Edgar Filing: First Trust Intermediate Duration Preferred & Income Trust

As filed with the Securities and Exchange Commission on February 4, 2013
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1933 Act File No. 333-______
1940 Act File No. 811-22795

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-2

(Check appropriate box or boxes)

[X] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No. _
[ ] Post-Effective Amendment No. _

and

[X] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[ ] Amendment No. ___

First Trust Intermediate Duration Preferred & Income Fund
Exact Name of Registrant as Specified in Declaration of Trust

120 East Liberty Drive, Suite 400, Wheaton, Illinois 60187
Address of Principal Executive Offices (Number, Street, City, State, Zip Code)

(630) 765-8000
Registrant's Telephone Number, including Area Code

W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
Wheaton, Illinois 60187

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

Copies of Communications to:

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

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

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

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

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

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CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933

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------------------------ ---------------------- --------------------- ---------------------- ---------------------
Proposed Maximum Proposed Maximum
Title of Securities Amount Being Offering Price Aggregate Offering Amount of Registration
Being Registered Registered Per Unit Price(1) Fee
------------------------ ---------------------- --------------------- ---------------------- ---------------------

Common Shares,
$0.01 par value 1,000 $25.00 $25,000 $3.41
------------------------ ---------------------- --------------------- ---------------------- ---------------------

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

The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of the Securities
Act of 1933 or until the Registration Statement shall become effective on such
dates as the Commission, acting pursuant to said Section 8(a), may determine.

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

SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED FEBRUARY 4, 2013

PROSPECTUS
----------

FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND

COMMON SHARES
$25.00 PER SHARE

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

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

Investment Objectives. The Fund's primary investment objective is to seek
a high level of current income. The Fund has a secondary objective of capital
appreciation. There can be no assurance that the Fund's investment objectives
will be achieved.

Investment Strategy. The Fund will seek to achieve its investment
objectives by investing in preferred and other income-producing securities. The
Fund seeks to maintain, under normal market conditions, a blended (or weighted
average) portfolio duration of between three and eight years. See "Prospectus
Summary--Investment Objectives and Strategy--Duration."

Portfolio Holdings. Under normal market conditions, the Fund will invest
at least 80% of its Managed Assets (as defined on page ) in a portfolio of
preferred and other income-producing securities issued by U.S. and non-U.S.
companies, including traditional preferred securities, hybrid preferred
securities that have investment and economic characteristics of both preferred
securities and debt securities, floating rate and fixed-to-floating-rate
preferred securities, debt securities, convertible securities, contingent
convertible securities and securities of other open-end, closed-end or
exchange-traded funds that invest primarily in securities of the types in which
the Fund may invest directly. Under normal market conditions, the Fund will seek
to invest in a portfolio of securities that has an average weighted credit
quality of investment grade. Below investment grade securities are commonly
referred to as "junk" or "high yield" securities and are considered speculative
with respect to the issuer's capacity to pay interest and repay principal. See
"The Fund's Investments--Investment Objectives and Policies" and "Risks--Credit
and Below Investment Grade Securities Risk."

No Prior History. BECAUSE THE FUND IS NEWLY ORGANIZED, ITS SHARES HAVE NO
HISTORY OF PUBLIC TRADING. SHARES OF CLOSED- END INVESTMENT COMPANIES FREQUENTLY
TRADE AT A DISCOUNT FROM THEIR NET ASSET VALUE. THIS RISK MAY BE GREATER FOR
INVESTORS EXPECTING TO SELL THEIR SHARES IN A RELATIVELY SHORT PERIOD OF TIME
AFTER COMPLETION OF THE PUBLIC OFFERING.

The Fund intends to apply to list its common shares of beneficial interest
("Common Shares") on the New York Stock Exchange. The trading or ticker symbol
of the Common Shares is expected to be " ."
(continued on the following page)

INVESTING IN THE FUND'S COMMON SHARES INVOLVES CERTAIN RISKS THAT ARE
DESCRIBED IN THE "RISKS" SECTION BEGINNING ON PAGE OF THIS PROSPECTUS.

PER SHARE TOTAL (1)
--------- ---------
Public offering price.............................. $25.00 $
Sales load (2)..................................... $1.125 $
Estimated offering costs (3)....................... $0.050 $
Proceeds, after expenses, to the Fund.............. $23.825 $

(notes on following page)

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

The Common Shares will be ready for delivery on or about , 2013.

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

The date of this prospectus is , 2013.

(continued from previous page)

Investment Advisor and Sub-Advisor. First Trust Advisors L.P. (the
"Advisor") will be the Fund's investment advisor and Stonebridge Advisors LLC
("Stonebridge" or the "Sub-Advisor") will be the Fund's sub-advisor. See
"Management of the Fund" in this prospectus and "Investment Advisor" and
"Sub-Advisor" in the Fund's Statement of Additional Information (the "SAI").

Distributions. The Fund intends to pay monthly distributions to
shareholders out of legally available funds. Distributions, if any, will be
determined by the Fund's Board of Trustees. The Fund expects to declare its
initial distribution approximately 30 to 60 days following the completion of
this offering and pay such initial distribution approximately 60 to 90 days
after the completion of this offering, depending on market conditions. There is
no assurance the Fund will make this distribution or continue to pay regular
distributions or that it will do so at a particular rate. See "Distributions"
and "Tax Matters."

Use of Leverage. The Fund currently intends to use leverage to seek to
enhance its potential for current income. The Fund may utilize leverage through
the issuance of preferred shares of beneficial interest ("Preferred Shares") in
an amount up to 50% of its Managed Assets and/or through borrowings and/or the
issuance of commercial paper or notes (collectively, "Borrowings") in an amount
up to 33-1/3% of its Managed Assets. This is known as structural leverage. The
Fund also may employ portfolio leverage through the use of other portfolio
techniques that have the economic effect of leverage. "Effective leverage" is
the combination of the amount of structural leverage plus the amount of
portfolio leverage. The Fund anticipates that its effective leverage will vary
from time to time, based upon changes in market conditions and variations in the
value of the portfolio's holdings; however, the Fund's effective leverage will
not exceed % of the Fund's Managed Assets. The Fund initially anticipates that,
under normal market conditions, it will employ a combination of structural
leverage, through Borrowings from banks and other financial institutions, and
portfolio leverage. Under current conditions, it is unlikely that the Fund will
issue Preferred Shares. Based upon current market conditions, it is expected
that the Fund's initial effective leverage will be approximately % of Managed
Assets. The cost associated with any issuance and use of leverage will be borne
by the holders of the Common Shares (the "Common Shareholders"). Through the use
of leverage, the Fund will seek to obtain a higher return for the Common
Shareholders than if the Fund did not use leverage. The use of leverage is a
speculative technique and investors should note that there are special risks and
costs associated with the leveraging of the Common Shares. There can be no
assurance that a leveraging strategy will be successful during any period in
which it is employed. See "Use of Leverage--Effects of Leverage,"
"Risks--Leverage Risk" and "Description of Shares."

You should read this prospectus, which contains important information
about the Fund, before deciding whether to invest in the Common Shares, and
retain it for future reference. This prospectus sets forth concisely the
information about the Fund that a prospective investor ought to know before
investing. The SAI, dated , 2013, as it may be supplemented, containing
additional information about the Fund, has been filed with the Securities and
Exchange Commission and is incorporated by reference in its entirety into this
prospectus. You may request a free copy of the SAI, the table of contents of
which is on page of this prospectus, annual and semi-annual reports to
shareholders when available, and other information about the Fund and make
shareholder inquiries by calling (800) 988-5891; by writing to the Fund at 120
East Liberty Drive, Wheaton, Illinois 60187; or from the Fund's or Advisor's
website (http://www.ftportfolios.com). Please note that the information
contained in the Fund's or Advisor's website, whether currently posted or posted
in the future, is not part of this prospectus or the documents incorporated by
reference in this prospectus. You may also obtain a copy of the SAI (and other
information regarding the Fund) from the Securities and Exchange Commission's
website (http://www.sec.gov).

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

(notes from previous page)

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

(2) The Advisor and the Sub-Advisor (and not the Fund) may also pay
certain qualifying underwriters a structuring fee, sales incentive
fee or additional compensation in connection with the offering. See
"Underwriters."

(3) Total expenses of the offering of the Common Shares of the Fund paid
by the Fund (other than the sales load, but including the partial
reimbursement of certain underwriter expenses) are estimated to be
$ , which represents 0.20% (or $0.050 per Common Share) of the
Fund's aggregate offering price. The Advisor and Sub-Advisor have
agreed to pay: (i) all organizational expenses; and (ii) all
offering costs of the Fund (other than the sales load, but including
the partial reimbursement of certain underwriter expenses described
above) that exceed 0.20% (or $0.050 per Common Share) of the Fund's
aggregate offering price.

TABLE OF CONTENTS

PAGE
Prospectus Summary............................................................1
Summary of Fund Expenses.....................................................24
The Fund.....................................................................25
Use of Proceeds..............................................................25
The Fund's Investments.......................................................25
Use of Leverage..............................................................31
Risks........................................................................33
Management of The Fund.......................................................44
Net Asset Value..............................................................46
Distributions................................................................46
Dividend Reinvestment Plan...................................................47
Description of Shares........................................................48
Certain Provisions in the Declaration of Trust and By-Laws...................50
Structure of the Fund; Common Share Repurchases and Conversion to
Open-End Fund...........................................................51
Federal Tax Matters..........................................................52
Underwriters.................................................................55
Custodian, Administrator, Fund Accountant and Transfer Agent.................58
Legal Opinions...............................................................58
Table of Contents for the Statement of Additional Information................59

_________________

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. NEITHER
THE FUND NOR THE UNDERWRITERS HAVE AUTHORIZED ANY PERSON TO PROVIDE YOU WITH
DIFFERENT INFORMATION. IF ANYONE PROVIDES YOU WITH DIFFERENT OR INCONSISTENT
INFORMATION, YOU SHOULD NOT RELY ON IT. NEITHER THE FUND NOR THE UNDERWRITERS
ARE MAKING AN OFFER TO SELL THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER
OR SALE IS NOT PERMITTED.

iii

CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS

This prospectus and the SAI, including documents incorporated by reference,
contain "forward looking statements." Forward looking statements can be
identified by the words "may," "will," "intend," "expect," "believe,"
"estimate," "continue," "plan," "anticipate," and similar terms and the negative
of such terms. By their nature, all forward looking statements involve risks and
uncertainties, and actual results could differ materially from those
contemplated by the forward looking statements. Several factors that could
materially affect the Fund's actual results are the performance of the portfolio
of securities held by the Fund, the conditions in the U.S. and international
financial and other markets, the price at which the Common Shares will trade in
the public markets and other factors which may be discussed in the Fund's
periodic filings with the Securities and Exchange Commission (the "SEC").

Although we believe that the expectations expressed in these forward looking
statements are reasonable, actual results could differ materially from those
projected or assumed in these forward looking statements. The Fund's future
financial condition and results of operations, as well as any forward looking
statements, are subject to change and are subject to inherent risks and
uncertainties, such as those disclosed in the "Risks" section of this
prospectus. All forward looking statements contained or incorporated by
reference in this prospectus are made as of the date of this prospectus. We do
not intend, and we undertake no obligation, to update any forward looking
statement. The forward looking statements contained in this prospectus are
excluded from the safe harbor protection provided by Section 27A of the
Securities Act of 1933, as amended (the "1933 Act").

Currently known risk factors that could cause actual results to differ
materially from the Fund's expectations include, but are not limited to, the
factors described in the "Risks" section of this prospectus. The Fund urges you
to review carefully that section for a more detailed discussion of the risks of
an investment in the Fund's securities.

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus.
This summary does not contain all of the information that you should consider
before investing in the Fund's Common Shares. You should carefully read the
entire prospectus and the Statement of Additional Information (the "SAI"),
particularly the section entitled "Risks."

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

THE OFFERING........... The Fund is offering common shares of
beneficial interest ("Common Shares") at $25.00 per
share through a group of underwriters (the
"Underwriters") led by (" ").
You must purchase at least 100 Common Shares in this
offering. The Fund has given the Underwriters an
option to purchase up to additional Common
Shares to cover orders in excess of Common
Shares. The Advisor and the Sub-Advisor have to agreed
to pay: (i) all organizational expenses; and (ii) all
offering costs of the Fund (other than sales load, but
including a partial reimbursement of certain
underwriter expenses incurred in connection with this
offering) that exceed .20% (or $.050 per Common Share)
of the Fund's aggregate offering price.

INVESTMENT ADVISOR AND
SUB-ADVISOR............ First Trust Advisors L.P., a registered investment
advisor ("First Trust Advisors" or the "Advisor"),
will be the Fund's investment advisor and will be
responsible for supervising the Fund's Sub-Advisor (as
defined below), monitoring the Fund's business affairs
and providing certain clerical, bookkeeping and other
administrative services. The Advisor, in consultation
with the Sub-Advisor, will also be responsible for
determining the Fund's overall investment strategy and
overseeing its implementation. The Advisor is an
Illinois limited partnership formed in 1991. It serves
as investment advisor or portfolio supervisor to
investment portfolios with approximately $ billion in
assets, which it managed or supervised as of December
31, 2012. See "Management of the Fund--Investment
Advisor" in this prospectus and "Investment Advisor"
in the SAI.

Stonebridge Advisors LLC, a registered investment
advisor and an affiliate of the Advisor (the
"Sub-Advisor"), will be the Fund's sub-advisor and
will be primarily responsible for the day-to-day
supervision and investment strategy of, and making
investment decisions for, the Fund. The Sub-Advisor
was formed in 2004 and serves as investment advisor or
portfolio supervisor to investment portfolios with
approximately $1.54 billion in assets which it managed
or supervised as of December 31, 2012. See "Management
of the Fund--Sub-Advisor" in this prospectus and
"Sub-Advisor" in the SAI.

INVESTMENT OBJECTIVES
AND STRATEGY........... The Fund's primary investment objective is to seek a
high level of current income. The Fund has a secondary
objective of capital appreciation. The Fund will seek
to achieve its investment objectives by investing in
preferred and other income-producing securities. There
can be no assurance that the Fund's investment
objectives will be achieved.

debt securities, convertible securities, contingent
convertible securities and securities of other
open-end, closed-end and exchange-traded funds
("ETFs") that invest primarily in securities of the
types in which the Fund may invest directly.

Duration. The Fund seeks to maintain, under normal
market conditions, a blended (or weighted average)
portfolio duration of between three and eight years.
However, under certain market conditions, the Fund's
blended (or weighted average) duration may be longer
than eight years or shorter than three years. In
seeking to maintain its target duration, the Fund will
invest significantly in floating rate and
fixed-to-floating rate preferred securities, which
tend to be less price-sensitive to rising interest
rates (or yields) than fixed rate securities with
similar terms to maturity.

Duration is a mathematical calculation of the
sensitivity of the price of a security to changes in
interest rates. Duration is not necessarily equal to
average maturity and differs from maturity in that it
considers potential changes to interest rates, and a
security's coupon payments, yield, price and par value
and call features, in addition to the amount of time
until the security matures. Generally, the longer the
duration of a security or group of securities, the
more sensitive the security or group of securities is
to such changes; the shorter the duration, the less
sensitive the security or group of securities is to
such changes. In general, each year of duration
represents an expected 1% change in the value for
every 1% immediate change in interest rates. For
example, if a portfolio of debt securities has an
average duration of three years, its value can be
expected to fall about 3% if interest rates rise by
1%. Conversely, the portfolio's value can be expected
to rise about 3% if interest rates fall by 1%. As a
result, prices of instruments with shorter durations
tend to be less sensitive to interest rate changes
than instruments with longer durations. As the value
of a security changes over time, so will its duration.
Blended (or weighted average) duration is simply the
average duration of a portfolio of securities based on
the duration of the individual securities and their
weight within the portfolio. In this prospectus,
blended (or weighted average) duration is defined to
be the effective duration of the Fund's portfolio,
which is the measure of a security's or a portfolio's
price sensitivity with respect to changes in market
yields adjusted to reflect the effect of the Fund's
effective leverage. See "The Fund's
Investments--Investment Policies--Duration."

The Fund also will invest, under normal market
conditions, at least 25% of its Managed Assets in
securities of companies in the financials sector as
classified under the Global Industry Classification
Standards developed by MSCI, Inc. and Standard &
Poor's (the "financials sector"), which may include
banks, thrifts, brokerage firms, broker/dealers,
investment banks, finance companies, real estate
investment trusts ("REITs") and companies involved in
the insurance industry. The Fund also may invest in
other sectors or industries, such as energy,
industrials, utilities, pipelines, health care and
telecommunications.

from an NRSRO. Below investment grade securities are
commonly referred to as "junk" or "high yield"
securities and are considered speculative with respect
to the issuer's capacity to pay interest and repay
principal. See "Risks--Credit and Below Investment
Grade Securities Risk."

Other Investments. The Fund may invest up to 20% of
its Managed Assets in common stocks, which represent
residual ownership interest in issuers and include
rights or warrants to purchase common stocks. See
"--Portfolio Holdings--Common Stocks."

The Fund may invest up to 20% of its Managed Assets in
debt securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities or by
a non-U.S. Government or its agencies or
instrumentalities. Obligations issued or guaranteed by
the U.S. Government, its agencies and
instrumentalities include bills, notes and bonds
issued by the U.S. Treasury, as well as "stripped" or
"zero coupon" U.S. Treasury obligations representing
future interest or principal payments on U.S. Treasury
notes or bonds. See "--Portfolio Holdings--Government
Securities."

The Fund may invest up to 20% of its Managed Assets in
municipal securities, which includes debt obligations
of states, territories or possessions of the United
States and the District of Columbia and their
political subdivisions, agencies and
instrumentalities. See "--Portfolio
Holdings--Municipal Securities."

The Fund may invest up to 25% of its Managed Assets in
securities that, at the time of investment, are
illiquid (determined using the SEC's standard
applicable to registered investment companies, i.e.,
securities that cannot be disposed of within seven
days in the ordinary course of business at
approximately the value at which the Fund has valued
the securities). The Fund also may invest, without
limit, in securities that are unregistered (but are
eligible for purchase and sale by certain qualified
institutional buyers) or are held by control persons
of the issuer and securities that are subject to
contractual restrictions on their resale ("restricted
securities"). However, restricted securities
determined by the Sub-Advisor to be illiquid are
subject to the limitations set forth above.

The Fund may enter into certain derivative
transactions ("Strategic Transactions") to seek to
manage the risks of the Fund's portfolio securities or
for other purposes to the extent the Sub-Advisor
determines that the use of Strategic Transactions is
consistent with the Fund's investment objectives and
policies and applicable regulatory requirements.
Certain of the Fund's Strategic Transactions, if any,
may provide investment leverage to the Fund's
portfolio. The Fund does not intend to enter into
Strategic Transactions as a principal part of its
investment strategy. See "Risks--Leverage Risk" below
and "Other Investment Policies and
Techniques--Strategic Transactions" in the SAI for
more information about these techniques.

Percentage limitations described in this prospectus
are as of the time of investment by the Fund and may
be exceeded on a going-forward basis as a result of
credit rating downgrades or market value fluctuations
of the Fund's portfolio securities. "Managed Assets"
means the average daily gross asset value of the Fund
(which includes assets attributable to the Fund's
leverage), minus the sum of the Fund's accrued and
unpaid dividends on any outstanding Preferred Shares
and accrued liabilities (other than debt representing
leverage). For purposes of determining Managed Assets,
the liquidation preference of the Preferred Shares is
not treated as a liability.

The Fund's investment objectives and certain of the
investment restrictions listed in the SAI are
considered fundamental and may not be changed without
approval by holders of a majority of the outstanding
voting securities of the Fund, as defined in the
Investment Company Act of 1940, as amended (the "1940
Act"), which includes Common Shares and Preferred
Shares, if any, voting together as a single class, and
the holders of the outstanding Preferred Shares, if
any, voting as a single class. The remainder of the
Fund's investment policies, including its investment
strategy, are considered non-fundamental and may be
changed by the Fund's Board of Trustees (the "Board of
Trustees") without shareholder approval; provided,
that shareholders receive at least 60 days' prior
notice of any such change adopted by the Board of
Trustees.

INVESTMENT PHILOSOPHY
AND PROCESS............ In selecting securities for the Fund, the
Sub-Advisor's investment strategy is driven by
comprehensive analysis of fixed income preferred and
hybrid securities with a goal of investing in
securities representing the best relative value in the
market. The Sub-Advisor's conservative style of active
management combines a bottom-up and top-down approach
to security selection that encompasses three
significant areas of analysis: credit fundamentals,
relative value, and technical aspects of the
securities. The bottom-up analysis focuses on
individual security analysis, idiosyncratic risks,
credit fundamentals and opportunistic trading. The
top-down analysis focuses on sector and industry
analysis, duration and interest rate analysis, capital
structure positioning and systemic risks.
Diversification of the Fund's portfolio within the
preferred and hybrid securities asset class is
achieved through limits on issuer and industry
weightings. In addition to fundamental analysis,
Stonebridge draws upon their experience and
understanding of the preferred and hybrid securities
asset class to take advantage of market inefficiencies
through active management.

To implement the investment strategy, the Sub-Advisor
utilizes a repeatable and consistent investment
process that centers on security selection. This
process allows the Sub-Advisor to source securities in
the preferred asset class based on attributes such as
credit quality, yield and capital structure
positioning while also focusing on equally important
market technicals such as trading volumes, liquidity
and pricing inefficiencies. New investments are
presented to the Sub-Advisor's investment committee
before inclusion into the portfolio. Investment risk
factors and compliance considerations are included in
the selection process. Once an investment decision has
been approved by the investment committee, the
portfolio managers will look to act upon that
investment decision.

PORTFOLIO HOLDINGS .... Preferred Securities. Traditional preferred securities
are considered equity securities. Preferred securities
held by the Fund generally will pay fixed or floating
rate distributions to investors and have preference
over common stock in the payment of distributions and
the liquidation of a company's assets, which means
that a company typically must pay dividends or
interest on its preferred securities before paying any
dividends on its common stock. Preferred securities
are generally junior to all forms of the company's
debt, including both senior and subordinated debt.

Floating-rate and fixed-to-floating-rate preferred
securities may be traditional preferred or hybrid
preferred securities. Floating-rate preferred
securities pay a rate of income that resets
periodically based on short and/or longer-term
interest rate benchmarks. If the associated interest
rate benchmark rises, the coupon offered by the
floating-rate security may rise as well, making such
securities less sensitive to rising interest rates (or
yields). Similarly, a fixed-to-floating-rate security
may be less price-sensitive to rising interest rates
(or yields), because it has a rate of payment that is
fixed for a certain period (typically five, ten or
thirty years when first issued), after which period a
floating-rate of payment applies.

Trust preferred securities combine features of
corporate debt securities and preferred securities.
The securities generally pay quarterly income. U.S.
issues usually have long maturities, while foreign
issues are normally perpetual. The creation of a trust
preferred generally begins with a company establishing
a Delaware limited business trust. The trust issues
preferred securities to the public and uses the
proceeds to purchase junior subordinated debentures
from that company. The terms of the debentures are
essentially the same as the terms of the preferred
securities. Trust preferred securities represent the
"preferred" interest in trusts that hold junior
subordinated deferrable debentures of the issuer. The
parent may then use the proceeds for general corporate
purposes. The issuer of trust preferred securities are
generally able to defer or skip payments for up to
five years without being in default. In the event that
the issuer skips or defers a payment, the holder of
the security is generally still subject to taxation on
the missed payments.

The Fund may invest in over-the-counter ("OTC")
preferred securities and exchange-traded preferred
securities. Securities may or may not pay dividends
that are eligible for the corporate dividends received
deduction for corporations or for treatment as
qualified dividend income for individuals. See "The
Fund's Investments--Portfolio Composition--Preferred
Securities."

Debt Securities. Debt securities include obligations
typically issued by corporations to borrow money from
investors, such as corporate bonds, debentures, notes,
commercial paper and other similar types of corporate
debt instruments. These securities may be either
secured or unsecured. Holders of debt securities, as
creditors, have a prior legal claim over common and
preferred shareholders as to both income and assets of
the issuer for the principal and interest due them and
may have a prior claim over other creditors if liens
or mortgages are involved. Interest on debt securities
may be fixed or floating, or the securities may be
zero coupon securities which pay no interest. Interest
on debt securities is typically paid semi-annually and
is fully taxable to the holder of the securities. The
investment return of debt securities reflects interest
on the security and changes in the market value of the
security. The market value of a fixed rate debt
security generally may be expected to rise and fall
inversely with changes in interest rates and also may
be affected by the credit rating of the issuer, the
issuer's performance and perceptions of the issuer in
the marketplace. Debt securities issued by
corporations usually have a higher yield than
government or agency bonds due to the presence of
credit risk. See "The Fund's Investments--Portfolio
Composition--Debt Securities."

amount of common stock or other equity security of the
same or a different issuer at a predetermined price.
They also include debt securities with warrants or
common stock attached and derivatives combining the
features of debt securities and equity securities.
Convertible securities entitle the holder to receive
interest paid or accrued on debt, or dividends paid or
accrued on preferred securities, until the security
matures or is redeemed, converted or exchanged.

Contingent convertible securities provide for
mandatory conversion into common stock of the issuer
under certain circumstances. The mandatory conversion
might relate, for instance, to maintenance of a
capital minimum, whereby falling below the minimum
would trigger automatic conversion. Since the common
stock of the issuer may not pay a dividend, investors
in these instruments could experience a reduced income
rate, potentially to zero; and conversion would deepen
the subordination of the investor, hence worsening
standing in a bankruptcy. In addition, some such
instruments have a set stock conversion rate that
would cause an automatic write-down of capital if the
price of the stock is below the conversion price on
the conversion date.

Foreign (Non-U.S.) Securities. Foreign securities
include securities issued or guaranteed by companies
organized under the laws of countries other than the
United States, including companies domiciled in
emerging markets, and securities issued or guaranteed
by foreign governments, their agencies or
instrumentalities and supra-national governmental
entities, such as the World Bank. Foreign securities
may be traded on foreign securities exchanges or in
over-the-counter capital markets. Many foreign
companies issue both foreign currency and U.S.
dollar-denominated preferred and debt securities.
Those securities that are traded in the United States
have characteristics that are similar to traditional
and hybrid preferred securities. The Fund may also
invest in securities of foreign companies in the form
of American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs") and European Depositary
Receipts ("EDRs"). Generally, ADRs in registered form
are dollar-denominated securities designed for use in
the U.S. securities markets, which represent and may
be converted into an underlying foreign security.
GDRs, in bearer form, are designated for use outside
the United States. EDRs, in bearer form, are designed
for use in the European securities markets.

Government Debt Securities. Government debt securities
are debt securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities or by
a non-U.S. Government or its agencies or
instrumentalities. Obligations issued or guaranteed by
the U.S. Government, its agencies and
instrumentalities include bills, notes and bonds
issued by the U.S. Treasury, as well as "stripped" or
"zero coupon" U.S. Treasury obligations representing
future interest or principal payments on U.S. Treasury
notes or bonds. Stripped securities are sold at a
discount to their "face value," and may exhibit
greater price volatility than interest-bearing
securities because investors receive no payment until
maturity. Other obligations of certain agencies and
instrumentalities of the U.S. Government are supported

only by the credit of the instrumentality. The U.S.
Government may choose not to provide financial support
to U.S. Government-sponsored agencies or
instrumentalities if it is not legally obligated to do
so, in which case, if the issuer were to default, the
Fund might not be able to recover its investment from
the U.S. Government.

Municipal Securities. Municipal securities include
debt obligations of states, territories or possessions
of the United States and the District of Columbia and
their political subdivisions, agencies and
instrumentalities. Municipal securities are issued to
obtain funds for various public purposes. The two
major classifications of municipal securities are
bonds and notes. Bonds may be further classified as
"general obligation" or "revenue" issues. General
obligation bonds are secured by the issuer's pledge of
its full faith, credit and taxing power for the
payment of principal and interest. Revenue bonds are
payable from the revenues derived from a particular
facility or class of facilities, and in some cases,
from the proceeds of a special excise or other
specific revenue source, but not from the general
taxing power. See "The Fund's Investments--Portfolio
Composition--Municipal Securities."

Other Investment Companies. The Fund may invest in
securities of other investment companies, including
open-end funds, closed-end funds and ETFs, that invest
primarily in preferred and/or debt securities as
described herein, to the extent permitted under
Section 12(d)(1) of the 1940 Act, and the rules
promulgated thereunder, or any exemption granted to
the Fund under the 1940 Act. To the extent the Fund
invests in shares of another fund, the Common
Shareholders would indirectly pay a portion of that
fund's expenses, including advisory fees and brokerage
and distribution expenses. These fees and expenses are
in addition to the direct expenses of the Fund's own
operations. The securities of other funds may also be
leveraged and will therefore be subject to similar
leverage risks to which the Fund is subject. In
addition, to the extent the Fund invests in other
funds, the Fund will be dependent upon the investment
and research abilities of persons other than the
Sub-Advisor.

USE OF LEVERAGE ....... Pursuant to the provisions of the 1940 Act, the Fund
may borrow an amount up to 33-1/3% of its total assets
or may issue Preferred Shares in an amount up to 50%
of the Fund's total assets (including the proceeds
from leverage). This is known as structural leverage.
The Fund also may employ portfolio leverage through
other portfolio techniques that have the economic
effect of leverage. The Fund initially anticipates
that, under normal market conditions, it will employ a
combination of structural leverage, through Borrowings
from banks and other financial institutions, and
portfolio leverage (each, a "Leverage Instrument").
Under current conditions, it is unlikely that the Fund
will issue Preferred Shares. "Effective leverage" is
the combination of the amount of structural leverage
plus the amount of portfolio leverage. The Fund
anticipates that its effective leverage will vary from
time to time, based upon changes in market conditions
and variations in the value of the portfolio's
holdings; however, the Fund's effective leverage will
not exceed % of the Fund's Managed Assets. Based upon
current market conditions, it is expected that the
Fund's initial effective leverage will be
approximately % of Managed Assets. The Fund will not
be required to reduce leverage to the extent the above
percentage limitation is exceeded as a result of a
decline in the value of the Fund's assets.

The Fund may use leverage for hedging or investment
purposes, to finance the repurchase of its Common
Shares and to meet cash requirements. Subject to
market conditions, within approximately three months
after completion of this offering, the Fund intends to
establish a structural leverage program. It is
expected that the Fund's Borrowings will be made

pursuant to a revolving credit facility established
with a bank or other financial institution. Certain
types of Borrowings may result in the Fund being
subject to covenants in credit agreements relating to
asset coverage and portfolio composition requirements.
Borrowings may be at a fixed or floating rate and
generally will be based upon short-term rates. So long
as the rate of return, net of applicable Fund
expenses, on the Fund's portfolio investments
purchased with leverage exceeds the then current
interest rate or dividend rate on the Preferred Shares
and/or Borrowings, the Fund will generate more return
or income than will be needed to pay such dividends or
interest payments. In this event, the excess will be
available to pay higher dividends to Common
Shareholders. Preferred Shares, if issued, may pay
dividends based on short-term rates, which may be
reset frequently. However, under current conditions,
it is unlikely that the Fund will issue Preferred
Shares.

The use of leverage will leverage your investment in
the Common Shares. Leverage Instruments will have
seniority over the Common Shares. When leverage is
employed, the net asset value ("NAV") and market
prices of the Common Shares and the yield to Common
Shareholders will be more volatile. Leverage creates a
greater risk of loss, as well as potential for more
gain, for the Common Shares than if leverage is not
used. There is no assurance that a leverage strategy
will be utilized by the Fund or that, if utilized,
will be successful. See "Risks--Leverage Risk."

If the Fund uses Leverage Instruments, associated
costs, if any, will be borne immediately by the Common
Shareholders and result in a reduction of the NAV of
the Common Shares. Costs associated with any
Borrowings may include legal fees, audit fees,
structuring fees, commitment fees, and a usage
(borrowing) fee.

DISTRIBUTIONS ......... The Fund's present distribution policy, which may be
changed at any time by the Board of Trustees, is to
distribute monthly all or a portion of its net
investment income to Common Shareholders (after the
payment of interest and/or dividends in connection
with leverage). In addition, the Fund intends to
distribute any net long-term capital gains, if any, to
Common Shareholders as long-term capital gain
dividends at least annually. In general, the total
distributions made in any taxable year (other than
distributions of net capital gains) would be treated
as ordinary dividend income to the extent of the
Fund's current and accumulated earnings and profits.
The Fund's initial distribution is expected to be
declared approximately 30 to 60 days after the
completion of this offering and paid approximately 60
to 90 days after the completion of this offering,
depending on market conditions. Unless an election is
made to receive dividends in cash, Common Shareholders
will automatically have all dividends and
distributions reinvested in Common Shares through the
Fund's dividend reinvestment plan. See "Dividend
Reinvestment Plan."

Subject to certain terms and conditions, the Fund is
entitled to rely on an exemption granted to the
Advisor by the SEC from Section 19(b) of the 1940 Act
and Rule 19b-1 thereunder (the "Exemptive Relief").
The Exemptive Relief generally permits the Fund,
subject to such terms and conditions, to make
distributions of long-term capital gains with respect
to its Common Shares more frequently than would
otherwise be permitted under the 1940 Act (generally
once per taxable year). The Fund's distribution policy
described above would only permit distributions of
long-term capital gains to occur on an annual basis.
To rely on the Exemptive Relief, the Fund must comply
with the terms and conditions therein, which, among
other things, would require the Board of Trustees to
approve the Fund's adoption of a distribution policy
with respect to its Common Shares which calls for

periodic distributions of an amount equal to a fixed
percentage of the market price of the Fund's Common
Shares at a particular point in time, or a fixed
percentage of net asset value per Common Share at a
particular point in time, or a fixed amount per Common
Share, any of which could be adjusted from time to
time. Under such a distribution policy, it is possible
that the Fund might distribute more than its income
and net realized capital gains; therefore,
distributions to shareholders may result in a return
of capital. The Fund has no current intention to adopt
such a distribution policy or implement the Exemptive
Relief. The Exemptive Relief also permits the Fund to
make distributions of long-term capital gains with
respect to any Preferred Shares that may be issued by
the Fund in accordance with such shares' terms. See
"Distributions."

If the Fund realizes a long-term capital gain, it will
be required to allocate such gain between the Common
Shares and the Preferred Shares, if any, issued by the
Fund in proportion to the total dividends paid to each
class of shares for the year in which the income is
realized. See "Distributions" and "Use of Leverage."

CUSTODIAN,
ADMINISTRATOR,
FUND ACCOUNTANT AND
TRANSFER AGENT......... The Fund has retained The Bank of New York Mellon as
custodian and BNY Mellon Investment Servicing (US)
Inc. as administrator, fund accountant and transfer
agent for the Fund. The Advisor and the Board of
Trustees will be responsible for overseeing the
activities of the custodian, administrator, fund
accountant and transfer agent. See "Custodian,
Administrator, Fund Accountant and Transfer Agent."

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

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

Shares of closed-end funds listed for trading on a
securities exchange frequently trade at a discount
from NAV, but in some cases trade at a premium. The
market price of such shares may be affected by NAV,
dividend or distribution levels and their stability
(which in turn will be affected by levels of dividend
or interest payments by the fund's portfolio holdings,
the timing and success of the fund's investment
strategies, regulations affecting the timing and
character of fund distributions, fund expenses and
other factors), supply of and demand for the shares,
trading volume of the shares, general market, interest
rate and economic conditions and other factors that
may be beyond the control of a closed-end fund. The
foregoing factors, among others, may result in the
market price of the Fund's Common Shares being greater
than, less than or equal to NAV.

The Board of Trustees has reviewed the structure of
the Fund in light of its investment objectives and
policies and believes that the closed-end fund

structure is appropriate. As described in this
prospectus, however, the Board of Trustees may review
periodically the trading range and activity of the
Common Shares with respect to the Fund's NAV and may,
but is not required to, take certain actions to seek
to reduce or eliminate any such discount to NAV. Such
actions may include open market repurchases or tender
offers for the Common Shares or the possible
conversion of the Fund to an open-end fund. There can
be no assurance that the Board of Trustees will decide
to undertake any of these actions or that, if
undertaken, such actions would result in the Common
Shares trading at a price equal to or close to their
NAV. Investors should assume, therefore, that it is
highly unlikely that the Board of Trustees would vote
to propose to shareholders that the Fund convert to an
open-end management investment company. See "Structure
of the Fund; Common Share Repurchases and Conversion
to Open-End Fund."

