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As
filed with the Securities and Exchange Commission on February 21, 2024
Securities
Act File No. 333-274452
1940
Act File No. 811-23713
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
N-2
|
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933 |
[X] |
|
|
|
|
Pre-Effective Amendment No. 2 |
[X] |
|
Post-Effective
Amendment No. |
|
|
REGISTRATION
STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |
[X] |
Amendment
No. 6
RiverNorth
Managed Duration Municipal Income Fund II, Inc.
(Exact
Name of Registrant as Specified in Charter)
360
South Rosemary Avenue, Suite
1420
West
Palm Beach, FL
33401
(Address
of Principal Executive Offices)
(561)
484-7185
(Registrant’s
Telephone Number)
Marcus
L. Collins, Esq.
RiverNorth
Capital Management, LLC
360
South Rosemary Avenue, Suite
1420
West
Palm Beach, FL
33401
(Name
and Address of Agent for Service)
Copy
to:
Joshua
B. Deringer, Esq.
Faegre
Drinker Biddle & Reath LLP
One
Logan Square, Ste. 2000
Philadelphia,
PA 19103-6996
215-988-2700
APPROXIMATE
DATE OF PROPOSED PUBLIC OFFERING:
As
soon as practicable after the effective date of this Registration Statement.
If
the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, check the following
box [ ]
If
any securities being registered on this Form will be offered on a delayed or continuous basis in reliance on Rule 415 under the Securities
Act of 1933 (the “Securities Act”), other than securities offered in connection with dividend or interest reinvestment plans,
check the following box [X]
If
this Form is a registration statement pursuant to General Instruction A.2 or a post-effective amendment thereto, check the following
box [ ]
If
this Form is a registration statement pursuant to General Instruction B or a post-effective amendment thereto that will become effective
upon filing with the Commission pursuant to Rule 462(e) under the Securities Act, check the following box [ ]
If
this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction B to register additional securities
or additional classes of securities pursuant to Rule 413(b) under the Securities Act, check the following box [ ]
It
is proposed that this filing will become effective (check appropriate box):
[X]
when declared effective pursuant to section 8(c)
Check
each box that appropriately characterizes the Registrant:
[X]
Registered Closed-End Fund (closed-end company that
is registered under the Investment Company Act of 1940 (the “Investment Company Act”)).
[ ]
Business Development Company (closed-end company that
intends or has elected to be regulated as a business development company under the Investment Company Act.
[ ]
Interval Fund (Registered Closed-End Fund or a Business
Development Company that makes periodic repurchase offers under Rule 23c-3 under the Investment Company Act).
[ ]
A.2 Qualified (qualified to register securities pursuant
to General Instruction A.2 of this Form).
[ ]
Well-Known Seasoned Issuer (as defined by Rule 405 under
the Securities Act).
[ ]
Emerging Growth Company (as defined by Rule 12b-2 under
the Securities and Exchange Act of 1934).
[ ]
If an Emerging Growth Company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.
[ ]
New Registrant (registered or regulated under the Investment
Company Act for less than 12 calendar months preceding this filing).
THE
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE
IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE
AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.
The
information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject
to Completion, Dated February 21, 2024
BASE
PROSPECTUS
$175,000,000
RiverNorth
Managed Duration Municipal Income Fund II, Inc.
Common
Stock
Preferred Stock
Subscription Rights for Common Stock
Subscription
Rights for Preferred Stock
Subscription Rights for Common and Preferred Stock
The
Fund. RiverNorth Managed Duration Municipal Income Fund II, Inc. (the “Fund”) is a recently organized, diversified,
closed-end management investment company.
Investment
Objectives. The Fund’s primary investment objective is current income exempt from regular U.S. federal income taxes
(but which may be includable in taxable income for purposes of the Federal alternative minimum tax). The Fund’s secondary investment
objective is total return. There is no assurance that the Fund will achieve its investment objectives.
Principal
Investment Strategies. Under normal market conditions, the Fund seeks to achieve its investment objectives by investing, directly
or indirectly, at least 80% of its Managed Assets (as defined below) in municipal bonds, the interest on which is, in the opinion of
bond counsel to the issuers, generally excludable from gross income for regular U.S. federal income tax purposes, except that the interest
may be includable in taxable income for purposes of the Federal alternative minimum tax (“Municipal Bonds”). In addition,
under normal market conditions, the Fund seeks to maintain Managed Assets with a weighted average effective duration that is within three
years of the weighted average effective duration of the Bloomberg U.S. Municipal Index. See “Investment Objectives, Strategies
and Policies—Principal Investment Strategies—Managed Duration Strategy.”
The
Fund seeks to allocate its assets between the two principal investment strategies described below:
Tactical
Municipal Closed-End Fund Strategy (25% - 65% of Managed Assets): This strategy seeks to (i) generate returns through investments
in other investment companies, consisting principally of closed-end funds and exchange-traded funds (collectively, the “Underlying
Funds”), that invest, under normal market conditions, at least 80% of their net assets, plus the amount of any borrowings for investment
purposes, in Municipal Bonds, and (ii) derive value from the discount and premium spreads associated with closed-end funds that invest,
under normal market conditions, at least 80% of their net assets, plus the amount of any borrowings for investment purposes, in Municipal
Bonds. The term “tactical” is used to indicate that this strategy seeks to take advantage of pricing discrepancies in the
closed-end fund market (e.g., the difference between a closed-end fund’s market value and its net asset value).
Municipal
Bond Income Strategy (35% - 75% of Managed Assets): This strategy seeks to capitalize on inefficiencies in the tax-exempt and tax-advantaged
securities markets through investments in Municipal Bonds. The Fund may not directly invest more than 25% of the Managed Assets allocated
to this strategy in Municipal Bonds in any one industry or in any one state of origin, and the Fund may not directly invest more than
5% of the Managed Assets allocated to this strategy in the Municipal Bonds of any one issuer, except that the foregoing industry and
issuer restrictions shall not apply to general obligation bonds and the Fund will consider the obligor or borrower underlying the Municipal
Bond to be the “issuer.” The Fund may invest up to 20% of the Managed Assets allocated to this strategy in Municipal Bonds
that pay interest that may be includable in taxable income for purposes of the Federal alternative minimum tax. The Fund can invest,
directly or indirectly through Underlying Funds, in bonds of any maturity; however, under this strategy, it will generally invest in
Municipal Bonds that have a maturity of five years or longer at the time of purchase.
The
Fund may offer, from time to time, up to $175,000,000 aggregate initial offering price of (i) shares of its common stock, $0.0001 par
value per share (“Common Shares”), (ii) shares of its preferred stock (“Preferred Shares”) and/or (iii) subscription
rights to purchase Common Shares, Preferred Shares or both (“Rights” and together with the Common Shares and Preferred Shares,
“Securities”), in one or more offerings in amounts, at prices and on terms set forth in a supplement to this Prospectus.
See “Description of the Fund’s Securities” beginning on page 70.
The
Fund may offer Securities directly to one or more purchasers, including existing common shareholders and/or preferred shareholders in
a Rights offering, through agents that the Fund or the purchasers designate from time to time, or to or through underwriters or dealers.
The prospectus supplement relating to the particular offering will identify any agents or underwriters involved in the sale of the Fund’s
Securities, and will set forth any applicable purchase price, fee, commission or discount arrangement between the Fund and such agents
or underwriters or among the underwriters or the basis upon which such amount may be calculated. The prospectus supplement relating to
any sale of preferred stock will set forth the liquidation preference and information about the dividend period, dividend rate, any call
protection or non-call period and other matters. A supplement to this Prospectus relating to any offering of subscription rights will
set forth the number of shares (common or preferred) issuable upon the exercise of each right and the other terms of such rights offering,
including whether the Preferred Shares issuable upon the exercise of such rights are convertible into Common Shares. The Fund may not
sell Securities through agents, underwriters or dealers without delivery of this Prospectus and a prospectus supplement. For more information
about the manner in which the Fund may offer shares of its common stock, see “Plan of Distribution.”
The
currently outstanding shares of the Fund’s common stock are, and the shares of the Fund’s common stock offered in this Prospectus
will be, subject to notice of issuance, listed on the New York Stock Exchange (“NYSE”) under the trading or “ticker”
symbol “RMMZ.” The net asset value of the Fund’s common stock on January 31, 2024 was $17.32 per share, and the last
sale price of the Fund’s common stock on the NYSE on such date was $15.98. Shares of common stock of closed-end funds, like the
Fund, frequently trade at discounts to their net asset values. If the shares of the Fund’s common stock trade at a discount to
net asset value, the risk of loss may increase for purchasers in an offering under this prospectus, especially for those investors who
expect to sell their shares in a relatively short period after purchasing shares in such an offering. Following a Rights offering, a
shareholder may experience dilution in net asset value per share of stock if the subscription price per share is below the net asset
value per share on the expiration date.
The
applicable prospectus supplement will set forth whether or not the Preferred Shares offered in this Prospectus will be listed or traded
on any securities exchange. If the Fund’s Preferred Shares are not listed on a securities exchange, there may be no active secondary
trading market for such shares and an investment in such shares may be illiquid.
The
Fund, or the Underlying Funds in which the Fund invests, may invest in securities of any credit quality, including, without limit, securities
that are rated below investment grade, except as further set forth under “Investment Objectives, Strategies and Policies”
below. Below investment grade securities include securities rated below BBB- by S&P Global Ratings, a Standard & Poor’s
Financial Services LLC business, or Fitch Ratings, a part of the Fitch Group, or below Baa3 by Moody’s Investor Services, Inc.
Below investment grade securities are commonly referred to as “junk” and “high yield” securities and are considered
speculative with respect to the issuer’s capacity to pay interest and repay principal. See also “Risks—Investment-Related
Risks—Credit and Below Investment Grade Securities Risk.”
“Managed
Assets” means the total assets of the Fund, including assets attributable to leverage, minus liabilities (other than debt representing
leverage and any preferred stock that may be outstanding). Such assets attributable to leverage include the portion of assets in tender
option bond trusts of which the Fund owns TOB Residuals (as defined below) that has been effectively financed by the trust’s issuance
of TOB Floaters (as defined below). See “Use of Leverage—Tender Option Bonds.”
Investment
Adviser and Subadviser. The Fund’s investment adviser is RiverNorth Capital Management, LLC (the “Adviser”)
and the Fund’s subadviser is MacKay Shields LLC (the “Subadviser”). The Adviser is responsible for the day-to-day management
of the Fund’s Managed Assets allocated to the Tactical Municipal Closed-End Fund Strategy. The Subadviser is responsible for the
day-to-day management of the Fund’s Managed Assets allocated to the Municipal Bond Income Strategy. See “Management of the
Fund.”
Limited
Term and Eligible Tender Offer. The Fund will terminate on or before February 16, 2037 (the “Termination Date”);
provided, that if the Board of Directors of the Fund (the “Board of Directors”) believes that, under then-current market
conditions, it is in the best interests of the Fund to do so, the Fund may extend the Termination Date: (i) once for up to one year (i.e.,
up to February 16, 2038), and (ii) once for up to an additional six months (i.e., up to August 16, 2038), in each case upon the affirmative
vote of a majority of the Board of Directors and without the approval of the holders of the Common Shares of the Fund (the “Common
Shareholders”).
In
addition, as of a date within twelve months preceding the Termination Date, the Board of Directors may cause the Fund to conduct a tender
offer to all Common Shareholders to purchase Common Shares of the Fund at a price equal to the net asset value (“NAV”) per
Common Share on the expiration date of the tender offer (an “Eligible Tender Offer”). The Board of Directors has established
that, following an Eligible Tender Offer, the Fund must have at least $100 million of net assets to ensure the continued viability of
the Fund (the “Termination Threshold”). In an Eligible Tender Offer, the Fund will offer to purchase all Common Shares held
by each Common Shareholder; provided, that if the number of properly tendered Common Shares would result in the Fund’s net assets
totaling less than the Termination Threshold, the Eligible Tender Offer will be terminated and no Common Shares will be repurchased pursuant
to the Eligible Tender Offer. Instead, the Fund will begin (or continue) liquidating its portfolio and proceed to terminate on or before
the Termination Date. Following the completion of an Eligible Tender Offer, the Board of Directors may eliminate the limited term structure
of the Fund upon the affirmative vote of a majority of the Board of Directors and without the approval of Common Shareholders.
The
Fund is not a so called “target date” or “life cycle” fund whose asset allocation becomes more conservative over
time as its target date, often associated with retirement, approaches. In addition, the Fund is not a “target term” fund
whose investment objective is to return its original NAV on the termination date. See “Limited Term and Eligible Tender Offer”
and “Risks—Structural Risks—Limited Term and Eligible Tender Offer Risk” below.
Dividends
and Distributions. The Fund has implemented a level distribution policy. Under the level distribution policy, the Fund intends
to distribute to holders of the Common Shares regular monthly cash distributions of all or a portion of its net investment income. There
is no assurance the Fund will make regular monthly distributions or that it will do so at a particular rate. If the Fund’s
investments do not generate sufficient income, the Fund may be required to liquidate a portion of its portfolio to fund these distributions,
and therefore these payments may represent a reduction of a shareholder’s principal investment.
From
time to time, portions of the Fund’s distributions may constitute a return of capital. A return of capital would reduce a Common
Shareholder’s tax basis in its Common Shares, which could result in higher taxes when the Common Shareholder sells such Common
Shares. This may cause the Common Shareholder to owe taxes even if it sells Common Shares for less than the original purchase price of
such Common Shares. See “Dividends and Distributions.”
Leverage.
The Fund may borrow money and/or issue preferred stock, notes or debt securities for investment purposes. These practices are
known as leveraging. In addition, the Fund may enter into derivative and other transactions that have the effect of leverage. Such other
transactions may include tender option bond transactions (as described herein). As of the time immediately after it enters into any of
the foregoing transactions, the Fund will seek to limit its overall effective leverage to 45% of its Managed Assets. The Fund currently
anticipates that leverage will be obtained through the use of proceeds received from tender option bond transactions. See “Use
of Leverage—Tender Option Bonds.” Since the holders of common stock pay all expenses related to the use of leverage, such
use of leverage would create a greater risk of loss for the Fund’s Common Shares than if leverage is not used. See “Risks—Structural
Risk—Leverage Risk.”
The
Prospectus sets forth concisely the information about the Fund and the Securities that a prospective investor ought to know before investing
in the Fund. You should read this Prospectus and the related prospectus supplement, which contain important information about the Fund,
before deciding whether to invest in the Fund’s Securities, and retain them for future reference. A Statement of Additional Information,
dated [ ] (the “SAI”), containing additional information about the Fund, has been filed with the Securities
and Exchange Commission (the “SEC”) and is incorporated by reference in its entirety into this Prospectus. You may request
a free copy of the Prospectus, the SAI, annual and semi-annual reports to shareholders and other information about the Fund, or make
shareholder inquiries, by calling (844) 569-4750, by writing to the Fund at 360 South Rosemary Avenue, Suite 1420, West Palm Beach, FL
33401, or by visiting the Fund’s and the Adviser’s website at rivernorth.com (information included on the website does not
form a part of this Prospectus), or from the SEC’s website at sec.gov.
Investing
in the Fund involves certain risks. See “Risks” beginning on page 33 of this Prospectus.
Neither
the SEC nor any state securities commission has approved or disapproved these securities or determined if this Prospectus is truthful
or complete. Any representation to the contrary is a criminal offense.
The
Fund’s Securities do not represent a deposit or obligation of, and are not guaranteed or endorsed by, any bank or other insured
depository institution, and are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any
other government agency.
Prospectus
dated [ ], 2024
TABLE
OF CONTENTS
|
Page |
PROSPECTUS
SUMMARY |
1 |
SUMMARY
OF FUND EXPENSES |
16 |
FINANCIAL
HIGHLIGHTS |
18 |
MARKET
AND NET ASSET VALUE INFORMATION |
18 |
THE
FUND |
19 |
THE
OFFERING |
20 |
USE
OF PROCEEDS |
21 |
INVESTMENT
OBJECTIVES, STRATEGIES AND POLICIES |
21 |
INVESTMENT
PHILOSOPHY AND PROCESS |
28 |
USE
OF LEVERAGE |
30 |
RISKS |
33 |
MANAGEMENT
OF THE FUND |
63 |
NET
ASSET VALUE |
67 |
DIVIDENDS
AND DISTRIBUTIONS |
67 |
DIVIDEND
REINVESTMENT PLAN |
69 |
DESCRIPTION
OF THE FUND’S SECURITIES |
70 |
CERTAIN
PROVISIONS OF THE FUND’S CHARTER AND BYLAWS AND OF MARYLAND LAW |
74 |
REPURCHASE
OF SHARES |
81 |
RIGHTS
OFFERINGS |
82 |
CONVERSION
TO OPEN-END FUND |
82 |
LIMITED
TERM AND ELIGIBLE TENDER OFFER |
82 |
U.S.
FEDERAL INCOME TAX MATTERS |
85 |
CALIFORNIA
TAX MATTERS |
89 |
PLAN
OF DISTRIBUTION |
90 |
ADMINISTRATOR,
FUND ACCOUNTANT, TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND CUSTODIAN |
93 |
LEGAL
MATTERS |
93 |
CONTROL
PERSONS |
93 |
ADDITIONAL
INFORMATION |
93 |
THE
FUND’S PRIVACY POLICY |
94 |
You
should rely only on the information contained or incorporated by reference in this Prospectus and any related prospectus supplement.
The Fund has not authorized any other person to provide you with different information. If anyone provides you with different or inconsistent
information, you should not rely on it. 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 provided by this Prospectus and any related prospectus supplement
is accurate as of any date other than the respective dates on the front covers. The Fund’s business, financial condition and results
of operations may have changed since that date.
PROSPECTUS
SUMMARY
This
is only a summary of information contained elsewhere in this Prospectus. This summary does not contain all of the information that you
should consider before investing in the Fund’s securities offered by this Prospectus. You should review the more detailed information
contained in this Prospectus, any related prospectus supplement, and the Statement of Additional Information (“SAI”), including
the documents incorporated by reference. In particular, you should carefully read the section entitled “Risks” in this Prospectus.
The
Fund |
RiverNorth
Managed Duration Municipal Income Fund II, Inc. (the “Fund”) is a Maryland corporation
registered as a diversified, closed-end management investment company under the Investment
Company Act of 1940, as amended (the “1940 Act”). The Fund will have a limited
term unless otherwise determined by the Fund’s Board of Directors (“Board of
Directors”). See “Limited Term” and “Risks—Structural Risks—Limited
Term and Eligible Tender Offer Risk.”
The
Fund commenced operations and completed its initial public offering of common stock in February 2022, raising approximately $169
million in equity after payment of offering expenses (and including the exercise of the overallotment option). As of January
31, 2024, the Fund had 8,455,000 shares of its common stock outstanding and net assets applicable to such shares of $146,423,102.
The shares of the Fund’s common stock offered by this Prospectus are called “Common Shares” and the holders
of Common Shares are called “Common Shareholders.” As used hereinafter in this Prospectus, unless the context otherwise
requires, “common shares” refer to the shares of the Fund’s common stock currently outstanding as well as those
Common Shares offered by this Prospectus and the holders of common shares are called “common shareholders.” As of
the date of this Prospectus, the Fund had not issued any shares of preferred stock (“Preferred Shares”). An investment
in the Fund may not be appropriate for all investors. |
|
|
Investment
Adviser
and Subadviser |
The
Fund’s investment adviser is RiverNorth Capital Management, LLC (the “Adviser”) and the Fund’s subadviser
is MacKay Shields LLC (the “Subadviser”). The Adviser is responsible for the day-to-day management of the Fund’s
Managed Assets (as defined below) allocated to the Tactical Municipal Closed-End Fund Strategy (as described below). The Subadviser
is responsible for the day-to-day management of the Fund’s Managed Assets allocated to the Municipal Bond Income Strategy (as
described below). Subject to the ranges noted below under “—Principal Investment Strategies and Policies—Tactical
Municipal Closed-End Fund Strategy” and “—Principal Investment Strategies and Policies—Municipal Bond Income
Strategy,” the Adviser determines the portion of the Fund’s Managed Assets to allocate to each strategy and may, from
time to time, adjust the allocations. See “Management of the Fund.” |
|
|
The
Offering |
The
Fund may offer Securities directly to one or more purchasers, including existing common shareholders
and/or preferred shareholders in a Rights offering, through agents that the Fund or the purchasers
designate from time to time, or to or through underwriters or dealers. The prospectus supplement
relating to the offering will identify any agents or underwriters involved in the sale of
the Securities, and will set forth any applicable purchase price, fee, commission or discount
arrangement between the Fund and such agents or underwriters or among underwriters or the
basis upon which such amount may be calculated. The prospectus supplement relating to any
sale of preferred stock will set forth the liquidation preference and information about the
dividend period, dividend rate, any call protection or non-call period and other matters,
including the terms, if any, on which the preferred stock may be exchanged for or converted
into shares of common stock or any other security and, if applicable, the conversion or exchange
price, or how it will be calculated, and the conversion or exchange period. A supplement
to this Prospectus relating to any offering of subscription rights will set forth the number
of shares (common or preferred) issuable upon the exercise of each right and the other terms
of such rights offering, including whether the Preferred Shares issuable upon the exercise
of such right are convertible into Common Shares. The Fund may not sell Securities through
agents, underwriters or dealers without delivery of this Prospectus and a prospectus supplement
describing the method and terms of the offering of the Securities. See “Plan of Distribution.” |
|
Offerings
of Shares will be subject to the provisions of the 1940 Act, which generally require that
the public offering price of common shares of a closed-end investment company (exclusive
of distribution commissions and discounts) must equal the net asset value per share of the
company’s common stock (calculated within 48 hours of pricing), absent shareholder
approval or under certain other circumstances. The Fund may, however, issue Common Shares
pursuant to exercises of Rights at prices below net asset value. |
|
|
Investment
Objectives |
The
Fund’s primary investment objective is current income exempt from regular U.S. federal income taxes (but which may be includable
in taxable income for purposes of the Federal alternative minimum tax). The Fund’s secondary investment objective is total
return. There is no assurance that the Fund will achieve its investment objectives. |
|
|
Principal
Investment
Strategies and Policies |
Under
normal market conditions, the Fund seeks to achieve its investment objectives by investing, directly or indirectly, at least 80%
of its Managed Assets in municipal bonds, the interest on which is, in the opinion of bond counsel to the issuers, generally excludable
from gross income for regular U.S. federal income tax purposes, except that the interest may be includable in taxable income for
purposes of the Federal alternative minimum tax (“Municipal Bonds”). In order to qualify to pay exempt-interest dividends,
which are items of interest excludable from gross income for federal income tax purposes, for each taxable year, the Fund seeks to
invest either (i) at least 50% of its total assets directly (and indirectly through tender option bond transactions) in such Municipal
Bonds at the end of each calendar quarter, or (ii) at least 50% of its total assets in other funds that are taxed as regulated investment
companies at the end of each calendar quarter. See “Risks—Investment-Related Risks—Tax Risks.” In addition,
under normal market conditions, the Fund seeks to maintain Managed Assets with a weighted average effective duration that is within
three years of the weighted average effective duration of the Bloomberg U.S. Municipal Index. See “—Managed Duration
Strategy” below. |
|
Municipal
Bonds are debt obligations, which may have a variety of issuers, including governmental entities or other qualifying issuers. Issuers
may be states, territories and possessions of the United States and the District of Columbia and their political subdivisions, agencies
and instrumentalities. See “Risks—Investment-Related Risks—Municipal Bond Risks” and “Risks—Investment-Related
Risks—Market Disruption, Geopolitical, Pandemic and Climate Change Risks.” Such territories of the United States include
Puerto Rico. See “Risks—Investment-Related Risks—Puerto Rico Municipal Bond Risks” for a discussion of the
risks associated with an investment in Puerto Rico Municipal Bonds. Municipal Bonds include, among other instruments, general obligation
bonds, revenue bonds, municipal leases, certificates of participation, private activity bonds, moral obligation bonds, and tobacco
settlement bonds, as well as short-term, tax-exempt obligations such as municipal notes and variable rate demand obligations. See
“Investment Objectives, Strategies and Policies—Portfolio Composition” for a description of the types of Municipal
Bonds in which the Fund may invest. |
|
|
|
The
Fund seeks to allocate its assets between the two principal strategies described below. The Adviser determines the portion of the
Fund’s Managed Assets to allocate to each strategy and may, from time to time, adjust the allocations. See “Risks—Structural
Risks—Asset Allocation Risk.” Under normal market conditions, the Fund may allocate between 25% and 65% of its Managed
Assets to the Tactical Municipal Closed-End Fund Strategy and 35% to 75% of its Managed Assets to the Municipal Bond Income Strategy.
See “Investment Philosophy and Process.” |
|
|
|
Tactical
Municipal Closed-End Fund Strategy (25%-65% of Managed Assets). This strategy seeks to (i) generate returns through investments
in other investment companies, consisting principally of closed-end funds and exchange-traded funds (“ETFs” and, together
with such other investment companies, the “Underlying Funds”) that invest, under normal market conditions, at least 80%
of their net assets, plus the amount of any borrowings for investment purposes, in Municipal Bonds, and (ii) derive value from the
discount and premium spreads associated with closed-end funds that invest, under normal market conditions, at least 80% of their
net assets, plus the amount of any borrowings for investment purposes, in Municipal Bonds. See “Risks—Investment-Related
Risks—Tactical Municipal Closed-End Fund Strategy Risk.” All Underlying Funds will be registered under the Securities
Act of 1933, as amended (the “Securities Act”). |
|
|
|
Under
normal market conditions, the Fund limits its investments in closed-end funds that have been
in operation for less than one year to no more than 10% of the Fund’s Managed Assets
allocated to the Tactical Municipal Closed-End Fund Strategy. The Fund will not invest in
inverse ETFs or leveraged ETFs. Under normal market conditions, the Fund may not invest more
than 35% of its Managed Assets in the Tactical Municipal Closed-End Fund Strategy in single
state municipal closed-end funds. The Fund’s shareholders will indirectly bear the
expenses, including the management fees, of the Underlying Funds. See “Risks—Investment-Related
Risks—Underlying Fund Risks.”
|
|
Under
Section 12 (d)(1)(A) of the 1940 Act, the Fund may hold securities of an Underlying Fund
in amounts which (i) do not exceed 3% of the total outstanding voting stock of the Underlying
Fund, (ii) do not exceed 5% of the value of the Fund’s total assets and (iii) when
added to all other Underlying Fund securities held by the Fund, do not exceed 10% of the
value of the Fund’s total assets. These limits may be exceeded when permitted under
Rule 12d1-4. The Fund intends to rely on either Section 12 (d)(1)(F) of the 1940 Act, which
provides that the provisions of Section 12 (d)(1)(A) shall not apply to securities purchased
or otherwise acquired by the Fund if (i) immediately after such purchase or acquisition not
more than 3% of the total outstanding stock of such Underlying Fund is owned by the Fund
and all affiliated persons of the Fund, and (ii) certain requirements are met with respect
to sales charges, or Rule 12d1-4. |
|
|
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The
Fund may invest in Underlying Funds that invest in securities that are rated below investment grade, including those receiving the
lowest ratings from S&P Global Ratings, a Standard & Poor’s Financial Services LLC business (“S&P”),
Fitch Ratings, a part of the Fitch Group (“Fitch”), or Moody’s Investor Services, Inc. (“Moody’s”),
or comparably rated by another nationally recognized statistical rating organization (“NRSRO”) or, if unrated, determined
by the Adviser or Subadviser to be of comparable credit quality, which indicates that the security is in default or has little prospect
for full recovery of principal or interest. See “Risks—Investment-Related Risks—Defaulted and Distressed Securities
Risk.” Below investment grade securities (such as securities rated below BBB- by S&P or Fitch or below Baa3 by Moody’s)
are commonly referred to as “junk” and “high yield” securities. Below investment grade securities are considered
speculative with respect to the issuer’s capacity to pay interest and repay principal. The Underlying Funds in which the Fund
invests may invest in securities receiving the lowest ratings from the NRSROs, including securities rated C by Moody’s or D-
by S&P. Lower rated below investment grade securities are considered more vulnerable to nonpayment than other below investment
grade securities and their issuers are more dependent on favorable business, financial and economic conditions to meet their financial
commitments. The lowest rated below investment grade securities are typically already in default. See “Risks—Investment-Related
Risks—Credit and Below Investment Grade Securities Risk.” |
|
|
|
The
Underlying Funds in which the Fund invests will not include those that are advised or subadvised by the Adviser, the Subadviser or
their affiliates. |
|
|
|
Municipal
Bond Income Strategy (35%-75% of Managed Assets). This strategy seeks to capitalize on inefficiencies in the tax-exempt and tax-advantaged
securities markets through investments in Municipal Bonds. The Fund may not directly invest more than 25% of the Managed Assets allocated
to the Municipal Bond Income Strategy in Municipal Bonds in any one industry or in any one state of origin, and the Fund may not
directly invest more than 5% of the Managed Assets allocated to this strategy in the Municipal Bonds of any one issuer, except that
the foregoing industry and issuer restrictions shall not apply to general obligation bonds and the Fund will consider the obligor
or borrower underlying the Municipal Bond to be the “issuer.” See “Risks—Investment-Related Risks—State
Specific and Industry Risks.” The Fund may invest up to 20% of the Managed Assets allocated to the Municipal Bond Income Strategy
in Municipal Bonds that pay interest that may be includable in taxable income for purposes of the Federal alternative minimum tax.
The Fund can invest, directly or indirectly through Underlying Funds, in bonds of any maturity; however, under this strategy, it
will generally invest in Municipal Bonds that have a maturity of five years or longer at the time of purchase. |
|
Under
normal market conditions, the Fund will invest at least 60% of the Fund’s Managed Assets allocated to the Municipal Bond Income
Strategy directly in investment grade Municipal Bonds. The Subadviser will invest no more than 20% of the Managed Assets allocated
to the Municipal Bond Income Strategy in Municipal Bonds rated at or below Caa1 by Moody’s or CCC+ by S&P or Fitch, or
comparably rated by another NRSRO, including unrated bonds judged to be of equivalent quality as determined by the Adviser or Subadviser,
as applicable. Investment grade securities are those rated Baa or higher by Moody’s (although Moody’s considers securities
rated Baa to have speculative characteristics) or BBB or higher by S&P or rated similarly by another NRSRO or, if unrated, judged
to be of equivalent quality as determined by the Adviser or Subadviser, as applicable. If the independent ratings agencies assign
different ratings to the same security, the Fund will use the higher rating for purposes of determining the security’s credit
quality. Subject to the foregoing limitations, the Fund may invest in securities receiving the lowest ratings from the NRSROs, including
securities rated C by Moody’s or D- by S&P, which indicates that the security is in default or has little prospect for
full recovery of principal or interest. See “Risks—Investment-Related Risks—Credit and Below Investment Grade Securities
Risk.” |
|
|
|
Under
normal market conditions, the Fund, or the Underlying Funds in which the Fund invests, will invest at least 50% of its Managed Assets,
directly or indirectly in investment grade Municipal Bonds. |
|
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|
“Managed
Assets” means the total assets of the Fund, including assets attributable to leverage, minus liabilities (other than debt representing
leverage and any preferred stock that may be outstanding). Such assets attributable to leverage include the portion of assets in
tender option bond trusts of which the Fund owns TOB Residuals (as defined below) that has been effectively financed by the trust’s
issuance of TOB Floaters (as defined below). See “Use of Leverage—Tender Option Bonds.” |
|
|
|
Managed
Duration Strategy. The Adviser and the Subadviser may use various techniques to manage the duration of the Fund’s portfolio
in an attempt to mitigate the risks associated with changes in interest rates. Under normal market conditions, the Fund seeks to
maintain Managed Assets with a weighted average effective duration (excluding effects of leverage) that targets the weighted average
effective duration of the Bloomberg U.S. Municipal Index, a widely recognized municipal bond index (the “Index”), primarily
through its investments in Municipal Bonds and Underlying Funds as well as through short positions in U.S. Treasury futures contracts
(as discussed below). As a result of, among other things, changing market conditions and differences between the Fund’s portfolio
and the Index, the Fund believes it will generally be able to maintain a weighted average effective duration that is within three
years of the weighted average effective duration of the Index. However, under certain market conditions and from time to time for
the reasons described below, the Fund’s duration may be outside of such range. In addition, if the effect of the Fund’s
use of leverage was included in calculating duration, it could result in a longer duration for the Fund. As of January 31, 2024,
the Index had a weighted average effective duration of 6.10 years. The Fund may invest in bonds of any maturity, whether directly
through Municipal Bonds or indirectly through Underlying Funds. |
|
Effective
duration is a mathematical calculation of the sensitivity of the price of a bond to changes in interest rates, measuring a bond’s
expected life on a present value basis, taking into account the bond’s yield, interest payments, final maturity and, in the
case of a bond with an embedded option (e.g., the right of the issuer to call the bond prior to maturity, or a sinking fund schedule),
the probability that the option will be exercised. The longer the effective duration of a bond or a group of bonds, the more sensitive
the bond or group of bonds is to changes in interest rates; the shorter the duration, the less sensitive the bond or group of bonds
is to such changes. In general, each year of duration represents an expected 1% change in the value of a bond for every 1% immediate
change in interest rates. For example, if the Fund’s portfolio has an average effective duration of five years, its value would
be expected to fall by approximately 5% if interest rates rise by 1%. Conversely, the portfolio’s value would be expected to
rise about 5% if interest rates fell by 1%. |
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|
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The
Adviser and the Subadviser invest with a view to managing the duration of the Fund. However, the calculation of the Fund’s
weighted average effective duration is contingent upon the Adviser’s ability to adequately determine the weighted average effective
duration of each of the Underlying Funds in which it invests, which is inherently limited as the Adviser’s determination primarily
depends on reporting by such Underlying Funds. Such Underlying Fund reporting may be on a delayed basis and could be subject to incomplete
or inaccurate information that may not be readily apparent to the Adviser. As a result, the Fund cannot guarantee the precise overall
weighted average effective duration of its portfolio at any given point in time and this limitation could cause the Fund’s
weighted average effective duration to be outside of its targeted duration range. In addition, the Adviser and Subadviser may use
short sales and derivatives such as options, futures contracts, options on futures contracts, and swaps (collectively, “Hedging
Positions”) to manage the duration of the Fund. See “—Other Investments” below. |
|
Other
Investments. The Fund may invest, directly or indirectly, up to 20% of its Managed Assets in taxable municipal securities. Any
portion of the Fund’s assets invested in taxable municipal securities will not count toward the 35%-75% of the Fund’s
assets allocated to Municipal Bonds. |
|
|
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The
Fund may at times establish Hedging Positions. Such Hedging Positions may be used to attempt to protect against possible changes
in the value of securities held in or to be purchased for the Fund’s portfolio and to manage the effective maturity or duration
of the Fund’s portfolio. The Fund’s Hedging Positions may, however, result in income or gain to the Fund that is not
exempt from regular U.S. federal income taxes. See “Risks—Investment-Related Risks—Derivatives Risks” and
“Risks—Investment-Related Risks—Options and Futures Risks.” |
|
|
|
A
short sale is a transaction in which the Fund sells a security that it does not own in anticipation of a decline in the market price
of the security. The Fund may benefit from a short position when the shorted security decreases in value by more than the cost of
the transaction but will suffer a loss on a short sale if the security’s value does not decline or increases. The Fund will
not engage in any short sales of securities issued by closed-end funds. See “Investment Objectives, Strategies and Policies—Principal
Investment Strategies—Other Investments” and “Risks—Investment-Related Risks—Short Sale Risks.” |
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The
Fund also may attempt to enhance the return on the cash portion of its portfolio by investing in total return swap agreements. A
total return swap agreement provides the Fund with a return based on the performance of an underlying asset, in exchange for fee
payments to a counterparty based on a specific rate. The difference in the value of these income streams is recorded daily by the
Fund, and is typically settled in cash at least monthly. If the underlying asset declines in value over the term of the swap, the
Fund would be required to pay the dollar value of that decline plus any applicable fees to the counterparty. The Fund may use its
own net asset value (“NAV”) or any other reference asset that the Adviser or Subadviser chooses as the underlying asset
in a total return swap. The Fund will limit the notional amount of all total return swaps in the aggregate to 15% of the Fund’s
Managed Assets. See “Investment Objectives, Strategies and Policies—Principal Investment Strategies—Other Investments”
and “Risks—Investment-Related Risks—Swap Risks.” |
|
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|
In
addition to the foregoing principal investment strategies of the Fund, the Adviser also may allocate the Fund’s Managed Assets
among cash and short-term investments. See “Investment Policies and Techniques—Temporary Investments and Defensive Position”
in the SAI. There are no limits on the Fund’s portfolio turnover, and the Fund may buy and sell securities to take advantage
of potential short-term trading opportunities without regard to length of time and when the Adviser or Subadviser believes investment
considerations warrant such action. High portfolio turnover may result in the realization of net short-term capital gains by the
Fund which, when distributed to holders of the Common Shares (the “Common Shareholders”), will be taxable as ordinary
income. In addition, a higher portfolio turnover rate results in correspondingly greater brokerage commissions and other transactional
expenses that are borne by the Fund. See “Risks—Structural Risks—Portfolio Turnover Risk.” |
|
All
percentage limitations described in this Prospectus are measured at the time of investment and may be exceeded on a going-forward
basis as a result of credit rating downgrades or market value fluctuations of the Fund’s portfolio securities. Unless otherwise
specified herein, the Fund may count its holdings in Underlying Funds towards various guideline tests, including the 80% policy so
long as the earnings on the underlying holdings of such Underlying Funds are exempt from regular U.S. federal income taxes (but which
may be includable in taxable income for purposes of the Federal alternative minimum tax). |
|
|
|
Unless
otherwise specified, the investment policies and limitations of the Fund are not considered to be fundamental by the Fund and can
be changed without a vote of the Common Shareholders. The Fund’s primary investment objective, 80% policy and certain investment
restrictions specifically identified as such in the SAI are considered fundamental and may not be changed without the approval of
the holders of a majority of the outstanding voting securities of the Fund, as defined in the 1940 Act, which includes Common Shares
and Preferred Shares, if any, voting together as a single class, and the holders of the outstanding Preferred Shares, if any, voting
as a single class. See “Investment Restrictions” in the SAI. |
|
|
Investment
Philosophy
and Process |
The
Adviser allocates the Fund’s assets between the Tactical Municipal Closed-End Fund Strategy and the Municipal Bond Income Strategy
(as described above). The amount allocated to each of the principal strategies may change depending on the Adviser’s assessment
of market risk, security valuations, market volatility, and the prospects for earning income and capital appreciation. See “Risks—Structural
Risks—Multi-Manager Risk.” |
|
|
|
Tactical
Municipal Closed-End Fund Strategy. The Adviser considers a number of factors when selecting Underlying Funds, including fundamental
and technical analysis to assess the relative risk and reward potential throughout the financial markets. The term “tactical”
is used to indicate that the portion of the Fund’s Managed Assets allocated to this strategy will invest in closed-end funds
to seek to take advantage of pricing discrepancies in the closed-end fund market. |
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|
In
selecting closed-end funds, the Adviser opportunistically utilizes a combination of short-term and longer-term trading strategies
to seek to derive value from the discount and premium spreads associated with closed-end funds by identifying pricing aberrations.
Closed-end funds may trade at a price that is above their NAV per share, referred to as a “premium,” or below their NAV
per share, referred to as a “discount.” The difference between the NAV per share and the discount or premium is referred
to as a “spread.” |
|
The
Adviser employs both a quantitative and qualitative approach in its selection of closed-end funds and has developed proprietary screening
models and algorithms to trade closed-end funds. The Adviser’s mean reversion investing looks to capitalize on changes within
the pricing of a closed-end fund and, based upon its research and analysis, a view that it will revert to historical pricing. The
Adviser employs the following trading strategies, among others: |
|
|
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Statistical
Analysis (Mean Reversion) |
|
|
|
● |
Using
proprietary quantitative models, the Adviser seeks to identify closed-end funds that are trading at compelling absolute and/or relative
discounts. |
|
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|
● |
The
Adviser attempts to capitalize on the perceived mispricing if the Adviser believes that the discount widening is irrational and expects
the discount to narrow to longer-term mean valuations. |
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Corporate
Actions |
|
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|
● |
The
Adviser pursues investments in closed-end funds that have announced, or the Adviser believes are likely to announce, certain corporate
actions that may drive value for their shareholders. |
|
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|
● |
The
Adviser has developed trading strategies that focus on closed-end fund tender offers, rights offerings, shareholder distributions,
open-endings and liquidations. |
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|
|
In
employing its trading strategies, the Adviser conducts an extensive amount of due diligence on various fund sponsors, investment
managers and funds, including actively monitoring regulatory filings, analyzing a fund’s registration statements, financial
statements and organizational documents, as well as conducting proprietary research, such as speaking with fund sponsors, underwriters,
sell-side brokers and investors. |
|
|
|
See
“Investment Philosophy and Process—Tactical Municipal Closed-End Fund Strategy.” |
|
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|
Municipal
Bond Income Strategy. The Subadviser believes inefficiencies exist in the tax-exempt and tax-advantaged securities markets. In
order to capitalize on these opportunities, the Subadviser applies both a top-down and bottom-up research investment process. The
Subadviser’s top-down analysis considers the economic, interest rate, inflation outlook and other economic variables to guide
overall portfolio structure. The Subadviser employs a value-oriented security selection process to invest in securities it believes
to be mispriced which offer a yield advantage. In choosing investments, the Subadviser analyzes the credit quality of issuers and
considers the yields available on municipal bonds with different maturities. In addition, the Subadviser reviews macroeconomic events,
technical characteristics in the municipal bond market, tax policies, as well as analyzing individual municipal securities and sectors,
and may give consideration to certain environmental, social and governance criteria, including, but not limited to, climate change,
sustainability, energy resources & management, job creation/employee relations, human rights, health and safety, transparency/disclosures,
board expertise, audit practices, transparency and accountability. The Subadviser seeks to reduce volatility through its disciplined
investment process and investment risk management. |
|
The
Subadviser may sell a security if it no longer believes the security will contribute to meeting the investment objectives of the
Fund. In considering whether to sell a security, the Subadviser may evaluate, among other things, the condition of the economy and
meaningful changes in the issuer’s financial condition. |
|
|
|
See
“Investment Philosophy and Process—Municipal Bond Income Strategy.” |
|
|
Limited
Term Fund
Structure and
Eligible Tender Offer |
The
Fund will terminate on or before February 16, 2037 (the “Termination Date”); provided, that if the Board of Directors
believes that, under then-current market conditions, it is in the best interests of the Fund to do so, the Fund may extend the Termination
Date: (i) once for up to one year (i.e., up to February 16, 2038), and (ii) once for up to an additional six months (i.e., up to
August 16, 2038), in each case upon the affirmative vote of a majority of the Board of Directors and without the approval of Common
Shareholders. In determining whether to extend the Termination Date, the Board of Directors may consider, for example, the Fund’s
inability to sell its assets in a time frame consistent with termination due to lack of market liquidity or other extenuating circumstances.
Additionally, the Board of Directors may determine that market conditions are such that it is reasonable to believe that, with an
extension, the Fund’s remaining assets will appreciate and generate income in an amount that, in the aggregate, is meaningful
relative to the cost and expense of continuing the operation of the Fund. |
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|
In
anticipation of the Termination Date (such period of time, the “wind-down period”), the Fund may begin liquidating all
or a portion of the Fund’s portfolio, and may deviate from its investment policies and may not achieve its investment objective.
During the wind-down period (or in anticipation of an Eligible Tender Offer), the Fund’s portfolio composition may change as
more of its portfolio holdings are called or sold and portfolio holdings are disposed of in anticipation of liquidation. Rather than
reinvesting the proceeds of matured, called or sold securities in accordance with the investment program described above, the Fund
may invest such proceeds in short term or other lower yielding securities or hold the proceeds in cash, which may adversely affect
its performance. |
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|
|
In
addition, within twelve months preceding the Termination Date, the Board of Directors may cause the Fund to conduct an Eligible Tender
Offer. An Eligible Tender Offer would consist of a tender offer to all Common Shareholders to purchase Common Shares of the Fund
at a price equal to the NAV per Common Share on the expiration date of the tender offer. The Board of Directors has established that,
following an Eligible Tender Offer, the Fund must have at least $100 million of net assets to ensure the continued viability of the
Fund (the “Termination Threshold”). |
|
In
an Eligible Tender Offer, the Fund will offer to purchase all Common Shares held by each Common Shareholder; provided, that if the
number of properly tendered Common Shares would result in the Fund’s net assets totaling less than the Termination Threshold,
the Eligible Tender Offer will be terminated and no Common Shares will be repurchased pursuant to the Eligible Tender Offer. Instead,
the Fund will begin (or continue) liquidating its portfolio and proceed to terminate on or before the Termination Date. The Adviser
will pay all costs and expenses associated with the making of an Eligible Tender Offer, other than brokerage and related transaction
costs associated with the disposition of portfolio investments in connection with the Eligible Tender Offer, which will be borne
by the Fund and its shareholders. An Eligible Tender Offer would be made, and Common Shareholders would be notified thereof, in accordance
with the requirements of the 1940 Act, the Securities Exchange Act of 1934 (the “Exchange Act”) and the applicable tender
offer rules thereunder (including Rule 13e-4 and Regulation 14E under the Exchange Act). |
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If
the number of properly tendered Common Shares would result in the Fund’s net assets equaling or totaling greater than the Termination
Threshold, all Common Shares properly tendered and not withdrawn will be purchased by the Fund pursuant to the terms of the Eligible
Tender Offer. The Fund’s purchase of tendered Common Shares pursuant to a tender offer will have tax consequences for tendering
Common Shareholders and may have tax consequences for non-tendering Common Shareholders. In addition, the Fund would continue to
be subject to its obligations with respect to its issued and outstanding preferred stock or debt securities, if any. |
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All
Common Shareholders remaining after a tender offer will be subject to proportionately higher expenses due to the reduction in the
Fund’s total assets resulting from payment for the tendered Common Shares. A reduction in net assets, and the corresponding
increase in the Fund’s expense ratio, could result in lower returns and put the Fund at a disadvantage relative to its peers
and potentially cause the Fund to trade at a wider discount to NAV than it otherwise would. Such reduction in the Fund’s total
assets may also result in less investment flexibility, reduced diversification and greater volatility for the Fund, and may have
an adverse effect on the Fund’s investment performance. Moreover, the resulting reduction in the number of outstanding Common
Shares could cause the Common Shares to become thinly traded or otherwise adversely impact the secondary market trading of such shares.
See “Risks—Structural Risks—Limited Term and Eligible Tender Offer Risk.” |
|
Following
the completion of an Eligible Tender Offer, the Board of Directors may eliminate the limited term structure of the Fund upon the
affirmative vote of a majority of the Board of Directors and without the approval of Common Shareholders. In making such decision,
the Board of Directors will take such actions with respect to the continued operations of the Fund as it deems to be in the best
interests of the Fund, based on market conditions at such time, the extent of Common Shareholder participation in the Eligible Tender
Offer and all other factors deemed relevant by the Board of Directors in consultation with the Adviser and Subadviser, taking into
account that the Adviser and Subadviser may have a potential conflict of interest in seeking to convert to a perpetual fund (or in
seeking to extend the Termination Date). The Fund is not required to conduct additional tender offers following an Eligible Tender
Offer and conversion to a perpetual structure. Therefore, remaining Common Shareholders may not have another opportunity to participate
in a tender offer or exchange their Common Shares for the then-existing NAV per Common Share. |
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|
The
Fund is not a so called “target date” or “life cycle” fund whose asset allocation becomes more conservative
over time as its target date, often associated with retirement, approaches. In addition, the Fund is not a “target term”
fund whose investment objective is to return its original NAV on the termination date. See “Certain Provisions of the Fund’s
Charter and Bylaws and of Maryland Law” and “Risks—Structural Risks—Limited Term and Eligible Tender Offer
Risk.” |
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Use
of Leverage |
The
Fund may borrow money and/or issue Preferred Shares, notes or debt securities for investment purposes. These practices are known
as leveraging. In addition, the Fund may enter into derivative and other transactions that have the effect of leverage. Such other
transactions may include tender option bond transactions (as described herein). The Adviser determines whether or not to engage in
leverage based on its assessment of conditions in the debt and credit markets. As of the time immediately after it enters into any
of the foregoing transactions, the Fund will seek to limit its overall effective leverage to 45% of its Managed Assets. The Fund
currently anticipates that leverage will be obtained through the use of proceeds received from tender option bond transactions. See
“—Tender Option Bonds.” |
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|
|
The
provisions of the 1940 Act provide that the Fund may borrow or issue notes or debt securities in an amount up to 33 1/3% of its total
assets or may issue Preferred Shares in an amount up to 50% of the Fund’s total assets (including the proceeds from leverage).
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With
respect to the Fund’s anticipated investments in TOB Residuals issued by a tender option bond trust (as further discussed below
under “—Tender Option Bonds”), the Fund treats such investments as derivatives in compliance with Rule 18f-4 under
the 1940 Act. See “Risks—Investment-Related Risks—Legislation and Regulatory Risks.” |
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|
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The
use of leverage by the Fund can magnify the effect of any losses. If the income and gains earned on the securities and investments
purchased with leverage proceeds are greater than the cost of the leverage, returns will be greater than if leverage had not been
used. Conversely, if the income and gains from the securities and investments purchased with such proceeds do not cover the cost
of leverage, returns will be less than if leverage had not been used. Since the holders of common stock pay all expenses related
to the issuance of debt or use of leverage, any use of leverage would create a greater risk of loss for the Common Shares than if
leverage is not used. There can be no assurance that a leveraging strategy will be successful during any period in which it is employed.
See “Use of Leverage” and “Risks—Structural Risks—Leverage Risks.” |
|
Tender
Option Bonds. The Fund may leverage its assets through the use of proceeds received from tender option bond transactions. In
a tender option bond transaction, a tender option bond trust (a “TOB Issuer”) is typically established by forming a special
purpose trust into which the Fund, or an agent on behalf of the Fund, transfers municipal bonds or other municipal securities. A
TOB Issuer typically issues two classes of beneficial interests: short-term floating rate notes (“TOB Floaters”), which
are sold to third party investors, and residual interest municipal tender option bonds (“TOB Residuals”), which are generally
issued to the Fund. The Fund may invest in both TOB Floaters and TOB Residuals, including TOB Floaters and TOB Residuals issued by
the same TOB Issuer. The Fund may not invest more than 5% of its Managed Assets in any single TOB Issuer. The Fund does not currently
intend to invest in TOB Residuals issued by a TOB Issuer that was not formed for the Fund, although it reserves the right to do so
in the future. |
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Under
accounting rules, securities of the Fund that are deposited into a TOB Issuer are treated as investments of the Fund, and are presented
on the Fund’s Schedule of Investments and outstanding TOB Floaters issued by a TOB Issuer are presented as liabilities in the
Fund’s Statement of Assets and Liabilities. Interest income from the underlying security is recorded by the Fund on an accrual
basis. Interest expense incurred on the TOB Floaters and other expenses related to remarketing, administration and trustee services
to a TOB Issuer are reported as expenses of the Fund. |
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For
TOB Floaters, generally, the interest rate earned will be based upon the market rates for municipal securities with maturities or
remarketing provisions that are comparable in duration to the periodic interval of the tender option, which may vary from weekly,
to monthly, to extended periods of one year or multiple years. Since the option feature has a shorter term than the final maturity
or first call date of the underlying securities deposited in the TOB Issuer, the Fund, if it is the holder of the TOB Floaters, relies
upon the terms of the agreement with the financial institution furnishing the option as well as the credit strength of that institution.
As further assurance of liquidity, the terms of the TOB Issuer provide for a liquidation of the municipal security deposited in the
TOB Issuer and the application of the proceeds to pay off the TOB Floaters. |
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There
are inherent risks with respect to investing in a TOB Issuer. These risks include, among others, the bankruptcy or default of the
issuer of the securities deposited in the TOB Issuer, a substantial downgrade in the credit quality of the issuer of the securities
deposited in the TOB Issuer, the inability of the TOB Issuer to obtain liquidity support for the TOB Floaters, a substantial decline
in the market value of the securities deposited in the TOB Issuer, or the inability of the sponsor or remarketing agent to remarket
any TOB Floaters tendered to it by holders of the TOB Floaters. See “Risks—Investment-Related Risks—Tender Option
Bonds Risk.” |
Dividends
and
Distributions |
The
Fund has implemented a level distribution policy (the “Level Distribution Policy”). Under the Level Distribution Policy,
the Fund intends to make monthly distributions to common shareholders at a constant and fixed (but not guaranteed) rate (which is
annually reset) equal to 6.75% of the average of the Fund’s NAV per share as reported for the final five trading days of the
preceding calendar year. The rate disclosed is as of the date of this Prospectus. |
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Under
the Level Distribution Policy, to the extent that sufficient investment income is not available on a monthly basis, the Fund’s
distributions could consist of return of capital in order to maintain the distribution rate. The amount treated as a return of capital
will reduce a shareholder’s adjusted basis in the shareholder’s shares, thereby increasing the potential gain or reducing
the potential loss on the sale of shares. Investors should not make any conclusions about the Fund’s investment performance
from the amount of the Fund’s distributions or from the terms of the Fund’s Level Distribution Policy. Dividends and
distributions may be payable in cash or common shares, with shareholders having the option to receive additional common shares in
lieu of cash. The Fund may at times, in its discretion, pay out less than the entire amount of net investment income earned in any
particular period and may at times pay out such accumulated undistributed income in addition to net investment income earned in other
periods in order to permit the Fund to maintain a more stable level of distributions. As a result, the dividend paid by the Fund
to common shareholders for any particular period may be more or less than the amount of net investment income earned by the Fund
during such period. The Fund’s ability to maintain a stable level of distributions to shareholders will depend on a number
of factors, including the stability of income received from its investments. The amount of monthly distributions could vary depending
on a number of factors, including the costs of any leverage. As portfolio and market conditions change, the amount of dividends on
the Fund’s common shares could change. For federal income tax purposes, the Fund is required to distribute substantially all
of its net investment income each year to both reduce its federal income tax liability and to avoid a potential federal excise tax.
The Fund intends to distribute all realized net capital gains, if any, at least annually. See “Dividends and Distributions.” |
|
|
Dividend
Reinvestment Plan |
The
Fund has an automatic dividend reinvestment plan (the “Plan”) commonly referred to as an “opt-out” plan.
Each Common Shareholder who participates in the Plan will have all distributions of dividends and capital gains automatically reinvested
in additional Common Shares. The automatic reinvestment of dividends and distributions in Common Shares will not relieve participants
of any federal, state or local income tax that may be payable (or required to be withheld) on such dividends and distributions, even
though such participants have not received any cash with which to pay the resulting tax. |
|
Common
Shareholders who elect not to participate in the Plan will receive all distributions in cash. All correspondence or questions concerning
the Plan, including how a Common Shareholder may opt out of the Plan, should be directed to DST Systems, Inc., (844) 569-4750 (the
“Plan Administrator”). Beneficial owners of Common Shares who hold their Common Shares in the name of a broker or nominee
should contact the broker or nominee to determine whether and how they may participate in, or opt out of, the Plan. See “Dividend
Reinvestment Plan” and “U.S. Federal Income Tax Matters.” |
|
|
Listing
of Common
Shares |
The
Fund’s Common Shares have been approved for listing on the New York Stock Exchange (the “NYSE”), subject to notice
of issuance. The trading or ticker symbol of the Common Shares is expected to be “RMMZ.” The NAV of the Fund's common
shares at the close of business on January 31, 2024 was $17.32, and the last sale price of the common shares on the NYSE on such
date was $15.98. |
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|
Risk
Considerations |
Risk
is inherent in all investing. Investing in any investment company security involves risks, including the risk that you may
receive little or no return on your investment or even that you may lose part or all of your investment. Therefore, before investing
in the Securities, you should consider the risks more fully set forth under “Risks” beginning on page 33 (as well as
the other information in this Prospectus, the applicable prospectus supplement and the SAI), which provides a discussion of the principal
risk factors associated with an investment in the Fund specifically, as well as those factors generally associated with an investment
in a company with investment objectives, investment policies, capital structure or trading markets similar to the Fund. Given the
nature of the Fund’s investment strategies, these principal risks include risks associated with investments in municipal bonds,
other investment companies and below investment grade-rated securities; risks associated with the use of leverage, including the
use of tender option bond transactions and derivatives and short sales; and risks related to interest rates, management of the Fund’s
duration and tax matters. |
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|
Administrator,
Fund
Accountant, Transfer
Agent,
Dividend
Disbursing
Agent and
Custodian |
ALPS
Fund Services, Inc. (“AFS”) is the Fund’s administrator. Under an Administration, Bookkeeping and Pricing Services
Agreement (the “Administration Agreement”), AFS is responsible for calculating NAVs, providing additional fund accounting
and tax services, and providing fund administration and compliance-related services. State Street Bank and Trust Company serves as
the Fund’s custodian. DST Systems, Inc. serves as the Fund’s transfer agent, registrar, Plan Administrator and dividend
disbursing agent. See “Administrator, Fund Accountant, Transfer Agent, Dividend Disbursing Agent and Custodian.” |
SUMMARY
OF FUND EXPENSES
The
following table shows estimated Fund expenses as a percentage of net assets attributable to Common Shares. The table is based on the
capital structure of the Fund as of June 30, 2023.
The
purpose of the following table and the example below is to help you understand the fees and expenses that you, as a Common Shareholder,
would bear directly or indirectly. Actual expenses may be greater or less than those shown below.
Shareholder
Transaction Expenses |
As
a Percentage
of Offering Price |
Sales
Load |
--%* |
Offering
Expenses Borne by Common Shareholders of the Fund |
--%* |
Dividend
Reinvestment Plan Fees(1) |
--%* |
Preferred
Shares Offering Expenses Borne by the Fund (as a percentage of net assets attributable to Common Shares) |
--%* |
|
As
a Percentage of
Net Assets Attributable to
Common Shares
(Assuming the Use of
Leverage Equal to 38.71% of the
Fund’s Managed Assets) |
Annual
Expenses |
|
Management
fee(2) |
2.28% |
Leverage
costs(3)(4)(5) |
1.97% |
Dividends
on Preferred Shares(6) |
--% |
Other
Expenses |
0.03% |
Acquired
fund fees and expenses(7) |
0.91% |
Total
annual expenses(8) |
5.19% |
The
purpose of the table above and the example below is to help you understand the fees and expenses that you, as a Common Shareholder, would
bear directly or indirectly.
Example(9)
The
example illustrates the expenses you would pay on a $1,000 investment in Common Shares, based on the fees and expenses set forth in the
table above, assuming a 5% annual return.
|
1
year |
3
years |
5
years |
10
years |
Total
Expenses Incurred |
$52 |
$155 |
$258 |
$514 |
The
example should not be considered a representation of future expenses. Actual expenses may be greater or less than those assumed.
| (7) | The
“Acquired fund fees and expenses” disclosed above are based on the expense ratios
for the most recent fiscal year of the Underlying Funds in which the Fund anticipates investing,
which may change substantially over time and, therefore, significantly affect “Acquired
fund fees and expenses.” These amounts are based on the total expense ratio disclosed
in each Underlying Fund’s most recent shareholder report. “Acquired fund fees
and expenses” are not charged directly to the Fund, but rather reflect the estimated
pro rata portion of the Underlying Funds’ fees attributable to the Fund’s investments
in shares of the Underlying Funds. The 0.91% shown as “Acquired fund fees and expenses”
reflects estimated operating expenses of the Underlying Funds and transaction-related fees.
Certain Underlying Funds in which the Fund intends to invest generally charge a management
fee of 1.00% to 2.00%, which are included in “Acquired fund fees and expenses,”
as applicable. Acquired fund fees and expenses are borne indirectly by the Fund, but they
will not be reflected in the Fund’s financial statements; and the information presented
in the table will differ from that presented in the Fund’s financial highlights, when
available. |
Annual
expenses (as a percentage of net assets attributable to Common Shares) |
As
a Percentage of
Net
Assets Attributable to
Common
Shares
(Assuming
No Leverage) |
Management
fees |
1.40% |
Other Expenses |
0.03% |
Acquired
fund fees and expenses |
0.91% |
Total
annual expenses |
2.34%
|
FINANCIAL
HIGHLIGHTS
The
Fund’s “Financial Highlights” and the report of the Fund’s independent registered public accounting firm, Cohen
and Company, Ltd., thereon, contained in the following document filed by the Fund with the SEC, is hereby incorporated by reference into
this Prospectus: the annual
report for the year ended June 30, 2023 contained in the Fund’s form N-CSR and filed with the SEC on September 7, 2023.
MARKET
AND NET ASSET VALUE INFORMATION
The
Fund’s currently outstanding common shares are, and any Common Shares offered by this Prospectus and the applicable prospectus
supplement will be, subject to notice of issuance, listed on the NYSE. The Fund’s common shares commenced trading on the NYSE on
February 11, 2022.
The
Fund’s common shares have traded both at a premium and at a discount in relation to net asset value. Shares of closed-end investment
companies frequently trade at a discount from net asset value. The Fund’s issuance of the Common Shares may have an adverse effect
on prices in the secondary market for the Fund’s common shares by increasing the number of common shares available, which may put
downward pressure on the market price for the Fund’s common shares.
The
Fund may (but is not obligated to) take action to repurchase shares in the open market or make tender offers for its shares at or near
NAV. During the pendency of any tender offer, the Fund will publish how common shareholders may readily ascertain the NAV. Repurchase
of the common shares may have the effect of reducing any market discount to NAV. There is no assurance that, if action is undertaken
to repurchase or tender for shares, such action will result in the shares trading at a price which approximates their NAV. Please see
“Repurchase of Shares” for more information.
The
following table sets forth for each of the periods indicated the high and low closing market prices for common shares of the Fund on
the NYSE, the net asset value per share and the premium or discount to net asset value per share at which the Fund’s common shares
were trading. Net asset value is determined daily as of the close of regular trading on the NYSE (normally 4:00 p.m. Eastern Time). See
“Net Asset Value” for information as to the determination of the Fund’s net asset value.
|
MARKET
PRICE(1) |
NET
ASSET
VALUE
(2) |
PREMIUM/(DISCOUNT)
TO
NET ASSET
VALUE(3) |
Quarter
Ended |
High |
Low |
High |
Low |
High |
Low |
March
31, 2022 |
$20.19 |
$19.03 |
$20.28 |
$19.60 |
-0.44% |
-2.91% |
June
30, 2022 |
$19.30 |
$15.51 |
$19.51 |
$17.45 |
-1.08% |
-11.12% |
September
30, 2022 |
$17.71 |
$15.33 |
$18.46 |
$16.58 |
-4.06% |
-7.54% |
December
31, 2022 |
$15.90 |
$14.02 |
$17.41 |
$16.12 |
-8.67% |
-13.03% |
March
31, 2023 |
$16.84 |
$14.73 |
$17.98 |
$17.09 |
-6.34% |
-13.81% |
June
30, 2023 |
$16.08 |
$14.85 |
$17.25 |
$17.11 |
-6.78% |
-13.21% |
September 30, 2023 |
$16.40 |
$14.05 |
$17.22 |
$15.86 |
-4.76% |
-11.41% |
December 31, 2023 |
$15.65 |
$12.99 |
$17.35 |
$15.26 |
-9.80% |
-14.88% |
In recognition
of the possibility that Common Shares might trade at a discount to NAV, the Board of Directors may consider one or more actions that
might be taken to seek to reduce or eliminate any material discount from NAV in respect of Common Shares, which may include the repurchase
of such shares in the open market or in private transactions, the making of a tender offer for such shares or the conversion of the Fund
to an open-end investment company. The Board of Directors may decide not to take any of these actions in the future. In addition, there
can be no assurance any of these actions, or others, if undertaken, will reduce market discount. See “Repurchase of Shares,”
“Conversion to Open-End Fund” and “Limited Term and Eligible Tender Offer.”
The last
reported sale price, net asset value per share and percentage discount to net asset value per share of the common shares as of January
31, 2024, were $15.98, $17.32, and -7.74%, respectively. As of that same date, the Fund had 8,455,000 common shares outstanding and net
assets of the Fund were $146,423,102.
THE
FUND
RiverNorth
Managed Duration Municipal Income Fund II, Inc. (the “Fund”) is a diversified, closed-end management investment company registered
under the Investment Company Act of 1940 (the “1940 Act”). The Fund was organized as a Maryland corporation on June 24, 2021.
The Fund will have an approximate 15-year limited term unless otherwise determined by the Fund’s Board of Directors (the “Board”
or the “Board of Directors”). On February 11, 2022, 8,450,000 shares of common stock were issued in connection with the Fund’s
initial public offering. The Fund’s currently outstanding common stock is, and common stock offered in this Prospectus and any
applicable prospectus supplement will be, listed on the New York Stock Exchange (“NYSE”) under the symbol “RMMZ.”
The Fund’s principal office is located at 360 South Rosemary Avenue, Suite 1420, West Palm Beach, FL 33401, and its telephone number
is (561) 484-7185. The shares of the Fund’s common stock offered by this Prospectus and any applicable prospectus supplement are
hereinafter called “Common Shares” and the holders of Common Shares are called “Common Shareholders.” As used
in this Prospectus, unless the context requires otherwise, “common shares” refers to the shares of the Fund’s common
stock currently outstanding as well as those Common Shares offered by this Prospectus and the holders of common shares are called “common
shareholders.”
The
following table provides information about the Fund’s outstanding securities as of January 31, 2024:
Title
of Class |
Amount
Authorized |
Amount
Held by the
Fund
or for its Account |
Amount
Outstanding |
Common
Shares |
50,000,000 |
0 |
8,455,000 |
THE
OFFERING
The
Fund may offer, from time to time, up to $175,000,000 aggregate initial offering price of (i) Common Shares, (ii) shares of its preferred
stock (“Preferred Shares”), and/or (iii) subscription rights to purchase Common Shares, Preferred Shares or both (“Rights”
and, together with the Common Shares and the Preferred Shares, “Securities) in one or more offerings in amounts, at prices and
on terms set forth in one or more supplements to this Prospectus. See “Description of the Fund’s Securities.”
The
Fund may offer Securities directly to one or more purchasers, including existing common shareholders and/or preferred shareholders in
a Rights offering, through agents that the Fund or the purchasers designate from time to time, or to or through underwriters or dealers.
The prospectus supplement relating to the offering will identify any agents or underwriters involved in the sale of the Securities, and
will set forth any applicable purchase price, fee, commission or discount arrangement between the Fund and such agents or underwriters
or among underwriters or the basis upon which such amount may be calculated. The prospectus supplement relating to any sale of preferred
stock will set forth the liquidation preference and information about the dividend period, dividend rate, any call protection or non-call
period and other matters, including the terms, if any, on which the preferred stock may be exchanged for or converted into shares of
common stock or any other security and, if applicable, the conversion or exchange price, or how it will be calculated, and the conversion
or exchange period. A supplement to this Prospectus relating to any offering of subscription rights will set forth the number of shares
(common or preferred) issuable upon the exercise of each right and the other terms of such Rights offering, including whether the Preferred
Shares issuable upon the exercise of such right are convertible into Common Shares. The Fund may not sell Securities through agents,
underwriters or dealers without delivery of this Prospectus and a prospectus supplement describing the method and terms of the offering
of the Securities. See “Plan of Distribution.”
The
Fund may offer Common Shares or Preferred Shares on an immediate, continuous or delayed basis. Offerings of Shares will be subject to
the provisions of the 1940 Act, which generally require that the public offering price of common shares of a closed-end investment company
(exclusive of distribution commissions and discounts) must equal or exceed the net asset value per share of the company’s common
stock (calculated within 48 hours of pricing), absent shareholder approval or under certain other circumstances. The Fund may, however,
issue Common Shares pursuant to exercises of Rights at prices below net asset value.
USE
OF PROCEEDS
Unless
otherwise specified in a prospectus supplement, the Fund expects to invest the net proceeds from any sales of Securities in accordance
with the Fund’s investment objective and policies as stated below, or use such proceeds for other general corporate purposes within
approximately three months of receipt of such proceeds. Pending any such use, the proceeds may be invested in cash, cash equivalents,
short-term debt securities or U.S. government securities. A delay in the anticipated use of proceeds could lower returns and reduce the
Fund’s distributions to common shareholders.
INVESTMENT
OBJECTIVES, STRATEGIES AND POLICIES
Investment
Objectives
The
Fund’s primary investment objective is current income exempt from regular U.S. federal income taxes (but which may be includable
in taxable income for purposes of the Federal alternative minimum tax). The Fund’s secondary investment objective is total return.
There is no assurance that the Fund will achieve its investment objectives.
Principal
Investment Strategies
Under
normal market conditions, the Fund seeks to achieve its investment objectives by investing, directly or indirectly, at least 80% of its
Managed Assets in municipal bonds, the interest on which is, in the opinion of bond counsel to the issuers, generally excludable from
gross income for regular U.S. federal income tax purposes, except that the interest may be includable in taxable income for purposes
of the Federal alternative minimum tax (“Municipal Bonds”). In order to qualify to pay exempt-interest dividends, which are
items of interest excludable from gross income for federal income tax purposes, for each taxable year, the Fund seeks to invest either
(i) at least 50% of its total assets directly (and indirectly through tender option bond transactions) in such Municipal Bonds at the
end of each calendar quarter, or (ii) at least 50% of its total assets in other funds that are taxed as regulated investment companies
at the end of each calendar quarter. See “Risks—Investment-Related Risks—Tax Risks.” In addition, under normal
market conditions, the Fund seeks to maintain Managed Assets with a weighted average effective duration that is within three years of
the weighted average effective duration of the Bloomberg U.S. Municipal Index. See “—Managed Duration Strategy” below.
Municipal
Bonds are debt obligations, which may have a variety of issuers, including governmental entities or other qualifying issuers. Issuers
may be states, territories and possessions of the United States and the District of Columbia and their political subdivisions, agencies
and instrumentalities. See “Risks—Investment-Related Risks—Municipal Bond Risks” and “Risks—Investment-Related
Risks—Market Disruption, Geopolitical, Pandemic and Climate Change Risks.” Such territories of the United States include
Puerto Rico. See “Risks—Investment-Related Risks—Puerto Rico Municipal Bond Risks” for a discussion of the risks
associated with an investment in Puerto Rico Municipal Bonds. Municipal Bonds include, among other instruments, general obligation bonds,
revenue bonds, municipal leases, certificates of participation, private activity bonds, moral obligation bonds, and tobacco settlement
bonds, as well as short-term, tax-exempt obligations such as municipal notes and variable rate demand obligations. See “—Portfolio
Composition” for a description of the types of Municipal Bonds in which the Fund may invest.
The
Fund seeks to allocate its assets between the two principal strategies described below. The Adviser determines the portion of the Fund’s
Managed Assets to allocate to each strategy and may, from time to time, adjust the allocations. See “Risks—Structural Risks—Asset
Allocation Risk.” Under normal market conditions, the Fund may allocate between 25% and 65% of its Managed Assets to the Tactical
Municipal Closed-End Fund Strategy (as described below) and 35% to 75% of its Managed Assets to the Municipal Bond Income Strategy (as
described below). See “Investment Philosophy and Process.”
Tactical
Municipal Closed-End Fund Strategy (25%-65% of Managed Assets). This strategy seeks to (i) generate returns through investments in
other investment companies, consisting principally of closed-end funds and exchange-traded funds (“ETFs” and, together with
such other investment companies, the “Underlying Funds”), that invest, under normal market conditions, at least 80% of their
net assets, plus the amount of any borrowings for investment purposes, in Municipal Bonds, and (ii) derive value from the discount and
premium spreads associated with closed-end funds that invest, under normal market conditions, at least 80% of their net assets, plus
the amount of any borrowings, for investment purposes, in Municipal Bonds. See “Risks—Investment-Related Risks—Tactical
Municipal Closed-End Fund Strategy Risk.” All Underlying Funds will be registered under the Securities Act of 1933, as amended
(the “Securities Act”).
Under
normal market conditions, the Fund limits its investments in closed-end funds that have been in operation for less than one year to no
more than 10% of the Fund’s Managed Assets allocated to the Tactical Municipal Closed-End Fund Strategy. The Fund will not invest
in inverse ETFs or leveraged ETFs. Under normal market conditions, the Fund may not invest more than 35% of its Managed Assets in the
Tactical Municipal Closed-End Fund Strategy in single state municipal closed-end funds. The Fund’s shareholders will indirectly
bear the expenses, including the management fees, of the Underlying Funds. See “Risks—Investment-Related Risks—Underlying
Fund Risks.”
Under
Section 12(d)(1)(A) of the 1940 Act, the Fund may hold securities of an Underlying Fund in amounts which (i) do not exceed 3% of the
total outstanding voting stock of the Underlying Fund, (ii) do not exceed 5% of the value of the Fund’s total assets and (iii)
when added to all other Underlying Fund securities held by the Fund, do not exceed 10% of the value of the Fund’s total assets.
Under Section 12(d)(1)(C) of the 1940 Act, the Fund, together with any other investment companies for which the Adviser acts as an investment
adviser, may not, in the aggregate, own more than 10% of the total outstanding voting stock of a registered closed-end investment company.
Section 12(d)(1)(F) of the 1940 Act provides that the limitations of Section 12(d)(1) described above shall not apply to securities purchased
or otherwise acquired by the Fund if (i) immediately after such purchase or acquisition not more than 3% of the total outstanding stock
of such Underlying Fund is owned by the Fund and all affiliated persons of the Fund, and (ii) certain requirements are met with respect
to sales charges. In addition, Rule 12d1-4 under the 1940 Act (“Rule 12d1-4”), effective as of January 19, 2022, permits
the Fund to invest in Underlying Funds beyond the limitations of Section 12(d)(1) described above, subject to various conditions, including
that the Fund enter into an investment agreement with the Underlying Fund (which agreements may impose additional conditions on the Fund).
The
Fund may invest in Underlying Funds that invest in securities that are rated below investment grade, including those receiving the lowest
ratings from S&P Global Ratings, a Standard & Poor’s Financial Services LLC business (“S&P”), Fitch Ratings,
a part of the Fitch Group (“Fitch”), or Moody’s Investor Services, Inc. (“Moody’s”), or comparably
rated by another nationally recognized statistical rating organization (“NRSRO”) or, if unrated, determined by the Adviser
or Subadviser to be of comparable credit quality, which indicates that the security is in default or has little prospect for full recovery
of principal or interest. See “Risks—Investment-Related Risks—Defaulted and Distressed Securities Risk.” Below
investment grade securities (such as securities rated below BBB- by S&P or Fitch or below Baa3 by Moody’s) are commonly referred
to as “junk” and “high yield” securities. Below investment grade securities are considered speculative with respect
to the issuer’s capacity to pay interest and repay principal. The Underlying Funds in which the Fund invests may invest in securities
receiving the lowest ratings from the NRSROs, including securities rated C by Moody’s or D- by S&P. Lower rated below investment
grade securities are considered more vulnerable to nonpayment than other below investment grade securities and their issuers are more
dependent on favorable business, financial and economic conditions to meet their financial commitments. The lowest rated below investment
grade securities are typically already in default. See “Risks—Investment-Related Risks—Credit and Below Investment
Grade Securities Risk.”
The
Underlying Funds in which the Fund invests will not include those that are advised or subadvised by the Adviser, the Subadviser or their
affiliates.
Municipal
Bond Income Strategy (35%-75% of Managed Assets). This strategy seeks to capitalize on inefficiencies in the tax-exempt and tax-advantaged
securities markets through investments in Municipal Bonds. The Fund may not directly invest more than 25% of the Managed Assets allocated
to the Municipal Bond Income Strategy in Municipal Bonds in any one industry or in any one state of origin, and the Fund may not directly
invest more than 5% of the Managed Assets allocated to this strategy in the Municipal Bonds of any one issuer, except that the foregoing
industry and issuer restrictions shall not apply to general obligation bonds and the Fund will consider the obligor or borrower underlying
the Municipal Bond to be the “issuer.” See “Risks—Investment-Related Risks—State Specific and Industry
Risks.” The Fund may invest up to 20% of the Managed Assets allocated to the Municipal Bond Income Strategy in Municipal Bonds
that pay interest that may be includable in taxable income for purposes of the Federal alternative minimum tax. The Fund can invest,
directly or indirectly through Underlying Funds, in bonds of any maturity; however, under this strategy, it will generally invest in
Municipal Bonds that have a maturity of five years or longer at the time of purchase.
Under
normal market conditions, the Fund invests at least 60% of the Fund’s Managed Assets allocated to the Municipal Bond Income Strategy
directly in investment grade Municipal Bonds. The Subadviser invests no more than 20% of the Managed Assets allocated to the Municipal
Bond Income Strategy in Municipal Bonds rated at or below Caa1 by Moody’s or CCC+ by S&P or Fitch, or comparably rated by another
NRSRO, including unrated bonds judged to be of equivalent quality as determined by the Adviser or Subadviser, as applicable. Investment
grade securities are those rated Baa or higher by Moody’s (although Moody’s considers securities rated Baa to have speculative
characteristics) or BBB or higher by S&P or rated similarly by another NRSRO or, if unrated, judged to be of equivalent quality as
determined by the Adviser or Subadviser, as applicable. If the independent ratings agencies assign different ratings to the same security,
the Fund will use the higher rating for purposes of determining the security’s credit quality. Subject to the foregoing limitations,
the Fund may invest in securities receiving the lowest ratings from the NRSROs, including securities rated C by Moody’s or D- by
S&P, which indicates that the security is in default or has little prospect for full recovery of principal or interest. See “Risks—Investment-Related
Risks—Credit and Below Investment Grade Securities Risk.”
Under
normal market conditions, the Fund, or the Underlying Funds in which the Fund invests, will invest at least 50% of its Managed Assets,
directly or indirectly in investment grade Municipal Bonds.
The
Subadviser may consider environmental, social, and/or governance (“ESG”) characteristics it deems relevant or additive when
making investment decisions for this strategy, although ESG considerations do not represent a primary focus of the Fund. Such ESG criteria
may include consideration of climate change, sustainability, energy resources & management, job creation/employee relations, human
rights, health and safety, transparency/disclosures, board expertise, audit practices, transparency and accountability. The Fund believes
that ESG considerations, like other more traditional subjects of investment analysis, have the potential to impact financial risk and
investment returns, although there is no guarantee the intended results will be achieved. The consideration of ESG factors as part of
the Subadviser’s investment process does not mean that the Fund pursues a specific “ESG,” “impact” or “sustainable”
investment strategy, and the Fund may make investment decisions other than on the basis of relevant ESG considerations.
“Managed
Assets” means the total assets of the Fund, including assets attributable to leverage, minus liabilities (other than debt representing
leverage and any preferred stock that may be outstanding). Such assets attributable to leverage include the portion of assets in tender
option bond trusts of which the Fund owns TOB Residuals (as defined below) that has been effectively financed by the trust’s issuance
of TOB Floaters (as defined below). See “Use of Leverage—Tender Option Bonds.”
Managed
Duration Strategy. The Adviser and the Subadviser may use various techniques to manage the duration of the Fund’s portfolio
in an attempt to mitigate the risks associated with changes in interest rates. Under normal market conditions, the Fund seeks to maintain
Managed Assets with a weighted average effective duration (excluding the effects of leverage) that targets the weighted average effective
duration of the Bloomberg U.S. Municipal Index, a widely recognized municipal bond index (the “Index”), primarily through
its investments in Municipal Bonds and Underlying Funds as well as through short positions in U.S. Treasury futures contracts (as discussed
below). As a result of, among other things, changing market conditions and differences between the Fund’s portfolio and the Index,
the Fund believes it will generally be able to maintain a weighted average effective duration that is within three years of the weighted
average effective duration of the Index. However, under certain market conditions and from time to time for the reasons described below,
the Fund’s duration may be outside of such range. In addition, if the effect of the Fund’s use of leverage was included in
calculating duration, it could result in a longer duration for the Fund. As of January 31, 2024, the Index had a weighted average effective
duration of 6.10 years. The Fund may invest in bonds of any maturity, whether directly through Municipal Bonds or indirectly through
Underlying Funds.
Effective
duration is a mathematical calculation of the sensitivity of the price of a bond to changes in interest rates, measuring a bond’s
expected life on a present value basis, taking into account the bond’s yield, interest payments, final maturity and, in the case
of a bond with an embedded option (e.g., the right of the issuer to call the bond prior to maturity, or a sinking fund schedule), the
probability that the option will be exercised. The longer the effective duration of a bond or a group of bonds, the more sensitive the
bond or group of bonds is to changes in interest rates; the shorter the duration, the less sensitive the bond or group of bonds is to
such changes. In general, each year of duration represents an expected 1% change in the value of a bond for every 1% immediate change
in interest rates. For example, if the Fund’s portfolio has an average effective duration of five years, its value would be expected
to fall by approximately 5% if interest rates rise by 1%. Conversely, the portfolio’s value would be expected to rise about 5%
if interest rates fell by 1%.
The
Adviser and the Subadviser invest with a view to managing the duration of the Fund. However, the calculation of the Fund’s weighted
average effective duration is contingent upon the Adviser’s ability to adequately determine the weighted average effective duration
of each of the Underlying Funds in which it invests, which is inherently limited as the Adviser’s determination primarily depends
on reporting by such Underlying Funds. Such Underlying Fund reporting may be on a delayed basis and could be subject to incomplete or
inaccurate information that may not be readily apparent to the Adviser. As a result, the Fund cannot guarantee the precise overall weighted
average effective duration of its portfolio at any given point in time and this limitation could cause the Fund’s weighted average
effective duration to be outside of its targeted duration range. In addition, the Adviser and Subadviser may use short sales and derivatives
such as options, futures contracts, options on futures contracts, and swaps (collectively, “Hedging Positions”) to manage
the duration of the Fund. Such Hedging Positions may, however, result in income or gain to the Fund that is not exempt from regular U.S.
federal income taxes. See “—Other Investments” below.
Other
Investments. The Fund may invest, directly or indirectly, up to 20% of its Managed Assets in taxable municipal securities. Any portion
of the Fund’s assets invested in taxable municipal securities will not count toward the 35%-75% of the Fund’s assets allocated
to Municipal Bonds.
The
Fund may at times establish hedging positions, which may include short sales and derivatives, such as options, futures and swaps (“Hedging
Positions”). Such Hedging Positions may be used to attempt to protect against possible changes in the value of securities held
in or to be purchased for the Fund’s portfolio and to manage the effective maturity or duration of the Fund’s portfolio.
The Fund’s Hedging Positions may, however, result in income or gain to the Fund that is not exempt from regular U.S. federal income
taxes. See “Risks—Investment-Related Risks—Derivatives Risks” and “Risks—Investment-Related Risks—Options
and Futures Risks.”
A
short sale is a transaction in which the Fund sells a security that it does not own in anticipation of a decline in the market price
of the security. The Fund may benefit from a short position when the shorted security decreases in value by more than the cost of the
transaction but will suffer a loss on a short sale if the security’s value does not decline or increases. The Fund will not engage
in any short sales of securities issued by closed-end funds. See “Investment Objectives, Strategies and Policies—Principal
Investment Strategies—Other Investments” and “Risks—Investment-Related Risks—Short Sale Risks.”
The
Fund also may attempt to enhance the return on the cash portion of its portfolio by investing in total return swap agreements. A total
return swap agreement provides the Fund with a return based on the performance of an underlying asset, in exchange for fee payments to
a counterparty based on a specific rate. The difference in the value of these income streams is recorded daily by the Fund, and is typically
settled in cash at least monthly. If the underlying asset declines in value over the term of the swap, the Fund would be required to
pay the dollar value of that decline plus any applicable fees to the counterparty. The Fund may use its own net asset value (“NAV”)
or any other reference asset that the Adviser or Subadviser chooses as the underlying asset in a total return swap. The Fund limits the
notional amount of all total return swaps in the aggregate to 15% of the Fund’s Managed Assets. See “Risks—Investment-Related
Risks—Swap Risks.”
In
addition to the foregoing principal investment strategies of the Fund, the Adviser also may allocate the Fund’s Managed Assets
among cash and short-term investments. See “Investment Policies and Techniques—Temporary Investments and Defensive Position”
in the SAI. There are no limits on the Fund’s portfolio turnover, and the Fund may buy and sell securities to take advantage of
potential short-term trading opportunities without regard to length of time and when the Adviser or Subadviser believes investment considerations
warrant such action. High portfolio turnover may result in the realization of net short-term capital gains by the Fund which, when distributed
to Common Shareholders, will be taxable as ordinary income. In addition, a higher portfolio turnover rate results in correspondingly
greater brokerage commissions and other transactional expenses that are borne by the Fund. See “Risks—Structural Risks—Portfolio
Turnover Risk.”
All
percentage limitations described in this Prospectus are measured at the time of investment and may be exceeded on a going-forward basis
as a result of credit rating downgrades or market value fluctuations of the Fund’s portfolio securities. Unless otherwise specified
herein, the Fund may count its holdings in Underlying Funds towards various guideline tests, including the 80% policy so long as the
earnings on the underlying holdings of such Underlying Funds are exempt from regular U.S. federal income taxes (but which may be includable
in taxable income for purposes of the Federal alternative minimum tax).
Unless
otherwise specified, the investment policies and limitations of the Fund are not considered to be fundamental by the Fund and can be
changed without a vote of the Common Shareholders. The Fund’s primary investment objective, 80% policy and certain investment restrictions
specifically identified as such in the SAI are considered fundamental and may not be changed without the approval of the holders of a
majority of the outstanding voting securities of the Fund, as defined in the 1940 Act, which includes Common Shares and Preferred Shares,
if any, voting together as a single class, and the holders of the outstanding Preferred Shares, if any, voting as a single class. See
“Investment Restrictions” in the SAI.
Portfolio
Composition
Set
forth below is a description of the various types of Municipal Bonds in which the Fund may invest. See “Risks—Investment-Related
Risks—Municipal Bond Risks” for a discussion of the risks associated with the Fund’s investments in Municipal Bonds.
Obligations are included within the term “Municipal Bonds” if the interest paid thereon is excluded from gross income for
U.S. federal income tax purposes in the opinion of bond counsel to the issuer. See also “Use of Leverage—Tender Option Bonds.”
Municipal
Bonds are either general obligation or revenue bonds and typically are issued to finance public projects, such as roads or public buildings,
to pay general operating expenses or to refinance outstanding debt. Municipal Bonds may also be issued for private activities, such as
housing, medical and educational facility construction or for privately owned industrial development and pollution control projects.
General obligation bonds are backed by the full faith and credit and taxing authority of the issuer and may be repaid from any revenue
source. Revenue bonds may be repaid only from the revenues of a specific facility or source. The Fund also may purchase Municipal Bonds
that represent lease obligations. These carry special risks because the issuer of the bonds may not be obligated to appropriate money
annually to make payments under the lease. See “Risks—Investment-Related Risks—Municipal Bond Risks.”
The
Municipal Bonds in which the Fund primarily invests pay interest or income that, in the opinion of bond counsel to the issuer, is exempt
from regular U.S. federal income tax. The Adviser and the Subadviser will not conduct their own analysis of the tax status of the interest
paid by Municipal Bonds held by the Fund, but will rely on the opinion of counsel to the issuer of each such instrument. The Fund may
also invest in Municipal Bonds issued by United States Territories (such as Puerto Rico or Guam) that are exempt from regular U.S. federal
income tax. See “Risks—Investment-Related Risks—Puerto Rico Municipal Bond Risks.” In addition, the Fund may
invest in other securities that pay interest or income that is, or make other distributions that are, exempt from regular U.S. federal
income tax and/or state and local taxes, regardless of the technical structure of the issuer of the instrument. The Fund treats all of
such tax-exempt securities as Municipal Bonds.
The
yields on Municipal Bonds are dependent on a variety of factors, including prevailing interest rates and the condition of the general
money market and the municipal bond market, the size of a particular offering, the maturity of the obligation and the rating of the issuer.
The market value of Municipal Bonds will vary with changes in interest rate levels and as a result of changing evaluations of the ability
of bond issuers to meet interest and principal payments.
General
Obligation Bonds. General obligation bonds are backed by the issuer’s full faith and credit and taxing authority for the payment
of principal and interest. The taxing authority of any governmental entity may be limited, however, by provisions of its state constitution
or laws, and an entity’s creditworthiness will depend on many factors, including potential erosion of its tax base due to population
declines, natural disasters, declines in the state’s industrial base or inability to attract new industries, economic limits on
the ability to tax without eroding the tax base, state legislative proposals or voter initiatives to limit ad valorem real property taxes
(i.e., taxes based upon an assessed value of the property) and the extent to which the entity relies on federal or state aid,
access to capital markets or other factors beyond the state’s or entity’s control. Accordingly, the capacity of the issuer
of a general obligation bond as to the timely payment of interest and the repayment of principal when due is affected by the issuer’s
maintenance of its tax base.
Revenue
Bonds. Revenue bonds are payable only from the revenues derived from a particular facility or class of facilities or, in some cases,
from the proceeds of a special excise tax or other specific revenue sources such as payments from the user of the facility being financed.
Accordingly, the timely payment of interest and the repayment of principal in accordance with the terms of the revenue or special obligation
bond is a function of the economic viability of such facility or such revenue source.
Private
Activity Bonds. Private activity bonds are issued by or on behalf of public authorities to obtain funds to provide privately operated
housing facilities, airport, mass transit or port facilities, sewage disposal, solid waste disposal or hazardous waste treatment or disposal
facilities and certain local facilities for water supply, gas or electricity. Other types of private activity bonds, the proceeds of
which are used for the construction, equipping, repair or improvement of privately operated industrial or commercial facilities, may
constitute Municipal Bonds, although the current U.S. federal income tax laws place substantial limitations on the size of such issues.
Private
activity bonds are secured primarily by revenues derived from loan repayments or lease payments due from the entity, which may or may
not be guaranteed by a parent company or otherwise secured. Private activity bonds generally are not secured by a pledge of the taxing
power of the issuer of such bonds. Therefore, an investor should be aware that repayment of such bonds generally depends on the revenues
of a private entity and be aware of the risks that such an investment may entail. Continued ability of an entity to generate sufficient
revenues for the payment of principal and interest on such bonds will be affected by many factors including the size of the entity, capital
structure, demand for its products or services, competition, general economic conditions, government regulation and the entity’s
dependence on revenues for the operation of the particular facility being financed. The Fund expects that, due to investments in private
activity bonds, a portion of the distributions it makes on the Common Shares will be includable in the federal alternative minimum taxable
income.
Moral
Obligation Bonds. The Fund also may invest in “moral obligation” bonds, which are normally issued by special purpose
public authorities. If an issuer of moral obligation bonds is unable to meet its obligations, the repayment of such bonds becomes a moral
commitment but not a legal obligation of the state or municipality in question.
Municipal
Lease Obligations and Certificates of Participation. Also included within the general category of Municipal Bonds are participations
in lease obligations or installment purchase contract obligations of municipal authorities or entities (hereinafter collectively called
“Municipal Lease Obligations”). Although a Municipal Lease Obligation does not constitute a general obligation of the municipality
for which the municipality’s taxing power is pledged, a Municipal Lease Obligation is ordinarily backed by the municipality’s
covenant to budget for, appropriate and make the payments due under the Municipal Lease Obligation. However, certain Municipal Lease
Obligations contain “non-appropriation” clauses which provide that the municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated for such purpose on a yearly basis. In the case of a “non-appropriation”
lease, a Fund’s ability to recover under the lease in the event of non-appropriation or default will be limited solely to the repossession
of the leased property, without recourse to the general credit of the lessee, and the disposition or re-leasing of the property might
prove difficult. A certificate of participation represents an undivided interest in an unmanaged pool of municipal leases, an installment
purchase agreement or other instruments. The certificates are typically issued by a municipal agency, a trust or other entity that has
received an assignment of the payments to be made by the state or political subdivision under such leases or installment purchase agreements.
In addition, such participations generally provide the Fund with the right to demand payment, on not more than seven days’ notice,
of all or any part of the Fund’s participation interest in the underlying leases, plus accrued interest.
Tobacco
Settlement Bonds. Included in the general category of Municipal Bonds in which the Fund may invest are “tobacco settlement
bonds.” The Fund may invest in tobacco settlement bonds, which are municipal securities that are backed solely by expected revenues
to be derived from lawsuits involving tobacco related deaths and illnesses which were settled between certain states and American tobacco
companies. Tobacco settlement bonds are secured by an issuing state’s proportionate share in the Master Settlement Agreement (“MSA”).
The MSA is an agreement, reached out of court in November 1998 between 46 states and nearly all of the U.S. tobacco manufacturers. The
MSA provides for annual payments in perpetuity by the manufacturers to the states in exchange for releasing all claims against the manufacturers
and a pledge of no further litigation. Tobacco manufacturers pay into a master escrow trust based on their market share, and each state
receives a fixed percentage of the payment as set forth in the MSA. A number of states have securitized the future flow of those payments
by selling bonds pursuant to indentures or through distinct governmental entities created for such purpose. The principal and interest
payments on the bonds are backed by the future revenue flow related to the MSA. Annual payments on the bonds, and thus risk to the Fund,
are highly dependent on the receipt of future settlement payments to the state or its governmental entity. See “Risks—Investment-Related
Risks—Tobacco Settlement Bond Risks.”
Zero
Coupon Bonds. The Fund may invest in zero-coupon bonds. A zero coupon bond is a bond that does not pay interest either for the entire
life of the obligation or for an initial period after the issuance of the obligation. When held to its maturity, its return comes from
the difference between the purchase price and its maturity value. A zero coupon bond is normally issued and traded at a deep discount
from face value. Zero coupon bonds allow an issuer to avoid or delay the need to generate cash to meet current interest payments and,
as a result, may involve greater credit risk than bonds that pay interest currently or in cash. The market prices of zero coupon bonds
are affected to a greater extent by changes in prevailing levels of interest rates and thereby tend to be more volatile in price than
securities that pay interest periodically. In addition, the Fund would be required to distribute the income on any of these instruments
as it accrues, even though the Fund will not receive all of the income on a current basis or in cash. Thus, the Fund may have to sell
other investments, including when it may not be advisable to do so, to make income distributions to its common shareholders.
INVESTMENT
PHILOSOPHY AND PROCESS
The
Adviser allocates the Fund’s assets between the Tactical Municipal Closed-End Fund Strategy and the Municipal Bond Income Strategy
(as described above). The amount allocated to each of the principal strategies may change depending on the Adviser’s assessment
of market risk, security valuations, market volatility, and the prospects for earning income and capital appreciation. See “Risks—Structural
Risks—Multi-Manager Risk.”
Tactical
Municipal Closed-End Fund Strategy. The Adviser considers a number of factors when selecting Underlying Funds, including fundamental
and technical analysis to assess the relative risk and reward potential throughout the financial markets. The term “tactical”
is used to indicate that the portion of the Fund’s Managed Assets allocated to this strategy invest in closed-end funds to seek
to take advantage of pricing discrepancies in the closed-end fund market.
