Michael K. Hoffman, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
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Kevin T. Hardy, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
155 North Wacker Drive
Chicago, Illinois 60606
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TABLE OF CONTENTS
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Page
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Prospectus Summary
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1
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Summary of Fund Expenses
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46
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Financial Highlights
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48
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Senior Securities and Other Financial Leverage
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50
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The Fund
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51
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Use of Proceeds
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51
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Market and Net Asset Value Information
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51
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Investment Objective and Policies
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52
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The Fund’s Investments
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54
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Use of Financial Leverage
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65
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Risks
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69
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Management of the Fund
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95
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Net Asset Value
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97
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Distributions
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98
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Dividend Reinvestment Plan
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99
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Description of Capital Structure
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100
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Anti-Takeover and Other Provisions in the Fund’s Governing Documents
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101
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Closed-End Fund Structure
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103
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Repurchase of Common Shares; Conversion to Open-End Fund
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103
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U.S. Federal Income Tax Considerations
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104
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Plan of Distribution
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106
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Custodian, Administrator, Transfer Agent and Dividend Disbursing Agent
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109
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Legal Matters
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109
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Independent Registered Public Accounting Firm
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109
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Additional Information
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109
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Privacy Principles of the Fund
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110
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Table of Contents of the Statement of Additional Information
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111
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The Fund
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Guggenheim Strategic Opportunities Fund (the “Fund”) is a diversified, closed-end management investment company that commenced operations on July 26, 2007. The Fund’s objective is to maximize total return through a combination of current income and capital appreciation.
The Fund’s common shares of beneficial interest, par value $0.01 per share, are called “Common Shares” and the holders of Common Shares are called “Common Shareholders” throughout this Prospectus.
Guggenheim Funds Investment Advisors, LLC (the “Investment Adviser”) serves as the Fund’s investment adviser and is responsible for the management of the Fund. Guggenheim Partners Investment Management, LLC (the “Sub-Adviser”) is responsible for the management of the Fund’s portfolio of securities. Each of the Investment Adviser and the Sub-Adviser are wholly-owned subsidiaries of Guggenheim Partners, LLC (“Guggenheim Partners”).
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The Offering
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The Fund may offer, from time to time, up to $250,000,000 aggregate initial offering price of Common Shares, on terms to be determined at the time of the offering. As of August 31, 2018, the Fund had sold 4,832,155 Common Shares in an at-the market offering at an aggregate offering price of $101,578,090. As a result, up to $148,421,910 aggregate offering price of Common Shares remained available for subsequent offerings under this Prospectus. The Fund will offer Common Shares at prices and on terms to be set forth in one or more supplements to this Prospectus (each a “Prospectus Supplement”).
The Fund may offer Common Shares (1) directly to one or more purchasers, (2) through agents that the Fund may designate from time to time, or (3) to or through underwriters or dealers. The Prospectus Supplement relating to a particular offering will identify any agents or underwriters involved in the sale of Common Shares, and will set forth any applicable purchase price, fee, commission or discount arrangement between the Fund and agents or underwriters or among underwriters or the basis upon which such amount may be calculated. The Fund may not sell Common Shares through agents, underwriters or dealers without delivery of this Prospectus and a Prospectus Supplement describing the method and terms of the offering of Common Shares. See “Plan of Distribution.”
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Use of Proceeds
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Unless otherwise specified in a Prospectus Supplement, the Fund intends to invest the net proceeds of an offering of Common Shares in accordance with its investment objective and policies as stated herein. It is currently anticipated that the Fund will be able to invest substantially all of the net proceeds of an offering of Common Shares
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(commonly referred to as “high-yield” or “junk” bonds), which are considered speculative with respect to the issuer’s capacity to pay interest and repay principal. The sectors and types of Income Securities in which the Fund may invest, include, but are not limited to:
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Corporate bonds;
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Loans and loan participations (including senior secured floating rate loans, “second lien” secured floating rate loans, and other types of secured and unsecured loans with fixed and variable interest rates) (collectively, “Loans”);
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Structured finance investments (including residential and commercial mortgage-related securities, asset- backed securities, collateralized debt obligations and risk-linked securities);
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U.S. government and agency securities;
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Mezzanine and preferred securities; and
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Convertible securities.
Common Equity Securities and Covered Call Option Strategy.
The Fund may invest in common stocks, limited liability company interests, trust certificates and other equity investments (“Common Equity Securities”) that the Sub-Adviser believes offer attractive yield and/or capital appreciation potential. As part of its Common Equity Securities strategy, the Fund currently intends to employ a strategy of writing (selling) covered call options and may, from time to time, buy or sell put options on individual Common Equity Securities and, to a lesser extent, on indices of securities and sectors of securities. This covered call option strategy is intended to generate current gains from option premiums as a means to enhance distributions payable to the Fund’s Common Shareholders.
Structured Finance Investments.
The Fund may invest in structured finance investments, which are Income Securities and Common Equity Securities typically issued by special purpose vehicles that hold income-producing securities (e.g., mortgage loans, consumer debt payment obligations and other receivables) and other financial assets. Structured finance investments are tailored, or packaged, to meet certain financial goals of investors. Typically, these investments provide investors with capital protection, income generation and/or the opportunity to generate capital growth. The Sub-Adviser believes that structured finance investments provide attractive risk-adjusted returns, frequent sector rotation opportunities and prospects for adding value through security selection. Structured finance investments include:
Mortgage-Related Securities
. Mortgage-related securities are a form of derivative collateralized by pools of commercial or residential mortgages. Pools of mortgage loans are assembled as securities for sale to investors by various governmental, government-related and private organizations. These securities may include complex instruments such as collateralized mortgage obligations, real estate investment trusts (“REITs”) (including debt and preferred stock issued by REITs), and other real estate-related securities. The mortgage-
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related securities in which the Fund may invest include those with fixed, floating or variable interest rates, those with interest rates that change based on multiples of changes in a specified index of interest rates, and those with interest rates that change inversely to changes in interest rates, as well as those that do not bear interest. The Fund may invest in residential and commercial mortgage-related securities issued by governmental entities and private issuers, including subordinated mortgage-related securities. The underlying assets of certain mortgage-related securities may be subject to prepayments, which shorten the weighted average maturity and may lower the return of such securities.
Asset-Backed Securities
. Asset-backed securities (“ABS”) are a form of structured debt obligation. ABS are payment claims that are securitized in the form of negotiable paper that is issued by a financing company (generally called a special purpose vehicle). Collateral assets brought into a pool according to specific diversification rules. A special purpose vehicle is founded for the purpose of securitizing these payment claims and the assets of the special purpose vehicle are the diversified pool of collateral assets. The special purpose vehicle issues marketable securities which are intended to represent a lower level or risk than an underlying collateral asset individually, due to the diversification in the pool. The redemption of the securities issued by the special purpose vehicle takes place out of the cash flow generated by the collected assets. A special purpose vehicle may issue multiple securities with different priorities to the cash flows generated and the collateral assets. The collateral for ABS may include home equity loans, automobile and credit card receivables, boat loans, computer leases, airplane leases, mobile home loans, recreational vehicle loans and hospital account receivables. The Fund may invest in these and other types of ABS that may be developed in the future. There is the possibility that recoveries on the underlying collateral may not, in some cases, be available to support payments on these securities.
Collateralized Debt Obligations
. A collateralized debt obligation (“CDO”) is an asset-backed security whose underlying collateral is typically a portfolio of bonds, bank loans, other structured finance securities and/or synthetic instruments. Where the underlying collateral is a portfolio of bonds, a CDO is referred to as a collateralized bond obligation (“CBO”). Where the underlying collateral is a portfolio of bank loans, a CDO is referred to as a collateralized loan obligation (“CLO”). Investors in CLOs bear the credit risk of the underlying collateral. Multiple tranches of securities are issued by the CLO, offering investors various maturity and credit risk characteristics. Tranches are categorized as senior, mezzanine, and subordinated/equity, according to their degree of risk. If there are defaults or the CLO’s collateral otherwise underperforms, scheduled payments to senior tranches take precedence over those of mezzanine tranches, and scheduled payments to mezzanine tranches take precedence over those to subordinated/equity tranches. This prioritization of the cash flows from a pool of securities among the several tranches of the CLO is a key feature of the CLO structure. If there are funds remaining after each tranche of debt receives its
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contractual interest rate and the CLO meets or exceeds required collateral coverage levels (or other similar covenants), the remaining funds may be paid to the subordinated (or residual) tranche (often referred to as the “equity” tranche). CLOs are subject to the same risk of prepayment described with respect to certain mortgage-related and asset-backed securities.
The Fund may invest in senior, rated tranches as well as mezzanine and subordinated tranches of CLOs. Investment in the subordinated tranche is subject to special risks. The subordinated tranche does not receive ratings and is considered the riskiest portion of the capital structure of a CLO because it bears the bulk of defaults from the loans in the CLO and serves to protect the other, more senior tranches from default in all but the most severe circumstances.
Risk-Linked Securities
. Risk-linked securities (“RLS”) are a form of derivative issued by insurance companies and insurance-related special purpose vehicles that apply securitization techniques to catastrophic property and casualty damages. RLS are typically debt obligations for which the return of principal and the payment of interest are contingent on the non-occurrence of a pre-defined “trigger event.” Depending on the specific terms and structure of the RLS, this trigger could be the result of a hurricane, earthquake or some other catastrophic event.
Real Property Asset Companies.
The Fund may invest in Income Securities and Common Equity Securities issued by companies that own, produce, refine, process, transport and market “real property assets,” such as real estate and the natural resources upon or within real estate (“Real Property Asset Companies”).
Personal Property Asset Companies.
The Fund may invest in Income Securities and Common Equity Securities issued by companies that seek to profit primarily from the ownership, rental, leasing, financing or disposition of personal (as opposed to real) property assets (“Personal Property Asset Companies”). Personal (as opposed to real) property includes any tangible, movable property or asset. The Fund will typically seek to invest in Income Securities and Common Equity Securities of Personal Property Asset Companies the investment performance of which is not expected to be highly correlated with traditional market indexes because the personal property asset held by such company is non-correlated with traditional debt or equity markets. Such personal property assets include special situation transportation assets (e.g., railcars, airplanes and ships) and collectibles (e.g., antiques, wine and fine art).
Private Securities.
The Fund may invest in privately issued Income Securities and Common Equity Securities of both public and private companies (“Private Securities”). Private Securities have additional risk considerations than comparable public securities, including availability of financial information about the issuer and valuation and liquidity issues.
Investment Funds.
As an alternative to holding investments directly, the Fund may also obtain investment exposure to Income Securities and Common Equity Securities by investing in other investment companies, including registered investment companies, private investment funds
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and/or other pooled investment vehicles (collectively, “Investment Funds”). The Fund may invest up to 30% of its total assets in Investment Funds that primarily hold (directly or indirectly) investments in which the Fund may invest directly. The 1940 Act generally limits a registered investment company’s investments in other investment companies to 10% of its total assets. However, pursuant to exemptions set forth in rules and regulations promulgated under the 1940 Act, the Fund may invest in excess of this limitation provided that the conditions of such exemptions are met. In addition, the Fund may invest in certain ETFs in excess of the 10% limitation in reliance upon and in accordance with exemptive relief obtained by such ETFs. The Fund will invest in private investment funds, commonly referred to as “hedge funds,” only to the extent permitted by applicable rules, regulations and interpretations of the SEC and NYSE. The Fund has no current intention to invest in private investment funds. Investments in other Investment Funds involve operating expenses and fees at the Investment Fund level that are in addition to the expenses and fees borne by the Fund and are borne indirectly by holders of the Fund’s Common Shares.
Synthetic Investments.
As an alternative to holding investments directly, the Fund may also obtain investment exposure to Income Securities and Common Equity Securities through the use of customized derivative instruments (including swaps, options, forwards, notional principal contracts or other financial instruments) to replicate, modify or replace the economic attributes associated with an investment in Income Securities and Common Equity Securities (including interests in Investment Funds.
Derivative Transactions.
The Fund may purchase and sell derivative instruments (which derive their value by reference to another instrument, security or index) for investment purposes, such as obtaining investment exposure to an investment category; risk management purposes, such as hedging against fluctuations in securities prices or interest rates; diversification purposes; or to change the duration of the Fund. In order to help protect the soundness of derivative transactions and outstanding derivative positions, the Sub-Adviser generally requires derivative counterparties to have a minimum credit rating of A from Moody’s Investors Service (or a comparable rating from another nationally recognized statistical rating organization (“NRSRO”)) and monitors such rating on an ongoing basis. In addition, the Sub-Adviser seeks to allocate derivative transactions to limit exposure to any single counterparty. The Fund has not adopted a maximum percentage limit with respect to derivative investments. However, the maximum level of and types of derivative transactions used by the Fund will be approved by the Board of Trustees and the Board of Trustees will receive regular reports from the Investment Adviser and the Sub-Adviser regarding the Fund’s use of derivative instruments and the effect of derivative transactions on the management of the Fund’s portfolio and the performance of the Fund.
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The Fund’s total Financial Leverage may vary significantly over time based on the Sub-Adviser’s assessment of market conditions, available investment opportunities and cost of Financial Leverage. The Fund has at times used significantly greater levels of Financial Leverage than at May 31, 2018 and may in the future increase Financial Leverage up to the parameters set forth herein. The Fund maintains a committed facility agreement with a bank pursuant to which the Fund may borrow up to $80 million, although no such borrowings were outstanding at May 31, 2018.
Although the use of Financial Leverage by the Fund may create an opportunity for increased total return for the Common Shares, it also results in additional risks and can magnify the effect of any losses. Financial Leverage involves risks and special considerations for shareholders, including the likelihood of greater volatility of net asset value and market price of and dividends on the Common Share. To the extent the Fund increases its amount of Financial Leverage outstanding, it will be more exposed to these risks. The cost of Financial Leverage, including the portion of the investment advisory fee attributable to the assets purchased with the proceeds of Financial Leverage, is borne by Common Shareholders. To the extent the Fund increases its amount of Financial Leverage outstanding, the Fund’s annual expenses as a percentage of net assets attributable to Common Shares will increase.
Under the 1940 Act the Fund may not utilize Borrowings if, immediately after incurring such Borrowing, the Fund would have asset coverage (as defined in the 1940 Act) of less than 300% (i.e., for every dollar of Borrowings outstanding, the Fund is required to have at least three dollars of assets). Under the 1940 Act, the Fund may not issue Preferred Shares if, immediately after issuance, the Fund would have asset coverage (as defined in the 1940 Act) of less than 200% (i.e., for every dollar of Preferred Shares outstanding, the Fund is required to have at least two dollars of assets). The Fund has no present intention to issue Preferred Shares. The Fund may also borrow in excess of such limit for temporary purposes such as the settlement of transactions.
As of May 31, 2018, the Fund had reverse repurchase agreements outstanding representing Financial Leverage equal to approximately 0.30% of the Fund’s Managed Assets. The Fund’s total Financial Leverage may vary significantly over time based on the Sub-Adviser’s assessment of market conditions, available investment opportunities and cost of Financial Leverage. The Fund has at times used significantly greater levels of Financial Leverage than at May 31, 2018 and may in the future increase Financial Leverage up to the parameters set forth herein. The Fund maintains a committed facility agreement with a bank pursuant to which the Fund may borrow up to $80 million, although no such borrowings were outstanding at May 31, 2018.
With respect to leverage incurred through investments in reverse repurchase agreements, dollar rolls and similar transactions, the Fund intends to earmark or segregate cash or liquid securities in accordance with applicable interpretations of the staff of the Securities and
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Exchange Commission (the “SEC”). As a result of such segregation, the Fund’s obligations under such transactions will not be considered indebtedness for purposes of the 1940 Act and the Fund’s use of leverage through reverse repurchase agreements, dollar rolls and similar transactions will not be limited by the 1940 Act. However, the Fund’s use of leverage through reverse repurchase agreements, dollar rolls and similar transactions will be included when calculating the Fund’s Financial Leverage, and therefore is not currently expected to exceed 33
1
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3
% of the Fund’s Managed Assets, and may be further limited by the availability of cash or liquid securities to earmark or segregate in connection with such transactions.
In addition, the Fund may engage in certain derivatives transactions that have economic characteristics similar to leverage. To the extent the terms of such transactions obligate the Fund to make payments, the Fund intends to earmark or segregate cash or liquid securities in an amount at least equal to the current value of the amount then payable by the Fund under the terms of such transactions or otherwise cover such transactions in accordance with applicable interpretations of the staff of the SEC. As a result of such segregation or cover, the Fund’s obligations under such transactions will not be considered indebtedness for purposes of the 1940 Act and will not be included in calculating the aggregate amount of the Fund’s Financial Leverage. To the extent that the Fund’s obligations under such transactions are not so segregated or covered, such obligations may be considered “senior securities representing indebtedness” under the 1940 Act and therefore subject to the 300% asset coverage requirement described above.
So long as the net rate of return on the Fund’s investments purchased with the proceeds of Financial Leverage exceeds the cost of such Financial Leverage, such excess amounts will be available to pay higher distributions to holders of the Fund’s Common Shares. In connection with the Fund’s use of Financial Leverage, the Fund may seek to hedge the interest rate risks associated with the Financial Leverage through interest rate swaps, caps or other derivative transactions. There can be no assurance that the Fund’s Financial Leverage strategy will be successful during any period during which it is employed. The costs associated with the issuance of Financial Leverage will be borne by Common Shareholders, which will result in a reduction of net asset value of the Common Shares. The fee paid to the Adviser will be calculated on the basis of the Fund’s Managed Assets, including proceeds from Financial Leverage, so the fees paid to the Adviser will be higher when Financial Leverage is utilized. Common Shareholders bear the portion of the investment advisory fee attributable to the assets purchased with the proceeds of Financial Leverage, which means that Common Shareholders effectively bear the entire advisory fee. See “Use of Financial Leverage” and “Risks—Financial Leverage Risk.”
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Other Investment Practices
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Temporary Defensive Investments.
At any time when a temporary defensive posture is believed by the Sub-Adviser to be warranted (a “temporary defensive period”), the Fund may, without limitation, hold cash or invest its assets in money market instruments and repurchase agreements in respect of those instruments. The Fund may not achieve
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its investment objective during a temporary defensive period or be able to sustain its historical distribution levels. See “Investment Objective and Policies—Temporary Defensive Investments.”
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Management of the Fund
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Guggenheim Funds Investment Advisors, LLC acts as the Fund’s Investment Adviser pursuant to an advisory agreement with the Fund (the “Advisory Agreement”). Pursuant to the Advisory Agreement, the Investment Adviser is responsible for the management of the Fund and administers the affairs of the Fund to the extent requested by the Board of Trustees. As compensation for its services, the Fund pays the Investment Adviser a fee, payable monthly, in an annual amount equal to 1.00% of the Fund’s average daily Managed Assets. “Managed Assets” means the total assets of the Fund, including the assets attributable to the proceeds from any borrowings or other forms of Financial Leverage, minus liabilities, other than liabilities related to any Financial Leverage.
Guggenheim Partners Investment Management, LLC acts as the Fund’s Sub-Adviser pursuant to a sub-advisory agreement with the Fund and the Investment Adviser (the “Sub-Advisory Agreement”). Pursuant to the Sub-Advisory Agreement, the Sub-Adviser is responsible for the management of the Fund’s portfolio of securities. As compensation for its services, the Investment Adviser pays the Sub-Adviser a fee, payable monthly, in a maximum annual amount equal to 0.50% of the Fund’s average daily Managed Assets.
Each of the Investment Adviser and the Sub-Adviser are wholly-owned subsidiaries of Guggenheim Partners.
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Distributions
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The Fund intends to pay substantially all of its net investment income to Common Shareholders through monthly distributions. In addition, the Fund intends to distribute any net long-term capital gains to Common Shareholders as long-term capital gain dividends at least annually. The Fund expects that distributions paid on the Common Shares will consist of (i) investment company taxable income, which includes, among other things, ordinary income, short-term capital gain and income from certain hedging and interest rate transactions, (ii) qualified dividend income and (iii) long-term capital gain (gain from the sale of a capital asset held longer than one year). Distributions may be paid by the Fund from any permitted source and, from time to time, all or a portion of a distribution may be a return of capital. To the extent the Fund receives dividends with respect to its investments in Common Equity Securities that consist of qualified dividend income (income from domestic and certain foreign corporations), a portion of the Fund’s distributions to its Common Shareholders may consist of qualified dividend income. The Fund cannot assure you, however, as to what percentage of the dividends paid on the Common Shares, if any, will consist of qualified dividend income or long-term capital gains, which are taxed at lower rates for individuals than ordinary income. In certain circumstances, the Fund may elect to retain income or capital gain and pay income or excise tax on such undistributed amount, to the extent that the Board of Trustees, in consultation with Fund management, determines it to be in the best interest of shareholders to do so. Alternatively, the distributions paid by the Fund for any particular
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month may be more than the amount of net investment income from that monthly period. As a result, all or a portion of a distribution may be a return of capital, which is in effect a partial return of the amount a Common Shareholder invested in the Fund, up to the amount of the Common Shareholder’s tax basis in their Common Shares, which would reduce such tax basis. Although a return of capital may not be taxable, it will generally increase the Common Shareholder’s potential gain, or reduce the Common Shareholder’s potential loss, on any subsequent sale or other disposition of Common Shares. Shareholders who periodically receive the payment of a distribution consisting of a return of capital may be under the impression that they are receiving net income or profits when they are not. Shareholders should not assume that the source of a distribution from the Fund is net income or profit. See “Distributions.”
If you hold your Common Shares in your own name or if you hold your Common Shares with a brokerage firm that participates in the Fund’s Dividend Reinvestment Plan (the “Plan”), unless you elect to receive cash, all dividends and distributions that are declared by the Fund will be automatically reinvested in additional Common Shares of the Fund pursuant to the Plan. If you hold your Common Shares with a brokerage firm that does not participate in the Plan, you will not be able to participate in the Plan and any dividend reinvestment may be effected on different terms than those described above. Consult your financial adviser for more information. See “Dividend Reinvestment Plan.”
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Listing and Symbol
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The Fund’s currently outstanding Common Shares are, and the Common Shares offered in this Prospectus will be, listed on the New York Stock Exchange (the “NYSE”) under the symbol “GOF.”
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Special Risk Considerations
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Not a Complete Investment Program.
An investment in the Common Shares of the Fund should not be considered a complete investment program. The Fund is intended for long-term investors seeking current income and capital appreciation. The Fund is not meant to provide a vehicle for those who wish to play short-term swings in the stock market. Each Common Shareholder should take into account the Fund’s investment objective as well as the Common Shareholder’s other investments when considering an investment in the Fund.
Investment and Market Risk.
An investment in Common Shares of the Fund is subject to investment risk, including the possible loss of the entire principal amount that you invest. An investment in the Common Shares of the Fund represents an indirect investment in the securities owned by the Fund. The value of those securities may fluctuate, sometimes rapidly and unpredictably. The value of the securities owned by the Fund may decline due to general market conditions that are not specifically related to a particular issuer, such as real or perceived economic conditions, changes in interest or currency rates or changes in investor sentiment or market outlook generally. At any point in time, your Common Shares may be worth less than your original investment, including the reinvestment of Fund dividends and distributions.
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Management Risk.
The Fund is subject to management risk because it has an actively managed portfolio. The Sub-Adviser will apply investment techniques and risk analysis in making investment decisions for the Fund, but there can be no guarantee that these will produce the desired results. The Fund’s allocation of its investments across various asset classes and sectors may vary significantly over time based on the Adviser’s analysis and judgment. As a result, the particular risks most relevant to an investment in the Fund, as well as the overall risk profile of the Fund’s portfolio, may vary over time.
Income Risk.
The income investors receive from the Fund is based primarily on the interest it earns from its investments in Income Securities, which can vary widely over the short-and long-term. If prevailing market interest rates drop, investors’ income from the Fund could drop as well. The Fund’s income could also be affected adversely when prevailing short-term interest rates increase and the Fund is utilizing leverage, although this risk is mitigated to the extent the Fund invests in floating-rate obligations.
Dividend Risk.
Dividends on common stock and other Common Equity Securities which the Fund may hold are not fixed but are declared at the discretion of an issuer’s board of directors. There is no guarantee that the issuers of the Common Equity Securities in which the Fund invests will declare dividends in the future or that, if declared, they will remain at current levels or increase over time.
Income Securities Risk.
In addition to the risks discussed above, Income Securities, including high-yield bonds, are subject to certain risks, including:
Issuer Risk
. The value of Income Securities may decline for a number of reasons which directly relate to the issuer, such as management performance, financial leverage, reduced demand for the issuer’s goods and services, historical and projected earnings, and the value of its assets.
