national policies that may restrict the Fund’s investment opportunities
including restrictions on investing in issuers or industries deemed sensitive to relevant national interests. As a result of these
potential risks, the Investment Adviser may determine that, notwithstanding otherwise favorable investment criteria, it may not
be practicable or appropriate to invest in a particular country.
Interest
Rate Risk
Interest
rate risk is the risk that fixed rate securities such as preferred and debt securities will decline in value because of increases
in market interest rates. When market interest rates rise, the market value of such securities generally will fall. Longer-term
fixed rate securities are generally more sensitive to interest rate changes. Greater sensitivity to changes in interest rates
typically corresponds to increased volatility and increased risk. The Fund’s investment in such securities means that the
net asset value and market price of, and distributions on, common shares will tend to decline if the market interest rates rise.
Duration is a measure of sensitivity to changes in interest rates and reflects a variety of factors, including the maturity and
variability, if any, of the interest rate and the call potential of the security. For this reason, duration should not be confused
with maturity. If a portfolio has a duration of three years and interest rates increase by 1%, then, all else being equal, the
portfolio would decline in value by approximately 3%. These risks may be greater in the current market environment because while
interest rates were historically low in recent years, the Federal Reserve has been increasing the Federal Funds rate to address
inflation. Any interest rate increases in the future could cause the value of the Fund to decrease.
The
risk of loss on preferred securities due to rising market interest rates may be exacerbated by extension risk, which is the risk
of a preferred security’s expected maturity and duration lengthening, and therefore the interest rate risk that it presents
increasing, if and when market interest rates rise. Extension risk is caused by the fact that preferred securities are typically
callable by the issuer, and callable fixed rate securities are more likely to be called in a lower market interest rate environment
(because the issuer can refinance those securities at low current market rates); conversely, callable fixed rate securities become
less likely to be called if market interest rates rise. Because rising market interest rates reduce the likelihood that an issuer
will exercise its right to call a preferred security, such an interest rate rise causes the duration of that security, and therefore
its interest rate risk going forward, to increase, thus increasing, in an accelerating manner, the degree to which any further
interest rate rise will cause the security to lose value.
Additionally,
the costs associated with any leverage used by the Fund are likely to increase when interest rates rise. Accordingly, the market
price of the Fund’s common shares may decline when interest rates rise. The risk of interest rates rising is more pronounced
in the current market environment because of recent monetary policy measures and the low interest rate environment in recent years.
Interest
Rate Hedging Risk
The
Fund may from time-to-time hedge against interest rate risk resulting from the Fund’s portfolio holdings and any leverage
it may incur. Interest rate transactions the Fund may use for hedging purposes will expose the Fund to certain risks that differ
from the risks associated with its portfolio holdings. There are economic costs of hedging reflected in the price of interest
rate swaps, caps and similar techniques, the cost of which can be significant. In addition, the Fund’s success in using
hedging instruments is subject to the Investment Adviser’s ability to correctly predict changes in the relationships of
such hedging instruments to the Fund’s leverage risk, and there can be no assurance that the Investment Adviser’s
judgment in this respect will be accurate. Depending on the state of interest rates in general, the Fund’s use of interest
rate hedging instruments could enhance or decrease investment company taxable income available to the holders of its common shares.
To the extent there is a decline in interest rates, the value of interest rate swaps or caps could decline, and result in a decline
in the net asset value of the Fund’s common shares. In addition, if the counterparty to an interest rate swap or cap defaults,
the Fund would not be able to use the anticipated net receipts under the interest rate swap or cap to offset its cost of leverage.
Arbitrage
Risk
A
part of the Investment Adviser’s investment operations may involve spread positions between two or more securities, or derivatives
positions including commodities hedging positions, or a combination of the foregoing. The Investment Adviser’s trading operations
also may involve arbitraging between two securities or commodities, between the security, commodity and related options or derivatives
markets, between spot and futures or forward markets, and/or any combination of the above. To the extent the price relationships
between such positions remain constant, no gain or loss on the positions will occur. These offsetting positions entail substantial
risk that the price differential could change unfavorably, causing a loss to the position. Certain derivatives transactions have
economic characteristics similar to leverage.
Leverage
Risk
The
Fund may use leverage through the issuance of indebtedness or the issuance of preferred shares. The use of leverage magnifies
both the favorable and unfavorable effects of price movements in the investments made by the Fund. Insofar as the Fund employs
leverage in its investment operations, the Fund will be subject to increased risk of loss. In addition, the Fund will pay (and
the holders of common shares will bear) all costs and expenses relating to the issuance and ongoing maintenance of leverage, including
higher advisory fees. Similarly, any decline in the net asset value of the Fund’s investments will be borne entirely by
the holders of common shares. Therefore, if the market value of the Fund’s portfolio declines, the leverage will result
in a greater decrease in net asset value to the holders of common shares than if the Fund were not leveraged. This greater net
asset value decrease will also tend to cause a greater decline in the market price for the common shares.
Leverage
creates a greater risk of loss, as well as potential for more gain, for the Fund’s common shares than if leverage is not
used. Preferred shares or debt issued by the Fund would have complete priority upon distribution of assets over common shares.
Depending on the type of leverage involved, the Fund’s use of leverage may require the approval of its Board of Trustees.
The Fund expects to invest the net proceeds derived from any leveraging according to the investment objective and policies described
in this Prospectus. So long as the Fund’s portfolio is invested in securities that provide a higher rate of return than
the distribution rate or interest rate of the leverage instrument or other borrowing arrangements, after taking its related expenses
into consideration, the leverage will cause the Fund’s common shareholders to receive a higher rate of income than if it
were not leveraged. There is no assurance that any Fund will continue to utilize leverage or, if leverage is utilized, that it
will be successful in enhancing the level of the Fund’s total return. The net asset value of the Fund’s common shares
will be reduced by the fees and issuance costs of any leverage.
Leverage
creates risk for holders of the Fund’s common shares, including the likelihood of greater volatility of net asset value
and market price of the shares. Risk of fluctuations in distribution rates or interest rates on leverage instruments or other
borrowing arrangements may affect the return to the holders of the Fund’s common shares. To the extent the return on securities
purchased with funds received from the use of leverage exceeds the cost of leverage (including increased expenses to the Fund),
the Fund’s returns will be greater than if leverage had not been used. Conversely, if the return derived from such securities
is less than the cost of leverage (including increased expenses to the Fund), the Fund’s returns will be less than if leverage
had not been used, and therefore, the amount available for distribution to the Fund’s common shareholders will be reduced.
In the latter case, the Investment Adviser in its best judgment nevertheless may determine to maintain the Fund’s leveraged
position if it expects that the benefits to the Fund’s common shareholders of so doing will outweigh the current reduced
return. Under normal market conditions, the Fund anticipates that it will be able to invest the proceeds from leverage at a higher
rate than the costs of leverage (including increased expenses to the Fund), which would enhance returns to the Fund’s common
shareholders. The fees paid to the Investment Adviser will be calculated on the basis of the Fund’s Managed Assets, which
include proceeds from leverage instruments and other borrowings. During periods in which the Fund uses leverage, the investment
management fee payable to the Investment Adviser will be higher than if the Fund did not use a leveraged capital structure. Consequently,
the Fund and the Investment Adviser may have differing interests in determining whether to leverage the Fund’s assets. The
Board of Trustees will monitor the Fund’s use of leverage and this potential conflict.
Securities
Lending Risk
The
Fund may lend its portfolio securities (up to a maximum of one-third of Managed Assets) to banks or dealers which meet the creditworthiness
standards established by the Board of Trustees of the Fund. Securities lending is subject to the risk that loaned securities may
not be available to the Fund on a timely basis and the Fund may, therefore, lose the opportunity to sell the securities at a desirable
price. Any loss in the market price of securities loaned by the Fund that occurs during the term of the loan would be borne by
the Fund and would adversely affect the Fund’s performance. In addition, there may be delays in recovery, or no recovery,
of securities loaned or even a loss of rights in the collateral should the borrower of the securities fail financially while the
loan is outstanding. These risks may be greater for non-U.S. securities.
Non-Diversification
Risk
The
Fund is a non-diversified, closed-end management investment company under the 1940 Act. Accordingly, the Fund invests a greater portion
of its assets in a more limited number of issuers than a diversified fund. An investment in the Fund may present greater risk to an investor
than an investment in a diversified portfolio because changes in the financial condition or market assessment of a single issuer may
cause greater fluctuations in the value of the Fund’s shares.
Valuation
Risk
Market
prices may not be readily available for certain of the Fund’s investments, and the value of such investments will ordinarily
be determined based on fair valuations determined by the Investment Adviser pursuant to procedures adopted by the Board of Trustees
and the Investment Adviser as valuation designee. Restrictions on resale or the absence of a liquid secondary market may adversely
affect the Fund’s ability to determine such investment’s net asset value. The sale price of securities that are not
readily marketable may be lower or higher than the Fund’s most recent determination of their fair value.
In
addition, the value of these securities typically requires more reliance on the judgment of the Investment Adviser than that required
for securities for which there is an active trading market. Due to the difficulty in valuing these securities and the absence
of an active trading market for these investments, the Fund may not be able to realize these securities’ true value or may
have to delay their sale in order to do so.
When
determining the fair value of an asset, the Investment Adviser seeks to determine the price that the Fund might reasonably expect
to receive from the current sale of that asset in an arm’s length transaction. Fair value pricing, however, involves judgments
that are inherently subjective and inexact, since fair valuation procedures are used only when it is not possible to be sure what
value should be attributed to a particular asset or when an event will affect the market price of an asset and to what extent.
As a result, there can be no assurance that fair value pricing will reflect actual market value, and it is possible that the fair
value determined for a security will be materially different from the value that actually could be or is realized upon the sale
of that asset.
Portfolio
Turnover Risk
Portfolio
turnover rate is not considered a limiting factor in the Investment Adviser’s execution of investment decisions. The Fund
anticipates that its annual portfolio turnover rate may vary greatly from year to year. A higher portfolio turnover rate results
in correspondingly greater brokerage commissions and other transactional expenses that are borne by the Fund. High portfolio turnover
may result in an increased realization of net short-term capital gains or capital losses by the Fund.
Strategic
Transactions Risk
The
Fund’s use of Strategic Transactions may involve the purchase and sale of derivative instruments. The Fund may purchase
and sell exchange-listed and over the counter put and call options on securities, indices and other instruments, enter into forward
contracts, purchase and sell futures contracts and options thereon, enter into swap, cap, floor or collar transactions, purchase
structured investment products and enter into transactions that combine multiple derivative instruments. Strategic Transactions
often have risks similar to the securities underlying the Strategic Transactions. However, the use of Strategic Transactions also
involves risks that are different from, and possibly greater than, the risks associated with other portfolio investments. Strategic
Transactions may involve the use of highly specialized instruments that require investment techniques and risk analyses different
from those associated with other portfolio investments. The use of derivative instruments has risks, including the imperfect correlation
between the value of the derivative instruments and the underlying assets, the possible default of the counterparty to the transaction
or illiquidity of the derivative investments. Furthermore, the ability to successfully use these techniques depends on the Investment
Adviser’s ability to predict pertinent market movements, which cannot be assured. Thus, the use of Strategic Transactions
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, amounts paid by the Fund as
premiums and cash, or other assets held in margin accounts with respect to Strategic Transactions, are not otherwise available
to the Fund for investment purposes. It is possible that government regulation of various types of derivative instruments, including
regulations enacted pursuant to the Dodd-Frank Act, which was signed into law in July 2010, may impact the availability, liquidity
and cost of derivative instruments. There can be no assurance that such regulation will not have a material adverse effect on
the Fund or will not impair the ability of the Fund to implement certain Strategic Transactions or to achieve their investment
objectives. Although the Investment Adviser seeks to use Strategic Transactions to further the Fund’s investment objective,
no assurance can be given that the use of Strategic Transactions will achieve this result.
Convertible
Instrument Risk
A convertible instrument
is a bond, debenture, note, preferred stock or other security that may be converted into or exchanged for a prescribed number of common
shares of the same or a different issuer within a particular period of time at a specified price or formula. Convertible debt instruments
have characteristics of both fixed income and equity investments. Convertible instruments are subject both to the stock market risk associated
with equity securities and to the credit and interest rate risks associated with fixed-income securities. As the market price of the
equity security underlying a convertible instrument falls, the convertible instrument tends to trade on the basis of its yield and other
fixed-income characteristics. As the market price of such equity security rises, the convertible security tends to trade on the basis
of its equity conversion features. Some convertible instruments have varying conversion values. Convertible instruments are typically
issued at prices that represent a premium to their conversion value. Accordingly, the value of a convertible instrument increases (or
decreases) as the price of the underlying equity security increases (or decreases). If a convertible instrument held by the Fund is called
for redemption, the Fund will be required to permit the issuer to redeem the instrument, or convert it into the underlying stock, and
will hold the stock to the extent the Investment Adviser determines that such equity investment is consistent with the investment objective
of that Fund.
Counterparty
Risk
The
Fund will be subject to credit risk with respect to the counterparties to the derivative contracts entered into by the Fund. 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 bankruptcy or other reorganization
proceedings. The Fund may obtain only a limited recovery, or may obtain no recovery, in such circumstances.
Short
Sales Risk
Short
selling involves selling securities which may or may not be owned and borrowing the same securities for delivery to the purchaser,
with an obligation to replace the borrowed securities at a later date. Short selling allows the short seller to profit from declines
in market prices to the extent such declines exceed the transaction costs and the costs of borrowing the securities. A naked short
sale creates the risk of an unlimited loss because the price of the underlying security could theoretically increase without limit,
thus increasing the cost of buying those securities to cover the short position. There can be no assurance that the securities
necessary to cover a short position will be available for purchase. Purchasing securities to close out the short position can
itself cause the price of the securities to rise, further exacerbating the loss.
The
Fund’s obligation to replace the borrowed security will be secured by collateral deposited with the broker-dealer, usually
cash, U.S. government securities or other liquid securities similar to those borrowed. The Fund also will be required to segregate
similar collateral to the extent, if any, necessary so that the value of both collateral amounts in the aggregate is at all times
equal to at least 100% of the current market value of the security sold short. Depending on arrangements made with the broker-dealer
from which the Fund borrowed the security regarding repaying amounts received by the Fund on such security, the Fund may not receive
any payments (including interest) on the Fund’s collateral deposited with such broker-dealer.
Inflation
Risk
Inflation
risk is the risk that the value of assets or income from investment will be worth less in the future as inflation decreases the
value of money. As inflation increases, the real value of the Fund’s common shares and distributions can decline. Inflation
risk is more pronounced in the current market environment because of recent monetary policy measures and the low interest rate
environment in recent years.
Deflation
Risk
Deflation
risk is the risk that prices throughout the economy decline over time, which may have an adverse effect on the market valuation
of companies, their assets and their revenues. In addition, deflation may have an adverse effect on the creditworthiness of issuers
and may make issuer default more likely, which may result in a decline in the value of the Fund’s portfolio.
Debt
Securities Risk
Debt
securities are subject to many of the risks described elsewhere in this section. In addition, they are subject to credit risk,
prepayment risk and, depending on their quality, other special risks.
Credit
Risk. An issuer of a debt security may be unable to make interest payments and repay principal. A Fund could lose money if
the issuer of a debt obligation is, or is perceived to be, unable or unwilling to make timely principal and/or interest payments,
or to otherwise honor its obligations. The downgrade of a security may further decrease its value.
Prepayment
Risk. Certain debt instruments, particularly below investment grade securities, may contain call or redemption provisions
which would allow the issuer of the debt instrument to prepay principal prior to the debt instrument’s stated maturity.
This is also sometimes known as prepayment risk. Prepayment risk is greater during a falling interest rate environment as issuers
can reduce their cost of capital by refinancing higher yielding debt instruments with lower yielding debt instruments. An issuer
may also elect to refinance its debt instruments with lower yielding debt instruments if the credit standing of the issuer improves.
To the extent debt securities in the Fund’s portfolio are called or redeemed, that Fund may be forced to reinvest in lower
yielding securities.
Preferred
Stock Risk
Preferred
stocks combine some of the characteristics of both common stocks and debt securities. Preferred stocks generally pay a fixed rate of
return and are sold on the basis of current yield, like debt securities. However, because they are equity securities, preferred stock
provides equity ownership of a company, and the income is paid in the form of distributions. Preferred stocks typically have a yield
advantage over common stocks as well as comparably rated fixed income investments. Preferred stocks are typically subordinated to bonds
and other debt instruments in a company’s capital structure, in terms of priority to corporate income, and therefore will be subject
to greater credit risk than those debt instruments. Unlike interest payments on debt securities, preferred stock distributions are payable
only if declared by the issuer’s board of directors. Preferred stocks also may be subject to optional or mandatory redemption provisions.
Convertible preferred stocks have risks similar to convertible securities as described above in “—Convertible Instrument
Risk.”
Below
Investment Grade Securities (Junk Bonds) Risk
Below
investment grade and unrated debt securities generally pay a premium above the yields of U.S. government securities or debt securities
of investment grade issuers because they are subject to greater risks than those securities. These risks, which reflect their
speculative character, include the following: greater yield and price volatility; greater credit risk and risk of default; potentially
greater sensitivity to general economic or industry conditions; potential lack of attractive resale opportunities (illiquidity);
and additional expenses to seek recovery from issuers who default. Debt securities rated below investment grade are commonly known
as “junk bonds” and are regarded as predominantly speculative with respect to the issuer’s capacity to pay interest
and repay principal in accordance with the terms of the obligations and involve major risk exposure to adverse conditions.
The
prices of these below investment grade and unrated debt securities are more sensitive to negative developments, such as a decline in
the issuer’s revenues, downturns in profitability in the natural resources sector or a general economic downturn, than are the
prices of higher-grade securities. Below investment grade and unrated debt securities tend to be less liquid than investment grade securities
and the market for below investment grade and unrated debt securities could contract further under adverse market or economic conditions.
In such a scenario, it may be more difficult for the Fund to sell these securities in a timely manner or for as high a price as could
be realized if such securities were more widely traded. The market value of below investment grade and unrated debt securities may be
more volatile than the market value of investment grade securities and generally tends to reflect the market’s perception of the
creditworthiness of the issuer and short-term market developments to a greater extent than investment grade securities, which primarily
reflect fluctuations in general levels of interest rates. In the event of a default by a below investment grade or unrated debt security
held in the Fund’s portfolio in the payment of principal or interest, the Fund may incur additional expense to the extent the Fund
is required to seek recovery of such principal or interest.
Other
Investment Companies Risk
Investments in investment
company securities are subject to the risks of the purchased investment company’s portfolio securities. In addition, Fund shareholders
will bear not only their proportionate share of the expenses of the Fund (including operating expenses and the fees of the investment
adviser), but also will indirectly bear similar expenses of the underlying investment company in which the Fund invests. Certain investments
company securities, including other closed-end funds and ETFs, may trade at market prices that differ from the net asset value of the
particular fund. In addition, the securities of other investment companies may also be leveraged and will therefore be subject to the
same leverage risks described herein. As described in the section entitled “—Leverage Risk,” the net asset value and
market value of leveraged shares will be more volatile and the yield to stockholders 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 and the value of such
investments will be dependent upon the investment and research abilities of persons other than the Investment Adviser.
ETN
and ETF Risk
An
exchange-traded note (“ETN”) or exchange-traded fund (“ETF”) that is based on a specific index may not
be able to replicate and maintain exactly the composition and relative weighting of securities in the index. An ETN or ETF also
incurs certain expenses not incurred by its applicable index. The market value of an ETN or ETF share may differ from its net
asset value; the share may trade at a premium or discount to its net asset value, which may be due to, among other things, differences
in the supply and demand in the market for the share and the supply and demand in the market for the underlying assets of the
ETN or ETF. In addition, certain securities that are part of the index tracked by an ETN or ETF may, at times, be unavailable,
which may impede the ETN’s or ETF’s ability to track its index. An ETF that uses leverage can, at times, be relatively
illiquid, which can affect whether its share price approximates net asset value. As a result of using leverage, an ETF is subject
to the risk of failure in the futures and options markets it uses to obtain leverage and the risk that a counterparty will default
on its obligations, which can result in a loss to the Fund. If the Fund invests in ETFs, the Fund’s shareholders will bear
not only their proportionate share of the expenses of the Fund, but also will indirectly bear similar expenses of the underlying
ETF. Although an ETN is a debt security, it is unlike a typical bond, in that there are no periodic interest payments and principal
is not protected.
Investment
Management Risk
The
Fund’s portfolio is subject to investment management risk because it will be actively managed. The Investment Adviser will
apply investment techniques and risk analyses in making investment decisions for the Fund, but there can be no guarantee that
they will produce the desired results.
The
decisions with respect to the management of the Fund are made exclusively by the Investment Adviser, subject to the oversight
of the Board of Trustees. Investors have no right or power to take part in the management of the Fund. The Investment Adviser
also is responsible for all of the trading and investment decisions of the Fund. In the event of the withdrawal or bankruptcy
of the Investment Adviser, generally the affairs of the Fund will be wound-up, and its assets will be liquidated.
Dependence
on Key Personnel of the Investment Adviser
The
Fund is dependent upon the Investment Adviser’s key personnel for its future success and upon their access to certain individuals
and investments in the natural resources sector. In particular, the Fund will depend on the diligence, skill and network of business
contacts of the personnel of the Investment Adviser and its portfolio managers, who will evaluate, negotiate, structure, close and monitor
the Fund’s investments. The portfolio managers have equity interests and other financial incentives to remain with the firm. The
Fund will also depend on the senior management of the Investment Adviser. The departure of a member or members of the Investment Adviser’s
senior management could have a material adverse effect on the Fund’s ability to achieve its investment objective. In addition,
the Fund can offer no assurance that the Investment Adviser will remain its investment adviser, or that the Fund will continue to have
access to the Investment Adviser’s natural resources sector contacts and deal flow.
Conflicts
of Interest with the Investment Adviser
Conflicts
of interest may arise because the Investment Adviser and its affiliates generally will be carrying on substantial investment activities
for other clients, including, but not limited to, other client accounts and funds managed or advised by the Investment Adviser,
in which the Fund will have no interest. The Investment Adviser or its affiliates may have financial incentives to favor certain
of such accounts over the Fund. Any of their proprietary accounts and other customer accounts may compete with the Fund for specific
trades. The Investment Adviser or its affiliates may buy or sell securities for the Fund which differ from securities bought or
sold for other accounts and customers, even though their investment objectives and policies may be similar to the Fund’s.
Situations may occur when the Fund could be disadvantaged because of the investment activities conducted by the Investment Adviser
and its affiliates for their other accounts. Such situations may be based on, among other things, legal or internal restrictions
on the combined size of positions that may be taken for the Fund and the other accounts, limiting the size of the Fund’s
position, or the difficulty of liquidating an investment for the Fund and the other accounts where the market cannot absorb the
sale of the combined position. Notwithstanding these potential conflicts of interest, the Fund’s Board of Trustees and officers
have a fiduciary obligation to act in the Fund’s best interest.