In
selecting closed-end funds, the Adviser opportunistically utilizes a combination of short-term and longer-term trading strategies to
seek to derive value from the discount and premium spreads associated with closed-end funds by identifying pricing aberrations. The Adviser
employs both a quantitative and qualitative approach in its selection of closed-end funds and has developed proprietary screening models
and algorithms to trade closed-end funds. The Adviser’s mean reversion investing looks to capitalize on changes within the pricing
of a closed-end fund and, based upon its research and analysis, a view that it will revert to historical pricing. The Adviser employs
the following trading strategies, among others:
Statistical
Analysis (Mean Reversion)
| ● | Using
proprietary quantitative models, the Adviser seeks to identify closed-end funds that are
trading at compelling absolute and/or relative discounts. |
| ● | The
Adviser attempts to capitalize on the perceived mispricing if the Adviser believes that the
discount widening is irrational and expects the discount to narrow to longer-term mean valuations. |
Corporate
Actions
| ● | The
Adviser pursues investments in closed-end funds that have announced, or the Adviser believes
are likely to announce, certain corporate actions that may drive value for their shareholders. |
| ● | The
Adviser has developed trading strategies that focus on closed-end fund tender offers, rights
offerings, shareholder distributions, open-endings and liquidations. |
In
employing its trading strategies, the Adviser conducts an extensive amount of due diligence on various fund sponsors, investment managers
and funds, including actively monitoring regulatory filings, analyzing a fund’s registration statements, financial statements and
organizational documents, as well as conducting proprietary research, such as speaking with fund sponsors, underwriters, sell-side brokers
and investors.
Municipal
Bond Income Strategy. The Subadviser believes inefficiencies exist in the tax-exempt and tax-advantaged securities markets. In order
to capitalize on these opportunities, the Subadviser applies both a top-down and bottom-up research investment process. The Subadviser’s
top-down analysis considers the economic, interest rate, inflation outlook and other economic variables to guide overall portfolio structure.
The Subadviser employs a value-oriented security selection process to invest in securities it believes to be mispriced which offer a
yield advantage. In choosing investments, the Subadviser analyzes the credit quality of issuers and considers the yields available on
municipal bonds with different maturities. In addition, the Subadviser reviews macroeconomic events, technical characteristics in the
municipal bond market, tax policies, as well as analyzing individual municipal securities and sectors, and may give consideration to
certain ESG criteria, including, but not limited to, climate change, sustainability, energy resources & management, job creation/employee
relations, human rights, health and safety, transparency/disclosures, board expertise, audit practices, transparency and accountability.
The Subadviser seeks to reduce volatility through its disciplined investment process and investment risk management.
The
Subadviser may sell a security if it no longer believes the security will contribute to meeting the investment objectives of the Fund.
In considering whether to sell a security, the Subadviser may evaluate, among other things, the condition of the economy and meaningful
changes in the issuer’s financial condition.
USE
OF LEVERAGE
The
Fund may borrow money and/or issue Preferred Shares, notes or debt securities for investment purposes. These practices are known as leveraging.
In addition, the Fund may enter into derivative and other transactions that have the effect of leverage. Such other transactions may
include tender option bond transactions (as described herein). The Adviser determines whether or not to engage in leverage based on its
assessment of conditions in the debt and credit markets. As of the time immediately after it enters into any of the foregoing transactions,
the Fund will seek to limit its overall effective leverage to 45% of its Managed Assets.
The
Fund currently utilizes leverage obtained through the use of proceeds received from tender option bond transactions. See “—Tender
Option Bonds” below. To date, the Fund has not issued any Preferred Shares or debt securities.
Under
the 1940 Act, the Fund is not permitted to incur indebtedness unless immediately after doing so the Fund has an asset coverage of at
least 300% of the aggregate outstanding principal balance of indebtedness (i.e., such indebtedness may not exceed 33 1/3% of the
value of the Fund’s total assets including the amount borrowed). Additionally, under the 1940 Act, the Fund may not declare any
dividend or other distribution upon any class of its shares, or purchase any such shares, unless the aggregate indebtedness of the Fund
has, at the time of the declaration of any such dividend or distribution or at the time of any such purchase, asset coverage of at least
300% after deducting the amount of such dividend, distribution, or purchase price, as the case may be. Under the 1940 Act, the Fund is
not permitted to issue Preferred Shares unless immediately after such issuance the total asset value of the Fund’s portfolio is
at least 200% of the liquidation value of the outstanding Preferred Shares (i.e., such liquidation value may not exceed 50% of
the Fund’s Managed Assets). In addition, the Fund is not permitted to declare any cash dividend or other distribution on its Common
Shares unless, at the time of such declaration, the NAV of the Fund’s portfolio (determined after deducting the amount of such
dividend or other distribution) is at least 200% of such liquidation value of the Preferred Shares. However, certain short-term borrowings
(such as for cash management purposes) are not subject to the 33 1/3% limitation if (i) repaid within 60 days, (ii) not extended or renewed
and (iii) not in excess of 5% of the total assets of the Fund. Normally, Common Shareholders will elect the directors of the Fund except
that the holders of any Preferred Shares will elect two directors. In the event the Fund failed to pay dividends on its Preferred Shares
for two years, holders of Preferred Shares would be entitled to elect a majority of the directors until the dividends are paid.
The
Fund may be subject to certain restrictions on investments imposed by lenders or by one or more rating agencies that may issue ratings
for any senior securities issued by the Fund. Borrowing covenants or rating agency guidelines may impose asset coverage or Fund composition
requirements that are more stringent than those imposed on the Fund by the 1940 Act. Since the holders of common stock pay all expenses
related to the use of leverage, such use of leverage would create a greater risk of loss for the Fund’s Common Shares than if leverage
is not used. See “Risks—Structural Risks—Leverage Risks.”
The
Fund may enter into derivatives or other transactions (e.g., total return swaps) that may provide leverage (other than through
borrowings or the issuance of Preferred Shares). The Fund may also invest in reverse repurchase agreements, total return swaps and derivatives
or other transactions with leverage embedded in them in a limited manner or subject to a limit on leverage risk calculated based on value-at-risk,
as required by Rule 18f-4 under the 1940 Act. These transactions will not cause the Fund to pay higher advisory or administration fee
rates than it would pay in the absence of such transactions.
These
transactions entail additional expenses (e.g., transaction costs) which are borne by the Fund. These types of transactions have
the potential to increase returns to Common Shareholders, but they also involve additional risks. This additional leverage will increase
the volatility of the Fund’s investment portfolio and could result in larger losses than if the transactions were not entered into.
See “Risks—Investment-Related Risks—Derivatives Risks.”
Tender
Option Bonds. The Fund leverages its assets through the use of proceeds received from tender option bond transactions. In a tender
option bond transaction, a tender option bond trust (a “TOB Issuer”) is typically established by forming a special purpose
trust into which the Fund, or an agent on behalf of the Fund, transfers Municipal Bonds or other municipal securities. A TOB Issuer typically
issues two classes of beneficial interests: short-term floating rate notes (“TOB Floaters”), which are sold to third party
investors, and residual interest municipal tender option bonds (“TOB Residuals”), which are generally issued to the Fund.
The Fund may invest in both TOB Floaters and TOB Residuals, including TOB Floaters and TOB Residuals issued by the same TOB Issuer. The
Fund may not invest more than 5% of its Managed Assets in any single TOB Issuer. The Fund does not currently intend to invest in TOB
Residuals issued by a TOB Issuer that was not formed for the Fund, although it reserves the right to do so in the future.
The
TOB Issuer receives Municipal Bonds or other municipal securities and then issues TOB Floaters to third party investors and a TOB Residual
to the Fund. The Fund is paid the cash (less transaction expenses, which are borne by the Fund and therefore the holders of the Common
Shares indirectly) received by the TOB Issuer from the sale of the TOB Floaters and typically will invest the cash in additional Municipal
Bonds or other investments permitted by its investment policies. TOB Floaters may have first priority on the cash flow from the securities
held by the TOB Issuer and are enhanced with a liquidity support arrangement from third-party a bank or other financial institution (the
“liquidity provider”), which allows holders to tender their position at par (plus accrued interest). The Fund, in addition
to receiving cash from the sale of the TOB Floaters, also receives the TOB Residual. The TOB Residual provides the Fund with the right
to (1) cause the holders of the TOB Floaters to tender their notes to the TOB Issuer at par (plus accrued interest), and (2) acquire
the underlying Municipal Bonds or other municipal securities from the TOB Issuer. In addition, all voting rights and decisions to be
made with respect to any other rights relating to the underlying securities deposited in the TOB Issuer are passed through to the Fund,
as the holder of the TOB Residual. Such a transaction, in effect, creates exposure for the Fund to the entire return of the securities
deposited in the TOB Issuer, with a net cash investment by the Fund that is less than the value of the underlying securities deposited
in the TOB Issuer. This multiplies the positive or negative impact of the underlying securities’ return within the Fund (thereby
creating leverage).
The
TOB Issuer may be terminated without the consent of the Fund upon the occurrence of certain events, such as the bankruptcy or default
of the issuer of the underlying securities deposited in the TOB Issuer, a substantial downgrade in the credit quality of the issuer of
the securities deposited in the TOB Issuer, the inability of the TOB Issuer to obtain liquidity support for the TOB Floaters, a substantial
decline in the market value of the underlying securities deposited in the TOB Issuer, or the inability of the sponsor or remarketing
agent to remarket any TOB Floaters tendered by holders of the TOB Floaters. In such an event, the TOB Floaters would be redeemed by the
TOB Issuer at par (plus accrued interest) out of the proceeds from a sale of the underlying securities deposited in the TOB Issuer. If
this happens, the Fund would be entitled to the assets of the TOB Issuer, if any, that remain after the TOB Floaters have been redeemed
at par (plus accrued interest). If there are insufficient proceeds from the sale of these securities to redeem all of the TOB Floaters
at par (plus accrued interest), the liquidity provider or holders of the TOB Floaters would bear the losses on those securities and there
would be no recourse to the Fund’s assets (unless the Fund held a recourse TOB Residual). A recourse TOB Residual is generally
a TOB Residual issued by a TOB Issuer in which the TOB Floaters represent greater than 75% of the market value of the securities at the
time they are deposited in the TOB Issuer. If the Fund were to invest in a recourse TOB Residual to leverage its portfolio, it would
typically be required to enter into an agreement pursuant to which the Fund is required to pay to the liquidity provider the difference
between the purchase price of any TOB Floaters put to the liquidity provider by holders of the TOB Floaters and the proceeds realized
from the remarketing of those TOB Floaters or the sale of the assets in the TOB Issuer. The Fund currently does not intend to use recourse
TOB Residuals to leverage the Fund’s portfolio, but reserves the right to do so depending on future market conditions.
Under
accounting rules, securities of the Fund that are deposited into a TOB Issuer are treated as investments of the Fund, and are presented
on the Fund’s Schedule of Investments and outstanding TOB Floaters issued by a TOB Issuer are presented as liabilities in the Fund’s
Statement of Assets and Liabilities. Interest income from the underlying security is recorded by the Fund on an accrual basis. Interest
expense incurred on the TOB Floaters and other expenses related to remarketing, administration and trustee services to a TOB Issuer are
reported as expenses of the Fund.
For
TOB Floaters, generally, the interest rate earned will be based upon the market rates for Municipal Bonds with maturities or remarketing
provisions that are comparable in duration to the periodic interval of the tender option, which may vary from weekly, to monthly, to
extended periods of one year or multiple years. Since the option feature has a shorter term than the final maturity or first call date
of the underlying securities deposited in the TOB Issuer, the Fund, if it is the holder of the TOB Floaters, relies upon the terms of
the agreement with the financial institution furnishing the option as well as the credit strength of that institution. As further assurance
of liquidity, the terms of the TOB Issuer provide for a liquidation of the Municipal Bond deposited in the TOB Issuer and the application
of the proceeds to pay off the TOB Floaters.
There
are inherent risks with respect to investing in a TOB Issuer. These risks include, among others, the bankruptcy or default of the issuer
of the securities deposited in the TOB Issuer, a substantial downgrade in the credit quality of the issuer of the securities deposited
in the TOB Issuer, the inability of the TOB Issuer to obtain liquidity support for the TOB Floaters, a substantial decline in the market
value of the securities deposited in the TOB Issuer, or the inability of the sponsor or remarketing agent to remarket any TOB Floaters
tendered by holders of the TOB Floaters. See “Risks—Investment-Related Risks—Tender Option Bonds Risk.”
Effects
of Leverage. The use of proceeds from tender option bond transactions represented approximately 40% of Managed Assets as of June
30, 2023. Asset coverage with respect to tender option bond transactions was 251%. The total weighted average cost of the leverage outstanding
as of June 30, 2023 (inclusive of the leverage attended through the use of tender option bond transactions) was 3.14% of the principal
amount outstanding.
Assuming
the Fund’s leverage costs remain as described above (at an assumed annual cost of 3.14% of the principal amount outstanding) the
annual return that the Fund’s portfolio must experience (net of expenses) in order to cover its leverage costs would be 1.25%.
The
following table is furnished in response to requirements of the SEC. It is designed to illustrate the effect of leverage on total return
on Common Shares, assuming investment portfolio total returns (comprised of income, net expenses and changes in the value of investments
held in the Fund’s portfolio) of -10%, -5%, 0%, 5% and 10%. These assumed investment portfolio returns are hypothetical figures
and are not necessarily indicative of what the Fund’s investment portfolio returns will be. In other words, the Fund’s actual
returns may be greater or less than those appearing in the table below. The table further reflects the use of leverage representing approximately
40% of the Fund’s Managed Assets and the Fund’s assumed annual leverage cost rate of 3.14% of the principal amounts outstanding.
See “Risks—Structural Risks—Leverage Risks.”
Assumed
Portfolio Return |
-10.00% |
-5.00% |
0.00% |
5.00% |
10.00% |
Common
Share Total Return |
-18.72% |
-10.40% |
-2.08% |
6.23% |
14.55% |
Total
return is composed of two elements—the dividends on Common Shares paid by the Fund (the amount of which is largely determined by
the Fund’s net investment income after paying the cost of leverage) and realized and unrealized gains or losses on the value of
the securities the Fund owns. As the table shows, leverage generally increases the return to Common Shareholders when portfolio return
is positive or greater than the costs of leverage and decreases return when the portfolio return is negative or less than the costs of
leverage.
During
the time in which the Fund is using leverage, the amount of the fees paid to the Adviser (and from the Adviser to the Subadviser) for
investment management services (and subadvisory services) is higher than if the Fund did not use leverage because the fees paid are calculated
based on the Fund’s Managed Assets. This may create a conflict of interest between the Adviser and the Subadviser, on the one hand,
and the holders of Common Shares, on the other. Also, because the leverage costs will be borne by the Fund at a specified interest rate,
only the Fund’s Common Shareholders will bear the cost of the Fund’s management fees and other expenses. There can be no
assurance that a leveraging strategy will be successful during any period in which it is employed.
RISKS
Investing
in any investment company security involves risk, including the risk that you may receive little or no return on your investment or even
that you may lose part or all of your investment. This section discusses the principal risk factors of the Fund. You should carefully
consider these risks and uncertainties as well as the other information described in this Prospectus and in any applicable prospectus
supplement before you decide whether to invest in the Fund. In addition, the SAI contains further information regarding the risks associated
with an investment in the Fund. The risks in these documents are not the only risks that the Fund may face, and the Fund may face other
risks that we have not yet identified, which we do not currently deem material or which are not yet predictable. If any of these risks
occur, the Fund’s business, financial condition and results of operations could be materially adversely affected. In such case,
the Fund’s NAV and the trading price of its securities could decline, and you may lose all or part of your investment.
Investment-Related
Risks:
With
the exception of Underlying Fund risk (and except as otherwise noted below), the following risks apply to the direct investments the
Fund may make, and generally apply to the Fund’s investments in Underlying Funds. That said, each risk described below may not
apply to each Underlying Fund.
Investment
and Market Risks
An
investment in Common Shares is subject to investment risk, including the possible loss of the entire principal amount invested. An investment
in Common Shares represents an indirect investment in the Underlying Funds owned by the Fund. The value of the Fund or the Underlying
Funds, like other market investments, may move up or down, sometimes rapidly and unpredictably. Overall stock market risks may also affect
the NAV of the Fund or the Underlying Funds. Factors such as economic growth and market conditions, interest rate levels and political
events affect the securities markets. The Common Shares at any point in time may be worth less than the original investment, even after
taking into account any reinvestment of dividends and distributions.
Management
Risks
The
Adviser’s and the Subadviser’s judgments about the attractiveness, value and potential appreciation of a particular asset
class or individual security in which the Fund invests may prove to be incorrect and there is no guarantee that the Adviser’s or
the Subadviser’s judgment, as applicable, will produce the desired results. Similarly, the Fund’s investments in Underlying
Funds are subject to the judgment of the Underlying Funds’ managers which may prove to be incorrect. In addition, the Adviser and
Subadviser will have limited information as to the portfolio holdings of the Underlying Funds at any given time. This may result in the
Adviser and Subadviser having less ability to respond to changing market conditions. The Fund may allocate its assets so as to under-emphasize
or over-emphasize its investments under the wrong market conditions, in which case the Fund’s NAV may be adversely affected.
In
addition, the Fund depends on the diligence, skill and business contacts of the investment professionals of the Adviser and the Subadviser
to achieve the Fund’s investment objectives. In particular, the Adviser and Subadviser are dependent upon the expertise of their
respective portfolio management teams to implement the Fund’s strategies. If the Adviser or the Subadviser were to lose the services
of one or more key individuals, including members of their portfolio management teams, each may not be able to hire qualified replacements
or may require an extended time to do so. This could prevent the Fund from achieving its investment objectives and could have an adverse
effect on an investment in the Fund.
The
Adviser and the Subadviser each manage several registered open-end funds and closed-end funds, and the portfolio managers have previous
experience managing closed-end funds. As with any managed fund, the Adviser and Subadviser may not be successful in selecting the best
performing securities, leverage strategy or investment techniques, and the Fund’s performance may lag behind that of similar funds
as a result.
Securities
Risks
The
value of the Fund or an Underlying Fund may decrease in response to the activities and financial prospects of individual securities in
the fund’s portfolio.
Municipal
Bond Risks
Economic
exposure to Municipal Bonds involves certain risks. The Fund’s economic exposure to Municipal Bonds includes Municipal Bonds in
the Fund’s portfolio and Municipal Bonds to which the Fund is exposed through Underlying Funds and the ownership of TOB Residuals.
The municipal market is one in which dealer firms make markets in bonds on a principal basis using their proprietary capital, and at
times these firms’ capital may be severely constrained. In such event, some firms may be unwilling to commit their capital to purchase
and to serve as a dealer for Municipal Bonds. Municipal Bonds typically are not registered with the SEC or any state securities commission
and will not be listed on any national securities exchange. The amount of public information available about the Municipal Bonds to which
the Fund is economically exposed is generally less than that for corporate equities or bonds, and the investment performance of the Fund
may therefore be more dependent on the analytical abilities of the Adviser and the Subadviser than would be a stock fund or taxable bond
fund. The secondary market for Municipal Bonds, particularly non-investment grade bonds, also tends to be less well-developed or liquid
than many other securities markets, which may adversely affect the ability to sell such bonds at attractive prices or at prices approximating
those at which the Fund and Underlying Funds currently value them.
In
addition, many state and municipal governments that issue securities are under significant economic and financial stress and may not
be able to satisfy their obligations. The ability of municipal issuers to make timely payments of interest and principal may be diminished
during general economic downturns and as governmental cost burdens are reallocated among Federal, state and local governments. The COVID-19
pandemic significantly stressed the financial resources of many municipalities and other issuers of municipal securities, which may impair
their ability to meet their financial obligations and may harm the value or liquidity of the Fund’s investments in municipal securities.
In particular, responses by municipalities to the COVID-19 pandemic have caused disruptions in business activities. These and other effects
of the COVID-19 pandemic, such as increased unemployment levels, have impacted tax and other revenues of municipalities and other issuers
of municipal securities and the financial conditions of such issuers. As a result, there is increased budgetary and financial pressure
on municipalities and heightened risk of default or other adverse credit or similar events for issuers of municipal securities, which
would adversely impact the Fund’s investments. See “—Market Disruption, Geopolitical, Pandemic and Climate Change Risks.”
In addition, the taxing power of any governmental entity may be limited by provisions of state constitutions or other laws, and an entity’s
credit generally will depend on many factors, including the entity’s tax base, the extent to which the entity relies on Federal
or state aid, and other factors which are beyond the entity’s control. In addition, laws enacted in the future by Congress or state
legislatures or referenda could extend the time for payment of principal and/or interest, or impose other constraints on enforcement
of such obligations, or on the ability of municipalities to levy taxes or could limit the tax exemption of certain types of Municipal
Bonds that the Fund and Underlying Funds may invest in. Issuers of Municipal Bonds might seek protection under the bankruptcy laws. In
the event of bankruptcy of such an issuer, holders of Municipal Bonds could experience delays in collecting principal and interest and
such holders may not, in all circumstances, be able to collect all principal and interest to which they are entitled. To enforce its
rights in the event of a default in the payment of interest or repayment of principal, or both, the Fund may, in certain circumstances,
take possession of and manage the assets securing the issuer’s obligations on such securities, which may increase the Fund’s
operating expenses. Any income derived from the Fund’s ownership or operation of such assets may not be tax-exempt.
General
obligation bonds are obligations involving the credit of an issuer possessing taxing power and are payable from such issuer’s general
revenues and not from any particular source. Timely payments depend on the issuer’s credit quality, ability to raise tax revenues
and the ability to maintain an adequate tax base. The timely payments may also be influenced by any unfunded pension liabilities or other
post-employee benefit plan liabilities.
Revenue
bonds involve special risks, including that the underlying facilities may not generate sufficient income to pay expenses and interest
costs. In the case of revenue bonds issued by state and local agencies to finance the development of low-income, multi-family housing,
such bonds are generally non-recourse against the property owner, may be junior to the rights of others with an interest in the properties,
may pay interest that changes based in part on the financial performance of the property, may be prepayable without penalty and may be
used to finance the construction of housing developments which, until completed and rented, do not generate income to pay interest. Increases
in interest rates payable on senior obligations may make it more difficult for issuers to meet payment obligations on subordinated bonds.
The
Fund may be more sensitive to adverse economic, business or political developments if it invests a substantial portion of its assets
in the bonds of specific projects (such as those relating to education, health care, housing, transportation, and utilities), industrial
development bonds, or general obligation bonds, particularly if there is a large concentration from issuers in a single state. This is
because the value of Municipal Bonds can be significantly affected by the political, economic, legal, and legislative realities of the
particular issuer’s locality or municipal sector events. Similarly, changes to state or federal regulation tied to a specific sector,
such as the hospital sector, could have an impact on the revenue stream for a given subset of the market.
Municipal
leases and certificates of participation involve special risks not normally associated with general obligation or revenue bonds. Leases
and installment purchase or conditional sale contracts (which normally provide for title to the leased asset to pass eventually to the
governmental issuer) have evolved as a means for governmental issuers to acquire property and equipment without meeting the constitutional
and statutory requirements for the issuance of debt. The debt issuance limitations are deemed to be inapplicable because of the inclusion
in many leases or contracts of “non-appropriation” clauses that relieve the governmental issuer of any obligation to make
future payments under the lease or contract unless money is appropriated for such purpose by the appropriate legislative body on a yearly
or other periodic basis. In addition, such leases or contracts may be subject to the temporary abatement of payments in the event that
the governmental issuer is prevented from maintaining occupancy of the lease premises or utilizing the leased equipment. Although the
obligations may be secured by the leased equipment or facilities, the disposition of the property in the event of non-appropriation or
foreclosure might prove difficult, time consuming and costly, and may result in a delay in recovering or the failure to fully recover
ownership of the assets.
Certificates
of participation, which represent interests in unmanaged pools of municipal leases or installment contracts, involve the same risks as
the underlying municipal leases. In addition, the Fund may be dependent upon the municipal authority issuing the certificate of participation
to exercise remedies with respect to the underlying securities. Certificates of participation also entail a risk of default or bankruptcy,
both of the issuer of the municipal lease and also the municipal agency issuing the certificate of participation.
Municipalities
and other public authorities issue private activity bonds to finance development of facilities for use by a private enterprise, which
is solely responsible for paying the principal and interest on the bond. Moral obligation bonds are generally issued by special purpose
public authorities of a state or municipality. If the issuer is unable to meet its obligations, repayment of these bonds becomes a moral
commitment, but not a legal obligation, of the state or municipality.
To
be tax-exempt, Municipal Bonds must meet certain regulatory requirements. If a Municipal Bond fails to meet such requirements, the interest
received by the Fund from its investment in such bonds and distributed to shareholders may be taxable. It is possible that interest on
a Municipal Bond may be declared taxable after the issuance of the bond, and this determination may apply retroactively to the date of
the issuance of the bond, which could cause a portion of prior distributions made by the Fund to be taxable to shareholders in the year
of receipt.
Municipal
bonds are also subject to interest rate, credit, and liquidity risk, which are discussed generally elsewhere in this section.
State
Specific and Industry Risk
The
Fund may not directly invest more than 25% of its Managed Assets in Municipal Bonds in any one industry or in any one state of origin.
However, the Fund’s overall exposure to a single industry or a single state of origin may be greater after factoring in the investments
of the Underlying Funds, in which case the Fund may be more susceptible to adverse economic, political or regulatory occurrences affecting
that particular state or industry. For example, the Fund may invest, under normal market conditions, up to 35% of the Managed Assets
allocated to the Tactical Municipal Closed-End Fund Strategy in single state municipal closed-end funds and such investments could increase
the Fund’s overall exposure to a particular single state. To the extent that the Fund is aware of the investments held by the Underlying
Funds, the Fund will consider such information when determining compliance with its fundamental policy relating to industry concentration
as described in the SAI. See “Investment Restrictions” in the Fund’s SAI.
Puerto
Rico Municipal Bond Risks
The
Fund may invest directly, without limit, in Puerto Rico Municipal Bonds, subject to the industry, issuer and below investment grade investment
restrictions under the Municipal Bond Income Strategy, as applicable. Municipal obligations issued by the Commonwealth of Puerto Rico
or its political subdivisions, agencies, instrumentalities, or public corporations may be affected by economic, market, political, and
social conditions in Puerto Rico. Puerto Rico currently is experiencing significant fiscal and economic challenges, including substantial
debt service obligations, high levels of unemployment, underfunded public retirement systems, and persistent government budget deficits.
These challenges may negatively affect the value of the Fund’s investments in Puerto Rico Municipal Bonds. Major ratings agencies
have downgraded the general obligation debt of Puerto Rico to below investment grade and continue to maintain a negative outlook for
this debt, which increases the likelihood that the rating will be lowered further. In both August 2015 and January 2016, Puerto Rico
defaulted on its debt by failing to make full payment due on its outstanding bonds, and there can be no assurance that Puerto Rico will
be able to satisfy its future debt obligations. Further downgrades or defaults may place additional strain on the Puerto Rico economy
and may negatively affect the value, liquidity, and volatility of the Fund’s investments in Puerto Rico Municipal Bonds. Legislation
could also impact the value of the Fund’s investments in Puerto Rico Municipal Bonds.
These
challenges and uncertainties have been exacerbated by Hurricane Maria, and subsequent hurricanes and storms, and the resulting natural
disaster in Puerto Rico. In September 2017, Hurricane Maria struck Puerto Rico, causing major damage across the Commonwealth, including
damage to its water, power, and telecommunications infrastructure. The length of time needed to rebuild Puerto Rico’s infrastructure
is unclear, but could amount to years, during which the Commonwealth is likely to be in an even more uncertain economic state. The full
extent of the natural disaster’s impact on Puerto Rico’s economy and foreign investment in Puerto Rico is difficult to estimate.
Tobacco
Settlement Bond Risks
The
Fund may invest directly, without limit, in tobacco settlement bonds, subject to the industry, issuer and below investment grade investment
restrictions under the Municipal Bond Income Strategy, as applicable. Annual payments on tobacco settlement bonds, and thus risk to the
Fund, are highly dependent on the receipt of future settlement payments to the state or its governmental entity pursuant to the MSA.
The actual amount of future settlement payments is further dependent on many factors, including, but not limited to, annual domestic
cigarette shipments, reduced cigarette consumption, increased taxes on cigarettes, inflation, financial capability of tobacco companies,
continuing litigation and the possibility of tobacco manufacturer bankruptcy. The initial and annual payments made by the tobacco companies
will be adjusted based on a number of factors, the most important of which is domestic cigarette consumption. If the volume of cigarettes
shipped in the U.S. by manufacturers participating in the settlement decreases significantly, payments due from them will also decrease.
Demand for cigarettes in the U.S. could continue to decline due to price increases needed to recoup the cost of payments by tobacco companies.
Demand could also be affected by: anti-smoking campaigns, tax increases, reduced advertising, enforcement of laws prohibiting sales to
minors; elimination of certain sales venues such as vending machines; the spread of local ordinances restricting smoking in public places,
and competition from e-cigarettes. As a result, payments made by tobacco manufacturers could be negatively impacted if the decrease in
tobacco consumption is significantly greater than the forecasted decline. A market share loss by the MSA companies to non-MSA participating
tobacco manufacturers would cause a downward adjustment in the payment amounts. A participating manufacturer filing for bankruptcy also
could cause delays or reductions in bond payments. The MSA itself has been subject to legal challenges and has, to date, withstood those
challenges.
Credit
and Below Investment Grade Securities Risks
Credit
risk is the risk that an issuer of a security may be unable or unwilling to make dividend, interest and principal payments when due and
the related risk that the value of a security may decline because of concerns about the issuer’s ability or willingness to make
such payments. Credit risk may be heightened for the Fund because it and the Underlying Funds may invest in below investment grade securities,
which are commonly referred to as “junk” and “high yield” securities; such securities, while generally offering
the potential for higher yields than investment grade securities with similar maturities, involve greater risks, including the possibility
of dividend or interest deferral, default or bankruptcy, and are regarded as predominantly speculative with respect to the issuer’s
capacity to pay dividends or interest and repay principal. The below investment grade securities receiving the lowest rating from an
NRSRO are typically already in default. In addition, below investment grade securities are generally susceptible to decline in market
value due to adverse economic and business developments and are often unsecured and subordinated to other creditors of the issuer. The
market values for below investment grade securities tend to be very volatile, and these securities are generally less liquid than investment
grade securities. Because of the substantial risks associated with below investment grade securities, among other factors, you could
lose money on your investment in Common Shares, both in the short term and the long term. See “Investment Policies and Techniques—Below
Investment Grade Securities” in the SAI for additional discussion of below investment grade securities risks. See also “—Defaulted
and Distressed Securities Risk.”
Interest
Rate Risk
Generally,
when market interest rates rise, bond prices fall, and vice versa. Interest rate risk is the risk that the municipal securities in the
Fund’s portfolio will decline in value because of increases in market interest rates. As interest rates decline, issuers of municipal
securities may prepay principal earlier than scheduled, forcing the Fund to reinvest in lower-yielding securities and potentially reducing
the Fund’s income. As interest rates increase, slower than expected principal payments may extend the average life of securities,
potentially locking in a below-market interest rate and reducing the Fund’s value. In typical market interest rate environments,
the prices of longer-term municipal securities generally fluctuate more than prices of shorter-term municipal securities as interest
rates change.
Interest
rates in the United States and many other countries have risen in recent periods and may continue to rise in the future. Additionally,
as a result of increasing interest rates, reserves held by banks and other financial institutions in bonds and other debt securities
could face a significant decline in value relative to deposits and liabilities, which coupled with general economic headwinds resulting
from a changing interest rate environment, creates liquidity pressures at such institutions, as evidenced by the bank run on the Silicon
Valley Bank Financial Group (“SVB”) causing it to be placed into receivership. As a result, certain sectors of the credit
markets could experience significant declines in liquidity, and it is possible that the Fund (or an Investment Fund) will not be able
to manage this risk effectively. It is yet to be determined how the bank run on SVB will fully impact the overall performance of the
Fund or one or more of its portfolio investments and how similar events may affect the ability of the Fund to execute its investment
strategy.
To
the extent the Fund is primarily exposed to longer-term Municipal Bonds, the Common Share NAV and market price per Common Share will
fluctuate more in response to changes in market interest rates than if the Fund invested primarily in shorter-term Municipal Bonds.
In
comparison to maturity (which is the date on which a debt instrument ceases and the issuer is obligated to repay the principal amount),
duration is a measure of the price volatility of a debt instrument as a result of changes in market rates of interest, based on the weighted
average timing of the instrument’s expected principal and interest payments. Duration differs from maturity in that it considers
a security’s yield, coupon payments, principal payments and call features, in addition to the amount of time until the security
finally matures. As the value of a security changes over time, so will its duration. Prices of securities with longer durations tend
to be more sensitive to interest rate changes than securities with shorter durations. In general, a portfolio of securities with a longer
duration can be expected to be more sensitive to interest rate changes than a portfolio with a shorter duration. For example, the price
of a bond with an effective duration of two years will rise (fall) two percent for every one percent decrease (increase) in its yield,
and the price of a five-year duration bond will rise (fall) five percent for a one percent decrease (increase) in its yield.
If
increasing interest rates slow principal payments and thus extend the average life of securities held by the Fund, this increase in duration
will make the Fund more sensitive to the effect of rising rates and may cause the principal value of the Fund’s holdings to decline
more than they would in the absence of such an increase in duration.
Yield
curve risk is the risk associated with either a flattening or steepening of the yield curve, which is a result of changing yields among
comparable bonds with different maturities. When market interest rates, or yields, increase, the price of a bond will decrease and vice
versa. When the yield curve shifts, the price of the bond, which was initially priced based on the initial yield curve, will change in
price. If the yield curve flattens, then the yield spread between long- and short-term interest rates narrows, and the price of the bond
will change accordingly. If the bond is short-term and the yield decreases, the price of this bond will increase. If the yield curve
steepens, this means that the spread between long- and short-term interest rates increases. Therefore, long-term bond prices will decrease
relative to short-term bonds. Changes in the yield curve are based on bond risk premiums and expectations of future interest rates.
The
Common Share NAV and market price per Common Share will fluctuate more in response to changes in market interest rates when the Fund
has higher exposure to long-term Municipal Bonds than short-term Municipal Bonds. Because the values of lower-rated and comparable unrated
debt securities are affected both by credit risk and interest rate risk, the price movements of such lower grade securities in response
to changes in interest rates typically have not been highly correlated to the fluctuations of the prices of investment grade quality
securities in response to changes in market interest rates.
LIBOR
Risk
Certain
of the Fund’s or Underlying Funds’ investments, payment obligations and financing terms may be based on floating rates, such
as LIBOR, Euro Interbank Offered Rate and other similar types of reference rates. In July of 2017, the head of the United Kingdom Financial
Conduct Authority (“FCA”) announced a desire to phase out the use of LIBOR at the end of 2021. Most LIBOR settings are no
longer published as of December 31, 2021. Overnight and 12-month U.S. dollar LIBOR settings permanently ceased after publication on June
30, 2021. 1-, 3- and 6-month U.S. dollar LIBOR settings will continue to be published using a synthetic methodology until September 2024.
Neither the effect of the LIBOR transition process nor its ultimate success can yet be known. Although the transition away from LIBOR
has become increasingly well-defined, any potential effects of the transition away from LIBOR and other benchmark rates on financial
markets, a fund or the financial instruments in which a fund invests can be difficult to ascertain. Not all existing LIBOR-based instruments
may have alternative rate-setting provisions and there remains uncertainty regarding the willingness and ability of issuers to add alternative
rate-setting provisions in certain existing instruments. Global regulators have advised market participants to cease entering into new
contracts using LIBOR as a reference rate, and it is possible that investments in LIBOR-based instruments could invite regulatory scrutiny.
In addition, a liquid market for newly-issued instruments that use a reference rate other than LIBOR still may be developing. All of
the aforementioned may adversely affect the Fund’s or an Underlying Fund’s performance or NAV.
SOFR
Risk
SOFR
is intended to be a broad measure of the cost of borrowing funds overnight in transactions that are collateralized by U.S. Treasury securities.
SOFR is calculated based on transaction-level repo data collected from various sources. For each trading day, SOFR is calculated as a
volume-weighted median rate derived from such data. SOFR is calculated and published by the Federal Reserve Bank of New York (“FRBNY”).
If data from a given source required by the FRBNY to calculate SOFR is unavailable for any day, then the most recently available data
for that segment will be used, with certain adjustments. If errors are discovered in the transaction data or the calculations underlying
SOFR after its initial publication on a given day, SOFR may be republished at a later time that day. Rate revisions will be effected
only on the day of initial publication and will be republished only if the change in the rate exceeds one basis point.
Because
SOFR is a financing rate based on overnight secured funding transactions, it differs fundamentally from LIBOR. LIBOR was intended to
be an unsecured rate that represents interbank funding costs for different short-term maturities or tenors. It was a forward-looking
rate reflecting expectations regarding interest rates for the applicable tenor. Thus, LIBOR was intended to be sensitive, in certain
respects, to bank credit risk and to term interest rate risk. In contrast, SOFR is a secured overnight rate reflecting the credit of
U.S. Treasury securities as collateral. Thus, it is largely insensitive to credit-risk considerations and to short-term interest rate
risks. SOFR is a transaction-based rate, and it has been more volatile than other benchmark or market rates, such as three-month LIBOR,
during certain periods. For these reasons, among others, there is no assurance that SOFR, or rates derived from SOFR, will perform in
the same or similar way as LIBOR would have performed at any time, and there is no assurance that SOFR-based rates will be a suitable
substitute for LIBOR. SOFR has a limited history, having been first published in April 2018. The future performance of SOFR, and SOFR-based
reference rates, cannot be predicted based on SOFR’s history or otherwise. Levels of SOFR in the future, including following the
discontinuation of LIBOR, may bear little or no relation to historical levels of SOFR, LIBOR or other rates.
Inflation/Deflation
Risk
Inflation
risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the value
of money. As inflation increases, the real value of the Common Shares and distributions can decline. In addition, during any period of
rising inflation, interest rates on borrowings would likely increase, which would tend to further reduce returns to Common Shareholders.
Deflation risk is the risk that prices throughout the economy decline over time–the opposite of inflation. Deflation may have an
adverse effect on the creditworthiness of issuers and may make issuer defaults more likely, which may result in a decline in the value
of the Fund’s portfolio.
Tactical
Municipal Closed-End Fund Strategy Risk
The
Fund invests in closed-end funds as a principal part of the Tactical Municipal Closed-End Fund Strategy. Shares of closed-end funds listed
for trading on a securities exchange frequently trade at a price per share that is less than the NAV per share, the difference representing
the “market discount” of such shares. The market price of such shares may be affected by factors such as NAV, dividend or
distribution levels and their stability (which will in turn be affected by levels of dividend and interest payments by the closed-end
fund’s portfolio holdings, the timing and success of the closed-end fund’s investment strategies, regulations affecting the
timing and character of fund distributions, fund expenses and other factors), supply of and demand for the shares, trading volume of
the shares, general market, interest rate and economic conditions and other factors beyond the control of the closed-end fund.
In
addition, a market discount may be due in part to the investment objective of long-term appreciation, which is sought by many closed-end
funds, as well as to the fact that the shares of closed-end funds are not redeemable by the holder upon demand to the issuer at the next
determined NAV but, rather, are subject to supply and demand in the secondary market.
The
Fund may invest in shares of closed-end funds that are trading at a discount to NAV or at a premium to NAV. There can be no assurance
that the market discount on shares of any closed-end fund purchased by the Fund will ever decrease. In fact, it is possible that this
market discount may increase and the Fund may suffer realized or unrealized capital losses due to further decline in the market price
of the securities of such closed-end funds, thereby adversely affecting the NAV of the Fund’s Common Shares. Similarly, there can
be no assurance that any shares of a closed-end fund purchased by the Fund at a premium will continue to trade at a premium or that the
premium will not decrease subsequent to a purchase of such shares by the Fund.
Underlying
Fund Risks
The
Fund will incur higher and additional expenses when it invests in Underlying Funds. There is also the risk that the Fund may suffer losses
due to the investment practices or operations of the Underlying Funds. To the extent that the Fund invests in one or more Underlying
Funds that concentrate in a particular industry or state, the Fund would be vulnerable to factors affecting that industry or state and
the concentrating Underlying Funds’ performance, and that of the Fund, may be more volatile than Underlying Funds that do not concentrate.
As
the Fund will invest at least a portion of its Managed Assets in closed-end funds and ETFs, the Fund’s performance will depend
to a greater extent on the overall performance of investment companies generally, in addition to the performance of the specific Underlying
Funds (and other assets) in which the Fund invests. The use of leverage by Underlying Funds magnifies gains and losses on amounts invested
and increases the risks associated with investing in Underlying Funds. Further, the Underlying Funds are not subject to the Fund’s
investment policies and restrictions. The Fund generally receives information regarding the portfolio holdings of Underlying Funds only
when that information is made available to the public. The Fund cannot dictate how the Underlying Funds invest their assets. In addition,
one Underlying Fund may purchase a security that another Underlying Fund is selling. The Underlying Funds may invest their assets in
securities and other instruments, and may use investment techniques and strategies, that are not described in this Prospectus, and there
is risk that the Underlying Funds may not be in compliance with their investment policies and strategies, including their policy to invest
at least 80% of their assets in Municipal Bonds which, in turn, could result in the Fund’s non-compliance with its own investment
policies. Because the Fund expects that most of the Underlying Funds will publish their portfolio holdings only at intervals, and then
only after some delay, the Fund will generally not know for certain the current holdings of the Underlying Funds.
Common
Shareholders will bear two layers of fees and expenses with respect to the Fund’s investments in Underlying Funds because each
of the Fund and the Underlying Fund will charge fees and incur separate expenses. If those Underlying Funds use leverage, that will likely
increase the amount of fees that the Fund, as an investor in the Underlying Funds, will pay. See “Summary of Fund Expenses”
for a further description of such fees and their impact on the expenses of the Fund. In addition, subject to applicable 1940 Act limitations,
the Underlying Funds themselves may purchase securities issued by registered and unregistered funds (e.g., common stock and preferred
stock), and those investments would be subject to the risks associated with Underlying Funds and unregistered funds (including a third
layer of fees and expenses, i.e., the Underlying Fund will indirectly bear fees and expenses charged by the funds in which the
Underlying Fund invests, in addition to the Underlying Fund’s own fees and expenses). The Fund’s investment in an Underlying
Fund also may result in the Fund’s receipt of cash in excess of the Underlying Fund’s earnings; if the Fund distributes these
amounts, the distributions could constitute a return of capital to Fund shareholders for federal income tax purposes but may be characterized
as a dividend if the Fund has earnings from other sources. As a result of these factors, the use of the fund of funds structure by the
Fund could therefore affect the amount, timing and character of distributions to shareholders.
As
may be the case with the Fund, the shares of many closed-end funds in which the Fund may invest frequently trade after their initial
public offering at a price per share that is less than the NAV per share, the difference representing the “market discount”
of such shares. This market discount may be due in part to the investment objective of long-term appreciation, which is sought by many
closed-end funds, as well as to the fact that the shares of closed-end funds are not redeemable by the holder upon demand to the issuer
at the next determined NAV, but rather, are subject to supply and demand in the secondary market. A relative lack of secondary market
purchasers of closed-end fund shares also may contribute to such shares trading at a discount to their NAV.
The
Fund may invest in shares of closed-end funds that are trading at a discount to NAV or at a premium to NAV. There can be no assurance
that the market discount on shares of any closed-end fund purchased by the Fund will ever decrease. In fact, it is possible that this
market discount may increase and the Fund may suffer realized or unrealized capital losses due to further decline in the market price
of the securities of such closed-end funds, thereby adversely affecting the NAV of the Fund’s shares. Similarly, there can be no
assurance that any shares of a closed-end fund purchased by the Fund at a premium will continue to trade at a premium or that the premium
will not decrease subsequent to a purchase of such shares by the Fund.
Closed-end
funds may issue senior securities (including preferred stock and debt obligations) for the purpose of leveraging the closed-end fund’s
common shares in an attempt to enhance the current return to such closed-end fund’s common shareholders. The Fund’s investment
in the common shares of closed-end funds that are financially leveraged may create an opportunity for greater total return on its investment,
but in a down market may increase the size and speed of losses. Thus, leveraged funds may be expected to exhibit more volatility in market
price and NAV than an investment in shares of investment companies without a leveraged capital structure. Since the Fund may use leverage
to invest in other funds that are leveraged, the effect of gains and losses in the other funds may be compounded, especially when events
occur that may broadly affect the market for municipal securities. In addition, the Fund may invest in such senior securities issued
by closed-end funds, including auction rate municipal securities and auction rate preferred securities. In recent market environments,
auctions have failed, which adversely affects the liquidity and price of auction rate securities, and are unlikely to resume. Provided
that the auction mechanism is successful, auction rate securities usually permit the holder to sell the securities in an auction at par
value at specified intervals. The dividend is reset by “Dutch” auction in which bids are made by broker-dealers and other
institutions for a certain amount of securities at a specified minimum yield. The dividend rate set by the auction is the lowest interest
or dividend rate that covers all securities offered for sale. While this process is designed to permit auction rate securities to be
traded at par value, there is a risk that an auction will fail due to insufficient demand for the securities. Moreover, between auctions,
there may be no secondary market for these securities, and sales conducted on a secondary market may not be on terms favorable to the
seller. Auction rate securities may be called by the issuer. Thus, with respect to liquidity and price stability, auction rate securities
may differ substantially from cash equivalents, notwithstanding the frequency of auctions and the credit quality of the security. The
Fund’s investments in auction rate securities of closed-end funds are subject to the limitations prescribed by the 1940 Act.
ETFs
may trade at a price above (premium) or below (discount) their NAV, especially during periods of significant market volatility or stress,
which could cause investors to pay significantly more or less for ETF shares than the value of the ETF’s underlying portfolio.
Certain ETFs traded on exchanges may be thinly traded and experience large spreads between the “ask” price quoted by a seller
and the “bid” price offered by a buyer. While the creation/redemption feature is designed to make it likely that ETF shares
normally will trade close to their NAVs, market prices are not expected to correlate exactly to the shares’ NAVs due to timing
reasons, supply and demand imbalances and other factors. In addition, disruptions to creations and redemptions, adverse developments
impacting market makers, authorized participants or other market participants, high market volatility or lack of an active trading market
for an ETF’s shares (including through a trading halt) may result in market prices that differ significantly from an ETF’s
NAV or to the intraday value of the ETF’s holdings. An active trading market for shares of an ETF may not develop or be maintained.
When all or a portion of an ETF’s underlying securities trade in a foreign market that is closed during the time the domestic market
in which the ETF’s shares are listed and traded is open, there may be changes between the last quote from the closed foreign market
and the value of such underlying security during the ETF’s trading day. In times of market stress, market makers or authorized
participants may step away from their respective roles in making a market in shares of the ETF and in executing purchase or redemption
orders. During such times, the ETF’s shares may trade at a wider than normal discount or premium and may possibly face trading
halts. Additionally, the underlying securities of an ETF may be traded outside of a collateralized settlement system, such as the National
Securities Clearing Corporation, a clearing agency that is registered with the SEC. There are a limited number of financial institutions
that may act as authorized participants that post collateral for certain trades on an agency basis. To the extent that these authorized
participants exit the business or are unable to proceed with creation and/or redemption orders with the ETF, and no other authorized
participant is able to step forward, ETF shares may trade at a discount to NAV and possibly face trading halts and/or delisting. Additionally,
in stressed market conditions, the market for ETF shares may become less liquid in response to deteriorating liquidity in the markets
for such ETF’s underlying portfolio holdings, which may cause the shares of the ETF to trade at a wider than normal discount or
premium. Furthermore, purchases and redemptions of creation units primarily in cash rather than in-kind may cause an ETF to incur certain
costs, such as brokerage costs, taxable gains or other losses that it may not have incurred with an in-kind purchase or redemption. These
costs may be borne by the ETF and decrease the ETF’s NAV to the extent they are not offset by a transaction fee payable by an authorized
participant.
Index-based
ETFs (and other index funds) in which the Fund may invest may not be able to replicate exactly the performance of the indices they track
due to transaction costs and other expenses of the ETFs. The Fund may also invest in actively managed ETFs that are subject to management
risk as the ETF’s investment adviser will apply certain investment techniques and risk analyses in making investment decisions.
There can be no guarantee that these will produce the desired results.
The
Fund’s investments in Underlying Funds may be restricted by certain provisions of the 1940 Act. Under Section 12(d)(1)(A) of the
1940 Act, the Fund may hold securities of an Underlying Fund in amounts which (i) do not exceed 3% of the total outstanding voting stock
of the Underlying Fund, (ii) do not exceed 5% of the value of the Fund’s total assets and (iii) when added to all other Underlying
Fund securities held by the Fund, do not exceed 10% of the value of the Fund’s total assets. Under Section 12(d)(1)(C) of the 1940
Act, the Fund, together with any other investment companies for which the Adviser acts as an investment adviser, may not, in the aggregate,
own more than 10% of the total outstanding voting stock of a registered closed-end investment company. Section 12(d)(1)(F) of the 1940
Act provides that the limitations of Section 12(d)(1) described above shall not apply to securities purchased or otherwise acquired by
the Fund if (i) immediately after such purchase or acquisition not more than 3% of the total outstanding stock of such Underlying Fund
is owned by the Fund and all affiliated persons of the Fund, and (ii) certain requirements are met with respect to sales charges. In
addition, Rule 12d1-4 under the 1940 Act (“Rule 12d1-4”), effective as of January 19, 2022, permits the Fund to invest in
Underlying Funds beyond the limitations of Section 12(d)(1) described above, subject to various conditions, including that the Fund enter
into an investment agreement with the Underlying Fund (which agreements may impose additional conditions on the Fund). In matters upon
which the Fund is solicited to vote as a shareholder of an Underlying Fund, the Adviser may be required to vote Underlying Fund shares
in the same proportion as shares held by other shareholders of the Underlying Fund.
ESG
Considerations Risk
While
the Subadviser may consider ESG factors it deems relevant or additive when making investment decisions under the Municipal Bond Income
Strategy, ESG characteristics are not a primary focus of the Fund. The Fund does not seek to implement a specific “ESG,”
“impact” or “sustainability” policy. The Fund may invest in issuers that do not reflect beliefs or values with
respect to ESG of any particular investor. While the Fund views ESG considerations as having the potential to contribute to the Fund’s
long-term performance, there is no guarantee that such results will be achieved.
To
the extent the Subadviser makes an investment decision based in part on ESG characteristics, it may select investments, or forgo investment
opportunities, in individual securities and/or sectors of securities for non-investment reasons, which could cause the Fund to underperform
funds that do not consider “ESG,” “impact” or “sustainability” criteria. ESG-focused investments
and strategies may, at times, be subject to a higher degree of volatility than non-ESG-focused investments and strategies. ESG information
and data, including that provided by third parties, may be incomplete, inaccurate or unavailable, which could adversely affect the analysis
of the ESG factors relevant to a particular investment. The Subadviser’s assessment of an investment’s ESG impact may change
over time, which may cause the Fund to hold a security or sell a security when it might otherwise be disadvantageous to do so. Views
on ESG, sustainability and positive social and environmental outcomes may differ by fund, adviser and investor. In addition, issuers
and sectors that meet the ESG criteria may shift into and out of favor depending on market and economic conditions. Certain bonds in
which the Fund invests may be dependent on government incentives and subsidies, and lack of political support for the financing of projects
with a positive environmental or social impact could negatively impact the performance of the Fund.
Defaulted
and Distressed Securities Risks
The
Fund and the Underlying Funds may invest in defaulted and distressed securities. Legal difficulties and negotiations with creditors and
other claimants are common when dealing with defaulted or distressed issuers. Defaulted or distressed issuers may be insolvent, in bankruptcy
or undergoing some other form of financial restructuring. In the event of a default, the Fund or an Underlying Fund may incur additional
expenses to seek recovery. The repayment of defaulted bonds is subject to significant uncertainties, and in some cases, there may be
no recovery of repayment. Defaulted bonds might be repaid only after lengthy workout or bankruptcy proceedings, during which the issuer
might not make any interest or other payments. Because of the relative illiquidity of defaulted or distressed debt and equity securities,
short sales are difficult, and the Fund and most Underlying Funds primarily maintain long positions. Some relative value trades are possible,
where an investor sells short one class of a defaulted or distressed issuer’s capital structure and purchases another. With distressed
investing, often there is a time lag between when the Fund and an Underlying Fund makes an investment and when the Fund and the Underlying
Fund realizes the value of the investment. In addition, the Fund and an Underlying Fund may incur legal and other monitoring costs in
protecting the value of the Fund’s and the Underlying Fund’s claims.
Illiquid
Securities Risks
The
Fund and the Underlying Funds may invest in illiquid securities. It may not be possible to sell or otherwise dispose of illiquid securities
both at the price and within the time period deemed desirable by a fund. Illiquid securities also may be difficult to value. Liquidity
may sometimes be impaired in the municipal market and, because the Fund principally invests in Municipal Bonds, it may find it difficult
to purchase or sell such securities at opportune times. Liquidity can be impaired due to interest rate concerns, credit events, or general
supply and demand imbalances. Depending on the particular issuer and current economic conditions, Municipal Bonds could be deemed more
volatile investments.
Valuation
Risk
Unlike
publicly traded common stock which trades on national exchanges, there is no central place or exchange for fixed-income securities trading.
Fixed-income securities generally trade on an “over-the-counter” market which may be anywhere in the world where the buyer
and seller can settle on a price. Due to the lack of centralized information and trading, the valuation of fixed-income securities may
carry more risk than that of common stock. Uncertainties in the conditions of the financial market, unreliable reference data, lack of
transparency and inconsistency of valuation models and processes may lead to inaccurate asset pricing. As a result, the Fund may be subject
to risk that when a fixed-income security is sold in the market, the amount received by the Fund is less than the value of such fixed-income
security carried on the Fund’s books.
Tender
Option Bonds Risks
TOB
Residuals are derivative municipal securities that have embedded in them the risk of economic leverage. There is no assurance that the
Fund’s strategy of using the proceeds received from tender option bond transactions to leverage its assets will be successful.
TOB transactions expose the Fund to leverage and credit risk, and generally involve greater risk than investment in fixed rate Municipal
Bonds, including the loss of principal.
Distributions
on TOB Residuals will bear an inverse relationship to short-term municipal bond interest rates. Distributions on the TOB Residuals paid
to the Fund will be reduced or, in the extreme, eliminated as short-term municipal interest rates rise and will increase when short-term
municipal interest rates fall. The amount of such reduction or increase is a function, in part, of the amount of TOB Floaters sold by
the TOB Issuer of these securities relative to the amount of the TOB Residuals that it sells. The greater the amount of TOB Floaters
sold relative to the TOB Residuals, the more volatile the distributions on the TOB Residuals will be. The value of TOB Residuals may
decline rapidly in times of rising interest rates.
The
Fund’s use of proceeds received from tender option bond transactions will create economic leverage. Any economic leverage achieved
through the Fund’s investment in TOB Residuals will create an opportunity for increased Common Share net income and returns, but
will also create the possibility that Common Share long-term returns will be diminished if the cost of the TOB Floaters exceeds the return
on the securities deposited in the TOB Issuer. If the income and gains earned on Municipal Bonds deposited in a TOB Issuer that issues
TOB Residuals to the Fund are greater than the payments due on the TOB Floaters, the Fund’s returns will be greater than if it
had not invested in the TOB Residuals.
The
Fund has no current intention of investing in recourse TOB Residuals. However, circumstances may change and it is possible that in the
future the Fund may elect to invest in recourse TOB Residuals to leverage its portfolio. If the Fund uses recourse TOB Residuals, the
liquidity provider may seek recourse against assets of the Fund, and the Fund may have to pay the liquidity provider the difference between
the purchase price of any TOB Floaters put to the liquidity provider by third party investors and the proceeds realized by the liquidity
provider from the remarketing of those TOB Floaters or the sale of the assets in the TOB Issuer, which could cause the Fund to lose money
in excess of its investment in a TOB Issuer.
Although
the Fund generally would unwind a tender option bond transaction rather than try to sell a TOB Residual, if it did try to sell a TOB
Residual, its ability to do so would depend on the liquidity of the TOB Residual. TOB Residuals have varying degrees of liquidity based,
among other things, upon the liquidity of the underlying securities deposited in the TOB Issuer. The market price of TOB Residuals are
more volatile than the underlying securities due to leverage. The leverage attributable to TOB Residuals may be “called away”
on relatively short notice and therefore may be less permanent than more traditional forms of leverage. In certain circumstances, the
likelihood of an increase in the volatility of NAV and market price of the Common Shares may be greater for a fund that relies primarily
on tender option bond transactions to achieve a desired effective leverage ratio. The Fund may be required to sell its TOB Residuals
at less than favorable prices, or liquidate other Fund portfolio holdings in certain circumstances, including, but not limited to, the
following:
| ● | If
the Fund has a need for cash and the securities deposited in the TOB Issuer are not actively
trading due to adverse market conditions; |
| ● | If
the sponsors of TOB Issuers (as a collective group or individually) experience financial
hardship and consequently seek to terminate their sponsorship of TOB Issuers; and |
| ● | If
the value of an underlying security deposited in the TOB Issuer declines significantly (to
a level below the notional value of the TOB Floaters issued by the TOB Issuer) and if additional
collateral has not been posted by the Fund. |
The
Fund may invest in taxable TOB Residuals, issued by TOB Issuers formed with taxable municipal securities. There may be a limited number
of counterparties for such transactions, which may increase the credit risks, counterparty risks, liquidity risks and other risks of
investing in taxable TOB Residuals. The Fund may not invest more than 20% of its Managed Assets in any single third party sponsor that
establishes a TOB Issuer. See also “Risks—Investment-Related Risks—Legislation and Regulatory Risks.”
Insurance
Risks
The
Fund may purchase Municipal Bonds that are secured by insurance, bank credit agreements or escrow accounts. The credit quality of the
companies that provide such credit enhancements will generally affect the value of those securities. Certain significant providers of
insurance for Municipal Bonds have at times incurred significant losses as a result of exposure to sub-prime mortgages and other lower
credit quality investments that have experienced defaults or otherwise suffered credit deterioration. Such losses may reduce the insurers’
capital and may call into question their continued ability to perform their obligations under such insurance if called upon in the future.
While an insured Municipal Bond will typically be deemed to have the rating of its insurer, if the insurer of a Municipal Bond suffers
a downgrade in its credit rating or the market discounts the value of the insurance provided, the rating of the underlying Municipal
Bond will generally be more relevant and the value of the Municipal Bond would more closely, if not entirely, reflect such rating. In
such a case, the value of insurance associated with a Municipal Bond would decline and may not add any value. The insurance feature of
a Municipal Bond does not guarantee the full payment of principal and interest through the life of an insured obligation, the market
value of the insured obligation or the NAV of the Common Shares represented by such insured obligation. Because there is no limit on
the percentage of Managed Assets that may be insured by any one insurance firm other than the tax diversification rules, there is a risk
that a significant portion of the Fund’s holdings may experience a ratings downgrade and lose value if such an insurance company
suffers financial or reputational adversity. Some IRS authority treats a guaranty as a separate security subject to the diversification
rules, which limit the value of securities issued by any one issuer to not more than 25% of the portfolio.
Tax
Risks
To
qualify for the favorable U.S. federal income tax treatment generally accorded to regulated investment companies, among other things,
the Fund must derive in each taxable year at least 90% of its gross income from certain prescribed sources and satisfy a diversification
test on a quarterly basis. If the Fund fails to satisfy the qualifying income or diversification requirements in any taxable year, the
Fund may be eligible for relief provisions if the failures are due to reasonable cause and not willful neglect and if a penalty tax is
paid with respect to each failure to satisfy the applicable requirements. Additionally, relief is provided for certain de minimis failures
of the diversification requirements where the Fund corrects the failure within a specified period. In order to be eligible for the relief
provisions with respect to a failure to meet the diversification requirements, the Fund may be required to dispose of certain assets.
If these relief provisions were not available to the Fund and it were to fail to qualify for treatment as a regulated investment company
(“RIC”) for a taxable year, all of its taxable income (including its net capital gain) would be subject to tax at regular
corporate rates (currently 21%) without any deduction for distributions to shareholders, and such distributions would be taxable as ordinary
dividends to the extent of the Fund’s current and accumulated earnings and profits.
The
Fund may qualify to pay exempt-interest dividends, which are treated as items of interest excludable from gross income for federal income
tax purposes, if at least 50% of the value of the total assets of the Fund consists of obligations exempt from regular income tax as
of the close of each quarter of the Fund’s taxable year. Under this approach, if the proportion of taxable investments held by
the Fund exceeded 50% of the Fund’s total assets as of the close of any quarter of the Fund’s taxable year, the Fund would
not, for that taxable year, satisfy the general eligibility test that would otherwise permit it to pay exempt-interest dividends for
that taxable year. As an alternative, the Fund may qualify to pay exempt-interest dividends if it is a qualified fund-of-funds, i.e.,
if at least 50% of the value of its total assets are invested in the shares of underlying RICs as of the close of each quarter of
the Fund’s taxable year.
The
Fund may enter into various types of derivatives transactions, including swap contracts, among others. The use of such derivatives may
generate taxable income. The Fund’s use of derivatives may also affect the amount, timing, and character of distributions to shareholders
and, therefore, may increase the amount of taxes payable by shareholders.
The
value of the Fund’s investments and its NAV may be adversely affected by changes in tax rates and policies. Because interest income
from Municipal Bonds is normally not subject to regular federal income taxation, the attractiveness of Municipal Bonds in relation to
other investment alternatives is affected by changes in federal income tax rates or changes in the tax-exempt status of interest income
from Municipal Bonds. Any proposed or actual changes in such rates or exempt status, therefore, can significantly affect the demand for
and supply, liquidity and marketability of Municipal Bonds. This could in turn affect the Fund’s NAV and ability to acquire and
dispose of Municipal Bonds at desirable yield and price levels. Additionally, the Fund is not a suitable investment for individual retirement
accounts, for other tax-exempt or tax-deferred accounts or for investors who are not sensitive to the federal income tax consequences
of their investments.
The
Fund will invest in Municipal Bonds in reliance at the time of purchase on an opinion of bond counsel to the issuer that the interest
paid on those securities will be excludable from gross income for federal income tax purposes, and the Adviser and Subadviser will not
independently verify that opinion. Subsequent to the Fund’s acquisition of such a Municipal Bond, however, the security may be
determined to pay, or to have paid, taxable income. As a result, the treatment of dividends previously paid or to be paid by the Fund
as “exempt-interest dividends” could be adversely affected, subjecting the Fund’s shareholders to increased federal
income tax liabilities.
Distributions
of ordinary taxable income (including any net short-term capital gain) will be taxable to shareholders as ordinary income (and not eligible
for favorable taxation as “qualified dividend income”), and capital gain dividends will be taxable as long-term capital gains.
See “U.S. Federal Income Tax Matters.”
Derivatives
Risks
The
Fund and the Underlying Funds may enter into derivatives. Derivative transactions involve investment techniques and risks different from
those associated with the Fund’s other investments. Generally, a derivative is a financial contract the value of which depends
upon, or is derived from, the value of an underlying asset, reference rate, or index, and may relate to individual debt or equity instruments,
interest rates, currencies or currency exchange rates, commodities, related indexes and other assets. Derivatives can be volatile and
involve various types and degrees of risk, depending upon the characteristics of a particular derivative. Derivatives may entail investment
exposures that are greater than their cost would suggest, meaning that a small investment in a derivative could have a large potential
impact on the performance of the Fund or an Underlying Fund. The Fund or an Underlying Fund could experience a loss if derivatives do
not perform as anticipated, if they are not correlated with the performance of other investments which they are used to hedge or if the
fund is unable to liquidate a position because of an illiquid secondary market. The market for many derivatives is, or can suddenly become,
illiquid. Changes in liquidity may result in significant, rapid and unpredictable changes in the prices of derivatives. Except with respect
to the Fund’s investments in total return swaps, the Fund expects its use of derivative instruments will be for hedging purposes.
When used for speculative purposes, derivatives will produce enhanced investment exposure, which will magnify gains and losses. Certain
derivatives transactions may give rise to a form of leverage. Leverage may cause a fund to be more volatile than if it had not been leveraged.
This is because leverage tends to exaggerate the effect of any increase or decrease in the value of a fund’s portfolio securities.
Further, using derivatives may include the risk of mispricing or improper valuation of derivatives and the inability of derivatives to
correlate perfectly, or at all, with the value of the assets, reference rates or indexes they are designed to closely track. The Fund
and the Underlying Funds also will be subject to credit risk with respect to the counterparties to the derivatives contracts purchased
by such fund. If a counterparty becomes bankrupt or otherwise fails to perform its obligations under a derivative contract due to financial
difficulties, the Fund or an Underlying Fund may experience significant delays in obtaining any recovery under the derivative contract
in a bankruptcy or other reorganization proceeding. The Fund or an Underlying Fund may obtain only a limited recovery or may obtain no
recovery in such circumstances. See “—Option and Futures Risks” and “—Swap Risks.” The Adviser has
claimed an exclusion from registration as a commodity pool operator with respect to the Fund pursuant to Commodity Futures Trading Commission
(“CFTC”) Rule 4.5. See “Investment Policies and Techniques—Derivatives—Regulation as a ‘Commodity
Pool’” in the SAI.
On
October 28, 2020, the SEC adopted Rule 18f-4 under the 1940 Act providing for the regulation of a registered investment company’s
use of derivatives and certain related instruments. The rule permits the Fund or an Underlying Fund to enter into certain derivatives
and other transactions notwithstanding the restrictions on the issuance of “senior securities” under Section 18 of the 1940
Act. Section 18 of the 1940 Act, among other things, prohibits closed-end funds, including the Fund, from issuing or selling any “senior
security” representing indebtedness, unless the fund maintains 300% “asset coverage,” or any senior security representing
stock, unless the fund maintains 200% “asset coverage”.
The
compliance date for Rule 18f-4 was August 19, 2022. In accordance with the rule, the Fund adopted and implemented a comprehensive written
derivatives risk management program and is subject to an outer limit on Fund leverage risk calculated based on value-at-risk. This outer
limit is based on a relative value-at-risk test that will compare the Fund’s value-at-risk to the value-at-risk of a designated
reference index. The derivatives risk management program is administered by a “derivatives risk manager,” who has been appointed
by the Board, including a majority of the Directors who are not “interested persons” (as defined in the 1940 Act), and periodically
reviews the derivatives risk management program and reports to the Board.
In
general, the “derivatives transactions” covered by Rule 18f-4 include the following: (1) any swap, security-based swap (including
a contract for differences), futures contract, forward contract, option (excluding purchased options), any combination of the foregoing,
or any similar instrument, under which the Fund is or may be required to make any payment or delivery of cash or other assets during
the life of the instrument or at maturity or early termination, whether as margin or settlement payment or otherwise; (2) any short sale
borrowing; (3) reverse repurchase agreements and similar financing transactions, if the Fund elects to treat these transactions as “derivatives
transactions” under Rule 18f-4; and (4) when-issued or forward-settling securities (e.g., firm and standby commitments, including
to-be-announced (“TBA”) commitments, and dollar rolls) and non-standard settlement cycle securities, unless such transactions
meet the delayed-settlement provision of the rule.
Options
and Futures Risks
The
Fund and the Underlying Funds may invest in options and futures contracts and such contracts are expected to be utilized by the Fund,
if at all, for hedging purposes. The use of futures and options transactions entails certain special risks. In particular, the variable
degree of correlation between price movements of futures contracts and price movements in the related securities position of a fund could
create the possibility that losses on the hedging instrument are greater than gains in the value of a fund’s position. In addition,
futures and options markets could be illiquid in some circumstances and certain over-the-counter options could have no markets. As a
result, in certain markets, a fund might not be able to close out a transaction without incurring substantial losses. Although a fund’s
use of futures and options transactions for hedging should tend to minimize the risk of loss due to a decline in the value of the hedged
position, at the same time it will tend to limit any potential gain to a fund that might result from an increase in value of the position.
Finally, the daily variation margin requirements for futures contracts create a greater ongoing potential financial risk than would purchases
of options, in which case the exposure is limited to the cost of the initial premium. However, because option premiums paid by the Fund
or an Underlying Fund are small in relation to the market value of the investments underlying the options, buying options can result
in large amounts of leverage. This leverage offered by trading in options could cause the Fund’s or an Underlying Fund’s
NAV to be subject to more frequent and wider fluctuation than would be the case if the Fund or an Underlying Fund did not invest in options.
Options
transactions may be effected on securities exchanges or in the over-the-counter market. When options are purchased over-the-counter,
the Fund or an Underlying Fund bears the risk that the counterparty that wrote the option will be unable or unwilling to perform its
obligations under the option contract. The counterparties to these transactions typically will be major international banks, broker-dealers
and financial institutions. Such options may also be illiquid, and in such cases, the Fund or an Underlying Fund may have difficulty
closing out its position. Banks, broker-dealers or other financial institutions participating in such transactions may fail to settle
a transaction in accordance with the terms of the option as written. In the event of default or insolvency of the counterparty, the Fund
or an Underlying Fund may be unable to liquidate an over-the-counter option position.
An
Underlying Fund may purchase and sell call and put options with respect to specific securities, and may write and sell covered or uncovered
call and put options. A call option gives the purchaser of the call option, in return for a premium paid, the right to buy the security
underlying the option from the writer of the call option at a specified exercise price within a specified time frame. A put option gives
the purchaser of the put option, in return for a premium paid, the right to sell the underlying security to the writer of the put option
at a specified price within a specified time frame. A covered call option is a call option with respect to an underlying security that
a fund owns. The purchaser of a put or call option runs the risk of losing the purchaser’s entire investment, paid as the premium,
in a relatively short period of time if the option is not sold at a gain or cannot be exercised at a gain prior to expiration. In selling
put options, there is a risk that the Underlying Fund may be required to buy the underlying security at a disadvantageous price above
the market price. The un-covered writer of a call option is subject to a risk of loss if the price of the underlying security should
increase, and the un-covered writer of a put option is subject to a risk of loss if the price of the underlying security should decrease.
The
Fund may invest a significant portion of its total assets in Underlying Funds that write covered call options. To the extent that an
Underlying Fund writes a covered call option, it forgoes, during the option’s life, the opportunity to profit from increases in
the market value of the security covering the call option above the sum of the premium and the strike price of the call, but has retained
the risk of loss should the price of the underlying security decline. As the writer of the option, the Underlying Fund bears the market
risk of an unfavorable change in the price of the security underlying a written option. As an Underlying Fund writes covered calls over
more of its portfolio, its ability to benefit from capital appreciation becomes more limited and the risk of NAV erosion increases. To
the extent an Underlying Fund experiences NAV erosion (which itself may have an indirect negative effect on the market price of interests
in the Underlying Fund), the Underlying Fund will have a reduced asset base over which to write covered calls, which may eventually lead
to reduced distributions to shareholders such as the Fund. The writer of an option has no control over the time when it may be required
to fulfill its obligation as a writer of the option. Once an option writer has received an exercise notice, it cannot effect a closing
purchase transaction in order to terminate its obligation under the option and must deliver the underlying security at the exercise price.
To
the extent that an Underlying Fund engages in selling options that trade in over-the-counter markets, the Underlying Fund may be subject
to additional risks. Participants in these markets are typically not subject to the same credit evaluation and regulatory oversight as
members of “exchange-based” markets. By engaging in option transactions in these markets, an Underlying Fund may take credit
risk with regard to parties with which it trades and also may bear the risk of settlement default. These risks may differ materially
from those involved in exchange-traded transactions, which generally are characterized by clearing organization guarantees, daily marking-to-market
and settlement, and segregation and minimum capital requirements applicable to intermediaries. Transactions entered into directly between
two counterparties generally do not benefit from these protections, which may subject an Underlying Fund to the risk that a counterparty
will not settle a transaction in accordance with agreed terms and conditions because of a dispute over the terms of the contract or because
of a credit or liquidity problem. Such “counterparty risk” is increased for contracts with longer maturities when events
may intervene to prevent settlement.
There
can be no assurance that a liquid market will exist for any particular futures contract at any particular time. Many futures exchanges
and boards of trade limit the amount of fluctuation permitted in futures contract prices during a single trading day. Once the daily
limit has been reached in a particular contract, no trades may be made that day of a price beyond that limit or trading may be suspended
for specified periods during the trading day.
Swap
Risks
The
Fund and the Underlying Funds may enter into various swap agreements and, other than total return swap agreements (as discussed herein),
such agreements are expected to be utilized by the Fund, if at all, for hedging purposes. All of these agreements are considered derivatives.
Swap agreements are two-party contracts under which the fund and a counterparty, such as a broker or dealer, agree to exchange the returns
(or differentials in rates of return) earned or realized on an agreed-upon underlying asset or investment over the term of the swap.
The use of swap transactions is a highly specialized activity which involves strategies and risks different from those associated with
ordinary portfolio security transactions. If the Adviser, Subadviser or an Underlying Fund’s investment adviser is incorrect in
its forecasts of default risks, market spreads, liquidity or other applicable factors or events, the investment performance of the Fund
or Underlying Fund would diminish compared with what it would have been if these techniques were not used. Swaps and swap options can
be used for a variety of purposes, including: to manage fund exposure to changes in interest rates and credit quality; as an efficient
means of adjusting fund overall exposure to certain markets; in an effort to enhance income or total return or protect the value of portfolio
securities; to serve as a cash management tool; and to adjust portfolio duration.
Swaps
could result in losses if interest rates or credit quality changes are not correctly anticipated by the Adviser, Subadviser or Underlying
Fund manager. Total return swaps could result in losses if the reference index, security, or investments do not perform as anticipated.
Total return swaps involve an enhanced risk that the issuer or counterparty will fail to perform its contractual obligations, which could
turn an expected gain into a loss. Total return swaps may effectively add leverage to the Fund’s portfolio because the Fund would
be subject to investment exposure on the full notional amount of the swap. To the extent the Fund or an Underlying Fund enters into a
total return swap on equity securities, the Fund or the Underlying Fund will receive the positive performance of a notional amount of
such securities underlying the total return swap. In exchange, the Fund or the Underlying Fund will be obligated to pay the negative
performance of such notional amount of securities. Therefore, the Fund or the Underlying Fund assumes the risk of a substantial decrease
in the market value of the equity securities. The use of swaps may not always be successful; using them could lower Fund or Underlying
Fund total return, their prices can be highly volatile, and the potential loss from the use of swaps can exceed the Fund’s or an
Underlying Fund’s initial investment in such instruments.
Some,
but not all, swaps may be cleared, in which case a central clearing counterparty stands between each buyer and seller and effectively
guarantees performance of each contract, to the extent of its available resources for such purposes. As a result, the counterparty risk
is now shifted from bilateral risk between the parties to the individual credit risk of the central clearing counterparty. Even in such
case, there can be no assurance that a clearing house, or its members, will satisfy the clearing house’s obligations to the Fund
or an Underlying Fund or that the fund’s use of swaps will be advantageous.
Short
Sale Risks
The
Fund and the Underlying Funds may engage in short sales. However, the Fund will not engage in any short sales of securities issued by
closed-end funds. Short sales are expected to be utilized by the Fund, if at all, for hedging purposes. A short sale is a transaction
in which a fund sells a security it does not own in anticipation that the market price of that security will decline. Positions in shorted
securities are speculative and riskier than long positions (purchases) in securities because the maximum sustainable loss on a security
purchased is limited to the amount paid for the security plus the transaction costs, whereas there is no maximum attainable price of
the shorted security. Therefore, in theory, securities sold short have unlimited risk. Short selling will also result in higher transaction
costs (such as interest and dividends), and may result in higher taxes, which reduce a fund’s return.
If
a security sold short increases in price, a fund may have to cover its short position at a higher price than the short sale price, resulting
in a loss. With respect to a fund’s short positions, the fund must borrow those securities to make delivery to the buyer. A fund
may not be able to borrow a security that it needs to deliver or it may not be able to close out a short position at an acceptable price
and may have to sell related long positions before it had intended to do so. As a result, a fund may not be able to successfully implement
its short sale strategy due to the limited availability of desired securities or for other reasons.
When
borrowing a security for delivery to a buyer, a fund also may be required to pay a premium and other transaction costs, which would increase
the cost of the security sold short. A fund must normally repay to the lender an amount equal to any dividends or interest earned while
the loan is outstanding. The amount of any gain will be decreased, and the amount of any loss increased, by the amount of the premium,
dividends, interest or expenses a fund may be required to pay in connection with the short sale. Also, the lender of a security may terminate
the loan at a time when a fund is unable to borrow the same security for delivery. In that case, a fund would need to purchase a replacement
security at the then current market price or “buy in” by paying the lender an amount equal to the costs of purchasing the
security.
Because
a fund’s loss on a short sale arises from increases in the value of the security sold short, the loss is theoretically unlimited.
In certain cases, purchasing a security to cover a short position can itself cause the price of the security to rise further, which would
exacerbate the loss. Conversely, gains on short sales, after transaction and related costs, are generally the difference between the
price at which a fund sold the borrowed security and the price it paid to purchase the security for delivery to the buyer. By contrast,
a fund’s loss on a long position arises from decreases in the value of the security and is limited by the fact that a security’s
value cannot drop below zero.
By
investing the proceeds received from selling securities short, a fund is using a form of leverage, which creates special risks. The use
of leverage may increase a fund’s exposure to long equity positions and make any change in a fund’s NAV greater than it would
be without the use of leverage. This could result in increased volatility of returns. There is no guarantee that the Fund or an Underlying
Fund will leverage its portfolio, or if it does, that the leveraging strategy will be successful. The Fund also cannot guarantee that
the use of leverage by the Fund or an Underlying Fund will produce a higher return on an investment.
Rating
Agency Risk
Ratings
agencies such as S&P, Fitch, Moody’s or other NRSROs provide ratings on debt securities based on their analyses of information
they deem relevant. Ratings are opinions or judgments of the credit quality of an issuer and may prove to be inaccurate. In addition,
there may be a delay between events or circumstances adversely affecting the ability of an issuer to pay interest and/or repay principal
and an NRSRO’s decision to downgrade a security. Further, a rating agency may have a conflict of interest with respect to a security
for which it assigns a particular rating if, for example, the issuer or sponsor of the security pays the rating agency for the analysis
of its security, which could affect the reliability of the rating.
United
States Credit Rating Downgrade Risk
On
August 5, 2011, S&P lowered its long-term sovereign credit rating on the United States to “AA+” from “AAA.”
In general, a lower rating could increase the volatility in both stock and bond markets, result in higher interest rates and lower Treasury
prices and increase the costs of all kinds of debt. These events and similar events in other areas of the world could have significant
adverse impacts on issuers of securities held by the Fund and the Fund itself. The Adviser and the Subadviser cannot predict the effects
of these or similar events in the future on the U.S. economy and securities markets or on the Fund’s portfolio. The Adviser and
the Subadviser may not timely anticipate or manage existing, new or additional risks, contingencies or developments.
Legislation
and Regulatory Risks
At
any time after the date of this Prospectus, legislation or additional regulations may be enacted that could negatively affect the assets
of the Fund or the issuers of such assets. Changing approaches to regulation may have a negative impact on the entities and/or securities
in which the Fund or an Underlying Fund invests. Legislation or regulation may also change the way in which the Fund or an Underlying
Fund is regulated. New or amended regulations may be imposed by the CFTC, the Securities and Exchange Commission (“SEC”),
the Federal Reserve or other financial regulators, other governmental regulatory authorities or self-regulatory organizations that supervise
the financial markets that could adversely affect the Fund or the Underlying Funds. There can be no assurance that future legislation,
regulation or deregulation will not have a material adverse effect on the Fund or will not impair the ability of the Fund to achieve
its investment objectives. The Fund and the Underlying Funds also may be adversely affected by changes in the enforcement or interpretation
of existing statutes and rules by these governmental authorities or self-regulatory organizations.
Market
Disruption, Geopolitical, Pandemic and Climate Change Risks
The
Fund and Underlying Funds (as well as their service providers) may be adversely affected by uncertainties and events around the world,
such as epidemics and pandemics, including the spread of infectious illness or other public health issues, natural disasters, terrorism
and other conflicts, social unrest, political developments, and changes in government policies, taxation, restrictions on foreign investment
and currency repatriation, currency fluctuations and other developments in the laws and regulations of the countries in which they are
invested. Assets of issuers, including those held in the Fund’s or an Underlying Fund’s portfolio, could be direct targets,
or indirect casualties, of an act of terrorism.
International
war or conflicts (including Russia's invasion of Ukraine and the Israel-Hamas war) and geopolitical events in foreign countries, along
with instability in regions such as Asia, Eastern Europe and the Middle East, possible terrorist attacks in the United States or around
the world, and other similar events could adversely affect the U.S. and foreign financial markets. As a result, whether or not the Fund
invests in securities located in or with significant exposure to the countries directly affected, the value and liquidity of the Fund's
investments may be negatively impacted. Further, due to closures of certain markets and restrictions on trading certain securities, the
value of certain securities held by the Fund could be significantly impacted.
In
early 2020, an outbreak of a novel strain of coronavirus (COVID-19) emerged globally. The outbreak of COVID-19 and its variants resulted
in closing international borders, enhanced health screenings, healthcare service preparation and delivery, quarantines, cancellations,
disruptions to supply chains and customer activity, as well as general public concern and uncertainty. This outbreak negatively affected
the worldwide economy, as well as the economies of individual countries, the financial health of individual companies and the market
in general in significant and unforeseen ways. On May 5, 2023, the World Health Organization declared the end of the global emergency
status for COVID-19. The United States subsequently ended the federal COVID-19 public health emergency declaration effective May 11,
2023. Although vaccines for COVID-19 are widely available, it is unknown how long certain circumstances related to the pandemic will
persist, whether they will reoccur in the future and what additional implications may follow from the pandemic. The impact of these events
and other epidemics or pandemics in the future could adversely affect Fund performance.
Climate
change poses long-term threats to physical and biological systems. Potential hazards and risks related to climate change for a State
or municipality include, among other things, wildfires, rising sea levels, more severe coastal flooding and erosion hazards, and more
intense storms. Storms in recent years have demonstrated vulnerabilities in a State’s or municipality’s infrastructure to
extreme weather events. Climate change risks, if they materialize, can adversely impact a State’s or municipality’s financial
plan in current or future years. In addition, economists and others have expressed increasing concern about the potential effects of
global climate change on property and security values. A rise in sea levels, an increase in powerful windstorms and/or a climate-driven
increase in sea levels or flooding could cause coastal properties to lose value or become unmarketable altogether. Economists warn that,
unlike previous declines in the real estate market, properties in affected coastal zones may not ever recover their value. Large wildfires
driven by high winds and prolonged drought may devastate businesses and entire communities and may be very costly to any business found
to be responsible for the fire. Regulatory changes and divestment movements tied to concerns about climate change could adversely affect
the value of certain land and the viability of industries whose activities or products are seen as accelerating climate change.
These
losses could adversely affect the bonds of municipalities that depend on tax or other revenues and tourist dollars generated by affected
properties, and insurers of the property and/or of municipal securities. Since property and security values are driven largely by buyers’
perceptions, it is difficult to know the time period over which these market effects might unfold.
Defensive
Measures
The
Fund may invest up to 100% of its assets in cash, cash equivalents and short-term investments as a defensive measure in response to adverse
market conditions or opportunistically at the discretion of the Adviser or Subadviser. During these periods, the Fund may not be pursuing
its investment objectives.
Structural
Risks:
Market
Discount
Common
stock of closed-end funds frequently trades at a discount from its NAV. This risk would also apply to the Fund’s investments in
closed-end funds.
Limited
Term and Eligible Tender Offer Risk
The
Fund is scheduled to terminate on or about the Termination Date (unless it is converted to a perpetual fund). The Fund is not a so
called “target date” or “life cycle” fund whose asset allocation becomes more conservative over time as its target
date, often associated with retirement, approaches. In addition, the Fund is not a “target term” fund whose investment objective
is to return its original NAV on the termination date.
The
Fund is not required to conduct an Eligible Tender Offer. If the Fund conducts an Eligible Tender Offer, there can be no assurance that
the number of tendered Common Shares would not result in the Fund’s net assets totaling less than the Termination Threshold, in
which case the Eligible Tender Offer will be terminated, no Common Shares will be repurchased pursuant to the Eligible Tender Offer and
the Fund will terminate on or before the Termination Date (subject to possible extensions). Following the completion of an Eligible Tender
Offer in which the number of tendered Common Shares would result in the Fund’s net assets equaling or totaling greater than the
Termination Threshold, the Board of Directors may eliminate the limited term structure of the Fund upon the affirmative vote of a majority
of the Board of Directors and without a vote of Common Shareholders. Thereafter, the Fund will have a perpetual existence. The Fund is
not required to conduct additional tender offers following an Eligible Tender Offer and conversion to a perpetual structure. Therefore,
remaining Common Shareholders may not have another opportunity to participate in a tender offer or exchange their Common Shares for the
then-existing NAV per Common Share. Common Shares of closed-end management investment companies frequently trade at a discount from their
NAV and as a result remaining Common Shareholders may only be able to sell their Common Shares at a discount to NAV. See “—Market
Discount.” The Adviser may have a conflict of interest in recommending to the Board of Directors that the limited term structure
be eliminated and the Fund have a perpetual existence.
In
order to pay for Common Shares to be purchased in an Eligible Tender Offer or to liquidate the portfolio in connection with the Fund’s
termination, the Fund will be required to sell its assets. As a result, the Fund may be required to sell portfolio securities when it
otherwise would not, including at times when market conditions are not favorable, which may cause the Fund to lose money. The Fund may
receive proceeds from the disposition of portfolio investments that are less than the valuations of such investments by the Fund and,
in particular, losses from the disposition of illiquid securities may be significant. The disposition of portfolio investments by the
Fund could also cause market prices of such instruments, and hence the NAV and market price of the Common Shares, to decline. In addition,
disposition of portfolio investments will cause the Fund to incur increased brokerage and related transaction expenses.
Moreover,
in conducting such portfolio transactions, the Fund may need to deviate from its investment policies and may not achieve its investment
objectives. The Fund’s portfolio composition may change as its portfolio holdings mature or are called or sold in anticipation
of an Eligible Tender Offer or the Termination Date. During such period(s), it is possible that the Fund will hold a greater percentage
of its total assets in shorter term and lower yielding securities and cash and cash equivalents than it would otherwise, which may impede
the Fund’s ability to achieve its investment objectives and adversely impact the Fund’s performance and distributions to
Common Shareholders, which may in turn adversely impact the market value of the Common Shares. In addition, the Fund may be required
to reduce its leverage, which could also adversely impact its performance. The additional cash or cash equivalents held by the Fund could
be obtained through reducing the Fund’s distributions to Common Shareholders and/or holding cash in lieu of reinvesting, which
could limit the ability of the Fund to participate in new investment opportunities. The Fund does not limit its investments to securities
having a maturity date prior to or around the Termination Date, which may exacerbate the foregoing risks and considerations. A Common
Shareholder may be subject to the foregoing risks over an extended period of time, particularly if the Fund conducts an Eligible Tender
Offer and is also subsequently terminated by or around the Termination Date.
If
the Fund’s tax basis for the investments sold is less than the sale proceeds, the Fund will recognize capital gains, which the
Fund will be required to distribute to Common Shareholders. In addition, the Fund’s purchase of tendered Common Shares pursuant
to a tender offer will have tax consequences for tendering Common Shareholders and may have tax consequences for non-tendering Common
Shareholders. The purchase of Common Shares by the Fund pursuant to a tender offer will have the effect of increasing the proportionate
interest in the Fund of non-tendering Common Shareholders. All Common Shareholders remaining after a tender offer will be subject to
proportionately higher expenses due to the reduction in the Fund’s total assets resulting from payment for the tendered Common
Shares. A reduction in net assets, and the corresponding increase in the Fund’s expense ratio, could result in lower returns and
put the Fund at a disadvantage relative to its peers and potentially cause the Fund to trade at a wider discount to NAV than it otherwise
would. Such reduction in the Fund’s total assets may also result in less investment flexibility, reduced diversification and greater
volatility for the Fund, and may have an adverse effect on the Fund’s investment performance. Moreover, the resulting reduction
in the number of outstanding Common Shares could cause the Common Shares to become thinly traded or otherwise adversely impact the secondary
market trading of such shares. Furthermore, the portfolio of the Fund following an Eligible Tender Offer could be significantly different
and, therefore, Common Shareholders retaining an investment in the Fund could be subject to greater risk. For example, the Fund may be
required to sell its more liquid, higher quality portfolio investments to purchase Common Shares that are tendered in an Eligible Tender
Offer, which would leave a less liquid, lower quality portfolio for remaining shareholders. The prospects of an Eligible Tender Offer
may attract arbitrageurs who would purchase the Common Shares prior to the tender offer for the sole purpose of tendering those shares
which could have the effect of exacerbating the risks described herein for shareholders retaining an investment in the Fund following
an Eligible Tender Offer.
In
connection with its termination, the Fund may distribute the proceeds from the disposition of portfolio securities in one or more liquidating
distributions prior to the final liquidation, which may cause fixed expenses to increase when expressed as a percentage of assets under
management. Upon a termination, it is anticipated that the Fund will have distributed substantially all of its net assets to Common Shareholders,
although securities for which no market exists, securities trading at depressed prices, if any, and assets recovered following termination
may be placed in a liquidating trust. Common Shareholders will bear the costs associated with establishing and maintaining a liquidating
trust, if necessary. Securities placed in a liquidating trust may be held for an indefinite period of time until they can be sold or
pay out all of their cash flows. The Fund cannot predict the amount, if any, of securities that will be required to be placed in a liquidating
trust.
Investment
Style Risk
The
Fund is managed by allocating the Fund’s assets between two different strategies as described in this Prospectus. This may cause
the Fund to underperform funds that do not limit their investments to these two strategies during periods when these strategies underperform
other types of investments.
Not
a Complete Investment Program
The
Fund is intended for investors seeking current income and overall total return over the long-term, and is not intended to be a short-term
trading vehicle. An investment in the Common Shares of the Fund should not be considered a complete investment program. Each investor
should take into account the Fund’s investment objectives and other characteristics as well as the investor’s other investments
when considering an investment in the Common Shares. An investment in the Fund may not be appropriate for all investors.
Multi-Manager
Risk
Fund
performance is dependent upon the success of the Adviser and the Subadviser in implementing the Fund’s investment strategies in
pursuit of its investment objectives. To a significant extent, the Fund’s performance will depend on the success of the Adviser’s
methodology in allocating the Fund’s assets between each of the principal investment strategies. The Adviser’s and the Subadviser’s
investment styles may not always be complementary, which could adversely affect the performance of the Fund. Because the Adviser and
the Subadviser each makes investment decisions independently, it is possible that the Adviser and the Subadviser may, at any time, take
positions that in effect may be opposite of positions taken by each other. In such cases, the Fund will incur brokerage and other transaction
costs without accomplishing any net investment results. The multi-manager approach could increase the Fund’s portfolio turnover
rates, which may result in higher levels of realized capital gains or losses with respect to the Fund’s portfolio securities, and
higher broker commissions and other transaction costs. The trading costs and tax consequences associated with portfolio turnover may
adversely affect the Fund’s performance. See “—Investment Style Risk.”
In
addition, the Subadviser’s implementation of the Municipal Bond Income Strategy means that, at any point in time, the Subadviser
will manage 35-75% of the Fund’s Managed Assets. To the extent the Subadvisory Agreement with the Subadviser is terminated or not
renewed, Fund performance will become dependent on the Adviser or a new subadviser successfully implementing the Municipal Bond Income
Strategy. There is no assurance that a suitable replacement to the Subadviser could be found if the Subadvisory Agreement is terminated
or not renewed. Any such termination or non-renewal of the Subadvisory Agreement can have an adverse effect on an investment in the Fund.
In addition, to the extent the Adviser retains the responsibility of implementing the Municipal Bond Income Strategy of the Fund following
the termination or non-renewal of the Subadvisory Agreement, the approval of the Fund’s stockholders will likely not be required.
Asset
Allocation Risk
To
the extent that the Adviser’s asset allocation between the Fund’s principal investment strategies may fail to produce the
intended result, the Fund’s return may suffer. Additionally, the potentially active asset allocation style of the Fund may lead
to changing allocations over time and represent a risk to investors who target fixed asset allocations.
Leverage
Risks
Leverage
is a speculative technique that exposes the Fund to greater risk and increased costs than if it were not implemented. Increases and decreases
in the value of the Fund’s portfolio will be magnified when the Fund uses leverage. As a result, leverage may cause greater changes
in the Fund’s NAV. The leverage costs may be greater than the Fund’s return on the underlying investments made from the proceeds
of leverage. The Fund’s leveraging strategy may not be successful. See “Use of Leverage.”
If
the Fund were to utilize leverage in the form of borrowing, it anticipates that the money borrowed for investment purposes will incur
interest based on shorter-term interest rates that would be periodically reset. So long as the Fund’s portfolio provides a higher
rate of return, net of expenses, than the interest rate on borrowed money, as reset periodically, the leverage may cause the holders
of Common Shares to receive a higher current rate of return than if the Fund were not leveraged. If, however, long-term and/or short-term
rates rise, the interest rate on borrowed money could exceed the rate of return on securities held by the Fund, reducing return to the
holders of Common Shares. Developments in the credit markets may adversely affect the ability of the Fund to borrow money for investment
purposes and may increase the costs of such borrowings, which would reduce returns to the holders of Common Shares.
In
addition to the foregoing, the use of leverage involves risks and special considerations for Common Shareholders, including:
| ● | the
likelihood of greater volatility of NAV, market price and dividend rate of the Common Shares
than a comparable portfolio without leverage; |
| ● | the
risk that fluctuations in interest rates on borrowings or on short-term debt or in the interest
or dividend rates on any debt securities or Preferred Shares that the Fund must pay will
reduce the return to the Common Shareholders; |
| ● | the
effect of leverage in a declining market, which is likely to cause a greater decline in the
NAV of the Common Shares than if the Fund were not leveraged, may result in a greater decline
in the market price of the Common Shares; |
| ● | when
the Fund uses financial leverage, the investment management fees payable to the Adviser and
the subadvisory fees payable by the Adviser to the Subadviser will be higher than if the
Fund did not use leverage. This may create a conflict of interest between the Adviser and
the Subadviser, on the one hand, and the holders of Common Shares, on the other; and |
| ● | leverage
may increase operating costs, which may reduce total return. |
The
use of leverage may limit the Fund’s flexibility and may require that the Fund sell other portfolio investments to pay Fund expenses,
to maintain assets in an amount sufficient to cover the Fund’s leveraged exposure or to meet other obligations at a time when it
may be disadvantageous to sell such assets.