Spread Risk
. Spread risk is the risk that the market price can change due to broad based movements in spreads, which is particularly relevant in the current low spread environment.
Credit Risk
. Credit risk is the risk that one or more debt obligations in the Fund’s portfolio will decline in price, or fail to pay interest or principal when due, because the issuer of the obligation experiences a decline in its financial status.
Interest Rate Risk
. Interest rate risk is the risk that Income Securities will decline in value because of changes in market interest rates. When market interest rates rise, the market value of Income Securities generally will fall.
These risks may be greater in the current market environment because interest rates recently have declined significantly below historical average rates, and the Federal Reserve has begun to raise the Federal Funds rate.
Prevailing interest rates may be adversely impacted by market and economic factors, including the potential impact of tapering of “quantitative easing” by the Federal Reserve Board. If interest rates rise the markets may experience increased volatility, which may adversely affect the value and/or liquidity of certain of the Fund’s investments.
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Increases in interest rates may adversely affect the Fund’s ability to achieve its investment objective.
The prices of longer-term securities fluctuate more than prices of shorter-term securities as interest rates change. The Fund’s use of leverage, as described below, will tend to increase common share interest rate risk. The Fund may utilize certain strategies, including taking positions in futures or interest rate swaps, for the purpose of reducing the interest rate sensitivity of credit securities held by the Fund and decreasing the Fund’s exposure to interest rate risk. The Fund is not required to hedge its exposure to interest rate risk and may choose not to do so. In addition, there is no assurance that any attempts by the Fund to reduce interest rate risk will be successful or that any hedges that the Fund may establish will perfectly correlate with movements in interest rates. The Fund may invest in variable and floating rate debt instruments, which generally are less sensitive to interest rate changes than fixed rate instruments, but generally will not increase in value if interest rates decline.
Reinvestment Risk
. Reinvestment risk is the risk that income from the Fund’s portfolio will decline if the Fund invests the proceeds from matured, traded or called Income Securities at market interest rates that are below the Fund portfolio’s current earnings rate. A decline in income could affect the Common Shares’ market price or the overall return of the Fund.
Prepayment Risk
. During periods of declining interest rates, borrowers may exercise their option to prepay principal earlier than scheduled, forcing the Fund to reinvest in lower yielding securities. This is known as call or prepayment risk.
Liquidity Risk
. The Fund may invest without limitation in Income Securities for which there is no readily available trading market or which are otherwise illiquid, including certain high-yield bonds. The Fund may not be able to readily dispose of illiquid securities and obligations at prices that approximate those at which the Fund could sell such securities and obligations if they were more widely traded and, as a result of such illiquidity, the Fund may have to sell other investments or engage in borrowing transactions if necessary to raise cash to meet its obligations. In addition, limited liquidity could affect the market price of Income Securities, thereby adversely affecting the Fund’s net asset value and ability to make distributions.
Valuation of Certain Income Securities Risk
. Because the secondary markets for certain investments may be limited, they may be difficult to value. Where market quotations are not readily available, valuation may require more research than for more liquid investments. In addition, elements of judgment may play a greater role in valuation in such cases than for investments with a more active secondary market because there is less reliable objective data available. A security that is fair valued may be valued at a price higher or lower than the value determined by other funds using their own fair valuation procedures. Prices obtained by the Fund upon the sale of such securities may not
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equal the value at which the Fund carried the investment on its books, which would adversely affect the net asset value of the Fund.
Duration and Maturity Risk
. The Fund has no set policy regarding portfolio maturity or duration. Holding long duration and long maturity investments will expose the Fund to certain magnified risks. These risks include interest rate risk, credit risk and liquidity risks as discussed above. Generally speaking, the longer the duration of the Fund’s portfolio, the more exposure the Fund will have to interest rate risk described above.
Below-Investment Grade Securities Risk.
The Fund may invest in Income Securities rated below-investment grade or, if unrated, determined by the Sub-Adviser to be of comparable credit quality, which are commonly referred to as “high-yield” or “junk” bonds. Investment in securities of below-investment grade quality involves substantial risk of loss. Income Securities of below-investment grade quality are predominantly speculative with respect to the issuer’s capacity to pay interest and repay principal when due and therefore involve a greater risk of default or decline in market value due to adverse economic and issuer-specific developments. Securities of below investment grade quality involve a greater risk of default or decline in market value due to adverse economic and issuer-specific developments. Issuers of below investment grade securities are not perceived to be as strong financially as those with higher credit ratings. These issuers are more vulnerable to financial setbacks and recession than more creditworthy issuers, which may impair their ability to make interest and principal payments. Income Securities of below-investment grade quality display increased price sensitivity to changing interest rates and to a deteriorating economic environment. The market values, total return and yield for securities of below investment grade quality tend to be more volatile than the market values, total return and yield for higher quality bonds. Securities of below investment grade quality tend to be less liquid than investment grade debt securities and therefore more difficult to value accurately and sell at an advantageous price or time and may involve greater transactions costs and wider bid/ask spreads, than higher-quality bonds. To the extent that a secondary market does exist for certain below investment grade securities, the market for them may be subject to irregular trading activity, wide bid/ask spreads and extended trade settlement periods. Because of the substantial risks associated with investments in below investment grade securities, you could have an increased risk of losing money on your investment in Common Shares, both in the short-term and the long-term. To the extent that the Fund invests in securities that have not been rated by an NRSRO, the Fund’s ability to achieve its investment objectives will be more dependent on the Adviser’s credit analysis than would be the case when the Fund invests in rated securities.
Successful investment in lower-medium and lower-rated debt securities may involve greater investment risk and is highly dependent on the Adviser’s credit analysis. The value of securities of below
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investment grade quality is particularly vulnerable to changes in interest rates and a real or perceived economic downturn or higher interest rates could cause a decline in prices of such securities by lessening the ability of issuers to make principal and interest payments. These securities are often thinly traded or subject to irregular trading and can be more difficult to sell and value accurately than higher-quality bonds because there tends to be less public information available about these securities. Because objective pricing data may be less available, judgment may play a greater role in the valuation process. In addition, the entire below investment grade market can experience sudden and sharp price swings due to a variety of factors, including changes in economic forecasts, stock market activity, large or sustained sales by major investors, a high-profile default, or a change in the market’s psychology. Adverse conditions could make it difficult at times for the Fund to sell certain securities or could result in lower prices than those used in calculating the Fund’s net asset value.
Structured Finance Investments Risk.
The Fund’s structured finance investments may include residential and commercial mortgage-related and other asset-backed securities issued by governmental entities and private issuers. Holders of structured finance investments bear risks of the underlying investments, index or reference obligation and are subject to counterparty risk. The Fund may have the right to receive payments only from the structured product, and generally does not have direct rights against the issuer or the entity that sold the assets to be securitized. While certain structured finance investments enable the investor to acquire interests in a pool of securities without the brokerage and other expenses associated with directly holding the same securities, investors in structured finance investments generally pay their share of the structured product’s administrative and other expenses. Although it is difficult to predict whether the prices of indices and securities underlying structured finance investments will rise or fall, these prices (and, therefore, the prices of structured finance investments) will be influenced by the same types of political and economic events that affect issuers of securities and capital markets generally. If the issuer of a structured product uses shorter term financing to purchase longer term securities, the issuer may be forced to sell its securities at below market prices if it experiences difficulty in obtaining short-term financing, which may adversely affect the value of the structured finance investment owned by the Fund.
The Fund may invest in structured finance products collateralized by low grade or defaulted loans or securities. Investments in such structured finance products are subject to the risks associated with below investment grade securities. Such securities are characterized by high risk. It is likely that an economic recession could severely disrupt the market for such securities and may have an adverse impact on the value of such securities.
The Fund may invest in senior and subordinated classes issued by structured finance vehicles. The payment of cash flows from the
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underlying assets to senior classes take precedence over those of subordinated classes, and therefore subordinated classes are subject to greater risk. Furthermore, the leveraged nature of subordinated classes may magnify the adverse impact on such class of changes in the value of the assets, changes in the distributions on the assets, defaults and recoveries on the assets, capital gains and losses on the assets, prepayment on assets and availability, price and interest rates of assets.
Structured finance securities are typically privately offered and sold, and thus are not registered under the securities laws. As a result, investments in structured finance securities may be characterized by the Fund as illiquid securities; however, an active dealer market may exist which would allow such securities to be considered liquid in some circumstances.
Mortgage-Backed Securities Risk.
Mortgage-backed securities represent an interest in a pool of mortgages. The risks associated with mortgage-backed securities include: (1) credit risk associated with the performance of the underlying mortgage properties and of the borrowers owning these properties; (2) adverse changes in economic conditions and circumstances, which are more likely to have an adverse impact on mortgage-backed securities secured by loans on certain types of commercial properties than on those secured by loans on residential properties; (3) prepayment risk, which can lead to significant fluctuations in the value of the mortgage-backed security; (4) loss of all or part of the premium, if any, paid; and (5) decline in the market value of the security, whether resulting from changes in interest rates, prepayments on the underlying mortgage collateral or perceptions of the credit risk associated with the underlying mortgage collateral. The value of mortgage-backed securities may be substantially dependent on the servicing of the underlying pool of mortgages.
When market interest rates decline, more mortgages are refinanced and the securities are paid off earlier than expected. Prepayments may also occur on a scheduled basis or due to foreclosure. When market interest rates increase, the market values of mortgage-backed securities decline. At the same time, however, mortgage refinancings and prepayments slow, which lengthens the effective maturities of these securities. As a result, the negative effect of the rate increase on the market value of mortgage-backed securities is usually more pronounced than it is for other types of debt securities. In addition, due to increased instability in the credit markets, the market for some mortgage-backed securities has experienced reduced liquidity and greater volatility with respect to the value of such securities, making it more difficult to value such securities. The Fund may invest in sub-prime mortgages or mortgage-backed securities that are backed by sub-prime mortgages.
Moreover, the relationship between prepayments and interest rates may give some high-yielding mortgage-related and asset-backed securities less potential for growth in value than conventional bonds
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with comparable maturities. In addition, in periods of falling interest rates, the rate of prepayments tends to increase. During such periods, the reinvestment of prepayment proceeds by the Fund will generally be at lower rates than the rates that were carried by the obligations that have been prepaid. Because of these and other reasons, mortgage-related and asset-backed securities’ total return and maturity may be difficult to predict precisely. To the extent that the Fund purchases mortgage-related and asset-backed securities at a premium, prepayments (which may be made without penalty) may result in loss of the Fund’s principal investment to the extent of premium paid.
Mortgage-backed securities generally are classified as either commercial mortgage-backed securities (“CMBS”) or residential mortgage-backed securities (“RMBS”), each of which are subject to certain specific risks.
Commercial Mortgage-Backed Securities Risk
. The market for CMBS developed more recently and, in terms of total outstanding principal amount of issues, is relatively small compared to the market for residential single-family mortgage-related securities. CMBS are subject to particular risks, including lack of standardized terms, have shorter maturities than residential mortgage loans and provide for payment of all or substantially all of the principal only at maturity rather than regular amortization of principal. In addition, commercial lending generally is viewed as exposing the lender to a greater risk of loss than one-to-four family residential lending. Commercial lending typically involves larger loans to single borrowers or groups of related borrowers than residential one-to-four family mortgage loans. In addition, the repayment of loans secured by income producing properties typically is dependent upon the successful operation of the related real estate project and the cash flow generated therefrom. Net operating income of an income-producing property can be affected by, among other things: tenant mix, success of tenant businesses, property management decisions, property location and condition, competition from comparable types of properties, changes in laws that increase operating expense or limit rents that may be charged, any need to address environmental contamination at the property, the occurrence of any uninsured casualty at the property, changes in national, regional or local economic conditions and/or specific industry segments, declines in regional or local real estate values, declines in regional or local rental or occupancy rates, increases in interest rates, real estate tax rates and other operating expenses, change in governmental rules, regulations and fiscal policies, including environmental legislation, acts of God, terrorism, social unrest and civil disturbances. Consequently, adverse changes in economic conditions and circumstances are more likely to have an adverse impact on mortgage-related securities secured by loans on commercial properties than on those secured by loans on residential properties. Additional risks may be presented by the type and use of a particular commercial property. Special risks are presented by hospitals, nursing homes, hospitality properties and certain other property types. Commercial property values and net operating income
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are subject to volatility, which may result in net operating income becoming insufficient to cover debt service on the related mortgage loan. The exercise of remedies and successful realization of liquidation proceeds relating to CMBS may be highly dependent on the performance of the servicer or special servicer. There may be a limited number of special servicers available, particularly those that do not have conflicts of interest.
Residential Mortgage-Backed Securities Risk
. Credit-related risk on RMBS arises from losses due to delinquencies and defaults by the borrowers in payments on the underlying mortgage loans and breaches by originators and servicers of their obligations under the underlying documentation pursuant to which the RMBS are issued. The rate of delinquencies and defaults on residential mortgage loans and the aggregate amount of the resulting losses will be affected by a number of factors, including general economic conditions, particularly those in the area where the related mortgaged property is located, the level of the borrower’s equity in the mortgaged property and the individual financial circumstances of the borrower. If a residential mortgage loan is in default, foreclosure on the related residential property may be a lengthy and difficult process involving significant legal and other expenses. The net proceeds obtained by the holder on a residential mortgage loan following the foreclosure on the related property may be less than the total amount that remains due on the loan. The prospect of incurring a loss upon the foreclosure of the related property may lead the holder of the residential mortgage loan to restructure the residential mortgage loan or otherwise delay the foreclosure process.
Sub-Prime Mortgage Market Risk
. The residential mortgage market in the United States has experienced difficulties that may adversely affect the performance and market value of certain mortgages and mortgage-related securities. Delinquencies and losses on residential mortgage loans (especially sub-prime and second-line mortgage loans) generally have increased recently and may continue to increase, and a decline in or flattening of housing values (as has recently been experienced and may continue to be experienced in many housing markets) may exacerbate such delinquencies and losses. Borrowers with adjustable rate mortgage loans are more sensitive to changes in interest rates, which affect their monthly mortgage payments, and may be unable to secure replacement mortgages at comparably low interest rates. Also, a number of residential mortgage loan originators have experienced serious financial difficulties or bankruptcy. Largely due to the foregoing, reduced investor demand for mortgage loans and mortgage-related securities and increased investor yield requirements have caused limited liquidity in the secondary market for mortgage-related securities, which can adversely affect the market value of mortgage-related securities. It is possible that such limited liquidity in such secondary markets could continue or worsen. If the economy of the United States deteriorates further, the incidence of mortgage foreclosures, especially sub-prime mortgages, may increase, which
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may adversely affect the value of any mortgage-backed securities owned by the Fund.
The significance of the mortgage crisis and loan defaults in residential mortgage loan sectors led to the enactment of numerous pieces of legislation relating to the mortgage and housing markets. These actions, along with future legislation or regulation, may have significant impacts on the mortgage market generally and may result in a reduction of available transactional opportunities for the Fund or an increase in the cost associated with such transactions and may adversely impact the value of RMBS.
During the mortgage crisis, a number of originators and servicers of residential and commercial mortgage loans, including some of the largest originators and servicers in the residential and commercial mortgage loan market, experienced serious financial difficulties. Such difficulties may affect the performance of non-agency RMBS and CMBS. There can be no assurance that originators and servicers of mortgage loans will not continue to experience serious financial difficulties or experience such difficulties in the future, including becoming subject to bankruptcy or insolvency proceedings, or that underwriting procedures and policies and protections against fraud will be sufficient in the future to prevent such financial difficulties or significant levels of default or delinquency on mortgage loans.
Asset-Backed Securities Risk.
In addition to the general risks associated with credit securities discussed herein and the risks discussed under “Structured Finance Investments Risks,” ABS are subject to additional risks. ABS involve certain risks in addition to those presented by MBS. ABS do not have the benefit of the same security interest in the underlying collateral as MBS and are more dependent on the borrower’s ability to pay and may provide the Fund with a less effective security interest in the related collateral than do MBS. There is the possibility that recoveries on the underlying collateral may not, in some cases, be available to support payments on these securities. The collateral underlying ABS may constitute assets related to a wide range of industries and sectors, such as credit card and automobile receivables or other assets derived from consumer, commercial or corporate sectors.
For example, ABS can be collateralized with credit card and automobile receivables. Credit card receivables are generally unsecured, and the debtors are entitled to the protection of a number of state and federal consumer credit laws, many of which give debtors the right to set off certain amounts owed on the credit cards, thereby reducing the balance due.
Most issuers of automobile receivables permit the servicers to retain possession of the underlying obligations. If the servicer were to sell these obligations to another party, there is a risk that the purchaser would acquire an interest superior to that of the holders of the related automobile receivables. In addition, because of the large number of vehicles involved in a typical issuance and technical requirements
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under state laws, the trustee for the holders of the automobile receivables may not have an effective security interest in all of the obligations backing such receivables. If the economy of the United States deteriorates, defaults on securities backed by credit card, automobile and other receivables may increase, which may adversely affect the value of any ABS owned by the Fund. In recent years, certain automobile manufacturers have been granted access to emergency loans from the U.S. Government and have experienced bankruptcy. As a result of these events, the value of securities backed by receivables from the sale or lease of automobiles may be adversely affected.
If the economy of the United States deteriorates, defaults on securities backed by credit card, automobile and other receivables may increase, which may adversely affect the value of any ABS owned by the Fund. In addition, these securities may provide the Fund with a less effective security interest in the related collateral than do mortgage-related securities. Therefore, there is the possibility that recoveries on the underlying collateral may not, in some cases, be available to support payments on these securities.
ABS collateralized by other types of assets are subject to risks associated with the underlying collateral.
CLO, CDO and CBO Risk.
In addition to the general risks associated with debt securities discussed herein, CLOs, collateralized debt obligations (“CDOs”), and collateralized bond obligations (“CBOs”) are subject to additional risks. CLOs, CDOs and CBOs are subject to risks associated with the possibility that distributions from collateral securities will not be adequate to make interest or other payments; the quality of the collateral may decline in value or default; and the complex structure of the security may not be fully understood at the time of investment and may produce disputes with the issuer or unexpected investment results. The credit quality of CLOs, CDOs and CBOs depends primarily upon the quality of the underlying assets and the level of credit support and/or enhancement provided. The underlying assets (e.g., debt obligations) of CLOs, CDOs and CBOs are subject to prepayments, which shorten the weighted average maturity and may lower the return of the securities issued by the CLOs, CDOs and CBOs. If the credit support or enhancement is exhausted, losses or delays in payment may result if the required payments of principal and interest are not made. The value of securities issued by CLOs, CDOs and CBOs also may change because of changes in market value; changes in the market’s perception of the creditworthiness of the servicing agent for the pool, the originator of the pool, or the financial institution or fund providing the credit support or enhancement; loan performance and prices; broader sentiment and standing in the economic cycle, including expectations regarding future loan defaults; liquidity conditions; and supply and demand at the various tranche levels. Finally, CLOs, CDOs and CBOs are limited recourse and may not be paid in full and may be subject to up to 100% loss. See “Risks—CLO, CDO and CBO Risk.”
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The Fund may invest in any portion of the capital structure of CLOs (including the subordinated, residual and deep mezzanine debt tranches). Investment in the subordinated tranche is subject to special risks. The subordinated tranche does not receive ratings and is considered the riskiest portion of the capital structure of a CLO. The subordinated tranche is junior in priority of payment to the more senior tranches of the CLO and is subject to certain payment restrictions. As a result, the subordinated tranche bears the bulk of defaults from the loans in the CLO. In addition, the subordinated tranche generally has only limited voting rights and generally does not benefit from any creditors’ rights or ability to exercise remedies under the indenture governing the CLO notes. Certain mezzanine tranches in which the Fund may invest may also be subject to certain risks similar to risks associated with investment in the subordinated tranche.
The subordinated tranche is unsecured and ranks behind all of the secured creditors, known or unknown, of the CLO issuer, including the holders of the secured notes it has issued. Consequently, to the extent that the value of the issuer’s portfolio of loan investments has been reduced as a result of conditions in the credit markets, defaulted loans, capital gains and losses on the underlying assets, prepayment or changes in interest rates, the value of the subordinated tranche realized at redemption could be reduced. Accordingly, the subordinated tranche may not be paid in full and may be subject to up to 100% loss. The leveraged nature of subordinated notes may magnify the adverse impact on the subordinated notes of changes in the market value of the investments held by the issuer, changes in the distributions on those investments, defaults and recoveries on those investments, capital gains and losses on those investments, prepayments on those investments and availability, prices and interest rates of those investments. Investments in the subordinated tranche of a CLO are generally less liquid than CLO debt tranches and subject to extensive transfer restrictions, and there may be no market for subordinated notes. Certain mezzanine tranches in which the Fund may invest may also be subject to certain risks similar to risks associated with investment in the subordinated tranche. See “Risks—CLO, CDO and CBO Risk—CLO Subordinated Notes Risk.”
Risks Associated with Risk-Linked Securities.
RLS are a form of derivative issued by insurance companies and insurance-related special purpose vehicles that apply securitization techniques to catastrophic property and casualty damages. Unlike other insurable low-severity, high-probability events (such as auto collision coverage), the insurance risk of which can be diversified by writing large numbers of similar policies, the holders of a typical RLS are exposed to the risks from high-severity, low-probability events such as that posed by major earthquakes or hurricanes. RLS represent a method of reinsurance, by which insurance companies transfer their own portfolio risk to other reinsurance companies and, in the case of RLS, to the capital markets. A typical RLS provides for income and return of capital similar to other fixed-income investments, but involves full or partial default if losses resulting from a certain catastrophe exceeded a predetermined amount. In essence, investors
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invest funds in RLS and if a catastrophe occurs that “triggers” the RLS, investors may lose some or all of the capital invested. In the case of an event, the funds are paid to the bond sponsor—an insurer, reinsurer or corporation—to cover losses. In return, the bond sponsors pay interest to investors for this catastrophe protection. RLS can be structured to pay-off on three types of variables—insurance-industry catastrophe loss indicies, insure-specific catastrophe losses and parametric indices based on the physical characteristics of catastrophic events. Such variables are difficult to predict or model, and the risk and potential return profiles of RLS may be difficult to assess. Catastrophe-related RLS have been in use since the 1990s, and the securitization and risk-transfer aspects of such RLS are beginning to be employed in other insurance and risk-related areas. No active trading market may exist for certain RLS, which may impair the ability of the Fund to realize full value in the event of the need to liquidate such assets.
Risks Associated with Structured Notes.
Investments in structured notes involve risks associated with the issuer of the note and the reference instrument. Where the Fund’s investments in structured notes are based upon the movement of one or more factors, including currency exchange rates, interest rates, referenced bonds and stock indices, depending on the factor used and the use of multipliers or deflators, changes in interest rates and movement of the factor may cause significant price fluctuations. Additionally, changes in the reference instrument or security may cause the interest rate on the structured note to be reduced to zero, and any further changes in the reference instrument may then reduce the principal amount payable on maturity. Structured notes may be less liquid than other types of securities and more volatile than the reference instrument or security underlying the note.
Senior Loans Risk.
The Fund may invest in senior secured floating rate Loans made to corporations and other non-governmental entities and issuers (“Senior Loans”). Senior Loans typically hold the most senior position in the capital structure of the issuing entity, are typically secured with specific collateral and typically have a claim on the assets and/or stock of the borrower that is senior to that held by subordinated debt holders and stockholders of the borrower. The Fund’s investments in Senior Loans are typically below-investment grade and are considered speculative because of the credit risk of their issuers. The risks associated with Senior Loans of below-investment grade quality are similar to the risks of other lower grade Income Securities, although Senior Loans are typically senior and secured in contrast to subordinated and unsecured Income Securities. Senior Loans’ higher standing has historically resulted in generally higher recoveries in the event of a corporate reorganization. In addition, because their interest payments are adjusted for changes in short-term interest rates, investments in Senior Loans generally have less interest rate risk than other lower grade Income Securities, which may have fixed interest rates.
Second Lien Loans Risk.
The Fund may invest in “second lien” secured floating rate Loans made by public and private corporations
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and other non-governmental entities and issuers for a variety of purposes (“Second Lien Loans”). Second Lien Loans are second in right of payment to one or more Senior Loans of the related borrower. Second Lien Loans are subject to the same risks associated with investment in Senior Loans and other lower grade Income Securities. However, Second Lien Loans are second in right of payment to Senior Loans and therefore are subject to the additional risk that the cash flow of the borrower and any property securing the Loan may be insufficient to meet scheduled payments after giving effect to the senior secured obligations of the borrower. Second Lien Loans are expected to have greater price volatility and exposure to losses upon default than Senior Loans and may be less liquid.