FEDERAL TAX MATTERS.... Distributions with respect to the Common Shares will
constitute dividends to the extent of the Fund's
current and accumulated earnings and profits, as
calculated for U.S. federal income tax purposes. Such
dividends generally will be taxable as ordinary income
to Common Shareholders. Distributions of net capital
gain that are designated by the Fund as capital gain
dividends will be treated as long-term capital gains
in the hands of Common Shareholders receiving such
distributions. Distributions in excess of the Fund's
current and accumulated earnings and profits would
first be a tax-free return of capital to the extent of
a Common Shareholder's adjusted tax basis in its
Common Shares. After such adjusted tax basis is
reduced to zero, the distribution would constitute
capital gain (assuming the Common Shares are held as
capital assets). In addition, a significant portion of
the distributions generally will not constitute
"qualified dividend income" for federal income tax
purposes and thus will not be eligible for the lower
tax rates on qualified dividend income. See "Federal
Tax Matters."

SPECIAL RISK
CONSIDERATIONS ........ Risk is inherent in all investing. The following
discussion summarizes the principal risks that you
should consider before deciding whether to invest in
the Fund. For additional information about the risks
associated with investing in the Fund, see "Risks."

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

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

Market Discount from Net Asset Value. Shares of
closed-end investment companies frequently trade at a
discount from their NAV. This characteristic is a risk
separate and distinct from the risk that the Fund's
NAV could decrease as a result of its investment
activities and may be greater for investors expecting
to sell their Common Shares in a relatively short
period following completion of this offering. The NAV
of the Common Share will be reduced immediately
following this offering as a result of the payment of
certain offering costs. Although the value of the

Fund's net assets will generally be considered by
market participants in determining whether to purchase
or sell shares, whether investors will realize gains
or losses upon the sale of the Common Shares will
depend entirely upon whether the market price of the
Common Shares at the time of sale is above or below
the investor's purchase price for the Common Shares.
Because the market price of the Common Shares will be
affected by factors such as NAV, dividend or
distribution levels (which are dependent, in part, on
expenses), supply of and demand for the Common Shares,
stability of dividends or distributions, trading
volume of the Common Shares, general market and
economic conditions and other factors beyond the
control of the Fund, the Fund cannot predict whether
the Common Shares will trade at, below or above NAV or
at, below or above the initial public offering price.

Management Risk and Reliance on Key Personnel. The
Fund is subject to management risk because it is an
actively managed portfolio. The Advisor and the
Sub-Advisor will apply investment techniques and risk
analyses in making investment decisions for the Fund,
but there can be no guarantee that these will produce
the desired results. In addition, the implementation
of the Fund's investment strategy depends upon the
continued contributions of certain key employees of
the Advisor and the Sub-Advisor, some of whom have
unique talents and experience and would be difficult
to replace. The loss or interruption of the services
of a key member of the portfolio management team could
have a negative impact on the Fund during the
transitional period that would be required for a
successor to assume the responsibilities of the
position.

Preferred Securities Risk. Preferred securities are
unique securities that combine some of the
characteristics of both common stocks and bonds. In
addition to the risks described elsewhere in this
section such as credit risks, preferred securities are
subject to certain other risks, including:

o Interest Rate Risk. Interest rate risk is the risk
that preferred securities will decline in value
because of rising market interest rates. When
market interest rates rise, the market value of
fixed rate preferred securities generally will
fall.

o Duration Risk. Duration measures the time-weighted
expected cash flows of a security, which can
determine the security's sensitivity to changes in
the general level of interest rates (or yields).
Securities with longer durations tend to be more
sensitive to interest rate (or yield) changes than
securities with shorter durations. Duration
differs from maturity in that it considers
potential changes to interest rates, and a
security's coupon payments, yield, price and par
value and call features, in addition to the amount
of time until the security matures. Various
techniques may be used to shorten or lengthen the
Fund's duration. The duration of a security will
be expected to change over time with changes in
market factors and time to maturity.

o Deferral and Omission Risk. Preferred securities
may include provisions that permit the issuer, at
its discretion, to defer or omit distributions for
a stated period without any adverse consequences
to the issuer.

o Subordination Risk. Preferred securities are
generally subordinated to bonds and other debt
instruments in a company's capital structure in

terms of having priority to corporate income,
claims to corporate assets and liquidation
payments, and therefore will be subject to greater
credit risk than more senior debt instruments.

o Floating Rate and Fixed-to-Floating Rate
Securities Risk. The market value of floating rate
securities is a reflection of discounted expected
cash flows based on expectations for future
interest rate resets. The market value of such
securities may fall in a declining interest rate
environment and may also fall in a rising interest
rate environment if there is a lag between the
rise in interest rates and the reset. This risk
may also be present with respect to
fixed-to-floating rate securities in which the
Fund may invest. A secondary risk associated with
declining interest rates is the risk that income
earned by the Fund on floating rate and
fixed-to-floating rate securities may decline due
to lower coupon payments on floating-rate
securities.

o Call and Reinvestment Risk. During periods of
declining interest rates, an issuer may be able to
exercise an option to redeem its issue at par
earlier than scheduled, which is generally known
as call risk. If this occurs, the Fund may be
forced to reinvest in lower yielding securities.

o Liquidity Risk. Certain preferred securities may
be substantially less liquid than many other
securities. Illiquid securities involve the risk
that the securities will not be able to be sold at
the time desired by the Fund or at prices
approximating the value at which the Fund is
carrying the securities on its books.

o Limited Voting Rights Risk. Generally, traditional
preferred securities offer no voting rights with
respect to the issuer unless preferred dividends
have been in arrears for a specified number of
periods, at which time the preferred security
holders may have the ability to elect a director
or directors to the issuer's board. Generally,
once all the arrearages have been paid, the
preferred security holders no longer have voting
rights. Hybrid preferred security holders
generally have no voting rights.

See "Risks--Preferred Securities Risk."

Trust Preferred Securities Risk. Unlike preferred
securities, distributions from trust preferred
securities are treated as interest rather than
dividends for federal income tax purposes and,
therefore, are not eligible for the dividends received
deduction and do not constitute qualified dividend
income. Distributions on trust preferred securities
will be made only if interest payments on the related
interest-bearing notes of the operating company are
made. See "Risks--Trust Preferred Securities Risk."

Debt Securities Risk. In addition to the risks
described elsewhere in this section such as credit
risk, debt securities are subject to certain other
risks, including:

o Issuer Risk. The value of debt securities may
decline for a number of reasons which directly
relate to the issuer, such as management
performance, leverage and reduced demand for the
issuer's goods and services. Changes in an
issuer's credit rating or the market's perception
of an issuer's creditworthiness may also affect
the value of the Fund's investment in that issuer.

o Liquidity Risk. Certain debt securities may be
substantially less liquid than many other
securities, such as common stocks traded on an
exchange. Illiquid securities involve the risk
that the securities will not be able to be sold at
the time desired by the Fund or at prices
approximating the value at which the Fund is
carrying the securities on its books.

o Prepayment Risk. During periods of declining
interest rates, the issuer of a security may
exercise its option to prepay principal earlier
than scheduled, forcing the Fund to reinvest the
proceeds from such prepayment in lower yielding
securities, which may result in a decline in the
Fund's income and distributions to Common
Shareholders. This is known as call or prepayment
risk. Debt securities frequently have call
features that allow the issuer to repurchase the
security prior to its stated maturity. An issuer
may redeem an obligation if the issuer can
refinance the debt at a lower cost due to
declining interest rates or an improvement in the
credit standing of the issuer. If the Fund bought
a security at a premium, the premium could be lost
in the event of a prepayment.

o 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 bonds 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.

See "--Current Economic Conditions--Credit Crisis
Liquidity and Volatility Risk" and "Risks--Debt
Securities Risk."

Current Economic Conditions--Credit Crisis Liquidity
and Volatility Risk. The markets for credit
instruments, including debt securities, have
experienced periods of extreme illiquidity and
volatility since the latter half of 2007. Liquidity in
the debt securities markets (the ability to buy and
sell bonds readily) has been significantly reduced.
General market uncertainty and consequent repricing
risk have led to market imbalances of sellers and
buyers, which in turn have resulted in significant
valuation uncertainties in a variety of debt
securities. In addition, during 2008, several major
dealers of debt securities exited the market via
acquisition or bankruptcy. These conditions resulted
in, and in many cases continue to result in, greater
volatility, less liquidity, widening credit spreads
and a lack of price transparency, with many debt
securities remaining illiquid and of uncertain value.
Illiquidity and volatility in the credit markets may
directly and adversely affect the setting of dividend
rates on the Fund's Common Shares. These market
conditions may make valuation of some of the Fund's
debt securities uncertain and/or result in sudden and
significant valuation increases or declines in the
Fund's holdings. Sales of large blocks of securities
by market participants, such as the Fund, that are
seeking liquidity can further reduce security prices
in an illiquid market. The Fund may seek to make sales
of large blocks of securities as part of its
investment strategy.

Because of the conditions in the credit markets,
issuers of debt securities may be subject to increased
costs associated with incurring debt, tightening

underwriting standards and reduced liquidity for the
loans they make, the securities they purchase and the
securities they issue. The worsening general economic
conditions have materially and adversely impacted the
broader financial and credit markets and have reduced
the availability of debt and equity capital for the
market as a whole. The reduced willingness of some
lenders to extend credit, in general, may make it more
difficult for issuers of debt instruments to finance
their operations. These developments have adversely
affected the broader economy, and may continue to do
so, which in turn may adversely affect the ability of
the issuers of securities owned by the Fund to make
payments of principal and interest when due, and lead
to lower credit ratings and increased defaults. Such
developments could, in turn, reduce the value of
securities owned by the Fund and adversely affect the
Fund's NAV. Extraordinary steps have been taken by the
governments of several leading economic countries to
combat the current economic crisis and/or increase the
regulation of market participants. The impact of these
measures is not yet known and cannot be predicted. The
prolonged continuation or further deterioration of
current market conditions could adversely impact the
Fund's portfolio and may limit the effectiveness of
existing market models. Because the current market
situation is widespread and unprecedented, it may be
difficult to predict how long it may continue. See
"--Government Intervention in Financial Markets Risk."

Convertible Securities Risk. Although to a lesser
extent than with nonconvertible debt securities, the
market value of convertible securities tends to
decline as interest rates increase and, conversely,
tends to increase as interest rates decline. In
addition, because of the conversion feature, the
market value of convertible securities tends to vary
with fluctuations in the market value of the
underlying common stock.

Risks of Investments in the Financials Sector. Because
the Fund invests 25% or more of its Managed Assets in
the financials sector, it will be more susceptible to
adverse economic or regulatory occurrences affecting
this sector, such as changes in interest rates, loan
concentration and competition. See "--Government
Intervention in Financial Markets Risk."

Government Intervention in Financial Markets Risk. The
recent instability in the financial markets has led
the U.S. government and foreign governments to take a
number of unprecedented actions designed to support
certain financial institutions and segments of the
financial markets that have experienced extreme
volatility, and in some cases a lack of liquidity.
U.S. federal and state governments and foreign
governments, their regulatory agencies or self
regulatory organizations may take additional actions
that affect the regulation of the securities in which
the Fund invests, or the issuers of such securities,
in ways that are unforeseeable and on an "emergency"
basis with little or no notice with the consequence
that some market participants' ability to continue to
implement certain strategies or manage the risk of
their outstanding positions has been suddenly and/or
substantially eliminated or otherwise negatively
implicated. Given the complexities of the global
financial markets and the limited time frame within
which governments have been able to take action, these
interventions have sometimes been unclear in scope and
application, resulting in confusion and uncertainty,
which in itself has been materially detrimental to the
efficient functioning of such markets as well as
previously successful investment strategies. Decisions
made by government policy makers could exacerbate the
nation's or the world's current economic difficulties.
Issuers might seek protection under the bankruptcy
laws. Legislation or regulation also may change the
way in which the Fund itself is regulated. Such
legislation or regulation could limit or preclude the
Fund's ability to achieve its investment objectives.

Congress has enacted sweeping financial legislation,
the Dodd-Frank Wall Street Reform and Consumer
Protection Act (the "Dodd-Frank Act"), which
addresses, among other areas, the operation of
financial institutions. Many provisions of the
Dodd-Frank Act will be implemented through regulatory
rulemakings and similar processes over a period of
time. The impact of the Dodd-Frank Act, and of
follow-on regulation, on trading strategies and
operations is impossible to predict, and may be
adverse. Practices and areas of operation subject to
significant change based on the impact, direct or
indirect, of the Dodd-Frank Act and follow-on
regulation, may change in manners that are
unforeseeable, with uncertain effects. For example,
the Dodd-Frank Act established more stringent capital
standards for banks and bank holding companies and
will also result in new regulations affecting the
lending, funding, trading and investment activities of
banks and bank holding companies, thus affecting the
financials sector in which the Fund invests.

The implementation of the Dodd-Frank Act could also
adversely affect the Advisor, the Sub-Advisor and the
Fund by increasing transaction and/or regulatory
compliance costs. In addition, greater regulatory
scrutiny and the implementation of enhanced and new
regulatory requirements may increase the Advisor's,
the Sub-Advisor's and the Fund's exposure to potential
liabilities, and in particular liabilities arising
from violating any such enhanced and/or new regulatory
requirements. Increased regulatory oversight could
also impose administrative burdens on the Advisor ,
the Sub-Advisor and the Fund, including, without
limitation, responding to investigations and
implementing new policies and procedures. The ultimate
impact of the Dodd-Frank Act, and any resulting
regulation, is not yet certain and the Advisor, the
Sub-Advisor and the Fund may be affected by the new
legislation and regulation in ways that are currently
unforeseeable.

Credit and Below Investment Grade Securities Risk.
Credit risk is the risk that an issuer of a security
may be unable or unwilling to make dividend, interest
and principal payments when due and the related risk
that the value of a security may decline because of
concerns about the issuer's ability or willingness to
make such payments. Credit risk may be heightened for
the Fund because it may invest in below investment
grade securities, which are commonly referred to as
"junk" or "high yield" securities; such securities,
while generally offering higher yields than investment
grade debt with similar maturities, involve greater
risks, including the possibility of dividend or
interest deferral, default or bankruptcy, and are
regarded as predominantly speculative with respect to
the issuer's capacity to pay dividends or interest and
repay principal.

Below investment grade securities are issued by
companies that may have limited operating history,
narrowly focused operations and/or other impediments
to the timely payment of periodic interest and
principal at maturity. These securities are
susceptible to default or decline in market value due
to adverse economic and business developments and are
often unsecured and subordinated to other creditors of
the issuer. The market values for below investment
grade securities tend to be very volatile, and these
securities are generally less liquid than investment
grade securities. For these reasons, your investment
in the Fund is subject to the following specific
risks: (i) increased price sensitivity to changing
interest rates and to a deteriorating economic
environment; (ii) greater risk of loss due to default
or declining credit quality; (iii) adverse company
specific events more likely to render the issuer
unable to make interest and/or principal payments;
(iv) negative perception of the high yield market
which may depress the price and liquidity of below
investment grade securities; (v) volatility; and (vi)

liquidity. See "Risks--Credit and Below Investment
Grade Securities Risk."

Credit Rating Agency Risk. Credit ratings are
determined by credit rating agencies such as S&P,
Moody's and Fitch, and are only the opinions of such
entities. Ratings assigned by a rating agency are not
absolute standards of credit quality and do not
evaluate market risk or the liquidity of securities.
Consequently, securities with the same maturity,
duration, coupon, and rating may have different
yields. Any shortcomings or inefficiencies in credit
rating agencies' processes for determining credit
ratings may adversely affect the credit ratings of
securities held by the Fund and, as a result, may
adversely affect those securities' perceived or actual
credit risk.

Leverage Risk. The use of leverage by the Fund can
magnify the effect of any losses. If the income and
gains earned on the securities and investments
purchased with leverage proceeds are greater than the
cost of the leverage, the Common Shares' return will
be greater than if leverage had not been used.
Conversely, if the income and gains from the
securities and investments purchased with such
proceeds do not cover the cost of leverage, the return
to the Common Shares will be less than if leverage had
not been used. Leverage involves risks and special
considerations for Common Shareholders including:

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

o the risk that fluctuations in interest rates on
Borrowings and short-term debt or in the dividend
rates on any Preferred Shares that the Fund may
pay will reduce the return to the Common
Shareholders or will result in fluctuations in the
dividends paid on the Common Shares;

o the effect of leverage in a declining market,
which is likely to cause a greater decline in the
NAV of the Common Shares than if the Fund were not
leveraged, which may result in a greater decline
in the market price of the Common Shares; and

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

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

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

taxes may decrease the Fund's return. Foreign
companies are generally not subject to the same
accounting, auditing and financial reporting standards
as are U.S. companies. In addition, there may be
difficulty in obtaining or enforcing a court judgment
abroad. These risks may be more pronounced to the
extent that the Fund invests a significant amount of
its assets in companies located in one region or in
emerging markets (as described below).

Emerging Markets Risk. Investments in securities of
issuers located in emerging market countries are
considered speculative. Heightened risks of investing
in emerging markets securities include: (i) smaller
market capitalization of securities markets, which may
suffer periods of relative illiquidity; (ii)
significant price volatility; (iii) restrictions on
foreign investment; and (iv) possible repatriation of
investment income and capital. Furthermore, foreign
investors may be required to register the proceeds of
sales and future economic or political crises could
lead to price controls, forced mergers, expropriation
or confiscatory taxation, seizure, nationalization or
creation of government monopolies. The currencies of
emerging market countries may experience significant
declines against the U.S. dollar, and devaluation may
occur subsequent to investments in these currencies by
the Fund. Inflation and rapid fluctuations in
inflation rates have had, and may continue to have,
negative effects on the economies and securities
markets of certain emerging market countries.

Common Stock Risk. Although common stocks have
historically generated higher average returns than
debt securities over the long-term, common stocks also
have experienced significantly more volatility in
returns. Common stocks may be more susceptible to
adverse changes in market value due to issuer specific
events or general movements in the equities markets.
Common stock prices fluctuate for many reasons,
including changes in investors' perceptions of the
financial condition of an issuer or the general
condition of the relevant stock market, or the
occurrence of political or economic events affecting
issuers. Common stock of an issuer in the Fund's
portfolio may decline in price if the issuer fails to
make anticipated dividend payments because, among
other reasons, the issuer of the security experiences
a decline in its financial condition. In addition,
common stock prices may be sensitive to rising
interest rates as the costs of capital rise and
borrowing costs increase. See "Risks--Common Stock
Risk."

U.S. Government Securities Risk. Not all obligations
of the U.S. Government, its agencies and
instrumentalities are backed by the full faith and
credit of the U.S. Treasury. Some obligations are
backed only by the credit of the issuing agency or
instrumentality, and in some cases there may be some
risk of default by the issuer. Any guarantee by the
U.S. Government or its agencies or instrumentalities
of a security held by the Fund does not apply to the
market value of such security or to the Fund's Common
Shares. In addition, a security backed by the U.S.
Treasury or the full faith and credit of the United
States is guaranteed only as to the timely payment of
interest and principal when held to maturity, but the
market prices of such securities are not guaranteed
and will fluctuate. See "Risks--U.S. Government
Securities Risk."

Foreign Government Securities Risk. Economies and
social and political climates in individual countries
may differ unfavorably from the United States. The
ability of a government issuer, especially in an
emerging market country, to make timely and complete
payments on its debt obligations will be strongly
influenced by the government issuer's balance of
payments, including export performance, its access to

international credits and investments, fluctuations of
interest rates and the extent of its foreign reserves.
Additional factors that may influence a government
issuer's ability or willingness to service debt
include, but are not limited to, a country's cash flow
situation, the availability of sufficient foreign
exchange on the date a payment is due, the relative
size of its debt service burden to the economy as a
whole and the issuer's policy towards the
International Monetary Fund, the International Bank
for Reconstruction and Development and other
international agencies to which a government debtor
may be subject.

Since 2010, the risks of investing in certain foreign
sovereign debt have increased dramatically as a result
of the ongoing European debt crisis which began in
Greece and has begun to spread throughout various
other European countries. These debt crises and the
ongoing efforts of governments around the world to
address these debt crises have also resulted in
increased volatility and uncertainty in the United
States and the global economy and securities markets,
and it is impossible to predict the effects of these
or similar events in the future on the United States
and the global economy and securities markets or on
the Fund's investments, though it is possible that
these or similar events could have a significant
adverse impact on the value and risk profile of the
Fund. Moreover, as the European debt crisis has
progressed, the possibility of one or more eurozone
countries exiting the European Economic and Monetary
Union (the "EMU"), or even the collapse of the euro as
a common currency, has arisen. The effects of the
collapse of the euro, of the exit of one or more
countries from the EMU, or of the rating agency
downgrade of sovereign debt, on the United States and
the global economy 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.

Municipal Securities Risk. Municipal securities are
debt obligations issued by states or by political
subdivisions or authorities of states. Municipal
securities are long-term fixed rate debt obligations
that generally decline in value with increases in
interest rates, when an issuer's financial condition
worsens or when the rating on a bond is decreased.
Many municipal securities may be called or redeemed
prior to their stated maturity. Lower-quality revenue
bonds and other credit-sensitive municipal securities
carry higher risks of default than general obligation
bonds. In addition, the amount of public information
available about municipal securities is generally less
than that for corporate equities or bonds. Special
factors, such as legislative changes and local and
business developments, may adversely affect the yield
and/or value of the Fund's investments in municipal
securities. Other factors include the general
conditions of the municipal securities market, the
size of the particular offering, the maturity of the
obligation and the rating of the issue. See
"Risks--Municipal Securities Risk."

Illiquid and Restricted Securities Risk. Investments
in restricted securities could have the effect of
increasing the amount of the Fund's assets invested in
illiquid securities if qualified institutional buyers
are unwilling to purchase these securities. Illiquid
and restricted securities may be difficult to dispose
of at a fair price at the times when the Fund believes
it is desirable to do so. The market price of illiquid
and restricted securities generally is more volatile
than that of more liquid securities, which may
adversely affect the price that the Fund pays for or
recovers upon the sale of such securities. Illiquid
and restricted securities are also more difficult to
value, especially in challenging markets. The
Sub-Advisor's judgment may play a greater role in the
valuation process. Investment of the Fund's assets in
illiquid and restricted securities may restrict the
Fund's ability to take advantage of market

opportunities. The risks associated with illiquid and
restricted securities may be particularly acute in
situations in which the Fund's operations require cash
and could result in the Fund borrowing to meet its
short-term needs or incurring losses on the sale of
illiquid or restricted securities. In order to dispose
of an unregistered security, the Fund, where it has
contractual rights to do so, may have to cause such
security to be registered. A considerable period may
elapse between the time the decision is made to sell
the security and the time the security is registered,
therefore enabling the Fund to sell it. Contractual
restrictions on the resale of securities vary in
length and scope and are generally the result of a
negotiation between the issuer and acquiror of the
securities. In either case, the Fund would bear market
risks during that period.

Risks of Investing in Other Investment Companies. To
the extent the Fund invests a portion of its assets in
other investment companies, including open-end funds,
closed-end funds, ETFs and other types of funds, those
assets will be subject to the risks of the purchased
funds' portfolio securities, and a stockholder in the
Fund will bear not only his or her proportionate share
of the Fund's expenses, but also indirectly the
expenses of the purchased funds. Common Shareholders
would therefore be subject to duplicative expenses to
the extent the Fund invests in other funds. The Fund's
investments in other funds also are subject to the
ability of the managers of those funds to achieve the
funds' investment objectives. Risks associated with
investments in closed-end end funds generally include
the risks described in this prospectus associated with
the Fund's structure as a closed-end fund, including
market risk, leverage risk, risk of market price
discount from net asset value, risk of anti-takeover
provisions and non-diversification. In addition,
investments in closed-end funds may be subject to
dilution risk, which is the risk that strategies
employed by a closed-end fund, such as rights
offerings, may, under certain circumstances, have the
effect of reducing its share price and the Fund's
proportionate interest.

Valuation Risk. Unlike publicly traded common stock
that trades on national exchanges, there is no central
place or exchange for debt securities trading. Debt
securities generally trade on an "over-the-counter"
market which may be anywhere in the world where the
buyer and seller can settle on a price. Due to the
lack of centralized information and trading, the
valuation of debt securities may carry more risk than
that of common stock. Uncertainties in the conditions
of the financial market, unreliable reference data,
lack of transparency and inconsistency of valuation
models and processes may lead to inaccurate asset
pricing. In addition, other market participants may
value securities differently than the Fund. As a
result, the Fund may be subject to the risk that when
a debt security is sold in the market, the amount
received by the Fund is less than the value of such
debt security carried on the Fund's books.

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. Common stock prices may be particularly
sensitive to rising interest rates, as the cost of
capital rises and borrowing costs increase. In
addition, during any periods of rising inflation, the
dividend rates or borrowing costs associated with the
Fund's leverage would likely increase, which would
tend to further reduce returns to Common Shareholders.
Deflation risk is the risk that prices throughout the
economy decline over time--the opposite of inflation.
Deflation may have an adverse affect on the
creditworthiness of issuers and may make issuer
defaults more likely, which may result in a decline in
the value of the Fund's portfolio.

Potential Conflicts of Interest Risk. The Advisor, the
Sub-Advisor and the portfolio managers of the Fund
have interests which may conflict with the interests
of the Fund. In particular, the Advisor and the
Sub-Advisor may each manage and/or advise other
investment funds or accounts with the same investment
objectives and strategies as the Fund. As a result,
the Advisor, the Sub-Advisor and the Fund's portfolio
managers may devote unequal time and attention to the
management of the Fund and those other funds and
accounts, and may not be able to formulate as complete
a strategy or identify equally attractive investment
opportunities as might be the case if they were to
devote substantially more attention to the management
of the Fund. The Advisor, the Sub-Advisor and the
Fund's portfolio managers may identify a limited
investment opportunity that may be suitable for
multiple funds and accounts, and the opportunity may
be allocated among these several funds and accounts,
which may limit the Fund's ability to take full
advantage of the investment opportunity. Additionally,
transaction orders may be aggregated for multiple
accounts for purpose of execution, which may cause the
price or brokerage costs to be less favorable to the
Fund than if similar transactions were not being
executed concurrently for other accounts. At times, a
portfolio manager may determine that an investment
opportunity may be appropriate for only some of the
funds and accounts for which he or she exercises
investment responsibility, or may decide that certain
of the funds and accounts should take differing
positions with respect to a particular security. In
these cases, the portfolio manager may place separate
transactions for one or more funds or accounts which
may affect the market price of the security or the
execution of the transaction, or both, to the
detriment or benefit of one or more other funds and
accounts. For example, a portfolio manager may
determine that it would be in the interest of another
account to sell a security that the Fund holds,
potentially resulting in a decrease in the market
value of the security held by the Fund.

The portfolio managers also may engage in cross trades
between funds and accounts, may select brokers or
dealers to execute securities transactions based in
part on brokerage and research services provided to
the Advisor or the Sub-Advisor which may not benefit
all funds and accounts equally and may receive
different amounts of financial or other benefits for
managing different funds and accounts. Finally, the
Advisor and its affiliates may provide more services
to some types of funds and accounts than others.

There is no guarantee that the policies and procedures
adopted by the Advisor, the Sub-Advisor and the Fund
will be able to identify or mitigate the conflicts of
interest that arise between the Fund and any other
investment funds or accounts that the Advisor and/or
the Sub-Advisor may manage or advise from time to
time. For further information on potential conflicts
of interest, see "Investment Advisor" and
"Sub-Advisor" in the SAI.

In addition, while the Fund is using leverage, the
amount of the fees paid to the Advisor (and by the
Advisor to the Sub-Advisor) for investment advisory
and management services are higher than if the Fund
did not use leverage because the fees paid are
calculated based on the Fund's Managed Assets, which
include assets purchased with leverage. Therefore, the
Advisor and the Sub-Advisor have a financial incentive
to leverage the Fund, which may create a conflict of
interest between the Advisor and the Sub-Advisor on
the one hand and the Common Shareholders of the Fund
on the other.

New Types of Securities Risk. From time to time, new
types of securities have been, and may in the future
be, offered that have features other than those
described in this prospectus. The Fund reserves the
right to invest in these securities if the Sub-Advisor

believes that doing so would be in the best interest
of the Fund in a manner consistent with the Fund's
investment objectives and policies, as may be amended
from time to time. Since the market for these
instruments will be new, the Fund may have difficulty
disposing of them at a suitable price and time. In
addition to limited liquidity, these instruments may
present other risks, such as high price volatility.

Counterparty and Prime Brokerage Risk. Changes in the
credit quality of the companies that serve as the
Fund's prime brokers or counterparties with respect to
derivatives or other transactions supported by another
party's credit will affect the value of those
instruments. Certain entities that have served as
prime brokers or counterparties in the markets for
these transactions have recently incurred significant
financial hardships including bankruptcy and losses as
a result of exposure to sub-prime mortgages and other
lower quality credit investments that have experienced
recent defaults or otherwise suffered extreme credit
deterioration. If a prime broker or counterparty
becomes bankrupt or otherwise fails to perform its
obligations under a derivative contract due to
financial difficulties, the Fund may experience
significant delays in obtaining any recovery under the
derivative contract in a bankruptcy or other
reorganization proceeding. The Fund may obtain only a
limited recovery or may obtain no recovery in such
circumstances.

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

Non-Diversified Status. Because the Fund, as a
non-diversified investment company, may invest in a
smaller number of individual issuers than a
diversified investment company, an investment in the
Fund presents greater risk than an investment in a
diversified company.

Market Disruption and Geopolitical Risk. The terrorist
attacks in the U.S. on September 11, 2001 had a
disruptive effect on the securities markets. The
ongoing U.S. military and related action throughout
the world, as well as the continuing threat of
terrorist attacks, could have significant adverse
effects on the U.S. economy, the stock market and
world economies and markets generally. A similar
disruption of financial markets or other terrorist
attacks could adversely affect Fund service providers
and/or the Fund's operations as well as interest
rates, secondary trading, credit risk, inflation and
other factors relating to the Fund's Common Shares.
Below investment grade securities tend to be more
volatile than higher-rated securities so that these
events and any actions resulting from them may have a
greater impact on the prices and volatility of below
investment grade securities than on higher-rated
securities. The Fund cannot predict the effects or
likelihood of similar events in the future on the U.S.
and world economies, the value of the Common Shares or
the NAV of the Fund.

Certain Affiliations. Until the underwriting syndicate
is broken in connection with the initial public
offering of the Common Shares, the Fund will be
precluded from effecting principal transactions with
brokers who are members of the syndicate.

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

Strategic Transactions Risk. The Fund may use various
other investment management techniques that also
involve certain risks and special considerations.
These Strategic Transactions may be entered into to
seek to manage the risks of the Fund's portfolio
securities, but may have the effect of limiting the
gains from favorable market movements. Certain of
these Strategic Transactions may provide investment
leverage to the Fund's portfolio and result in many of
the same risks of leverage to Common Shareholders as
discussed above under "--Leverage Risk." The Fund does
not intend to enter into Strategic Transactions as a
principal part of its investment strategy. See "Other
Investment Policies and Techniques--Strategic
Transactions" in the SAI for more information about
these techniques.

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

Secondary Market for the Fund's Common Shares. The
issuance of Common Shares through the Fund's dividend
reinvestment plan may have an adverse effect on the
secondary market for the Fund's Common Shares. The
increase in the number of outstanding Common Shares
resulting from issuances pursuant to the Fund's
dividend reinvestment plan and the discount to the
market price at which such Common Shares may be
issued, may put downward pressure on the market price
for the Common Shares. Common Shares will not be
issued pursuant to the dividend reinvestment plan at
any time when Common Shares are trading at a lower
price than the Fund's NAV per Common Share. When the
Fund's Common Shares are trading at a premium, the
Fund also may issue Common Shares that may be sold
through private transactions effected on the NYSE or
through broker-dealers. The increase in the number of
outstanding Common Shares resulting from these
offerings may put downward pressure on the market
price for Common Shares.

Changes in Tax Law. From time to time, various
legislative initiatives are proposed which may have a
negative impact on the prices of certain securities
owned by the Fund. Any legislation that proposes to
reduce or eliminate the preferred tax rate on
dividends for federal income tax purposes would
negatively impact the value of the preferred
securities held by the Fund. In addition, changes in
federal tax law occur frequently and may be applied
retroactively. We cannot predict what impact any
pending or proposed legislation will have on the value

of the Fund or on the issuers of the underlying
securities in which it invests.

SUMMARY OF FUND EXPENSES

The following table assumes the use of leverage in the form of bank loan
facilities in an amount equal to 33-1/3% of the Fund's Managed Assets (after
their utilization), and shows Fund expenses as a percentage of net assets
attributable to Common Shares. The "Other expenses" shown in the table and
related footnotes are based on estimated amounts.

SHAREHOLDER TRANSACTION EXPENSES

Sales load paid by you (as a percentage of offering price)...................................... 4.50%
Offering expenses borne by the Fund (as a percentage of offering price)......................... .20% (1)(2)
Offering expenses of borrowings expected to be borne
by the Fund .............................................................................. None (3)
Dividend reinvestment plan fees ................................................................ None (4)

PERCENTAGE OF NET ASSETS
ATTRIBUTABLE TO COMMON
ANNUAL EXPENSES SHARES (ASSUMES DEBT IS USED)
-----------------------------
Management fees (5) ............................................................................ %
Interest on borrowed funds (6) ................................................................. %
Other expenses.................................................................................. %
-------
Total annual expenses........................................................................ %
-------

(1) The Advisor and the Sub-Advisor have agreed to pay: (i) all
organizational expenses; and (ii) all offering costs of the Fund
(other than the sales load, but including a partial reimbursement of
certain underwriter expenses incurred in connection with this
offering) that exceed .20% (or $.050 per Common Share) of the Fund's
aggregate offering price. Assuming the Fund issues Common Shares
($ ), the Fund's offering costs are estimated to be $ . The
Fund, and therefore Common Shareholders, will bear up to $ , or
approximately $.050 per Common Share of such estimated expenses, and
the Advisor and the Sub-Advisor will bear any expenses above that amount.

(3) The Fund will, however, incur legal expenses associated with the
review of documents establishing the revolving credit facility.

(4) You will pay brokerage charges if you direct BNY Mellon Investment
Servicing (US) Inc., as agent for the Common Shareholders, to sell
your Common Shares held in a dividend reinvestment account.

(5) Represents the aggregate fee payable to the Advisor and the
Sub-Advisor.

(6) Interest on borrowed funds is based upon assumed borrowing of $ at
an annual interest rate of %.

The purpose of the table above and the example below is to help you
understand all fees and expenses that you, as a holder of Common Shares, would
bear directly or indirectly. The expenses shown in the table under "Total annual
expenses" assume that the Fund issues Common Shares. See "Management of the
Fund" and "Dividend Reinvestment Plan."

EXAMPLE

Investors would pay the following expenses on a $1,000 investment, assuming a
5% annual return and sales load of $45 and estimated offering expenses of $2.

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

* The example should not be considered a representation of future expenses.
Actual expenses may be greater or less than those shown.

THE FUND

The Fund is a newly organized, non-diversified, closed-end management
investment company registered under the 1940 Act. The Fund was organized
on , 2013, as a Massachusetts business trust pursuant to a
Declaration of Trust (the "Declaration of Trust"). As a newly organized entity,
the Fund has no operating history. The Fund's principal office is located at 120
East Liberty Drive, Wheaton, Illinois 60187, and its telephone number is (630)
765-8000. Investment in the Fund involves certain risks and special
considerations. See "Risks."

USE OF PROCEEDS

The net proceeds of the offering of Common Shares will be approximately
$ ($ if the Underwriters exercise the over-allotment option
in full) after payment of the estimated offering costs. The Advisor and the
Sub-Advisor have agreed to pay: (i) all organizational expenses; and (ii) all
offering costs of the Fund (other than sales load, but including the partial
reimbursement of certain underwriter expenses incurred in connection with this
offering) that exceed .20% (or $.050 per Common Share) of the Fund's aggregate
offering price. The Fund will invest the net proceeds of the offering in
accordance with the Fund's investment objectives and policies as stated below.
The Fund expects it will be able to invest substantially all of the net proceeds
in securities that meet the Fund's investment objectives and policies within 45
to 60 days after the completion of the offering. Pending such investment, it is
anticipated that the proceeds will be invested in cash or cash equivalents.

THE FUND'S INVESTMENTS

INVESTMENT OBJECTIVES AND POLICIES

The Fund's primary investment objective is to seek a high level of current
income. The Fund has a secondary objective of capital appreciation. There can be
no assurance that the Fund's investment objectives will be achieved.