Certain
types of borrowings by the Fund may result in the Fund being subject to covenants in credit agreements relating to asset coverage and
portfolio composition requirements. The Fund may be subject to certain restrictions on investments imposed by guidelines of one or more
rating agencies, which may issue ratings for the short-term debt securities or Preferred Shares issued by the Fund. These guidelines
may impose asset coverage or portfolio composition requirements that are more stringent than those imposed by the 1940 Act. The Adviser
does not believe that these covenants or guidelines will impede it from managing the Fund’s portfolio in accordance with the Fund’s
investment objectives and policies if the Fund were to utilize such leverage.
Leverage
risk would also apply to the Fund’s investments in Underlying Funds to the extent an Underlying Fund uses leverage. To the extent
the Fund uses leverage and invests in Underlying Funds that also use leverage, the risks associated with leverage will be magnified,
potentially significantly.
The
Fund currently anticipates that leverage will be obtained through the use of proceeds received from tender option bond transactions.
See “—Investment-Related Risks—Tender Option Bonds Risks.”
Portfolio
Turnover Risk
The
Fund’s annual portfolio turnover rate may vary greatly from year to year. High portfolio turnover may result in the realization
of net short-term capital gains by the Fund which, when distributed to holders of Common Shares, will be taxable as ordinary income.
In addition, a higher portfolio turnover rate results in correspondingly greater brokerage commissions and other transactional expenses
that are borne by the Fund. However, portfolio turnover rate is not considered a limiting factor in the execution of investment decisions
for the Fund. See “U.S. Federal Income Tax Matters.”
Potential
Conflicts of Interest Risk
The
Adviser, the Subadviser and the portfolio managers of the Fund have interests which may conflict with the interests of the Fund. In particular,
the Adviser and the Subadviser each manages and/or advises other investment funds or accounts with the same or similar investment objectives
and strategies as the Fund. As a result, the Adviser, the Subadviser and the Fund’s portfolio managers may devote unequal time
and attention to the management of the Fund and those other funds and accounts, and may not be able to formulate as complete a strategy
or identify equally attractive investment opportunities as might be the case if they were to devote substantially more attention to the
management of the Fund. The Adviser, the Subadviser and the Fund’s portfolio managers may identify a limited investment opportunity
that may be suitable for multiple funds and accounts, and the opportunity may be allocated among these several funds and accounts, which
may limit the Fund’s ability to take full advantage of the investment opportunity. Additionally, transaction orders may be aggregated
for multiple accounts for purpose of execution, which may cause the price or brokerage costs to be less favorable to the Fund than if
similar transactions were not being executed concurrently for other accounts. Furthermore, it is theoretically possible that a portfolio
manager could use the information obtained from managing a fund or account to the advantage of other funds or accounts under management,
and also theoretically possible that actions could be taken (or not taken) to the detriment of the Fund. At times, a portfolio manager
may determine that an investment opportunity may be appropriate for only some of the funds and accounts for which he or she exercises
investment responsibility, or may decide that certain of the funds and accounts should take differing positions with respect to a particular
security. In these cases, the portfolio manager may place separate transactions for one or more funds or accounts which may affect the
market price of the security or the execution of the transaction, or both, to the detriment or benefit of one or more other funds and
accounts. For example, a portfolio manager may determine that it would be in the interest of another account to sell a security that
the Fund holds, potentially resulting in a decrease in the market value of the security held by the Fund.
Conflicts
potentially limiting the Fund’s investment opportunities may also arise when the Fund and other clients of the Adviser or Subadviser
invest in, or even conduct research relating to, different parts of an issuer’s capital structure, such as when the Fund owns senior
debt obligations of an issuer and other clients own junior tranches of the same issuer. In such circumstances, decisions over whether
to trigger an event of default, over the terms of any workout, or how to exit an investment may result in conflicts of interest. In order
to minimize such conflicts, a portfolio manager may avoid certain investment opportunities that would potentially give rise to conflicts
with other clients of the Adviser or Subadviser (as applicable) or result in the Adviser or Subadviser receiving material, non-public
information, or the Adviser and Subadviser may enact internal procedures designed to minimize such conflicts, which could have the effect
of limiting the Fund’s investment opportunities. Additionally, if the Adviser or Subadviser acquires material non-public confidential
information in connection with its business activities for other clients, a portfolio manager or other investment personnel may be restricted
from purchasing securities or selling certain securities for the Fund or other clients.
The
portfolio managers also may engage in cross trades between funds and accounts, may select brokers or dealers to execute securities transactions
based in part on brokerage and research services provided to the Adviser or the Subadviser which may not benefit all funds and accounts
equally and may receive different amounts of financial or other benefits for managing different funds and accounts. The Adviser, the
Subadviser and their affiliates may provide more services to some types of funds and accounts than others.
The
Fund, Adviser and/or Subadviser (as applicable) have adopted policies and procedures that address the foregoing potential conflicts of
interest, including policies and procedures to address the allocation of investment opportunities, execution of portfolio transactions,
personal trading by employees and other potential conflicts of interest that are designed to ensure that all accounts of the Adviser
and Subadviser are treated equitably. There is no guarantee that the policies and procedures adopted by the Adviser, the Subadviser and
the Fund will be able to identify or mitigate the conflicts of interest that arise between the Fund and any other investment funds or
accounts that the Adviser and/or the Subadviser may manage or advise from time to time. For further information on potential conflicts
of interest, see “Management of the Fund—Conflicts of Interest” in the SAI.
In
addition, while the Fund is using leverage, the amount of the fees paid to the Adviser (and by the Adviser to the Subadviser) for investment
advisory and management services are higher than if the Fund did not use leverage because the fees paid are calculated based on the Fund’s
Managed Assets, which include assets purchased with leverage. Therefore, the Adviser and the Subadviser have a financial incentive to
leverage the Fund, which creates a conflict of interest between the Adviser and the Subadviser on the one hand and the Common Shareholders
of the Fund on the other.
Stockholder
Activism
Stockholder
activism, which could take many forms, including making public demands that the Fund consider certain strategic alternatives, engaging
in public campaigns to attempt to influence the Fund’s corporate governance and/or management, and commencing proxy contests to
attempt to elect the activists’ representatives or others to the Fund’s Board of Directors, or arise in a variety of situations,
has been increasing in the closed-end fund space recently. While the Fund is currently not subject to any stockholder activism, due to
the potential volatility of the Fund’s stock price and for a variety of other reasons, the Fund may in the future become the target
of stockholder activism. Stockholder activism could result in substantial costs and divert management’s and the Board’s attention
and resources from its business. Also, the Fund may be required to incur significant legal and other expenses related to any activist
stockholder matters. Further, the Fund’s stock price could be subject to significant fluctuation or otherwise be adversely affected
by the events, risks and uncertainties of any stockholder activism.
Cyber
Security Risk
With
the increased use of the Internet and because information technology (“IT”) systems and digital data underlie most of the
Fund’s operations, the Fund and the Adviser, Subadviser, transfer agent, and other service providers and the vendors of each (collectively
“Service Providers”) are exposed to the risk that their operations and data may be compromised as a result of internal and
external cyber-failures, breaches or attacks (“Cyber Risk”). This could occur as a result of malicious or criminal cyber-attacks.
Cyber-attacks include actions taken to: (i) steal or corrupt data maintained online or digitally, (ii) gain unauthorized access to or
release confidential information, (iii) shut down the Fund or Service Provider website through denial-of-service attacks, or (iv) otherwise
disrupt normal business operations. However, events arising from human error, faulty or inadequately implemented policies and procedures
or other systems failures unrelated to any external cyber-threat may have effects similar to those caused by deliberate cyber-attacks.
Successful
cyber-attacks or other cyber-failures or events affecting the Fund or its Service Providers may adversely impact the Fund or its shareholders
or cause an investment in the Fund to lose value. For instance, such attacks, failures or other events may interfere with the processing
of shareholder transactions, impact the Fund’s ability to calculate its NAV, cause the release of private shareholder information
or confidential Fund information, impede trading, or cause reputational damage. Because the Fund does not offer to redeem its Common
Shares at NAV, damage to the reputation of the Fund or its service providers could cause a decline in the value of the Fund’s Common
Shares, perhaps suddenly. Such attacks, failures or other events could also subject the Fund or its Service Providers to regulatory fines,
penalties or financial losses, reimbursement or other compensation costs, and/or additional compliance costs. Insurance protection and
contractual indemnification provisions may be insufficient to cover these losses. The Fund or its Service Providers may also incur significant
costs to manage and control Cyber Risk. While the Fund and its Service Providers have established IT and data security programs and have
in place business continuity plans and other systems designed to prevent losses and mitigate Cyber Risk, there are inherent limitations
in such plans and systems, including the possibility that certain risks have not been identified or that cyber-attacks may be highly
sophisticated.
Cyber
Risk is also present for issuers of securities or other instruments in which the Fund invests, which could result in material adverse
consequences for such issuers, and may cause a Fund’s investment in such issuers to lose value.
Secondary
Market for the Common Shares
The
issuance of Common Shares through the Plan may have an adverse effect on the secondary market for the Common Shares. The increase in
the number of outstanding Common Shares resulting from the issuances pursuant to the Plan and the discount to the market price at which
such Common Shares may be issued, may put downward pressure on the market price for the Common Shares. When the Common Shares are trading
at a premium, the Fund may also issue Common Shares that may be sold through private transactions effected on the NYSE or through broker-dealers.
The increase in the number of outstanding Common Shares resulting from these offerings may put downward pressure on the market price
for Common Shares.
Anti-Takeover
Provisions
Maryland
law and the Fund’s Charter and Bylaws include provisions that could limit the ability of other entities or persons to acquire control
of the Fund or to convert the Fund to open-end status, including the adoption of a staggered Board of Directors and the supermajority
voting requirements discussed herein. These provisions could deprive the holders of Common Shares of opportunities to sell their Common
Shares at a premium over the then current market price of the Common Shares or at NAV. See “Certain Provisions of the Fund’s
Charter and Bylaws and of Maryland Law.” This risk would also apply to many of the Fund’s investments in Underlying Funds.
Risks
Associated with Additional Offerings
There
are risks associated with offerings of additional common or preferred shares of the Fund. The voting power of current shareholders will
be diluted to the extent that current shareholders do not purchase shares in any future offerings of shares or do not purchase sufficient
shares to maintain their percentage interest. In addition, the sale of shares in an offering may have an adverse effect on prices in
the secondary market for the Fund’s shares by increasing the number of shares available, which may put downward pressure on the
market price of the Fund’s Shares. These sales also might make it more difficult for the Fund to sell additional equity securities
in the future at a time and price the Fund deems appropriate.
In
the event any additional series of fixed rate preferred shares are issued and such shares are intended to be listed on an exchange, prior
application will have been made to list such shares. During an initial period, which is not expected to exceed 30 days after the date
of its initial issuance, such shares may not be listed on any securities exchange. During such period, the underwriters may make a market
in such shares, although they will have no obligation to do so. Consequently, an investment in such shares may be illiquid during such
period. Fixed rate preferred shares may trade at a premium to or discount from liquidation value.
There
are risks associated with an offering of Rights (in addition to the risks discussed herein related to the offering of shares and preferred
shares). 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. In addition to the
economic dilution described above, if a shareholder does not exercise all of their Rights, the shareholder will incur voting dilution
as a result of the Rights offering. This voting dilution will occur because the 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 or preferred shares purchasable upon exercise
of Rights being less attractive to investors at the conclusion of the subscription period. This may reduce or eliminate the value of
the Rights. If investors exercise only a portion of the rights, the number of shares issued may be reduced, and the shares may trade
at less favorable prices than larger offerings for similar securities. Rights issued by the Fund may be transferable or non-transferable
rights.
MANAGEMENT
OF THE FUND
Board
of Directors
The
Fund’s Board of Directors has overall responsibility for management of the Fund. The Board of Directors decides upon matters of
general policy and generally oversees the actions of the Adviser, the Subadviser and the other service providers of the Fund. The name
and business address of the Board of Directors and officers of the Fund, and their principal occupations and other affiliations during
the past five years, are set forth under “Board Members and Officers” in the SAI.
Investment
Adviser
RiverNorth
Capital Management, LLC (“RiverNorth” or the “Adviser”), a registered investment adviser, is the Fund’s
investment adviser and is responsible for the day-to-day management of the Fund’s Managed Assets allocated to the Tactical Municipal
Closed-End Fund Strategy, managing the Fund’s business affairs and providing certain administrative services. The Adviser is also
responsible for determining the Fund’s overall investment strategy and overseeing its implementation. Subject to the ranges noted
above, the Adviser determines the portion of the Fund’s Managed Assets to allocate to each strategy and may, from time to time,
adjust the allocations.
RiverNorth,
founded in 2000, is a wholly-owned subsidiary of RiverNorth Financial Holdings LLC and is located at 360 South Rosemary Avenue, Suite
1420, West Palm Beach, FL 33401. As of September 30, 2023, RiverNorth managed approximately $4.8 billion for registered open-end management
investment companies, registered closed-end management investment companies and private investment vehicles. See “Management of
the Fund” in the SAI.
Subadviser
MacKay
Shields LLC is the Fund’s subadviser and is responsible for the day-to-day management of the Fund’s Managed Assets allocated
to the Municipal Bond Income Strategy. The Subadviser is located at 1345 Avenue of the Americas, 43rd Floor, New York, New York 10105.
The Subadviser is registered with the SEC and as of September 30, 2023, had approximately $129.2 billion in assets under management.
The Subadviser was incorporated in 1969 as an independent investment advisory firm and was privately held until 1984 when it was acquired
by New York Life Insurance Company. The Subadviser is an indirect wholly owned subsidiary of New York Life Insurance Company.
Portfolio
Management
Patrick
W. Galley, CFA has been a co-portfolio manager of the Tactical Municipal Closed-End Fund Strategy for the Fund since its inception. Mr.
Galley is the Chief Executive Officer and Chief Investment Officer for the Adviser. Mr. Galley heads the Adviser’s research and
investment team and oversees all portfolio management activities at the Adviser. Mr. Galley also serves as the President and Chairman
of the RiverNorth Funds, a mutual fund complex for which RiverNorth serves as the investment adviser. Prior to joining the Adviser in
2004, he was most recently a Vice President at Bank of America in the Global Investment Bank’s Portfolio Management group, where
he specialized in analyzing and structuring corporate transactions for investment management firms in addition to closed-end and open-end
funds, hedge funds, funds of funds, structured investment vehicles and insurance/reinsurance companies. Mr. Galley graduated with honors
from Rochester Institute of Technology with a B.S. in Finance. He has received the Chartered Financial Analyst (CFA) designation, is
a member of the CFA Institute and is a member of the CFA Society of Chicago.
Stephen
O’Neill, CFA has been a co-portfolio manager of the Tactical Municipal Closed-End Fund Strategy for the Fund since its inception.
Mr. O’Neill conducts qualitative and quantitative analysis of closed-end funds and their respective asset classes at RiverNorth.
Prior to joining RiverNorth in 2007, Mr. O’Neill was most recently an Assistant Vice President at Bank of America in the Global
Investment Bank’s Portfolio Management group. At Bank of America, he specialized in the corporate real estate, asset management,
and structured finance industries. Mr. O’Neill graduated magna cum laude from Miami University in Oxford, Ohio with a B.S. in Finance.
Mr. O’Neill has received the Chartered Financial Analyst (CFA) designation, is a member of the CFA Institute, and is a member of
the CFA Society of Chicago.
Robert
DiMella, CFA has been a co-portfolio manager of the Municipal Bond Income Strategy for the Fund since its inception. Mr. DiMella is an
Executive Managing Director of the Subadviser. He has managed the MainStay Tax Free Bond Fund since 2009, the MainStay High Yield Municipal
Bond Fund since 2010, the MainStay New York Tax Free Opportunities Fund since May 2012, the MainStay Defined Term Municipal Opportunities
Fund since 2012, the MainStay California Tax Free Opportunities Fund since 2013 and the MainStay Tax Advantaged Short Term Bond Fund
since June 2015. Previously, he co-founded Mariner Municipal Managers LLC (2007 to 2009). Prior to BlackRock’s merger with Merrill
Lynch Investment Managers (“MLIM”), he served as a Senior Portfolio Manager and Managing Director of the Municipal Products
Group. Mr. DiMella earned his Master’s degree at Rutgers University Business School and a Bachelors Degree at the University of
Connecticut, and he has received the CFA designation.
John
Loffredo, CFA has been a co-portfolio manager of the Municipal Bond Income Strategy for the Fund since its inception. Mr. Loffredo is
an Executive Managing Director of the Subadviser. Mr. Loffredo has managed the MainStay Tax Free Bond Fund since 2009, the MainStay High
Yield Municipal Bond Fund since 2010, the MainStay New York Tax Free Opportunities Fund since 2012, the MainStay Defined Term Municipal
Opportunities Fund since 2012, the MainStay California Tax Free Opportunities Fund since 2013 and the MainStay Tax Advantaged Short Term
Bond Fund since June 2015. He has been a municipal portfolio manager and/or municipal analyst on Wall Street since 1990, with a broad
range of portfolio management and analytic experience in the municipal markets. He previously co-founded Mariner Municipal Managers LLC
(2007 to 2009). Prior to BlackRock’s merger with MLIM, he served as Chief Investment Officer of the Municipal Products Group of
MLIM. Mr. Loffredo graduated cum laude with an MBA from Utah State University where he was a Harry S. Truman Scholar. He also has a Certificate
of Public Management from Boston University, and he has received the CFA designation.
Michael
Petty has been a co-portfolio manager of the Municipal Bond Income Strategy for the Fund since its inception. Mr. Petty is a Senior Managing
Director of the Subadviser. Mr. Petty has managed the MainStay High Yield Municipal Bond Fund since 2010, the MainStay Tax Free Bond
Fund since 2011, the MainStay New York Tax Free Opportunities Fund since 2012, the MainStay Defined Term Municipal Opportunities Fund
since 2012, the MainStay California Tax Free Opportunities Fund since 2013 and the MainStay Tax Advantaged Short Term Bond Fund since
June 2015. Before joining the Subadviser in 2009, he was a Portfolio Manager for Mariner Municipal Managers. He has been a portfolio
manager on Wall Street since 1992, and has worked in the municipal products market since 1985. Mr. Petty has a broad array of trading,
portfolio management, and sales experience. Prior to joining Mariner Municipal Managers, he was a Senior Portfolio Manager at Dreyfus
Corporation from 1997 to 2009. From 1992 to 1997, he served as a Portfolio Manager for Merrill Lynch Investment Managers. Mr. Petty graduated
from Hobart College with a B.S. in Mathematics and Economics.
Scott
Sprauer has been a co-portfolio manager of the Municipal Bond Income Strategy for the Fund since its inception. Mr. Sprauer is a Senior
Managing Director of the Subadviser. He joined the Subadviser in 2009 as a Portfolio Manager in the Municipal Bond Division. He has managed
the MainStay New York Tax Free Opportunities Fund since 2012, the MainStay Defined Term Municipal Opportunities Fund since 2012, the
MainStay California Tax Free Opportunities Fund since 2013, the MainStay High Yield Municipal Bond Fund and MainStay Tax Free Bond Fund
since February 2014 and the MainStay Tax Advantaged Short Term Bond Fund since June 2015. Prior to joining the Subadviser, he was the
Head Trader, Fixed Income at Financial Guaranty Insurance Company from 2006 to 2009. He has a BSBA from Villanova University, and has
been in the investment management industry since 1991.
David
Dowden has been a co-portfolio manager of the Municipal Bond Income Strategy for the Fund since its inception. Mr. Dowden is a Managing
Director of the Subadviser. He joined the Subadviser in 2009 as a Portfolio Manager in the Municipal Bond Division. He has managed the
MainStay New York Tax Free Opportunities Fund since 2012, the MainStay Defined Term Municipal Opportunities Fund since 2012, the MainStay
California Tax Free Opportunities Fund since 2013, the MainStay High Yield Municipal Bond Fund and MainStay Tax Free Bond Fund since
February 2014 and the MainStay Tax Advantaged Short Term Bond Fund since June 2015. Prior to joining the Subadviser, he was the Chief
Investment Officer at Financial Guaranty Insurance Company from 2006 to 2009. He has a BA from Brown University and an MBA from Columbia
University. He has been in the investment management industry since 1989.
Robert
Burke has been a co-portfolio manager of the Municipal Bond Income Strategy for the Fund since its inception. Mr. Burke is a Managing
Director of the Subadviser. He joined the Subadviser in July 2017. Before joining the Subadviser, Mr. Burke held various leadership roles
in capital markets, spending the majority of his time in the municipal markets. In his last role working for Bank of America Merrill
Lynch, Mr. Burke managed the Global Futures, Derivatives Clearing and Foreign Exchange Prime Brokerage businesses. Mr. Burke started
his career at Bank of America Merrill Lynch in the municipal bond department covering insurance, hedge fund, and asset management clients.
He holds a Masters of Business Administration from the Gabelli School at Fordham University, and a Bachelor of Arts with High Honors
in Economics from Colgate University. Mr. Burke has received the CFA designation. He has been in the investment management industry since
1985.
John
Lawlor has been a co-portfolio manager of the Municipal Bond Income Strategy for the Fund since its inception. He is a Managing Director
of the Subadviser. Mr. Lawlor joined MacKay Shields in 2016. Before joining the firm, he was Vice President Equity Sales at Deutsche
Bank and was previously at Bank of America Merrill Lynch. From 1997-2011, he was a senior trader on the floor of the New York Stock Exchange.
Mr. Lawlor has a broad and diverse set of skills in sales, trading, and electronic trading platforms. He earned a Bachelor’s degree
in Finance from Lehigh University and has a Masters of Public Policy and Administration from American University. He has been in the
financial services industry since 1997.
Michael
Denlinger, CFA has been a co-portfolio manager of the Municipal Bond Income Strategy for the Fund since its inception. Mr. Denlinger
joined MacKay Shields in 2019 and is currently a Managing Director. Prior to joining MacKay Shields, Mr. Denlinger was an institutional
municipal credit trader at Bank of America Merrill Lynch with a primary focus on taxable and healthcare securities. Prior to trading
credit, he was a high grade municipal trader. Mr. Denlinger earned a Bachelor’s degree in Economics from Johns Hopkins University
in 2014. Mr. Denlinger is a CFA® charterholder and has been in the financial services industry since 2014.
The
Fund’s SAI provides information about the compensation received by the portfolio managers of the Fund, other accounts that they
manage and their ownership of the Fund’s equity securities.
Investment
Advisory and Subadvisory Agreements
Pursuant
to an Investment Advisory Agreement, the Adviser is responsible for managing the Fund’s affairs, subject at all times to the general
oversight of the Fund’s Board of Directors. The Fund has agreed to pay the Adviser a management fee payable on a monthly basis
at the annual rate of 1.40% of the Fund’s average daily Managed Assets for the services it provides. This management fee paid by
the Fund to the Adviser is essentially an all-in fee structure (the “unified management fee”) and, as part of the unified
management fee, the Adviser provides or causes to be furnished all supervisory and administrative and other services reasonably necessary
for the operation of the Fund, except (unless otherwise described in this Prospectus or otherwise agreed to in writing), the Fund pays,
in addition to the unified management fee, taxes and governmental fees, if any, levied against the Fund; brokerage fees and commissions
and other portfolio transaction expenses incurred by or for the Fund; costs, including interest expenses, of borrowing money or engaging
in other types of leverage financing including, without limit, through the use by the Fund of tender option bond transactions; costs,
including dividend and/or interest expenses and other costs (including, without limit, offering and related legal costs, fees to brokers,
fees to auction agents, fees to transfer agents, fees to ratings agencies and fees to auditors associated with satisfying ratings agency
requirements for preferred shares or other securities issued by the Fund and other related requirements in the Fund’s organizational
documents) associated with the Fund’s issuance, offering, redemption and maintenance of preferred shares or other instruments (such
as the use of tender option bond transactions) for the purpose of incurring leverage; fees and expenses of any Underlying Funds in which
the Fund invests; dividend and interest expenses on short positions taken by the Fund; fees and expenses, including travel expenses and
fees and expenses of legal counsel retained for their benefit, of directors of the Fund who are not officers, employees, partners, shareholders
or members of the Adviser or its affiliates; fees and expenses associated with and incident to shareholder meetings and proxy solicitations
involving contested elections of directors, shareholder proposals or other non-routine matters that are not initiated or proposed by
the Adviser; legal, marketing, printing, accounting and other expenses associated with any future share offerings, such as rights offerings
and shelf offerings, following the Fund’s initial offering; expenses associated with tender offers (other than any Eligible Tender
Offer) and other share repurchases and redemptions; and other extraordinary expenses, including extraordinary legal expenses, as may
arise, including, without limit, expenses incurred in connection with litigation, proceedings, other claims and the legal obligations
of the Fund to indemnify its directors, officers, employees, shareholders, distributors and agents with respect thereto.
Pursuant
to a Subadvisory Agreement, the Adviser has delegated daily management of the Fund’s Managed Assets allocated to the Municipal
Bond Income Strategy to the Subadviser, who is paid by the Adviser from the unified management fee and not the Fund. The Adviser (and
not the Fund) has agreed to pay the Subadviser a subadvisory fee payable on a monthly basis at the annual rate of 0.20% of the Fund’s
average daily Managed Assets for the service it provides.
Because
the fees received by the Adviser and the Subadviser are based on the Managed Assets of the Fund, the Adviser and the Subadviser have
a financial incentive for the Fund to use leverage, which may create a conflict of interest between the Adviser and the Subadviser, on
the one hand, and the holders of Common Shares, on the other. Because leverage costs are borne by the Fund at a specified interest rate,
the Fund’s investment management fees and other expenses, including expenses incurred as a result of any leverage, are paid only
by Common Shareholders and not by holders of Preferred Shares or through borrowings. See “Use of Leverage.”
A
discussion of the basis for the Board of Directors’ approval of the Fund’s Investment Advisory and Subadvisory Agreements
is available in the Fund’s annual report to shareholders for the fiscal period ended June 30, 2022. The basis for subsequent continuations
of these agreements will be provided in annual or semi-annual reports to shareholders for the periods during which such continuations
occur.
NET
ASSET VALUE
NAV
is determined daily as of the close of the regular trading session on the NYSE (usually 4:00 p.m. Eastern time). NAV is calculated by
dividing the value of all of the securities and other assets of the Fund, less the liabilities (including accrued expenses and indebtedness)
and the aggregate liquidation value of any outstanding Preferred Shares, by the total number of Common Shares outstanding.
The
Fund utilizes an independent pricing service approved by the Board of Directors to value its Municipal Bond investments. The Fund’s
Underlying Fund investments are generally valued at their market value using market quotations. The Fund may use independent pricing
services to provide market quotations. Prices obtained from independent pricing services use various observable inputs and assumptions,
including, but not limited to, information provided by broker-dealers, pricing formulas, such as dividend discount models, option valuation
formulas, estimates of market values obtained from yield data relating to investments or securities with similar characteristics and
discounted cash flow models that might be applicable. In valuing Municipal Bonds, the pricing services may consider, among other factors,
the yields or prices of municipal securities of comparable quality, type of issue, coupon, maturity and rating and the obligor’s
credit characteristics considered relevant by the pricing service. If a market valuation for a security is unavailable or deemed to be
an unreliable indicator of current market value, the Fund will seek to obtain a broker quote from an external data vendor or directly
from broker-dealers. Certain fixed income securities purchased on a delayed delivery basis are marked-to-market daily until settlement
at the forward settlement date. Short-term investments having a maturity of 60 days or less are generally valued at amortized cost; however,
securities with a demand feature exercisable within seven days are generally valued at par. Exchange-traded options, futures and options
on futures are valued at the settlement price determined by the relevant exchange. If market quotations are not available or, in the
Adviser’s opinion, market quotations do not reflect market value, or if an event occurs after the close of trading on the domestic
or foreign exchange or market on which the security is principally traded (but prior to the time as of which the NAV is calculated) that
materially affects market value, the security will be valued at fair value by the Adviser, as valuation designee, according to policies
approved by the Board of Directors. For example, if trading in a portfolio security is halted and does not resume before the Fund calculates
its NAV, the security may need to be fair valued using the Fund’s fair value pricing policies. Fair valuation involves subjective
judgments and it is possible that the fair value determined for a security may differ materially from the value that could be realized
upon the sale of the security. The Fund invests in Underlying Funds. The Fund’s NAV is calculated based, in part, upon the market
prices of the Underlying Funds in its portfolio, and the prospectuses of those companies explain the circumstances under which they will
use fair value pricing and the effects of doing so.
DIVIDENDS
AND DISTRIBUTIONS
The
Fund has implemented a level distribution policy (the “Level Distribution Policy). Under the Level Distribution Policy, the Fund
intends to make monthly distributions to common shareholders at a constant and fixed (but not guaranteed) rate (which is annually reset)
equal to 6.75% of the average of the Fund’s NAV per share (the “Distribution Amount”) as reported for the final five
trading days of the preceding calendar year. The Distribution Amount disclosed is as of the date of this Prospectus. The Board may amend
the Level Distribution Policy, the Distribution Amount or distribution intervals, or the Fund may cease distributions entirely, at any
time, without prior notice to common shareholders. The Fund’s intention under the Level Distribution Policy is that monthly distributions
paid to common shareholders throughout a calendar year will be at least equal to the Distribution Amount (plus any additional amounts
that may be required to be included in a distribution for federal or excise tax purposes).
Under
the Level Distribution Policy, to the extent that sufficient investment income is not available on a monthly basis, the Fund’s
distributions could consist of return of capital in order to maintain the distribution rate. The amount treated as a return of capital
will reduce a shareholder’s adjusted basis in the shareholder’s shares, thereby increasing the potential gain or reducing
the potential loss on the sale of shares. Investors should not make any conclusions about the Fund’s investment performance from
the amount of the Fund’s distributions or from the terms of the Fund’s Level Distribution Policy.
It
is expected that the Fund’s distributions will generally be treated as tax-exempt income for purposes of regular U.S. federal income
tax; however, a portion of the Fund’s distributions may (i) be subject to U.S. federal income tax and such distributions will generally
be subject to state and local taxes, (ii) be includable in taxable income for purposes of the Federal alternative minimum tax, and (iii)
constitute a return of capital. For example, the Fund may invest up to 20% of the Managed Assets allocated to the Municipal Bond Income
Strategy in Municipal Bonds that pay interest that may be includable in taxable income for purposes of the Federal alternative minimum
tax. Moreover, the Underlying Funds in which the Fund invests pursuant to the Tactical Municipal Closed-End Fund Strategy may themselves
invest in municipal bonds that pay interest that may be includable in taxable income for purposes of the Federal alternative minimum
tax.
The
Fund will distribute to Common Shareholders at least annually all or substantially all of its investment company taxable income and net
exempt interest income after the payment of dividends and interest, if any, owed with respect to any outstanding Preferred Shares or
other forms of leverage utilized by the Fund. The Fund intends to pay any capital gains distributions at least annually. If the Fund
realizes a long-term capital gain, it will be required to allocate such gain between the Common Shares and any Preferred Shares issued
by the Fund in proportion to the total dividends paid to each class for the year in which the income is realized. A distribution of an
amount in excess of the Fund’s current and accumulated earnings and profits will be treated by a Common Shareholder as a return
of capital which is applied against and reduces the Common Shareholder’s tax basis in his or her Common Shares. To the extent that
the amount of any distribution exceeds the Common Shareholder’s basis in his or her shares, the excess will be treated by the Common
Shareholder as gain from a sale or exchange of the Common Shares.
Under
the 1940 Act, the Fund may not declare any dividend or other distribution upon any class of its capital shares, or purchase any such
capital shares, unless the aggregate indebtedness of the Fund has, at the time of the declaration of any such dividend or distribution
or at the time of any such purchase, an asset coverage of at least 300% after deducting the amount of such dividend, distribution, or
purchase price, as the case may be.
While
any Preferred Shares are outstanding, the Fund may not declare any cash dividend or other distribution on its Common Shares, unless at
the time of such declaration, (i) all accumulated preferred dividends have been paid and (ii) the NAV of the Fund’s portfolio (determined
after deducting the amount of such dividend or other distribution) is at least 200% of the liquidation value of the outstanding Preferred
Shares (expected to be equal to the original purchase price per share plus any accumulated and unpaid dividends thereon).
In
addition to the limitations imposed by the 1940 Act described above, certain lenders may impose additional restrictions on the payment
of dividends or distributions on the Common Shares in the event of a default on the Fund’s borrowings. If the Fund’s ability
to make distributions on its Common Shares is limited, such limitations could, under certain circumstances, impair the ability of the
Fund to maintain its qualification for federal income tax purposes as a regulated investment company, which would have adverse tax consequences
for shareholders. See “Use of Leverage” and “U.S. Federal Income Tax Matters.”
DIVIDEND
REINVESTMENT PLAN
The
Fund has an automatic dividend reinvestment plan commonly referred to as an “opt-out” plan. Unless the registered owner of
Common Shares elects to receive cash by contacting DST Systems, Inc. (the “Plan Administrator”), all dividends declared on
Common Shares will be automatically reinvested by the Plan Administrator for Common Shareholders in the Fund’s Automatic Dividend
Reinvestment Plan (the “Plan”), in additional Common Shares. Common Shareholders who elect not to participate in the Plan
will receive all dividends and other distributions in cash paid by check mailed directly to the shareholder of record (or, if the Common
Shares are held in street or other nominee name, then to such nominee) by the Plan Administrator as dividend disbursing agent. Participation
in the Plan is completely voluntary and may be terminated or resumed at any time without penalty by notice if received and processed
by the Plan Administrator prior to the dividend record date; otherwise such termination or resumption will be effective with respect
to any subsequently declared dividend or other distribution. Such notice will be effective with respect to a particular dividend or other
distribution (together, a “Dividend”). Some brokers may automatically elect to receive cash on behalf of Common Shareholders
and may re-invest that cash in additional Common Shares. Reinvested Dividends will increase the Fund’s Managed Assets on which
the management fee is payable to the Adviser (and by the Adviser to the Subadviser).
Whenever
the Fund declares a Dividend payable in cash, non-participants in the Plan will receive cash and participants in the Plan will receive
the equivalent in Common Shares. The Common Shares will be acquired by the Plan Administrator for the participants’ accounts, depending
upon the circumstances described below, either (i) through receipt of additional unissued but authorized Common Shares from the Fund
(“Newly Issued Common Shares”) or (ii) by purchase of outstanding Common Shares on the open market (“Open-Market Purchases”)
on the NYSE or elsewhere. If, on the payment date for any Dividend, the closing market price plus estimated brokerage commissions per
Common Share is equal to or greater than the NAV per Common Share, the Plan Administrator will invest the Dividend amount in Newly Issued
Common Shares on behalf of the participants. The number of Newly Issued Common Shares to be credited to each participant’s account
will be determined by dividing the dollar amount of the Dividend by the Fund’s NAV per Common Share on the payment date. If, on
the payment date for any Dividend, the NAV per Common Share is greater than the closing market value plus estimated brokerage commissions
(i.e., the Fund’s Common Shares are trading at a discount), the Plan Administrator will invest the Dividend amount in Common
Shares acquired on behalf of the participants in Open-Market Purchases.
In
the event of a market discount on the payment date for any Dividend, the Plan Administrator will have until the last business day before
the next date on which the Common Shares trade on an “ex-dividend” basis or 30 days after the payment date for such Dividend,
whichever is sooner (the “Last Purchase Date”), to invest the Dividend amount in Common Shares acquired in Open-Market Purchases.
It is contemplated that the Fund will pay monthly income Dividends. If, before the Plan Administrator has completed its Open-Market Purchases,
the market price per Common Share exceeds the NAV per Common Share, the average per Common Share purchase price paid by the Plan Administrator
may exceed the NAV of the Common Shares, resulting in the acquisition of fewer Common Shares than if the Dividend had been paid in Newly
Issued Common Shares on the Dividend payment date. Because of the foregoing difficulty with respect to Open-Market Purchases, the Plan
provides that if the Plan Administrator is unable to invest the full Dividend amount in Open-Market Purchases during the purchase period
or if the market discount shifts to a market premium during the purchase period, the Plan Administrator may cease making Open-Market
Purchases and may invest the uninvested portion of the Dividend amount in Newly Issued Common Shares at the NAV per Common Share at the
close of business on the Last Purchase Date.
The
Plan Administrator maintains all shareholders’ accounts in the Plan and furnishes written confirmation of all transactions in the
accounts, including information needed by shareholders for tax records. Common Shares in the account of each Plan participant will be
held by the Plan Administrator on behalf of the Plan participant, and each shareholder proxy will include those shares purchased or received
pursuant to the Plan. The Plan Administrator will forward all proxy solicitation materials to participants and vote proxies for shares
held under the Plan in accordance with the instructions of the participants.
Beneficial
owners of Common Shares who hold their Common Shares in the name of a broker or nominee should contact the broker or nominee to determine
whether and how they may participate in the Plan. In the case of Common Shareholders such as banks, brokers or nominees which hold shares
for others who are the beneficial owners, the Plan Administrator will administer the Plan on the basis of the number of Common Shares
certified from time to time by the record shareholder’s name and held for the account of beneficial owners who participate in the
Plan.
There
will be no brokerage charges with respect to Common Shares issued directly by the Fund. However, each participant will pay a pro rata
share of brokerage commissions incurred in connection with Open-Market Purchases. The automatic reinvestment of Dividends will not relieve
participants of any federal, state or local income tax that may be payable (or required to be withheld) on such Dividends, even though
such participants have not received any cash with which to pay the resulting tax. See “U.S. Federal Income Tax Matters” below.
Participants that request a sale of Common Shares through the Plan Administrator are subject to brokerage commissions.
The
Fund reserves the right to amend or terminate the Plan. There is no direct service charge to participants with regard to purchases in
the Plan; however, the Fund reserves the right to amend the Plan to include a service charge payable by the participants.
All
correspondence or questions concerning the Plan should be directed to the Plan Administrator at (844) 569-4750.
DESCRIPTION
OF THE FUND’S SECURITIES
The
following summary of the terms of the Securities does not purport to be complete and is subject to and qualified in its entirety by reference
to the Maryland General Corporation Law, and to the Fund’s Charter and the Fund’s Bylaws, copies of which are filed as exhibits
to the Registration Statement.
The
Fund’s authorized capital stock consists of 50,000,000 shares of common stock, $0.0001 par value per share, all of which is classified
as Common Shares. The Fund’s Board of Directors, with the approval of a majority of the entire Board, but without any action by
the shareholders of the Fund, may amend the Fund’s Charter from time to time to increase or decrease the aggregate number of shares
of stock of the Fund or the number of shares of stock of any class or series that the Fund has authority to issue.
In
general, shareholders or subscribers for the Fund’s stock have no personal liability for the debts and obligations of the Fund
because of their status as shareholders or subscribers, except to the extent that the subscription price or other agreed consideration
for the stock has not been paid.
Common
Stock
The Common
Shares issued in the offering are fully paid and non-assessable. The
Common Shares have no preemptive, conversion, exchange, appraisal or redemption rights, and each share has equal voting, dividend, distribution
and liquidation rights.
Common
Shareholders are entitled to receive dividends if and when the Board of Directors declares dividends from funds legally available. Whenever
Preferred Shares or borrowings are outstanding, Common Shareholders will not be entitled to receive any distributions from the Fund unless
all accrued dividends on the Preferred Shares and interest and principal payments on borrowings have been paid, and unless the applicable
asset coverage requirements under the 1940 Act would be satisfied after giving effect to the distribution as described above.
In
the event of the Fund’s liquidation, dissolution or winding up, Common Shares would be entitled to share ratably in all of the
Fund’s assets that are legally available for distribution after the Fund pays all debts and other liabilities and subject to any
preferential rights of holders of Preferred Shares, if any Preferred Shares are outstanding at such time.
Common
Shareholders are entitled to one vote per share. All voting rights for the election of directors are noncumulative, which means that,
assuming there are no Preferred Shares are outstanding, the holders of more than 50% of the Common Shares will elect 100% of the directors
then nominated for election if they choose to do so and, in such event, the holders of the remaining Common Shares will not be able to
elect any Directors.
The
Fund’s Charter authorizes the Board of Directors to classify and reclassify any unissued shares of common stock into other classes
or series of stock. Prior to issuance of shares of each class or series, the Board of Directors is required by Maryland law and by the
Fund’s Charter to set the terms, preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends
or other distributions, qualifications and terms or conditions of redemption for each class or series. Thus, the Board of Directors could
authorize the issuance of shares of common stock with terms and conditions that could have the effect of delaying, deferring or preventing
a transaction or a change in control that might involve a premium price for holders of the Fund’s Common Shares or otherwise be
in their best interest. As of the date of this Prospectus, the Fund has no plans to classify or reclassify any unissued shares of common
stock.
The
Fund’s currently outstanding common shares are, and the Common Shares offered in this Prospectus will be, subject to notice of
issuance, listed on the NYSE under the trading or “ticker” symbol “RMMZ.” Under the rules of the NYSE applicable
to listed companies, the Fund is required to hold an annual meeting of shareholders in each year. The provisions of the 1940 Act generally
require that the public offering price (less underwriting commissions and discounts) of common shares sold by a closed-end investment
company must equal or exceed the net asset value of such company’s common shares (calculated within 48 hours of the pricing of
such offering), unless such a sale is made in connection with an offering to existing holders of shares of common stock or with the consent
of a majority of its common stockholders. The Fund may, from time to time, seek the consent of common shareholders to permit the issuance
and sale by the Fund of Common Shares at a price below the Fund’s then-current net asset value, subject to certain conditions.
If such consent is obtained, the Fund may, contemporaneous with and in no event more than one year following the receipt of such consent,
sell Common Shares at a price below net asset value in accordance with any conditions adopted in connection with the giving of such consent.
Additional information regarding any consent of common shareholders obtained by the Fund and the applicable conditions imposed on the
issuance and sale by the Fund of Common Shares at a price below net asset value will be disclosed in the prospectus supplement relating
to any such offering of Common Shares at a price below net asset value. See also “—Subscription Rights” below.
Preferred
Stock
The
Fund’s Charter authorizes the Board of Directors to classify and reclassify any unissued shares of stock into other classes or
series of stock, including Preferred Shares, without the approval of Common Shareholders. Prior to issuance of any shares of Preferred
Shares, the Board of Directors is required by Maryland law and by the Fund’s Charter to set the terms, preferences, conversion
and other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions
of redemption for such shares. Thus, the Board of Directors could authorize the issuance of Preferred Shares with terms and conditions
that could have the effect of delaying, deferring or preventing a transaction or a change in control that might involve a premium price
for Common Shareholders or otherwise be in their best interest. The prospectus supplement for any potential offering of preferred shares
will describe the terms and conditions of those shares, including information regarding the liquidation preference, distribution rate,
any optional or mandatory redemption provisions and whether the preferred shares are convertible into common shares. As of the date of
this Prospectus, the Fund has not issued any Preferred Shares.
Any
issuance of Preferred Shares must comply with the requirements of the 1940 Act. Specifically, the Fund is not permitted under the 1940
Act to issue Preferred Shares unless immediately after such issuance the total asset value of the Fund’s portfolio is at least
200% of the liquidation value of the outstanding Preferred Shares. Among other requirements, including other voting rights, the 1940
Act requires that the holders of any Preferred Shares, voting separately as a single class, have the right to elect at least two directors
at all times. In addition, subject to the prior rights, if any, of the holders of any other class of senior securities outstanding, the
holders of any Preferred Shares would have the right to elect a majority of the Fund’s directors at any time two years’ dividends
on any Preferred Shares are unpaid.
Preferred
Shares of the Fund would be senior to the common shares with respect to the payment of dividends and the distributions of the assets
of the Fund upon liquidation. In addition, all Preferred Shares of the Fund would be pari passu (or on equal footing) with one another
and junior to the Fund’s senior securities representing indebtedness. See “Use of Leverage”.
The
applicable prospectus supplement will set forth whether or not the shares of the Fund’s preferred stock offered in this Prospectus
will be listed or traded on any securities exchange. If the shares of the Fund’s preferred stock are not listed on a securities
exchange, there may be no active secondary trading market for such shares and an investment in such shares may be illiquid.
The
terms, if any, on which the preferred stock may be exchanged for or converted into shares of common stock or any other security and,
if applicable, the conversion or exchange price, or how it will be calculated, and the conversion or exchange period will also be set
forth in the applicable prospectus supplement.
Subscription
Rights
The
Fund may issue Rights to (i) common shareholders to purchase Common Shares and/or Preferred Shares or (ii) preferred shareholders to
purchase Preferred Shares (subject to applicable law). Rights may be issued independently or together with any other offered Security
and may or may not be transferable by the person purchasing or receiving the Rights. In connection with a Rights offering to common and/or
preferred shareholders, the Fund would distribute certificates evidencing the Rights and a prospectus supplement, containing all of the
material terms of the Rights agreement relating to such Rights (the “Subscription Rights Agreement”), to the Fund’s
common or preferred shareholders, as applicable, as of the record date that the Fund sets for determining the shareholders eligible to
receive Rights in such Rights offering.
The
applicable prospectus supplement would describe the following terms of Rights in respect of which this Prospectus is being delivered:
●
the period of time the offering would remain open (which will be open a minimum number of days such that all record holders would be
eligible to participate in the offering and will not be open longer than 120 days);
●
the title of such subscription Rights;
●
the exercise price for such Rights (or method of calculation thereof);
●
the number of such Rights issued in respect of each common share;
●
the number of Rights required to purchase a single preferred share;
●
the extent to which such Rights are transferable and the market on which they may be traded if they are transferable;
●
if applicable, a discussion of the material U.S. federal income tax considerations applicable to the issuance or exercise of such Rights;
●
the date on which the right to exercise such Rights will commence, and the date on which such right will expire (subject to any extension);
●
the extent to which such Rights include an over-subscription privilege with respect to unsubscribed securities and the terms of such
over-subscription privilege;
●
any termination right the Fund may have in connection with such Rights offering;
●
the expected trading market, if any, for Rights; and
●
any other terms of such Rights, including exercise, settlement and other procedures and limitations relating to the transfer and exercise
of such Rights.
Exercise
of Rights. Each Right would entitle the holder of the Right to purchase for cash such number of shares at such exercise price as
in each case is set forth in, or be determinable as set forth in, the prospectus supplement relating to the Rights offered thereby. Rights
would be exercisable at any time up to the close of business on the expiration date for such Rights set forth in the prospectus supplement.
After the close of business on the expiration date, all unexercised Rights would become void.
Upon
expiration of the Rights offering and the receipt of payment and the Rights certificate properly completed and duly executed at the corporate
trust office of the Rights agent or any other office indicated in the prospectus supplement, the Fund would issue, as soon as practicable,
the shares purchased as a result of such exercise. To the extent permissible under applicable law, the Fund may determine to offer any
unsubscribed offered Securities directly to persons other than shareholders, to or through agents, underwriters or dealers or through
a combination of such methods, as set forth in the applicable prospectus supplement.
Subscription
Rights to Purchase Common and Preferred Stock
The
Fund may issue Rights, which would entitle holders to purchase both Common Shares and Preferred Shares in a ratio to be set forth in
the applicable prospectus supplement. In accordance with the 1940 Act, at least three subscription rights to purchase Common Shares would
be required to subscribe for one Common Share. It is expected that Rights to purchase both Common Shares and Preferred Shares would require
holders to purchase an equal number of Common Shares and Preferred Shares, and would not permit holders to purchase an unequal number
of Common Shares or Preferred Shares, or purchase only Common Shares or only Preferred Shares. For example, such an offering might be
structured such that three Rights would entitle an investor to purchase one Common Share and one Preferred Share, and such investor would
not be able to choose to purchase only a Common Share or only a Preferred Share upon the exercise of his, her or its Rights.
The
Common Shares and Preferred Shares issued pursuant to the exercise of any such Rights, however, would at all times be separately tradeable
securities. Such Common Shares and Preferred Shares would not be issued as a “unit” or “combination” and would
not be listed or traded as a “unit” or “combination” on a securities exchange, such as the NYSE, at any time.
The applicable prospectus supplement will set forth additional details regarding an offering of Rights to purchase Common Shares and
Preferred Shares.
CERTAIN
PROVISIONS OF THE FUND’S CHARTER AND BYLAWS AND OF MARYLAND LAW
The
following is a summary of certain provisions of the Maryland General Corporation Law (the “MGCL”) and of the Charter and
Bylaws of the Fund.
General
The
MGCL and the Fund’s Charter and Bylaws contain provisions that could have the effect of limiting the ability of other entities
or persons to acquire control of the Fund, to cause it to engage in certain transactions or to modify its structure.
These
provisions could have the effect of depriving Common Shareholders of an opportunity to sell their Common Shares by discouraging a third
party from seeking to obtain control of the Fund in a tender offer or similar transaction. On the other hand, these provisions may require
persons seeking control of the Fund to negotiate with the Fund’s management regarding the price to be paid for the Common Shares
required to obtain such control, promote continuity and stability and enhance the Fund’s ability to pursue long-term strategies
that are consistent with its investment objectives.
The
Board of Directors has concluded that the potential benefits of these provisions outweigh their possible disadvantages.
Classified
Board of Directors
The
Board of Directors is divided into three classes of directors serving staggered three-year terms. The initial terms of the first, second
and third classes will expire at the first, second and third annual meetings of shareholders, respectively, and, in each case, until
their successors are duly elected and qualify. Upon expiration of their terms, directors of each class will be elected to serve for three-year
terms and until their successors are duly elected and qualify and at each annual meeting one class of directors will be elected by the
shareholders. A classified Board of Directors promotes continuity and stability of management but makes it more difficult for shareholders
to change a majority of the directors because it generally takes at least two annual elections of directors for this to occur. The Fund
believes that classification of the Board of Directors will help to assure the continuity and stability of the Fund’s strategies
and policies as determined by the Board of Directors.
Election
of Directors
The
MGCL provides that, unless the charter or bylaws of a corporation provide otherwise, which the Fund’s Charter and the Fund’s
Bylaws do not, a plurality of all the votes cast at a meeting at which a quorum is present is sufficient to elect a director.
Number
of Directors; Vacancies
The
Fund’s Charter provides that the number of directors will be set only by the Board of Directors in accordance with the Bylaws.
The Bylaws provide that a majority of the Fund’s entire Board of Directors may at any time increase or decrease the number of directors,
provided that there may be no fewer than three directors and no more than 12 directors.
The
Fund’s Charter provides that the Fund elects, at such time as the Fund becomes eligible to make such an election (i.e., when
the Fund has at least three independent directors and the Common Shares are registered under the Exchange Act), to be subject to the
provision of Subtitle 8 of Title 3 of the MGCL regarding the filling of vacancies on the Board of Directors. Accordingly, at such time,
except as may be provided by the Board of Directors in setting the terms of any class or series of Preferred Shares, any and all vacancies
on the Board of Directors may be filled only by the affirmative vote of a majority of the remaining directors in office, and any director
elected to fill a vacancy will serve for the remainder of the full term of the directorship in which the vacancy occurred and until a
successor is elected and qualifies, subject to any applicable requirements of the 1940 Act.
Removal
of Directors
The
Fund’s Charter provides that, subject to the rights of the holders of one or more class or series of Preferred Shares to elect
or remove directors, a director may be removed from office only for cause (as defined in the Charter) and then only by the affirmative
vote of the holders of at least two-thirds of the votes entitled to be cast generally in the election of directors.
Absence
of Cumulative Voting
There
is no cumulative voting in the election of the Fund’s directors. Cumulative voting means that holders of stock of a corporation
are entitled, in the election of directors, to cast a number of votes equal to the number of shares that they own multiplied by the number
of directors to be elected. Because a shareholder entitled to cumulative voting may cast all of his or her votes for one nominee or disperse
his or her votes among nominees as he or she chooses, cumulative voting is generally considered to increase the ability of minority shareholders
to elect nominees to a corporation’s Board of Directors. In general, the absence of cumulative voting means that the holders of
a majority of the Fund’s shares can elect all of the directors then standing for election and the holders of the remaining shares
will not be able to elect any directors.
Approval
of Extraordinary Corporate Actions
The
Fund’s Charter requires the favorable vote of at least two-thirds of the Common Shares and Preferred Shares (if any) entitled to
be voted on the matter, voting together as a single class, to advise, approve, adopt or authorize the following:
| ● | a
“Business Combination,” which includes the following: |
| ● | a
merger, consolidation or statutory share exchange of the Fund with or into another person; |
| ● | an
issuance or transfer by the Fund (in one or a series of transactions in any 12-month period)
of any securities of the Fund to any person or entity for cash, securities or other property
(or combination thereof) having an aggregate fair market value of $1,000,000 or more, excluding
issuances or transfers of debt securities of the Fund, sales of securities of the Fund in
connection with a public offering, issuances of securities of the Fund pursuant to a dividend
reinvestment plan adopted by the Fund, issuances of securities of the Fund upon the exercise
of any stock subscription rights distributed by the Fund and portfolio transactions effected
by the Fund in the ordinary course of business; or |
| ● | a
sale, lease, exchange, mortgage, pledge, transfer or other disposition by the Fund (in one
or a series of transactions in any 12-month period) to or with any person or entity of any
assets of the Fund having an aggregate fair market value of $1,000,000 or more except for
portfolio transactions (including pledges of portfolio securities in connection with borrowings)
effected by the Fund in the ordinary course of its business; |
| ● | the
voluntary liquidation or dissolution of the Fund or charter amendment to terminate the Fund’s
existence; |
| ● | the
conversion of the Fund from a closed-end company to an open-end company, and any amendments
necessary to effect the conversion; or |
| ● | unless
the 1940 Act or federal law requires a lesser vote, any shareholder proposal as to specific
investment decisions made or to be made with respect to the Fund’s assets as to which
shareholder approval is required under federal or Maryland law. |
However,
unless shareholder approval is required under federal or Maryland law, the Common Shareholder vote described above will not be required
with respect to the foregoing transactions if they are approved by a vote of two-thirds of the Continuing Directors (as defined below).
If Maryland law or the 1940 Act requires Common Shareholder approval (and two-thirds of the Continuing Directors have approved the transaction),
the affirmative vote by Common Shareholders, at a meeting of such shareholders, of the lesser of (a) 67% or more of the voting securities
present at such meeting, if the holders of more than 50% of the outstanding voting securities of the Fund are present or represented
by proxy; or (b) more than 50% of the outstanding voting securities of the Fund, will be required. In addition, if the Fund has any Preferred
Shares outstanding, the holders of a majority of the outstanding Preferred Shares voting separately as a class, would be required under
the 1940 Act to adopt any plan of reorganization that would adversely affect the holders of the Preferred Shares, to convert the Fund
to an open-end investment company or to deviate from any of the Fund’s fundamental investment policies.
In
no event will the foregoing provisions affect shareholder rights under the 1940 Act to approve or terminate an advisory contract of the
Fund (either of which may be effectuated by Fund shareholders without the need for approval of any Continuing Director or other member
of the Board of Directors).
“Continuing
Director” means any member of the Board of Directors who is not an Interested Party (as defined below) or an affiliate of an Interested
Party and has been a member of the Board of Directors for a period of at least 12 months, or has been a member of the Board of Directors
since January 12, 2022, or is a successor of a Continuing Director who is unaffiliated with an Interested Party and is recommended to
succeed a Continuing Director by a majority of the Continuing Directors then on the Board of Directors.
“Interested
Party” means any person, other than an investment company advised by the Adviser or any of its affiliates, which enters, or proposes
to enter, into a Business Combination with the Fund.
In
addition, the Fund’s Charter requires the favorable vote of two-thirds of the entire Board of Directors to advise, approve, adopt
or authorize any of the following:
| ● | the
election and removal of officers; |
| ● | the
creation of and delegation of authority and appointment of members to committees of the Board
of Directors; |
| ● | amendments
to the Fund’s Bylaws (which may only be effected by the Board of Directors, not the
Common Shareholders); and |
| ● | Charter
amendments not requiring shareholder approval under the 1940 Act. |
The
Board of Directors has determined that the foregoing supermajority requirements applicable to certain votes of the directors and the
Common Shareholders, which are greater than the minimum requirements permitted under Maryland law or the 1940 Act, are in the best interests
of the Fund. Reference should be made to the Charter on file with the SEC for the full text of these provisions. See also “Conversion
to Open-End Fund.”
Action
by Shareholders
Under
the MGCL, Common Shareholder action can be taken only at an annual or special meeting of Common Shareholders or, unless the charter provides
for Common Shareholder action by less than unanimous written consent (which is not the case in the Fund’s Charter), by unanimous
written consent in lieu of a meeting. These provisions, combined with the requirements of the Fund’s Bylaws regarding the calling
of a Common Shareholder-requested special meeting, as discussed below, may have the effect of delaying consideration of a Common Shareholder
proposal until the next annual meeting.
Procedures
for Shareholder Nominations and Proposals
The
Fund’s Bylaws provide that any Common Shareholder desiring to make a nomination for the election of directors or a proposal for
new business at a meeting of Common Shareholders must comply with the advance notice provisions of the Bylaws. Nominations and proposals
that fail to follow the prescribed procedures will not be considered. The Board of Directors believes that it is in the Fund’s
best interests to provide sufficient time to enable management to disclose to Common Shareholders information about a slate of nominations
for directors or proposals for new business. This advance notice requirement also may give management time to solicit its own proxies
in an attempt to defeat any slate of nominations should management determine that doing so is in the best interest of Common Shareholders
generally. Similarly, adequate advance notice of Common Shareholder proposals will give management time to study such proposals and to
determine whether to recommend to the Common Shareholders that such proposals be adopted. For Common Shareholder proposals to be included
in the Fund’s proxy materials, the Common Shareholder must comply with all timing and information requirements of the Exchange
Act.
Calling
of Special Meetings of Shareholders
The
Fund’s Bylaws provide that special meetings of Common Shareholders may be called by the Board of Directors or by certain of its
officers. Additionally, the Fund’s Bylaws provide that, subject to the satisfaction of certain procedural and informational requirements
by the Common Shareholders requesting the meeting, a special meeting of Common Shareholders will be called by the Fund’s Secretary
upon the written request of Common Shareholders entitled to cast not less than a majority of all the votes entitled to be cast at such
meeting.
No
Appraisal Rights
As
permitted by the MGCL, the Fund’s Charter provides that Common Shareholders will not be entitled to exercise appraisal rights,
unless the Fund’s Board of Directors determines that such rights apply.
Limitations
on Liabilities
The
Fund’s Charter provides that the personal liability of the Fund’s directors and officers for monetary damages is eliminated
to the fullest extent permitted by Maryland law. Maryland law currently provides that directors and officers of corporations that have
adopted such a provision will generally not be so liable, except to the extent that (i) it is proven that the person actually received
an improper benefit or profit in money, property, or services for the amount of the benefit or profit in money, property, or services
actually received; and (ii) a judgment or other final adjudication adverse to the person is entered in a proceeding based on a finding
in the proceeding that the person’s action, or failure to act, was the result of active and deliberate dishonesty and was material
to the cause of action adjudicated in the proceeding.
The
Fund’s Charter allows the Fund, to the maximum extent permitted by Maryland law and the 1940 Act, to indemnify and advance expenses
to the Fund’s directors and officers. The Fund’s Bylaws provide that the Fund will indemnify its officers and directors against
liabilities to the fullest extent permitted by Maryland law and the 1940 Act, and that it shall advance expenses to such persons prior
to a final disposition of an action. The rights of indemnification provided in the Fund’s Charter and Bylaws are not exclusive
of any other rights which may be available under any insurance or other agreement, by resolution of Common Shareholders or directors
or otherwise.
Authorized
Shares
The
Fund’s Charter authorizes the issuance of 50,000,000 Common Shares, and authorizes a majority of the Board of Directors, without
Common Shareholder approval, to increase the number of authorized Common Shares and to classify and reclassify any unissued shares into
one or more classes or series of stock and set the terms thereof. The issuance of capital stock or any class or series thereof without
Common Shareholder approval may be used by the Board of Directors consistent with its duties to deter attempts to gain control of the
Fund. Further, the Board of Directors could authorize the issuance Preferred Shares with terms and conditions that could have the effect
of discouraging a takeover or other transaction that some of the Fund’s shareholders might believe to be in their best interests.
Anti-Takeover
Provisions of Maryland Law
Maryland
Unsolicited Takeovers Act
Subtitle
8 of Title 3 of the Maryland General Corporation Law permits a Maryland corporation with a class of equity securities registered under
the Exchange Act and at least three independent directors to elect to be subject, by provision in its charter or bylaws or a resolution
of its board of directors and notwithstanding any contrary provision in the charter or bylaws, to any or all of five provisions:
| ● | a
two-thirds vote requirement for removing a director; |
| ● | a
requirement that the number of directors be fixed only by vote of directors; |
| ● | a
requirement that a vacancy on the board be filled only by the remaining directors and for
the remainder of the full term of the class of directors in which the vacancy occurred; and |
| ● | a
majority requirement for the calling of a special meeting of shareholders. |
The
Fund has elected to be subject to the classified board provision and the requirement that a vacancy on the Board of Directors be filled
only by the remaining directors and for the remainder of the full term of the class of directors in which the vacancy occurred. The Fund
retains its right to opt into any of the other provisions. The charter of a corporation may contain a provision or the board of directors
may adopt a provision that prohibits the corporation from electing to be subject to any or all of the provisions of Subtitle 8.
Maryland
Business Combination Act
The
provisions of the Maryland Business Combination Act (the “MBCA”) do not apply to a closed-end investment company, such as
the Fund, unless the Board of Directors has affirmatively elected to be subject to the MBCA by a resolution. To date, the Fund has not
made such an election but may make such an election under Maryland law at any time. Any such election, however, could be subject to certain
of the 1940 Act limitations discussed below under “Maryland Control Share Acquisition Act” and would not apply to any person
who had become an interested shareholder (as defined below) before the time that the resolution was adopted.
Under
the MBCA, “business combinations” between a Maryland corporation and an interested shareholder or an affiliate of an interested
shareholder are prohibited for five years after the most recent date on which the interested shareholder becomes an interested shareholder.
These business combinations include a merger, consolidation, share exchange, or, in circumstances specified in the MBCA, an asset transfer
or issuance or reclassification of equity securities. An interested shareholder is defined as:
| ● | any
person who beneficially owns ten percent or more of the voting power of the corporation’s
shares; or |
| ● | an
affiliate or associate of the corporation who, at any time within the two-year period prior
to the date in question, was the beneficial owner of ten percent or more of the voting power
of the then outstanding voting stock of the corporation. |
A
person is not an interested shareholder under the MBCA if the board of directors approved in advance the transaction by which he otherwise
would have become an interested shareholder. However, in approving a transaction, the board of directors may provide that its approval
is subject to compliance, at or after the time of approval, with any terms and conditions determined by the board.
After
the five-year prohibition, any business combination between the Maryland corporation and an interested shareholder generally must be
recommended by the board of directors of the corporation and approved by the affirmative vote of at least:
| ● | 80%
of the votes entitled to be cast by holders of outstanding shares of voting stock of the
corporation; and |
| ● | two-thirds
of the votes entitled to be cast by holders of voting stock of the corporation other than
shares held by the interested shareholder with whom or with whose affiliate the business
combination is to be effected or held by an affiliate or associate of the interested shareholder. |
These
super-majority vote requirements do not apply if the corporation’s common shareholders receive a minimum price, as defined in the
MBCA, for their shares in the form of cash or other consideration in the same form as previously paid by the interested shareholder for
its shares.
The
MBCA permits various exemptions from its provisions, including business combinations that are exempted by the board of directors before
the time that the interested shareholder becomes an interested shareholder.
Maryland
Control Share Acquisition Act
The
Maryland Control Share Acquisition Act (the “MCSAA”) provides that control shares of a Maryland corporation acquired in a
control share acquisition have no voting rights except to the extent approved by a vote of two-thirds of the votes entitled to be cast
on the matter. Shares owned by the acquirer, by officers of the acquirer or by an employee of the acquirer who is also a director of
the acquirer are excluded from shares entitled to vote on the matter. Control shares are voting shares of stock which, if aggregated
with all other shares of stock owned by the acquirer or in respect of which the acquirer is able to exercise or direct the exercise of
voting power (except solely by virtue of a revocable proxy), would entitle the acquirer to exercise voting power in electing directors
within one of the following ranges of voting power:
| ● | one-tenth
or more but less than one-third, |
| ● | one-third
or more but less than a majority, or |
| ● | a
majority or more of all voting power. |
Control
shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained shareholder approval.
A control share acquisition means the acquisition of control shares, subject to certain exceptions.
A
person who has made or proposes to make a control share acquisition may compel the board of directors of the corporation to call a special
meeting of shareholders to be held within 50 days of demand to consider the voting rights of the shares. The right to compel the calling
of a special meeting is subject to the satisfaction of certain conditions, including an undertaking to pay the expenses of the meeting.
If no request for a meeting is made, the corporation may itself present the question at any shareholders meeting.
If
voting rights are not approved at the meeting or if the acquiring person does not deliver an acquiring person statement as required by
the MCSAA, then the corporation may redeem for fair value any or all of the control shares, except those for which voting rights have
previously been approved. The right of the corporation to redeem control shares is subject to certain conditions and limitations. Fair
value is determined, without regard to the absence of voting rights for the control shares, as of the date of the last control share
acquisition by the acquirer or of any meeting of shareholders at which the voting rights of the shares are considered and not approved.
If voting rights for control shares are approved at a shareholders meeting and the acquirer becomes entitled to vote a majority of the
shares entitled to vote, all other shareholders may exercise appraisal rights. The fair value of the shares as determined for purposes
of appraisal rights may not be less than the highest price per share paid by the acquirer in the control share acquisition.
The
Staff of the SEC’s Division of Investment Management (“Staff”) has previously taken the position that, if a closed-end
fund opted into a state control share statute (“control shares statutes”), such as the MCSAA, its actions would be inconsistent
with the requirements in Section 18(i) of the 1940 Act, which generally requires that shares of the fund have equal voting rights. However,
in May 2020, the Staff withdrew its previous position and has stated that it would not recommend enforcement action to the SEC against
a closed-end fund for opting into a control share statute if the decision to do so by the fund’s board was taken with reasonable
care on a basis consistent with other applicable duties and laws and the duty to the fund and its shareholders generally. The Staff’s
current position reflects only the views of the Staff and is not made part of any SEC rule, regulation or court interpretation or ruling.
The Board of Directors reserves the right to consider and determine, in the future, whether the Fund will opt in and be subject to the
MCSAA.
REPURCHASE
OF SHARES
Shares
of closed-end funds often trade at a discount to NAV, and the Fund’s shares may also trade at a discount to their NAV, although
it is possible that they may trade at a premium above NAV. The market price of the Common Shares will be determined by such factors as
relative demand for and supply of shares in the market, the Fund’s NAV, general market and economic conditions and other factors
beyond the control of the Fund.
Although
Common Shareholders will not have the right to redeem their shares, the Fund may (but is not obligated to) take action to repurchase
shares in the open market or make tender offers for its shares at or near NAV. During the pendency of any tender offer, the Fund will
publish how Common Shareholders may readily ascertain the NAV. Repurchase of the Common Shares may have the effect of reducing any market
discount to NAV.
There
is no assurance that, if action is undertaken to repurchase or tender for shares, such action will result in the shares trading at a
price that approximates their NAV. Although share repurchases and tenders could have a favorable effect on the market price of the shares,
you should be aware that the acquisition of shares by the Fund will decrease the total assets of the Fund and, therefore, have the effect
of increasing the Fund’s expense ratio and may adversely affect the ability of the Fund to pursue its investment objectives. To
the extent the Fund may need to liquidate investments to fund repurchases of shares, this may result in portfolio turnover that may result
in additional expenses being borne by the Fund and its shareholders. The Board of Directors currently considers the following factors
to be relevant to a potential decision to repurchase shares: the extent and duration of the discount, the liquidity of the Fund’s
portfolio, and the impact of any action on the Fund and market considerations. Such a decision is a matter on which the Board would exercise
its fiduciary judgment, and the Board will consider other factors that may be relevant at the time it considers the matter. Any share
repurchases or tender offers will be made in accordance with the requirements of the Exchange Act and the 1940 Act.
RIGHTS
OFFERINGS
The
Fund may in the future, and at its discretion, choose to make offerings of Rights to (i) common shareholders to purchase Common Shares
and/or Preferred Shares and/or (ii) preferred shareholders to purchase Preferred Shares (subject to applicable law). A future Rights
offering may be transferable or non-transferable. Any such future Rights offering will be made in accordance with the 1940 Act. Under
the laws of Maryland, the Board is authorized to approve rights offerings without obtaining shareholder approval. The staff of the SEC
has interpreted the 1940 Act as not requiring shareholder approval of a transferable rights offering to purchase common stock at a price
below the then current net asset value so long as certain conditions are met, including: (i) a good faith determination by a fund’s
board that such offering would result in a net benefit to existing shareholders; (ii) the offering fully protects shareholders’
preemptive rights and does not discriminate among shareholders (except for the possible effect of not offering fractional rights); (iii)
management uses its best efforts to ensure an adequate trading market in the rights for use by shareholders who do not exercise such
rights; and (iv) the ratio of a transferable rights offering does not exceed one new share for each three rights held.
CONVERSION
TO OPEN-END FUND
The
Fund may be converted to an open-end investment company at any time if approved by the Board of Directors and the shareholders. See “Certain
Provisions of the Fund’s Charter and Bylaws and of Maryland Law” for a discussion of the voting requirements applicable to
conversion of the Fund to an open-end investment company and any related Charter amendments. If the Fund converted to an open-end investment
company, it would be required to redeem all Preferred Shares then outstanding (possibly requiring in turn that it liquidate a portion
of its investment portfolio). Conversion to open-end status could also require the Fund to modify certain investment restrictions and
policies. Shareholders of an open-end investment company may require the company to redeem their shares at any time (except in certain
circumstances as authorized by or permitted under the 1940 Act) at their NAV, less such redemption charge, if any, as might be in effect
at the time of redemption. In order to avoid maintaining large cash positions or liquidating favorable investments to meet redemptions,
open-end investment companies typically engage in a continuous offering of their shares. Open-end investment companies are thus subject
to periodic asset in-flows and out-flows that can complicate portfolio management. The Board of Directors may at any time (but is not
required to) propose conversion of the Fund to open-end status, depending upon its judgment regarding the advisability of such action
in light of circumstances then prevailing. Before deciding whether to make such a proposal, the Board of Directors would consider all
relevant factors, including the extent and duration of the discount, the liquidity of the Fund’s portfolio, the impact of the conversion
on the Fund or its shareholders, and market considerations. Based on these considerations, even if the Fund’s shares trade at a
discount, the Board of Directors may determine that, in the interest of the Fund and its shareholders, no action should be taken.
LIMITED
TERM AND ELIGIBLE TENDER OFFER
The
Fund will terminate on or before the Termination Date; provided, that if the Board of Directors believes that under then-current market
conditions it is in the best interests of the Fund to do so, the Fund may extend the Termination Date (i) once for up to one year (i.e.,
up to February 16, 2038), and (ii) once for up to an additional six months (i.e., up to August 16, 2038), in each case upon the affirmative
vote of a majority of the Board of Directors and without a vote of Common Shareholders. In addition, as of a date within twelve months
preceding the Termination Date, the Board of Directors may cause the Fund to conduct an Eligible Tender Offer, which is a tender offer
by the Fund to all Common Shareholders to purchase Common Shares of the Fund at a price equal to the NAV per Common Share on the expiration
date of the tender offer. Following the completion of an Eligible Tender Offer, the Board of Directors may eliminate the limited term
structure of the Fund and convert the Fund to a perpetual fund upon the affirmative vote of a majority of the Board of Directors and
without a vote of Common Shareholders.
The
Fund is not a so called “target date” or “life cycle” fund whose asset allocation becomes more conservative over
time as its target date, often associated with retirement, approaches. In addition, the Fund is not a “target term” fund
whose investment objective is to return its original NAV on the termination date.
Upon
its termination, the Fund will distribute substantially all of its net assets to Common Shareholders, after paying or otherwise providing
for all charges, taxes, expenses and liabilities, whether due or accrued or anticipated, of the Fund, as may be determined by the Board
Directors. In anticipation of an Eligible Tender Offer or the Termination Date, the Fund may begin liquidating all or a portion of the
Fund’s portfolio, and may deviate from its investment policies, including its policy of investing at least 80% of the value of
its Managed Assets in municipal bonds and may not achieve its investment objective. During such period(s), the Fund’s portfolio
composition may change as more of its portfolio holdings are called or sold and portfolio holdings are disposed of in anticipation of
liquidation or an Eligible Tender Offer. Rather than reinvesting the proceeds of matured, called or sold securities in accordance with
the investment program described above, the Fund may invest such proceeds in short term or other lower yielding securities or hold the
proceeds in cash, which may adversely affect its performance. The Fund’s distributions during the wind-down period may decrease,
and such distributions may include a return of capital. The Fund may distribute the proceeds in one or more liquidating distributions
prior to the final liquidation, which may cause fixed expenses to increase when expressed as a percentage of assets under management.
It is expected that Common Shareholders will receive cash in any liquidating distribution from the Fund, regardless of their participation
in the Fund’s Dividend Reinvestment Plan. However, if on the Termination Date the Fund owns securities for which no market exists
or securities trading at depressed prices, such securities may be placed in a liquidating trust. Common Shareholders generally will realize
capital gain or loss upon the termination of the Fund in an amount equal to the difference between the amount of cash or other property
received by the Common Shareholder (including any property deemed received by reason of its being placed in a liquidating trust) and
the Common Shareholder’s adjusted tax basis in the Common Shares of the Fund for U.S. federal income tax purposes.
If
the Board of Directors believes that under then-current market conditions it is in the best interests of the Fund to do so, the Fund
may extend the Termination Date (i) once for up to one year (i.e., up to February 16, 2038), and (ii) once for up to an additional six
months (i.e. up to August 16, 2038), in each case upon the affirmative vote of a majority of the Board of Directors and without a vote
of Commons Shareholders. In determining whether to extend the Termination Date, the Board of Directors may consider, for example, the
Fund’s inability to sell its assets in a time frame consistent with termination due to lack of market liquidity or other extenuating
circumstances. Additionally, the Board of Directors may determine that market conditions are such that it is reasonable to believe that,
with an extension, the Fund’s remaining assets will appreciate and generate income in an amount that, in the aggregate, is meaningful
relative to the cost and expense of continuing the operation of the Fund.
The
Board of Directors may cause the Fund to conduct an Eligible Tender Offer. An Eligible Tender Offer would consist of a tender offer to
all Common Shareholders to purchase Common Shares of the Fund at a price equal to the NAV per Common Share on the expiration date of
the tender offer, which shall be as of a date within twelve months preceding the Termination Date. The Board of Directors has established
that, following an Eligible Tender Offer, the Fund must have at least $100 million of net assets to ensure the continued viability of
the Fund (the “Termination Threshold”). In an Eligible Tender Offer, the Fund will offer to purchase all Common Shares held
by each Common Shareholder; provided, that if the number of properly tendered Common Shares would result in the Fund’s net assets
totaling less than the Termination Threshold, the Eligible Tender Offer will be terminated and no Common Shares will be repurchased pursuant
to the Eligible Tender Offer. Instead, the Fund will begin (or continue) liquidating its portfolio and proceed to terminate on or before
the Termination Date.
If
the number of properly tendered Common Shares would result in the Fund’s net assets equaling or totaling greater than the Termination
Threshold, all Common Shares properly tendered and not withdrawn will be purchased by the Fund pursuant to the terms of the Eligible
Tender Offer. The Fund’s purchase of tendered Common Shares pursuant to a tender offer will have tax consequences for tendering
Common Shareholders and may have tax consequences for non-tendering Common Shareholders. In addition, the Fund would continue to be subject
to its obligations with respect to its issued and outstanding preferred stock or debt securities, if any. See “Risks—Structural
Risks—Limited Term and Eligible Tender Offer Risk.” Following the completion of an Eligible Tender Offer, the Board of Directors
may eliminate the limited term structure of the Fund upon the affirmative vote of a majority of the Board of Directors and without the
approval of Common Shareholders. In making a decision to do so to provide for the Fund’s perpetual existence, the Board of Directors
will take such actions with respect to the continued operations of the Fund as it deems to be in the best interests of the Fund, based
on market conditions at such time, the extent of Common Shareholder participation in the Eligible Tender Offer and all other factors
deemed relevant by the Board of Directors in consultation with the Adviser, taking into account that the Adviser may have a potential
conflict of interest in recommending to the Board of Directors that the limited term structure be eliminated and the Fund have a perpetual
existence (or that the Termination Date be extended). The Fund is not required to conduct additional tender offers following an Eligible
Tender Offer and conversion to a perpetual structure. Therefore, remaining Common Shareholders may not have another opportunity to participate
in a tender offer or exchange their Common Shares for the then-existing NAV per Common Share.
An
Eligible Tender Offer would be made, and Common Shareholders would be notified thereof, in accordance with the requirements of the 1940
Act, the Exchange Act and the applicable tender offer rules thereunder (including Rule 13e-4 and Regulation 14E under the Exchange Act
or successor rules to the same general effect). The repurchase of tendered Common Shares by the Fund in a tender offer would be a taxable
event to Common Shareholders. The Adviser will pay all costs and expenses associated with the making of an Eligible Tender Offer, other
than brokerage and related transaction costs associated with the disposition of portfolio investments in connection with the Eligible
Tender Offer, which will be borne by the Fund and its Common Shareholders.
An
Eligible Tender Offer may be commenced upon approval of a majority of the Board of Directors, without a vote of Common Shareholders.
The Fund is not required to conduct an Eligible Tender Offer. If no Eligible Tender Offer is conducted, the Fund will liquidate on or
before the Termination Date (subject to extension as described above), unless the limited term provisions of the Articles of Incorporation
are amended with the vote of Common Shareholders, as described above. See “Certain Provisions of the Fund’s Charter and Bylaws
and of Maryland Law.”
U.S.
FEDERAL INCOME TAX MATTERS
The
following is a summary discussion of certain U.S. federal income tax consequences that may be relevant to a shareholder that acquires,
holds and/or disposes of common shares of the Fund. This discussion only addresses U.S. federal income tax consequences to U.S. shareholders
who hold their shares as capital assets and does not address all of the U.S. federal income tax consequences that may be relevant to
particular shareholders in light of their individual circumstances. This discussion also does not address the tax consequences to shareholders
who are subject to special rules, including, without limitation, banks or other financial institutions, insurance companies, dealers
in securities or foreign currencies, traders in securities that have elected to mark-to-market their securities holdings, foreign holders,
persons who hold their shares as or in a hedge against currency risk, or as part of a constructive sale, straddle or conversion transaction,
or tax-exempt or tax-deferred plans, accounts, or entities. In addition, the discussion does not address any state, local, or foreign
tax consequences. The discussion reflects applicable income tax laws of the United States as of the date hereof, which tax laws may be
changed or subject to new interpretations by the courts or the Internal Revenue Service (“IRS”) retroactively or prospectively,
which could affect the continued validity of this summary. No attempt is made to present a detailed explanation of all U.S. federal income
tax concerns affecting the Fund and its shareholders, and the discussion set forth herein does not constitute tax advice. Investors are
urged to consult their own tax advisors before making an investment in the Fund to determine the specific tax consequences to them of
investing in the Fund, including the applicable federal, state, local and foreign tax consequences as well as the effect of possible
changes in tax laws. See “California Tax Matters.”
The
Fund has elected to be treated, and intends to qualify each year, as a “regulated investment company” under Subchapter M
of Subtitle A, Chapter 1 of the Internal Revenue Code of 1986, as amended (the “Code”), so that it will generally not pay
U.S. federal income tax on income and capital gains timely distributed (or treated as being distributed, as described below) to shareholders.
If the Fund qualifies as a regulated investment company and distributes to its shareholders at least 90% of the sum of (i) its “investment
company taxable income” as that term is defined in the Code (which includes, among other things, dividends, taxable interest, the
excess of any net short-term capital gains over net long-term capital losses and certain net foreign exchange gains as reduced by certain
deductible expenses) without regard to the deduction for dividends paid, and (ii) the excess of its gross tax-exempt interest, if any,
over certain disallowed deductions, the Fund will be relieved of U.S. federal income tax on any income of the Fund, including long-term
capital gains, distributed to shareholders. However, if the Fund retains any investment company taxable income or “net capital
gain” (i.e., the excess of net long-term capital gain over net short-term capital loss), it will be subject to U.S. federal
income tax at regular corporate federal income tax rates (currently at a rate of 21%) on the amount retained. The Fund intends to distribute
at least annually all or substantially all of its investment company taxable income (determined without regard to the deduction for dividends
paid), net tax-exempt interest, if any, and net capital gain. Under the Code, the Fund will generally be subject to a nondeductible 4%
federal excise tax on the portion of its undistributed ordinary income and capital gains if it fails to meet certain distribution requirements
with respect to each calendar year. In order to avoid the 4% federal excise tax, the required minimum distribution is generally equal
to the sum of 98% of the Fund’s ordinary income (computed on a calendar year basis, and taking into account certain deferrals and
elections), plus 98.2% of the Fund’s capital gain net income (generally computed for the one-year period ending on October 31)
plus undistributed amounts from prior years on which the Fund paid no federal income tax. The Fund generally intends to make distributions
in a timely manner in an amount at least equal to the required minimum distribution and therefore, under normal circumstances, does not
expect to be subject to this excise tax. However, the Fund may also decide to distribute less and pay the federal excise taxes.
If,
for any taxable year, the Fund did not qualify as a regulated investment company for U.S. federal income tax purposes, it would be treated
as a U.S. corporation subject to U.S. federal income tax, and possibly state and local income tax, and distributions to its shareholders
would not be deductible by the Fund in computing its taxable income.
A
Common Shareholder will have all dividends and distributions automatically reinvested in shares of common stock of the Fund (unless the
shareholder “opts out” of the Plan). For shareholders subject to U.S. federal income tax, Fund dividends that are not “exempt-interest”
dividends will generally be taxable regardless of whether the shareholder takes them in cash or they are reinvested in additional shares
of the Fund. Distributions of the Fund’s investment company taxable income (determined without regard to the deduction for dividends
paid) will generally be taxable as ordinary income to the extent of the Fund’s current and accumulated earnings and profits. The
Fund does not generally expect to pay dividends that qualify for either the dividends received deduction available to corporate shareholders
under Section 243 of the Code or the reduced rates of U.S. federal income taxation for “qualified dividend income” available
to non-corporate shareholders under Section 1(h)(11) of the Code. Distributions of net capital gain, if any, that are properly reported
by the Fund are generally taxable as long-term capital gain for U.S. federal income tax purposes without regard to the length of time
a shareholder has held shares of the Fund. If the Fund received dividends from an Underlying Fund that qualifies as a regulated investment
company, and the Underlying Fund designates such dividends as qualified dividend income or as eligible for the dividends received deduction,
then the Fund is permitted in turn to designate a portion of its distributions as qualified dividend income and/or as eligible for the
dividends received deduction, provided the Fund meets holding period and other requirements with respect to shares of the Underlying
Fund.
A
distribution of an amount in excess of the Fund’s current and accumulated earnings and profits, if any, will be treated by a shareholder
as a tax-free return of capital, which is applied against and reduces the shareholder’s basis in his, her or its shares. To the
extent that the amount of any such distribution exceeds the shareholder’s basis in his, her, or its shares, the excess will be
treated by the shareholder as gain from the sale or exchange of such shares. The U.S. federal income tax status of all dividends and
distributions will be designated by the Fund and reported to shareholders annually. The Fund can provide no assurance regarding the portion
of its dividends that will qualify for the dividends received deduction or for qualified dividend income treatment. As long as the Fund
qualifies as a RIC under the Code, it is not expected that any significant part of its distributions to Common Shareholders from its
investments will so qualify.
The
Fund intends to distribute all realized net capital gains, if any, at least annually. If, however, the Fund were to retain any net capital
gain, the Fund may designate the retained amount as undistributed capital gains in a notice to shareholders who, if subject to U.S. federal
income tax on long-term capital gains, (i) will be required to include in income as long-term capital gain, their proportionate share
of such undistributed amount, and (ii) will be entitled to credit their proportionate share of the federal income tax paid by the Fund
on the undistributed amount against their U.S. federal income tax liabilities, if any, and to claim refunds to the extent the credit
exceeds such liabilities. If such an event occurs, the tax basis of shares owned by a shareholder of the Fund will, for U.S. federal
income tax purposes, generally be increased by the difference between the amount of undistributed net capital gain included in the shareholder’s
gross income and the tax deemed paid by the shareholder.
Any
dividend declared by the Fund in October, November or December with a record date in such a month and paid during the following January
will be treated for U.S. federal income tax purposes as paid by the Fund and received by shareholders on December 31 of the calendar
year in which it is declared.
If
a shareholder’s distributions are automatically reinvested in additional Common Shares, for U.S. federal income tax purposes, the
shareholder will be treated as having received a distribution in the amount of the cash dividend that the shareholder would have received
if the shareholder had elected to receive cash, unless the distribution is in newly issued shares of the Fund that are trading at or
above NAV, in which case the shareholder will be treated as receiving a distribution equal to the fair market value of the stock the
shareholder receives.
Certain
of the investment practices of the Fund or an Underlying Fund are subject to special and complex federal income tax provisions that may,
among other things, (i) disallow, suspend or otherwise limit the allowance of certain losses or deductions, (ii) convert tax-advantaged,
long-term capital gains and qualified dividend income into higher taxed short-term capital gain or ordinary income, (iii) convert an
ordinary loss or a deduction into a capital loss (the deductibility of which is more limited), (iv) cause the Fund or an Underlying Fund
to recognize income or gain without a corresponding receipt of cash, (v) adversely affect the timing as to when a purchase or sale of
stock or securities is deemed to occur, (vi) produce income that will not be qualifying income for purposes of the 90% income test and
(vii) adversely alter the intended characterization of certain complex financial transactions. These rules could therefore affect the
character, amount and timing of distributions to shareholders. The Fund will monitor its investments and transactions and may make certain
federal income tax elections where applicable in order to mitigate the effect of these provisions, if possible.
The
Fund will not be able to offset gains distributed by one Underlying Fund in which it invests against losses realized by another Underlying
Fund in which the Fund invests. Redemptions of shares in an Underlying Fund, including those resulting from changes in the allocation
among Underlying Funds, could also cause additional distributable gains to shareholders of the Fund. A portion of any such gains may
be short-term capital gains that would be distributable as ordinary income to shareholders of the Fund. Further, a portion of losses
on redemptions of shares in the Underlying Funds may be deferred under the wash sale rules. Additionally, the Fund’s investment
in an Underlying Fund may result in the Fund’s receipt of cash in excess of the Underlying Fund’s earnings; if the Fund distributes
these amounts, the distributions could constitute a return of capital to Fund shareholders for federal income tax purposes. As a result
of these factors, the use of the fund of funds structure by the Fund could therefore affect the amount, timing and character of distributions
to shareholders.
Investments
in distressed debt obligations that are at risk of or in default may present special federal income tax issues for the Fund. The federal
income tax consequences to a holder of such securities are not entirely certain. If the Fund’s characterization of such investments
were successfully challenged by the IRS or the IRS issues guidance regarding investments in such securities, it may affect whether the
Fund has made sufficient distributions or otherwise satisfied the requirements to maintain its qualification as a regulated investment
company and avoid federal income and excise taxes.
The
Fund may qualify to pay “exempt-interest” dividends, as defined in the Code, on its Common Shares by satisfying the requirement
that, at the close of each quarter of its taxable year, at least 50% of the value of its total assets consists of municipal securities.
Exempt-interest dividends are dividends or any part thereof (other than a capital gain dividend) paid by the Fund which are attributable
to interest on municipal securities and which are so reported by the Fund. As an alternative, the Fund may qualify to pay exempt-interest
dividends if it is a qualified fund-of-funds, i.e., if at least 50% of the value of its total assets are invested in the shares of Underlying
RICs at the close of each quarter of its taxable year. Exempt-interest dividends will be exempt from federal income tax, subject to the
possible application of the federal alternative minimum tax applicable to individuals.
The
Fund or an Underlying Fund may be subject to withholding and other taxes imposed by foreign countries, including taxes on interest, dividends
and capital gains with respect to its investments in those countries, which would, if imposed, reduce the yield on or return from those
investments. Tax treaties between certain countries and the U.S. may reduce or eliminate such taxes in some cases.
Sales,
exchanges and other dispositions of the Fund’s shares generally are taxable events for shareholders that are subject to U.S. federal
income tax. Shareholders should consult their own tax advisors with reference to their individual circumstances to determine whether
any particular transaction in the Fund’s shares is properly treated as a sale or exchange for federal income tax purposes, as the
following discussion assumes, and the tax treatment of any gains or losses recognized in such transactions. Gain or loss will generally
be equal to the difference between the amount of cash and the fair market value of other property received and the shareholder’s
adjusted tax basis in the shares sold or exchanged. Such gain or loss will generally be characterized as capital gain or loss and will
be long-term if the shareholder’s holding period for the shares is more than one year and short-term if it is one year or less.
However, any loss realized by a shareholder upon the sale or other disposition of shares with a tax holding period of six months or less
will be treated as a long-term capital loss to the extent of any amounts treated as distributions of long-term capital gain with respect
to such shares. Additionally, any loss realized by a shareholder of the Fund upon the sale of shares held for six months or less may
be disallowed to the extent of any exempt-interest dividends received with respect to such shares. For the purposes of calculating the
six-month period, the holding period is suspended for any periods during which the shareholder’s risk of loss is diminished as
a result of holding one or more other positions in substantially similar or related property or through certain options, short sales
or contractual obligations to sell. The ability to deduct capital losses may be limited. In addition, losses on sales or other dispositions
of shares may be disallowed under the “wash sale” rules in the event that substantially identical stock or securities are
acquired (including those made pursuant to reinvestment of dividends) within a period of 61 days beginning 30 days before and ending
30 days after a sale or other disposition of shares. In such a case, the disallowed portion of any loss generally would be included in
the U.S. federal income tax basis of the shares acquired.
An
additional 3.8% Medicare tax is imposed on certain net investment income (including ordinary dividends and capital gain distributions
received from the Fund and net gains from redemptions or other taxable dispositions of Fund shares) of U.S. individuals, estates and
trusts to the extent that such person’s “modified adjusted gross income” (in the case of an individual) or “adjusted
gross income” (in the case of an estate or trust) exceeds certain threshold amounts.
The
Fund is required in certain circumstances to backup withhold at a current rate of 24% on reportable payments including dividends, capital
gain distributions, and proceeds of sales or other dispositions of the Fund’s shares paid to certain holders of the Fund’s
shares who do not furnish the Fund with their correct social security number or other taxpayer identification number and certain certifications,
or who are otherwise subject to backup withholding. Backup withholding is not an additional tax. Any amounts withheld from payments made
to a shareholder may be refunded or credited against such shareholder’s U.S. federal income tax liability, if any, provided that
the required information is timely furnished to the IRS.
This
Prospectus does not address the U.S. federal income tax consequences to a non-U.S. shareholder of an investment in common stock. Non-U.S.
shareholders should consult their tax advisors concerning the tax consequences of ownership of shares of the Fund, including the possibility
that distributions may be subject to a 30% U.S. withholding tax (or a reduced rate of withholding provided by an applicable treaty if
the investor provides proper certification of its non-U.S. status).
A
separate U.S. withholding tax may apply in the case of distributions to (i) certain non-U.S. financial institutions that have not agreed
to collect and disclose certain account holder information and are not resident in a jurisdiction that has entered into such an agreement
with the U.S. Treasury and (ii) certain other non-U.S. entities that do not provide certain certifications and information about the
entity’s U.S. owners.
The
foregoing is a general and abbreviated summary of the provisions of the Code and the Treasury regulations thereunder currently in effect
as they directly govern the taxation of the Fund and its shareholders. These provisions are subject to change by legislative or administrative
action, and any such change may be retroactive. A more complete discussion of the federal income tax rules applicable to the Fund can
be found in the SAI, which is incorporated by reference into this Prospectus. Shareholders are urged to consult their tax advisors regarding
specific questions as to U.S. federal, foreign, state, and local income or other taxes before making an investment in the Fund.
CALIFORNIA
TAX MATTERS
The
assets of the Fund may consist of one or more of the following: (i) interest bearing obligations issued by or on behalf of a state or
a local government (the “Bonds”), and (ii) shares (the “RIC Shares”) in funds qualifying as regulated
investment companies (“RICs”) that are treated as interests in regulated investment companies for federal income tax
purposes. A portion of the Bonds may be issued by the State of California or a local government in California (the “California
Bonds”). The discussion in this section is based on the assumption that: (i) the California Bonds were validly issued by the
State of California or a local government in California, and (ii) the interest on the Bonds is excludable from gross income for federal
income tax purposes. This portion of the disclosure does not address the taxation of taxpayers other than individuals who are full-time
residents of the State of California and corporations that are subject to California corporate income or franchise tax.
If
you are an individual, you may be able to exclude from taxable income for purposes of the California personal income tax dividends received
from the Fund that are properly reported by the Fund as exempt-interest dividends for California personal income tax purposes in written
statements furnished to you. The portion of the Fund’s dividends reported as California exempt-interest dividends may not exceed
the amount of interest the Fund receives during its taxable year on obligations the interest on which, if held by an individual, is exempt
from taxation by the State of California and the amount of California exempt-interest dividends the Fund receives from the RIC Shares,
reduced by certain non-deductible expenses. The Fund may designate California exempt-interest dividends only if the Fund qualifies as
a regulated investment company under the Code, and, if at the close of each quarter of its taxable year, (i) at least 50 percent of the
value of the total assets of the Fund consists of obligations the interest on which, when held by an individual, is exempt from taxation
by the State of California or (ii) at least 50 percent of the value of the total assets of the Fund consists of interests in other entities
qualifying as regulated investment companies for federal income tax purposes in a taxable year. It is not anticipated that at least 50
percent of the value of the total assets of the Fund will consist of obligations the interest on which, when held by an individual, is
exempt from taxation by the State of California. However, at least 50 percent of the value of the total assets of the Fund may consist
of interests in other entities qualifying as regulated investment companies for federal income tax purposes. Depending upon the nature
and source of the income from the Bonds and the RICs, the Fund may be eligible to distribute dividends that are properly reported by
the Fund as exempt-interest dividends for purposes of the California personal income tax.
Distributions
from the Fund, other than those properly reported by the Fund as exempt-interest dividends for California personal income tax purposes,
will generally be subject to the California personal income tax. Please note that all distributions from the Fund, including California
exempt-interest dividends, received by taxpayers subject to the California corporation tax laws may be subject to the California corporate
franchise tax or the California corporate income tax. If a taxpayer is subject to California personal income tax, corporate franchise
tax or corporate income tax, any gain recognized on the sale or redemption of shares of the Fund generally will be taxable for purposes
of such taxes. Interest on indebtedness incurred or continued to purchase or carry shares of the Fund, if the Fund distributes California
exempt-interest dividends during a tax year, is generally not deductible for purposes of the California personal income tax.
Fund
counsel has not independently examined the RIC Shares, the Bonds or the opinions of bond counsel rendered in connection with the issuance
of the Bonds. Ownership of shares in the Fund may result in other California tax consequences to certain taxpayers, and prospective investors
should consult their tax advisors.