The
Fund’s investment opportunities may be limited by affiliations of the Investment Adviser or its affiliates with midstream
energy companies. In addition, to the extent that the Investment Adviser sources and structures private investments in midstream
energy companies, certain employees of the Investment Adviser may become aware of actions planned by midstream energy companies,
such as acquisitions that may not be announced to the public. It is possible that the Fund could be precluded from investing in
a company about which the Investment Adviser has material non-public information; however, it is the Investment Adviser’s
intention to ensure that any material non-public information available to certain of the Investment Adviser’s employees
not be shared with those employees responsible for the purchase and sale of publicly traded securities.
The
Investment Adviser manages several other client accounts and funds. Some of these other client accounts and funds have investment
objectives that are similar to or overlap with the Fund. Furthermore, the Investment Adviser may at some time in the future manage
additional client accounts and investment funds with the same investment objective as the Fund.
The
Investment Adviser and its affiliates generally will be carrying on substantial investment activities for other clients’
accounts and funds in which the Fund will have no interest. Investment decisions for the Fund are made independently from those
of such other clients; however, from time to time, the same investment decision may be made for more than one fund or account.
When two or more clients advised by the Investment Adviser or its affiliates seek to purchase or sell the same publicly traded
securities, the securities actually purchased or sold will be allocated among the clients on a good faith equitable basis by the
Investment Adviser in its discretion in accordance with the clients’ various investment objectives and procedures adopted
by the Investment Adviser and approved by the Fund’s Board of Trustees. In some cases, this system may adversely affect
the price or size of the position the Fund may obtain.
The
Fund’s investment opportunities may be limited by investment opportunities that the Investment Adviser is evaluating for
other clients’ accounts and funds. To the extent a potential investment is appropriate for the Fund and one or more of the
Investment Adviser’s other client accounts or funds, the Investment Adviser will need to fairly allocate that investment
to the Fund or another client account or fund, or both, depending on its allocation procedures and applicable law related to combined
or joint transactions. There may occur an attractive limited investment opportunity suitable for the Fund in which the Fund cannot
invest under the particular allocation method being used for that investment.
Under
the 1940 Act, the Fund and such other client accounts or funds managed or advised by the Investment Adviser may be precluded from
co-investing in certain private placements of securities. Except as permitted by law or positions of the staff of the SEC, the
Investment Adviser will not co-invest its other clients’ assets in private transactions in which the Fund invests. To the
extent the Fund is precluded from co-investing, the Investment Adviser will allocate private investment opportunities among its
clients, including but not limited to the Fund and its other client accounts and funds, based on allocation policies that take
into account several suitability factors, including the size of the investment opportunity, the amount each client has available
for investment and the client’s investment objectives. These allocation policies may result in the allocation of investment
opportunities to another client account or fund managed or advised by the Investment Adviser rather than to the Fund.
The
management fees payable to the Investment Adviser are based on the value of the Fund’s Managed Assets, as periodically determined.
A portion of the Fund’s Managed Assets may be illiquid securities acquired in private transactions for which market quotations
will not be readily available. Although the Fund and the Investment Adviser as valuation designee have adopted valuation procedures
designed to determine valuations of illiquid securities in a manner that reflects their fair value, there typically is a range
of possible prices that may be established for each individual security. See “—Valuation Risk.”
Skadden,
Arps, Slate, Meagher & Flom LLP, counsel to the Fund, also represents the Investment Adviser. Such counsel does not purport
to represent the separate interests of the investors and has assumed no obligation to do so. Accordingly, the investors have not
had the benefit of independent counsel in the structuring of the Fund or determination of the relative interests, rights and obligations
of the Investment Adviser and the investors.
Reliance
on Service Providers
The
Fund relies upon service providers to perform certain functions, which may include functions that are integral to the operations
and financial performance of the Fund. Fees and expenses of these service providers are borne by the Fund, and therefore indirectly
by common shareholders. Failure by any service provider to carry out its obligations to the Fund in accordance with the terms
of its appointment, to exercise due care and skill, or to perform its obligations to the Fund at all as a result of insolvency,
bankruptcy or other causes could have a material adverse effect on the Fund’s performance and ability to achieve its investment
objective. The termination of the Fund’s relationship with any service provider, or any delay in appointing a replacement
for such service provider, could materially disrupt the business of that Fund and could have a material adverse effect on the
Fund’s performance and ability to achieve its investment objective.
Technology
Risk
As
the use of Internet technology has become more prevalent, the Fund and its service providers and markets generally have become
more susceptible to potential operational risks related to intentional and unintentional events that may cause the Fund or a service
provider to lose proprietary information, suffer data corruption or lose operational capacity. There can be no guarantee that
any risk management systems established by the Fund, its service providers, or issuers of the securities in which the Fund invests
to reduce technology and cyber security risks will succeed, and the Fund cannot control such systems put in place by service providers,
issuers or other third parties whose operations may affect the Fund.
Cyber
Security Risk
As
the use of technology has become more prevalent in the course of business, the Fund has become potentially more susceptible to operational
and informational security risks resulting from breaches in cyber security. A breach in cyber security refers to both intentional and
unintentional cyber events that may, among other things, cause the Fund to lose proprietary information, suffer data corruption and/or
destruction, lose operational capacity, result in the unauthorized release or other misuse of confidential information, or otherwise
disrupt normal business operations. In addition, cyber security breaches involving the Fund’s third-party service providers (including
but not limited to advisers, administrators, transfer agents, custodians, distributors and other third parties), trading counterparties
or issuers in which the Fund invests in can also subject the Fund to many of the same risks associated with direct cyber security breaches.
Like with operational risk in general, the Fund has established risk management systems and business continuity plans designed to reduce
the risks associated with cyber security. However, there are inherent limitations in these plans and systems, including that certain
risks may not have been identified, in large part because different or unknown threats may emerge in the future. As such, there is no
guarantee that such efforts will succeed, especially because the Fund does not directly control the cyber security systems of issuers
in which the Fund invests, trading counterparties or third-party service providers to the Fund. There is also a risk that cyber security
breaches may not be detected. The Fund and its shareholders could be negatively impacted as a result.
Tax
Risks
The
Fund has elected to be treated, and intends to continue to qualify to be treated, as a RIC under section 851 of the Code. In order
to continue to qualify as a RIC, the Fund must, among other things, satisfy income, asset diversification and distribution requirements.
As long as the Fund so qualifies, it will generally not be subject to U.S. federal income tax to the extent that it distributes
annually the Fund taxable income and gains. There can be no assurance that the Fund will qualify as a RIC for any given year.
Distributions
Risk
The
Fund’s net investment income can vary significantly over time; however, the Fund seeks to maintain a more stable monthly distribution
per share. The distributions paid by the Fund for any particular month may be more or less than the amount of net investment income for
that monthly period. The Fund may distribute more than the entire amount of the net investment income earned in a particular period,
in which case all or a portion of a distribution may be a return of capital. The Fund's distributions have historically included,
and may in the future include, a significant portion of return of capital. For the fiscal year ended November 30, 2022, the Fund's distributions
were comprised of approximately 28% ordinary income and 72% return of capital. Accordingly, shareholders should not assume that the source
of a distribution from the Fund is net income or profit, and the Fund's distributions should not be used as a measure of performance
or confused with yield or income.
Return
of capital is the return of a portion of the shareholder’s original investment up to the amount of the Common Shareholder’s
tax basis in their Common Shares, which would reduce such tax basis. Although a return of capital may not be taxable, it will generally
increase the Common Shareholder’s potential gain, or reduce the Common Shareholder’s potential loss, on any subsequent sale
or other disposition of Common Shares. In any given year, there can be no guarantee the Fund’s investment returns will exceed the
amount of distributions. To the extent the amount of distributions paid to shareholders in cash exceeds the total net investment returns
of the Fund, the assets of the Fund will decline, which may have the effect of increasing the Fund’s expense ratio. In addition,
in order to make such distributions, the Fund may have to sell a portion of its investment portfolio at a time when independent investment
judgment might not dictate such action. Shareholders should not assume that the source of a distribution from the Fund is net income
or profit, and the Fund’s distributions should not be used as a measure of performance or confused with yield or income.
Market
Discount from Net Asset Value
Shares
of closed-end investment companies frequently trade at a discount from their net asset value, which is a risk separate and distinct
from the risk that the Fund’s net asset value could decrease as a result of its investment activities. Although the value
of the Fund’s net assets is generally considered by market participants in determining whether to purchase or sell common
shares, whether investors will realize gains or losses upon the sale of common shares will depend entirely upon whether the market
price of common shares at the time of sale is above or below the investor’s purchase price for common shares. Because the
market price of common shares will be determined by factors such as net asset value, distribution and distribution levels (which
are dependent, in part, on expenses), supply of and demand for common shares, stability of distributions or distributions, trading
volume of common shares, general market and economic conditions and other factors beyond the control of the Fund, the Fund cannot
predict whether common shares will trade at, below or above net asset value or at, below or above the initial public offering
price. Common shares of the Fund are designed primarily for long-term investors; investors in common shares should not view their
Fund as a vehicle for trading purposes.
Recent
Market, Economic and Social Developments Risk
Periods
of market volatility remain, and may continue to occur in the future, in response to various political, social and economic events
both within and outside of the United States. These conditions have resulted in, and in many cases continue to result in, greater
price volatility, less liquidity, widening credit spreads and a lack of price transparency, with many securities remaining illiquid
and of uncertain value. Such market conditions may adversely affect the Fund, including by making valuation of some of the Fund’s
securities uncertain and/or result in sudden and significant valuation increases or declines in the Fund’s holdings. If
there is a significant decline in the value of the Fund’s portfolio, this may impact the asset coverage levels for the Fund’s
outstanding leverage.
Risks
resulting from any future debt or other economic crisis could also have a detrimental impact on the global economic recovery,
the financial condition of financial institutions and the Fund’s business, financial condition and results of operation.
Market and economic disruptions have affected, and may in the future affect, consumer confidence levels and spending, personal
bankruptcy rates, levels of incurrence and default on consumer debt and home prices, among other factors. To the extent uncertainty
regarding the U.S. or global economy negatively impacts consumer confidence and consumer credit factors, the Fund’s business,
financial condition and results of operations could be significantly and adversely affected. Downgrades to the credit ratings
of major banks could result in increased borrowing costs for such banks and negatively affect the broader economy. Moreover, Federal
Reserve policy, including with respect to certain interest rates, may also adversely affect the value, volatility and liquidity
of dividend- and interest-paying securities. Market volatility, rising interest rates and/or unfavorable economic conditions could
impair the Fund’s ability to achieve its investment objective.
The
occurrence of events similar to those in recent years, such as localized wars, instability, new and ongoing pandemics (such as
COVID-19), epidemics or outbreaks of infectious diseases in certain parts of the world, natural/environmental disasters, terrorist
attacks in the U.S. and around the world, social and political discord, debt crises sovereign debt downgrades, increasingly strained
relations between the U.S. and a number of foreign countries, new and continued political unrest in various countries, the exit
or potential exit of one or more countries from the EU or the EMU, continued changes in the balance of political power among and
within the branches of the U.S. government, government shutdowns, among others, may result in market volatility, may have long
term effects on the U.S. and worldwide financial markets, and may cause further economic uncertainties in the U.S. and worldwide.
In
particular, the consequences of the Russian military invasion of Ukraine, including comprehensive international sanctions, the
impact on inflation and increased disruption to supply chains and energy resources may impact our portfolio companies, result
in an economic downturn or recession either globally or locally in the U.S. or other economies, reduce business activity, spawn
additional conflicts (whether in the form of traditional military action, reignited “cold” wars or in the form of
virtual warfare such as cyberattacks) with similar and perhaps wider ranging impacts and consequences and have an adverse impact
on the Fund’s returns and net asset value. We have no way to predict the duration or outcome of the situation, as the conflict
and government reactions are rapidly developing and beyond our control. Prolonged unrest, military activities, or broad-based
sanctions could have a material adverse effect on our portfolio companies. Such consequences also may increase our funding cost
or limit our access to the capital markets.
The
current political climate has intensified concerns about a potential trade war between China and the U.S., as each country has
imposed tariffs on the other country’s products. These actions may trigger a significant reduction in international trade,
the oversupply of certain manufactured goods, substantial price reductions of goods and possible failure of individual companies
and/or large segments of China’s export industry, which could have a negative impact on our performance. U.S. companies
that source material and goods from China and those that make large amounts of sales in China would be particularly vulnerable
to an escalation of trade tensions. Uncertainty regarding the outcome of the trade tensions and the potential for a trade war
could cause the U.S. dollar to decline against safe haven currencies, such as the Japanese yen and the euro. Events such as these
and their consequences are difficult to predict and it is unclear whether further tariffs may be imposed or other escalating actions
may be taken in the future. Any of these effects could have a material adverse effect on the business, financial condition and
results of operations of the Fund.
Legislation
and Regulatory Risks
At
any time after the date of this Prospectus, legislation may be enacted that could negatively affect the companies in which the
Fund invests. Changing approaches to regulation may also have a negative impact on companies in which the Fund invests. In addition,
legislation or regulation may change the way in which the Fund is regulated. There can be no assurance that future legislation,
regulation or deregulation will not have a material adverse effect on the Fund or will not impair the ability of the Fund to achieve
its investment objective.
The
Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), which was signed into law in July
2010, has resulted in significant revisions to the U.S. financial regulatory framework. The Dodd-Frank Act covers a broad range
of topics, including, among many others: a reorganization of federal financial regulators; the creation of a process designed
to ensure financial system stability and the resolution of potentially insolvent financial firms; the enactment of new rules for
derivatives trading; the creation of a consumer financial protection watchdog; the registration and regulation of managers of
private funds; the regulation of rating agencies; and the enactment of new federal requirements for residential mortgage loans.
The regulation of various types of derivative instruments pursuant to the Dodd-Frank Act may adversely affect the Fund or its
counterparties.
The
SEC and its staff are also reportedly engaged in various initiatives and reviews that seek to improve and modernize the regulatory
structure governing investment companies. These efforts appear to be focused on risk identification and controls in various areas,
including embedded leverage through the use of derivatives and other trading practices, cybersecurity, liquidity, enhanced regulatory
and public reporting requirements and the evaluation of systemic risks. Any new rules, guidance or regulatory initiatives resulting
from these efforts could increase the Fund’s expenses and impact its returns to shareholders or, in the extreme case, impact
or limit the Fund’s use of various portfolio management strategies or techniques and adversely impact the Fund.
Changes
enacted by the current presidential administration could significantly impact the regulation of financial markets in the United
States. Areas subject to potential change, amendment or repeal include trade and foreign policy, corporate tax rates, energy and
infrastructure policies, the environment and sustainability, criminal and social justice initiatives, immigration, healthcare
and the oversight of certain federal financial regulatory agencies and the Federal Reserve. Certain of these changes can, and
have, been effectuated through executive order. For example, the current administration has taken steps to address the COVID-19
pandemic, rejoin the Paris climate accord of 2015, cancel the Keystone XL pipeline, change immigration enforcement priorities
and increase spending on clean energy and infrastructure. Other potential changes that could be pursued by the current presidential
administration could include an increase in the corporate income tax rate and changes to regulatory enforcement priorities. It
is not possible to predict which, if any, of these actions will be taken or, if taken, their effect on the economy, securities
markets or the financial stability of the United States. The Fund may be affected by governmental action in ways that are not
foreseeable, and there is a possibility that such actions could have a significant adverse effect on the Fund and its ability
to achieve its investment objective.
Although
the Fund cannot predict the impact, if any, of these changes to the Fund’s business, they could adversely affect the Fund’s
business, financial condition, operating results and cash flows. Until the Fund knows what policy changes are made and how those
changes impact the Fund’s business and the business of the Fund’s competitors over the long term, the Fund will not
know if, overall, the Fund will benefit from them or be negatively affected by them. The Investment Adviser intends to monitor
developments and seeks to manage the Fund’s portfolio in a manner consistent with achieving the Fund’s investment
objectives, but there can be no assurance that it will be successful in doing so.
LIBOR
Discontinuation Risk
In
July 2017, the head of the United Kingdom Financial Conduct Authority announced the desire to phase out the use of LIBOR by the
end of 2021. LIBOR can no longer be used to calculate new deals as of December 31, 2021. Since December 31, 2021, all sterling,
euro, Swiss franc and Japanese yen LIBOR settings and the 1-week and 2-month U.S. dollar LIBOR settings have ceased to be published
or are no longer representative, and since June 30, 2023, the overnight, 1-month, 3-month, 6-month and 12-month U.S. dollar LIBOR
settings ceased to be published or are no longer representative.
On
June 22, 2017, the Alternative Reference Rates Committee (the “ARRC”) convened by the Federal Reserve and the Federal
Reserve Bank of New York identified the Secured Overnight Financing Rate (“SOFR”) as the rate that, in the consensus
view of the ARRC, represented best practice for use in certain new U.S. dollar derivatives and other financial contracts. SOFR
is a broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury securities, and has been published
by the Federal Reserve Bank of New York since April 2018. The Federal Reserve Bank of New York has also been publishing historical
indicative Secured Overnight Financing Rates from 2014. Investors should not rely on any historical changes or trends in SOFR
as an indicator of future changes in SOFR.
The
composition and characteristics of SOFR are not the same as those of LIBOR, and SOFR is fundamentally different from LIBOR for
two key reasons. First, SOFR is a secured rate, while LIBOR is an unsecured rate. Second, SOFR is an overnight rate, while LIBOR
is a forward-looking rate that represents interbank funding over different maturities (e.g., three months). As a result,
there can be no assurance that SOFR will perform in the same way as LIBOR would have at any time, including, without limitation,
as a result of changes in interest and yield rates in the market, market volatility or global or regional economic, financial,
political, regulatory, judicial or other events. Additionally, there can be no guarantee that SOFR will gain market acceptance
as a replacement for U.S. dollar LIBOR. Any failure of SOFR to gain market acceptance could negatively affect financial markets
in general and present heightened risks, including with respect to the Fund’s investments. As a result of this uncertainty
and developments relating to the transition process, the Fund and its investments may be adversely affected.
Terrorism,
Market Disruption, and Catastrophe Risk
Terrorist
attacks, catastrophes, pandemics and other geopolitical events have led to, and may in the future lead to, increased short-term
market volatility and may have long-term effects on U.S. and world economies and markets. Global political and economic instability
could affect the operations of companies in which the Fund invests in unpredictable ways, including through disruptions of natural
resources supplies and markets and the resulting volatility in commodity prices. The operation of infrastructure assets in which
the Fund invests is subject to many hazards including damage to equipment and surrounding properties caused by hurricanes, tornadoes,
floods, fires and other natural disasters or by acts of terrorism; inadvertent damage from construction or other equipment; leaks;
and fires and explosions. The U.S. government has issued warnings that infrastructure assets may be future targets of terrorist
activities. In addition, changes in the insurance markets have made certain types of insurance more difficult, if not impossible,
to obtain and have generally resulted in increased premium costs.
Not
a Complete Investment Program
The
Fund is intended for investors seeking a high level of total return with an emphasis on current income. The Fund is not meant
to provide a vehicle for those who wish to exploit short-term swings in the stock market and is intended for long-term investors.
An investment in shares of the Fund should not be considered a complete investment program. Each shareholder should take into
account their Fund’s investment objective as well as the shareholder’s other investments when considering an investment
in the Fund.
Risks
Associated with Offerings of Additional Common Shares
The
voting power of current Common Shareholders will be diluted to the extent that current Common Shareholders do not purchase Common
Shares in any future offerings of Common Shares or do not purchase sufficient Common Shares to maintain their percentage interest.
If the Fund is unable to invest the proceeds of such offering as intended, the Fund’s per Common Share distribution may
decrease and the Fund may not participate in market advances to the same extent as if such proceeds were fully invested as planned.
If the Fund sells Common Shares at a price below net asset value per share pursuant to the consent of Common Shareholders, shareholders
will experience a dilution of the aggregate net asset value per Common Share because the sale price will be less than the Fund’s
then-current net asset value per Common Share. Similarly, were the expenses of the offering to exceed the amount by which the
sale price exceeded the Fund’s then current net asset value per Common Share, shareholders would experience a dilution of
the aggregate net asset value per Common Share. This dilution will be experienced by all shareholders, irrespective of whether
they purchase Common Shares in any such offering. See “Description of Shares—Common Shares—Issuance of Additional
Common Shares.”
Additional
Risks of Rights
There
are additional risks associated with an offering of Rights. Shareholders who do not exercise their Rights may, at the completion
of such an offering, own a smaller proportional interest in the Fund than if they exercised their Rights. As a result of such
an offering, a shareholder may experience dilution in net asset value per share if the subscription price per share is below the
net asset value per share on the expiration date. If the subscription price per share is below the net asset value per share of
the Fund’s Common Shares on the expiration date, a shareholder will experience an immediate dilution of the aggregate net
asset value of such shareholder’s Common Shares if the shareholder does not participate in such an offering and the shareholder
will experience a reduction in the net asset value per share of such shareholder’s Common Shares whether or not the shareholder
participates in such an offering. Such a reduction in net asset value per share may have the effect of reducing market price of
the Common Share. The Fund cannot state precisely the extent of this dilution (if any) if the shareholder does not exercise such
shareholder’s Rights because the Fund does not know what the net asset value per share will be when the offer expires or
what proportion of the Rights will be exercised. If the subscription price is substantially less than the then current net asset
value per Common Share at the expiration of a rights offering, such dilution could be substantial. Any such dilution or accretion
will depend upon whether (i) such shareholders participate in the Rights offering and (ii) the Fund’s net asset
value per Common Share is above or below the subscription price on the expiration date of the Rights offering. In addition to
the economic dilution described above, if a Common Shareholder does not exercise all of their rights, the Common Shareholder will
incur voting dilution as a result of this rights offering. This voting dilution will occur because the Common Shareholder will
own a smaller proportionate interest in the Fund after the rights offering than prior to the rights offering. There is a risk
that changes in market conditions may result in the underlying Common Shares purchasable upon exercise of the subscription rights
being less attractive to investors at the conclusion of the subscription period. This may reduce or eliminate the value of the
subscription rights. If investors exercise only a portion of the rights, the number of Common Shares issued may be reduced, and
the Common Shares may trade at less favorable prices than larger offerings for similar securities. Subscription rights issued
by the Fund may be transferable or non-transferable rights. In a non-transferable rights offering, Common
Shareholders who do not wish to exercise their rights will be unable to sell their rights. In a transferrable rights offering,
the Fund will use its best efforts to ensure an adequate trading market for the rights; however, investors may find that there
is no market to sell rights they do not wish to exercise.
Anti-Takeover Provisions in the Fund’s Agreement
and Declaration of Trust and By-Laws
The Fund’s Second
Amended and Restated Agreement and Declaration of Trust, as amended (the “Declaration of Trust”), and By-Laws include provisions
that could have the effect of limiting the ability of other entities or persons to acquire control of the Fund or to change the composition
of its Board of Trustees. For example, the Declaration of Trust limits the ability of persons to beneficially own (within the meaning
of Section 382 of the Code) more than 4.99% of the outstanding Common Shares of the Fund. This restriction was adopted in order to reduce
the risk of the Fund undergoing an “ownership change” within the meaning of Section 382 of the Code, which would limit the
Fund’s ability to use a capital loss carryforward and certain unrealized losses (if such tax attributes exist). See “Anti-Takeover
Provisions in the Declaration of Trust” and “Certain Provisions of Delaware Law, the Declaration of Trust and By-Laws.”