The Fund's investment objectives and certain of the investment restrictions
listed in the SAI are considered fundamental and may not be changed without
approval by holders of a majority of the outstanding voting securities of the
Fund, as defined in the 1940 Act, which includes Common Shares and Preferred
Shares, if any, voting together as a single class, and the holders of the
outstanding Preferred Shares, if any, voting as a single class. The remainder of
the Fund's investment policies, including its investment strategy, are
considered non-fundamental and may be changed by the Board of Trustees without
shareholder approval, provided that shareholders receive at least 60 days' prior
written notice of any such change adopted by the Board of Trustees. As defined
in the 1940 Act, when used with respect to particular shares of the Fund, a
"majority of the outstanding voting securities" means: (i) 67% or more of the
shares present at a meeting, if the holders of more than 50% of the shares are
present or represented by proxy; or (ii) more than 50% of the shares, whichever
is less.

INVESTMENT POLICIES

Under normal market conditions, the Fund will invest at least 80% of its
Managed Assets in a portfolio of preferred and other income-producing securities
issued by U.S. and non-U.S. companies, including traditional preferred
securities, hybrid preferred securities that have investment and economic
characteristics of both preferred securities and debt securities, floating rate
and fixed-to-floating-rate preferred securities, debt securities, convertible
securities, contingent convertible securities and securities of other open-end,
closed-end and ETFs that invest primarily in securities of the types in which
the Fund may invest directly.

Duration. The Fund seeks to maintain, under normal market conditions, a
blended (or weighted average) portfolio duration of between three and eight
years. However, under certain market conditions, the Fund's blended (or weighted
average) duration may be longer than eight years or shorter than three years. In
seeking to maintain its target duration, the Fund will invest significantly in
floating rate and fixed-to-floating rate preferred securities, which tend to be
less price-sensitive to rising interest rates (or yields) than fixed rate
securities with similar terms to maturity.

Duration is a mathematical calculation of the sensitivity of the price of a
security to changes in interest rates. Duration is not necessarily equal to
average maturity and differs from maturity in that it considers potential
changes to interest rates, and a security's coupon payments, yield, price and
par value and call features, in addition to the amount of time until the
security matures. Generally, the longer the duration of a security or group of
securities, the more sensitive the security or group of securities is to such
changes; the shorter the duration, the less sensitive the security or group of
securities is to such changes. In general, each year of duration represents an
expected 1% change in the value for every 1% immediate change in interest rates.
For example, if a portfolio of debt securities has an average duration of three
years, its value can be expected to fall about 3% if interest rates rise by 1%.
Conversely, the portfolio's value can be expected to rise about 3% if interest
rates fall by 1%. As a result, prices of instruments with shorter durations tend
to be less sensitive to interest rate changes than instruments with longer
durations. As the value of a security changes over time, so will its duration.
Blended (or weighted average) duration is simply the average duration of a

portfolio of securities based on the duration of the individual securities and
their weight within the portfolio. In this prospectus, blended (or weighted
average) duration is defined to be the effective duration of the Fund's
portfolio, which is the measure of a security's or a portfolio's price
sensitivity with respect to changes in market yields adjusted to reflect the
effect of the Fund's effective leverage.

The Fund also will invest, under normal market conditions, at least 25% of
its Managed Assets in securities of companies in the financials sector as
classified under the Global Industry Classification Standards developed by MSCI,
Inc. and Standard & Poor's, which may include banks, thrifts, brokerage firms,
broker/dealers, investment banks, finance companies, real estate investment
trusts ("REITs") and companies involved in the insurance industry. The Fund also
may invest in other sectors or industries, such as energy, industrials,
utilities, pipelines, health care and telecommunications. The Sub-Advisor
retains broad discretion to allocate the Fund's investments across various
sectors and industries.

Other Investments. The Fund may invest up to 20% of its Managed Assets in
common stocks, which represent residual ownership interest in issuers and
include rights or warrants to purchase common stocks. See "--Portfolio
Composition--Common Stocks."

The Fund may invest up to 20% of its Managed Assets in debt securities issued
or guaranteed by the U.S. Government or its agencies or instrumentalities or by
a non-U.S. Government or its agencies or instrumentalities. Obligations issued
or guaranteed by the U.S. Government, its agencies and instrumentalities include
bills, notes and bonds issued by the U.S. Treasury, as well as "stripped" or
"zero coupon" U.S. Treasury obligations representing future interest or
principal payments on U.S. Treasury notes or bonds. See "--Portfolio
Composition--Government Securities."

The Fund may invest up to 20% of its Managed Assets in municipal securities,
which includes debt obligations of states, territories or possessions of the
United States and the District of Columbia and their political subdivisions,
agencies and instrumentalities. See "--Portfolio Composition--Municipal
Securities."

The Fund may enter into Strategic Transactions to seek to manage the risks of
the Fund's portfolio securities or for other purposes to the extent the
Sub-Advisor determines that the use of Strategic Transactions is consistent with
the Fund's investment objectives and policies and applicable regulatory
requirements. Certain of the Fund's Strategic Transactions, if any, may provide
investment leverage to the Fund's portfolio. See "Risks--Leverage Risk." The
Fund does not intend to enter into Strategic Transactions as a principal part of
its investment strategy. The use of Strategic Transactions are highly
specialized activities which involve investment techniques and risks different
from those associated with ordinary portfolio securities transactions. If the
Sub-Advisor is incorrect in its forecasts of market values, interest rates and
other applicable factors, the investment performance of the Fund would be
unfavorably affected. See "Other Investment Policies and Techniques--Strategic
Transactions" in the SAI.

The Fund is non-diversified and as a result may invest a relatively high
percentage of its assets in a limited number of issuers. See
"Risks--Non-Diversified Status." Percentage limitations described in this
prospectus are as of the time of investment by the Fund and may be exceeded on a
going-forward basis as a result of credit rating downgrades or market value
fluctuations of the Fund's portfolio securities.

INVESTMENT PHILOSOPHY AND PROCESS

In selecting securities for the Fund, the Sub-Advisor's investment strategy
is driven by comprehensive analysis of fixed income preferred and hybrid
securities with a goal of investing in securities representing the best relative
value in the market. The Sub-Advisor's conservative style of active management
combines a bottom-up and top-down approach to security selection that
encompasses three significant areas of analysis: credit fundamentals, relative
value, and technical aspects of the securities. The bottom-up analysis focuses

on individual security analysis, idiosyncratic risks, credit fundamentals and
opportunistic trading. The top-down analysis focuses on sector and industry
analysis, duration and interest rate analysis, capital structure positioning and
systemic risks. Diversification of the Fund's portfolio within the preferred and
hybrid securities asset class is achieved through limits on issuer and industry
weightings. In addition to fundamental analysis, Stonebridge draws upon their
experience and understanding of the preferred and hybrid securities asset class
to take advantage of market inefficiencies through active management.

To implement the investment strategy, the Sub-Advisor utilizes a repeatable
and consistent investment process that centers on security selection. This
process allows the Sub-Advisor to source securities in the preferred asset class
based on attributes such as credit quality, yield and capital structure
positioning while also focusing on equally important market technicals such as
trading volumes, liquidity and pricing inefficiencies. New investments are
presented to the Sub-Advisor's investment committee before inclusion into the
portfolio. Investment risk factors and compliance considerations are included in
the selection process. Once an investment decision has been approved by the
investment committee, the portfolio managers will look to act upon that
investment decision.

PORTFOLIO COMPOSITION

The Fund's portfolio will be composed principally of the following
investments. A more detailed description of the Fund's investment policies and
restrictions and more detailed information about the Fund's portfolio
investments are contained in the SAI.

Preferred Securities. Traditional preferred securities are considered equity
securities. Preferred securities held by the Fund generally will pay fixed or
floating rate distributions to investors and have preference over common stock
in the payment of distributions and the liquidation of a company's assets, which
means that a company typically must pay dividends or interest on its preferred
securities before paying any dividends on its common stock. Preferred securities
are generally junior to all forms of the company's debt, including both senior
and subordinated debt. In order to be payable, distributions on preferred
securities must be declared by the issuer's board of directors. Income payments
on certain preferred securities currently outstanding are cumulative, causing
dividends and distributions to accumulate even if not declared by the board of
directors or otherwise made payable. In such a case, all accumulated dividends
must be paid before any dividend on the common stock can be paid. However, some
traditional preferred stocks are non-cumulative, in which case dividends do not
accumulate and need not ever be paid. The Fund may invest in non-cumulative
preferred securities, whereby the issuer does not have an obligation to make up
any arrearages to its stockholders. Should an issuer of a non-cumulative
preferred stock held by the Fund determine not to pay dividends on such stock,
the amount of dividends the Fund pays may be adversely affected. There is no
assurance that dividends or distributions on the traditional preferred
securities in which the Fund invests will be declared or otherwise made payable.

While some preferred securities are issued with a final maturity date, others
are perpetual in nature. In certain instances, a final maturity date may be
extended and/or the final payment of principal may be deferred at the issuer's
option for a specified time without any adverse consequence to the issuer.
Because the claim on an issuer's earnings represented by traditional preferred
securities may become onerous when interest rates fall below the rate payable on
such securities, the issuer may redeem the securities. Thus, in declining
interest rate environments in particular, the Fund's holdings of higher
rate-paying fixed rate preferred securities may be reduced and the Fund may be
unable to acquire securities of comparable credit quality paying comparable
rates with the redemption proceeds. No redemption can typically take place
unless all cumulative payment obligations to preferred security investors have
been met, although issuers may be able to engage in open-market repurchases
without regard to any cumulative dividends or interest payable. The market value
of preferred securities may be affected by favorable and unfavorable changes
impacting companies in the utilities and financial services sectors, which are
prominent issuers of preferred securities, and by actual and anticipated changes
in tax laws, such as changes in corporate income tax rates. Shares of
traditional preferred securities have a liquidation preference that generally
equals the original purchase price at the date of issuance. Preferred
stockholders usually have no right to vote for corporate directors or on other
matters.

Within the category of traditional preferred securities, the Fund may invest
in traditional preferred securities issued by real estate companies, including
REITs. REIT preferred securities are generally perpetual in nature, although
REITs often have the ability to redeem the preferred securities after a
specified period of time. The market value of REIT preferred securities may be
affected by favorable and unfavorable changes affecting a particular REIT. While
sharing characteristics of other traditional preferred securities, dividends
from REIT preferred securities do not qualify for the dividends received
deduction and generally do not constitute qualified dividend income, as
described below. The Fund may invest in REITs of any market capitalization;
however, even the larger REITs tend to be small- to medium-sized companies in
relation to the equity markets as a whole.

Corporate stockholders of a regulated investment company (a "RIC") such as
the Fund generally are permitted to claim the 70% dividends received deduction
with respect to that portion of their distributions from the RIC attributable to
amounts received by the RIC that qualify for the dividends received deduction,

provided such amounts are properly reported by the RIC and certain holding
period requirements are met at both the RIC and shareholder level. However, not
all traditional preferred securities pay dividends that are eligible for the
dividends received deduction. Individual stockholders of a RIC such as the Fund
generally may be eligible to treat as qualified dividend income that portion of
their distributions from the RIC attributable to qualified dividend income
received and reported as such by the RIC, provided certain holding period
requirements are met at both the RIC and shareholder level. However, not all
traditional preferred securities will provide significant benefits under the
rules relating to qualified dividend income. Under current law, individuals will
generally be taxed at long-term capital gain rates on qualified dividend income.
For more information regarding qualified dividend income and dividends received
deduction, see "Federal Tax Matters" below.

Hybrid preferred securities have the characteristics of both preferred
securities and debt securities. Hybrid preferred securities may be issued by
corporations, generally in the form of interest-bearing notes with preferred
securities characteristics, or by an affiliated trust or partnership of the
corporation, generally in the form of preferred interests in subordinated
debentures or similarly structured securities. The hybrid preferred securities
market consists of both fixed and floating coupon rate securities that are
typically issued with a final maturity date, although some are perpetual in
nature. Similar to traditional preferred securities, in certain instances, a
final maturity date may be extended and/or the final payment of principal may be
deferred at the issuer's option for a specified time without default. No
redemption can typically take place unless all cumulative payment obligations
have been met, although issuers may be able to engage in open-market repurchases
without regard to whether all payments have been paid. Examples of hybrid
preferred securities include, but are not limited to, trust preferred securities
(as described below), monthly income preferred securities, quarterly income bond
securities, quarterly income debt securities, quarterly income preferred
securities, corporate trust securities and public income notes.

Hybrid preferred securities are typically junior and fully subordinated
liabilities of an issuer or the beneficiary of a guarantee that is junior and
fully subordinated to the other liabilities of the guarantor. In addition,
hybrid preferred securities typically permit an issuer to defer the payment of
income for 18 months or more without triggering an event of default. Generally,
the maximum deferral period is five years. Because of their subordinated
position in the capital structure of an issuer, the ability to defer payments
for extended periods of time without default consequences to the issuer, and
certain other features (such as restrictions on common dividend payments by the
issuer or ultimate guarantor when full cumulative payments on the preferred
securities have not been made), these hybrid preferred securities are often
treated as close substitutes for traditional preferred securities, both by
issuers and investors. Hybrid preferred securities have many of the key
characteristics of equity because of their subordinated position in an issuer's
capital structure and because their quality and value are heavily dependent on
the profitability of the issuer rather than on any legal claims to specific
assets or cash flows.

Many hybrid preferred securities are issued by trusts or other special
purpose entities established by operating companies and are not direct
obligations of the operating company. At the time the trust or special purpose
entity sells such preferred securities to investors, it purchases debt of the
operating company (with terms comparable to those of the trust or special
purpose entity securities), which enables the operating company to deduct for
tax purposes the interest paid on the debt held by the trust or special purpose
entity. For U.S. federal income tax purposes, holders of the trust preferred
securities generally are treated as owning beneficial interests in the
underlying debt of the operating company held by the trust or special purpose
entity, and payments on the hybrid preferred securities are treated as interest
rather than dividends. As such, payments on the hybrid preferred securities are
not eligible for the dividend received deduction or the reduced rates of tax
that may apply to qualified dividend income. The trust or special purpose entity
would be a holder of the operating company's debt and would have priority with
respect to the operating company's earnings and profits over the operating
company's common stockholders, but would typically be subordinated to other
classes of the operating company's debt. Typically a preferred share has a
rating that is slightly below that of its corresponding operating company's
senior debt securities.

Within the category of hybrid preferred securities are senior debt
instruments that trade in the broader preferred securities market. These debt
instruments, which are sources of long-term capital for the issuers, have
structural features similar to preferred securities such as maturities ranging
from 30 years to perpetuity, call features, exchange listings and the inclusion
of accrued interest in the trading price. Similar to other hybrid preferred
securities, these debt instruments usually do not offer equity capital
treatment. Corporate trust securities (CORTS(R)) and public income notes
(PINES(R)) are two examples of senior debt instruments which are structured and
trade as hybrid preferred securities.

Floating-rate and fixed-to-floating-rate preferred securities may be
traditional preferred or hybrid preferred securities. Floating-rate preferred
securities pay a rate of income that resets periodically based on short and/or
longer-term interest rate benchmarks. If the associated interest rate benchmark
rises, the coupon offered by the floating-rate security may rise as well, making
such securities less sensitive to rising interest rates (or yields). Similarly,
a fixed-to-floating-rate security may be less price-sensitive to rising interest
rates (or yields), because it has a rate of payment that is fixed for a certain
period (typically five, ten or thirty years when first issued), after which
period a floating-rate of payment applies.

Trust preferred securities combine features of corporate debt securities and
preferred securities. The securities generally pay quarterly income. U.S. issues
usually have long maturities, while foreign issues are normally perpetual. The
creation of a trust preferred generally begins with a company establishing a
Delaware limited business trust. The trust issues preferred securities to the
public and uses the proceeds to purchase junior subordinated debentures from
that company. The terms of the debentures are essentially the same as the terms
of the preferred securities. Trust preferreds represent the "preferred" interest
in trusts that hold junior subordinated deferrable debentures of the issuer. The
parent may then use the proceeds for general corporate purposes. The issuer of
trust preferred securities are generally able to defer or skip payments for up
to five years without being in default. In the event that the issuer skips or
defers a payment, the holder of the security is generally still subject to
taxation on the missed payments.

The Fund may invest in over-the-counter ("OTC") preferred securities and
exchange-traded preferred securities. Securities may or may not pay dividends
that are eligible for the corporate dividends received deduction for
corporations or for treatment as qualified dividend income for individuals.

Debt Securities. Debt securities include obligations typically issued by
corporations to borrow money from investors, such as corporate bonds,
debentures, notes, commercial paper and other similar types of corporate debt
instruments, including instruments issued by corporations with direct or
indirect government ownership, as well as asset-backed securities, preferred
securities, loan participations and assignments, payment-in-kind securities,
zero-coupon bonds, bank certificates of deposit, fixed time deposits, bankers'
acceptances and derivative instruments that provide the same or similar economic
impact as a physical investment in the above securities. These securities may be
either secured or unsecured. Collateral used for secured debt includes, but is
not limited to, real property, machinery, equipment, accounts receivable,
stocks, bonds or notes. If a debt security is unsecured, it is known as a
debenture.

Holders of debt securities, as creditors, have a prior legal claim over
common and preferred shareholders as to both income and assets of the issuer for
the principal and interest due them and may have a prior claim over other
creditors if liens or mortgages are involved. Interest on debt securities may be
fixed or floating, or the securities may be zero coupon securities which pay no
interest. Interest on debt securities is typically paid semi-annually and is
fully taxable to the holder of the securities. The investment return of debt
securities reflects interest on the security and changes in the market value of
the security. The market value of a fixed rate debt security generally may be
expected to rise and fall inversely with changes in interest rates and also may
be affected by the credit rating of the issuer, the issuer's performance and
perceptions of the issuer in the marketplace. Debt securities issued by
corporations usually have a higher yield than government or agency bonds due to
the presence of credit risk.

Convertible Securities. Convertible securities combine the investment
characteristics of bonds and common stocks. Convertible securities typically
consist of debt securities or preferred securities that may be converted within
a specified period of time (typically for the entire life of the security) into
a certain amount of common stock or other equity security of the same or a
different issuer at a predetermined price. They also include debt securities
with warrants or common stock attached and derivatives combining the features of
debt securities and equity securities. Convertible securities entitle the holder
to receive interest paid or accrued on debt, or dividends paid or accrued on
preferred securities, until the security matures or is redeemed, converted or
exchanged.

Contingent convertible securities provide for mandatory conversion into
common stock of the issuer under certain circumstances. The mandatory conversion
might relate, for instance, to maintenance of a capital minimum, whereby falling
below the minimum would trigger automatic conversion. Since the common stock of
the issuer may not pay a dividend, investors in these instruments could
experience a reduced income rate, potentially to zero; and conversion would
deepen the subordination of the investor, hence worsening standing in a
bankruptcy. In addition, some such instruments have a set stock conversion rate
that would cause an automatic write-down of capital if the price of the stock is
below the conversion price on the conversion date.

The Fund may also invest in securities of foreign companies in the form of
sponsored and unsponsored American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs") and similar depositary receipts such as European
Depositary Receipts ("EDRs"). ADRs, typically issued by a financial institution
(a depositary), evidence ownership interests in a security or a pool of
securities issued by a foreign company and deposited with the depositary. Prices
of ADRs are quoted in U.S. dollars, and ADRs are traded in the United States.
GDRs are receipts issued outside the United States, typically by non-United
States banks and trust companies that evidence ownership of either foreign or
domestic securities. Generally, GDRs are designated for use outside the United
States. Ownership of ADRs and GDRs entails similar investment risks to direct

ownership of foreign securities traded outside the U.S., including increased
market liquidity, currency, political, information and other risks. See
"Risks--Foreign (Non-U.S. Securities Risk." Income and gains earned by the Fund
in respect of foreign securities may be subject to foreign withholding and other
taxes, which will reduce the Fund's return on such securities. Generally, ADRs
in registered form are dollar-denominated securities designed for use in the
U.S. securities markets, which represent and may be converted into an underlying
foreign security. GDRs, in bearer form, are designated for use outside the
United States. EDRs, in bearer form, are designed for use in the European
securities markets.

Investment Companies. The Fund may invest in securities of other investment
companies, including open-end funds, closed-end funds and ETFs, including
affiliated registered investment companies to the extent permitted by the 1940
Act, that invest primarily in preferred and/or debt securities as described
herein, to the extent permitted under Section 12(d)(1) of the 1940 Act, and the
rules promulgated thereunder, or an exemption granted to the Fund under the 1940
Act. To the extent the Fund invests in shares of another fund, the Common
Shareholders would indirectly pay a portion of that fund's expenses, including
advisory fees and brokerage and distribution expenses. The securities of other
funds may also be leveraged and will therefore be subject to similar leverage
risks to which the Fund is subject. In addition, to the extent the Fund invests
in other funds, the Fund will be dependent upon the investment and research
abilities of persons other than the Sub-Advisor. Investment companies in which
the Fund may invest may have investment policies that differ from those of the
Fund. For purposes of the 80% test set forth above, securities of other open-end
funds, closed-end funds or ETFs registered under the 1940 Act that invest
primarily in preferred and/or other income-producing securities as described
herein will be deemed to be preferred or other income-producing securities. See
"Risks--Risks of Investing in Other Investment Companies."

Common Stocks. Common stocks represent residual ownership interest in issuers
and include rights or warrants to purchase common stocks. Holders of common
stocks are entitled to the income and increase in the value of the assets and
business of the issuers after all debt obligations and obligations to preferred
stockholders are satisfied. Common stocks generally have voting rights. Common
stocks fluctuate in price in response to many factors including historical and
prospective earnings of the issuer, the value of its assets, general economic
conditions, interest rates, investor perceptions and market liquidity. The value
of common stocks purchased by the Fund could decline if the financial condition
of the companies the Fund invests in declines or if overall market and economic
conditions deteriorate. Their value also may decline due to factors that affect
a particular industry or industries, such as labor shortages or an increase in
production costs and competitive conditions within an industry. In addition,
they may decline due to general market conditions that are not specifically
related to a company or industry, such as real or perceived adverse economic
conditions, changes in the general outlook for corporate earnings, changes in
interest or currency rates or generally adverse investor sentiment.

Government Debt Securities. Government debt securities are securities issued
or guaranteed by the U.S. Government or its agencies or instrumentalities or by
a non-U.S. Government or its agencies or instrumentalities. Obligations issued
or guaranteed by the U.S. Government, its agencies and instrumentalities include
bills, notes and bonds issued by the U.S. Treasury, as well as "stripped" or
"zero coupon" U.S. Treasury obligations representing future interest or
principal payments on U.S. Treasury notes or bonds. Stripped securities are sold
at a discount to their "face value," and may exhibit greater price volatility
than interest-bearing securities because investors receive no payment until
maturity. Other obligations of certain agencies and instrumentalities of the
U.S. Government are supported only by the credit of the instrumentality. The
U.S. Government may choose not to provide financial support to U.S.
Government-sponsored agencies or instrumentalities if it is not legally
obligated to do so, in which case, if the issuer were to default, the Fund might
not be able to recover its investment from the U.S. Government.

Municipal Securities. Municipal securities include debt obligations of
states, territories or possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities.
Municipal securities are issued to obtain funds for various public purposes,
including the construction of a wide range of public facilities such as
airports, bridges, highways, housing, hospitals, mass transportation, schools,
streets and water and sewer works. Other public purposes for which municipal
securities may be issued include the refunding of outstanding obligations,
obtaining funds for general operating expenses and lending such funds to other
public institutions and facilities.

The two major classifications of municipal securities are bonds and notes.
Bonds may be further classified as "general obligation" or "revenue" issues.
General obligation bonds are secured by the issuer's pledge of its full faith,
credit and taxing power for the payment of principal and interest. Revenue bonds
are payable from the revenues derived from a particular facility or class of
facilities, and in some cases, from the proceeds of a special excise or other
specific revenue source, but not from the general taxing power. Most notes are
general obligations of the issuing municipalities or agencies and are sold in
anticipation of a bond sale, collection of taxes or receipt of other revenues.
There are, of course, variations in the risks associated with municipal
securities, both within a particular classification and between classifications.
The Fund does not anticipate meeting the requirements under the Internal Revenue
Code of 1986, as amended (the "Code"), to pass through income from municipal
securities as tax free to Common Shareholders.

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

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

Short-Term Debt Securities; Temporary Defensive Position; Invest-Up Period.
During the period in which the net proceeds of the offering of Common Shares are
being invested, or during periods in which the Advisor determines that it is
temporarily unable to follow the Fund's investment strategy or that it is
impractical to do so, the Fund may deviate from its investment strategy and
invest all or any portion of its Managed Assets in cash or cash equivalents. The
Advisor's determination that it is temporarily unable to follow the Fund's
investment strategy or that it is impractical to do so will generally occur only
in situations in which a market disruption event has occurred and where trading
in the securities selected through application of the Fund's investment strategy
is extremely limited or absent. In such a case, Common Shareholders of the Fund
may be adversely affected and the Fund may not pursue or achieve its investment
objectives. For a further description of these temporary investments, see the
SAI under "Investment Policies and Techniques--Portfolio Composition."

Portfolio Turnover. The Fund's annual portfolio turnover rate may vary
greatly from year to year, as well as within a given year. Although the Fund
cannot accurately predict its annual portfolio turnover rate, it is not expected
to exceed %. Portfolio turnover rate is not considered a limiting factor in
the execution of investment decisions for the Fund. There are no limits on the
rate of portfolio turnover, and investments may be sold without regard to length
of time held when the Sub-Advisor believes it to be necessary or appropriate. 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 the realization of net short-term capital gains
by the Fund which, when distributed to Common Shareholders, will be taxable as
ordinary income. See "Federal Tax Matters."

USE OF LEVERAGE

The Fund currently intends to use leverage to seek to enhance its potential
for current income. The Fund initially anticipates that, under normal market
conditions, it will employ a combination of structural leverage, through
Borrowings pursuant to a revolving credit facility established with a bank or
other financial institutions, and portfolio leverage. The Fund also may utilize
derivatives and other portfolio techniques that have the economic effect of
leverage by creating additional investment exposure. Under current conditions,
it is unlikely that the Fund will issue Preferred Shares. The Fund anticipates
that its effective leverage will vary from time to time, based upon changes in
market conditions and variations in the value of the portfolio's holdings;
however, the Fund's effective leverage will not exceed % of the Fund's Managed
Assets. Based upon current market conditions, it is expected that the Fund's
initial effective leverage will be approximately % of Managed Assets. The
Fund will not be required to reduce leverage to the extent the above percentage
limitation is exceeded as a result of a decline in the value of the Fund's
assets.

The Fund's Declaration of Trust authorizes the Fund, without prior approval
of the Common Shareholders, to borrow money. In this connection, the Fund may
enter into reverse repurchase agreements, issue notes or other evidence of
indebtedness (including bank borrowings or commercial paper) and may secure any
such Borrowings by mortgaging, pledging or otherwise subjecting as security the
Fund's assets. Certain types of Borrowings may result in the Fund being subject
to covenants in credit agreements relating to asset coverage and portfolio
composition requirements. Generally, covenants to which the Fund may be subject
include affirmative covenants, negative covenants, financial covenants, and
investment covenants. An example of an affirmative covenant would be one that
requires the Fund to send its annual audited financial report to the lender. An
example of a negative covenant would be one that prohibits the Fund from making
any amendments to its fundamental policies. An example of a financial covenant
is one that would require the Fund to maintain a 3:1 asset coverage ratio. An
example of an investment covenant is one that would require the Fund to limit
its investment in a particular asset class. The terms of such Borrowings may
also contain provisions which limit certain activities of the Fund, including
the payment of dividends to Common Shareholders in certain circumstances, and
the Fund may be required to maintain minimum average balances with the lender or

to pay a commitment or other fee to maintain a line of credit. Any such
requirements will increase the cost of Borrowing over the stated interest rate.
Furthermore, the Fund may be subject to certain restrictions on investments
imposed by guidelines of one or more rating agencies, which may issue ratings
for the short-term corporate debt securities or Preferred Shares issued by the
Fund. These guidelines may impose asset coverage or portfolio composition
requirements that are more stringent than those imposed by the 1940 Act as
described below. It is not anticipated that these covenants or guidelines will
impede the Sub-Advisor from managing the Fund's portfolio in accordance with the
Fund's investment objectives and policies. Any Borrowing will likely be ranked
senior or equal to all other existing and future Borrowings of the Fund.

Under the requirements of the 1940 Act, the Fund, immediately after any
Borrowing, must have an "asset coverage" of at least 300% (33-1/3% of Managed
Assets). With respect to such Borrowing, asset coverage means the ratio which
the value of the total assets of the Fund, less all liabilities and indebtedness
not represented by senior securities (as defined in the 1940 Act), bears to the
aggregate amount of such borrowing represented by senior securities issued by
the Fund. Also under the 1940 Act, the Fund is not permitted to issue Preferred
Shares unless immediately after such issuance the value of the Fund's total
assets is at least 200% of the liquidation value of the outstanding Preferred
Shares (i.e., the liquidation value may not exceed 50% of the Fund's Managed
Assets). In addition, the Fund is not permitted to declare any cash dividend or
other distribution on its Common Shares unless, at the time of such declaration,
the value of the Fund's total assets is at least 200% of such liquidation value.
If Preferred Shares are issued, the Fund intends, to the extent possible, to
purchase or redeem Preferred Shares from time to time to the extent necessary in
order to maintain coverage of any Preferred Shares of at least 200%. In
addition, as a condition to obtaining ratings on the Preferred Shares, the terms
of any Preferred Shares issued are expected to include asset coverage
maintenance provisions which will require the redemption of the Preferred Shares
in the event of non-compliance by the Fund and also may prohibit dividends and
other distributions on the Common Shares in such circumstances. In order to meet
redemption requirements, the Fund may have to liquidate portfolio securities.
Such liquidations and redemptions would cause the Fund to incur related
transaction costs and could result in capital losses to the Fund. Prohibitions
on dividends and other distributions on the Common Shares could impair the
Fund's ability to qualify as a regulated investment company under the Code. In
the event that such provisions would impair the Fund's status as a regulated
investment company under the Code, the Fund, subject to its ability to liquidate
its portfolio, intends to repay the Borrowings.

The rights of lenders to the Fund to receive interest on and repayment of
principal of any Borrowings will be senior to those of the Common Shareholders.
Further, the 1940 Act grants, in certain circumstances, to the lenders to the
Fund certain voting rights in the event of default in the payment of interest on
or repayment of principal. If the Fund has Preferred Shares outstanding, two of
the Fund's Trustees will be elected by the holders of Preferred Shares as a
class. The remaining Trustees of the Fund will be elected by holders of Common
Shares and Preferred Shares voting together as a single class. In the event the
Fund failed to pay dividends on Preferred Shares for two years, holders of
Preferred Shares would be entitled to elect a majority of the Trustees of the
Fund.

Any use of leverage by the Fund will be consistent with the provisions of the
1940 Act. To the extent Leverage Instruments are utilized by the Fund, the
Leverage Instruments would have complete priority upon distribution of assets
over the Common Shares. The issuance of Leverage Instruments would leverage the
Common Shares. Although the timing and other terms of the offering of Leverage
Instruments and the terms of the Leverage Instruments would be determined by the
Fund's Board of Trustees, the Fund expects to invest the proceeds derived from
any leverage offering in securities consistent with the Fund's investment
objectives and policies. If Preferred Shares are issued, they may pay dividends
based on short-term interest rates. The adjustment period for Preferred Shares
dividends could be as short as one day or as long as a year or more. Under
current conditions, it is unlikely that the Fund will issue Preferred Shares. So
long as the Fund's portfolio is invested in securities that provide a higher
rate of return than the dividend rate or interest rate of the Leverage
Instruments, after taking expenses into consideration, the leverage will cause
Common Shareholders to receive a higher rate of return than if the Fund were not
leveraged. Conversely, if the total return derived from securities purchased
with funds received from the use of leverage is less than the cost of leverage,
the Fund's return will be less than if leverage had not been used, and therefore
the amount available for distribution to Common Shareholders as dividends and
other distributions will be reduced. In the latter case, the Sub-Advisor in its
best judgment nevertheless may determine to maintain the Fund's leveraged
position if it expects that the benefits to the Fund's Common Shareholders of
maintaining the leveraged position will outweigh the current reduced return.
Under normal market conditions, the Fund anticipates that it will be able to
invest the proceeds from leverage at a higher rate of return than the costs of
leverage, which would enhance returns to Common Shareholders. The Fund also may
borrow money as a temporary measure for extraordinary or emergency purposes,
including the payment of dividends and the settlement of securities transactions
which otherwise might require untimely dispositions of Fund securities.

Leverage may also be created through the use of reverse repurchase
agreements. A reverse repurchase agreement, although structured as a sale and
repurchase obligation, acts as a financing under which the Fund will effectively
pledge its securities as collateral to secure a short-term loan. Generally, the
other party to the agreement makes the loan in an amount equal to a percentage
of the market value of the pledged collateral. At the maturity of the reverse

repurchase agreement, the Fund will be required to repay the loan and
correspondingly receive back its collateral. While used as collateral, the
securities continue to pay principal and interest which are for the benefit of
the Fund.

The use of leverage involves special considerations. Leverage creates risk
for the Common Shareholders, including the likelihood of greater volatility of
NAV and market price of the Common Shares, and the risk that fluctuations in
interest rates on reverse repurchase agreements, Borrowings and debt or in the
dividend rates on any Preferred Shares may affect the return to the Common
Shareholders or will result in fluctuations in the dividends paid on the Common
Shares. The fees paid to the Advisor (and by the Advisor to the Sub-Advisor)
will be calculated on the basis of the Managed Assets, including proceeds from
reverse repurchase agreements, Borrowings for leverage and the issuance of
Preferred Shares. During periods in which the Fund is utilizing leverage, the
investment advisory fee payable to the Advisor and the Sub-Advisor will be
higher than if the Fund did not utilize a leveraged capital structure. See
"Risks--Leverage Risk."

EFFECTS OF LEVERAGE

Assuming that the Leverage Instruments will represent approximately % of the
Fund's Managed Assets and pay dividends or interest at an annual combined
average rate of %, the return generated by the Fund's portfolio (net of
estimated expenses) must exceed % in order to cover the dividend and interest
payments specifically related to the Leverage Instruments. Of course, these
numbers are merely estimates used for illustration. Actual dividends or interest
rates on the Leverage Instruments will vary frequently and may be significantly
higher or lower than the rate estimated above.

The following table is furnished in response to requirements of the SEC. It
is designed to illustrate the effect of leverage on Common Share total return,
assuming investment portfolio total returns (comprised of income and changes in
the value of securities held in the Fund's portfolio) of -10%, -5%, 0%, 5% and
10%. These assumed investment portfolio returns are hypothetical figures and are
not necessarily indicative of the investment portfolio returns experienced or
expected to be experienced by the Fund. See "Risks."

The table further reflects the issuance of Leverage Instruments representing
% of the Fund's Managed Assets, net of expenses, and the Fund's currently
projected annual dividend or interest on its Leverage Instruments of %.

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

Common Share Total Return ................................. % % % % %

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

RISKS

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

NO OPERATING HISTORY

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

INVESTMENT AND MARKET RISK

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

MARKET DISCOUNT FROM NET ASSET VALUE RISK

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

MANAGEMENT RISK AND RELIANCE ON KEY PERSONNEL.

The Fund is subject to management risk because it is an actively managed
portfolio. The Advisor and the Sub-Advisor will apply investment techniques and
risk analyses in making investment decisions for the Fund, but there can be no
guarantee that these will produce the desired results. In addition,
implementation of the Fund's investment strategy depends upon the continued
contributions of certain key employees of the Advisor and the Sub-Advisor, some
of whom have unique talents and experience and would be difficult to replace.
The loss or interruption of the services of a key member of the portfolio
management team could have a negative impact on the Fund during the transitional
period that would be required for a successor to assume the responsibilities of
the position.