Subordinated Secured Loans Risk.
Subordinated secured Loans generally are subject to similar risks as those associated with investment in Senior Loans, Second Lien Loans and below investment grade securities. However, such loans may rank lower in right of payment than any outstanding Senior Loans, Second Lien Loans or other debt instruments with higher priority of the Borrower and therefore are subject to additional risk that the cash flow of the Borrower and any property securing the loan may be insufficient to meet scheduled payments and repayment of principal in the event of default or bankruptcy after giving effect to the higher ranking secured obligations of the Borrower. Subordinated secured Loans are expected to have greater price volatility than Senior Loans and Second Lien Loans and may be less liquid.
Unsecured Loans Risk.
Unsecured Loans generally are subject to similar risks as those associated with investment in Senior Loans, Second Lien Loans, subordinated secured Loans and below investment grade securities. However, because unsecured Loans have lower priority in right of payment to any higher ranking obligations of the Borrower and are not backed by a security interest in any specific collateral, they are subject to additional risk that the cash flow of the Borrower and available assets may be insufficient to meet scheduled payments and repayment of principal after giving effect to any higher ranking obligations of the Borrower. Unsecured Loans are expected to have greater price volatility than Senior Loans, Second Lien Loans and subordinated secured Loans and may be less liquid.
Loan Participations and Assignments Risk.
The Fund may purchase Loans on a direct assignment basis from a participant in the original syndicate of lenders or from subsequent assignees of such interests. The Fund may also purchase, without limitation, participations in Loans. The purchaser of an assignment typically succeeds to all the rights and obligations of the assigning institution and becomes a lender under the credit agreement with respect to the debt obligation; however, the purchaser’s rights can be more restricted than those of the assigning institution, and, in any event, the Fund may not be able to unilaterally enforce all rights and remedies under the loan and with regard to any associated collateral. A participation typically results in a contractual relationship only with the institution participating out the interest, not with the Borrower. In purchasing participations, the Fund generally will have no right to enforce compliance by the Borrower
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with the terms of the loan agreement against the Borrower, and the Fund may not directly benefit from the collateral supporting the debt obligation in which it has purchased the participation. As a result, the Fund will be exposed to the credit risk of both the Borrower and the institution selling the participation. Further, in purchasing participations in lending syndicates, the Fund may not be able to conduct the same due diligence on the Borrower with respect to a Senior Loan that the Fund would otherwise conduct. In addition, as a holder of the participations, the Fund may not have voting rights or inspection rights that the Fund would otherwise have if it were investing directly in the Senior Loan, which may result in the Fund being exposed to greater credit or fraud risk with respect to the Borrower or the Senior Loan. Lenders selling a participation and other persons interpositioned between the lender and the Fund with respect to a participation will likely conduct their principal business activities in the banking, finance and financial services industries. Because the Fund may invest in participations, the Fund may be more susceptible to economic, political or regulatory occurrences affecting such industries.
Certain of the loan participations or assignments acquired by the Fund may involve unfunded commitments of the lenders, revolving credit facilities, delayed draw credit facilities or other investments under which a borrower may from time to time borrow and repay amounts up to the maximum amount of the facility. In such cases, the Fund would have an obligation to advance its portion of such additional borrowings upon the terms specified in the loan documentation. Such an obligation may have the effect of requiring the Fund to increase its investment in a company at a time when it might not be desirable to do so (including at a time when the company’s financial condition makes it unlikely that such amounts will be repaid). These commitments are generally subject to the borrowers meeting certain criteria such as compliance with covenants and certain operational metrics. The terms of the borrowings and financings subject to commitment are comparable to the terms of other loans and related investments in the Fund’s portfolio.
Mezzanine Investments Risk.
The Fund may invest in certain lower grade securities known as “Mezzanine Investments,” which are subordinated debt securities that are generally issued in private placements in connection with an equity security (e.g., with attached warrants) or may be convertible into equity securities. Mezzanine Investments are subject to the same risks associated with investment in Senior Loans, Second Lien Loans and other lower grade Income Securities. However, Mezzanine Investments may rank lower in right of payment than any outstanding Senior Loans and Second Lien Loans of the borrower, or may be unsecured (i.e., not backed by a security interest in any specific collateral), and are subject to the additional risk that the cash flow of the borrower and available assets may be insufficient to meet scheduled payments after giving effect to any higher ranking obligations of the borrower. Mezzanine Investments are expected to have greater price volatility and exposure to losses upon default than Senior Loans and Second Lien Loans and may be less liquid.
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Distressed And Defaulted Securities Risk.
Investments in the securities of financially distressed issuers involve substantial risks. These securities may present a substantial risk of default or may be in default at the time of investment. The Fund may incur additional expenses to the extent it is required to seek recovery upon a default in the payment of principal or interest on its portfolio holdings. In any reorganization or liquidation proceeding relating to a portfolio company, the Fund may lose its entire investment or may be required to accept cash or securities with a value less than its original investment. Among the risks inherent in investments in a troubled entity is the fact that it frequently may be difficult to obtain information as to the true financial condition of such issuer. The Adviser’s judgment about the credit quality of the issuer and the relative value and liquidity of its securities may prove to be wrong.
Convertible Securities Risk.
The Fund may invest in convertible securities, which include bonds, debentures, notes, preferred stocks and other securities that entitle the holder to acquire common stock or other equity securities of the issuer. Convertible securities generally offer lower interest or dividend yields than non-convertible securities of similar quality. As with all Income Securities, the market values of convertible securities tend to decline as interest rates increase and, conversely, to increase as interest rates decline. Convertible securities also tend to reflect the market price of the underlying stock in varying degrees, depending on the relationship of such market price to the conversion price in the terms of the convertible security. Convertible securities rank senior to common stock in an issuer’s capital structure and consequently entail less risk than the issuer’s common stock.
Preferred Stock Risks.
The Fund may invest in preferred stock, which represents the senior residual interest in the assets of an issuer after meeting all claims, with priority to corporate income and liquidation payments over the issuer’s common stock. As such, preferred stock is inherently more risky than the bonds and other debt instruments of the issuer, but less risky than its common stock. Preferred stocks may be significantly less liquid than many other securities, such as U.S. Government securities, corporate debt and common stock.
Foreign Securities Risk.
The Fund may invest up to 20% of its total assets in non-U.S. dollar-denominated Income Securities of foreign issuers. Investing in foreign issuers may involve certain risks not typically associated with investing in securities of U.S. issuers due to increased exposure to foreign economic, political and legal developments, including favorable or unfavorable changes in currency exchange rates, exchange control regulations (including currency blockage), expropriation or nationalization of assets, imposition of withholding taxes on payments, and possible difficulty in obtaining and enforcing judgments against foreign entities. Furthermore, issuers of foreign securities and obligations are subject to different, often less comprehensive, accounting, reporting and disclosure requirements than domestic issuers. The securities and obligations of some foreign companies and foreign markets are less liquid and at times more volatile than comparable U.S. securities, obligations and markets. These risks may be more pronounced to the extent that the Fund
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invests a significant amount of its assets in companies located in one region and to the extent that the Fund invests in securities of issuers in emerging markets. The Fund may also invest in U.S. dollar-denominated Income Securities of foreign issuers, which are subject to many of the risks described above regarding Income Securities of foreign issuers denominated in foreign currencies.
Emerging Markets Risk.
The Fund may invest up to 10% of its total assets in Income Securities the issuers of which are located in countries considered to be emerging markets, and investments in such securities are considered speculative. Heightened risks of investing in emerging markets include: smaller market capitalization of securities markets, which may suffer periods of relative illiquidity; significant price volatility; restrictions on foreign investment; and potential restrictions on repatriation of investment income and capital.
Foreign Currency Risk.
The value of securities denominated or quoted in foreign currencies may be adversely affected by fluctuations in the relative currency exchange rates and by exchange control regulations. The Fund’s investment performance may be negatively affected by a devaluation of a currency in which the Fund’s investments are denominated or quoted. Further, the Fund’s investment performance may be significantly affected, either positively or negatively, by currency exchange rates because the U.S. dollar value of securities denominated or quoted in another currency will increase or decrease in response to changes in the value of such currency in relation to the U.S. dollar.
Sovereign Debt Risk.
Investments in sovereign debt involve special risks. Foreign governmental issuers of debt or the governmental authorities that control the repayment of the debt may be unable or unwilling to repay principal or pay interest when due. In the event of default, there may be limited or no legal recourse in that, generally, remedies for defaults must be pursued in the courts of the defaulting party. Political conditions, especially a sovereign entity’s willingness to meet the terms of its debt obligations, are of considerable significance. The ability of a foreign sovereign issuer, especially an emerging market country, to make timely payments on its debt obligations will also be strongly influenced by the sovereign issuer’s balance of payments, including export performance, its access to international credit facilities and investments, fluctuations of interest rates and the extent of its foreign reserves. See “Risks—Sovereign Debt Risk.”
UK Departure from EU Risk.
On Thursday June 23, 2016, voters in the United Kingdom referendum (the “Referendum”) on the question of whether to remain or leave the European Union (the “EU”) voted in a majority in favor of leaving the EU. This historic event is widely expected to have consequences that are both profound and uncertain for the economic and political future of the United Kingdom and the EU, and financial markets generally. In March 2017, the British Parliament passed a bill authorizing the British Government to invoke Article 50 of the Treaty on European Union – the formal process of
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withdrawing from the EU. Invoking Article 50 will give the United Kingdom two years to negotiate a separation with the other members of the EU. The full scope and nature of the consequences of the UK’s departure from the EU are not at this time known and are unlikely to be known for a significant period of time. However, the Referendum has led to significant uncertainty in the business, legal and political environment.
Risks associated with the outcome of the Referendum include short and long term market volatility and currency volatility, macroeconomic risk to the UK and European economies, impetus for further disintegration of the EU and related political stresses (including those related to sentiment against cross border capital movements and activities of investors like the Trust), prejudice to financial services businesses that are conducting business in the EU and which are based in the UK, legal uncertainty regarding achievement of compliance with applicable financial and commercial laws and regulations in view of the expected steps to be taken pursuant to or in contemplation of Article 50 of the Treaty on European Union and negotiations undertaken under Article 218 of the Treaty on the Functioning of the European Union, and the unavailability of timely information as to expected legal, tax and other regimes.
Redenomination Risk.
The result of the Referendum, the progression of the European debt crisis and the possibility of one or more Eurozone countries exiting the European Monetary Union (“EMU”), or even the collapse of the euro as a common currency, has created significant volatility in currency and financial markets generally. The effects of the collapse of the euro, or of the exit of one or more countries from the EMU, on the U.S. and global economies and securities markets are impossible to predict and any such events could have a significant adverse impact on the value and risk profile of the Fund’s portfolio. Any partial or complete dissolution of the EMU could have significant adverse effects on currency and financial markets, and on the values of the Fund’s portfolio investments. If one or more EMU countries were to stop using the euro as its primary currency, the Fund’s investments in such countries may be redenominated into a different or newly adopted currency. As a result, the value of those investments could decline significantly and unpredictably. In addition, securities or other investments that are redenominated may be subject to foreign currency risk, liquidity risk and valuation risk to a greater extent than similar investments currently denominated in euros. To the extent a currency used for redenomination purposes is not specified in respect of certain EMU-related investments, or should the euro cease to be used entirely, the currency in which such investments are denominated may be unclear, making such investments particularly difficult to value or dispose of. The Fund may incur additional expenses to the extent it is required to seek judicial or other clarification of the denomination or value of such securities.
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Common Equity Securities Risk.
The Fund may invest up to 50% of its total assets in Common Equity Securities. Common Equity Securities’ prices fluctuate for a number of reasons, including changes in investors’ perceptions of the financial condition of an issuer, the general condition of the relevant stock market and broader domestic and international political and economic events. The prices of Common Equity Securities are also sensitive to general movements in the stock market, so a drop in the stock market may depress the prices of Common Equity Securities to which the Fund has exposure. While broad market measures of Common Equity Securities have historically generated higher average returns than Income Securities, Common Equity Securities have also experienced significantly more volatility in those returns. Common Equity Securities in which the Fund may invest are structurally subordinated to preferred stock, bonds and other debt instruments in a company’s capital structure in terms of priority to corporate income and are therefore inherently more risky than preferred stock or debt instruments of such issuers.
Risks Associated with the Fund’s Covered Call Option Strategy.
The ability of the Fund to achieve its investment objective is partially dependent on the successful implementation of its covered call option strategy. There are significant differences between the securities and options markets that could result in an imperfect correlation between these markets, causing a given transaction not to achieve its objectives. A decision as to whether, when and how to use options involves the exercise of skill and judgment, and even a well conceived transaction may be unsuccessful to some degree because of market behavior or unexpected events.
As the writer of a covered call option, the Fund 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 retains the risk of loss should the price of the underlying security decline. As the Fund writes covered calls over more of its portfolio, its ability to benefit from capital appreciation becomes more limited. See “Risks—Risks Associated with the Fund’s Covered Call Option Strategy—Risks Associated with Covered Call and Put Options.”
With respect to exchange-traded options, there can be no assurance that a liquid market will exist when the Fund seeks to close out an option position on an options exchange. If the Fund were unable to close out a covered call option that it had written on a security, it would not be able to sell the underlying security unless the option expired without exercise. See “Risks—Risks Associated with the Fund’s Covered Call Option Strategy—Exchange-Listed Option Risk.”
The Fund may also write (sell) over-the-counter options (“OTC options”). Options written by the Fund with respect to non-U.S. securities, indices or sectors generally will be OTC options. OTC options differ from exchange-listed options in that they are two-party contracts, with exercise price, premium and other terms negotiated between buyer and seller, and generally do not have as much market
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liquidity as exchange-listed options. See “Risks—Risks Associated with the Fund’s Covered Call Option Strategy—OTC Option Risk.”
Risks of Real Property Asset Companies.
The Fund may invest in Income Securities and Common Equity Securities issued by Real Property Asset Companies. Because of the Fund’s ability to make indirect investments in real estate and in the securities of companies in the real estate industry, it is subject to risks associated with the direct ownership of real estate, including declines in the value of real estate; general and local economic conditions; increased competition; and changes in interest rates. Because of the Fund’s ability to make indirect investments in natural resources and physical commodities, and in Real Property Asset Companies engaged in oil and gas exploration and production, gold and other precious metals, steel and iron ore production, energy services, forest products, chemicals, coal, alternative energy sources and environmental services, as well as related transportation companies and equipment manufacturers, the Fund is subject to risks associated with such real property assets, including supply and demand risk, depletion risk, regulatory risk and commodity pricing risk. See “Risks—Risks of Real Property Asset Companies.”
Risks of Personal Property Asset Companies.
The Fund may invest in Income Securities and Common Equity Securities issued by Personal Property Asset Companies which invest in personal property such as special situation transportation assets (e.g., railcars, airplanes and ships) and collectibles (e.g., antiques, wine and fine art). The risks of special situation transportation assets include cyclicality of supply and demand for transportation assets and risk of decline in the value of transportation assets and rental values. The risks of collectible assets include the difficulty in valuing collectible assets, the relative illiquidity of collectible assets, the prospects of forgery or the inability to assess the authenticity of collectible assets and the high transaction and related costs of purchasing, selling and safekeeping collectible assets. See “Risks—Risks of Personal Property Asset Companies.”
Private Securities Risk.
The Fund may invest in privately issued Income Securities and Common Equity Securities of both public and private companies. Private Securities have additional risk considerations than investments in comparable public investments. Whenever the Fund invests in companies that do not publicly report financial and other material information, it assumes a greater degree of investment risk and reliance upon the Sub-Adviser’s ability to obtain and evaluate applicable information concerning such companies’ creditworthiness and other investment considerations. Certain Private Securities may be illiquid. Because there is often no readily available trading market for Private Securities, the Fund may not be able to readily dispose of such investments at prices that approximate those at which the Fund could sell them if they were more widely traded. Private Securities are also more difficult to value. Private Securities that are debt securities generally are of below-
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investment grade quality, frequently are unrated and present many of the same risks as investing in below-investment grade public debt securities.
Investment Funds Risk.
As an alternative to holding investments directly, the Fund may also obtain investment exposure to Income Securities and Common Equity Securities by investing up to 30% of its total assets in Investment Funds. Investments in Investment Funds present certain special considerations and risks not present in making direct investments in Income Securities and Common Equity Securities. Investments in Investment Funds involve operating expenses and fees that are in addition to the expenses and fees borne by the Fund. Such expenses and fees attributable to the Fund’s investment in another Investment Fund are borne indirectly by Common Shareholders. Accordingly, investment in such entities involves expense and fee layering. To the extent management fees of Investment Funds are based on total gross assets, it may create an incentive for such entities’ managers to employ financial leverage, thereby adding additional expense and increasing volatility and risk. A performance-based fee arrangement may create incentives for an adviser or manager to take greater investment risks in the hope of earning a higher profit participation. Investments in Investment Funds frequently expose the Fund to an additional layer of financial leverage.
Synthetic Investments Risk.
The Fund may be exposed to certain additional risks to the extent the Sub-Adviser uses derivatives as a means to synthetically implement the Fund’s investment strategies. If the Fund enters into a derivative instrument whereby it agrees to receive the return of a security or financial instrument or a basket of securities or financial instruments, it will typically contract to receive such returns for a predetermined period of time. During such period, the Fund may not have the ability to increase or decrease its exposure. In addition, such customized derivative instruments will likely be highly illiquid, and it is possible that the Fund will not be able to terminate such derivative instruments prior to their expiration date or that the penalties associated with such a termination might impact the Fund’s performance in a material adverse manner. Furthermore, derivative instruments typically contain provisions giving the counterparty the right to terminate the contract upon the occurrence of certain events. If a termination were to occur, the Fund’s return could be adversely affected as it would lose the benefit of the indirect exposure to the reference securities and it may incur significant termination expenses.
Inflation/Deflation Risk.
Inflation risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the value of money. As inflation increases, the real value of the Common Shares and distributions can decline. In addition, during any periods of rising inflation, the dividend rates or borrowing costs associated with the Fund’s use of Financial Leverage would likely increase, which would tend to further reduce returns to
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Common Shareholders. Deflation risk is the risk that prices throughout the economy decline over time—the opposite of inflation. Deflation may have an adverse affect 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.
Market Discount Risk.
The Fund’s Common Shares have a limited trading history and have traded both at a premium and at a discount in relation to NAV. The Fund cannot predict whether the Common Shares will trade in the future at a premium or discount to NAV. The Fund’s Common Shares have recently traded at a premium to NAV per share, which may not be sustainable. If the Common Shares are trading at a premium to net asset value at the time you purchase Common Shares, the NAV per share of the Common Shares purchased will be less than the purchase price paid. Shares of closed-end investment companies frequently trade at a discount from NAV, but in some cases have traded above NAV. The risk of the Common Shares trading at a discount is a risk separate from the risk of a decline in the Fund’s NAV as a result of the Fund’s investment activities. The Fund’s NAV will be reduced immediately following an offering of the Common Shares due to the costs of such offering, which will be borne entirely by the Fund. The sale of Common Shares by the Fund (or the perception that such sales may occur) may have an adverse effect on prices of Common Shares in the secondary market. An increase in the number of Common Shares available may put downward pressure on the market price for Common Shares. 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 NAV, subject to certain conditions, and such sales of Common Shares at price below NAV, if any, may increase downward pressure on the market price for Common Shares. These sales, if any, also might make it more difficult for the Fund to sell additional Common Shares in the future at a time and price it deems appropriate.
Whether Common Shareholder will realize a gain or loss upon the sale of Common Shares depends upon whether the market value of the Common Shares at the time of sale is above or below the price the Common Shareholder paid, taking into account transaction costs for the Common Shares, and is not directly dependent upon the Fund’s NAV. Because the market value of the Common Shares will be determined by factors such as the relative demand for and supply of the shares in the market, general market conditions and other factors outside the Fund’s control, the Fund cannot predict whether the Common Shares will trade at, below or above NAV, or at, below or above the public offering price for the Common Shares. Common Shares of the Fund are designed primarily for long-term investors; investors in Common Shares should not view the Fund as a vehicle for trading purposes.
Dilution Risk.
The voting power of current Common Shareholders will be diluted to the extent that current Common Shareholders do not
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purchase Common Shares in any future offerings of Common Shares or do not purchase sufficient Common Shares to maintain their percentage interest. If the Fund is unable to invest the proceeds of such offering as intended, the Fund’s per Common Share distribution may decrease and the Fund may not participate in market advances to the same extent as if such proceeds were fully invested as planned. If the Fund sells Common Shares at a price below NAV pursuant to the consent of Common Shareholders, shareholders will experience a dilution of the aggregate NAV per Common Share because the sale price will be less than the Fund’s then-current NAV per Common Share. Similarly, were the expenses of the offering to exceed the amount by which the sale price exceeded the Fund’s then current NAV per Common Share, shareholders would experience a dilution of the aggregate NAV per Common Share. This dilution will be experienced by all shareholders, irrespective of whether they purchase Common Shares in any such offering. See “Description of Capital Structure—Common Shares—Issuance of Additional Common Shares.”
Financial Leverage Risk.
Although the use of Financial Leverage by the Fund may create an opportunity for increased after-tax total return for the Common Shares, it also results in additional risks and can magnify the effect of any losses. If the income and gains earned on securities purchased with Financial Leverage proceeds are greater than the cost of Financial Leverage, the Fund’s return will be greater than if Financial Leverage had not been used. Conversely, if the income or gains from the securities purchased with such proceeds does not cover the cost of Financial Leverage, the return to the Fund will be less than if Financial Leverage had not been used. There can be no assurance that a leveraging strategy will be implemented or that it will be successful during any period during which it is employed.
Financial Leverage involves risks and special considerations for shareholders, including the likelihood of greater volatility of net asset value and market price of and dividends on the Common Shares than a comparable portfolio without leverage; the risk that fluctuations in interest rates on Borrowings or in the dividend rate on any Preferred Shares that the Fund must pay will reduce the return to the Common Shareholders; and the effect of Financial Leverage in a declining market, which is likely to cause a greater decline in the net asset value of the Common Shares than if the Fund were not leveraged, which may result in a greater decline in the market price of the Common Shares.
Because the fees received by the Investment Adviser and Sub-Adviser are based on the Managed Assets of the Fund (including the proceeds of any Financial Leverage), the Investment Adviser and Sub-Adviser have a financial incentive for the Fund to utilize Financial Leverage, which may create a conflict of interest between the Investment Adviser and the Sub-Adviser on the one hand and the Common Shareholders on the other. Common Shareholders bear the portion of the investment advisory fee attributable to the assets purchased with the proceeds of Financial Leverage, which means that Common Shareholders effectively bear the entire advisory fee. In order to
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manage this conflict of interest, the Board of Trustees will receive regular reports from the Adviser regarding the Fund’s use of Financial Leverage and the effect of Financial Leverage on the management of the Fund’s portfolio and the performance of the Fund.
Borrowings may subject the Fund to covenants in credit agreements relating to asset coverage and portfolio composition requirements. Borrowings by the Fund also may subject the Fund to certain restrictions on investments imposed by guidelines of one or more rating agencies, which may issue ratings for such Indebtedness. Such guidelines may impose asset coverage or portfolio composition requirements that are more stringent than those imposed by the 1940 Act.
Reverse repurchase agreements involve the risks that the interest income earned on the investment of the proceeds will be less than the interest expense and Fund expenses associated with the repurchase agreement, that the market value of the securities sold by the Fund may decline below the price at which the Fund is obligated to repurchase such securities and that the securities may not be returned to the Fund. There is no assurance that reverse repurchase agreements can be successfully employed. Dollar roll transactions involve the risk that the market value of the securities the Fund is required to purchase may decline below the agreed upon repurchase price of those securities. Successful use of dollar rolls may depend upon the Adviser’s ability to correctly predict interest rates and prepayments. There is no assurance that dollar rolls can be successfully employed. In connection with reverse repurchase agreements and dollar rolls, the Fund will also be subject to counterparty risk with respect to the purchaser of the securities. If the broker/dealer to whom the Fund sells securities becomes insolvent, the Fund’s right to purchase or repurchase securities may be restricted.