In addition, as a Delaware
statutory trust, the Fund is subject to the control share acquisition statute (the “Control Share Statute”) contained in
Subchapter III of the Delaware Statutory Trust Act (the “DSTA”), which became automatically applicable to listed closed-end
funds, such as the Fund, upon its effective date of August 1, 2022 (the “Effective Date”). The Control Share Statute provides
that an acquirer of shares above a series of voting power thresholds has no voting rights under the DSTA or the governing documents of
the Fund with respect to shares acquired in excess of that threshold (i.e., the “control shares”) unless approved by shareholders.
See “Certain Provisions of Delaware Law, the Declaration of Trust and By-Laws—Delaware Control Share Statute.”
The ownership restrictions
set forth in the Fund’s Declaration of Trust and the limitations of the Control Share Statute could have the effect of depriving
shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging a third party from seeking
to obtain control over the Fund and may reduce market demand for the Fund’s Common Shares, which could have the effect of increasing
the likelihood that the Fund’s Common Shares trade at a discount to net asset value and increasing the amount of any such discount.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effects of Leverage [Text Block] |
|
USE
OF LEVERAGE
The
Fund generally seeks to increase income and total return by utilizing leverage. The Fund may utilize leverage through the Indebtedness,
including through the issuance of commercial paper or notes and other forms of borrowing, or the issuance of preferred shares.
The Fund may utilize leverage through Indebtedness or preferred shares to the maximum extent permitted by the 1940 Act. Under
current market conditions, the Fund currently intends to utilize leverage principally through Indebtedness. The amount of Indebtedness
outstanding is expected to vary over time, but will not exceed 331⁄3% of the Fund’s Managed Assets (i.e., 50%
of its net assets attributable to the Fund’s Common Shares), including the proceeds of such leverage.
The
costs associated with the issuance and use of leverage will be borne by the holders of the Common Shares. Leverage is a speculative
technique and investors should note that there are special risks and costs associated with leverage. There can be no assurance
that a leveraging strategy will be successful during any period in which it is employed. The use of leverage creates risks and
involves special considerations. See “Risks—Leverage Risk.” To the extent that the Fund uses leverage, it expects
to utilize hedging techniques such as swaps and caps on a portion of its leverage to mitigate potential interest rate risk. See
“Risks—Interest Rate Hedging Risk.”
Indebtedness
Delaware
trust law and the Fund’s governing documents authorize the Fund, without prior approval of its Common Shareholders, to borrow
money. In this regard, the Fund may issue notes or other evidence of Indebtedness (including bank borrowings or commercial paper)
and may secure any such borrowings by mortgaging, pledging or otherwise subjecting as security its assets. In connection with
any borrowing, 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. Any such requirements will increase the cost of borrowing over the stated interest rate. The rights
of the Fund’s lenders to receive interest on and repayment of principal of borrowings will be senior to those of the Fund’s
Common Shareholders, and the terms of any such borrowings may contain provisions which limit certain of the Fund’s activities,
including the payment of distributions to the Fund’s Common Shareholders in certain circumstances. A borrowing will likely
be ranked senior or equal to all of the Fund’s other existing and future borrowings.
Certain
types of borrowings may result in the Fund being subject to covenants in credit agreements relating to asset coverage and portfolio
composition requirements. The Fund may be subject to certain restrictions on investments imposed by guidelines of one or more
rating agencies, which may issue ratings for Indebtedness issued by the Fund.
These
guidelines may impose asset coverage or portfolio composition requirements that are more stringent than those imposed by the 1940
Act. It is not anticipated that these covenants or guidelines will impede the Investment Adviser from managing the Fund’s
portfolio in accordance with the Fund’s investment objective and policies.
The
Fund may secure any borrowings by mortgaging, pledging or otherwise subjecting as security its assets. Except as set forth below,
under the requirements of the 1940 Act the Fund, immediately after any issuance of Indebtedness, must have “asset coverage”
of at least 300% (331⁄3% of Managed Assets, or 50% of its net assets attributable to the Fund’s Common Shares). With
respect to Indebtedness, asset coverage means the ratio which the value of the Fund’s total assets, less all liabilities
and indebtedness not represented by senior securities (as defined in the 1940 Act), bears to the aggregate amount of such borrowing
represented by senior securities issued by the Fund.
Under
the 1940 Act, the Fund may not declare any distribution or other distribution on any class of its shares, or purchase any such
shares, unless its aggregate Indebtedness has, at the time of the declaration of any such distribution or distribution, or at
the time of any such purchase, an asset coverage of at least 300% after declaring the amount of such distribution, distribution
or purchase price, as the case may be. Furthermore, the 1940 Act (in certain circumstances) grants the Fund’s lenders certain
voting rights in the event of default in the payment of interest on or repayment of principal. Such restrictions do not apply
with respect to evidence of Indebtedness in consideration of a loan, extension or renewal thereof that is privately arranged and
not intended for public distribution.
With
the use of borrowings, there is a risk that the interest rates paid by the Fund on the amount it borrows will be higher than the
return on the Fund’s investments.
The
Fund may also borrow money as a temporary measure for extraordinary or emergency purposes, including the payment of distributions
and the settlement of securities transactions that otherwise might require untimely dispositions of its securities. Temporary
borrowings not exceeding 5% of the Fund’s total assets are not subject to the “asset coverage” limitation under
the 1940 Act.
The
Fund currently utilizes Indebtedness pursuant to a borrowing arrangement with ScotiabankTM (the “Loan Agreements”).
The interest rate charged on such Indebtedness approximates 1-month SOFR plus 1.00%. The Fund’s Indebtedness under the Loan
Agreements is collateralized by portfolio assets which are maintained by the Fund in a separate account with the Fund’s
custodian for the benefit of the lender, which collateral exceeds the amount borrowed. In the event of a default by the Fund under
the Loan Agreements, the lender has the right to sell such collateral assets to satisfy the Fund’s obligation to the lender.
The Loan Agreements include usual and customary covenants. These covenants impose on the Fund asset coverage requirements, collateral
requirements, investment strategy requirements, and certain financial obligations. As of May 31, 2023, the principal balance outstanding
was approximately $13.315 million, which represented 15% of the Fund’s Managed Assets (or approximately 17% of its net assets
attributable to the Fund’s Common Shares).
Preferred
Shares
The
Fund’s Second Amended and Restated Agreement and Declaration of Trust (the "Declaration of Trust") 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 prior approval of the holders of the Common Shares. Common Shareholders have no preemptive right to purchase any
preferred shares that might be issued. Any such preferred share offering would be subject to the limits imposed by the 1940 Act. Under
the 1940 Act, the Fund is not permitted to issue preferred shares unless immediately after such issuance the value of its total assets
is at least 200% of the liquidation value of the outstanding preferred shares (i.e., the liquidation value may not exceed 50%
of the Fund’s total assets). In addition, the Fund is not permitted to declare any cash distribution or other distribution on its
Common Shares unless, at the time of such declaration, the value of its total assets is at least 200% of such liquidation value. If the
Fund issues preferred shares, it intends, to the extent possible, to purchase or redeem them from time to time to the extent necessary
in order to maintain asset coverage on such preferred shares of at least 200%. In addition, as a condition to obtaining ratings on the
preferred shares, the terms of any preferred shares issued are expected to include asset coverage maintenance provisions which will require
the redemption of the preferred shares in the event of non-compliance by the Fund and may also prohibit distributions and other distributions
on the Fund’s Common Shares in such circumstances. In order to meet redemption requirements to maintain asset coverage or otherwise,
the Fund may have to liquidate portfolio securities. Such liquidations and redemptions would cause the Fund to incur related transaction
costs and could result in capital losses to the Fund. If the Fund has preferred shares outstanding, two of its Trustees will be elected
by the holders of preferred shares, voting as a separate class. The Fund’s remaining Trustees will be elected by holders of its
Common Shares and preferred shares voting together as a single class. In the event the Fund fails to pay distributions on its preferred
shares for two years, holders of preferred shares would be entitled to elect a majority of the Fund’s Trustees.
Certain
Portfolio Transactions
The
Fund may engage in certain derivatives transactions that have economic characteristics similar to leverage. Rule 18f-4 under the
1940 Act (the “Derivatives Rule”) permits the Fund to enter into derivatives transactions and certain other transactions
notwithstanding the restrictions on the issuance of “senior securities” under Section 18 of the 1940 Act. The Derivatives
Rule requires registered investment companies that enter into derivatives transactions and certain other transactions that create
future payment or delivery obligations to, among other things, (i) comply with a value-at-risk leverage limit, and (ii) adopt
and implement a derivatives risk management program, unless the Fund qualifies as a “limited derivatives user,” which
the Derivatives Rule defines as a fund that limits its derivatives exposure (excluding certain derivative transactions used to
hedge currency and interest rate risks) to 10% of its net assets. The Derivatives Rule requires a limited derivatives user to
adopt policies and procedures to manage its aggregate derivatives risk. The Fund currently qualifies, and intends to continue
to qualify, as a limited derivatives user and has adopted policies and procedures designed to manage its derivatives risk in accordance
with the Derivatives Rule. In the event that the Fund no longer qualifies as a limited derivatives user, the Fund will comply
with the value-at-risk leverage limit and adopt and implement a derivatives risk management program in accordance with the Derivatives
Rule.
Effects
of Leverage
As
of May 31, 2023, the Fund had outstanding Indebtedness of approximately $13.315 million, which represented 15% of the Fund’s
Managed Assets (or approximately 17% of its net assets attributable to the Fund’s Common Shares). The interest rate charged
on such Indebtedness as of May 31, 2023 was 6.19%. Assuming that the Fund’s leverage costs remain as described above, then
the incremental income generated by the Fund’s portfolio (net of estimated expenses including expenses related to the leverage)
must exceed approximately 0.89% to cover such interest specifically related to the borrowing. These numbers are merely estimates
used for illustration. Actual interest rates may vary frequently and in the future may be significantly higher or lower than the
rate estimated above.
The
following table is designed to assist the investor in understanding the effects of leverage by illustrating the effect on the
return to a holder of the Fund’s Common Shares of leverage in the amount of approximately 331⁄3% of the Fund’s
Managed Assets (i.e., 50% of its net assets attributable to the Fund’s Common Shares), assuming hypothetical annual
returns of the Fund’s portfolio of minus 10% to plus 10%. As the table shows, leverage generally increases the return to
holders of Common Shares when portfolio return is positive and greater than the cost of leverage and decreases the return when
the portfolio return is negative or less than the cost of leverage. The figures appearing in the table are hypothetical and actual
returns may be greater or less than those appearing in the table.
Assumed
portfolio total return (net of expenses) |
(10.00)% |
(5.00)% |
0.00% |
5.00% |
10.00% |
|
|
|
— |
|
|
Common
Share total return |
(18.10)% |
(10.60)% |
(3.10)% |
4.41% |
11.91% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return at Minus Ten [Percent] |
|
0.00%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return at Minus Five [Percent] |
|
0.00%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return at Zero [Percent] |
|
0.00%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return at Plus Five [Percent] |
|
0.00%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return at Plus Ten [Percent] |
|
0.00%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effects of Leverage, Purpose [Text Block] |
|
Assumed
portfolio total return (net of expenses) |
(10.00)% |
(5.00)% |
0.00% |
5.00% |
10.00% |
|
|
|
— |
|
|
Common
Share total return |
(18.10)% |
(10.60)% |
(3.10)% |
4.41% |
11.91% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share Price [Table Text Block] |
|
The
following table sets forth, for each of the periods indicated, the high and low closing market prices for the Common Shares on
the NYSE, the net asset value per Common Share and the premium or discount to net asset value per Common Share at which the Common
Shares were trading.
| | |
Market
Price | | |
Corresponding
Net Asset Value Per Common Share | | |
Corresponding
Premium (Discount) as a Percentage of Net Asset Value | |
Fiscal Quarter Ended | | |
High | | |
Low | | |
High | | |
Low | | |
High | | |
Low | |
August 31, 2023 | | |
$ | 43.15 | | |
$ | 34.41 | | |
$ | 39.75 | | |
$ | 35.58 | | |
| 8.55 | % | |
| -3.29 | % |
May 31, 2023 | | |
$ | 35.00 | | |
$ | 30.17 | | |
$ | 40.08 | | |
$ | 34.92 | | |
| -12.67 | % | |
| -13.60 | % |
February 28, 2023 | | |
$ | 36.71 | | |
$ | 32.27 | | |
$ | 41.07 | | |
$ | 38.00 | | |
| -10.62 | % | |
| -15.08 | % |
November 30, 2022 | | |
$ | 37.81 | | |
$ | 30.80 | | |
$ | 43.93 | | |
$ | 34.86 | | |
| -13.93 | % | |
| -11.65 | % |
August 31, 2022 | | |
$ | 36.23 | | |
$ | 27.03 | | |
$ | 46.57 | | |
$ | 34.73 | | |
| -22.20 | % | |
| -22.17 | % |
May 31, 2022 | | |
$ | 36.19 | | |
$ | 30.76 | | |
$ | 44.87 | | |
$ | 39.24 | | |
| -19.34 | % | |
| -21.61 | % |
February 28, 2022 | | |
$ | 33.98 | | |
$ | 29.13 | | |
$ | 38.74 | | |
$ | 34.64 | | |
| -12.29 | % | |
| -15.91 | % |
November 30, 2021 | | |
$ | 35.90 | | |
$ | 27.89 | | |
$ | 41.82 | | |
$ | 36.53 | | |
| -14.16 | % | |
| -23.65 | % |
August 31, 2021 | | |
$ | 31.59 | | |
$ | 25.87 | | |
$ | 41.41 | | |
$ | 34.18 | | |
| -23.73 | % | |
| -24.31 | % |
May 31, 2021 | | |
$ | 28.92 | | |
$ | 22.73 | | |
$ | 37.34 | | |
$ | 31.07 | | |
| -22.55 | % | |
| -26.84 | % |
February 28, 2021 | | |
$ | 25.12 | | |
$ | 20.84 | | |
$ | 33.36 | | |
$ | 27.41 | | |
| -24.70 | % | |
| -23.97 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Stock, Long-Term Debt, and Other Securities [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Stock [Table Text Block] |
|
DESCRIPTION
OF SHARES
The
following is a brief description of the terms of the securities which may be issued by the Fund. This description does not purport
to be complete and is qualified by reference to the Fund’s governing documents. The Fund is a statutory trust organized
under the laws of Delaware pursuant to a Certificate of Trust dated May 23, 2007, as filed with the State of Delaware on May 23,
2007 and as amended through the date hereof.
Common
Shares
The
Fund is authorized to issue an unlimited number of Common Shares of beneficial interest, par value $0.001 per share. Each Common Share
has one vote. Pursuant to the Declaration of Trust, when issued and paid for in accordance with the terms of this offering, will be fully
paid and non-assessable. The Declaration of Trust provides that the Board of Trustees will have the power to cause shareholders to pay
expenses of the Fund by setting off charges due from shareholders from declared but unpaid distributions owed the shareholders and/or
by reducing the number of Common Shares owned by each respective shareholder. No expenses have been paid or are being paid pursuant to
such provision, and the Board of Trustees has no intention to cause expenses to be paid pursuant to such provision, which in any event
may only be utilized to the extent permitted by the 1940 Act.
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. All Common Shares are equal as to distributions, assets and voting privileges and
have no conversion, preemptive or other subscription rights. The Fund will furnish annual and semi-annual reports, including financial
statements, to all holders of its shares.
Unlike
open-end funds, closed-end funds like the Fund do not continuously offer shares and do not provide daily redemptions. Rather,
if a shareholder determines to buy additional Common Shares or sell shares already held, the shareholder may do so by trading
through a broker on the NYSE or otherwise. Shares of closed-end funds frequently trade on an exchange at prices lower than net
asset value. Because the market value of the Common Shares may be influenced by such factors as distribution levels (which are
in turn affected by expenses), distribution stability, net asset value, 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 net asset value in the future. The Common Shares are designed primarily for
long-term investors, and you should not purchase the Common Shares if you intend to sell them soon after purchase.
Issuance
of Additional Common Shares. The provisions of the 1940 Act generally require that the public offering price (less underwriting
commissions and discounts) of common shares sold by a closed-end investment company must equal or exceed the net asset value of
such company’s common shares (calculated within 48 hours of the pricing of such offering), unless such sale is made with
the consent of a majority of its common shareholders. The Fund may, from time to time, seek the consent of Common Shareholders
to permit the issuance and sale by the Fund of Common Shares at a price below the Fund’s then-current net asset value, subject
to certain conditions. If such consent is obtained, the Fund may, contemporaneous with and in no event more than one year following
the receipt of such consent, sell Common Shares at price below net asset value in accordance with any conditions adopted in connection
with the giving of such consent. Additional information regarding any consent of Common Shareholders obtained by the Fund and
the applicable conditions imposed on the issuance and sale by the Fund of Common Shares at a price below net asset value will
be disclosed in the Prospectus Supplement relating to any such offering of Common Shares at a price below net asset value. Until
such consent of Common Shareholders, if any, is obtained, the Fund may not sell Common Shares at a price below net asset value.
Because the Fund’s advisory fee is based upon average Managed Assets, the Investment Adviser’s interest in recommending
the issuance and sale of Common Shares at a price below net asset value may conflict with the interests of the Fund and its Common
Shareholders.
The
Fund will not sell Common Shares at a price below its net asset value per Common Share (including with shareholder approval or
pursuant to rights to purchase Common Shares) under this Prospectus or an accompanying prospectus supplement without first filing
a new post-effective amendment to the registration statement if the cumulative dilution to the Fund’s net asset value per
share from offerings under the registration statement exceeds 15%.
Subscription
Rights to Purchase Common Shares
The
Fund may issue subscription rights to holders of Common Shares to purchase Common Shares. Subscription rights may be issued independently
or together with any other offered security and may or may not be transferable by the person purchasing or receiving the subscription
rights. In connection with a subscription rights offering to holders of Common Shares, the Fund would distribute certificates
evidencing the subscription rights and a Prospectus Supplement to our common or preferred shareholders as of the record date that
we set for determining the shareholders eligible to receive subscription rights in such subscription rights offering. For complete
terms of the subscription rights, please refer to the actual terms of such subscription rights which will be set forth in the
subscription rights agreement and/or subscription certificate relating to such subscription rights. The Fund may only conduct
a subscription rights offering to the extent that the Board of Trustees makes a good faith determination that the offering would
result in a net benefit to existing shareholders.
The
applicable Prospectus Supplement would describe the following terms of subscription rights in respect of which this Prospectus
is being delivered:
| ● | the
period of time the offering would remain open (which will be open a minimum number of
days such that all record holders would be eligible to participate in the offering and
will not be open longer than 120 days); |
| ● | the
exercise price for such subscription rights (or method of calculation thereof); |
| ● | the
number of such subscription rights issued in respect of each Common Share; |
| ● | the
extent to which such subscription rights are transferable and the market on which they
may be traded if they are transferable; |
| ● | if
applicable, a discussion of the material U.S. federal income tax considerations applicable
to the issuance or exercise of such subscription rights; |
| ● | the
date on which the right to exercise such subscription rights will commence, and the date
on which such right will expire (subject to any extension); |
| ● | the
extent to which such subscription rights include an over-subscription privilege with
respect to |
unsubscribed
securities and the terms of such over-subscription privilege;
| ● | any
termination right the Fund may have in connection with such subscription rights offering; |
| ● | the
expected trading market, if any, for rights; and |
| ● | any
other terms of such subscription rights, including exercise, settlement and other procedures
and limitations relating to the transfer and exercise of such subscription rights. |
Exercise
of Subscription Rights. Each subscription right would entitle the holder of the subscription right to purchase for cash such
number of shares at such exercise price as in each case is set forth in, or be determinable as set forth in the Prospectus Supplement
relating to the subscription rights offered thereby. Subscription rights would be exercisable at any time up to the close of business
on the expiration date for such subscription rights set forth in the Prospectus Supplement. After the close of business on the
expiration date, all unexercised subscription rights would become void.
Upon
expiration of the rights offering and the receipt of payment and the subscription rights certificate properly completed and duly
executed at the corporate trust office of the subscription rights agent or any other office indicated in the Prospectus Supplement,
the Fund would issue, as soon as practicable, the Common Shares purchased as a result of such exercise. To the extent permissible
under applicable law, the Fund may determine to offer any unsubscribed offered securities directly to persons other than shareholders,
to or through agents, underwriters or dealers or through a combination of such methods, as set forth in the applicable Prospectus
Supplement
Transferable
Rights Offering. Subscription rights issued by the Fund may be transferrable. The terms of a transferrable rights offering will fully
protect shareholders’ preemptive rights, if any, and will not discriminate among shareholders (except for the possible de minimis
effect of not issuing fractional rights). The distribution to Common Shareholders of transferable rights, which may themselves have intrinsic
value, also will afford non-participating Common Shareholders the potential of receiving cash payment upon the sale of the rights, receipt
of which may be viewed as partial compensation for any dilution of their interests that may occur as a result of the rights offering.
In a transferrable rights offering, Fund management will use its best efforts to ensure an adequate trading market in the rights for
use by shareholders who do not exercise such rights. However, there can be no assurance that a market for transferable rights will develop
or, if such a market does develop, what the price of the transferable rights will be. In a transferrable rights offering, the subscription
ratio will not be less than 1-for-3, that is the holders of Common Shares of record on the record date of the rights offering will receive
one right for each outstanding Common Share owned on the record date and the rights will entitle their holders to purchase one new Common
Share for every three rights held (provided that any Common Shareholder who owns fewer than three Common Shares as of the record date
may subscribe for one full Common Share). Assuming the exercise of all rights, such a rights offering would result in an approximately
331⁄3% increase in the Fund’s Common Shares outstanding.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security Voting Rights [Text Block] |
|
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 two years of distributions 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 sub-classification as a closed-end fund or changes in its fundamental investment
restrictions. As a result of these voting rights, the Fund’s ability to take any such actions may be impeded to the extent
that there are any preferred shares outstanding.
Debt
Securities
The
Board of Trustees (subject to applicable law and the Declaration of Trust) may authorize an offering, without the approval of the holders
of either Common Shares or preferred shares, of other classes of shares, or other classes or series of shares, as they determine to be
necessary, desirable or appropriate, having such terms, rights, preferences, privileges, limitations and restrictions as the Board of
Trustees deems appropriate. The Fund currently does not expect to issue any other classes of shares, or series of shares, except for
the Common Shares.
Under
Delaware law and the Declaration of Trust, the Board of Trustees may cause the Fund to borrow money, without prior approval of holders
of common and preferred stock to the extent permitted by the Fund’s investment restrictions and the 1940 Act. The Fund may issue
debt securities or other evidence of Indebtedness (including bank borrowings or commercial paper) and may secure any such notes or borrowings
by mortgaging, pledging or otherwise subjecting as security Fund assets to the extent permitted by the 1940 Act or rating agency guidelines.
Any borrowings will rank senior to the preferred shares and the Common Shares. Under the 1940 Act, the Fund may only issue one class
of senior securities representing Indebtedness.