PREFERRED SECURITIES RISK

Preferred securities are unique securities that combine some of the
characteristics of both common stocks and bonds. In addition to the risks
described elsewhere in this section such as credit risks, preferred securities
are subject to certain other risks, including:

o Interest Rate Risk. Interest rate risk is the risk that preferred
securities will decline in value because of rising market interest
rates. When market interest rates rise, the market value of fixed rate
preferred securities generally will fall.

o Duration Risk. Duration measures the time-weighted expected cash flows
of a security, which can determine the security's sensitivity to
changes in the general level of interest rates (or yields). Securities
with longer durations tend to be more sensitive to interest rate (or
yield) changes than securities with shorter durations. Duration
differs from maturity in that it considers potential changes to
interest rates, and a security's coupon payments, yield, price and par
value and call features, in addition to the amount of time until the
security matures. Various techniques may be used to shorten or
lengthen the Fund's duration. The duration of a security will be
expected to change over time with changes in market factors and time
to maturity.

o Deferral and Omission Risk. Preferred securities may include
provisions that permit the issuer, at its discretion, to defer or omit
distributions for a stated period without any adverse consequences to
the issuer.

o Subordination Risk. Preferred securities are generally subordinated to
bonds and other debt instruments in a company's capital structure in
terms of having priority to corporate income, claims to corporate
assets and liquidation payments, and therefore will be subject to
greater credit risk than more senior debt instruments.

o Floating Rate and Fixed-to-Floating Rate Securities Risk. The market
value of floating rate securities is a reflection of discounted
expected cash flows based on expectations for future interest rate
resets. The market value of such securities may fall in a declining
interest rate environment and may also fall in a rising interest rate
environment if there is a lag between the rise in interest rates and
the reset. This risk may also be present with respect to
fixed-to-floating rate securities in which the Fund may invest. A
secondary risk associated with declining interest rates is the risk
that income earned by the Fund on floating rate and fixed-to-floating
rate securities may decline due to lower coupon payments on
floating-rate securities.

o Call and Reinvestment Risk. During periods of declining interest
rates, an issuer may be able to exercise an option to redeem its
issue at par earlier than scheduled, which is generally known as
call risk. If this occurs, the Fund may be forced to reinvest in
lower yielding securities.

desired by the Fund or at prices approximating the value at which the
Fund is carrying the securities on its books.

o Limited Voting Rights Risk. Generally, traditional preferred
securities offer no voting rights with respect to the issuer unless
preferred dividends have been in arrears for a specified number of
periods, at which time the preferred security holders may have the
ability to elect a director or directors to the issuer's board.
Generally, once all the arrearages have been paid, the preferred
security holders no longer have voting rights. Hybrid preferred
security holders generally have no voting rights.

o Special Redemption Rights. In certain varying circumstances, an issuer
of preferred securities may redeem the securities prior to their
scheduled call or maturity date. As with call provisions, a redemption
by the issuer may negatively impact the return of the security held by
the Fund. The Dodd-Frank Act and other proposed regulatory changes
affecting the financial services industries may increase issuers'
incentives to call or redeem a security prior to its scheduled call or
maturity date.

] o New Types of Securities. From time to time, preferred securities
have been, and may in the future be, offered having features other
than those described herein. The Fund reserves the right to invest in
these securities if the Sub-Advisor believes that doing so would be
consistent with the Fund's investment objectives and policies. Because
the market for these instruments would be new, the Fund may have
difficulty disposing of them at a suitable price and time. The
Dodd-Frank Act and proposed regulations affecting the financial
services industries could lead to the issuance of new forms of
preferred and hybrid preferred securities with features such as
automatic equity conversion and/or write downs from par value under
certain circumstances.

The Dodd-Frank Act contains provisions which will make certain hybrid
preferred securities less attractive for issuing banks, which may result in a
significant reduction in the issuance and, over time, availability of these
types of securities and potentially in many outstanding issues being redeemed.
These changes may negatively impact the prices of some securities, particularly
those trading above their par values as the new legislation may make near-term
redemptions at par possible. However, other securities may be positively
affected, particularly those trading at discounts to par value. Such securities
may experience an increase in market value from issuers' redemption activity. A
longer-term consequence of the relevant provisions of the Dodd-Frank Act, which
are to be phased in over a period of a few years, is the potential for some
types of preferred securities in which the Fund intends to invest to become more
scarce and potentially less liquid. In addition, proposals of the Basel
Committee on Banking Supervision to update capital requirements for banks
globally, if finalized and adopted in the United States, would further limit the
attractiveness to issuing banks of a broader range of preferred security types
and possibly have more significant consequences, including a smaller market of
issues and less liquidity. It is not possible to predict the impact of the
Dodd-Frank Act and these proposals on the Fund's ability to pursue its
investment strategy. Although it is expected that over time new types of
preferred securities in which the Fund may invest will be issued, the
availability of such investments cannot be determined.

TRUST PREFERRED SECURITIES RISK

Unlike preferred securities, distributions from trust preferred securities
are treated as interest rather than dividends for federal income tax purposes
and, therefore, are not eligible for the dividends received deduction and do not
constitute qualified dividend income. Distributions on trust preferred
securities will be made only if interest payments on the related
interest-bearing notes of the operating company are made. In addition, the Fund
may be subject to additional risk because a corporation issuing interest-bearing
notes may defer interest payments on these instruments for up to 20 consecutive
quarters. If such election is made, distributions will not be made on the trust
preferred securities during the deferral period. Further, certain tax or
regulatory events may trigger the redemption of the interest-bearing notes by
the issuing corporation and result in prepayment of the trust preferred
securities prior to their stated maturity date.

DEBT SECURITIES RISK

In addition to the risks described elsewhere in this section such as credit
risk, debt securities are subject to certain risks, including:

o Issuer Risk. The value of debt securities may decline for a number of
reasons which directly relate to the issuer, such as management
performance, leverage and reduced demand for the issuer's goods and
services. Changes in an issuer's credit rating or the market's
perception of an issuer's creditworthiness may also affect the value
of the Fund's investment in that issuer.

o Interest Rate Risk. Interest rate risk is the risk that debt
securities will decline in value because of changes in market interest
rates. When market interest rates rise, the market value of fixed rate
securities generally will fall. Market value generally falls further
for fixed rate securities with longer duration. During periods of
rising interest rates, the average life of certain types of securities
may be extended because of slower than expected prepayments. This may
lock in a below-market yield, increase the security's duration and
further reduce the value of the security. Investments in debt
securities with long-term maturities may experience significant price

declines if long-term interest rates increase. Fluctuations in the
value of portfolio securities will not affect interest income on
existing portfolio securities but will be reflected in the Fund's NAV.
Since the magnitude of these fluctuations will generally be greater at
times when the Fund's average maturity is longer, under certain market
conditions the Fund may, for temporary defensive purposes, accept
lower current income from short-term investments rather than investing
in higher yielding long-term securities.

o Liquidity Risk. Certain debt securities may be substantially less
liquid than many other securities, such as common stocks traded on an
exchange. Illiquid securities involve the risk that the securities
will not be able to be sold at the time desired by the Fund or at
prices approximating the value at which the Fund is carrying the
securities on its books.

o Prepayment Risk. During periods of declining interest rates, the
issuer of a security may exercise its option to prepay principal
earlier than scheduled, forcing the Fund to reinvest the proceeds from
such prepayment in lower yielding securities, which may result in a
decline in the Fund's income and distributions to Common Shareholders.
This is known as call or prepayment risk. Debt securities frequently
have call features that allow the issuer to repurchase the security
prior to its stated maturity. An issuer may redeem an obligation if
the issuer can refinance the debt at a lower cost due to declining
interest rates or an improvement in the credit standing of the issuer.
If the Fund bought a security at a premium, the premium could be lost
in the event of a prepayment.

o 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 bonds 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.

CURRENT ECONOMIC CONDITIONS--CREDIT CRISIS LIQUIDITY AND VOLATILITY RISK

The markets for credit instruments, including debt securities, have
experienced periods of extreme illiquidity and volatility since the latter half
of 2007. Liquidity in the debt securities markets (the ability to buy and sell
bonds readily) has been significantly reduced. General market uncertainty and
consequent repricing risk have led to market imbalances of sellers and buyers,
which in turn have resulted in significant valuation uncertainties in a variety
of debt securities. In addition, during 2008, several major dealers of debt
securities exited the market via acquisition or bankruptcy. These conditions
resulted in, and in many cases continue to result in, greater volatility, less
liquidity, widening credit spreads and a lack of price transparency, with many
debt securities remaining illiquid and of uncertain value. Illiquidity and
volatility in the credit markets may directly and adversely affect the setting
of dividend rates on the Fund's Common Shares. These market conditions may make
valuation of some of the Fund's debt securities uncertain and/or result in
sudden and significant valuation increases or declines in the Fund's holdings.
During times of reduced market liquidity, the Fund may not be able to sell
securities readily at prices reflecting the values at which the securities are
carried on the Fund's books. Sales of large blocks of securities by market
participants, such as the Fund, that are seeking liquidity can further reduce
security prices in an illiquid market. The Fund may seek to make sales of large
blocks of securities as part of its investment strategy.

Because of the conditions in the credit markets, issuers of debt securities
may be subject to increased costs associated with incurring debt, tightening
underwriting standards and reduced liquidity for the loans they make, the
securities they purchase and the securities they issue. The worsening general
economic conditions have materially and adversely impacted the broader financial
and credit markets and have reduced the availability of debt and equity capital
for the market as a whole. The reduced willingness of some lenders to extend
credit, in general, may make it more difficult for issuers of debt instruments
to finance their operations. These developments have adversely affected the
broader economy, and may continue to do so, which in turn may adversely affect
the ability of the issuers of securities owned by the Fund to make payments of
principal and interest when due, and lead to lower credit ratings and increased
defaults. Such developments could, in turn, reduce the value of securities owned
by the Fund and adversely affect the Fund's NAV. Extraordinary steps have been
taken by the governments of several leading economic countries to combat the
current economic crisis and/or increase the regulation of market participants.
The impact of these measures is not yet known and cannot be predicted. The
prolonged continuation or further deterioration of current market conditions
could adversely impact the Fund's portfolio and may limit the effectiveness of
existing market models. Because the current market situation is widespread and
unprecedented, it may be difficult to predict how long it may continue.

CONVERTIBLE SECURITIES RISK

Although to a lesser extent than with nonconvertible debt securities, the
market value of convertible securities tends to decline as interest rates
increase and, conversely, tends to increase as interest rates decline. In
addition, because of the conversion feature, the market value of convertible
securities tends to vary with fluctuations in the market value of the underlying
common stock.

RISK OF CONCENTRATION IN THE FINANCIALS SECTOR

Because the Fund invests 25% or more of its Managed Assets in the financials
sector, it will be more susceptible to adverse economic or regulatory

occurrences affecting this sector, such as changes in interest rates, loan
concentration and competition. In many countries, companies in the financials
sector are regulated by governmental entities, which can increase costs for new
services or products and make it difficult to pass increased costs on to
consumers. In certain areas, deregulation of financial companies has resulted in
increased competition and reduced profitability for certain companies. The
profitability of many types of financial companies may be adversely affected in
certain market cycles, including periods of rising interest rates, which may
restrict the availability and increase the cost of capital, and declining
economic conditions, which may cause credit losses due to financial difficulties
of borrowers. Because many types of financial companies are vulnerable to these
economic cycles, the Fund's investments in these companies may lose significant
value during such periods.

The financial services industries also are subject to relatively rapid
changes as a result of industry consolidation trends which may result in
distinctions between different financial service segments (for example, banking,
insurance and brokerage businesses) becoming less clear. In the recent past, the
financial services industries have experienced considerable financial distress,
which has led to the implementation of government programs designed to ease that
distress. See "--Government Intervention in Financial Markets Risk."

GOVERNMENT INTERVENTION IN FINANCIAL MARKETS RISK

The recent instability in the financial markets has led the U.S. government
and foreign governments to take a number of unprecedented actions designed to
support certain financial institutions and segments of the financial markets
that have experienced extreme volatility, and in some cases a lack of liquidity.
U.S. federal and state governments and foreign governments, their regulatory
agencies or self regulatory organizations may take additional actions that
affect the regulation of the securities in which the Fund invests, or the
issuers of such securities, in ways that are unforeseeable and on an "emergency"
basis with little or no notice with the consequence that some market
participants' ability to continue to implement certain strategies or manage the
risk of their outstanding positions has been suddenly and/or substantially
eliminated or otherwise negatively implicated. Given the complexities of the
global financial markets and the limited time frame within which governments
have been able to take action, these interventions have sometimes been unclear
in scope and application, resulting in confusion and uncertainty, which in
itself has been materially detrimental to the efficient functioning of such
markets as well as previously successful investment strategies. Decisions made
by government policy makers could exacerbate the nation's or the world's current
economic difficulties. Issuers might seek protection under the bankruptcy laws.
Legislation or regulation also may change the way in which the Fund itself is
regulated. Such legislation or regulation could limit or preclude the Fund's
ability to achieve its investment objectives.

Congress has enacted sweeping financial legislation, the Dodd-Frank Act,
which addresses, among other areas, the operation of financial institutions.
Many provisions of the Dodd-Frank Act will be implemented through regulatory
rulemakings and similar processes over a period of time. The impact of the
Dodd-Frank Act, and of follow-on regulation, on trading strategies and
operations is impossible to predict, and may be adverse. Practices and areas of
operation subject to significant change based on the impact, direct or indirect,
of the Dodd-Frank Act and follow-on regulation, may change in manners that are
unforeseeable, with uncertain effects. For example, the Dodd-Frank Act
established more stringent capital standards for banks and bank holding
companies and will also result in new regulations affecting the lending,
funding, trading and investment activities of banks and bank holding companies,
thus affecting the financials sector in which the Fund invests.

The implementation of the Dodd-Frank Act could also adversely affect the
Advisor, the Sub-Advisor and the Fund by increasing transaction and/or
regulatory compliance costs. In addition, greater regulatory scrutiny and the
implementation of enhanced and new regulatory requirements may increase the
Advisor's, the Sub-Advisor's and the Fund's exposure to potential liabilities,
and in particular liabilities arising from violating any such enhanced and/or
new regulatory requirements. Increased regulatory oversight could also impose
administrative burdens on the Advisor , the Sub-Advisor and the Fund, including,
without limitation, responding to investigations and implementing new policies
and procedures. The ultimate impact of the Dodd-Frank Act, and any resulting
regulation, is not yet certain and the Advisor, the Sub-Advisor and the Fund may
be affected by the new legislation and regulation in ways that are currently
unforeseeable.

CREDIT AND BELOW INVESTMENT GRADE RISK

Credit risk is the risk that an issuer of a security may be unable or
unwilling to make dividend, interest and principal payments when due and the
related risk that the value of a security may decline because of concerns about
the issuer's ability or willingness to make such payments. Credit risk may be
heightened for the Fund because it may invest in below investment grade
securities, which are commonly referred to as "junk" or "high yield" securities;
such securities, while generally offering higher yields than investment grade
debt with similar maturities, involve greater risks, including the possibility
of dividend or interest deferral, default or bankruptcy, and are regarded as
predominantly speculative with respect to the issuer's capacity to pay dividends
or interest and repay principal. Analysis of the creditworthiness of issuers of
lower-rated securities may be more complex than for issuers of higher quality
debt securities, and the Fund's ability to achieve its investment objectives
may, to the extent it is invested in lower-rated securities, be more dependent
upon such creditworthiness analysis than would be the case if it were investing
in higher quality securities.

Below investment grade securities are issued by companies that may have
limited operating history, narrowly focused operations and/or other impediments
to the timely payment of periodic interest and principal at maturity. These
securities are susceptible to default or decline in market value due to adverse
economic and business developments and are often unsecured and subordinated to
other creditors of the issuer. The market values for below investment grade
securities tend to be very volatile, and these securities are generally less
liquid than investment grade securities. For these reasons, your investment in
the Fund is subject to the following specific risks: (i) increased price
sensitivity to changing interest rates and to a deteriorating economic
environment; (ii) greater risk of loss due to default or declining credit
quality; (iii) adverse company specific events more likely to render the issuer
unable to make interest and/or principal payments; (iv) negative perception of
the high yield market which may depress the price and liquidity of below
investment grade securities; (v) volatility; and (vi) liquidity.

Default, or the market's perception that an issuer is likely to default,
could reduce the value and liquidity of securities held by the Fund, thereby
reducing the value of your investment in the Fund's Common Shares. In addition,
default may cause the Fund to incur expenses in seeking recovery of principal or
interest on its portfolio holdings. In any reorganization or liquidation
proceeding relating to a portfolio company, the Fund may lose its entire
investment or may be required to accept cash or securities with a value less
than its original investment. Among the risks inherent in investments in a
troubled entity is the fact that it frequently may be difficult to obtain
information as to the true financial condition of such issuer. The Sub-Advisor's
judgment about the credit quality of an issuer and the relative value of its
securities may prove to be wrong. Investments in below investment grade
securities may present special tax issues for the Fund to the extent that the
issuers of these securities default on their obligations pertaining thereto, and
the federal income tax consequences to the Fund as a holder of such distressed
securities may not be clear.

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

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

CREDIT RATING AGENCY RISK

Credit ratings are determined by credit rating agencies such as S&P, Moody's
and Fitch, and are only the opinions of such entities. Ratings assigned by a
rating agency are not absolute standards of credit quality and do not evaluate
market risk or the liquidity of securities. Consequently, securities with the
same maturity, duration, coupon, and rating may have different yields. Any
shortcomings or inefficiencies in credit rating agencies' processes for
determining credit ratings may adversely affect the credit ratings of securities
held by the Fund and, as a result, may adversely affect those securities'
perceived or actual credit risk.

LEVERAGE RISK

Leverage Instruments will have seniority over the Common Shares and may be
secured by the assets of the Fund. The use of leverage by the Fund can magnify
the effect of any losses. If the income and gains earned on the securities and
investments purchased with leverage proceeds are greater than the cost of the
leverage, the Common Shares' return will be greater than if leverage had not
been used. Conversely, if the income and gains from the securities and
investments purchased with such proceeds do not cover the cost of leverage, the
return to the Common Shares will be less than if leverage had not been used.
There is no assurance that a leveraging strategy will be successful. Leverage
involves risks and special considerations for Common Shareholders including:

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

o the risk that fluctuations in interest rates on Borrowings and
short-term debt or in the dividend rates on any Preferred Shares that

the Fund may pay will reduce the return to the Common Shareholders or
will result in fluctuations in the dividends paid on the Common
Shares;

o the effect of leverage in a declining market, which is likely to cause
a greater decline in the NAV of the Common Shares than if the Fund
were not leveraged, which may result in a greater decline in the
market price of the Common Shares; and

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

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

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

The Fund also may be subject to certain restrictions on investments imposed
by guidelines of one or more rating agencies, which may issue ratings for the
Preferred Shares or other leverage securities issued by the Fund. These
guidelines may impose asset coverage or Fund composition requirements that are
more stringent than those imposed by the 1940 Act. The Sub-Advisor does not
believe that these covenants or guidelines will impede it from managing the
Fund's portfolio in accordance with the Fund's investment objective and
policies. While the Fund may from time to time consider reducing leverage in
response to actual or anticipated changes in interest rates in an effort to
mitigate the increased volatility of current income and NAV associated with
leverage, there can be no assurance that the Fund will actually reduce leverage
in the future or that any reduction, if undertaken, will benefit the Common
Shareholders. Changes in the future direction of interest rates are very
difficult to predict accurately. If the Fund were to reduce leverage based on a
prediction about future changes to interest rates, and that prediction turned
out to be incorrect, the reduction in leverage would likely operate to reduce
the income and/or total returns to Common Shareholders relative to the
circumstance if the Fund had not reduced leverage. The Fund may decide that this
risk outweighs the likelihood of achieving the desired reduction to volatility
in income and Common Share price if the prediction were to turn out to be
correct, and determine not to reduce leverage as described above.

FOREIGN (NON-U.S.) SECURITIES RISK

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

EMERGING MARKETS RISK.

Investments in securities of issuers located in emerging market countries are
considered speculative. Heightened risks of investing in emerging markets
securities include: (i) smaller market capitalization of securities markets,
which may suffer periods of relative illiquidity; (ii) significant price
volatility; (iii) restrictions on foreign investment; and (iv) possible

repatriation of investment income and capital. Furthermore, foreign investors
may be required to register the proceeds of sales and future economic or
political crises could lead to price controls, forced mergers, expropriation or
confiscatory taxation, seizure, nationalization or creation of government
monopolies. The currencies of emerging market countries may experience
significant declines against the U.S. dollar, and devaluation may occur
subsequent to investments in these currencies by the Fund. Inflation and rapid
fluctuations in inflation rates have had, and may continue to have, negative
effects on the economies and securities markets of certain emerging market
countries.

COMMON STOCK RISK

Although common stocks have historically generated higher average returns
than debt securities over the long-term, common stocks also have experienced
significantly more volatility in returns. Common stocks may be more susceptible
to adverse changes in market value due to issuer specific events or general
movements in the equities markets. A drop in the stock market may depress the
price of common stocks held by the Fund. Common stock prices fluctuate for many
reasons, including changes in investors' perceptions of the financial condition
of an issuer or the general condition of the relevant stock market, or the
occurrence of political or economic events affecting issuers. For example, an
adverse event, such as an unfavorable earnings report, may depress the value of
common stock in which the Fund has invested; the price of common stock of an
issuer may be particularly sensitive to general movements in the stock market;
or a drop in the stock market may depress the price of most or all of the common
stocks held by the Fund. Also, common stock of an issuer in the Fund's portfolio
may decline in price if the issuer fails to make anticipated dividend payments
because, among other reasons, the issuer of the security experiences a decline
in its financial condition. The common stocks in which the Fund will invest are
structurally subordinated to preferred securities, bonds and other debt
instruments in a company's capital structure in terms of priority to corporate
income and assets, and, therefore, will be subject to greater risk than the
preferred securities or debt instruments of such issuers. In addition, common
stock prices may be sensitive to rising interest rates as the costs of capital
rise and borrowing costs increase.

U.S. GOVERNMENT SECURITIES RISK.

Not all obligations of the U.S. Government, its agencies and
instrumentalities are backed by the full faith and credit of the U.S. Treasury.
Some obligations are backed only by the credit of the issuing agency or
instrumentality, and in some cases there may be some risk of default by the
issuer. Any guarantee by the U.S. Government or its agencies or
instrumentalities of a security held by the Fund does not apply to the market
value of such security or to the Fund's Common Shares. A security backed by the
U.S. Treasury or the full faith and credit of the United States is guaranteed
only as to the timely payment of interest and principal when held to maturity.
In addition, because many types of U.S. Government securities trade actively
outside the United States, their prices may rise and fall as changes in global
economic conditions affect the demand for these securities.

FOREIGN GOVERNMENT SECURITIES RISK

Economies and social and political climates in individual countries may
differ unfavorably from the United States. The ability of a government issuer,
especially in an emerging market country, to make timely and complete payments
on its debt obligations will be strongly influenced by the government issuer's
balance of payments, including export performance, its access to international
credits and investments, fluctuations of interest rates and the extent of its
foreign reserves. Additional factors that may influence a government issuer's
ability or willingness to service debt include, but are not limited to, a
country's cash flow situation, the availability of sufficient foreign exchange
on the date a payment is due, the relative size of its debt service burden to
the economy as a whole and the issuer's policy towards the International
Monetary Fund, the International Bank for Reconstruction and Development and
other international agencies to which a government debtor may be subject.

Since 2010, the risks of investing in certain foreign sovereign debt have
increased dramatically as a result of the ongoing European debt crisis which
began in Greece and has begun to spread throughout various other European
countries. These debt crises and the ongoing efforts of governments around the
world to address these debt crises have also resulted in increased volatility
and uncertainty in the United States and the global economy and securities
markets, and it is impossible to predict the effects of these or similar events
in the future on the United States and the global economy and securities markets
or on the Fund's investments, though it is possible that these or similar events
could have a significant adverse impact on the value and risk profile of the
Fund. Moreover, as the European debt crisis has progressed, the possibility of
one or more eurozone countries exiting the EMU, or even the collapse of the euro
as a common currency, has arisen. The effects of the collapse of the euro, of
the exit of one or more countries from the EMU, or of the rating agency
downgrade of sovereign debt, on the United States and the global economy 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.

MUNICIPAL SECURITIES RISK

Municipal securities are debt obligations issued by states or by political
subdivisions or authorities of states. Municipal securities are typically
designated as general obligation bonds, which are general obligations of a
governmental entity that are backed by the taxing power of such entity, or
revenue bonds, which are payable from the income of a specific project or
authority and are not supported by the issuer's power to levy taxes. Municipal
securities are long-term fixed rate debt obligations that generally decline in
value with increases in interest rates, when an issuer's financial condition
worsens or when the rating on a bond is decreased. Many municipal securities may
be called or redeemed prior to their stated maturity. Lower-quality revenue
bonds and other credit-sensitive municipal securities carry higher risks of
default than general obligation bonds. In addition, the amount of public
information available about municipal securities is generally less than that for
corporate equities or bonds. Special factors, such as legislative changes and
local and business developments, may adversely affect the yield and/or value of
the Fund's investments in municipal securities. Other factors include the
general conditions of the municipal securities market, the size of the
particular offering, the maturity of the obligation and the rating of the issue.
Many municipal securities are subject to continuing requirements as to the
actual use of the bond proceeds or manner of operation of the project financed
from those proceeds that may affect the exemption of interest on such securities
from U.S. federal income taxation. The market for municipal securities is
generally less liquid than for other securities, and therefore the price of
municipal securities may be more volatile and subject to greater price
fluctuations than securities with greater liquidity. In addition, an issuer's
ability to make income distributions generally depends on several factors
including the financial condition of the issuer and general economic conditions.

ILLIQUID AND RESTRICTED SECURITIES RISK

Investments in restricted securities could have the effect of increasing the
amount of the Fund's assets invested in illiquid securities if qualified
institutional buyers are unwilling to purchase these securities. Illiquid and
restricted securities may be difficult to dispose of at a fair price at the
times when the Fund believes it is desirable to do so. The market price of
illiquid and restricted securities generally is more volatile than that of more
liquid securities, which may adversely affect the price that the Fund pays for
or recovers upon the sale of such securities. Illiquid and restricted securities
are also more difficult to value, especially in challenging markets. The
Sub-Advisor's judgment may play a greater role in the valuation process.
Investment of the Fund's assets in illiquid and restricted securities may
restrict the Fund's ability to take advantage of market opportunities. The risks
associated with illiquid and restricted securities may be particularly acute in
situations in which the Fund's operations require cash and could result in the
Fund borrowing to meet its short-term needs or incurring losses on the sale of
illiquid or restricted securities. In order to dispose of an unregistered
security, the Fund, where it has contractual rights to do so, may have to cause
such security to be registered. A considerable period may elapse between the
time the decision is made to sell the security and the time the security is
registered, therefore enabling the Fund to sell it. Contractual restrictions on
the resale of securities vary in length and scope and are generally the result
of a negotiation between the issuer and acquiror of the securities. In either
case, the Fund would bear market risks during that period.

RISKS OF INVESTING IN OTHER INVESTMENT COMPANIES

To the extent the Fund invests a portion of its assets in other investment
companies, including open-end funds, closed-end funds, ETFs and other types of
funds, those assets will be subject to the risks of the purchased funds'
portfolio securities, and a stockholder in the Fund will bear not only his or
her proportionate share of the Fund's expenses, but also indirectly the expenses
of the purchased funds. Common Shareholders would therefore be subject to
duplicative expenses to the extent the Fund invests in other funds. The Fund's
investments in other funds also are subject to the ability of the managers of
those funds to achieve the funds' investment objectives. Risks associated with
investments in closed-end end funds generally include the risks described in
this prospectus associated with the Fund's structure as a closed-end fund,
including market risk, leverage risk, risk of market price discount from net
asset value, risk of anti-takeover provisions and non-diversification. In
addition, investments in closed-end funds may be subject to dilution risk, which
is the risk that strategies employed by a closed-end fund, such as rights
offerings, may, under certain circumstances, have the effect of reducing its
share price and the Fund's proportionate interest.

VALUATION RISK

Unlike publicly traded common stock that trades on national exchanges, there
is no central place or exchange for debt securities trading. Debt securities
generally trade on an "over-the-counter" market which may be anywhere in the
world where the buyer and seller can settle on a price. Due to the lack of
centralized information and trading, the valuation of debt securities may carry
more risk than that of common stock. Uncertainties in the conditions of the
financial market, unreliable reference data, lack of transparency and
inconsistency of valuation models and processes may lead to inaccurate asset
pricing. In addition, other market participants may value securities differently
than the Fund. As a result, the Fund may be subject to the risk that when a debt
security is sold in the market, the amount received by the Fund is less than the
value of such debt security carried on the Fund's books.

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. Common stock prices may be particularly sensitive to
rising interest rates, as the cost of capital rises and borrowing costs
increase. In addition, during any periods of rising inflation, the dividend
rates or borrowing costs associated with the Fund's use of leverage would likely
increase, which would tend to further reduce returns to Common Shareholders.
Deflation risk is the risk that prices throughout the economy decline over
time--the opposite of inflation. Deflation may have an adverse affect on the
creditworthiness of issuers and may make issuer defaults more likely, which may
result in a decline in the value of the Fund's portfolio. There is currently
great uncertainty among policy makers and economists about whether the U.S.
economy is facing a period of inflation or deflation, and the severity thereof.

POTENTIAL CONFLICTS OF INTEREST RISK

The Advisor, the Sub-Advisor and the portfolio managers of the Fund have
interests which may conflict with the interests of the Fund. In particular, the
Advisor and the Sub-Advisor may each manage and/or advise other investment funds
or accounts with the same investment objectives and strategies as the Fund. As a
result, the Advisor, the Sub-Advisor and the Fund's portfolio managers may
devote unequal time and attention to the management of the Fund and those other
funds and accounts, and may not be able to formulate as complete a strategy or
identify equally attractive investment opportunities as might be the case if
they were to devote substantially more attention to the management of the Fund.
The Advisor, the Sub-Advisor and the Fund's portfolio managers may identify a
limited investment opportunity that may be suitable for multiple funds and
accounts, and the opportunity may be allocated among these several funds and
accounts, which may limit the Fund's ability to take full advantage of the
investment opportunity. Additionally, transaction orders may be aggregated for
multiple accounts for purpose of execution, which may cause the price or
brokerage costs to be less favorable to the Fund than if similar transactions
were not being executed concurrently for other accounts. At times, a portfolio
manager may determine that an investment opportunity may be appropriate for only
some of the funds and accounts for which he or she exercises investment
responsibility, or may decide that certain of the funds and accounts should take
differing positions with respect to a particular security. In these cases, the
portfolio manager may place separate transactions for one or more funds or
accounts which may affect the market price of the security or the execution of
the transaction, or both, to the detriment or benefit of one or more other funds
and accounts. For example, a portfolio manager may determine that it would be in
the interest of another account to sell a security that the Fund holds,
potentially resulting in a decrease in the market value of the security held by
the Fund.

The portfolio managers also may engage in cross trades between funds and
accounts, may select brokers or dealers to execute securities transactions based
in part on brokerage and research services provided to the Advisor or the
Sub-Advisor which may not benefit all funds and accounts equally and may receive
different amounts of financial or other benefits for managing different funds
and accounts. Finally, the Advisor and its affiliates may provide more services
to some types of funds and accounts than others.

There is no guarantee that the policies and procedures adopted by the
Advisor, the Sub-Advisor and the Fund will be able to identify or mitigate the
conflicts of interest that arise between the Fund and any other investment funds
or accounts that the Advisor and/or the Sub-Advisor may manage or advise from
time to time. For further information on potential conflicts of interest, see
"Investment Advisor" and "Sub-Advisor" in the SAI.

In addition, while the Fund is using leverage, the amount of the fees paid to
the Advisor and the Sub-Advisor for investment advisory and management services
are higher than if the Fund did not use leverage because the fees paid are
calculated based on the Fund's Managed Assets, which include assets purchased
with leverage. Therefore, the Advisor and the Sub-Advisor have a financial
incentive to leverage the Fund, which may create a conflict of interest between
the Advisor and the Sub-Advisor on the one hand and the Common Shareholders of
the Fund on the other.

NEW TYPES OF SECURITIES RISK

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

COUNTERPARTY AND PRIME BROKERAGE RISK

Changes in the credit quality of the companies that serve as the Fund's prime
brokers or counterparties with respect to derivatives or other transactions
supported by another party's credit will affect the value of those instruments.

Certain entities that have served as prime brokers or counterparties in the
markets for these transactions have recently incurred significant financial
hardships including bankruptcy and losses as a result of exposure to sub-prime
mortgages and other lower quality credit investments that have experienced
recent defaults or otherwise suffered extreme credit deterioration. If a prime
broker or counterparty becomes bankrupt or otherwise fails to perform its
obligations under a derivative contract due to financial difficulties, the Fund
may experience significant delays in obtaining any recovery under the derivative
contract in a bankruptcy or other reorganization proceeding. The Fund may obtain
only a limited recovery or may obtain no recovery in such circumstances.

PORTFOLIO TURNOVER RISK

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

NON-DIVERSIFIED STATUS

Because the Fund, as a non-diversified investment company, may invest in a
smaller number of individual issuers than a diversified investment company, an
investment in the Fund presents greater risk than an investment in a diversified
company.

MARKET DISRUPTION AND GEOPOLITICAL RISK

The terrorist attacks in the U.S. on September 11, 2001 had a disruptive
effect on the securities markets. The ongoing U.S. military and related action
throughout the world, as well as the continuing threat of terrorist attacks,
could have significant adverse effects on the U.S. economy, the stock market and
world economies and markets generally. A similar disruption of financial markets
or other terrorist attacks could adversely affect Fund service providers and/or
the Fund's operations as well as interest rates, secondary trading, credit risk,
inflation and other factors relating to the Fund's Common Shares. Below
investment grade securities tend to be more volatile than higher-rated
securities so that these events and any actions resulting from them may have a
greater impact on the prices and volatility of below investment grade securities
than on higher-rated securities. The Fund cannot predict the effects or
likelihood of similar events in the future on the U.S. and world economies, the
value of the Common Shares or the NAV of the Fund.

CERTAIN AFFILIATIONS

Until the underwriting syndicate is broken in connection with the initial
public offering of the Common Shares, the Fund will be precluded from effecting
principal transactions with brokers who are members of the syndicate.

ANTI-TAKEOVER PROVISIONS

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

STRATEGIC TRANSACTIONS RISK.

The Fund may use various other investment management techniques that also
involve certain risks and special considerations. These Strategic Transactions
may be entered into to seek to manage the risks of the Fund's portfolio
securities, but may have the effect of limiting the gains from favorable market
movements. Certain of these Strategic Transactions may provide investment
leverage to the Fund's portfolio and result in many of the same risks of
leverage to Common Shareholders as discussed above under "--Leverage Risk." The
Fund does not intend to enter into Strategic Transactions as a principal part of
its investment strategy. See "Other Investment Policies and
Techniques--Strategic Transactions" in the SAI for more information about these
techniques.

TEMPORARY DEFENSIVE STRATEGIES RISK

When the Sub-Advisor anticipates unusual market or other conditions, the Fund
may temporarily depart from its principal investment strategies as a defensive

measure and invest all or a portion of its Managed Assets in cash or cash
equivalents or accept lower current income from short-term investments rather
than investing in high-yielding long-term securities. In such a case, Common
Shareholders of the Fund may be adversely affected and the Fund may not pursue
or achieve its investment objectives.

SECONDARY MARKET FOR THE FUND'S COMMON SHARES

The issuance of Common Shares through the Fund's dividend reinvestment plan
may have an adverse effect on the secondary market for the Fund's Common Shares.
The increase in the number of outstanding Common Shares resulting from issuances
pursuant to the Fund's dividend reinvestment plan and the discount to the market
price at which such Common Shares may be issued may put downward pressure on the
market price for the Common Shares. Common Shares will not be issued pursuant to
the dividend reinvestment plan at any time when Common Shares are trading at a
lower price than the Fund's NAV per Common Share. When the Fund's Common Shares
are trading at a premium, the Fund also may issue Common Shares that may be sold
through private transactions effected on the NYSE or through broker-dealers. The
increase in the number of outstanding Common Shares resulting from these
offerings may put downward pressure on the market price for Common Shares.

CHANGES IN TAX LAW.

From time to time, various legislative initiatives are proposed which may
have a negative impact on the prices of certain securities owned by the Fund.
Any legislation that proposes to reduce or eliminate the preferred tax rate on
dividends for federal income tax purposes would negatively impact the value of
the preferred securities held by the Fund. In addition, changes in federal tax
law occur frequently and may be applied retroactively. We cannot predict what
impact any pending or proposed legislation will have on the value of the Fund or
on the issuers of the underlying securities in which it invests.

MANAGEMENT OF THE FUND

TRUSTEES AND OFFICERS

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

INVESTMENT ADVISOR

First Trust Advisors L.P., 120 East Liberty Drive, Wheaton, Illinois 60187,
is the investment advisor to the Fund. First Trust Advisors L.P. serves as
investment advisor or portfolio supervisor to investment portfolios with
approximately $ billion in assets which it managed or supervised as of
December 31, 2012.