The Fund may engage in certain derivatives transactions that have economic characteristics similar to leverage. To the extent the terms of any such transaction obligate the Fund to make payments, the Fund intends to earmark or segregate cash or liquid securities in an amount at least equal to the current value of the amount then payable by the Fund under the terms of such transaction or otherwise cover such transaction in accordance with applicable interpretations of the staff of the SEC. To the extent the terms of any such transaction obligate the Fund to deliver particular securities to extinguish the Fund’s obligations under such transactions, the Fund may “cover” its obligations under such transaction by either (i) owning the securities or collateral underlying such transactions or (ii) having an absolute and immediate right to acquire such securities or collateral without additional cash consideration (or, if additional cash consideration is required, having earmarked or segregated cash or liquid securities). Securities so segregated or designated as “cover” will be unavailable for sale by the Adviser (unless replaced by other securities qualifying for segregation or cover requirements), which may adversely affect the ability of the Fund to pursue its investment objective.
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Recent economic and market events have contributed to severe market volatility and caused severe liquidity strains in the credit markets. If dislocations in the credit markets continue, the Fund’s leverage costs may increase and there is a risk that the Fund may not be able to renew or replace existing leverage on favorable terms or at all. If the cost of leverage is no longer favorable, or if the Fund is otherwise required to reduce its leverage, the Fund may not be able to maintain distributions on Common Shares at historical levels and Common Shareholders will bear any costs associated with selling portfolio securities.
The Fund’s total Financial Leverage may vary significantly over time. To the extent the Fund increases its amount of Financial Leverage outstanding, it will be more exposed to these risks. See “Risks—Leverage Risk.”
Derivative Transactions Risks.
The Fund may engage in various derivatives transactions for hedging and risk management purposes, to facilitate portfolio management and to earn income or enhance total return. The use of derivatives transactions to earn income or enhance total return may be particularly speculative. Derivatives transactions involve risks. There may be imperfect correlation between the value of derivative instruments and the underlying assets. Derivatives transactions may be subject to risks associated with the possible default of the other party to the transaction. Derivative instruments may be illiquid. Certain derivatives transactions may have economic characteristics similar to leverage, in that relatively small market movements may result in large changes in the value of an investment. Certain derivatives transactions that involve leverage can result in losses that greatly exceed the amount originally invested. Furthermore, the Fund’s ability to successfully use derivatives transactions depends on the Adviser’s ability to predict pertinent securities prices, interest rates, currency exchange rates and other economic factors, which cannot be assured. The use of derivatives transactions may result in losses greater than if they had not been used, may require the Fund to sell or purchase portfolio securities at inopportune times or for prices other than current market values, may limit the amount of appreciation the Fund can realize on an investment or may cause the Fund to hold a security that it might otherwise sell. Derivatives transactions involve risks of mispricing or improper valuation. The documentation governing a derivative instrument or transaction may be unfavorable or ambiguous. Derivatives transactions may involve commissions and other costs, which may increase the Fund’s expenses and reduce its return. Various legislative and regulatory initiatives may impact the availability, liquidity and cost of derivative instruments, limit or restrict the ability of the Fund to use certain derivative instruments or transact with certain counterparties as a part of its investment strategy, increase the costs of using derivative instruments or make derivative instruments less effective. In connection with certain derivatives transactions, the Fund may be required to segregate liquid assets or otherwise cover such transactions. The Fund may earn a lower return
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on its portfolio than it might otherwise earn if it did not have to segregate assets in respect of, or otherwise cover, its derivatives transactions positions. Segregating assets and covering positions will not limit or offset losses on related positions.
Swap Risk.
The Fund may enter into swap transactions, including credit default swaps, total return swaps, index swaps, currency swaps, commodity swaps and interest rate swaps, as well as options thereon, and may purchase or sell interest rate caps, floors and collars. If the Adviser is incorrect in its forecasts of market values, interest rates or currency exchange rates, the investment performance of the Fund may be less favorable than it would have been if these investment techniques were not used. Such transactions are subject to market risk, risk of default by the other party to the transaction and risk of imperfect correlation between the value of such instruments and the underlying assets and may involve commissions or other costs. Swaps generally do not involve the delivery of securities, other underlying assets or principal. Accordingly, the risk of loss with respect to swaps generally is limited to the net amount of payments that the Fund is contractually obligated to make, or in the case of the other party to a swap defaulting, the net amount of payments that the Fund is contractually entitled to receive. 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.
When the Fund acts as a seller of a credit default swap agreement with respect to a debt security, it is subject to the risk that an adverse credit event may occur with respect to the debt security and the Fund may be required to pay the buyer the full notional value of the debt security under the swap net of any amounts owed to the Fund by the buyer under the swap (such as the buyer’s obligation to deliver the debt security to the Fund). As a result, the Fund bears the entire risk of loss due to a decline in value of a referenced debt security on a credit default swap it has sold if there is a credit event with respect to the security. If the Fund is a buyer of a credit default swap and no credit event occurs, the Fund may recover nothing if the swap is held through its termination date. However, if a credit event occurs, the Fund generally may elect to receive the full notional value of the swap in exchange for an equal face amount of deliverable obligations of the reference entity whose value may have significantly decreased.
The swap market has become more standardized in recent years with a large number of banks and investment banking firms acting both as principals and as agents utilizing standardized swap documentation. As a result, some swaps have become relatively liquid. Caps, floors and collars are more recent innovations for which standardized documentation has not yet been fully developed and, accordingly, they are less liquid than swaps. Swaps are subject to new federal legislation implemented through rulemaking by the SEC and the Commodity Futures Trading Commission. Further regulatory developments in the swap market may adversely impact the swap market generally or the Fund’s ability to use swaps.
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Counterparty Risk.
The Fund will be subject to credit risk with respect to the counterparties to financial instruments and derivative contracts entered into by the Fund. If a counterparty becomes bankrupt or otherwise fails to perform its obligations under a derivative contract, the Fund may experience significant delays in obtaining any recovery under the derivative contract in bankruptcy or other reorganization proceeding. The Fund may obtain only a limited recovery or may obtain no recovery in such circumstances. If a counterparty’s credit becomes significantly impaired, multiple requests for collateral posting in a short period of time could increase the risk that the Fund may not receive adequate collateral.
Portfolio Turnover Risk.
The Fund’s annual portfolio turnover rate may vary greatly from year to year. Portfolio turnover rate is not considered a limiting factor in the execution of investment decisions for the Fund. A higher portfolio turnover rate results in correspondingly greater brokerage commissions and other transactional expenses that are borne by the Fund. High portfolio turnover may result in an increased realization of net short-term capital gains by the Fund which, when distributed to Common Shareholders, will be taxable as ordinary income. Additionally, in a declining market, portfolio turnover may create realized capital losses.
U.S. Government Securities Risk.
U.S. Government securities historically have not involved the credit risks associated with investments in other types of debt securities, although, as a result, the yields available from U.S. Government debt securities are generally lower than the yields available from other securities. Like other debt securities, however, the values of U.S. Government securities change as interest rates fluctuate. In 2011, each of S&P, Moody’s and Fitch lowered its long-term sovereign credit rating on the U.S. to “AA+” from “AAA.” Any further downgrades of the U.S. credit rating could increase volatility in both stock and bond markets, result in higher interest rates and higher Treasury yields and increase the costs of all kinds of debt.
Legislation and Regulation Risk.
At any time after the date hereof, legislation may be enacted that could negatively affect the issuers in which the Fund invests. Changing approaches to regulation may also have a negative impact issuers in which the Fund invests. In addition, legislation or regulation may change the way in which the Fund is regulated. There can be no assurance that future legislation, regulation or deregulation will not have a material adverse effect on the Fund or will not impair the ability of the Fund to achieve its investment objective.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), which was signed into law in July 2010, has resulted in significant revisions to the U.S. financial regulatory framework. The Dodd-Frank Act covers a broad range of topics, including, among many others: a reorganization of federal financial regulators; the creation of a process designed to ensure financial system stability and the resolution of potentially insolvent financial firms; the enactment of new rules for derivatives trading; the creation
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of a consumer financial protection watchdog; the registration and regulation of managers of private funds; the regulation of rating agencies; and the enactment of new federal requirements for residential mortgage loans. The regulation of various types of derivative instruments pursuant to the Dodd-Frank Act may adversely affect the Fund or its counterparties.
On December 11, 2015, the SEC published a proposed rule that, if adopted, would change the regulation of the use of derivative instruments and financial commitment transactions by registered investment companies. The SEC sought public comments on numerous aspects of the proposed rule, and as a result the nature of any final regulations is uncertain at this time. Such regulations could limit the implementation of the Fund’s use of derivatives and reverse repurchase agreement transactions and impose additional compliance costs on the Fund, which could have an adverse impact on the Fund. The Adviser and the Sub-Adviser cannot predict the effects of these regulations on the Fund’s portfolio. The Adviser and the Sub-Adviser intend to monitor developments and seek to manage the Fund’s portfolio in a manner consistent with achieving the Fund’s investment objective, but there can be no assurance that they will be successful in doing so.
The current presidential administration has called for, and in certain instances has begun to implement, significant changes to U.S. fiscal, tax, trade, healthcare, immigration, foreign, and government regulatory policy. In this regard, there is significant uncertainty with respect to legislation, regulation and government policy at the federal level, as well as the state and local levels. Recent events have created a climate of heightened uncertainty and introduced new and difficult-to-quantify macroeconomic and political risks with potentially far-reaching implications. There has been a corresponding meaningful increase in the uncertainty surrounding interest rates, inflation, foreign exchange rates, trade volumes and fiscal and monetary policy. To the extent the U.S. Congress or the current presidential administration implements changes to U.S. policy, those changes may impact, among other things, the U.S. and global economy, international trade and relations, unemployment, immigration, corporate taxes, healthcare, the U.S. regulatory environment, inflation and other areas. Some particular areas identified as subject to potential change, amendment or repeal include the Dodd-Frank Act, including the Volcker Rule and various swaps and derivatives regulations, credit risk retention requirements and the authorities of the Federal Reserve, the Financial Stability Oversight Council and the SEC. Although the Fund cannot predict the impact, if any, of these changes to the Fund’s business, they could adversely affect the Fund’s business, financial condition, operating results and cash flows. Until the Fund knows what policy changes are made and how those changes impact the Fund’s business and the business of the Fund’s competitors over the long term, the Fund will not know if, overall, the Fund will benefit from them or be negatively affected by them.
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The Tax Cuts and Jobs Act of 2017 was signed into law on December 22, 2017 and makes substantial changes to the Internal Revenue Code of 1986, as amended (the “Code”). Among those changes are a significant permanent reduction in the generally applicable corporate tax rate, changes in the taxation of individuals and other non-corporate taxpayers that generally but not universally reduce their taxes on a temporary basis subject to “sunset” provisions, the elimination or modification of various previously allowed deductions (including substantial limitations on the deductibility of interest and, in the case of individuals, the deduction for personal state and local taxes), certain additional limitations on the deduction of net operating losses, certain preferential rates of taxation on certain dividends and certain business income derived by non-corporate taxpayers in comparison to other ordinary income recognized by such taxpayers, and significant changes to the international tax rules. The effect of these, and the many other, changes made in this legislation is highly uncertain, both in terms of their direct effect on the taxation of an investment in our common shares and their indirect effect on the value of our assets or our common shares or market conditions generally. Furthermore, many of the provisions of this legislation will require guidance through the issuance of Treasury regulations in order to assess their effect. There may be a substantial delay before such regulations are promulgated, increasing the uncertainty as to the ultimate effect of the statutory amendments on the Fund. There also may be technical corrections legislation proposed, the effect of which cannot be predicted and may be adverse to the Fund or its shareholders.
LIBOR Risk
. Instruments in which the Fund invests may pay interest at floating rates based on LIBOR or may be subject to interest caps or floors based on LIBOR. The Fund and issuers of instruments in which the Fund invests may also obtain financing at floating rates based on LIBOR. Derivative instruments utilized by the Fund and/or issuers of instruments in which the Fund may invest may also reference LIBOR. The Fund utilizes leverage or borrowings primarily based on LIBOR. Regulators and law-enforcement agencies from a number of governments, including entities in the United States, Japan, Canada and the United Kingdom, have conducted or are conducting civil and criminal investigations into whether the banks that contribute to the British Bankers’ Association, or the “BBA,” in connection with the calculation of daily LIBOR may have been manipulating or attempting to manipulate LIBOR. Several financial institutions have reached settlements with the CFTC, the U.S. Department of Justice Fraud Section and the United Kingdom Financial Conduct Authority in connection with investigations by such authorities into submissions made by such financial institutions to the bodies that set LIBOR and other interbank offered rates. Additional investigations remain ongoing with respect to other major banks. There can be no assurance that there will not be additional admissions or findings of rate-setting manipulation or that manipulations of LIBOR or other similar interbank offered rates will not be shown to have occurred. ICE Benchmark Administration Limited assumed the role of LIBOR administrator from the BBA on February 1, 2014. Any new
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administrator of LIBOR may make methodological changes to the way in which LIBOR is calculated or may alter, discontinue or suspend calculation or dissemination of LIBOR. Additional findings of manipulation may decrease the confidence of the market in LIBOR and lead market participants to look for alternative, non-LIBOR based types of financing, such as fixed rate loans or bonds or floating rate loans based on non-LIBOR indices.
In July 2017, the head of the United Kingdom Financial Conduct Authority announced the desire to phase out the use of LIBOR by the end of 2021. There is currently no definitive information regarding the future utilization of LIBOR or of any particular replacement rate. Abandonment of or modifications to LIBOR could have adverse impacts on newly issued financial instruments and existing financial instruments which reference LIBOR. While some instruments may contemplate a scenario where LIBOR is no longer available by providing for an alternative rate setting methodology, not all instruments may have such provisions and there is significant uncertainty regarding the effectiveness of any such alternative methodologies. Abandonment of or modifications to LIBOR could lead to significant short-term and long-term uncertainty and market instability. It remains uncertain how such changes would be implemented and the effects such changes would have on the Fund, issuers of instruments in which the Fund invests and financial markets generally.
Recent Market Developments Risk
. Global and domestic financial markets have experienced periods of unprecedented turmoil. During the recession of 2007-2009 and for a period thereafter, the debt and equity capital markets in the United States were negatively impacted by significant write-offs in the financial services sector relating to sub-prime mortgages, the re-pricing of credit risk in the broadly syndicated market, the failure of major financial institutions, the deterioration of the housing market and resulting United States federal government actions. These events led to worsening general economic conditions, which materially and adversely impacted the broader financial and credit markets and reduced the availability of debt and equity capital for the market as a whole and financial firms in particular.
A return to unfavorable economic conditions or sustained economic slowdown could adversely impact the Fund’s portfolio. Worsening economic conditions may increase the volatility of the value of securities owned by the Fund, may make it more difficult for the Fund to accurately value its securities or to sell its securities on a timely basis and may adversely affect the ability of the Fund to borrow for investment purposes and increase the cost of such borrowings, which would reduce returns to common shareholders. Worsening economic conditions may also adversely affected the broader economy, which in turn may adversely affect issuers of securities owned by the Fund, which may reduce the value of securities owned by the Fund and adversely affect the net asset value of the common shares. Financial market conditions, as well as various social and political tensions in the United States and around the world, may contribute to increased
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market volatility and may have long-term effects and cause economic uncertainties or deterioration in the United States and worldwide. Global economies and financial markets are also becoming increasingly interconnected, which increases the possibilities that conditions in one country or region might adversely impact issuers in a different country or region. Federal Reserve policy, including with respect to certain interest rates, may adversely affect the value, volatility and liquidity of dividend- and interest-paying securities.
When-Issued and Delayed Delivery Transactions Risk.
Securities purchased on a when-issued or delayed delivery basis may expose the Fund to counterparty risk of default as well as the risk that securities may experience fluctuations in value prior to their actual delivery. The Fund generally will not accrue income with respect to a when-issued or delayed delivery security prior to its stated delivery date. Purchasing securities on a when-issued or delayed delivery basis can involve the additional risk that the price or yield available in the market when the delivery takes place may not be as favorable as that obtained in the transaction itself.
Short Sales Risk.
The Fund may make short sales of securities. A short sale is a transaction in which the Fund sells a security it does not own. If the price of the security sold short increases between the time of the short sale and the time the Fund replaces the borrowed security, the Fund will incur a loss; conversely, if the price declines, the Fund will realize a capital gain. Any gain will be decreased, and any loss will be increased, by the transaction costs incurred by the Fund, including the costs associated with providing collateral to the broker-dealer (usually cash and liquid securities) and the maintenance of collateral with its custodian. Although the Fund’s gain is limited to the price at which it sold the security short, its potential loss is theoretically unlimited. The Fund may have to pay a premium to borrow the securities and must pay any dividends or interest payable on the securities until they are replaced, which will be expenses of the Fund.
Repurchase Agreement Risk.
A repurchase agreement exposes the Fund to the risk that the party that sells the security may default on its obligation to repurchase it. The Fund may lose money because it cannot sell the security at the agreed-upon time and price or the security loses value before it can be sold.
The Fund may accept a wide variety of underlying securities as collateral for repurchase agreements entered into by the Fund. Rule 5b-3 under the 1940 Act, stipulates that if a repurchase agreement entered into by a fund is “collateralized fully,” the repurchase agreement is deemed a transaction in the underlying securities and not a separate security issued to the fund by the selling institution. In order for the repurchase agreement to qualify as “collateralized fully,” the collateral must consist solely of cash items, government securities, securities that are rated in the highest rating category by at least two NRSROs (or one NRSRO, if that is the only such NRSRO which has issued a rating on the security) or unrated securities which the Adviser deems to be of comparable quality. However, the Fund may accept collateral in respect of repurchase agreements which do not meet the
|
|
above criteria, and in such event the repurchase agreement will not be considered “collateralized fully” for purposes of Rule 5b-3. Accepting collateral beyond the criteria of Rule 5b-3 exposes the Fund to two categories of risks. First, because the Fund’s repurchase agreements which are secured by such collateral are not “collateralized fully” under Rule 5b-3, the repurchase agreement is considered a separate security issued by the selling institution to the Fund. Accordingly, in addition to the risks of a default or bankruptcy of the selling institution, the Fund must include repurchase agreements that are not “collateralized fully” under Rule 5b-3 in its calculations of securities issued by the selling institution held by the Fund for purposes of various diversification and concentration requirements applicable to the Fund. In particular, to the extent a selling institution is a “securities related business” for purposes of Section 12(d)(3) of the 1940 Act and Rule 12d3-1 thereunder, the Fund would not be permitted to hold more than 5% of its total assets in securities issued by the selling institution, including repurchase agreements that are not “collateralized fully” under Rule 5b-3. While this limitation (as well as other applicable limitations arising under concentration and diversification requirements) limits the Fund’s exposure to each such selling institution, the Fund will be required to monitor its holdings of such securities and ensure that it complies with the applicable limitations. Second, the collateral underlying a repurchase agreement that is not “collateralized fully” under Rule 5b-3 may not qualify as permitted or appropriate investments for the Fund under the Fund’s investment strategies and limitations. Accordingly, if a selling institution defaults and the Fund takes possession of such collateral, the Fund may need to promptly dispose of such collateral (or other securities held by the Fund, if the Fund exceeds a limitation on a permitted investment by virtue of taking possession of the collateral). In cases of market turmoil (which may be associated with a default or bankruptcy of a selling institution), the Fund may have more difficulty than anticipated in selling such securities and/or in avoiding a loss on the sale of such securities. This risk may be more acute in the case of a selling institution’s insolvency or bankruptcy, which may restrict the Fund’s ability to dispose of collateral received from the selling institution. The Adviser follows various procedures to monitor the liquidity and quality of any collateral received under a repurchase agreement (as well as the credit quality of each selling institution) designed to minimize these risks, but there can be no assurance that the procedures will be successful in doing so.
Securities Lending Risk.
The Fund may lend its portfolio securities to banks or dealers which meet the creditworthiness standards established by the Board of Trustees. Securities lending is subject to the risk that loaned securities may not be available to the Fund on a timely basis and the Fund may therefore lose the opportunity to sell the securities at a desirable price. Any loss in the market price of securities loaned by the Fund that occurs during the term of the loan would be borne by the Fund and would adversely affect the Fund’s performance. Also, there may be delays in recovery, or no recovery,
|
|
of securities loaned or even a loss of rights in the collateral should the borrower of the securities fail financially while the loan is outstanding.
Risk of Failure to Qualify as a RIC.
To qualify for the favorable U.S. federal income tax treatment generally accorded to RICs, the Fund must, among other things, derive in each taxable year at least 90% of its gross income from certain prescribed sources, meet certain asset diversification tests and distribute for each taxable year at least 90% of its “investment company taxable income” (generally, ordinary income plus the excess, if any, of net short-term capital gain over net long-term capital loss). If for any taxable year the Fund does not qualify as a RIC, all of its taxable income for that year (including its net capital gain) would be subject to tax at regular corporate rates 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.
Conflicts of Interest Risk.
Guggenheim Partners is a global asset management and investment advisory organization. Guggenheim Partners and its affiliates advise clients in various markets and transactions and purchase, sell, hold and recommend a broad array of investments for their own accounts and the accounts of clients and of their personnel and the relationships and products they sponsor, manage and advise. Accordingly, Guggenheim Partners and its affiliates may have direct and indirect interests in a variety of global markets and the securities of issuers in which the Fund may directly or indirectly invest. These interests may cause the Fund to be subject to regulatory limits, and in certain circumstances, these various activities may prevent the Fund from participating in an investment decision. As a result, activities and dealings of Guggenheim Partners and its affiliates may affect the Fund in ways that may disadvantage or restrict the Fund or be deemed to benefit Guggenheim Partners and its affiliates. From time to time, conflicts of interest may arise between a portfolio manager’s management of the investments of the Fund on the one hand and the management of other registered investment companies, pooled investment vehicles and other accounts (collectively, “other accounts”) on the other. The other accounts might have similar investment objectives or strategies as the Fund or otherwise hold, purchase, or sell securities that are eligible to be held, purchased or sold by the Fund. In certain circumstances, and subject to its fiduciary obligations under the Investment Advisers Act of 1940 (the “Advisers Act”) and the requirements of the 1940 Act, the Adviser may have to allocate a limited investment opportunity among its clients. The other accounts might also have different investment objectives or strategies than the Fund. In addition, the Fund may be limited in its ability to invest in, or hold securities of, any companies that the Adviser or its affiliates (or other accounts managed by the Adviser or its affiliates) control, or companies in which the Adviser or its affiliates have interests or with whom they do business. For example, affiliates of the Adviser may act as underwriter, lead agent or administrative agent for loans or otherwise participate in the market for loans. Because of limitations imposed by applicable law,
|
|
the presence of the Adviser’s affiliates in the markets for loans may restrict the Fund’s ability to acquire some loans or affect the timing or price of such acquisitions. To address these conflicts, the Fund and Guggenheim Partners and its affiliates have established various policies and procedures that are reasonably designed to detect and prevent such conflicts and prevent the Fund from being disadvantaged. For additional information about potential conflicts of interest, and the way in which the Adviser and its affiliates address such conflicts, please see “Management of the Fund—Potential Conflicts of Interest” in the SAI.
Market Disruption and Geopolitical Risk
. The aftermath of the war in Iraq, instability in Afghanistan, Pakistan, Egypt, Libya, Syria, Russia, Ukraine and the Middle East, possible terrorist attacks in the United States and around the world, growing social and political discord in the United States, the European debt crisis, the response of the international community—through economic sanctions and otherwise—to Russia’s annexation of the Crimea region of Ukraine and posture vis-a-vis Ukraine, increasingly strained relations between the United States and a number of foreign countries, including traditional allies, such as certain European countries, and historical adversaries, such as North Korea, Iran, China and Russia, and the international community generally, new and continued political unrest in various countries, such as Venezuela and Spain, the United Kingdom’s pending withdrawal from the EU and the resulting profound and uncertain impacts on the economic and political future of the United Kingdom, the exit or potential exit of one or more countries from the EU or the EMU, the EU and global financial markets, further downgrade of U.S. Government securities, the change in the U.S. president and the new administration and other similar events, may have long-term effects on the United States and worldwide financial markets and may cause further economic uncertainties in the United States and worldwide. The Fund does not know and cannot predict how long the securities markets may be affected by these events and the effects of these and similar events in the future on the U.S. economy and securities markets. The Fund may be adversely affected by abrogation of international agreements and national laws which have created the market instruments in which the Fund may invest, failure of the designated national and international authorities to enforce compliance with the same laws and agreements, failure of local, national and international organization to carry out their duties prescribed to them under the relevant agreements, revisions of these laws and agreements which dilute their effectiveness or conflicting interpretation of provisions of the same laws and agreements. The Fund may be adversely affected by uncertainties such as terrorism, international 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 it is invested.
Technology Risk.