Limitations.
Under the requirements of the 1940 Act the Fund, immediately after any issuance of debt securities, must have “asset coverage”
of at least 300% (i.e., for every dollar of Indebtedness outstanding, the Fund is required to have at least three dollars
of assets). The issuance of debt securities also may result in the Fund being subject to covenants that may be more stringent
than the restrictions imposed by the 1940 Act.
Voting
Rights. Debt securities are not expected to have any voting rights, except to the extent required by law or as otherwise provided
in any documents governing the debt securities. The 1940 Act does, in certain circumstances, grant to the lenders certain voting
rights in the event of default in the payment of interest on or repayment of principal.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security Liquidation Rights [Text Block] |
|
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 distributions, whether or not declared, before any distribution of
assets is made to holders of Common Shares. After payment of the full amount of the liquidating distribution to which they are
entitled, the holders of preferred shares will not be entitled to any further participation in any distribution of assets by the
Fund.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security Preemptive and Other Rights [Text Block] |
|
Transferable
Rights Offering. Subscription rights issued by the Fund may be transferrable. The terms of a transferrable rights offering will fully
protect shareholders’ preemptive rights, if any, and will not discriminate among shareholders (except for the possible de minimis
effect of not issuing fractional rights). The distribution to Common Shareholders of transferable rights, which may themselves have intrinsic
value, also will afford non-participating Common Shareholders the potential of receiving cash payment upon the sale of the rights, receipt
of which may be viewed as partial compensation for any dilution of their interests that may occur as a result of the rights offering.
In a transferrable rights offering, Fund management will use its best efforts to ensure an adequate trading market in the rights for
use by shareholders who do not exercise such rights. However, there can be no assurance that a market for transferable rights will develop
or, if such a market does develop, what the price of the transferable rights will be. In a transferrable rights offering, the subscription
ratio will not be less than 1-for-3, that is the holders of Common Shares of record on the record date of the rights offering will receive
one right for each outstanding Common Share owned on the record date and the rights will entitle their holders to purchase one new Common
Share for every three rights held (provided that any Common Shareholder who owns fewer than three Common Shares as of the record date
may subscribe for one full Common Share). Assuming the exercise of all rights, such a rights offering would result in an approximately
331⁄3% increase in the Fund’s Common Shares outstanding.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Securities [Table Text Block] |
|
The
following information regarding the Fund’s authorized shares is as of May 31, 2023:
Title
of Class |
Amount
Authorized |
Amount
Held
by Fund
for its
own Account |
Amount
Outstanding
Exclusive of
Amounts held
by Fund |
Common
Shares of Beneficial Interest |
Unlimited |
None |
2,183,391 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment And Market Risk [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
Investment
and Market Risk
An investment in common shares of the Fund is subject to investment risk, including the possible loss of the entire principal amount
that you invest. An investment in the common shares of the Fund represents an indirect investment in the securities owned by the
Fund. The value of those securities may fluctuate, sometimes rapidly and unpredictably, particularly under current economic, financial,
labor, and health conditions. The value of the securities owned by the Fund may decline due to general market conditions that
are not specifically related to a particular issuer, such as real or perceived economic conditions, changes in interest or currency
rates or changes in investor sentiment or market outlook generally. At any point in time, your common shares may be worth less
than your original investment, including the reinvestment of Fund dividends and distributions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock Risk [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
Common
Stock Risk
The
Fund will have exposure to common stocks. Although common stocks have historically generated higher average total returns than
fixed-income securities over the long-term, common stocks also have experienced significantly more volatility in those returns
and may significantly under-perform relative to fixed income securities during certain periods. An adverse event, such as an unfavorable
earnings report, may depress the value of a particular common stock held by the Fund. Also, the price of common stocks is sensitive
to general movements in the stock market and a drop in the stock market may depress the price of common stocks to which the Fund
has exposure. Common stock prices fluctuate for several reasons, including changes in investors’ perceptions of the financial
condition of an issuer or the general condition of the relevant stock market, or when political or economic events affecting the
issuers occur. In addition, common stock prices may be particularly sensitive to rising interest rates, as the cost of capital
rises and borrowing costs increase. At times, stock markets can be volatile and stock prices can change substantially. While broad
market measures of common stocks have historically generated higher average returns than income securities, common stocks have
also experienced significantly more volatility in those returns. Common stock in which the Fund invests is structurally subordinated
to preferred stock, bonds and other debt instruments in a company’s capital structure in terms of priority to corporate
income and are therefore inherently more risky than preferred stock or debt instruments of such issuers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Concentration Risk [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
Concentration
Risk
The Fund’s investments
will be concentrated in issuers in the industry or group of industries that make up the natural resources sector. The Fund has adopted
a fundamental investment restriction to invest at least 25% of its total assets in natural resources companies. In addition, in accordance
with the Fund’s 80% policy, the Fund invests at least 80% of its net assets plus borrowings for investment purposes in midstream
energy investments. Midstream energy companies are a specific type of natural resources company. Because the Fund will be concentrated,
it may be subject to more risks than if it were more broadly diversified over numerous industries and sectors of the economy. General
changes in market sentiment towards companies in the natural resources sector, or midstream energy companies specifically, may adversely
affect the Fund, and the performance of the natural resources sector, or midstream energy companies specifically, may lag behind the
broader market as a whole. Also, the Fund’s concentration in the natural resources sector, and midstream energy companies specifically,
may subject the Fund to a variety of risks associated with that sector. See “Risks—Midstream Energy Company Risks.”
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Midstream Energy Company Risks [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
Midstream
Energy Company Risks
Midstream
energy companies are subject to certain risks, including, but not limited to, the following:
Commodity
Price Risk. Midstream energy companies may be affected by fluctuations in the prices of commodities, including, for example, natural
gas, natural gas liquids and crude oil, in the short- and long-term. Natural resources commodity prices have been very volatile in the
past and such volatility is expected to continue. Fluctuations in commodity prices can result from changes in general economic conditions
or political circumstances (especially of key energy-consuming countries); market conditions; weather patterns; domestic production levels;
volume of imports; energy conservation; domestic and foreign governmental regulation; international politics; policies of the Organization
of Petroleum Exporting Countries (“OPEC”); taxation; tariffs; and the availability and costs of local, intrastate and interstate
transportation methods. Midstream energy companies engaged in crude oil and natural gas exploration, development or production, natural
gas gathering and processing, crude oil refining and transportation and coal mining or sales may be directly affected by their respective
natural resources commodity prices. The volatility of, and interrelationships between, commodity prices can also indirectly affect certain
other midstream energy companies due to the potential impact on the volume of commodities transported, processed, stored or distributed.
Some midstream energy companies that own the underlying energy commodity may be unable to effectively mitigate or manage direct margin
exposure to commodity price levels. The natural resources sector as a whole may also be impacted by the perception that the performance
of natural resources sector companies is directly linked to commodity prices. The prices of companies’ securities can be adversely
affected by market perceptions that their performance and distributions or distributions are directly tied to commodity prices. High
commodity prices may drive further energy conservation efforts and a slowing economy may adversely impact energy consumption which may
adversely affect the performance of midstream energy companies.
Prices
of oil and other energy commodities have experienced significant volatility during recent years, including as a result of the pandemic
spread of infectious respiratory illness caused by a novel coronavirus known as “COVID-19,” during which demand for energy
commodities fell sharply and energy commodity prices reached historic lows, and may continue to experience relatively high volatility
for a prolonged period. Companies engaged in crude oil and natural gas exploration, development or production, natural gas gathering
and processing, crude oil refining and transportation and coal mining or sales may be directly affected by their respective natural resources
commodity prices. The volatility of commodity prices may also indirectly affect certain companies engaged in the transportation, processing,
storage or distribution of such commodities. Some companies that own the underlying commodities may be unable to effectively mitigate
or manage direct margin exposure to commodity price levels. The natural resources sector as a whole may also be impacted by the perception
that the performance of natural resources sector companies is directly linked to commodity prices. As a result, many companies in which
the Fund invests may have been and may continue to be adversely impacted by volatility of prices of energy commodities. Reductions in
production of oil and other energy commodities may lag decreases in demand or declines in commodity prices, resulting in global oversupply
in such commodities. Slower global growth may lower demand for oil and other energy commodities and increased exports by Iran with the
end of sanctions may increase supply, exacerbating oversupply of such commodities and further reducing commodity prices. Continued volatility
of commodity prices could further erode such companies’ growth prospects and negatively impact such companies’ ability to
sustain attractive distribution levels.
Cyclicality
Risk. The operating results of companies in the broader natural resources sector are cyclical, with fluctuations in commodity prices
and demand for commodities driven by a variety of factors. The highly cyclical nature of the natural resources sector may adversely affect
the earnings or operating cash flows of the midstream energy companies in which the Fund invests.
Supply
Risk. The profitability of midstream energy companies, particularly those involved in processing, gathering and pipeline transportation,
may be materially impacted by the volume of natural gas or other energy commodities available for transportation, processing,
storage or distribution. A significant decrease in the production of natural gas, crude oil, coal or other energy commodities,
due to the decline of production from existing resources, import supply disruption, depressed commodity prices or otherwise, would
reduce the revenue, operating income and operating cash flows of midstream energy companies and, therefore, their ability to make
distributions or pay dividends. The volume of production of energy commodities and the volume of energy commodities available
for transportation, storage, processing or distribution could be affected by a variety of factors, including depletion of resources;
depressed commodity prices; catastrophic events; labor relations; increased environmental or other governmental regulation; equipment
malfunctions and maintenance difficulties; import volumes; international politics; policies of OPEC; and increased competition
from alternative energy sources.
Demand
Risk. A sustained decline in demand for coal, natural gas, natural gas liquids, crude oil and refined petroleum products could
adversely affect a midstream energy company’s revenues and cash flows. Factors that could lead to a sustained decrease in
market demand include a recession or other adverse economic conditions, an increase in the market price of the underlying commodity
that is not, or is not expected to be, merely a short-term increase, higher taxes or other regulatory actions that increase costs,
or a shift in consumer demand for such products. Demand may also be adversely affected by consumer sentiment with respect to global
warming and by state or federal legislation intended to promote the use of alternative energy sources.
Depletion
Risk. Companies engaged in the exploration, development, management or production of energy commodities face the risk that
commodity reserves are depleted over time. Such companies seek to increase their reserves through expansion of their current businesses,
acquisitions, further development of their existing sources of energy commodities, exploration of new sources of energy commodities
or by entering into long-term contracts for additional reserves; however, there are risks associated with each of these potential
strategies. If such companies fail to acquire additional reserves in a cost-effective manner and at a rate at least equal to the
rate at which their existing reserves decline, their financial performance may suffer. Additionally, failure to replenish reserves
could reduce the amount and affect the tax characterization of the distributions paid by such companies.
Risks
Related to Expansions and Acquisitions. Midstream energy companies employ a variety of means to increase cash flow, including
increasing utilization of existing facilities, expanding operations through new construction or development activities, expanding
operations through acquisitions, or securing additional long-term contracts. Thus, some midstream energy companies may be subject
to construction risk, development risk, acquisition risk or other risks arising from their specific business strategies. Midstream
energy companies that attempt to grow through acquisitions may not be able to effectively integrate acquired operations with their
existing operations. In addition, acquisition or expansion projects may not perform as anticipated. A significant slowdown in
merger and acquisition activity in the natural resources sector could reduce the growth rate of cash flows received by the Fund
from midstream energy companies that grow through acquisitions.
Competition
Risk. The natural resources sector is highly competitive. The midstream energy companies in which the Fund invests face substantial
competition from other companies, many of which will have greater financial, technological, human and other resources, in acquiring natural
resources assets, obtaining and retaining customers and contracts and hiring and retaining qualified personnel. Larger companies may
be able to pay more for assets and may have a greater ability to continue their operations during periods of low commodity prices. To
the extent that the midstream energy companies in which the Fund invests are unable to compete effectively, their operating results,
financial position, growth potential and cash flows may be adversely affected, which could in turn adversely affect the results of the
Fund.
Weather
Risk. Extreme weather conditions could result in substantial damage to the facilities of certain midstream energy companies
located in the affected areas and significant volatility in the supply of natural resources, commodity prices and the earnings
of midstream energy companies and could therefore adversely affect their securities.
Interest
Rate Risk. The prices of the equity and debt securities of the midstream energy companies the Fund expects to hold in its portfolio
are susceptible in the short-term to a decline when interest rates rise. Rising interest rates could limit the capital appreciation of
securities of certain midstream energy companies as a result of the increased availability of alternative investments with comparable
yields. Rising interest rates could adversely impact the financial performance of midstream energy companies by increasing their cost
of capital. This may reduce their ability to execute acquisitions or expansion projects in a cost-effective manner. The risk of interest
rates rising is more pronounced in the current market environment because of recent monetary policy measures and the low interest rate
environment in recent years.
Business
Segment Specific Risk. Midstream energy companies are also subject to risks that are specific to the particular business segment
of the natural resources sector in which they operate.
Pipelines.
Pipeline companies are subject to the demand for natural gas, natural gas liquids, crude oil or refined products in the markets
they serve, changes in the availability of products for gathering, transportation, processing or sale due to natural declines
in reserves and production in the supply areas serviced by the companies’ facilities, sharp decreases in crude oil or natural
gas prices that cause producers to curtail production or reduce capital spending for exploration activities, and environmental
regulation. Demand for gasoline, which accounts for a substantial portion of refined product transportation, depends on price,
prevailing economic conditions in the markets served, and demographic and seasonal factors. Companies that own interstate pipelines
that transport natural gas, natural gas liquids, crude oil or refined petroleum products are subject to regulation by FERC with
respect to the tariff rates they may charge for transportation services. An adverse determination by FERC with respect to the
tariff rates of such a company could have a material adverse effect on its business, financial condition, results of operations
and cash flows of those companies and their ability to pay cash distributions or dividends. In addition, FERC has a tax allowance
policy, which permits such companies to include in their cost of service an income tax allowance to the extent that their owners
have an actual or potential tax liability on the income generated by them. If FERC’s income tax allowance policy were to
change in the future to disallow a material portion of the income tax allowance taken by such interstate pipeline companies, it
would adversely impact the maximum tariff rates that such companies are permitted to charge for their transportation services,
which would in turn adversely affect the results of operations and cash flows of those companies and their ability to pay cash
distributions or dividends to their unit holders or shareholders.
Gathering
and Processing. Gathering and processing companies are subject to natural declines in the production of oil and natural gas
fields, which utilize their gathering and processing facilities as a way to market their production, prolonged declines in the
price of natural gas or crude oil, which curtails drilling activity and therefore production and declines in the prices of natural
gas liquids and refined petroleum products, which cause lower processing margins. In addition, some gathering, and processing
contracts subject the gathering or processing company to direct commodities price risk.
Exploration
and Production. Exploration, development and production companies are particularly vulnerable to declines in the demand for
and prices of crude oil and natural gas. Reductions in prices for crude oil and natural gas can cause a given reservoir to become
uneconomic for continued production earlier than it would if prices were higher, resulting in the plugging and abandonment of,
and cessation of production from, that reservoir. In addition, lower commodity prices not only reduce revenues but also can result
in substantial downward adjustments in reserve estimates. The accuracy of any reserve estimate is a function of the quality of
available data, the accuracy of assumptions regarding future commodity prices and future exploration and development costs and
engineering and geological interpretations and judgments. Different reserve engineers may make different estimates of reserve
quantities and related revenue based on the same data. Actual oil and gas prices, development expenditures and operating expenses
will vary from those assumed in reserve estimates, and these variances may be significant. Any significant variance from the assumptions
used could result in the actual quantity of reserves and future net cash flow being materially different from those estimated
in reserve reports. In addition, results of drilling, testing and production and changes in prices after the date of reserve estimates
may result in downward revisions to such estimates. Substantial downward adjustments in reserve estimates could have a material
adverse effect on a given exploration and production company’s financial position and results of operations. In addition,
due to natural declines in reserves and production, exploration and production companies must economically find or acquire and
develop additional reserves in order to maintain and grow their revenues and distributions.
Propane.
Propane companies are subject to earnings variability based upon weather patterns in the locations where they operate and increases
in the wholesale price of propane which reduce profit margins. In addition, propane companies are facing increased competition
due to the growing availability of natural gas, fuel oil and alternative energy sources for residential heating.
Coal.
Coal companies are subject to declines in the demand for and prices of coal. Demand variability can be based on weather conditions,
the strength of the domestic economy, the level of coal stockpiles in their customer base, and the prices of competing sources
of fuel for electric generation. They are also subject to supply variability based on geological conditions that reduce the productivity
of mining operations, the availability of regulatory permits for mining activities and the availability of coal that meets the
standards of the federal Clean Air Act of 1990, as amended (the “Clean Air Act”). Demand and prices for coal may also
be affected by current and proposed regulatory limitations on emissions from coal-fired power plants and the facilities of other
coal end users. Such limitations may reduce demand for the coal produced and transported by coal companies. Certain coal companies
could face declining revenues if they are unable to acquire additional coal reserves or other mineral reserves that are economically
recoverable.
Marine
Shipping. Marine shipping companies are subject to supply of and demand for, and level of consumption of, natural gas, liquefied
natural gas, crude oil, refined petroleum products and liquefied petroleum gases in the supply areas and market areas they serve,
which affect the demand for marine shipping services and therefore charter rates. Shipping companies’ vessels and cargoes
are also subject to the risk of being damaged or lost due to marine disasters, extreme weather, mechanical failures, grounding,
fire, explosions, collisions, human error, piracy, war and terrorism. Some vessels may also require replacement or significant
capital improvements earlier than otherwise required due to changing regulatory standards. Shipping companies or their ships may
be chartered in any country and the Fund’s investments in such issuers may be subject to risks similar to risks related
to investments in non-U.S. securities.
Cash
Flow Risk. The Fund will derive substantially all of its cash flow from investments in equity securities of midstream energy companies.
The amount of cash that the Fund has available to distribute to shareholders will depend on the ability of the midstream energy companies
in which the Fund has an interest to make distributions or pay dividends to their investors and the tax character of those distributions
or dividends. The Fund will likely have no influence over the actions of the companies in which it invests with respect to the payment
of distributions or dividends. The amount of cash that any individual midstream energy company can distribute to its investors, including
the Fund, will depend on the amount of cash it generates from operations, which will vary from quarter to quarter depending on factors
affecting the natural resources sector generally and the particular business lines of the issuer. Available cash will also depend on
the midstream energy company’s operating costs, capital expenditures, debt service requirements, acquisition costs (if any), fluctuations
in working capital needs and other factors. With respect to the Fund's investments in MLPs, the cash that an MLP will have available
for distribution will also depend on the incentive distributions payable to its general partner or managing member in connection with
distributions paid to its equity investors.
Regulatory
Risk. The profitability of midstream energy companies could be adversely affected by changes in the regulatory environment.
Midstream energy companies are subject to significant foreign, federal, state and local regulation in virtually every aspect of
their operations, including with respect to how facilities are constructed, maintained and operated, environmental and safety
controls, and the prices they may charge for the products and services they provide. Such regulation can change over time in both
scope and intensity. For example, a particular by-product may be declared hazardous by a regulatory agency and unexpectedly increase
production costs. Various governmental authorities have the power to enforce compliance with these regulations and the permits
issued under them, and violators are subject to administrative, civil and criminal penalties, including civil fines, injunctions
or both. Stricter laws, regulations or enforcement policies could be enacted in the future which would likely increase compliance
costs and may adversely affect the financial performance of midstream energy companies.
Midstream
energy companies may be adversely affected by future regulatory requirements. While the nature of such regulations cannot be predicted
at this time, they may impose additional costs or limit certain operations by midstream energy companies.
Specifically,
the operations of wells, gathering systems, pipelines, refineries and other facilities are subject to stringent and complex federal,
state and local environmental laws and regulations. These include, for example:
| ● | the
federal Clean Air Act and comparable state laws and regulations that impose obligations
related to air emissions. |
| ● | the
federal Clean Water Act and comparable state laws and regulations that impose obligations
related to discharges of pollutants into regulated bodies of water. |
| ● | the
federal Resource Conservation and Recovery Act (“RCRA”) and comparable state
laws and regulations that impose requirements for the handling and disposal of waste
from facilities; and |
| ● | the
federal Comprehensive Environmental Response, Compensation and Liability Act of 1980
(“CERCLA”), also known as “Superfund,” and comparable state laws
and regulations that regulate the cleanup of hazardous substances that may have been
released at properties currently or previously owned or operated by midstream energy
companies or at locations to which they have sent waste for disposal. |
Failure
to comply with these laws and regulations may trigger a variety of administrative, civil and criminal enforcement measures, including
the assessment of monetary penalties, the imposition of remedial requirements, and the issuance of orders enjoining future operations.
Certain environmental statutes, including RCRA, CERCLA, the federal Oil Pollution Act and analogous state laws and regulations,
impose strict, joint and several liability for costs required to clean up and restore sites where hazardous substances have been
disposed or otherwise released. Moreover, it is not uncommon for neighboring landowners and other third parties to file claims
for personal injury and property damage allegedly caused by the release of hazardous substances or other waste products into the
environment.
There
is an inherent risk that midstream energy companies may incur environmental costs and liabilities due to the nature of their businesses
and the substances they handle. For example, an accidental release from wells or gathering pipelines could subject them to substantial
liabilities for environmental cleanup and restoration costs, claims made by neighboring landowners and other third parties for
personal injury and property damage, and fines or penalties for related violations of environmental laws or regulations. Moreover,
the possibility exists that stricter laws, regulations or enforcement policies could significantly increase the compliance costs
of midstream energy companies, and the cost of any remediation that may become necessary. Midstream energy companies may not be
able to recover these costs from insurance.
Proposals
for voluntary initiatives and mandatory controls are being discussed both in the United States and worldwide to reduce emissions of “greenhouse
gases” such as carbon dioxide, a by-product of burning fossil fuels, and methane, the major constituent of natural gas, which many
scientists and policymakers believe contribute to global climate change. These measures, if adopted, could result in increased costs
to certain companies in which the Fund invests to operate and maintain natural resources facilities and administer and manage a greenhouse
gas emissions program.
In
the wake of a Supreme Court decision holding that the EPA has some legal authority to deal with climate change under the Clean
Air Act, the federal government announced on May 14, 2007 that the EPA and the Departments of Transportation, Energy, and Agriculture
would jointly write regulations to cut gasoline use and control greenhouse gas emissions from cars and trucks. These measures
if adopted could reduce demand for energy or raise prices, which may adversely affect the total return of certain of the Fund’s
investments.
Environmental
Risk. There is an inherent risk that midstream energy companies may incur environmental costs and liabilities due to the nature
of their businesses and the substances they handle. For example, an accidental release from wells or gathering pipelines could
subject them to substantial liabilities for environmental cleanup and restoration costs, claims made by neighboring landowners
and other third parties for personal injury and property damage, and fines or penalties for related violations of environmental
laws or regulations. Moreover, the possibility exists that stricter laws, regulations or enforcement policies could significantly
increase the compliance costs of midstream energy companies, and the cost of any remediation that may become necessary. Midstream
energy companies may not be able to recover these costs from insurance.