PLAN
OF DISTRIBUTION
The
Fund may sell up to $175,000,000 in aggregate initial offering price of (i) Common Shares, (ii) Preferred Shares, and/or (iii) Rights,
from time to time under this Prospectus and any related prospectus supplement in any one or more of the following ways: (1) directly
to one or more purchasers; (2) through agents; (3) to or through underwriters; or (4) through dealers. See also “Dividend Reinvestment
Plan” above.
Each
prospectus supplement relating to an offering of the Securities will state the terms of the offering, including as applicable:
| ● | the
names of any agents, underwriters or dealers; |
| ● | any
sales loads or other items constituting underwriters’ compensation; |
| ● | any
discounts, commissions, fees or concessions allowed or reallowed or paid to dealers or agents; |
| ● | the
public offering or purchase price of the offered Securities and the estimated net proceeds
the Fund will receive from the sale; and |
| ● | any
securities exchange on which the offered Securities may be listed. |
Any
public offering price and any discounts or concessions allowed or reallowed or paid to dealers may be changed from time to time.
In
the case of a Rights offering, the applicable prospectus supplement will set forth the number of Common Shares and/or Preferred Shares
issuable upon the exercise of each Right and the other terms of such Rights offering. The transferable Rights offered by means of this
Prospectus and applicable prospectus supplement, including any related over-subscription privilege and any follow-on offering, if applicable,
may be convertible or exchangeable into Common Shares at a ratio not to exceed one Common Share received for every three subscription
rights to purchase Common Shares converted, exercised or exchanged on an aggregate basis such that the exercise of all subscription rights
to purchase Common Shares in any transferable subscription Rights offering will not cumulatively result in more than a 33 1/3 percentage
increase in the outstanding common shares of the Fund.
Direct
Sales
The
Fund may sell Securities directly to, and solicit offers from, 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. In addition
to cash purchases, the Fund may allow Securities to be purchased by tendering payment in-kind in the form of shares of stock, bonds or
other securities, including shares of other investment companies. Any securities used to buy the Fund’s Securities must be consistent
with the Fund’s investment objective and otherwise acceptable to the Adviser and the Board. 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 designates. Any agent involved in the offer and sale will be named and any commissions
payable by the Fund will be described in the prospectus supplement. Unless otherwise indicated in the prospectus supplement, the agents
will be acting on a best efforts basis for the period of their appointment.
The
Fund may engage in at-the-market offerings to or through a market maker or into an existing trading market, on an exchange or otherwise,
in accordance with Rule 415(a)(4). An at-the-market offering may be through one or more underwriters or dealers acting as principal or
agent for the Fund.
By
Underwriters
The
Fund may offer and sell Securities from time to time to one or more underwriters who would purchase the Securities as principal for resale
to the public, either on a firm commitment or best efforts basis. If the Fund sells Securities to underwriters, the Fund will execute
an underwriting agreement with them at the time of the sale and will name them in the prospectus supplement. In connection with these
sales, the underwriters may be deemed to have received compensation from the Fund in the form of underwriting discounts and commissions.
The underwriters also may receive commissions from purchasers of Securities for whom they may act as agent. Unless otherwise stated in
the prospectus supplement, the underwriters will not be obligated to purchase the Securities unless the conditions set forth in the underwriting
agreement are satisfied, and if the underwriters purchase any of the Securities, they will be required to purchase all of the offered
Securities. In the event of default by any underwriter, in certain circumstances, the purchase commitments may be increased among the
non-defaulting underwriters or the underwriting agreement may be terminated. The underwriters may sell the offered Securities to or through
dealers, and those dealers may receive discounts, concessions or commissions from the underwriters as well as from the purchasers for
whom they may act as agent. Any public offering price and any discounts or concessions allowed or reallowed or paid to dealers may be
changed from time to time.
In
connection with an offering of Common Shares, if a prospectus supplement so indicates, the Fund may grant the underwriters an option
to purchase additional Common Shares at the public offering price, less the underwriting discounts and commissions, within a specified
number of days from the date of the prospectus supplement, to cover any overallotments.
By
Dealers
The
Fund may offer and sell Securities from time to time to one or more dealers who would purchase the Securities as principal. The dealers
then may resell the offered Securities to the public at fixed or varying prices to be determined by those dealers at the time of resale.
The names of the dealers and the terms of the transaction will be set forth in the prospectus supplement.
General
Information
Agents,
underwriters, or dealers participating in an offering of Securities may be deemed to be underwriters, and any discounts and commission
received by them and any profit realized by them on resale of the offered Securities for whom they may act as agent may be deemed to
be underwriting discounts and commissions under the 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. In addition to cash purchases, the Fund may allow Securities to
be purchased by tendering payment in-kind in the form of shares of stock, bonds or other securities. Any underwriter may engage in overallotment,
stabilizing transactions, short-covering transactions and penalty bids in accordance with Regulation M under the Exchange Act.
| ● | Overallotment
involves sales in excess of the offering size, which create a short position. |
| ● | Stabilizing
transactions permit bids to purchase the underlying security so long as the stabilizing bids
do not exceed a specified maximum price. Stabilizing transactions may occur when the demand
for the shares of an offering is less than expected. |
| ● | Syndicate-covering
or other short-covering transactions involve purchases of the securities, either through
exercise of the overallotment option or in the open market after the distribution is completed,
to cover short positions. |
| ● | Penalty
bids permit the underwriters to reclaim a selling concession from a dealer when the securities
originally sold by the dealer are purchased in a stabilizing or covering transaction to cover
short positions. |
Any
of these activities may stabilize or maintain the market price of the Securities above independent market levels. The underwriters are
not required to engage in these activities, and may end any of these activities at any time.
Any
underwriters that are qualified market makers on the NYSE may engage in passive market making transactions in the Fund’s shares
on the NYSE in accordance with Regulation M under the Exchange Act, during the business day prior to the pricing of the offering, before
the commencement of offers or sales of the Fund’s shares. Passive market makers must comply with applicable volume and price limitations
and must be identified as passive market makers. In general, a passive market maker must display its bid at a price not in excess of
the highest independent bid for such security; if all independent bids are lowered below the passive market maker’s bid, however,
the passive market maker’s bid must then be lowered when certain purchase limits are exceeded. Passive market making may stabilize
the market price of the securities at a level above that which might otherwise prevail in the open market and, if commenced, may be discontinued
at any time.
In
connection with any Rights offering, the Fund may also enter into a standby underwriting agreement with one or more underwriters pursuant
to which the underwriter(s) will purchase Common Shares and/or Preferred Shares remaining unsubscribed for after the Rights offering.
Any
underwriters to whom the offered Securities are sold for offering and sale may make a market in the offered Securities, but the underwriters
will not be obligated to do so and may discontinue any market-making at any time without notice. There can be no assurance that there
will be a liquid trading market for the offered Securities.
Under
agreements entered into with the Fund, underwriters and agents may be entitled to indemnification by the Fund against certain civil liabilities,
including liabilities under the 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 and its subsidiaries,
if any, in the ordinary course of business.
The
aggregate offering price specified on the cover of this Prospectus relates to the offering of the Securities not yet issued as of the
date of this Prospectus.
To
the extent permitted under the 1940 Act and the rules and regulations promulgated thereunder, the underwriters may from time to time
act as a broker or dealer and receive fees in connection with the execution of our portfolio transactions after the underwriters have
ceased to be underwriters and, subject to certain restrictions, each may act as a broker while it is an underwriter.
The
Prospectus and accompanying prospectus supplement in electronic form may be made available on the website maintained by the underwriters.
The underwriters may agree to allocate a number of Securities for sale to their online brokerage account holders. Such allocations of
Securities for internet distributions will be made on the same basis as other allocations. In addition, Securities may be sold by the
underwriters to securities dealers who resell Securities to online brokerage account holders.
ADMINISTRATOR,
FUND ACCOUNTANT, TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND CUSTODIAN
The
Fund’s administrator is ALPS Fund Services, Inc. (“AFS”), an affiliate of the Fund’s transfer agent. AFS is a
service company and SEC-registered transfer agent. Under the Administration, Bookkeeping and Pricing Services Agreement, AFS is responsible
for calculating NAVs, providing additional fund accounting and tax services, and providing fund administration and compliance-related
services. The address of AFS is 1290 Broadway, Suite 1100, Denver, CO 80203. For its services, the Fund pays AFS customary fees based
on the Fund’s net assets plus out of pocket expenses.
State
Street Bank and Trust Company, located at State Street Financial Center, One Lincoln Street, Boston, MA 02111, will serve as the Fund’s
custodian and will maintain custody of the securities and cash of the Fund. For its services, the custodian will receive a monthly fee
based upon, among other things, the average value of the net assets of the Fund, plus certain charges for securities transactions.
DST
Systems, Inc., an affiliate of the Fund’s administrator, located at 333 West 11th Street, 5th Floor, Kansas
City, Missouri 64105, will serve as the Fund’s transfer agent, registrar, Plan Administrator and dividend disbursing agent.
LEGAL
MATTERS
Certain
legal matters in connection with the Common Shares will be passed upon for the Fund by Faegre Drinker Biddle & Reath LLP. Faegre
Drinker Biddle & Reath LLP may rely as to certain matters of Maryland law on the opinion of Shapiro Sher Guinot & Sandler, P.A.
CONTROL
PERSONS
Based
on a review of Schedule 13D and Schedule 13G filings as of the date of this Prospectus, there are no persons who control the Fund. For
purposes of the foregoing statement, “control” means (1) the beneficial ownership, either directly or through one or more
controlled companies, of more than 25% of the voting securities of a company; (2) the acknowledgement or assertion by either the controlled
or controlling party of the existence of control; or (3) an adjudication under Section 2(a)(9) of the 1940 Act, which has become final,
that control exists.
ADDITIONAL
INFORMATION
The
Fund is subject to the informational requirements of the Exchange Act and the 1940 Act and in accordance therewith files reports and
other information with the SEC. The SEC maintains a website at sec.gov containing reports, proxy and information statements and other
information regarding registrants, including the Fund (when available), that file electronically with the SEC.
This
Prospectus constitutes part of a Registration Statement filed by the Fund with the SEC under the Securities Act and the 1940 Act. This
Prospectus omits certain of the information contained in the Registration Statement, and reference is hereby made to the Registration
Statement and related exhibits for further information with respect to the Fund and the Common Shares offered hereby. Any statements
contained herein concerning the provisions of any document are not necessarily complete, and, in each instance, reference is made to
the copy of such document filed as an exhibit to the Registration Statement 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 (sec.gov).
THE
FUND’S PRIVACY POLICY
The
Fund is committed to ensuring your financial privacy. This notice is being sent to comply with privacy regulations of the SEC. The Fund
has in effect the following policy with respect to nonpublic personal information about its customers:
| ● | Only
such information received from you, through application forms or otherwise, and information
about your Fund transactions will be collected. |
| ● | None
of such information about you (or former customers) will be disclosed to anyone, except as
permitted by law (which includes disclosure to employees necessary to service your account). |
| ● | Policies
and procedures (including physical, electronic and procedural safeguards) are in place that
are designed to protect the confidentiality of such information. |
| ● | The
Fund does not currently obtain consumer information. If the Fund were to obtain consumer
information at any time in the future, it would employ appropriate procedural safeguards
that comply with federal standards to protect against unauthorized access to and properly
dispose of consumer information. |
For
more information about the Fund’s privacy policies call (844) 569-4750 (toll-free).
The
Fund does not control the safeguarding, use or disposition of the personal and financial information about investors that is in the possession
of the Underwriters and dealers. Investors should look to the privacy policies of those entities for information about how they treat
investors’ personal and financial information.
RiverNorth
Managed Duration Municipal Income Fund II, Inc.
PROSPECTUS
[ ], 2024
Until [ ], 2024 (25
days after the date of this Prospectus), all dealers that effect transactions in these securities, whether or not participating in this
offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when
acting as underwriters.
The
information in this Statement of Additional Information is not complete and may be changed. We may not sell these securities until the
registration statement filed with the Securities and Exchange Commission is effective. This Statement of Additional Information is not
an offer to sell these securities and it is not soliciting an offer to buy these securities in any state or other jurisdiction where
the offer or sale is not permitted.
SUBJECT
TO COMPLETION, DATED February 21, 2024
RiverNorth
Managed Duration Municipal Income Fund II, Inc.
Statement
of Additional Information
RiverNorth
Managed Duration Municipal Income Fund II, Inc. (the “Fund”) is a Maryland corporation that is registered under the Investment
Company Act of 1940, as amended (the “1940 Act”), as a recently organized, diversified, closed-end management investment
company. The Fund’s primary investment objective is current income exempt from regular U.S. Federal income taxes (but which may
be includable in taxable income for purposes of the Federal alternative minimum tax). The Fund’s secondary investment objective
is total return. RiverNorth Capital Management, LLC, the investment adviser of the Fund (“RiverNorth” or the “Adviser”),
and MacKay Shields LLC, the subadviser of the Fund (“MacKay Shields” or the “Subadviser”), attempts to achieve
the Fund’s investment objectives by allocating the Fund’s assets between two principal investment strategies: Tactical Municipal
Closed-End Fund Strategy and Municipal Bond Income Strategy. See “Investment Objectives, Strategies and Policies—Principal
Investment Strategies” in the Fund’s Prospectus (as defined below). There is no assurance that the Fund will achieve its
investment objectives.
This
Statement of Additional Information (“SAI”) relates to the Fund’s (i) shares of common stock, $0.0001 par value per
share (the “Common Shares” and holders of such Common Shares, “Common Shareholders”), (ii) shares of preferred
stock (the “Preferred Shares”), (iii) subscription rights to purchase Common Shares, (iv) subscription rights to purchase
Preferred Shares and (v) subscription rights to purchase Common Shares and Preferred Shares (“Rights” and, together with
the Common Shares and Preferred Shares, “Securities”). This SAI is not a prospectus, but should be read in conjunction with
the prospectus for the Fund dated [ ], 2024 (the “Prospectus”) and the applicable prospectus supplement.
This SAI does not include all of the information that a prospective investor should consider before purchasing Securities. Investors
should obtain and read the Prospectus and the applicable prospectus supplement prior to purchasing Securities. A copy of the Prospectus
may be obtained without charge by calling the Fund at (844) 569-4750.
The
Prospectus and this SAI omit certain of the information contained in the registration statement filed with the Securities and Exchange
Commission (“SEC”), Washington, D.C. The Fund’s filings with the SEC are available to the public on the SEC’s
website at sec.gov. Copies of these filings may be obtained, after paying a duplicating fee, by electronic request at the following e-mail
address: publicinfo@sec.gov. Capitalized terms used but not defined herein have the meanings ascribed to them in the Prospectus.
This
SAI is dated [ ], 2024.
TABLE
OF CONTENTS
|
Page |
INVESTMENT RESTRICTIONS |
1 |
INVESTMENT POLICIES AND TECHNIQUES |
3 |
MANAGEMENT OF THE FUND |
24 |
Investment Adviser |
24 |
Investment Subadviser |
24 |
Investment Advisory Agreement
and Subadvisory Agreement |
24 |
Portfolio Managers |
26 |
Compensation of Portfolio
Managers |
28 |
Portfolio Manager Ownership
of Fund Shares |
29 |
Conflicts of Interest |
29 |
Other Accounts Managed |
31 |
Administrator |
32 |
Codes of Ethics |
32 |
FUND SERVICE PROVIDERS |
32 |
Independent Registered Public
Accounting Firm |
32 |
Legal Counsel |
32 |
Custodian and Transfer Agent |
32 |
PORTFOLIO TRANSACTIONS |
33 |
U.S. FEDERAL INCOME TAX MATTERS |
34 |
Fund Taxation |
34 |
Common Shareholder
Taxation |
37 |
Preferred Shareholder Taxation |
42 |
Other Taxes |
42 |
BOARD MEMBERS AND OFFICERS |
43 |
Director Ownership in the
Fund |
56 |
Securities Beneficially
Owned |
56 |
PROXY VOTING GUIDELINES |
57 |
ADDITIONAL INFORMATION |
57 |
FINANCIAL STATEMENT AND REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM |
57 |
APPENDIX A - PROXY VOTING GUIDELINES OF THE ADVISER |
A-1 |
APPENDIX B - PROXY VOTING GUIDELINES OF THE SUBADVISER |
B-1 |
INVESTMENT
RESTRICTIONS
Except
as otherwise indicated, the Fund’s investment policies are not fundamental and may be changed without a vote of Common Shareholders.
There can be no assurance the Fund’s investment objectives will be met.
Any
investment restrictions herein that involve a maximum percentage of securities or assets shall not be considered to be violated unless
an excess over the percentage occurs immediately after and is caused by an acquisition or encumbrance of securities or assets of, or
borrowings by, the Fund. However, the asset coverage requirement applicable to borrowings will be maintained as required under the 1940
Act.
The
Fund’s primary investment objective and 80% policy (as set forth in the Prospectus) are considered fundamental. In addition, as
a matter of fundamental policy, the Fund will not:
(1)
with respect to 75% of its total assets, purchase any securities (other than Government securities (as defined in the 1940 Act) and securities
issued by other investment companies), if, as a result, more than 5% of the Fund’s total assets would then be invested in securities
of any single issuer or if, as a result, the Fund would hold more than 10% of the outstanding voting securities of any single issuer;
(2)
borrow money, except as permitted under the 1940 Act, as it may be amended, interpreted or modified from time to time by Congress or
regulatory authorities having jurisdiction, including, for the avoidance of doubt, SEC staff interpretations;
(3)
issue senior securities, except as permitted under the 1940 Act, as it may be amended, interpreted or modified from time to time by Congress
or regulatory authorities having jurisdiction, including, for the avoidance of doubt, SEC staff interpretations;
(4)
purchase any security if, as a result, 25% or more of the Fund’s total assets (taken at current value) would be invested in any
single industry or group of industries, except that the Fund’s investments in Underlying Funds shall not be deemed to be investments
in a single industry or group of industries, and except that this limitation shall not apply to municipal securities other than those
municipal securities backed principally by the assets and revenues of non-governmental users. (For purposes of this restriction, governments
and their political subdivisions are not members of any industry.);
(5)
engage in the business of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter
in connection with the disposition of portfolio securities;
(6)
purchase or sell real estate; provided that this restriction shall not prevent the Fund from investing in municipal securities
secured by real estate or interests therein or foreclosing upon and selling such real estate or from managing and maintaining it in the
interim;
(7)
purchase or sell commodities, unless acquired as a result of ownership of securities or other instruments; provided that this
restriction shall not prohibit the Fund from purchasing or selling options, futures contracts and related options thereon, forward contracts,
swaps, caps, floors, collars and any other financial instruments or from investing in securities or other instruments backed by physical
commodities or as otherwise permitted by the 1940 Act, as amended, interpreted or modified from time to time by Congress or regulatory
authorities having jurisdiction, including, for the avoidance of doubt, SEC staff interpretations, or pursuant to an exemption or other
relief applicable to the Fund from the provisions of the 1940 Act, as amended from time to time; or
(8)
make loans, except as permitted under the 1940 Act, as it may be amended, interpreted or modified from time to time by Congress or regulatory
authorities having jurisdiction, including, for the avoidance of doubt, SEC staff interpretations or except as may be permitted by exemptive
orders granted under the 1940 Act.
A
fundamental policy may not be changed without the approval of a majority of the outstanding voting securities of the Fund which, under
the 1940 Act and the rules thereunder and as used in this SAI, means the lesser of (1) 67% or more of the voting securities present at
such meeting, if the holders of more than 50% of the outstanding voting securities of the Fund are present or represented by proxy, or
(2) more than 50% of the outstanding voting securities of the Fund.
Fundamental
Investment Restriction (1)
For
the purpose of applying the limitation in fundamental investment restriction (1), an issuer shall be deemed the sole issuer of a security
when its assets and revenues are separate from other governmental entities and its securities are backed only by its assets and revenues.
Similarly, in the case of a non-governmental issuer, such as an industrial corporation or a privately owned or operated hospital, if
the security is backed only by the assets and revenues of the non-governmental issuer, then such non-governmental issuer would be deemed
to be the sole issuer. Where a security is also backed by the enforceable obligation of a superior or unrelated governmental or other
entity (other than a bond insurer), it shall also be included in the computation of securities owned that are issued by such governmental
or other entity. Where a security is guaranteed by a governmental entity or some other facility, such as a bank guarantee or letter of
credit, such a guarantee or letter of credit would be considered a separate security and would be treated as an issue of such government,
other entity or bank. When a municipal bond is insured by bond insurance, it shall not be considered a security that is issued or guaranteed
by the insurer; instead, the issuer of such municipal bond will be determined in accordance with the principles set forth above. The
foregoing restrictions do not limit the percentage of the Fund’s assets that may be invested in municipal securities insured by
any given insurer.
Fundamental
Investment Restriction (2)
The
1940 Act permits the Fund to borrow money in an amount up to one-third of its total assets (including the amount borrowed) less its liabilities
(not including any borrowings but including the fair market value at the time of computation of any other senior securities then outstanding).
The Fund may also borrow an additional 5% of its total assets without regard to the foregoing limitation for temporary purposes such
as clearance of portfolio transactions.
Practices
and investments that may involve leverage but are not considered to be borrowings are not subject to the policy. For more information
on leverage and the risks relating thereto, see “Risks—Structural Risk—Leverage Risk” in the Prospectus.
Fundamental
Investment Restriction (3)
The
ability of a closed-end fund to issue senior securities is severely circumscribed by complex regulatory constraints under the 1940 Act
that restrict, for instance, the amount, timing, and form of senior securities that may be issued. Certain portfolio management techniques,
such as reverse repurchase agreements, tender option bonds, credit default swaps, futures contracts, the purchase of securities on margin,
short sales, or the writing of puts on portfolio securities, may be considered senior securities.
Under
the 1940 Act, the issuance by the Fund of a senior security representing an indebtedness is subject to a requirement that provision is
made that, (i) if on the last business day of each of 12 consecutive calendar months the asset coverage with respect to the senior security
is less than 100%, the holders of such securities voting as a class shall be entitled to elect at least a majority of the Board with
such voting right to continue until the asset coverage for such class of senior security is at least 110% on the last business day of
each of 3 consecutive calendar months or, (ii) if on the last business day of each of 24 consecutive calendar months the asset coverage
for such class of senior security is less than 100%, an event of default shall be deemed to have occurred.
Fundamental
Investment Restriction (4)
The
limitation in fundamental investment restriction (4) will apply to municipal securities if the payment of principal and interest for
such securities is derived principally from a specific project associated with an issuer that is not a governmental entity or a political
subdivision of a government, and in that situation the Fund will consider such municipal securities to be in an industry associated with
the project. Although the Fund’s investments in Underlying Funds are not deemed to be investments in a particular industry, to
the extent that the Fund is aware of the investments held by the Underlying Funds, the Fund will consider such information when determining
compliance with fundamental investment restriction (4).
Fundamental
Investment Restriction (7)
The
ability of the Fund to invest directly in commodities, and in certain commodity-related securities and other instruments, is subject
to significant limitations in order to enable the Fund to maintain its status as a regulated investment company under the Internal Revenue
Code of 1986, as amended (the “Code”).
Fundamental
Investment Restriction (8)
The
1940 Act does not prohibit a fund from making loans; however, SEC staff interpretations currently prohibit funds from lending more than
one-third of their total assets, except through the purchase of debt obligations or the use of repurchase agreements. A repurchase agreement
is an agreement to purchase a security, coupled with an agreement to sell that security back to the original seller on an agreed-upon
date at a price that reflects current interest rates. The SEC frequently treats repurchase agreements as loans.
INVESTMENT
POLICIES AND TECHNIQUES
The
following describes certain investment practices and techniques in which the Fund may engage, and certain of the risks associated with
such practices and techniques, and includes a discussion of the spectrum of investments that the Adviser and the Subadviser in their
discretion may, but are not required to, use in managing the Fund’s assets. Certain risks may only apply to a particular investment
strategy of the Fund, or may apply to both investment strategies. The following descriptions supplement the descriptions of the investment
objectives, policies, strategies and risks as set forth in the Fund’s Prospectus.
These
same investment practices or techniques may be used by the Underlying Funds in which the Fund invests (as described in the Prospectus)
and, therefore, the risks described below may apply to the Underlying Funds as well. The Underlying Funds are not subject to the Fund’s
investment policies and restrictions, and the Underlying Funds may invest their assets in securities and other instruments, and may use
investment techniques and strategies, that are not described in the Prospectus.
Furthermore,
it is possible that certain types of financial instruments or investment techniques described herein may not be available, permissible,
economically feasible or effective for their intended purposes in all markets. Certain practices, techniques or instruments may not be
principal activities of the Fund but, to the extent employed, could from time to time have a material impact on the Fund’s performance.
Municipal
Securities. Municipal securities are either general obligation or revenue bonds and typically are issued to finance public projects
(such as roads or public buildings), to pay general operating expenses or to refinance outstanding debt.
Municipal
securities may also be issued on behalf of private entities or for private activities, such as housing, medical and educational facility
construction, or for privately owned industrial development and pollution control projects. General obligation bonds are backed by the
full faith and credit, or taxing authority, of the issuer and may be repaid from any revenue source; revenue bonds may be repaid only
from the revenues of a specific facility or source. The Fund and the Underlying Funds may also purchase municipal securities that represent
lease obligations, municipal notes, pre-refunded municipal bonds, private activity bonds, tender option bonds and other forms of municipal
bonds and securities.
Municipal
securities of below investment grade quality (Ba/BB or below) are commonly referred to as junk bonds. Issuers of securities rated Ba/BB
or B are regarded as having current capacity to make principal and interest payments but are subject to business, financial or economic
conditions which could adversely affect such payment capacity. Municipal securities rated Baa or BBB or above are considered “investment
grade” securities; municipal securities rated Baa are considered medium grade obligations that lack outstanding investment characteristics
and have speculative characteristics, while municipal securities rated BBB are regarded as having adequate capacity to pay principal
and interest. Municipal securities rated Aaa or AAA in which the Fund may invest may have been so rated on the basis of the existence
of insurance guaranteeing the timely payment, when due, of all principal and interest. Municipal securities rated below investment grade
quality are obligations of issuers that are considered predominately speculative with respect to the issuer’s capacity to pay interest
and repay principal according to the terms of the obligation and, therefore, carry greater investment risk, including the possibility
of issuer default and bankruptcy and increased market price volatility. Municipal securities rated below investment grade tend to be
less marketable than higher-quality securities because the market for them is less broad. The market for municipal securities unrated
by any NRSRO is even narrower. During periods of thin trading in these markets, the spread between bid and asked prices is likely to
increase significantly and the Fund may have greater difficulty selling its portfolio securities. The Fund will be more dependent on
the Adviser’s and the Subadviser’s research and analysis when investing in these securities.
The
Fund and the Underlying Funds may invest in distressed securities which are securities of issuers that may be experiencing financial
difficulties, such as being in default on their obligations to pay principal or interest thereon when due or that are involved in bankruptcy
or insolvency proceedings. The issuers of such securities may be in transition, out of favor, financially leveraged or troubled, or potentially
troubled, and may be or have recently been involved in major strategic actions, restructurings, bankruptcy, reorganization or liquidation.
These characteristics of these issuers can cause their securities to be particularly risky, although they also may offer the potential
for high returns. These issuers’ securities may be considered speculative, and the ability of the issuers to pay their debts on
schedule could be affected by adverse interest rate movements, changes in the general economic climate, economic factors affecting a
particular industry or specific developments within the issuers. Distressed securities frequently do not produce income while they are
outstanding and may require the Fund to bear certain extraordinary expenses in order to protect and recover its investment. See “—Below
Investment Grade Securities Risk.”
Investments
in lower rated or unrated securities may present special tax issues for the Fund to the extent that the issuers of these securities default
on their obligations pertaining thereto, and the federal income tax consequences to the Fund as a holder of such distressed securities
may not be clear.
The
ratings of S&P, Moody’s and Fitch represent their opinions as to the quality of the municipal securities they rate. It should
be emphasized, however, that ratings are general and are not absolute standards of quality. Consequently, municipal securities with the
same maturity, coupon and rating may have different yields while obligations of the same maturity and coupon with different ratings may
have the same yield.
During
temporary defensive periods (e.g., times when, in the Adviser’s or the Subadviser’s opinion, temporary imbalances of supply
and demand or other temporary dislocations in the tax-exempt securities market adversely affect the price at which long-term or intermediate-term
Municipal Bonds are available), and in order to keep the Fund’s cash fully invested, including the period during which the net
proceeds of an offering are being invested, the Fund may invest any percentage of its net assets in short-term investments including
high quality, short-term securities that may be either tax-exempt or taxable. Tax-exempt short-term investments include various obligations
issued by state and local governmental issuers, such as tax-exempt notes (bond anticipation notes, tax anticipation notes and revenue
anticipation notes or other such Municipal Bonds maturing in three years or less from the date of issuance) and municipal commercial
paper. Taxable short-term investments of the Fund may include certificates of deposit issued by U.S. banks with assets of at least $1
billion, or commercial paper or corporate notes, bonds or debentures with a remaining maturity of one year or less, or repurchase agreements.
To the extent the Fund invests in taxable investments, the Fund will not at such times be in a position to achieve its investment objective
of tax-exempt income.
The
Fund may also invest in securities of other open- or closed-end investment companies that invest primarily in municipal bonds of the
types in which the Fund may invest directly. See “—Investment Company Securities.”
Obligations
of issuers of municipal securities are subject to the provisions of bankruptcy, insolvency and other laws affecting the rights and remedies
of creditors. In addition, the obligations of such issuers may become subject to the laws enacted in the future by Congress, state legislatures
or referenda extending the time for payment of principal or interest, or both, or imposing other constraints upon enforcement of such
obligations or upon municipalities to levy taxes. There is also the possibility that, as a result of legislation or other conditions,
the power or ability of any issuer to pay, when due, the principal of, and interest on, its municipal securities may be materially affected.
Subject
to the concentration limits of the Fund’s investment policies and guidelines, the Fund may invest a significant portion of its
total assets in certain sectors of the municipal securities market, such as hospitals and other health care facilities, charter schools
and other private educational facilities, special taxing districts and start-up utility districts and private activity bonds including
industrial development bonds on behalf of transportation companies such as airline companies, whose credit quality and performance may
be more susceptible to economic, business, political, regulatory and other developments than other sectors of municipal issuers. If the
Fund invests a significant portion of its total assets in one or more particular sectors, the Fund’s performance may be subject
to additional risk and variability. To the extent that the Fund focuses its total assets in the hospital and healthcare facilities sector,
for example, the Fund will be subject to risks associated with such sector, including adverse government regulation and reduction in
reimbursement rates, as well as government approval of products and services and intense competition. Securities issued with respect
to special taxing districts will be subject to various risks, including real-estate development related risks and taxpayer concentration
risk. Further, the fees, special taxes or tax allocations and other revenues established to secure the obligations of securities issued
with respect to special taxing districts are generally limited as to the rate or amount that may be levied or assessed and are not subject
to increase pursuant to rate covenants or municipal or corporate guarantees. Charter schools and other private educational facilities
will be subject to various risks, including the reversal of legislation authorizing or funding charter schools, the failure to renew
or secure a charter, the failure of a funding entity to appropriate necessary funds and competition from alternatives such as voucher
programs. Issuers of municipal utility securities can be significantly affected by government regulation, financing difficulties, supply
and demand of services or fuel and natural resource conservation. The transportation sector, including airports, airlines, ports and
other transportation facilities, can be significantly affected by changes in the economy, fuel prices, labor relations, insurance costs
and government regulation.
Municipal
Leases and Certificates of Participation. Also included within the general category of municipal securities are municipal leases,
certificates of participation in such lease obligations or installment purchase contract obligations (collectively, “Municipal
Lease Obligations”) of municipal authorities or entities. Although a Municipal Lease Obligation does not constitute a general obligation
of the municipality for which the municipality’s taxing power is pledged, a Municipal Lease Obligation is ordinarily backed by
the municipality’s covenant to budget for, appropriate and make the payments due under the Municipal Lease Obligation. However,
certain Municipal Lease Obligations contain “nonappropriation” clauses which provide that the municipality has no obligation
to make lease or installment purchase payments in future years unless money is appropriated for such purpose on a yearly basis. In the
case of a “non-appropriation” lease, the Fund’s ability to recover under the lease in the event of non-appropriation
or default will be limited solely to the repossession of the leased property, without recourse to the general credit of the lessee, and
disposition or releasing of the property might prove difficult. To the extent that the Fund invests directly in unrated municipal leases
or participates in such leases, the credit quality rating and risk of cancellation of such unrated leases will be monitored on an ongoing
basis. In order to reduce this risk, the Fund will only purchase Municipal Lease Obligations where the Adviser or Subadviser believes
the issuer has a strong incentive to continue making appropriations until maturity.
Below
Investment Grade Securities. The Fund and the Underlying Funds may invest in below investment grade securities, which are commonly
referred to as “junk” or “high yield” securities. These securities are considered to be high-risk investments.
The risks include the following:
Greater
Risk of Loss. These securities are regarded as predominately speculative. There is a greater risk that issuers of lower-rated securities
will default than issuers of higher-rated securities. Issuers of lower-rated securities generally are less creditworthy and may be highly
indebted, financially distressed or bankrupt. These issuers are more vulnerable to real or perceived economic changes, political changes
or adverse industry developments. In addition, below investment grade securities are frequently subordinated to the prior payment of
senior indebtedness. If an issuer fails to pay principal or interest, the Fund would experience a decrease in income and a decline in
the market value of its investments. The Fund also may incur additional expenses in seeking recovery from the issuer.
Sensitivity
to Interest Rate and Economic Changes. The income and market value of lower-rated securities may fluctuate more than higher-rated
securities. Although certain below investment grade securities may be less sensitive to interest rate changes than investment grade securities,
below investment grade securities generally are more sensitive to short-term corporate, economic and market developments. During periods
of economic uncertainty and change, the market price of the investments in lower-rated securities may be volatile. The default rate for
high yield bonds tends to be cyclical, with defaults rising in periods of economic downturn.
Valuation
Difficulties. It is often more difficult to value lower-rated securities than higher-rated securities. If an issuer’s financial
condition deteriorates, accurate financial and business information may be limited or unavailable. In addition, the lower-rated investments
may be thinly traded and there may be no established secondary market. Because of the lack of market pricing and current information
for investments in lower-rated securities, valuation of such investments is much more dependent on judgment than is the case with higher-rated
securities.
Liquidity.
There may be no established secondary or public market for investments in lower-rated securities. Such securities are frequently traded
in markets that may be relatively less liquid than the market for higher-rated securities. In addition, relatively few institutional
purchasers may hold a major portion of an issue of lower-rated securities at times. As a result, lower-rated securities may be required
to be sold at substantial losses or retained indefinitely even where an issuer’s financial condition is deteriorating.
Credit
Quality. Credit quality of below investment grade securities can change suddenly and unexpectedly, and even recently-issued credit
ratings may not fully reflect the actual risks posed by a particular below investment grade security.
New
Legislation. Future legislation may have a possible negative impact on the market for below investment grade securities.
Borrowing.
The Fund may borrow funds and/or issue preferred stock, notes or other debt securities to the extent permitted by the 1940 Act for
investment and other purposes, such as for providing the Fund with liquidity. The Fund’s use of leverage may include borrowing
through a line of credit with a bank or other financial institution. In addition, the Fund may enter into derivative and other transactions
that have the effect of leverage. Such other transactions may include investing in inverse floating rate securities issued by tender
option bond trusts. Under the requirements of the 1940 Act, the Fund, immediately after any borrowing, must have an “asset coverage”
of at least 300% (i.e., such indebtedness may not exceed 33-1/3% of the value of the Fund’s total assets including the amount
borrowed). With respect to such borrowing, asset coverage means the ratio that the value of the total assets of the Fund, less all liabilities
and indebtedness not represented by senior securities (as defined in the 1940 Act), bears to the aggregate amount of such borrowing represented
by senior securities issued by the Fund. Under the 1940 Act, the Fund is also not permitted to issue preferred stock unless immediately
after such issuance the total asset value of the Fund’s portfolio is at least 200% of the liquidation value of the outstanding
preferred stock (i.e., such liquidation value may not exceed 50% of the Fund’s total assets).
The
use of borrowing and other leverage by the Fund involves special risk considerations that may not be associated with other funds having
similar policies. Because substantially all of the Fund’s assets fluctuate in value, whereas the interest obligation resulting
from a borrowing may be fixed by the terms of the Fund’s agreement with its lender, the net asset value (“NAV”) per
share of Common Shares of the Fund will tend to increase more when its portfolio securities increase in value and decrease more when
its portfolio securities decrease in value than would otherwise be the case if the Fund did not use leverage. In addition, interest costs
on borrowings may fluctuate with changing market rates of interest and may partially offset or exceed the return earned on borrowed funds.
Under adverse market conditions, the Fund might have to sell portfolio securities to meet interest or principal payments at a time when
investment considerations would not favor such sales. The interest that the Fund must pay on borrowed money, together with any additional
fees to establish and maintain a borrowing facility, are additional costs that will reduce or eliminate any net investment income and
may also offset any potential capital gains. Unless appreciation and income, if any, on assets acquired with borrowed funds exceed the
costs of borrowing, the use of leverage will diminish the investment performance of the Fund compared with what it would have been without
leverage. See “Use of Leverage” and “Risks—Structural Risk—Leverage Risk” in the Fund’s Prospectus.
Closed-End
Funds. The Fund may invest in shares of closed-end funds offered in initial or secondary offerings or through purchasing shares in
the secondary market. An initial public offering of closed-end fund shares is typically distributed by a group of underwriters who retain
a spread or underwriting commission based on the initial public offering price. Such shares are then listed for trading on an exchange
and, in some cases, may be traded in other over-the-counter markets. Because the shares of closed-end funds cannot be redeemed upon demand
to the issuer like the shares of an open-end fund, investors seek to buy and sell shares of closed-end funds in the secondary market.
The Fund will incur normal brokerage costs on its secondary purchases similar to the expenses the Fund would incur for the purchase of
securities of any other type of issuer in the secondary market.
The
shares of many closed-end funds, after their initial public offering, frequently trade at a price per share that is less than the NAV
per share, the difference representing the “market discount” of such shares. This market discount may be due in part to the
investment objective of long-term appreciation, which is sought by many closed-end funds, as well as to the fact that the shares of closed-end
funds are not redeemable by the holder upon demand to the issuer at the next determined NAV but, rather, are subject to supply and demand
in the secondary market. A relative lack of secondary market purchasers of closed-end fund shares also may contribute to such shares
trading at a discount to their NAV.
The
Fund may invest in shares of closed-end funds that are trading at a discount to NAV or at a premium to NAV. There can be no assurance
that the market discount on shares of any closed-end fund purchased by the Fund will ever decrease. In fact, it is possible that this
market discount may increase and the Fund may suffer realized or unrealized capital losses due to further decline in the market price
of the securities of such closed-end funds, thereby adversely affecting the NAV of the Common Shares. Similarly, there can be no assurance
that any shares of a closed-end fund purchased by the Fund at a premium will continue to trade at a premium or that the premium will
not decrease subsequent to a purchase of such shares by the Fund.
Closed-end
funds may issue senior securities (including preferred stock and debt obligations) for the purpose of leveraging the closed-end fund’s
common shares in an attempt to enhance the current return to such closed-end fund’s common shareholders. The Fund’s investment
in the common shares of closed-end funds that are financially leveraged may create an opportunity for greater total return on its investment,
but in a down market may also lose money at a faster rate. In general, leveraged funds may be expected to exhibit more volatility in
market price and NAV than an investment in shares of investment companies without a leveraged capital structure.
Derivatives.
The Fund may utilize various other investment strategies as described below for a variety of purposes, such as hedging various market
risks or enhancing return. These strategies may be executed through the use of derivative contracts. The Underlying Funds may also utilize
derivative contracts and are thus subject to the same risks described below.
In
the course of pursuing these investment strategies, the Fund may purchase and sell exchange-listed and over-the-counter put and call
options on securities, equity and fixed-income indices and other instruments, purchase and sell futures contracts and options thereon,
enter into various transactions such as swaps, caps, floors or collars, (collectively, all the above are called “Derivative Transactions”).
In addition, Derivative Transactions may also include new techniques, instruments or strategies that are permitted as regulatory changes
occur. Derivative Transactions may be used without limit (subject to certain limits imposed by the 1940 Act) to attempt to protect against
possible changes in the market value of securities held in or to be purchased for the Fund’s portfolio resulting from securities
markets fluctuations, to protect the Fund’s unrealized gains in the value of its portfolio securities, to facilitate the sale of
such securities for investment purposes, to manage the effective maturity or duration of the Fund’s portfolio, or to establish
a position in the derivatives markets as a substitute for purchasing or selling particular securities. Some Derivative Transactions may
also be used to enhance potential gain. Any or all of these investment techniques may be used at any time and in any combination, and
there is no particular strategy that dictates the use of one technique rather than another, as use of any Derivative Transaction is a
function of numerous variables including, but not limited to, market conditions. The ability of the Fund to utilize these Derivative
Transactions successfully will depend on the Adviser’s or Subadviser’s ability to predict pertinent market movements, which
cannot be assured. The Fund’s use of Derivative Transactions may also be limited by the requirements of the Code for qualification
as a regulated investment company for U.S. federal income tax purposes. The Fund will comply with applicable regulatory requirements
when implementing these strategies, techniques and instruments. Derivative Transactions will not be used to alter fundamental investment
purposes and characteristics of the Fund, and the Fund will cover its obligations under options, futures and swaps to limit leveraging
of the Fund to the extent described in the Prospectus, the applicable prospectus supplement and this SAI.
Derivative
Transactions, including derivative contracts, have risks associated with them including, but not limited to, possible default by the
other party to the transaction, illiquidity and, to the extent the Adviser’s or Subadviser’s view as to certain market movements
is incorrect, the risk that the use of such Derivative Transactions could result in losses greater than if they had not been used. Use
of Derivative Transactions may result in losses to the Fund, force the sale or purchase of portfolio securities at inopportune times
or for prices higher than or lower than current market values, limit the amount of appreciation the Fund can realize on its investments
or cause the Fund to hold a security it might otherwise sell.
The
use of options and futures transactions entails certain other risks. In particular, the variable degree of correlation between price
movements of futures contracts and price movements in the related portfolio position of the Fund creates the possibility that losses
on the hedging instrument may be greater than gains in the value of the position the Fund is attempting to hedge. In addition, futures
and options markets may not be liquid in all circumstances and certain over-the-counter options may have no markets. As a result, in
certain markets, the Fund might not be able to close out a transaction without incurring substantial losses, if at all. Although the
use of futures and options transactions for hedging should tend to reduce the risk of loss due to a decline in the value of the hedged
position, at the same time they tend to limit any potential gain which might result from an increase in value of such position. Finally,
the daily variation margin requirements for futures contracts would create a greater ongoing potential financial risk than would purchases
of options, where the exposure is limited to the cost of the initial premium. Losses resulting from the use of Derivative Transactions
would reduce NAV, and possibly income, and such losses can be greater than if the Derivative Transactions had not been utilized.
On
October 28, 2020, the SEC adopted Rule 18f-4 under the 1940 Act relating to a registered investment company’s use of derivatives
and related instruments. Rule 18f-4 prescribes specific value-at-risk leverage limits for certain derivatives users and requires certain
derivatives users to adopt and implement a derivatives risk management program (including the appointment of a derivatives risk manager
and the implementation of certain testing requirements), and prescribes reporting requirements in respect of derivatives. Subject to
certain conditions, if a fund qualifies as a “limited derivatives user,” as defined in Rule 18f-4, it is not subject to the
full requirements of Rule 18f-4. In connection with the adoption of Rule 18f-4, the SEC rescinded certain of its prior guidance regarding
asset segregation and coverage requirements in respect of derivatives transactions and related instruments. With respect to reverse repurchase
agreements, tender option bonds or other similar financing transactions in particular, Rule 18f-4 permits a fund to enter into such transactions
if the fund either (i) complies with the asset coverage requirements of Section 18 of the 1940 Act, and combines the aggregate amount
of indebtedness associated with all tender option bonds or similar financing with the aggregate amount of any other senior securities
representing indebtedness when calculating the relevant asset coverage ratio, or (ii) treats all tender option bonds or similar financing
transactions as derivatives transactions for all purposes under Rule 18f-4. The Fund was required to comply with Rule 18f-4 beginning
August 19, 2022 and has adopted procedures for investing in derivatives and other transactions in compliance with Rule 18f-4.
General
Characteristics of Options. Put options and call options typically have similar structural characteristics and operational mechanics
regardless of the underlying instrument on which they are purchased or sold. Thus, the following general discussion relates to each of
the particular types of options discussed in greater detail below.
A
put option gives the purchaser of the option, upon payment of a premium, the right to sell, and the writer the obligation to buy, the
underlying security, commodity, index or other instrument at the exercise price. For instance, the Fund’s purchase of a put option
on a security might be designed to protect its holdings in the underlying instrument (or, in some cases, a similar instrument) against
a substantial decline in the market value by giving the Fund the right to sell such instrument at the option exercise price. A call option,
upon payment of a premium, gives the purchaser of the option the right to buy, and the seller the obligation to sell, the underlying
instrument at the exercise price. The Fund’s purchase of a call option on a security, financial future, index or other instrument
might be intended to protect the Fund against an increase in the price of the underlying instrument that it intends to purchase in the
future by fixing the price at which it may purchase such instrument. An American style put or call option may be exercised at any time
during the option period while a European style put or call option may be exercised only upon expiration or during a fixed period prior
thereto. The Fund is authorized to purchase and sell exchange listed options and over-the-counter options (“OTC options”).
Exchange listed options are issued by a regulated intermediary such as the Options Clearing Corporation (“OCC”), which guarantees
the performance of the obligations of the parties to such options. The discussion below uses the OCC as an example, but is also applicable
to other financial intermediaries.
With
certain exceptions, OCC issued and exchange listed options generally settle by physical delivery of the underlying security, although
in the future cash settlement may become available. Index options are cash settled for the net amount, if any, by which the option is
“in-the-money” (i.e., where the value of the underlying instrument exceeds, in the case of a call option, or is less
than, in the case of a put option, the exercise price of the option) at the time the option is exercised. Frequently, rather than taking
or making delivery of the underlying instrument through the process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of the new option.
The
Fund’s ability to close out its position as a purchaser or seller of an OCC or exchange listed put or call option is dependent,
in part, upon the liquidity of the option market. Among the possible reasons for the absence of a liquid option market on an exchange
are: (i) insufficient trading interest in certain options; (ii) restrictions on transactions imposed by an exchange; (iii) trading halts,
suspensions or other restrictions imposed with respect to particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the OCC or an exchange; (v) inadequacy of the facilities of
an exchange or OCC to handle current trading volume; or (vi) a decision by one or more exchanges to discontinue the trading of options
(or a particular class or series of options), in which event the relevant market for that option on that exchange would cease to exist,
although outstanding options on that exchange would generally continue to be exercisable in accordance with their terms.
The
hours of trading for listed options may not coincide with the hours during which the underlying financial instruments are traded. To
the extent that the option markets close before the markets for the underlying financial instruments, significant price and rate movements
can take place in the underlying markets that cannot be reflected in the option markets.
OTC
options are purchased from or sold to securities dealers, financial institutions or other parties (“Counterparties”) through
direct bilateral agreement with the Counterparty. In contrast to exchange listed options, which generally have standardized terms and
performance mechanics, all the terms of an OTC option, including such terms as method of settlement, term, exercise price, premium, guarantees
and security, are set by negotiation of the parties. The Fund will only sell OTC options that are subject to a buy-back provision permitting
the Fund to require the Counterparty to sell the option back to the Fund at a formula price within seven days. The Fund expects generally
to enter into OTC options that have cash settlement provisions, although it is not required to do so.
Unless
the parties provide for it, there is no central clearing or guaranty function in an OTC option. As a result, if the Counterparty fails
to make or take delivery of the security or other instrument underlying an OTC option it has entered into with the Fund or fails to make
a cash settlement payment due in accordance with the terms of that option, the Fund will lose any premium it paid for the option as well
as any anticipated benefit of the transaction. Accordingly, the Adviser or Subadviser, as applicable, must assess the creditworthiness
of each such Counterparty or any guarantor or credit enhancement of the Counterparty’s credit to determine the likelihood that
the terms of the OTC option will be satisfied. The Fund will engage in OTC option transactions only with U.S. government securities dealers
recognized by the Federal Reserve Bank of New York as “primary dealers” or broker/dealers, domestic or foreign banks or other
financial institutions which have received (or the guarantors of the obligation of which have received) a short-term credit rating of
“A-1” from S&P Global Ratings, a Standard & Poor’s Financial Services LLC business (“S&P”)
or “P-1” from Moody’s Investor Services, Inc. (“Moody’s”) or an equivalent rating from any nationally
recognized statistical rating organization (“NRSRO”) or, in the case of OTC currency options, are determined to be of equivalent
credit quality by the Adviser or Subadviser, as applicable. The staff of the SEC currently takes the position that OTC options purchased
by the Fund, and portfolio securities “covering” the amount of the Fund’s obligation pursuant to an OTC option sold
by it (the cost of the sell-back plus the in-the-money amount, if any) are illiquid.
If
the Fund sells a call option, the premium that it receives may serve as a partial hedge, to the extent of the option premium, against
a decrease in the value of the underlying securities or instruments in its portfolio or will increase the Fund’s income. The sale
of put options can also provide income.
The
Fund may purchase and sell call options on securities including U.S. Treasury and agency securities, corporate debt securities and equity
securities (including convertible securities) that are traded on U.S. securities exchanges and in the over-the-counter markets, and on
securities indices and futures contracts. All calls sold by the Fund must be “covered” (i.e., the Fund must own the
securities or futures contract subject to the call). Even though the Fund will receive the option premium to help protect it against
loss, a call sold by the Fund exposes the Fund during the term of the option to possible loss of opportunity to realize appreciation
in the market price of the underlying security or instrument and may require the Fund to hold a security or instrument which it might
otherwise have sold.
The
Fund may purchase and sell put options on securities including U.S. Treasury and agency securities, corporate debt securities and equity
securities (including convertible securities), whether or not it holds the above securities in its portfolio, and on securities indices
and futures contracts other than futures on individual corporate debt and individual equity securities. In selling put options, there
is a risk that the Fund may be required to buy the underlying security at a disadvantageous price above the market price.
General
Characteristics of Futures. The Fund may enter into futures contracts or purchase or sell put and call options on such futures as
a hedge against anticipated interest rate or equity market changes or to enhance returns. Futures are generally bought and sold on the
commodities exchanges where they are listed with payment of initial and variation margin as described below. The sale of a futures contract
creates a firm obligation by the Fund, as seller, to deliver to the buyer the specific type of financial instrument called for in the
contract at a specific future time for a specified price (or, with respect to index futures, the net cash amount). Options on futures
contracts are similar to options on securities except that an option on a futures contract gives the purchaser the right in return for
the premium paid to assume a position in a futures contract and obligates the seller to deliver such position.
Typically,
maintaining a futures contract or selling an option thereon requires the Fund to deposit with a financial intermediary as security for
its obligations an amount of cash or other specified assets (initial margin), which initially is typically 1% to 10% of the face amount
of the contract (but may be higher in some circumstances). Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark-to-market value of the contract fluctuates. The purchase of an option on financial futures involves
payment of a premium for the option without any further obligation on the part of the Fund. If the Fund exercises an option on a futures
contract it will be obligated to post initial margin (and potential subsequent variation margin) for the resulting futures position just
as it would for any position. Futures contracts and options thereon are generally settled by entering into an offsetting transaction
but there can be no assurance that the position can be offset prior to settlement at an advantageous price, nor that delivery will occur.
Options
on Securities Indices and Other Financial Indices. The Fund also may purchase and sell call and put options on securities indices
and other financial indices and in so doing can achieve many of the same objectives it would achieve through the sale or purchase of
options on individual securities or other instruments. Options on securities indices and other financial indices are similar to options
on a security or other instrument except that, rather than settling by physical delivery of the underlying instrument, they settle by
cash settlement, i.e., an option on an index gives the holder the right to receive, upon exercise of the option, an amount of
cash if the closing level of the index upon which the option is based exceeds, in the case of a call, or is less than, in the case of
a put, the exercise price of the option (except if, in the case of an OTC option, physical delivery is specified). This amount of cash
is equal to the excess of the closing price of the index over the exercise price of the option, which also may be multiplied by a formula
value. The seller of the option is obligated, in return for the premium received, to make delivery of this amount. The gain or loss on
an option on an index depends on price movements in the instruments making up the market, market segment, industry or other composite
on which the underlying index is based, rather than price movements in individual securities, as is the case with respect to options
on securities.
Swaps,
Caps, Floors and Collars. Among the Derivative Transactions into which the Fund may enter are interest rate, index and other swaps
and the purchase or sale of related caps, floors and collars. The Fund expects to enter into these transactions primarily to preserve
a return or spread on a particular investment or portion of its portfolio, as a duration management technique or to protect against any
increase in the price of securities the Fund anticipates purchasing at a later date. The Fund will not sell interest rate caps or floors
where it does not own securities or other instruments providing the income stream the Fund may be obligated to pay. Interest rate swaps
involve the exchange by the Fund with another party of their respective commitments to pay or receive interest, e.g., an exchange
of floating rate payments for fixed rate payments with respect to a notional amount of principal. An index swap is an agreement to swap
cash flows on a notional amount based on changes in the values of the reference indices. The purchase of a cap entitles the purchaser
to receive payments on a notional principal amount from the party selling such cap to the extent that a specified index exceeds a predetermined
interest rate or amount. The purchase of a floor entitles the purchaser to receive payments on a notional principal amount from the party
selling such floor to the extent that a specified index falls below a predetermined interest rate or amount. A collar is a combination
of a cap and a floor that preserves a certain return within a predetermined range of interest rates or values.
The
Fund will usually enter into swaps on a net basis, i.e., the two payment streams are netted out in a cash settlement on the payment
date or dates specified in the instrument, with the Fund receiving or paying, as the case may be, only the net amount of the two payments.
The Fund believes such obligations do not, as of the date of this SAI, constitute senior securities under the 1940 Act and, accordingly,
will not treat them as being subject to its borrowing restrictions. If there is a default by the Counterparty, the Fund may have contractual
remedies pursuant to the agreements related to the transaction.
Credit
Default Swap Agreements. The Fund may enter into credit default swap agreements. The “buyer” in a credit default contract
is obligated to pay the “seller” a periodic stream of payments over the term of the contract provided that no event
of default on an underlying reference obligation has occurred. If an event of default occurs, the seller must pay the buyer the full
notional value, or “par value,” of the reference obligation. Credit default swap transactions are either “physical
delivery” settled or “cash” settled. Physical delivery entails the actual delivery of the reference asset to the seller
in exchange for the payment of the full par value of the reference asset. Cash settled entails a net cash payment from the seller to
the buyer based on the difference of the par value of the reference asset and the current value of the reference asset that may have,
through default, lost some, most or all of its value. The Fund may be either the buyer or seller in a credit default swap transaction.
If the Fund is a buyer and no event of default occurs, the Fund will have made a series of periodic payments and recover nothing of monetary
value. However, if an event of default occurs, the Fund (if the buyer) will receive the full notional value of the reference obligation
either through a cash payment in exchange for the asset or a cash payment in addition to owning the reference assets. As a seller, the
Fund receives a fixed rate of income throughout the term of the contract, which typically is between six months and five years, provided
that there is no event of default. If an event of default occurs, the seller must pay the buyer the full notional value of the reference
obligation.
Credit
default swap transactions involve greater risks than if the Fund had invested in the reference obligation directly. In addition to general
market risks, credit default swaps are subject to liquidity risk, counterparty risk and credit risks, each as further described below.
Moreover, if the Fund is a buyer, it will lose its investment and recover nothing should no event of default occur. If an event of default
were to occur, the value of the reference obligation received by the seller, coupled with the periodic payments previously received,
may be less than the full notional value it pays to the buyer, resulting in a loss of value to the Fund. When the Fund acts as a seller
of a credit default swap agreement it is exposed to the risks of leverage since if an event of default occurs the seller must pay the
buyer the full notional value of the reference obligation.
A
credit default index swap is a swap on an index of credit default swaps. Credit default index swaps allow an investor to manage credit
risk or to take a position on a basket of credit default swaps (or other instruments) in a more efficient manner than transacting in
single name credit default swaps. If a credit event occurs in one of the underlying companies, the protection is paid out via the delivery
of the defaulted bond by the buyer of protection in return for payment of the notional value of the defaulted bond by the seller of protection
or it may be settled through a cash settlement between the two parties. The underlying company is then removed from the index.
Structured
Notes. Structured notes are derivative debt securities, the interest rate or principal of which is determined by reference to changes
in value of a specific security, reference rate, or index. Indexed securities, similar to structured notes, are typically, but not always,
debt securities whose value at maturity or coupon rate is determined by reference to other securities. The performance of a structured
note or indexed security is based upon the performance of the underlying instrument, but may involve a formula that multiplies the effect
of certain aspects of the performance of that instrument, so that the performance of the derivative is more or less volatile than that
of the underlying instrument.
The
terms of a structured note may provide that, in certain circumstances, no principal is due on maturity and, therefore, may result in
loss of investment. Structured notes may be indexed positively or negatively to the performance of the underlying instrument such that
the appreciation or deprecation of the underlying instrument will move in the same direction as the value of the structured note at maturity
or of any coupon payment. In addition, changes in the interest rate and value of the principal at maturity may be fixed at a specific
multiple of the change in value of the underlying instrument, making the value of the structured note more volatile than the underlying
instrument. In addition, structured notes may be less liquid and more difficult to price accurately than less complex securities or traditional
debt securities.
Commodity-Linked
Derivatives. The Fund may invest in instruments with principal and/or coupon payments linked to the value of commodities, commodity
futures contracts, or the performance of commodity indices such as “commodity-linked” or “index-linked” notes.
These instruments are sometimes referred to as “structured notes” because the terms of the instrument may be structured by
the issuer of the note and the purchaser of the note, such as the Fund.
The
values of these notes will rise and fall in response to changes in the underlying commodity or related index or investment. These notes
expose the Fund economically to movements in commodity prices, but a particular note has many features of a debt obligation. These notes
also are subject to credit and interest rate risks that in general affect the value of debt securities. Therefore, at the maturity of
the note, the Fund may receive more or less principal than it originally invested. The Fund might receive interest payments on the note
that are more or less than the stated coupon interest rate payments.
Structured
notes may involve leverage, meaning that the value of the instrument will be calculated as a multiple of the upward or downward price
movement of the underlying commodity future or index. The prices of commodity-linked instruments may move in different directions than
investments in traditional equity and debt securities in periods of rising inflation, which may provide the Fund with a desired degree
of diversity. Of course, there can be no guarantee that the Fund’s commodity-linked investments would not be correlated with traditional
financial assets under any particular market conditions.
Commodity-linked
notes may be issued by U.S. and foreign banks, brokerage firms, insurance companies and other corporations. These notes, in addition
to fluctuating in response to changes in the underlying commodity assets, will be subject to credit and interest rate risks that typically
affect debt securities.
The
commodity-linked instruments may be wholly principal protected, partially principal protected or offer no principal protection. With
a wholly principal protected instrument, the Fund will receive at maturity the greater of the par value of the note or the increase in
value of the underlying index. Partially protected instruments may suffer some loss of principal up to a specified limit if the underlying
index declines in value during the term of the instrument. For instruments without principal protection, there is a risk that the instrument
could lose all of its value if the index declines sufficiently. The Adviser’s or Subadviser’s decision on whether and to
what extent to use principal protection depends in part on the cost of the protection. In addition, the ability of the Fund to take advantage
of any protection feature depends on the creditworthiness of the issuer of the instrument.
Commodity-linked
derivatives are generally hybrid instruments which are excluded from regulation under the Commodity Exchange Act (the “CEA”)
and the rules thereunder. Additionally, from time to time the Fund may invest in other hybrid instruments that do not qualify for exemption
from regulation under the CEA.
Combined
Transactions. The Fund may enter into multiple transactions, including multiple options transactions, multiple futures transactions,
multiple currency transactions (including forward currency contracts) and multiple interest rate transactions and any combination of
futures, options, currency and interest rate transactions (“component” transactions), instead of a single Derivative Transaction,
as part of a single or combined strategy when, in the opinion of the Adviser or Subadviser, it is in the best interests of the Fund to
do so. A combined transaction will usually contain elements of risk that are present in each of its component transactions. Although
combined transactions are normally entered into based on the Adviser’s or Subadviser’s judgment that the combined strategies
will reduce risk or otherwise more effectively achieve the desired portfolio management goal, it is possible that the combination will
instead increase such risks or hinder achievement of the portfolio management objectives.
Regulation
as a “Commodity Pool.” CFTC Rule 4.5 requires operators of registered investment companies to either limit such investment
companies’ use of futures, options on futures and swaps or register as a commodity pool operator (“CPO”) and submit
to dual regulation by the CFTC and the SEC. In order to be able to comply with the exclusion from the CPO definition pursuant to CFTC
Rule 4.5 with respect to the Fund, the Adviser must limit the Fund’s transactions in commodity futures, commodity option contracts
and swaps for non-hedging purposes by either (a) limiting the aggregate initial margin and premiums required to establish non-hedging
commodities positions to not more than 5% of the liquidation value of the Fund’s portfolio after taking into account unrealized
profits and losses on any such contract or (b) limiting the aggregate net notional value of non-hedging commodities positions to not
more than 100% of the liquidation value of the Fund’s portfolio after taking into account unrealized profits and losses on such
positions. In the event that the Fund’s investments in such instruments exceed such thresholds, the Adviser would no longer be
excluded from the CPO definition and may be required to register as a CPO, and the Subadviser may be required to register as a commodity
trading advisor (“CTA”). In the event the Adviser or Subadviser is required to register as a CPO or CTA, as applicable, it
will become subject to additional recordkeeping and reporting requirements with respect to the Fund. The Adviser has claimed an exclusion
from the definition of a CPO with respect to the Fund under the amended rules. The Fund reserves the right to engage in transactions
involving futures, options thereon and swaps in accordance with the Fund’s policies. The Fund does not anticipate that it will
invest in commodity futures, commodity options contracts and swaps to an extent or in a manner that would require the Adviser and the
Subadviser to register as a CPO or CTA (as applicable) in connection with their management of the Fund.
Exchange-Traded
Funds. To the extent the Fund invests a portion of its Managed Assets (as defined below) in exchange-traded funds (“ETFs”),
those assets will be subject to the risks of the purchased funds’ portfolio securities, and a Common Shareholder will bear not
only his or her proportionate share of the Fund’s expenses, but also indirectly the expenses of the purchased funds. Common Shareholders
would therefore be subject to duplicative expenses to the extent the Fund invests in other funds. The Fund’s investments in other
funds also are subject to the ability of the managers of those funds to achieve the funds’ investment objective(s).
Risks
associated with investments in ETFs may generally include the risks described in the Prospectus associated with the Fund’s structure
as a closed-end fund, including market risk. Most ETFs are investment companies that aim to track or replicate a desired index, such
as a sector, market or global segment. Most ETFs are passively managed and their shares are traded on a national exchange. ETFs do not
sell individual shares directly to investors and only issue their shares in large blocks known as “creation units.” The investor
purchasing a creation unit may sell the individual shares on a secondary market. Therefore, the liquidity of ETFs depends on the adequacy
of the secondary market. There can be no assurance that an ETF’s investment objective(s) will be achieved, as ETFs based on an
index may not replicate and maintain exactly the composition and relative weightings of securities in the index. ETFs are subject to
the risks of investing in the underlying securities. ETF shares may trade at a premium or discount to their NAV. As ETFs trade on an
exchange, they are subject to the risks of any exchange-traded instrument, including: (i) an active trading market for its shares may
not develop or be maintained, (ii) trading of its shares may be halted by the exchange, and (iii) its shares may be delisted from the
exchange. Some ETFs are highly leveraged and therefore will expose the Fund to risks posed by leverage, including the risk that the use
of leverage by an ETF can magnify the effect of any of its losses.
The
Fund may invest in a range of ETFs. When the Fund invests in sector ETFs, there is a risk that securities within the same group of industries
will decline in price due to sector-specific market or economic developments. If the Fund invests more heavily in a particular sector,
the value of its Common Shares may be especially sensitive to factors and economic risks that specifically affect that sector. As a result,
the Fund’s Common Share price may fluctuate more widely than the value of shares of a mutual fund that invests in a broader range
of industries. Additionally, some sectors could be subject to greater government regulation than other sectors. Therefore, changes in
regulatory policies for those sectors may have a material effect on the value of securities issued by companies in those sectors. The
sectors in which the Fund may be more heavily invested will vary.
There
is a risk that the underlying ETFs in which the Fund invests may terminate due to extraordinary events that may cause any of the service
providers to the ETFs, such as the trustee or sponsor, to close or otherwise fail to perform their obligations to the ETF. Also, because
the ETFs in which the Fund may invest may be granted licenses by agreement to use the indices as a basis for determining their compositions
and/or otherwise to use certain trade names, the ETFs may terminate if such license agreements are terminated. In addition, an ETF may
terminate if its entire net asset value falls below a certain amount. Although the Fund believes that, in the event of the termination
of an underlying ETF they will be able to invest instead in shares of an alternate ETF tracking the same market index or another market
index with the same general market, there is no guarantee that shares of an alternate ETF would be available for investment at that time.
To the extent the Fund invests in a sector product, the Fund will be subject to the risks associated with that sector.
High
Yield Securities. The Fund and the Underlying Funds may invest in high yield securities. High yield, high risk bonds are securities
that are generally rated below investment grade by the primary rating agencies (BB+ or lower by S&P and Ba1 or lower by Moody’s).
Other terms used to describe such securities include “lower rated bonds,” “non-investment grade bonds,” “below
investment grade bonds,” and “junk bonds.” These securities are considered to be high-risk investments.
Illiquid
Securities and Restricted Securities. Certain securities may be subject to legal or contractual restrictions on resale (“restricted
securities”). Generally speaking, restricted securities may be sold: (i) only to qualified institutional buyers; (ii) in a privately
negotiated transaction to a limited number of purchasers; (iii) in limited quantities after they have been held for a specified period
of time and other conditions are met pursuant to an exemption from registration; or (iv) in a public offering for which a registration
statement is in effect under the Securities Act of 1933, as amended (“1933 Act”). Issuers of restricted securities may not
be subject to the disclosure and other investor protection requirements that would be applicable if their securities were publicly traded.
Restricted
securities are often illiquid, but they may also be liquid. For example, restricted securities that are eligible for resale under Rule
144A are often deemed to be liquid. The Fund and Underlying Funds may also purchase securities that are not subject to legal or contractual
restrictions on resale, but that are deemed illiquid. Such securities may be illiquid, for example, because there is a limited trading
market for them.
The
Fund or an Underlying Fund may be unable to sell a restricted or illiquid security. In addition, it may be more difficult to determine
a market value for restricted or illiquid securities. Moreover, if adverse market conditions were to develop during the period between
the Fund’s or an Underlying Fund’s decision to sell a restricted or illiquid security and the point at which the Fund or
an Underlying Fund is permitted or able to sell such security, the Fund or an Underlying Fund might obtain a price less favorable than
the price that prevailed when it decided to sell.
Investment
Company Securities. The Fund and the Underlying Funds may invest in the securities of other investment companies, including closed-end
funds, open-end funds, ETFs, unit investment trusts and BDCs registered under the 1940 Act (collectively, the “Investment Companies”),
to the extent permitted under applicable law and subject to certain restrictions.
Under
Section 12(d)(1)(A) of the 1940 Act, the Fund may hold securities of an Investment Company in amounts which (i) do not exceed 3% of the
total outstanding voting stock of the Investment Company, (ii) do not exceed 5% of the value of the Fund’s total assets and (iii)
when added to all other Investment Company securities held by the Fund, do not exceed 10% of the value of the Fund’s total assets.
These limits may be exceeded when permitted under Rule 12d1-4. The Fund intends to rely on Section 12(d)(1)(F) of the 1940 Act, which
provides that the provisions of paragraph 12(d)(1)(A) shall not apply to securities purchased or otherwise acquired by the Fund if (i)
immediately after such purchase or acquisition not more than 3% of the total outstanding stock of such Investment Company is owned by
the Fund and all affiliated persons of the Fund, and (ii) certain requirements are met with respect to sales charges, or Rule 12d1-4.
In
addition, to comply with provisions of the 1940 Act, in any matter upon which Investment Company stockholders are solicited to vote,
the Adviser or Subadviser, as applicable, may be required to vote Investment Company shares in the same proportion as shares held by
other stockholders of the Investment Company.
Acquired
funds typically incur fees that are separate from those fees incurred directly by the Fund or an Underlying Fund. The Fund’s or
an Underlying Fund’s purchase of Investment Company securities results in the layering of expenses as Common Shareholders would
indirectly bear a proportionate share of the operating expenses of such Investment Companies, including advisory fees, in addition to
paying Fund or Underlying Fund expenses. In addition, the securities of Investment Companies may also be leveraged and will therefore
be subject to certain leverage risks. The NAV and market value of leveraged securities will be more volatile and the yield to Common
Shareholders will tend to fluctuate more than the yield generated by unleveraged securities. Investment Companies may also have investment
policies that differ from those of the Fund or an Underlying Fund.
Under
certain circumstances an open-end investment company in which the Fund or an Underlying Fund invests may determine to make a payment
of a redemption by the Fund or an Underlying Fund wholly or in part by a distribution in kind of securities from its portfolio, instead
of in cash. As a result, the Fund or an Underlying Fund may hold such securities until the Adviser, Subadviser or manager of the Underlying
Fund, as applicable, determines it is appropriate to dispose of them. Such disposition will impose additional costs on the Fund or an
Underlying Fund.
Investment
decisions by the investment advisers to the registered investment companies in which the Fund invests are made independently of the Fund.
At any particular time, an Underlying Fund may be purchasing shares of an issuer whose shares are being sold by another Underlying Fund.
As a result, under these circumstances the Fund indirectly would incur certain transactional costs without accomplishing any investment
purpose. See also “—Exchange Traded Funds.”
Investment
Grade Debt Securities. Investment grade securities are those rated “Baa” or higher by Moody’s or “BBB”
or higher by S&P or rated similarly by another NRSRO or, if unrated, judged to be of equivalent quality as determined by the Adviser
or Subadviser, as applicable. Moody’s considers bonds it rates “Baa” to have speculative elements as well as investment-grade
characteristics. To the extent that the Fund invests in higher-grade securities, the Fund will not be able to avail itself of opportunities
for higher income which may be available at lower grades.
Inverse
Floating Rate Securities. Inverse floating rate securities (sometimes referred to as “inverse floaters”) are securities
whose interest rates bear an inverse relationship to the interest rate on another security or the value of an index. Generally, inverse
floating rate securities represent beneficial interests in a special purpose trust formed for the purpose of holding municipal bonds.
The special purpose trust typically sells two classes of beneficial interests or securities: floating rate securities (sometimes referred
to as short-term floaters or tender option bonds) and inverse floating rate securities (sometimes referred to as inverse floaters). Both
classes of beneficial interests are represented by certificates. The short-term floating rate securities have first priority on the cash
flow from the municipal bonds held by the special purpose trust. Typically, a third party, such as a bank, broker-dealer or other financial
institution, grants the floating rate security holders the option, at periodic intervals, to tender their securities to the institution
and receive the face value thereof. As consideration for providing the option, the financial institution receives periodic fees. The
holder of the short-term floater effectively holds a demand obligation that bears interest at the prevailing short-term, tax-exempt rate.
However, the institution granting the tender option will not be obligated to accept tendered short-term floaters in the event of certain
defaults or a significant downgrade in the credit rating assigned to the bond issuer. For its inverse floating rate investment, the Fund
receives the residual cash flow from the special purpose trust. Because the holder of the short-term floater is generally assured liquidity
at the face value of the security, the Fund as the holder of the inverse floater assumes the interest rate cash flow risk and the market
value risk associated with the municipal security deposited into the special purpose trust. The volatility of the interest cash flow
and the residual market value will vary with the degree to which the trust is leveraged. This is expressed in the ratio of the total
face value of the short-term floaters in relation to the value of the residual inverse floaters that are issued by the special purpose
trust. In addition, all voting rights and decisions to be made with respect to any other rights relating to the municipal bonds held
in the special purpose trust are passed through to the Fund, as the holder of the residual inverse floating rate securities.
Because
increases in the interest rate on the short-term floaters reduce the residual interest paid on inverse floaters, and because fluctuations
in the value of the municipal bond deposited in the special purpose trust affect the value of the inverse floater only, and not the value
of the short-term floater issued by the trust, inverse floaters’ value is generally more volatile than that of fixed rate bonds.
The market price of inverse floating rate securities is generally more volatile than the underlying securities due to the leveraging
effect of this ownership structure. These securities generally will underperform the market of fixed rate bonds in a rising interest
rate environment (i.e., when bond values are falling), but tend to outperform the market of fixed rate bonds when interest rates decline
or remain relatively stable. Although volatile, inverse floaters typically offer the potential for yields exceeding the yields available
on fixed rate bonds with comparable credit quality, coupon, call provisions and maturity. Inverse floaters have varying degrees of liquidity
based upon, among other things, the liquidity of the underlying securities deposited in a special purpose trust.
The
Fund may invest in TOB Residuals that have recourse to the Fund. In the Adviser’s or Subadviser’s discretion, the Fund may
enter into a separate shortfall and forbearance agreement with the third party granting liquidity to the floating rate security holders
of the special purpose trust. The Fund may enter into such recourse agreements (i) when the liquidity provider to the special purpose
trust requires such an agreement because the level of leverage in the special purpose trust exceeds the level that the liquidity provider
is willing to support absent such an agreement; and/or (ii) to seek to prevent the liquidity provider from collapsing the special purpose
trust in the event that the municipal obligation held in the trust has declined in value. Such an agreement would require the Fund to
reimburse the third party granting liquidity to the floating rate security holders of the special purpose trust, upon termination of
the trust issuing the inverse floater, the difference between the liquidation value of the bonds held in the trust and the principal
amount due to the holders of floating rate interests. In such instances, the Fund may be at risk of loss that exceeds its investment
in the inverse floating rate securities. Absent a shortfall and forbearance agreement, the Fund would not be required to make such a
reimbursement. If the Fund chooses not to enter into such an agreement, the special purpose trust could be liquidated and the Fund could
incur a loss.
The
Fund may invest in both inverse floating rate securities and floating rate securities (as discussed below) issued by the same special
purpose trust.
Investments
in inverse floating rate securities have the economic effect of leverage. The use of leverage creates special risks for Common Shareholders.
See the Prospectus under “Risks—Structural Risk—Leverage Risk.”
Floating
Rate Securities. The Fund may also invest in floating rate securities, as described above, issued by special purpose trusts. Floating
rate securities may take the form of short-term floating rate securities or the option period may be substantially longer. Generally,
the interest rate earned will be based upon the market rates for municipal securities with maturities or remarketing provisions that
are comparable in duration to the periodic interval of the tender option, which may vary from weekly, to monthly, to extended periods
of one year or multiple years. Since the option feature has a shorter term than the final maturity or first call date of the underlying
bond deposited in the trust, the Fund as the holder of the floating rate security relies upon the terms of the agreement with the financial
institution furnishing the option as well as the credit strength of that institution. As further assurance of liquidity, the terms of
the trust provide for a liquidation of the municipal security deposited in the trust and the application of the proceeds to pay off the
floating rate security. The trusts that are organized to issue both short-term floating rate securities and inverse floaters generally
include liquidation triggers to protect the investor in the floating rate security.
Auction
Rate Securities. Municipal securities also include auction rate municipal securities and auction rate preferred securities issued
by closed-end investment companies that invest primarily in municipal securities (collectively, “auction rate securities”).
In recent market environments, auctions have failed, which adversely affects the liquidity and price of auction rate securities, and
are unlikely to resume. Provided that the auction mechanism is successful, auction rate securities usually permit the holder to sell
the securities in an auction at par value at specified intervals. The dividend is reset by “Dutch” auction in which bids
are made by broker-dealers and other institutions for a certain amount of securities at a specified minimum yield. The dividend rate
set by the auction is the lowest interest or dividend rate that covers all securities offered for sale. While this process is designed
to permit auction rate securities to be traded at par value, there is a risk that an auction will fail due to insufficient demand for
the securities. Moreover, between auctions, there may be no secondary market for these securities, and sales conducted on a secondary
market may not be on terms favorable to the seller. Auction rate securities may be called by the issuer. Thus, with respect to liquidity
and price stability, auction rate securities may differ substantially from cash equivalents, notwithstanding the frequency of auctions
and the credit quality of the security. The Fund’s investments in auction rate securities of closed-end funds are subject to the
limitations prescribed by the 1940 Act. The Fund will indirectly bear its proportionate share of any management and other fees paid by
such closed-end funds in addition to the advisory fees payable directly by the Fund.
Taxable
Municipal Securities. The Fund and the Underlying Funds may invest in taxable municipal securities, which include obligations issued
pursuant to the legislation providing for the issuance of taxable municipal debt on which the issuer receives federal support. The Fund’s
investments in taxable municipal bonds will result in taxable income, and the Fund may elect to pass through to Common Shareholders the
corresponding tax credits. The tax credits can generally be used to offset federal income taxes and the alternative minimum tax, but
such credits are generally not refundable. Taxable municipal bonds involve similar risks as tax-exempt municipal bonds. See “Risks—Investment-Related
Risks—Municipal Bond Risks” in the Prospectus and “—Municipal Securities” in this SAI.
Temporary
Investments and Defensive Position. During the period where the net proceeds of an offering of Securities are being invested
or during periods in which the Adviser or Subadviser determines that it is temporarily unable to follow the Fund’s investment strategy
or that it is impractical to do so, the Fund may deviate from its investment strategy and invest all or any portion of its net assets
in cash, cash equivalents or other securities. The Adviser’s or Subadviser’s determination that it is temporarily unable
to follow the Fund’s investment strategy or that it is impracticable to do so generally will occur only in situations in which
a market disruption event has occurred and where trading in the securities selected through application of the Fund’s investment
strategy is extremely limited or absent. In such a case, the Fund may not pursue or achieve its investment objectives.
Cash
and cash equivalents are defined to include, without limitation, the following:
(1)
U.S. Government securities, including bills, notes and bonds differing as to maturity and rates of interest that are either issued or
guaranteed by the U.S. Treasury or by U.S. Government agencies or instrumentalities. U.S. Government agency securities include securities
issued by: (a) the Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United States, Small Business
Administration, and the Government National Mortgage Association, whose securities are supported by the full faith and credit of the
United States; (b) the Federal Home Loan Banks, Federal Intermediate Credit Banks, and the Tennessee Valley Authority, whose securities
are supported by the right of the agency to borrow from the U.S. Treasury; (c) the Federal National Mortgage Association; and (d) the
Student Loan Marketing Association. While the U.S. Government typically provides financial support to such U.S. Government-sponsored
agencies or instrumentalities, no assurance can be given that it always will do so since it is not so obligated by law. The U.S. Government,
its agencies, and instrumentalities do not guarantee the market value of their securities. Consequently, the value of such securities
may fluctuate.
(2)
Certificates of deposit issued against funds deposited in a bank or a savings and loan association. Such certificates are for a definite
period of time, earn a specified rate of return, and are normally negotiable. The issuer of a certificate of deposit agrees to pay the
amount deposited plus interest to the bearer of the certificate on the date specified thereon. Under current Federal Deposit Insurance
Corporation (“FDIC”) regulations, the maximum insurance payable as to any one certificate of deposit is $250,000, therefore,
certificates of deposit purchased by the Fund may not be fully insured.
(3)
Repurchase agreements, which involve purchases of debt securities. At the time the Fund purchases securities pursuant to a repurchase
agreement, it simultaneously agrees to resell and redeliver such securities to the seller, who also simultaneously agrees to buy back
the securities at a fixed price and time. This assures a predetermined yield for the Fund during its holding period, since the resale
price is always greater than the purchase price and reflects an agreed-upon market rate. Such actions afford an opportunity for the Fund
to invest temporarily available cash. Pursuant to the Fund’s policies and procedures, the Fund may enter into repurchase agreements
only with respect to obligations of the U.S. Government, its agencies or instrumentalities; certificates of deposit; or bankers’
acceptances in which the Fund may invest. Repurchase agreements may be considered loans to the seller, collateralized by the underlying
securities. The risk to the Fund is limited to the ability of the seller to pay the agreed-upon sum on the repurchase date; in the event
of default, the repurchase agreement provides that the Fund is entitled to sell the underlying collateral. If the seller defaults under
a repurchase agreement when the value of the underlying collateral is less than the repurchase price, the Fund could incur a loss of
both principal and interest. The Adviser or Subadviser, as applicable, monitors the value of the collateral at the time the action is
entered into and at all times during the term of the repurchase agreement. The Adviser or Subadviser does so in an effort to determine
that the value of the collateral always equals or exceeds the agreed-upon repurchase price to be paid to the Fund. If the seller were
to be subject to a federal bankruptcy proceeding, the ability of the Fund to liquidate the collateral could be delayed or impaired because
of certain provisions of the bankruptcy laws.
(4)
Commercial paper, which consists of short-term unsecured promissory notes, including variable rate master demand notes issued by corporations
to finance their current operations. Master demand notes are direct lending arrangements between the Fund and a corporation. There is
no secondary market for such notes. However, they are redeemable by the Fund at any time. The Adviser or Subadviser, as applicable, will
consider the financial condition of the corporation (e.g., earning power, cash flow, and other liquidity measures) and will continuously
monitor the corporation’s ability to meet all its financial obligations, because the Fund’s liquidity might be impaired if
the corporation were unable to pay principal and interest on demand. Investments in commercial paper will be limited to commercial paper
rated in the highest categories by a NRSRO and which mature within one year of the date of purchase or carry a variable or floating rate
of interest.
(5)
The Fund may invest in bankers’ acceptances which are short-term credit instruments used to finance commercial transactions. Generally,
an acceptance is a time draft drawn on a bank by an exporter or an importer to obtain a stated amount of funds to pay for specific merchandise.
The draft is then “accepted” by a bank that, in effect, unconditionally guarantees to pay the face value of the instrument
on its maturity date. The acceptance may then be held by the accepting bank as an asset or it may be sold in the secondary market at
the going rate of interest for a specific maturity.
(6)
The Fund may invest in bank time deposits, which are monies kept on deposit with banks or savings and loan associations for a stated
period of time at a fixed rate of interest. There may be penalties for the early withdrawal of such time deposits, in which case the
yields of these investments will be reduced.
(7)
The Fund may invest in shares of money market funds in accordance with the provisions of the 1940 Act.
Zero
Coupon Bonds. A zero coupon bond is a bond that typically does not pay interest either for the entire life of the obligation or for
an initial period after the issuance of the obligation. When held to its maturity, the holder receives the par value of the zero coupon
bond, which generates a return equal to the difference between the purchase price and its maturity value. A zero coupon bond is normally
issued and traded at a deep discount from face value. This original issue discount (“OID”) approximates the total amount
of interest the security will accrue and compound prior to its maturity and reflects the payment deferral and credit risk associated
with the instrument. Because zero coupon securities and other OID instruments do not pay cash interest at regular intervals, the instruments’
ongoing accruals require ongoing judgments concerning the collectability of deferred payments and the value of any associated collateral.
As a result, these securities may be subject to greater value fluctuations and less liquidity in the event of adverse market conditions
than comparably rated securities that pay cash on a current basis. Because zero coupon bonds, and OID instruments generally, allow an
issuer to avoid or delay the need to generate cash to meet current interest payments, they may involve greater payment deferral and credit
risk than coupon loans and bonds that pay interest currently or in cash. The Fund generally will be required to distribute dividends
to Common Shareholders representing the income of these instruments as it accrues, even though the Fund will not receive all of the income
on a current basis or in cash. Thus, the Fund may have to sell other investments, including when it may not be advisable to do so, and
use the cash proceeds to make income distributions to Common Shareholders. For accounting purposes, these cash distributions to Common
Shareholders will not be treated as a return of capital.
Further,
the Adviser collects management fees on the value of a zero coupon bond or OID instrument attributable to the ongoing non-cash accrual
of interest over the life of the bond or other instrument. As a result, the Adviser receives non-refundable cash payments based on such
non-cash accruals while investors incur the risk that such non-cash accruals ultimately may not be realized.
Additional
Risks of Investing in the Fund
Below
Investment Grade Securities Risk. The Fund or the Underlying Funds may invest in below investment grade securities, which are commonly
referred to as “junk” or “high yield” securities. These securities are considered to be high-risk investments.
The risks include the following:
These
securities are regarded as predominately speculative. There is a greater risk that issuers of lower-rated securities will default than
issuers of higher-rated securities. Issuers of lower-rated securities generally are less creditworthy and may be highly indebted, financially
distressed or bankrupt. These issuers are more vulnerable to real or perceived economic changes, political changes or adverse industry
developments. In addition, below investment grade securities are frequently subordinated to the prior payment of senior indebtedness.
If an issuer fails to pay principal or interest, the Fund would experience a decrease in income and a decline in the market value of
its investments. The Fund or the Underlying Funds also may incur additional expenses in seeking recovery from the issuer.
The
income and market value of lower-rated securities may fluctuate more than higher-rated securities. Although certain below investment
grade securities may be less sensitive to interest rate changes than investment grade securities, below investment grade securities generally
are more sensitive to short-term corporate, economic and market developments. During periods of economic uncertainty and change, the
market price of the investments in lower-rated securities may be volatile. The default rate for high yield bonds tends to be cyclical,
with defaults rising in periods of economic downturn.
It
is often more difficult to value lower-rated securities than higher-rated securities. If an issuer’s financial condition deteriorates,
accurate financial and business information may be limited or unavailable. In addition, the lower-rated investments may be thinly traded
and there may be no established secondary market. Because of the lack of market pricing and current information for investments in lower-rated
securities, valuation of such investments is much more dependent on judgment than is the case with higher-rated securities.
There
may be no established secondary or public market for investments in lower-rated securities. Such securities are frequently traded in
markets that may be relatively less liquid than the market for higher-rated securities. In addition, relatively few institutional purchasers
may hold a major portion of an issue of lower-rated securities at times. As a result, lower-rated securities may be required to be sold
at substantial losses or retained indefinitely even where an issuer’s financial condition is deteriorating.
Credit
quality of below investment grade securities can change suddenly and unexpectedly, and even recently-issued credit ratings may not fully
reflect the actual risks posed by a particular below investment grade security.
Future
legislation may have a possible negative impact on the market for below investment grade securities. Because of the substantial risks
associated with below investment grade securities, you could lose money on your investment in Common Shares, both in the short term and
the long term.
Call
Risk. If interest rates fall, it is possible that issuers of securities with high interest rates will prepay or “call”
their securities before their maturity dates. In this event, the proceeds from the called securities would likely be reinvested by the
Fund in securities bearing the new, lower interest rates, resulting in a possible decline in the Fund’s income and distributions
to Common Shareholders.
Deflation
Risk. Deflation risk is the risk that prices throughout the economy decline over time, which may have an adverse effect on the market
valuation of companies, their assets and revenues. In addition, deflation may have an adverse effect on the creditworthiness of issuers
and may make issuer default more likely, which may result in a decline in the value of the Fund’s portfolio.
Inflation
Risk. Inflation risk is the risk that the value of assets or income from investments will be worth less in the future as inflation
decreases the value of money. As inflation increases, the real value of the Common Shares and distributions can decline.
Interest
Rate Risk. Interest rate risk is the risk that the value of the debt securities held by the Fund will decline because of rising market
interest rates. Interest rate risk is generally lower for shorter-term investments and higher for longer-term investments. Duration is
a common measure of interest rate risk, which measures a bond’s expected life on a present value basis, taking into account the
bond’s yield, interest payments and final maturity. Duration is a reasonably accurate measure of a bond’s price sensitivity
to changes in interest rates. The longer the duration of a bond, the greater the bond’s price sensitivity is to changes in interest
rates.
Reinvestment
Risk. Reinvestment risk is the risk that income from the Fund’s portfolio will decline if and when the Fund invests the proceeds
from matured, traded or called bonds at market interest rates that are below the portfolio’s current earnings rate. A decline in
income could affect the Common Shares’ market price or their overall returns.
Environmental,
Social and Governance (“ESG”) Integration Risk. Although the Fund does not seek to implement a specific “ESG,”
“impact” or “sustainability” policy, the Fund may consider ESG characteristics when selecting investment opportunities,
individual securities and/or sectors of securities. The Fund’s performance may at times be better or worse than the performance
of funds that do not use ESG characteristics. In addition, there is a risk that the municipal securities identified by the Subadviser
as promoting ESG factors do not operate as anticipated. The Subadviser’s assessment of a municipal security is made at the time
of purchase and the actual use of the proceeds by the issuer could vary over time, which could adversely affect the analysis of the ESG
factors relevant to a particular investment. While the Fund views ESG considerations as having the potential to contribute to the Fund’s
long-term performance, there is no guarantee that such results will be achieved.
Legislation
and Regulatory Risks. The Fund and the Underlying Funds are subject to legislation and regulatory risks. On July 21, 2010, the Dodd-Frank
Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) was enacted. The Dodd-Frank Act, among other things,
grants regulatory authorities such as the U.S. Commodity Futures Trading Commission (the “CFTC”) and the SEC broad rulemaking
authority to promulgate rules under the Dodd-Frank Act, including comprehensive regulation of the over-the-counter derivatives market.
It is unclear to what extent these regulators will exercise these revised and expanded powers and whether they will undertake rulemaking,
supervisory or enforcement actions that would adversely affect the Fund or Underlying Funds or investments made by the Fund or Underlying
Funds. Possible regulatory actions taken under these revised and expanded powers may include actions related to financial consumer protection,
proprietary trading and derivatives.
While
some rules have been promulgated by the CFTC and the SEC, a number of important rulemakings have not yet been finalized and there can
be no assurance that future regulatory actions authorized by the Dodd-Frank Act will not significantly reduce the returns of the Fund.
The implementation of the Dodd-Frank Act could adversely affect the Fund by increasing transaction and/or regulatory compliance costs
and may affect the availability, liquidity and cost of entering into derivatives, including potentially limiting or restricting the ability
of the Fund to use certain derivatives or certain counterparties as a part of its investment strategy, increasing the costs of using
these instruments or making these instruments less effective. In addition, greater regulatory scrutiny may increase the Fund’s,
the Adviser’s or Subadviser’s exposure to potential liabilities. Increased regulatory oversight can also impose administrative
burdens on the Fund, the Adviser and Subadviser, including, without limitation, responding to examinations or investigations and implementing
new policies and procedures.
At
any time after the date of this SAI, legislation by U.S. and foreign governments may be enacted that could negatively affect the assets
of the Fund or the issuers of such assets. Changing approaches to regulation may have a negative impact on the entities in which the
Fund invests. Legislation or regulation may also change the way in which the Fund itself is regulated. There can be no assurance that
future legislation, regulation or deregulation will not have a material adverse effect on the Fund or Underlying Funds or will not impair
the ability of the Fund or Underlying Funds to achieve its investment objective.
MANAGEMENT
OF THE FUND
Investment
Adviser
RiverNorth
Capital Management, LLC is the investment adviser for the Fund pursuant to an Investment Advisory Agreement. RiverNorth is headquartered
at 360 South Rosemary Avenue, Suite 1420, West Palm Beach, FL 33401. Under the oversight of the Board of Directors, the Adviser is responsible
for the day-to-day management of the Fund’s portfolio, managing the Fund’s business affairs and providing certain clerical,
bookkeeping and other administrative services. The Adviser is also responsible for determining the Fund’s overall investment strategy
and overseeing its implementation. Subject to the ranges noted above, the Adviser determines the portion of the Fund’s Managed
Assets to allocate to each strategy and may, from time to time, adjust the allocations. Founded in 2000, RiverNorth is registered with
the SEC and as of September 30, 2023, RiverNorth managed approximately $4.8 billion for registered open-end management investment companies,
registered closed-end management investment companies and private investment vehicles. Patrick W. Galley, a portfolio manager of the
Fund, and Brian H. Schmucker, each own, directly or indirectly, more than 25% of RiverNorth Holding Co., the indirect parent company
of the Adviser and each is deemed to control the Adviser.
Investment
Subadviser
MacKay
Shields LLC is the Fund’s subadviser and is responsible for the day-to-day management of the Fund’s Managed Assets allocated
to the Municipal Bond Income Strategy. The Subadviser is registered with the SEC and as of September 30, 2023, had approximately $129.2
billion in assets under management. The Subadviser was incorporated in 1969 as an independent investment advisory firm and was privately
held until 1984 when it was acquired by New York Life Insurance Company. The Subadviser is an indirect wholly owned subsidiary of New
York Life Insurance Company.
Investment
Advisory Agreement and Subadvisory Agreement
For
its services under the Investment Advisory Agreement, the Fund pays the Adviser a monthly management fee computed at the annual rate
of 1.40% of the average daily Managed Assets. Pursuant to a Subadvisory Agreement, the Adviser has delegated daily management of the
Fund’s Municipal Bond Income Strategy to the Subadviser, who is paid by the Adviser and not the Fund. The Adviser (and not the
Fund) has agreed to pay the Subadviser a subadvisory fee payable on a monthly basis at the annual rate of 0.20% of the Fund’s average
daily Managed Assets for the service it provides. “Managed Assets” means the total assets of the Fund, including assets attributable
to leverage, minus liabilities (other than debt representing leverage and any preferred stock that may be outstanding). The Fund pays,
in addition to the unified management fee, taxes and governmental fees, if any, levied against the Fund; brokerage fees and commissions
and other portfolio transaction expenses incurred by or for the Fund; costs, including interest expenses, of borrowing money or engaging
in other types of leverage financing including, without limit, through the use by the Fund of tender option bond transactions; costs,
including dividend and/or interest expenses and other costs (including, without limit, offering and related legal costs, fees to brokers,
fees to auction agents, fees to transfer agents, fees to ratings agencies and fees to auditors associated with satisfying ratings agency
requirements for preferred shares or other securities issued by the Fund and other related requirements in the Fund’s organizational
documents) associated with the Fund’s issuance, offering, redemption and maintenance of preferred shares or other instruments (such
as the use of tender option bond transactions) for the purpose of incurring leverage; fees and expenses of any Underlying Funds in which
the Fund invests; dividend and interest expenses on short positions taken by the Fund; fees and expenses, including travel expenses and
fees and expenses of legal counsel retained for their benefit, of directors of the Fund who are not officers, employees, partners, shareholders
or members of the Adviser or its affiliates; fees and expenses associated with and incident to shareholder meetings and proxy solicitations
involving contested elections of directors, shareholder proposals or other non-routine matters that are not initiated or proposed by
the Adviser; legal, marketing, printing, accounting and other expenses associated with any future share offerings, such as rights offerings
and shelf offerings, following the Fund’s initial offering; expenses associated with tender offers (other than any Eligible Tender
Offer) and other share repurchases and redemptions; and other extraordinary expenses, including extraordinary legal expenses, as may
arise, including, without limit, expenses incurred in connection with litigation, proceedings, other claims and the legal obligations
of the Fund to indemnify its directors, officers, employees, shareholders, distributors and agents with respect thereto.