As the use of Internet technology has become more prevalent, the Fund and its service providers and markets generally have become more susceptible to potential operational risks related to intentional and unintentional events that may cause the Fund or a service provider to lose proprietary information, suffer data
|
|
MUFG Investor Services (US) LLC (formerly Rydex Fund Services, LLC) (“MUFG”) serves as the Fund’s administrator. Pursuant to an administration agreement with the Fund, MUFG provides certain administrative, bookkeeping and accounting services to the Fund. MUFG also provides certain fund accounting services to the Fund pursuant to a fund accounting agreement.
|
Shareholder Transaction Expenses
|
|
Sales load (as a percentage of offering price)
|
—%
(1)
|
Offering expenses borne by the Fund (as a percentage of offering price)
|
0.60%
(1), (2)
|
Dividend Reinvestment Plan fees
(3)
|
None
|
Annual Expenses
|
Percentage of Average Net Assets
Attributable to Common Shares
(4)
|
Management fee
(5)
|
1.10%
|
Interest expense
(6)
|
0.19%
|
Other expenses
(7)
|
0.23%
|
Total annual expenses
|
1.52%
|
(1)
|
If Common Shares to which this Prospectus relates are sold to or through underwriters, the Prospectus Supplement will set forth any applicable sales load and the estimated offering expenses borne by the Fund.
|
(2)
|
The Investment Adviser has agreed to limit offering expenses (other than sales loads or other forms of underwriting discounts or commissions) borne by the Fund in connection with any offering of Common Shares pursuant to this Prospectus to the lesser of the Fund’s actual offering expenses or 0.60% of the total offering price of the Common Shares sold in such offering. Offering expenses that exceed 0.60% of the total offering price of the Common Shares will be borne by the Investment Adviser. Offering expenses of the Trust paid by the Investment Adviser will be reimbursed by the Fund, subject to the foregoing limitation.
|
(3)
|
You will pay brokerage charges if you direct the Plan Agent to sell your Common Shares held in a dividend reinvestment account. See “Dividend Reinvestment Plan.”
|
(4)
|
Based upon average net assets applicable to Common Shares during the period ended May 31, 2018.
|
(5)
|
The Fund pays an investment advisory fee to the Investment Adviser in an annual amount equal to 1.00% of the Fund’s average daily Managed Assets (as defined herein). The fee shown above is based upon outstanding Financial Leverage of 0.30% of the Fund’s Managed Assets. If Financial Leverage of more than 0.30% of the Fund’s Managed Assets is used, the management fees shown would be higher.
|
(6)
|
Includes interest expense on reverse repurchase agreements. Interest expenses on reverse repurchase agreements is based on the Fund’s outstanding reverse repurchase agreements as of May 31, 2018, and assumes the use of leverage in the form of reverse repurchase agreements representing 0.30% of the Fund’s Managed Assets at an annual interest rate cost to the Fund of 1.88%. The Fund may utilize Financial Leverage up to the limits imposed by the 1940 Act; however, the aggregate amount of Financial Leverage is not currently expected to exceed 33
1
/
3
% of the Fund’s Managed Assets after such issuance and/or borrowing.
The Fund has entered into a committed facility agreement pursuant to which it may borrow up to $80 million. As of May 31, 2018, there was no outstanding Borrowings under the committed facility agreement. The cost of Financial Leverage, including the portion of the investment advisory fee attributable to the assets purchased with the proceeds of Financial Leverage, is borne by Common Shareholders. To the extent the Fund increases its amount of Financial Leverage outstanding, the Fund’s annual expenses as a percentage of net assets attributable to Common Shares will increase. The actual amount of interest
payments
on borrowed funds and interest expense on reverse repurchase agreements borne by the Fund will
vary
over time in accordance with the level of the Fund’s use of Borrowings and reverse repurchase
agreements
and variations in market interest rates.
|
(7)
|
Other expenses are estimated based upon those incurred during the fiscal year ended May 31, 2018.
|
|
1 Year
|
3 Years
|
5 Years
|
10 Years
|
Total Expenses Incurred
(1)
|
$21
|
$54
|
$88
|
$186
|
*
|
The Example should not be considered a representation of future expenses or returns. Actual expenses may be higher or lower than those assumed. Moreover, the Fund’s actual rate of return may be higher or lower than the hypothetical 5% return shown in the Example.
The Example assumes that all dividends and distributions are reinvested at net asset value.
|
(1)
|
The example above does not include sales loads or estimated offering costs. In connection with an offering of Common Shares, the Prospectus Supplement will set forth an Example including sales load and estimated offering costs.
|
|
For the
|
For the
|
For the
|
For the
|
||||||||||||
|
Year Ended
|
Year Ended
|
Year Ended
|
Year Ended
|
||||||||||||
Per share data
|
2018
|
2017
|
2016
|
2015
|
||||||||||||
Net asset value, beginning of period
|
$
|
19.78
|
$
|
17.50
|
$
|
19.61
|
$
|
20.56
|
||||||||
Income from investment operations
|
||||||||||||||||
Net investment income
(a)
|
1.23
|
1.61
|
1.40
|
1.28
|
||||||||||||
Net gain (loss) on investments (realized and unrealized)
|
0.30
|
2.86
|
(1.33
|
)
|
(0.05
|
)
|
||||||||||
Total from investment operations
|
1.53
|
4.47
|
0.07
|
1.23
|
||||||||||||
Distributions to Common Shareholders
|
||||||||||||||||
From and in excess of net investment income
|
(2.01
|
)
|
(2.18
|
)
|
(1.82
|
)
|
(1.42
|
)
|
||||||||
Return of capital
|
—
|
—
|
—
|
—
|
||||||||||||
Capital gains
|
(0.18
|
)
|
(0.01
|
)
|
(0.36
|
)
|
(0.76
|
)
|
||||||||
Total distributions
|
(2.19
|
)
|
(2.19
|
)
|
(2.18
|
)
|
(2.18
|
)
|
||||||||
Net asset value, end of period
|
$
|
19.12
|
$
|
19.78
|
$
|
17.50
|
$
|
19.61
|
||||||||
Market value, end of period
|
$
|
21.29
|
$
|
20.94
|
$
|
17.61
|
$
|
21.21
|
||||||||
Total investment return
(b)
|
||||||||||||||||
Net asset value
|
8.02
|
%
|
26.76
|
%
|
0.80
|
%
|
6.39
|
%
|
||||||||
Market value
|
13.31
|
%
|
33.33
|
%
|
-6.07
|
%
|
8.08
|
%
|
||||||||
Ratios and supplemental data
|
||||||||||||||||
Net assets, end of period (in thousands)
|
$
|
530,250
|
$
|
410,465
|
$
|
310,246
|
$
|
342,988
|
||||||||
Ratios to average net assets applicable to
|
||||||||||||||||
Common Shares:
|
||||||||||||||||
Total expenses, including interest expense
(c),
(d)
|
1.52
|
%
|
2.35
|
%
|
2.38
|
%
|
2.16
|
%
|
||||||||
Net investment income, including interest expense
|
6.27
|
%
|
8.55
|
%
|
7.79
|
%
|
6.44
|
%
|
||||||||
Portfolio turnover
|
48
|
%
|
41
|
%
|
116
|
%
|
86
|
%
|
||||||||
Senior Indebtedness
|
||||||||||||||||
Borrowings – committed facility agreement (in thousands)
|
—
|
$
|
16,705
|
$
|
9,355
|
$
|
45,489
|
|||||||||
Asset coverage per $1,000 of borrowings
(f)
|
—
|
$
|
31,044
|
$
|
48,121
|
$
|
11,063
|
|||||||||
Reverse repurchase agreements (in thousands)
(g)
|
$
|
1,610
|
$
|
91,425
|
$
|
130,570
|
$
|
114,758
|
||||||||
Total Borrowings and reverse repurchase agreements
|
||||||||||||||||
outstanding (in thousands)
|
$
|
1,610
|
$
|
108,130
|
$
|
139,925
|
$
|
160,247
|
||||||||
Asset coverage per $1,000 of indebtedness
(e)
|
$
|
330,344
|
$
|
4,796
|
$
|
3,217
|
$
|
3,140
|
||||||||
(footnotes on following page)
|
For the
|
For the
|
For the
|
For the
|
For the
|
For the
|
||||||||||||||||||
Year Ended
|
Year Ended
|
Year Ended
|
Year Ended
|
Year Ended
|
Year Ended
|
||||||||||||||||||
2014
|
2013
|
2012
|
2011
|
2010
|
2009
|
||||||||||||||||||
$
|
20.95
|
$
|
19.00
|
$
|
20.11
|
$
|
17.56
|
$
|
12.42
|
$
|
17.52
|
||||||||||||
1.44
|
1.68
|
1.80
|
1.94
|
1.76
|
1.06
|
||||||||||||||||||
0.35
|
2.22
|
(1.06
|
)
|
2.49
|
5.23
|
(4.31
|
)
|
||||||||||||||||
1.79
|
3.90
|
0.74
|
4.43
|
6.99
|
(3.25
|
)
|
|||||||||||||||||
(1.82
|
)
|
(1.78
|
)
|
(1.85
|
)
|
(1.88
|
)
|
(1.85
|
)
|
(1.36
|
)
|
||||||||||||
—
|
—
|
—
|
—
|
—
|
(0.49
|
)
|
|||||||||||||||||
(0.36
|
)
|
(0.17
|
)
|
—
|
—
|
—
|
—
|
||||||||||||||||
(2.18
|
)
|
(1.95
|
)
|
(1.85
|
)
|
(1.88
|
)
|
(1.85
|
)
|
(1.85
|
)
|
||||||||||||
$
|
20.56
|
$
|
20.95
|
$
|
19.00
|
$
|
20.11
|
$
|
17.56
|
$
|
12.42
|
||||||||||||
$
|
21.83
|
$
|
21.91
|
$
|
21.08
|
$
|
22.32
|
$
|
17.46
|
$
|
11.53
|
||||||||||||
9.20
|
%
|
21.37
|
%
|
4.09
|
%
|
26.14
|
%
|
59.06
|
%
|
-19.51
|
%
|
||||||||||||
10.71
|
%
|
14.10
|
%
|
3.81
|
%
|
40.85
|
%
|
70.37
|
%
|
-18.37
|
%
|
||||||||||||
$
|
318,001
|
$
|
286,471
|
$
|
207,346
|
$
|
187,333
|
$
|
161,783
|
$
|
113,076
|
||||||||||||
2.28
|
%
|
2.47
|
%
|
2.55
|
%
|
2.69
|
%
|
2.97
|
%
|
3.25
|
%
|
||||||||||||
7.07
|
%
|
8.30
|
%
|
9.45
|
%
|
10.20
|
%
|
11.30
|
%
|
7.84
|
%
|
||||||||||||
95
|
%
|
165
|
%
|
112
|
%
|
64
|
%
|
67
|
%
|
58
|
%
|
||||||||||||
$
|
60,789
|
$
|
56,099
|
$
|
30,599
|
$
|
22,433
|
$
|
26,865
|
$
|
22,128
|
||||||||||||
$
|
7,476
|
$
|
7,167
|
$
|
9,516
|
$
|
11,947
|
$
|
8,595
|
$
|
6,515
|
||||||||||||
$
|
75,641
|
$
|
59,474
|
$
|
53,243
|
$
|
47,619
|
$
|
31,621
|
$
|
8,957
|
||||||||||||
$
|
136,430
|
$
|
115,573
|
$
|
83,842
|
$
|
80,670
|
$
|
69,117
|
$
|
31,085
|
||||||||||||
$
|
3,331
|
$
|
3,479
|
$
|
3,473
|
$
|
3,332
|
$
|
3,341
|
$
|
4,638
|
(a)
|
Based on average shares outstanding.
|
(b)
|
Total investment return is calculated assuming a purchase of a Common Share at the beginning of the period and a sale on the last day of the period reported either at net asset value (“NAV”) or market price per share. Dividends and distributions are assumed to be reinvested at NAV for NAV returns or the prices obtained under the Fund’s Dividend Reinvestment Plan for market value returns. Total investment return does not reflect brokerage commissions. A return calculated for a period of less than one year is not annualized.
|
(c)
|
The ratios of total expenses to average net assets applicable to common shares do not reflect fees and expenses incurred indirectly by the Fund as a result of its investment in shares of other investment companies. If these fees were included in the expense ratios, the expense ratios would increase by 0.00%*, 0.00%*, 0.02%, 0.03%, 0.03%, 0.05%, 0.04%, 0.03%, 0.05% and 0.08% for the years ended May 31, 2018, 2017, 2016, 2015, 2014, 2013, 2012, 2011, 2010 and 2009, respectively.
|
(d)
|
Excluding interest expense, the operating expense ratios for the periods ended May 31 would be:
|
2018
|
2017
|
2016
|
2015
|
2014
|
2013
|
2012
|
2011
|
2010
|
2009
|
1.33%
|
1.62%
|
1.74%
|
1.72%
|
1.78%
|
1.81%
|
1.78%
|
1.85%
|
1.98%
|
2.06%
|
(e)
|
Calculated by subtracting the Fund’s total liabilities (not including the borrowings or reverse repurchase agreements) from the Fund’s total assets and dividing by the total borrowings and reverse repurchase agreements.
|
(f)
|
Calculated by subtracting the Fund’s total liabilities (not including the borrowings or reverse repurchase agreements) from the Fund’s total assets and dividing by the borrowings.
|
(g)
|
As a result of the Fund having earmarked or segregated cash or liquid securities to collateralize the transactions or otherwise having covered the transactions, in accordance with releases and interpretive letters issued by the Securities and Exchange Commission (the “SEC”), the Fund does not treat its obligations under such transactions as senior securities representing indebtedness for purposes of the 1940 Act.
|
*
|
Less than 0.01%.
|
|
|
Asset Coverage
|
Involuntary
|
|
|
Total Principal
|
Per Preferred
|
Liquidating
|
Average
|
Class and
|
Amount
|
Share/$1,000
|
Preference
|
Market Value
|
Fiscal Year End
|
Outstanding
|
of Borrowings
|
Per Unit
|
Per Unit
|
Borrowings – Committed Facility Agreement
|
|
|
|
|
May 31, 2018
|
$—
|
$—
|
N/A
|
N/A
|
May 31, 2017
|
$16,704,955
|
$31,044
|
N/A
|
N/A
|
May 31, 2016
|
$ 9,354,955
|
$48,121
|
N/A
|
N/A
|
May 31, 2015
|
$45,488,955
|
$11,063
|
N/A
|
N/A
|
May 31, 2014
|
$60,788,955
|
$7,476
|
N/A
|
N/A
|
May 31, 2013
|
$56,098,955
|
$7,167
|
N/A
|
N/A
|
May 31, 2012
|
$30,598,955
|
$9,516
|
N/A
|
N/A
|
May 31, 2011
|
$22,432,914
|
$11,947
|
N/A
|
N/A
|
May 31, 2010
|
$26,865,369
|
$8,595
|
N/A
|
N/A
|
May 31, 2009
|
$22,127,551
|
$6,515
|
N/A
|
N/A
|
Reverse Repurchase Agreements
(1)
|
|
|
|
|
May 31, 2018
|
$1,610,022
|
N/A
(1)
|
N/A
|
N/A
|
May 31, 2017
|
$91,424,819
|
N/A
(1)
|
N/A
|
N/A
|
May 31, 2016
|
$130,570,046
|
N/A
(1)
|
N/A
|
N/A
|
May 31, 2015
|
$114,758,163
|
N/A
(1)
|
N/A
|
N/A
|
May 31, 2014
|
$75,641,024
|
N/A
(1)
|
N/A
|
N/A
|
May 31, 2013
|
$59,473,742
|
N/A
(1)
|
N/A
|
N/A
|
May 31, 2012
|
$53,243,041
|
N/A
(1)
|
N/A
|
N/A
|
May 31, 2011
|
$47,618,513
|
N/A
(1)
|
N/A
|
N/A
|
May 31, 2010
|
$31,621,245
|
N/A
(1)
|
N/A
|
N/A
|
May 31, 2009
|
$8,957,250
|
N/A
(1)
|
N/A
|
N/A
|
TALF Progam
(1)
|
|
|
|
|
May 31, 2011
|
$10,618,934
|
N/A
(1)
|
N/A
|
N/A
|
May 31, 2010
|
$10,630,271
|
N/A
(1)
|
N/A
|
N/A
|
(1)
|
As a result of the Fund having earmarked or segregated cash or liquid securities to collateralize the transactions or otherwise having covered the transactions, in accordance with releases and interpretive letters issued by the SEC, the Fund does not treat its obligations under such transactions as senior securities representing indebtedness for purposes of the 1940 Act.
|
|
|
|
NAV per Common
|
Premium/(Discount) on
|
||
|
|
|
Share on Date of Market
|
Date of Market Price
|
||
|
Market Price
|
Price High and Low
(1)
|
High and Low
(2)
|
|||
During Quarter Ended
|
High
|
Low
|
High
|
Low
|
High
|
Low
|
May 31, 2018
|
$21.30
|
$19.91
|
$19.10
|
$19.39
|
11.52%
|
2.68%
|
February 28, 2018
|
$21.83
|
$19.63
|
$19.77
|
$19.51
|
10.42%
|
0.62%
|
November 30, 2017
|
$21.64
|
$21.10
|
$19.73
|
$19.70
|
9.68%
|
7.11%
|
August 31, 2017
|
$21.28
|
$20.91
|
$19.87
|
$19.69
|
7.10%
|
6.20%
|
May 31, 2017
|
$21.25
|
$19.82
|
$19.77
|
$19.41
|
7.49%
|
2.11%
|
February 28, 2017
|
$20.70
|
$19.27
|
$19.59
|
$18.73
|
5.67%
|
2.88%
|
November 30, 2016
|
$19.76
|
$17.90
|
$18.71
|
$18.52
|
5.61%
|
(3.35)%
|
August 31, 2016
|
$19.14
|
$17.67
|
$18.57
|
$17.54
|
3.07%
|
0.74%
|
May 31, 2016
|
$17.97
|
$15.99
|
$17.39
|
$16.41
|
3.34%
|
(2.56)%
|
(1)
|
Based on the Fund’s computations.
|
(2)
|
Calculated based on the information presented. Percentages are rounded.
|
·
|
In the Sub-Adviser’s judgment, the relative value measure of the instrument no longer indicates that the
instrument is cheap relative to similar instruments and a substitution of the instrument with a similar but
cheaper instrument enhances the risk-adjusted return potential of the portfolio.
|
·
|
The Sub-Adviser’s fundamental analysis suggests that the embedded credit risk in an instrument has
increased and the instrument no longer properly compensates the holder for this increased risk.
|
·
|
The Sub-Adviser’s fundamental sector allocation decisions result in the rebalancing of existing positions to
achieve the Sub-Adviser’s desired sector exposures.
|
·
|
50% of its total assets in Common Equity Securities consisting of common stock;
|
·
|
30% of its total assets in other investment companies, including registered investment companies, private
investment funds and/or other pooled investment vehicles;
|
·
|
20% of its total assets in non-U.S. dollar-denominated Income Securities of corporate and governmental
issuers located outside the United States; and
|
·
|
10% of its total assets in Income Securities of issuers in emerging markets.
|
·
|
Companies engaged in the ownership, construction, financing, management and/or sale of commercial,
industrial and/or residential real estate (or that have assets primarily invested in such real estate), including
real estate investment trusts (“REITs”); and
|
·
|
Companies engaged in energy, natural resources and basic materials businesses and companies engaged in
associated businesses. These companies include, but are not limited to, those engaged in businesses such as
oil and gas exploration and production, gold and other precious metals, steel and iron ore production, energy
services, forest products, chemicals, coal, alternative energy sources and environmental services, as well as
related transportation companies and equipment manufacturers.
|
Assumed portfolio total return (net of expenses)
|
(10.00)%
|
(5.00)%
|
0.00%
|
5.00%
|
10.00%
|
Common Share total return
|
(10.04)%
|
(5.02)%
|
(0.01)%
|
5.01%
|
10.02%
|
·
|
declines in the value of real estate;
|
·
|
general and local economic conditions;
|
·
|
unavailability of mortgage funds;
|
·
|
overbuilding;
|
·
|
extended vacancies of properties;
|
·
|
increased competition;
|
·
|
increases in property taxes and operating expenses;
|
·
|
changes in zoning laws;
|
·
|
losses due to costs of cleaning up environmental problems and contamination;
|
·
|
limitations on, or unavailability of, insurance on economic terms;
|
·
|
liability to third parties for damages resulting from environmental problems;
|
·
|
casualty or condemnation losses;
|
·
|
limitations on rents;
|
·
|
changes in neighborhood values and the appeal of properties to tenants;
|
·
|
changes in valuation due to the impact of terrorist incidents on a particular property or area, or on a segment
of the economy; and
|
·
|
changes in interest rates.
|
|
Amount
|
Amount Held by the
|
|
Title of Class
|
Authorized
|
Fund or for its Account
|
Amount Outstanding
|
|
|||
Common shares of
|
|
|
|
beneficial interest, par
|
|
|
|
value $0.01 per share
|
Unlimited
|
—
|
27,733,512
|
·
|
the merger or consolidation of the Fund or any subsidiary of the Fund with or into any Principal Shareholder;
|
·
|
the issuance of any securities of the Fund to any Principal Shareholder for cash (other than pursuant of any
automatic dividend reinvestment plan);
|
·
|
the sale, lease or exchange of all or any substantial part of the assets of the Fund to any Principal
Shareholder, except assets having an aggregate fair market value of less than $1,000,000, aggregating for the
purpose of such computation all assets sold, leased or exchanged in any series of similar transactions within
a twelve-month period; or
|
·
|
the sale, lease or exchange to the Fund or any subsidiary of the Fund, in exchange for securities of the Fund,
of any assets of any Principal Shareholder, except assets having an aggregate fair market value of less than
$1,000,000, aggregating for purposes of such computation all assets sold, leased or exchanged in any series
of similar transactions within a twelve-month period.
|
(i)
|
The Fund must derive in each taxable year at least 90% of its gross income from the following sources:
(a)
dividends, interest (including tax-exempt interest), payments with respect to certain securities loans,
and
gains from the sale or other disposition of stock, securities or foreign currencies, or other income
(including
gain from options, futures and forward contracts) derived with respect to its business of
investing
in such stock, securities or foreign currencies; and (b) interests in “qualified publicly traded
partnerships”
(as defined in the Code). Generally, a qualified publicly traded partnership includes a
partnership
the interests of which are traded on an established securities market or readily tradable on a
secondary
market (or the substantial equivalent thereof).
|
(ii)
|
The Fund must diversify its holdings so that, at the end of each quarter of each taxable year (a) at least 50%
of
the market value of the Fund’s total assets is represented by cash and cash items, U.S. government
securities,
the securities of other RICs and other securities, with such other securities limited, in respect of
any
one issuer, to an amount not greater than 5% of the value of the Fund’s total assets and not more than
10%
of the outstanding voting securities of such issuer and (b) not more than 25% of the market value of the
Fund’s
total assets is invested in the securities (other than U.S. government securities and the securities of
other
RICs) of (I) any one issuer, (II) any two or more issuers that the Fund controls and that are determined
to
be engaged in the same business or similar or related trades or businesses or (III) any one or more
“qualified
publicly traded partnerships” (as defined in the Code).
|
(iii)
|
The Fund must distribute in each taxable year at least 90% of its investment company taxable income
(generally,
its ordinary income and the excess of any net short-term capital gain over net long-term capital loss).
|
·
|
the names of any agents, underwriters or dealers;
|
·
|
any sales loads or other items constituting underwriters’ compensation;
|
·
|
any discounts, commissions, or fees allowed or paid to dealers or agents;
|
·
|
the public offering or purchase price of the offered Common Shares and the net proceeds the Fund will
receive from the sale; and
|
·
|
any securities exchange on which the offered Common Shares may be listed.
|
·
|
An overallotment in connection with an offering creates a short position in the common stock for the
underwriter’s own account.
|
·
|
An underwriter may place a stabilizing bid to purchase the Common Shares for the purpose of pegging,
fixing, or maintaining the price of the Common Shares.
|
·
|
Underwriters may engage in syndicate covering transactions to cover overallotments or to stabilize the price
of the Common Shares by bidding for, and purchasing, the Common Shares or any other securities in the
open market in order to reduce a short position created in connection with the offering.
|
·
|
The managing underwriter may impose a penalty bid on a syndicate member to reclaim a selling concession
in connection with an offering when the Common Shares originally sold by the syndicate member is
purchased in syndicate covering transactions or otherwise.