In
the wake of a Supreme Court decision holding that the EPA has some legal authority to deal with climate change under the Clean
Air Act, the EPA and the Department of Transportation jointly wrote regulations to cut gasoline use and control greenhouse gas
emissions from cars and trucks. These measures, and other programs addressing greenhouse gas emissions, could reduce demand for
energy or raise prices, which may adversely affect the total return of certain of the Fund’s investments.
The
types of regulations described above can change over time in both scope and intensity, may have adverse effects on midstream energy
companies and may be implemented in unforeseen manners on an “emergency” basis in response to catastrophes or other
events.
Affiliated
Party Risk. Certain midstream energy companies are dependent on their parents or sponsors for a majority of their revenues.
Any failure by a midstream energy company’s parents or sponsors to satisfy their payments or obligations would impact the
midstream energy company’s revenues and cash flows and ability to make distributions. Moreover, the terms of a midstream
energy company’s transactions with its parent or sponsor are typically not arrived at on an arm’s-length basis and
may not be as favorable to the midstream energy company as a transaction with a non-affiliate.
Catastrophe
Risk. The operations of midstream energy companies are subject to many hazards inherent in the exploration for, and development,
production, gathering, transportation, processing, storage, refining, distribution, mining or marketing of, coal, natural gas,
natural gas liquids, crude oil, refined petroleum products or other hydrocarbons, including: damage to production equipment, pipelines,
storage tanks or related equipment and surrounding properties or other adverse impacts resulting from hurricanes, tornadoes, floods,
fires, climate conditions, extreme weather events and other natural disasters and the responses thereto or acts of terrorism;
inadvertent damage from construction or other equipment; leaks of natural gas, natural gas liquids, crude oil, refined petroleum
products or other hydrocarbons; and fires and explosions. Since the September 11th terrorist attacks, the U.S. government
has issued warnings that energy assets, specifically U.S. pipeline infrastructure, may be targeted in future terrorist attacks.
These dangers give rise to risks of substantial losses as a result of loss or destruction of commodity reserves; damage to or
destruction of property, facilities and equipment; pollution and environmental damage; and personal injury or loss of life. Any
occurrence of such catastrophic events could bring about a limitation, suspension or discontinuation of the operations of midstream
energy companies. Midstream energy companies may not be fully insured against all risks inherent in their business operations
and therefore accidents and catastrophic events could adversely affect such companies’ operations, financial conditions
and ability to pay distributions to shareholders.
Legislation
Risk. There have been proposals in Congress to eliminate certain tax incentives widely used by oil and gas companies and to impose
new fees on certain energy producers. The elimination of such tax incentives and imposition of such fees could adversely affect the natural
sector generally or specific midstream energy companies in which the Fund invests.
Technology
Risk. Some midstream energy companies are focused on developing new technologies and are strongly influenced by technological
changes. Technology development efforts by midstream energy companies may not result in viable methods or products. Midstream
energy companies may bear high research and development costs, which can limit their ability to maintain operations during periods
of organizational growth or instability. Some midstream energy companies may be in the early stages of operations and may have
limited operating histories and smaller market capitalizations on average than companies in other sectors. As a result of these
and other factors, the value of investments in such midstream energy companies may be considerably more volatile than that in
more established segments of the economy.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risks Associated With An Investment In I P Os [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
Risks
Associated with an Investment in IPOs
Securities
purchased by the Fund in initial public offerings (“IPOs”) are often subject to the general risks associated with investments
in companies with small market capitalizations, and typically to a heightened degree. Securities issued in IPOs have no trading history,
and information about the companies may be available for very limited periods. In addition, the prices of securities sold in an IPO may
be highly volatile. At any particular time or from time to time, the Fund may not be able to invest in IPOs, or to invest to the extent
desired, because, for example, only a small portion (if any) of the securities being offered in an IPO may be available to the Fund.
In addition, under certain market conditions, a relatively small number of companies may issue securities in IPOs. The investment performance
of the Fund during periods when it is unable to invest significantly or at all in IPOs may be lower than during periods when the Fund
is able to do so. IPO securities may be volatile, and the Fund cannot predict whether investments in IPOs will be successful.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risks Associated With An Investment In P I P E Transactions [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
Risks
Associated with an Investment in PIPE Transactions
In
private investment in public equity (“PIPE”) transactions, the Fund purchases securities directly from a publicly traded
company in a private placement transaction, typically at a discount to the market price of the company’s common stock. Because
the sale of the securities is not registered under the Securities Act of 1933, as amended (the “Securities Act”), the securities
are “restricted” and cannot be immediately resold by the investors into the public markets. Accordingly, the company typically
agrees as part of the PIPE deal to register the restricted securities with the SEC. PIPE securities may be deemed illiquid.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Privately Held Company Risk [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
Privately
Held Company Risk
Investing
in privately held companies involves risk. For example, privately held companies are not subject to SEC reporting requirements,
are not required to maintain their accounting records in accordance with generally accepted accounting principles and are not
required to maintain effective internal controls over financial reporting. As a result, the Investment Adviser may not have timely
or accurate information about the business, financial condition and results of operations of the privately held companies in which
the Fund invests. In addition, the securities of privately held companies are generally illiquid, and entail the risks described
under “—Liquidity Risk” below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
M L P Risks [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
MLP
Risks
An
investment in MLP units involves some risks that differ from an investment in the common stock of a corporation. As compared to
common stockholders of a corporation, holders of MLP units have more limited control and limited rights to vote on matters affecting
the partnership. In addition, there are certain tax risks associated with an investment in MLP units and conflicts of interest
may exist between common unit holders and the general partner, including those arising from incentive distribution payments.
A
portion of the benefit the Fund derives from its investment in equity securities of MLPs is a result of MLPs generally being treated
as partnerships for U.S. federal income tax purposes. Partnerships generally do not pay U.S. federal income tax at the partnership
level. Rather, each partner of a partnership, in computing its U.S. federal income tax liability, will include its allocable share
of the partnership’s income, gains, losses, deductions and expenses. A change in current tax law, or a change in the business
of a given MLP, could result in an MLP being treated as a corporation for U.S. federal income tax purposes, which would result
in such MLP being required to pay U.S. federal income tax on its taxable income. The classification of an MLP as a corporation
for U.S. federal income tax purposes would have the effect of reducing the amount of cash available for distribution by the MLP
and causing any such distributions received by the Fund to be treated as dividend income to the extent of the MLP’s current
or accumulated earnings and profits. Thus, if any of the MLPs owned by the Fund were treated as corporations for U.S. federal
income tax purposes, the after-tax return to the Fund with respect to its investment in such MLPs would be materially reduced,
which could cause a decline in the value of the common shares. Recently, a number of MLPs have reduced, suspended or eliminated
their distributions. In addition, changes in tax laws or regulations, or future interpretations of such laws or regulations, could
adversely affect the Fund or the MLP investments in which the Fund invests.
To
the extent that the Fund invests in the equity securities of an MLP treated as a partnership under the Code, the Fund will be
a partner in such MLP. Accordingly, the Fund will be required to include in its taxable income the Fund’s allocable share
of the income, gains, losses, deductions and credits recognized by each such MLP, regardless of whether the MLP distributes cash
to the Fund. Historically, MLPs have been able to offset a significant portion of their income with tax deductions. The Fund will
recognize taxable income on its allocable share of an MLP’s income and gains that is not offset by the MLP’s tax deductions,
losses and credits. The portion, if any, of a distribution received by the Fund from an MLP that is offset by the MLP’s
tax deductions, losses or credits is essentially treated as a return of capital. However, those distributions will reduce the
Fund’s adjusted tax basis in the equity securities of the MLP, which will result in an increase in the amount of gain (or
decrease in the amount of loss) that will be recognized by the Fund for tax purposes upon the sale of any such equity securities
and may increase the amount of income or gain that will be recognized by the Fund upon subsequent distributions in respect of
such equity securities. The percentage of an MLP’s income and gains that is offset by tax deductions, losses and credits
will fluctuate over time for various reasons. For example, a significant slowdown in acquisition activity or capital spending
by MLPs held in the Fund’s portfolio could result in a reduction of accelerated depreciation generated by new acquisitions,
which may result in a decrease in the portion of the MLP’s distributions that is offset by tax deductions.
Because
of the Fund’s investments in equity securities of MLPs, the Fund’s earnings and profits may be calculated using accounting
methods that are different from those used for calculating taxable income. Because of these differences, the Fund may make distributions
out of its current or accumulated earnings and profits, which will be treated as dividends, in years in which the Fund’s
distributions exceed its taxable income.
Adverse
developments in the natural resources sector may result in MLPs seeking to restructure debt or file for bankruptcy. Limited partners
in such MLPs, such as the Fund, may owe taxes on debt that is forgiven in a bankruptcy or an out-of-court restructuring, as cancellation
of debt income, which creates a tax liability for investors without an associated cash distribution. While an MLP facing a debt restructuring
may seek to implement structures that would limit the tax liability associated with the debt restructuring, there can be no assurance
that such structures could be successfully implemented or would not have other adverse impacts on the Fund as an investor in the MLP.
Adverse
developments in the natural resources sector may result in MLPs seeking to restructure debt or file for bankruptcy. Limited partners
in such MLPs, such as the Fund, may owe taxes on debt that is forgiven in a bankruptcy or an out-of-court restructuring, as cancellation
of debt income, which creates a tax liability for investors without an associated cash distribution. While an MLP facing a debt
restructuring may seek to implement structures that would limit the tax liability associated with the debt restructuring, there
can be no assurance that such structures could be successfully implemented or would not have other adverse impacts on the Fund
as an investor in the MLP.
MLP
Subordinated Units. Master limited partnership subordinated units are not typically listed on an exchange or publicly traded.
Holders of MLP subordinated units are entitled to receive a distribution only after the MQD has been paid to holders of common
units, but prior to payment of incentive distributions to the general partner or managing member. Master limited partnership subordinated
units generally do not provide arrearage rights. Most MLP subordinated units are convertible into common units after the passage
of a specified period of time or upon the achievement by the MLP of specified financial goals.
General
Partner and Managing Member Interests. General partner and managing member interests are not publicly traded, though they
may be owned by publicly traded entities such as GP MLPs. A holder of general partner or managing member interests can be liable
in certain circumstances for amounts greater than the amount of the holder’s investment. In addition, while a general partner
or managing member’s incentive distribution rights can mean that general partners and managing members have higher distribution
growth prospects than their underlying MLPs, these incentive distribution payments would decline at a greater rate than the decline
rate in quarterly distributions to common or subordinated unit holders in the event of a reduction in the MLP’s quarterly
distribution. A general partner or managing member interest can be redeemed by the MLP if the MLP unit holders choose to remove
the general partner, typically by a supermajority vote of the limited partners or members.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity Risk [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
Liquidity
Risk
The
investments made by the Fund may be illiquid and consequently the Fund may not be able to sell such investments at prices that
reflect the Investment Adviser’s assessment of their value, the amount paid for such investments by the Fund or at prices
approximating the value at which the Fund is carrying the securities on its books. Furthermore, the nature of the Fund’s
investments may require a long holding period prior to profitability.
Although
the equity securities of the companies in which the Fund invests generally trade on major stock exchanges, certain securities
may trade less frequently, particularly those with smaller capitalizations. Securities with limited trading volumes may display
volatile or erratic price movements. Investment of the Fund’s capital in securities that are less actively traded or over
time experience decreased trading volume may restrict the Fund’s ability to take advantage of other market opportunities.
Unregistered
securities are securities that cannot be sold publicly in the United States without registration under the Securities Act, unless an
exemption from such registration is available. 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 so that the Fund could 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
acquirer of the securities. The Fund would, in either case, bear the risks of any downward price fluctuation during that period. The
difficulties and delays associated with selling restricted securities could result in the Fund’s inability to realize a favorable
price upon disposition of such securities, and at times might make disposition of such securities impossible.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities Risk [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
Equity
Securities Risk
Master
limited partnership common units and other equity securities of midstream energy companies can be affected by macroeconomic, political,
global and other factors affecting the stock market in general, expectations of interest rates, investor sentiment towards midstream
energy companies or the natural resources sector, changes in a particular company’s financial condition, or the unfavorable or
unanticipated poor performance of a particular midstream energy company. Prices of common units and other equity securities of individual
midstream energy companies can also be affected by fundamentals unique to the partnership or company, including earnings power and coverage
ratios.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Cap And Mid Cap Company Risk [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
Small-Cap
and Mid-Cap Company Risk
Investing in the securities
of companies with small or medium-sized market capitalizations (“small-cap” and “mid-cap” companies, respectively)
presents some particular investment risks. Small-cap and
mid-cap midstream energy companies may have limited product lines and markets, as well as shorter operating histories, less experienced
management and more limited financial resources than larger midstream energy companies and may be more vulnerable to adverse general
market or economic developments. Stocks of these midstream energy companies may be less liquid than those of larger midstream energy
companies and may experience greater price fluctuations than larger midstream energy companies. In addition, small-cap or mid-cap company
securities may not be widely followed by investors, which may result in reduced demand.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risks Associated With Canadian Royalty Trusts And Canadian E And P Companies [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
Risks
Associated with Canadian Royalty Trusts and Canadian E&P Companies
With respect to investments
in royalty trusts, potential growth may be sacrificed because revenue is passed on to a royalty trust’s unitholders (such as the
Fund), rather than reinvested in the business. Royalty trusts generally do not guarantee minimum distributions or even return of capital.
If the assets underlying a royalty trust do not perform as expected, the royalty trust may reduce or even eliminate distributions. The
declaration of such distributions generally depends upon various factors, including the operating performance and financial condition
of the royalty trust and general economic conditions.
Unlike
U.S. royalty trusts, Canadian royalty trusts and E&P companies may engage in the acquisition, development and production of
natural gas and crude oil to replace depleting reserves. They may have employees, issue new shares, borrow money, acquire additional
properties, and manage the resources themselves. As a result, Canadian royalty trusts and Canadian E&P companies are exposed
to commodity risk and production and reserve risk, as well as operating risk.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canadian Risk [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
Canadian
Risk
The
Canadian economy is very dependent on the demand for, and supply and price of, natural resources. The Canadian market is relatively concentrated
in issuers involved in the production and distribution of natural resources. There is a risk that any changes in the natural resources
sector could have an adverse impact on the Canadian economy. The Canadian economy is dependent on the economy of the United States as
a key trading partner. Reduction in spending on Canadian products and services or changes in the U.S. economy may cause an impact in
the Canadian economy. The Canadian economy may be significantly affected by the U.S. economy, given that the United States is Canada’s
largest trading partner and foreign investor. Since the implementation of the North American Free Trade Agreement (“NAFTA”)
in 1994, total two-way merchandise trade between the United States and Canada has more than doubled. To further this relationship, all
three NAFTA countries entered into The Security and Prosperity Partnership of North America in March 2005, which addressed economic and
security related issues, and the US-Mexico-Canada Agreement, which replaced NAFTA effective July 1, 2020. These agreements may further
affect Canada’s dependency on the U.S. economy. Past periodic demands by the Province of Quebec for sovereignty have significantly
affected equity valuations and foreign currency movements in the Canadian market.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non U S Securities Risk [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
Non-U.S.
Securities Risk
Investing
in non-U.S. securities involves certain risks not involved in domestic investments, including, but not limited to: fluctuations
in foreign exchange rates; future foreign economic, financial, political and social developments; different legal systems; the
possible imposition of exchange controls or other foreign governmental laws or restrictions, including expropriation; lower trading
volume; much greater price volatility and illiquidity of certain non-U.S. securities markets; different trading and settlement
practices; less governmental supervision; changes in currency exchange rates; high and volatile rates of inflation; fluctuating
interest rates; less publicly available information; and different accounting, auditing and financial recordkeeping standards
and requirements.
Certain
non-U.S. countries, especially emerging market countries, historically have experienced, and may continue to experience, high rates of
inflation, high interest rates, exchange rate fluctuations, large amounts of external debt, balance of payments and trade difficulties
and extreme poverty and unemployment. Many of these countries are also characterized by political uncertainty and instability. The cost
of servicing external debt will generally be adversely affected by rising international interest rates because many external debt obligations
bear interest at rates that are adjusted based upon international interest rates. In addition, with respect to certain foreign countries,
there is a risk of: the possibility of expropriation or nationalization of assets; confiscatory taxation; difficulty in obtaining or
enforcing a court judgment; restrictions on currency repatriation; economic, political or social instability; and diplomatic developments
that could affect investments in those countries.
Changes in foreign currency
exchange rates may affect the value of securities denominated or quoted in currencies other than the U.S. dollar and the unrealized appreciation
or depreciation of investments. Currencies of certain countries may be volatile and therefore may affect the value of securities denominated
in such currencies, which means that the Fund’s net asset value or current income could decline as a result of changes in the exchange
rates between foreign currencies and the U.S. dollar. Certain investments in non-U.S. securities also may be subject to foreign withholding
taxes. Dividend income from non-U.S. corporations may not be eligible for the reduced U.S. income tax rate currently available for qualified
dividend income. These risks often are heightened for investments in smaller, emerging capital markets. In addition, individual foreign
economies may differ favorably or unfavorably from the U.S. economy in such respects as: growth of gross domestic product; rates of inflation;
capital reinvestment; resources; self-sufficiency; and balance of payments position.
Investing
in securities of issuers based in underdeveloped emerging markets entails all of the risks of investing in securities of non-U.S.
issuers to a heightened degree. “Emerging market countries” generally include every nation in the world except developed
countries, that is the United States, Canada, Japan, Australia, New Zealand and most countries located in Western Europe. These
heightened risks include: greater risks of expropriation, confiscatory taxation, nationalization, and less social, political and
economic stability; the smaller size of the market for such securities and a lower volume of trading, resulting in lack of liquidity
and an increase in price volatility; and certain national policies that may restrict the Fund’s investment opportunities
including restrictions on investing in issuers or industries deemed sensitive to relevant national interests. As a result of these
potential risks, the Investment Adviser may determine that, notwithstanding otherwise favorable investment criteria, it may not
be practicable or appropriate to invest in a particular country.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Risk [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
Interest
Rate Risk
Interest
rate risk is the risk that fixed rate securities such as preferred and debt securities will decline in value because of increases
in market interest rates. When market interest rates rise, the market value of such securities generally will fall. Longer-term
fixed rate securities are generally more sensitive to interest rate changes. Greater sensitivity to changes in interest rates
typically corresponds to increased volatility and increased risk. The Fund’s investment in such securities means that the
net asset value and market price of, and distributions on, common shares will tend to decline if the market interest rates rise.
Duration is a measure of sensitivity to changes in interest rates and reflects a variety of factors, including the maturity and
variability, if any, of the interest rate and the call potential of the security. For this reason, duration should not be confused
with maturity. If a portfolio has a duration of three years and interest rates increase by 1%, then, all else being equal, the
portfolio would decline in value by approximately 3%. These risks may be greater in the current market environment because while
interest rates were historically low in recent years, the Federal Reserve has been increasing the Federal Funds rate to address
inflation. Any interest rate increases in the future could cause the value of the Fund to decrease.
The
risk of loss on preferred securities due to rising market interest rates may be exacerbated by extension risk, which is the risk
of a preferred security’s expected maturity and duration lengthening, and therefore the interest rate risk that it presents
increasing, if and when market interest rates rise. Extension risk is caused by the fact that preferred securities are typically
callable by the issuer, and callable fixed rate securities are more likely to be called in a lower market interest rate environment
(because the issuer can refinance those securities at low current market rates); conversely, callable fixed rate securities become
less likely to be called if market interest rates rise. Because rising market interest rates reduce the likelihood that an issuer
will exercise its right to call a preferred security, such an interest rate rise causes the duration of that security, and therefore
its interest rate risk going forward, to increase, thus increasing, in an accelerating manner, the degree to which any further
interest rate rise will cause the security to lose value.
Additionally,
the costs associated with any leverage used by the Fund are likely to increase when interest rates rise. Accordingly, the market
price of the Fund’s common shares may decline when interest rates rise. The risk of interest rates rising is more pronounced
in the current market environment because of recent monetary policy measures and the low interest rate environment in recent years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Hedging Risk [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
Interest
Rate Hedging Risk
The
Fund may from time-to-time hedge against interest rate risk resulting from the Fund’s portfolio holdings and any leverage
it may incur. Interest rate transactions the Fund may use for hedging purposes will expose the Fund to certain risks that differ
from the risks associated with its portfolio holdings. There are economic costs of hedging reflected in the price of interest
rate swaps, caps and similar techniques, the cost of which can be significant. In addition, the Fund’s success in using
hedging instruments is subject to the Investment Adviser’s ability to correctly predict changes in the relationships of
such hedging instruments to the Fund’s leverage risk, and there can be no assurance that the Investment Adviser’s
judgment in this respect will be accurate. Depending on the state of interest rates in general, the Fund’s use of interest
rate hedging instruments could enhance or decrease investment company taxable income available to the holders of its common shares.
To the extent there is a decline in interest rates, the value of interest rate swaps or caps could decline, and result in a decline
in the net asset value of the Fund’s common shares. In addition, if the counterparty to an interest rate swap or cap defaults,
the Fund would not be able to use the anticipated net receipts under the interest rate swap or cap to offset its cost of leverage.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arbitrage Risk [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
Arbitrage
Risk
A
part of the Investment Adviser’s investment operations may involve spread positions between two or more securities, or derivatives
positions including commodities hedging positions, or a combination of the foregoing. The Investment Adviser’s trading operations
also may involve arbitraging between two securities or commodities, between the security, commodity and related options or derivatives
markets, between spot and futures or forward markets, and/or any combination of the above. To the extent the price relationships
between such positions remain constant, no gain or loss on the positions will occur. These offsetting positions entail substantial
risk that the price differential could change unfavorably, causing a loss to the position. Certain derivatives transactions have
economic characteristics similar to leverage.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leverage Risk [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
Leverage
Risk
The
Fund may use leverage through the issuance of indebtedness or the issuance of preferred shares. The use of leverage magnifies
both the favorable and unfavorable effects of price movements in the investments made by the Fund. Insofar as the Fund employs
leverage in its investment operations, the Fund will be subject to increased risk of loss. In addition, the Fund will pay (and
the holders of common shares will bear) all costs and expenses relating to the issuance and ongoing maintenance of leverage, including
higher advisory fees. Similarly, any decline in the net asset value of the Fund’s investments will be borne entirely by
the holders of common shares. Therefore, if the market value of the Fund’s portfolio declines, the leverage will result
in a greater decrease in net asset value to the holders of common shares than if the Fund were not leveraged. This greater net
asset value decrease will also tend to cause a greater decline in the market price for the common shares.
Leverage
creates a greater risk of loss, as well as potential for more gain, for the Fund’s common shares than if leverage is not
used. Preferred shares or debt issued by the Fund would have complete priority upon distribution of assets over common shares.
Depending on the type of leverage involved, the Fund’s use of leverage may require the approval of its Board of Trustees.
The Fund expects to invest the net proceeds derived from any leveraging according to the investment objective and policies described
in this Prospectus. So long as the Fund’s portfolio is invested in securities that provide a higher rate of return than
the distribution rate or interest rate of the leverage instrument or other borrowing arrangements, after taking its related expenses
into consideration, the leverage will cause the Fund’s common shareholders to receive a higher rate of income than if it
were not leveraged. There is no assurance that any Fund will continue to utilize leverage or, if leverage is utilized, that it
will be successful in enhancing the level of the Fund’s total return. The net asset value of the Fund’s common shares
will be reduced by the fees and issuance costs of any leverage.