First Trust Advisors L.P. is responsible for supervising the Sub-Advisor,
managing the Fund's business affairs and providing certain clerical, bookkeeping
and other administrative services.

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

For additional information about First Trust Advisors L.P., including a
description of the services provided, see "Investment Advisor" in the SAI.

SUB-ADVISOR

Stonebridge Advisors LLC serves as the Fund's Sub-Advisor. In this capacity,
Stonebridge Advisors LLC is responsible for the selection and day-to-day
management of the securities in the Fund's investment portfolio.

Stonebridge Advisors LLC, an affiliate of the Advisor formed in December
2004, is a registered investment advisor and serves as investment advisor to
investment portfolios with approximately $1.54 billion of assets under
management as of December 31, 2012. As of the date of this prospectus, First
Trust Advisors owns a 51% equity interest in the Sub-Advisor. Stonebridge is a
niche asset management firm that provides specialized expertise in the
management of preferred securities for institutional investors and high net
worth individuals, in separately managed accounts, unified managed accounts,

unit investment trusts and other registered investment companies. The members of
Stonebridge's investment committee are Scott T. Fleming, Robert Wolf, Allen
Shepard and Danielle Salters who serve as the Fund's portfolio managers and
share responsibilities for the day-to-day management of the Fund's investment
portfolio.

Scott T. Fleming serves as President and Chief Investment Officer of
Stonebridge. Prior to founding Stonebridge, Mr. Fleming co-founded Spectrum
Asset Management, Inc., an investment advisor that specializes in preferred
securities asset management for institutional clients and mutual funds. During
his 13-year tenure there, he served as Chairman of the Board of Directors, Chief
Financial Officer and Chief Investment Officer. Mr. Fleming previously served as
Vice President, Portfolio Manager for DBL Preferred Management, Inc. in New York
City. There he managed over $300 million of institutional assets with a strategy
specializing in preferred securities. Mr. Fleming received a BS in Accounting
from Bentley College in Waltham, MA and his MBA in Finance from Babson College
in Wellesley, MA.

Robert Wolf serves as Vice President, Portfolio Manager and Senior Credit
Analyst of Stonebridge. Mr. Wolf brings 13 years of fixed-income experience to
Stonebridge. His primary focus is in analyzing both investment-grade and
non-investment-grade securities, where he has developed a rigorous approach to
credit and industry analysis. Prior to joining Stonebridge, Mr. Wolf was a
high-yield fixed-income research analyst at Lehman Brothers. In this role, his
responsibilities included detailed credit analysis across multiple sectors,
relative value analysis, and developing trade recommendations for Lehman's
High-Yield proprietary trading effort. Mr. Wolf previously worked for Lehman
Brothers Commercial Mortgage-Backed Securities (CMBS) trading desk as a credit
analyst where he provided in-depth analysis of CMBS transactions and the
underlying Commercial Real Estate. Mr. Wolf received his BS degree in Chemistry
from Villanova University in 1999 and his MBA in Finance from the New York
University Stern School of Business in 2004.

Allen Shepard, PhD, serves as Senior Risk Analyst and Portfolio Analytics of
Stonebridge. Dr. Shepard joined Stonebridge in 2004 and developed proprietary
hedging models for use in managing preferred and fixed-income securities. Prior
to joining Stonebridge, Dr. Shepard held positions as a Gibbs Instructor in the
Mathematics Department at Yale University and as an Assistant Professor of
Mathematics at Allegheny College. He received a BA in Mathematics from Hampshire
College in 1980 and a PhD in Mathematics from Brown University in 1985,
specializing in the field of algebraic topology. Dr. Shepard returned to
graduate school during 1995-1997, first in the Economics Department at MIT and
then in the PhD program in Economics at Boston University.

Danielle Salters, CFA, serves as Credit Analyst for Stonebridge. Ms. Salters
has five years of investment management experience of which four years have been
focused on fixed income. Previous functions have included fundamental credit
research, relative value analysis and trading. Prior to beginning at
Stonebridge, Ms. Salters was Portfolio Analyst at a boutique asset manager where
she focused on high-yield credit analysis and portfolio analytics for a hedge
fund and institutional client. Previously, Ms. Salters was employed by UBS
Financial Services, Inc. where she worked in Taxable Fixed Income Sales and,
later, served as the Fixed Income Specialist to a Portfolio Manager. Ms. Salters
received a B.A. in economics from Duke University in 2007 and is a CFA
Charterholder.

INVESTMENT MANAGEMENT AGREEMENT

Pursuant to an investment management agreement between the Advisor and the
Fund, the Fund has agreed to pay a fee for the services and facilities provided
by the Advisor at the annual rate of 0.85% of Managed Assets.

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

The Sub-Advisor will receive a portfolio management fee equal to % of the
Fund's Managed Assets. The Sub-Advisor's fee is paid by the Advisor out of the
Advisor's management fee.

Because the fee paid to the Advisor (and by the Advisor to the Sub-Advisor)
will be calculated on the basis of the Fund's Managed Assets, which include the
proceeds of leverage, the dollar amount of the Advisor's fees from the Fund (and
the Sub-Advisor's fees from the Advisor) will be higher (and the Advisor and the
Sub-Advisor will be benefited to that extent) when leverage is utilized. In this
regard, if the Fund uses leverage in the amount equal to 33-1/3% of the Fund's
Managed Assets (after their issuance), the Fund's management fee would be % of
net assets attributable to Common Shares. See "Summary of Fund Expenses."

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

NET ASSET VALUE

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

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

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

o the fundamental business data relating to the issuer;

o an evaluation of the forces which influence the market in which the
securities of the issuer are purchased and sold;

o the type, size and cost of the security;

o the financial statements of the issuer;

o the credit quality and cash flow of the issuer, based on the
Sub-Advisor's or external analysis;

o the information as to any transactions in or offers for the security;

o the price and extent of public trading in similar securities (or
equity securities) of the issuer, or comparable companies;

o the coupon payments;

o the quality, value and saleability of collateral, if any, securing the
security;

o the business prospects of the issuer, including any ability to obtain
money or resources from a parent or affiliate and an assessment of the
issuer's management;

o the prospects for the issuer's industry, and multiples (of earnings
and/or cash flow) being paid for similar businesses in that industry;

o issuer's ability to access additional liquidity through public and/or
private markets; and

o other relevant factors.

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

DISTRIBUTIONS

The Fund's present distribution policy, which may be changed at any time by
the Fund's Board of Trustees, is to distribute to Common Shareholders monthly
dividends of all or a portion of its net income after any payment of interest
and/or dividends in connection with leverage used by the Fund. It is expected
that the initial monthly dividend on the Fund's Common Shares will be paid
approximately 60 to 90 days after the completion of this offering, depending on
market conditions. The Fund expects to distribute any long-term capital gains at
least annually.

Subject to certain terms and conditions, the Fund is entitled to rely on an
exemption granted to the Advisor by the SEC from Section 19(b) of the 1940 Act
and Rule 19b-1 thereunder. The Exemptive Relief generally permits the Fund,
subject to such terms and conditions, to make distributions of long-term capital
gains with respect to its Common Shares more frequently than would otherwise be
permitted under the 1940 Act (generally once per taxable year). To rely on the
Exemptive Relief, the Fund must comply with the terms and conditions therein,
which, among other things, would require the Board of Trustees of the Fund to

approve the Fund's adoption of a distribution policy with respect to its Common
Shares which calls for periodic distributions of an amount equal to a fixed
percentage of the market price of the Fund's Common Shares at a particular point
in time, or a fixed percentage of net asset value per Common Share at a
particular point in time, or a fixed amount per Common Share, any of which could
be adjusted from time to time. Under such a distribution policy, it is possible
that the Fund might distribute more than its income and net realized capital
gains; therefore, distributions to shareholders may result in a return of
capital. The Fund has no current intention to adopt such a distribution policy
or implement the Exemptive Relief. The Exemptive Relief also permits the Fund to
make distributions of long-term capital gains with respect to any Preferred
Shares that may be issued by the Fund in accordance with such shares' terms.

The level distribution policies described above would result in the payment
of approximately the same amount or percentage to Common Shareholders each
month. Section 19(a) of the 1940 Act and Rule 19a-1 thereunder require the Fund
to provide a written statement accompanying any such payment that adequately
discloses the source or sources of the distributions. Thus, if the source of the
dividend or other distribution were the original capital contribution of the
Common Shareholder, and the payment amounted to a return of capital, the Fund
would be required to provide written disclosure to that effect. Nevertheless,
persons who periodically receive the payment of a dividend or other distribution
may be under the impression that they are receiving net profits when they are
not. Common Shareholders should read any written disclosure provided pursuant to
Section 19(a) and Rule 19a-1 carefully, and should not assume that the source of
any distribution from the Fund is net profit. In addition, in cases where the
Fund would return capital to Common Shareholders, such distribution may impact
the Fund's ability to maintain its asset coverage requirements and to pay the
dividends on any Preferred Shares that the Fund may issue.

Various factors will affect the level of the Fund's income, including the
asset mix, the average maturity of the Fund's portfolio, the amount of leverage
utilized by the Fund and the Fund's use of hedging. To permit the Fund to
maintain a more stable monthly distribution, the Fund may from time to time
distribute less than the entire amount of income earned in a particular period.
The undistributed income would be available to supplement future distributions.
As a result, the distributions paid by the Fund for any particular monthly
period may be more or less than the amount of income actually earned by the Fund
during that period. Undistributed income will add to the Fund's NAV and,
correspondingly, distributions from undistributed income will decrease the
Fund's NAV. Common Shareholders will automatically have all dividends and
distributions reinvested in Common Shares issued by the Fund or purchased in the
open market in accordance with the Fund's dividend reinvestment plan unless an
election is made to receive cash. See "Dividend Reinvestment Plan."

DIVIDEND REINVESTMENT PLAN

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

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

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

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

You may elect to opt-out of or withdraw from the Plan at any time by giving
written notice to the Plan Agent, or by telephone at (800) 331-1710, in
accordance with such reasonable requirements as the Plan Agent and Fund may
agree upon. If you withdraw or the Plan is terminated, you will receive a book
entry statement for each whole share in your account under the Plan and you will
receive a cash payment for any fraction of a share in your account. If you wish,
the Plan Agent will sell your shares and send you the proceeds minus brokerage
commissions incurred by the Plan Agent in selling your shares.

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

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

Automatically reinvesting dividends and distributions does not mean that you
do not have to pay income taxes due upon receiving dividends and distributions.
See "Federal Tax Matters."

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

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

The Fund reserves the right to amend or terminate the Plan if in the judgment
of the Board of Trustees the change is warranted. There is no direct service
charge to participants in the Plan; however, the Fund reserves the right to
amend the Plan to include a service charge payable by the participants.
Additional information about the Plan may be obtained from BNY Mellon Investment
Servicing (US) Inc., 301 Bellevue Parkway, Wilmington, Delaware 19809.

DESCRIPTION OF SHARES

COMMON SHARES

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

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

The NAV of the Common Shares will be reduced immediately following the
offering by the amount of the sales load and offering expenses paid by the Fund.
The Advisor and the Sub-Advisor have agreed to pay: (i) all organizational
expenses; and (ii) all offering costs of the Fund (other than sales load, but
including the partial reimbursement of certain underwriter expenses incurred in
connection with this offering) that exceed .20% (or $.050 per Common Share) of
the Fund's aggregate offering price. See "Use of Proceeds."

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

PREFERRED SHARES

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

The Fund may elect to issue Preferred Shares as part of its leverage
strategy. The Fund currently has the ability to issue leverage, which may
include Preferred Shares, representing up to 33-1/3% of the Fund's Managed
Assets immediately after the leverage is issued. The Board of Trustees also
reserves the right to authorize the Fund to issue Preferred Shares to the extent
permitted by the 1940 Act, which currently limits the aggregate liquidation
preference of all outstanding Preferred Shares plus the principal amount of any
outstanding leverage consisting of debt to 50% of the value of the Fund's
Managed Assets less liabilities and indebtedness of the Fund (other than
leverage consisting of debt). However, under current conditions it is unlikely
that the Fund will issue Preferred Shares. Although the terms of any Preferred
Shares, including dividend rate, liquidation preference and redemption
provisions, will be determined by the Board of Trustees, subject to applicable
law and the Declaration of Trust, it is likely that the Preferred Shares, if
issued, will be structured to carry a relatively short-term dividend rate
reflecting interest rates on short-term bonds, by providing for the periodic
redetermination of the dividend rate at relatively short intervals through an
auction, remarketing or other procedure. The Fund also believes that it is
likely that the liquidation preference, voting rights and redemption provisions
of the Preferred Shares, if issued, will be similar to those stated below.

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

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

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

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

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

CERTAIN PROVISIONS IN THE DECLARATION OF TRUST AND BY-LAWS

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

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

The number of trustees is currently five, but by action of a majority of the
trustees, the number of trustees may from time to time be increased or
decreased. The Board of Trustees is divided into three classes of trustees
serving staggered three-year terms, with the terms of one class expiring at each
annual meeting of shareholders. If the Fund issues Preferred Shares, the Fund
may establish a separate class for the trustees elected by the holders of the
Preferred Shares. Subject to applicable provisions of the 1940 Act, vacancies on
the Board of Trustees may be filled by a majority action of the remaining
trustees. Such provisions may work to delay a change in the majority of the
Board of Trustees. The provisions of the Declaration of Trust relating to the
election and removal of trustees may be amended only by a vote of two-thirds of
the shares entitled to vote. Generally, the Declaration of Trust requires a vote
by holders of at least two-thirds of the Common Shares and Preferred Shares, if
any, voting together as a single class, except as described below and in the
Declaration of Trust, to authorize: (1) a conversion of the Fund from a
closed-end to an open-end investment company; (2) a merger or consolidation of
the Fund with any corporation, association, trust or other organization,
including a series or class of such other organization (in the limited
circumstances where a vote by shareholders is otherwise required under the
Declaration of Trust); (3) a sale, lease or exchange of all or substantially all
of the Fund's assets (in the limited circumstances where a vote by shareholders
is otherwise required under the Declaration); (4) in certain circumstances, a
termination of the Fund; (5) a removal of trustees by shareholders; or (6)
certain transactions in which a principal shareholder (as defined in the
Declaration of Trust) is a party to the transaction. However, with respect to
(1) above, if there are Preferred Shares outstanding, the affirmative vote of
the holders of two-thirds of the Preferred Shares voting as a separate class
shall also be required. With respect to (2) above, except as otherwise may be
required, if the transaction constitutes a plan of reorganization which
adversely affects Preferred Shares, if any, then an affirmative vote of
two-thirds of the Preferred Shares voting together as a separate class is
required as well. With respect to (1) through (3), if such transaction has
already been authorized by the affirmative vote of two-thirds of the trustees,
then the affirmative vote of the majority of the outstanding voting securities,
as defined in the 1940 Act (a "Majority Shareholder Vote"), is required,
provided that when only a particular class is affected (or, in the case of
removing a trustee, when the trustee has been elected by only one class), only
the required vote of the particular class will be required. Such affirmative
vote or consent shall be in addition to the vote or consent of the holders of
the Fund's shares otherwise required by law or any agreement between the Fund
and any national securities exchange. See the SAI under "Certain Provisions in
the Declaration of Trust and By-Laws."

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

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

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

CLOSED-END STRUCTURE

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

However, shares of closed-end investment companies listed for trading on a
securities exchange frequently trade at a discount from NAV, but in some cases
trade at a premium. The market price may be affected by trading volume of the
shares, general market and economic conditions and other factors beyond the
control of the closed-end fund. The foregoing factors may result in the market
price of the Common Shares being greater than, less than or equal to NAV. The
Board of Trustees has reviewed the structure of the Fund in light of its
investment objectives and policies and has determined that the closed-end
structure is in the best interests of the shareholders. As described below,
however, the Board of Trustees will review periodically the trading range and
activity of the Common Shares with respect to the Fund's NAV, and the Board of
Trustees may, but is not required to, take certain actions to seek to reduce or
eliminate any such discount. Such actions may include open market repurchases or
tender offers for the Common Shares at NAV or the possible conversion of the
Fund to an open-end fund. There can be no assurance that the Board of Trustees
will decide to undertake any of these actions or that, if undertaken, such
actions would result in the Common Shares trading at a price equal to or close
to their NAV. In addition, as noted above, the Board of Trustees has determined
in connection with this initial offering of Common Shares of the Fund that the
closed-end structure is appropriate, given the Fund's investment objectives and
policies. Investors should assume, therefore, that it is highly unlikely that
the Board of Trustees would vote to propose to shareholders that the Fund
convert to an open-end investment company.

REPURCHASE OF COMMON SHARES AND TENDER OFFERS

Shares of closed-end funds frequently trade at a discount to their NAV.
Because of this possibility and the recognition that any such discount may not
be in the interest of Common Shareholders, the Board of Trustees might consider
from time to time engaging in open-market repurchases, tender offers for shares
or other programs intended to reduce the discount. The Fund cannot guarantee or
assure, however, that the Board of Trustees will decide to engage in any of
these actions. After any consideration of potential actions to seek to reduce
any significant market discount, the Board of Trustees may, subject to its
fiduciary obligations and compliance with applicable state and federal laws and
the requirements of the principal stock exchange on which the Common Shares are
listed, authorize the commencement of a share-repurchase program or tender
offer. The size and timing of any such share repurchase program or tender offer
will be determined by the Board of Trustees in light of the market discount of
the Common Shares, trading volume of the Common Shares, information presented to
the Board of Trustees regarding the potential impact of any such share
repurchase program or tender offer, and general market and economic conditions.
There can be no assurance that the Fund will in fact effect repurchases of or
tender offers for any of its Common Shares. The Fund may, subject to its
investment limitation with respect to Borrowings, incur debt to finance such
repurchases or a tender offer or for other valid purposes. Interest on any such
Borrowings would increase the Fund's expenses and reduce the Fund's net income.

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

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

CONVERSION TO OPEN-END FUND

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

FEDERAL TAX MATTERS

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

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

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

Fund Status. The Fund intends to elect and to qualify annually as a
"regulated investment company" under the federal tax laws. To qualify, the Fund
must, among other things, satisfy certain requirements relating to the source
and nature of its income and the diversification of its assets. If the Fund
qualifies as a regulated investment company and distributes all of its income,
the Fund generally will not pay federal income or excise taxes.

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

Distributions. Fund distributions will constitute dividends to the extent of
the Fund's current and accumulated earnings and profits. After the end of each
year, you will receive a tax statement that separates your Fund distributions
into two categories, ordinary income distributions and capital gains dividends.
Ordinary income distributions are generally taxed at your ordinary tax rate,
but, as further discussed below, certain ordinary income distributions received
from the Fund may be taxed at tax rates equal to those applicable to net capital
gains. Generally, you will treat all capital gains dividends as long-term
capital gains regardless of how long you have owned your Common Shares. To
determine your actual tax liability for your capital gains dividends, you must
calculate your total net capital gain or loss for the tax year after considering
all of your other taxable transactions, as described below. The Fund may make
distributions in some years in excess of its earnings and profits. To the extent
that the Fund makes distributions in excess of its current and accumulated
earnings and profits, such distributions will represent a return of capital for
tax purposes to the extent of your tax basis in the shares and thus will
generally not be currently taxable to you and will thereafter constitute a
capital gain. The tax status of your distributions from the Fund is not affected
by whether you reinvest your distributions in additional Common Shares or
receive them in cash. The income from the Fund that you must take into account
for federal income tax purposes is not reduced by amounts used to pay a deferred
sales charge, if any. The tax laws may require you to treat distributions made
to you in January as if you had received them on December 31 of the previous
year. If you own Common Shares in your own name, under the Plan, any
distributions are automatically reinvested in additional Common Shares unless
you opt-out of the Plan.

Under the "Health Care and Education Reconciliation Act of 2010," income from
the Fund also may be subject to a new 3.8% "Medicare tax" imposed for taxable
years beginning after 2012. This tax will generally apply to your net investment
income if your adjusted gross income exceeds certain threshold amounts, which
are $250,000 in the case of married couples filing joint returns and $200,000 in
the case of single individuals.

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

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

The information statement you receive in regard to the sale or redemption of
your Common Shares may contain information about your basis in the Common Shares
and whether any gain or loss recognized by you should be considered long term or
short term capital gain. The information reported to you is based upon rules
that do not take into consideration all facts that may be known to you or your
advisors. You should consult with your tax advisors about any adjustments that
may need to be made to the information reported to you.

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

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

A portion of the ordinary income dividends received by an individual
shareholder from a regulated investment company such as the Fund generally will
be taxed at the same rates that apply to net capital gain (as discussed above),
but only if certain holding period requirements are satisfied and the dividends
are attributable to qualified dividends received by the Fund itself. The Fund
will provide notice to its shareholders of the amount of any distribution which
may be taken into account as a dividend which is eligible for the capital gains
tax rates.

Deductibility of Fund Expenses. Expenses incurred and deducted by the Fund
will generally not be treated as income taxable to you. In some cases, however,
you may be required to treat your portion of these Fund expenses as income. In
these cases you may be able to take a deduction for these expenses. However,
certain miscellaneous itemized deductions, such as investment expenses, may be
deducted by individuals only to the extent that all of these deductions exceed
2% of the individual's adjusted gross income.

Foreign Tax Credit. If the Fund invests in any foreign securities, the tax
statement that you receive may include an item showing foreign taxes the Fund
paid to other countries. In this case, dividends taxed to you will include your
share of the taxes the Fund paid to other countries. You may be able to deduct
or receive a tax credit for your share of these taxes.

Investments in Certain Foreign Corporations. If the Fund holds an equity
interest in any "passive foreign investment companies" ("PFICs"), which are
generally certain foreign corporations that receive at least 75% of their annual
gross income from passive sources (such as interest, dividends, certain rents
and royalties or capital gains) or that hold at least 50% of their assets in
investments producing such passive income, the Fund could be subject to U.S.
federal income tax and additional interest charges on gains and certain
distributions with respect to those equity interests, even if all the income or
gain is timely distributed to its shareholders. The Fund will not be able to
pass through to its shareholders any credit or deduction for such taxes. The
Fund may be able to make an election that could ameliorate these adverse tax
consequences. In this case, the Fund would recognize as ordinary income any
increase in the value of such PFIC shares, and as ordinary loss any decrease in

such value to the extent it did not exceed prior increases included in income.
Under this election, the Fund might be required to recognize in a year income in
excess of its distributions from PFICs and its proceeds from dispositions of
PFIC stock during that year, and such income would nevertheless be subject to
the distribution requirement and would be taken into account for purposes of the
4% excise tax. Dividends paid by PFICs will not be treated as qualified dividend
income.

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

Foreign Investors. If you are a foreign investor (i.e., an investor other
than a U.S. citizen or resident or a U.S. corporation, partnership, estate or
trust), you should be aware that, generally, subject to applicable tax treaties,
distributions from the Fund will be characterized as dividends for federal
income tax purposes (other than dividends which the Fund properly reports as
capital gain dividends) and will be subject to U.S. income taxes, including
withholding taxes, subject to certain exceptions described below. However,
except as described below, distributions received by a foreign investor from the
Fund that are properly reported by such Fund as capital gain dividends may not
be subject to U.S. federal income taxes, including withholding taxes, provided
that the Fund makes certain elections and certain other conditions are met.

Distributions after December 31, 2013 may be subject to a U.S. withholding
tax of 30% in the case of distributions to or dispositions by (i) certain
non-U.S. financial institutions that have not entered into an agreement with the
U.S. Treasury to collect and disclose certain information and are not resident
in a jurisdiction that has entered into such an agreement with the U.S. Treasury
and (ii) certain other non-U.S. entities that do not provide certain
certifications and information about the entity's U.S. owners. Dispositions of
Common Shares by such persons may be subject to such withholding after December
31, 2016.

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

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

UNDERWRITERS

Under the terms and subject to the conditions stated in an underwriting
agreement, the underwriters named below, for whom are acting as
representatives (the "Representatives"), have severally agreed to purchase, and
the Fund has agreed to sell to them, the number of Common Shares indicated
below.

NUMBER OF
UNDERWRITER COMMON SHARES

..............................................................
..............................................................
..............................................................
..............................................................
..............................................................
-----------
Total.........................................................
===========

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

The underwriters initially propose to offer part of the Common Shares
directly to the public at the public offering price listed on the cover page of
this prospectus and part to certain dealers at a price that represents a
concession not in excess of $ per Common Share under the public offering
price. After the initial offering of the Common Shares, the offering price and
other selling terms may from time to time be varied by the Representatives. The
underwriting discounts and commissions (sales load) of $1.125 per Common Share
are equal to 4.50% of the public offering price. Investors must pay for any
Common Shares purchased on or before , 2013.

The Fund has granted to the underwriters an option, exercisable for 45 days
from the date of this prospectus, to purchase up to an aggregate of Common
Shares at the public offering price per Common Share listed on the cover page of
this prospectus, less underwriting discounts and commissions. The underwriters
may exercise this option solely for the purpose of covering over-allotments, if
any, made in connection with the offering of the Common Shares offered by this
prospectus. To the extent the option is exercised, each underwriter will become
obligated, subject to limited conditions, to purchase approximately the same
percentage of the additional Common Shares as the number listed next to the
underwriter's name in the preceding table bears to the total number of Common
Shares listed next to the names of all underwriters in the preceding table. If
the underwriters' over-allotment option is exercised in full, the total public
offering price would be $ , the total underwriters' discounts and commissions
(sales load) would be $ and the total proceeds, after expenses, to the Fund
would be $ .

The following table summarizes the estimated expenses (assuming the Fund
issues Common Shares) and compensation that the Fund will pay:

PER COMMON SHARE TOTAL

WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------

Public offering price ..................................... $25.00 $ $ $
Sales load................................................. $1.125 $ $ $
Estimated offering expenses................................ $.050 $ $ $
Proceeds, after expenses, to the Fund...................... $23.825 $ $ $

The fees to certain underwriters described below under "--Additional
Compensation to Be Paid by the Advisor and Sub-Advisor" are not reimbursable to
the Advisor or the Sub-Advisor by the Fund, and are therefore not reflected in
expenses payable by the Fund in the table above.

Offering expenses paid by the Fund (other than the sales load) will not
exceed $0.050 per Common Share sold by the Fund in this offering. If the
offering expenses referred to in the preceding sentence exceed this amount, the
Advisor and the Sub-Advisor will pay the excess. The aggregate offering expenses
(excluding the sales load) to be borne by the Fund are estimated to be

$ in total (or $ if the underwriters exercise their
over-allotment option in full). See "Summary of Fund Expenses."

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

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

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

The Fund has agreed that, without the prior written consent of the
Representatives on behalf of the underwriters, it will not, during the period
ending 180 days after the date of this prospectus, (1) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, lend, or
otherwise transfer or dispose of, directly or indirectly, any Common Shares or
any securities convertible into or exercisable or exchangeable for Common Shares
or (2) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the Common
Shares, whether any such transaction described in clause (1) or (2) above is to
be settled by delivery of Common Shares or such other securities, in cash or
otherwise or (3) file any registration statement with the Commission relating to
the offering of any Common Shares or any securities convertible into or
exercisable or exchangeable for Common Shares. In the event that either (x)
during the last 17 days of the 180-day period referred to above, the Fund issues
an earnings release or material news or a material event relating to the Fund
occurs or (y) prior to the expiration of such 180-day period, the Fund announces
that it will release earnings results during the 16-day period beginning on the
last day of such 180-day period, the restrictions described above shall continue
to apply until the expiration of the 18-day period beginning on the date of the
earnings release or the occurrence of the material news or material event, as
applicable. This lock-up agreement will not apply to the Common Shares to be
sold pursuant to the underwriting agreement or any Common Shares issued pursuant
to the Plan.

In order to facilitate the offering of Common Shares, the underwriters may
engage in transactions that stabilize, maintain or otherwise affect the price of
the Common Shares. The underwriters currently expect to sell more Common Shares
than they are obligated to purchase under the underwriting agreement, creating a
short position in the Common Shares for their own account. A short sale is
covered if the short position is no greater than the number of Common Shares
available for purchase by the underwriters under the over-allotment option
(exercisable for 45 days from the date of this prospectus). The underwriters can
close out a covered short sale by exercising the over-allotment option or
purchasing Common Shares in the open market. In determining the source of Common
Shares to close out a covered short sale, the underwriters will consider, among
other things, the open-market price of the Common Shares compared to the price
available under the over-allotment option. The underwriters may also sell Common
Shares in excess of the over-allotment option, creating a naked short position.
The underwriters must close out any naked short position by purchasing Common
Shares in the open market. A naked short position is more likely to be created
if the underwriters are concerned that there may be downward pressure on the
price of the Common Shares in the open market after pricing that could adversely
affect investors who purchase in the offering. As an additional means of
facilitating the offering, the underwriters may bid for, and purchase, Common
Shares in the open market to stabilize the price of the Common Shares. Finally,
the underwriting syndicate may also reclaim selling concessions allowed to an
underwriter or a dealer for distributing the Common Shares in the offering, if
the syndicate repurchases previously distributed Common Shares in transactions
to cover syndicate short positions or to stabilize the price of the Common
Shares. Any of these activities may raise or maintain the market price of the
Common Shares above independent market levels or prevent or retard a decline in
the market price of the Common Shares. The underwriters are not required to
engage in these activities, and may end any of these activities at any time.

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

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

In connection with this offering, certain of the underwriters or selected
dealers may distribute prospectuses electronically. The Fund, the Advisor, the
Sub-Advisor and the underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the 1933 Act.

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

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

Prior to the public offering of Common Shares, the Advisor or an affiliate
will purchase Common Shares from the Fund in an amount satisfying the net worth
requirements of Section 14(a) of the 1940 Act.

The principal business address of is .

ADDITIONAL COMPENSATION TO BE PAID BY THE ADVISOR AND SUB-ADVISOR

The Advisor and the Sub-Advisor (and not the Fund) have agreed to
pay from their own assets, structuring fees in the amount of for
advice relating to the structure, design and organization of the Fund,
including, without limitation, views from an investor market and distribution
perspective on (i) diversification, proportion and concentration approaches for
the Fund's investments in light of current market conditions, (ii) marketing
issues with respect to the Fund's investment policies and proposed investments,
(iii) the proportion of the Fund's assets to invest in the Fund's strategies and
(iv) the overall marketing and positioning thesis for the offering of the Common
Shares. The structuring fees paid to will not exceed of the total public
offering price of the Common Shares. These fees are calculated based on the
total public offering price of the Common Shares sold by in the offering,
including Common Shares attributable to the underwriters' over-allotment option
(regardless of whether the over-allotment option is exercised). These services
provided by to the Advisor and the Sub-Advisor are unrelated to the
Advisor's and the Sub-Advisor's respective functions of advising the Fund as to
its investments in securities or use of investment strategies and investment
techniques.

The Advisor and the Sub-Advisor (and not the Fund) have agreed to pay from
their own assets, a syndication fee in the amount of $ for advice relating to
(i) securing syndicate participants in the Fund's initial public offering, (ii)
preparation of marketing and diligence materials for underwriters, (iii)
conveying information and market updates to the underwriters, and (iv)
coordinating syndicate orders in this offering. The syndication fee paid
to will not exceed % of the total public offering price of the
Common Shares. These services provided by to the Advisor and the
Sub-Advisor are unrelated to their respective functions of advising the Fund as
to its investments in securities or use of investment strategies and investment
techniques.

As part of the Fund's payment of its offering expenses, the Fund has agreed
to pay expenses related to the reasonable fees and disbursements of counsel to
the underwriters in connection with the review by the Financial Industry
Regulatory Authority, Inc. ("FINRA") of the terms of the sale of the Common
Shares.

Total underwriting compensation determined in accordance with FINRA rules is
summarized as follows. The sales load the Fund will pay of $1.125 per Common
Share is equal to 4.5% of gross proceeds. The Advisor and the Sub-Advisor (and
not the Fund) will pay structuring fees and, if applicable, syndication fees to
as described above, which will not exceed $ . Total compensation to
the underwriters, including expense reimbursements, will not exceed % of gross
proceeds of the offering.

CUSTODIAN, ADMINISTRATOR, FUND ACCOUNTANT AND TRANSFER AGENT

The custodian of the assets of the Fund is The Bank of New York Mellon, One
Wall Street, New York, New York 10286. The Fund's transfer, shareholder services
and dividend paying agent is BNY Mellon Investment Servicing (US) Inc., 301
Bellevue Parkway, Wilmington, Delaware 19809. Pursuant to an administration and
accounting services agreement, BNY Mellon Investment Servicing (US) Inc. also
provides certain administrative and accounting services to the Fund, including
maintaining the Fund's books of account, records of the Fund's securities
transactions, and certain other books and records; acting as liaison with the
Fund's independent registered public accounting firm by providing such
accountant with various audit-related information with respect to the Fund; and
providing other continuous accounting and administrative services. As
compensation for these services, the Fund has agreed to pay BNY Mellon
Investment Servicing (US) Inc. an annual fee, calculated daily and payable on a
monthly basis, of % of the Fund's average net assets, subject to decrease
with respect to additional Fund net assets.

LEGAL OPINIONS

Certain legal matters in connection with the Common Shares will be passed
upon for the Fund by Chapman and Cutler LLP, Chicago, Illinois, and for the
Underwriters by . Chapman and Cutler LLP and
may rely as to certain matters of Massachusetts law on the opinion of Bingham
McCutchen LLP.

TABLE OF CONTENTS FOR THE STATEMENT
OF ADDITIONAL INFORMATION

PAGE
Investment Objectives....................................................... 1
Investment Restrictions..................................................... 1
Investment Policies and Techniques.......................................... 3
Additional Information About the Fund's Investments and Investment Risks.... 5
Other Investment Policies and Techniques....................................23
Management of the Fund......................................................40
Investment Advisor..........................................................50
Sub-Advisor.................................................................52
Proxy Voting Policies and Procedures........................................56
Portfolio Transactions and Brokerage........................................56
Description of Shares ......................................................58
Certain Provisions in the Declaration of Trust and By-Laws..................60
Repurchase of Fund Shares; Conversion to Open-End Fund......................62
Net Asset Value.............................................................65
Tax Matters.................................................................67
Performance Related and Comparative Information.............................72
Independent Registered Public Accounting Firm...............................74
Custodian, Administrator and Transfer Agent.................................74
Additional Information......................................................75
Report of Independent Registered Public Accounting Firm.....................76
Statement of Assets and Liabilities.........................................77
Appendix A--Ratings of Investments.........................................A-1
Appendix B--Stonebridge Advisors LLC Proxy Voting Policy...................B-1

================================================================================
Until , 2013 (25 days after the date of this prospectus), all dealers
that buy, sell or trade the Common Shares, whether or not participating in this
offering, may be required to deliver a prospectus. This is in addition to the
dealers' obligation to deliver a prospectus when acting as Underwriters and with
respect to their unsold allotments or subscriptions.

FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND

COMMON SHARES
$25.00 PER SHARE

---------------------------
P R O S P E C T U S
---------------------------

, 2013

================================================================================

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

SUBJECT TO COMPLETION, DATED FEBRUARY 4, 2013

FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND
STATEMENT OF ADDITIONAL INFORMATION

First Trust Intermediate Duration Preferred & Income Fund (the "Fund") is
a newly organized, non-diversified, closed-end management investment company.

This Statement of Additional Information relating to the common shares of
beneficial interest of the Fund (the "Common Shares") is not a prospectus, but
should be read in conjunction with the Fund's Prospectus dated , 2013 (the
"Prospectus"). This Statement of Additional Information does not include all
information that a prospective investor should consider before purchasing Common
Shares. Investors should obtain and read the Prospectus prior to purchasing such
Common Shares. A copy of the Fund's Prospectus may be obtained without charge by
calling (800) 988-5891. You may also obtain a copy of the Prospectus on the
Securities and Exchange Commission's ("SEC") website (http://www.sec.gov).
Capitalized terms used but not defined in this Statement of Additional
Information have the meanings ascribed to them in the Prospectus.

This Statement of Additional Information is dated , 2013.