|
TABLE OF CONTENTS OF THE
|
STATEMENT OF ADDITIONAL INFORMATION
|
|
|
Page
|
The Fund
|
S-2
|
Investment Objective and Policies
|
S-2
|
Investment Restrictions
|
S-14
|
Management of the Fund
|
S-15
|
Portfolio Transactions
|
S-30
|
U.S. Federal Income Tax Considerations
|
S-31
|
General Information
|
S-37
|
Financial Statements
|
S-38
|
Appendix A: Description of Securities Ratings of Investments
|
A-1
|
Appendix B: Proxy Voting Procedures
|
B-1
|
TABLE OF CONTENTS
|
|
|
|
|
Page
|
The Fund
|
S-2
|
Investment Objective and Policies
|
S-2
|
Investment Restrictions
|
S-14
|
Management of the Fund
|
S-15
|
Portfolio Transactions
|
S-30
|
U.S. Federal Income Tax Considerations
|
S-31
|
General Information
|
S-37
|
Financial Statements
|
S-38
|
Appendix A: Description of Securities Ratings of Investments
|
A-1
|
Appendix B: Proxy Voting Procedures
|
B-1
|
|
|
|
|
Statement of Additional Information dated September 10, 2018.
|
|
|
Term of
|
|
Number of
|
|
|
Position(s)
|
Office
(2)
and
|
Principal
|
Portfolios
|
|
Name,
|
Held
|
Length of
|
Occupation(s)
|
in Fund
|
|
Business Address
(1)
|
with the
|
Time
|
During Past Five
|
Complex
(3)
|
Other Directorships
|
and Year of Birth
|
Fund
|
Served
|
Years
|
Overseen
|
Held by Trustee
|
INDEPENDENT TRUSTEES:
|
|
|
|
|
|
Randall C. Barnes
|
Trustee
|
Trustee since
|
Current: Private Investor
|
49
|
Current: Trustee, Purpose
|
Year of Birth: 1951
|
|
2007
|
(2001-present).
|
|
Investments, Inc.
|
|
|
|
|
|
(2014-present).
|
|
|
|
Former: Senior Vice President
|
|
|
|
|
|
and Treasurer, PepsiCo, Inc.
|
|
Former: Managed Duration
|
|
|
|
(1993-1997); President, Pizza
|
Investment Grade Municipal
|
|
|
|
|
Hut International (1991-1993);
|
Fund (2003-2016).
|
|
|
|
|
Senior Vice President,
|
|
|
|
|
|
Strategic Planning and New
|
|
|
|
|
|
Business Development,
|
|
|
|
|
|
PepsiCo, Inc. (1987-1990).
|
|
|
Donald A. Chubb, Jr.
|
Trustee and
|
Trustee since
|
Current: Retired.
|
48
|
Current: Midland Care,
|
Year of Birth: 1946
|
Chairman of
|
2014
|
|
|
Inc. (2011-2016).
|
|
Valuation
|
|
Former: Business broker and
|
|
|
|
Oversight
|
|
manager of commercial real
|
|
|
|
Committee
|
|
estate, Griffith & Blair, Inc.
|
|
|
(1997-2017).
|
|||||
Jerry B. Farley
|
Trustee and
|
Trustee since
|
Current: President, Washburn
|
48
|
Current: Westar Energy,
|
Year of Birth: 1946
|
Chairman of
|
2014
|
University (1997-present).
|
|
Inc. (2004-present);
|
|
Audit
|
|
|
|
CoreFirst Bank & Trust
|
|
Committee
|
|
|
|
(2000-present).
|
Roman Friedrich III
|
Trustee and
|
Trustee since
|
Current: Founder and
|
48
|
Current: Zincore Metals,
|
Year of Birth: 1946
|
Chairman
|
2010
|
Managing Partner, Roman
|
|
Inc. (2009-present).
|
|
of the
|
|
Friedrich & Company
|
|
|
|
Contracts
|
|
(1998-present).
|
|
|
|
Review
|
|
|
|
|
|
Committee
|
|
Former: Senior Managing
|
|
Former: Axiom Gold and
|
|
|
|
Director, MLV & Co. LLC
|
|
Silver Corp. (2011-2012).
|
(2010-2011).
|
|
|
Term of
|
|
Number of
|
|
|
Position(s)
|
Office
(2)
and
|
Principal
|
Portfolios
|
|
Name,
|
Held
|
Length of
|
Occupation(s)
|
in Fund
|
|
Business Address
(1)
|
with the
|
Time
|
During Past Five
|
Complex
(3)
|
Other Directorships
|
and Year of Birth
|
Fund
|
Served
|
Years
|
Overseen
|
Held by Trustee
|
Ronald A. Nyberg
|
Trustee and
|
Trustee since
|
Current: Partner, Momkus
|
49
|
Current: PPM Funds
|
Year of Birth: 1953
|
Chairman
|
2007
|
LLC, a law firm
|
|
(February 2018-present);
|
|
of the
|
|
(2016-present).
|
|
Edward-Elmhurst
|
|
Nominating
|
|
|
|
Healthcare System (2012-
|
|
and
|
|
Former: Partner, Nyberg &
|
|
present); Western Asset
|
|
Governance
|
|
Cassioppi, LLC, a law firm
|
|
Inflation-Linked
|
|
Committee
|
|
(2000-2016); Executive Vice
|
|
Opportunities Fund (2004-
|
|
|
|
President, General Counsel,
|
|
present); Western Asset
|
|
|
|
and Corporate Secretary, Van
|
|
Inflation-Linked Income
|
|
|
|
Kampen Investments
|
|
Fund (2003-present).
|
|
|
|
(1982-1999)
|
|
|
Former: Managed Duration
|
|||||
Investment Grade Municipal
|
|||||
Fund (2003-2016).
|
|||||
|
|||||
Maynard F. Oliverius
|
Trustee
|
Trustee since
|
Current: Retired
|
48
|
Current: Robert J. Dole
|
Year of Birth: 1943
|
|
2014
|
|
|
Institute of Politics
|
|
|
|
Former: President and CEO,
|
|
(2016-present); Stormont-
|
|
|
|
Stormont-Vail HealthCare
|
|
Vail Foundation (2013-
|
|
|
|
(1996-2012).
|
|
present); University of
|
|
|
|
|
|
Minnesota MHA Alumni
|
|
|
|
|
|
Philanthropy Committee
|
|
|
|
|
|
(2009-present). Fort Hays
|
|
|
|
|
|
State University
|
|
|
|
|
|
Foundation (1999-present);
|
|
|||||
|
|
|
|
|
Former: Topeka
|
|
|
|
|
|
Community Foundation
|
|
|
|
|
|
(2009-2014).
|
|
|||||
Ronald E. Toupin Jr.
|
Trustee and
|
Trustee since
|
Current: Portfolio Consultant
|
48
|
Current: Western Asset
|
Year of birth: 1958
|
Chairman
|
2007
|
(2010-present); Member,
|
|
Inflation-Linked
|
|
of the Board
|
|
Governing Council (2003-
|
|
Opportunities Fund (2004-
|
|
|
|
present) and Executive
|
|
present); Western Asset
|
|
|
|
Committee (2016-present),
|
|
Inflation-Linked Income
|
|
|
|
Independent Directors
|
|
Fund (2003-present).
|
|
|
|
Council.
|
|
|
|
|
|
|
|
Former: Bennett Group of
|
|
|
|
Former: Vice President,
|
|
Funds (2011-2013);
|
|
|
|
Manager and Portfolio
|
|
Managed Duration
|
|
|
|
Manager, Nuveen Asset
|
|
Investment Grade Municipal
|
|
|
|
Management (1998-1999);
|
|
Fund (2003-2016).
|
|
|
|
Vice President, Nuveen
|
|
|
|
|
|
Investment Advisory Corp.
|
|
|
|
|
|
(1992-1999); Vice President
|
|
|
|
|
|
and Manager, Nuveen Unit
|
|
|
|
|
|
Investment Trusts (1991-1999);
|
|
|
|
|
|
and Assistant Vice President
|
|
|
|
|
|
and Portfolio Manager, Nuveen
|
|
|
|
|
|
Unit Investment Trusts
|
|
|
|
|
|
(1988-1999), each of John
|
|
|
|
|
|
Nuveen & Co., Inc. (1982-1999).
|
|
|
|
Term of
|
|
Number of
|
|
|
Position(s)
|
Office
(2)
and
|
Principal
|
Portfolios
|
|
Name,
|
Held
|
Length of
|
Occupation(s)
|
in Fund
|
|
Business Address
(1)
|
with the
|
Time
|
During Past Five
|
Complex
(3)
|
Other Directorships
|
and Year of Birth
|
Fund
|
Served
|
Years
|
Overseen
|
Held by Trustee
|
Amy J. Lee*
|
Trustee, Vice
|
Trustee since
|
Current: Interested Trustee,
|
158
|
None.
|
Year of Birth: 1961
|
President and
|
February 2018
|
certain other funds in the
|
|
|
|
Chief Legal
|
|
Fund Complex (2018-
|
|
|
|
Officer
|
Vice President
|
present); President, certain
|
|
|
|
|
since 2012
|
other funds in the Fund
|
|
|
|
|
|
Complex (2017-present);
|
|
|
|
|
Chief Legal
|
Chief Legal Officer, certain
|
|
|
|
|
Officer
|
other funds in the Fund
|
|
|
|
|
since 2014
|
Complex (2014-present);
|
|
|
|
|
|
Vice President, certain other
|
|
|
|
|
|
funds in the Fund Complex
|
|
|
|
|
|
(2007-present); Senior
|
|
|
|
|
|
Managing Director,
|
|
|
|
|
|
Guggenheim Investments
|
|
|
|
|
|
(2012-present).
|
|
|
|
|||||
|
|
|
Former: President and Chief
|
|
|
|
|
|
Executive Officer (2017-
|
|
|
|
|
|
February 2018); Vice
|
|
|
|
|
|
President, Associate General
|
|
|
|
|
|
Counsel and Assistant
|
|
|
|
|
|
Secretary, Security Benefit
|
|
|
|
|
|
Life Insurance Company and
|
|
|
|
|
|
Security Benefit Corporation
|
|
|
|
|
|
(2004-2012).
|
|
|
*
|
Ms. Lee is deemed to be an “interested person” of the Fund under the 1940 Act by reason of her position with the Fund’s Investment Adviser and/or parent of the Investment Adviser.
|
(1)
|
The business address of each Trustee of the Fund is 227 West Monroe Street, Chicago, Illinois 60606.
|
(2)
|
Each Trustee is expected to serve a two year term concurrent with the class of Trustees for which he serves.
|
•
|
Messrs. Barnes, Chubb and Friedrich and Ms. Lee are the Class I Trustees. It is currently anticipated that the Class I Trustees will next stand for election at the Fund’s annual meeting of Shareholders for the Fund’s fiscal year ending May 31, 2020.
|
•
|
Dr. Farley and Messrs. Nyberg, Oliverius and Toupin are the Class II Trustees. It is currently anticipated that the Class II Trustees will next stand for election at the Fund’s annual meeting of Shareholders for the Fund’s fiscal year ending May 31, 2019.
|
(3)
|
As of the date of this SAI, the “Fund Complex” consists of 7 closed-end funds, including the Fund, and 152 open-end funds. The Fund Complex consists of U.S. registered investment companies advised or serviced by Guggenheim Funds Investment Advisors, LLC or Guggenheim Funds Distributors, LLC and/or affiliates of such entities. The Fund Complex is overseen by multiple boards of trustees.
|
Name, Business
|
|
Term of Office
(2)
and
|
|
Address
(1)
and
|
Position(s) held
|
Length of Time
|
Principal Occupation
|
Year of Birth
|
with the Trust
|
Served
|
During the Past Five Years
|
|
|||
Brian E. Binder
|
President and
|
Since February 2018
|
Current: President and Chief Executive
|
Year of Birth: 1972
|
Chief Executive
|
|
Officer, certain other funds in the Fund
|
|
Officer
|
|
Complex (February 2018-present); President
|
|
|
|
and Chief Executive Officer, Guggenheim
|
|
|
|
Funds Investment Advisors, LLC and
|
|
|
|
Security Investors, LLC (January 2018-
|
|
|
|
present); Senior Managing Director and
|
|
|
|
Chief Administrative Officer, Guggenheim
|
|
|
|
Investments (January 2018-present).
|
|
|||
|
|
|
Former: Managing Director and
|
|
|
|
President, Deutsche Funds, and Head of
|
|
|
|
US Product, Trading and Fund
|
|
|
|
Administration, Deutsche Asset
|
|
|
|
Management (2013-January 2018);
|
|
|
|
Managing Director, Head of Business
|
|
|
|
Management and Consulting, Invesco
|
|
|
|
Ltd. (2010-2012).
|
|
|||
John L. Sullivan
|
Chief Financial
|
Since 2010
|
Senior Managing Director, Guggenheim
|
Year of birth: 1955
|
Officer, Chief
|
|
Investments (2010-present); Chief
|
|
Accounting Officer
|
|
Financial Officer, Chief Accounting
|
|
and Treasurer
|
|
Officer and Treasurer of certain funds in
|
|
|
|
the Fund Complex (2010-present)
|
|
|
|
Formerly, Chief Compliance Officer, Van
|
|
|
|
Kampen Funds (2004-2010); Head of
|
|
|
|
Fund Accounting, Morgan Stanley
|
|
|
|
Investment Management (2002-2004);
|
|
|
|
Chief Financial Officer and Treasurer, Van
|
|
|
|
Kampen Funds (1996-2004).
|
Name, Business
|
|
Term of Office
(2)
and
|
|
Address
(1)
and
|
Position(s) held
|
Length of Time
|
Principal Occupation
|
Year of Birth
|
with the Trust
|
Served
|
During the Past Five Years
|
|
|||
Joanna M. Catalucci
|
Chief Compliance
|
Since 2012
|
Chief Compliance Officer of certain funds
|
Year of birth: 1966
|
Officer
|
|
in the Fund Complex (2012-present);
|
|
|
|
Senior Managing Director of Compliance
|
|
|
|
and Fund Board Relations, Guggenheim
|
|
|
|
Investments (2012-present). Formerly,
|
AML Officer, certain other funds in the | |||
Fund Complex (2016-2017); Chief | |||
|
|
|
Compliance Officer and Secretary,
|
|
|
|
certain other funds in the Fund Complex
|
|
|
|
(2008-2012); Vice President, Rydex
|
|
|
|
Holdings, LLC (2009-
2012); Vice President,
|
|
|
|
Security Benefit
Asset Management
|
|
|
|
Holdings, LLC (2009-
2012); and Senior
|
|
|
|
Vice President and
Chief Compliance
|
|
|
|
Officer, Security
Investors, LLC (2010-
|
|
|
|
2012); Senior Vice
President, Security
|
|
|
|
Global Investors,
LLC, (2010-2011); Chief
|
|
|
|
Compliance
Officer and Senior Vice
|
|
|
|
President Rydex
Advisors, LLC (f/k/a
|
|
|
|
PADCO Advisors,
Inc.) and Rydex
|
|
|
|
Advisors II, LLC (f/k/a
PADCO Advisors II,
|
|
|
|
Inc.), (2010-2011);
Chief Compliance
|
|
|
|
Officer Rydex Capital
Partners I, LLC &
|
|
|
|
Rydex Capital Partners
II, LLC, (2006-2007);
|
|
|
|
and Vice President
Rydex Fund Services,
|
|
|
|
LLC (f/k/a Rydex
Fund Services,
|
|
|
|
Inc.) (2001-2006).
|
|
|||
Bryan Stone
|
Vice President
|
Since 2014
|
Vice President, certain other funds in the
|
Year of Birth: 1979
|
|
|
Fund Complex (2014-present); Managing
|
|
|
|
Director, Guggenheim Investments (2013-
|
|
|
|
present). Formerly, Senior Vice President,
|
|
|
|
Neuberger Berman Group LLC (2009-
|
|
|
|
2013); Vice President, Morgan Stanley
|
|
|
|
(2002-2009).
|
|
|||
Mark E. Mathiasen
|
Secretary
|
Since 2007
|
Managing Director of Guggenheim
|
Year of birth: 1978
|
|
|
Investments (2007-present); Secretary of
|
|
|
|
certain funds in the Fund Complex.
|
|
|||
Michael P. Megaris
|
Assistant Secretary
|
Since 2014
|
Assistant Secretary, certain other funds in
|
Year of Birth: 1984
|
|
|
the Fund Complex (2014-present);
|
|
|
|
Director, Guggenheim Investments
|
|
|
|
(2012-present).
|
|
|||
James M. Howley
|
Assistant Treasurer
|
Since 2007
|
Managing Director, Fund Administration
|
Year of birth: 1972
|
|
|
(2004-present) of Guggenheim
Investments;
|
|
|
|
Assistant Treasurer of certain funds in
|
|
|
|
the Fund Complex (2004-present).
|
|
|
|
Formerly, Manager of Mutual Fund
|
|
|
|
Administration, Van Kampen Investments,
|
|
|
|
Inc. (2000-2004).
|
Name, Business
|
|
Term of Office
(2)
and
|
|
Address
(1)
and
|
Position(s) held
|
Length of Time
|
Principal Occupation
|
Year of Birth
|
with the Trust
|
Served
|
During the Past Five Years
|
|
|||
Kimberly J. Scott
|
Assistant Treasurer
|
Since 2012
|
Director, Fund Administration of
|
Year of birth: 1974
|
|
|
Guggenheim Investments (2012-present);
|
|
|
|
Assistant Treasurer
of certain funds in
|
|
|
|
the Fund Complex.
Formerly, Financial
|
|
|
|
Reporting Manager
for Invesco, Ltd.
|
|
|
|
(2010-2011); Vice
President and Assistant
|
|
|
|
Treasurer (2009-
2010), Manager (2005-
|
|
|
|
2009), Mutual Fund Administration
|
|
|
|
for Van Kampen
Investments, Inc. (f/k/a
|
|
|
|
Morgan Stanley
Investment Management).
|
|
|||
Adam J. Nelson
|
Assistant Treasurer
|
Since 2015
|
Vice President, Guggenheim Investments
|
Year of birth: 1979
|
|
|
(2015-present); Assistant Treasurer,
|
|
|
|
certain other funds in the Fund Complex
|
|
|
|
(2015-present). Formerly, Assistant Vice
|
|
|
|
President and Fund Administration
|
|
|
|
Director, State Street Corporation (2013-
|
|
|
|
2015); Fund Administration Assistant
|
|
|
|
Director, State Street (2011-2013); Fund
|
|
|
|
Administration Manager, State Street
|
|
|
|
(2009-2011).
|
|
|||
Glenn McWhinnie
|
Assistant Treasurer
|
Since 2016
|
Vice President, Guggenheim Investments
|
Year of birth: 1969
|
|
|
(2009-present); Assistant Treasurer,
|
|
|
|
certain other funds in the Fund Complex
|
|
|
|
(2016-present). Formerly, Tax
|
|
|
|
Compliance Manager, Ernst & Young
|
|
|
|
LLP (1996-2009).
|
|
|||
Keith Kemp
|
Assistant Treasurer
|
Since 2016
|
Managing Director, Guggenheim
|
Year of birth: 1960
|
|
|
Investments (2010-present); Treasurer and
|
|
|
|
Assistant Treasurer, certain other funds in
|
|
|
|
the Fund Complex (2010-present).
|
|
|
|
Formerly, Chief Financial Officer,
|
|
|
|
Guggenheim Specialized Products, LLC
|
|
|
|
(2016-2018); Managing Director and
|
|
|
|
Director, Transparent Value, LLC (2010-
|
|
|
|
2015); Director, Guggenheim Partners
|
|
|
|
Investment Management, LLC (2010-
|
|
|
|
2015); Chief Operating Officer,
|
|
|
|
Macquarie Capital Investment
|
|
|
|
Management (2007-2009).
|
|
|||
Jon Szafran
|
Assistant Treasurer
|
Since 2017
|
Vice President, Guggenheim Investments
|
Year of birth: 1989
|
|
|
(2017-present); Assistant Treasurer, certain
|
|
|
|
other funds in the Fund Complex (2017-
|
|
|
|
present). Formerly, Assistant Treasurer of
|
|
|
|
Henderson Global Funds and Manager of
|
|
|
|
US Fund Administration, Henderson
|
|
|
|
Global Investors (North America) Inc.
|
|
|
|
(“HGINA”) (2017); Senior Analyst of US
|
|
|
|
Fund Administration, HGINA (2014-
|
|
|
|
2017); Senior Associate of Fund
|
|
|
|
Administration, Cortland Capital Market
|
|
|
|
Services, LLC (2013-2014); Experienced
|
|
|
|
Associate, PricewaterhouseCoopers LLP
|
|
|
|
(2012-2013).
|
(1)
|
The business address of each officer is c/o Guggenheim Investments, 227 West Monroe Street, Chicago, Illinois 60606.
|
(2)
|
Each officer serves at the pleasure of the Board and until his or her successor is appointed and qualified or until his or her resignation or removal.
|
|
Aggregate
|
Pension or Retirement
|
|
Total Compensation
|
|
Estimated
|
Benefits Accrued
|
Estimated Annual
|
from the Fund and
|
|
Compensation
|
as Part of
|
Benefits Upon
|
Fund Complex
|
Name
(1)
|
from the Fund
|
Fund Expenses
(2)
|
Retirement
(2)
|
Paid to Trustee
(3)(4)
|
|
||||
Independent Trustees:
|
|
|
|
|
Randall C. Barnes
|
$15,899
|
None
|
None
|
$344,000
|
Donald A. Chubb, Jr.
|
$16,208
|
None
|
None
|
$271,000
|
Dr. Jerry B. Farley
|
$17,446
|
None
|
None
|
$278,500
|
Roman Friedrich III
|
$16,827
|
None
|
None
|
$281,000
|
Ronald A. Nyberg
|
$16,518
|
None
|
None
|
$358,500
|
Maynard F. Oliverius
|
$16,208
|
None
|
None
|
$271,000
|
Ronald E. Toupin, Jr.
|
$19,871
|
None
|
None
|
$326,000
|
(1)
|
Trustees not entitled to compensation are not included in the table.
|
(2)
|
The Fund does not accrue or pay retirement or pension benefits to Trustees as of the date of this SAI.
|
(3)
|
As of the date of this SAI, the “Fund Complex” consists of 7 closed-end funds, including the Fund, and 152 open-end funds. The Fund Complex consists of U.S. registered investment companies advised or serviced by Guggenheim Funds Investment Advisors, LLC or Guggenheim Funds Distributors, LLC and/or affiliates of such entities. The Fund Complex is overseen by multiple boards of trustees.
|
(4)
|
The amounts shown in this column represent the aggregate compensation paid by all of the funds in the Fund Complex for the calendar year ended December 31, 2017. Because the funds in the Fund Complex have different fiscal year ends, the amounts shown in this column are presented on a calendar year basis.
|
|
|
Aggregate Dollar Range of Equity
|
|
|
Securities in All Registered Investment
|
|
Dollar Range of
|
Companies Overseen by Trustee in
|
Name
|
Equity Securities in the Fund
|
Fund Complex
(1)
|
|
||
Independent Trustees:
|
|
|
Randall C. Barnes
|
Over $100,000
|
Over $100,000
|
Donald A. Chubb, Jr.
|
$10,001-$50,000
|
Over $100,000
|
Dr. Jerry B. Farley
|
$0
|
Over $100,000
|
Roman Friedrich III
|
$10,001-$50,000
|
Over $100,000
|
Ronald A. Nyberg
|
$10,001-$50,000
|
Over $100,000
|
Maynard F. Oliverius
|
Over $100,000
|
Over $100,000
|
Ronald E. Toupin, Jr.
|
$10,001-$50,000
|
Over $100,000
|
Amy J. Lee
|
$0
|
$10,001-$50,000
|
(1)
|
As of the date of this SAI, the “Fund Complex” consists of 7 closed-end funds, including the Fund, and 152 open-end funds. The Fund Complex consists of U.S. registered investment companies advised or serviced by Guggenheim Funds Investment Advisors, LLC or Guggenheim Funds Distributors, LLC and/or affiliates of such entities. The Fund Complex is overseen by multiple boards of trustees.
|
|
|
|
|
Number of Other Accounts Assets
|
||
|
Number of Other Accounts Managed
|
for Which Advisory Fee is
|
||||
|
and Assets by Account Type
|
Performance-Based
|
||||
|
||||||
|
Other
|
Other
|
|
Other
|
Other
|
|
|
Registered
|
Pooled
|
|
Registered
|
Pooled
|
|
Name of
|
Investment
|
Investment
|
Other
|
Investment
|
Investment
|
Other
|
Portfolio Manager
|
Companies
|
Vehicles
|
Accounts
|
Companies
|
Vehicles
|
Accounts
|
B. Scott Minerd
|
17
|
75
|
133
|
0
|
39
|
6
|
|
$22.1 billion
|
$20.4 billion
|
$142.5 billion
|
$0
|
$10.9 billion
|
$1.1 billion
|
|
||||||
Anne Bookwalter Walsh
|
18
|
5
|
38
|
0
|
2
|
4
|
|
$26.0 billion
|
$3.2 billion
|
$97.1 billion
|
$0
|
$2.4 billion
|
$700.9 million
|
|
||||||
Steve Brown
|
14
|
5
|
20
|
0
|
2
|
4
|
|
$21.9 billion
|
$3.2 billion
|
$10.9 billion
|
$0
|
$2.4 billion
|
$700.9 million
|
|
||||||
Adam Bloch
|
14
|
5
|
23
|
0
|
2
|
4
|
|
$21.9 billion
|
$3.2 billion
|
$10.9 billion
|
$0
|
$2.4 billion
|
$700.9 million
|
Advisory Fee
|
|
|
|
|
Fiscal Year Ended May 31,
|
||
|
2018
|
2017
|
2016
|
The Investment Adviser received approximate
|
|
|
|
advisory fees of
|
$5,125,186
|
$4,927,917
|
$4,626,850
|
Sub-Advisory Fee
|
|
|
|
|
Fiscal Year Ended May 31,
|
||
|
2018
|
2017
|
2016
|
The Sub-Adviser received approximate
|
|
|
|
sub-advisory fees of
|
$2,562,593
|
$2,463,959
|
$2,313,425
|
Administration Fee.
|
|
|
|
|
Fiscal Year Ended May 31,
|
||
|
2018
|
2017
|
2016
|
MUFG received
|
|
|
|
approximate administration fees of
|
$116,697
|
$113,055
|
$107,575
|
Fund Accounting Fee.
|
|
|
|
|
Fiscal Year Ended May 31,
|
||
|
2018
|
2017
|
2016
|
MUFG received
|
|
|
|
approximate fund accounting fees of
|
$122,133
|
$123,943
|
$117,550
|
·
|
The likelihood of payment—the capacity and willingness of the obligor to meet its financial
commitments on an obligation in accordance with the terms of the obligation.
|
·
|
The nature of and provisions of the financial obligation, and the promise we impute; and
|
·
|
The protection afforded by, and relative position of, the financial obligation in the event of a
bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws
affecting creditors’ rights.
|
*
|
Ratings from ‘AA’ to ‘CCC’ may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the rating categories.
|
·
|
Amortization schedule — the larger the final maturity relative to other maturities, the more likely
it will be treated as a note; and
|
·
|
Source of payment — the more dependent the issue is on the market for its refinancing, the more
likely it will be treated as a note.
|
·
|
Preliminary ratings may be assigned to obligations, most commonly structured and project finance
issues, pending receipt of final documentation and legal opinions.
|
·
|
Preliminary ratings may be assigned to obligations that will likely be issued upon the obligor's
emergence from bankruptcy or similar reorganization, based on late-stage reorganization plans,
documentation, and discussions with the obligor. Preliminary ratings may also be assigned to the
obligors. These ratings consider the anticipated general credit quality of the reorganized or post-
bankruptcy issuer as well as attributes of the anticipated obligation(s).
|
·
|
Preliminary ratings may be assigned to entities that are being formed or that are in the process of
being independently established when, in S&P’s opinion, documentation is close to final.