Leverage
creates risk for holders of the Fund’s common shares, including the likelihood of greater volatility of net asset value
and market price of the shares. Risk of fluctuations in distribution rates or interest rates on leverage instruments or other
borrowing arrangements may affect the return to the holders of the Fund’s common shares. To the extent the return on securities
purchased with funds received from the use of leverage exceeds the cost of leverage (including increased expenses to the Fund),
the Fund’s returns will be greater than if leverage had not been used. Conversely, if the return derived from such securities
is less than the cost of leverage (including increased expenses to the Fund), the Fund’s returns will be less than if leverage
had not been used, and therefore, the amount available for distribution to the Fund’s common shareholders will be reduced.
In the latter case, the Investment Adviser in its best judgment nevertheless may determine to maintain the Fund’s leveraged
position if it expects that the benefits to the Fund’s common shareholders of so doing will outweigh the current reduced
return. Under normal market conditions, the Fund anticipates that it will be able to invest the proceeds from leverage at a higher
rate than the costs of leverage (including increased expenses to the Fund), which would enhance returns to the Fund’s common
shareholders. The fees paid to the Investment Adviser will be calculated on the basis of the Fund’s Managed Assets, which
include proceeds from leverage instruments and other borrowings. During periods in which the Fund uses leverage, the investment
management fee payable to the Investment Adviser will be higher than if the Fund did not use a leveraged capital structure. Consequently,
the Fund and the Investment Adviser may have differing interests in determining whether to leverage the Fund’s assets. The
Board of Trustees will monitor the Fund’s use of leverage and this potential conflict.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Lending Risk [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
Securities
Lending Risk
The
Fund may lend its portfolio securities (up to a maximum of one-third of Managed Assets) to banks or dealers which meet the creditworthiness
standards established by the Board of Trustees of the Fund. Securities lending is subject to the risk that loaned securities may
not be available to the Fund on a timely basis and the Fund may, therefore, lose the opportunity to sell the securities at a desirable
price. Any loss in the market price of securities loaned by the Fund that occurs during the term of the loan would be borne by
the Fund and would adversely affect the Fund’s performance. In addition, there may be delays in recovery, or no recovery,
of securities loaned or even a loss of rights in the collateral should the borrower of the securities fail financially while the
loan is outstanding. These risks may be greater for non-U.S. securities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non Diversification Risk [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
Non-Diversification
Risk
The
Fund is a non-diversified, closed-end management investment company under the 1940 Act. Accordingly, the Fund invests a greater portion
of its assets in a more limited number of issuers than a diversified fund. An investment in the Fund may present greater risk to an investor
than an investment in a diversified portfolio because changes in the financial condition or market assessment of a single issuer may
cause greater fluctuations in the value of the Fund’s shares.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation Risk [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
Valuation
Risk
Market
prices may not be readily available for certain of the Fund’s investments, and the value of such investments will ordinarily
be determined based on fair valuations determined by the Investment Adviser pursuant to procedures adopted by the Board of Trustees
and the Investment Adviser as valuation designee. Restrictions on resale or the absence of a liquid secondary market may adversely
affect the Fund’s ability to determine such investment’s net asset value. The sale price of securities that are not
readily marketable may be lower or higher than the Fund’s most recent determination of their fair value.
In
addition, the value of these securities typically requires more reliance on the judgment of the Investment Adviser than that required
for securities for which there is an active trading market. Due to the difficulty in valuing these securities and the absence
of an active trading market for these investments, the Fund may not be able to realize these securities’ true value or may
have to delay their sale in order to do so.
When
determining the fair value of an asset, the Investment Adviser seeks to determine the price that the Fund might reasonably expect
to receive from the current sale of that asset in an arm’s length transaction. Fair value pricing, however, involves judgments
that are inherently subjective and inexact, since fair valuation procedures are used only when it is not possible to be sure what
value should be attributed to a particular asset or when an event will affect the market price of an asset and to what extent.
As a result, there can be no assurance that fair value pricing will reflect actual market value, and it is possible that the fair
value determined for a security will be materially different from the value that actually could be or is realized upon the sale
of that asset.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio Turnover Risk [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
Portfolio
Turnover Risk
Portfolio
turnover rate is not considered a limiting factor in the Investment Adviser’s execution of investment decisions. The Fund
anticipates that its annual portfolio turnover rate may vary greatly from year to year. A higher portfolio turnover rate results
in correspondingly greater brokerage commissions and other transactional expenses that are borne by the Fund. High portfolio turnover
may result in an increased realization of net short-term capital gains or capital losses by the Fund.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic Transactions Risk [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
Strategic
Transactions Risk
The
Fund’s use of Strategic Transactions may involve the purchase and sale of derivative instruments. The Fund may purchase
and sell exchange-listed and over the counter put and call options on securities, indices and other instruments, enter into forward
contracts, purchase and sell futures contracts and options thereon, enter into swap, cap, floor or collar transactions, purchase
structured investment products and enter into transactions that combine multiple derivative instruments. Strategic Transactions
often have risks similar to the securities underlying the Strategic Transactions. However, the use of Strategic Transactions also
involves risks that are different from, and possibly greater than, the risks associated with other portfolio investments. Strategic
Transactions may involve the use of highly specialized instruments that require investment techniques and risk analyses different
from those associated with other portfolio investments. The use of derivative instruments has risks, including the imperfect correlation
between the value of the derivative instruments and the underlying assets, the possible default of the counterparty to the transaction
or illiquidity of the derivative investments. Furthermore, the ability to successfully use these techniques depends on the Investment
Adviser’s ability to predict pertinent market movements, which cannot be assured. Thus, the use of Strategic Transactions
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, amounts paid by the Fund as
premiums and cash, or other assets held in margin accounts with respect to Strategic Transactions, are not otherwise available
to the Fund for investment purposes. It is possible that government regulation of various types of derivative instruments, including
regulations enacted pursuant to the Dodd-Frank Act, which was signed into law in July 2010, may impact the availability, liquidity
and cost of derivative instruments. There can be no assurance that such regulation will not have a material adverse effect on
the Fund or will not impair the ability of the Fund to implement certain Strategic Transactions or to achieve their investment
objectives. Although the Investment Adviser seeks to use Strategic Transactions to further the Fund’s investment objective,
no assurance can be given that the use of Strategic Transactions will achieve this result.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Instrument Risk [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
Convertible
Instrument Risk
A convertible instrument
is a bond, debenture, note, preferred stock or other security that may be converted into or exchanged for a prescribed number of common
shares of the same or a different issuer within a particular period of time at a specified price or formula. Convertible debt instruments
have characteristics of both fixed income and equity investments. Convertible instruments are subject both to the stock market risk associated
with equity securities and to the credit and interest rate risks associated with fixed-income securities. As the market price of the
equity security underlying a convertible instrument falls, the convertible instrument tends to trade on the basis of its yield and other
fixed-income characteristics. As the market price of such equity security rises, the convertible security tends to trade on the basis
of its equity conversion features. Some convertible instruments have varying conversion values. Convertible instruments are typically
issued at prices that represent a premium to their conversion value. Accordingly, the value of a convertible instrument increases (or
decreases) as the price of the underlying equity security increases (or decreases). If a convertible instrument held by the Fund is called
for redemption, the Fund will be required to permit the issuer to redeem the instrument, or convert it into the underlying stock, and
will hold the stock to the extent the Investment Adviser determines that such equity investment is consistent with the investment objective
of that Fund.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Counterparty Risk [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
Counterparty
Risk
The
Fund will be subject to credit risk with respect to the counterparties to the derivative contracts entered into by the Fund. 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 bankruptcy or other reorganization
proceedings. The Fund may obtain only a limited recovery, or may obtain no recovery, in such circumstances.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short Sales Risk [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
Short
Sales Risk
Short
selling involves selling securities which may or may not be owned and borrowing the same securities for delivery to the purchaser,
with an obligation to replace the borrowed securities at a later date. Short selling allows the short seller to profit from declines
in market prices to the extent such declines exceed the transaction costs and the costs of borrowing the securities. A naked short
sale creates the risk of an unlimited loss because the price of the underlying security could theoretically increase without limit,
thus increasing the cost of buying those securities to cover the short position. There can be no assurance that the securities
necessary to cover a short position will be available for purchase. Purchasing securities to close out the short position can
itself cause the price of the securities to rise, further exacerbating the loss.
The
Fund’s obligation to replace the borrowed security will be secured by collateral deposited with the broker-dealer, usually
cash, U.S. government securities or other liquid securities similar to those borrowed. The Fund also will be required to segregate
similar collateral to the extent, if any, necessary so that the value of both collateral amounts in the aggregate is at all times
equal to at least 100% of the current market value of the security sold short. Depending on arrangements made with the broker-dealer
from which the Fund borrowed the security regarding repaying amounts received by the Fund on such security, the Fund may not receive
any payments (including interest) on the Fund’s collateral deposited with such broker-dealer.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inflation Risk [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
Inflation
Risk
Inflation
risk is the risk that the value of assets or income from investment will be worth less in the future as inflation decreases the
value of money. As inflation increases, the real value of the Fund’s common shares and distributions can decline. Inflation
risk is more pronounced in the current market environment because of recent monetary policy measures and the low interest rate
environment in recent years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deflation Risk [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
Deflation
Risk
Deflation
risk is the risk that prices throughout the economy decline over time, which may have an adverse effect on the market valuation
of companies, their assets and their revenues. In addition, deflation may have an adverse effect on the creditworthiness of issuers
and may make issuer default more likely, which may result in a decline in the value of the Fund’s portfolio.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Securities Risk [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
Debt
Securities Risk
Debt
securities are subject to many of the risks described elsewhere in this section. In addition, they are subject to credit risk,
prepayment risk and, depending on their quality, other special risks.
Credit
Risk. An issuer of a debt security may be unable to make interest payments and repay principal. A Fund could lose money if
the issuer of a debt obligation is, or is perceived to be, unable or unwilling to make timely principal and/or interest payments,
or to otherwise honor its obligations. The downgrade of a security may further decrease its value.
Prepayment
Risk. Certain debt instruments, particularly below investment grade securities, may contain call or redemption provisions
which would allow the issuer of the debt instrument to prepay principal prior to the debt instrument’s stated maturity.
This is also sometimes known as prepayment risk. Prepayment risk is greater during a falling interest rate environment as issuers
can reduce their cost of capital by refinancing higher yielding debt instruments with lower yielding debt instruments. An issuer
may also elect to refinance its debt instruments with lower yielding debt instruments if the credit standing of the issuer improves.
To the extent debt securities in the Fund’s portfolio are called or redeemed, that Fund may be forced to reinvest in lower
yielding securities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock Risk [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
Preferred
Stock Risk
Preferred
stocks combine some of the characteristics of both common stocks and debt securities. Preferred stocks generally pay a fixed rate of
return and are sold on the basis of current yield, like debt securities. However, because they are equity securities, preferred stock
provides equity ownership of a company, and the income is paid in the form of distributions. Preferred stocks typically have a yield
advantage over common stocks as well as comparably rated fixed income investments. Preferred stocks are typically subordinated to bonds
and other debt instruments in a company’s capital structure, in terms of priority to corporate income, and therefore will be subject
to greater credit risk than those debt instruments. Unlike interest payments on debt securities, preferred stock distributions are payable
only if declared by the issuer’s board of directors. Preferred stocks also may be subject to optional or mandatory redemption provisions.
Convertible preferred stocks have risks similar to convertible securities as described above in “—Convertible Instrument
Risk.”
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Below Investment Grade Securities Junk Bonds Risk [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
Below
Investment Grade Securities (Junk Bonds) Risk
Below
investment grade and unrated debt securities generally pay a premium above the yields of U.S. government securities or debt securities
of investment grade issuers because they are subject to greater risks than those securities. These risks, which reflect their
speculative character, include the following: greater yield and price volatility; greater credit risk and risk of default; potentially
greater sensitivity to general economic or industry conditions; potential lack of attractive resale opportunities (illiquidity);
and additional expenses to seek recovery from issuers who default. Debt securities rated below investment grade are commonly known
as “junk bonds” and are regarded as predominantly speculative with respect to the issuer’s capacity to pay interest
and repay principal in accordance with the terms of the obligations and involve major risk exposure to adverse conditions.
The
prices of these below investment grade and unrated debt securities are more sensitive to negative developments, such as a decline in
the issuer’s revenues, downturns in profitability in the natural resources sector or a general economic downturn, than are the
prices of higher-grade securities. Below investment grade and unrated debt securities tend to be less liquid than investment grade securities
and the market for below investment grade and unrated debt securities could contract further under adverse market or economic conditions.
In such a scenario, it may be more difficult for the Fund to sell these securities in a timely manner or for as high a price as could
be realized if such securities were more widely traded. The market value of below investment grade and unrated debt securities may be
more volatile than the market value of investment grade securities and generally tends to reflect the market’s perception of the
creditworthiness of the issuer and short-term market developments to a greater extent than investment grade securities, which primarily
reflect fluctuations in general levels of interest rates. In the event of a default by a below investment grade or unrated debt security
held in the Fund’s portfolio in the payment of principal or interest, the Fund may incur additional expense to the extent the Fund
is required to seek recovery of such principal or interest.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Investment Companies Risk [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
Other
Investment Companies Risk
Investments in investment
company securities are subject to the risks of the purchased investment company’s portfolio securities. In addition, Fund shareholders
will bear not only their proportionate share of the expenses of the Fund (including operating expenses and the fees of the investment
adviser), but also will indirectly bear similar expenses of the underlying investment company in which the Fund invests. Certain investments
company securities, including other closed-end funds and ETFs, may trade at market prices that differ from the net asset value of the
particular fund. In addition, the securities of other investment companies may also be leveraged and will therefore be subject to the
same leverage risks described herein. As described in the section entitled “—Leverage Risk,” the net asset value and
market value of leveraged shares will be more volatile and the yield to stockholders 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 and the value of such
investments will be dependent upon the investment and research abilities of persons other than the Investment Adviser.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E T N And E T F Risk [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
ETN
and ETF Risk
An
exchange-traded note (“ETN”) or exchange-traded fund (“ETF”) that is based on a specific index may not
be able to replicate and maintain exactly the composition and relative weighting of securities in the index. An ETN or ETF also
incurs certain expenses not incurred by its applicable index. The market value of an ETN or ETF share may differ from its net
asset value; the share may trade at a premium or discount to its net asset value, which may be due to, among other things, differences
in the supply and demand in the market for the share and the supply and demand in the market for the underlying assets of the
ETN or ETF. In addition, certain securities that are part of the index tracked by an ETN or ETF may, at times, be unavailable,
which may impede the ETN’s or ETF’s ability to track its index. An ETF that uses leverage can, at times, be relatively
illiquid, which can affect whether its share price approximates net asset value. As a result of using leverage, an ETF is subject
to the risk of failure in the futures and options markets it uses to obtain leverage and the risk that a counterparty will default
on its obligations, which can result in a loss to the Fund. If the Fund invests in ETFs, the Fund’s shareholders will bear
not only their proportionate share of the expenses of the Fund, but also will indirectly bear similar expenses of the underlying
ETF. Although an ETN is a debt security, it is unlike a typical bond, in that there are no periodic interest payments and principal
is not protected.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Management Risk [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
Investment
Management Risk
The
Fund’s portfolio is subject to investment management risk because it will be actively managed. The Investment Adviser will
apply investment techniques and risk analyses in making investment decisions for the Fund, but there can be no guarantee that
they will produce the desired results.
The
decisions with respect to the management of the Fund are made exclusively by the Investment Adviser, subject to the oversight
of the Board of Trustees. Investors have no right or power to take part in the management of the Fund. The Investment Adviser
also is responsible for all of the trading and investment decisions of the Fund. In the event of the withdrawal or bankruptcy
of the Investment Adviser, generally the affairs of the Fund will be wound-up, and its assets will be liquidated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dependence On Key Personnel Of The Investment Adviser [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
Dependence
on Key Personnel of the Investment Adviser
The
Fund is dependent upon the Investment Adviser’s key personnel for its future success and upon their access to certain individuals
and investments in the natural resources sector. In particular, the Fund will depend on the diligence, skill and network of business
contacts of the personnel of the Investment Adviser and its portfolio managers, who will evaluate, negotiate, structure, close and monitor
the Fund’s investments. The portfolio managers have equity interests and other financial incentives to remain with the firm. The
Fund will also depend on the senior management of the Investment Adviser. The departure of a member or members of the Investment Adviser’s
senior management could have a material adverse effect on the Fund’s ability to achieve its investment objective. In addition,
the Fund can offer no assurance that the Investment Adviser will remain its investment adviser, or that the Fund will continue to have
access to the Investment Adviser’s natural resources sector contacts and deal flow.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conflicts Of Interest With The Investment Adviser [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
Conflicts
of Interest with the Investment Adviser
Conflicts
of interest may arise because the Investment Adviser and its affiliates generally will be carrying on substantial investment activities
for other clients, including, but not limited to, other client accounts and funds managed or advised by the Investment Adviser,
in which the Fund will have no interest. The Investment Adviser or its affiliates may have financial incentives to favor certain
of such accounts over the Fund. Any of their proprietary accounts and other customer accounts may compete with the Fund for specific
trades. The Investment Adviser or its affiliates may buy or sell securities for the Fund which differ from securities bought or
sold for other accounts and customers, even though their investment objectives and policies may be similar to the Fund’s.
Situations may occur when the Fund could be disadvantaged because of the investment activities conducted by the Investment Adviser
and its affiliates for their other accounts. Such situations may be based on, among other things, legal or internal restrictions
on the combined size of positions that may be taken for the Fund and the other accounts, limiting the size of the Fund’s
position, or the difficulty of liquidating an investment for the Fund and the other accounts where the market cannot absorb the
sale of the combined position. Notwithstanding these potential conflicts of interest, the Fund’s Board of Trustees and officers
have a fiduciary obligation to act in the Fund’s best interest.
The
Fund’s investment opportunities may be limited by affiliations of the Investment Adviser or its affiliates with midstream
energy companies. In addition, to the extent that the Investment Adviser sources and structures private investments in midstream
energy companies, certain employees of the Investment Adviser may become aware of actions planned by midstream energy companies,
such as acquisitions that may not be announced to the public. It is possible that the Fund could be precluded from investing in
a company about which the Investment Adviser has material non-public information; however, it is the Investment Adviser’s
intention to ensure that any material non-public information available to certain of the Investment Adviser’s employees
not be shared with those employees responsible for the purchase and sale of publicly traded securities.
The
Investment Adviser manages several other client accounts and funds. Some of these other client accounts and funds have investment
objectives that are similar to or overlap with the Fund. Furthermore, the Investment Adviser may at some time in the future manage
additional client accounts and investment funds with the same investment objective as the Fund.
The
Investment Adviser and its affiliates generally will be carrying on substantial investment activities for other clients’
accounts and funds in which the Fund will have no interest. Investment decisions for the Fund are made independently from those
of such other clients; however, from time to time, the same investment decision may be made for more than one fund or account.
When two or more clients advised by the Investment Adviser or its affiliates seek to purchase or sell the same publicly traded
securities, the securities actually purchased or sold will be allocated among the clients on a good faith equitable basis by the
Investment Adviser in its discretion in accordance with the clients’ various investment objectives and procedures adopted
by the Investment Adviser and approved by the Fund’s Board of Trustees. In some cases, this system may adversely affect
the price or size of the position the Fund may obtain.
The
Fund’s investment opportunities may be limited by investment opportunities that the Investment Adviser is evaluating for
other clients’ accounts and funds. To the extent a potential investment is appropriate for the Fund and one or more of the
Investment Adviser’s other client accounts or funds, the Investment Adviser will need to fairly allocate that investment
to the Fund or another client account or fund, or both, depending on its allocation procedures and applicable law related to combined
or joint transactions. There may occur an attractive limited investment opportunity suitable for the Fund in which the Fund cannot
invest under the particular allocation method being used for that investment.
Under
the 1940 Act, the Fund and such other client accounts or funds managed or advised by the Investment Adviser may be precluded from
co-investing in certain private placements of securities. Except as permitted by law or positions of the staff of the SEC, the
Investment Adviser will not co-invest its other clients’ assets in private transactions in which the Fund invests. To the
extent the Fund is precluded from co-investing, the Investment Adviser will allocate private investment opportunities among its
clients, including but not limited to the Fund and its other client accounts and funds, based on allocation policies that take
into account several suitability factors, including the size of the investment opportunity, the amount each client has available
for investment and the client’s investment objectives. These allocation policies may result in the allocation of investment
opportunities to another client account or fund managed or advised by the Investment Adviser rather than to the Fund.
The
management fees payable to the Investment Adviser are based on the value of the Fund’s Managed Assets, as periodically determined.
A portion of the Fund’s Managed Assets may be illiquid securities acquired in private transactions for which market quotations
will not be readily available. Although the Fund and the Investment Adviser as valuation designee have adopted valuation procedures
designed to determine valuations of illiquid securities in a manner that reflects their fair value, there typically is a range
of possible prices that may be established for each individual security. See “—Valuation Risk.”
Skadden,
Arps, Slate, Meagher & Flom LLP, counsel to the Fund, also represents the Investment Adviser. Such counsel does not purport
to represent the separate interests of the investors and has assumed no obligation to do so. Accordingly, the investors have not
had the benefit of independent counsel in the structuring of the Fund or determination of the relative interests, rights and obligations
of the Investment Adviser and the investors.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reliance On Service Providers [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
Reliance
on Service Providers
The
Fund relies upon service providers to perform certain functions, which may include functions that are integral to the operations
and financial performance of the Fund. Fees and expenses of these service providers are borne by the Fund, and therefore indirectly
by common shareholders. Failure by any service provider to carry out its obligations to the Fund in accordance with the terms
of its appointment, to exercise due care and skill, or to perform its obligations to the Fund at all as a result of insolvency,
bankruptcy or other causes could have a material adverse effect on the Fund’s performance and ability to achieve its investment
objective. The termination of the Fund’s relationship with any service provider, or any delay in appointing a replacement
for such service provider, could materially disrupt the business of that Fund and could have a material adverse effect on the
Fund’s performance and ability to achieve its investment objective.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology Risk [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
Technology
Risk
As
the use of Internet technology has become more prevalent, the Fund and its service providers and markets generally have become
more susceptible to potential operational risks related to intentional and unintentional events that may cause the Fund or a service
provider to lose proprietary information, suffer data corruption or lose operational capacity. There can be no guarantee that
any risk management systems established by the Fund, its service providers, or issuers of the securities in which the Fund invests
to reduce technology and cyber security risks will succeed, and the Fund cannot control such systems put in place by service providers,
issuers or other third parties whose operations may affect the Fund.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cyber Security Risk [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
Cyber
Security Risk
As
the use of technology has become more prevalent in the course of business, the Fund has become potentially more susceptible to operational
and informational security risks resulting from breaches in cyber security. A breach in cyber security refers to both intentional and
unintentional cyber events that may, among other things, cause the Fund to lose proprietary information, suffer data corruption and/or
destruction, lose operational capacity, result in the unauthorized release or other misuse of confidential information, or otherwise
disrupt normal business operations. In addition, cyber security breaches involving the Fund’s third-party service providers (including
but not limited to advisers, administrators, transfer agents, custodians, distributors and other third parties), trading counterparties
or issuers in which the Fund invests in can also subject the Fund to many of the same risks associated with direct cyber security breaches.