When
the Fund utilizes leverage, the fees paid to the Adviser and Subadviser for investment management services will be higher than if the
Fund did not use leverage because the fees paid will be calculated based on Managed Assets, which would include assets attributable to
leverage. Because the fees paid to the Adviser and Subadviser are determined on the basis of Managed Assets, this creates a conflict
of interest for the Adviser and Subadviser. The Board of Directors monitors the Fund’s use of leverage and in doing so monitors
this potential conflict.
The
Investment Advisory Agreement provides that the Adviser shall not be liable for any act or omission connected with or arising out of
any services to be rendered under such agreement, except by reason of willful misfeasance, bad faith or gross negligence on the part
of the Adviser in the performance of its duties or from reckless disregard by the Adviser of its obligations and duties under such agreement.
The
Adviser will make available, without additional expense to the Fund, the services of such of its officers, directors and employees as
may be duly elected as officers or directors of the Fund, subject to the individual consent of such persons to serve and to any limitations
imposed by law. The Adviser pays all expenses incurred in performing its services under the Investment Advisory Agreement, including
compensation of and office space for directors, officers and employees of the Adviser connected with management of the Fund. The Fund
pays brokerage and other expenses of executing the Fund’s portfolio transactions; taxes or governmental fees; interest charges
and other costs of borrowing funds; litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary
course of the Fund’s business.
The
Investment Advisory Agreement and the Subadvisory Agreement will remain in effect for an initial term ending two years from the effective
date of that agreement (unless sooner terminated). The Investment Advisory Agreement shall remain in effect from year to year thereafter
if approved annually (i) by a majority of the outstanding voting securities of the Fund or by a vote of the Fund’s Board of Directors,
cast in person at a meeting called for the purpose of voting on such approval, and (ii) by vote of a majority of the Board of Directors
who are not parties to the Investment Advisory Agreement, or “interested persons” of any party to the Investment Advisory
Agreement, cast in person at a meeting called for the purpose of voting on such approval. The Subadvisory Agreement shall remain in effect
from year to year after its initial two year term if approved annually by the Fund’s Board of Directors or a vote of the lesser
of (x) 67% of the shares of the Fund represented at a meeting if Common Shareholders of more than 50% of the outstanding shares of the
Fund are present in person or by proxy or (y) more than 50% of the outstanding shares of the Fund; provided that in either event its
continuance is also approved by a majority of the Fund’s directors who are not “interested persons” of any party to
the Subadvisory Agreement, by vote cast in person at a meeting called for the purpose of voting on such approval. Information regarding
the Board of Directors’ approval of the Investment Advisory Agreement and the Subadvisory Agreement is available in the Fund’s
annual report to Common Shareholders for the fiscal year ended June 30, 2022. The Investment Advisory Agreement and the Subadvisory Agreement
will terminate upon assignment by any party and is terminable, without penalty, on 60 days’ written notice by the Board of Directors
or by vote of a majority of the outstanding voting securities (as defined in the 1940 Act) of the Fund or upon 60 days’ written
notice by the Adviser or, as applicable, the Subadviser.
The
total dollar amounts paid by the Fund to the Adviser for the fiscal period from February 11, 2022 (commencement of operations) through
June 30, 2022 and for the fiscal year ended June 30, 2023 was $1,261,411 and $3,348,216, respectively.
The
total dollar amounts paid by the Adviser to the Subadviser for the fiscal period from February 11, 2022 (commencement of operations)
through June 30, 2022 and for the fiscal year ended June 30, 2023 was $180,172 and $478,326, respectively. The Adviser (and not the Fund)
pays all sub-advisory fees to the Subadviser. See “Summary Of Fund Expenses” in the Prospectus.
Portfolio
Managers
Patrick
W. Galley, CFA has been a co-portfolio manager of the Tactical Municipal Closed-End Fund Strategy for the Fund since its inception. Mr.
Galley is the Chief Executive Officer and Chief Investment Officer for the Adviser. Mr. Galley heads the Adviser’s research and
investment team and oversees all portfolio management activities at the Adviser. Mr. Galley also serves as the President and Chairman
of the RiverNorth Funds, a mutual fund complex for which RiverNorth serves as the investment adviser. Prior to joining the Adviser in
2004, he was most recently a Vice President at Bank of America in the Global Investment Bank’s Portfolio Management group, where
he specialized in analyzing and structuring corporate transactions for investment management firms in addition to closed-end and open-end
funds, hedge funds, funds of funds, structured investment vehicles and insurance/reinsurance companies. Mr. Galley graduated with honors
from Rochester Institute of Technology with a B.S. in Finance. He has received the Chartered Financial Analyst (CFA) designation, is
a member of the CFA Institute and is a member of the CFA Society of Chicago.
Stephen
O’Neill, CFA has been a co-portfolio manager of the Tactical Municipal Closed-End Fund Strategy for the Fund since its inception.
Mr. O’Neill conducts qualitative and quantitative analysis of closed-end funds and their respective asset classes at RiverNorth.
Prior to joining RiverNorth Capital in 2007, Mr. O’Neill was most recently an Assistant Vice President at Bank of America in the
Global Investment Bank’s Portfolio Management group. At Bank of America, he specialized in the corporate real estate, asset management,
and structured finance industries. Mr. O’Neill graduated magna cum laude from Miami University in Oxford, Ohio with a B.S. in Finance.
Mr. O’Neill has received the Chartered Financial Analyst (CFA) designation, is a member of the CFA Institute, and is a member of
the CFA Society of Chicago.
Robert
DiMella, CFA has been a co-portfolio manager of the Municipal Bond Income Strategy for the Fund since its inception. Mr. DiMella is an
Executive Managing Director of the Subadviser. He has managed the MainStay Tax Free Bond Fund since 2009, the MainStay High Yield Municipal
Bond Fund since 2010, the MainStay New York Tax Free Opportunities Fund since May 2012, the MainStay Defined Term Municipal Opportunities
Fund since 2012, the MainStay California Tax Free Opportunities Fund since 2013 and the MainStay Tax Advantaged Short Term Bond Fund
since June 2015. Previously, he co-founded Mariner Municipal Managers LLC (2007 to 2009). Prior to BlackRock’s merger with Merrill
Lynch Investment Managers (“MLIM”), he served as a Senior Portfolio Manager and Managing Director of the Municipal Products
Group. Mr. DiMella earned his Master’s degree at Rutgers University Business School and a Bachelors Degree at the University of
Connecticut, and he has received the CFA designation.
John
Loffredo, CFA has been a co-portfolio manager of the Municipal Bond Income Strategy for the Fund since its inception. Mr. Loffredo is
an Executive Managing Director of the Subadviser. Mr. Loffredo has managed the MainStay Tax Free Bond Fund since 2009, the MainStay High
Yield Municipal Bond Fund since 2010, the MainStay New York Tax Free Opportunities Fund since 2012, the MainStay Defined Term Municipal
Opportunities Fund since 2012, the MainStay California Tax Free Opportunities Fund since 2013 and the MainStay Tax Advantaged Short Term
Bond Fund since June 2015. He has been a municipal portfolio manager and/or municipal analyst on Wall Street since 1990, with a broad
range of portfolio management and analytic experience in the municipal markets. He previously co-founded Mariner Municipal Managers LLC
(2007 to 2009). Prior to BlackRock’s merger with MLIM, he served as Chief Investment Officer of the Municipal Products Group of
MLIM. Mr. Loffredo graduated cum laude with an MBA from Utah State University where he was a Harry S. Truman Scholar. He also has a Certificate
of Public Management from Boston University, and he has received the CFA designation.
Michael
Petty has been a co-portfolio manager of the Municipal Bond Income Strategy for the Fund since its inception. Mr. Petty is a Senior Managing
Director of the Subadviser. Mr. Petty has managed the MainStay High Yield Municipal Bond Fund since 2010, the MainStay Tax Free Bond
Fund since 2011, the MainStay New York Tax Free Opportunities Fund since 2012, the MainStay Defined Term Municipal Opportunities Fund
since 2012, the MainStay California Tax Free Opportunities Fund since 2013 and the MainStay Tax Advantaged Short Term Bond Fund since
June 2015. Before joining the Subadviser in 2009, he was a Portfolio Manager for Mariner Municipal Managers. He has been a portfolio
manager on Wall Street since 1992, and has worked in the municipal products market since 1985. Mr. Petty has a broad array of trading,
portfolio management, and sales experience. Prior to joining Mariner Municipal Managers, he was a Senior Portfolio Manager at Dreyfus
Corporation from 1997 to 2009. From 1992 to 1997, he served as a Portfolio Manager for Merrill Lynch Investment Managers. Mr. Petty graduated
from Hobart College with a B.S. in Mathematics and Economics.
Scott
Sprauer has been a co-portfolio manager of the Municipal Bond Income Strategy for the Fund since its inception. Mr. Sprauer is a Senior
Managing Director of the Subadviser. He joined the Subadviser in 2009 as a Portfolio Manager in the Municipal Bond Division. He has managed
the MainStay New York Tax Free Opportunities Fund since 2012, the MainStay Defined Term Municipal Opportunities Fund since 2012, the
MainStay California Tax Free Opportunities Fund since 2013, the MainStay High Yield Municipal Bond Fund and MainStay Tax Free Bond Fund
since February 2014 and the MainStay Tax Advantaged Short Term Bond Fund since June 2015. Prior to joining the Subadviser, he was the
Head Trader, Fixed Income at Financial Guaranty Insurance Company from 2006 to 2009. He has a BSBA from Villanova University, and has
been in the investment management industry since 1991.
David
Dowden has been a co-portfolio manager of the Municipal Bond Income Strategy for the Fund since its inception. Mr. Dowden is a Managing
Director of the Subadviser. He joined the Subadviser in 2009 as a Portfolio Manager in the Municipal Bond Division. He has managed the
MainStay New York Tax Free Opportunities Fund since 2012, the MainStay Defined Term Municipal Opportunities Fund since 2012, the MainStay
California Tax Free Opportunities Fund since 2013, the MainStay High Yield Municipal Bond Fund and MainStay Tax Free Bond Fund since
February 2014 and the MainStay Tax Advantaged Short Term Bond Fund since June 2015. Prior to joining the Subadviser, he was the Chief
Investment Officer at Financial Guaranty Insurance Company from 2006 to 2009. He has a BA from Brown University and an MBA from Columbia
University. He has been in the investment management industry since 1989.
Robert
Burke has been a co-portfolio manager of the Municipal Bond Income Strategy for the Fund since its inception. Mr. Burke is a Managing
Director of the Subadviser. He joined the Subadviser in July 2017. Before joining the Subadviser, Mr. Burke held various leadership roles
in capital markets, spending the majority of his time in the municipal markets. In his last role working for Bank of America Merrill
Lynch, Mr. Burke managed the Global Futures, Derivatives Clearing and Foreign Exchange Prime Brokerage businesses. Mr. Burke started
his career at Bank of America Merrill Lynch in the municipal bond department covering insurance, hedge fund, and asset management clients.
He holds a Masters of Business Administration from the Gabelli School at Fordham University, and a Bachelor of Arts with High Honors
in Economics from Colgate University. Mr. Burke has received the CFA designation. He has been in the investment management industry since
1985.
John
Lawlor has been a co-portfolio manager of the Municipal Bond Income Strategy for the Fund since its inception. He is a Managing Director
of the Subadviser. Mr. Lawlor joined MacKay Shields in 2016. Before joining the firm, he was Vice President Equity Sales at Deutsche
Bank and was previously at Bank of America Merrill Lynch. From 1997-2011, he was a senior trader on the floor of the New York Stock Exchange.
Mr. Lawlor has a broad and diverse set of skills in sales, trading, and electronic trading platforms. He earned a Bachelor’s degree
in Finance from Lehigh University, and has a Masters of Public Policy and Administration from American University. He has been in the
financial services industry since 1997.
Michael
Denlinger, CFA has been a co-portfolio manager of the Municipal Bond Income Strategy for the Fund since its inception. Mr. Denlinger
joined MacKay Shields in 2019 and is currently a Managing Director. Prior to joining MacKay Shields, Mr. Denlinger was an institutional
municipal credit trader at Bank of America Merrill Lynch with a primary focus on taxable and healthcare securities. Prior to trading
credit, he was a high grade municipal trader. Mr. Denlinger earned a Bachelor’s degree in Economics from Johns Hopkins University
in 2014. Mr. Denlinger is a CFA® charterholder and has been in the financial services industry since 2014.
Compensation
of Portfolio Managers
RiverNorth
Capital Management, LLC
Mr.
Galley’s and Mr. O’Neill’s total compensation package, like others in the Adviser’s business, is a package designed
to attract and retain investment professionals. The compensation package includes a base salary fixed from year to year. The amount of
the base salary is assessed for its competitiveness in the industry and geographic location of the Adviser. The compensation package
also provides for an annual but variable performance bonus. The performance bonus reflects individual performance of the portfolio manager
in his or her allocated duties and responsibilities. While performance of the funds managed by the portfolio managers is considered in
determining the annual performance bonus, it is but one factor. The overall success of the Adviser in its business objectives and the
performance of the Adviser’s business as a whole are more important factors than the investment performance of a particular fund
or account. Mr. Galley and Mr. O’Neill also participate in a 401K program on the same basis as other officers of the Adviser, which
includes matching of employee contributions up to a certain percent of the portfolio managers base salary. Those portfolio managers that
are also equity stakeholders in the Adviser or its affiliates may also receive periodic distribution of profits from business operations.
MacKay
Shields LLC
The
Subadviser establishes salaries at competitive levels, verified through industry surveys, to attract and maintain the best professional
talent. Incentives are paid annually to the firm’s employees based upon an individual’s performance and the profitability
of the firm, and in some instances may be fixed and guaranteed for a period of time. Incentive bonuses (both cash and deferred) are an
integral portion of total compensation at MacKay Shields and vary based upon an individual’s role, responsibility and performance.
A significant percentage of the compensation program for the Fund’s portfolio managers is incentive based.
The
Subadviser has a phantom equity program and awards are an integral component of the firm’s compensation structure. Awards vest
and pay out after several years. Thus, eligible professionals share in the results and success of the firm.
The
compensation received by portfolio managers is generally based on both quantitative and qualitative factors. The quantitative factors
may include: (i) investment performance; (ii) assets under management; (iii) revenues and profitability; and (iv) industry benchmarks.
The qualitative factors may include, among others, leadership, adherence to the firm’s policies and procedures, and contribution
to the firm’s goals and objectives.
To
the extent that an increase in the size of the Fund or another account managed by a portfolio manager has a positive impact on revenues/profitability,
a portfolio manager’s compensation may also increase. There is no difference between the method used in determining portfolio managers’
compensation with respect to the Fund and other accounts they manage. The Subadviser does not believe the compensation structure provides
an incentive for an employee who provides services to the Fund to take undue risks in managing the assets of the Fund.
Portfolio
Manager Ownership of Fund Shares
The
following table shows the dollar range of equity securities of the Fund beneficially owned by the portfolio managers of the Fund as of
June 30, 2023.
Name of Portfolio
Manager |
Dollar Range
of Equity Securities of the Fund1 |
Patrick W. Galley |
$0 |
Stephen A. O’Neill |
$50,001 - $100,000 |
Robert DiMella |
$100,001-$500,000 |
John Loffredo |
$0 |
Michael Petty |
$0 |
Scott Sprauer |
$10,001-$50,000 |
David Dowden |
$0 |
Robert Burke |
$0 |
John Lawlor |
$0 |
Michael Denlinger |
$0 |
(1) |
“Beneficial Ownership”
is determined in accordance with section 16a-1(a)(2) of the Securities Exchange Act of 1934, as amended. |
Conflicts
of Interest
Actual
or apparent conflicts of interest may arise when a portfolio manager has day-to-day management responsibilities with respect to more
than one fund or other accounts. More specifically, portfolio managers who manage multiple funds are presented with the following potential
conflicts, among others:
The
management of multiple accounts may result in a portfolio manager devoting unequal time and attention to the management of each account.
The management of multiple funds and accounts also may give rise to potential conflicts of interest if the funds and accounts have different
objectives, benchmarks, time horizons and fees as the portfolio manager must allocate his time and investment ideas across multiple funds
and accounts. Another potential conflict of interest may arise where another account has the same or similar investment objective as
the Fund, whereby the portfolio manager could favor one account over another.
With
respect to securities transactions for the Fund, the Adviser or Subadviser determines which broker to use to execute each order, consistent
with the duty to seek best execution of the transaction. A portfolio manager may execute transactions for another fund or account that
may adversely impact the value of securities held by the Fund. Securities selected for funds or accounts other than the Fund may outperform
the securities selected for the Fund. Further, a potential conflict could include a portfolio manager’s knowledge about the size,
timing and possible market impact of Fund trades, whereby they could use this information to the advantage of other accounts and to the
disadvantage of the Fund. These potential conflicts of interest could create the appearance that a portfolio manager is favoring one
investment vehicle over another.
The
management of personal accounts also may give rise to potential conflicts of interest. Although a portfolio manager generally does not
trade securities in his or her own personal account, the Adviser, the Subadviser and the Fund have each adopted a code of ethics that,
among other things, permits personal trading by employees (including trading in securities that can be purchased, sold or held by the
Fund) under conditions where it has been determined that such trades would not adversely impact client accounts. Nevertheless, the management
of personal accounts may give rise to potential conflicts of interest, and there is no assurance that these codes of ethics will adequately
address such conflicts.
Conflicts
potentially limiting the Fund’s investment opportunities may also arise when the Fund and other clients of the Adviser or Subadviser
invest in, or even conduct research relating to, different parts of an issuer’s capital structure, such as when the Fund owns senior
debt obligations of an issuer and other clients own junior tranches of the same issuer. In such circumstances, decisions over whether
to trigger an event of default, over the terms of any workout, or how to exit an investment may result in conflicts of interest. In order
to minimize such conflicts, a portfolio manager may avoid certain investment opportunities that would potentially give rise to conflicts
with other clients of the Adviser or Subadviser or result in the Adviser or Subadviser receiving material, non-public information, or
the Adviser or Subadviser may enact internal procedures designed to minimize such conflicts, which could have the effect of limiting
the Fund’s investment opportunities. Additionally, if the Adviser or Subadviser acquires material non-public confidential information
in connection with its business activities for other clients, a portfolio manager or other investment personnel may be restricted from
purchasing securities or selling certain securities for the Fund or other clients. When making investment decisions where a conflict
of interest may arise, the Adviser and Subadviser will endeavor to act in a fair and equitable manner between the Fund and other clients;
however, in certain instances the resolution of the conflict may result in the Adviser or Subadviser acting on behalf of another client
in a manner that may not be in the best interest, or may be opposed to the best interest, of the Fund.
The
Adviser and Subadviser have adopted certain compliance procedures which are designed to address these types of conflicts. However, there
is no guarantee that such procedures will detect each and every situation in which a conflict arises.
The
Underlying Funds in which the Fund invests will not include those that are advised or subadvised by the Adviser, the Subadviser or their
affiliates.
Other
Accounts Managed
As
of June 30, 2023, the portfolio managers of the Fund were responsible for the management of the following other accounts (in addition
to the Fund):
Number
of Other Accounts Managed and Assets by Account Type
As of June 30, 2023 |
Portfolio
Manager |
Registered
Investment
Companies
(other than the Fund) |
Registered
Investment Companies Subject to Performance-Based Advisory Fees |
Other
Pooled Investment Vehicles |
Other
Pooled Investment Vehicles Subject to Performance-Based Advisory Fees |
Other
Accounts |
Other
Accounts Subject to Performance-Based Advisory Fees |
Patrick
W. Galley |
13
$3.76
Billion |
0
$0 |
4
$951
Million
|
4
$951
Million
|
4
$91.2
Million
|
4
$91.2
Million
|
Stephen
O’Neill |
11
$3.76
Billion
|
0
$0
|
4
$951
Million
|
4
$951
Million
|
4
$91.2
Million
|
4
$91.2
Million
|
Robert
DiMella |
17
$31,493,043,075
|
0
$0
|
9
$10,861,287,343
|
2
$793,711,988
|
85
$25,169,751,601
|
2
$604,085,337
|
John
Loffredo |
15
$27,793,136,532
|
0
$0
|
9
$10,861,287,343
|
2
$793,711,988
|
85
$25,169,751,601
|
2
$604,085,337
|
Michael
Petty |
18
$28,698,103,921
|
0
$0
|
9
$10,861,287,343
|
2
$793,711,988
|
85
$25,169,751,601
|
2
$604,085,337
|
Scott
Sprauer |
18
$27,070,369,611
|
0
$0
|
9
$10,861,287,343
|
2
$793,711,988
|
85
$25,169,751,601
|
2
$604,085,337
|
David
Dowden |
18
$32,256,310,878
|
0
$0
|
9
$10,861,287,343
|
2
$793,711,988
|
85
$25,169,751,601
|
2
$604,085,337
|
Robert
Burke |
7
$5,629,856,809
|
0
$0
|
9
$10,861,287,343
|
2
$793,711,988
|
85
$25,169,751,601
|
2
$604,085,337
|
John
Lawlor |
13
$8,713,312,862
|
0
$0
|
9
$10,861,287,343
|
2
$793,711,988
|
85
$25,169,751,601
|
2
$604,085,337
|
Michael
Denlinger |
14
$22,549,115,018
|
0
$0
|
9
$10,861,287,343
|
2
$793,711,988
|
85
$25,169,751,601
|
2
$604,085,337
|
Administrator
Under
the Administration, Bookkeeping and Pricing Services Agreement (the “Administration Agreement”), subject to the supervision
of the Board of Directors, ALPS Fund Services, Inc. (“AFS” or the “Administrator”) is responsible for calculating
NAVs, providing additional fund accounting and tax services, and providing fund administration and compliance-related services. AFS bears
all expenses in connection with the performance of its services under the Administration Agreement, except for certain out-of-pocket
expenses described therein. AFS will not bear any expenses incurred by the Fund, including but not limited to, initial organization and
offering expenses; litigation expenses; costs of preferred shares (if any); expenses of conducting repurchase offers for the purpose
of repurchasing Fund shares; transfer agency and custodial expenses; taxes; interest; Fund directors’ fees; compensation and expenses
of Fund officers who are not associated with AFS or its affiliates; brokerage fees and commissions; state and federal registration fees;
advisory fees; insurance premiums; fidelity bond premiums; Fund legal and audit fees and expenses; costs of maintenance of Fund existence;
printing and delivery of materials in connection with meetings of the Fund’s directors; printing and mailing shareholder reports,
offering documents, and proxy materials; securities pricing and data services; and expenses in connection with electronic filings with
the SEC.
AFS,
an affiliate of the Fund’s transfer agent, is entitled to receive a monthly fee based on the Fund’s net assets plus certain
out of pocket expenses. See “Summary of Fund Expenses” in the prospectus.
Codes
of Ethics
The
Fund, Adviser and Subadviser have each adopted a code of ethics under Rule 17j-1 under the 1940 Act. These codes permit personnel subject
to the code to invest in securities, including securities that may be purchased or held by the Fund. The codes of ethics are available
on the EDGAR Database on the SEC’s website (sec.gov), and copies of these codes may be obtained, after paying a duplicating fee,
by electronic request at the following e-mail address: publicinfo@sec.gov.
FUND
SERVICE PROVIDERS
Independent
Registered Public Accounting Firm
Cohen
& Company, Ltd., located at 1350 Euclid Avenue, Suite 800, Cleveland, Ohio 44115, serves as the independent registered public accounting
firm for the Fund. Cohen & Company, Ltd. audits the financial statements of the Fund and provides other audit, tax and related services.
Legal
Counsel
Faegre
Drinker Biddle & Reath LLP serves as legal counsel to the Fund and legal counsel to the independent directors of the Fund.
Custodian
and Transfer Agent
State
Street Bank and Trust Company, located at State Street Financial Center, One Lincoln Street, Boston, MA 02111, serves as the Fund’s
custodian and maintains custody of the securities and cash of the Fund pursuant to a Custody Agreement. Under the Custody Agreement,
the custodian holds the Fund’s assets in compliance with the 1940 Act. For its services, the custodian receives a monthly fee based
upon, among other things, the average value of the total assets of the Fund, plus certain charges for securities transactions.
DST
Systems, Inc., located at 333 West 9th Street, 2nd Floor, Kansas City, Missouri 64105, and an affiliate of the Administrator, serves
as the transfer agent and registrar for the Fund.
PORTFOLIO
TRANSACTIONS
Subject
to policies established by the Board of Directors of the Fund, the Adviser or Subadviser is responsible for the Fund’s portfolio
decisions and the placing of the Fund’s portfolio transactions. In placing portfolio transactions, the Adviser or Subadviser seeks
the best qualitative execution for the Fund, taking into account such factors as price (including the applicable brokerage commission
or dealer spread), the execution capability, financial responsibility and responsiveness of the broker or dealer and the brokerage and
research services provided by the broker or dealer. The Adviser or Subadviser generally seeks favorable prices and commission rates that
are reasonable in relation to the benefits received under the circumstances under which that particular trade is placed.
The
Adviser or Subadviser is specifically authorized to select brokers or dealers who also provide brokerage and research services to the
Fund and/or the other accounts over which the Adviser or Subadviser exercises investment discretion, and to pay such brokers or dealers
a commission in excess of the commission another broker or dealer would charge if the Adviser or Subadviser determines in good faith
that the commission is reasonable in relation to the value of the brokerage and research services provided. The determination may be
viewed in terms of a particular transaction or the Adviser’s or Subadviser’s overall responsibilities with respect to the
Fund and to other accounts over which it exercises investment discretion. The Adviser or Subadviser may not give consideration to sales
of Common Shares of the Fund as a factor in the selection of brokers and dealers to execute portfolio transactions. However, the Adviser
or Subadviser may place portfolio transactions with brokers or dealers that promote or sell the Fund’s Common Shares so long as
such placements are made pursuant to policies approved by the Board of Directors that are designed to ensure that the selection is based
on the quality of the broker’s execution and not on its sales efforts.
Research
services include supplemental research, securities and economic analyses, statistical services and information with respect to the availability
of securities or purchasers or sellers of securities and analyses of reports concerning performance of accounts. Much, if not all, of
this information is the usual and customary research provided to the Adviser and Subadviser irrespective of any trading activity effected
with that broker. The research services and other information furnished by brokers through whom the Fund effects securities transactions
may also be used by the Adviser or Subadviser in servicing other accounts. Similarly, research and information provided by brokers or
dealers when serving other clients may be useful to the Adviser or Subadviser in connection with its services to the Fund. Although research
services and other information are useful to the Fund and the Adviser or Subadviser, it is not possible to place a dollar value on the
research and other information received. It is the opinion of the Board of Directors and the Adviser or Subadviser that the review and
study of the research and other information will not increase or reduce the overall cost to the Adviser or Subadviser of performing its
duties to the Fund under the Agreement.
Over-the-counter
transactions will be placed either directly with principal market makers or with broker-dealers, if the same or a better price, including
commissions and executions, is available. Fixed income securities are normally purchased directly from the issuer, an underwriter or
a market maker. Purchases include a concession paid by the issuer to the underwriter and the purchase price paid to a market maker may
include the spread between the bid and asked prices.
When
the Fund and another of the Adviser’s or Subadviser’s clients seek to purchase or sell the same security at or about the
same time, the Adviser or Subadviser may execute the transaction on a combined (“blocked”) basis. Blocked transactions can
produce better execution for the Fund because of the increased volume of the transaction. If the entire blocked order is not filled,
the Fund may not be able to acquire as large a position in such security as it desires or it may have to pay a higher price for the security.
Similarly, the Fund may not be able to obtain as large an execution of an order to sell or as high a price for any particular portfolio
security if the other client desires to sell the same portfolio security at the same time. In the event that the entire blocked order
is not filled, the purchase or sale will normally be allocated on a pro rata basis. The Adviser or Subadviser may adjust the allocation
when, taking into account such factors as the size of the individual orders and transaction costs, the Adviser or Subadviser believes
an adjustment is reasonable.
The
Fund paid brokerage commissions in the aggregate amount of $42,059 and $48,635 during the fiscal period from February 11, 2022 (commencement
of operations) through June 30, 2022 and for the fiscal year ended June 30, 2023, respectively, not including the gross underwriting
spread on securities purchased in underwritten public offerings.
The
Fund did not pay any brokerage commissions during the fiscal period from February 11, 2022 (commencement of operations) through June
30, 2022 and during the fiscal year ended June 30, 2023 to any broker that (1) is an affiliated person of the Fund, (2) is an affiliated
person of an affiliated person of the Fund or (3) has an affiliated person that is an affiliated person of the Fund or the investment
adviser.
U.S.
FEDERAL INCOME TAX MATTERS
The
following is a summary discussion of certain U.S. federal income tax consequences that may be relevant to a shareholder that acquires,
holds and/or disposes of Securities of the Fund. This discussion only addresses U.S. federal income tax consequences to U.S. Common Shareholders
who hold their Securities as capital assets and does not address all of the U.S. federal income tax consequences that may be relevant
to particular shareholders in light of their individual circumstances. This discussion also does not address the tax consequences to
shareholders who are subject to special rules, including, without limitation, banks and other financial institutions, insurance companies,
dealers in securities or foreign currencies, traders in securities that have elected to mark-to-market their securities holdings, foreign
holders, persons who hold their Common Shares as or in a hedge against currency risk, or as part of a constructive sale, straddle or
conversion transaction, or tax-exempt or tax-deferred plans, accounts, or entities. In addition, the discussion does not address any
state, local, or foreign tax consequences. The discussion reflects applicable income tax laws of the United States as of the date hereof,
which tax laws may be changed or subject to new interpretations by the courts or the Internal Revenue Service (“IRS”) retroactively
or prospectively, which could affect the continued validity of this summary. No attempt is made to present a detailed explanation of
all U.S. federal income tax concerns affecting the Fund and its shareholders, and the discussion set forth herein does not constitute
tax advice. Investors are urged to consult their own tax advisors before making an investment in the Fund to determine the specific
tax consequences to them of investing in the Fund, including the applicable federal, state, local and foreign tax consequences as well
as the effect of possible changes in tax laws.
Fund
Taxation
The
Fund has elected to be treated, and intends to qualify each year, as a “regulated investment company” under Subchapter M
of Subtitle A, Chapter 1 of the Code, so that it will generally not pay U.S. federal income tax on income and capital gains timely distributed
(or treated as being distributed, as described below) to Common Shareholders. If the Fund qualifies as a regulated investment company
and distributes to its Common Shareholders at least 90% of the sum of (i) its “investment company taxable income” as that
term is defined in the Code (which includes, among other things, dividends, taxable interest, the excess of any net short-term capital
gains over net long-term capital losses and certain net foreign exchange gains as reduced by certain deductible expenses) without regard
to the deduction for dividends paid, and (ii) the excess of its gross tax-exempt interest, if any, over certain disallowed deductions,
the Fund will be relieved of U.S. federal income tax on any income of the Fund, including long-term capital gains, distributed to Common
Shareholders. However, if the Fund retains any investment company taxable income or “net capital gain” (i.e., the
excess of net long-term capital gain over net short-term capital loss), it will be subject to U.S. federal income tax at regular corporate
federal income tax rates (currently at the rate of 21%) on the amount retained. The Fund intends to distribute at least annually all
or substantially all of its investment company taxable income (determined without regard to the deduction for dividends paid), net tax-exempt
interest, and net capital gain. Under the Code, the Fund will generally be subject to a nondeductible 4% federal excise tax on the portion
of its undistributed ordinary income and capital gains if it fails to meet certain distribution requirements with respect to each calendar
year. In order to avoid the 4% federal excise tax, the required minimum distribution is generally equal to the sum of 98% of the Fund’s
ordinary income (computed on a calendar year basis, and taking into account certain deferrals and elections), plus 98.2% of the Fund’s
capital gain net income (generally computed for the one-year period ending on October 31) plus undistributed amounts from prior years
on which the Fund paid no federal income tax. The Fund generally intends to make distributions in a timely manner in an amount at least
equal to the required minimum distribution and therefore, under normal circumstances, does not expect to be subject to this excise tax.
However, the Fund may also decide to distribute less and pay the federal excise taxes.
If
for any taxable year the Fund does not qualify as a regulated investment company for U.S. federal income tax purposes, it would be treated
as a U.S. corporation subject to U.S. federal income tax, and possibly state and local income tax, and distributions to its Common Shareholders
would not be deductible by the Fund in computing its taxable income. In such event, the Fund’s distributions, to the extent derived
from the Fund’s current or accumulated earnings and profits, would generally constitute ordinary dividends, which generally would
be eligible for the dividends received deduction available to corporate Common Shareholders under Section 243 of the Code, discussed
below, and non-corporate Common Shareholders of the Fund generally would be able to treat such distributions as qualified dividend income
eligible for reduced rates of U.S. federal income taxation, as discussed below, provided in each case that certain holding period and
other requirements are satisfied.
If
the Fund or an Underlying Fund invests in certain positions such as pay-in-kind securities, zero coupon securities, deferred interest
securities or, in general, any other securities with original issue discount (or with market discount if the Fund or Underlying Fund
elects to include market discount in income currently), the Fund or Underlying Fund must accrue income on such investments for each taxable
year, which generally will be prior to the receipt of the corresponding cash payments. However, the Fund must distribute, at least annually,
all or substantially all of its net investment income, including such accrued income, to Common Shareholders to avoid U.S. federal income
and excise taxes. Therefore, the Fund may have to dispose of its portfolio securities under disadvantageous circumstances to generate
cash, or may have to leverage itself by borrowing the cash, to satisfy distribution requirements.
The
Fund or an Underlying Fund may also acquire market discount bonds. A market discount bond is a security acquired in the secondary market
at a price below its stated redemption price at maturity (or its adjusted issue price if it is also an original issue discount bond).
If the Fund or an Underlying Fund invests in a market discount bond, it will be required for federal income tax purposes to treat any
gain recognized on the disposition of such market discount bond as ordinary income (instead of capital gain) to the extent of the accrued
market discount unless the Fund or Underlying Fund elects to include the market discount in income as it accrues.
The
Fund or an Underlying Fund may invest in debt obligations that are in the lowest rating categories or are unrated, including debt obligations
of issuers not currently paying interest or who are in default. Investments in debt obligations that are at risk of or in default present
special tax issues. Tax rules are not entirely clear about issues such as when the Fund or an Underlying Fund may cease to accrue interest,
original issue discount or market discount, when and to what extent deductions may be taken for bad debts or worthless securities, how
payments received on obligations in default should be allocated between principal and income and whether exchanges of debt obligations
in a bankruptcy or workout context are taxable. These and other related issues will be addressed by the Fund when, as and if it invests
in such securities, in order to seek to ensure that it distributes sufficient income to preserve its status as a regulated investment
company and does not become subject to U.S. federal income or excise taxes.
The
Fund will not be able to offset gains distributed by one Underlying Fund in which it invests against losses realized by another Underlying
Fund in which the Fund invests. Redemptions of shares in an Underlying Fund, including those resulting from changes in the allocation
among Underlying Funds, could also cause additional distributable gains to Common Shareholders. A portion of any such gains may be short-term
capital gains that would be distributable as ordinary income to Common Shareholders. Further, a portion of losses on redemptions of shares
in the Underlying Funds may be deferred under the wash sale rules. Additionally, the Fund’s investment in an Underlying Fund may
result in the Fund’s receipt of cash in excess of the Underlying Fund’s earnings; if the Fund distributes these amounts,
the distributions could constitute a return of capital to Common Shareholders for federal income tax purposes. As a result of these factors,
the use of the fund of funds structure by the Fund could therefore affect the amount, timing and character of distributions to Common
Shareholders.
The
Fund or an Underlying Fund may engage in various transactions utilizing options, futures contracts, forward contracts, hedge instruments,
straddles, and other similar transactions. Such transactions may be subject to special provisions of the Code that, among other things,
affect the character of any income realized by the Fund from such investments, accelerate recognition of income to the Fund, defer Fund
losses and affect the determination of whether capital gain or loss is characterized as long-term or short-term capital gain or loss.
These rules could therefore affect the character, amount and timing of distributions to Common Shareholders. These provisions may also
require the Fund to mark-to-market certain positions in its portfolio (i.e., treat them as if they were closed out), which may
cause the Fund to recognize income without receiving cash with which to make distributions in amounts necessary to satisfy the distribution
requirements for avoiding U.S. federal income and excise taxes. In addition, certain Fund investments may produce income that will not
be qualifying income for purposes of the 90% income test. The Fund will monitor its investments and transactions, will make the appropriate
tax elections, and will make the appropriate entries in its books and records when it acquires an option, futures contract, forward contract,
hedge instrument or other similar investment in order to mitigate the effect of these rules, prevent disqualification of the Fund as
a regulated investment company and minimize the imposition of U.S. federal income and excise taxes, if possible.
The
Fund’s transactions in broad based equity index futures contracts, exchange-traded options on such indices and certain other futures
contracts (if any) are generally considered “Section 1256 contracts” for federal income tax purposes. Any unrealized gains
or losses on such Section 1256 contracts are treated as though they were realized at the end of each taxable year. The resulting gain
or loss is treated as sixty percent long-term capital gain or loss and forty percent short-term capital gain or loss. Gain or loss recognized
on actual sales of Section 1256 contracts is treated in the same manner. As noted below, distributions of net short-term capital gain
are taxable to Common Shareholders as ordinary income while distributions of net long-term capital gain are generally taxable to Common
Shareholders as long-term capital gain, regardless of how long the Common Shareholder has held Common Shares of the Fund.
The
Fund’s entry into a short sale transaction, an option or certain other contracts (if any) could be treated as the constructive
sale of an appreciated financial position, causing the Fund to realize gain, but not loss, on the position.
If
the Fund utilizes leverage through borrowing, asset coverage limitations imposed by the 1940 Act as well as additional restrictions that
may be imposed by certain lenders on the payment of dividends or distributions could potentially limit or eliminate the Fund’s
ability to make distributions on its common stock until the asset coverage is restored. These limitations could prevent the Fund from
distributing at least 90% of its investment company taxable income as is required under the Code and therefore might jeopardize the Fund’s
qualification as a regulated investment company and/or might subject the Fund to the nondeductible 4% federal excise tax discussed above.
Upon any failure to meet the asset coverage requirements imposed by the 1940 Act, the Fund may, in its sole discretion and to the extent
permitted under the 1940 Act, purchase or redeem shares of preferred stock, if any, in order to maintain or restore the requisite asset
coverage and avoid the adverse consequences to the Fund and its Common Shareholders of failing to meet the distribution requirements.
There can be no assurance, however, that any such action would achieve these objectives. The Fund generally will endeavor to avoid restrictions
on its ability to distribute dividends.
Common
Shareholder Taxation
Distributions
of investment company taxable income are generally taxable as ordinary income to the extent of the Fund’s current and accumulated
earnings and profits. Distributions of net investment income designated by the Fund as derived from qualified dividend income will be
taxed in the hands of individuals and other non-corporate taxpayers at the rates applicable to long-term capital gain, provided certain
holding period and other requirements are met at both the shareholder and Fund levels. A dividend will not be treated as qualified dividend
income (at either the Fund or shareholder level) (i) if the dividend is received with respect to any share of stock held for fewer than
61 days during the 121-day period beginning on the date which is 60 days before the date on which such share becomes ex-dividend with
respect to such dividend (or, in the case of certain preferred stock, 91 days during the 181-day period beginning 90 days before such
date), (ii) to the extent that the recipient is under an obligation (whether pursuant to a short sale or otherwise) to make related payments
with respect to positions in substantially similar or related property, (iii) if the recipient elects to have the dividend income treated
as investment income for purposes of the limitation on deductibility of investment interest, or (iv) if the dividend is received from
a foreign corporation that is (a) not eligible for the benefits of a comprehensive income tax treaty with the U.S. which the IRS has
approved for these purposes (with the exception of dividends paid on stock of such a foreign corporation that is readily tradable on
an established securities market in the U.S.) or (b) treated as a passive foreign investment company. If the Fund received dividends
from an Underlying Fund that qualifies as a regulated investment company, and the Underlying Fund designates such dividends as qualified
dividend income, then the Fund is permitted in turn to designate a portion of its distributions as qualified dividend income, provided
the Fund meets holding period and other requirements with respect to shares of the Underlying Fund. Qualified dividend income does not
include interest from fixed income securities and generally does not include income from REITs. If the Fund lends portfolio securities,
amounts received by the Fund that is the equivalent of the dividends paid by the issuer on the securities loaned will not be eligible
for qualified dividend income treatment. The Fund can provide no assurance regarding the portion, if any, of its dividends that will
qualify for qualified dividend income treatment.
Distributions
of net capital gain, if any, that are properly reported by the Fund are taxable at long-term capital gain rates for U.S. federal income
tax purposes without regard to the length of time the Common Shareholder has held Common Shares of the Fund. A distribution of an amount
in excess of the Fund’s current and accumulated earnings and profits, if any, will be treated by a Common Shareholder as a tax-free
return of capital, which is applied against and reduces the Common Shareholder’s basis in his, her or its Common Shares. To the
extent that the amount of any such distribution exceeds the Common Shareholder’s basis in his, her or its Common Shares, the excess
will be treated by the Common Shareholder as gain from the sale or exchange of such Common Shares. The U.S. federal income tax status
of all distributions will be designated by the Fund and reported to Common Shareholders annually.
The
Fund may qualify to pay “exempt-interest” dividends, as defined in the Code, on its Common Shares by satisfying the requirement
that, at the close of each quarter of its taxable year, at least 50% of the value of its total assets consists of municipal securities.
As an alternative, the Fund may qualify to pay exempt-interest dividends if it is a qualified fund-of-funds, i.e., if at least 50% of
the value of its total assets are invested in the shares of underlying RICs at the close of each quarter of its taxable year. Exempt-interest
dividends are dividends or any part thereof (other than a capital gain dividend) paid by the Fund which are attributable to interest
on municipal securities and which are so reported by the Fund. Exempt-interest dividends will be exempt from federal income tax, subject
to the possible application of the federal alternative minimum tax applicable to individuals. Interest paid on a municipal bond issued
after December 31, 2017 to advance refund another municipal bond is subject to federal income tax. Insurance proceeds received by the
Fund under any insurance policies in respect of scheduled interest payments on defaulted municipal bonds, as described herein, will generally
be correspondingly excludable from federal gross income. In the case of non-appropriation by a political subdivision, however, there
can be no assurance that payments (if any) made by the issuer representing interest on municipal lease obligations will be excludable
from gross income for federal income tax purposes. Any gains of the Fund that are attributable to market discount on municipal securities
are treated as ordinary income to the extent of accrued market discount on those securities.
A
portion of the Fund’s expenditures that would otherwise be deductible may not be allowed as deductions by reason of the Fund’s
investment in municipal securities (such disallowed portion, in general, being the same percentage of the Fund’s aggregate expenses
as the percentage of the Fund’s aggregate gross income that constitutes exempt interest income from municipal securities). A similar
disallowance rule also applies to interest expense paid or incurred by the Fund, if any. Any such disallowed deductions will offset the
Fund’s gross exempt-interest income for purposes of calculating the dividends that the Fund can report as exempt-interest dividends.
Interest on indebtedness incurred or continued to purchase or carry the Fund’s shares is not deductible to the extent the interest
relates to exempt-interest dividends. Under rules used by the IRS for determining when borrowed funds are considered used for the purpose
of purchasing or carrying particular assets, the purchase or ownership of shares may be considered to have been made with borrowed funds
even though such funds are not directly used for the purchase or ownership of such shares.
Distributions
to Common Shareholders of net investment income received by the Fund from taxable investments, if any, including temporary taxable investments,
and of net short-term capital gains realized by the Fund, if any, will be taxable to Common Shareholders as ordinary income. Distributions
by the Fund of net capital gain (i.e., the excess of net long-term capital gain over net short-term capital loss), if any, are taxable
as long-term capital gain, regardless of the length of time the Common Shareholder has owned the shares with respect to which such distributions
are made. The amount of taxable income allocable to the Fund’s shares will depend upon the amount of such income realized by the
Fund. Distributions, if any, in excess of the Fund’s earnings and profits will first reduce the adjusted tax basis of a Common
Shareholder’s shares and, after that basis has been reduced to zero, will constitute capital gain to the Common Shareholder (assuming
the shares are held as a capital asset). As long as the Fund qualifies as a RIC under the Code, it is not expected that any part of its
distributions to Common Shareholders from its investments will qualify as “qualified dividend income” taxable to non-corporate
Common Shareholders at reduced rates.
The
interest on private activity bonds in most instances is not federally tax-exempt to a person who is a “substantial user”
of a facility financed by such bonds or a “related person” of such “substantial user.” As a result, the Fund
may not be an appropriate investment for a Common Shareholder who is considered either a “substantial user” or a “related
person” within the meaning of the Code. In general, a “substantial user” of a facility includes a “nonexempt
person who regularly uses a part of such facility in his trade or business.” “Related persons” are in general defined
to include persons among whom there exists a relationship, either by family or business, which would result in a disallowance of losses
in transactions among them under various provisions of the Code (or if they are members of the same controlled group of corporations
under the Code), including a partnership and each of its partners (and certain members of their families), an S corporation and each
of its shareholders (and certain members of their families) and various combinations of these and other relationships. The foregoing
is not a complete description of all of the provisions of the Code covering the definitions of “substantial user” and “related
person.”
Federal
income tax law imposes an alternative minimum tax with respect to individuals, trusts, and estates. Interest on certain municipal securities,
such as bonds issued to make loans for housing purposes or to private entities (but not to certain tax-exempt organizations such as universities
and non-profit hospitals), is included as an item of tax preference in determining the amount of a taxpayer’s alternative minimum
taxable income. To the extent that the Fund receives income from such municipal securities, a portion of the dividends paid by the Fund,
although otherwise exempt from federal income tax, will be taxable to Common Shareholders whose tax liabilities are determined under
the federal alternative minimum tax. The Fund will annually provide a report indicating the percentage of the Fund’s income attributable
to municipal securities and the portion thereof the interest on which is a tax preference item.
The
Fund may invest in municipal securities that pay interest that is taxable under the federal alternative minimum tax applicable to individuals.
If you are, or as a result of investment in the Fund would become, subject to the federal alternative minimum tax, the Fund may not be
a suitable investment for you. In addition, distributions of taxable ordinary income (including any net short-term capital gain) will
be taxable to Common Shareholders as ordinary income (and not eligible for favorable taxation as “qualified dividend income”),
and capital gain dividends will be taxable as long-term capital gains.
Any
loss realized by a shareholder of the Fund upon the sale of shares held for six months or less may be disallowed to the extent of any
exempt-interest dividends received with respect to such shares.
Certain
distributions by the Fund may qualify for the dividends received deduction available to corporate Common Shareholders under Section 243
of the Code, subject to certain holding period and other requirements, but generally only to the extent the Fund earned dividend income
from stock investments in U.S. domestic corporations (but not including real estate investment trusts). Additionally, if the Fund received
dividends from an Underlying Fund that qualifies as a regulated investment company, and the Underlying Fund designates such dividends
as eligible for the dividends received deduction, then the Fund is permitted in turn to designate a portion of its distributions as eligible
for the dividends received deduction, provided the Fund meets holding period and other requirements with respect to shares of the Underlying
Fund. As long as the Fund qualifies as a RIC under the Code, it is not expected that any significant part of its distributions to Common
Shareholders from its investments will qualify for the dividends-received deduction available to corporate Common Shareholders.
A
Common Shareholder will have all dividends and distributions automatically reinvested in Common Shares of the Fund, unless the Common
Shareholder opts out of the Fund’s dividend reinvestment plan. For U.S. federal income tax purposes, all dividends are generally
taxable regardless of whether a Common Shareholder takes them in cash or they are reinvested in additional Common Shares of the Fund.
If
a Common Shareholder’s distributions are automatically reinvested in additional Common Shares, for U.S. federal income tax purposes,
the Common Shareholder will be treated as having received a distribution in the amount of the cash dividend that the Common Shareholder
would have received if the Common Shareholder had elected to receive cash, unless the distribution is in newly issued Common Shares of
the Fund that are trading at or above net asset value, in which case the Common Shareholder will be treated as receiving a distribution
equal to the fair market value of the stock the Common Shareholder receives.
The
Fund intends to distribute all realized net capital gains, if any, at least annually. If, however, the Fund were to retain any net capital
gain, the Fund may designate the retained amount as undistributed capital gains in a notice to Common Shareholders who, if subject to
U.S. federal income tax on long-term capital gains, (i) will be required to include in income, as long-term capital gain, their proportionate
share of such undistributed amount, and (ii) will be entitled to credit their proportionate share of the federal income tax paid by the
Fund on the undistributed amount against their U.S. federal income tax liabilities, if any, and to claim refunds to the extent the credit
exceeds such liabilities. For U.S. federal income tax purposes, the tax basis of Common Shares owned by a Common Shareholder will be
increased by the difference between the amount of undistributed net capital gain included in the Common Shareholder’s gross income
and the federal income tax deemed paid by the Common Shareholder.
Any
dividend declared by the Fund in October, November or December with a record date in such a month and paid during the following January
will be treated for U.S. federal income tax purposes as paid by the Fund and received by Common Shareholders on December 31 of the calendar
year in which it is declared.
At
the time of an investor’s purchase of the Fund’s Common Shares, a portion of the purchase price may be attributable to realized
or unrealized appreciation in the Fund’s portfolio or undistributed taxable income of the Fund. Consequently, subsequent distributions
by the Fund with respect to these Common Shares from such appreciation or income may be taxable to such investor even if the net asset
value of the investor’s Common Shares is, as a result of the distributions, reduced below the investor’s cost for such Common
Shares and the distributions economically represent a return of a portion of the investment. Investors should consider the tax implications
of purchasing Common Shares just prior to a distribution.
The
IRS has taken the position that if a regulated investment company has two or more classes of shares, it must designate distributions
made to each class in any year as consisting of no more than such class’ proportionate share of particular types of income (e.g.,
ordinary income and net capital gains). Consequently, if both common stock and preferred stock are outstanding, the Fund intends to designate
distributions made to each class of particular types of income in accordance with each class’ proportionate share of such income.
Thus, the Fund will designate to the extent applicable, dividends qualifying for the corporate dividends received deduction (if any),
income not qualifying for the dividends received deduction, qualified dividend income, ordinary income, exempt interest and net capital
gain (if any) in a manner that allocates such income between the holders of common stock and preferred stock in proportion to the total
dividends paid to each class during or for the taxable year, or otherwise as required by applicable law. However, for purposes of determining
whether distributions are out of the Fund’s current or accumulated earnings and profits, the Fund’s earnings and profits
will be allocated first to the Fund’s preferred stock, if any, and then to the Fund’s common stock. In such a case, since
the Fund’s current and accumulated earnings and profits will first be used to pay dividends on the preferred stock, distributions
in excess of such earnings and profits, if any, will be made disproportionately to holders of common stock.
In
addition, solely for the purpose of satisfying the 90% distribution requirement and the distribution requirement for avoiding federal
income taxes, certain distributions made after the close of a taxable year of the Fund may be “spilled back” and treated
as paid during such taxable year. In such case, Common Shareholders will be treated as having received such dividends in the taxable
year in which the distribution was actually made.
Sales,
exchanges and other dispositions of the Fund’s Common Shares generally are taxable events for Common Shareholders that are subject
to federal income tax. Common Shareholders should consult their own tax advisors regarding their individual circumstances to determine
whether any particular transaction in the Fund’s Common Shares is properly treated as a sale or exchange for federal income tax
purposes (as the following discussion assumes) and the tax treatment of any gains or losses recognized in such transactions. Generally,
gain or loss will be equal to the difference between the amount of cash and the fair market value of other property received (including
securities distributed by the Fund) and the Common Shareholder’s adjusted tax basis in the Common Shares sold or exchanged. In
general, any gain or loss realized upon a taxable disposition of Common Shares will be treated as long-term capital gain or loss if the
Common Shares have been held for more than one year. Otherwise, the gain or loss on the taxable disposition of the Fund’s Common
Shares will be treated as short-term capital gain or loss. However, any loss realized by a Common Shareholder upon the sale or other
disposition of Common Shares with a tax holding period of six months or less will be treated as a long-term capital loss to the extent
of any amounts treated as distributions of long-term capital gain with respect to such Common Shares. For the purposes of calculating
the six-month period, the holding period is suspended for any periods during which the Common Shareholder’s risk of loss is diminished
as a result of holding one or more other positions in substantially similar or related property or through certain options, short sales
or contractual obligations to sell. The maximum individual rate applicable to long-term capital gains is generally either 15% or 20%,
depending on whether the individual’s income exceeds certain threshold amounts. The ability to deduct capital losses may be subject
to limitations. In addition, losses on sales or other dispositions of Common Shares may be disallowed under the “wash sale”
rules in the event a Common Shareholder acquires substantially identical stock or securities (including those made pursuant to reinvestment
of dividends) within a period of 61 days beginning 30 days before and ending 30 days after a sale or other disposition of Common Shares.
In such a case, the disallowed portion of any loss generally would be included in the U.S. federal income tax basis of the Common Shares
acquired.
An
additional 3.8% Medicare tax is imposed on certain net investment income (including ordinary dividends and capital gain distributions
received from the Fund and net gains from redemptions or other taxable dispositions of Common Shares) of U.S. individuals, estates and
trusts to the extent that such person’s “modified adjusted gross income” (in the case of an individual) or “adjusted
gross income” (in the case of an estate or trust) exceeds certain threshold amounts.
From
time to time, the Fund may repurchase its Common Shares. Common Shareholders who tender all Common Shares held, and those considered
to be held (through attribution rules contained in the Code), by them will be treated as having sold their Common Shares and generally
will realize a capital gain or loss. If a Common Shareholder tenders fewer than all of his, her or its Common Shares (including those
considered held through attribution), such Common Shareholder may be treated as having received a taxable dividend upon the tender of
its Common Shares. If a tender offer is made, there is a risk that non-tendering Common Shareholders will be treated as having received
taxable distributions from the Fund. To the extent that the Fund recognizes net gains on the liquidation of portfolio securities to meet
such tenders of Common Shares, the Fund will be required to make additional distributions to its Common Shareholders. If the Board of
Directors determines that a tender offer will be made by the Fund, the federal income tax consequences of such offer will be discussed
in materials that will be available at such time in connection with the specific tender offer, if any.
The
Code requires that the Fund withhold, as “backup withholding,” 24% of reportable payments, including dividends, capital gain
distributions and the proceeds of sales or other dispositions of the Fund’s stock paid to Common Shareholders who have not complied
with IRS regulations. In order to avoid this withholding requirement, Common Shareholders must certify on their account applications,
or on a separate IRS Form W-9, that the social security number or other taxpayer identification number they provide is their correct
number and that they are not currently subject to backup withholding, or that they are exempt from backup withholding. The Fund may nevertheless
be required to withhold if it receives notice from the IRS or a broker that the number provided is incorrect or backup withholding is
applicable. Backup withholding is not an additional tax. Any amount withheld may be allowed as a refund or a credit against the Common
Shareholder’s U.S. federal income tax liability if the appropriate information (such as the timely filing of the appropriate federal
income tax return) is provided to the IRS.
Under
Treasury regulations, if a Common Shareholder recognizes a loss with respect to Common Shares of $2 million or more in a single taxable
year (or $4 million or more in any combination of taxable years) for an individual Common Shareholder, S corporation or trust or $10
million or more in a single taxable year (or $20 million or more in any combination of years) for a Common Shareholder who is a C corporation,
such Common Shareholder will generally be required to file with the IRS a disclosure statement on Form 8886. Direct shareholders of portfolio
securities are generally excepted from this reporting requirement, but under current guidance, shareholders of a regulated investment
company are not excepted. Future guidance may extend the current exception from this reporting requirement to shareholders of most or
all regulated investment companies. The fact that a loss is reportable under these regulations does not affect the legal determination
of whether the taxpayer’s treatment of the loss is proper. Common Shareholders should consult their tax advisors to determine the
applicability of these regulations in light of their individual circumstances.
Preferred
Shareholder Taxation
The
IRS has taken the position that if a regulated investment company has two or more classes of shares, it must designate distributions
made to each class in any year as consisting of no more than such class’ proportionate share of particular types of income (e.g.,
ordinary income and net capital gains). Consequently, if both Common Shares and Preferred Shares are outstanding, the Fund intends to
designate distributions made to each class of particular types of income in accordance with each class’ proportionate share of
such income. Thus, the Fund will designate to the extent applicable, dividends qualifying for the corporate dividends received deduction
(if any), income not qualifying for the dividends received deduction, qualified dividend income, Section 199A dividends, ordinary income
and net capital gain in a manner that allocates such income between the holders of Common Shares and Preferred Shares in proportion to
the total dividends paid to each class during or for the taxable year, or otherwise as required by applicable law. However, for purposes
of determining whether distributions are out of the Fund’s current or accumulated earnings and profits, the Fund’s earnings
and profits will be allocated first to the Fund’s Preferred Shares, if any, and then to the Fund’s Common Shares. In such
a case, since the Fund’s current and accumulated earnings and profits will first be used to pay dividends on the Preferred Shares,
distributions in excess of such earnings and profits, if any, will be made disproportionately to holders of Common Shares.
Other
Taxes
The
description of certain U.S. federal income tax provisions above relates only to U.S. federal income tax consequences for Common Shareholders
who are U.S. persons (i.e., U.S. citizens or residents or U.S. corporations, partnerships, trusts or estates). Non-U.S. Common
Shareholders should consult their tax advisors concerning the tax consequences of ownership of Common Shares of the Fund, including the
possibility that distributions may be subject to a 30% U.S. withholding tax (or a reduced rate of withholding provided by an applicable
treaty if the investor provides proper certification of its non-U.S. status).
A
separate U.S. withholding tax may apply in the case of distributions to (i) certain non-U.S. financial institutions that have not agreed
to collect and disclose certain account holder information and are not resident in a jurisdiction that has entered into such an agreement
with the U.S. Treasury and (ii) certain other non-U.S. entities that do not provide certain certifications and information about the
entity’s U.S. owners.
Shareholders
should consult their own tax advisors on these matters and on any specific question of U.S. federal, state, local, foreign and other
applicable tax laws before making an investment in the Fund.
BOARD
MEMBERS AND OFFICERS
The
following table presents certain information regarding the board members of the Board of Directors (each, a “Board Member”).
Each Board Member’s year of birth is set forth in parentheses after his or her name. The Board of Directors (the “Board”)
is divided into three classes of directors serving staggered three-year terms and upon the expiration of their initial terms, directors
of each class will be elected to serve for three-year terms and until their successors are duly elected and qualify, and at each annual
meeting one class of directors will be elected by the shareholders. If there are Preferred Shares outstanding, two of the Fund’s
directors would be elected by the holders of Preferred Shares, voting separately as a class, and the remaining directors of the Fund
would be elected by holders of Common Shares and Preferred Shares, voting together as a class.
Except
as otherwise noted, the address for all Directors and officers is 360 South Rosemary Avenue, Suite 1420, West Palm Beach, FL 33401. The
“independent directors” consist of those directors who are not “interested persons” of the Fund, as that term
is defined under the 1940 Act (each, an “Independent Director” and collectively, the “Independent Directors”).
Independent
Board Members
Name,
and
Year of Birth |
Position(s)
Held with Registrant |
Term
of
Office
(1) and
Length
of
Time
Served |
Principal
Occupation(s) During Past 5 Years |
Number
of Funds in Fund Complex(2) Overseen by Director |
Other
Directorships(3) Held by the Director During the Past 5 Years |
John
K. Carter
(1961)
|
Director |
Initial term expires in 2024.
Has served since 2021. |
Founder, Special Counsel, Law
Office of John K. Carter, P.A. (a general practice and corporate law firm) (2015 to present). |
11 |
RiverNorth Managed Duration
Municipal Income Fund, Inc. (1 fund) (2019 to present); RiverNorth Opportunistic Municipal Income Fund, Inc. (1 fund) (2018 to present);
Carillon Series Trust (16 funds) (2016 to present); RiverNorth Capital and Income Fund, Inc. (1 fund) (2016 to present); RiverNorth/DoubleLine
Strategic Opportunity Fund, Inc. (1 fund) (2016 to present); RiverNorth Funds (3 funds) (2013 to present); RiverNorth Flexible Municipal
Income Fund, Inc. (1 fund) (2020 to present); RiverNorth Flexible Municipal Income Fund II, Inc. (1 fund) (2021 to present); and
RiverNorth Opportunities Fund, Inc. (1 fund) (2013 to present). |
Name,
and
Year of Birth |
Position(s)
Held with Registrant |
Term
of
Office
(1) and
Length
of
Time
Served |
Principal
Occupation(s) During Past 5 Years |
Number
of Funds in Fund Complex(2) Overseen by Director |
Other
Directorships(3) Held by the Director During the Past 5 Years |
J.
Wayne Hutchens
(1944)
|
Director |
Initial term expires in 2025.
Has served since 2021. |
Currently
retired; Trustee of the Denver Museum of Nature and Science (2000 to 2020); Director of AMG National Trust Bank (June 2012 to present);
Trustee of Children’s Hospital Colorado (May 2012 to 2020). |
11 |
ALPS Series Trust (11 funds)
(2012 to present); RiverNorth Capital and Income Fund, Inc. (1 fund) (2016 to present); RiverNorth Opportunistic Municipal Income
Fund, Inc. (1 fund)(2018 to present); RiverNorth/DoubleLine Strategic Opportunity Fund, Inc. (1 fund) (2018 to present); RiverNorth
Funds (3 funds) (2013 to present); RiverNorth Managed Duration Municipal Income Fund, Inc. (2019 to present)(1 fund); RiverNorth
Flexible Municipal Income Fund, Inc. (2020 to present)(1 Fund); RiverNorth Flexible Municipal Income Fund II, Inc. (1 fund)(2021
to present); RiverNorth Opportunities Fund, Inc. (1 fund)(2013 to present). |
Name,
Address and
Year of Birth |
Position(s)
Held with Registrant |
Term
of
Office
(1) and
Length
of
Time
Served |
Principal
Occupation(s) During Past 5 Years |
Number
of Funds in Fund Complex(2) Overseen by Director |
Other
Directorships(3) Held by the Director During the Past 5 Years |
Lisa
B. Mougin
(1972)
|
Director |
Initial term expires in 2024.
Has served since 2022. |
Chief Investment Officer of
Capital Sisters International (a non-profit) (2023 to present); President & Chief Operating Officer of TIFIN (a fintech software
company) (2020 to 2022); Senior Vice President of ALPS Fund Services, LLC (1998 to 2017). |
8 |
RiverNorth Managed Duration
Municipal Income Fund, Inc. (1 fund) (2022 to present); RiverNorth Opportunistic Municipal Income Fund, Inc. (1 fund) (2022 to present);
RiverNorth Capital and Income Fund, Inc. (1 fund) (2022 to present); RiverNorth/DoubleLine Strategic Opportunity Fund, Inc. (1 fund)
(2022 to present); RiverNorth Flexible Municipal Income Fund, Inc. (1 fund) (2022 to present) RiverNorth Flexible Municipal Income
Fund II, Inc. (1 fund) (2022 to present); RiverNorth Opportunities Fund, Inc. (1 fund) (2022 to present). |
Name,
Address and
Year of Birth |
Position(s)
Held with Registrant |
Term
of
Office
(1) and
Length
of
Time
Served |
Principal
Occupation(s) During Past 5 Years |
Number
of Funds in Fund Complex(2) Overseen by Director |
Other
Directorships(3) Held by the Director During the Past 5 Years |
David
M. Swanson
(1957)
|
Director |
Initial term expires in 2025.
Has served since 2021. |
Founder & Managing Partner,
SwanDog Strategic Marketing (marking consulting firm) (2006 to present). |
11 |
RiverNorth Managed Duration
Municipal Income Fund, Inc. (1 fund) (2019 to present); RiverNorth Opportunistic Municipal Income Fund, Inc. (1 fund) (2018 to present);
RiverNorth Capital and Income Fund, Inc. (1 fund) (2018 to present); RiverNorth/DoubleLine Strategic Opportunity Fund, Inc. (1 fund)
(2019 to present); RiverNorth Funds (3 funds) (2018 to present); RiverNorth Flexible Municipal Income Fund, Inc. (1 fund) (2020 to
present); RiverNorth Flexible Municipal Income Fund II, Inc. (1 fund) (2021 to present); RiverNorth Opportunities Fund, Inc. (1 fund)
(2013 to present); Managed Portfolio Series (31 funds) (2011 to present); ALPS Variable Investment Trust (7 funds) (2006 to present). |
Interested
Board Members(7) and Officers(4)
Name,
Address and
Year of Birth |
Position(s)
Held with Registrant |
Term
of
Office(1)
and
Length
of
Time
Served |
Principal
Occupation(s) During Past 5 Years |
Number
of Funds in Fund Complex(2) Overseen by Director |
Other
Directorships(3) Held by the Director During the Past 5 Years |
Patrick
W. Galley(5)
(1975)
|
Interested Director, Chairman
and President |
Initial term expires in 2023. Has served since 2021. |
Chief Executive Officer, RiverNorth Capital Management,
LLC (2020 to present); Chief Investment Officer, RiverNorth Capital Management, LLC (2004 to present). |
11 |
RiverNorth Managed Duration Municipal Income Fund,
Inc. (1 fund) (2019 to present); RiverNorth Opportunistic Municipal Income Fund, Inc. (1 fund) (2018 to present); RiverNorth Capital
and Income Fund, Inc. (1 fund) (2016 to present); RiverNorth/DoubleLine Strategic Opportunity Fund, Inc. (1 fund) (2016 to present);
RiverNorth Funds (3 funds) (2006 to present); RiverNorth Flexible Municipal Income Fund, Inc. (1 fund) (2019 to present); RiverNorth
Flexible Municipal Income Fund II, Inc. (1 fund) (2021 to present); RiverNorth Opportunities Fund, Inc. (1 fund)(2013 to present). |
Name,
Address and
Year of Birth |
Position(s)
Held with Registrant |
Term
of
Office
(1) and
Length
of
Time
Served |
Principal
Occupation(s) During Past 5 Years |
Number
of Funds in Fund Complex(2) Overseen by Director |
Other
Directorships(3) Held by the Director During the Past 5 Years |
Jerry
R. Raio
(1964)(6)
|
Director |
Initial term expires in 2023. Has served since 2021. |
President, Arbor Lane Advisors, Inc. (Since 2018);
Advisory Board Member of each of FLX Distribution, (2020 to present); Quantify Crypto (2021 to present); ETF Action (2022 to present);
Qudos Technologies (2019 to 2022); Head of Capital Markets, ClickIPO (2018-2019); Managing Director, Head of Retail Origination,
Wells Fargo Securities, LLC (2005 to 2018). |
11 |
RiverNorth Managed Duration Municipal Income Fund,
Inc. (1 fund) (2019 to present); RiverNorth Opportunistic Municipal Income Fund, Inc. (1 fund) (2018 to present); RiverNorth Capital
and Income Fund, Inc. (1 fund) (2019 to present); RiverNorth/DoubleLine Strategic Opportunity Fund, Inc. (1 fund) (2019 to present);
RiverNorth Flexible Municipal Income Fund, Inc. (1 fund) (2020 to present); RiverNorth Flexible Municipal Income Fund II, Inc. (1
fund) (2021 to present); RiverNorth Funds (3 funds) (2022 to present); RiverNorth Opportunities Fund, Inc. (1 fund)(2013 to present). |
Name,
Address and
Year of Birth |
Position(s)
Held with Registrant |
Term
of
Office
(1) and
Length
of
Time
Served |
Principal
Occupation(s) During Past 5 Years |
Number
of Funds in Fund Complex(2) Overseen by Director |
Other
Directorships(3)
Held by the Director During the Past 5 Years |
Jonathan
M. Mohrhardt
(1974)
|
Chief
Financial Officer and Treasurer |
Indefinite.
Has served since 2021. |
President
(since 2020) and Chief Operating Officer (2011 to present), RiverNorth Capital Management, LLC. |
N/A |
N/A |
Marcus
L. Collins
(1968)
|
Chief
Compliance Officer and Secretary |
Indefinite.
Has served since 2021. |
General
Counsel and Chief Compliance Officer, RiverNorth Capital Management, LLC (2012 to present). |
N/A |
N/A |
| (1) | Each
Director’s term is three years. |
| (2) | The
term “Fund Complex” means two or more registered investment companies that: |
(a)
hold themselves out to investors as related companies for purposes of investment and investor services; or
(b)
have a common investment adviser or that have an investment adviser that is an affiliated person of the investment adviser of any of
the other registered investment companies.
For
all Directors other than Ms. Mougin, the Fund Complex consists of the Fund, RiverNorth Managed Duration Municipal Income Fund Inc., RiverNorth
Opportunistic Municipal Income Fund, Inc., RiverNorth Capital and Income Fund, Inc., RiverNorth/DoubleLine Strategic Opportunity Fund,
Inc., RiverNorth Funds (3 funds), RiverNorth Flexible Municipal Income Fund, Inc., RiverNorth Flexible Municipal Income Fund II, Inc.
and RiverNorth Opportunities Fund, Inc.
For
Ms. Mougin, the Fund Complex consists of the Fund, RiverNorth Managed Duration Municipal Income Fund Inc., RiverNorth Opportunistic Municipal
Income Fund, Inc., RiverNorth Capital and Income Fund, Inc., RiverNorth/DoubleLine Strategic Opportunity Fund, Inc., RiverNorth Flexible
Municipal Income Fund, Inc., RiverNorth Flexible Municipal Income Fund II, Inc. and RiverNorth Opportunities Fund, Inc.
| (3) | The
numbers enclosed in the parentheticals represent the number of funds overseen in each respective
directorship held by the Director. Only includes public company directorships. |
| (4) | Officers
are elected annually. Each officer will hold such office until a successor has been elected
by the Board. |
| (5) | Mr.
Galley is considered an “Interested Director” because of his affiliation with
the Adviser. |
| (6) | Mr.
Raio is considered an “Interested Director” because of his current position as
a director of FLX Distribution, which the Adviser is an investor in and Mr. Galley is a Director
of; and his prior affiliation with Wells Fargo Securities, LLC, which previously served as
a broker and underwriter for certain funds advised by the Adviser. |
| (7) | “Interested
Directors” refers to those Directors who constitute “interested persons”
of the Fund as defined in the 1940 Act. |
Board
Leadership Structure. The Board, which has overall responsibility for the oversight of the Fund’s investment programs and business
affairs, believes that it has structured itself in a manner that allows it to effectively perform its oversight obligations. Mr. Patrick
W. Galley, the Chairman of the Board (“Chairman”), is not an Independent Director. The Board believes that the use of an
interested director as Chairman is the appropriate leadership structure for the Fund given (i) Mr. Patrick Galley’s role in the
day to day operations of the Adviser, (ii) the extent to which the work of the Board is conducted through the Audit Committee of the
Board (the “Audit Committee”) and the Nominating and Corporate Governance Committee of the Board (the “Nominating and
Corporate Governance Committee”), each of whose meetings is chaired by an Independent Director, (iii) the frequency that Independent
Directors meet with their independent legal counsel and auditors in the absence of members of the Board who are interested directors
of the Fund and management, and (iv) the overall sophistication of the Independent Directors, both individually and collectively. The
members of the Board also complete an annual self-assessment during which the directors review their overall structure and consider where
and how its structure remains appropriate in light of the Fund’s current circumstances. The Chairman’s role is to preside
at all meetings of the Board and in between meetings of the Board to generally act as the liaison between the Board of Directors and
the Fund’s officers, attorneys and various other service providers, including but not limited to the Adviser and other such third
parties servicing the Fund. The Board believes that having an interested person serve as Chairman of the Board enables Mr. Galley to
more effectively carry out these liaison activities. The Board also believes that it benefits during its meetings from having a person
intimately familiar with the operation of the Fund to set the agenda for meetings of the Board to ensure that important matters are brought
to the attention of and considered by the Board.
The
Fund has two standing committees, each of which enhances the leadership structure of the Board of Directors: the Audit Committee and
the Nominating and Corporate Governance Committee. The Audit Committee and Nominating and Corporate Governance Committee are each chaired
by, and composed of, members who are Independent Directors.
The
Audit Committee is comprised of Ms. Mougin and Messrs. Carter, Hutchens, and Swanson, all of whom are “independent” as defined
in the listing standard of the NYSE. Mr. Hutchens is the Chair of the Audit Committee and has been determined to qualify as an “audit
committee financial expert” as such term is defined in Form N-CSR. The role of the Audit Committee is to assist the Board of Directors
in its oversight of (i) the quality and integrity of the Fund’s financial statements, reporting process and the independent registered
public accounting firm (the “independent accountants”) and reviews thereof, (ii) the Fund’s accounting and financial
reporting policies and practices, its internal controls and, as appropriate, the internal controls of certain service providers, (iii)
the Fund’s compliance with certain legal and regulatory requirements, and (iv) the independent accountants’ qualifications,
independence and performance. The Audit Committee is also required to prepare an audit committee report pursuant to the rules of the
SEC for inclusion in the Fund’s annual proxy statement. The Audit Committee operates pursuant to the Audit Committee Charter that
is reviewed and approved annually. As set forth in the Audit Committee Charter, management is responsible for maintaining appropriate
systems for accounting and internal controls, and the Fund’s independent accountants are responsible for planning and carrying
out proper audits and reviews. The independent accountants are ultimately accountable to the Board of Directors and to the Audit Committee,
as representatives of the common shareholders. The independent accountants for the Fund report directly to the Audit Committee. The Audit
Committee met four times during the fiscal year ended June 30, 2023.
The
Nominating and Corporate Governance Committee is comprised of Ms. Mougin and Messrs. Carter, Hutchens, and Swanson. Mr. Carter is the
Chair of the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee is responsible for identifying
and recommending to the Board of Directors individuals believed to be qualified to become members of the Board of Directors in the event
that a position is vacated or created. The Nominating and Corporate Governance Committee will consider director candidates recommended
by Common Shareholders. In considering candidates submitted by Common Shareholders, the Nominating and Corporate Governance Committee
will take into consideration the needs of the Board of Directors, the qualifications of the candidate and the interests of Common Shareholders.
Common Shareholders wishing to recommend candidates to the Nominating and Corporate Governance Committee should submit such recommendations
to the Secretary of the Fund at the principal executive office of the Fund, who will forward the recommendations to the committee for
consideration. The submission must include: (i) whether the Common Shareholder proposing such nominee believes the proposed nominee is,
or is not, an “interested person”, (ii) the name and address, as they appear on the Fund’s books, of the Common Shareholder
proposing such business or nomination, (iii) a representation that the Common Shareholder is a holder of record of Shares entitled to
vote at such meeting and intends to appear in person or by proxy at the meeting to present such nomination; (iv) whether the Common Shareholder
plans to deliver or solicit proxies from other Common Shareholders; (v) the class and number of Shares of the capital stock of the Fund,
which are beneficially owned by the Common Shareholder and the proposed nominee to the Board of Directors, (vi) any material interest
of the Common Shareholder or nominee in such business; (vii) the extent to which such Common Shareholder (including such Common Shareholder’s
principals) or the proposed nominee to the Board of Directors has entered into any hedging transaction or other arrangement with the
effect or intent of mitigating or otherwise managing profit, loss or risk of changes in the value of the Shares or the daily quoted market
price of the Fund held by such Common Shareholder (including the Common Shareholder’s principals) or the proposed nominee, including
independently verifiable information in support of the foregoing; (viii) any substantial interest, direct or indirect, of such Common
Shareholder or the proposed nominee in the Fund other than interest arising from ownership of Common Shares; (ix) to the extent known
by such Common Shareholder, the name and address of any other Common Shareholder supporting the proposed nominee; (x) the nominee holder
for, and number of, Common Shares owned beneficially but not of record by such Common Shareholder; (xi) the investment strategy or objective,
if any, of such Common Shareholder who is not an individual and a copy of the prospectus, offering memorandum, or similar document, if
any; and (xii) such other information regarding such nominee proposed by such Common Shareholder as would be required to be included
in a proxy statement filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended. Each eligible Common Shareholder
or Common Shareholder group may submit no more than one Independent Director nominee each calendar year. The Nominating and Corporate
Governance Committee has not determined any minimum qualifications necessary to serve as a director of the Fund. The Nominating and Corporate
Governance Committee operates pursuant to the Nominating and Corporate Governance Committee Charter that is reviewed and approved annually.
The Nominating and Corporate Governance Committee met three times during the fiscal year ended June 30, 2023.
Director
Qualifications
In
addition to the description of each Director’s Principal Occupation(s) and Other Directorships set forth above, the following provides
further information about each Director’s specific experience, qualifications, attributes or skills that led to the conclusion
that he should serve as a director for the Fund. There are no specific required qualifications for membership on the Board.
Interested
Directors
Mr.
Galley is the Chief Executive Officer and Chief Investment Officer for the Fund’s Adviser and the portfolio manager of the Fund.
His knowledge regarding the investment strategy of the Fund and the closed-end fund industry in total makes him uniquely qualified to
serve as a Director.
Mr.
Raio has many years of experience in the securities industry, including management roles in the banking and investment management industries.
He has more than 15 years of experience in equity capital markets, having worked on the retail syndicate desks at both Citigroup and
Morgan Stanley. Since 2018, he has served as President and CEO of Arbor Lane Advisors, Inc. He served as the Managing Director and Head
of Retail Origination for Wells Fargo Securities, LLC from 2005 to 2018. Prior to working at Wells Fargo, he served as Director and Head
of Closed-End Funds for Citigroup Asset Management. He also serves as an advisory board member on each of the Boards for FLX Distribution;
Qudos Technologies; Quantify Crypto; and ETF Action. He was selected to serve as a Director of the Fund based on his business, financial
services and investment management experience.
Independent
Directors
Mr.
Carter possesses extensive mutual fund industry experience. Mr. Carter was a Business Unit Head at Transamerica Asset Management, a subsidiary
of Aegon, N.V. Mr. Carter oversaw the mutual fund servicing, operations and advisory services for Transamerica’s approximately
120 mutual funds. He also served as a compliance officer. Mr. Carter brings experience managing a large mutual fund complex, including
experience overseeing multiple sub-advisers. Mr. Carter is currently an attorney in private practice and was previously an investment
management attorney with experience as in-house counsel, serving with the SEC and in private practice with a large law firm. Mr. Carter
was selected to serve as a Director of the Fund based on his industry-specific experience, including serving as a chairman of another
fund complex, as a compliance officer, and as an investment management attorney.
Ms.
Mougin is an experienced senior executive with many years of investment management industry experience in sales, client relationship
and operations. Ms. Mougin is the Chief Investment Officer of Capital Sisters International, a non-profit that helps women entrepreneurs
by providing investments and small business loans. Before joining Capital Sisters International, Ms. Mougin was the President and Chief
Operating Officer of the TIFIN affiliated Positivly and Louise platforms. Prior to that, Ms. Mougin was a member of the executive team
that built ALPS Fund Services Inc. into a leader in the mutual fund and hedge fund industries.
Mr.
Hutchens is currently retired. Mr. Hutchens was President and CEO of the University of Colorado (CU) Foundation from April 2006 to December
2012 and Executive Director for the CU Real Estate Foundation from April 2009 to December 2012. Prior to these positions, Mr. Hutchens
spent over 30 years in the banking industry, retiring as Chairman of Chase Bank Colorado. Mr. Hutchens is a graduate of the University
of Colorado Boulder’s School of Business and has done graduate study at Syracuse University and the University of Colorado. Mr.
Hutchens was selected to serve as a Director of the Fund based on his business and financial services experience.
Mr.
Swanson founded SwanDog Marketing, a marketing consulting firm to asset managers, in 2006. He currently serves as SwanDog’s Managing
Partner. He has over 30 years of senior management and marketing experience, with approximately 20 years in financial services. Before
joining SwanDog, Mr. Swanson most recently served as Executive Vice President and Head of Distribution for Calamos Investments, an investment
management firm. He previously held positions as Chief Operating Officer of Van Kampen Investments, President and CEO of Scudder, Stevens
& Clark, Canada, Ltd., and Managing Director and Head of Global Investment Products at Morgan Stanley. Mr. Swanson holds a Master
of Management from the Kellogg Graduate School of Management at Northwestern University and a Bachelors in Journalism from Southern Illinois
University. He was selected to serve as a Director of the Fund based on his business, financial services and investment management experience.
Risk
Oversight. The Fund is confronted with a multitude of risks, such as investment risk, counter party risk, valuation risk, political
risk, risk of operational failures, business continuity risk, regulatory risk, legal risk and other risks not listed here. The Board
recognizes that not all risks that may affect the Fund can be known, eliminated or even mitigated. In addition, there are some risks
that may not be cost effective or an efficient use of the Fund’s limited resources to moderate. As a result of these realities,
the Board, through its oversight and leadership, has and will continue to deem it necessary for stockholders of the Fund to bear certain
and undeniable risks, such as investment risk, in order for the Fund to operate in accordance with its Prospectus, SAI and other related
documents.
However,
as required under the 1940 Act, the Board has adopted, on the Fund’s behalf, a vigorous risk program that mandates the Fund’s
various service providers, including the Adviser and Subadviser, to adopt a variety of processes, procedures and controls to identify
various risks, mitigate the likelihood of such adverse events from occurring and/or attempt to limit the effects of such adverse events
on the Fund. The Board fulfills its leadership role by receiving a variety of quarterly written reports prepared by the Fund’s
Chief Compliance Officer that (1) evaluate the operation and policies of the Fund’s service providers, (2) make known any material
changes to the policies and procedures adopted by the Fund or its service providers since the CCO’s last report and (3) disclose
any material compliance matters that occurred since the date of the last CCO report. In addition, the Independent Directors meet quarterly
in executive sessions without the presence of any Interested Directors, the Adviser or Subadviser or any of their affiliates. This configuration
permits the Independent Directors to effectively receive the information and have private discussions necessary to perform their risk
oversight role, exercise independent judgment, and allocate areas of responsibility between the full Board, its various committees and
certain officers of the Fund. Furthermore, the Independent Directors have engaged independent legal counsel and auditors to assist the
Independent Directors in performing their oversight responsibilities. As discussed above and in consideration of other factors not referenced
herein, the Board has determined its leadership role concerning risk management as one of oversight and not active management of the
Fund’s day-to-day risk management operations.
Director
Transactions with Fund Affiliates. As of December 31, 2022, none of the Independent Directors, as such term is defined by the New
York Stock Exchange (“NYSE”) Listing Standards (each an “Independent Director” and collectively the “Independent
Directors”), nor members of their immediate families owned securities, beneficially or of record, in the Adviser, or an affiliate
or person directly or indirectly controlling, controlled by, or under common control with the Adviser. Furthermore, over the past five
years, neither the Independent Directors nor members of their immediate families have any direct or indirect interest, the value of which
exceeds $120,000, in the Adviser or any of its respective affiliates. In addition, for the fiscal year ended June 30, 2023, neither the
Independent Directors nor members of their immediate families have conducted any transactions (or series of transactions) or maintained
any direct or indirect relationship in which the amount involved exceeds $120,000 and to which the Adviser or any of its affiliates was
a party.
Compensation.
The Fund pays no salaries or compensation to its officers or to any interested Director employed by the Adviser or Subadviser, and the
Fund has no employees. In addition, the Adviser (not the Fund) is responsible for paying the Director compensation out of its unified
management fee. Effective January 1, 2024, for their services, the Directors of the Fund who are not employed by the Adviser receive
an annual retainer in the amount of $16,500, an additional fee of $2,000 for attending each quarterly meeting of the Board of Directors
and an additional fee of $1,500 for each special meeting of the Board of Directors. In addition, the lead Independent Director receives
an additional $1,333 annually, the Chair of the Audit Committee receives an additional $1,111 annually and the Chair of the Nominating
and Corporate Governance Committee receives an additional $750 annually. Prior to January 1, 2024, for their services, the Directors
of the Fund who are not employed by the Adviser received an annual retainer in the amount of $16,500, and an additional $1,500 for attending
each quarterly meeting of the Board of Directors. In addition, the lead Independent Director received $250 annually, the Chair of the
Audit Committee received $500 annually and the Chair of the Nominating and Corporate Governance Committee received $250 annually. The
Directors who are not employed by the Adviser or Subadviser are also reimbursed for all reasonable out-of-pocket expenses relating to
attendance at meetings of the Board. The following tables show compensation with respect to the Fund and the Fund Complex for the fiscal
year ended June 30, 2023. Patrick W. Galley is an interested person of the Fund and employed by the Adviser and does not receive any
compensation from the Fund.
Compensation
of Directors
The
following table sets forth certain information regarding the compensation of the Fund’s Directors for the fiscal year ended June
30, 2023.
Name
of Director |
Total
Compensation
From
the Fund(1) |
Total
Compensation
From
the Fund and
Fund
Complex Paid to Directors* |
Independent Directors |
|
|
John K. Carter |
$22,750 |
$231,375 |
J. Wayne Hutchens |
$23,000 |
$229,000 |
John S. Oakes** |
$11,375 |
$118,250 |
David M. Swanson |
$22,625 |
$225,375 |
Lisa B. Mougin*** |
$11,250 |
$91,250 |
Interested Directors |
|
|
Jerry
R. Raio |
$22,500 |
$203,500 |
Total |
$113,500 |
$1,098,750 |
| * | For
all Directors other than Ms. Mougin, the Fund Complex consists of the Fund, RiverNorth Managed
Duration Municipal Income Fund Inc., RiverNorth Opportunistic Municipal Income Fund, Inc.,
RiverNorth Capital and Income Fund, Inc., RiverNorth/DoubleLine Strategic Opportunity Fund,
Inc., RiverNorth Funds (3 funds), RiverNorth Flexible Municipal Income Fund, Inc., RiverNorth
Flexible Municipal Income Fund II, Inc. and RiverNorth Opportunities Fund, Inc. |
For
Ms. Mougin, the Fund Complex consists of the Fund, RiverNorth Managed Duration Municipal Income Fund Inc., RiverNorth Opportunistic Municipal
Income Fund, Inc., RiverNorth Capital and Income Fund, Inc., RiverNorth/DoubleLine Strategic Opportunity Fund, Inc., RiverNorth Flexible
Municipal Income Fund, Inc., RiverNorth Flexible Municipal Income Fund II, Inc. and RiverNorth Opportunities Fund, Inc.
| ** | Mr.
Oakes retired as a Director effective November 8, 2022. |
| *** | Ms.
Mougin became a Director effective November 8, 2022. |
| (1) | The
Adviser, not the Fund, paid all compensation to the Directors described above out of its
unified management fee. |
Director
Ownership in the Fund
The
following table shows the dollar range of equity securities beneficially owned by each Director in the Fund and Fund Complex as of December
31, 2023.
|
Dollar
Range of
Beneficial
Ownership
in
Fund |
Aggregate
Dollar
Range
of Ownership
in
all Funds
Overseen
by
Board
Member in
the
Fund Complex * |
Independent Directors |
|
|
John Carter |
None |
$50,001-$100,000 |
Wayne Hutchens |
None |
Over
$100,000 |
David Swanson |
None |
$50,001
- $100,000 |
Lisa B. Mougin |
None |
$10,001
- $50,000 |
Interested Directors |
|
|
Patrick W. Galley |
None |
Over
$100,000 |
Jerry R. Raio |
None |
Over
$100,000 |
| * | For
all Directors other than Ms. Mougin, the Fund Complex consists of the Fund, RiverNorth Managed
Duration Municipal Income Fund Inc., RiverNorth Opportunistic Municipal Income Fund, Inc.,
RiverNorth Capital and Income Fund, Inc., RiverNorth/DoubleLine Strategic Opportunity Fund,
Inc., RiverNorth Funds (3 funds), RiverNorth Flexible Municipal Income Fund, Inc., RiverNorth
Flexible Municipal Income Fund II, Inc. and RiverNorth Opportunities Fund, Inc. |
For
Ms. Mougin, the Fund Complex consists of the Fund, RiverNorth Managed Duration Municipal Income Fund Inc., RiverNorth Opportunistic Municipal
Income Fund, Inc., RiverNorth Capital and Income Fund, Inc., RiverNorth/DoubleLine Strategic Opportunity Fund, Inc., RiverNorth Flexible
Municipal Income Fund, Inc., RiverNorth Flexible Municipal Income Fund II, Inc. and RiverNorth Opportunities Fund, Inc.
As
of the date of this SAI, the Independent Directors of the Fund and immediate family members did not own beneficially or of record any
class of securities of the investment adviser or principal underwriter of the Fund or any person directly or indirectly controlling,
controlled by, or under common control with an investment adviser or principal underwriter of the Fund.
As of the date of this SAI, the directors and officers of the Fund owned, as a group, less than 1% of the outstanding Common Shares of the
Fund.
Securities
Beneficially Owned
The
following chart lists each Shareholder or group of Shareholders who beneficially (or of record) owned more than 5% of the shares for
the Fund as of January 31, 2024.
Any
person or entity that beneficially owns, directly or through one or more controlled companies, more than 25% of the voting securities
of a company is presumed to “control” such company. Accordingly, to the extent that a person or entity is identified as the
beneficial owner of more than 25% of the voting securities of the Fund, or is identified as the record owner of more than 25% of the
Fund and has voting and/or investment powers, that person or entity may be presumed to control the Fund. A controlling Shareholder’s
vote could have a more significant effect on matters presented to Shareholders for approval than the vote of other Fund Shareholders.
Shareholder Name and
Address(1) |
Shares
Of A Class
Beneficially Owned |
%
Outstanding Shares
of a Class
Beneficially Owned |
UBS Financial Services, Inc.
1285 Avenue of the Americas
New York, NY 10019 |
460,000 Common |
5.44% |
| (1) | The table above shows
5% or greater shareholders’ ownership of Shares as of January 31, 2024. The information
contained in this table is based on Schedule 13G/13D/13F, Schedule D and Form 4 filings made
on or before January 31, 2024. Such ownership information is as of the date of the applicable
filing and may no longer be accurate. |
PROXY
VOTING GUIDELINES
The
Board of the Fund has delegated responsibilities for decisions regarding proxy voting for securities held by the Fund to the Adviser
or Subadviser. The Adviser or Subadviser will vote such proxies in accordance with its proxy policies and procedures. In some instances,
the Adviser or Subadviser may be asked to cast a proxy vote that presents a conflict between the interests of the Fund’s shareholders,
and those of the Adviser or Subadviser or an affiliated person of the Adviser or Subadviser. In such a case, the Adviser or Subadviser
will abstain from making a voting decision and will forward all necessary proxy voting materials to the Fund to enable the Board to make
a voting decision. The Adviser or Subadviser shall make a written recommendation of the voting decision to the Board, which shall include:
(i) an explanation of why it has a conflict of interest; (ii) the reasons for its recommendation; and (iii) an explanation of why the
recommendation is consistent with the Adviser’s (or Subadviser’s) proxy voting policies. The Board shall make the proxy voting
decision that in its judgment, after reviewing the recommendation of the Adviser or Subadviser, is most consistent with the Adviser’s
or Subadviser’s proxy voting policies and in the best interests of shareholders. When the Board of the Fund is required to make
a proxy voting decision, only the directors without a conflict of interest with regard to the security in question or the matter to be
voted upon shall be permitted to participate in the decision of how the Fund’s vote will be cast. The Adviser and Subadviser vote
proxies pursuant to the proxy voting policies and guidelines set forth in Appendix A and B, respectively, to this SAI.
You
may also obtain information about how the Fund voted proxies related to its portfolio securities during the 12-month period ended June
30 by visiting the SEC’s website at sec.gov or by visiting the Fund’s website at rivernorth.com (this reference to the Fund’s
website does not incorporate the contents of the website into this SAI).
ADDITIONAL
INFORMATION
A
Registration Statement on Form N-2, including amendments thereto, relating to the Securities offered hereby, has been filed by the Fund
with the SEC. The Fund’s Prospectus and this SAI do not contain all of the information set forth in the Registration Statement,
including any exhibits and schedules thereto. For further information with respect to the Fund and the Securities offered hereby, reference
is made to the Fund’s Registration Statement. Statements contained in the Fund’s Prospectus and this SAI as to the contents
of any contract or other document referred to are not necessarily complete and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by
such reference.
The
Registration Statement is available on the Edgar Database on the SEC’s website, sec.gov, or may be obtained, after paying a duplicating
fee, by electronic request to publicinfo@sec.gov.
FINANCIAL
STATEMENTS
The
Fund’s financial statements and financial highlights and the report of the Fund's independent registered public accounting firm,
Cohen & Company, Ltd., thereon, contained in the following document filed by the Fund with the SEC, are hereby incorporated by reference
into, and made part of, this SAI: the annual
report for the year ended June 30, 2023 contained in the Fund’s form N-CSR and filed with the SEC on September 7, 2023.
APPENDIX
A
PROXY
VOTING POLICY OF THE ADVISER
Proxy
Voting
RiverNorth Capital Management, LLC
PROXY
VOTING POLICIES AND PROCEDURES
Pursuant
to the recent adoption by the Securities and Exchange Commission (the “Commission”) of Rule 206(4)-6 (17 CFR 275.206(4)-6)
and amendments to Rule 204-2 (17 CFR 275.204-2) under the Investment Advisers Act of 1940 (the “Act”), it is a fraudulent,
deceptive, or manipulative act, practice or course of business, within the meaning of Section 206(4) of the Act, for an investment adviser
to exercise voting authority with respect to client securities, unless (i) the adviser has adopted and implemented written policies and
procedures that are reasonably designed to ensure that the adviser votes proxies in the best interests of its clients, (ii) the adviser
describes its proxy voting procedures to its clients and provides copies on request, and (iii) the adviser discloses to clients how they
may obtain information on how the adviser voted their proxies.
In
its standard investment advisory agreement, RiverNorth Capital Management, LLC (RiverNorth Capital) specifically states that it does
not vote proxies and the client, including clients governed by ERISA, is responsible for voting proxies. Therefore, RiverNorth Capital
will not vote proxies for these clients. However, RiverNorth Capital will vote proxies on behalf of investment company clients (“Funds”).
RiverNorth Capital has instructed all custodians, other than Fund custodians, to forward proxies directly to its clients, and if RiverNorth
Capital accidentally receives a proxy for any non-Fund client, current or former, the Chief Compliance Officer will promptly forward
the proxy to the client. In order to fulfill its responsibilities to Funds, RiverNorth Capital Management, LLC (hereinafter “we”
or “our”) has adopted the following policies and procedures for proxy voting with regard to companies in any Fund’s
investment portfolios.
KEY
OBJECTIVES
The
key objectives of these policies and procedures recognize that a company’s management is entrusted with the day-to-day operations
and longer term strategic planning of the company, subject to the oversight of the company’s board of directors. While “ordinary
business matters” are primarily the responsibility of management and should be approved solely by the corporation’s board
of directors, these objectives also recognize that the company’s shareholders must have final say over how management and directors
are performing, and how shareholders’ rights and ownership interests are handled, especially when matters could have substantial
economic implications to the shareholders.