Preliminary ratings may also be assigned to the obligations of these entities.
|
·
|
Preliminary ratings may be assigned when a previously unrated entity is undergoing a well-
formulated restructuring, recapitalization, significant financing, or other transformative event,
generally at the point that investor or lender commitments are invited. The preliminary rating may
be assigned to the entity and to its proposed obligation(s). These preliminary ratings consider the
anticipated general credit quality of the obligor, as well as attributes of the anticipated
obligation(s), assuming successful completion of the transformative event. Should the
transformative event not occur, S&P would likely withdraw these preliminary ratings.
|
·
|
A preliminary recovery rating may be assigned to an obligation that has a preliminary issue credit
rating.
|
a.
|
the issuer has entered into a grace or cure period following non-payment of a material financial obligation;
|
b.
|
the issuer has entered into a temporary negotiated waiver or standstill agreement following a payment default on a material financial obligation; or
|
c.
|
the formal announcement by the issuer or their agent of a distressed debt exchange;
|
d.
|
a closed financing vehicle where payment capacity is irrevocably impaired such that it is not expected to pay interest and/or principal in full during the life of the transaction, but where no payment default is imminent
|
a.
|
an uncured payment default or distressed debt exchange on a bond, loan or other material financial obligation but
|
b.
|
has not entered into bankruptcy filings, administration, receivership, liquidation or other formal winding-up procedure, and
|
c.
|
has not otherwise ceased operating.
|
i.
|
the selective payment default on a specific class or currency of debt;
|
ii.
|
the uncured expiry of any applicable grace period, cure period or default forbearance period following a payment default on a bank loan, capital markets security or other material financial obligation;
|
iii.
|
the extension of multiple waivers or forbearance periods upon a payment default on one or more material financial obligations, either in series or in parallel; or
|
iv.
|
execution of a distressed debt exchange on one or more material financial obligations.
|
·
|
Adopt and implement written policies and procedures reasonably designed to ensure that the
adviser votes client securities in the best interest of clients; such policies and procedures must
address the manner in which the adviser will resolve material conflicts of interest that can arise
during the proxy voting process;
|
·
|
Disclose to clients how they may obtain information from the adviser about how the adviser voted
proxies with respect to their securities; and
|
·
|
Describe to clients the adviser’s proxy voting procedures and, upon request, furnish a copy of the
policies and procedures.
|
·
|
Refer Proposal to the Client
– GPIM may refer the proposal to the client and obtain instructions
from the client on how to vote the proxy relating to that proposal.
|
·
|
Obtain Client Ratification
– If GPIM is in a position to disclose the conflict to the client (i.e., such
information is not confidential), GPIM may determine how it proposes to vote the proposal on
which it has a conflict, fully disclose the nature of the conflict to the client, and obtain the client’s
consent for how GPIM will vote on the proposal (or otherwise obtain instructions from the client
on how the proxy on the proposal should be voted).
|
·
|
Use an Independent Third Party for All Proposals
– Subject to any client imposed proxy voting
policies, GPIM may vote all proposals in a proxy according to the policies of an independent third
party (or to have the third party vote such proxies).
|
·
|
Use an Independent Third Party to Vote the Specific Proposals that Involve a Conflict
– Subject to
any client imposed proxy voting policies, GPIM may use an independent third party to
recommend how the proxy for specific proposals that involve a conflict should be voted (or to have
the third party vote such proxies).
|
·
|
Abstaining
|
·
|
a copy of this policy;
|
·
|
proxy statements received regarding client securities;
|
·
|
records of votes cast on behalf of clients;
|
·
|
records of how material conflicts were resolved;
|
·
|
any documents prepared by GPIM that were material to making a decision how to vote, or that
memorialized the basis for the decision; and
|
·
|
records of client requests for proxy voting information and a copy of any written response by
GPIM to any client request (regardless of whether such client request was written or oral).
|
(a)
|
Amended and Restated Agreement and Declaration of Trust of Registrant(3)
|
||||
(b)
|
Amended and Restated By-Laws of Registrant(4)
|
||||
(c)
|
Not applicable
|
||||
(d)
|
Not applicable
|
||||
(e)
|
Dividend Reinvestment Plan of Registrant(1)
|
||||
(f)
|
Not applicable
|
||||
(g)
|
(i)
|
Investment Advisory Agreement between Registrant and Guggenheim Funds Investment Advisors, LLC (the “Investment Adviser”)(2)
|
|||
(ii)
|
Investment Sub-Advisory Agreement among Registrant, the Investment Adviser and Guggenheim Partners Investment Management, LLC (the “Sub-Adviser”)(2)
|
||||
(h)
|
(i) |
Controlled Equity Offering
SM
Sales Agreement among the Registrant, the Investment Adviser and Cantor Fitzgerald & Co.(11)
|
|||
(ii) | First Amendment to Controlled Equity Offering SM Sales Agreement among the Registrant, the Investment Adviser and Cantor Fitzgerald & Co.* | ||||
(i)
|
Not applicable
|
||||
(j)
|
(i)
|
Custody Agreement(6)
|
|||
(ii)
|
Foreign Custody Manager Agreement(6)
|
||||
(k)
|
(i)
|
Stock Transfer Agency Agreement(6)
|
|||
(ii)
|
(1) |
Fund Accounting Agreement(6)
|
|||
(2) | Amendment to Fund Accounting Agreement(9) | ||||
(iii)
|
(1) |
Administration Agreement(6)
|
|||
(2) | Amendment to Administration Agreeement(9) | ||||
(iv)
|
(1) |
Committed Facility Agreement (the “Committed Facility Agreement”) between Registrant and BNP Prime Brokerage, Inc. (“BNP Prime Brokerage”)(2)
|
|||
(2)
|
Amendment to Committed Facility Agreement(2)
|
||||
|
(3) |
Amendment No. 2 to Committed Facility Agreement(5)
|
|||
|
(4) |
Amendment No. 3 to Committed Facility Agreement(5)
|
|||
|
(5) |
Amendment No. 4 to Committed Facility Agreement(6)
|
|||
|
(6) |
Amendment No. 5 to Committed Facility Agreement(6)
|
|||
(7) |
Amendment No. 6 to Committed Facility Agreement(8)
|
||||
(8) |
Amendment No. 7 to Committed Facility Agreement(8)
|
||||
(9) |
Amendment No. 8 to Committed Facility Agreement(8)
|
||||
(10) |
Ratings Reset Amendment to Committed Facility Agreement(8)
|
||||
(v)
|
(1) |
Account Agreement between Registrant and BNP Prime Brokerage(2)
|
|||
(2) | Amendment to Account Agreement, dated March 13, 2015(7) | ||||
(vi)
|
Special Custody and Pledge Agreement among Registrant, BNP Prime Brokerage and The Bank of New York Mellon(2)
|
||||
(vii)
|
Offering Expense Limitation Agreement(6)
|
||||
(l)
|
Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom LLP*
|
||||
(m)
|
Not applicable
|
||||
(n)
|
Consent of Independent Registered Public Accounting Firm*
|
||||
(o)
|
Not applicable
|
||||
(p)
|
Initial Subscription Agreement(6)
|
||||
(q)
|
Not applicable
|
||||
(r)
|
(i) |
Code of Ethics of the Registrant and the Investment Adviser*
|
|||
|
(ii) |
Code of Ethics of the Sub-Adviser*
|
|||
(s)
|
Power of Attorney(10)
|
*
|
Filed herewith |
(1)
|
Incorporated by reference to Pre-Effective Amendment No. 2 to the Registrant’s Registration Statement on Form N-2, filed June 26, 2007 (File No. 333-138686).
|
(2)
|
Incorporated by reference to the Registrant’s Registration Statement on Form N-2, filed on July 9, 2010 (File No. 333-168044).
|
(3)
|
Incorporated by reference to Pre-Effective Amendment No. 2 to the Registrant’s Registration Statement on Form N-2, filed on March 16, 2011 (File No. 333-168044).
|
(4)
|
Incorporated by reference to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form N-2, filed on December 2, 2011 (File No. 333-168044).
|
(5)
|
Incorporated by reference to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement on Form N-2, filed on August 31, 2012 (File No. 333-168044).
|
(6)
|
Incorporated by reference to the Registrant’s Registration Statement on Form N-2, filed on August 28, 2013 (File No. 333-190872).
|
(7) | Incorporated by reference to Post-Effective Amendment No. 3 to the Registrant’s Registration Statement on Form N-2, filed on September 30, 2015 (File No. 333-190872). |
(8) |
Incorporated by reference to the Registrant’s Registration Statement on Form N-2, filed on September 2, 2016 (File No. 333-213452).
|
(9) | Incorporated by reference to Pre-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form N-2, filed on October 14, 2016 (File No. 333-213452). |
(10) | Incorporated by reference to the Registrant’s Registration Statement on Form N-2, filed on December 1, 2017 (File No. 333-221873) |
(11) | Incorporated by reference to Post-Effective Amendment No. 1 to the Registrant's Registration Statement on Form N-2, filed January 16, 2018 (File No. 333-221873). |
NYSE Listing Fees
|
$
|
75,000
|
|
SEC Registration Fees
|
$
|
31,125
|
|
Accounting fees
|
$
|
24,000
|
|
Legal fees
|
$
|
250,000
|
|
FINRA fees
|
$
|
38,000
|
|
Total
|
$
|
418,125
|
Title of Class
|
Number of Record Shareholders
as of August 31, 2018
|
Common shares of beneficial interest, par value $0.01 per share
|
7
|
1.
|
Registrant undertakes to suspend the offering of Common Shares until the prospectus is amended, if subsequent to the effective date of this registration statement, its net asset value declines more than ten percent from its net asset value, as of the effective date of the registration statement or its net asset value increases to an amount greater than its net proceeds as stated in the prospectus.
|
2.
|
Not applicable.
|
3.
|
Not applicable.
|
4.
|
Registrant undertakes:
|
(a)
|
to file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
|
(1)
|
to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
|
(2)
|
to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; and
|
(3)
|
to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.
|
(b)
|
that, for the purpose of determining any liability under the 1933 Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of those securities at that time shall be deemed to be the initial bona fide offering thereof; and
|
(c)
|
to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering;
|
(d)
|
that, for the purpose of determining liability under the 1933 Act to any purchaser, if the Registrant is subject to Rule 430C: Each prospectus filed pursuant to Rule 497(b), (c), (d) or (e) under the 1933 Act as part of a registration statement relating to an offering, other than prospectues filed in reliance on Rule 430A under the 1933 Act, 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, supercede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
|
(e)
|
that for the purpose of determining liability of the Registrant under the 1933 Act to any purchaser in the initial distribution of securities: The undersigned Registrant undertakes that in a primary offering of securities of the undersigned Registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned Registrant will be a seller to the purchaser and will be considered to offer or sell such securities to the purchaser:
|
(1)
|
any preliminary prospectus or prospectus of the undersigned Registrant relating to the offering required to be filed pursuant to Rule 497 under the 1933 Act;
|
(2)
|
the portion of any advertisement pursuant to Rule 482 under the 1933 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
|
(3)
|
any other communication that is an offer in the offering made by the undersigned Registrant to the purchaser.
|
5.
|
Registrant undertakes that:
|
(a)
|
for the purpose of determining any liability under the 1933 Act, the information omitted from the form of 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 497(h) under the 1933 Act shall be deemed to be part of this registration statement as of the time it was declared effective; and
|
(b)
|
for the purpose of determining any liability under the 1933 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.
|
6.
|
Registrant undertakes to send by first class mail or other means designed to ensure equally prompt delivery, within two business days of receipt of a written or oral request, any Statement of Additional Information.
|
Principal Executive Officer:
/s/ Brian E. Binder
Brian E. Binder
|
President and Chief Executive Officer
|
|
Principal Financial Officer:
/s/ John L. Sullivan
John L. Sullivan
|
Chief Financial Officer, Chief Accounting Officer and Treasurer
|
|
Trustees:
*_____________________________
Randall C. Barnes
*_____________________________
Donald A. Chubb, Jr.
*_____________________________
Jerry B. Farley
*_____________________________
Roman Friedrich III
*_____________________________
Amy J. Lee
*_____________________________
Ronald A. Nyberg
*_____________________________
Maynard F. Oliverius
*_____________________________
Ronald E. Toupin, Jr.
|
Trustee
Trustee
Trustee
Trustee
Trustee
Trustee
Trustee
Trustee
|
By:
|
/s/ Mark E. Mathiasen
|
Mark E. Mathiasen
|
|
Attorney-In-Fact
|
|
September 10, 2018
|
(h)(ii) | First Amendment to Controlled Equity Offering SM Sale Agreement | |
(l) |
Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom LLP
|
|
(n)
|
Consent of
Independent Registered Public Accounting Firm
|
|
(r)(i) | Code of Ethics of the Registrant and the Investment Adviser | |
(r)(ii) | Code of Ethics of the Sub-Adviser |
Very truly yours, | |
GUGGENHEIM STRATEGIC OPPORTUNITIES FUND
|
|
By:
/s/ Brian E. Binder
Name: Brian E. Binder
Title: Chief Executive Officer
|
|
GUGGENHEIM FUNDS INVESTMENT ADVISORS, LLC
|
|
By:
/s/ Brian E. Binder
Name: Brian E. Binder
Title: Chief Executive Officer
|
|
ACCEPTED, as of the date first-above written:
|
|
CANTOR FITZGERALD & CO.
|
|
By:
/s/ Mark Kaplan
Name: Mark Kaplan
Title: Chief Operating Officer
|
Guggenheim Strategic Opportunities Fund
227 West Monroe Street
Chicago, Illinois 60606
|
RE: |
Guggenheim Strategic Opportunities Fund
Registration Statement on Form N-2
|
Policy Number: IC24.0
|
Procedure Creation Date:
|
Adopted April 23, 2014 (by the Security Investors, LLC and Guggenheim Funds Investment Advisers, LLC)
|
Procedure Reviewed As Of:
|
April 23, 2014, March 20, 2015, May 9, 2016, April 2017, February 2018, August 2018
|
Procedure Revised As Of:
|
October 1, 2014
March 20, 2015
May 9, 2016
November 2016
April 2017
February 2018
August 2018
|
Regulatory Rules:
|
Rule 17j-1 under the Investment Company Act of 1940 and Rule 204A-1 under the Investment Advisers Act of 1940
|
Business Unit Responsible:
|
Compliance Department
|
Funds
|
Advisers
|
Service Providers
|
·
Rydex Dynamic Funds
|
·
Security Investors, LLC
|
·
Guggenheim Funds Distributors, LLC*
|
·
Rydex Series Funds
|
·
Guggenheim Funds Investment Advisers, LLC
|
|
·
Rydex Variable Trust
|
·
Guggenheim Funds Distributors, LLC*
|
|
·
Guggenheim Funds Trust
|
||
·
Guggenheim Variable Funds Trust
|
||
·
Guggenheim Strategy Funds Trust
|
||
·
Transparent Value Trust
|
||
·
Fiduciary/Claymore MLP Opportunity Fund
|
||
·
Guggenheim Taxable Municipal Managed Duration Trust
|
||
·
Guggenheim Credit Allocation Fund
|
||
·
Guggenheim Enhanced Equity Income Fund
|
||
·
Guggenheim Strategic Opportunities Fund
|
·
Guggenheim Energy & Income Fund
|
||
*This code also covers those unit investment trusts for which Guggenheim Funds Distributors, LLC serves as depositor and references to “clients” herein include the unit investment trusts.
|
§
|
Know about present or future portfolio transactions or
|
§
|
Have the power to influence portfolio transactions; and
|
§
|
Engage in personal transactions in securities.
|
§
|
All Company officers and directors;
|
§
|
Company employees who have access to nonpublic information regarding any client’s purchase or sale of
securities
or th
e portfolio holdings of any
reportable fund
,
e.g.,
portfolio management and fund accounting personnel, or who are involved in making securities recommendations to clients, or have access to such recommendations that are nonpublic;
|
§
|
Employees of any sub-adviser to the Funds who, in connection with their regular functions or duties, make, participate in, or obtain information regarding, the purchase or sale of a
security
by a Fund, or whose functions relate to the making of any recommendations with respect to such purchases or sales (“
Sub-Advisor Access Persons
”);
|
§
|
All Trustees of the Funds, both
Interested
and
Independent
; and
|
§
|
Natural persons in a
control
relationship with a Company who obtain information concerning recommendations made to a Fund or client about the
purchase or sale
of a
security
and are not specifically covered by any other section of the Code.
|
§
|
Independent Trustees of the Funds - Part A
|
§
|
Advisers Access Persons
(Other than Independent Trustees of the Funds) - Part B
|
§
|
Natural
Control
Persons - Part C
|
2.2.
|
Other Provisions
|
1.
|
Shareholders’ and clients’ interests are paramount. You must place shareholder and client interests before your own.
|
2.
|
You must accomplish all personal
securities
transactions in a manner that avoids an actual conflict or even the appearance of a conflict of your personal interests with those of a Company’s clients, including a Fund’s shareholders.
|
3.
|
You must avoid actions or activities that allow (or appear to allow) you or your family to profit or benefit from your position with GI, or that bring into question your independence or judgment.
|
4.
|
You must comply with all applicable federal securities laws, including the prohibitions against the misuse of material nonpublic information, in conducting yourself and the operations of GI.
|
a.
|
employ any device, scheme or artifice to defraud the Fund or client account;
|
b.
|
make to a Fund or client any untrue statement of a material fact or omit to state to a Fund or client a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading;
|
c.
|
engage in any act, practice or course of business which would operate as a fraud or deceit upon a Fund or client; or
|
d.
|
engage in any manipulative practice with respect to a Fund or client account.
|
4.2.
|
Limits on Accepting or Receiving Gifts
|
§
|
establish, maintain and enforce a code of ethics that meets the minimum requirements set forth in Rule 204A-1 under the Advisers Act and Rule 17j-1 under the 1940 Act, and submit such code of ethics to the Fund’s Board of Trustees;
|
§
|
on a quarterly basis provide the appropriate Fund(s) or the Advisor of such Fund a written attestation that the sub-adviser is in compliance with its code of ethics adopted pursuant to Rule 17j-1 under the 1940 Act;
|
§
|
promptly report, in writing, to the appropriate Fund(s) any material amendments to such code(s) of ethics;
|
§
|
promptly furnish to such Fund or the Advisor to such Fund, upon request, copies of any reports made pursuant to such code of ethics by any person who is a
Sub-Advisor Access Person
;
|
§
|
immediately furnish to such Fund or the Advisor to such Fund, without request, all material information regarding any violation of such code of ethics by any person who is a Sub-Advisor Access Person; and
|
§
|
at least once a year, provide such Fund or the Advisor of such Fund a
written
report that describes any issue(s) that arose during the previous year under its code of ethics, including any material code violations and any resulting sanction(s), and a certification that it has adopted measures reasonably necessary to prevent its personnel from violating its code of ethics.
|
§
|
Imply a duty of inquiry;
|
§
|
Presume you should have deduced or extrapolated from discussions or memoranda dealing with the Fund’s
|
§
|
Impute knowledge from your prior knowledge of the Fund’s portfolio holdings, market considerations, or investment policies, objectives and restrictions.
|
§
|
A copy of this Code and any other code which is, or at any time within the past five years has been, in effect will be preserved in an easily accessible place;
|
§
|
A list of all persons who are, or within the past five years have been, required to submit reports under this Code will be maintained in an easily accessible place;
|
§
|
A copy of each report made by a person under this Code will be preserved for a period of not less than five years from the end of the fiscal year in which it is made, the first two years in an easily accessible place;
|
§
|
A copy of each duplicate brokerage confirmation and each periodic statement provided under this Code will be preserved for a period of not less than five years from the end of the fiscal year in which it is made, the first two years in an easily accessible place.
|
§
|
A record of any Code violation and of any sanctions taken will be preserved in an easily accessible place for a period of not less than five years following the end of the fiscal year in which the violation occurred;
|
§
|
A copy of each annual report to the Board of Trustees will be maintained for at least five years from the end of the fiscal year in which it is made, the first two years in an easily accessible place;
|
§
|
A copy of all Acknowledgements of Receipt and Annual Certifications as required by this Code for each person who is currently, or within the past five years was required to provide such Acknowledgement of Receipt or Annual Certification; and
|
§
|
The Companies will maintain a record of any decision, and the reasons supporting the decision, to approve the acquisition of
securities
in a
private placement
, for at least five years after the end of the fiscal year in which the approval is granted.
|
Part A
|
Procedures for Independent Trustees
|
·
|
imply a duty of inquiry;
|
·
|
presume you should have deduced or extrapolated from discussions or memoranda dealing with the Fund’s investment strategies; or
|
·
|
impute knowledge from your prior knowledge of the Fund’s portfolio holdings, market considerations, or investment policies, objectives and restrictions.