Like with operational risk in general, the Fund has established risk management systems and business continuity plans designed to reduce
the risks associated with cyber security. However, there are inherent limitations in these plans and systems, including that certain
risks may not have been identified, in large part because different or unknown threats may emerge in the future. As such, there is no
guarantee that such efforts will succeed, especially because the Fund does not directly control the cyber security systems of issuers
in which the Fund invests, trading counterparties or third-party service providers to the Fund. There is also a risk that cyber security
breaches may not be detected. The Fund and its shareholders could be negatively impacted as a result.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Risks [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
Tax
Risks
The
Fund has elected to be treated, and intends to continue to qualify to be treated, as a RIC under section 851 of the Code. In order
to continue to qualify as a RIC, the Fund must, among other things, satisfy income, asset diversification and distribution requirements.
As long as the Fund so qualifies, it will generally not be subject to U.S. federal income tax to the extent that it distributes
annually the Fund taxable income and gains. There can be no assurance that the Fund will qualify as a RIC for any given year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions Risk [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
Distributions
Risk
The
Fund’s net investment income can vary significantly over time; however, the Fund seeks to maintain a more stable monthly distribution
per share. The distributions paid by the Fund for any particular month may be more or less than the amount of net investment income for
that monthly period. The Fund may distribute more than the entire amount of the net investment income earned in a particular period,
in which case all or a portion of a distribution may be a return of capital. The Fund's distributions have historically included,
and may in the future include, a significant portion of return of capital. For the fiscal year ended November 30, 2022, the Fund's distributions
were comprised of approximately 28% ordinary income and 72% return of capital. Accordingly, shareholders should not assume that the source
of a distribution from the Fund is net income or profit, and the Fund's distributions should not be used as a measure of performance
or confused with yield or income.
Return
of capital is the return of a portion of the shareholder’s original investment up to the amount of the Common Shareholder’s
tax basis in their Common Shares, which would reduce such tax basis. Although a return of capital may not be taxable, it will generally
increase the Common Shareholder’s potential gain, or reduce the Common Shareholder’s potential loss, on any subsequent sale
or other disposition of Common Shares. In any given year, there can be no guarantee the Fund’s investment returns will exceed the
amount of distributions. To the extent the amount of distributions paid to shareholders in cash exceeds the total net investment returns
of the Fund, the assets of the Fund will decline, which may have the effect of increasing the Fund’s expense ratio. In addition,
in order to make such distributions, the Fund may have to sell a portion of its investment portfolio at a time when independent investment
judgment might not dictate such action. Shareholders should not assume that the source of a distribution from the Fund is net income
or profit, and the Fund’s distributions should not be used as a measure of performance or confused with yield or income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market Discount From Net Asset Value [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
Market
Discount from Net Asset Value
Shares
of closed-end investment companies frequently trade at a discount from their net asset value, which is a risk separate and distinct
from the risk that the Fund’s net asset value could decrease as a result of its investment activities. Although the value
of the Fund’s net assets is generally considered by market participants in determining whether to purchase or sell common
shares, whether investors will realize gains or losses upon the sale of common shares will depend entirely upon whether the market
price of common shares at the time of sale is above or below the investor’s purchase price for common shares. Because the
market price of common shares will be determined by factors such as net asset value, distribution and distribution levels (which
are dependent, in part, on expenses), supply of and demand for common shares, stability of distributions or distributions, trading
volume of common shares, general market and economic conditions and other factors beyond the control of the Fund, the Fund cannot
predict whether common shares will trade at, below or above net asset value or at, below or above the initial public offering
price. Common shares of the Fund are designed primarily for long-term investors; investors in common shares should not view their
Fund as a vehicle for trading purposes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recent Market Economic And Social Developments Risk [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
Recent
Market, Economic and Social Developments Risk
Periods
of market volatility remain, and may continue to occur in the future, in response to various political, social and economic events
both within and outside of the United States. These conditions have resulted in, and in many cases continue to result in, greater
price volatility, less liquidity, widening credit spreads and a lack of price transparency, with many securities remaining illiquid
and of uncertain value. Such market conditions may adversely affect the Fund, including by making valuation of some of the Fund’s
securities uncertain and/or result in sudden and significant valuation increases or declines in the Fund’s holdings. If
there is a significant decline in the value of the Fund’s portfolio, this may impact the asset coverage levels for the Fund’s
outstanding leverage.
Risks
resulting from any future debt or other economic crisis could also have a detrimental impact on the global economic recovery,
the financial condition of financial institutions and the Fund’s business, financial condition and results of operation.
Market and economic disruptions have affected, and may in the future affect, consumer confidence levels and spending, personal
bankruptcy rates, levels of incurrence and default on consumer debt and home prices, among other factors. To the extent uncertainty
regarding the U.S. or global economy negatively impacts consumer confidence and consumer credit factors, the Fund’s business,
financial condition and results of operations could be significantly and adversely affected. Downgrades to the credit ratings
of major banks could result in increased borrowing costs for such banks and negatively affect the broader economy. Moreover, Federal
Reserve policy, including with respect to certain interest rates, may also adversely affect the value, volatility and liquidity
of dividend- and interest-paying securities. Market volatility, rising interest rates and/or unfavorable economic conditions could
impair the Fund’s ability to achieve its investment objective.
The
occurrence of events similar to those in recent years, such as localized wars, instability, new and ongoing pandemics (such as
COVID-19), epidemics or outbreaks of infectious diseases in certain parts of the world, natural/environmental disasters, terrorist
attacks in the U.S. and around the world, social and political discord, debt crises sovereign debt downgrades, increasingly strained
relations between the U.S. and a number of foreign countries, new and continued political unrest in various countries, the exit
or potential exit of one or more countries from the EU or the EMU, continued changes in the balance of political power among and
within the branches of the U.S. government, government shutdowns, among others, may result in market volatility, may have long
term effects on the U.S. and worldwide financial markets, and may cause further economic uncertainties in the U.S. and worldwide.
In
particular, the consequences of the Russian military invasion of Ukraine, including comprehensive international sanctions, the
impact on inflation and increased disruption to supply chains and energy resources may impact our portfolio companies, result
in an economic downturn or recession either globally or locally in the U.S. or other economies, reduce business activity, spawn
additional conflicts (whether in the form of traditional military action, reignited “cold” wars or in the form of
virtual warfare such as cyberattacks) with similar and perhaps wider ranging impacts and consequences and have an adverse impact
on the Fund’s returns and net asset value. We have no way to predict the duration or outcome of the situation, as the conflict
and government reactions are rapidly developing and beyond our control. Prolonged unrest, military activities, or broad-based
sanctions could have a material adverse effect on our portfolio companies. Such consequences also may increase our funding cost
or limit our access to the capital markets.
The
current political climate has intensified concerns about a potential trade war between China and the U.S., as each country has
imposed tariffs on the other country’s products. These actions may trigger a significant reduction in international trade,
the oversupply of certain manufactured goods, substantial price reductions of goods and possible failure of individual companies
and/or large segments of China’s export industry, which could have a negative impact on our performance. U.S. companies
that source material and goods from China and those that make large amounts of sales in China would be particularly vulnerable
to an escalation of trade tensions. Uncertainty regarding the outcome of the trade tensions and the potential for a trade war
could cause the U.S. dollar to decline against safe haven currencies, such as the Japanese yen and the euro. Events such as these
and their consequences are difficult to predict and it is unclear whether further tariffs may be imposed or other escalating actions
may be taken in the future. Any of these effects could have a material adverse effect on the business, financial condition and
results of operations of the Fund.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legislation And Regulatory Risks [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
Legislation
and Regulatory Risks
At
any time after the date of this Prospectus, legislation may be enacted that could negatively affect the companies in which the
Fund invests. Changing approaches to regulation may also have a negative impact on companies in which the Fund invests. In addition,
legislation or regulation may change the way in which the Fund is regulated. There can be no assurance that future legislation,
regulation or deregulation will not have a material adverse effect on the Fund or will not impair the ability of the Fund to achieve
its investment objective.
The
Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), which was signed into law in July
2010, has resulted in significant revisions to the U.S. financial regulatory framework. The Dodd-Frank Act covers a broad range
of topics, including, among many others: a reorganization of federal financial regulators; the creation of a process designed
to ensure financial system stability and the resolution of potentially insolvent financial firms; the enactment of new rules for
derivatives trading; the creation of a consumer financial protection watchdog; the registration and regulation of managers of
private funds; the regulation of rating agencies; and the enactment of new federal requirements for residential mortgage loans.
The regulation of various types of derivative instruments pursuant to the Dodd-Frank Act may adversely affect the Fund or its
counterparties.
The
SEC and its staff are also reportedly engaged in various initiatives and reviews that seek to improve and modernize the regulatory
structure governing investment companies. These efforts appear to be focused on risk identification and controls in various areas,
including embedded leverage through the use of derivatives and other trading practices, cybersecurity, liquidity, enhanced regulatory
and public reporting requirements and the evaluation of systemic risks. Any new rules, guidance or regulatory initiatives resulting
from these efforts could increase the Fund’s expenses and impact its returns to shareholders or, in the extreme case, impact
or limit the Fund’s use of various portfolio management strategies or techniques and adversely impact the Fund.
Changes
enacted by the current presidential administration could significantly impact the regulation of financial markets in the United
States. Areas subject to potential change, amendment or repeal include trade and foreign policy, corporate tax rates, energy and
infrastructure policies, the environment and sustainability, criminal and social justice initiatives, immigration, healthcare
and the oversight of certain federal financial regulatory agencies and the Federal Reserve. Certain of these changes can, and
have, been effectuated through executive order. For example, the current administration has taken steps to address the COVID-19
pandemic, rejoin the Paris climate accord of 2015, cancel the Keystone XL pipeline, change immigration enforcement priorities
and increase spending on clean energy and infrastructure. Other potential changes that could be pursued by the current presidential
administration could include an increase in the corporate income tax rate and changes to regulatory enforcement priorities. It
is not possible to predict which, if any, of these actions will be taken or, if taken, their effect on the economy, securities
markets or the financial stability of the United States. The Fund may be affected by governmental action in ways that are not
foreseeable, and there is a possibility that such actions could have a significant adverse effect on the Fund and its ability
to achieve its investment objective.
Although
the Fund cannot predict the impact, if any, of these changes to the Fund’s business, they could adversely affect the Fund’s
business, financial condition, operating results and cash flows. Until the Fund knows what policy changes are made and how those
changes impact the Fund’s business and the business of the Fund’s competitors over the long term, the Fund will not
know if, overall, the Fund will benefit from them or be negatively affected by them. The Investment Adviser intends to monitor
developments and seeks to manage the Fund’s portfolio in a manner consistent with achieving the Fund’s investment
objectives, but there can be no assurance that it will be successful in doing so.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
L I B O R Discontinuation Risk [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
LIBOR
Discontinuation Risk
In
July 2017, the head of the United Kingdom Financial Conduct Authority announced the desire to phase out the use of LIBOR by the
end of 2021. LIBOR can no longer be used to calculate new deals as of December 31, 2021. Since December 31, 2021, all sterling,
euro, Swiss franc and Japanese yen LIBOR settings and the 1-week and 2-month U.S. dollar LIBOR settings have ceased to be published
or are no longer representative, and since June 30, 2023, the overnight, 1-month, 3-month, 6-month and 12-month U.S. dollar LIBOR
settings ceased to be published or are no longer representative.
On
June 22, 2017, the Alternative Reference Rates Committee (the “ARRC”) convened by the Federal Reserve and the Federal
Reserve Bank of New York identified the Secured Overnight Financing Rate (“SOFR”) as the rate that, in the consensus
view of the ARRC, represented best practice for use in certain new U.S. dollar derivatives and other financial contracts. SOFR
is a broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury securities, and has been published
by the Federal Reserve Bank of New York since April 2018. The Federal Reserve Bank of New York has also been publishing historical
indicative Secured Overnight Financing Rates from 2014. Investors should not rely on any historical changes or trends in SOFR
as an indicator of future changes in SOFR.
The
composition and characteristics of SOFR are not the same as those of LIBOR, and SOFR is fundamentally different from LIBOR for
two key reasons. First, SOFR is a secured rate, while LIBOR is an unsecured rate. Second, SOFR is an overnight rate, while LIBOR
is a forward-looking rate that represents interbank funding over different maturities (e.g., three months). As a result,
there can be no assurance that SOFR will perform in the same way as LIBOR would have at any time, including, without limitation,
as a result of changes in interest and yield rates in the market, market volatility or global or regional economic, financial,
political, regulatory, judicial or other events. Additionally, there can be no guarantee that SOFR will gain market acceptance
as a replacement for U.S. dollar LIBOR. Any failure of SOFR to gain market acceptance could negatively affect financial markets
in general and present heightened risks, including with respect to the Fund’s investments. As a result of this uncertainty
and developments relating to the transition process, the Fund and its investments may be adversely affected.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terrorism Market Disruption And Catastrophe Risk [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
Terrorism,
Market Disruption, and Catastrophe Risk
Terrorist
attacks, catastrophes, pandemics and other geopolitical events have led to, and may in the future lead to, increased short-term
market volatility and may have long-term effects on U.S. and world economies and markets. Global political and economic instability
could affect the operations of companies in which the Fund invests in unpredictable ways, including through disruptions of natural
resources supplies and markets and the resulting volatility in commodity prices. The operation of infrastructure assets in which
the Fund invests is subject to many hazards including damage to equipment and surrounding properties caused by hurricanes, tornadoes,
floods, fires and other natural disasters or by acts of terrorism; inadvertent damage from construction or other equipment; leaks;
and fires and explosions. The U.S. government has issued warnings that infrastructure assets may be future targets of terrorist
activities. In addition, changes in the insurance markets have made certain types of insurance more difficult, if not impossible,
to obtain and have generally resulted in increased premium costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not A Complete Investment Program [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
Not
a Complete Investment Program
The
Fund is intended for investors seeking a high level of total return with an emphasis on current income. The Fund is not meant
to provide a vehicle for those who wish to exploit short-term swings in the stock market and is intended for long-term investors.
An investment in shares of the Fund should not be considered a complete investment program. Each shareholder should take into
account their Fund’s investment objective as well as the shareholder’s other investments when considering an investment
in the Fund.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risks Associated With Offerings Of Additional Common Shares [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
Risks
Associated with Offerings of Additional Common Shares
The
voting power of current Common Shareholders will be diluted to the extent that current Common Shareholders do not purchase Common
Shares in any future offerings of Common Shares or do not purchase sufficient Common Shares to maintain their percentage interest.
If the Fund is unable to invest the proceeds of such offering as intended, the Fund’s per Common Share distribution may
decrease and the Fund may not participate in market advances to the same extent as if such proceeds were fully invested as planned.
If the Fund sells Common Shares at a price below net asset value per share pursuant to the consent of Common Shareholders, shareholders
will experience a dilution of the aggregate net asset value per Common Share because the sale price will be less than the Fund’s
then-current net asset value per Common Share. Similarly, were the expenses of the offering to exceed the amount by which the
sale price exceeded the Fund’s then current net asset value per Common Share, shareholders would experience a dilution of
the aggregate net asset value per Common Share. This dilution will be experienced by all shareholders, irrespective of whether
they purchase Common Shares in any such offering. See “Description of Shares—Common Shares—Issuance of Additional
Common Shares.”
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional Risks Of Rights [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
Additional
Risks of Rights
There
are additional risks associated with an offering of Rights. Shareholders who do not exercise their Rights may, at the completion
of such an offering, own a smaller proportional interest in the Fund than if they exercised their Rights. As a result of such
an offering, a shareholder may experience dilution in net asset value per share if the subscription price per share is below the
net asset value per share on the expiration date. If the subscription price per share is below the net asset value per share of
the Fund’s Common Shares on the expiration date, a shareholder will experience an immediate dilution of the aggregate net
asset value of such shareholder’s Common Shares if the shareholder does not participate in such an offering and the shareholder
will experience a reduction in the net asset value per share of such shareholder’s Common Shares whether or not the shareholder
participates in such an offering. Such a reduction in net asset value per share may have the effect of reducing market price of
the Common Share. The Fund cannot state precisely the extent of this dilution (if any) if the shareholder does not exercise such
shareholder’s Rights because the Fund does not know what the net asset value per share will be when the offer expires or
what proportion of the Rights will be exercised. If the subscription price is substantially less than the then current net asset
value per Common Share at the expiration of a rights offering, such dilution could be substantial. Any such dilution or accretion
will depend upon whether (i) such shareholders participate in the Rights offering and (ii) the Fund’s net asset
value per Common Share is above or below the subscription price on the expiration date of the Rights offering. In addition to
the economic dilution described above, if a Common Shareholder does not exercise all of their rights, the Common Shareholder will
incur voting dilution as a result of this rights offering. This voting dilution will occur because the Common Shareholder will
own a smaller proportionate interest in the Fund after the rights offering than prior to the rights offering. There is a risk
that changes in market conditions may result in the underlying Common Shares purchasable upon exercise of the subscription rights
being less attractive to investors at the conclusion of the subscription period. This may reduce or eliminate the value of the
subscription rights. If investors exercise only a portion of the rights, the number of Common Shares issued may be reduced, and
the Common Shares may trade at less favorable prices than larger offerings for similar securities. Subscription rights issued
by the Fund may be transferable or non-transferable rights. In a non-transferable rights offering, Common
Shareholders who do not wish to exercise their rights will be unable to sell their rights. In a transferrable rights offering,
the Fund will use its best efforts to ensure an adequate trading market for the rights; however, investors may find that there
is no market to sell rights they do not wish to exercise.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti Takeover Provisions Risk [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk [Text Block] |
|
Anti-Takeover Provisions in the Fund’s Agreement
and Declaration of Trust and By-Laws
The Fund’s Second
Amended and Restated Agreement and Declaration of Trust, as amended (the “Declaration of Trust”), and By-Laws include provisions
that could have the effect of limiting the ability of other entities or persons to acquire control of the Fund or to change the composition
of its Board of Trustees. For example, the Declaration of Trust limits the ability of persons to beneficially own (within the meaning
of Section 382 of the Code) more than 4.99% of the outstanding Common Shares of the Fund. This restriction was adopted in order to reduce
the risk of the Fund undergoing an “ownership change” within the meaning of Section 382 of the Code, which would limit the
Fund’s ability to use a capital loss carryforward and certain unrealized losses (if such tax attributes exist). See “Anti-Takeover
Provisions in the Declaration of Trust” and “Certain Provisions of Delaware Law, the Declaration of Trust and By-Laws.”
In addition, as a Delaware
statutory trust, the Fund is subject to the control share acquisition statute (the “Control Share Statute”) contained in
Subchapter III of the Delaware Statutory Trust Act (the “DSTA”), which became automatically applicable to listed closed-end
funds, such as the Fund, upon its effective date of August 1, 2022 (the “Effective Date”). The Control Share Statute provides
that an acquirer of shares above a series of voting power thresholds has no voting rights under the DSTA or the governing documents of
the Fund with respect to shares acquired in excess of that threshold (i.e., the “control shares”) unless approved by shareholders.
See “Certain Provisions of Delaware Law, the Declaration of Trust and By-Laws—Delaware Control Share Statute.”