Therefore,
we will pay particular attention to the following matters in exercising our proxy voting responsibilities as a fiduciary for our clients:
Accountability.
Each company should have effective means in place to hold those entrusted with running a company’s business accountable for their
actions. Management of a company should be accountable to its board of directors and the board should be accountable to shareholders.
Alignment
of Management and Shareholder Interests. Each company should endeavor to align the interests of management and the board of directors
with the interests of the company’s shareholders. For example, we generally believe that compensation should be designed to reward
management for doing a good job of creating value for the shareholders of the company.
Transparency.
Promotion of timely disclosure of important information about a company’s business operations and financial performance enables
investors to evaluate the performance of a company and to make informed decisions about the purchase and sale of a company’s securities.
DECISION
METHODS
We
generally believe that the individual portfolio managers that invest in and track particular companies are the most knowledgeable and
best suited to make decisions with regard to proxy votes. Therefore, we rely on those individuals to make the final decisions on how
to cast proxy votes.
No
set of proxy voting guidelines can anticipate all situations that may arise. In special cases, we may seek insight from our managers
and analysts on how a particular proxy proposal will impact the financial prospects of a company, and vote accordingly.
In
some instances, a proxy vote may present a conflict between the interests of a client, on the one hand, and our interests or the interests
of a person affiliated with us, on the other. In such a case, we will abstain from making a voting decision and will forward all of the
necessary proxy voting materials to the client to enable the client to cast the votes.
Notwithstanding
the forgoing, the following policies will apply to investment company shares owned by a Fund. Under Section 12(d)(1) of the Investment
Company Act of 1940, as amended, (the “1940 Act”), a fund may only invest up to 5% of its total assets in the securities
of any one investment company, but may not own more than 3% of the outstanding voting stock of any one investment company or invest more
than 10% of its total assets in the securities of other investment companies. However, Section 12(d)(1)(F) of the 1940 Act provides that
the provisions of paragraph 12(d)(1) shall not apply to securities purchased or otherwise acquired by a fund if (i) immediately after
such purchase or acquisition not more than 3% of the total outstanding stock of such registered investment company is owned by the fund
and all affiliated persons of the fund; and (ii) the fund is not proposing to offer or sell any security issued by it through a principal
underwriter or otherwise at a public or offering price which includes a sales load of more than 1½% percent. Therefore, each Fund
(or the Adviser acting on behalf of the Fund) must comply with the following voting restrictions unless it is determined that the Fund
is not relying on Section 12(d)(1)(F):
–when
the Fund exercises voting rights, by proxy or otherwise, with respect to any investment company owned by the Fund, the Fund will either
–seek
instruction from the Fund’s shareholders with regard to the voting of all proxies and vote in accordance with such instructions,
or
–vote
the shares held by the Fund in the same proportion as the vote of all other holders of such security.
PROXY
VOTING GUIDELINES
Election
of the Board of Directors
We
believe that good corporate governance generally starts with a board composed primarily of independent directors, unfettered by significant
ties to management, all of whose members are elected annually. We also believe that turnover in board composition promotes independent
board action, fresh approaches to governance, and generally has a positive impact on shareholder value. We will generally vote in favor
of non-incumbent independent directors.
The
election of a company’s board of directors is one of the most fundamental rights held by shareholders. Because a classified board
structure prevents shareholders from electing a full slate of directors annually, we will generally support efforts to declassify boards
or other measures that permit shareholders to remove a majority of directors at any time, and will generally oppose efforts to adopt
classified board structures.
Approval
of Independent Auditors
We
believe that the relationship between a company and its auditors should be limited primarily to the audit engagement, although it may
include certain closely related activities that do not raise an appearance of impaired independence.
We
will evaluate on a case-by-case basis instances in which the audit firm has a substantial non-audit relationship with a company to determine
whether we believe independence has been, or could be, compromised.
Equity-based
compensation plans
We
believe that appropriately designed equity-based compensation plans, approved by shareholders, can be an effective way to align the interests
of shareholders and the interests of directors, management, and employees by providing incentives to increase shareholder value. Conversely,
we are opposed to plans that substantially dilute ownership interests in the company, provide participants with excessive awards, or
have inherently objectionable structural features.
We
will generally support measures intended to increase stock ownership by executives and the use of employee stock purchase plans to increase
company stock ownership by employees. These may include:
1.
Requiring senior executives to hold stock in a company.
2.
Requiring stock acquired through option exercise to be held for a certain period of time.
These
are guidelines, and we consider other factors, such as the nature of the industry and size of the company, when assessing a plan’s
impact on ownership interests.
Corporate
Structure
We
view the exercise of shareholders’ rights, including the rights to act by written consent, to call special meetings and to remove
directors, to be fundamental to good corporate governance.
Because
classes of common stock with unequal voting rights limit the rights of certain shareholders, we generally believe that shareholders should
have voting power equal to their equity interest in the company and should be able to approve or reject changes to a company’s
by-laws by a simple majority vote.
We
will generally support the ability of shareholders to cumulate their votes for the election of directors.
Shareholder
Rights Plans
While
we recognize that there are arguments both in favor of and against shareholder rights plans, also known as poison pills, such measures
may tend to entrench current management, which we generally consider to have a negative impact on shareholder value. Therefore, while
we will evaluate such plans on a case by case basis, we will generally oppose such plans.
CLIENT
INFORMATION
A
copy of these Proxy Voting Policies and Procedures is available to our clients, without charge, upon request, by calling 1-800-646-0148.
We will send a copy of these Proxy Voting Policies and Procedures within three business days of receipt of a request, by first-class
mail or other means designed to ensure equally prompt delivery.
In
addition, we will provide each client, without charge, upon request, information regarding the proxy votes cast by us with regard to
the client’s securities.
APPENDIX
B
MacKay
Shields LLC
Proxy
Voting Policies and Procedures
Revised
January 2022
MacKay
Shields LLC (“MacKay Shields” or the “Firm”), has adopted these “Proxy Voting Policy and Procedures”
(the “Policy”) to ensure the Firm’s compliance with Rule 206(4)-6 under the Investment Advisers Act of 1940, as amended
(the “Advisers Act”) and other applicable fiduciary obligations. The Policy applies to proxies relating to securities held
by clients of MacKay Shields who have delegated the responsibility of voting proxies to the Firm. The Policy is designed to assist Firm
employees in meeting their specific responsibilities in this area and to reasonably ensure that proxies are voted in the best interests
of the Firm’s clients.
2.1
It is the policy of MacKay Shields that where the Firm has voting authority, all proxies are to be voted in the best interest of
the client without regard to the interests of MacKay Shields or other related parties. Specifically, MacKay Shields shall not subordinate
the interests of clients to unrelated objectives, including MacKay Shields’ interests. MacKay Shields shall act with the care,
skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with
such matters would use in the conduct of an enterprise of a like character and with like aims. For purposes of the Policy, the “best
interests of clients” shall mean, unless otherwise specified by the client, the clients’ best economic interests over the
long term as determined by MacKay Shields – that is, the common interest that all MacKay Shields clients share in seeing the value
of a common investment increase over time. It is further the policy of the Firm that complete and accurate disclosure concerning its
proxy voting policies and procedures and proxy voting records as required by the Advisers Act, be made available to its clients.
2.2
When proxies with respect to securities held by clients of MacKay Shields have not been received by MacKay Shields or its proxy voting
service provider, MacKay Shields will make reasonable efforts to obtain missing proxies. MacKay Shields is not responsible for voting
proxies it or its proxy voting service provider does not receive.
2.3
MacKay Shields may choose not to vote proxies when it believes that it is appropriate. This may occur, without limitation, under
the following circumstances:
| ● | If
the effect on the client’s economic interests or the value of the portfolio holding
is indeterminable or insignificant; |
| ● | If
the cost of voting the proxy outweighs the possible benefit to the client; or |
| ● | If
a jurisdiction imposes share blocking restrictions which prevent the Firm from trading shares. |
| 3. | Use
of Third Party Proxy Voting Service Provider |
To
discharge its responsibility, MacKay Shields has examined third-party services that assist in the researching and voting of proxies and
the development of voting guidelines. After such review, the Firm has selected Institutional Shareholder Services, Inc., (“ISS”),
to research voting proposals, analyze the financial implications of voting proposals and vote proxies. MacKay Shields utilizes the research
and analytical services, operational implementation, administration, record-keeping and reporting services provided by ISS.
| 4. | Proxy
Voting Guidelines |
4.1
To the extent that a client has authorized Mackay Shields to vote proxies on its behalf, and except as set forth Sections 6 &
7 of this Policy or at otherwise directed by a client in writing, MacKay has determined to adopt the following proxy voting guidelines:
4.1.a
Proxies for non-union clients will generally be voted in accordance with the voting recommendations contained in the applicable ISS
non-union domestic or global proxy voting guidelines, as in effect from time-to-time (“Non-Union Guidelines”). Refer to Exhibit
A for the current U.S. Summary Proxy Voting Guidelines.
4.1.b
Proxies for union or Taft-Hartley clients will generally be voted in accordance with the voting recommendations contained in the
applicable ISS Taft- Hartley domestic or international proxy voting guidelines, as in effect from time- to-time (“Union Guidelines”).
Refer to Exhibit B for the current U.S. and International Taft-Hartley Proxy Voting Guidelines.
4.1.c
Notwithstanding Section 4.1.a of this Policy, proxies for non-union clients whose investment strategy directs MacKay Shields to invest
primarily in assets that satisfy Environmental, Social and Governance (“ESG”) criteria, as determined by MacKay Shields,
in its discretion, will be voted in accordance with the voting recommendations contained in the applicable ISS Sustainability U.S. or
International proxy voting guidelines, as in effect from time-to-time (“Sustainability Guidelines”). Refer to Exhibit C for
the current U.S. and International Sustainability Proxy Voting Guidelines.
4.2
For purposes of the Policy, the Non-Union Guidelines, Union Guidelines, and Sustainability Guidelines are collectively referred to
as the “Standard Guidelines.”
4.3
A client may choose to use proxy voting guidelines different from the Standard Guidelines (“Custom Guidelines”). Any
Custom Guidelines must be furnished by the client to MacKay Shields in writing and MacKay Shields will general vote proxies for any such
client in accordance with the applicable Custom Guidelines.
4.4
In the event the Standard Guidelines or any client’s Custom Guidelines do not address how a proxy should be voted or state
that the vote is to be determined on a “case- by-case” basis, the proxy will be voted in accordance with ISS recommendations,
subject to Section 6. In the event that ISS has not made a recommendation, MacKay Shields will follow the procedure set forth in Section
7.
4.5
For clients using the Standard Guidelines, the Firm will instruct ISS to cast votes in accordance with the Standard Guidelines. For
clients using Custom Guidelines, the Firm will provide ISS with a copy of such Custom Guidelines and will instruct ISS to cast votes
in accordance with such Custom Guidelines. ISS will cast votes in accordance with the Standard Guidelines or Custom Guidelines, as the
case may be, unless instructed otherwise by MacKay Shields as set forth in Sections 6 and 7. Upon receipt of a specific request from
a client pursuant to Section 4.6, the Firm will instruct ISS to cast such client’s proxy in accordance with such request.
4.6
Notwithstanding the foregoing, MacKay Shields will vote a proxy with respect to a particular security held by a client in accordance
with such client’s specific request even if it is in a manner inconsistent with the Standard Guidelines or the client’s Custom
Guidelines, as the case may be. Any such specific requests must be furnished to MacKay Shields by the client in writing and must be received
by MacKay on a timely basis for instructing ISS how to cast the vote.
4.7
In an effort to avoid possible conflicts of interest, MacKay Shields has determined to generally vote proxies based on the Standard
Guidelines or a client’s Custom Guidelines, as the case may be. For the avoidance of doubt, however, it is recognized that the
Firm’s portfolio management teams have the ultimate responsibility for determining how to vote proxies in the best interest of
a client voting.
| 5. | Client
Account Set-up and Review |
5.1
Initially, MacKay Shields must verify whether the client has duly authorized MacKay Shields to vote proxies on its behalf, or if
the client has retained the responsibility of voting proxies. The Marketing and Client Services departments, in conjunction with the
Legal and/or Compliance Department, will have primary responsibility for making that determination. MacKay’s Compliance Department
will be responsible for ensuring that a record of each client’s proxy voting status and, to the extent applicable, the type of
proxy voting guidelines in maintained. In its sole discretion, the Firm may decline to accept authority to vote a client’s proxies.
Any such refusal shall be in writing.
5.2
In most cases, the delegation of voting authority to MacKay Shields, and the Firm’s use of a third-party proxy voting service
provider shall be memorialized in the client’s investment management agreement.
5.3
MacKay Shields shall notify ISS of new client accounts using such form as ISS shall specify from time to time. Designated personnel
within the Firm will be responsible for ensuring that each new client’s account for which the Firm has proxy voting authority is
established on the appropriate systems and that each such account is properly coded for voting under the appropriate Non-Union Guidelines,
Union Guidelines or Custom Guidelines, as the case may be.
A
portfolio manager may propose that a particular proxy vote be cast in a manner different from the Standard Guidelines or an ISS voting
recommendation, or may propose an abstention from voting, if they believe that to do so, based on all facts and circumstances, is in
the best interest of the Firm’s clients as a whole. Any portfolio manager who proposes to override the Standard Guidelines or an
ISS voting recommendation on a particular vote or to abstain from voting must complete a Proxy Vote Override/Decision Form, which is
set forth in Schedule D.
| 7. | Referral
of Voting Decision by ISS to MacKay Shields |
7.1
In the event that the Standard Guidelines or a client’s Custom Guidelines do not address how a proxy should be voted on a specific
proposal for an issuer and ISS has not made a recommendation as to how such proxy should be voted, ISS will so advise MacKay Shields.
In that event, the Legal and/or Compliance Departments will request that the appropriate portfolio manager makes a voting recommendation
and complete a Proxy Vote Override/Decision Form.
7.2
In the event that the Standard Guidelines or a client’s Custom Guidelines require a “case-by-case” determination
on a particular proxy vote and ISS has not made a recommendation as to how such proxy should be voted, ISS will so advise MacKay Shields.
In that event, the Legal and/or Compliance Departments will request that the appropriate portfolio manager make a voting recommendation
and complete a Proxy Vote Override/Decision Form.
7.3
In the event that ISS determines that a conflict of interest exists as a result of which ISS is precluded from making a recommendation
as to how a proxy should be voted on a specific proposal for an issuer, ISS will so advise MacKay Shields. In that event, the Legal and/or
Compliance Departments will request that the appropriate portfolio manager make a voting recommendation and complete a Proxy Vote Override/Decision
Form.
8.1
The Firm’s portfolio managers may make proxy voting decisions in connection with (i) overriding the Standard Guidelines or
an ISS voting recommendation pursuant to Section 6, or (ii) deciding on a vote pursuant to Section 7. In such event, the portfolio managers
have an affirmative duty to disclose to the Legal and/or Compliance Departments any potential conflict of interest known to them that
exists between the Firm and the client on whose behalf the proxy is to be voted (“Conflict”).
8.2.
By way of example, Conflicts may exist in situations where the Firm is called to vote on a proxy involving an issuer or proponent
of a proxy proposal regarding the issuer where MacKay Shields or an affiliated person of the Firm also:
| ● | Manages
the issuer’s or proponent’s pension plan; |
| ● | Administers
the issuer’s or proponent’s employee benefit plan; |
| ● | Provided
brokerage, underwriting, insurance or banking services to the issuer or proponent; or |
| ● | Manages
money for an employee group. |
Additional
Conflicts may exist, among others, if an executive of the Firm or its control affiliates is a close relative of, or has a personal or
business relationship with:
| ● | An
executive of the issuer or proponent; |
| ● | A
director of the issuer or proponent; |
| ● | A
person who is a candidate to be a director of the issuer; |
| ● | A
participant in the proxy contest; or |
| ● | A
proponent of a proxy proposal. |
8.3
Whether a relationship creates a Conflict will depend on the facts and circumstances. Even if these parties do not attempt to influence
the Firm with respect to voting, the value of the relationship to MacKay Shields or an affiliate can create a Conflict.
8.4
After a Proxy Vote Override/Decision Form is completed pursuant to Sections 6 or 7, such Form, which elicits information as to whether
a potential Conflict exists, must be submitted to the Legal and/or Compliance Departments for review. If the Firm’s General Counsel
(“GC”), Chief Compliance Officer (“CCO”) or their designee determines that there is no potential Conflict, the
GC, CCO or their designee, may instruct ISS to vote the proxy issue as set forth in the completed Form.
8.5
If the GC, CCO or their designee determines that there exists or may exist a Conflict, he or she will refer the issue to the Compliance
Committee for consideration by convening (in person or via telephone) an emergency meeting of the Compliance Committee. For purposes
of this Policy, a majority vote of those members present shall resolve any Conflict. The Compliance Committee will consider the facts
and circumstances of the pending proxy vote and the potential or actual Conflict and make a determination as to how to vote the proxy
– i.e., whether to permit or deny the recommendation of the portfolio manager, or whether to take other action, such as delegating
the proxy vote to an independent third party or obtaining voting instructions from clients.
8.6
In considering the proxy vote and potential Conflict, the Compliance Committee may review the following factors, including but not
limited to:
| ● | The
percentage of outstanding securities of the issuer held on behalf of clients by the Firm. |
| ● | The
nature of the relationship of the issuer or proponent with the Firm, its affiliates or its
executive officers. |
| ● | Whether
there has been any attempt to directly or indirectly influence the portfolio manager’s
decision. |
| ● | Whether
the direction (for or against) of the proposed vote would appear to benefit the Firm or a
related party. |
| ● | Whether
an objective decision to vote in a certain way will still create a strong appearance of a
Conflict. |
MacKay
Shields may not abstain from voting any such proxy for the purpose of avoiding Conflict.
If
MacKay Shields portfolio managers or their designees become aware of an upcoming shareholder meeting where there is an important vote
to be taken, or become aware of a request for consent of security holders on a material matter affecting the investment, MacKay Shields
will consider whether to request that clients call back securities loans, if applicable. In determining whether to request that clients
call back securities loans, the relevant portfolio manager(s) shall consider whether the benefit to the client in voting the matter or
giving or withholding consent outweighs the benefit to the client in keeping the security on loan. There may be instances when MacKay
Shields may not be aware of the upcoming shareholder meeting or request for consent with sufficient time in advance to make such a request,
or when MacKay Shields’ request that a client call back a securities loan in sufficient time to vote or give or withhold consent
may not be successful.
Upon
request, MacKay Shields shall report annually (or more frequently if specifically requested) to its clients on proxy votes cast on their
behalf. MacKay Shields will provide any client who makes a written or verbal request with a copy of a report disclosing how MacKay Shields
voted securities held in that client’s portfolio. The report will generally contain the following information:
| ● | The
name of the issuer of the security; |
| ● | The
security’s exchange ticker symbol; |
| ● | The
security’s CUSIP number; |
| ● | The
shareholder meeting date; |
| ● | A
brief identification of the matter voted on; |
| ● | Whether
the matter was proposed by the issuer or by a security holder; |
| ● | Whether
MacKay Shields cast its vote on the matter on behalf of the client; |
| ● | How
MacKay Shields voted on behalf of the client; and |
| ● | Whether
MacKay Shields voted for or against management on behalf of the client. |
Either
MacKay Shields or ISS as indicated below will maintain the following records:
| ● | A
copy of the Policy and MacKay’s Standard Guidelines and Custom Guidelines; |
| ● | A
copy of each proxy statement received by MacKay Shields or forwarded to ISS by the client’s
custodian regarding client securities; |
| ● | A
record of each vote cast by MacKay Shields on behalf of a client; |
| ● | A
copy of all documents created by MacKay Shields that were material to making a decision on
the proxy voting (or abstaining from voting) of client securities or that memorialize the
basis for that decision including the resolution of any Conflict, a copy of all guideline
override requests and all supporting documents; an |
| ● | A
copy of each written request by a client for information on how MacKay Shields voted proxies
on behalf of the client, as well as a copy of any written response by MacKay Shields to any
request by a client for information on how MacKay Shields voted proxies on behalf of the
client; records of oral requests for information or oral responses will not be kept. |
Such
records must be maintained for at least eight years, the first two years in an appropriate office of MacKay Shields.
| 12. | Review
of Voting and Guidelines |
As
part of its periodic reviews, MacKay Shields’ Compliance Department will conduct an annual review of the prior year’s proxy
voting as well as the guidelines established for proxy voting. Documentation shall be maintained of this review and a report setting
forth the results of the review will be presented annually to the Compliance Committee. In addition, MacKay Shields’ Compliance
Department maintains a list of non-voting accounts.
| 13. | How
to Request Information On How the Firm Voted Proxies |
Clients
may, at anytime, request and receive information from MacKay Shields as to how the Firm voted proxies for securities held in their account.
Any such proxy information request should be in writing to:
MacKay
Shields LLC
1345 Avenue of the Americas New
York, NY 10105
43rd Floor
Attention: Head of Client Services
Exhibits:
Exhibit
A - |
2021 U.S. Summary
Proxy Voting Guidelines (Standard Guidelines for non-union clients) – published November 19, 2020. Effective for Meetings on
or after February 1, 2021 |
|
|
Exhibit
B (Part I and II) - |
2021 U.S. Taft-Hartley
Proxy Voting Guidelines and 2021 International Taft-Hartley Proxy Voting Guidelines (Standard Guidelines for union clients (Taft-Hartley)
(US and International)) – published December 27, 2020 |
|
|
Exhibit
C (Part I and II) - |
2021
U.S. Sustainability Proxy Voting Guidelines and 2021 International Sustainability Proxy Voting Guidelines (Standard Guidelines for
ESG investment objective mandates) – Effective for meetings on or after September 1, 2021 |
|
|
Schedule
D- |
Proxy
Vote Override/Decision Form |
Access
to the ISS Voting Guidelines mentioned above and other ISS Voting Guidelines are available at https://www.issgovernance.com/policy-gateway/voting-policies/
B-7
PART
C - OTHER INFORMATION
Item
25: Financial Statements and Exhibits
(1) |
Filed
on July 2, 2021 with Registrant’s Registration Statement on Form N-2 (File No. 333- 257627) and incorporated herein by reference. |
(2) |
Filed
on December 27, 2021 with Registrant’s Registration Statement on Form N-2 (File No. 333- 257627) and incorporated herein by
reference. |
(3) |
Filed
on January 24, 2022 with Registrant’s Registration Statement on Form N-2 (File No. 333- 257627) and incorporated herein by
reference. |
|
|
(4) |
Filed
on February 10, 2022 with Registrant’s Registration Statement on Form N-2 (File No. 333- 257627) and incorporated herein by
reference. |
|
|
(5) |
Filed on September 11, 2023 with Registrant’s Registration Statement on Form
N-2 (File No. 333- 274452) and incorporated herein by reference. |
|
|
(6) |
Filed on December 22, 2023 on Registrant's Registration on Form N-2 (File No. 333-274452) and incorporated herein by reference. |
Item
26: Marketing Arrangements
The
information contained under the heading “Plan of Distribution” on page 90 of the Prospectus is incorporated by reference,
and any information concerning any underwriters will be contained in the accompanying Prospectus Supplement, if any.
Item
27: Other Expenses of Issuance and Distribution
Securities
and Exchange Commission Fees |
$19,285 |
Financial
Industry Regulatory Authority, Inc. Fees |
$0 |
Printing
and Engraving Expenses |
$5,000 |
Legal
Fees |
$90,000 |
Listing
Fees |
$35,364 |
Accounting
Expenses |
$2,000 |
Blue
Sky Filing Fees and Expenses |
$0 |
Miscellaneous
Expenses |
$0 |
Total |
$151,649 |
Item
28: Persons Controlled by or under Common Control with Registrant
Not
applicable.
Item
29: Number of Holders of Securities
At
January 31, 2024
Title
of Class |
Number
of Record Holders |
Common
Shares, $0.0001 par value |
1 |
Item
30: Indemnification
Section
7.2 of the Articles of Amendment and Restatement of the Registrant provides as follows:
Any
person who is made a party or is threatened to be made a party in any threatened, pending, or completed action, suit, or proceeding,
whether civil, criminal, administrative, or investigative, by reason of the fact that such person is a current or former director or
officer of the Corporation, or is or was serving while a director or officer of the Corporation as a director, officer, partner, trustee,
employee, agent, or fiduciary of another corporation, partnership, joint venture, trust, enterprise, or employee benefit plan, shall
be indemnified by the Corporation against judgments, penalties, fines, excise taxes, settlements, and reasonable expenses (including
attorneys’ fees) actually incurred by such person in connection with such action, suit, or proceeding to the fullest extent permissible
under Maryland law, the Securities Act, and the 1940 Act, as such statutes are now or hereinafter in force. In addition, the Corporation
shall advance expenses to its current and former directors and officers who are made, or are threatened to be made, parties to any action,
suit, or proceeding described above to the fullest extent that advancement of expenses is permitted by Maryland law, the Securities Act
and the 1940 Act. The Board of Directors, by Bylaw, resolution, or agreement, may make further provision for indemnification of directors,
officers, employees, and agents to the fullest extent permitted by Maryland law. No provision of this Article VII shall be effective
to protect or purport to protect any director or officer of the Corporation against any liability to the Corporation or its security
holders to which she or he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard
of the standard of conduct or duties involved in the conduct of her or his office. Upon the direction of the Board of Directors, an advancement-of-costs
agreement may be required in order to require the repayment of reimbursed expenses in the event that the foregoing exclusion was later
determined to apply.
Reference
is made to Section 9 of the Form of Underwriting Agreement filed as Exhibit (h)(1) hereto.
Insofar
as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed
by the final adjudication of such issue.
Item
31: Business and Other Connections of Investment Advisers
RiverNorth
Capital Management, LLC
The
information in the Statement of Additional Information under the captions “Board Members and Officers” is hereby incorporated
by reference.
The
principal occupation of the directors and officers of the Adviser are their services as directors and officers of the Adviser. The address
of the Adviser is 360 South Rosemary Avenue, Suite 1420, West Palm Beach, FL 33401.
Set
forth below is information as to any other business, profession, vocation and employment of a substantial nature in which each officer
of the Adviser is, or at any during the last two fiscal years has been, engaged for their own account or in the capacity of director,
officer, employee partner or trustee:
Name* |
Positions
with RiverNorth Capital Management, LLC |
Other
Business Connections |
Type
of Business |
Patrick
W. Galley |
Chief Executive
Officer, Chief Investment Officer and Board of Managers |
President and
Director, RiverNorth Fund Complex; Board of Directors, RiverNorth Holdings, Co.; Board of Managers, RiverNorth Financial Holdings,
LLC. |
Investments |
Jonathan
M. Mohrhardt |
President, Chief
Operating Officer and Board of Managers |
Treasurer, RiverNorth
Fund Complex; Board of Directors, RiverNorth Holdings, Co.; Board of Managers, RiverNorth Financial Holdings, LLC |
Investments |
Marcus
L. Collins |
Secretary, General
Counsel and Chief Compliance Officer |
Chief Compliance
Officer, RiverNorth Fund Complex |
Investments |
Stephen
A. O’Neill |
Portfolio
Manager |
Portfolio Manager,
RiverNorth Fund Complex |
Investments |
* |
The address for each of
the named is 360 South Rosemary Avenue, Suite 1420, West Palm Beach, FL 33401. |
MacKay
Shields LLC
The
Registrant’s sub-adviser, Mackay Shields LLC (the “Subadviser”), is a Delaware limited liability company. The list
required by this Item 31 of officers and trustees of the Subadviser, together with information as to any other business, profession,
vocation or employment of a substantial nature engaged in by the Subadviser and such officers and trustees during the past two years,
is incorporated by reference to Form ADV (SEC File No. 801-5594) filed by the Subadviser pursuant to the Investment Advisers Act of 1940,
as amended.
Item
32: Location of Accounts and Records.
RiverNorth
Capital Management, LLC maintains the Charter, By-Laws, minutes of directors and shareholders meetings and contracts of the Registrant,
all advisory material of the investment adviser, all general and subsidiary ledgers, journals, trial balances, records of all portfolio
purchases and sales, and all other required records.
Item
33: Management Services
Not
applicable.
Item
34: Undertakings
|
1. |
The Registrant
undertakes to suspend the offering of shares until the prospectus is amended if (1) subsequent to the effective date of its registration
statement, the net asset value declines more than ten percent from its net asset value as of the effective date of the registration
statement or (2) the net asset value increases to an amount greater than its net proceeds as stated in the prospectus. |
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2. |
Not applicable. |
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3. |
The Registrant hereby undertakes: |
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(a) |
to
file, during any period in which offers or sales are being made, a post-effective amendment to the registration statement: |
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|
(1) |
to
include any prospectus required by Section 10(a)(3) of the Securities Act. |
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(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 SEC 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. |
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|
(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. |
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Provided,
however, that paragraphs (a)(1), (2), and (3) of this section do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in reports filed with or furnished to the SEC by the Registrant pursuant
to Section 13 or Section 15(d) of the Exchange Act of 1934 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. |
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|
(b) |
that,
for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered herein, and the offering of those securities at that time shall be
deemed to be the initial bona fide offering thereof; |
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|
(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; |
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|
(d) |
that, for the
purpose of determining liability under the Securities Act to any purchaser: |
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|
(1) |
if the Registrant
is relying on Rule 430B: |
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|
(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 |
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(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 |
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(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; |
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(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: |
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|
(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; |
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|
(2) |
any
free writing prospectus relating to the offering prepared by or on behalf of the undersigned Registrant or used or referred to by
the undersigned Registrant; |
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|
(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 |
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(4) |
any
other communication that is an offer in the offering made by the undersigned Registrant to the purchaser. |
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|
4. |
The Registrant undertakes that: |
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|
(a) |
for
the purpose of determining any liability under the Securities Act, the information omitted from the form prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant under Rule
424(b)(1) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective;
and |
|
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|
(a) |
for
the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of the securities
at that time shall be deemed to be the initial bona fide offering thereof. |
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|
5. |
The undersigned Registrant hereby undertakes
that, for purposes of determining any liabilities 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. |
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|
6. |
Insofar as
indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the
SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid
by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue. |
|
|
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|
7. |
The Registrant
hereby undertakes to send by first class mail or other means designed to ensure equally prompt delivery, within two business days
of receipt of a written or oral request, any prospectus or Statement of Additional Information. |
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|
8. |
The Registrant
undertakes to only offer rights to purchase common and preferred shares together after a post-effective amendment to the Registration
Statement relating to such rights has been declared effective. |
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in this City of West Palm Beach, and State of Florida,
on the 21st day of February, 2024.
|
RiverNorth Managed
Duration
Municipal Income Fund II, Inc. |
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|
|
By: |
/s/ Patrick
W. Galley |
|
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Patrick W. Galley, President |
|
Pursuant
to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
Signature |
Title |
Date |
By: /s/ Patrick
W. Galley |
President (Principal Executive Officer) |
February 21, 2024 |
Patrick
W. Galley |
|
|
By:
/s/ Jonathan M Mohrhardt |
Chief
Financial Officer and Treasurer (Principal Financial Officer/Principal Accounting Officer) |
February 21, 2024 |
Jonathan
M Mohrhardt |
|
|
By: /s/ Patrick
W. Galley |
Chairman of the Board and Director |
February 21, 2024 |
Patrick
W. Galley |
|
|
John
K. Carter (1) |
Director |
By: /s/ Patrick
W. Galley |
Jerry
R. Raio (1) |
Director |
Patrick W. Galley |
J.
Wayne Hutchens (1) |
Director |
Attorney-In-Fact |
David
M. Swanson (1) |
Director |
February 21, 2024 |
Lisa
B. Mougin (2) |
Director |
|
(1) |
Original powers of attorney
authorizing Joshua B. Deringer, Diana E. McCarthy and Patrick W. Galley to execute Registrant’s Registration Statement, and
Amendments thereto, for the directors of the Registrant on whose behalf this Registration Statement is filed, were previously executed
and were filed as Exhibit t.1 to the Registrant’s Registration Statement on Form N-2 (File No. 333-257627). |
(2) |
Original
power of attorney authorizing Joshua B. Deringer, David L. Williams and Patrick W. Galley to execute Registrant’s Registration
Statement, and Amendments thereto, for the director of the Registrant on whose behalf this Registration Statement is filed, was
previously executed and was filed as Exhibit t.2 to the Registrant’s Registration Statement on Form N-2 (File No. 333-274452). |
INDEX
TO EXHIBITS
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the references
to our Firm under the caption “Legal Matters” in the Prospectus and the caption “Legal Counsel” in the Statement
of Additional Information included in Pre-Effective Amendment No. 2 to the Registration Statement on Form N-2 under the Securities Act
of 1933, as amended (the “1933 Act”), of RiverNorth Managed Duration Municipal Income Fund II, Inc. (File No. 811-23713).
In giving such consent, however, we do not admit that we are within the category of persons whose consent is required under Section 7
of the 1933 Act or the rules and regulations of the Securities and Exchange Commission thereunder.
|
/s/ Faegre Drinker Biddle & Reath LLP |
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|
Faegre Drinker Biddle & Reath LLP |
|
Philadelphia, Pennsylvania
February 21, 2024
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
We hereby consent to the incorporation by reference in this Registration Statement on Form N-2 of our report dated August 25, 2023, relating
to the financial statements and financial highlights of RiverNorth Managed Duration Municipal Income Fund II, Inc. for the year ended
June 30, 2023, and to the references to our firm under the headings “Financial Highlights” in the Prospectus and “Independent
Registered Public Accounting Firm” and “Financial Statements” in the Statement of Additional Information.
COHEN & COMPANY, LTD.
Cleveland, Ohio
February 20, 2024
v3.24.0.1
N-2 - USD ($)
|
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3 Months Ended |
Feb. 21, 2024 |
Jan. 31, 2024 |
Dec. 31, 2023 |
Sep. 30, 2023 |
Jun. 30, 2023 |
Mar. 31, 2023 |
Dec. 31, 2022 |
Sep. 30, 2022 |
Jun. 30, 2022 |
Mar. 31, 2022 |
Cover [Abstract] |
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Entity Central Index Key |
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0001870833
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Amendment Flag |
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false
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Entity Inv Company Type |
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N-2
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Securities Act File Number |
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333-274452
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Investment Company Act File Number |
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811-23713
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Document Type |
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N-2/A
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Document Registration Statement |
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true
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Pre-Effective Amendment |
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true
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Pre-Effective Amendment Number |
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2
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Investment Company Act Registration |
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true
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Investment Company Registration Amendment |
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true
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Investment Company Registration Amendment Number |
|
6
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Entity Registrant Name |
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RiverNorth
Managed Duration Municipal Income Fund II, Inc.
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Entity Address, Address Line One |
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360
South Rosemary Avenue
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Entity Address, Address Line Two |
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Suite
1420
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Entity Address, City or Town |
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West
Palm Beach
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Entity Address, State or Province |
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FL
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Entity Address, Postal Zip Code |
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33401
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City Area Code |
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(561)
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Local Phone Number |
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484-7185
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Approximate Date of Commencement of Proposed Sale to Public |
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As
soon as practicable after the effective date of this Registration Statement.
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Dividend or Interest Reinvestment Plan Only |
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false
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Delayed or Continuous Offering |
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true
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Primary Shelf [Flag] |
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false
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Effective Upon Filing, 462(e) |
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false
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Additional Securities Effective, 413(b) |
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false
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Effective when Declared, Section 8(c) |
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true
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Registered Closed-End Fund [Flag] |
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true
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Business Development Company [Flag] |
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false
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Interval Fund [Flag] |
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false
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Primary Shelf Qualified [Flag] |
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false
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Entity Well-known Seasoned Issuer |
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No
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Entity Emerging Growth Company |
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false
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New CEF or BDC Registrant [Flag] |
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false
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Fee Table [Abstract] |
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Shareholder Transaction Expenses [Table Text Block] |
|
Shareholder
Transaction Expenses |
As
a Percentage
of Offering Price |
Sales
Load |
--%* |
Offering
Expenses Borne by Common Shareholders of the Fund |
--%* |
Dividend
Reinvestment Plan Fees(1) |
--%* |
Preferred
Shares Offering Expenses Borne by the Fund (as a percentage of net assets attributable to Common Shares) |
--%* |
| * | The
applicable prospectus supplement to be used in connection with any sales of Common Shares
or Preferred Shares will set forth any applicable sales load and the estimated offering expenses
borne by the Fund under an Offering. |
| (1) | There
will be no brokerage charges with respect to Common Shares issued directly by the Fund under
the dividend reinvestment plan. You will pay brokerage charges in connection with open market
purchases or if you direct the plan agent to sell your Common Shares held in a dividend reinvestment
account. |
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Sales Load [Percent] |
[1] |
0.00%
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Dividend Reinvestment and Cash Purchase Fees |
[1],[2] |
$ 0.00
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Other Transaction Expenses [Abstract] |
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Other Transaction Expense 1 [Percent] |
[1] |
0.00%
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Other Transaction Expenses [Percent] |
[1] |
0.00%
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Annual Expenses [Table Text Block] |
|
|
As
a Percentage of
Net Assets Attributable to
Common Shares
(Assuming the Use of
Leverage Equal to 38.71% of the
Fund’s Managed Assets) |
Annual
Expenses |
|
Management
fee(2) |
2.28% |
Leverage
costs(3)(4)(5) |
1.97% |
Dividends
on Preferred Shares(6) |
--% |
Other
Expenses |
0.03% |
Acquired
fund fees and expenses(7) |
0.91% |
Total
annual expenses(8) |
5.19% |
| (2) | The
management fee paid by the Fund to the Adviser is essentially an all-in fee structure (the
“unified management fee”), including the fee paid to the Adviser for advisory,
supervisory, administrative, shareholder servicing and other services. However, the Fund
(and not the Adviser) will be responsible for certain additional fees and expenses, which
are reflected in the table above, that are not covered by the unified management fee. The
unified management fee is inclusive of the fees payable by the Adviser to the Subadviser
for sub-advisory services. The unified management fee is charged as a percentage of the Fund’s
average daily Managed Assets, as opposed to net assets. With leverage, Managed Assets are
greater in amount than net assets, because Managed Assets include assets attributable to
the Fund’s use of leverage created by its tender option bond transactions. In addition,
the mark-to-market value of the Fund’s derivatives will be used for purposes of calculating
Managed Assets. The management fee of 1.40% of the Fund’s Managed Assets represents
2.28% of net assets attributable to Common Shares assuming the use of leverage in an amount
of 38.71% of the Fund’s Managed Assets. The Fund’s average Managed Assets for
the fiscal year ended June 30, 2023 (which includes the use of leverage discussed in footnote
(5)) were multiplied by the annual advisory fee rate and then divided by the Fund’s
average net assets for the same period to calculate the management fees as a percentage of
the Fund’s net assets attributable to Common Shares. See “Management of the Fund—Investment
Advisory and Subadvisory Agreements.” |
| (3) | The
actual amount of interest expense borne by the Fund will vary over time in accordance with
the level of the Fund’s use of tender option bond transactions and variations in market
interest rates. See “Use of Leverage.” |
| (4) | The
“Leverage Costs” include the expenses associated with the Fund’s tender
option bond transactions, including remarketing, administration and trustee services to a
TOB issuer. |
| (5) | Interest
and fees on leverage in the table reflect the cost to the Fund of tender option bond transactions,
expressed as a percentage of the Fund’s net assets as of June 30, 2023, based on interest
rates in effect as of June 30, 2023. The table assumes the use of leverage from the proceeds
of tender option bond transactions representing, in the aggregate, 38.71% of Managed Assets,
which reflects approximately the percentage of the Fund’s total Managed Assets attributable
to such leverage averaged over the year ended June 30, 2023, at a weighted average annual
expense to the Fund of 3.14%. |
| (6) | As
of the date of this Prospectus, the Fund has not issued any Preferred Shares. The applicable
prospectus supplement will set forth the expenses related to any Preferred Shares in the
future. |
| (7) | The
“Acquired fund fees and expenses” disclosed above are based on the expense ratios
for the most recent fiscal year of the Underlying Funds in which the Fund anticipates investing,
which may change substantially over time and, therefore, significantly affect “Acquired
fund fees and expenses.” These amounts are based on the total expense ratio disclosed
in each Underlying Fund’s most recent shareholder report. “Acquired fund fees
and expenses” are not charged directly to the Fund, but rather reflect the estimated
pro rata portion of the Underlying Funds’ fees attributable to the Fund’s investments
in shares of the Underlying Funds. The 0.91% shown as “Acquired fund fees and expenses”
reflects estimated operating expenses of the Underlying Funds and transaction-related fees.
Certain Underlying Funds in which the Fund intends to invest generally charge a management
fee of 1.00% to 2.00%, which are included in “Acquired fund fees and expenses,”
as applicable. Acquired fund fees and expenses are borne indirectly by the Fund, but they
will not be reflected in the Fund’s financial statements; and the information presented
in the table will differ from that presented in the Fund’s financial highlights, when
available. |
| (8) | The
table above assumes the use of leverage in an amount equal to 38.71% of the Fund’s
Managed Assets (or 63.17% of the Fund’s net assets) and shows Fund expenses as a percentage
of net assets attributable to Common Shares, as only Common Shareholders of the Fund will
bear all of the expenses reflected in the table. For purposes of this assumption, all leverage
used is in the form of proceeds from tender option bond transactions. The table presented
below in this footnote 8 estimates what the Fund’s annual expenses would be, stated
as percentages of the Fund’s net assets attributable to Common Shares, but, unlike
the table above, assumes that the Fund does not utilize leverage. In accordance with these
assumptions, the Fund’s expenses would be estimated to be as follows: |
Annual
expenses (as a percentage of net assets attributable to Common Shares) |
As
a Percentage of
Net
Assets Attributable to
Common
Shares
(Assuming
No Leverage) |
Management
fees |
1.40% |
Other Expenses |
0.03% |
Acquired
fund fees and expenses |
0.91% |
Total
annual expenses |
2.34%
|
|
|
|
|
|
|
|
|
|
|
Management Fees [Percent] |
[3] |
2.28%
|
|
|
|
|
|
|
|
|
|
Interest Expenses on Borrowings [Percent] |
[4],[5],[6] |
1.97%
|
|
|
|
|
|
|
|
|
|
Dividend Expenses on Preferred Shares [Percent] |
[7] |
0.00%
|
|
|
|
|
|
|
|
|
|
Acquired Fund Fees and Expenses [Percent] |
|
0.91%
|
|
|
|
|
|
|
|
|
|
Other Annual Expenses [Abstract] |
|
|
|
|
|
|
|
|
|
|
|
Other Annual Expenses [Percent] |
|
0.03%
|
|
|
|
|
|
|
|
|
|
Total Annual Expenses [Percent] |
[8] |
5.19%
|
|
|
|
|
|
|
|
|
|
Expense Example [Table Text Block] |
|
Example(9)
The
example illustrates the expenses you would pay on a $1,000 investment in Common Shares, based on the fees and expenses set forth in the
table above, assuming a 5% annual return.
|
1
year |
3
years |
5
years |
10
years |
Total
Expenses Incurred |
$52 |
$155 |
$258 |
$514 |
| (9) | The
example does not include sales load or estimated offering costs. The example should not be
considered a representation of future expenses. The example assumes that the estimated “Other
expenses” set forth in the table are accurate and that all dividends and distributions
are reinvested at NAV and that the Fund is engaged in leverage of 38.71% of Managed Assets,
assuming interest and fees on leverage of 3.14%. The interest and fees on leverage is expressed
as an interest rate and represents interest and fees payable for the Fund’s tender
option bond transactions. Actual expenses may be greater or less than those assumed. Moreover,
the Fund’s actual rate of return may be greater or less than the hypothetical 5% annual
return shown in the table. |
|
|
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|
|
|
|
Expense Example, Year 01 |
[9] |
$ 52
|
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|
|
Expense Example, Years 1 to 3 |
[9] |
155
|
|
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|
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|
|
Expense Example, Years 1 to 5 |
[9] |
258
|
|
|
|
|
|
|
|
|
|
Expense Example, Years 1 to 10 |
[9] |
$ 514
|
|
|
|
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|
|
Purpose of Fee Table , Note [Text Block] |
|
The
purpose of the following table and the example below is to help you understand the fees and expenses that you, as a Common Shareholder,
would bear directly or indirectly. Actual expenses may be greater or less than those shown below.
|
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|
|
|
|
Acquired Fund Fees and Expenses, Note [Text Block] |
|
The
“Acquired fund fees and expenses” disclosed above are based on the expense ratios
for the most recent fiscal year of the Underlying Funds in which the Fund anticipates investing,
which may change substantially over time and, therefore, significantly affect “Acquired
fund fees and expenses.” These amounts are based on the total expense ratio disclosed
in each Underlying Fund’s most recent shareholder report. “Acquired fund fees
and expenses” are not charged directly to the Fund, but rather reflect the estimated
pro rata portion of the Underlying Funds’ fees attributable to the Fund’s investments
in shares of the Underlying Funds. The 0.91% shown as “Acquired fund fees and expenses”
reflects estimated operating expenses of the Underlying Funds and transaction-related fees.
Certain Underlying Funds in which the Fund intends to invest generally charge a management
fee of 1.00% to 2.00%, which are included in “Acquired fund fees and expenses,”
as applicable. Acquired fund fees and expenses are borne indirectly by the Fund, but they
will not be reflected in the Fund’s financial statements; and the information presented
in the table will differ from that presented in the Fund’s financial highlights, when
available.
|
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|
General Description of Registrant [Abstract] |
|
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Investment Objectives and Practices [Text Block] |
|
INVESTMENT
OBJECTIVES, STRATEGIES AND POLICIES
Investment
Objectives
The
Fund’s primary investment objective is current income exempt from regular U.S. federal income taxes (but which may be includable
in taxable income for purposes of the Federal alternative minimum tax). The Fund’s secondary investment objective is total return.
There is no assurance that the Fund will achieve its investment objectives.
Principal
Investment Strategies
Under
normal market conditions, the Fund seeks to achieve its investment objectives by investing, directly or indirectly, at least 80% of its
Managed Assets in municipal bonds, the interest on which is, in the opinion of bond counsel to the issuers, generally excludable from
gross income for regular U.S. federal income tax purposes, except that the interest may be includable in taxable income for purposes
of the Federal alternative minimum tax (“Municipal Bonds”). In order to qualify to pay exempt-interest dividends, which are
items of interest excludable from gross income for federal income tax purposes, for each taxable year, the Fund seeks to invest either
(i) at least 50% of its total assets directly (and indirectly through tender option bond transactions) in such Municipal Bonds at the
end of each calendar quarter, or (ii) at least 50% of its total assets in other funds that are taxed as regulated investment companies
at the end of each calendar quarter. See “Risks—Investment-Related Risks—Tax Risks.” In addition, under normal
market conditions, the Fund seeks to maintain Managed Assets with a weighted average effective duration that is within three years of
the weighted average effective duration of the Bloomberg U.S. Municipal Index. See “—Managed Duration Strategy” below.
Municipal
Bonds are debt obligations, which may have a variety of issuers, including governmental entities or other qualifying issuers. Issuers
may be states, territories and possessions of the United States and the District of Columbia and their political subdivisions, agencies
and instrumentalities. See “Risks—Investment-Related Risks—Municipal Bond Risks” and “Risks—Investment-Related
Risks—Market Disruption, Geopolitical, Pandemic and Climate Change Risks.” Such territories of the United States include
Puerto Rico. See “Risks—Investment-Related Risks—Puerto Rico Municipal Bond Risks” for a discussion of the risks
associated with an investment in Puerto Rico Municipal Bonds. Municipal Bonds include, among other instruments, general obligation bonds,
revenue bonds, municipal leases, certificates of participation, private activity bonds, moral obligation bonds, and tobacco settlement
bonds, as well as short-term, tax-exempt obligations such as municipal notes and variable rate demand obligations. See “—Portfolio
Composition” for a description of the types of Municipal Bonds in which the Fund may invest.
The
Fund seeks to allocate its assets between the two principal strategies described below. The Adviser determines the portion of the Fund’s
Managed Assets to allocate to each strategy and may, from time to time, adjust the allocations. See “Risks—Structural Risks—Asset
Allocation Risk.” Under normal market conditions, the Fund may allocate between 25% and 65% of its Managed Assets to the Tactical
Municipal Closed-End Fund Strategy (as described below) and 35% to 75% of its Managed Assets to the Municipal Bond Income Strategy (as
described below). See “Investment Philosophy and Process.”
Tactical
Municipal Closed-End Fund Strategy (25%-65% of Managed Assets). This strategy seeks to (i) generate returns through investments in
other investment companies, consisting principally of closed-end funds and exchange-traded funds (“ETFs” and, together with
such other investment companies, the “Underlying Funds”), that invest, under normal market conditions, at least 80% of their
net assets, plus the amount of any borrowings for investment purposes, in Municipal Bonds, and (ii) derive value from the discount and
premium spreads associated with closed-end funds that invest, under normal market conditions, at least 80% of their net assets, plus
the amount of any borrowings, for investment purposes, in Municipal Bonds. See “Risks—Investment-Related Risks—Tactical
Municipal Closed-End Fund Strategy Risk.” All Underlying Funds will be registered under the Securities Act of 1933, as amended
(the “Securities Act”).
Under
normal market conditions, the Fund limits its investments in closed-end funds that have been in operation for less than one year to no
more than 10% of the Fund’s Managed Assets allocated to the Tactical Municipal Closed-End Fund Strategy. The Fund will not invest
in inverse ETFs or leveraged ETFs. Under normal market conditions, the Fund may not invest more than 35% of its Managed Assets in the
Tactical Municipal Closed-End Fund Strategy in single state municipal closed-end funds. The Fund’s shareholders will indirectly
bear the expenses, including the management fees, of the Underlying Funds. See “Risks—Investment-Related Risks—Underlying
Fund Risks.”
Under
Section 12(d)(1)(A) of the 1940 Act, the Fund may hold securities of an Underlying Fund in amounts which (i) do not exceed 3% of the
total outstanding voting stock of the Underlying Fund, (ii) do not exceed 5% of the value of the Fund’s total assets and (iii)
when added to all other Underlying Fund securities held by the Fund, do not exceed 10% of the value of the Fund’s total assets.
Under Section 12(d)(1)(C) of the 1940 Act, the Fund, together with any other investment companies for which the Adviser acts as an investment
adviser, may not, in the aggregate, own more than 10% of the total outstanding voting stock of a registered closed-end investment company.
Section 12(d)(1)(F) of the 1940 Act provides that the limitations of Section 12(d)(1) described above shall not apply to securities purchased
or otherwise acquired by the Fund if (i) immediately after such purchase or acquisition not more than 3% of the total outstanding stock
of such Underlying Fund is owned by the Fund and all affiliated persons of the Fund, and (ii) certain requirements are met with respect
to sales charges. In addition, Rule 12d1-4 under the 1940 Act (“Rule 12d1-4”), effective as of January 19, 2022, permits
the Fund to invest in Underlying Funds beyond the limitations of Section 12(d)(1) described above, subject to various conditions, including
that the Fund enter into an investment agreement with the Underlying Fund (which agreements may impose additional conditions on the Fund).
The
Fund may invest in Underlying Funds that invest in securities that are rated below investment grade, including those receiving the lowest
ratings from S&P Global Ratings, a Standard & Poor’s Financial Services LLC business (“S&P”), Fitch Ratings,
a part of the Fitch Group (“Fitch”), or Moody’s Investor Services, Inc. (“Moody’s”), or comparably
rated by another nationally recognized statistical rating organization (“NRSRO”) or, if unrated, determined by the Adviser
or Subadviser to be of comparable credit quality, which indicates that the security is in default or has little prospect for full recovery
of principal or interest. See “Risks—Investment-Related Risks—Defaulted and Distressed Securities Risk.” Below
investment grade securities (such as securities rated below BBB- by S&P or Fitch or below Baa3 by Moody’s) are commonly referred
to as “junk” and “high yield” securities. Below investment grade securities are considered speculative with respect
to the issuer’s capacity to pay interest and repay principal. The Underlying Funds in which the Fund invests may invest in securities
receiving the lowest ratings from the NRSROs, including securities rated C by Moody’s or D- by S&P. Lower rated below investment
grade securities are considered more vulnerable to nonpayment than other below investment grade securities and their issuers are more
dependent on favorable business, financial and economic conditions to meet their financial commitments. The lowest rated below investment
grade securities are typically already in default. See “Risks—Investment-Related Risks—Credit and Below Investment
Grade Securities Risk.”
The
Underlying Funds in which the Fund invests will not include those that are advised or subadvised by the Adviser, the Subadviser or their
affiliates.
Municipal
Bond Income Strategy (35%-75% of Managed Assets). This strategy seeks to capitalize on inefficiencies in the tax-exempt and tax-advantaged
securities markets through investments in Municipal Bonds. The Fund may not directly invest more than 25% of the Managed Assets allocated
to the Municipal Bond Income Strategy in Municipal Bonds in any one industry or in any one state of origin, and the Fund may not directly
invest more than 5% of the Managed Assets allocated to this strategy in the Municipal Bonds of any one issuer, except that the foregoing
industry and issuer restrictions shall not apply to general obligation bonds and the Fund will consider the obligor or borrower underlying
the Municipal Bond to be the “issuer.” See “Risks—Investment-Related Risks—State Specific and Industry
Risks.” The Fund may invest up to 20% of the Managed Assets allocated to the Municipal Bond Income Strategy in Municipal Bonds
that pay interest that may be includable in taxable income for purposes of the Federal alternative minimum tax. The Fund can invest,
directly or indirectly through Underlying Funds, in bonds of any maturity; however, under this strategy, it will generally invest in
Municipal Bonds that have a maturity of five years or longer at the time of purchase.
Under
normal market conditions, the Fund invests at least 60% of the Fund’s Managed Assets allocated to the Municipal Bond Income Strategy
directly in investment grade Municipal Bonds. The Subadviser invests no more than 20% of the Managed Assets allocated to the Municipal
Bond Income Strategy in Municipal Bonds rated at or below Caa1 by Moody’s or CCC+ by S&P or Fitch, or comparably rated by another
NRSRO, including unrated bonds judged to be of equivalent quality as determined by the Adviser or Subadviser, as applicable. Investment
grade securities are those rated Baa or higher by Moody’s (although Moody’s considers securities rated Baa to have speculative
characteristics) or BBB or higher by S&P or rated similarly by another NRSRO or, if unrated, judged to be of equivalent quality as
determined by the Adviser or Subadviser, as applicable. If the independent ratings agencies assign different ratings to the same security,
the Fund will use the higher rating for purposes of determining the security’s credit quality. Subject to the foregoing limitations,
the Fund may invest in securities receiving the lowest ratings from the NRSROs, including securities rated C by Moody’s or D- by
S&P, which indicates that the security is in default or has little prospect for full recovery of principal or interest. See “Risks—Investment-Related
Risks—Credit and Below Investment Grade Securities Risk.”
Under
normal market conditions, the Fund, or the Underlying Funds in which the Fund invests, will invest at least 50% of its Managed Assets,
directly or indirectly in investment grade Municipal Bonds.
The
Subadviser may consider environmental, social, and/or governance (“ESG”) characteristics it deems relevant or additive when
making investment decisions for this strategy, although ESG considerations do not represent a primary focus of the Fund. Such ESG criteria
may include consideration of climate change, sustainability, energy resources & management, job creation/employee relations, human
rights, health and safety, transparency/disclosures, board expertise, audit practices, transparency and accountability. The Fund believes
that ESG considerations, like other more traditional subjects of investment analysis, have the potential to impact financial risk and
investment returns, although there is no guarantee the intended results will be achieved. The consideration of ESG factors as part of
the Subadviser’s investment process does not mean that the Fund pursues a specific “ESG,” “impact” or “sustainable”
investment strategy, and the Fund may make investment decisions other than on the basis of relevant ESG considerations.
“Managed
Assets” means the total assets of the Fund, including assets attributable to leverage, minus liabilities (other than debt representing
leverage and any preferred stock that may be outstanding). Such assets attributable to leverage include the portion of assets in tender
option bond trusts of which the Fund owns TOB Residuals (as defined below) that has been effectively financed by the trust’s issuance
of TOB Floaters (as defined below). See “Use of Leverage—Tender Option Bonds.”
Managed
Duration Strategy. The Adviser and the Subadviser may use various techniques to manage the duration of the Fund’s portfolio
in an attempt to mitigate the risks associated with changes in interest rates. Under normal market conditions, the Fund seeks to maintain
Managed Assets with a weighted average effective duration (excluding the effects of leverage) that targets the weighted average effective
duration of the Bloomberg U.S. Municipal Index, a widely recognized municipal bond index (the “Index”), primarily through
its investments in Municipal Bonds and Underlying Funds as well as through short positions in U.S. Treasury futures contracts (as discussed
below). As a result of, among other things, changing market conditions and differences between the Fund’s portfolio and the Index,
the Fund believes it will generally be able to maintain a weighted average effective duration that is within three years of the weighted
average effective duration of the Index. However, under certain market conditions and from time to time for the reasons described below,
the Fund’s duration may be outside of such range. In addition, if the effect of the Fund’s use of leverage was included in
calculating duration, it could result in a longer duration for the Fund. As of January 31, 2024, the Index had a weighted average effective
duration of 6.10 years. The Fund may invest in bonds of any maturity, whether directly through Municipal Bonds or indirectly through
Underlying Funds.
Effective
duration is a mathematical calculation of the sensitivity of the price of a bond to changes in interest rates, measuring a bond’s
expected life on a present value basis, taking into account the bond’s yield, interest payments, final maturity and, in the case
of a bond with an embedded option (e.g., the right of the issuer to call the bond prior to maturity, or a sinking fund schedule), the
probability that the option will be exercised. The longer the effective duration of a bond or a group of bonds, the more sensitive the
bond or group of bonds is to changes in interest rates; the shorter the duration, the less sensitive the bond or group of bonds is to
such changes. In general, each year of duration represents an expected 1% change in the value of a bond for every 1% immediate change
in interest rates. For example, if the Fund’s portfolio has an average effective duration of five years, its value would be expected
to fall by approximately 5% if interest rates rise by 1%. Conversely, the portfolio’s value would be expected to rise about 5%
if interest rates fell by 1%.
The
Adviser and the Subadviser invest with a view to managing the duration of the Fund. However, the calculation of the Fund’s weighted
average effective duration is contingent upon the Adviser’s ability to adequately determine the weighted average effective duration
of each of the Underlying Funds in which it invests, which is inherently limited as the Adviser’s determination primarily depends
on reporting by such Underlying Funds. Such Underlying Fund reporting may be on a delayed basis and could be subject to incomplete or
inaccurate information that may not be readily apparent to the Adviser. As a result, the Fund cannot guarantee the precise overall weighted
average effective duration of its portfolio at any given point in time and this limitation could cause the Fund’s weighted average
effective duration to be outside of its targeted duration range. In addition, the Adviser and Subadviser may use short sales and derivatives
such as options, futures contracts, options on futures contracts, and swaps (collectively, “Hedging Positions”) to manage
the duration of the Fund. Such Hedging Positions may, however, result in income or gain to the Fund that is not exempt from regular U.S.
federal income taxes. See “—Other Investments” below.
Other
Investments. The Fund may invest, directly or indirectly, up to 20% of its Managed Assets in taxable municipal securities. Any portion
of the Fund’s assets invested in taxable municipal securities will not count toward the 35%-75% of the Fund’s assets allocated
to Municipal Bonds.
The
Fund may at times establish hedging positions, which may include short sales and derivatives, such as options, futures and swaps (“Hedging
Positions”). Such Hedging Positions may be used to attempt to protect against possible changes in the value of securities held
in or to be purchased for the Fund’s portfolio and to manage the effective maturity or duration of the Fund’s portfolio.
The Fund’s Hedging Positions may, however, result in income or gain to the Fund that is not exempt from regular U.S. federal income
taxes. See “Risks—Investment-Related Risks—Derivatives Risks” and “Risks—Investment-Related Risks—Options
and Futures Risks.”
A
short sale is a transaction in which the Fund sells a security that it does not own in anticipation of a decline in the market price
of the security. The Fund may benefit from a short position when the shorted security decreases in value by more than the cost of the
transaction but will suffer a loss on a short sale if the security’s value does not decline or increases. The Fund will not engage
in any short sales of securities issued by closed-end funds. See “Investment Objectives, Strategies and Policies—Principal
Investment Strategies—Other Investments” and “Risks—Investment-Related Risks—Short Sale Risks.”
The
Fund also may attempt to enhance the return on the cash portion of its portfolio by investing in total return swap agreements. A total
return swap agreement provides the Fund with a return based on the performance of an underlying asset, in exchange for fee payments to
a counterparty based on a specific rate. The difference in the value of these income streams is recorded daily by the Fund, and is typically
settled in cash at least monthly. If the underlying asset declines in value over the term of the swap, the Fund would be required to
pay the dollar value of that decline plus any applicable fees to the counterparty. The Fund may use its own net asset value (“NAV”)
or any other reference asset that the Adviser or Subadviser chooses as the underlying asset in a total return swap. The Fund limits the
notional amount of all total return swaps in the aggregate to 15% of the Fund’s Managed Assets. See “Risks—Investment-Related
Risks—Swap Risks.”
In
addition to the foregoing principal investment strategies of the Fund, the Adviser also may allocate the Fund’s Managed Assets
among cash and short-term investments. See “Investment Policies and Techniques—Temporary Investments and Defensive Position”
in the SAI. There are no limits on the Fund’s portfolio turnover, and the Fund may buy and sell securities to take advantage of
potential short-term trading opportunities without regard to length of time and when the Adviser or Subadviser believes investment considerations
warrant such action. High portfolio turnover may result in the realization of net short-term capital gains by the Fund which, when distributed
to Common Shareholders, will be taxable as ordinary income. In addition, a higher portfolio turnover rate results in correspondingly
greater brokerage commissions and other transactional expenses that are borne by the Fund. See “Risks—Structural Risks—Portfolio
Turnover Risk.”
All
percentage limitations described in this Prospectus are measured at the time of investment and may be exceeded on a going-forward basis
as a result of credit rating downgrades or market value fluctuations of the Fund’s portfolio securities. Unless otherwise specified
herein, the Fund may count its holdings in Underlying Funds towards various guideline tests, including the 80% policy so long as the
earnings on the underlying holdings of such Underlying Funds are exempt from regular U.S. federal income taxes (but which may be includable
in taxable income for purposes of the Federal alternative minimum tax).
Unless
otherwise specified, the investment policies and limitations of the Fund are not considered to be fundamental by the Fund and can be
changed without a vote of the Common Shareholders. The Fund’s primary investment objective, 80% policy and certain investment restrictions
specifically identified as such in the SAI are considered fundamental and may not be changed without the approval of the holders of a
majority of the outstanding voting securities of the Fund, as defined in the 1940 Act, which includes Common Shares and Preferred Shares,
if any, voting together as a single class, and the holders of the outstanding Preferred Shares, if any, voting as a single class. See
“Investment Restrictions” in the SAI.
Portfolio
Composition
Set
forth below is a description of the various types of Municipal Bonds in which the Fund may invest. See “Risks—Investment-Related
Risks—Municipal Bond Risks” for a discussion of the risks associated with the Fund’s investments in Municipal Bonds.
Obligations are included within the term “Municipal Bonds” if the interest paid thereon is excluded from gross income for
U.S. federal income tax purposes in the opinion of bond counsel to the issuer. See also “Use of Leverage—Tender Option Bonds.”
Municipal
Bonds are either general obligation or revenue bonds and typically are issued to finance public projects, such as roads or public buildings,
to pay general operating expenses or to refinance outstanding debt. Municipal Bonds may also be issued for private activities, such as
housing, medical and educational facility construction or for privately owned industrial development and pollution control projects.
General obligation bonds are backed by the full faith and credit and taxing authority of the issuer and may be repaid from any revenue
source. Revenue bonds may be repaid only from the revenues of a specific facility or source. The Fund also may purchase Municipal Bonds
that represent lease obligations. These carry special risks because the issuer of the bonds may not be obligated to appropriate money
annually to make payments under the lease. See “Risks—Investment-Related Risks—Municipal Bond Risks.”
The
Municipal Bonds in which the Fund primarily invests pay interest or income that, in the opinion of bond counsel to the issuer, is exempt
from regular U.S. federal income tax. The Adviser and the Subadviser will not conduct their own analysis of the tax status of the interest
paid by Municipal Bonds held by the Fund, but will rely on the opinion of counsel to the issuer of each such instrument. The Fund may
also invest in Municipal Bonds issued by United States Territories (such as Puerto Rico or Guam) that are exempt from regular U.S. federal
income tax. See “Risks—Investment-Related Risks—Puerto Rico Municipal Bond Risks.” In addition, the Fund may
invest in other securities that pay interest or income that is, or make other distributions that are, exempt from regular U.S. federal
income tax and/or state and local taxes, regardless of the technical structure of the issuer of the instrument. The Fund treats all of
such tax-exempt securities as Municipal Bonds.
The
yields on Municipal Bonds are dependent on a variety of factors, including prevailing interest rates and the condition of the general
money market and the municipal bond market, the size of a particular offering, the maturity of the obligation and the rating of the issuer.
The market value of Municipal Bonds will vary with changes in interest rate levels and as a result of changing evaluations of the ability
of bond issuers to meet interest and principal payments.
General
Obligation Bonds. General obligation bonds are backed by the issuer’s full faith and credit and taxing authority for the payment
of principal and interest. The taxing authority of any governmental entity may be limited, however, by provisions of its state constitution
or laws, and an entity’s creditworthiness will depend on many factors, including potential erosion of its tax base due to population
declines, natural disasters, declines in the state’s industrial base or inability to attract new industries, economic limits on
the ability to tax without eroding the tax base, state legislative proposals or voter initiatives to limit ad valorem real property taxes
(i.e., taxes based upon an assessed value of the property) and the extent to which the entity relies on federal or state aid,
access to capital markets or other factors beyond the state’s or entity’s control. Accordingly, the capacity of the issuer
of a general obligation bond as to the timely payment of interest and the repayment of principal when due is affected by the issuer’s
maintenance of its tax base.
Revenue
Bonds. Revenue bonds are payable only from the revenues derived from a particular facility or class of facilities or, in some cases,
from the proceeds of a special excise tax or other specific revenue sources such as payments from the user of the facility being financed.
Accordingly, the timely payment of interest and the repayment of principal in accordance with the terms of the revenue or special obligation
bond is a function of the economic viability of such facility or such revenue source.
Private
Activity Bonds. Private activity bonds are issued by or on behalf of public authorities to obtain funds to provide privately operated
housing facilities, airport, mass transit or port facilities, sewage disposal, solid waste disposal or hazardous waste treatment or disposal
facilities and certain local facilities for water supply, gas or electricity. Other types of private activity bonds, the proceeds of
which are used for the construction, equipping, repair or improvement of privately operated industrial or commercial facilities, may
constitute Municipal Bonds, although the current U.S. federal income tax laws place substantial limitations on the size of such issues.
Private
activity bonds are secured primarily by revenues derived from loan repayments or lease payments due from the entity, which may or may
not be guaranteed by a parent company or otherwise secured. Private activity bonds generally are not secured by a pledge of the taxing
power of the issuer of such bonds. Therefore, an investor should be aware that repayment of such bonds generally depends on the revenues
of a private entity and be aware of the risks that such an investment may entail. Continued ability of an entity to generate sufficient
revenues for the payment of principal and interest on such bonds will be affected by many factors including the size of the entity, capital
structure, demand for its products or services, competition, general economic conditions, government regulation and the entity’s
dependence on revenues for the operation of the particular facility being financed. The Fund expects that, due to investments in private
activity bonds, a portion of the distributions it makes on the Common Shares will be includable in the federal alternative minimum taxable
income.
Moral
Obligation Bonds. The Fund also may invest in “moral obligation” bonds, which are normally issued by special purpose
public authorities. If an issuer of moral obligation bonds is unable to meet its obligations, the repayment of such bonds becomes a moral
commitment but not a legal obligation of the state or municipality in question.
Municipal
Lease Obligations and Certificates of Participation. Also included within the general category of Municipal Bonds are participations
in lease obligations or installment purchase contract obligations of municipal authorities or entities (hereinafter collectively called
“Municipal Lease Obligations”). Although a Municipal Lease Obligation does not constitute a general obligation of the municipality
for which the municipality’s taxing power is pledged, a Municipal Lease Obligation is ordinarily backed by the municipality’s
covenant to budget for, appropriate and make the payments due under the Municipal Lease Obligation. However, certain Municipal Lease
Obligations contain “non-appropriation” clauses which provide that the municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated for such purpose on a yearly basis. In the case of a “non-appropriation”
lease, a Fund’s ability to recover under the lease in the event of non-appropriation or default will be limited solely to the repossession
of the leased property, without recourse to the general credit of the lessee, and the disposition or re-leasing of the property might
prove difficult. A certificate of participation represents an undivided interest in an unmanaged pool of municipal leases, an installment
purchase agreement or other instruments. The certificates are typically issued by a municipal agency, a trust or other entity that has
received an assignment of the payments to be made by the state or political subdivision under such leases or installment purchase agreements.
In addition, such participations generally provide the Fund with the right to demand payment, on not more than seven days’ notice,
of all or any part of the Fund’s participation interest in the underlying leases, plus accrued interest.
Tobacco
Settlement Bonds. Included in the general category of Municipal Bonds in which the Fund may invest are “tobacco settlement
bonds.” The Fund may invest in tobacco settlement bonds, which are municipal securities that are backed solely by expected revenues
to be derived from lawsuits involving tobacco related deaths and illnesses which were settled between certain states and American tobacco
companies. Tobacco settlement bonds are secured by an issuing state’s proportionate share in the Master Settlement Agreement (“MSA”).
The MSA is an agreement, reached out of court in November 1998 between 46 states and nearly all of the U.S. tobacco manufacturers. The
MSA provides for annual payments in perpetuity by the manufacturers to the states in exchange for releasing all claims against the manufacturers
and a pledge of no further litigation. Tobacco manufacturers pay into a master escrow trust based on their market share, and each state
receives a fixed percentage of the payment as set forth in the MSA. A number of states have securitized the future flow of those payments
by selling bonds pursuant to indentures or through distinct governmental entities created for such purpose. The principal and interest
payments on the bonds are backed by the future revenue flow related to the MSA. Annual payments on the bonds, and thus risk to the Fund,
are highly dependent on the receipt of future settlement payments to the state or its governmental entity. See “Risks—Investment-Related
Risks—Tobacco Settlement Bond Risks.”
Zero
Coupon Bonds. The Fund may invest in zero-coupon bonds. A zero coupon bond is a bond that does not pay interest either for the entire
life of the obligation or for an initial period after the issuance of the obligation. When held to its maturity, its return comes from
the difference between the purchase price and its maturity value. A zero coupon bond is normally issued and traded at a deep discount
from face value. Zero coupon bonds allow an issuer to avoid or delay the need to generate cash to meet current interest payments and,
as a result, may involve greater credit risk than bonds that pay interest currently or in cash. The market prices of zero coupon bonds
are affected to a greater extent by changes in prevailing levels of interest rates and thereby tend to be more volatile in price than
securities that pay interest periodically. In addition, the Fund would be required to distribute the income on any of these instruments
as it accrues, even though the Fund will not receive all of the income on a current basis or in cash. Thus, the Fund may have to sell
other investments, including when it may not be advisable to do so, to make income distributions to its common shareholders.
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Risk Factors [Table Text Block] |
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RISKS
Investing
in any investment company security involves risk, including the risk that you may receive little or no return on your investment or even
that you may lose part or all of your investment. This section discusses the principal risk factors of the Fund. You should carefully
consider these risks and uncertainties as well as the other information described in this Prospectus and in any applicable prospectus
supplement before you decide whether to invest in the Fund. In addition, the SAI contains further information regarding the risks associated
with an investment in the Fund. The risks in these documents are not the only risks that the Fund may face, and the Fund may face other
risks that we have not yet identified, which we do not currently deem material or which are not yet predictable. If any of these risks
occur, the Fund’s business, financial condition and results of operations could be materially adversely affected. In such case,
the Fund’s NAV and the trading price of its securities could decline, and you may lose all or part of your investment.
Investment-Related
Risks:
With
the exception of Underlying Fund risk (and except as otherwise noted below), the following risks apply to the direct investments the
Fund may make, and generally apply to the Fund’s investments in Underlying Funds. That said, each risk described below may not
apply to each Underlying Fund.
Investment
and Market Risks
An
investment in Common Shares is subject to investment risk, including the possible loss of the entire principal amount invested. An investment
in Common Shares represents an indirect investment in the Underlying Funds owned by the Fund. The value of the Fund or the Underlying
Funds, like other market investments, may move up or down, sometimes rapidly and unpredictably. Overall stock market risks may also affect
the NAV of the Fund or the Underlying Funds. Factors such as economic growth and market conditions, interest rate levels and political
events affect the securities markets. The Common Shares at any point in time may be worth less than the original investment, even after
taking into account any reinvestment of dividends and distributions.
Management
Risks
The
Adviser’s and the Subadviser’s judgments about the attractiveness, value and potential appreciation of a particular asset
class or individual security in which the Fund invests may prove to be incorrect and there is no guarantee that the Adviser’s or
the Subadviser’s judgment, as applicable, will produce the desired results. Similarly, the Fund’s investments in Underlying
Funds are subject to the judgment of the Underlying Funds’ managers which may prove to be incorrect. In addition, the Adviser and
Subadviser will have limited information as to the portfolio holdings of the Underlying Funds at any given time. This may result in the
Adviser and Subadviser having less ability to respond to changing market conditions. The Fund may allocate its assets so as to under-emphasize
or over-emphasize its investments under the wrong market conditions, in which case the Fund’s NAV may be adversely affected.
In
addition, the Fund depends on the diligence, skill and business contacts of the investment professionals of the Adviser and the Subadviser
to achieve the Fund’s investment objectives. In particular, the Adviser and Subadviser are dependent upon the expertise of their
respective portfolio management teams to implement the Fund’s strategies. If the Adviser or the Subadviser were to lose the services
of one or more key individuals, including members of their portfolio management teams, each may not be able to hire qualified replacements
or may require an extended time to do so. This could prevent the Fund from achieving its investment objectives and could have an adverse
effect on an investment in the Fund.
The
Adviser and the Subadviser each manage several registered open-end funds and closed-end funds, and the portfolio managers have previous
experience managing closed-end funds. As with any managed fund, the Adviser and Subadviser may not be successful in selecting the best
performing securities, leverage strategy or investment techniques, and the Fund’s performance may lag behind that of similar funds
as a result.
Securities
Risks
The
value of the Fund or an Underlying Fund may decrease in response to the activities and financial prospects of individual securities in
the fund’s portfolio.
Municipal
Bond Risks
Economic
exposure to Municipal Bonds involves certain risks. The Fund’s economic exposure to Municipal Bonds includes Municipal Bonds in
the Fund’s portfolio and Municipal Bonds to which the Fund is exposed through Underlying Funds and the ownership of TOB Residuals.
The municipal market is one in which dealer firms make markets in bonds on a principal basis using their proprietary capital, and at
times these firms’ capital may be severely constrained. In such event, some firms may be unwilling to commit their capital to purchase
and to serve as a dealer for Municipal Bonds. Municipal Bonds typically are not registered with the SEC or any state securities commission
and will not be listed on any national securities exchange. The amount of public information available about the Municipal Bonds to which
the Fund is economically exposed is generally less than that for corporate equities or bonds, and the investment performance of the Fund
may therefore be more dependent on the analytical abilities of the Adviser and the Subadviser than would be a stock fund or taxable bond
fund. The secondary market for Municipal Bonds, particularly non-investment grade bonds, also tends to be less well-developed or liquid
than many other securities markets, which may adversely affect the ability to sell such bonds at attractive prices or at prices approximating
those at which the Fund and Underlying Funds currently value them.
In
addition, many state and municipal governments that issue securities are under significant economic and financial stress and may not
be able to satisfy their obligations. The ability of municipal issuers to make timely payments of interest and principal may be diminished
during general economic downturns and as governmental cost burdens are reallocated among Federal, state and local governments. The COVID-19
pandemic significantly stressed the financial resources of many municipalities and other issuers of municipal securities, which may impair
their ability to meet their financial obligations and may harm the value or liquidity of the Fund’s investments in municipal securities.
In particular, responses by municipalities to the COVID-19 pandemic have caused disruptions in business activities. These and other effects
of the COVID-19 pandemic, such as increased unemployment levels, have impacted tax and other revenues of municipalities and other issuers
of municipal securities and the financial conditions of such issuers. As a result, there is increased budgetary and financial pressure
on municipalities and heightened risk of default or other adverse credit or similar events for issuers of municipal securities, which
would adversely impact the Fund’s investments. See “—Market Disruption, Geopolitical, Pandemic and Climate Change Risks.”
In addition, the taxing power of any governmental entity may be limited by provisions of state constitutions or other laws, and an entity’s
credit generally will depend on many factors, including the entity’s tax base, the extent to which the entity relies on Federal
or state aid, and other factors which are beyond the entity’s control. In addition, laws enacted in the future by Congress or state
legislatures or referenda could extend the time for payment of principal and/or interest, or impose other constraints on enforcement
of such obligations, or on the ability of municipalities to levy taxes or could limit the tax exemption of certain types of Municipal
Bonds that the Fund and Underlying Funds may invest in. Issuers of Municipal Bonds might seek protection under the bankruptcy laws. In
the event of bankruptcy of such an issuer, holders of Municipal Bonds could experience delays in collecting principal and interest and
such holders may not, in all circumstances, be able to collect all principal and interest to which they are entitled. To enforce its
rights in the event of a default in the payment of interest or repayment of principal, or both, the Fund may, in certain circumstances,
take possession of and manage the assets securing the issuer’s obligations on such securities, which may increase the Fund’s
operating expenses. Any income derived from the Fund’s ownership or operation of such assets may not be tax-exempt.
General
obligation bonds are obligations involving the credit of an issuer possessing taxing power and are payable from such issuer’s general
revenues and not from any particular source. Timely payments depend on the issuer’s credit quality, ability to raise tax revenues
and the ability to maintain an adequate tax base. The timely payments may also be influenced by any unfunded pension liabilities or other
post-employee benefit plan liabilities.
Revenue
bonds involve special risks, including that the underlying facilities may not generate sufficient income to pay expenses and interest
costs. In the case of revenue bonds issued by state and local agencies to finance the development of low-income, multi-family housing,
such bonds are generally non-recourse against the property owner, may be junior to the rights of others with an interest in the properties,
may pay interest that changes based in part on the financial performance of the property, may be prepayable without penalty and may be
used to finance the construction of housing developments which, until completed and rented, do not generate income to pay interest. Increases
in interest rates payable on senior obligations may make it more difficult for issuers to meet payment obligations on subordinated bonds.
The
Fund may be more sensitive to adverse economic, business or political developments if it invests a substantial portion of its assets
in the bonds of specific projects (such as those relating to education, health care, housing, transportation, and utilities), industrial
development bonds, or general obligation bonds, particularly if there is a large concentration from issuers in a single state. This is
because the value of Municipal Bonds can be significantly affected by the political, economic, legal, and legislative realities of the
particular issuer’s locality or municipal sector events. Similarly, changes to state or federal regulation tied to a specific sector,
such as the hospital sector, could have an impact on the revenue stream for a given subset of the market.
Municipal
leases and certificates of participation involve special risks not normally associated with general obligation or revenue bonds. Leases
and installment purchase or conditional sale contracts (which normally provide for title to the leased asset to pass eventually to the
governmental issuer) have evolved as a means for governmental issuers to acquire property and equipment without meeting the constitutional
and statutory requirements for the issuance of debt. The debt issuance limitations are deemed to be inapplicable because of the inclusion
in many leases or contracts of “non-appropriation” clauses that relieve the governmental issuer of any obligation to make
future payments under the lease or contract unless money is appropriated for such purpose by the appropriate legislative body on a yearly
or other periodic basis. In addition, such leases or contracts may be subject to the temporary abatement of payments in the event that
the governmental issuer is prevented from maintaining occupancy of the lease premises or utilizing the leased equipment. Although the
obligations may be secured by the leased equipment or facilities, the disposition of the property in the event of non-appropriation or
foreclosure might prove difficult, time consuming and costly, and may result in a delay in recovering or the failure to fully recover
ownership of the assets.
Certificates
of participation, which represent interests in unmanaged pools of municipal leases or installment contracts, involve the same risks as
the underlying municipal leases. In addition, the Fund may be dependent upon the municipal authority issuing the certificate of participation
to exercise remedies with respect to the underlying securities. Certificates of participation also entail a risk of default or bankruptcy,
both of the issuer of the municipal lease and also the municipal agency issuing the certificate of participation.
Municipalities
and other public authorities issue private activity bonds to finance development of facilities for use by a private enterprise, which
is solely responsible for paying the principal and interest on the bond. Moral obligation bonds are generally issued by special purpose
public authorities of a state or municipality. If the issuer is unable to meet its obligations, repayment of these bonds becomes a moral
commitment, but not a legal obligation, of the state or municipality.
To
be tax-exempt, Municipal Bonds must meet certain regulatory requirements. If a Municipal Bond fails to meet such requirements, the interest
received by the Fund from its investment in such bonds and distributed to shareholders may be taxable. It is possible that interest on
a Municipal Bond may be declared taxable after the issuance of the bond, and this determination may apply retroactively to the date of
the issuance of the bond, which could cause a portion of prior distributions made by the Fund to be taxable to shareholders in the year
of receipt.
Municipal
bonds are also subject to interest rate, credit, and liquidity risk, which are discussed generally elsewhere in this section.
State
Specific and Industry Risk
The
Fund may not directly invest more than 25% of its Managed Assets in Municipal Bonds in any one industry or in any one state of origin.
However, the Fund’s overall exposure to a single industry or a single state of origin may be greater after factoring in the investments
of the Underlying Funds, in which case the Fund may be more susceptible to adverse economic, political or regulatory occurrences affecting
that particular state or industry. For example, the Fund may invest, under normal market conditions, up to 35% of the Managed Assets
allocated to the Tactical Municipal Closed-End Fund Strategy in single state municipal closed-end funds and such investments could increase
the Fund’s overall exposure to a particular single state. To the extent that the Fund is aware of the investments held by the Underlying
Funds, the Fund will consider such information when determining compliance with its fundamental policy relating to industry concentration
as described in the SAI. See “Investment Restrictions” in the Fund’s SAI.
Puerto
Rico Municipal Bond Risks
The
Fund may invest directly, without limit, in Puerto Rico Municipal Bonds, subject to the industry, issuer and below investment grade investment
restrictions under the Municipal Bond Income Strategy, as applicable. Municipal obligations issued by the Commonwealth of Puerto Rico
or its political subdivisions, agencies, instrumentalities, or public corporations may be affected by economic, market, political, and
social conditions in Puerto Rico. Puerto Rico currently is experiencing significant fiscal and economic challenges, including substantial
debt service obligations, high levels of unemployment, underfunded public retirement systems, and persistent government budget deficits.
These challenges may negatively affect the value of the Fund’s investments in Puerto Rico Municipal Bonds. Major ratings agencies
have downgraded the general obligation debt of Puerto Rico to below investment grade and continue to maintain a negative outlook for
this debt, which increases the likelihood that the rating will be lowered further. In both August 2015 and January 2016, Puerto Rico
defaulted on its debt by failing to make full payment due on its outstanding bonds, and there can be no assurance that Puerto Rico will
be able to satisfy its future debt obligations. Further downgrades or defaults may place additional strain on the Puerto Rico economy
and may negatively affect the value, liquidity, and volatility of the Fund’s investments in Puerto Rico Municipal Bonds. Legislation
could also impact the value of the Fund’s investments in Puerto Rico Municipal Bonds.
These
challenges and uncertainties have been exacerbated by Hurricane Maria, and subsequent hurricanes and storms, and the resulting natural
disaster in Puerto Rico. In September 2017, Hurricane Maria struck Puerto Rico, causing major damage across the Commonwealth, including
damage to its water, power, and telecommunications infrastructure. The length of time needed to rebuild Puerto Rico’s infrastructure
is unclear, but could amount to years, during which the Commonwealth is likely to be in an even more uncertain economic state. The full
extent of the natural disaster’s impact on Puerto Rico’s economy and foreign investment in Puerto Rico is difficult to estimate.
Tobacco
Settlement Bond Risks
The
Fund may invest directly, without limit, in tobacco settlement bonds, subject to the industry, issuer and below investment grade investment
restrictions under the Municipal Bond Income Strategy, as applicable. Annual payments on tobacco settlement bonds, and thus risk to the
Fund, are highly dependent on the receipt of future settlement payments to the state or its governmental entity pursuant to the MSA.
The actual amount of future settlement payments is further dependent on many factors, including, but not limited to, annual domestic
cigarette shipments, reduced cigarette consumption, increased taxes on cigarettes, inflation, financial capability of tobacco companies,
continuing litigation and the possibility of tobacco manufacturer bankruptcy. The initial and annual payments made by the tobacco companies
will be adjusted based on a number of factors, the most important of which is domestic cigarette consumption. If the volume of cigarettes
shipped in the U.S. by manufacturers participating in the settlement decreases significantly, payments due from them will also decrease.
Demand for cigarettes in the U.S. could continue to decline due to price increases needed to recoup the cost of payments by tobacco companies.
Demand could also be affected by: anti-smoking campaigns, tax increases, reduced advertising, enforcement of laws prohibiting sales to
minors; elimination of certain sales venues such as vending machines; the spread of local ordinances restricting smoking in public places,
and competition from e-cigarettes. As a result, payments made by tobacco manufacturers could be negatively impacted if the decrease in
tobacco consumption is significantly greater than the forecasted decline. A market share loss by the MSA companies to non-MSA participating
tobacco manufacturers would cause a downward adjustment in the payment amounts. A participating manufacturer filing for bankruptcy also
could cause delays or reductions in bond payments. The MSA itself has been subject to legal challenges and has, to date, withstood those
challenges.
Credit
and Below Investment Grade Securities Risks
Credit
risk is the risk that an issuer of a security may be unable or unwilling to make dividend, interest and principal payments when due and
the related risk that the value of a security may decline because of concerns about the issuer’s ability or willingness to make
such payments. Credit risk may be heightened for the Fund because it and the Underlying Funds may invest in below investment grade securities,
which are commonly referred to as “junk” and “high yield” securities; such securities, while generally offering
the potential for higher yields than investment grade securities with similar maturities, involve greater risks, including the possibility
of dividend or interest deferral, default or bankruptcy, and are regarded as predominantly speculative with respect to the issuer’s
capacity to pay dividends or interest and repay principal. The below investment grade securities receiving the lowest rating from an
NRSRO are typically already in default. In addition, below investment grade securities are generally susceptible to decline in market
value due to adverse economic and business developments and are often unsecured and subordinated to other creditors of the issuer. The
market values for below investment grade securities tend to be very volatile, and these securities are generally less liquid than investment
grade securities. Because of the substantial risks associated with below investment grade securities, among other factors, you could
lose money on your investment in Common Shares, both in the short term and the long term. See “Investment Policies and Techniques—Below
Investment Grade Securities” in the SAI for additional discussion of below investment grade securities risks. See also “—Defaulted
and Distressed Securities Risk.”
Interest
Rate Risk
Generally,
when market interest rates rise, bond prices fall, and vice versa. Interest rate risk is the risk that the municipal securities in the
Fund’s portfolio will decline in value because of increases in market interest rates. As interest rates decline, issuers of municipal
securities may prepay principal earlier than scheduled, forcing the Fund to reinvest in lower-yielding securities and potentially reducing
the Fund’s income. As interest rates increase, slower than expected principal payments may extend the average life of securities,
potentially locking in a below-market interest rate and reducing the Fund’s value. In typical market interest rate environments,
the prices of longer-term municipal securities generally fluctuate more than prices of shorter-term municipal securities as interest
rates change.
Interest
rates in the United States and many other countries have risen in recent periods and may continue to rise in the future. Additionally,
as a result of increasing interest rates, reserves held by banks and other financial institutions in bonds and other debt securities
could face a significant decline in value relative to deposits and liabilities, which coupled with general economic headwinds resulting
from a changing interest rate environment, creates liquidity pressures at such institutions, as evidenced by the bank run on the Silicon
Valley Bank Financial Group (“SVB”) causing it to be placed into receivership. As a result, certain sectors of the credit
markets could experience significant declines in liquidity, and it is possible that the Fund (or an Investment Fund) will not be able
to manage this risk effectively. It is yet to be determined how the bank run on SVB will fully impact the overall performance of the
Fund or one or more of its portfolio investments and how similar events may affect the ability of the Fund to execute its investment
strategy.
To
the extent the Fund is primarily exposed to longer-term Municipal Bonds, the Common Share NAV and market price per Common Share will
fluctuate more in response to changes in market interest rates than if the Fund invested primarily in shorter-term Municipal Bonds.
In
comparison to maturity (which is the date on which a debt instrument ceases and the issuer is obligated to repay the principal amount),
duration is a measure of the price volatility of a debt instrument as a result of changes in market rates of interest, based on the weighted
average timing of the instrument’s expected principal and interest payments. Duration differs from maturity in that it considers
a security’s yield, coupon payments, principal payments and call features, in addition to the amount of time until the security
finally matures. As the value of a security changes over time, so will its duration. Prices of securities with longer durations tend
to be more sensitive to interest rate changes than securities with shorter durations. In general, a portfolio of securities with a longer
duration can be expected to be more sensitive to interest rate changes than a portfolio with a shorter duration. For example, the price
of a bond with an effective duration of two years will rise (fall) two percent for every one percent decrease (increase) in its yield,
and the price of a five-year duration bond will rise (fall) five percent for a one percent decrease (increase) in its yield.
If
increasing interest rates slow principal payments and thus extend the average life of securities held by the Fund, this increase in duration
will make the Fund more sensitive to the effect of rising rates and may cause the principal value of the Fund’s holdings to decline
more than they would in the absence of such an increase in duration.
Yield
curve risk is the risk associated with either a flattening or steepening of the yield curve, which is a result of changing yields among
comparable bonds with different maturities. When market interest rates, or yields, increase, the price of a bond will decrease and vice
versa. When the yield curve shifts, the price of the bond, which was initially priced based on the initial yield curve, will change in
price. If the yield curve flattens, then the yield spread between long- and short-term interest rates narrows, and the price of the bond
will change accordingly. If the bond is short-term and the yield decreases, the price of this bond will increase. If the yield curve
steepens, this means that the spread between long- and short-term interest rates increases. Therefore, long-term bond prices will decrease
relative to short-term bonds. Changes in the yield curve are based on bond risk premiums and expectations of future interest rates.
The
Common Share NAV and market price per Common Share will fluctuate more in response to changes in market interest rates when the Fund
has higher exposure to long-term Municipal Bonds than short-term Municipal Bonds. Because the values of lower-rated and comparable unrated
debt securities are affected both by credit risk and interest rate risk, the price movements of such lower grade securities in response
to changes in interest rates typically have not been highly correlated to the fluctuations of the prices of investment grade quality
securities in response to changes in market interest rates.
LIBOR
Risk
Certain
of the Fund’s or Underlying Funds’ investments, payment obligations and financing terms may be based on floating rates, such
as LIBOR, Euro Interbank Offered Rate and other similar types of reference rates. In July of 2017, the head of the United Kingdom Financial
Conduct Authority (“FCA”) announced a desire to phase out the use of LIBOR at the end of 2021. Most LIBOR settings are no
longer published as of December 31, 2021. Overnight and 12-month U.S. dollar LIBOR settings permanently ceased after publication on June
30, 2021. 1-, 3- and 6-month U.S. dollar LIBOR settings will continue to be published using a synthetic methodology until September 2024.
Neither the effect of the LIBOR transition process nor its ultimate success can yet be known. Although the transition away from LIBOR
has become increasingly well-defined, any potential effects of the transition away from LIBOR and other benchmark rates on financial
markets, a fund or the financial instruments in which a fund invests can be difficult to ascertain. Not all existing LIBOR-based instruments
may have alternative rate-setting provisions and there remains uncertainty regarding the willingness and ability of issuers to add alternative
rate-setting provisions in certain existing instruments. Global regulators have advised market participants to cease entering into new
contracts using LIBOR as a reference rate, and it is possible that investments in LIBOR-based instruments could invite regulatory scrutiny.
In addition, a liquid market for newly-issued instruments that use a reference rate other than LIBOR still may be developing. All of
the aforementioned may adversely affect the Fund’s or an Underlying Fund’s performance or NAV.
SOFR
Risk
SOFR
is intended to be a broad measure of the cost of borrowing funds overnight in transactions that are collateralized by U.S. Treasury securities.
SOFR is calculated based on transaction-level repo data collected from various sources. For each trading day, SOFR is calculated as a
volume-weighted median rate derived from such data. SOFR is calculated and published by the Federal Reserve Bank of New York (“FRBNY”).
If data from a given source required by the FRBNY to calculate SOFR is unavailable for any day, then the most recently available data
for that segment will be used, with certain adjustments. If errors are discovered in the transaction data or the calculations underlying
SOFR after its initial publication on a given day, SOFR may be republished at a later time that day. Rate revisions will be effected
only on the day of initial publication and will be republished only if the change in the rate exceeds one basis point.
Because
SOFR is a financing rate based on overnight secured funding transactions, it differs fundamentally from LIBOR. LIBOR was intended to
be an unsecured rate that represents interbank funding costs for different short-term maturities or tenors. It was a forward-looking
rate reflecting expectations regarding interest rates for the applicable tenor. Thus, LIBOR was intended to be sensitive, in certain
respects, to bank credit risk and to term interest rate risk. In contrast, SOFR is a secured overnight rate reflecting the credit of
U.S. Treasury securities as collateral. Thus, it is largely insensitive to credit-risk considerations and to short-term interest rate
risks. SOFR is a transaction-based rate, and it has been more volatile than other benchmark or market rates, such as three-month LIBOR,
during certain periods. For these reasons, among others, there is no assurance that SOFR, or rates derived from SOFR, will perform in
the same or similar way as LIBOR would have performed at any time, and there is no assurance that SOFR-based rates will be a suitable
substitute for LIBOR. SOFR has a limited history, having been first published in April 2018. The future performance of SOFR, and SOFR-based
reference rates, cannot be predicted based on SOFR’s history or otherwise. Levels of SOFR in the future, including following the
discontinuation of LIBOR, may bear little or no relation to historical levels of SOFR, LIBOR or other rates.
Inflation/Deflation
Risk
Inflation
risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the value
of money. As inflation increases, the real value of the Common Shares and distributions can decline. In addition, during any period of
rising inflation, interest rates on borrowings would likely increase, which would tend to further reduce returns to Common Shareholders.
Deflation risk is the risk that prices throughout the economy decline over time–the opposite of inflation. Deflation may have an
adverse effect on the creditworthiness of issuers and may make issuer defaults more likely, which may result in a decline in the value
of the Fund’s portfolio.