|
Part B
|
Advisers Access Persons (Other Than Independent Trustees of the Funds)
|
Security Type:
|
Pre-Clearance Required:
|
Include on Quarterly Transaction & Annual Holdings Reports:
|
-Equities (stocks)
|
Yes
|
Yes
|
-Corporate, US Gov Agency, and Municipal Bonds
|
||
-Debt instruments issued directly by US Gov. (doesn’t include US Gov Agencies)
|
No
|
No
|
-All Options & Futures
|
Yes
|
Yes
|
-Commodity Futures
|
Yes
|
Yes
|
-ETFs
|
Yes
|
Yes
|
-Affiliated & Unaffiliated Closed-End Funds
|
Yes
|
Yes
|
-Bitcoin-Related Entities (e.g., entities deriving a substantial amount of revenue therefrom) or funds investing primarily in cryptocurrency (e.g., private funds or ETFs)
|
Yes
|
Yes
|
- Open End Mutual Funds (Affiliated – Rydex, Transparent Value (TV), GFunds except money market fund)
|
No
|
Yes
|
- Open End Mutual Funds (not advised by the Advisers covered by the code)
|
No
|
No
|
-Money Market Funds – Affiliated & Unaffiliated
|
No
|
No
|
-Bankers’ Acceptances & Bank CDs
|
No
|
No
|
-Commercial Paper
|
||
-Repurchase Agreements
|
||
-Affiliated & Unaffiliated Unit Investment Trusts invested exclusively in mutual funds
|
No
|
No
|
-Cryptocurrencies (direct investment)
|
No
|
No
|
Special Transaction Type**:
|
Pre-Clearance Required:
|
Include on Quarterly Transaction & Annual Holdings Reports:
|
IPOs (issued directly from the underwriting syndicate)
|
Prohibited
|
Prohibited
|
Initial Coin Offerings (“ICOs”)
|
Prohibited
|
Prohibited
|
Limited Offering
|
Yes
|
Yes
|
Participation in Investment Clubs
|
Prohibited
|
Prohibited
|
Private Placements
|
Yes
|
Yes
|
Automatic Dividend Reinvestments
|
No***
|
No***
|
Automatic Investment Plan
|
No***
|
No***
|
Exercising a put/call option that you purchased
|
Yes
|
Yes
|
Purchases/sales resulting from a put/call option written by you being exercised by other party
|
No
|
Yes
|
Tender offer transactions**
|
No
|
Yes
|
Acquisition of securities by gift or inheritance
|
No
|
Yes
|
Sale of securities acquired by gift or inheritance****
|
Yes
|
Yes
|
Trades in accounts managed on a discretionary basis by broker/RIA (documentation required)
|
No
|
Yes
|
Guggenheim Capital LLC membership interests
|
No
|
No
|
Guggenheim 401K****
|
Yes
|
Yes
|
Purchases arising from the exercise of rights issued by an issuer
pro rata
to all holders of a class of its
securities
, as long as you acquired these rights from the issuer, and sales of such rights so acquired.
|
No
|
Yes
|
Transactions which are non-volitional on your part, including sales from a margin account due to a
bona fide
margin call.
|
No
|
Yes
|
Transactions effected for any account over which you have no direct or indirect influence or
control
.
|
No
|
No
|
·
|
Futures referencing broad-based securities indices: for example, S&P 500, NASDAQ 100, and Russell 2000;
|
·
|
Futures referencing major currencies: for example, Euro, Yen, Australian dollar, and British pound;
|
·
|
Futures referencing the following physical commodities: Silver, Gold, Oil, and Natural Gas; and
|
·
|
Futures referencing US Government debt obligations: for example, 30 year Treasury bond, 10/5 year Treasury notes and long-term Treasury bonds
|
·
|
You may not acquire
beneficial ownership
of any
cryptocurrencies
offered in connection with an
ICO;
|
·
|
You may not purchase or sell
virtual coin futures or options; and
|
·
|
Investments in bitcoin-related entities (e.g., entities deriving a substantial amount of revenue therefrom) or funds investing primarily in cryptocurrency (e.g., private funds or ETFs) are permitted but must be pre-cleared prior to investment and reported in the Initial Holdings Report, Quarterly Personal Securities Transactions Report, and Annual Holdings Report.
|
Part C
|
Natural Control Persons
|
·
|
Futures referencing broad-based securities indices: for example, S&P 500, NASDAQ 100, and Russell 2000;
|
·
|
Futures referencing major currencies: for example, Euro, Yen, Australian dollar, and British pound;
|
·
|
Futures referencing the following physical commodities: Silver, Gold, Oil, and Natural Gas; and
|
·
|
Futures referencing US Government debt obligations: for example, 30-year Treasury bond, 10/5 year Treasury notes and long-term Treasury bonds
|
·
|
You may not acquire
beneficial ownership
of any
cryptocurrencies
offered in connection with an
ICO;
|
·
|
You may not purchase or sell virtual coin futures or options; and
|
·
|
Investments in bitcoin-related entities (e.g., entities deriving a substantial amount of revenue therefrom) or funds investing primarily in cryptocurrency (e.g., private funds or ETFs) are permitted but must be pre-cleared prior to investment and reported in the Initial Holdings Report, Quarterly Personal Securities Transactions Report, and Annual Holdings Report.
|
Appendix A
|
Definitions
|
Entity
|
Rydex Dynamic Funds, Rydex Series Funds, Rydex Variable Trust, Guggenheim Funds Trust, Guggenheim Variable Funds Trust, Guggenheim Strategy Funds Trust, and Transparent Value Trust
|
Fiduciary/Claymore MLP Opportunity Fund, Guggenheim Taxable Municipal Bonds Managed Duration Trust, Guggenheim Credit Allocation Fund, Guggenheim Enhanced Equity Income Fund, Guggenheim Strategic Opportunities Fund, and Guggenheim Energy & Income Fund
|
Guggenheim Funds Distributors, LLC
|
Security Investors, LLC and Guggenheim Funds Investment Advisers, LLC
|
Compliance Officer
|
Elisabeth Miller
|
Joanna Catalucci
|
Dennis Metzger
|
Margaux Misantone
|
·
|
Any investment account with a broker-dealer or bank over which the Access Person has investment decision-making authority (including accounts that the Access Person is named on, such as being a guardian, executor or trustee, as well as accounts that Access Person is not named on such as an account owned by another person but for which the Access Person has been granted trading authority).
|
·
|
Any investment account with a broker-dealer or bank established by partnership, corporation, or other entity in which the Access Person has a direct or indirect interest through any formal or informal understanding or agreement.
|
·
|
Any college savings account in which the Access Person has investment discretion and which holds
Securities
issued under Section 529 of the Internal Revenue Code and in which the Access Person has a direct or indirect interest.
|
·
|
Any other account that the CCO deems appropriate in light of the Access Person’s interest or involvement.
|
·
|
Any account in which the Access Person’s Immediate Family is the owner. Access Persons are presumed to have investment decision-making authority for, and therefore should report, any investment account of a member of their Immediate Family if they live in the same household.
|
·
|
Any 401(k) accounts from a previous employer which can or offer the ability to hold
Securities
.
|
This is to certify that I have reviewed the Code of Ethics ("Code") and that I understand its terms and requirements. I hereby certify that:
|
|
·
I have complied with the Code during the course of my association with the entities covered by the Code;
|
|
·
I will continue to comply with the Code in the future;
|
|
·
I will promptly report to a Compliance Officer any violation or possible violation of the Code of which I become aware; and
|
|
·
I understand that a violation of the Code may be grounds for disciplinary action or termination of my employment and may also be a violation of federal and/or state securities laws.
|
|
Name:
________________________
|
|
Signature:
________________________
|
Date: ________________
|
1. | Objectives of the Code of Ethics | 4 |
2. | Who is Subject to the Code? | 4 |
3. | Who Administers the Code? | 5 |
3.1. | Chief Compliance Officer | 5 |
3.2. | Code of Ethics Compliance Platform | 6 |
4. | Fiduciary Duty to Clients | 7 |
4.1. | Managing Conflicts | 7 |
4.2. | Confidentiality and Safeguarding Information | 7 |
4.3. | Prohibition on Front Running | 7 |
4.4. | Compliance with the Code of Ethics | 7 |
5. | Reporting of Personal Trading | 8 |
5.1. | Which Investment Accounts Do Access Persons Need to Report? | 8 |
5.2. | Required Initial Holdings Reports and Certifications | 9 |
5.3. | Required Quarterly Transaction Reports | 10 |
5.4. | Annual Holdings Reports and Certifications | 12 |
5.5. | New Investment Accounts | 12 |
6. | Pre-clearance for Personal Trading | 12 |
6.1. | Trades Requiring Pre-Clearance | 13 |
6.2. | Trades Not Requiring Pre-Clearance | 13 |
6.3. | Prohibited Transactions | 14 |
7. | Trading Restrictions | 15 |
7.1. | For All Trading | 15 |
7.2. | Excessive Trading in Reportable Accounts | 15 |
7.3. | Holding Periods | 15 |
8. | Annual Review | 16 |
9. | Retention of Records | 16 |
10. | Sanctions | 16 |
11. | Interpretations and Exceptions | 17 |
12. |
Supplement 1 – Transactions in Closed End Funds (“CEFs”) Advised or Sub-Advised by the Advisor
|
18 |
13. |
Supplement 2 – Transactions in Exchange Traded Funds (“ETFs”) Advised or Sub-Advised by the Advisor and Securities Traded by Such Funds
|
20 |
14. |
Supplement 3 – Transactions in Unit Investment Trusts (“UITs”) for Which the Advisor Assists with the Selection of Securities Traded by Such Trusts
|
21 |
1.
|
Objectives of the Code of Ethics
|
2.
|
Who is Subject to the Code?
|
a.
|
Employee, Director, officer, manager, principal and partner of the Advisor (or other persons occupying a similar status or performing similar functions), or other person who provides advice on behalf of the Advisor or is subject to the Advisor’s supervision and control;
|
b.
|
Any person who:
|
i.
|
Has access to nonpublic information regarding any of the Advisor’s client’s purchase or sale of securities, or nonpublic information regarding the portfolio holdings of any client account the Advisor or their affiliates manage, or any fund which is advised or sub-advised by the Advisor (or certain affiliates, where applicable);
|
ii.
|
Makes recommendations or investment decisions on behalf of the Advisor;
|
iii.
|
Has the power to exercise a controlling influence over the management and policies of the Advisor, or over investment decisions, who obtains information concerning recommendations made to a client account with regard to the purchase or sale of a security;
|
iv.
|
The CCO shall determine on a case-by-case basis whether a temporary employee (e.g., consultant or intern) should be considered an Access Person. Such determination shall be made based upon an application of the criteria provided above, whether an appropriate confidentiality agreement is in place, and such other information as may be necessary to ensure that proprietary information is protected. As such, temporary employees may only be subject to certain sections of the Code, such as certifying to it, or may be exempt from certain reporting requirements such as not having to hold their reportable accounts at the permitted broker-dealers; or
|
v.
|
Any person deemed to be an Access Person by the CCO.
|
3.
|
Who Administers the Code?
|
3.1.
|
Chief Compliance Officer
|
3.1.1.
|
Responsibilities
|
3.1.2.
|
Reporting of Violations
|
3.1.3.
|
Review of Violations
|
▪
|
No Employee, who in good faith reports a violation of this Code, shall suffer harassment, retaliation or with respect to a report concerning a violation by another Employee, adverse employment consequences.
|
▪
|
An Employee who retaliates against someone who has reported a violation in good faith may be subject to disciplinary action. Alternatively, the Advisor will treat any malicious or knowingly false report of a violation to be a serious offense and may discipline the Employee making such a report.
|
3.1.4.
|
Review of CCO Compliance with Code
|
3.1.5.
|
Employee Cooperation
|
3.2.
|
Code of Ethics Compliance Platform
|
3.2.1.
|
Use of Compliance Platform
|
▪
|
Code reporting requirements are to be completed through the Compliance Platform (including certifications, personal securities transactions covered by the Code, disciplinary disclosures, outside business affiliations, private transactions, board memberships, and gifts and entertainment) or through an alternate manner approved by the GPIM Compliance Department.
|
▪
|
At the time of designation as an Access Person, Central Compliance will provide all Access Persons with login information and instructions for using the Compliance Platform.
|
3.2.2.
|
Electronic Reporting
|
3.2.3.
|
Exceptions to Electronic Reporting
|
4.
|
Fiduciary Duty to Clients
|
4.1.
|
Managing Conflicts
|
4.2.
|
Confidentiality and Safeguarding Information
|
4.3.
|
Prohibition on Front Running
|
4.4.
|
Compliance with the Code of Ethics
|
5.
|
Reporting of Personal Trading
|
5.1.
|
Which Investment Accounts Do Access Persons Need to Report?
|
5.1.1.
|
Report any of the following Investment Accounts:
|
a.
|
The Access Person has Beneficial Ownership
3
over an Investment Account.
|
b.
|
Any Investment Account with a broker-dealer or bank over which the Access Person has investment decision-making authority (including accounts that the Access Person is named on, such as being a guardian, executor or trustee, as well as accounts that Access Person is not named on such as an account owned by another person but for which the Access Person has been granted trading authority).
|
c.
|
Any Investment Account with a broker-dealer or bank established by partnership, corporation, or other entity in which the Access Person has a direct or indirect interest through any formal or informal understanding or agreement.
|
d.
|
Any college savings account in which the Access Person has investment discretion and which holds securities issued under Section 529 of the Internal Revenue Code and in which the Access Person has a direct or indirect interest.
|
e.
|
Any other account that the CCO deems appropriate in light of the Access Person’s interest or involvement.
|
f.
|
Any account in which the Access Person’s Immediate Family is the owner. Access Persons are presumed to have investment decision-making authority for, and therefore should report, any Investment Account of a member of their Immediate Family if they live in the same household.
|
g.
|
Any 401(k) accounts from a previous employer which can, or offer the ability to, hold Covered Securities.
|
5.1.2.
|
Independently managed third-party account reporting:
|
a.
|
Access Persons must disclose managed/third-party discretionary accounts, i.e., where the person has “no direct or indirect influence or control”.
|
b.
|
Access Persons are required to obtain a signed copy of the Managed Account Letter (provided by Central Compliance) from their third-party investment advisor confirming that the advisor has authority to effect transactions on behalf of the account without obtaining prior consent of the Access Person and that the Access Person does not direct trades in the account.
|
c.
|
Access Persons should immediately notify Central Compliance in writing if there are any changes in control over the account or if there are any changes to the relationship between the trustee or third-party investment advisor and the Access Person (i.e., independent professional or friend or relative, unaffiliated versus affiliated firm). Please note that an immediate family member with discretion over a covered account is not considered a third-party advisor.
|
d.
|
Trades in managed/third-party discretionary accounts are not subject to the pre-clearance requirements and trading restrictions of the Code.
|
e.
|
Account holdings/transactions in such accounts do not need to be reported if the Access Person has no influence or control over the account.
|
5.2.
|
Required Initial Holdings Reports and Certifications
|
a.
|
Access Persons must report all of their Investment Accounts.
(See Section
5.1
.1 for more information.)
|
b.
|
The report must include copies of statements which include the name of the broker/dealer or bank, title on the account, security names, and the number of shares and principal amount of all holdings.
|
i.
|
If the Access Person’s brokerage firm provides automatic feeds to the Compliance Platform, the Advisor will obtain account information electronically, after the Access Person has completed the appropriate authorizations as required by the brokerage firm.
|
c.
|
All required account information must be reported within 10 calendar days from the date of hire, or the date on which the Access Person becomes an Employee of the Advisor and so designated as an Access Person, and the information must be current as of a date no more than 45 calendar days prior to the date the person becomes an Access Person.
|
d.
|
Access Persons must complete a form certifying receipt and acknowledgement of this Code.
|
e.
|
All Access Persons and any new accounts of current Access Persons must maintain their personal brokerage accounts with brokerage firms designated and approved by Central Compliance.
4
The CCO or his designee may provide exceptions to this policy on a limited basis, however the Access Person will be responsible for ensuring that the account statements and trade confirmations are received by Central Compliance in a timely manner.
|
f.
|
Existing accounts by new Access Persons which are not held at the permitted broker-dealers must be transferred within 60 calendar days from the date the Access Person is so designated; the failure to transfer within this time will be considered a violation of this Code. Any request to extend the 60 days transfer deadline must be accompanied by a written explanation by the current broker-dealer as to the reason for delay. Central Compliance may grant specific exceptions in writing.
|
5.3.
|
Required Quarterly Transaction Reports
|
5.3.1.
|
Information required on a quarterly basis:
|
▪
|
Stock
|
▪
|
Note
|
▪
|
Treasury stock
|
▪
|
Security future
|
▪
|
Bond
|
▪
|
Debenture
|
▪
|
Evidence of indebtedness
|
▪
|
Investment contract
|
▪
|
Voting trust certificate
|
▪
|
Certificate of deposit for a security
|
▪
|
Option on any security or on any group or index of securities (e.g., put, call or straddle)
|
▪
|
Exchange traded fund (ETF)
|
▪
|
Limited partnership
|
▪
|
Certificate of interest or participation in any profit-sharing agreement
|
▪
|
Collateral-RIC certificate
|
▪
|
Fractional undivided interest in oil, gas or other mineral right
|
▪
|
Pre-organizational certificate or subscription
|
▪
|
Transferable shares
|
▪
|
Foreign unit trust (i.e., UCIT) and foreign mutual fund
|
▪
|
Private Investments (as defined in Section 6.1 below). Please note that a
Private Investment and Loan Pre-Clearance Form
(available through OneGuggenheim) must be completed prior to any new investment.
|
▪
|
Unit investment trusts (UIT)
|
▪
|
Closed-end mutual funds
|
▪
|
Any 529 college savings plans
|
▪
|
Open-end mutual funds managed, advised or sub-advised by the Advisor or an affiliate, as applicable
|
▪
|
Any other instrument that is considered a “security” under the applicable securities laws
|
5.4.
|
Annual Holdings Reports and Certifications
|
5.4.1.
|
Information required on an annual basis:
|
▪
|
Access Persons must provide a list of all Covered Securities in which they or their Immediate Family have a direct or indirect interest, including those not held in an account at a broker-dealer or bank. The list must include the title, number of shares and principal amount of each Covered Security. Access Persons must report the account number, account name and financial institution for each Investment Account with a broker-dealer or bank for which they are required to report.
|
▪
|
Access Persons must report all accounts and holdings
within 30 calendar days after year end
via the Compliance Platform, or as otherwise permitted by Central Compliance, and the information must be current as of a date no more than 45 calendar days prior to the date the report is submitted.
|
▪
|
Access Persons must also certify annually that they have complied with the requirements and have disclosed all holdings required to be disclosed pursuant to the requirements of this Code. In addition, Access Persons will respond to personal disciplinary history questions.
|
5.5.
|
New Investment Accounts
|
6.
|
Pre-clearance for Personal Trading
|
6.1.
|
Trades Requiring Pre-Clearance
|
1. |
Covered Securities
: Unless excluded below, Access Persons must pre-clear trades in Covered Securities through the Compliance Platform, which checks the trade against the Advisor’s Restricted List and any other applicable rules and guidelines.
(See Section
5.3.1
above for the full list of Covered Securities.)
|
2. |
Initial Public Offerings
: Trades in IPO’s must be pre-cleared. Access Persons must request pre-approval by submitting the
Private Investment and Loan Pre-Clearance Form
to Central Compliance. The form is available on OneGuggenheim. Note: Any Employee who is also registered with a broker-dealer is prohibited from participating in an IPO.
|
3. |
Private Investments
: Private Investments include, but are not limited to investments in: hedge funds, private equity funds, venture capital funds, other
private fund vehicles and privately-held companies. New Access Persons must disclose any existing Private Investments within 10 days of becoming an Access Person. The Central Compliance Employee Activities Group sends an email to all new Access Persons with the
Private Investments Disclosure Form,
which they must complete. Existing
Access Persons are required to seek prior written approval to invest in any new Private Investments and must complete the
Private Investment and Loan Pre-Clearance Form
(available through OneGuggenheim), providing information about the investment that will assist Central Compliance with the review of the request. The Guggenheim Capital Conflicts Review Committee (“
CRC
”) may also review private investment requests for approval, as necessary. Approval by the CRC is required in the event that it is determined that a proposed or existing private investment involves one or more potential significant conflicts of interest.
|
6.2.
|
Trades Not Requiring Pre-Clearance
|
1. |
Government Securities/Certain Other Debt Instruments
: Trades in any direct obligations of the U.S. Government, bankers’ acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments including repurchase agreements are not required to be pre-cleared.
|
2. |
Money Market Funds
: Trades in any investment company or fund that is a money market fund are not required to be pre-cleared.
|
3. |
Open-End Registered Funds
: Trades in open-end mutual funds that are not advised or sub-advised by the Advisor or affiliates are not required to be pre-cleared.
|
4. |
No Knowledge
: Securities transactions where no knowledge of the transaction exists before it is completed are not required to be pre-cleared. For example, a transaction
|
effected by a trustee of a blind trust or discretionary trades involving an investment partnership, when the Access Person is neither consulted nor advised of the trade before it is executed, are not required to be pre-cleared. If an option is exercised, the underlying transaction need not be pre-cleared though the option itself must be pre-cleared.
|
5. |
Certain Corporate Actions
: Any acquisition of securities through stock dividends, dividend reinvestments, stock splits, reverse stock splits, mergers, consolidations, spin-offs, exercise of rights or other similar corporate reorganizations or distributions generally applicable to all holders of the same class of securities is not required to be pre-cleared.
|
6. |
529 College Savings Plans Not Advised or Sub-Advised by the Advisor
: Any transaction in units of a college savings plan established under Section 529 of the Internal Revenue Code, unless the underlying investment includes Open-End Registered Funds advised or sub-advised by the Advisor, are not required to be pre-cleared.
|
7. |
Miscellaneous
: Any transaction in any other securities as Central Compliance may designate.
|
6.3.
|
Prohibited Transactions
|
1. |
Investment Clubs:
Participation in Investment Clubs is prohibited. Generally, an Investment Club is a group of people who pool their money to make investments. Usually, Investment Clubs are organized as partnerships and after members study different investments, the group decides to buy or sell based on a majority vote of the members. If you have any questions regarding whether an arrangement is an Investment Club, please contact Central Compliance.
|
2. |
Commodity Interests:
Trading in Commodity Interests and related Futures are generally prohibited, except for the following types of futures: (i) Futures referencing broad-based securities indices (for example; S&P 500; NASDAQ 1000; and Russell 2000); (ii) Futures referencing major currencies (for example: Euro; Yen; Australian Dollar; and British Pound); (iii) Futures referencing the following physical commodities: Gold; Silver; Oil; and Natural Gas; and (iv) Futures referencing US Government debt obligations (for example: 30 year Treasury bond; 10/5 year Treasury Notes; and long-term Treasury Bonds).
|
7.
|
Trading Restrictions
|
7.1.
|
For All Trading
|
7.1.1.
|
Market Manipulation
|
7.1.2.
|
Trading on Inside Information
|
7.1.3.
|
Front-running
|
7.2.
|
Excessive Trading in Reportable Accounts
|
7.3.
|
Holding Periods
|
7.3.1.
|
Registered Funds
|
▪
|
After purchase in an account of a closed-end mutual fund advised or sub-advised by the Advisor, Access Persons must hold that security in that account for at least 60 calendar days from the date of purchase.
|
▪
|
Note that this limitation also applies to any purchase or sale in an Access Person’s individual retirement account, 401(k), deferred compensation plan, or any similar retirement plan or Investment Account for their or their Immediate Family.
|
8.
|
Annual Review
|
9.
|
Retention of Records
|
10.
|
Sanctions
|
11.
|
Interpretations and Exceptions
|
12.
|
Supplement 1 – Transactions in Closed End Funds (“
CEFs
”) Advised or Sub-Advised by the Advisor
|
12.1.
|
Pre-Approval
|
12.2.
|
Blackouts – Dividend
|
12.3.
|
Blackouts – Fund Securities
|
12.4.
|
Holding Period
|
12.5.
|
Requests for Exceptions from Blackouts
|
12.6.
|
Review of Trading
|
12.7.
|
Reporting of Transactions
|
13.
|
Supplement 2 – Transactions in Exchange Traded Funds (“
ETFs
”) Advised or Sub-Advised by the Advisor and Securities Traded by Such Funds
|
13.1.
|
Pre-Approval
|
13.2.
|
Blackouts – Fund Securities
|
13.3.
|
Investment of Dividends
|
13.4.
|
Requests for Exceptions from Blackouts
|
13.5.
|
Review of Trading
|
14.
|
Supplement 3 – Transactions in Unit Investment Trusts (“
UITs
”) for Which the Advisor Assists with the Selection of Securities Traded by Such Trusts
|
14.1.
|
Blackouts
|
14.2.
|
Requests for Exceptions from Blackouts
|
14.3.
|
Review of Trading
|