The ownership restrictions
set forth in the Fund’s Declaration of Trust and the limitations of the Control Share Statute could have the effect of depriving
shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging a third party from seeking
to obtain control over the Fund and may reduce market demand for the Fund’s Common Shares, which could have the effect of increasing
the likelihood that the Fund’s Common Shares trade at a discount to net asset value and increasing the amount of any such discount.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Contact [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cover [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entity Address, Address Line One |
|
600 N. Pearl St.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entity Address, Address Line Two |
|
Suite 1205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entity Address, City or Town |
|
Dallas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entity Address, State or Province |
|
TX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entity Address, Postal Zip Code |
|
75201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contact Personnel Name |
|
John Musgrave
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Security [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Highlights [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Securities Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 13,315,000
|
$ 7,315,000
|
$ 33,715,000
|
$ 13,915,000
|
$ 28,915,000
|
$ 26,050,000
|
$ 33,650,000
|
$ 49,454,000
|
$ 43,369,000
|
$ 95,547,000
|
$ 72,950,000
|
Senior Securities Coverage per Unit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 6,743
|
$ 13,736
|
$ 3,399
|
$ 5,287
|
$ 3,411
|
$ 3,932
|
$ 3,407
|
$ 3,021
|
$ 3,136
|
$ 3,092
|
$ 4,202
|
Security Common Shares [Member] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Description of Registrant [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lowest Price or Bid |
|
|
|
$ 34.41
|
$ 30.17
|
$ 32.27
|
$ 30.80
|
$ 27.03
|
$ 30.76
|
$ 29.13
|
$ 27.89
|
$ 25.87
|
$ 22.73
|
$ 20.84
|
|
|
|
|
|
|
|
|
|
|
|
Highest Price or Bid |
|
|
|
43.15
|
35.00
|
36.71
|
37.81
|
36.23
|
36.19
|
33.98
|
35.90
|
31.59
|
28.92
|
25.12
|
|
|
|
|
|
|
|
|
|
|
|
Lowest Price or Bid, NAV |
|
|
|
35.58
|
34.92
|
38.00
|
34.86
|
34.73
|
39.24
|
34.64
|
36.53
|
34.18
|
31.07
|
27.41
|
|
|
|
|
|
|
|
|
|
|
|
Highest Price or Bid, NAV |
|
|
|
$ 39.75
|
$ 40.08
|
$ 41.07
|
$ 43.93
|
$ 46.57
|
$ 44.87
|
$ 38.74
|
$ 41.82
|
$ 41.41
|
$ 37.34
|
$ 33.36
|
|
|
|
|
|
|
|
|
|
|
|
Highest Price or Bid, Premium (Discount) to NAV [Percent] |
|
|
|
8.55%
|
(12.67%)
|
(10.62%)
|
(13.93%)
|
(22.20%)
|
(19.34%)
|
(12.29%)
|
(14.16%)
|
(23.73%)
|
(22.55%)
|
(24.70%)
|
|
|
|
|
|
|
|
|
|
|
|
Lowest Price or Bid, Premium (Discount) to NAV [Percent] |
|
|
|
(3.29%)
|
(13.60%)
|
(15.08%)
|
(11.65%)
|
(22.17%)
|
(21.61%)
|
(15.91%)
|
(23.65%)
|
(24.31%)
|
(26.84%)
|
(23.97%)
|
|
|
|
|
|
|
|
|
|
|
|
Latest Share Price |
|
|
$ 36.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Latest Premium (Discount) to NAV [Percent] |
|
|
4.20%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Latest NAV |
|
|
$ 38.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Stock, Long-Term Debt, and Other Securities [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Security, Title [Text Block] |
|
Common
Shares of Beneficial Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Security, Held [Shares] |
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Security, Not Held [Shares] |
|
2,183,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 3 -Subsection 1 -Paragraph Instruction 6
+ Details
Name: |
cef_AnnualExpensesTableTextBlock |
Namespace Prefix: |
cef_ |
Data Type: |
dtr-types:textBlockItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 3 -Subsection 1 -Paragraph Instruction 4
+ Details
Name: |
cef_BasisOfTransactionFeesNoteTextBlock |
Namespace Prefix: |
cef_ |
Data Type: |
dtr-types:textBlockItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2
+ Details
Name: |
cef_BusinessDevelopmentCompanyFlag |
Namespace Prefix: |
cef_ |
Data Type: |
xbrli:booleanItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 10
+ Details
Name: |
cef_CapitalStockLongTermDebtAndOtherSecuritiesAbstract |
Namespace Prefix: |
cef_ |
Data Type: |
xbrli:stringItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 10 -Subsection 1 -Paragraph a
+ Details
Name: |
cef_CapitalStockTableTextBlock |
Namespace Prefix: |
cef_ |
Data Type: |
dtr-types:textBlockItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 3 -Subsection 1
+ Details
Name: |
cef_DividendReinvestmentAndCashPurchaseFees |
Namespace Prefix: |
cef_ |
Data Type: |
xbrli:monetaryItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 8 -Subsection 3 -Paragraph b -Subparagraph 3
+ Details
Name: |
cef_EffectsOfLeveragePurposeTextBlock |
Namespace Prefix: |
cef_ |
Data Type: |
dtr-types:textBlockItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 8 -Subsection 3 -Paragraph b
+ Details
Name: |
cef_EffectsOfLeverageTextBlock |
Namespace Prefix: |
cef_ |
Data Type: |
dtr-types:textBlockItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 3 -Subsection 1
+ Details
Name: |
cef_ExpenseExampleTableTextBlock |
Namespace Prefix: |
cef_ |
Data Type: |
dtr-types:textBlockItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 3 -Subsection 1 -Paragraph Instruction 11
+ Details
Name: |
cef_ExpenseExampleYear01 |
Namespace Prefix: |
cef_ |
Data Type: |
xbrli:monetaryItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 3 -Subsection 1 -Paragraph Instruction 11
+ Details
Name: |
cef_ExpenseExampleYears1to10 |
Namespace Prefix: |
cef_ |
Data Type: |
xbrli:monetaryItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 3 -Subsection 1 -Paragraph Instruction 11
+ Details
Name: |
cef_ExpenseExampleYears1to3 |
Namespace Prefix: |
cef_ |
Data Type: |
xbrli:monetaryItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 3 -Subsection 1 -Paragraph Instruction 11
+ Details
Name: |
cef_ExpenseExampleYears1to5 |
Namespace Prefix: |
cef_ |
Data Type: |
xbrli:monetaryItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 3 -Subsection 1
+ Details
Name: |
cef_FeeTableAbstract |
Namespace Prefix: |
cef_ |
Data Type: |
xbrli:stringItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 4
+ Details
Name: |
cef_FinancialHighlightsAbstract |
Namespace Prefix: |
cef_ |
Data Type: |
xbrli:stringItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 8
+ Details
Name: |
cef_GeneralDescriptionOfRegistrantAbstract |
Namespace Prefix: |
cef_ |
Data Type: |
xbrli:stringItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 8 -Subsection 5 -Paragraph b
+ Details
Name: |
cef_HighestPriceOrBid |
Namespace Prefix: |
cef_ |
Data Type: |
dtr-types:perShareItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 8 -Subsection 5 -Paragraph b -Subparagraph Instruction 4
+ Details
Name: |
cef_HighestPriceOrBidNav |
Namespace Prefix: |
cef_ |
Data Type: |
dtr-types:perShareItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 8 -Subsection 5 -Paragraph b -Subparagraph Instructions 4, 5
+ Details
Name: |
cef_HighestPriceOrBidPremiumDiscountToNavPercent |
Namespace Prefix: |
cef_ |
Data Type: |
dtr-types:percentItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 3 -Subsection 1 -Paragraph Instruction 8
+ Details
Name: |
cef_InterestExpensesOnBorrowingsPercent |
Namespace Prefix: |
cef_ |
Data Type: |
dtr-types:percentItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2
+ Details
Name: |
cef_IntervalFundFlag |
Namespace Prefix: |
cef_ |
Data Type: |
xbrli:booleanItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 8 -Subsection 2 -Paragraph b, d
+ Details
Name: |
cef_InvestmentObjectivesAndPracticesTextBlock |
Namespace Prefix: |
cef_ |
Data Type: |
dtr-types:textBlockItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 8 -Subsection 5 -Paragraph c
+ Details
Name: |
cef_LatestNav |
Namespace Prefix: |
cef_ |
Data Type: |
dtr-types:perShareItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 8 -Subsection 5 -Paragraph c
+ Details
Name: |
cef_LatestPremiumDiscountToNavPercent |
Namespace Prefix: |
cef_ |
Data Type: |
dtr-types:percentItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 8 -Subsection 5 -Paragraph c
+ Details
Name: |
cef_LatestSharePrice |
Namespace Prefix: |
cef_ |
Data Type: |
dtr-types:perShareItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 8 -Subsection 5 -Paragraph b
+ Details
Name: |
cef_LowestPriceOrBid |
Namespace Prefix: |
cef_ |
Data Type: |
dtr-types:perShareItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 8 -Subsection 5 -Paragraph b -Subparagraph Instruction 4
+ Details
Name: |
cef_LowestPriceOrBidNav |
Namespace Prefix: |
cef_ |
Data Type: |
dtr-types:perShareItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 8 -Subsection 5 -Paragraph b -Subparagraph Instructions 4, 5
+ Details
Name: |
cef_LowestPriceOrBidPremiumDiscountToNavPercent |
Namespace Prefix: |
cef_ |
Data Type: |
dtr-types:percentItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 3 -Subsection 1 -Paragraph Instruction 7 -Subparagraph a
+ Details
Name: |
cef_ManagementFeesPercent |
Namespace Prefix: |
cef_ |
Data Type: |
dtr-types:percentItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2
+ Details
Name: |
cef_NewCefOrBdcRegistrantFlag |
Namespace Prefix: |
cef_ |
Data Type: |
xbrli:booleanItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 3 -Subsection 1 -Paragraph Instruction 9
+ Details
Name: |
cef_OtherAnnualExpensesAbstract |
Namespace Prefix: |
cef_ |
Data Type: |
xbrli:stringItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 3 -Subsection 1 -Paragraph Instruction 9
+ Details
Name: |
cef_OtherAnnualExpensesPercent |
Namespace Prefix: |
cef_ |
Data Type: |
dtr-types:percentItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 3 -Subsection 1 -Paragraph Instruction 5
+ Details
Name: |
cef_OtherTransactionExpensesAbstract |
Namespace Prefix: |
cef_ |
Data Type: |
xbrli:stringItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 3 -Subsection 1 -Paragraph Instruction 5
+ Details
Name: |
cef_OtherTransactionExpensesPercent |
Namespace Prefix: |
cef_ |
Data Type: |
dtr-types:percentItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 10 -Subsection 5
+ Details
Name: |
cef_OutstandingSecuritiesTableTextBlock |
Namespace Prefix: |
cef_ |
Data Type: |
dtr-types:textBlockItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 10 -Subsection 5 -Paragraph 3
+ Details
Name: |
cef_OutstandingSecurityHeldShares |
Namespace Prefix: |
cef_ |
Data Type: |
xbrli:sharesItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 10 -Subsection 5 -Paragraph 4
+ Details
Name: |
cef_OutstandingSecurityNotHeldShares |
Namespace Prefix: |
cef_ |
Data Type: |
xbrli:sharesItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 10 -Subsection 5 -Paragraph 1
+ Details
Name: |
cef_OutstandingSecurityTitleTextBlock |
Namespace Prefix: |
cef_ |
Data Type: |
dtr-types:textBlockItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2
+ Details
Name: |
cef_PrimaryShelfFlag |
Namespace Prefix: |
cef_ |
Data Type: |
xbrli:booleanItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2
+ Details
Name: |
cef_PrimaryShelfQualifiedFlag |
Namespace Prefix: |
cef_ |
Data Type: |
xbrli:booleanItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 3 -Subsection 1 -Paragraph Instruction 1
+ Details
Name: |
cef_PurposeOfFeeTableNoteTextBlock |
Namespace Prefix: |
cef_ |
Data Type: |
dtr-types:textBlockItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2
+ Details
Name: |
cef_RegisteredClosedEndFundFlag |
Namespace Prefix: |
cef_ |
Data Type: |
xbrli:booleanItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 8 -Subsection 3 -Paragraph b -Subparagraph 3
+ Details
Name: |
cef_ReturnAtMinusFivePercent |
Namespace Prefix: |
cef_ |
Data Type: |
dtr-types:percentItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 8 -Subsection 3 -Paragraph b -Subparagraph 3
+ Details
Name: |
cef_ReturnAtMinusTenPercent |
Namespace Prefix: |
cef_ |
Data Type: |
dtr-types:percentItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 8 -Subsection 3 -Paragraph b -Subparagraph 3
+ Details
Name: |
cef_ReturnAtPlusFivePercent |
Namespace Prefix: |
cef_ |
Data Type: |
dtr-types:percentItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 8 -Subsection 3 -Paragraph b -Subparagraph 3
+ Details
Name: |
cef_ReturnAtPlusTenPercent |
Namespace Prefix: |
cef_ |
Data Type: |
dtr-types:percentItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 8 -Subsection 3 -Paragraph b -Subparagraph 3
+ Details
Name: |
cef_ReturnAtZeroPercent |
Namespace Prefix: |
cef_ |
Data Type: |
dtr-types:percentItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 8 -Subsection 3 -Paragraph a
+ Details
Name: |
cef_RiskFactorsTableTextBlock |
Namespace Prefix: |
cef_ |
Data Type: |
dtr-types:textBlockItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- References
+ Details
Name: |
cef_RiskTextBlock |
Namespace Prefix: |
cef_ |
Data Type: |
dtr-types:textBlockItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 3 -Subsection 1
+ Details
Name: |
cef_SalesLoadPercent |
Namespace Prefix: |
cef_ |
Data Type: |
dtr-types:percentItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 10 -Subsection 1 -Paragraph a -Subparagraph 3
+ Details
Name: |
cef_SecurityLiquidationRightsTextBlock |
Namespace Prefix: |
cef_ |
Data Type: |
dtr-types:textBlockItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 10 -Subsection 1 -Paragraph a -Subparagraph 5
+ Details
Name: |
cef_SecurityPreemptiveAndOtherRightsTextBlock |
Namespace Prefix: |
cef_ |
Data Type: |
dtr-types:textBlockItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 10 -Subsection 1 -Paragraph a -Subparagraph 2
+ Details
Name: |
cef_SecurityVotingRightsTextBlock |
Namespace Prefix: |
cef_ |
Data Type: |
dtr-types:textBlockItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 4 -Subsection 3 -Paragraph 2
+ Details
Name: |
cef_SeniorSecuritiesAmount |
Namespace Prefix: |
cef_ |
Data Type: |
xbrli:monetaryItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 4 -Subsection 3 -Paragraph 3 -Subparagraph Instruction 2
+ Details
Name: |
cef_SeniorSecuritiesCoveragePerUnit |
Namespace Prefix: |
cef_ |
Data Type: |
dtr-types:perShareItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 4 -Subsection 3
+ Details
Name: |
cef_SeniorSecuritiesTableTextBlock |
Namespace Prefix: |
cef_ |
Data Type: |
dtr-types:textBlockItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 8 -Subsection 5 -Paragraph b -Subparagraph 4
+ Details
Name: |
cef_SharePriceTableTextBlock |
Namespace Prefix: |
cef_ |
Data Type: |
dtr-types:textBlockItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 3 -Subsection 1
+ Details
Name: |
cef_ShareholderTransactionExpensesTableTextBlock |
Namespace Prefix: |
cef_ |
Data Type: |
dtr-types:textBlockItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2 -Section Item 3 -Subsection 1 -Paragraph Instruction 8
+ Details
Name: |
cef_TotalAnnualExpensesPercent |
Namespace Prefix: |
cef_ |
Data Type: |
dtr-types:percentItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Securities Act -Number 230 -Section 462 -Subsection b
+ Details
Name: |
dei_AdditionalSecurities462b |
Namespace Prefix: |
dei_ |
Data Type: |
xbrli:booleanItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Securities Act -Number 230 -Section 413 -Subsection b
+ Details
Name: |
dei_AdditionalSecuritiesEffective413b |
Namespace Prefix: |
dei_ |
Data Type: |
xbrli:booleanItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- DefinitionBoolean flag that is true when the XBRL content amends previously-filed or accepted submission.
+ References
+ Details
Name: |
dei_AmendmentFlag |
Namespace Prefix: |
dei_ |
Data Type: |
xbrli:booleanItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- DefinitionThe approximate date of a commencement of a proposed sale of securities to the public. This element is disclosed in S-1, S-3, S-4, S-11, F-1, F-3 and F-10 filings.
+ References
+ Details
Name: |
dei_ApproximateDateOfCommencementOfProposedSaleToThePublic |
Namespace Prefix: |
dei_ |
Data Type: |
dei:dateOrAsapItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2
Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form S-3
Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form F-3
+ Details
Name: |
dei_DelayedOrContinuousOffering |
Namespace Prefix: |
dei_ |
Data Type: |
xbrli:booleanItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2
Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form S-3
Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form F-3
+ Details
Name: |
dei_DividendOrInterestReinvestmentPlanOnly |
Namespace Prefix: |
dei_ |
Data Type: |
xbrli:booleanItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- DefinitionBoolean flag that is true only for a form used as a registration statement.
+ ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Exchange Act -Number 240 -Section 12
+ Details
Name: |
dei_DocumentRegistrationStatement |
Namespace Prefix: |
dei_ |
Data Type: |
xbrli:booleanItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- DefinitionThe type of document being provided (such as 10-K, 10-Q, 485BPOS, etc). The document type is limited to the same value as the supporting SEC submission type, or the word 'Other'.
+ References
+ Details
Name: |
dei_DocumentType |
Namespace Prefix: |
dei_ |
Data Type: |
dei:submissionTypeItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Securities Act -Number 230 -Section 462 -Subsection e
+ Details
Name: |
dei_EffectiveUponFiling462e |
Namespace Prefix: |
dei_ |
Data Type: |
xbrli:booleanItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Securities Act -Section 8 -Subsection c
+ Details
Name: |
dei_EffectiveWhenDeclaredSection8c |
Namespace Prefix: |
dei_ |
Data Type: |
xbrli:booleanItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- DefinitionAddress Line 1 such as Attn, Building Name, Street Name
+ References
+ Details
Name: |
dei_EntityAddressAddressLine1 |
Namespace Prefix: |
dei_ |
Data Type: |
xbrli:normalizedStringItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- DefinitionAddress Line 2 such as Street or Suite number
+ References
+ Details
Name: |
dei_EntityAddressAddressLine2 |
Namespace Prefix: |
dei_ |
Data Type: |
xbrli:normalizedStringItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- Definition
+ References
+ Details
Name: |
dei_EntityAddressCityOrTown |
Namespace Prefix: |
dei_ |
Data Type: |
xbrli:normalizedStringItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- DefinitionCode for the postal or zip code
+ References
+ Details
Name: |
dei_EntityAddressPostalZipCode |
Namespace Prefix: |
dei_ |
Data Type: |
xbrli:normalizedStringItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- DefinitionName of the state or province.
+ References
+ Details
Name: |
dei_EntityAddressStateOrProvince |
Namespace Prefix: |
dei_ |
Data Type: |
dei:stateOrProvinceItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- DefinitionA unique 10-digit SEC-issued value to identify entities that have filed disclosures with the SEC. It is commonly abbreviated as CIK.
+ ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Exchange Act -Number 240 -Section 12 -Subsection b-2
+ Details
Name: |
dei_EntityCentralIndexKey |
Namespace Prefix: |
dei_ |
Data Type: |
dei:centralIndexKeyItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- DefinitionIndicate if registrant meets the emerging growth company criteria.
+ ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Exchange Act -Number 240 -Section 12 -Subsection b-2
+ Details
Name: |
dei_EntityEmergingGrowthCompany |
Namespace Prefix: |
dei_ |
Data Type: |
xbrli:booleanItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- DefinitionCommission file number. The field allows up to 17 characters. The prefix may contain 1-3 digits, the sequence number may contain 1-8 digits, the optional suffix may contain 1-4 characters, and the fields are separated with a hyphen.
+ References
+ Details
Name: |
dei_EntityFileNumber |
Namespace Prefix: |
dei_ |
Data Type: |
dei:fileNumberItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- DefinitionOne of: N-1A (Mutual Fund), N-1 (Open-End Separate Account with No Variable Annuities), N-2 (Closed-End Investment Company), N-3 (Separate Account Registered as Open-End Management Investment Company), N-4 (Variable Annuity UIT Separate Account), N-5 (Small Business Investment Company), N-6 (Variable Life UIT Separate Account), S-1 or S-3 (Face Amount Certificate Company), S-6 (UIT, Non-Insurance Product).
+ ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-T -Number 232 -Section 313
+ Details
Name: |
dei_EntityInvCompanyType |
Namespace Prefix: |
dei_ |
Data Type: |
dei:invCompanyType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- DefinitionThe exact name of the entity filing the report as specified in its charter, which is required by forms filed with the SEC.
+ ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Exchange Act -Number 240 -Section 12 -Subsection b-2
+ Details
Name: |
dei_EntityRegistrantName |
Namespace Prefix: |
dei_ |
Data Type: |
xbrli:normalizedStringItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- DefinitionIndicate 'Yes' or 'No' if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Is used on Form Type: 10-K, 10-Q, 8-K, 20-F, 6-K, 10-K/A, 10-Q/A, 20-F/A, 6-K/A, N-CSR, N-Q, N-1A.
+ ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Securities Act -Number 230 -Section 405
+ Details
Name: |
dei_EntityWellKnownSeasonedIssuer |
Namespace Prefix: |
dei_ |
Data Type: |
dei:yesNoItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Securities Act -Number 230 -Section 462 -Subsection d
+ Details
Name: |
dei_ExhibitsOnly462d |
Namespace Prefix: |
dei_ |
Data Type: |
xbrli:booleanItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2
Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-3
Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-4
Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-6
+ Details
Name: |
dei_InvestmentCompanyActFileNumber |
Namespace Prefix: |
dei_ |
Data Type: |
dei:fileNumberItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Investment Company Act -Number 270
+ Details
Name: |
dei_InvestmentCompanyActRegistration |
Namespace Prefix: |
dei_ |
Data Type: |
xbrli:booleanItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Investment Company Act -Number 270
+ Details
Name: |
dei_InvestmentCompanyRegistrationAmendment |
Namespace Prefix: |
dei_ |
Data Type: |
xbrli:booleanItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Investment Company Act -Number 270
+ Details
Name: |
dei_InvestmentCompanyRegistrationAmendmentNumber |
Namespace Prefix: |
dei_ |
Data Type: |
dei:sequenceNumberItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- DefinitionLocal phone number for entity.
+ References
+ Details
Name: |
dei_LocalPhoneNumber |
Namespace Prefix: |
dei_ |
Data Type: |
xbrli:normalizedStringItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-2
Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-3
Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-4
Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Form N-6
+ Details
Name: |
dei_NewEffectiveDateForPreviousFiling |
Namespace Prefix: |
dei_ |
Data Type: |
xbrli:booleanItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Securities Act -Number 230 -Section 462 -Subsection c
+ Details
Name: |
dei_NoSubstantiveChanges462c |
Namespace Prefix: |
dei_ |
Data Type: |
xbrli:booleanItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Exchange Act -Number 240 -Section 12
+ Details
Name: |
dei_PreEffectiveAmendment |
Namespace Prefix: |
dei_ |
Data Type: |
xbrli:booleanItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- DefinitionAmendment number to registration statement under the Securities Act of 1933 before the registration becomes effective.
+ ReferencesReference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Exchange Act -Number 240 -Section 12
+ Details
Name: |
dei_PreEffectiveAmendmentNumber |
Namespace Prefix: |
dei_ |
Data Type: |
dei:sequenceNumberItemType |
Balance Type: |
na |
Period Type: |
duration |
|
X |
- Details
Name: |
cef_RiskAxis=srv_InvestmentAndMarketRiskMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_CommonStockRiskMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_ConcentrationRiskMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_MidstreamEnergyCompanyRisksMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_RisksAssociatedWithAnInvestmentInIPOsMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_RisksAssociatedWithAnInvestmentInPIPETransactionsMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_PrivatelyHeldCompanyRiskMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_MLPRisksMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_LiquidityRiskMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_EquitySecuritiesRiskMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_SmallCapAndMidCapCompanyRiskMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_RisksAssociatedWithCanadianRoyaltyTrustsAndCanadianEAndPCompaniesMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_CanadianRiskMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_NonUSSecuritiesRiskMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_InterestRateRiskMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_InterestRateHedgingRiskMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_ArbitrageRiskMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_LeverageRiskMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_SecuritiesLendingRiskMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_NonDiversificationRiskMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_ValuationRiskMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_PortfolioTurnoverRiskMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_StrategicTransactionsRiskMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_ConvertibleInstrumentRiskMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_CounterpartyRiskMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_ShortSalesRiskMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_InflationRiskMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_DeflationRiskMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_DebtSecuritiesRiskMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_PreferredStockRiskMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_BelowInvestmentGradeSecuritiesJunkBondsRiskMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_OtherInvestmentCompaniesRiskMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_ETNAndETFRiskMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_InvestmentManagementRiskMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_DependenceOnKeyPersonnelOfTheInvestmentAdviserMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_ConflictsOfInterestWithTheInvestmentAdviserMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_RelianceOnServiceProvidersMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_TechnologyRiskMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_CyberSecurityRiskMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_TaxRisksMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_DistributionsRiskMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_MarketDiscountFromNetAssetValueMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_RecentMarketEconomicAndSocialDevelopmentsRiskMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_LegislationAndRegulatoryRisksMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_LIBORDiscontinuationRiskMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_TerrorismMarketDisruptionAndCatastropheRiskMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_NotACompleteInvestmentProgramMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_RisksAssociatedWithOfferingsOfAdditionalCommonSharesMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_AdditionalRisksOfRightsMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_RiskAxis=srv_AntiTakeoverProvisionsRiskMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_SecurityAxis=srv_SeniorSecurityMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
X |
- Details
Name: |
cef_SecurityAxis=srv_SecurityCommonSharesMember |
Namespace Prefix: |
|
Data Type: |
na |
Balance Type: |
|
Period Type: |
|
|
NXG Cushing Midstream En... (NYSE:SRV)
Historical Stock Chart
From Jul 2024 to Aug 2024
NXG Cushing Midstream En... (NYSE:SRV)
Historical Stock Chart
From Aug 2023 to Aug 2024