Tactical
Municipal Closed-End Fund Strategy Risk
The
Fund invests in closed-end funds as a principal part of the Tactical Municipal Closed-End Fund Strategy. Shares of closed-end funds listed
for trading on a securities exchange frequently trade at a price per share that is less than the NAV per share, the difference representing
the “market discount” of such shares. The market price of such shares may be affected by factors such as NAV, dividend or
distribution levels and their stability (which will in turn be affected by levels of dividend and interest payments by the closed-end
fund’s portfolio holdings, the timing and success of the closed-end fund’s investment strategies, regulations affecting the
timing and character of fund distributions, fund expenses and other factors), supply of and demand for the shares, trading volume of
the shares, general market, interest rate and economic conditions and other factors beyond the control of the closed-end fund.
In
addition, a market discount may be due in part to the investment objective of long-term appreciation, which is sought by many closed-end
funds, as well as to the fact that the shares of closed-end funds are not redeemable by the holder upon demand to the issuer at the next
determined NAV but, rather, are subject to supply and demand in the secondary market.
The
Fund may invest in shares of closed-end funds that are trading at a discount to NAV or at a premium to NAV. There can be no assurance
that the market discount on shares of any closed-end fund purchased by the Fund will ever decrease. In fact, it is possible that this
market discount may increase and the Fund may suffer realized or unrealized capital losses due to further decline in the market price
of the securities of such closed-end funds, thereby adversely affecting the NAV of the Fund’s Common Shares. Similarly, there can
be no assurance that any shares of a closed-end fund purchased by the Fund at a premium will continue to trade at a premium or that the
premium will not decrease subsequent to a purchase of such shares by the Fund.
Underlying
Fund Risks
The
Fund will incur higher and additional expenses when it invests in Underlying Funds. There is also the risk that the Fund may suffer losses
due to the investment practices or operations of the Underlying Funds. To the extent that the Fund invests in one or more Underlying
Funds that concentrate in a particular industry or state, the Fund would be vulnerable to factors affecting that industry or state and
the concentrating Underlying Funds’ performance, and that of the Fund, may be more volatile than Underlying Funds that do not concentrate.
As
the Fund will invest at least a portion of its Managed Assets in closed-end funds and ETFs, the Fund’s performance will depend
to a greater extent on the overall performance of investment companies generally, in addition to the performance of the specific Underlying
Funds (and other assets) in which the Fund invests. The use of leverage by Underlying Funds magnifies gains and losses on amounts invested
and increases the risks associated with investing in Underlying Funds. Further, the Underlying Funds are not subject to the Fund’s
investment policies and restrictions. The Fund generally receives information regarding the portfolio holdings of Underlying Funds only
when that information is made available to the public. The Fund cannot dictate how the Underlying Funds invest their assets. In addition,
one Underlying Fund may purchase a security that another Underlying Fund is selling. The Underlying Funds may invest their assets in
securities and other instruments, and may use investment techniques and strategies, that are not described in this Prospectus, and there
is risk that the Underlying Funds may not be in compliance with their investment policies and strategies, including their policy to invest
at least 80% of their assets in Municipal Bonds which, in turn, could result in the Fund’s non-compliance with its own investment
policies. Because the Fund expects that most of the Underlying Funds will publish their portfolio holdings only at intervals, and then
only after some delay, the Fund will generally not know for certain the current holdings of the Underlying Funds.
Common
Shareholders will bear two layers of fees and expenses with respect to the Fund’s investments in Underlying Funds because each
of the Fund and the Underlying Fund will charge fees and incur separate expenses. If those Underlying Funds use leverage, that will likely
increase the amount of fees that the Fund, as an investor in the Underlying Funds, will pay. See “Summary of Fund Expenses”
for a further description of such fees and their impact on the expenses of the Fund. In addition, subject to applicable 1940 Act limitations,
the Underlying Funds themselves may purchase securities issued by registered and unregistered funds (e.g., common stock and preferred
stock), and those investments would be subject to the risks associated with Underlying Funds and unregistered funds (including a third
layer of fees and expenses, i.e., the Underlying Fund will indirectly bear fees and expenses charged by the funds in which the
Underlying Fund invests, in addition to the Underlying Fund’s own fees and expenses). The Fund’s investment in an Underlying
Fund also may result in the Fund’s receipt of cash in excess of the Underlying Fund’s earnings; if the Fund distributes these
amounts, the distributions could constitute a return of capital to Fund shareholders for federal income tax purposes but may be characterized
as a dividend if the Fund has earnings from other sources. As a result of these factors, the use of the fund of funds structure by the
Fund could therefore affect the amount, timing and character of distributions to shareholders.
As
may be the case with the Fund, the shares of many closed-end funds in which the Fund may invest frequently trade after their initial
public offering at a price per share that is less than the NAV per share, the difference representing the “market discount”
of such shares. This market discount may be due in part to the investment objective of long-term appreciation, which is sought by many
closed-end funds, as well as to the fact that the shares of closed-end funds are not redeemable by the holder upon demand to the issuer
at the next determined NAV, but rather, are subject to supply and demand in the secondary market. A relative lack of secondary market
purchasers of closed-end fund shares also may contribute to such shares trading at a discount to their NAV.
The
Fund may invest in shares of closed-end funds that are trading at a discount to NAV or at a premium to NAV. There can be no assurance
that the market discount on shares of any closed-end fund purchased by the Fund will ever decrease. In fact, it is possible that this
market discount may increase and the Fund may suffer realized or unrealized capital losses due to further decline in the market price
of the securities of such closed-end funds, thereby adversely affecting the NAV of the Fund’s shares. Similarly, there can be no
assurance that any shares of a closed-end fund purchased by the Fund at a premium will continue to trade at a premium or that the premium
will not decrease subsequent to a purchase of such shares by the Fund.
Closed-end
funds may issue senior securities (including preferred stock and debt obligations) for the purpose of leveraging the closed-end fund’s
common shares in an attempt to enhance the current return to such closed-end fund’s common shareholders. The Fund’s investment
in the common shares of closed-end funds that are financially leveraged may create an opportunity for greater total return on its investment,
but in a down market may increase the size and speed of losses. Thus, leveraged funds may be expected to exhibit more volatility in market
price and NAV than an investment in shares of investment companies without a leveraged capital structure. Since the Fund may use leverage
to invest in other funds that are leveraged, the effect of gains and losses in the other funds may be compounded, especially when events
occur that may broadly affect the market for municipal securities. In addition, the Fund may invest in such senior securities issued
by closed-end funds, including auction rate municipal securities and auction rate preferred securities. In recent market environments,
auctions have failed, which adversely affects the liquidity and price of auction rate securities, and are unlikely to resume. Provided
that the auction mechanism is successful, auction rate securities usually permit the holder to sell the securities in an auction at par
value at specified intervals. The dividend is reset by “Dutch” auction in which bids are made by broker-dealers and other
institutions for a certain amount of securities at a specified minimum yield. The dividend rate set by the auction is the lowest interest
or dividend rate that covers all securities offered for sale. While this process is designed to permit auction rate securities to be
traded at par value, there is a risk that an auction will fail due to insufficient demand for the securities. Moreover, between auctions,
there may be no secondary market for these securities, and sales conducted on a secondary market may not be on terms favorable to the
seller. Auction rate securities may be called by the issuer. Thus, with respect to liquidity and price stability, auction rate securities
may differ substantially from cash equivalents, notwithstanding the frequency of auctions and the credit quality of the security. The
Fund’s investments in auction rate securities of closed-end funds are subject to the limitations prescribed by the 1940 Act.
ETFs
may trade at a price above (premium) or below (discount) their NAV, especially during periods of significant market volatility or stress,
which could cause investors to pay significantly more or less for ETF shares than the value of the ETF’s underlying portfolio.
Certain ETFs traded on exchanges may be thinly traded and experience large spreads between the “ask” price quoted by a seller
and the “bid” price offered by a buyer. While the creation/redemption feature is designed to make it likely that ETF shares
normally will trade close to their NAVs, market prices are not expected to correlate exactly to the shares’ NAVs due to timing
reasons, supply and demand imbalances and other factors. In addition, disruptions to creations and redemptions, adverse developments
impacting market makers, authorized participants or other market participants, high market volatility or lack of an active trading market
for an ETF’s shares (including through a trading halt) may result in market prices that differ significantly from an ETF’s
NAV or to the intraday value of the ETF’s holdings. An active trading market for shares of an ETF may not develop or be maintained.
When all or a portion of an ETF’s underlying securities trade in a foreign market that is closed during the time the domestic market
in which the ETF’s shares are listed and traded is open, there may be changes between the last quote from the closed foreign market
and the value of such underlying security during the ETF’s trading day. In times of market stress, market makers or authorized
participants may step away from their respective roles in making a market in shares of the ETF and in executing purchase or redemption
orders. During such times, the ETF’s shares may trade at a wider than normal discount or premium and may possibly face trading
halts. Additionally, the underlying securities of an ETF may be traded outside of a collateralized settlement system, such as the National
Securities Clearing Corporation, a clearing agency that is registered with the SEC. There are a limited number of financial institutions
that may act as authorized participants that post collateral for certain trades on an agency basis. To the extent that these authorized
participants exit the business or are unable to proceed with creation and/or redemption orders with the ETF, and no other authorized
participant is able to step forward, ETF shares may trade at a discount to NAV and possibly face trading halts and/or delisting. Additionally,
in stressed market conditions, the market for ETF shares may become less liquid in response to deteriorating liquidity in the markets
for such ETF’s underlying portfolio holdings, which may cause the shares of the ETF to trade at a wider than normal discount or
premium. Furthermore, purchases and redemptions of creation units primarily in cash rather than in-kind may cause an ETF to incur certain
costs, such as brokerage costs, taxable gains or other losses that it may not have incurred with an in-kind purchase or redemption. These
costs may be borne by the ETF and decrease the ETF’s NAV to the extent they are not offset by a transaction fee payable by an authorized
participant.
Index-based
ETFs (and other index funds) in which the Fund may invest may not be able to replicate exactly the performance of the indices they track
due to transaction costs and other expenses of the ETFs. The Fund may also invest in actively managed ETFs that are subject to management
risk as the ETF’s investment adviser will apply certain investment techniques and risk analyses in making investment decisions.
There can be no guarantee that these will produce the desired results.
The
Fund’s investments in Underlying Funds may be restricted by certain provisions of the 1940 Act. Under Section 12(d)(1)(A) of the
1940 Act, the Fund may hold securities of an Underlying Fund in amounts which (i) do not exceed 3% of the total outstanding voting stock
of the Underlying Fund, (ii) do not exceed 5% of the value of the Fund’s total assets and (iii) when added to all other Underlying
Fund securities held by the Fund, do not exceed 10% of the value of the Fund’s total assets. Under Section 12(d)(1)(C) of the 1940
Act, the Fund, together with any other investment companies for which the Adviser acts as an investment adviser, may not, in the aggregate,
own more than 10% of the total outstanding voting stock of a registered closed-end investment company. Section 12(d)(1)(F) of the 1940
Act provides that the limitations of Section 12(d)(1) described above shall not apply to securities purchased or otherwise acquired by
the Fund if (i) immediately after such purchase or acquisition not more than 3% of the total outstanding stock of such Underlying Fund
is owned by the Fund and all affiliated persons of the Fund, and (ii) certain requirements are met with respect to sales charges. In
addition, Rule 12d1-4 under the 1940 Act (“Rule 12d1-4”), effective as of January 19, 2022, permits the Fund to invest in
Underlying Funds beyond the limitations of Section 12(d)(1) described above, subject to various conditions, including that the Fund enter
into an investment agreement with the Underlying Fund (which agreements may impose additional conditions on the Fund). In matters upon
which the Fund is solicited to vote as a shareholder of an Underlying Fund, the Adviser may be required to vote Underlying Fund shares
in the same proportion as shares held by other shareholders of the Underlying Fund.
ESG
Considerations Risk
While
the Subadviser may consider ESG factors it deems relevant or additive when making investment decisions under the Municipal Bond Income
Strategy, ESG characteristics are not a primary focus of the Fund. The Fund does not seek to implement a specific “ESG,”
“impact” or “sustainability” policy. The Fund may invest in issuers that do not reflect beliefs or values with
respect to ESG of any particular investor. While the Fund views ESG considerations as having the potential to contribute to the Fund’s
long-term performance, there is no guarantee that such results will be achieved.
To
the extent the Subadviser makes an investment decision based in part on ESG characteristics, it may select investments, or forgo investment
opportunities, in individual securities and/or sectors of securities for non-investment reasons, which could cause the Fund to underperform
funds that do not consider “ESG,” “impact” or “sustainability” criteria. ESG-focused investments
and strategies may, at times, be subject to a higher degree of volatility than non-ESG-focused investments and strategies. ESG information
and data, including that provided by third parties, may be incomplete, inaccurate or unavailable, which could adversely affect the analysis
of the ESG factors relevant to a particular investment. The Subadviser’s assessment of an investment’s ESG impact may change
over time, which may cause the Fund to hold a security or sell a security when it might otherwise be disadvantageous to do so. Views
on ESG, sustainability and positive social and environmental outcomes may differ by fund, adviser and investor. In addition, issuers
and sectors that meet the ESG criteria may shift into and out of favor depending on market and economic conditions. Certain bonds in
which the Fund invests may be dependent on government incentives and subsidies, and lack of political support for the financing of projects
with a positive environmental or social impact could negatively impact the performance of the Fund.
Defaulted
and Distressed Securities Risks
The
Fund and the Underlying Funds may invest in defaulted and distressed securities. Legal difficulties and negotiations with creditors and
other claimants are common when dealing with defaulted or distressed issuers. Defaulted or distressed issuers may be insolvent, in bankruptcy
or undergoing some other form of financial restructuring. In the event of a default, the Fund or an Underlying Fund may incur additional
expenses to seek recovery. The repayment of defaulted bonds is subject to significant uncertainties, and in some cases, there may be
no recovery of repayment. Defaulted bonds might be repaid only after lengthy workout or bankruptcy proceedings, during which the issuer
might not make any interest or other payments. Because of the relative illiquidity of defaulted or distressed debt and equity securities,
short sales are difficult, and the Fund and most Underlying Funds primarily maintain long positions. Some relative value trades are possible,
where an investor sells short one class of a defaulted or distressed issuer’s capital structure and purchases another. With distressed
investing, often there is a time lag between when the Fund and an Underlying Fund makes an investment and when the Fund and the Underlying
Fund realizes the value of the investment. In addition, the Fund and an Underlying Fund may incur legal and other monitoring costs in
protecting the value of the Fund’s and the Underlying Fund’s claims.
Illiquid
Securities Risks
The
Fund and the Underlying Funds may invest in illiquid securities. It may not be possible to sell or otherwise dispose of illiquid securities
both at the price and within the time period deemed desirable by a fund. Illiquid securities also may be difficult to value. Liquidity
may sometimes be impaired in the municipal market and, because the Fund principally invests in Municipal Bonds, it may find it difficult
to purchase or sell such securities at opportune times. Liquidity can be impaired due to interest rate concerns, credit events, or general
supply and demand imbalances. Depending on the particular issuer and current economic conditions, Municipal Bonds could be deemed more
volatile investments.
Valuation
Risk
Unlike
publicly traded common stock which trades on national exchanges, there is no central place or exchange for fixed-income securities trading.
Fixed-income securities generally trade on an “over-the-counter” market which may be anywhere in the world where the buyer
and seller can settle on a price. Due to the lack of centralized information and trading, the valuation of fixed-income securities may
carry more risk than that of common stock. Uncertainties in the conditions of the financial market, unreliable reference data, lack of
transparency and inconsistency of valuation models and processes may lead to inaccurate asset pricing. As a result, the Fund may be subject
to risk that when a fixed-income security is sold in the market, the amount received by the Fund is less than the value of such fixed-income
security carried on the Fund’s books.
Tender
Option Bonds Risks
TOB
Residuals are derivative municipal securities that have embedded in them the risk of economic leverage. There is no assurance that the
Fund’s strategy of using the proceeds received from tender option bond transactions to leverage its assets will be successful.
TOB transactions expose the Fund to leverage and credit risk, and generally involve greater risk than investment in fixed rate Municipal
Bonds, including the loss of principal.
Distributions
on TOB Residuals will bear an inverse relationship to short-term municipal bond interest rates. Distributions on the TOB Residuals paid
to the Fund will be reduced or, in the extreme, eliminated as short-term municipal interest rates rise and will increase when short-term
municipal interest rates fall. The amount of such reduction or increase is a function, in part, of the amount of TOB Floaters sold by
the TOB Issuer of these securities relative to the amount of the TOB Residuals that it sells. The greater the amount of TOB Floaters
sold relative to the TOB Residuals, the more volatile the distributions on the TOB Residuals will be. The value of TOB Residuals may
decline rapidly in times of rising interest rates.
The
Fund’s use of proceeds received from tender option bond transactions will create economic leverage. Any economic leverage achieved
through the Fund’s investment in TOB Residuals will create an opportunity for increased Common Share net income and returns, but
will also create the possibility that Common Share long-term returns will be diminished if the cost of the TOB Floaters exceeds the return
on the securities deposited in the TOB Issuer. If the income and gains earned on Municipal Bonds deposited in a TOB Issuer that issues
TOB Residuals to the Fund are greater than the payments due on the TOB Floaters, the Fund’s returns will be greater than if it
had not invested in the TOB Residuals.
The
Fund has no current intention of investing in recourse TOB Residuals. However, circumstances may change and it is possible that in the
future the Fund may elect to invest in recourse TOB Residuals to leverage its portfolio. If the Fund uses recourse TOB Residuals, the
liquidity provider may seek recourse against assets of the Fund, and the Fund may have to pay the liquidity provider the difference between
the purchase price of any TOB Floaters put to the liquidity provider by third party investors and the proceeds realized by the liquidity
provider from the remarketing of those TOB Floaters or the sale of the assets in the TOB Issuer, which could cause the Fund to lose money
in excess of its investment in a TOB Issuer.
Although
the Fund generally would unwind a tender option bond transaction rather than try to sell a TOB Residual, if it did try to sell a TOB
Residual, its ability to do so would depend on the liquidity of the TOB Residual. TOB Residuals have varying degrees of liquidity based,
among other things, upon the liquidity of the underlying securities deposited in the TOB Issuer. The market price of TOB Residuals are
more volatile than the underlying securities due to leverage. The leverage attributable to TOB Residuals may be “called away”
on relatively short notice and therefore may be less permanent than more traditional forms of leverage. In certain circumstances, the
likelihood of an increase in the volatility of NAV and market price of the Common Shares may be greater for a fund that relies primarily
on tender option bond transactions to achieve a desired effective leverage ratio. The Fund may be required to sell its TOB Residuals
at less than favorable prices, or liquidate other Fund portfolio holdings in certain circumstances, including, but not limited to, the
following:
| ● | If
the Fund has a need for cash and the securities deposited in the TOB Issuer are not actively
trading due to adverse market conditions; |
| ● | If
the sponsors of TOB Issuers (as a collective group or individually) experience financial
hardship and consequently seek to terminate their sponsorship of TOB Issuers; and |
| ● | If
the value of an underlying security deposited in the TOB Issuer declines significantly (to
a level below the notional value of the TOB Floaters issued by the TOB Issuer) and if additional
collateral has not been posted by the Fund. |
The
Fund may invest in taxable TOB Residuals, issued by TOB Issuers formed with taxable municipal securities. There may be a limited number
of counterparties for such transactions, which may increase the credit risks, counterparty risks, liquidity risks and other risks of
investing in taxable TOB Residuals. The Fund may not invest more than 20% of its Managed Assets in any single third party sponsor that
establishes a TOB Issuer. See also “Risks—Investment-Related Risks—Legislation and Regulatory Risks.”
Insurance
Risks
The
Fund may purchase Municipal Bonds that are secured by insurance, bank credit agreements or escrow accounts. The credit quality of the
companies that provide such credit enhancements will generally affect the value of those securities. Certain significant providers of
insurance for Municipal Bonds have at times incurred significant losses as a result of exposure to sub-prime mortgages and other lower
credit quality investments that have experienced defaults or otherwise suffered credit deterioration. Such losses may reduce the insurers’
capital and may call into question their continued ability to perform their obligations under such insurance if called upon in the future.
While an insured Municipal Bond will typically be deemed to have the rating of its insurer, if the insurer of a Municipal Bond suffers
a downgrade in its credit rating or the market discounts the value of the insurance provided, the rating of the underlying Municipal
Bond will generally be more relevant and the value of the Municipal Bond would more closely, if not entirely, reflect such rating. In
such a case, the value of insurance associated with a Municipal Bond would decline and may not add any value. The insurance feature of
a Municipal Bond does not guarantee the full payment of principal and interest through the life of an insured obligation, the market
value of the insured obligation or the NAV of the Common Shares represented by such insured obligation. Because there is no limit on
the percentage of Managed Assets that may be insured by any one insurance firm other than the tax diversification rules, there is a risk
that a significant portion of the Fund’s holdings may experience a ratings downgrade and lose value if such an insurance company
suffers financial or reputational adversity. Some IRS authority treats a guaranty as a separate security subject to the diversification
rules, which limit the value of securities issued by any one issuer to not more than 25% of the portfolio.
Tax
Risks
To
qualify for the favorable U.S. federal income tax treatment generally accorded to regulated investment companies, among other things,
the Fund must derive in each taxable year at least 90% of its gross income from certain prescribed sources and satisfy a diversification
test on a quarterly basis. If the Fund fails to satisfy the qualifying income or diversification requirements in any taxable year, the
Fund may be eligible for relief provisions if the failures are due to reasonable cause and not willful neglect and if a penalty tax is
paid with respect to each failure to satisfy the applicable requirements. Additionally, relief is provided for certain de minimis failures
of the diversification requirements where the Fund corrects the failure within a specified period. In order to be eligible for the relief
provisions with respect to a failure to meet the diversification requirements, the Fund may be required to dispose of certain assets.
If these relief provisions were not available to the Fund and it were to fail to qualify for treatment as a regulated investment company
(“RIC”) for a taxable year, all of its taxable income (including its net capital gain) would be subject to tax at regular
corporate rates (currently 21%) without any deduction for distributions to shareholders, and such distributions would be taxable as ordinary
dividends to the extent of the Fund’s current and accumulated earnings and profits.
The
Fund may qualify to pay exempt-interest dividends, which are treated as items of interest excludable from gross income for federal income
tax purposes, if at least 50% of the value of the total assets of the Fund consists of obligations exempt from regular income tax as
of the close of each quarter of the Fund’s taxable year. Under this approach, if the proportion of taxable investments held by
the Fund exceeded 50% of the Fund’s total assets as of the close of any quarter of the Fund’s taxable year, the Fund would
not, for that taxable year, satisfy the general eligibility test that would otherwise permit it to pay exempt-interest dividends for
that taxable year. As an alternative, the Fund may qualify to pay exempt-interest dividends if it is a qualified fund-of-funds, i.e.,
if at least 50% of the value of its total assets are invested in the shares of underlying RICs as of the close of each quarter of
the Fund’s taxable year.
The
Fund may enter into various types of derivatives transactions, including swap contracts, among others. The use of such derivatives may
generate taxable income. The Fund’s use of derivatives may also affect the amount, timing, and character of distributions to shareholders
and, therefore, may increase the amount of taxes payable by shareholders.
The
value of the Fund’s investments and its NAV may be adversely affected by changes in tax rates and policies. Because interest income
from Municipal Bonds is normally not subject to regular federal income taxation, the attractiveness of Municipal Bonds in relation to
other investment alternatives is affected by changes in federal income tax rates or changes in the tax-exempt status of interest income
from Municipal Bonds. Any proposed or actual changes in such rates or exempt status, therefore, can significantly affect the demand for
and supply, liquidity and marketability of Municipal Bonds. This could in turn affect the Fund’s NAV and ability to acquire and
dispose of Municipal Bonds at desirable yield and price levels. Additionally, the Fund is not a suitable investment for individual retirement
accounts, for other tax-exempt or tax-deferred accounts or for investors who are not sensitive to the federal income tax consequences
of their investments.
The
Fund will invest in Municipal Bonds in reliance at the time of purchase on an opinion of bond counsel to the issuer that the interest
paid on those securities will be excludable from gross income for federal income tax purposes, and the Adviser and Subadviser will not
independently verify that opinion. Subsequent to the Fund’s acquisition of such a Municipal Bond, however, the security may be
determined to pay, or to have paid, taxable income. As a result, the treatment of dividends previously paid or to be paid by the Fund
as “exempt-interest dividends” could be adversely affected, subjecting the Fund’s shareholders to increased federal
income tax liabilities.
Distributions
of ordinary taxable income (including any net short-term capital gain) will be taxable to shareholders as ordinary income (and not eligible
for favorable taxation as “qualified dividend income”), and capital gain dividends will be taxable as long-term capital gains.
See “U.S. Federal Income Tax Matters.”
Derivatives
Risks
The
Fund and the Underlying Funds may enter into derivatives. Derivative transactions involve investment techniques and risks different from
those associated with the Fund’s other investments. Generally, a derivative is a financial contract the value of which depends
upon, or is derived from, the value of an underlying asset, reference rate, or index, and may relate to individual debt or equity instruments,
interest rates, currencies or currency exchange rates, commodities, related indexes and other assets. Derivatives can be volatile and
involve various types and degrees of risk, depending upon the characteristics of a particular derivative. Derivatives may entail investment
exposures that are greater than their cost would suggest, meaning that a small investment in a derivative could have a large potential
impact on the performance of the Fund or an Underlying Fund. The Fund or an Underlying Fund could experience a loss if derivatives do
not perform as anticipated, if they are not correlated with the performance of other investments which they are used to hedge or if the
fund is unable to liquidate a position because of an illiquid secondary market. The market for many derivatives is, or can suddenly become,
illiquid. Changes in liquidity may result in significant, rapid and unpredictable changes in the prices of derivatives. Except with respect
to the Fund’s investments in total return swaps, the Fund expects its use of derivative instruments will be for hedging purposes.
When used for speculative purposes, derivatives will produce enhanced investment exposure, which will magnify gains and losses. Certain
derivatives transactions may give rise to a form of leverage. Leverage may cause a fund to be more volatile than if it had not been leveraged.
This is because leverage tends to exaggerate the effect of any increase or decrease in the value of a fund’s portfolio securities.
Further, using derivatives may include the risk of mispricing or improper valuation of derivatives and the inability of derivatives to
correlate perfectly, or at all, with the value of the assets, reference rates or indexes they are designed to closely track. The Fund
and the Underlying Funds also will be subject to credit risk with respect to the counterparties to the derivatives contracts purchased
by such fund. If a counterparty becomes bankrupt or otherwise fails to perform its obligations under a derivative contract due to financial
difficulties, the Fund or an Underlying Fund may experience significant delays in obtaining any recovery under the derivative contract
in a bankruptcy or other reorganization proceeding. The Fund or an Underlying Fund may obtain only a limited recovery or may obtain no
recovery in such circumstances. See “—Option and Futures Risks” and “—Swap Risks.” The Adviser has
claimed an exclusion from registration as a commodity pool operator with respect to the Fund pursuant to Commodity Futures Trading Commission
(“CFTC”) Rule 4.5. See “Investment Policies and Techniques—Derivatives—Regulation as a ‘Commodity
Pool’” in the SAI.
On
October 28, 2020, the SEC adopted Rule 18f-4 under the 1940 Act providing for the regulation of a registered investment company’s
use of derivatives and certain related instruments. The rule permits the Fund or an Underlying Fund to enter into certain derivatives
and other transactions notwithstanding the restrictions on the issuance of “senior securities” under Section 18 of the 1940
Act. Section 18 of the 1940 Act, among other things, prohibits closed-end funds, including the Fund, from issuing or selling any “senior
security” representing indebtedness, unless the fund maintains 300% “asset coverage,” or any senior security representing
stock, unless the fund maintains 200% “asset coverage”.
The
compliance date for Rule 18f-4 was August 19, 2022. In accordance with the rule, the Fund adopted and implemented a comprehensive written
derivatives risk management program and is subject to an outer limit on Fund leverage risk calculated based on value-at-risk. This outer
limit is based on a relative value-at-risk test that will compare the Fund’s value-at-risk to the value-at-risk of a designated
reference index. The derivatives risk management program is administered by a “derivatives risk manager,” who has been appointed
by the Board, including a majority of the Directors who are not “interested persons” (as defined in the 1940 Act), and periodically
reviews the derivatives risk management program and reports to the Board.
In
general, the “derivatives transactions” covered by Rule 18f-4 include the following: (1) any swap, security-based swap (including
a contract for differences), futures contract, forward contract, option (excluding purchased options), any combination of the foregoing,
or any similar instrument, under which the Fund is or may be required to make any payment or delivery of cash or other assets during
the life of the instrument or at maturity or early termination, whether as margin or settlement payment or otherwise; (2) any short sale
borrowing; (3) reverse repurchase agreements and similar financing transactions, if the Fund elects to treat these transactions as “derivatives
transactions” under Rule 18f-4; and (4) when-issued or forward-settling securities (e.g., firm and standby commitments, including
to-be-announced (“TBA”) commitments, and dollar rolls) and non-standard settlement cycle securities, unless such transactions
meet the delayed-settlement provision of the rule.
Options
and Futures Risks
The
Fund and the Underlying Funds may invest in options and futures contracts and such contracts are expected to be utilized by the Fund,
if at all, for hedging purposes. The use of futures and options transactions entails certain special risks. In particular, the variable
degree of correlation between price movements of futures contracts and price movements in the related securities position of a fund could
create the possibility that losses on the hedging instrument are greater than gains in the value of a fund’s position. In addition,
futures and options markets could be illiquid in some circumstances and certain over-the-counter options could have no markets. As a
result, in certain markets, a fund might not be able to close out a transaction without incurring substantial losses. Although a fund’s
use of futures and options transactions for hedging should tend to minimize the risk of loss due to a decline in the value of the hedged
position, at the same time it will tend to limit any potential gain to a fund that might result from an increase in value of the position.
Finally, the daily variation margin requirements for futures contracts create a greater ongoing potential financial risk than would purchases
of options, in which case the exposure is limited to the cost of the initial premium. However, because option premiums paid by the Fund
or an Underlying Fund are small in relation to the market value of the investments underlying the options, buying options can result
in large amounts of leverage. This leverage offered by trading in options could cause the Fund’s or an Underlying Fund’s
NAV to be subject to more frequent and wider fluctuation than would be the case if the Fund or an Underlying Fund did not invest in options.
Options
transactions may be effected on securities exchanges or in the over-the-counter market. When options are purchased over-the-counter,
the Fund or an Underlying Fund bears the risk that the counterparty that wrote the option will be unable or unwilling to perform its
obligations under the option contract. The counterparties to these transactions typically will be major international banks, broker-dealers
and financial institutions. Such options may also be illiquid, and in such cases, the Fund or an Underlying Fund may have difficulty
closing out its position. Banks, broker-dealers or other financial institutions participating in such transactions may fail to settle
a transaction in accordance with the terms of the option as written. In the event of default or insolvency of the counterparty, the Fund
or an Underlying Fund may be unable to liquidate an over-the-counter option position.
An
Underlying Fund may purchase and sell call and put options with respect to specific securities, and may write and sell covered or uncovered
call and put options. A call option gives the purchaser of the call option, in return for a premium paid, the right to buy the security
underlying the option from the writer of the call option at a specified exercise price within a specified time frame. A put option gives
the purchaser of the put option, in return for a premium paid, the right to sell the underlying security to the writer of the put option
at a specified price within a specified time frame. A covered call option is a call option with respect to an underlying security that
a fund owns. The purchaser of a put or call option runs the risk of losing the purchaser’s entire investment, paid as the premium,
in a relatively short period of time if the option is not sold at a gain or cannot be exercised at a gain prior to expiration. In selling
put options, there is a risk that the Underlying Fund may be required to buy the underlying security at a disadvantageous price above
the market price. The un-covered writer of a call option is subject to a risk of loss if the price of the underlying security should
increase, and the un-covered writer of a put option is subject to a risk of loss if the price of the underlying security should decrease.
The
Fund may invest a significant portion of its total assets in Underlying Funds that write covered call options. To the extent that an
Underlying Fund writes a covered call option, it forgoes, during the option’s life, the opportunity to profit from increases in
the market value of the security covering the call option above the sum of the premium and the strike price of the call, but has retained
the risk of loss should the price of the underlying security decline. As the writer of the option, the Underlying Fund bears the market
risk of an unfavorable change in the price of the security underlying a written option. As an Underlying Fund writes covered calls over
more of its portfolio, its ability to benefit from capital appreciation becomes more limited and the risk of NAV erosion increases. To
the extent an Underlying Fund experiences NAV erosion (which itself may have an indirect negative effect on the market price of interests
in the Underlying Fund), the Underlying Fund will have a reduced asset base over which to write covered calls, which may eventually lead
to reduced distributions to shareholders such as the Fund. The writer of an option has no control over the time when it may be required
to fulfill its obligation as a writer of the option. Once an option writer has received an exercise notice, it cannot effect a closing
purchase transaction in order to terminate its obligation under the option and must deliver the underlying security at the exercise price.
To
the extent that an Underlying Fund engages in selling options that trade in over-the-counter markets, the Underlying Fund may be subject
to additional risks. Participants in these markets are typically not subject to the same credit evaluation and regulatory oversight as
members of “exchange-based” markets. By engaging in option transactions in these markets, an Underlying Fund may take credit
risk with regard to parties with which it trades and also may bear the risk of settlement default. These risks may differ materially
from those involved in exchange-traded transactions, which generally are characterized by clearing organization guarantees, daily marking-to-market
and settlement, and segregation and minimum capital requirements applicable to intermediaries. Transactions entered into directly between
two counterparties generally do not benefit from these protections, which may subject an Underlying Fund to the risk that a counterparty
will not settle a transaction in accordance with agreed terms and conditions because of a dispute over the terms of the contract or because
of a credit or liquidity problem. Such “counterparty risk” is increased for contracts with longer maturities when events
may intervene to prevent settlement.
There
can be no assurance that a liquid market will exist for any particular futures contract at any particular time. Many futures exchanges
and boards of trade limit the amount of fluctuation permitted in futures contract prices during a single trading day. Once the daily
limit has been reached in a particular contract, no trades may be made that day of a price beyond that limit or trading may be suspended
for specified periods during the trading day.
Swap
Risks
The
Fund and the Underlying Funds may enter into various swap agreements and, other than total return swap agreements (as discussed herein),
such agreements are expected to be utilized by the Fund, if at all, for hedging purposes. All of these agreements are considered derivatives.
Swap agreements are two-party contracts under which the fund and a counterparty, such as a broker or dealer, agree to exchange the returns
(or differentials in rates of return) earned or realized on an agreed-upon underlying asset or investment over the term of the swap.
The use of swap transactions is a highly specialized activity which involves strategies and risks different from those associated with
ordinary portfolio security transactions. If the Adviser, Subadviser or an Underlying Fund’s investment adviser is incorrect in
its forecasts of default risks, market spreads, liquidity or other applicable factors or events, the investment performance of the Fund
or Underlying Fund would diminish compared with what it would have been if these techniques were not used. Swaps and swap options can
be used for a variety of purposes, including: to manage fund exposure to changes in interest rates and credit quality; as an efficient
means of adjusting fund overall exposure to certain markets; in an effort to enhance income or total return or protect the value of portfolio
securities; to serve as a cash management tool; and to adjust portfolio duration.
Swaps
could result in losses if interest rates or credit quality changes are not correctly anticipated by the Adviser, Subadviser or Underlying
Fund manager. Total return swaps could result in losses if the reference index, security, or investments do not perform as anticipated.
Total return swaps involve an enhanced risk that the issuer or counterparty will fail to perform its contractual obligations, which could
turn an expected gain into a loss. Total return swaps may effectively add leverage to the Fund’s portfolio because the Fund would
be subject to investment exposure on the full notional amount of the swap. To the extent the Fund or an Underlying Fund enters into a
total return swap on equity securities, the Fund or the Underlying Fund will receive the positive performance of a notional amount of
such securities underlying the total return swap. In exchange, the Fund or the Underlying Fund will be obligated to pay the negative
performance of such notional amount of securities. Therefore, the Fund or the Underlying Fund assumes the risk of a substantial decrease
in the market value of the equity securities. The use of swaps may not always be successful; using them could lower Fund or Underlying
Fund total return, their prices can be highly volatile, and the potential loss from the use of swaps can exceed the Fund’s or an
Underlying Fund’s initial investment in such instruments.
Some,
but not all, swaps may be cleared, in which case a central clearing counterparty stands between each buyer and seller and effectively
guarantees performance of each contract, to the extent of its available resources for such purposes. As a result, the counterparty risk
is now shifted from bilateral risk between the parties to the individual credit risk of the central clearing counterparty. Even in such
case, there can be no assurance that a clearing house, or its members, will satisfy the clearing house’s obligations to the Fund
or an Underlying Fund or that the fund’s use of swaps will be advantageous.
Short
Sale Risks
The
Fund and the Underlying Funds may engage in short sales. However, the Fund will not engage in any short sales of securities issued by
closed-end funds. Short sales are expected to be utilized by the Fund, if at all, for hedging purposes. A short sale is a transaction
in which a fund sells a security it does not own in anticipation that the market price of that security will decline. Positions in shorted
securities are speculative and riskier than long positions (purchases) in securities because the maximum sustainable loss on a security
purchased is limited to the amount paid for the security plus the transaction costs, whereas there is no maximum attainable price of
the shorted security. Therefore, in theory, securities sold short have unlimited risk. Short selling will also result in higher transaction
costs (such as interest and dividends), and may result in higher taxes, which reduce a fund’s return.
If
a security sold short increases in price, a fund may have to cover its short position at a higher price than the short sale price, resulting
in a loss. With respect to a fund’s short positions, the fund must borrow those securities to make delivery to the buyer. A fund
may not be able to borrow a security that it needs to deliver or it may not be able to close out a short position at an acceptable price
and may have to sell related long positions before it had intended to do so. As a result, a fund may not be able to successfully implement
its short sale strategy due to the limited availability of desired securities or for other reasons.
When
borrowing a security for delivery to a buyer, a fund also may be required to pay a premium and other transaction costs, which would increase
the cost of the security sold short. A fund must normally repay to the lender an amount equal to any dividends or interest earned while
the loan is outstanding. The amount of any gain will be decreased, and the amount of any loss increased, by the amount of the premium,
dividends, interest or expenses a fund may be required to pay in connection with the short sale. Also, the lender of a security may terminate
the loan at a time when a fund is unable to borrow the same security for delivery. In that case, a fund would need to purchase a replacement
security at the then current market price or “buy in” by paying the lender an amount equal to the costs of purchasing the
security.
Because
a fund’s loss on a short sale arises from increases in the value of the security sold short, the loss is theoretically unlimited.
In certain cases, purchasing a security to cover a short position can itself cause the price of the security to rise further, which would
exacerbate the loss. Conversely, gains on short sales, after transaction and related costs, are generally the difference between the
price at which a fund sold the borrowed security and the price it paid to purchase the security for delivery to the buyer. By contrast,
a fund’s loss on a long position arises from decreases in the value of the security and is limited by the fact that a security’s
value cannot drop below zero.
By
investing the proceeds received from selling securities short, a fund is using a form of leverage, which creates special risks. The use
of leverage may increase a fund’s exposure to long equity positions and make any change in a fund’s NAV greater than it would
be without the use of leverage. This could result in increased volatility of returns. There is no guarantee that the Fund or an Underlying
Fund will leverage its portfolio, or if it does, that the leveraging strategy will be successful. The Fund also cannot guarantee that
the use of leverage by the Fund or an Underlying Fund will produce a higher return on an investment.
Rating
Agency Risk
Ratings
agencies such as S&P, Fitch, Moody’s or other NRSROs provide ratings on debt securities based on their analyses of information
they deem relevant. Ratings are opinions or judgments of the credit quality of an issuer and may prove to be inaccurate. In addition,
there may be a delay between events or circumstances adversely affecting the ability of an issuer to pay interest and/or repay principal
and an NRSRO’s decision to downgrade a security. Further, a rating agency may have a conflict of interest with respect to a security
for which it assigns a particular rating if, for example, the issuer or sponsor of the security pays the rating agency for the analysis
of its security, which could affect the reliability of the rating.
United
States Credit Rating Downgrade Risk
On
August 5, 2011, S&P lowered its long-term sovereign credit rating on the United States to “AA+” from “AAA.”
In general, a lower rating could increase the volatility in both stock and bond markets, result in higher interest rates and lower Treasury
prices and increase the costs of all kinds of debt. These events and similar events in other areas of the world could have significant
adverse impacts on issuers of securities held by the Fund and the Fund itself. The Adviser and the Subadviser cannot predict the effects
of these or similar events in the future on the U.S. economy and securities markets or on the Fund’s portfolio. The Adviser and
the Subadviser may not timely anticipate or manage existing, new or additional risks, contingencies or developments.
Legislation
and Regulatory Risks
At
any time after the date of this Prospectus, legislation or additional regulations may be enacted that could negatively affect the assets
of the Fund or the issuers of such assets. Changing approaches to regulation may have a negative impact on the entities and/or securities
in which the Fund or an Underlying Fund invests. Legislation or regulation may also change the way in which the Fund or an Underlying
Fund is regulated. New or amended regulations may be imposed by the CFTC, the Securities and Exchange Commission (“SEC”),
the Federal Reserve or other financial regulators, other governmental regulatory authorities or self-regulatory organizations that supervise
the financial markets that could adversely affect the Fund or the Underlying Funds. There can be no assurance that future legislation,
regulation or deregulation will not have a material adverse effect on the Fund or will not impair the ability of the Fund to achieve
its investment objectives. The Fund and the Underlying Funds also may be adversely affected by changes in the enforcement or interpretation
of existing statutes and rules by these governmental authorities or self-regulatory organizations.
Market
Disruption, Geopolitical, Pandemic and Climate Change Risks
The
Fund and Underlying Funds (as well as their service providers) may be adversely affected by uncertainties and events around the world,
such as epidemics and pandemics, including the spread of infectious illness or other public health issues, natural disasters, terrorism
and other conflicts, social unrest, political developments, and changes in government policies, taxation, restrictions on foreign investment
and currency repatriation, currency fluctuations and other developments in the laws and regulations of the countries in which they are
invested. Assets of issuers, including those held in the Fund’s or an Underlying Fund’s portfolio, could be direct targets,
or indirect casualties, of an act of terrorism.
International
war or conflicts (including Russia's invasion of Ukraine and the Israel-Hamas war) and geopolitical events in foreign countries, along
with instability in regions such as Asia, Eastern Europe and the Middle East, possible terrorist attacks in the United States or around
the world, and other similar events could adversely affect the U.S. and foreign financial markets. As a result, whether or not the Fund
invests in securities located in or with significant exposure to the countries directly affected, the value and liquidity of the Fund's
investments may be negatively impacted. Further, due to closures of certain markets and restrictions on trading certain securities, the
value of certain securities held by the Fund could be significantly impacted.
In
early 2020, an outbreak of a novel strain of coronavirus (COVID-19) emerged globally. The outbreak of COVID-19 and its variants resulted
in closing international borders, enhanced health screenings, healthcare service preparation and delivery, quarantines, cancellations,
disruptions to supply chains and customer activity, as well as general public concern and uncertainty. This outbreak negatively affected
the worldwide economy, as well as the economies of individual countries, the financial health of individual companies and the market
in general in significant and unforeseen ways. On May 5, 2023, the World Health Organization declared the end of the global emergency
status for COVID-19. The United States subsequently ended the federal COVID-19 public health emergency declaration effective May 11,
2023. Although vaccines for COVID-19 are widely available, it is unknown how long certain circumstances related to the pandemic will
persist, whether they will reoccur in the future and what additional implications may follow from the pandemic. The impact of these events
and other epidemics or pandemics in the future could adversely affect Fund performance.
Climate
change poses long-term threats to physical and biological systems. Potential hazards and risks related to climate change for a State
or municipality include, among other things, wildfires, rising sea levels, more severe coastal flooding and erosion hazards, and more
intense storms. Storms in recent years have demonstrated vulnerabilities in a State’s or municipality’s infrastructure to
extreme weather events. Climate change risks, if they materialize, can adversely impact a State’s or municipality’s financial
plan in current or future years. In addition, economists and others have expressed increasing concern about the potential effects of
global climate change on property and security values. A rise in sea levels, an increase in powerful windstorms and/or a climate-driven
increase in sea levels or flooding could cause coastal properties to lose value or become unmarketable altogether. Economists warn that,
unlike previous declines in the real estate market, properties in affected coastal zones may not ever recover their value. Large wildfires
driven by high winds and prolonged drought may devastate businesses and entire communities and may be very costly to any business found
to be responsible for the fire. Regulatory changes and divestment movements tied to concerns about climate change could adversely affect
the value of certain land and the viability of industries whose activities or products are seen as accelerating climate change.
These
losses could adversely affect the bonds of municipalities that depend on tax or other revenues and tourist dollars generated by affected
properties, and insurers of the property and/or of municipal securities. Since property and security values are driven largely by buyers’
perceptions, it is difficult to know the time period over which these market effects might unfold.
Defensive
Measures
The
Fund may invest up to 100% of its assets in cash, cash equivalents and short-term investments as a defensive measure in response to adverse
market conditions or opportunistically at the discretion of the Adviser or Subadviser. During these periods, the Fund may not be pursuing
its investment objectives.
Structural
Risks:
Market
Discount
Common
stock of closed-end funds frequently trades at a discount from its NAV. This risk would also apply to the Fund’s investments in
closed-end funds.
Limited
Term and Eligible Tender Offer Risk
The
Fund is scheduled to terminate on or about the Termination Date (unless it is converted to a perpetual fund). The Fund is not a so
called “target date” or “life cycle” fund whose asset allocation becomes more conservative over time as its target
date, often associated with retirement, approaches. In addition, the Fund is not a “target term” fund whose investment objective
is to return its original NAV on the termination date.
The
Fund is not required to conduct an Eligible Tender Offer. If the Fund conducts an Eligible Tender Offer, there can be no assurance that
the number of tendered Common Shares would not result in the Fund’s net assets totaling less than the Termination Threshold, in
which case the Eligible Tender Offer will be terminated, no Common Shares will be repurchased pursuant to the Eligible Tender Offer and
the Fund will terminate on or before the Termination Date (subject to possible extensions). Following the completion of an Eligible Tender
Offer in which the number of tendered Common Shares would result in the Fund’s net assets equaling or totaling greater than the
Termination Threshold, the Board of Directors may eliminate the limited term structure of the Fund upon the affirmative vote of a majority
of the Board of Directors and without a vote of Common Shareholders. Thereafter, the Fund will have a perpetual existence. The Fund is
not required to conduct additional tender offers following an Eligible Tender Offer and conversion to a perpetual structure. Therefore,
remaining Common Shareholders may not have another opportunity to participate in a tender offer or exchange their Common Shares for the
then-existing NAV per Common Share. Common Shares of closed-end management investment companies frequently trade at a discount from their
NAV and as a result remaining Common Shareholders may only be able to sell their Common Shares at a discount to NAV. See “—Market
Discount.” The Adviser may have a conflict of interest in recommending to the Board of Directors that the limited term structure
be eliminated and the Fund have a perpetual existence.
In
order to pay for Common Shares to be purchased in an Eligible Tender Offer or to liquidate the portfolio in connection with the Fund’s
termination, the Fund will be required to sell its assets. As a result, the Fund may be required to sell portfolio securities when it
otherwise would not, including at times when market conditions are not favorable, which may cause the Fund to lose money. The Fund may
receive proceeds from the disposition of portfolio investments that are less than the valuations of such investments by the Fund and,
in particular, losses from the disposition of illiquid securities may be significant. The disposition of portfolio investments by the
Fund could also cause market prices of such instruments, and hence the NAV and market price of the Common Shares, to decline. In addition,
disposition of portfolio investments will cause the Fund to incur increased brokerage and related transaction expenses.
Moreover,
in conducting such portfolio transactions, the Fund may need to deviate from its investment policies and may not achieve its investment
objectives. The Fund’s portfolio composition may change as its portfolio holdings mature or are called or sold in anticipation
of an Eligible Tender Offer or the Termination Date. During such period(s), it is possible that the Fund will hold a greater percentage
of its total assets in shorter term and lower yielding securities and cash and cash equivalents than it would otherwise, which may impede
the Fund’s ability to achieve its investment objectives and adversely impact the Fund’s performance and distributions to
Common Shareholders, which may in turn adversely impact the market value of the Common Shares. In addition, the Fund may be required
to reduce its leverage, which could also adversely impact its performance. The additional cash or cash equivalents held by the Fund could
be obtained through reducing the Fund’s distributions to Common Shareholders and/or holding cash in lieu of reinvesting, which
could limit the ability of the Fund to participate in new investment opportunities. The Fund does not limit its investments to securities
having a maturity date prior to or around the Termination Date, which may exacerbate the foregoing risks and considerations. A Common
Shareholder may be subject to the foregoing risks over an extended period of time, particularly if the Fund conducts an Eligible Tender
Offer and is also subsequently terminated by or around the Termination Date.
If
the Fund’s tax basis for the investments sold is less than the sale proceeds, the Fund will recognize capital gains, which the
Fund will be required to distribute to Common Shareholders. In addition, the Fund’s purchase of tendered Common Shares pursuant
to a tender offer will have tax consequences for tendering Common Shareholders and may have tax consequences for non-tendering Common
Shareholders. The purchase of Common Shares by the Fund pursuant to a tender offer will have the effect of increasing the proportionate
interest in the Fund of non-tendering Common Shareholders. All Common Shareholders remaining after a tender offer will be subject to
proportionately higher expenses due to the reduction in the Fund’s total assets resulting from payment for the tendered Common
Shares. A reduction in net assets, and the corresponding increase in the Fund’s expense ratio, could result in lower returns and
put the Fund at a disadvantage relative to its peers and potentially cause the Fund to trade at a wider discount to NAV than it otherwise
would. Such reduction in the Fund’s total assets may also result in less investment flexibility, reduced diversification and greater
volatility for the Fund, and may have an adverse effect on the Fund’s investment performance. Moreover, the resulting reduction
in the number of outstanding Common Shares could cause the Common Shares to become thinly traded or otherwise adversely impact the secondary
market trading of such shares. Furthermore, the portfolio of the Fund following an Eligible Tender Offer could be significantly different
and, therefore, Common Shareholders retaining an investment in the Fund could be subject to greater risk. For example, the Fund may be
required to sell its more liquid, higher quality portfolio investments to purchase Common Shares that are tendered in an Eligible Tender
Offer, which would leave a less liquid, lower quality portfolio for remaining shareholders. The prospects of an Eligible Tender Offer
may attract arbitrageurs who would purchase the Common Shares prior to the tender offer for the sole purpose of tendering those shares
which could have the effect of exacerbating the risks described herein for shareholders retaining an investment in the Fund following
an Eligible Tender Offer.
In
connection with its termination, the Fund may distribute the proceeds from the disposition of portfolio securities in one or more liquidating
distributions prior to the final liquidation, which may cause fixed expenses to increase when expressed as a percentage of assets under
management. Upon a termination, it is anticipated that the Fund will have distributed substantially all of its net assets to Common Shareholders,
although securities for which no market exists, securities trading at depressed prices, if any, and assets recovered following termination
may be placed in a liquidating trust. Common Shareholders will bear the costs associated with establishing and maintaining a liquidating
trust, if necessary. Securities placed in a liquidating trust may be held for an indefinite period of time until they can be sold or
pay out all of their cash flows. The Fund cannot predict the amount, if any, of securities that will be required to be placed in a liquidating
trust.
Investment
Style Risk
The
Fund is managed by allocating the Fund’s assets between two different strategies as described in this Prospectus. This may cause
the Fund to underperform funds that do not limit their investments to these two strategies during periods when these strategies underperform
other types of investments.
Not
a Complete Investment Program
The
Fund is intended for investors seeking current income and overall total return over the long-term, and is not intended to be a short-term
trading vehicle. An investment in the Common Shares of the Fund should not be considered a complete investment program. Each investor
should take into account the Fund’s investment objectives and other characteristics as well as the investor’s other investments
when considering an investment in the Common Shares. An investment in the Fund may not be appropriate for all investors.
Multi-Manager
Risk
Fund
performance is dependent upon the success of the Adviser and the Subadviser in implementing the Fund’s investment strategies in
pursuit of its investment objectives. To a significant extent, the Fund’s performance will depend on the success of the Adviser’s
methodology in allocating the Fund’s assets between each of the principal investment strategies. The Adviser’s and the Subadviser’s
investment styles may not always be complementary, which could adversely affect the performance of the Fund. Because the Adviser and
the Subadviser each makes investment decisions independently, it is possible that the Adviser and the Subadviser may, at any time, take
positions that in effect may be opposite of positions taken by each other. In such cases, the Fund will incur brokerage and other transaction
costs without accomplishing any net investment results. The multi-manager approach could increase the Fund’s portfolio turnover
rates, which may result in higher levels of realized capital gains or losses with respect to the Fund’s portfolio securities, and
higher broker commissions and other transaction costs. The trading costs and tax consequences associated with portfolio turnover may
adversely affect the Fund’s performance. See “—Investment Style Risk.”
In
addition, the Subadviser’s implementation of the Municipal Bond Income Strategy means that, at any point in time, the Subadviser
will manage 35-75% of the Fund’s Managed Assets. To the extent the Subadvisory Agreement with the Subadviser is terminated or not
renewed, Fund performance will become dependent on the Adviser or a new subadviser successfully implementing the Municipal Bond Income
Strategy. There is no assurance that a suitable replacement to the Subadviser could be found if the Subadvisory Agreement is terminated
or not renewed. Any such termination or non-renewal of the Subadvisory Agreement can have an adverse effect on an investment in the Fund.
In addition, to the extent the Adviser retains the responsibility of implementing the Municipal Bond Income Strategy of the Fund following
the termination or non-renewal of the Subadvisory Agreement, the approval of the Fund’s stockholders will likely not be required.
Asset
Allocation Risk
To
the extent that the Adviser’s asset allocation between the Fund’s principal investment strategies may fail to produce the
intended result, the Fund’s return may suffer. Additionally, the potentially active asset allocation style of the Fund may lead
to changing allocations over time and represent a risk to investors who target fixed asset allocations.
Leverage
Risks
Leverage
is a speculative technique that exposes the Fund to greater risk and increased costs than if it were not implemented. Increases and decreases
in the value of the Fund’s portfolio will be magnified when the Fund uses leverage. As a result, leverage may cause greater changes
in the Fund’s NAV. The leverage costs may be greater than the Fund’s return on the underlying investments made from the proceeds
of leverage. The Fund’s leveraging strategy may not be successful. See “Use of Leverage.”
If
the Fund were to utilize leverage in the form of borrowing, it anticipates that the money borrowed for investment purposes will incur
interest based on shorter-term interest rates that would be periodically reset. So long as the Fund’s portfolio provides a higher
rate of return, net of expenses, than the interest rate on borrowed money, as reset periodically, the leverage may cause the holders
of Common Shares to receive a higher current rate of return than if the Fund were not leveraged. If, however, long-term and/or short-term
rates rise, the interest rate on borrowed money could exceed the rate of return on securities held by the Fund, reducing return to the
holders of Common Shares. Developments in the credit markets may adversely affect the ability of the Fund to borrow money for investment
purposes and may increase the costs of such borrowings, which would reduce returns to the holders of Common Shares.
In
addition to the foregoing, the use of leverage involves risks and special considerations for Common Shareholders, including:
| ● | the
likelihood of greater volatility of NAV, market price and dividend rate of the Common Shares
than a comparable portfolio without leverage; |
| ● | the
risk that fluctuations in interest rates on borrowings or on short-term debt or in the interest
or dividend rates on any debt securities or Preferred Shares that the Fund must pay will
reduce the return to the Common Shareholders; |
| ● | the
effect of leverage in a declining market, which is likely to cause a greater decline in the
NAV of the Common Shares than if the Fund were not leveraged, may result in a greater decline
in the market price of the Common Shares; |
| ● | when
the Fund uses financial leverage, the investment management fees payable to the Adviser and
the subadvisory fees payable by the Adviser to the Subadviser will be higher than if the
Fund did not use leverage. This may create a conflict of interest between the Adviser and
the Subadviser, on the one hand, and the holders of Common Shares, on the other; and |
| ● | leverage
may increase operating costs, which may reduce total return. |
The
use of leverage may limit the Fund’s flexibility and may require that the Fund sell other portfolio investments to pay Fund expenses,
to maintain assets in an amount sufficient to cover the Fund’s leveraged exposure or to meet other obligations at a time when it
may be disadvantageous to sell such assets.
Certain
types of borrowings by the Fund may result in the Fund being subject to covenants in credit agreements relating to asset coverage and
portfolio composition requirements. The Fund may be subject to certain restrictions on investments imposed by guidelines of one or more
rating agencies, which may issue ratings for the short-term debt securities or Preferred Shares issued by the Fund. These guidelines
may impose asset coverage or portfolio composition requirements that are more stringent than those imposed by the 1940 Act. The Adviser
does not believe that these covenants or guidelines will impede it from managing the Fund’s portfolio in accordance with the Fund’s
investment objectives and policies if the Fund were to utilize such leverage.
Leverage
risk would also apply to the Fund’s investments in Underlying Funds to the extent an Underlying Fund uses leverage. To the extent
the Fund uses leverage and invests in Underlying Funds that also use leverage, the risks associated with leverage will be magnified,
potentially significantly.
The
Fund currently anticipates that leverage will be obtained through the use of proceeds received from tender option bond transactions.
See “—Investment-Related Risks—Tender Option Bonds Risks.”
Portfolio
Turnover Risk
The
Fund’s annual portfolio turnover rate may vary greatly from year to year. High portfolio turnover may result in the realization
of net short-term capital gains by the Fund which, when distributed to holders of Common Shares, will be taxable as ordinary income.
In addition, a higher portfolio turnover rate results in correspondingly greater brokerage commissions and other transactional expenses
that are borne by the Fund. However, portfolio turnover rate is not considered a limiting factor in the execution of investment decisions
for the Fund. See “U.S. Federal Income Tax Matters.”
Potential
Conflicts of Interest Risk
The
Adviser, the Subadviser and the portfolio managers of the Fund have interests which may conflict with the interests of the Fund. In particular,
the Adviser and the Subadviser each manages and/or advises other investment funds or accounts with the same or similar investment objectives
and strategies as the Fund. As a result, the Adviser, the Subadviser and the Fund’s portfolio managers may devote unequal time
and attention to the management of the Fund and those other funds and accounts, and may not be able to formulate as complete a strategy
or identify equally attractive investment opportunities as might be the case if they were to devote substantially more attention to the
management of the Fund. The Adviser, the Subadviser and the Fund’s portfolio managers may identify a limited investment opportunity
that may be suitable for multiple funds and accounts, and the opportunity may be allocated among these several funds and accounts, which
may limit the Fund’s ability to take full advantage of the investment opportunity. Additionally, transaction orders may be aggregated
for multiple accounts for purpose of execution, which may cause the price or brokerage costs to be less favorable to the Fund than if
similar transactions were not being executed concurrently for other accounts. Furthermore, it is theoretically possible that a portfolio
manager could use the information obtained from managing a fund or account to the advantage of other funds or accounts under management,
and also theoretically possible that actions could be taken (or not taken) to the detriment of the Fund. At times, a portfolio manager
may determine that an investment opportunity may be appropriate for only some of the funds and accounts for which he or she exercises
investment responsibility, or may decide that certain of the funds and accounts should take differing positions with respect to a particular
security. In these cases, the portfolio manager may place separate transactions for one or more funds or accounts which may affect the
market price of the security or the execution of the transaction, or both, to the detriment or benefit of one or more other funds and
accounts. For example, a portfolio manager may determine that it would be in the interest of another account to sell a security that
the Fund holds, potentially resulting in a decrease in the market value of the security held by the Fund.
Conflicts
potentially limiting the Fund’s investment opportunities may also arise when the Fund and other clients of the Adviser or Subadviser
invest in, or even conduct research relating to, different parts of an issuer’s capital structure, such as when the Fund owns senior
debt obligations of an issuer and other clients own junior tranches of the same issuer. In such circumstances, decisions over whether
to trigger an event of default, over the terms of any workout, or how to exit an investment may result in conflicts of interest. In order
to minimize such conflicts, a portfolio manager may avoid certain investment opportunities that would potentially give rise to conflicts
with other clients of the Adviser or Subadviser (as applicable) or result in the Adviser or Subadviser receiving material, non-public
information, or the Adviser and Subadviser may enact internal procedures designed to minimize such conflicts, which could have the effect
of limiting the Fund’s investment opportunities. Additionally, if the Adviser or Subadviser acquires material non-public confidential
information in connection with its business activities for other clients, a portfolio manager or other investment personnel may be restricted
from purchasing securities or selling certain securities for the Fund or other clients.
The
portfolio managers also may engage in cross trades between funds and accounts, may select brokers or dealers to execute securities transactions
based in part on brokerage and research services provided to the Adviser or the Subadviser which may not benefit all funds and accounts
equally and may receive different amounts of financial or other benefits for managing different funds and accounts. The Adviser, the
Subadviser and their affiliates may provide more services to some types of funds and accounts than others.
The
Fund, Adviser and/or Subadviser (as applicable) have adopted policies and procedures that address the foregoing potential conflicts of
interest, including policies and procedures to address the allocation of investment opportunities, execution of portfolio transactions,
personal trading by employees and other potential conflicts of interest that are designed to ensure that all accounts of the Adviser
and Subadviser are treated equitably. There is no guarantee that the policies and procedures adopted by the Adviser, the Subadviser and
the Fund will be able to identify or mitigate the conflicts of interest that arise between the Fund and any other investment funds or
accounts that the Adviser and/or the Subadviser may manage or advise from time to time. For further information on potential conflicts
of interest, see “Management of the Fund—Conflicts of Interest” in the SAI.
In
addition, while the Fund is using leverage, the amount of the fees paid to the Adviser (and by the Adviser to the Subadviser) for investment
advisory and management services are higher than if the Fund did not use leverage because the fees paid are calculated based on the Fund’s
Managed Assets, which include assets purchased with leverage. Therefore, the Adviser and the Subadviser have a financial incentive to
leverage the Fund, which creates a conflict of interest between the Adviser and the Subadviser on the one hand and the Common Shareholders
of the Fund on the other.
Stockholder
Activism
Stockholder
activism, which could take many forms, including making public demands that the Fund consider certain strategic alternatives, engaging
in public campaigns to attempt to influence the Fund’s corporate governance and/or management, and commencing proxy contests to
attempt to elect the activists’ representatives or others to the Fund’s Board of Directors, or arise in a variety of situations,
has been increasing in the closed-end fund space recently. While the Fund is currently not subject to any stockholder activism, due to
the potential volatility of the Fund’s stock price and for a variety of other reasons, the Fund may in the future become the target
of stockholder activism. Stockholder activism could result in substantial costs and divert management’s and the Board’s attention
and resources from its business. Also, the Fund may be required to incur significant legal and other expenses related to any activist
stockholder matters. Further, the Fund’s stock price could be subject to significant fluctuation or otherwise be adversely affected
by the events, risks and uncertainties of any stockholder activism.
Cyber
Security Risk
With
the increased use of the Internet and because information technology (“IT”) systems and digital data underlie most of the
Fund’s operations, the Fund and the Adviser, Subadviser, transfer agent, and other service providers and the vendors of each (collectively
“Service Providers”) are exposed to the risk that their operations and data may be compromised as a result of internal and
external cyber-failures, breaches or attacks (“Cyber Risk”). This could occur as a result of malicious or criminal cyber-attacks.
Cyber-attacks include actions taken to: (i) steal or corrupt data maintained online or digitally, (ii) gain unauthorized access to or
release confidential information, (iii) shut down the Fund or Service Provider website through denial-of-service attacks, or (iv) otherwise
disrupt normal business operations. However, events arising from human error, faulty or inadequately implemented policies and procedures
or other systems failures unrelated to any external cyber-threat may have effects similar to those caused by deliberate cyber-attacks.
Successful
cyber-attacks or other cyber-failures or events affecting the Fund or its Service Providers may adversely impact the Fund or its shareholders
or cause an investment in the Fund to lose value. For instance, such attacks, failures or other events may interfere with the processing
of shareholder transactions, impact the Fund’s ability to calculate its NAV, cause the release of private shareholder information
or confidential Fund information, impede trading, or cause reputational damage. Because the Fund does not offer to redeem its Common
Shares at NAV, damage to the reputation of the Fund or its service providers could cause a decline in the value of the Fund’s Common
Shares, perhaps suddenly. Such attacks, failures or other events could also subject the Fund or its Service Providers to regulatory fines,
penalties or financial losses, reimbursement or other compensation costs, and/or additional compliance costs. Insurance protection and
contractual indemnification provisions may be insufficient to cover these losses. The Fund or its Service Providers may also incur significant
costs to manage and control Cyber Risk. While the Fund and its Service Providers have established IT and data security programs and have
in place business continuity plans and other systems designed to prevent losses and mitigate Cyber Risk, there are inherent limitations
in such plans and systems, including the possibility that certain risks have not been identified or that cyber-attacks may be highly
sophisticated.
Cyber
Risk is also present for issuers of securities or other instruments in which the Fund invests, which could result in material adverse
consequences for such issuers, and may cause a Fund’s investment in such issuers to lose value.
Secondary
Market for the Common Shares
The
issuance of Common Shares through the Plan may have an adverse effect on the secondary market for the Common Shares. The increase in
the number of outstanding Common Shares resulting from the issuances pursuant to the Plan and the discount to the market price at which
such Common Shares may be issued, may put downward pressure on the market price for the Common Shares. When the Common Shares are trading
at a premium, the Fund may also issue Common Shares that may be sold through private transactions effected on the NYSE or through broker-dealers.
The increase in the number of outstanding Common Shares resulting from these offerings may put downward pressure on the market price
for Common Shares.
Anti-Takeover
Provisions
Maryland
law and the Fund’s Charter and Bylaws include provisions that could limit the ability of other entities or persons to acquire control
of the Fund or to convert the Fund to open-end status, including the adoption of a staggered Board of Directors and the supermajority
voting requirements discussed herein. These provisions could deprive the holders of Common Shares of opportunities to sell their Common
Shares at a premium over the then current market price of the Common Shares or at NAV. See “Certain Provisions of the Fund’s
Charter and Bylaws and of Maryland Law.” This risk would also apply to many of the Fund’s investments in Underlying Funds.
Risks
Associated with Additional Offerings
There
are risks associated with offerings of additional common or preferred shares of the Fund. The voting power of current shareholders will
be diluted to the extent that current shareholders do not purchase shares in any future offerings of shares or do not purchase sufficient
shares to maintain their percentage interest. In addition, the sale of shares in an offering may have an adverse effect on prices in
the secondary market for the Fund’s shares by increasing the number of shares available, which may put downward pressure on the
market price of the Fund’s Shares. These sales also might make it more difficult for the Fund to sell additional equity securities
in the future at a time and price the Fund deems appropriate.
In
the event any additional series of fixed rate preferred shares are issued and such shares are intended to be listed on an exchange, prior
application will have been made to list such shares. During an initial period, which is not expected to exceed 30 days after the date
of its initial issuance, such shares may not be listed on any securities exchange. During such period, the underwriters may make a market
in such shares, although they will have no obligation to do so. Consequently, an investment in such shares may be illiquid during such
period. Fixed rate preferred shares may trade at a premium to or discount from liquidation value.
There
are risks associated with an offering of Rights (in addition to the risks discussed herein related to the offering of shares and preferred
shares). 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. In addition to the
economic dilution described above, if a shareholder does not exercise all of their Rights, the shareholder will incur voting dilution
as a result of the Rights offering. This voting dilution will occur because the 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 or preferred shares purchasable upon exercise
of Rights being less attractive to investors at the conclusion of the subscription period. This may reduce or eliminate the value of
the Rights. If investors exercise only a portion of the rights, the number of shares issued may be reduced, and the shares may trade
at less favorable prices than larger offerings for similar securities. Rights issued by the Fund may be transferable or non-transferable
rights.
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Effects of Leverage [Text Block] |
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USE
OF LEVERAGE
The
Fund may borrow money and/or issue Preferred Shares, notes or debt securities for investment purposes. These practices are known as leveraging.
In addition, the Fund may enter into derivative and other transactions that have the effect of leverage. Such other transactions may
include tender option bond transactions (as described herein). The Adviser determines whether or not to engage in leverage based on its
assessment of conditions in the debt and credit markets. As of the time immediately after it enters into any of the foregoing transactions,
the Fund will seek to limit its overall effective leverage to 45% of its Managed Assets.
The
Fund currently utilizes leverage obtained through the use of proceeds received from tender option bond transactions. See “—Tender
Option Bonds” below. To date, the Fund has not issued any Preferred Shares or debt securities.
Under
the 1940 Act, the Fund is not permitted to incur indebtedness unless immediately after doing so the Fund has an asset coverage of at
least 300% of the aggregate outstanding principal balance of indebtedness (i.e., such indebtedness may not exceed 33 1/3% of the
value of the Fund’s total assets including the amount borrowed). Additionally, under the 1940 Act, the Fund may not declare any
dividend or other distribution upon any class of its shares, or purchase any such shares, unless the aggregate indebtedness of the Fund
has, at the time of the declaration of any such dividend or distribution or at the time of any such purchase, asset coverage of at least
300% after deducting the amount of such dividend, distribution, or purchase price, as the case may be. Under the 1940 Act, the Fund is
not permitted to issue Preferred Shares unless immediately after such issuance the total asset value of the Fund’s portfolio is
at least 200% of the liquidation value of the outstanding Preferred Shares (i.e., such liquidation value may not exceed 50% of
the Fund’s Managed Assets). In addition, the Fund is not permitted to declare any cash dividend or other distribution on its Common
Shares unless, at the time of such declaration, the NAV of the Fund’s portfolio (determined after deducting the amount of such
dividend or other distribution) is at least 200% of such liquidation value of the Preferred Shares. However, certain short-term borrowings
(such as for cash management purposes) are not subject to the 33 1/3% limitation if (i) repaid within 60 days, (ii) not extended or renewed
and (iii) not in excess of 5% of the total assets of the Fund. Normally, Common Shareholders will elect the directors of the Fund except
that the holders of any Preferred Shares will elect two directors. In the event the Fund failed to pay dividends on its Preferred Shares
for two years, holders of Preferred Shares would be entitled to elect a majority of the directors until the dividends are paid.
The
Fund may be subject to certain restrictions on investments imposed by lenders or by one or more rating agencies that may issue ratings
for any senior securities issued by the Fund. Borrowing covenants or rating agency guidelines may impose asset coverage or Fund composition
requirements that are more stringent than those imposed on the Fund by the 1940 Act. Since the holders of common stock pay all expenses
related to the use of leverage, such use of leverage would create a greater risk of loss for the Fund’s Common Shares than if leverage
is not used. See “Risks—Structural Risks—Leverage Risks.”
The
Fund may enter into derivatives or other transactions (e.g., total return swaps) that may provide leverage (other than through
borrowings or the issuance of Preferred Shares). The Fund may also invest in reverse repurchase agreements, total return swaps and derivatives
or other transactions with leverage embedded in them in a limited manner or subject to a limit on leverage risk calculated based on value-at-risk,
as required by Rule 18f-4 under the 1940 Act. These transactions will not cause the Fund to pay higher advisory or administration fee
rates than it would pay in the absence of such transactions.
These
transactions entail additional expenses (e.g., transaction costs) which are borne by the Fund. These types of transactions have
the potential to increase returns to Common Shareholders, but they also involve additional risks. This additional leverage will increase
the volatility of the Fund’s investment portfolio and could result in larger losses than if the transactions were not entered into.
See “Risks—Investment-Related Risks—Derivatives Risks.”
Tender
Option Bonds. The Fund leverages its assets through the use of proceeds received from tender option bond transactions. In a tender
option bond transaction, a tender option bond trust (a “TOB Issuer”) is typically established by forming a special purpose
trust into which the Fund, or an agent on behalf of the Fund, transfers Municipal Bonds or other municipal securities. A TOB Issuer typically
issues two classes of beneficial interests: short-term floating rate notes (“TOB Floaters”), which are sold to third party
investors, and residual interest municipal tender option bonds (“TOB Residuals”), which are generally issued to the Fund.
The Fund may invest in both TOB Floaters and TOB Residuals, including TOB Floaters and TOB Residuals issued by the same TOB Issuer. The
Fund may not invest more than 5% of its Managed Assets in any single TOB Issuer. The Fund does not currently intend to invest in TOB
Residuals issued by a TOB Issuer that was not formed for the Fund, although it reserves the right to do so in the future.
The
TOB Issuer receives Municipal Bonds or other municipal securities and then issues TOB Floaters to third party investors and a TOB Residual
to the Fund. The Fund is paid the cash (less transaction expenses, which are borne by the Fund and therefore the holders of the Common
Shares indirectly) received by the TOB Issuer from the sale of the TOB Floaters and typically will invest the cash in additional Municipal
Bonds or other investments permitted by its investment policies. TOB Floaters may have first priority on the cash flow from the securities
held by the TOB Issuer and are enhanced with a liquidity support arrangement from third-party a bank or other financial institution (the
“liquidity provider”), which allows holders to tender their position at par (plus accrued interest). The Fund, in addition
to receiving cash from the sale of the TOB Floaters, also receives the TOB Residual. The TOB Residual provides the Fund with the right
to (1) cause the holders of the TOB Floaters to tender their notes to the TOB Issuer at par (plus accrued interest), and (2) acquire
the underlying Municipal Bonds or other municipal securities from the TOB Issuer. In addition, all voting rights and decisions to be
made with respect to any other rights relating to the underlying securities deposited in the TOB Issuer are passed through to the Fund,
as the holder of the TOB Residual. Such a transaction, in effect, creates exposure for the Fund to the entire return of the securities
deposited in the TOB Issuer, with a net cash investment by the Fund that is less than the value of the underlying securities deposited
in the TOB Issuer. This multiplies the positive or negative impact of the underlying securities’ return within the Fund (thereby
creating leverage).
The
TOB Issuer may be terminated without the consent of the Fund upon the occurrence of certain events, such as the bankruptcy or default
of the issuer of the underlying securities deposited in the TOB Issuer, a substantial downgrade in the credit quality of the issuer of
the securities deposited in the TOB Issuer, the inability of the TOB Issuer to obtain liquidity support for the TOB Floaters, a substantial
decline in the market value of the underlying securities deposited in the TOB Issuer, or the inability of the sponsor or remarketing
agent to remarket any TOB Floaters tendered by holders of the TOB Floaters. In such an event, the TOB Floaters would be redeemed by the
TOB Issuer at par (plus accrued interest) out of the proceeds from a sale of the underlying securities deposited in the TOB Issuer. If
this happens, the Fund would be entitled to the assets of the TOB Issuer, if any, that remain after the TOB Floaters have been redeemed
at par (plus accrued interest). If there are insufficient proceeds from the sale of these securities to redeem all of the TOB Floaters
at par (plus accrued interest), the liquidity provider or holders of the TOB Floaters would bear the losses on those securities and there
would be no recourse to the Fund’s assets (unless the Fund held a recourse TOB Residual). A recourse TOB Residual is generally
a TOB Residual issued by a TOB Issuer in which the TOB Floaters represent greater than 75% of the market value of the securities at the
time they are deposited in the TOB Issuer. If the Fund were to invest in a recourse TOB Residual to leverage its portfolio, it would
typically be required to enter into an agreement pursuant to which the Fund is required to pay to the liquidity provider the difference
between the purchase price of any TOB Floaters put to the liquidity provider by holders of the TOB Floaters and the proceeds realized
from the remarketing of those TOB Floaters or the sale of the assets in the TOB Issuer. The Fund currently does not intend to use recourse
TOB Residuals to leverage the Fund’s portfolio, but reserves the right to do so depending on future market conditions.
Under
accounting rules, securities of the Fund that are deposited into a TOB Issuer are treated as investments of the Fund, and are presented
on the Fund’s Schedule of Investments and outstanding TOB Floaters issued by a TOB Issuer are presented as liabilities in the Fund’s
Statement of Assets and Liabilities. Interest income from the underlying security is recorded by the Fund on an accrual basis. Interest
expense incurred on the TOB Floaters and other expenses related to remarketing, administration and trustee services to a TOB Issuer are
reported as expenses of the Fund.
For
TOB Floaters, generally, the interest rate earned will be based upon the market rates for Municipal Bonds with maturities or remarketing
provisions that are comparable in duration to the periodic interval of the tender option, which may vary from weekly, to monthly, to
extended periods of one year or multiple years. Since the option feature has a shorter term than the final maturity or first call date
of the underlying securities deposited in the TOB Issuer, the Fund, if it is the holder of the TOB Floaters, relies upon the terms of
the agreement with the financial institution furnishing the option as well as the credit strength of that institution. As further assurance
of liquidity, the terms of the TOB Issuer provide for a liquidation of the Municipal Bond deposited in the TOB Issuer and the application
of the proceeds to pay off the TOB Floaters.
There
are inherent risks with respect to investing in a TOB Issuer. These risks include, among others, the bankruptcy or default of the issuer
of the securities deposited in the TOB Issuer, a substantial downgrade in the credit quality of the issuer of the securities deposited
in the TOB Issuer, the inability of the TOB Issuer to obtain liquidity support for the TOB Floaters, a substantial decline in the market
value of the securities deposited in the TOB Issuer, or the inability of the sponsor or remarketing agent to remarket any TOB Floaters
tendered by holders of the TOB Floaters. See “Risks—Investment-Related Risks—Tender Option Bonds Risk.”
Effects
of Leverage. The use of proceeds from tender option bond transactions represented approximately 40% of Managed Assets as of June
30, 2023. Asset coverage with respect to tender option bond transactions was 251%. The total weighted average cost of the leverage outstanding
as of June 30, 2023 (inclusive of the leverage attended through the use of tender option bond transactions) was 3.14% of the principal
amount outstanding.
Assuming
the Fund’s leverage costs remain as described above (at an assumed annual cost of 3.14% of the principal amount outstanding) the
annual return that the Fund’s portfolio must experience (net of expenses) in order to cover its leverage costs would be 1.25%.
The
following table is furnished in response to requirements of the SEC. It is designed to illustrate the effect of leverage on total return
on Common Shares, assuming investment portfolio total returns (comprised of income, net expenses and changes in the value of investments
held in the Fund’s portfolio) of -10%, -5%, 0%, 5% and 10%. These assumed investment portfolio returns are hypothetical figures
and are not necessarily indicative of what the Fund’s investment portfolio returns will be. In other words, the Fund’s actual
returns may be greater or less than those appearing in the table below. The table further reflects the use of leverage representing approximately
40% of the Fund’s Managed Assets and the Fund’s assumed annual leverage cost rate of 3.14% of the principal amounts outstanding.
See “Risks—Structural Risks—Leverage Risks.”
Assumed
Portfolio Return |
-10.00% |
-5.00% |
0.00% |
5.00% |
10.00% |
Common
Share Total Return |
-18.72% |
-10.40% |
-2.08% |
6.23% |
14.55% |
Total
return is composed of two elements—the dividends on Common Shares paid by the Fund (the amount of which is largely determined by
the Fund’s net investment income after paying the cost of leverage) and realized and unrealized gains or losses on the value of
the securities the Fund owns. As the table shows, leverage generally increases the return to Common Shareholders when portfolio return
is positive or greater than the costs of leverage and decreases return when the portfolio return is negative or less than the costs of
leverage.
During
the time in which the Fund is using leverage, the amount of the fees paid to the Adviser (and from the Adviser to the Subadviser) for
investment management services (and subadvisory services) is higher than if the Fund did not use leverage because the fees paid are calculated
based on the Fund’s Managed Assets. This may create a conflict of interest between the Adviser and the Subadviser, on the one hand,
and the holders of Common Shares, on the other. Also, because the leverage costs will be borne by the Fund at a specified interest rate,
only the Fund’s Common Shareholders will bear the cost of the Fund’s management fees and other expenses. There can be no
assurance that a leveraging strategy will be successful during any period in which it is employed.
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Effects of Leverage [Table Text Block] |
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Assumed
Portfolio Return |
-10.00% |
-5.00% |
0.00% |
5.00% |
10.00% |
Common
Share Total Return |
-18.72% |
-10.40% |
-2.08% |
6.23% |
14.55% |
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Return at Minus Ten [Percent] |
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(18.72%)
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Return at Minus Five [Percent] |
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(10.40%)
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Return at Zero [Percent] |
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(2.08%)
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Return at Plus Five [Percent] |
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6.23%
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Return at Plus Ten [Percent] |
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14.55%
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Effects of Leverage, Purpose [Text Block] |
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The
following table is furnished in response to requirements of the SEC. It is designed to illustrate the effect of leverage on total return
on Common Shares, assuming investment portfolio total returns (comprised of income, net expenses and changes in the value of investments
held in the Fund’s portfolio) of -10%, -5%, 0%, 5% and 10%. These assumed investment portfolio returns are hypothetical figures
and are not necessarily indicative of what the Fund’s investment portfolio returns will be. In other words, the Fund’s actual
returns may be greater or less than those appearing in the table below. The table further reflects the use of leverage representing approximately
40% of the Fund’s Managed Assets and the Fund’s assumed annual leverage cost rate of 3.14% of the principal amounts outstanding.
See “Risks—Structural Risks—Leverage Risks.”
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Share Price [Table Text Block] |
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MARKET
PRICE(1) |
NET
ASSET
VALUE
(2) |
PREMIUM/(DISCOUNT)
TO
NET ASSET
VALUE(3) |
Quarter
Ended |
High |
Low |
High |
Low |
High |
Low |
March
31, 2022 |
$20.19 |
$19.03 |
$20.28 |
$19.60 |
-0.44% |
-2.91% |
June
30, 2022 |
$19.30 |
$15.51 |
$19.51 |
$17.45 |
-1.08% |
-11.12% |
September
30, 2022 |
$17.71 |
$15.33 |
$18.46 |
$16.58 |
-4.06% |
-7.54% |
December
31, 2022 |
$15.90 |
$14.02 |
$17.41 |
$16.12 |
-8.67% |
-13.03% |
March
31, 2023 |
$16.84 |
$14.73 |
$17.98 |
$17.09 |
-6.34% |
-13.81% |
June
30, 2023 |
$16.08 |
$14.85 |
$17.25 |
$17.11 |
-6.78% |
-13.21% |
September 30, 2023 |
$16.40 |
$14.05 |
$17.22 |
$15.86 |
-4.76% |
-11.41% |
December 31, 2023 |
$15.65 |
$12.99 |
$17.35 |
$15.26 |
-9.80% |
-14.88% |
| (1) | Based
on high and low closing market price for the respective quarter. |
| (2) | Based
on the net asset value calculated on the day of the high and low closing market prices, as
applicable, as of the close of regular trading on the NYSE (normally 4:00 p.m. Eastern Time). |
| (3) | Calculated
based on the information presented. |
|
|
|
|
|
|
|
|
|
|
Lowest Price or Bid |
[10] |
|
|
$ 12.99
|
$ 14.05
|
$ 14.85
|
$ 14.73
|
$ 14.02
|
$ 15.33
|
$ 15.51
|
$ 19.03
|
Highest Price or Bid |
[10] |
|
|
15.65
|
16.40
|
16.08
|
16.84
|
15.90
|
17.71
|
19.30
|
20.19
|
Lowest Price or Bid, NAV |
[11] |
|
|
15.26
|
15.86
|
17.11
|
17.09
|
16.12
|
16.58
|
17.45
|
19.60
|
Highest Price or Bid, NAV |
[11] |
|
|
$ 17.35
|
$ 17.22
|
$ 17.25
|
$ 17.98
|
$ 17.41
|
$ 18.46
|
$ 19.51
|
$ 20.28
|
Highest Price or Bid, Premium (Discount) to NAV [Percent] |
[12] |
|
|
(9.80%)
|
(4.76%)
|
(6.78%)
|
(6.34%)
|
(8.67%)
|
(4.06%)
|
(1.08%)
|
(0.44%)
|
Lowest Price or Bid, Premium (Discount) to NAV [Percent] |
[12] |
|
|
(14.88%)
|
(11.41%)
|
(13.21%)
|
(13.81%)
|
(13.03%)
|
(7.54%)
|
(11.12%)
|
(2.91%)
|
Latest Share Price |
|
|
$ 15.98
|
|
|
|
|
|
|
|
|
Latest Premium (Discount) to NAV [Percent] |
|
|
(7.74%)
|
|
|
|
|
|
|
|
|
Latest NAV |
|
|
$ 17.32
|
|
|
|
|
|
|
|
|
Capital Stock, Long-Term Debt, and Other Securities [Abstract] |
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Capital Stock [Table Text Block] |
|
DESCRIPTION
OF THE FUND’S SECURITIES
The
following summary of the terms of the Securities does not purport to be complete and is subject to and qualified in its entirety by reference
to the Maryland General Corporation Law, and to the Fund’s Charter and the Fund’s Bylaws, copies of which are filed as exhibits
to the Registration Statement.
The
Fund’s authorized capital stock consists of 50,000,000 shares of common stock, $0.0001 par value per share, all of which is classified
as Common Shares. The Fund’s Board of Directors, with the approval of a majority of the entire Board, but without any action by
the shareholders of the Fund, may amend the Fund’s Charter from time to time to increase or decrease the aggregate number of shares
of stock of the Fund or the number of shares of stock of any class or series that the Fund has authority to issue.
In
general, shareholders or subscribers for the Fund’s stock have no personal liability for the debts and obligations of the Fund
because of their status as shareholders or subscribers, except to the extent that the subscription price or other agreed consideration
for the stock has not been paid.
Common
Stock
The Common
Shares issued in the offering are fully paid and non-assessable. The
Common Shares have no preemptive, conversion, exchange, appraisal or redemption rights, and each share has equal voting, dividend, distribution
and liquidation rights.
Common
Shareholders are entitled to receive dividends if and when the Board of Directors declares dividends from funds legally available. Whenever
Preferred Shares or borrowings are outstanding, Common Shareholders will not be entitled to receive any distributions from the Fund unless
all accrued dividends on the Preferred Shares and interest and principal payments on borrowings have been paid, and unless the applicable
asset coverage requirements under the 1940 Act would be satisfied after giving effect to the distribution as described above.
In
the event of the Fund’s liquidation, dissolution or winding up, Common Shares would be entitled to share ratably in all of the
Fund’s assets that are legally available for distribution after the Fund pays all debts and other liabilities and subject to any
preferential rights of holders of Preferred Shares, if any Preferred Shares are outstanding at such time.
Common
Shareholders are entitled to one vote per share. All voting rights for the election of directors are noncumulative, which means that,
assuming there are no Preferred Shares are outstanding, the holders of more than 50% of the Common Shares will elect 100% of the directors
then nominated for election if they choose to do so and, in such event, the holders of the remaining Common Shares will not be able to
elect any Directors.
The
Fund’s Charter authorizes the Board of Directors to classify and reclassify any unissued shares of common stock into other classes
or series of stock. Prior to issuance of shares of each class or series, the Board of Directors is required by Maryland law and by the
Fund’s Charter to set the terms, preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends
or other distributions, qualifications and terms or conditions of redemption for each class or series. Thus, the Board of Directors could
authorize the issuance of shares of common stock with terms and conditions that could have the effect of delaying, deferring or preventing
a transaction or a change in control that might involve a premium price for holders of the Fund’s Common Shares or otherwise be
in their best interest. As of the date of this Prospectus, the Fund has no plans to classify or reclassify any unissued shares of common
stock.
The
Fund’s currently outstanding common shares are, and the Common Shares offered in this Prospectus will be, subject to notice of
issuance, listed on the NYSE under the trading or “ticker” symbol “RMMZ.” Under the rules of the NYSE applicable
to listed companies, the Fund is required to hold an annual meeting of shareholders in each year. The provisions of the 1940 Act generally
require that the public offering price (less underwriting commissions and discounts) of common shares sold by a closed-end investment
company must equal or exceed the net asset value of such company’s common shares (calculated within 48 hours of the pricing of
such offering), unless such a sale is made in connection with an offering to existing holders of shares of common stock or with the consent
of a majority of its common stockholders. The Fund may, from time to time, seek the consent of common shareholders to permit the issuance
and sale by the Fund of Common Shares at a price below the Fund’s then-current net asset value, subject to certain conditions.
If such consent is obtained, the Fund may, contemporaneous with and in no event more than one year following the receipt of such consent,
sell Common Shares at a price below net asset value in accordance with any conditions adopted in connection with the giving of such consent.
Additional information regarding any consent of common shareholders obtained by the Fund and the applicable conditions imposed on the
issuance and sale by the Fund of Common Shares at a price below net asset value will be disclosed in the prospectus supplement relating
to any such offering of Common Shares at a price below net asset value. See also “—Subscription Rights” below.
Preferred
Stock
The
Fund’s Charter authorizes the Board of Directors to classify and reclassify any unissued shares of stock into other classes or
series of stock, including Preferred Shares, without the approval of Common Shareholders. Prior to issuance of any shares of Preferred
Shares, the Board of Directors is required by Maryland law and by the Fund’s Charter to set the terms, preferences, conversion
and other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions
of redemption for such shares. Thus, the Board of Directors could authorize the issuance of Preferred Shares with terms and conditions
that could have the effect of delaying, deferring or preventing a transaction or a change in control that might involve a premium price
for Common Shareholders or otherwise be in their best interest. The prospectus supplement for any potential offering of preferred shares
will describe the terms and conditions of those shares, including information regarding the liquidation preference, distribution rate,
any optional or mandatory redemption provisions and whether the preferred shares are convertible into common shares. As of the date of
this Prospectus, the Fund has not issued any Preferred Shares.
Any
issuance of Preferred Shares must comply with the requirements of the 1940 Act. Specifically, the Fund is not permitted under the 1940
Act to issue Preferred Shares unless immediately after such issuance the total asset value of the Fund’s portfolio is at least
200% of the liquidation value of the outstanding Preferred Shares. Among other requirements, including other voting rights, the 1940
Act requires that the holders of any Preferred Shares, voting separately as a single class, have the right to elect at least two directors
at all times. In addition, subject to the prior rights, if any, of the holders of any other class of senior securities outstanding, the
holders of any Preferred Shares would have the right to elect a majority of the Fund’s directors at any time two years’ dividends
on any Preferred Shares are unpaid.
Preferred
Shares of the Fund would be senior to the common shares with respect to the payment of dividends and the distributions of the assets
of the Fund upon liquidation. In addition, all Preferred Shares of the Fund would be pari passu (or on equal footing) with one another
and junior to the Fund’s senior securities representing indebtedness. See “Use of Leverage”.
The
applicable prospectus supplement will set forth whether or not the shares of the Fund’s preferred stock offered in this Prospectus
will be listed or traded on any securities exchange. If the shares of the Fund’s preferred stock are not listed on a securities
exchange, there may be no active secondary trading market for such shares and an investment in such shares may be illiquid.
The
terms, if any, on which the preferred stock may be exchanged for or converted into shares of common stock or any other security and,
if applicable, the conversion or exchange price, or how it will be calculated, and the conversion or exchange period will also be set
forth in the applicable prospectus supplement.
Subscription
Rights
The
Fund may issue Rights to (i) common shareholders to purchase Common Shares and/or Preferred Shares or (ii) preferred shareholders to
purchase Preferred Shares (subject to applicable law). Rights may be issued independently or together with any other offered Security
and may or may not be transferable by the person purchasing or receiving the Rights. In connection with a Rights offering to common and/or
preferred shareholders, the Fund would distribute certificates evidencing the Rights and a prospectus supplement, containing all of the
material terms of the Rights agreement relating to such Rights (the “Subscription Rights Agreement”), to the Fund’s
common or preferred shareholders, as applicable, as of the record date that the Fund sets for determining the shareholders eligible to
receive Rights in such Rights offering.
The
applicable prospectus supplement would describe the following terms of Rights in respect of which this Prospectus is being delivered:
●
the period of time the offering would remain open (which will be open a minimum number of days such that all record holders would be
eligible to participate in the offering and will not be open longer than 120 days);
●
the title of such subscription Rights;
●
the exercise price for such Rights (or method of calculation thereof);
●
the number of such Rights issued in respect of each common share;
●
the number of Rights required to purchase a single preferred share;
●
the extent to which such Rights are transferable and the market on which they may be traded if they are transferable;
●
if applicable, a discussion of the material U.S. federal income tax considerations applicable to the issuance or exercise of such Rights;
●
the date on which the right to exercise such Rights will commence, and the date on which such right will expire (subject to any extension);
●
the extent to which such Rights include an over-subscription privilege with respect to unsubscribed securities and the terms of such
over-subscription privilege;
●
any termination right the Fund may have in connection with such Rights offering;
●
the expected trading market, if any, for Rights; and
●
any other terms of such Rights, including exercise, settlement and other procedures and limitations relating to the transfer and exercise
of such Rights.
Exercise
of Rights. Each Right would entitle the holder of the Right to purchase for cash such number of shares at such exercise price as
in each case is set forth in, or be determinable as set forth in, the prospectus supplement relating to the Rights offered thereby. Rights
would be exercisable at any time up to the close of business on the expiration date for such Rights set forth in the prospectus supplement.
After the close of business on the expiration date, all unexercised Rights would become void.
Upon
expiration of the Rights offering and the receipt of payment and the Rights certificate properly completed and duly executed at the corporate
trust office of the Rights agent or any other office indicated in the prospectus supplement, the Fund would issue, as soon as practicable,
the shares purchased as a result of such exercise. To the extent permissible under applicable law, the Fund may determine to offer any
unsubscribed offered Securities directly to persons other than shareholders, to or through agents, underwriters or dealers or through
a combination of such methods, as set forth in the applicable prospectus supplement.
Subscription
Rights to Purchase Common and Preferred Stock
The
Fund may issue Rights, which would entitle holders to purchase both Common Shares and Preferred Shares in a ratio to be set forth in
the applicable prospectus supplement. In accordance with the 1940 Act, at least three subscription rights to purchase Common Shares would
be required to subscribe for one Common Share. It is expected that Rights to purchase both Common Shares and Preferred Shares would require
holders to purchase an equal number of Common Shares and Preferred Shares, and would not permit holders to purchase an unequal number
of Common Shares or Preferred Shares, or purchase only Common Shares or only Preferred Shares. For example, such an offering might be
structured such that three Rights would entitle an investor to purchase one Common Share and one Preferred Share, and such investor would
not be able to choose to purchase only a Common Share or only a Preferred Share upon the exercise of his, her or its Rights.
The
Common Shares and Preferred Shares issued pursuant to the exercise of any such Rights, however, would at all times be separately tradeable
securities. Such Common Shares and Preferred Shares would not be issued as a “unit” or “combination” and would
not be listed or traded as a “unit” or “combination” on a securities exchange, such as the NYSE, at any time.