TABLE OF CONTENTS

PAGE

INVESTMENT OBJECTIVES.........................................................1

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

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

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

OTHER INVESTMENT POLICIES AND TECHNIQUES.....................................23

MANAGEMENT OF THE FUND.......................................................40

INVESTMENT ADVISOR...........................................................50

SUB-ADVISOR..................................................................52

PROXY VOTING POLICIES AND PROCEDURES.........................................56

PORTFOLIO TRANSACTIONS AND BROKERAGE.........................................56

DESCRIPTION OF SHARES........................................................58

CERTAIN PROVISIONS IN THE DECLARATION OF TRUST AND BY-LAWS...................60

REPURCHASE OF FUND SHARES; CONVERSION TO OPEN-END FUND.......................63

NET ASSET VALUE..............................................................65

TAX MATTERS..................................................................67

PERFORMANCE RELATED AND COMPARATIVE INFORMATION..............................72

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM................................74

CUSTODIAN, ADMINISTRATOR AND TRANSFER AGENT..................................75

ADDITIONAL INFORMATION.......................................................75

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM......................76

STATEMENT OF ASSETS AND LIABILITIES..........................................77

APPENDIX A -- Ratings of Investments..................................A-1
APPENDIX B -- Stonebridge Advisors LLC Proxy Voting Policy............B-1

- ii -

INVESTMENT OBJECTIVES

The Fund's primary investment objective is to seek a high level of current
income. The Fund has a secondary objective of capital appreciation. The Fund
will seek to achieve its investment objectives by investing in preferred and
other income-producing securities. The Fund also may invest in other securities
set forth below if Stonebridge Advisors LLC ("Stonebridge" or the "Sub-Advisor")
expects to achieve the Fund's objectives with such investments. The Fund seeks
to maintain, under normal market conditions, a blended (or weighted average)
portfolio duration of between three and eight years. There can be no assurance
that the Fund's investment objectives will be achieved.

INVESTMENT RESTRICTIONS

FUNDAMENTAL INVESTMENT POLICIES

The Fund, as a fundamental policy, may not:

(1) Issue senior securities, as defined in the Investment Company
Act of 1940, as amended, other than (i) preferred shares which immediately
after issuance will have asset coverage of at least 200%, (ii)
indebtedness which immediately after issuance will have asset coverage of
at least 300%, or (iii) the borrowings permitted by investment restriction
(2) set forth below;

(2) Borrow money, except as permitted by the Investment Company Act
of 1940, as amended, the rules thereunder and interpretations thereof or
pursuant to a Securities and Exchange Commission exemptive order;

(3) Act as underwriter of another issuer's securities, except to
the extent that the Fund may be deemed to be an underwriter within the
meaning of the Securities Act of 1933, as amended, in connection with the
purchase and sale of portfolio securities;

(4) Purchase or sell real estate, but this shall not prevent the
Fund from investing in securities of companies that deal in real estate or
are engaged in the real estate business, including real estate investment
trusts, and securities secured by real estate or interests therein and the
Fund may hold and sell real estate or mortgages on real estate acquired
through default, liquidation, or other distributions of an interest in
real estate as a result of the Fund's ownership of such securities;

(5) Purchase or sell physical commodities unless acquired as a
result of ownership of securities or other instruments (but this shall not
prevent the Fund from purchasing or selling options, futures contracts,
derivative instruments or from investing in securities or other
instruments backed by physical commodities);

(6) Make loans of funds or other assets, other than by entering
into repurchase agreements, lending portfolio securities and through the
purchase of securities in accordance with its investment objectives,
policies and limitations; or

(7) Concentrate (invest 25% or more of total assets) the Fund's
investments in any particular industry, except that the Fund will
concentrate its assets in the group of industries that are part of the
financials sector; provided, however, that such limitation shall not apply
to obligations issued or guaranteed by the United States government or by
its agencies or instrumentalities.

The Fund may incur borrowings and/or issue series of notes or other senior
securities in an amount up to 33-1/3% (or such other percentage to the extent
permitted by the Investment Company Act of 1940, as amended (the "1940 Act")) of
its total assets (including the amount borrowed) less all liabilities other than
borrowings. For a further discussion of the limitations imposed on borrowing by
the 1940 Act, please see the section entitled "Use of Leverage" in the Fund's
Prospectus.

The Fund's investment objectives are considered fundamental and may not be
changed without the approval of the holders of a "majority of the outstanding
voting securities" of the Fund, which includes Common Shares and Preferred
Shares, if any, voting together as a single class, and the holders of the
outstanding Preferred Shares, if any, voting as a single class. The remainder of
the Fund's investment policies other than the Fund's fundamental investment
restrictions listed above, including its investment strategy, are considered
non-fundamental and may be changed by the Board of Trustees of the Fund (the
"Board of Trustees") without the approval of the holders of a "majority of the
outstanding voting securities," provided that the holders of the voting
securities of the Fund receive at least 60 days prior written notice of any
change. When used with respect to particular shares of the Fund, a "majority of
the outstanding voting securities" means (i) 67% or more of the shares present
at a meeting, if the holders of more than 50% of the shares are present or
represented by proxy, or (ii) more than 50% of the shares, whichever is less.

NON-FUNDAMENTAL INVESTMENT POLICIES

The Fund has adopted the following non-fundamental policies:

(1) Under normal market conditions, the Fund will invest at least
80% of its Managed Assets in a portfolio of preferred and other
income-producing securities issued by U.S. and non-U.S. companies,
including traditional preferred securities, hybrid preferred securities
that have investment and economic characteristics of both preferred
securities and debt securities, floating rate and fixed-to-floating-rate
preferred securities, debt securities, convertible securities, contingent
convertible securities and securities of other open-end, closed-end and
exchange-traded funds that invest primarily in securities of the types in
which the Fund may invest directly;

(2) The Fund seeks to maintain, under normal market conditions, a
blended (or weighted average) portfolio duration of between three and
eight years;

(3) Under normal market conditions, the Fund will seek to invest in
a portfolio of securities that has an average weighted credit quality of
investment grade;

(4) The Fund may invest up to 25% of its Managed Assets in
securities that, at the time of investment, are illiquid (determined using
the SEC's standard applicable to registered investment companies, i.e.,
securities that cannot be disposed of within seven days in the ordinary
course of business at approximately the value at which the Fund has valued
the securities);

(5) The Fund may invest up to 20% of its Managed Assets in common
stocks, including rights or warrants to purchase common stocks;

(6) The Fund may invest up to 20% of its Managed Assets in debt
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities or by a non-U.S. Government or its agencies or
instrumentalities; and

(7) The Fund may invest up to 20% of its Managed Assets in municipal
securities, which include debt obligations of states, territories or
possessions of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities

INVESTMENT POLICIES AND TECHNIQUES

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

Temporary Investments and Defensive Position. During the period where the
net proceeds of this offering of Common Shares, the issuance of Preferred
Shares, if any, commercial paper or notes and/or other Borrowings are being
invested or during periods in which the Sub-Advisor determines that it is
temporarily unable to follow the Fund's investment strategy or that it is
impractical to do so, the Fund may deviate from its investment strategy and
invest all or any portion of its net assets in cash, cash equivalents or other
securities. The Sub-Advisor's determination that it is temporarily unable to
follow the Fund's investment strategy or that it is impracticable to do so
generally will occur only in situations in which a market disruption event has
occurred and where trading in the securities selected through application of the
Fund's investment strategy is extremely limited or absent. In such a case, the
Fund may not pursue or achieve its investment objective.

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

(1) U.S. government securities, including bills, notes and bonds
differing as to maturity and rates of interest that are either issued or
guaranteed by the U.S. Treasury or by U.S. government agencies or
instrumentalities. U.S. government agency securities include securities
issued by: (a) the Federal Housing Administration, Farmers Home
Administration, Export-Import Bank of the United States, Small Business

Administration, and the Government National Mortgage Association, whose
securities are supported by the full faith and credit of the United
States; (b) the Federal Home Loan Banks, Federal Intermediate Credit
Banks, and the Tennessee Valley Authority, whose securities are supported
by the right of the agency to borrow from the U.S. Treasury; (c) the
Federal National Mortgage Association; and (d) the Student Loan Marketing
Association, whose securities are supported only by its credit. While the
U.S. government provides financial support to such U.S.
government-sponsored agencies or instrumentalities, no assurance can be
given that it always will do so since it is not so obligated by law. The
U.S. government, its agencies, and instrumentalities do not guarantee the
market value of their securities. Consequently, the value of such
securities may fluctuate.

(2) Certificates of deposit issued against funds deposited in a
bank or a savings and loan association. Such certificates are for a
definite period of time, earn a specified rate of return, and are normally
negotiable. The issuer of a certificate of deposit agrees to pay the
amount deposited plus interest to the bearer of the certificate on the
date specified thereon. Under current Federal Deposit Insurance
Corporation ("FDIC") regulations, the maximum insurance payable as to any
one certificate of deposit is $250,000, therefore, certificates of deposit
purchased by the Fund may not be fully insured.

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

(4) Commercial paper, which consists of short-term unsecured
promissory notes, including variable rate master demand notes issued by
corporations to finance their current operations. Master demand notes are

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

(5) The Fund may invest in bankers' acceptances which are
short-term credit instruments used to finance commercial transactions.
Generally, an acceptance is a time draft drawn on a bank by an exporter or
an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
asset or it may be sold in the secondary market at the going rate of
interest for a specific maturity.

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

(7) The Fund may invest in shares of money market funds in
accordance with the provisions of the 1940 Act.

ADDITIONAL INFORMATION ABOUT THE FUND'S INVESTMENTS AND INVESTMENT RISKS

The following descriptions supplement the descriptions of the investment
objectives, policies, strategies and risks as set forth in the Fund's
Prospectus. The Fund's portfolio will be composed principally of the investments
described below.

PREFERRED SECURITIES

There are two basic types of preferred securities, traditional and hybrid
preferred securities. Traditional preferred securities consist of preferred
stock issued by an entity taxable as a corporation. Traditional preferred
stocks, which may offer fixed or floating rate dividends, are perpetual
instruments and considered equity securities. Alternatively, hybrid preferred
securities may be issued by corporations, generally in the form of
interest-bearing notes with preferred securities characteristics, or by an
affiliated trust or partnership of the corporation, generally in the form of
preferred interests in subordinated debentures or similarly structured
securities. The hybrid preferred securities market consists of both fixed and
adjustable coupon rate securities that are either perpetual in nature or have
stated maturity dates. Hybrid preferred securities are considered debt
securities. Due to their similar attributes, the Sub-Advisor also considers

senior debt perpetual issues, certain securities with convertible features as
well as exchange-listed senior debt issues that trade with attributes of
exchange-listed perpetual and hybrid preferred securities to be part of the
broader preferred securities market.

Traditional Preferred Securities. Traditional preferred securities pay
fixed or floating dividends to investors and have "preference" over common stock
in the payment of dividends and the liquidation of a company's assets. This
means that a company must pay dividends on preferred stock before paying any
dividends on its common stock. In order to be payable, distributions on such
preferred securities must be declared by the issuer's board of directors. Income
payments on preferred securities may be cumulative, causing dividends and
distributions to accumulate even if not declared by the board of directors or
otherwise made payable. In such a case, all accumulated dividends must be paid
before any dividend on the common stock can be paid. However, many traditional
preferred stocks are non-cumulative, in which case dividends do not accumulate
and need not ever be paid. The Fund may invest in non-cumulative preferred
securities, whereby the issuer does not have an obligation to make up any missed
payments to its shareholders. There is no assurance that dividends or
distributions on the traditional preferred securities in which the Fund invests
will be declared or otherwise made payable. Preferred securities may also
contain provisions under which payments must be stopped (i.e., stoppage is
compulsory, not discretionary). The conditions under which this occurs may
relate to, for instance, capitalization levels. Hence, if a company incurs
significant losses that deplete retained earnings automatic payment stoppage
could occur. In some cases the terms of the preferred securities provide that
the issuer would be obligated to attempt to issue common shares to raise funds
for the purpose of making the preferred payments. However, there is no guarantee
that the issuer would be successful in placing common shares.

Preferred shareholders usually have no right to vote for corporate
directors or on other matters. Shares of traditional preferred securities have a
liquidation preference that generally equals the original purchase price at the
date of issuance. The market value of preferred securities may be affected by,
among other factors, favorable and unfavorable changes impacting the issuer or
industries in which they operate, movements in interest rates and inflation, and
the broader economic and credit environments, and by actual and anticipated
changes in tax laws, such as changes in corporate and individual income tax
rates. Because the claim on an issuer's earnings represented by traditional
preferred securities may become onerous when interest rates fall below the rate
payable on such securities, the issuer may redeem the securities. Thus, in
declining interest rate environments in particular, the Fund's holdings of
higher rate-paying fixed rate preferred securities may be reduced, and the Fund
may be unable to acquire securities of comparable credit quality paying
comparable rates with the redemption proceeds.

Corporate shareholders of a regulated investment company (a "RIC") like
the Fund generally are permitted to claim the 70% dividends received deduction
(the "DRD") with respect to that portion of their distributions from the RIC
attributable to amounts received by the RIC that qualify for the DRD, provided
such amounts are properly reported by the RIC and certain holding period
requirements are met at both the RIC and shareholder level. Not all traditional
preferred securities pay dividends that are eligible for the DRD. Individual
shareholders of a RIC like the Fund generally may be eligible to treat as
qualified dividend income ("QDI") that portion of their distributions from the
RIC attributable to QDI received and reported as such by the RIC, provided

certain holding period requirements are met at both the RIC and shareholder
level. Not all traditional preferred securities will provide significant
benefits under the rules relating to QDI. Under current law, individuals will
generally be taxed at long-term capital gain rates on qualified dividend income.
Dividends from REIT preferred securities do not qualify for the DRD and
generally do not constitute QDI. For more information regarding QDI and DRD, see
"Tax Matters" below.

Hybrid Preferred Securities. Hybrid-preferred securities are typically
issued by corporations, generally in the form of interest-bearing notes with
preferred securities characteristics, as described below, or by an affiliated
business trust of a corporation, generally in the form of beneficial interests
in subordinated debentures or similarly structured securities. The hybrid
preferred securities market consists of both fixed and adjustable coupon rate
securities that are either perpetual in nature or have stated maturity dates.

Hybrid preferred securities are typically junior and fully subordinated
liabilities of an issuer or the beneficiary of a guarantee that is junior and
fully subordinated to the other liabilities of the guarantor. In addition,
hybrid preferred securities typically permit an issuer to defer the payment of
income for eighteen months or more without triggering an event of default.
Generally, the maximum deferral period is five years. Because of their
subordinated position in the capital structure of an issuer, the ability to
defer payments for extended periods of time without default consequences to the
issuer and certain other features (such as restrictions on common dividend
payments by the issuer or ultimate guarantor when full cumulative payments on
the hybrid preferred securities have not been made), these hybrid preferred
securities are often treated as close substitutes for traditional preferred
securities, both by issuers and investors. Hybrid preferred securities have many
of the key characteristics of equity because of their subordinated position in
an issuer's capital structure and because their quality and value are heavily
dependent on the profitability of the issuer rather than on any legal claims to
specific assets or cash flows. Hybrid preferred securities include, but are not
limited to, trust preferred securities; enhanced trust preferred securities;
trust-originated preferred securities; monthly-income preferred securities;
quarterly-income bond securities; quarterly-income debt securities;
quarterly-income preferred securities; corporate trust securities; public income
notes; and other hybrid preferred securities.

Hybrid preferred securities are typically issued with a final maturity
date. In certain instances, a final maturity date may be extended and/or the
final payment of principal may be deferred at the issuer's option for a
specified time without default. No redemption can typically take place unless
all cumulative payment obligations have been met, although issuers may be able
to engage in open-market repurchases without regard to whether all payments have
been paid.

securities generally are treated as owning beneficial interests in the
underlying debt of the operating company held by the trust or special purpose
entity, and payments on the hybrid preferred securities are generally treated as
interest rather than dividends. As such, payments on the hybrid preferred
securities are not eligible for the DRD or the reduced rates of tax that may
apply to QDI. The trust or special purpose entity would be a holder of the
operating company's debt and would have priority with respect to the operating
company's earnings and profits over the operating company's common shareholders,
but would typically be subordinated to other classes of the operating company's
debt. Typically a preferred security has a credit rating that is lower than that
of its corresponding operating company's senior debt securities.

In some cases traditional and hybrid securities may include loss
absorption provisions that make the securities more equity like. This is
particularly true in the financials sector, the largest preferred issuer
segment. Events in global financial markets in recent periods have caused
regulators to review the function and structure of preferred securities more
closely. While loss absorption language is relatively rare in the preferred
market today, it may become much more prevalent.

In one version of a preferred security with loss absorption
characteristics, the liquidation value of the security may be adjusted downward
to below the original par value under certain circumstances. This may occur, for
instance, in the event that business losses have eroded capital to a substantial
extent. The write down of the par value would occur automatically and would not
entitle the holders to seek bankruptcy of the company. Such securities may
provide for circumstances under which the liquidation value may be adjusted back
up to par, such as an improvement in capitalization and/or earnings.

Another preferred structure with loss absorption characteristics is the
contingent convertible security (sometimes referred to as "CoCo's"). These
securities provide for mandatory conversion into common shares of the issuer
under certain circumstances. The mandatory conversion might relate, for
instance, to maintenance of a capital minimum, whereby falling below the minimum
would trigger automatic conversion. Since the common stock of the issuer may not
pay a dividend, investors in these instruments could experience a reduced income
rate, potentially to zero; and conversion would deepen the subordination of the
investor, hence worsening standing in a bankruptcy. In addition, some such
instruments have a set stock conversion rate that would cause an automatic
write-down of capital if the price of the stock is below the conversion price on
the conversion date.

Floating Rate and Fixed-to-Floating Rate Securities. Floating-rate and
fixed-to-floating-rate preferred securities may be traditional preferred or
hybrid preferred securities. The terms of floating rate preferred securities
provide that interest rates are adjusted periodically based upon an interest

rate adjustment index. The adjustment intervals may be regular, and range from
daily up to annually, or may be event-based, such as a change in the prime rate.
Because of the interest rate reset feature, floating rate securities provide the
Fund with a certain degree of protection against rises in interest rates,
although the interest rates of floating rate securities will participate in any
declines in interest rates as well. Similarly, a fixed-to-floating rate security
may be less price-sensitive to rising interest rates (or yields), because it has
a rate of payment that is fixed for a certain period (typically five, ten or
thirty years when first issued), after which period a floating rate of payment
applies. The Fund may invest significantly in both floating rate and
fixed-to-floating rate preferred securities.

Convertible Preferred Securities. Some preferred securities, generally
known as convertible preferred securities, provide for an investor option to
convert their holdings into common shares of the issuer. These securities may
have lower rates of income than other preferred securities, and the conversion
option may cause them to trade more like equities than typical fixed income
instruments. See "--Convertible Securities" below.

DEBT SECURITIES

The debt securities in which the Fund may invest may provide for fixed or
variable principal payments and various types of interest rate and reset terms,
including fixed rate, adjustable rate, zero coupon, contingent, deferred,
payment-in-kind and auction rate features. A zero coupon bond is a bond that
does not pay interest either for the entire life of the obligations or for an
initial period after the issuance of the obligation. Certain debt securities are
"perpetual" in that they have no maturity date.

The Fund may invest in debt securities that are rated below investment
grade at the time of purchase. In light of the risks of below investment grade
debt securities, as discussed below, the Sub-Advisor, in evaluating the
creditworthiness of an issue, whether rated or unrated, will take various
factors into consideration, which may include, as applicable, the issuer's
operating history, financial resources and its sensitivity to economic
conditions and trends, the market support for the facility financed by the issue
(if applicable), the perceived ability and integrity of the issuer's management
and regulatory matters.

Fluctuations in the prices of debt securities may be caused by, among
other things, the supply and demand for similarly rated debt instruments. In
addition, the prices of debt securities fluctuate in response to the general
level of interest rates. Fluctuations in the prices of debt securities
subsequent to their acquisition will not affect cash income from such debt
securities but will be reflected in the Fund's net asset value.

Corporate Debt Obligations. The Fund may invest in investment grade or
below investment grade U.S. dollar-denominated debt obligations issued or
guaranteed by U.S. corporations or U.S. commercial banks, U.S.
dollar-denominated obligations of foreign issuers and debt obligations of
foreign issuers denominated in foreign currencies. Such debt obligations
include, among others, bonds, notes, debentures and variable rate demand notes.
In choosing corporate debt securities on behalf of the Fund, the Sub-Advisor may
consider (i) general economic and financial conditions; (ii) the specific
issuer's (a) business and management, (b) cash flow, (c) earnings coverage of

interest and dividends, (d) ability to operate under adverse economic
conditions, (e) fair market value of assets and (f) in the case of foreign
issuers, unique political, economic or social conditions applicable to such
issuer's country, and (iii) other considerations deemed appropriate.

U.S. Government Obligations. The Fund may invest in U.S. Government
obligations. Obligations issued or guaranteed by the U.S. Government, its
agencies and instrumentalities include bills, notes and bonds issued by the U.S.
Treasury, as well as "stripped" or "zero coupon" U.S. Treasury obligations
representing future interest or principal payments on U.S. Treasury notes or
bonds. Stripped securities are sold at a discount to their "face value," and may
exhibit greater price volatility than interest-bearing securities because
investors receive no payment until maturity. Other obligations are supported by
the right of the issuer to borrow from the U.S. Treasury. Other obligations of
certain agencies and instrumentalities of the U.S. Government are supported only
by the credit of the instrumentality. The U.S. Government may choose not to
provide financial support to U.S. Government sponsored agencies or
instrumentalities if it is not legally obligated to do so, in which case, if the
issuer were to default, the Fund might not be able to recover their investment
from the U.S. Government.

Mortgage-Backed and Asset-Backed Securities. Mortgage-backed securities
are mortgage-related securities issued or guaranteed by the U.S. Government, its
agencies and instrumentalities, or issued by non-government entities.
Mortgage-related securities represent pools of mortgage loans assembled for sale
to investors by various government agencies, as well as by non-government
issuers such as commercial banks, savings and loan institutions, mortgage
bankers and private mortgage insurance companies. Although certain
mortgage-related securities are guaranteed by a third party or otherwise
similarly secured, the market value of the security, which may fluctuate, is not
so secured.

Other asset-backed securities are structured like mortgage-backed
securities, but instead of mortgage loans or interests in mortgage loans, the
underlying assets may include such items as motor vehicle installment sales or
installment loan contracts, leases of various types of real and personal
property, and receivables from credit card agreements and from sales of personal
property. Regular payments received in respect of such securities include both
interest and principal. Asset-backed securities typically have no U.S.
Government backing. Additionally, the ability of an issuer of asset-backed
securities to enforce its security interest in the underlying assets may be
limited.

If the Fund purchases a mortgage-backed or other asset-backed security at
a premium, that portion may be lost if there is a decline in the market value of
the security whether resulting from changes in interest rates or prepayments in
the underlying collateral. As with other interest-bearing securities, the prices
of such securities are inversely affected by changes in interest rates. Although
the value of a mortgage-backed or other asset-backed security may decline when
interest rates rise, the converse is not necessarily true, since in periods of
declining interest rates the mortgages and loans underlying the securities are
prone to prepayment, thereby shortening the average life of the security and
shortening the period of time over which income at the higher rate is received.

When interest rates are rising, the rate of prepayment tends to decrease,
thereby lengthening the period of time over which income at the lower rate is
received. For these and other reasons, a mortgage-backed or other asset-backed
security's average maturity may be shortened or lengthened as a result of
interest rate fluctuations and, therefore, it is not possible to predict
accurately the security's return.

Collateralized Mortgage Obligations. A collateralized mortgage obligation
("CMO") is a hybrid between a mortgage-backed bond and a mortgage pass-through
security. A CMO is a type of mortgage-backed security that creates separate
classes with varying maturities and interest rates, called tranches. Similar to
a bond, interest and prepaid principal is paid, in most cases, semi-annually.

CMOs may be collateralized by whole mortgage loans, but are more typically
collateralized by portfolios of mortgage pass-through securities guaranteed by
the U.S. Government, and their income streams. CMOs are structured into multiple
classes, each bearing a different stated maturity. Actual maturity and average
life will depend upon the prepayment experience of the collateral. CMOs provide
for a modified form of call protection through a de facto breakdown of the
underlying pool of mortgages according to how quickly the loans are repaid.
Monthly payment of principal received from the pool of underlying mortgages,
including prepayments, is first returned to investors holding the shortest
maturity class. Investors holding the longer maturity classes receive principal
only after the first class has been retired. An investor is partially guarded
against a sooner than desired return of principal because of the sequential
payments.

In a typical CMO transaction, an issuer issues multiple series (e.g.,
Series A, B, C and Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering are
used to purchase mortgages or mortgage pass-through certificates ("Collateral").
The Collateral is pledged to a third party trustee as security for the Bonds.
Principal and interest payments from the Collateral are used to pay principal on
the Bonds in the following order: Series A, B, C and Z. The Series A, B, and C
Bonds all bear current interest. Interest on a Series Z Bond is accrued and
added to principal and a like amount is paid as principal on the Series A, B, or
C Bond currently being paid off. Only after the Series A, B, and C Bonds are
paid in full does the Series Z Bond begin to receive payment. With some CMOs,
the issuer serves as a conduit to allow loan originators (primarily builders or
savings and loan associations) to borrow against their loan portfolios.

Other public purposes for which Municipal securities may be issued include
the refunding of outstanding obligations, obtaining funds for general operating
expenses and lending such funds to other public institutions and facilities. In
addition, certain types of industrial development bonds are issued by or on
behalf of public authorities to obtain funds to provide for the construction,
equipment, repair or improvement of privately operated housing facilities,

airport, mass transit, industrial, port or parking facilities, air or water
pollution control facilities and certain local facilities for water supply, gas,
electricity sewage or solid waste disposal. The principal and interest payments
for industrial development bonds or pollution control bonds are often the sole
responsibility of the industrial user and therefore may not be backed by the
taxing power of the issuing municipality. Such obligations are considered to be
Municipal securities provided, that the interest paid thereon, in the opinion of
bond counsel, qualifies as exempt from federal income tax. The Fund does not
anticipate meeting the requirements under the Internal Revenue Code of 1986, as
amended (the "Code"), to pass through income from municipal securities as tax
free to the Fund shareholders.

The two major classifications of municipal securities are bonds and notes.
Bonds may be further classified as "general obligation" or "revenue" issues.
General obligation bonds are secured by the issuer's pledge of its full faith,
credit and taxing power for the payment of principal and interest. Revenue bonds
are payable from the revenues derived from a particular facility or class of
facilities, and in some cases, from the proceeds of a special excise or other
specific revenue source, but not from the general taxing power. Tax exempt
industrial development bonds are in most cases revenue bonds and do not
generally carry the pledge of the credit of the issuing municipality. Notes are
short term instruments which usually mature in less than two years. Most notes
are general obligations of the issuing municipalities or agencies and are sold
in anticipation of a bond sale, collection of taxes or receipt of other
revenues. There are, of course, variations in the risks associated with
Municipal securities, both within a particular classification and between
classifications.

Floating Rate Loans. The Fund may invest in senior secured floating rate
loans ("Senior Loans"). Senior Loans are typically made to U.S. and non-U.S.
corporations, partnerships and other business entities ("Borrowers") which
operate in various industries and geographic regions. Senior Loans, which
generally hold one of the most senior positions in a Borrower's capital
structure, pay interest at rates that are determined periodically on the basis
of a floating base lending rate, primarily the London Inter-bank Offered Rate
("LIBOR"), plus a premium. This floating rate feature should help to minimize
changes in the principal value of the Senior Loans resulting from interest rate
changes. The Fund may invest in Senior Loans that are below investment grade
quality and are speculative investments that are subject to credit risk.

Senior Loans in which the Fund may invest may not be rated by a rating
agency, will not be registered with the Securities and Exchange Commission or
any state securities commission and generally will not be listed on any national
securities exchange. Therefore, the amount of public information available about
Senior Loans will be limited, and the performance of the Fund's investments in
Senior Loans will be more dependent on the analytical abilities of the
Sub-Advisor than would be the case for investments in more widely rated,
registered or exchange-listed securities. In evaluating the creditworthiness of
Borrowers, the Sub-Advisor may consider, and may rely in part, on analyses
performed by others. Moreover, certain Senior Loans will be subject to
contractual restrictions on resale and, therefore, will be illiquid.

Bank Instruments. The Fund may invest in certificates of deposits, time
deposits, and bankers' acceptances from U.S. or foreign banks. A bankers'
acceptance is a bill of exchange or time draft drawn on and accepted by a
commercial bank. A certificate of deposit is a negotiable interest-bearing

instrument with a specific maturity. Certificates of deposit are issued by banks
and savings and loan institutions in exchange for the deposit of funds, and
normally can be traded in the secondary market prior to maturity. A time deposit
is a non-negotiable receipt issued by a bank in exchange for the deposit of
funds. Like a certificate of deposit, it earns a specified rate of interest over
a definite period of time; however, it cannot be traded in the secondary market.

The Fund may invest in certificates of deposit ("Eurodollar CDs") and time
deposits (Eurodollar time deposits) of foreign branches of domestic banks.
Accordingly, an investment in the Fund may involve risks that are different in
some respects from those incurred by an investment company which invests only in
debt obligations of U.S. domestic issuers. Such risks include future political
and economic developments, the possible seizure or nationalization of foreign
deposits and the possible imposition of foreign country withholding taxes on
interest income.

BELOW INVESTMENT GRADE SECURITIES

Under normal market conditions, the Fund will seek to invest in a
portfolio of securities that has an average weighted credit quality of
investment grade. Investment grade quality securities are those that, at the
time of purchase, are rated at least "BBB-" or higher by Standard & Poor's
Corporation Ratings Group, a division of The McGraw-Hill Companies ("S&P"), or
Fitch Ratings, Inc. ("Fitch"), or "Baa3" or higher by Moody's Investors
Services, Inc. ("Moody's"), or comparably rated by another nationally recognized
statistical rating organization ("NRSRO") or, if unrated, determined by the
Sub-Advisor to be of comparable credit quality. In the event that a security is
rated by multiple NRSROs and receives different ratings, the Fund will treat the
security as being rated in the highest rating category received from an NRSRO.
Investment in below investment grade securities involves substantial risk of
loss. Below investment grade debt securities or comparable unrated securities
are commonly referred to as "junk" or "high yield" securities and are considered
predominantly speculative with respect to the issuer's ability to pay interest
and principal and are susceptible to default or decline in market value due to
adverse economic and business developments. The market values for below
investment grade securities tend to be very volatile, and these securities are
less liquid than investment grade debt securities. For these reasons, to the
extent the Fund invests in below investment grade securities, your investment in
the Fund is subject to the following specific risks:

o increased price sensitivity to changing interest rates and to a
deteriorating economic environment;

o greater risk of loss due to default or declining credit quality;

o adverse company specific events are more likely to render the issuer
unable to make interest and/or principal payments; and

o if a negative perception of the below investment grade debt market
develops, the price and liquidity of below investment grade debt
securities may be depressed. This negative perception could last for
a significant period of time.

Adverse changes in economic conditions are more likely to lead to a
weakened capacity of a below investment grade debt issuer to make principal
payments and interest payments than an investment grade issuer. The principal
amount of below investment grade securities outstanding has proliferated in the
past decade as an increasing number of issuers have used below investment grade
securities for corporate financing. An economic downturn could severely affect
the ability of highly leveraged issuers to service their debt obligations or to
repay their obligations upon maturity. Similarly, down-turns in profitability in
specific industries, such as those within the financials sector, could adversely
affect the ability of below investment grade debt issuers in that industry to
meet their obligations. The market values of lower quality debt securities tend
to reflect individual developments of the issuer to a greater extent than do
higher quality securities, which react primarily to fluctuations in the general
level of interest rates. Factors having an adverse impact on the market value of
lower quality securities may have an adverse effect on the Fund's NAV and the
market value of its Common Shares. In addition, the Fund may incur additional
expenses to the extent it is required to seek recovery upon a default in payment
of principal or interest on its portfolio holdings. In certain circumstances,
the Fund may be required to foreclose on an issuer's assets and take possession
of its property or operations. In such circumstances, the Fund would incur
additional costs in disposing of such assets and potential liabilities from
operating any business acquired.

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

Because investors generally perceive that there are greater risks
associated with lower quality debt securities of the type in which the Fund may
invest a portion of its assets, the yields and prices of such securities may
tend to fluctuate more than those for higher rated securities. In the lower
quality segments of the debt securities market, changes in perceptions of an
issuer's creditworthiness tend to occur more frequently and in a more pronounced
manner than do changes in higher quality segments of the debt securities market,
resulting in greater yield and price volatility.

See Appendix A to this Statement of Additional Information for a
description of Moody's, S&P's and Fitch's ratings. Ratings of securities
represent the rating agencies' opinions regarding their credit quality and are
not a guarantee of quality. Rating agencies attempt to evaluate the safety of

principal and interest payments and do not evaluate the risks of fluctuations in
market value. Also, rating agencies may fail to make timely changes in credit
ratings in response to subsequent events, so that an issuer's current financial
condition may be better or worse than a rating indicates. Therefore, the
financial history, the financial condition, the prospects and the management of
an issuer, among other things, also will be considered in selecting securities
for the Fund's portfolio. Since some issuers do not seek ratings for their
securities, non-rated securities also will be considered for investment by the
Fund only when it is determined that the financial condition of the issuers of
the securities and/or the protection afforded by the terms of the securities
themselves limit the risk to the Fund to a degree comparable to that of rated
securities that are consistent with the Fund's objectives and policies.

FOREIGN (NON-U.S.) SECURITIES

The Fund may invest in foreign (non-U.S.) securities and may hedge the
currency risk of the non-U.S. securities using derivative instruments. A fund
that invests in non-U.S. securities may experience more rapid and extreme
changes in value than a fund that invests exclusively in securities of U.S.
companies. The securities markets of many foreign countries are relatively
small, with a limited number of companies representing a small number of
industries. Investments in foreign securities (including those denominated in
U.S. dollars) are subject to economic and political developments in the
countries and regions where the issuers operate or are domiciled, or where the
securities are traded, such as changes in economic or monetary policies. Values
may also be affected by restrictions on receiving the investment proceeds from a
foreign country. Less information may be publicly available about foreign
companies than about U.S. companies. Foreign companies are generally not subject
to the same accounting, auditing and financial reporting standards as are U.S.
companies. In addition, the Fund's investments in non-U.S. securities may be
subject to the risk of nationalization or expropriation of assets, imposition of
currency exchange controls or restrictions on the repatriation of foreign
currency, confiscatory taxation, political or financial instability and adverse
diplomatic developments. In addition, there may be difficulty in obtaining or
enforcing a court judgment abroad. Dividends or interest on, or proceeds from
the sale of, non-U.S. securities may be subject to non-U.S. withholding taxes,
and special U.S. tax considerations may apply.

The risks of foreign investment are greater for investments in emerging
markets. Emerging market countries typically have economic and political systems
that are less fully developed, and that can be expected to be less stable, than
those of more advanced countries. Low trading volumes may result in a lack of
liquidity and in price volatility. Emerging market countries may have policies
that restrict investment by foreigners, that require governmental approval prior
to investments by foreign persons, or that prevent foreign investors from
withdrawing their money at will. An investment in emerging market securities
should be considered speculative.

The Fund also may invest in foreign government debt, which includes bonds
that are issued or backed by foreign governments or their agencies,
instrumentalities or political subdivisions or by foreign central banks. The
governmental authorities that control the repayment of the debt may be unable or
unwilling to repay principal and/or interest when due in accordance with terms
of such debt, and the Fund may have limited legal recourse in the event of

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

The cost of servicing external debt will also generally be adversely
affected by rising international interest rates, as many external debt
obligations bear interest at rates which are adjusted based upon international
interest rates. Because non-U.S. securities may trade on days when the Fund's
Common Shares are not priced and the NYSE is closed, NAV can change at times
when Common Shares cannot be sold.

Although it does not intend to do so, the Fund may invest in securities or
other instruments denominated or quoted in currencies other than the U.S.
dollar. As such, changes in foreign currency exchange rates may affect the value
of instruments held by the Fund and the unrealized appreciation or depreciation
of investments. Currencies of certain countries may be volatile and therefore
may affect the value of instruments denominated in such currencies, which means
that NAV could decline as a result of changes in the exchange rates between
foreign currencies and the U.S. dollar. The Fund may incur costs in connection
with the conversions between various currencies. In addition, certain countries
may impose foreign currency exchange controls or other restrictions on the
repatriation, transferability or convertibility of currency. See "--Currency
Risk" and "Other Investment Policies and Techniques--Strategic
Transactions--Currency Exchange Transactions" below.

Continuing uncertainty as to the status of the euro and the European
Monetary Union (the "EMU") has created significant volatility in currency and
financial markets generally. 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, if any, 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, instruments 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.

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. While the Fund's
non-U.S. dollar-denominated securities may be hedged into U.S. dollars, hedging
may not alleviate all currency risks.