The applicable prospectus supplement will set forth additional details regarding an offering of Rights to purchase Common Shares and
Preferred Shares.
|
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Security Obligations of Ownership [Text Block] |
|
In
general, shareholders or subscribers for the Fund’s stock have no personal liability for the debts and obligations of the Fund
because of their status as shareholders or subscribers, except to the extent that the subscription price or other agreed consideration
for the stock has not been paid.
|
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|
Outstanding Securities [Table Text Block] |
|
Title
of Class |
Amount
Authorized |
Amount
Held by the
Fund
or for its Account |
Amount
Outstanding |
Common
Shares |
50,000,000 |
0 |
8,455,000 |
|
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|
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|
|
Investment And Market Risks [Member] |
|
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|
General Description of Registrant [Abstract] |
|
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|
|
Risk [Text Block] |
|
Investment
and Market Risks
An
investment in Common Shares is subject to investment risk, including the possible loss of the entire principal amount invested. An investment
in Common Shares represents an indirect investment in the Underlying Funds owned by the Fund. The value of the Fund or the Underlying
Funds, like other market investments, may move up or down, sometimes rapidly and unpredictably. Overall stock market risks may also affect
the NAV of the Fund or the Underlying Funds. Factors such as economic growth and market conditions, interest rate levels and political
events affect the securities markets. The Common Shares at any point in time may be worth less than the original investment, even after
taking into account any reinvestment of dividends and distributions.
|
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|
Management Risks [Member] |
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|
General Description of Registrant [Abstract] |
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Risk [Text Block] |
|
Management
Risks
The
Adviser’s and the Subadviser’s judgments about the attractiveness, value and potential appreciation of a particular asset
class or individual security in which the Fund invests may prove to be incorrect and there is no guarantee that the Adviser’s or
the Subadviser’s judgment, as applicable, will produce the desired results. Similarly, the Fund’s investments in Underlying
Funds are subject to the judgment of the Underlying Funds’ managers which may prove to be incorrect. In addition, the Adviser and
Subadviser will have limited information as to the portfolio holdings of the Underlying Funds at any given time. This may result in the
Adviser and Subadviser having less ability to respond to changing market conditions. The Fund may allocate its assets so as to under-emphasize
or over-emphasize its investments under the wrong market conditions, in which case the Fund’s NAV may be adversely affected.
In
addition, the Fund depends on the diligence, skill and business contacts of the investment professionals of the Adviser and the Subadviser
to achieve the Fund’s investment objectives. In particular, the Adviser and Subadviser are dependent upon the expertise of their
respective portfolio management teams to implement the Fund’s strategies. If the Adviser or the Subadviser were to lose the services
of one or more key individuals, including members of their portfolio management teams, each may not be able to hire qualified replacements
or may require an extended time to do so. This could prevent the Fund from achieving its investment objectives and could have an adverse
effect on an investment in the Fund.
The
Adviser and the Subadviser each manage several registered open-end funds and closed-end funds, and the portfolio managers have previous
experience managing closed-end funds. As with any managed fund, the Adviser and Subadviser may not be successful in selecting the best
performing securities, leverage strategy or investment techniques, and the Fund’s performance may lag behind that of similar funds
as a result.
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|
Securities Risks [Member] |
|
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General Description of Registrant [Abstract] |
|
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Risk [Text Block] |
|
Securities
Risks
The
value of the Fund or an Underlying Fund may decrease in response to the activities and financial prospects of individual securities in
the fund’s portfolio.
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Municipal Bond Risks [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
|
Municipal
Bond Risks
Economic
exposure to Municipal Bonds involves certain risks. The Fund’s economic exposure to Municipal Bonds includes Municipal Bonds in
the Fund’s portfolio and Municipal Bonds to which the Fund is exposed through Underlying Funds and the ownership of TOB Residuals.
The municipal market is one in which dealer firms make markets in bonds on a principal basis using their proprietary capital, and at
times these firms’ capital may be severely constrained. In such event, some firms may be unwilling to commit their capital to purchase
and to serve as a dealer for Municipal Bonds. Municipal Bonds typically are not registered with the SEC or any state securities commission
and will not be listed on any national securities exchange. The amount of public information available about the Municipal Bonds to which
the Fund is economically exposed is generally less than that for corporate equities or bonds, and the investment performance of the Fund
may therefore be more dependent on the analytical abilities of the Adviser and the Subadviser than would be a stock fund or taxable bond
fund. The secondary market for Municipal Bonds, particularly non-investment grade bonds, also tends to be less well-developed or liquid
than many other securities markets, which may adversely affect the ability to sell such bonds at attractive prices or at prices approximating
those at which the Fund and Underlying Funds currently value them.
In
addition, many state and municipal governments that issue securities are under significant economic and financial stress and may not
be able to satisfy their obligations. The ability of municipal issuers to make timely payments of interest and principal may be diminished
during general economic downturns and as governmental cost burdens are reallocated among Federal, state and local governments. The COVID-19
pandemic significantly stressed the financial resources of many municipalities and other issuers of municipal securities, which may impair
their ability to meet their financial obligations and may harm the value or liquidity of the Fund’s investments in municipal securities.
In particular, responses by municipalities to the COVID-19 pandemic have caused disruptions in business activities. These and other effects
of the COVID-19 pandemic, such as increased unemployment levels, have impacted tax and other revenues of municipalities and other issuers
of municipal securities and the financial conditions of such issuers. As a result, there is increased budgetary and financial pressure
on municipalities and heightened risk of default or other adverse credit or similar events for issuers of municipal securities, which
would adversely impact the Fund’s investments. See “—Market Disruption, Geopolitical, Pandemic and Climate Change Risks.”
In addition, the taxing power of any governmental entity may be limited by provisions of state constitutions or other laws, and an entity’s
credit generally will depend on many factors, including the entity’s tax base, the extent to which the entity relies on Federal
or state aid, and other factors which are beyond the entity’s control. In addition, laws enacted in the future by Congress or state
legislatures or referenda could extend the time for payment of principal and/or interest, or impose other constraints on enforcement
of such obligations, or on the ability of municipalities to levy taxes or could limit the tax exemption of certain types of Municipal
Bonds that the Fund and Underlying Funds may invest in. Issuers of Municipal Bonds might seek protection under the bankruptcy laws. In
the event of bankruptcy of such an issuer, holders of Municipal Bonds could experience delays in collecting principal and interest and
such holders may not, in all circumstances, be able to collect all principal and interest to which they are entitled. To enforce its
rights in the event of a default in the payment of interest or repayment of principal, or both, the Fund may, in certain circumstances,
take possession of and manage the assets securing the issuer’s obligations on such securities, which may increase the Fund’s
operating expenses. Any income derived from the Fund’s ownership or operation of such assets may not be tax-exempt.
General
obligation bonds are obligations involving the credit of an issuer possessing taxing power and are payable from such issuer’s general
revenues and not from any particular source. Timely payments depend on the issuer’s credit quality, ability to raise tax revenues
and the ability to maintain an adequate tax base. The timely payments may also be influenced by any unfunded pension liabilities or other
post-employee benefit plan liabilities.
Revenue
bonds involve special risks, including that the underlying facilities may not generate sufficient income to pay expenses and interest
costs. In the case of revenue bonds issued by state and local agencies to finance the development of low-income, multi-family housing,
such bonds are generally non-recourse against the property owner, may be junior to the rights of others with an interest in the properties,
may pay interest that changes based in part on the financial performance of the property, may be prepayable without penalty and may be
used to finance the construction of housing developments which, until completed and rented, do not generate income to pay interest. Increases
in interest rates payable on senior obligations may make it more difficult for issuers to meet payment obligations on subordinated bonds.
The
Fund may be more sensitive to adverse economic, business or political developments if it invests a substantial portion of its assets
in the bonds of specific projects (such as those relating to education, health care, housing, transportation, and utilities), industrial
development bonds, or general obligation bonds, particularly if there is a large concentration from issuers in a single state. This is
because the value of Municipal Bonds can be significantly affected by the political, economic, legal, and legislative realities of the
particular issuer’s locality or municipal sector events. Similarly, changes to state or federal regulation tied to a specific sector,
such as the hospital sector, could have an impact on the revenue stream for a given subset of the market.
Municipal
leases and certificates of participation involve special risks not normally associated with general obligation or revenue bonds. Leases
and installment purchase or conditional sale contracts (which normally provide for title to the leased asset to pass eventually to the
governmental issuer) have evolved as a means for governmental issuers to acquire property and equipment without meeting the constitutional
and statutory requirements for the issuance of debt. The debt issuance limitations are deemed to be inapplicable because of the inclusion
in many leases or contracts of “non-appropriation” clauses that relieve the governmental issuer of any obligation to make
future payments under the lease or contract unless money is appropriated for such purpose by the appropriate legislative body on a yearly
or other periodic basis. In addition, such leases or contracts may be subject to the temporary abatement of payments in the event that
the governmental issuer is prevented from maintaining occupancy of the lease premises or utilizing the leased equipment. Although the
obligations may be secured by the leased equipment or facilities, the disposition of the property in the event of non-appropriation or
foreclosure might prove difficult, time consuming and costly, and may result in a delay in recovering or the failure to fully recover
ownership of the assets.
Certificates
of participation, which represent interests in unmanaged pools of municipal leases or installment contracts, involve the same risks as
the underlying municipal leases. In addition, the Fund may be dependent upon the municipal authority issuing the certificate of participation
to exercise remedies with respect to the underlying securities. Certificates of participation also entail a risk of default or bankruptcy,
both of the issuer of the municipal lease and also the municipal agency issuing the certificate of participation.
Municipalities
and other public authorities issue private activity bonds to finance development of facilities for use by a private enterprise, which
is solely responsible for paying the principal and interest on the bond. Moral obligation bonds are generally issued by special purpose
public authorities of a state or municipality. If the issuer is unable to meet its obligations, repayment of these bonds becomes a moral
commitment, but not a legal obligation, of the state or municipality.
To
be tax-exempt, Municipal Bonds must meet certain regulatory requirements. If a Municipal Bond fails to meet such requirements, the interest
received by the Fund from its investment in such bonds and distributed to shareholders may be taxable. It is possible that interest on
a Municipal Bond may be declared taxable after the issuance of the bond, and this determination may apply retroactively to the date of
the issuance of the bond, which could cause a portion of prior distributions made by the Fund to be taxable to shareholders in the year
of receipt.
Municipal
bonds are also subject to interest rate, credit, and liquidity risk, which are discussed generally elsewhere in this section.
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State Specific And Industry Risk [Member] |
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|
General Description of Registrant [Abstract] |
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Risk [Text Block] |
|
State
Specific and Industry Risk
The
Fund may not directly invest more than 25% of its Managed Assets in Municipal Bonds in any one industry or in any one state of origin.
However, the Fund’s overall exposure to a single industry or a single state of origin may be greater after factoring in the investments
of the Underlying Funds, in which case the Fund may be more susceptible to adverse economic, political or regulatory occurrences affecting
that particular state or industry. For example, the Fund may invest, under normal market conditions, up to 35% of the Managed Assets
allocated to the Tactical Municipal Closed-End Fund Strategy in single state municipal closed-end funds and such investments could increase
the Fund’s overall exposure to a particular single state. To the extent that the Fund is aware of the investments held by the Underlying
Funds, the Fund will consider such information when determining compliance with its fundamental policy relating to industry concentration
as described in the SAI. See “Investment Restrictions” in the Fund’s SAI.
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Puerto Rico Municipal Bond Risks [Member] |
|
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|
General Description of Registrant [Abstract] |
|
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Risk [Text Block] |
|
Puerto
Rico Municipal Bond Risks
The
Fund may invest directly, without limit, in Puerto Rico Municipal Bonds, subject to the industry, issuer and below investment grade investment
restrictions under the Municipal Bond Income Strategy, as applicable. Municipal obligations issued by the Commonwealth of Puerto Rico
or its political subdivisions, agencies, instrumentalities, or public corporations may be affected by economic, market, political, and
social conditions in Puerto Rico. Puerto Rico currently is experiencing significant fiscal and economic challenges, including substantial
debt service obligations, high levels of unemployment, underfunded public retirement systems, and persistent government budget deficits.
These challenges may negatively affect the value of the Fund’s investments in Puerto Rico Municipal Bonds. Major ratings agencies
have downgraded the general obligation debt of Puerto Rico to below investment grade and continue to maintain a negative outlook for
this debt, which increases the likelihood that the rating will be lowered further. In both August 2015 and January 2016, Puerto Rico
defaulted on its debt by failing to make full payment due on its outstanding bonds, and there can be no assurance that Puerto Rico will
be able to satisfy its future debt obligations. Further downgrades or defaults may place additional strain on the Puerto Rico economy
and may negatively affect the value, liquidity, and volatility of the Fund’s investments in Puerto Rico Municipal Bonds. Legislation
could also impact the value of the Fund’s investments in Puerto Rico Municipal Bonds.
These
challenges and uncertainties have been exacerbated by Hurricane Maria, and subsequent hurricanes and storms, and the resulting natural
disaster in Puerto Rico. In September 2017, Hurricane Maria struck Puerto Rico, causing major damage across the Commonwealth, including
damage to its water, power, and telecommunications infrastructure. The length of time needed to rebuild Puerto Rico’s infrastructure
is unclear, but could amount to years, during which the Commonwealth is likely to be in an even more uncertain economic state. The full
extent of the natural disaster’s impact on Puerto Rico’s economy and foreign investment in Puerto Rico is difficult to estimate.
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Tobacco Settlement Bond Risks [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Tobacco
Settlement Bond Risks
The
Fund may invest directly, without limit, in tobacco settlement bonds, subject to the industry, issuer and below investment grade investment
restrictions under the Municipal Bond Income Strategy, as applicable. Annual payments on tobacco settlement bonds, and thus risk to the
Fund, are highly dependent on the receipt of future settlement payments to the state or its governmental entity pursuant to the MSA.
The actual amount of future settlement payments is further dependent on many factors, including, but not limited to, annual domestic
cigarette shipments, reduced cigarette consumption, increased taxes on cigarettes, inflation, financial capability of tobacco companies,
continuing litigation and the possibility of tobacco manufacturer bankruptcy. The initial and annual payments made by the tobacco companies
will be adjusted based on a number of factors, the most important of which is domestic cigarette consumption. If the volume of cigarettes
shipped in the U.S. by manufacturers participating in the settlement decreases significantly, payments due from them will also decrease.
Demand for cigarettes in the U.S. could continue to decline due to price increases needed to recoup the cost of payments by tobacco companies.
Demand could also be affected by: anti-smoking campaigns, tax increases, reduced advertising, enforcement of laws prohibiting sales to
minors; elimination of certain sales venues such as vending machines; the spread of local ordinances restricting smoking in public places,
and competition from e-cigarettes. As a result, payments made by tobacco manufacturers could be negatively impacted if the decrease in
tobacco consumption is significantly greater than the forecasted decline. A market share loss by the MSA companies to non-MSA participating
tobacco manufacturers would cause a downward adjustment in the payment amounts. A participating manufacturer filing for bankruptcy also
could cause delays or reductions in bond payments. The MSA itself has been subject to legal challenges and has, to date, withstood those
challenges.
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Credit And Below Investment Grade Securities Risks [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Credit
and Below Investment Grade Securities Risks
Credit
risk is the risk that an issuer of a security may be unable or unwilling to make dividend, interest and principal payments when due and
the related risk that the value of a security may decline because of concerns about the issuer’s ability or willingness to make
such payments. Credit risk may be heightened for the Fund because it and the Underlying Funds may invest in below investment grade securities,
which are commonly referred to as “junk” and “high yield” securities; such securities, while generally offering
the potential for higher yields than investment grade securities with similar maturities, involve greater risks, including the possibility
of dividend or interest deferral, default or bankruptcy, and are regarded as predominantly speculative with respect to the issuer’s
capacity to pay dividends or interest and repay principal. The below investment grade securities receiving the lowest rating from an
NRSRO are typically already in default. In addition, below investment grade securities are generally susceptible to decline in market
value due to adverse economic and business developments and are often unsecured and subordinated to other creditors of the issuer. The
market values for below investment grade securities tend to be very volatile, and these securities are generally less liquid than investment
grade securities. Because of the substantial risks associated with below investment grade securities, among other factors, you could
lose money on your investment in Common Shares, both in the short term and the long term. See “Investment Policies and Techniques—Below
Investment Grade Securities” in the SAI for additional discussion of below investment grade securities risks. See also “—Defaulted
and Distressed Securities Risk.”
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Interest Rate Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Interest
Rate Risk
Generally,
when market interest rates rise, bond prices fall, and vice versa. Interest rate risk is the risk that the municipal securities in the
Fund’s portfolio will decline in value because of increases in market interest rates. As interest rates decline, issuers of municipal
securities may prepay principal earlier than scheduled, forcing the Fund to reinvest in lower-yielding securities and potentially reducing
the Fund’s income. As interest rates increase, slower than expected principal payments may extend the average life of securities,
potentially locking in a below-market interest rate and reducing the Fund’s value. In typical market interest rate environments,
the prices of longer-term municipal securities generally fluctuate more than prices of shorter-term municipal securities as interest
rates change.
Interest
rates in the United States and many other countries have risen in recent periods and may continue to rise in the future. Additionally,
as a result of increasing interest rates, reserves held by banks and other financial institutions in bonds and other debt securities
could face a significant decline in value relative to deposits and liabilities, which coupled with general economic headwinds resulting
from a changing interest rate environment, creates liquidity pressures at such institutions, as evidenced by the bank run on the Silicon
Valley Bank Financial Group (“SVB”) causing it to be placed into receivership. As a result, certain sectors of the credit
markets could experience significant declines in liquidity, and it is possible that the Fund (or an Investment Fund) will not be able
to manage this risk effectively. It is yet to be determined how the bank run on SVB will fully impact the overall performance of the
Fund or one or more of its portfolio investments and how similar events may affect the ability of the Fund to execute its investment
strategy.
To
the extent the Fund is primarily exposed to longer-term Municipal Bonds, the Common Share NAV and market price per Common Share will
fluctuate more in response to changes in market interest rates than if the Fund invested primarily in shorter-term Municipal Bonds.
In
comparison to maturity (which is the date on which a debt instrument ceases and the issuer is obligated to repay the principal amount),
duration is a measure of the price volatility of a debt instrument as a result of changes in market rates of interest, based on the weighted
average timing of the instrument’s expected principal and interest payments. Duration differs from maturity in that it considers
a security’s yield, coupon payments, principal payments and call features, in addition to the amount of time until the security
finally matures. As the value of a security changes over time, so will its duration. Prices of securities with longer durations tend
to be more sensitive to interest rate changes than securities with shorter durations. In general, a portfolio of securities with a longer
duration can be expected to be more sensitive to interest rate changes than a portfolio with a shorter duration. For example, the price
of a bond with an effective duration of two years will rise (fall) two percent for every one percent decrease (increase) in its yield,
and the price of a five-year duration bond will rise (fall) five percent for a one percent decrease (increase) in its yield.
If
increasing interest rates slow principal payments and thus extend the average life of securities held by the Fund, this increase in duration
will make the Fund more sensitive to the effect of rising rates and may cause the principal value of the Fund’s holdings to decline
more than they would in the absence of such an increase in duration.
Yield
curve risk is the risk associated with either a flattening or steepening of the yield curve, which is a result of changing yields among
comparable bonds with different maturities. When market interest rates, or yields, increase, the price of a bond will decrease and vice
versa. When the yield curve shifts, the price of the bond, which was initially priced based on the initial yield curve, will change in
price. If the yield curve flattens, then the yield spread between long- and short-term interest rates narrows, and the price of the bond
will change accordingly. If the bond is short-term and the yield decreases, the price of this bond will increase. If the yield curve
steepens, this means that the spread between long- and short-term interest rates increases. Therefore, long-term bond prices will decrease
relative to short-term bonds. Changes in the yield curve are based on bond risk premiums and expectations of future interest rates.
The
Common Share NAV and market price per Common Share will fluctuate more in response to changes in market interest rates when the Fund
has higher exposure to long-term Municipal Bonds than short-term Municipal Bonds. Because the values of lower-rated and comparable unrated
debt securities are affected both by credit risk and interest rate risk, the price movements of such lower grade securities in response
to changes in interest rates typically have not been highly correlated to the fluctuations of the prices of investment grade quality
securities in response to changes in market interest rates.
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Libor Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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LIBOR
Risk
Certain
of the Fund’s or Underlying Funds’ investments, payment obligations and financing terms may be based on floating rates, such
as LIBOR, Euro Interbank Offered Rate and other similar types of reference rates. In July of 2017, the head of the United Kingdom Financial
Conduct Authority (“FCA”) announced a desire to phase out the use of LIBOR at the end of 2021. Most LIBOR settings are no
longer published as of December 31, 2021. Overnight and 12-month U.S. dollar LIBOR settings permanently ceased after publication on June
30, 2021. 1-, 3- and 6-month U.S. dollar LIBOR settings will continue to be published using a synthetic methodology until September 2024.
Neither the effect of the LIBOR transition process nor its ultimate success can yet be known. Although the transition away from LIBOR
has become increasingly well-defined, any potential effects of the transition away from LIBOR and other benchmark rates on financial
markets, a fund or the financial instruments in which a fund invests can be difficult to ascertain. Not all existing LIBOR-based instruments
may have alternative rate-setting provisions and there remains uncertainty regarding the willingness and ability of issuers to add alternative
rate-setting provisions in certain existing instruments. Global regulators have advised market participants to cease entering into new
contracts using LIBOR as a reference rate, and it is possible that investments in LIBOR-based instruments could invite regulatory scrutiny.
In addition, a liquid market for newly-issued instruments that use a reference rate other than LIBOR still may be developing. All of
the aforementioned may adversely affect the Fund’s or an Underlying Fund’s performance or NAV.
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Sofr Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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SOFR
Risk
SOFR
is intended to be a broad measure of the cost of borrowing funds overnight in transactions that are collateralized by U.S. Treasury securities.
SOFR is calculated based on transaction-level repo data collected from various sources. For each trading day, SOFR is calculated as a
volume-weighted median rate derived from such data. SOFR is calculated and published by the Federal Reserve Bank of New York (“FRBNY”).
If data from a given source required by the FRBNY to calculate SOFR is unavailable for any day, then the most recently available data
for that segment will be used, with certain adjustments. If errors are discovered in the transaction data or the calculations underlying
SOFR after its initial publication on a given day, SOFR may be republished at a later time that day. Rate revisions will be effected
only on the day of initial publication and will be republished only if the change in the rate exceeds one basis point.
Because
SOFR is a financing rate based on overnight secured funding transactions, it differs fundamentally from LIBOR. LIBOR was intended to
be an unsecured rate that represents interbank funding costs for different short-term maturities or tenors. It was a forward-looking
rate reflecting expectations regarding interest rates for the applicable tenor. Thus, LIBOR was intended to be sensitive, in certain
respects, to bank credit risk and to term interest rate risk. In contrast, SOFR is a secured overnight rate reflecting the credit of
U.S. Treasury securities as collateral. Thus, it is largely insensitive to credit-risk considerations and to short-term interest rate
risks. SOFR is a transaction-based rate, and it has been more volatile than other benchmark or market rates, such as three-month LIBOR,
during certain periods. For these reasons, among others, there is no assurance that SOFR, or rates derived from SOFR, will perform in
the same or similar way as LIBOR would have performed at any time, and there is no assurance that SOFR-based rates will be a suitable
substitute for LIBOR. SOFR has a limited history, having been first published in April 2018. The future performance of SOFR, and SOFR-based
reference rates, cannot be predicted based on SOFR’s history or otherwise. Levels of SOFR in the future, including following the
discontinuation of LIBOR, may bear little or no relation to historical levels of SOFR, LIBOR or other rates.
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Inflation Deflation Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Inflation/Deflation
Risk
Inflation
risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the value
of money. As inflation increases, the real value of the Common Shares and distributions can decline. In addition, during any period of
rising inflation, interest rates on borrowings would likely increase, which would tend to further reduce returns to Common Shareholders.
Deflation risk is the risk that prices throughout the economy decline over time–the opposite of inflation. Deflation may have an
adverse effect on the creditworthiness of issuers and may make issuer defaults more likely, which may result in a decline in the value
of the Fund’s portfolio.
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Tactical Municipal Closed End Fund Strategy Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Tactical
Municipal Closed-End Fund Strategy Risk
The
Fund invests in closed-end funds as a principal part of the Tactical Municipal Closed-End Fund Strategy. Shares of closed-end funds listed
for trading on a securities exchange frequently trade at a price per share that is less than the NAV per share, the difference representing
the “market discount” of such shares. The market price of such shares may be affected by factors such as NAV, dividend or
distribution levels and their stability (which will in turn be affected by levels of dividend and interest payments by the closed-end
fund’s portfolio holdings, the timing and success of the closed-end fund’s investment strategies, regulations affecting the
timing and character of fund distributions, fund expenses and other factors), supply of and demand for the shares, trading volume of
the shares, general market, interest rate and economic conditions and other factors beyond the control of the closed-end fund.
In
addition, a market discount may be due in part to the investment objective of long-term appreciation, which is sought by many closed-end
funds, as well as to the fact that the shares of closed-end funds are not redeemable by the holder upon demand to the issuer at the next
determined NAV but, rather, are subject to supply and demand in the secondary market.
The
Fund may invest in shares of closed-end funds that are trading at a discount to NAV or at a premium to NAV. There can be no assurance
that the market discount on shares of any closed-end fund purchased by the Fund will ever decrease. In fact, it is possible that this
market discount may increase and the Fund may suffer realized or unrealized capital losses due to further decline in the market price
of the securities of such closed-end funds, thereby adversely affecting the NAV of the Fund’s Common Shares. Similarly, there can
be no assurance that any shares of a closed-end fund purchased by the Fund at a premium will continue to trade at a premium or that the
premium will not decrease subsequent to a purchase of such shares by the Fund.
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Underlying Fund Risks [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Underlying
Fund Risks
The
Fund will incur higher and additional expenses when it invests in Underlying Funds. There is also the risk that the Fund may suffer losses
due to the investment practices or operations of the Underlying Funds. To the extent that the Fund invests in one or more Underlying
Funds that concentrate in a particular industry or state, the Fund would be vulnerable to factors affecting that industry or state and
the concentrating Underlying Funds’ performance, and that of the Fund, may be more volatile than Underlying Funds that do not concentrate.
As
the Fund will invest at least a portion of its Managed Assets in closed-end funds and ETFs, the Fund’s performance will depend
to a greater extent on the overall performance of investment companies generally, in addition to the performance of the specific Underlying
Funds (and other assets) in which the Fund invests. The use of leverage by Underlying Funds magnifies gains and losses on amounts invested
and increases the risks associated with investing in Underlying Funds. Further, the Underlying Funds are not subject to the Fund’s
investment policies and restrictions. The Fund generally receives information regarding the portfolio holdings of Underlying Funds only
when that information is made available to the public. The Fund cannot dictate how the Underlying Funds invest their assets. In addition,
one Underlying Fund may purchase a security that another Underlying Fund is selling. The Underlying Funds may invest their assets in
securities and other instruments, and may use investment techniques and strategies, that are not described in this Prospectus, and there
is risk that the Underlying Funds may not be in compliance with their investment policies and strategies, including their policy to invest
at least 80% of their assets in Municipal Bonds which, in turn, could result in the Fund’s non-compliance with its own investment
policies. Because the Fund expects that most of the Underlying Funds will publish their portfolio holdings only at intervals, and then
only after some delay, the Fund will generally not know for certain the current holdings of the Underlying Funds.
Common
Shareholders will bear two layers of fees and expenses with respect to the Fund’s investments in Underlying Funds because each
of the Fund and the Underlying Fund will charge fees and incur separate expenses. If those Underlying Funds use leverage, that will likely
increase the amount of fees that the Fund, as an investor in the Underlying Funds, will pay. See “Summary of Fund Expenses”
for a further description of such fees and their impact on the expenses of the Fund. In addition, subject to applicable 1940 Act limitations,
the Underlying Funds themselves may purchase securities issued by registered and unregistered funds (e.g., common stock and preferred
stock), and those investments would be subject to the risks associated with Underlying Funds and unregistered funds (including a third
layer of fees and expenses, i.e., the Underlying Fund will indirectly bear fees and expenses charged by the funds in which the
Underlying Fund invests, in addition to the Underlying Fund’s own fees and expenses). The Fund’s investment in an Underlying
Fund also may result in the Fund’s receipt of cash in excess of the Underlying Fund’s earnings; if the Fund distributes these
amounts, the distributions could constitute a return of capital to Fund shareholders for federal income tax purposes but may be characterized
as a dividend if the Fund has earnings from other sources. As a result of these factors, the use of the fund of funds structure by the
Fund could therefore affect the amount, timing and character of distributions to shareholders.
As
may be the case with the Fund, the shares of many closed-end funds in which the Fund may invest frequently trade after their initial
public offering at a price per share that is less than the NAV per share, the difference representing the “market discount”
of such shares. This market discount may be due in part to the investment objective of long-term appreciation, which is sought by many
closed-end funds, as well as to the fact that the shares of closed-end funds are not redeemable by the holder upon demand to the issuer
at the next determined NAV, but rather, are subject to supply and demand in the secondary market. A relative lack of secondary market
purchasers of closed-end fund shares also may contribute to such shares trading at a discount to their NAV.
The
Fund may invest in shares of closed-end funds that are trading at a discount to NAV or at a premium to NAV. There can be no assurance
that the market discount on shares of any closed-end fund purchased by the Fund will ever decrease. In fact, it is possible that this
market discount may increase and the Fund may suffer realized or unrealized capital losses due to further decline in the market price
of the securities of such closed-end funds, thereby adversely affecting the NAV of the Fund’s shares. Similarly, there can be no
assurance that any shares of a closed-end fund purchased by the Fund at a premium will continue to trade at a premium or that the premium
will not decrease subsequent to a purchase of such shares by the Fund.
Closed-end
funds may issue senior securities (including preferred stock and debt obligations) for the purpose of leveraging the closed-end fund’s
common shares in an attempt to enhance the current return to such closed-end fund’s common shareholders. The Fund’s investment
in the common shares of closed-end funds that are financially leveraged may create an opportunity for greater total return on its investment,
but in a down market may increase the size and speed of losses. Thus, leveraged funds may be expected to exhibit more volatility in market
price and NAV than an investment in shares of investment companies without a leveraged capital structure. Since the Fund may use leverage
to invest in other funds that are leveraged, the effect of gains and losses in the other funds may be compounded, especially when events
occur that may broadly affect the market for municipal securities. In addition, the Fund may invest in such senior securities issued
by closed-end funds, including auction rate municipal securities and auction rate preferred securities. In recent market environments,
auctions have failed, which adversely affects the liquidity and price of auction rate securities, and are unlikely to resume. Provided
that the auction mechanism is successful, auction rate securities usually permit the holder to sell the securities in an auction at par
value at specified intervals. The dividend is reset by “Dutch” auction in which bids are made by broker-dealers and other
institutions for a certain amount of securities at a specified minimum yield. The dividend rate set by the auction is the lowest interest
or dividend rate that covers all securities offered for sale. While this process is designed to permit auction rate securities to be
traded at par value, there is a risk that an auction will fail due to insufficient demand for the securities. Moreover, between auctions,
there may be no secondary market for these securities, and sales conducted on a secondary market may not be on terms favorable to the
seller. Auction rate securities may be called by the issuer. Thus, with respect to liquidity and price stability, auction rate securities
may differ substantially from cash equivalents, notwithstanding the frequency of auctions and the credit quality of the security. The
Fund’s investments in auction rate securities of closed-end funds are subject to the limitations prescribed by the 1940 Act.
ETFs
may trade at a price above (premium) or below (discount) their NAV, especially during periods of significant market volatility or stress,
which could cause investors to pay significantly more or less for ETF shares than the value of the ETF’s underlying portfolio.
Certain ETFs traded on exchanges may be thinly traded and experience large spreads between the “ask” price quoted by a seller
and the “bid” price offered by a buyer. While the creation/redemption feature is designed to make it likely that ETF shares
normally will trade close to their NAVs, market prices are not expected to correlate exactly to the shares’ NAVs due to timing
reasons, supply and demand imbalances and other factors. In addition, disruptions to creations and redemptions, adverse developments
impacting market makers, authorized participants or other market participants, high market volatility or lack of an active trading market
for an ETF’s shares (including through a trading halt) may result in market prices that differ significantly from an ETF’s
NAV or to the intraday value of the ETF’s holdings. An active trading market for shares of an ETF may not develop or be maintained.
When all or a portion of an ETF’s underlying securities trade in a foreign market that is closed during the time the domestic market
in which the ETF’s shares are listed and traded is open, there may be changes between the last quote from the closed foreign market
and the value of such underlying security during the ETF’s trading day. In times of market stress, market makers or authorized
participants may step away from their respective roles in making a market in shares of the ETF and in executing purchase or redemption
orders. During such times, the ETF’s shares may trade at a wider than normal discount or premium and may possibly face trading
halts. Additionally, the underlying securities of an ETF may be traded outside of a collateralized settlement system, such as the National
Securities Clearing Corporation, a clearing agency that is registered with the SEC. There are a limited number of financial institutions
that may act as authorized participants that post collateral for certain trades on an agency basis. To the extent that these authorized
participants exit the business or are unable to proceed with creation and/or redemption orders with the ETF, and no other authorized
participant is able to step forward, ETF shares may trade at a discount to NAV and possibly face trading halts and/or delisting. Additionally,
in stressed market conditions, the market for ETF shares may become less liquid in response to deteriorating liquidity in the markets
for such ETF’s underlying portfolio holdings, which may cause the shares of the ETF to trade at a wider than normal discount or
premium. Furthermore, purchases and redemptions of creation units primarily in cash rather than in-kind may cause an ETF to incur certain
costs, such as brokerage costs, taxable gains or other losses that it may not have incurred with an in-kind purchase or redemption. These
costs may be borne by the ETF and decrease the ETF’s NAV to the extent they are not offset by a transaction fee payable by an authorized
participant.
Index-based
ETFs (and other index funds) in which the Fund may invest may not be able to replicate exactly the performance of the indices they track
due to transaction costs and other expenses of the ETFs. The Fund may also invest in actively managed ETFs that are subject to management
risk as the ETF’s investment adviser will apply certain investment techniques and risk analyses in making investment decisions.
There can be no guarantee that these will produce the desired results.
The
Fund’s investments in Underlying Funds may be restricted by certain provisions of the 1940 Act. Under Section 12(d)(1)(A) of the
1940 Act, the Fund may hold securities of an Underlying Fund in amounts which (i) do not exceed 3% of the total outstanding voting stock
of the Underlying Fund, (ii) do not exceed 5% of the value of the Fund’s total assets and (iii) when added to all other Underlying
Fund securities held by the Fund, do not exceed 10% of the value of the Fund’s total assets. Under Section 12(d)(1)(C) of the 1940
Act, the Fund, together with any other investment companies for which the Adviser acts as an investment adviser, may not, in the aggregate,
own more than 10% of the total outstanding voting stock of a registered closed-end investment company. Section 12(d)(1)(F) of the 1940
Act provides that the limitations of Section 12(d)(1) described above shall not apply to securities purchased or otherwise acquired by
the Fund if (i) immediately after such purchase or acquisition not more than 3% of the total outstanding stock of such Underlying Fund
is owned by the Fund and all affiliated persons of the Fund, and (ii) certain requirements are met with respect to sales charges. In
addition, Rule 12d1-4 under the 1940 Act (“Rule 12d1-4”), effective as of January 19, 2022, permits the Fund to invest in
Underlying Funds beyond the limitations of Section 12(d)(1) described above, subject to various conditions, including that the Fund enter
into an investment agreement with the Underlying Fund (which agreements may impose additional conditions on the Fund). In matters upon
which the Fund is solicited to vote as a shareholder of an Underlying Fund, the Adviser may be required to vote Underlying Fund shares
in the same proportion as shares held by other shareholders of the Underlying Fund.
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Esg Considerations Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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ESG
Considerations Risk
While
the Subadviser may consider ESG factors it deems relevant or additive when making investment decisions under the Municipal Bond Income
Strategy, ESG characteristics are not a primary focus of the Fund. The Fund does not seek to implement a specific “ESG,”
“impact” or “sustainability” policy. The Fund may invest in issuers that do not reflect beliefs or values with
respect to ESG of any particular investor. While the Fund views ESG considerations as having the potential to contribute to the Fund’s
long-term performance, there is no guarantee that such results will be achieved.
To
the extent the Subadviser makes an investment decision based in part on ESG characteristics, it may select investments, or forgo investment
opportunities, in individual securities and/or sectors of securities for non-investment reasons, which could cause the Fund to underperform
funds that do not consider “ESG,” “impact” or “sustainability” criteria. ESG-focused investments
and strategies may, at times, be subject to a higher degree of volatility than non-ESG-focused investments and strategies. ESG information
and data, including that provided by third parties, may be incomplete, inaccurate or unavailable, which could adversely affect the analysis
of the ESG factors relevant to a particular investment. The Subadviser’s assessment of an investment’s ESG impact may change
over time, which may cause the Fund to hold a security or sell a security when it might otherwise be disadvantageous to do so. Views
on ESG, sustainability and positive social and environmental outcomes may differ by fund, adviser and investor. In addition, issuers
and sectors that meet the ESG criteria may shift into and out of favor depending on market and economic conditions. Certain bonds in
which the Fund invests may be dependent on government incentives and subsidies, and lack of political support for the financing of projects
with a positive environmental or social impact could negatively impact the performance of the Fund.
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Defaulted And Distressed Securities Risks [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Defaulted
and Distressed Securities Risks
The
Fund and the Underlying Funds may invest in defaulted and distressed securities. Legal difficulties and negotiations with creditors and
other claimants are common when dealing with defaulted or distressed issuers. Defaulted or distressed issuers may be insolvent, in bankruptcy
or undergoing some other form of financial restructuring. In the event of a default, the Fund or an Underlying Fund may incur additional
expenses to seek recovery. The repayment of defaulted bonds is subject to significant uncertainties, and in some cases, there may be
no recovery of repayment. Defaulted bonds might be repaid only after lengthy workout or bankruptcy proceedings, during which the issuer
might not make any interest or other payments. Because of the relative illiquidity of defaulted or distressed debt and equity securities,
short sales are difficult, and the Fund and most Underlying Funds primarily maintain long positions. Some relative value trades are possible,
where an investor sells short one class of a defaulted or distressed issuer’s capital structure and purchases another. With distressed
investing, often there is a time lag between when the Fund and an Underlying Fund makes an investment and when the Fund and the Underlying
Fund realizes the value of the investment. In addition, the Fund and an Underlying Fund may incur legal and other monitoring costs in
protecting the value of the Fund’s and the Underlying Fund’s claims.
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Illiquid Securities Risks [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Illiquid
Securities Risks
The
Fund and the Underlying Funds may invest in illiquid securities. It may not be possible to sell or otherwise dispose of illiquid securities
both at the price and within the time period deemed desirable by a fund. Illiquid securities also may be difficult to value. Liquidity
may sometimes be impaired in the municipal market and, because the Fund principally invests in Municipal Bonds, it may find it difficult
to purchase or sell such securities at opportune times. Liquidity can be impaired due to interest rate concerns, credit events, or general
supply and demand imbalances. Depending on the particular issuer and current economic conditions, Municipal Bonds could be deemed more
volatile investments.
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Valuation Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Valuation
Risk
Unlike
publicly traded common stock which trades on national exchanges, there is no central place or exchange for fixed-income securities trading.
Fixed-income securities generally trade on an “over-the-counter” market which may be anywhere in the world where the buyer
and seller can settle on a price. Due to the lack of centralized information and trading, the valuation of fixed-income securities may
carry more risk than that of common stock. Uncertainties in the conditions of the financial market, unreliable reference data, lack of
transparency and inconsistency of valuation models and processes may lead to inaccurate asset pricing. As a result, the Fund may be subject
to risk that when a fixed-income security is sold in the market, the amount received by the Fund is less than the value of such fixed-income
security carried on the Fund’s books.
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Tender Option Bonds Risks [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Tender
Option Bonds Risks
TOB
Residuals are derivative municipal securities that have embedded in them the risk of economic leverage. There is no assurance that the
Fund’s strategy of using the proceeds received from tender option bond transactions to leverage its assets will be successful.
TOB transactions expose the Fund to leverage and credit risk, and generally involve greater risk than investment in fixed rate Municipal
Bonds, including the loss of principal.
Distributions
on TOB Residuals will bear an inverse relationship to short-term municipal bond interest rates. Distributions on the TOB Residuals paid
to the Fund will be reduced or, in the extreme, eliminated as short-term municipal interest rates rise and will increase when short-term
municipal interest rates fall. The amount of such reduction or increase is a function, in part, of the amount of TOB Floaters sold by
the TOB Issuer of these securities relative to the amount of the TOB Residuals that it sells. The greater the amount of TOB Floaters
sold relative to the TOB Residuals, the more volatile the distributions on the TOB Residuals will be. The value of TOB Residuals may
decline rapidly in times of rising interest rates.
The
Fund’s use of proceeds received from tender option bond transactions will create economic leverage. Any economic leverage achieved
through the Fund’s investment in TOB Residuals will create an opportunity for increased Common Share net income and returns, but
will also create the possibility that Common Share long-term returns will be diminished if the cost of the TOB Floaters exceeds the return
on the securities deposited in the TOB Issuer. If the income and gains earned on Municipal Bonds deposited in a TOB Issuer that issues
TOB Residuals to the Fund are greater than the payments due on the TOB Floaters, the Fund’s returns will be greater than if it
had not invested in the TOB Residuals.
The
Fund has no current intention of investing in recourse TOB Residuals. However, circumstances may change and it is possible that in the
future the Fund may elect to invest in recourse TOB Residuals to leverage its portfolio. If the Fund uses recourse TOB Residuals, the
liquidity provider may seek recourse against assets of the Fund, and the Fund may have to pay the liquidity provider the difference between
the purchase price of any TOB Floaters put to the liquidity provider by third party investors and the proceeds realized by the liquidity
provider from the remarketing of those TOB Floaters or the sale of the assets in the TOB Issuer, which could cause the Fund to lose money
in excess of its investment in a TOB Issuer.
Although
the Fund generally would unwind a tender option bond transaction rather than try to sell a TOB Residual, if it did try to sell a TOB
Residual, its ability to do so would depend on the liquidity of the TOB Residual. TOB Residuals have varying degrees of liquidity based,
among other things, upon the liquidity of the underlying securities deposited in the TOB Issuer. The market price of TOB Residuals are
more volatile than the underlying securities due to leverage. The leverage attributable to TOB Residuals may be “called away”
on relatively short notice and therefore may be less permanent than more traditional forms of leverage. In certain circumstances, the
likelihood of an increase in the volatility of NAV and market price of the Common Shares may be greater for a fund that relies primarily
on tender option bond transactions to achieve a desired effective leverage ratio. The Fund may be required to sell its TOB Residuals
at less than favorable prices, or liquidate other Fund portfolio holdings in certain circumstances, including, but not limited to, the
following:
| ● | If
the Fund has a need for cash and the securities deposited in the TOB Issuer are not actively
trading due to adverse market conditions; |
| ● | If
the sponsors of TOB Issuers (as a collective group or individually) experience financial
hardship and consequently seek to terminate their sponsorship of TOB Issuers; and |
| ● | If
the value of an underlying security deposited in the TOB Issuer declines significantly (to
a level below the notional value of the TOB Floaters issued by the TOB Issuer) and if additional
collateral has not been posted by the Fund. |
The
Fund may invest in taxable TOB Residuals, issued by TOB Issuers formed with taxable municipal securities. There may be a limited number
of counterparties for such transactions, which may increase the credit risks, counterparty risks, liquidity risks and other risks of
investing in taxable TOB Residuals. The Fund may not invest more than 20% of its Managed Assets in any single third party sponsor that
establishes a TOB Issuer. See also “Risks—Investment-Related Risks—Legislation and Regulatory Risks.”
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Insurance Risks [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Insurance
Risks
The
Fund may purchase Municipal Bonds that are secured by insurance, bank credit agreements or escrow accounts. The credit quality of the
companies that provide such credit enhancements will generally affect the value of those securities. Certain significant providers of
insurance for Municipal Bonds have at times incurred significant losses as a result of exposure to sub-prime mortgages and other lower
credit quality investments that have experienced defaults or otherwise suffered credit deterioration. Such losses may reduce the insurers’
capital and may call into question their continued ability to perform their obligations under such insurance if called upon in the future.
While an insured Municipal Bond will typically be deemed to have the rating of its insurer, if the insurer of a Municipal Bond suffers
a downgrade in its credit rating or the market discounts the value of the insurance provided, the rating of the underlying Municipal
Bond will generally be more relevant and the value of the Municipal Bond would more closely, if not entirely, reflect such rating. In
such a case, the value of insurance associated with a Municipal Bond would decline and may not add any value. The insurance feature of
a Municipal Bond does not guarantee the full payment of principal and interest through the life of an insured obligation, the market
value of the insured obligation or the NAV of the Common Shares represented by such insured obligation. Because there is no limit on
the percentage of Managed Assets that may be insured by any one insurance firm other than the tax diversification rules, there is a risk
that a significant portion of the Fund’s holdings may experience a ratings downgrade and lose value if such an insurance company
suffers financial or reputational adversity. Some IRS authority treats a guaranty as a separate security subject to the diversification
rules, which limit the value of securities issued by any one issuer to not more than 25% of the portfolio.
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Tax Risks [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Tax
Risks
To
qualify for the favorable U.S. federal income tax treatment generally accorded to regulated investment companies, among other things,
the Fund must derive in each taxable year at least 90% of its gross income from certain prescribed sources and satisfy a diversification
test on a quarterly basis. If the Fund fails to satisfy the qualifying income or diversification requirements in any taxable year, the
Fund may be eligible for relief provisions if the failures are due to reasonable cause and not willful neglect and if a penalty tax is
paid with respect to each failure to satisfy the applicable requirements. Additionally, relief is provided for certain de minimis failures
of the diversification requirements where the Fund corrects the failure within a specified period. In order to be eligible for the relief
provisions with respect to a failure to meet the diversification requirements, the Fund may be required to dispose of certain assets.
If these relief provisions were not available to the Fund and it were to fail to qualify for treatment as a regulated investment company
(“RIC”) for a taxable year, all of its taxable income (including its net capital gain) would be subject to tax at regular
corporate rates (currently 21%) without any deduction for distributions to shareholders, and such distributions would be taxable as ordinary
dividends to the extent of the Fund’s current and accumulated earnings and profits.
The
Fund may qualify to pay exempt-interest dividends, which are treated as items of interest excludable from gross income for federal income
tax purposes, if at least 50% of the value of the total assets of the Fund consists of obligations exempt from regular income tax as
of the close of each quarter of the Fund’s taxable year. Under this approach, if the proportion of taxable investments held by
the Fund exceeded 50% of the Fund’s total assets as of the close of any quarter of the Fund’s taxable year, the Fund would
not, for that taxable year, satisfy the general eligibility test that would otherwise permit it to pay exempt-interest dividends for
that taxable year. As an alternative, the Fund may qualify to pay exempt-interest dividends if it is a qualified fund-of-funds, i.e.,
if at least 50% of the value of its total assets are invested in the shares of underlying RICs as of the close of each quarter of
the Fund’s taxable year.
The
Fund may enter into various types of derivatives transactions, including swap contracts, among others. The use of such derivatives may
generate taxable income. The Fund’s use of derivatives may also affect the amount, timing, and character of distributions to shareholders
and, therefore, may increase the amount of taxes payable by shareholders.
The
value of the Fund’s investments and its NAV may be adversely affected by changes in tax rates and policies. Because interest income
from Municipal Bonds is normally not subject to regular federal income taxation, the attractiveness of Municipal Bonds in relation to
other investment alternatives is affected by changes in federal income tax rates or changes in the tax-exempt status of interest income
from Municipal Bonds. Any proposed or actual changes in such rates or exempt status, therefore, can significantly affect the demand for
and supply, liquidity and marketability of Municipal Bonds. This could in turn affect the Fund’s NAV and ability to acquire and
dispose of Municipal Bonds at desirable yield and price levels. Additionally, the Fund is not a suitable investment for individual retirement
accounts, for other tax-exempt or tax-deferred accounts or for investors who are not sensitive to the federal income tax consequences
of their investments.
The
Fund will invest in Municipal Bonds in reliance at the time of purchase on an opinion of bond counsel to the issuer that the interest
paid on those securities will be excludable from gross income for federal income tax purposes, and the Adviser and Subadviser will not
independently verify that opinion. Subsequent to the Fund’s acquisition of such a Municipal Bond, however, the security may be
determined to pay, or to have paid, taxable income. As a result, the treatment of dividends previously paid or to be paid by the Fund
as “exempt-interest dividends” could be adversely affected, subjecting the Fund’s shareholders to increased federal
income tax liabilities.
Distributions
of ordinary taxable income (including any net short-term capital gain) will be taxable to shareholders as ordinary income (and not eligible
for favorable taxation as “qualified dividend income”), and capital gain dividends will be taxable as long-term capital gains.
See “U.S. Federal Income Tax Matters.”
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Derivatives Risks [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Derivatives
Risks
The
Fund and the Underlying Funds may enter into derivatives. Derivative transactions involve investment techniques and risks different from
those associated with the Fund’s other investments. Generally, a derivative is a financial contract the value of which depends
upon, or is derived from, the value of an underlying asset, reference rate, or index, and may relate to individual debt or equity instruments,
interest rates, currencies or currency exchange rates, commodities, related indexes and other assets. Derivatives can be volatile and
involve various types and degrees of risk, depending upon the characteristics of a particular derivative. Derivatives may entail investment
exposures that are greater than their cost would suggest, meaning that a small investment in a derivative could have a large potential
impact on the performance of the Fund or an Underlying Fund. The Fund or an Underlying Fund could experience a loss if derivatives do
not perform as anticipated, if they are not correlated with the performance of other investments which they are used to hedge or if the
fund is unable to liquidate a position because of an illiquid secondary market. The market for many derivatives is, or can suddenly become,
illiquid. Changes in liquidity may result in significant, rapid and unpredictable changes in the prices of derivatives. Except with respect
to the Fund’s investments in total return swaps, the Fund expects its use of derivative instruments will be for hedging purposes.
When used for speculative purposes, derivatives will produce enhanced investment exposure, which will magnify gains and losses. Certain
derivatives transactions may give rise to a form of leverage. Leverage may cause a fund to be more volatile than if it had not been leveraged.
This is because leverage tends to exaggerate the effect of any increase or decrease in the value of a fund’s portfolio securities.
Further, using derivatives may include the risk of mispricing or improper valuation of derivatives and the inability of derivatives to
correlate perfectly, or at all, with the value of the assets, reference rates or indexes they are designed to closely track. The Fund
and the Underlying Funds also will be subject to credit risk with respect to the counterparties to the derivatives contracts purchased
by such fund. If a counterparty becomes bankrupt or otherwise fails to perform its obligations under a derivative contract due to financial
difficulties, the Fund or an Underlying Fund may experience significant delays in obtaining any recovery under the derivative contract
in a bankruptcy or other reorganization proceeding. The Fund or an Underlying Fund may obtain only a limited recovery or may obtain no
recovery in such circumstances. See “—Option and Futures Risks” and “—Swap Risks.” The Adviser has
claimed an exclusion from registration as a commodity pool operator with respect to the Fund pursuant to Commodity Futures Trading Commission
(“CFTC”) Rule 4.5. See “Investment Policies and Techniques—Derivatives—Regulation as a ‘Commodity
Pool’” in the SAI.
On
October 28, 2020, the SEC adopted Rule 18f-4 under the 1940 Act providing for the regulation of a registered investment company’s
use of derivatives and certain related instruments. The rule permits the Fund or an Underlying Fund to enter into certain derivatives
and other transactions notwithstanding the restrictions on the issuance of “senior securities” under Section 18 of the 1940
Act. Section 18 of the 1940 Act, among other things, prohibits closed-end funds, including the Fund, from issuing or selling any “senior
security” representing indebtedness, unless the fund maintains 300% “asset coverage,” or any senior security representing
stock, unless the fund maintains 200% “asset coverage”.
The
compliance date for Rule 18f-4 was August 19, 2022. In accordance with the rule, the Fund adopted and implemented a comprehensive written
derivatives risk management program and is subject to an outer limit on Fund leverage risk calculated based on value-at-risk. This outer
limit is based on a relative value-at-risk test that will compare the Fund’s value-at-risk to the value-at-risk of a designated
reference index. The derivatives risk management program is administered by a “derivatives risk manager,” who has been appointed
by the Board, including a majority of the Directors who are not “interested persons” (as defined in the 1940 Act), and periodically
reviews the derivatives risk management program and reports to the Board.
In
general, the “derivatives transactions” covered by Rule 18f-4 include the following: (1) any swap, security-based swap (including
a contract for differences), futures contract, forward contract, option (excluding purchased options), any combination of the foregoing,
or any similar instrument, under which the Fund is or may be required to make any payment or delivery of cash or other assets during
the life of the instrument or at maturity or early termination, whether as margin or settlement payment or otherwise; (2) any short sale
borrowing; (3) reverse repurchase agreements and similar financing transactions, if the Fund elects to treat these transactions as “derivatives
transactions” under Rule 18f-4; and (4) when-issued or forward-settling securities (e.g., firm and standby commitments, including
to-be-announced (“TBA”) commitments, and dollar rolls) and non-standard settlement cycle securities, unless such transactions
meet the delayed-settlement provision of the rule.
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Options And Futures Risks [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Options
and Futures Risks
The
Fund and the Underlying Funds may invest in options and futures contracts and such contracts are expected to be utilized by the Fund,
if at all, for hedging purposes. The use of futures and options transactions entails certain special risks. In particular, the variable
degree of correlation between price movements of futures contracts and price movements in the related securities position of a fund could
create the possibility that losses on the hedging instrument are greater than gains in the value of a fund’s position. In addition,
futures and options markets could be illiquid in some circumstances and certain over-the-counter options could have no markets. As a
result, in certain markets, a fund might not be able to close out a transaction without incurring substantial losses. Although a fund’s
use of futures and options transactions for hedging should tend to minimize the risk of loss due to a decline in the value of the hedged
position, at the same time it will tend to limit any potential gain to a fund that might result from an increase in value of the position.
Finally, the daily variation margin requirements for futures contracts create a greater ongoing potential financial risk than would purchases
of options, in which case the exposure is limited to the cost of the initial premium. However, because option premiums paid by the Fund
or an Underlying Fund are small in relation to the market value of the investments underlying the options, buying options can result
in large amounts of leverage. This leverage offered by trading in options could cause the Fund’s or an Underlying Fund’s
NAV to be subject to more frequent and wider fluctuation than would be the case if the Fund or an Underlying Fund did not invest in options.
Options
transactions may be effected on securities exchanges or in the over-the-counter market. When options are purchased over-the-counter,
the Fund or an Underlying Fund bears the risk that the counterparty that wrote the option will be unable or unwilling to perform its
obligations under the option contract. The counterparties to these transactions typically will be major international banks, broker-dealers
and financial institutions. Such options may also be illiquid, and in such cases, the Fund or an Underlying Fund may have difficulty
closing out its position. Banks, broker-dealers or other financial institutions participating in such transactions may fail to settle
a transaction in accordance with the terms of the option as written. In the event of default or insolvency of the counterparty, the Fund
or an Underlying Fund may be unable to liquidate an over-the-counter option position.
An
Underlying Fund may purchase and sell call and put options with respect to specific securities, and may write and sell covered or uncovered
call and put options. A call option gives the purchaser of the call option, in return for a premium paid, the right to buy the security
underlying the option from the writer of the call option at a specified exercise price within a specified time frame. A put option gives
the purchaser of the put option, in return for a premium paid, the right to sell the underlying security to the writer of the put option
at a specified price within a specified time frame. A covered call option is a call option with respect to an underlying security that
a fund owns. The purchaser of a put or call option runs the risk of losing the purchaser’s entire investment, paid as the premium,
in a relatively short period of time if the option is not sold at a gain or cannot be exercised at a gain prior to expiration. In selling
put options, there is a risk that the Underlying Fund may be required to buy the underlying security at a disadvantageous price above
the market price. The un-covered writer of a call option is subject to a risk of loss if the price of the underlying security should
increase, and the un-covered writer of a put option is subject to a risk of loss if the price of the underlying security should decrease.
The
Fund may invest a significant portion of its total assets in Underlying Funds that write covered call options. To the extent that an
Underlying Fund writes a covered call option, it forgoes, during the option’s life, the opportunity to profit from increases in
the market value of the security covering the call option above the sum of the premium and the strike price of the call, but has retained
the risk of loss should the price of the underlying security decline. As the writer of the option, the Underlying Fund bears the market
risk of an unfavorable change in the price of the security underlying a written option. As an Underlying Fund writes covered calls over
more of its portfolio, its ability to benefit from capital appreciation becomes more limited and the risk of NAV erosion increases. To
the extent an Underlying Fund experiences NAV erosion (which itself may have an indirect negative effect on the market price of interests
in the Underlying Fund), the Underlying Fund will have a reduced asset base over which to write covered calls, which may eventually lead
to reduced distributions to shareholders such as the Fund. The writer of an option has no control over the time when it may be required
to fulfill its obligation as a writer of the option. Once an option writer has received an exercise notice, it cannot effect a closing
purchase transaction in order to terminate its obligation under the option and must deliver the underlying security at the exercise price.
To
the extent that an Underlying Fund engages in selling options that trade in over-the-counter markets, the Underlying Fund may be subject
to additional risks. Participants in these markets are typically not subject to the same credit evaluation and regulatory oversight as
members of “exchange-based” markets. By engaging in option transactions in these markets, an Underlying Fund may take credit
risk with regard to parties with which it trades and also may bear the risk of settlement default. These risks may differ materially
from those involved in exchange-traded transactions, which generally are characterized by clearing organization guarantees, daily marking-to-market
and settlement, and segregation and minimum capital requirements applicable to intermediaries. Transactions entered into directly between
two counterparties generally do not benefit from these protections, which may subject an Underlying Fund to the risk that a counterparty
will not settle a transaction in accordance with agreed terms and conditions because of a dispute over the terms of the contract or because
of a credit or liquidity problem. Such “counterparty risk” is increased for contracts with longer maturities when events
may intervene to prevent settlement.
There
can be no assurance that a liquid market will exist for any particular futures contract at any particular time. Many futures exchanges
and boards of trade limit the amount of fluctuation permitted in futures contract prices during a single trading day. Once the daily
limit has been reached in a particular contract, no trades may be made that day of a price beyond that limit or trading may be suspended
for specified periods during the trading day.
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Swap Risks [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Swap
Risks
The
Fund and the Underlying Funds may enter into various swap agreements and, other than total return swap agreements (as discussed herein),
such agreements are expected to be utilized by the Fund, if at all, for hedging purposes. All of these agreements are considered derivatives.
Swap agreements are two-party contracts under which the fund and a counterparty, such as a broker or dealer, agree to exchange the returns
(or differentials in rates of return) earned or realized on an agreed-upon underlying asset or investment over the term of the swap.
The use of swap transactions is a highly specialized activity which involves strategies and risks different from those associated with
ordinary portfolio security transactions. If the Adviser, Subadviser or an Underlying Fund’s investment adviser is incorrect in
its forecasts of default risks, market spreads, liquidity or other applicable factors or events, the investment performance of the Fund
or Underlying Fund would diminish compared with what it would have been if these techniques were not used. Swaps and swap options can
be used for a variety of purposes, including: to manage fund exposure to changes in interest rates and credit quality; as an efficient
means of adjusting fund overall exposure to certain markets; in an effort to enhance income or total return or protect the value of portfolio
securities; to serve as a cash management tool; and to adjust portfolio duration.
Swaps
could result in losses if interest rates or credit quality changes are not correctly anticipated by the Adviser, Subadviser or Underlying
Fund manager. Total return swaps could result in losses if the reference index, security, or investments do not perform as anticipated.
Total return swaps involve an enhanced risk that the issuer or counterparty will fail to perform its contractual obligations, which could
turn an expected gain into a loss. Total return swaps may effectively add leverage to the Fund’s portfolio because the Fund would
be subject to investment exposure on the full notional amount of the swap. To the extent the Fund or an Underlying Fund enters into a
total return swap on equity securities, the Fund or the Underlying Fund will receive the positive performance of a notional amount of
such securities underlying the total return swap. In exchange, the Fund or the Underlying Fund will be obligated to pay the negative
performance of such notional amount of securities. Therefore, the Fund or the Underlying Fund assumes the risk of a substantial decrease
in the market value of the equity securities. The use of swaps may not always be successful; using them could lower Fund or Underlying
Fund total return, their prices can be highly volatile, and the potential loss from the use of swaps can exceed the Fund’s or an
Underlying Fund’s initial investment in such instruments.
Some,
but not all, swaps may be cleared, in which case a central clearing counterparty stands between each buyer and seller and effectively
guarantees performance of each contract, to the extent of its available resources for such purposes. As a result, the counterparty risk
is now shifted from bilateral risk between the parties to the individual credit risk of the central clearing counterparty. Even in such
case, there can be no assurance that a clearing house, or its members, will satisfy the clearing house’s obligations to the Fund
or an Underlying Fund or that the fund’s use of swaps will be advantageous.
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Short Sale Risks [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Short
Sale Risks
The
Fund and the Underlying Funds may engage in short sales. However, the Fund will not engage in any short sales of securities issued by
closed-end funds. Short sales are expected to be utilized by the Fund, if at all, for hedging purposes. A short sale is a transaction
in which a fund sells a security it does not own in anticipation that the market price of that security will decline. Positions in shorted
securities are speculative and riskier than long positions (purchases) in securities because the maximum sustainable loss on a security
purchased is limited to the amount paid for the security plus the transaction costs, whereas there is no maximum attainable price of
the shorted security. Therefore, in theory, securities sold short have unlimited risk. Short selling will also result in higher transaction
costs (such as interest and dividends), and may result in higher taxes, which reduce a fund’s return.
If
a security sold short increases in price, a fund may have to cover its short position at a higher price than the short sale price, resulting
in a loss. With respect to a fund’s short positions, the fund must borrow those securities to make delivery to the buyer. A fund
may not be able to borrow a security that it needs to deliver or it may not be able to close out a short position at an acceptable price
and may have to sell related long positions before it had intended to do so. As a result, a fund may not be able to successfully implement
its short sale strategy due to the limited availability of desired securities or for other reasons.
When
borrowing a security for delivery to a buyer, a fund also may be required to pay a premium and other transaction costs, which would increase
the cost of the security sold short. A fund must normally repay to the lender an amount equal to any dividends or interest earned while
the loan is outstanding. The amount of any gain will be decreased, and the amount of any loss increased, by the amount of the premium,
dividends, interest or expenses a fund may be required to pay in connection with the short sale. Also, the lender of a security may terminate
the loan at a time when a fund is unable to borrow the same security for delivery. In that case, a fund would need to purchase a replacement
security at the then current market price or “buy in” by paying the lender an amount equal to the costs of purchasing the
security.
Because
a fund’s loss on a short sale arises from increases in the value of the security sold short, the loss is theoretically unlimited.
In certain cases, purchasing a security to cover a short position can itself cause the price of the security to rise further, which would
exacerbate the loss. Conversely, gains on short sales, after transaction and related costs, are generally the difference between the
price at which a fund sold the borrowed security and the price it paid to purchase the security for delivery to the buyer. By contrast,
a fund’s loss on a long position arises from decreases in the value of the security and is limited by the fact that a security’s
value cannot drop below zero.
By
investing the proceeds received from selling securities short, a fund is using a form of leverage, which creates special risks. The use
of leverage may increase a fund’s exposure to long equity positions and make any change in a fund’s NAV greater than it would
be without the use of leverage. This could result in increased volatility of returns. There is no guarantee that the Fund or an Underlying
Fund will leverage its portfolio, or if it does, that the leveraging strategy will be successful. The Fund also cannot guarantee that
the use of leverage by the Fund or an Underlying Fund will produce a higher return on an investment.
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Rating Agency Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Rating
Agency Risk
Ratings
agencies such as S&P, Fitch, Moody’s or other NRSROs provide ratings on debt securities based on their analyses of information
they deem relevant. Ratings are opinions or judgments of the credit quality of an issuer and may prove to be inaccurate. In addition,
there may be a delay between events or circumstances adversely affecting the ability of an issuer to pay interest and/or repay principal
and an NRSRO’s decision to downgrade a security. Further, a rating agency may have a conflict of interest with respect to a security
for which it assigns a particular rating if, for example, the issuer or sponsor of the security pays the rating agency for the analysis
of its security, which could affect the reliability of the rating.
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United States Credit Rating Downgrade Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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United
States Credit Rating Downgrade Risk
On
August 5, 2011, S&P lowered its long-term sovereign credit rating on the United States to “AA+” from “AAA.”
In general, a lower rating could increase the volatility in both stock and bond markets, result in higher interest rates and lower Treasury
prices and increase the costs of all kinds of debt. These events and similar events in other areas of the world could have significant
adverse impacts on issuers of securities held by the Fund and the Fund itself. The Adviser and the Subadviser cannot predict the effects
of these or similar events in the future on the U.S. economy and securities markets or on the Fund’s portfolio. The Adviser and
the Subadviser may not timely anticipate or manage existing, new or additional risks, contingencies or developments.
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Legislation And Regulatory Risks [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Legislation
and Regulatory Risks
At
any time after the date of this Prospectus, legislation or additional regulations may be enacted that could negatively affect the assets
of the Fund or the issuers of such assets. Changing approaches to regulation may have a negative impact on the entities and/or securities
in which the Fund or an Underlying Fund invests. Legislation or regulation may also change the way in which the Fund or an Underlying
Fund is regulated. New or amended regulations may be imposed by the CFTC, the Securities and Exchange Commission (“SEC”),
the Federal Reserve or other financial regulators, other governmental regulatory authorities or self-regulatory organizations that supervise
the financial markets that could adversely affect the Fund or the Underlying Funds. There can be no assurance that future legislation,
regulation or deregulation will not have a material adverse effect on the Fund or will not impair the ability of the Fund to achieve
its investment objectives. The Fund and the Underlying Funds also may be adversely affected by changes in the enforcement or interpretation
of existing statutes and rules by these governmental authorities or self-regulatory organizations.
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Market Disruption Geopolitical Pandemic And Climate Change Risks [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Market
Disruption, Geopolitical, Pandemic and Climate Change Risks
The
Fund and Underlying Funds (as well as their service providers) may be adversely affected by uncertainties and events around the world,
such as epidemics and pandemics, including the spread of infectious illness or other public health issues, natural disasters, terrorism
and other conflicts, social unrest, political developments, and changes in government policies, taxation, restrictions on foreign investment
and currency repatriation, currency fluctuations and other developments in the laws and regulations of the countries in which they are
invested. Assets of issuers, including those held in the Fund’s or an Underlying Fund’s portfolio, could be direct targets,
or indirect casualties, of an act of terrorism.
International
war or conflicts (including Russia's invasion of Ukraine and the Israel-Hamas war) and geopolitical events in foreign countries, along
with instability in regions such as Asia, Eastern Europe and the Middle East, possible terrorist attacks in the United States or around
the world, and other similar events could adversely affect the U.S. and foreign financial markets. As a result, whether or not the Fund
invests in securities located in or with significant exposure to the countries directly affected, the value and liquidity of the Fund's
investments may be negatively impacted. Further, due to closures of certain markets and restrictions on trading certain securities, the
value of certain securities held by the Fund could be significantly impacted.
In
early 2020, an outbreak of a novel strain of coronavirus (COVID-19) emerged globally. The outbreak of COVID-19 and its variants resulted
in closing international borders, enhanced health screenings, healthcare service preparation and delivery, quarantines, cancellations,
disruptions to supply chains and customer activity, as well as general public concern and uncertainty. This outbreak negatively affected
the worldwide economy, as well as the economies of individual countries, the financial health of individual companies and the market
in general in significant and unforeseen ways. On May 5, 2023, the World Health Organization declared the end of the global emergency
status for COVID-19. The United States subsequently ended the federal COVID-19 public health emergency declaration effective May 11,
2023. Although vaccines for COVID-19 are widely available, it is unknown how long certain circumstances related to the pandemic will
persist, whether they will reoccur in the future and what additional implications may follow from the pandemic. The impact of these events
and other epidemics or pandemics in the future could adversely affect Fund performance.
Climate
change poses long-term threats to physical and biological systems. Potential hazards and risks related to climate change for a State
or municipality include, among other things, wildfires, rising sea levels, more severe coastal flooding and erosion hazards, and more
intense storms. Storms in recent years have demonstrated vulnerabilities in a State’s or municipality’s infrastructure to
extreme weather events. Climate change risks, if they materialize, can adversely impact a State’s or municipality’s financial
plan in current or future years. In addition, economists and others have expressed increasing concern about the potential effects of
global climate change on property and security values. A rise in sea levels, an increase in powerful windstorms and/or a climate-driven
increase in sea levels or flooding could cause coastal properties to lose value or become unmarketable altogether. Economists warn that,
unlike previous declines in the real estate market, properties in affected coastal zones may not ever recover their value. Large wildfires
driven by high winds and prolonged drought may devastate businesses and entire communities and may be very costly to any business found
to be responsible for the fire. Regulatory changes and divestment movements tied to concerns about climate change could adversely affect
the value of certain land and the viability of industries whose activities or products are seen as accelerating climate change.
These
losses could adversely affect the bonds of municipalities that depend on tax or other revenues and tourist dollars generated by affected
properties, and insurers of the property and/or of municipal securities. Since property and security values are driven largely by buyers’
perceptions, it is difficult to know the time period over which these market effects might unfold.
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Defensive Measures [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Defensive
Measures
The
Fund may invest up to 100% of its assets in cash, cash equivalents and short-term investments as a defensive measure in response to adverse
market conditions or opportunistically at the discretion of the Adviser or Subadviser. During these periods, the Fund may not be pursuing
its investment objectives.
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Market Discount [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Market
Discount
Common
stock of closed-end funds frequently trades at a discount from its NAV. This risk would also apply to the Fund’s investments in
closed-end funds.
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Limited Term And Eligible Tender Offer Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Limited
Term and Eligible Tender Offer Risk
The
Fund is scheduled to terminate on or about the Termination Date (unless it is converted to a perpetual fund). The Fund is not a so
called “target date” or “life cycle” fund whose asset allocation becomes more conservative over time as its target
date, often associated with retirement, approaches. In addition, the Fund is not a “target term” fund whose investment objective
is to return its original NAV on the termination date.
The
Fund is not required to conduct an Eligible Tender Offer. If the Fund conducts an Eligible Tender Offer, there can be no assurance that
the number of tendered Common Shares would not result in the Fund’s net assets totaling less than the Termination Threshold, in
which case the Eligible Tender Offer will be terminated, no Common Shares will be repurchased pursuant to the Eligible Tender Offer and
the Fund will terminate on or before the Termination Date (subject to possible extensions). Following the completion of an Eligible Tender
Offer in which the number of tendered Common Shares would result in the Fund’s net assets equaling or totaling greater than the
Termination Threshold, the Board of Directors may eliminate the limited term structure of the Fund upon the affirmative vote of a majority
of the Board of Directors and without a vote of Common Shareholders. Thereafter, the Fund will have a perpetual existence. The Fund is
not required to conduct additional tender offers following an Eligible Tender Offer and conversion to a perpetual structure. Therefore,
remaining Common Shareholders may not have another opportunity to participate in a tender offer or exchange their Common Shares for the
then-existing NAV per Common Share. Common Shares of closed-end management investment companies frequently trade at a discount from their
NAV and as a result remaining Common Shareholders may only be able to sell their Common Shares at a discount to NAV. See “—Market
Discount.” The Adviser may have a conflict of interest in recommending to the Board of Directors that the limited term structure
be eliminated and the Fund have a perpetual existence.
In
order to pay for Common Shares to be purchased in an Eligible Tender Offer or to liquidate the portfolio in connection with the Fund’s
termination, the Fund will be required to sell its assets. As a result, the Fund may be required to sell portfolio securities when it
otherwise would not, including at times when market conditions are not favorable, which may cause the Fund to lose money. The Fund may
receive proceeds from the disposition of portfolio investments that are less than the valuations of such investments by the Fund and,
in particular, losses from the disposition of illiquid securities may be significant. The disposition of portfolio investments by the
Fund could also cause market prices of such instruments, and hence the NAV and market price of the Common Shares, to decline. In addition,
disposition of portfolio investments will cause the Fund to incur increased brokerage and related transaction expenses.
Moreover,
in conducting such portfolio transactions, the Fund may need to deviate from its investment policies and may not achieve its investment
objectives. The Fund’s portfolio composition may change as its portfolio holdings mature or are called or sold in anticipation
of an Eligible Tender Offer or the Termination Date. During such period(s), it is possible that the Fund will hold a greater percentage
of its total assets in shorter term and lower yielding securities and cash and cash equivalents than it would otherwise, which may impede
the Fund’s ability to achieve its investment objectives and adversely impact the Fund’s performance and distributions to
Common Shareholders, which may in turn adversely impact the market value of the Common Shares. In addition, the Fund may be required
to reduce its leverage, which could also adversely impact its performance. The additional cash or cash equivalents held by the Fund could
be obtained through reducing the Fund’s distributions to Common Shareholders and/or holding cash in lieu of reinvesting, which
could limit the ability of the Fund to participate in new investment opportunities. The Fund does not limit its investments to securities
having a maturity date prior to or around the Termination Date, which may exacerbate the foregoing risks and considerations. A Common
Shareholder may be subject to the foregoing risks over an extended period of time, particularly if the Fund conducts an Eligible Tender
Offer and is also subsequently terminated by or around the Termination Date.
If
the Fund’s tax basis for the investments sold is less than the sale proceeds, the Fund will recognize capital gains, which the
Fund will be required to distribute to Common Shareholders. In addition, the Fund’s purchase of tendered Common Shares pursuant
to a tender offer will have tax consequences for tendering Common Shareholders and may have tax consequences for non-tendering Common
Shareholders. The purchase of Common Shares by the Fund pursuant to a tender offer will have the effect of increasing the proportionate
interest in the Fund of non-tendering Common Shareholders. All Common Shareholders remaining after a tender offer will be subject to
proportionately higher expenses due to the reduction in the Fund’s total assets resulting from payment for the tendered Common
Shares. A reduction in net assets, and the corresponding increase in the Fund’s expense ratio, could result in lower returns and
put the Fund at a disadvantage relative to its peers and potentially cause the Fund to trade at a wider discount to NAV than it otherwise
would. Such reduction in the Fund’s total assets may also result in less investment flexibility, reduced diversification and greater
volatility for the Fund, and may have an adverse effect on the Fund’s investment performance. Moreover, the resulting reduction
in the number of outstanding Common Shares could cause the Common Shares to become thinly traded or otherwise adversely impact the secondary
market trading of such shares. Furthermore, the portfolio of the Fund following an Eligible Tender Offer could be significantly different
and, therefore, Common Shareholders retaining an investment in the Fund could be subject to greater risk. For example, the Fund may be
required to sell its more liquid, higher quality portfolio investments to purchase Common Shares that are tendered in an Eligible Tender
Offer, which would leave a less liquid, lower quality portfolio for remaining shareholders. The prospects of an Eligible Tender Offer
may attract arbitrageurs who would purchase the Common Shares prior to the tender offer for the sole purpose of tendering those shares
which could have the effect of exacerbating the risks described herein for shareholders retaining an investment in the Fund following
an Eligible Tender Offer.
In
connection with its termination, the Fund may distribute the proceeds from the disposition of portfolio securities in one or more liquidating
distributions prior to the final liquidation, which may cause fixed expenses to increase when expressed as a percentage of assets under
management. Upon a termination, it is anticipated that the Fund will have distributed substantially all of its net assets to Common Shareholders,
although securities for which no market exists, securities trading at depressed prices, if any, and assets recovered following termination
may be placed in a liquidating trust. Common Shareholders will bear the costs associated with establishing and maintaining a liquidating
trust, if necessary. Securities placed in a liquidating trust may be held for an indefinite period of time until they can be sold or
pay out all of their cash flows. The Fund cannot predict the amount, if any, of securities that will be required to be placed in a liquidating
trust.
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Investment Style Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Investment
Style Risk
The
Fund is managed by allocating the Fund’s assets between two different strategies as described in this Prospectus. This may cause
the Fund to underperform funds that do not limit their investments to these two strategies during periods when these strategies underperform
other types of investments.
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Not A Complete Investment Program [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Not
a Complete Investment Program
The
Fund is intended for investors seeking current income and overall total return over the long-term, and is not intended to be a short-term
trading vehicle. An investment in the Common Shares of the Fund should not be considered a complete investment program. Each investor
should take into account the Fund’s investment objectives and other characteristics as well as the investor’s other investments
when considering an investment in the Common Shares. An investment in the Fund may not be appropriate for all investors.
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Multi Manager Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Multi-Manager
Risk
Fund
performance is dependent upon the success of the Adviser and the Subadviser in implementing the Fund’s investment strategies in
pursuit of its investment objectives. To a significant extent, the Fund’s performance will depend on the success of the Adviser’s
methodology in allocating the Fund’s assets between each of the principal investment strategies. The Adviser’s and the Subadviser’s
investment styles may not always be complementary, which could adversely affect the performance of the Fund. Because the Adviser and
the Subadviser each makes investment decisions independently, it is possible that the Adviser and the Subadviser may, at any time, take
positions that in effect may be opposite of positions taken by each other. In such cases, the Fund will incur brokerage and other transaction
costs without accomplishing any net investment results. The multi-manager approach could increase the Fund’s portfolio turnover
rates, which may result in higher levels of realized capital gains or losses with respect to the Fund’s portfolio securities, and
higher broker commissions and other transaction costs. The trading costs and tax consequences associated with portfolio turnover may
adversely affect the Fund’s performance. See “—Investment Style Risk.”
In
addition, the Subadviser’s implementation of the Municipal Bond Income Strategy means that, at any point in time, the Subadviser
will manage 35-75% of the Fund’s Managed Assets. To the extent the Subadvisory Agreement with the Subadviser is terminated or not
renewed, Fund performance will become dependent on the Adviser or a new subadviser successfully implementing the Municipal Bond Income
Strategy. There is no assurance that a suitable replacement to the Subadviser could be found if the Subadvisory Agreement is terminated
or not renewed. Any such termination or non-renewal of the Subadvisory Agreement can have an adverse effect on an investment in the Fund.
In addition, to the extent the Adviser retains the responsibility of implementing the Municipal Bond Income Strategy of the Fund following
the termination or non-renewal of the Subadvisory Agreement, the approval of the Fund’s stockholders will likely not be required.
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Asset Allocation Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Asset
Allocation Risk
To
the extent that the Adviser’s asset allocation between the Fund’s principal investment strategies may fail to produce the
intended result, the Fund’s return may suffer. Additionally, the potentially active asset allocation style of the Fund may lead
to changing allocations over time and represent a risk to investors who target fixed asset allocations.
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Leverage Risks [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Leverage
Risks
Leverage
is a speculative technique that exposes the Fund to greater risk and increased costs than if it were not implemented. Increases and decreases
in the value of the Fund’s portfolio will be magnified when the Fund uses leverage. As a result, leverage may cause greater changes
in the Fund’s NAV. The leverage costs may be greater than the Fund’s return on the underlying investments made from the proceeds
of leverage. The Fund’s leveraging strategy may not be successful. See “Use of Leverage.”
If
the Fund were to utilize leverage in the form of borrowing, it anticipates that the money borrowed for investment purposes will incur
interest based on shorter-term interest rates that would be periodically reset. So long as the Fund’s portfolio provides a higher
rate of return, net of expenses, than the interest rate on borrowed money, as reset periodically, the leverage may cause the holders
of Common Shares to receive a higher current rate of return than if the Fund were not leveraged. If, however, long-term and/or short-term
rates rise, the interest rate on borrowed money could exceed the rate of return on securities held by the Fund, reducing return to the
holders of Common Shares. Developments in the credit markets may adversely affect the ability of the Fund to borrow money for investment
purposes and may increase the costs of such borrowings, which would reduce returns to the holders of Common Shares.
In
addition to the foregoing, the use of leverage involves risks and special considerations for Common Shareholders, including:
| ● | the
likelihood of greater volatility of NAV, market price and dividend rate of the Common Shares
than a comparable portfolio without leverage; |
| ● | the
risk that fluctuations in interest rates on borrowings or on short-term debt or in the interest
or dividend rates on any debt securities or Preferred Shares that the Fund must pay will
reduce the return to the Common Shareholders; |
| ● | the
effect of leverage in a declining market, which is likely to cause a greater decline in the
NAV of the Common Shares than if the Fund were not leveraged, may result in a greater decline
in the market price of the Common Shares; |
| ● | when
the Fund uses financial leverage, the investment management fees payable to the Adviser and
the subadvisory fees payable by the Adviser to the Subadviser will be higher than if the
Fund did not use leverage. This may create a conflict of interest between the Adviser and
the Subadviser, on the one hand, and the holders of Common Shares, on the other; and |
| ● | leverage
may increase operating costs, which may reduce total return. |
The
use of leverage may limit the Fund’s flexibility and may require that the Fund sell other portfolio investments to pay Fund expenses,
to maintain assets in an amount sufficient to cover the Fund’s leveraged exposure or to meet other obligations at a time when it
may be disadvantageous to sell such assets.
Certain
types of borrowings by the Fund may result in the Fund being subject to covenants in credit agreements relating to asset coverage and
portfolio composition requirements. The Fund may be subject to certain restrictions on investments imposed by guidelines of one or more
rating agencies, which may issue ratings for the short-term debt securities or Preferred Shares issued by the Fund. These guidelines
may impose asset coverage or portfolio composition requirements that are more stringent than those imposed by the 1940 Act. The Adviser
does not believe that these covenants or guidelines will impede it from managing the Fund’s portfolio in accordance with the Fund’s
investment objectives and policies if the Fund were to utilize such leverage.
Leverage
risk would also apply to the Fund’s investments in Underlying Funds to the extent an Underlying Fund uses leverage. To the extent
the Fund uses leverage and invests in Underlying Funds that also use leverage, the risks associated with leverage will be magnified,
potentially significantly.
The
Fund currently anticipates that leverage will be obtained through the use of proceeds received from tender option bond transactions.
See “—Investment-Related Risks—Tender Option Bonds Risks.”
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Portfolio Turnover Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Portfolio
Turnover Risk
The
Fund’s annual portfolio turnover rate may vary greatly from year to year. High portfolio turnover may result in the realization
of net short-term capital gains by the Fund which, when distributed to holders of Common Shares, will be taxable as ordinary income.
In addition, a higher portfolio turnover rate results in correspondingly greater brokerage commissions and other transactional expenses
that are borne by the Fund. However, portfolio turnover rate is not considered a limiting factor in the execution of investment decisions
for the Fund. See “U.S. Federal Income Tax Matters.”
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Potential Conflicts Of Interest Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Potential
Conflicts of Interest Risk
The
Adviser, the Subadviser and the portfolio managers of the Fund have interests which may conflict with the interests of the Fund. In particular,
the Adviser and the Subadviser each manages and/or advises other investment funds or accounts with the same or similar investment objectives
and strategies as the Fund. As a result, the Adviser, the Subadviser and the Fund’s portfolio managers may devote unequal time
and attention to the management of the Fund and those other funds and accounts, and may not be able to formulate as complete a strategy
or identify equally attractive investment opportunities as might be the case if they were to devote substantially more attention to the
management of the Fund. The Adviser, the Subadviser and the Fund’s portfolio managers may identify a limited investment opportunity
that may be suitable for multiple funds and accounts, and the opportunity may be allocated among these several funds and accounts, which
may limit the Fund’s ability to take full advantage of the investment opportunity. Additionally, transaction orders may be aggregated
for multiple accounts for purpose of execution, which may cause the price or brokerage costs to be less favorable to the Fund than if
similar transactions were not being executed concurrently for other accounts. Furthermore, it is theoretically possible that a portfolio
manager could use the information obtained from managing a fund or account to the advantage of other funds or accounts under management,
and also theoretically possible that actions could be taken (or not taken) to the detriment of the Fund. At times, a portfolio manager
may determine that an investment opportunity may be appropriate for only some of the funds and accounts for which he or she exercises
investment responsibility, or may decide that certain of the funds and accounts should take differing positions with respect to a particular
security. In these cases, the portfolio manager may place separate transactions for one or more funds or accounts which may affect the
market price of the security or the execution of the transaction, or both, to the detriment or benefit of one or more other funds and
accounts. For example, a portfolio manager may determine that it would be in the interest of another account to sell a security that
the Fund holds, potentially resulting in a decrease in the market value of the security held by the Fund.
Conflicts
potentially limiting the Fund’s investment opportunities may also arise when the Fund and other clients of the Adviser or Subadviser
invest in, or even conduct research relating to, different parts of an issuer’s capital structure, such as when the Fund owns senior
debt obligations of an issuer and other clients own junior tranches of the same issuer. In such circumstances, decisions over whether
to trigger an event of default, over the terms of any workout, or how to exit an investment may result in conflicts of interest. In order
to minimize such conflicts, a portfolio manager may avoid certain investment opportunities that would potentially give rise to conflicts
with other clients of the Adviser or Subadviser (as applicable) or result in the Adviser or Subadviser receiving material, non-public
information, or the Adviser and Subadviser may enact internal procedures designed to minimize such conflicts, which could have the effect
of limiting the Fund’s investment opportunities. Additionally, if the Adviser or Subadviser acquires material non-public confidential
information in connection with its business activities for other clients, a portfolio manager or other investment personnel may be restricted
from purchasing securities or selling certain securities for the Fund or other clients.
The
portfolio managers also may engage in cross trades between funds and accounts, may select brokers or dealers to execute securities transactions
based in part on brokerage and research services provided to the Adviser or the Subadviser which may not benefit all funds and accounts
equally and may receive different amounts of financial or other benefits for managing different funds and accounts. The Adviser, the
Subadviser and their affiliates may provide more services to some types of funds and accounts than others.
The
Fund, Adviser and/or Subadviser (as applicable) have adopted policies and procedures that address the foregoing potential conflicts of
interest, including policies and procedures to address the allocation of investment opportunities, execution of portfolio transactions,
personal trading by employees and other potential conflicts of interest that are designed to ensure that all accounts of the Adviser
and Subadviser are treated equitably. There is no guarantee that the policies and procedures adopted by the Adviser, the Subadviser and
the Fund will be able to identify or mitigate the conflicts of interest that arise between the Fund and any other investment funds or
accounts that the Adviser and/or the Subadviser may manage or advise from time to time. For further information on potential conflicts
of interest, see “Management of the Fund—Conflicts of Interest” in the SAI.
In
addition, while the Fund is using leverage, the amount of the fees paid to the Adviser (and by the Adviser to the Subadviser) for investment
advisory and management services are higher than if the Fund did not use leverage because the fees paid are calculated based on the Fund’s
Managed Assets, which include assets purchased with leverage. Therefore, the Adviser and the Subadviser have a financial incentive to
leverage the Fund, which creates a conflict of interest between the Adviser and the Subadviser on the one hand and the Common Shareholders
of the Fund on the other.
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Stockholder Activism [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Stockholder
Activism
Stockholder
activism, which could take many forms, including making public demands that the Fund consider certain strategic alternatives, engaging
in public campaigns to attempt to influence the Fund’s corporate governance and/or management, and commencing proxy contests to
attempt to elect the activists’ representatives or others to the Fund’s Board of Directors, or arise in a variety of situations,
has been increasing in the closed-end fund space recently. While the Fund is currently not subject to any stockholder activism, due to
the potential volatility of the Fund’s stock price and for a variety of other reasons, the Fund may in the future become the target
of stockholder activism. Stockholder activism could result in substantial costs and divert management’s and the Board’s attention
and resources from its business. Also, the Fund may be required to incur significant legal and other expenses related to any activist
stockholder matters. Further, the Fund’s stock price could be subject to significant fluctuation or otherwise be adversely affected
by the events, risks and uncertainties of any stockholder activism.
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Cyber Security Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Cyber
Security Risk
With
the increased use of the Internet and because information technology (“IT”) systems and digital data underlie most of the
Fund’s operations, the Fund and the Adviser, Subadviser, transfer agent, and other service providers and the vendors of each (collectively
“Service Providers”) are exposed to the risk that their operations and data may be compromised as a result of internal and
external cyber-failures, breaches or attacks (“Cyber Risk”). This could occur as a result of malicious or criminal cyber-attacks.
Cyber-attacks include actions taken to: (i) steal or corrupt data maintained online or digitally, (ii) gain unauthorized access to or
release confidential information, (iii) shut down the Fund or Service Provider website through denial-of-service attacks, or (iv) otherwise
disrupt normal business operations. However, events arising from human error, faulty or inadequately implemented policies and procedures
or other systems failures unrelated to any external cyber-threat may have effects similar to those caused by deliberate cyber-attacks.
Successful
cyber-attacks or other cyber-failures or events affecting the Fund or its Service Providers may adversely impact the Fund or its shareholders
or cause an investment in the Fund to lose value. For instance, such attacks, failures or other events may interfere with the processing
of shareholder transactions, impact the Fund’s ability to calculate its NAV, cause the release of private shareholder information
or confidential Fund information, impede trading, or cause reputational damage. Because the Fund does not offer to redeem its Common
Shares at NAV, damage to the reputation of the Fund or its service providers could cause a decline in the value of the Fund’s Common
Shares, perhaps suddenly. Such attacks, failures or other events could also subject the Fund or its Service Providers to regulatory fines,
penalties or financial losses, reimbursement or other compensation costs, and/or additional compliance costs. Insurance protection and
contractual indemnification provisions may be insufficient to cover these losses. The Fund or its Service Providers may also incur significant
costs to manage and control Cyber Risk. While the Fund and its Service Providers have established IT and data security programs and have
in place business continuity plans and other systems designed to prevent losses and mitigate Cyber Risk, there are inherent limitations
in such plans and systems, including the possibility that certain risks have not been identified or that cyber-attacks may be highly
sophisticated.
Cyber
Risk is also present for issuers of securities or other instruments in which the Fund invests, which could result in material adverse
consequences for such issuers, and may cause a Fund’s investment in such issuers to lose value.
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Secondary Market For The Common Shares [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Secondary
Market for the Common Shares
The
issuance of Common Shares through the Plan may have an adverse effect on the secondary market for the Common Shares. The increase in
the number of outstanding Common Shares resulting from the issuances pursuant to the Plan and the discount to the market price at which
such Common Shares may be issued, may put downward pressure on the market price for the Common Shares. When the Common Shares are trading
at a premium, the Fund may also issue Common Shares that may be sold through private transactions effected on the NYSE or through broker-dealers.
The increase in the number of outstanding Common Shares resulting from these offerings may put downward pressure on the market price
for Common Shares.
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Anti Takeover Provisions [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Anti-Takeover
Provisions
Maryland
law and the Fund’s Charter and Bylaws include provisions that could limit the ability of other entities or persons to acquire control
of the Fund or to convert the Fund to open-end status, including the adoption of a staggered Board of Directors and the supermajority
voting requirements discussed herein. These provisions could deprive the holders of Common Shares of opportunities to sell their Common
Shares at a premium over the then current market price of the Common Shares or at NAV. See “Certain Provisions of the Fund’s
Charter and Bylaws and of Maryland Law.” This risk would also apply to many of the Fund’s investments in Underlying Funds.
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Risks Associated With Additional Offerings [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Risks
Associated with Additional Offerings
There
are risks associated with offerings of additional common or preferred shares of the Fund. The voting power of current shareholders will
be diluted to the extent that current shareholders do not purchase shares in any future offerings of shares or do not purchase sufficient
shares to maintain their percentage interest. In addition, the sale of shares in an offering may have an adverse effect on prices in
the secondary market for the Fund’s shares by increasing the number of shares available, which may put downward pressure on the
market price of the Fund’s Shares. These sales also might make it more difficult for the Fund to sell additional equity securities
in the future at a time and price the Fund deems appropriate.
In
the event any additional series of fixed rate preferred shares are issued and such shares are intended to be listed on an exchange, prior
application will have been made to list such shares. During an initial period, which is not expected to exceed 30 days after the date
of its initial issuance, such shares may not be listed on any securities exchange. During such period, the underwriters may make a market
in such shares, although they will have no obligation to do so. Consequently, an investment in such shares may be illiquid during such
period. Fixed rate preferred shares may trade at a premium to or discount from liquidation value.
There
are risks associated with an offering of Rights (in addition to the risks discussed herein related to the offering of shares and preferred
shares). 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. In addition to the
economic dilution described above, if a shareholder does not exercise all of their Rights, the shareholder will incur voting dilution
as a result of the Rights offering. This voting dilution will occur because the 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 or preferred shares purchasable upon exercise
of Rights being less attractive to investors at the conclusion of the subscription period. This may reduce or eliminate the value of
the Rights. If investors exercise only a portion of the rights, the number of shares issued may be reduced, and the shares may trade
at less favorable prices than larger offerings for similar securities. Rights issued by the Fund may be transferable or non-transferable
rights.
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Business Contact [Member] |
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Cover [Abstract] |
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Entity Address, Address Line One |
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360
South Rosemary Avenue
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Entity Address, Address Line Two |
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Suite
1420
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Entity Address, City or Town |
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West
Palm Beach
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Entity Address, State or Province |
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FL
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Entity Address, Postal Zip Code |
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33401
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Contact Personnel Name |
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Marcus
L. Collins, Esq.
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Common Shares [Member] |
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Capital Stock, Long-Term Debt, and Other Securities [Abstract] |
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Security Title [Text Block] |
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Common
Stock
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Security Dividends [Text Block] |
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Common
Shareholders are entitled to receive dividends if and when the Board of Directors declares dividends from funds legally available. Whenever
Preferred Shares or borrowings are outstanding, Common Shareholders will not be entitled to receive any distributions from the Fund unless
all accrued dividends on the Preferred Shares and interest and principal payments on borrowings have been paid, and unless the applicable
asset coverage requirements under the 1940 Act would be satisfied after giving effect to the distribution as described above.
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Security Voting Rights [Text Block] |
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Common
Shareholders are entitled to one vote per share. All voting rights for the election of directors are noncumulative, which means that,
assuming there are no Preferred Shares are outstanding, the holders of more than 50% of the Common Shares will elect 100% of the directors
then nominated for election if they choose to do so and, in such event, the holders of the remaining Common Shares will not be able to
elect any Directors.
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Security Liquidation Rights [Text Block] |
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In
the event of the Fund’s liquidation, dissolution or winding up, Common Shares would be entitled to share ratably in all of the
Fund’s assets that are legally available for distribution after the Fund pays all debts and other liabilities and subject to any
preferential rights of holders of Preferred Shares, if any Preferred Shares are outstanding at such time.
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Security Preemptive and Other Rights [Text Block] |
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The
Common Shares have no preemptive, conversion, exchange, appraisal or redemption rights, and each share has equal voting, dividend, distribution
and liquidation rights.
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Outstanding Security, Title [Text Block] |
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Common
Shares
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Outstanding Security, Authorized [Shares] |
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50,000,000
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Outstanding Security, Held [Shares] |
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0
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Outstanding Security, Not Held [Shares] |
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8,455,000
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