REAL ESTATE COMPANIES/REAL ESTATE INVESTMENT TRUSTS ("REITS")

The Fund may invest in the securities of real estate companies and may be
susceptible to adverse economic or regulatory occurrences affecting that sector.
Real property investments are subject to varying degrees of risk. The yields
available from investments in real estate depend on the amount of income and
capital appreciation generated by the related properties. Income and real estate
values may also be adversely affected by such factors as applicable laws (e.g.,
Americans with Disabilities Act and tax laws), interest rate levels and the
availability of financing. If the properties do not generate sufficient income
to meet operating expenses, including, where applicable, debt service, ground
lease payments, tenant improvements, third-party leasing commissions and other
capital expenditures, the income and ability of the real estate company to make
payments of any interest and principal on its debt securities will be adversely
affected. In addition, real property may be subject to the quality of credit
extended and defaults by borrowers and tenants. The performance of the economy
in each of the regions and countries in which the real estate owned by a
portfolio company is located affects occupancy, market rental rates and expenses
and, consequently, has an impact on the income from such properties and their
underlying values.

The financial results of major local employers also may have an impact on
the cash flow and value of certain properties. In addition, real estate
investments are relatively illiquid and, therefore, the ability of real estate
companies to vary their portfolios promptly in response to changes in economic
or other conditions is limited. A real estate company also may have joint
venture investments in certain of its properties and, consequently, its ability
to control decisions relating to these properties may be limited. Real property
investments are also subject to risks which are specific to the investment
sector or type of property in which the real estate companies are investing.

o Retail Properties. Retail properties are affected by the overall health
of the applicable economy and may be adversely affected by the growth
of alternative forms of retailing, bankruptcy, departure or cessation
of operations of a tenant, a shift in consumer demand due to
demographic changes, spending patterns and lease terminations.

o Office Properties. Office properties are affected by the overall health
of the economy and other factors such as a downturn in the businesses
operated by their tenants, obsolescence and non-competitiveness.

o Hotel Properties. The risks of hotel properties include, among other
things, the necessity of a high level of continuing capital
expenditures, competition, increases in operating costs which may not
be offset by increases in revenues, dependence on business and
commercial travelers and tourism, increases in fuel costs and other
expenses of travel and adverse effects of general and local economic
conditions.

o Healthcare Properties. Healthcare properties and healthcare providers
are affected by several significant factors, including Federal, state
and local laws governing licenses, certification, adequacy of care,
pharmaceutical distribution, medical rates, equipment, personnel and

other factors regarding operations; continued availability of revenue
from government reimbursement programs (primarily Medicaid and
Medicare); and competition on a local and regional basis.

o Multifamily Properties. The value and successful operation of a
multifamily property may be affected by a number of factors such as the
location of the property, the ability of the management team, the level
of mortgage rates, presence of competing properties, adverse economic
conditions in the locale, oversupply and rent control laws or other
laws affecting such properties.

o Insurance Issues. Certain real estate companies may carry comprehensive
liability, fire, flood, earthquake extended coverage and rental loss
insurance with various policy specifications, limits and deductibles.

o Credit Risk. REITs may be highly leveraged, and financial covenants may
affect the ability of REITs to operate effectively.

o Environmental Issues. In connection with the ownership (direct or
indirect), operation, management and development of real properties
that may contain hazardous or toxic substances, a portfolio company may
be considered an owner, operator or responsible party of such
properties and, therefore, may be potentially liable for removal or
remediation costs, as well as certain other costs, including
governmental fines and liabilities for injuries to persons and
property.

o Smaller Companies. Even the larger REITs in the industry tend to be
small- to medium-sized companies in relation to the equity markets as a
whole. REIT shares, therefore, can be more volatile than, and perform
differently from, larger company stocks.

o REIT Tax Issues. REITs are subject to a highly technical and complex
set of provisions in the Code. It is possible that the Fund may invest
in a real estate company which purports to be a REIT and that the
company could fail to qualify as a REIT. In the event of any such
unexpected failure to qualify as a REIT, the company would be subject
to corporate-level taxation, significantly reducing the return to the
Fund on its investment in such company.

REITs are sometimes informally characterized as equity REITs, mortgage
REITs and hybrid REITs. An equity REIT invests primarily in the fee ownership or
leasehold ownership of land and buildings and derives its income primarily from
rental income. An equity REIT may also realize capital gains (or losses) by
selling real estate properties in its portfolio that have appreciated (or
depreciated) in value. A mortgage REIT invests primarily in mortgages on real
estate, which may secure construction, development or long-term loans. A
mortgage REIT generally derives its income primarily from interest payments on
the credit it has extended. A hybrid REIT combines the characteristics of equity
REITs and mortgage REITs, generally by holding both ownership interests and
mortgage interests in real estate. It is anticipated, although not required,
that under normal circumstances a majority of the Fund's investments in REITs

will consist of securities issued by equity REITs. In addition to the risks of
securities linked to the real estate industry, equity REITs may be affected by
changes in the value of the underlying property owned by the trusts, while
mortgage REITs may be affected by the quality of any credit extended. Further,
REITs are dependent upon management skills and generally may not be diversified.
REITs are also subject to heavy cash flow dependency, defaults by borrowers and
self-liquidation.

In addition, U.S. REITs could possibly fail to qualify for pass-through of
income under the Code, or to maintain their exemptions from registration under
the 1940 Act. The above factors may also adversely affect a borrower's or a
lessee's ability to meet its obligations to the REIT. In the event of a default
by a borrower or lessee, the REIT may experience delays in enforcing its rights
as a mortgagee or lessor and may incur substantial costs associated with
protecting its investments.

NON-FINANCIALS SECTOR COMPANIES

The Fund will invest, under normal market conditions, at least 25% of its
Managed Assets in securities of companies in the financials sector. The Fund
also may invest in other sectors or industries, such as energy, industrials,
utilities, pipelines, health care and telecommunications. The Sub-Advisor
retains broad discretion to allocate the Fund's investments across various
sectors and industries.

Energy Companies. Energy companies in which the Fund may invest include
companies in the discovery, development, production or distribution of energy or
other natural resources, the development of technologies for the production or
efficient use of energy and other natural resources, or the furnishing of
related supplies or services. The energy industries can be significantly
affected by fluctuations in energy prices and supply and demand of energy fuels,
energy conservation, exploration and production spending, the success of
exploration projects, tax and other government regulations, weather or
meteorological events, world events and economic conditions. The energy
industries also may be affected by fluctuations in energy prices, energy
conservation, exploration and production spending, government regulations,
weather, world events and economic conditions.

Industrial Companies. Industrial companies that the Fund may invest in
include companies involved in the research, development, manufacture,
distribution, supply or sale of industrial products, services or equipment.
These companies may include manufacturers of civil or military aerospace and
defense equipment, building components and home improvement products and
equipment, civil engineering firms and large-scale contractors, companies
producing electrical components or equipment, manufacturers of industrial
machinery and industrial components and products, providers of commercial
printing services, and companies providing transportation services.

The industrial products, services and equipment industries can be
significantly affected by general economic trends, changes in consumer sentiment
and spending, commodity prices, technological obsolescence, labor relations,
legislation, government regulations and spending, import controls, and worldwide

competition, and can be subject to liability for environmental damage, depletion
of resources, and mandated expenditures for safety and pollution control.

Utility Companies. Utility companies in which the Fund may invest
generally are involved in the generation, transmission, sale or distribution of
electric energy; distribution, purification and treatment of water; or
production, transmission or distribution of oil or natural gas. The Fund may
invest significantly in securities of utility companies and may be susceptible
to adverse economic or regulatory occurrences affecting that sector. Investing
in the utility sector includes the following risks:

o high interest costs in connection with capital construction and
improvement programs;

o difficulty in raising capital in adequate amounts on reasonable terms
in periods of high inflation and unsettled capital markets;

o governmental regulation of rates charged to customers;

o costs associated with compliance with and changes in environmental and
other regulations;

o effects of economic slowdowns and surplus capacity;

o increased competition from other providers of utility services;

o inexperience with and potential losses resulting from a developing
deregulatory environment;

o costs associated with reduced availability of certain types of fuel,
occasionally reduced availability and high costs of natural gas for
resale and the effects of energy conservation policies, and the
potential that costs incurred by the utility, such as the cost of fuel,
change more rapidly than the rate the utility is permitted to charge
its customers;

o effects of a national energy policy and lengthy delays and greatly
increased costs and other problems associated with the design,
construction, licensing, regulation and operation of nuclear facilities
for electric generation, including, among other considerations, the
problems associated with the use of radioactive materials and the
disposal of radioactive wastes;

o technological innovations that may render existing plants, equipment or
products obsolete; and

o potential impact of terrorist activities on utility companies and their
customers and the impact of natural or man-made disasters.

Issuers in the utility sector may be subject to regulation by various
governmental authorities and may be affected by the imposition of special
tariffs and changes in tax laws, regulatory policies and accounting standards.

In addition, there are substantial differences between the regulatory practices
and policies of various jurisdictions, and any given regulatory agency may make
major shifts in policy from time to time. There is no assurance that regulatory
authorities will, in the future, grant rate increases or that such increases
will be adequate to permit the payment of dividends on preferred or common
stocks. Prolonged changes in climatic conditions can also have a significant
impact on both the revenues of an electric or gas utility as well as its
expenses.

Healthcare Companies. Healthcare companies in which the Fund may invest
encompass two main groups. The first group includes companies that manufacture
health care supplies or provide health care-related services, including
distributors of products, providers of basic health care services and owners and
operators of care facilities and organizations. The second group includes
companies in the research, development, production and marketing of
pharmaceuticals and biotechnology products. Events affecting the health care
industries include technological advances that make existing products and
services obsolete, and changes in regulatory policies concerning approvals of
new drugs, medical devices or procedures. In addition, changes in governmental
payment systems and private payment systems, such as increased use of managed
care arrangements, are risks in investing in the health care industries.

Telecommunications and Media Companies. Telecommunications companies in
which the Fund may invest include companies principally engaged in the
development, manufacture, or sale of communications services or communications
equipment or provision of communications services, including cable television,
satellite, microwave, radio, telephone and other communications media. Media
companies invest create, own, and distribute various forms of printed, visual,
audio, and interactive content, as well as information databases that they sell
or lease to others. Examples include the Internet, newspaper, magazine, and book
publishers, movie and television studios, advertising agencies, radio and
television broadcasters, as well as cable television and direct satellite
broadcast system operators. Risks of investing in the telecommunications and
media sector includes many of the risks of investing in the utilities sector,
including government regulation of rates of return and services that may be
offered. Telecommunications products and services also may be subject to rapid
obsolescence resulting from changes in consumer tastes, intense competition and
strong market reactions to technological development.

ILLIQUID AND RESTRICTED SECURITIES

The Fund may invest up to 25% of its Managed Assets in illiquid
securities. Illiquid securities include repurchase agreements that have a
maturity of longer than seven days, certain securities with legal or contractual
restrictions on resale (restricted securities) and securities that are not
readily marketable either within or outside the United States. The Sub-Advisor
will monitor the liquidity of restricted securities under the supervision of the
Trustees. Repurchase agreements subject to demand are deemed to have a maturity
equal to the applicable notice period.

The Fund also may invest, without limit, in unregistered or otherwise
restricted securities. The term "restricted securities" refers to securities
that have not been registered under the Securities Act and continue to be

subject to restrictions on resale, securities held by control persons of the
issuer and securities that are subject to contractual restrictions on their
resale. As a result, restricted securities may be more difficult to value and
the Fund may have difficulty disposing of such assets either in a timely manner
or for a reasonable price. Limitations on resale may have an adverse effect on
the marketability of portfolio securities. Adverse market conditions could
impede the public offering of securities. The Sub-Advisor has the ability to
deem restricted securities as liquid.

Restricted securities are purchased directly from the issuer or in the
secondary market. Absent an exemption from registration, the Fund will be
required to hold the securities until they are registered by the issuer. In
order to dispose of an unregistered security, the Fund, where it has contractual
rights to do so, may have to cause such security to be registered, resulting in
additional expense and delay. A considerable period may elapse between the time
the decision is made to sell the security and the time the security is
registered so that the Fund could sell it. Contractual restrictions on the
resale of securities vary in length and scope and are generally the result of a
negotiation between the issuer and acquirer of the securities. The Fund would,
in either case, bear market risks during that period.

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

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

OTHER INVESTMENT COMPANIES

The Fund may invest its Managed Assets in securities of other open- or
closed-end investment companies, including exchange-traded funds, that invest
primarily in securities of the types in which the Fund may invest directly. In
addition, the Fund may invest a portion of its Managed Assets in pooled
investment vehicles (other than investment companies) that invest primarily in
securities of the types in which the Fund may invest directly. For instance, the
Fund may purchase a synthetic composite of performance of the leveraged loan

market through credit derivatives based on widely traded leveraged, or high
yield, loans. As an investor in an investment company, the Fund will bear its
ratable share of that investment company's expenses, and would remain subject to
payment of the Fund's advisory and administrative fees with respect to assets so
invested. The Fund's Common Shareholders would therefore be subject to
duplicative expenses to the extent the Fund invests in other investment
companies. The Sub-Advisor will take expenses into account when evaluating the
investment merits of an investment in the investment company relative to
available securities of the types in which the Fund may invest directly. In
addition, the securities of other investment companies also may be leveraged and
therefore will be subject to the same leverage risks described herein. As
described in the section entitled "Risks--Leverage Risk" in the Prospectus, the
net asset value and market value of leveraged shares will be more volatile and
the yield to shareholders will tend to fluctuate more than the yield generated
by unleveraged shares. The Fund will treat its investments in such investment
companies as investments in preferred and other income-producing securities, as
applicable, for all purposes, such as for purposes of determining compliance
with the requirement set forth above that up to 80% of the Fund's Managed Assets
be invested under normal market circumstances in preferred and other
income-producing securities.

DERIVATIVES

The Fund may use a variety of derivative instruments for investment
purposes or for hedging or risk management purposes. Generally, derivatives are
financial contracts whose value depends upon, or is derived from, the value of
an underlying asset, reference rate or index, and may relate to individual debt
instruments, interest rates, currencies or currency exchange rates and related
indexes. The Fund may use any or all of these instruments at any time, and the
use of any particular derivative transaction may depend on market conditions.
The derivative transactions that the Fund may use, and the associated risks with
such transactions, are described below under "Other Investment Policies and
Techniques--Strategic Transactions."

The Fund's use of derivative instruments involves risks different from, or
possibly greater than, the risks associated with investment directly in
securities and other more traditional investments.

OTHER INVESTMENT POLICIES AND TECHNIQUES

STRATEGIC TRANSACTIONS

The Fund may, but is not required to, use various hedging and strategic
transactions to seek to: (i) reduce interest rate risks arising from any use of
leverage; (ii) facilitate portfolio management; (iii) mitigate other risks,
including interest rate, currency and credit risks; and/or (iv) earn income. The
Fund may purchase and sell derivative instruments such as exchange-listed and
over-the-counter put and call options on currencies, securities, fixed-income,
currency and interest rate indices and other financial instruments, purchase and
sell financial futures contracts and options thereon, and enter into various
interest rate and currency transactions such as swaps, caps, floors or collars
or credit transactions and credit derivative instruments. The Fund also may
purchase other similar transactions which may be developed in the future to the

extent the Sub-Advisor determines that they are consistent with the Fund's
investment objectives and policies and applicable regulatory requirements.
Collectively, all of the above are referred to as "Strategic Transactions."

The Fund may seek to use these instruments and transactions as a portfolio
management or hedging technique to generate income, protect against possible
adverse changes in the market value of securities held in or to be purchased for
the Fund's portfolio, protect the value of the Fund's portfolio, facilitate the
sale of certain securities for investment purposes, manage the effective
interest rate and currency exposure of the Fund, protect against changes in
currency exchange rates, manage the effective maturity or duration of the Fund's
portfolio or establish positions in the derivatives markets as a substitute for
purchasing or selling particular securities. The Fund may also use Strategic
Transactions for non-hedging purposes to enhance potential gain. No assurance
can be given that these practices will achieve the desired result.

Hedging is an attempt to establish with more certainty than would
otherwise be possible the effective price or rate of return on portfolio
securities or securities that the Fund proposes to acquire or the exchange rate
of currencies in which the portfolio securities are quoted or denominated.
Certain of these hedging and strategic transactions involve derivative
instruments. A derivative is a financial instrument whose performance is derived
at least in part from the performance of an underlying index, security or asset.
The values of certain derivatives can be affected dramatically by even small
market movements, sometimes in ways that are difficult to predict. There are
many different types of derivatives, with many different uses.

Hedging or derivative instruments on securities generally are used to
hedge against price movements in one or more particular securities positions
that the Fund owns or intends to acquire. Such instruments may also be used to
"lock-in" recognized but unrealized gains in the value of portfolio securities.
Hedging strategies, if successful, can reduce the risk of loss by wholly or
partially offsetting the negative effect of unfavorable price movements in the
investments being hedged. However, hedging strategies also can reduce the
opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments. The use of hedging instruments is subject
to applicable regulations of the SEC, the several options and futures exchanges
upon which they are traded, the Commodity Futures Trading Commission (the
"CFTC") and various state regulatory authorities.

The Fund may, but is not required to, enter into Strategic Transactions to
seek to preserve a return on a particular investment or portion of its
portfolio, and also may, but is not required to, enter into such transactions to
seek to protect against decreases in the anticipated rate of return on floating
or variable rate financial instruments the Fund owns or anticipates purchasing
at a later date, or for other risk management strategies such as managing the
effective dollar-weighted average duration of the Fund's portfolio. The Fund
also may, but is not required to, engage in Strategic Transactions to seek to
protect the value of its portfolio against declines in net asset value resulting
from changes in interest rates or other market changes. Market conditions may
determine whether and in what circumstances the Fund would employ any of the
hedging and risk management techniques described in this Statement of Additional
Information. The successful utilization of Strategic Transactions requires
skills different from those needed in the selection of the Fund's portfolio

securities. The Fund will incur brokerage and other costs in connection with its
Strategic Transactions.

Options. The Fund may purchase and write (sell) call and put options on
any securities, securities indices and currencies. These options may be listed
on national domestic securities exchanges or foreign securities exchanges or
traded in the over-the-counter market. The Fund may write covered put and call
options and purchase put and call options as a substitute for the purchase or
sale of securities or to protect against declines in the value of the portfolio
securities and against increases in the cost of securities to be acquired.

A call option on securities written by the Fund obligates the Fund to sell
specified securities to the holder of the option at a specified price if the
option is exercised at any time before the expiration date. A put option on
securities written by the Fund obligates the Fund to purchase specified
securities from the option holder at a specified price if the option is
exercised at any time before the expiration date. Options on securities indices
are similar to options on securities, except that the exercise of securities
index options requires cash settlement payments and does not involve the actual
purchase or sale of securities. In addition, securities index options are
designed to reflect price fluctuations in a group of securities or segment of
the securities market rather than price fluctuations in a single security.
Writing covered call options may deprive the Fund of the opportunity to profit
from an increase in the market price of the securities in its portfolio. Writing
covered put options may deprive the Fund of the opportunity to profit from a
decrease in the market price of the securities to be acquired for its portfolio.

A written call option or put option may be covered by (1) maintaining cash
or liquid securities in a segregated account with a value at least equal to the
Fund's obligation under the option, (2) entering into an offsetting forward
commitment and/or (3) purchasing an offsetting option or any other option which,
by virtue of its exercise price or otherwise, reduces the Fund's net exposure on
its written option position. A written call option on securities is typically
covered by maintaining the securities that are subject to the option in a
segregated account. The Fund may cover call options on a securities index by
owning securities whose price changes are expected to be similar to those of the
underlying index.

The Fund may terminate its obligations under an exchange traded call or
put option by purchasing an option identical to the one it has written.
Obligations under over-the-counter options may be terminated only by entering
into an offsetting transaction with the counterparty to such option. Such
purchases are referred to as "closing purchase transactions."

The Fund would normally purchase call options in anticipation of an
increase, or put options in anticipation of a decrease ("protective puts"), in
the market value of securities of the type in which it may invest. The Fund may
also sell call and put options to close out its purchased options.

The purchase of a call option would entitle the Fund, in return for the
premium paid, to purchase specified securities or currency at a specified price
during the option period. The Fund would ordinarily realize a gain on the
purchase of a call option if, during the option period, the value of such
securities or currency exceeded the sum of the exercise price, the premium paid

and transaction costs; otherwise the Fund would realize either no gain or a loss
on the purchase of the call option.

The purchase of a put option would entitle the Fund, in exchange for the
premium paid, to sell specified securities at a specified price during the
option period. The purchase of protective puts is designed to offset or hedge
against a decline in the market value of the Fund's portfolio securities. Put
options may also be purchased by the Fund for the purpose of affirmatively
benefiting from a decline in the price of securities which it does not own. The
Fund would ordinarily realize a gain if, during the option period, the value of
the underlying securities decreased below the exercise price sufficiently to
cover the premium and transaction costs; otherwise the Fund would realize either
no gain or a loss on the purchase of the put option. Gains and losses on the
purchase of put options may be offset by countervailing changes in the value of
the Fund's portfolio securities.

The Fund's options transactions will be subject to limitations established
by each of the exchanges, boards of trade or other trading facilities on which
such options are traded. These limitations govern the maximum number of options
in each class which may be written or purchased by a single investor or group of
investors acting in concert, regardless of whether the options are written or
purchased on the same or different exchanges, boards of trade or other trading
facilities or are held or written in one or more accounts or through one or more
brokers. Thus, the number of options which the Fund may write or purchase may be
affected by options written or purchased by other investment advisory clients of
the Sub-Advisor. An exchange, board of trade or other trading facility may order
the liquidation of positions found to be in excess of these limits, and it may
impose certain other sanctions.

Risks Associated with Options Transactions. There is no assurance that a
liquid secondary market on a domestic or foreign options exchange will exist for
any particular exchange-traded option or at any particular time and for some
options no secondary market on an exchange or elsewhere may exist. If the Fund
is unable to effect a closing purchase transaction with respect to covered
options it has written, the Fund will not be able to sell the underlying
securities or dispose of assets held in a segregated account until the options
expire or are exercised. Similarly, if the Fund is unable to effect a closing
sale transaction with respect to options it has purchased, it would have to
exercise the options in order to realize any profit and will incur transaction
costs upon the purchase or sale of underlying securities or currencies.

Reasons for the absence of a liquid secondary market on an exchange
include the following: (1) there may be insufficient trading interest in certain
options; (2) restrictions may be imposed by an exchange on opening transactions
or closing transactions or both; (3) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options; (4) unusual or unforeseen circumstances may interrupt normal operations
on an exchange; (5) the facilities of an exchange or the Options Clearing
Corporation may not at all times be adequate to handle current trading volume;
or (6) one or more exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of options (or a
particular class or series of options). If trading were discontinued, the
secondary market on that exchange (or in that class or series of options) would
cease to exist. However, outstanding options on that exchange that had been

issued by the Options Clearing Corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms.

The Fund's ability to terminate over-the-counter options is more limited
than with exchange-traded options and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations. The
Sub-Advisor will determine the liquidity of each over-the-counter option in
accordance with guidelines adopted by the Board of Trustees.

The hours of trading for options may not conform to the hours during which
the underlying securities are traded. To the extent that the options markets
close before the markets for the underlying securities, significant price and
rate movements can take place in the underlying markets that cannot be reflected
in the options markets.

The purchase of options involves the risk that the premium and transaction
costs paid by the Fund in purchasing an option will be lost as a result of
unanticipated movements in prices of the securities on which the option is
based. Options transactions may result in significantly higher transaction costs
and portfolio turnover for the Fund.

The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The successful use of options
depends in part on the Sub-Advisor's ability to predict future price
fluctuations and, for hedging transactions, the degree of correlation between
the options and securities or currency markets. Imperfect correlation between
the options and securities markets may detract from the effectiveness of
attempted hedging.

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

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

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

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

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

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

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

Options on Futures Contracts. The Fund may purchase and write call and put
options on futures contracts. The Fund may also enter into closing purchase and
sale transactions with respect to any of these contracts and options. The
purchase of put and call options on futures contracts will give the Fund the
right (but not the obligation) for a specified price to sell or to purchase,
respectively, the underlying futures contract at any time during the option
period. As the purchaser of an option on a futures contract, the Fund obtains
the benefit of the futures position if prices move in a favorable direction but
limits its risk of loss in the event of an unfavorable price movement to the
loss of the premium and transaction costs.

The writing of a call option on a futures contract generates a premium
which may partially offset a decline in the value of the Fund's assets. By
writing a call option, the Fund becomes obligated, in exchange for the premium
(upon exercise of the option) to sell a futures contract if the option is
exercised, which may have a value higher than the exercise price. Conversely,
the writing of a put option on a futures contract generates a premium which may
partially offset an increase in the price of securities that the Fund intends to
purchase. However, the Fund becomes obligated (upon exercise of the option) to
purchase a futures contract if the option is exercised, which may have a value
lower than the exercise price. The loss incurred by the Fund in writing options
on futures is potentially unlimited and may exceed the amount of the premium
received.

The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option of the same series. There
is no guarantee that such closing transactions can be effected. The Fund's
ability to establish and close out positions on such options will be subject to
the development and maintenance of a liquid market.

Risks Associated with Futures Contracts and Options on Futures Contracts.
While transactions in futures contracts and options on futures may reduce
certain risks, these transactions themselves entail certain other risks. For
example, unanticipated changes in interest rates or securities prices may result
in a poorer overall performance for the Fund than if it had not entered into any
futures contracts or options transactions.

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

Some futures contracts or options on futures may become illiquid under
adverse market conditions. In addition, in certain circumstances such as during
periods of market volatility, a commodity exchange may suspend or limit trading
in a futures contract or related option, which may make the instrument
temporarily illiquid and difficult to price and, thus, expose the Fund to a
potential loss. For instance, trading on a particular security futures contract
must be halted if trading is halted on the listed market for the underlying
security as a result of pending news, regulatory concerns, or market volatility.
Similarly, trading of a security futures contract on a narrow-based security
index must be halted under circumstances such as where trading is halted on
securities accounting for at least 50% of the market capitalization of the
index. In addition, regulated exchanges are required to halt trading in all
security futures contracts for a specified period of time when the Dow Jones
Industrial Average ("DJIA") experiences one-day declines of 10%, 20% and 30%.
The regulated exchanges may also have discretion under their rules to halt
trading in other circumstances, such as when the exchange determines that the
halt would be advisable in maintaining a fair and orderly market. Commodity
exchanges also may establish daily limits on the amount that the price of a
futures contract or related option can vary from the previous day's settlement
price. Once the daily limit is reached, no trades may be made that day at a
price beyond the limit. This may prevent the Fund from closing out positions and
limiting its losses.

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

As further discussed in this Statement of Additional Information,
transactions in futures contracts and options on futures involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating the Fund to purchase securities, require the Fund to establish a
segregated account consisting of cash or liquid securities in an amount equal to
the underlying value of such contracts and options.

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

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

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

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

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

Interest Rate Swaps, Collars, Caps and Floors. The Fund may enter into
interest rate swaps or total rate of return swaps or purchase or sell interest
rate caps or floors. Interest rate swaps involve the exchange by the Fund with
another party of their respective obligations to pay or receive interest (e.g.,
an exchange of an obligation to make floating rate payments for an obligation to
make fixed rate payments). For example, if the Fund holds a debt instrument with
an interest rate that is reset every week and it would like to lock in what it
believes to be a high interest rate for one year, it may swap the right to
receive interest at this variable weekly rate for the right to receive interest
at a rate that is fixed for one year. Such a swap would protect the Fund from a
reduction in yield due to falling interest rates and may permit the Fund to
enhance its income through the positive differential between one week and one
year interest rates, but would preclude it from taking full advantage of rising
interest rates.

The purchase of an interest rate cap entitles the purchaser, to the extent
that a specified index exceeds a predetermined interest rate, to receive
payments of interest at the difference of the index and the predetermined rate
on a notional principal amount (the reference amount with respect to which
interest obligations are determined although no actual exchange of principal
occurs) from the party selling the interest rate cap. The purchase of an
interest rate floor entitles the purchaser, to the extent that a specified index
falls below a predetermined interest rate, to receive payments of interest at
the difference of the index and the predetermined rate on a notional principal
amount from the party selling the interest rate floor.

In circumstances in which the Sub-Advisor anticipates that interest rates
will decline, the Fund might, for example, enter into an interest rate swap as
the floating rate payor or, alternatively, purchase an interest rate floor. In
the case of purchasing an interest rate floor, if interest rates declined below
the floor rate, the Fund would receive payments from its counterparty which
would wholly or partially offset the decrease in the payments it would receive
in respect of the portfolio assets being hedged. In the case where the Fund
purchases an interest rate swap, if the floating rate payments fell below the
level of the fixed rate payment set in the swap agreement, the Fund's
counterparty would pay the Fund amounts equal to interest computed at the
difference between the fixed and floating rates over the notional principal
amount. Such payments would offset or partially offset the decrease in the
payments the Fund would receive in respect of floating rate portfolio assets
being hedged.

The successful use of swaps, caps and floors to preserve the rate of
return on a portfolio of financial instruments depends on the Sub-Advisor's
ability to predict correctly the direction and extent of movements in interest
rates.

Although the Fund believes that use of the hedging and risk management
techniques described above may benefit the Fund, if the Sub-Advisor's judgment
about the direction or extent of the movement in interest rates is incorrect,
the Fund's overall performance would be worse than if it had not entered into
any such transactions.

Because these hedging transactions are entered into for good-faith risk
management purposes, the Sub-Advisor and the Fund believe these obligations do
not constitute senior securities. The Fund usually will enter into interest rate
swaps on a net basis (i.e., where the two parties make net payments with the
Fund receiving or paying, as the case may be, only the net amount of the two

payments). The net amount of the excess, if any, of the Fund's obligations over
its entitlements with respect to each interest rate swap will be accrued and an
amount of cash or liquid securities having an aggregate net asset value at least
equal to the accrued excess will be maintained in a segregated account by the
Fund's custodian. If the Fund enters into a swap on other than a net basis, the
Fund will maintain in the segregated account the full amount of the Fund's
obligations under each swap. Accordingly, the Fund does not treat swaps as
senior securities. The Fund may enter into swaps, caps and floors with member
banks of the Federal Reserve System, members of the New York Stock Exchange
("NYSE") or other entities determined by the Sub-Advisor, pursuant to procedures
adopted and reviewed on an ongoing basis by the Board of Trustees, to be
creditworthy. If a default occurs by the other party to the transaction, the
Fund will have contractual remedies pursuant to the agreements related to the
transaction but remedies may be subject to bankruptcy and insolvency laws which
could affect the Fund's rights as a creditor. There can be no assurance,
however, that the Fund will be able to enter into interest rate swaps or to
purchase interest rate caps or floors at prices or on terms the Sub-Advisor
believes are advantageous to the Fund. In addition, although the terms of
interest rate swaps, caps and floors may provide for termination, there can be
no assurance that the Fund will be able to terminate an interest rate swap or to
sell or offset interest rate caps or floors that it has purchased.

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

Credit Default Swap Agreements. The Fund may enter into credit default
swap agreements. The "buyer" in a credit default contract is obligated to pay
the "seller" a periodic stream of payments over the term of the contract,
provided that no event of default on an underlying reference obligation has
occurred. If an event of default occurs, the seller must pay the buyer the full
notional value, or "par value," of the reference obligation. Credit default swap
transactions are either "physical delivery" settled or "cash" settled. Physical
delivery entails the actual delivery of the reference asset to the seller in
exchange for the payment of the full par value of the reference asset. Cash
settled entails a net cash payment from the seller to the buyer based on the
difference of the par value of the reference asset and the current value of the
reference asset that may have, through default, lost some, most or all of its
value. The Fund may be either the buyer or seller in a credit default swap
transaction. If the Fund is a buyer and no event of default occurs, the Fund
will have made a series of periodic payments and recover nothing of monetary

value. However, if an event of default occurs, the Fund (if the buyer) will
receive the full notional value of the reference obligation either through a
cash payment in exchange for the asset or a cash payment in addition to owning
the reference assets. As a seller, the Fund receives a fixed rate of income
throughout the term of the contract, which typically is between six months and
five years, provided that there is no event of default. The Fund will segregate
assets in the form of cash and cash equivalents in an amount equal to the
aggregate market value of the credit default swaps of which it is the seller,
marked to market on a daily basis. If an event of default occurs, the seller
must pay the buyer the full notional value of the reference obligation through
either physical settlement or cash settlement.

Credit default swap transactions involve greater risks than if the Fund
had invested in the reference obligation directly. In addition to general market
risks, credit default swaps are subject to liquidity risk, counterparty risk and
credit risks, each as further described below. Moreover, if the Fund is a buyer,
it will lose its investment and recover nothing should no event of default
occur. If an event of default were to occur, the value of the reference
obligation received by the seller, coupled with the periodic payments previously
received, may be less than the full notional value it pays to the buyer,
resulting in a loss of value to the Fund. When the Fund acts as a seller of a
credit default swap agreement it is exposed to the risks of leverage since if an
event of default occurs the seller must pay the buyer the full notional value of
the reference obligation.

Structured Notes and Related Instruments. The Fund may invest in
"structured" notes and other related instruments, which are privately negotiated
debt obligations where the principal and/or interest is determined by reference
to the performance of a benchmark asset, market or interest rate (an "embedded"
index), such as selected securities or debt investments, an index of such, or
specified interest rates, or the differential performance of two assets or
markets, such as indexes reflecting bonds. The terms of structured instruments
normally provide that their principal and/or interest payments are to be
adjusted upwards or downwards (but ordinarily not below zero) to reflect changes
in the embedded index while the structured instruments are outstanding. As a
result, the interest and/or principal payments that may be made on a structured
product may vary widely, depending on a variety of factors, including the
volatility of the embedded index and the effect of changes in the embedded index
on principal and/or interest payments. The rate of return on structured notes
may be determined by applying a multiplier to the performance or differential
performance of the referenced index(es) or other assets. Application of a
multiplier involves leverage that will serve to magnify the potential for gain
and the risk of loss.

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

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

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

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

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

General Limitations on Futures, Options and Swaps Transactions. The CFTC
has recently adopted rule amendments which require operators of registered
investment companies to either limit such investment companies' use of futures,
options on futures and swaps or submit to dual regulation by the CFTC and the
SEC. The status of the amended rule is unclear because of pending litigation
against the CFTC challenging the amendments. These amendments limit transactions
in commodity futures, commodity option contracts and swaps for non-hedging
purposes by either (a) limiting the aggregate initial margin and premiums
required to establish non-hedging commodities positions to not more than 5% of
the liquidation value of the Fund's portfolio after taking into account
unrealized profits and losses on any such contract or (b) limiting the aggregate

net notional value of non-hedging commodities positions to not more than 100% of
the liquidation value of the Fund's portfolio after taking into account
unrealized profits and losses on such positions. In the event that the Fund's
investments in such instruments exceed one of these thresholds, the Advisor
and/or the Sub-Advisor may be required to register as a commodity pool operator
("CPO") and/or commodity trading advisor ("CTA") with the CFTC. In the event the
Advisor or the Sub-Advisor is required to register with the CFTC, it will become
subject to additional recordkeeping and reporting requirements with respect to
the Fund and the Fund may incur additional expenses as a result of the CFTC's
regulatory requirements.

The Advisor has claimed an exclusion from the definition of CPO with
respect to the Fund under these amended rules. The Sub-Advisor has also relied
on an exclusion from the definition of CTA with respect to the Fund. If, in the
future, the Advisor or the Sub-Advisor is not able to rely on an exclusion from
the definition of CPO or CTA, as applicable, it will register as a CPO or CTA,
as applicable, with respect to the Fund. The Fund reserves the right to engage
in transactions involving futures, options thereon and swaps to the extent
allowed by CFTC regulations in effect from time to time and in accordance with
the Fund's policies.

Risks and Special Considerations Concerning Derivatives. In addition to
the risks described above, the use of derivative instruments involves certain
general risks and considerations, including the imperfect correlation between
the value of such instruments and the underlying assets of the Fund, which
creates the possibility that the loss on such instruments may be greater than
the gain in the value of the underlying assets in the Fund's portfolio; the loss
of principal; the possible default of the other party to the transaction; and
illiquidity of the derivative instruments. Certain of the Strategic Transactions
in which the Fund may invest may, in certain circumstances, give rise to a form
of financial leverage, which may magnify the risk of owning such instruments.
Furthermore, the ability to successfully use Strategic Transactions depends on
the ability of the Sub-Advisor to predict pertinent market movements, which
cannot be assured. Thus, the use of Strategic Transactions to generate income,
for hedging, for currency or interest rate management or other purposes may
result in losses greater than if they had not been used, may require the Fund to
sell or purchase portfolio securities at inopportune times or for prices other
than current market values, may limit the amount of appreciation the Fund can
realize on an investment or may cause the Fund to hold a security that it might
otherwise sell. In addition, there may be situations in which the Sub-Advisor
elects not to use Strategic Transactions that result in losses greater than if
they had been used. Amounts paid by the Fund as premiums and cash or other
assets held in margin accounts with respect to the Fund's Strategic Transactions
are not otherwise available to the Fund for investment purposes.

With respect to some of its derivative positions, if any, the Fund may
segregate an amount of cash, cash equivalents or liquid securities on the Fund's
records in an amount equal to the face value of those positions. The Fund also
may offset derivatives positions against one another or against other assets to
manage the effective market exposure resulting from derivatives in its
portfolio. To the extent that the Fund does not segregate liquid assets or
otherwise cover its obligations under any such transactions (e.g., through
offsetting positions), certain types of these transactions will be treated as
senior securities representing indebtedness ("borrowings") for purposes of the
requirements under the 1940 Act; and therefore, the Fund may not enter into any
such transactions if the Fund's borrowings would thereby exceed 33-1/3% of its

Managed Assets. In addition, to the extent that any offsetting positions do not
perform in relation to one another as expected, the Fund may perform as if it
were leveraged. The foregoing risks concerning Strategic Transactions are more
fully described below.

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

(2) Credit/Counterparty Risk. Credit risk is the risk that a loss
is sustained as a result of the failure of a counterparty to comply with
the terms of a derivative instrument. The counterparty risk for
exchange-traded derivatives is generally less than for
privately-negotiated or over-the-counter derivatives, since generally a
clearing agency, which is the issuer or counterparty to each
exchange-traded instrument, provides a guarantee of performance. For
privately-negotiated instruments, there is no similar clearing agency
guarantee. In all transactions, the Fund will bear the risk that the
counterparty will default, and this could result in a loss of the expected
benefit of the derivative transactions and possibly other losses to the
Fund. The Fund will enter into transactions in derivative instruments only
with counterparties that the Sub-Advisor reasonably believes are capable
of performing under the contract.

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

this respect will be accurate. An imperfect correlation may prevent the
Fund from achieving the intended hedge or expose the Fund to a risk of
loss.

(4) Liquidity Risk. Liquidity risk is the risk that a derivative
instrument cannot be sold, closed out, or replaced quickly at or very
close to its fundamental value. Generally, exchange contracts are liquid
because the exchange clearinghouse is the counterparty of every contract.
Over-the-counter transactions are less liquid than exchange-traded
derivatives since they often can only be closed out with the other party
to the transaction. The Fund might be required by applicable regulatory
requirements to maintain assets as "cover," maintain segregated accounts
and/or make margin payments when it takes positions in derivative
instruments involving obligations to third parties (i.e., instruments
other than purchase options). If the Fund is unable to close out its
positions in such instruments, it might be required to continue to
maintain such accounts or make such payments until the position expires,
matures, or is closed out. These requirements might impair the Fund's
ability to sell a security or make an investment at a time when it would
otherwise be favorable to do so, or require that the Fund sell a portfolio
security at a disadvantageous time. The Fund's ability to sell or close
out a position in an instrument prior to expiration or maturity depends
upon the existence of a liquid secondary market or, in the absence of such
a market, the ability and willingness of the counterparty to enter into a
transaction closing out the position. Due to liquidity risk, there is no
assurance that any derivatives position can be sold or closed out at a
time and price that is favorable to the Fund.

(5) Legal Risk. Legal risk is the risk of loss caused by the
unenforceability of a party's obligations under the derivative. While a
party seeking price certainty agrees to surrender the potential upside in
exchange for downside protection, the party taking the risk is looking for
a positive payoff. Despite this voluntary assumption of risk, a
counterparty that has lost money in a derivative transaction may try to
avoid payment by exploiting various legal uncertainties about certain
derivative products.

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

In addition to these risks, the derivatives markets have become subject to
comprehensive statutes, regulations and margin requirements. In particular, the
implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act
(the "Dodd-Frank Act") may impact the availability, liquidity and cost of
Strategic Transactions, including potentially limiting or restricting the
ability of the Fund to use certain Strategic Transactions or certain
counterparties as a part of its investment strategy, increasing the costs of
using these Strategic Transactions or making them less effective. For instance,
the Dodd-Frank Act requires most over-the-counter derivatives to be executed on

a regulated market and cleared through a central counterparty, which may result
in increased margin requirements and costs for the Fund. The SEC has also
indicated that it may adopt new policies on the use of derivatives by registered
investment companies. Such policies could affect the nature and extent of
Strategic Transactions used by the Fund. There can be no assurance that such
legislation or regulation will not have a material adverse effect on the Fund.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

The Fund may buy and sell securities on a when-issued or delayed delivery
basis, making payment or taking delivery at a later date, normally within 15-45
days of the trade date. On such transactions, the payment obligation and the
interest rate are fixed at the time the buyer enters into the commitment.
Beginning on the date the Fund enters into a commitment to purchase securities
on a when-issued or delayed delivery basis, the Fund is required under rules of
the SEC to maintain in a separate account liquid assets, consisting of cash,
cash equivalents or liquid securities having a market value at all times of at
least equal to the amount of the commitment. Income generated by any such assets
which provide taxable income for U.S. federal income tax purposes is includable
in the taxable income of the Fund. The Fund may enter into contracts to purchase
securities on a forward basis (i.e., where settlement will occur more than 60
days from the date of the transaction) only to the extent that the Fund
specifically collateralizes such obligations with a security that is expected to
be called or mature within sixty days before or after the settlement date of the
forward transaction. The commitment to purchase securities on a when-issued,
delayed delivery or forward basis may involve an element of risk because at the
time of delivery the market value may be less than cost.

LENDING OF PORTFOLIO SECURITIES

Although it is not the Fund's current intention, the Fund may lend its
portfolio securities to broker-dealers and banks. Any such loan must be
continuously secured by collateral in cash or cash equivalents maintained on a
current basis in an amount at least equal to the market value of the securities
loaned by the Fund. The Fund would continue to receive the equivalent of the
interest or dividends paid by the issuer on the securities loaned, and would
also receive an additional return that may be in the form of a fixed fee or a
percentage of the collateral. The Fund may pay reasonable fees for services in
arranging these loans. The Fund would have the right to call the loan and obtain
the securities loaned at any time on notice of not more than five business days.
The Fund would not have the right to vote the securities during the existence of
the loan but would call the loan to permit voting of the securities, if, in the
Sub-Advisor's judgment, a material event requiring a shareholder vote would
otherwise occur before the loan was repaid. In the event of bankruptcy or other
default of the borrower, the Fund could experience both delays in liquidating
the loan collateral or recovering the loaned securities and losses, including
(a) possible decline in the value of the collateral or in the value of the
securities loaned during the period while the Fund seeks to enforce its rights
thereto, (b) possible subnormal levels of income and lack of access to income
during this period, and (c) expenses of enforcing its rights.

PORTFOLIO TRADING AND TURNOVER RATE

Portfolio trading will be undertaken as determined by the Fund's
Sub-Advisor. There are no limits on the rate of portfolio turnover. 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 also result in the Fund's recognition of gains that will increase
the Fund's tax liability and thereby lower the after-tax dividends of the Fund.
A high portfolio turnover may also increase the Fund's current and accumulated
earnings and profits, resulting in a greater portion of the Fund's distributions
being treated as a taxable dividend to the Fund's Common Shareholders. Although
the Fund cannot accurately predict its annual portfolio turnover rate, it is not
expected to exceed %. See "Federal Tax Matters" in the Fund's Prospectus and
"Tax Matters" in this Statement of Additional Information.

MANAGEMENT OF THE FUND

TRUSTEES AND OFFICERS

The general supervision of the duties performed for the Fund under the
Investment Management Agreement is the responsibility of the Board of Trustees.
There are five trustees of the Fund (each, a "Trustee", or collectively, the
"Trustees"), one of whom is an "interested person" (as the term is defined in
the 1940 Act) ("Interested Trustee") and four of whom are Trustees who are not
officers or employees of First Trust Advisors L.P. or Stonebridge Advisors LLC,
which are the investment advisor and sub-advisor, respectively, to the Fund, or
any of their affiliates ("Independent Trustees"). The Trustees set broad
policies for the Fund, choose the Fund's officers and hire the Fund's investment
advisor and other service providers. The Board of Trustees is divided into three
classes: Class I, Class II and Class III. In connection with the organization of
the Fund, each Trustee has been elected for one initial term, the length of
which depends on the class, as more fully described below. Subsequently, the
Trustees in each class will be elected to serve for a term expiring at the third
succeeding annual shareholder meeting subsequent to their election at an annual
meeting, in each case until their respective successors are duly elected and
qualified, as described below. Mr. Bowen is an Interested Trustee due to his
position as Chief Executive Officer of First Trust Advisors. The officers of the
Fund manage the day-to-day operations and are responsible to the Board of
Trustees. The officers of the Fund serve indefinite terms. The following is a
list of the Trustees and executive officers of the Fund and a statement of their
present positions and principal occupations during the past five years, the
number of portfolios each Trustee oversees and the other directorships they
hold, if applicable.

NUMBER OF
PORTFOLIOS IN
TERM OF OFFICE(2) THE FIRST TRUST OTHER
AND YEAR FIRST FUND COMPLEX DIRECTORSHIPS
POSITION AND OFFICES ELECTED OR PRINCIPAL OCCUPATIONS OVERSEEN BY HELD BY
NAME, ADDRESS AND DATE OF BIRTH WITH FUND APPOINTED DURING THE PAST 5 YEARS TRUSTEE TRUSTEE

Trustee who is an Interested
Person of the Fund
----------------------------

James A. Bowen(1) Chairman of the o Class III Chief Executive Officer 98 Portfolios None
120 East Liberty Drive, Board and Trustee (3)(4) (December 2010 to
Suite 400 Present), President
Wheaton, IL 60187 (until December 2010),
D.O.B.: 09/55 o 2013 First Trust Advisors
L.P. and First Trust
Portfolios L.P.;
Chairman of the Board of
Directors, BondWave LLC
(Software Development
Company/Investment
Advisor) and Stonebridge
Advisors LLC
(Investment Advisor)
Independent Trustees
----------------------------

Richard E. Erickson Trustee o Class II (3)(4) Physician; President, 98 Portfolios None
c/o First Trust Advisors L.P. Wheaton Orthopedics;
120 East Liberty Drive, Co-owner and Co-Director
Suite 400 o 2013 (January 1996 to May
Wheaton, IL 60187 2007), Sports Med Center
D.O.B.: 04/51 for Fitness; Limited
Partner, Gundersen Real
Estate Limited
Partnership; Member,
Sportsmed LLC

Thomas R. Kadlec Trustee o Class II (3)(4) President (March 2010 98 Portfolios Director of ADM
c/o First Trust Advisors L.P. to Present), Senior Investor
120 East Liberty Drive, o 2013 Vice President and Services, Inc.
Suite 400 Chief Financial and ADM Investor
Wheaton, IL 60187 Officer (May 2007 Services
D.O.B.: 11/57 to March 2010), International
Vice President
and Chief Financial
Officer (1990 to
May 2007), ADM
Investor Services, Inc.
(Futures Commission
Merchant)

Robert F. Keith Trustee o Class I (3)(4) President (2003 to 98 Portfolios Director of
c/o First Trust Advisors L.P. Present), Hibs Trust Company of
120 East Liberty Drive, o 2013 Enterprises (Financial Illinois
Suite 400 and Management
Wheaton, IL 60187 Consulting)
D.O.B.: 11/56

Niel B. Nielson Trustee o Class III President and Chief 98 Portfolios Director of
c/o First Trust Advisors L.P. (3)(4) Executive Officer (July Covenant
120 East Liberty Drive, 2012 to Present), Dew Transport Inc.
Suite 400 o 2013 Learning LLC
Wheaton, IL 60187 (Educational Products
D.O.B.: 03/54 and Services); President
(June 2002 to June
2012), Covenant College

Officers of the Fund
----------------------------

Mark R. Bradley President and Chief o Indefinite term Chief Financial Officer, N/A N/A
120 East Liberty Drive Executive Officer Chief Operating Officer
Suite 400 (December 2010 to
Wheaton, IL 60187 o 2013 Present), First Trust
D.O.B.: 11/57 Advisors L.P. and First
Trust Portfolios L.P.;
Chief Financial Officer,
BondWave LLC (Software
Development Company/
Investment Advisor)
and Stonebridge Advisors
LLC (Investment Advisor)

James M. Dykas Treasurer, Chief o Indefinite term Controller (January 2011 N/A N/A
120 East Liberty Drive Financial Officer to Present), Senior Vice
Suite 400 and Chief Accounting o 2013 President (April 2007 to
Wheaton, IL 60187 Officer January 2011), First
D.O.B.: 01/66 Trust Advisors L.P. and
First Trust Portfolios
L.P.

W. Scott Jardine Secretary and Chief o Indefinite term General Counsel, First N/A N/A
120 East Liberty Drive Legal Officer Trust Advisors L.P. and
Suite 400 o 2013 First Trust Portfolios
Wheaton, IL 60187 L.P.; Secretary,
D.O.B.: 05/60 BondWave LLC (Software
Development Company/
Investment Advisor)
and Stonebridge Advisors
LLC (Investment Advisor)

Daniel J. Lindquist Vice President o Indefinite term Senior Vice President N/A N/A
120 East Liberty Drive (September 2005 to
Suite 400 o 2013 Present), First Trust
Wheaton, IL 60187 Advisors L.P. and First
D.O.B.: 02/70 Trust Portfolios L.P.

Kristi A. Maher Assistant Secretary o Indefinite term Deputy General Counsel N/A N/A
120 East Liberty Drive and Chief Compliance (May 2007 to Present),
Suite 400 Officer o 2013 First Trust Advisors
Wheaton, IL 60187 L.P. and First Trust
D.O.B.: 12/66 Portfolios L.P.

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

(1) Mr. Bowen is deemed an "interested person" of the Fund due to his position
as Chief Executive Officer of First Trust Advisors, investment advisor of
the Fund.

(2) Officer positions with the Fund have an indefinite term.
(3) After a Trustee's initial term, each Trustee is expected to serve a
three-year term concurrent with the class of Trustees for which he serves:
- Class I Trustee serves an initial term until the second annual
shareholder meeting subsequent to his election called for the purpose of
electing Trustees.
- Class II Trustees serve an initial term until the third succeeding
annual shareholder meeting called for the purpose of electing Trustees.
- Class III Trustees serve an initial term until the first succeeding
annual shareholder meeting called for the purpose of electing Trustees.
(4) Each Trustee has served in such capacity since the Fund's inception.

Unitary Board Leadership Structure

Each Trustee serves as a trustee of all open-end and closed-end funds in
the First Trust Fund Complex (as defined below), which is known as a "unitary"
board leadership structure. Each Trustee currently serves as a trustee of the
Fund; First Trust Series Fund, First Trust Variable Insurance Trust and First
Defined Portfolio Fund, LLC, open-end funds with twelve portfolios advised by
First Trust Advisors; First Trust Senior Floating Rate Income Fund II,
Macquarie/First Trust Global Infrastructure/Utilities Dividend & Income Fund,
First Trust Energy Income and Growth Fund, First Trust Enhanced Equity Income
Fund, First Trust/Aberdeen Global Opportunity Income Fund, First Trust Mortgage
Income Fund, First Trust Strategic High Income Fund II, First Trust/Aberdeen
Emerging Opportunity Fund, First Trust Specialty Finance and Financial
Opportunities Fund, First Trust Active Dividend Income Fund and First Trust High
Income Long/Short Fund, First Trust Energy Infrastructure Fund and First Trust
MLP and Energy Income Fund, closed-end funds advised by First Trust Advisors;
and First Trust Exchange-Traded Fund, First Trust Exchange-Traded Fund II, First
Trust Exchange-Traded Fund IV, First Trust Exchange-Traded Fund VI, First Trust
Exchange-Traded AlphaDEX(R) Fund and First Trust Exchange-Traded AlphaDEX(R)
Fund II, exchange-traded funds with 73 portfolios advised by First Trust
Advisors (each a "First Trust Fund" and collectively, the "First Trust Fund
Complex"). None of the Trustees who are not "interested persons" of the Fund,
nor any of their immediate family members, has ever been a director, officer or
employee of, or consultant to, First Trust Advisors, First Trust Portfolios L.P.
or their affiliates. Mr. Bowen serves as the Chairman of the Board of each Fund
in the First Trust Fund Complex. The officers of the Fund listed above hold the
same positions with the other funds in the First Trust Fund Complex as they hold
with the Fund.

The same five persons serve as Trustees on the Fund's Board of Trustees
and on the boards of all other First Trust Funds. The unitary board structure
was adopted for the First Trust Funds because of the efficiencies it achieves
with respect to the governance and oversight of the First Trust Funds. Each
First Trust Fund is subject to the rules and regulations of the 1940 Act (and
other applicable securities laws), which means that many of the First Trust
Funds face similar issues with respect to certain of their fundamental
activities, including risk management, portfolio liquidity, portfolio valuation
and financial reporting. In addition, all of the First Trust closed-end funds
are managed by the Advisor and employ common service providers for custody, fund
accounting, administration and transfer agency that provide substantially
similar services to these closed-end funds pursuant to substantially similar
contractual arrangements. Because of the similar and often overlapping issues
facing the First Trust Funds, including the Fund, the Board of the First Trust
Funds believes that maintaining a unitary board structure promotes efficiency
and consistency in the governance and oversight of all First Trust Funds and
reduces the costs, administrative burdens and possible conflicts that may result
from having multiple boards. In adopting a unitary board structure, the Trustees
seek to provide effective governance through establishing a board, the overall
composition of which, as a body, possesses the appropriate skills, diversity,
independence and experience to oversee the business of the First Trust Funds.

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

In order to streamline communication between the Advisor and the
Independent Trustees and create certain efficiencies, the Board of Trustees has
a Lead Independent Trustee who is responsible for: (i) coordinating activities
of the Independent Trustees; (ii) working with the Advisor, Fund counsel and the
independent legal counsel to the Independent Trustees to determine the agenda
for Board meetings; (iii) serving as the principal contact for and facilitating
communication between the Independent Trustees and the service providers of the
First Trust Funds, particularly the Advisor; and (iv) any other duties that the
Independent Trustees may delegate to the Lead Independent Trustee. The Lead
Independent Trustee is selected by the Independent Trustees and currently serves
a two-year term or until his successor is selected. Commencing January 1, 2014,
the Lead Independent Trustee will serve a three-year term. Robert F. Keith
currently serves as the Lead Independent Trustee.

The Board of Trustees has established four standing committees (as
described below) and has delegated certain of its responsibilities to those
committees. Since the Fund's organizational meeting, the Board of Trustees of
the First Trust Fund Complex and its committees has held meeting during the
current fiscal year to oversee the activities of the First Trust Funds, review
contractual arrangements with and performance of service providers, oversee
compliance with regulatory requirements, and review the performance of the First
Trust Funds. The Independent Trustees are represented by independent legal
counsel at all Board and committee meetings (other than meetings of the
Executive Committee). Generally, the Board of Trustees acts by majority vote of

all the Trustees, including a majority vote of the Independent Trustees if
required by applicable law.

The three committee Chairmen and the Lead Independent Trustee currently
rotate every two years in serving as Chairmen of the Audit Committee, the
Nominating and Governance Committee or the Valuation Committee, or as Lead
Independent Trustee. Commencing January 1, 2014, the three committee Chairmen
and the Lead Independent Trustee will rotate every three years. The Lead
Independent Trustee also serves on the Executive Committee with the Interested
Trustee.

The four standing committees of the Board of Trustees are: the Executive
Committee (and Pricing and Dividend Committee), the Nominating and Governance
Committee, the Valuation Committee and the Audit Committee. The Executive
Committee, which meets between Board meetings, is authorized to exercise all
powers of and to act in the place of the Board of Trustees to the extent
permitted by the Fund's Declaration of Trust and By-Laws. The members of the
Executive Committee also serve as a special committee of the Board of Trustees
known as the Pricing and Dividend Committee, which is authorized to exercise all
of the powers and authority of the Board of Trustees in respect of the issuance
and sale, through an underwritten public offering, of the Common Shares of the
Fund and all other such matters relating to such financing, including
determining the price at which such Common Shares are to be sold, approval of
the final terms of the underwriting agreement, and approval of the members of
the underwriting syndicate. Such committee is also responsible for the
declaration and setting of dividends. Mr. Keith and Mr. Bowen are members of the
Executive Committee.

The Nominating and Governance Committee is responsible for appointing and
nominating non-interested persons to the Board of Trustees. Messrs. Erickson,
Kadlec, Keith and Nielson are members of the Nominating and Governance
Committee, and each is an Independent Trustee who is also an "independent
director" within the meaning of the listing standards of the NYSE. The
Nominating and Governance Committee operates under a written charter adopted and
approved by the Board, a copy of which is available on the Fund's website at
http://www.ftportfolios.com. If there is no vacancy on the Board of Trustees,
the Board of Trustees will not actively seek recommendations from other parties,
including shareholders. The Board of Trustees adopted a mandatory retirement age
of 72 for Trustees, beyond which age Trustees are ineligible to serve. The
Nominating and Governance Committee will not consider new trustee candidates who
are 72 years of age or older. When a vacancy on the Board of Trustees of a First
Trust Fund occurs and nominations are sought to fill such vacancy, the
Nominating and Governance Committee may seek nominations from those sources it
deems appropriate in its discretion, including shareholders of the applicable
First Trust Fund. To submit a recommendation for nomination as a candidate for a
position on the Board of Trustees, shareholders of the Fund shall mail such
recommendation to W. Scott Jardine, Secretary, at the Fund's address, 120 East
Liberty Drive, Suite 400, Wheaton, Illinois 60187. Such recommendation shall
include the following information: (i) evidence of Fund ownership of the person
or entity recommending the candidate (if a Fund shareholder); (ii) a full
description of the proposed candidate's background, including their education,
experience, current employment and date of birth; (iii) names and addresses of
at least three professional references for the candidate; (iv) information as to
whether the candidate is an "interested person" in relation to the Fund, as such

term is defined in the 1940 Act, and such other information that may be
considered to impair the candidate's independence; and (v) any other information
that may be helpful to the Nominating and Governance Committee in evaluating the
candidate. If a recommendation is received with satisfactorily completed
information regarding a candidate during a time when a vacancy exists on the
Board of Trustees or during such other time as the Nominating and Governance
Committee is accepting recommendations, the recommendation will be forwarded to
the Chairman of the Nominating and Governance Committee and the counsel to the
Independent Trustees. Recommendations received at any other time will be kept on
file until such time as the Nominating and Governance Committee is accepting
recommendations, at which point they may be considered for nomination.

The Valuation Committee is responsible for the oversight of the pricing
procedures of the Fund. Messrs. Erickson, Kadlec, Keith and Nielson are members
of the Valuation Committee.

The Audit Committee is responsible for overseeing the Fund's accounting
and financial reporting process, the system of internal controls, audit process
and evaluating and appointing independent auditors (subject also to approval of
the Board of Trustees). Messrs. Erickson, Kadlec, Keith and Nielson, all of whom
are "independent" as defined in the listing standards of the NYSE, serve on the
Audit Committee. Messrs. Kadlec and Keith have been determined to qualify as an
"Audit Committee Financial Expert" as such term is defined in Form N-CSR.

RISK OVERSIGHT

As part of the general oversight of the Fund, the Board of Trustees is
involved in the risk oversight of the Fund. The Board of Trustees has adopted
and periodically reviews policies and procedures designed to address the Fund's
risks. Oversight of investment and compliance risk, including oversight of the
Sub-Advisor, is performed primarily at the Board level in conjunction with the
Advisor's investment oversight group and the Fund's Chief Compliance Officer
("CCO"). Oversight of other risks also occurs at the committee level. The
Advisor's investment oversight group reports to the Board of Trustees at
quarterly meetings regarding, among other things, Fund performance and the
various drivers of such performance as well as information related to the
Sub-Advisor and its operations and processes. The Board of Trustees reviews
reports on the Fund's and the service providers' compliance policies and
procedures at each quarterly Board meeting and receives an annual report from
the CCO regarding the operations of the Fund's and the service providers'
compliance programs. In addition, the Independent Trustees meet privately each
quarter with the CCO. The Audit Committee reviews with the Advisor the Fund's
major financial risk exposures and the steps the Advisor has taken to monitor
and control these exposures, including the Fund's risk assessment and risk
management policies and guidelines. The Audit Committee also, as appropriate,
reviews in a general manner the processes other Board committees have in place
with respect to risk assessment and risk management. The Nominating and
Governance Committee monitors all matters related to the corporate governance of
the Fund. The Valuation Committee monitors valuation risk and compliance with
the Fund's Valuation Procedures and oversees the pricing agents and actions by
the Advisor's Pricing Committee with respect to the valuation of portfolio
securities.

Not all risks that may affect the Fund can be identified nor can controls
be developed to eliminate or mitigate their occurrence or effects. It may not be
practical or cost-effective to eliminate or mitigate certain risks, the
processes and controls employed to address certain risks may be limited in their
effectiveness, and some risks are simply beyond the reasonable control of the
Fund or the Advisor or other service providers. Moreover, it is necessary to
bear certain risks (such as investment related risks) to achieve the Fund's
goals. As a result of the foregoing and other factors, the Fund's ability to
manage risk is subject to substantial limitations.

BOARD DIVERSIFICATION AND TRUSTEE QUALIFICATIONS

As described above, the Nominating and Governance Committee of the Board
of Trustees oversees matters related to the nomination of Trustees. The
Nominating and Governance Committee seeks to establish an effective Board with
an appropriate range of skills and diversity, including, as appropriate,
differences in background, professional experience, education, vocations, and
other individual characteristics and traits in the aggregate. Each Trustee must
meet certain basic requirements, including relevant skills and experience, time
availability, and if qualifying as an Independent Trustee, independence from the
Advisor, Sub-Advisor, underwriters or other service providers, including any
affiliates of these entities.

Listed below for each current Trustee are the experiences, qualifications
and attributes that led to the conclusion, as of the date of this Statement of
Additional Information, that each Trustee should serve as a trustee.

Independent Trustees. Richard E. Erickson, M.D., is an orthopedic surgeon
and President of Wheaton Orthopedics. He also has been a co-owner and director
of a fitness center and a limited partner of two real estate companies. Dr.
Erickson has served as a Trustee of each First Trust Fund since its inception.
Dr. Erickson has also served as the Lead Independent Trustee (2008 - 2009),
Chairman of the Nominating and Governance Committee (2003 - 2007) and Chairman
of the Valuation Committee (June 2006 - 2007 and 2010 - 2011) of the First Trust
Funds. He currently serves as Chairman of the Audit Committee (since January 1,
2012) of the First Trust Funds.

Thomas R. Kadlec is President of ADM Investor Services Inc. ("ADMIS"), a
futures commission merchant and wholly-owned subsidiary of the Archer Daniels
Midland Company ("ADM"). Mr. Kadlec has been employed by ADMIS and its
affiliates since 1990 in various accounting, financial, operations and risk
management capacities. Mr. Kadlec serves on the boards of several international
affiliates of ADMIS and is a member of ADM's Integrated Risk Committee, which is
tasked with the duty of implementing and communicating enterprise-wide risk
management. Mr. Kadlec has served as a Trustee of each First Trust closed-end
fund since its inception. Mr. Kadlec also served on the Executive Committee from
the organization of the first First Trust closed-end fund in 2003 until he was
elected as the first Lead Independent Trustee in December 2005, serving as such
through 2007. He also served as Chairman of the Valuation Committee (2008 -
2009), Chairman of the Audit Committee (2010 - 2011) and he currently serves as
Chairman of the Nominating and Governance Committee (since January 1, 2012) of
the First Trust Funds.

Robert F. Keith is President of Hibs Enterprises, a financial and
management consulting firm. Mr. Keith has been with Hibs Enterprises since 2003.
Prior thereto, Mr. Keith spent 18 years with ServiceMaster and Aramark,
including three years as President and COO of ServiceMaster Consumer Services,
where he led the initial expansion of certain products overseas, five years as
President and COO of ServiceMaster Management Services and two years as
President of Aramark ServiceMaster Management Services. Mr. Keith is a certified
public accountant and also has held the positions of Treasurer and Chief
Financial Officer of ServiceMaster, at which time he oversaw the financial
aspects of ServiceMaster's expansion of its Management Services division into
Europe, the Middle East and Asia. Mr. Keith has served as a Trustee of the First
Trust Funds since June 2006. Mr. Keith has also served as the Chairman of the
Audit Committee (2008 - 2009) and Chairman of the Nominating and Governance
Committee (2010 - 2011) of the First Trust Funds. He currently serves as Lead
Independent Trustee and on the Executive Committee (since January 1, 2012) of
the First Trust Funds.

Niel B. Nielson, Ph.D., has served as President and Chief Executive
Officer of Dew Learning LLC (a global provider of digital and on-line
educational products and services) since 2012. Mr. Nielson formerly served as
President of Covenant College (2002 - 2012), and as a partner and trader (of
options and futures contracts for hedging options) for Ritchie Capital Markets
Group (1996 - 1997), where he held an administrative management position at this
proprietary derivatives trading company. He also held prior positions in new
business development for ServiceMaster Management Services Company, and in
personnel and human resources for NationsBank of North Carolina, N.A. and
Chicago Research and Trading Group, Ltd. ("CRT"). His international experience
includes serving as a director of CRT Europe, Inc. for two years, directing out
of London all aspects of business conducted by the U.K. and European subsidiary
of CRT. Prior to that, Mr. Nielson was a trader and manager at CRT in Chicago.
Mr. Nielson has served as a Trustee of each First Trust Fund since its
inception. Mr. Nielson has also served as the Chairman of the Audit Committee
(2003 - 2006), Chairman of the Nominating and Governance Committee (2008 - 2009)
and Lead Independent Trustee (2010 - 2011) and currently serves as Chairman of
the Valuation Committee (since January 1, 2012) of the First Trust Funds.

Interested Trustee. James A. Bowen is the Chairman of the Board of the
First Trust Funds and Chief Executive Officer of First Trust Advisors L.P. and
First Trust Portfolios L.P., and until January 23, 2012, also served as
President and Chief Executive Officer of the First Trust Funds. Mr. Bowen also
serves on the Executive Committee. He has over 26 years of experience in the
investment company business in sales, sales management and executive management.
Mr. Bowen has served as a Trustee of each First Trust Fund since its inception.

As described above, the Board of Trustees is divided into three classes
and, in connection with the organization of the Fund, Trustees were elected for
an initial term. The Class I Trustee will serve until the second succeeding
annual meeting subsequent to his initial election; Class II Trustees will serve
until the third succeeding annual meeting subsequent to their initial election;
and Class III Trustees will serve until the first succeeding annual meeting
subsequent to their initial election. At each annual meeting, the Trustees
chosen to succeed those whose terms are expiring shall be identified as being of
the same class as the Trustees whom they succeed and shall be elected for a term
expiring at the time of the third succeeding annual meeting subsequent to their

election, in each case until their respective successors are duly elected and
qualified. Holders of any Preferred Shares will be entitled to elect a majority
of the Fund's Trustees under certain circumstances. See "Description of Shares -
Preferred Shares - Voting Rights" in the Prospectus.

Each Independent Trustee is paid a fixed annual retainer of $125,000 per
year and an annual per fund fee of $4,000 for each closed-end fund or other
actively managed fund and $1,000 for each index fund in the First Trust Fund
Complex. The fixed annual retainer is allocated pro rata among each fund in the
First Trust Fund Complex based on net assets.

Additionally, the Lead Independent Trustee is paid $15,000 annually, the
Chairman of the Audit Committee is paid $10,000 annually, and each of the
Chairmen of the Nominating and Governance Committee and the Valuation Committee
is paid $5,000 annually to serve in such capacities, with such compensation
allocated pro rata among each fund in the First Trust Fund Complex based on net
assets. Trustees are also reimbursed by the investment companies in the First
Trust Fund Complex for travel and out-of-pocket expenses incurred in connection
with all meetings. The officers and "Interested Trustee" receive no compensation
from the Fund for acting in such capacities.

The following table sets forth the estimated compensation (including
reimbursement for travel and out-of-pocket expenses) to be paid by the Fund
projected during the Fund's first full fiscal year to each of the Independent
Trustees and the estimated total compensation to be paid to each of the
Independent Trustees by the First Trust Fund Complex for the calendar year ended
December 31, 2013. The Fund has no retirement or pension plans. The officers and
the Trustee who is an "interested person" as designated above serve without any
compensation from the Fund. The Fund's officers are compensated by First Trust
Advisors.

ESTIMATED TOTAL
COMPENSATION
ESTIMATED COMPENSATION FROM THE FIRST TRUST
NAME OF TRUSTEE FROM THE FUND(1) FUND COMPLEX(2)
Richard E. Erickson $ $
Thomas R. Kadlec $ $
Robert F. Keith $ $
Niel B. Nielson $ $

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

(1) The compensation estimated to be paid by the Fund to the Independent
Trustees for the first full fiscal year for services to the Fund.

(2) The total estimated compensation to be paid to Messrs. Erickson, Kadlec,
Keith and Nielson, Independent Trustees, from the Fund and the First Trust
Fund Complex for a full calendar year is based on estimated compensation
to be paid to these Trustees for a full calendar year for services as
Trustees to the Fund and the First Trust Series Fund, the First Trust
Variable Insurance Trust and the First Defined Portfolio Fund, LLC,
open-end funds (with eleven portfolios), the First Trust Exchange-Traded
Fund, First Trust Exchange-Traded Fund II, First Trust Exchange-Traded
Fund IV, First Trust Exchange-Traded Fund VI, First Trust Exchange-Traded
AlphaDEX(R) Fund and First Trust Exchange-Traded AlphaDEX(R) Fund II,
exchange-traded funds, plus estimated compensation to be paid to these
Trustees by the First Trust Senior Floating Rate Income Fund II, the
Macquarie/First Trust Global Infrastructure/Utilities Dividend & Income
Fund, the First Trust Energy Income and Growth Fund, the First Trust
Enhanced Equity Income Fund, the First Trust/Aberdeen Global Opportunity

Income Fund, the First Trust Mortgage Income Fund, the First Trust
Strategic High Income Fund II, the First Trust/Aberdeen Emerging
Opportunity Fund, the First Trust Specialty Finance and Financial
Opportunities Fund, the First Trust Active Dividend Income Fund, the First
Trust High Income Long/Short Fund, the First Trust Energy Infrastructure
Fund and the First Trust MLP and Energy Income Fund.

The Fund has no employees. The shareholders of the Fund will be asked to
vote on the election of Trustees for a three-year term at the next annual
meeting of shareholders.

The following table sets forth the dollar range of equity securities
beneficially owned by the Trustees in the Fund and in other funds overseen by
the Trustees in the First Trust Fund Complex as of December 31, 2012. Because
the Fund recently commenced operations, the Trustees did not own any securities
of the Fund as of the Fund's inception or as of the date of this Statement of
Additional Information:

AGGREGATE DOLLAR RANGE OF
EQUITY SECURITIES IN
DOLLAR RANGE OF ALL REGISTERED INVESTMENT COMPANIES
EQUITY SECURITIES OVERSEEN BY TRUSTEE IN THE
TRUSTEE IN THE FUND FIRST TRUST FUND COMPLEX
Interested Trustee

James A. Bowen None $50,001 - $100,000

Independent Trustee
Richard E. Erickson None Over $100,000
Thomas R. Kadlec None Over $100,000
Robert F. Keith None Over $100,000
Niel B. Nielson None Over $100,000

As of December 31, 2012, the Independent Trustees of the Fund and
immediate family members do not own beneficially or of record any class of
securities of an investment advisor or principal underwriter of the Fund or any
person directly or indirectly controlling, controlled by, or under common
control with an investment advisor or principal underwriter of the Fund.

As of December 31, 2012, the officers and Trustees, in the aggregate,
owned less than 1% of the Shares of the Fund.

INVESTMENT ADVISOR

First Trust Advisors L.P., 120 East Liberty Drive, Suite 400, Wheaton,
Illinois 60187, is the investment advisor to the Fund. First Trust Advisors
serves as investment advisor or portfolio supervisor to investment portfolios
with approximately $ billion in assets which it managed or supervised as of
December 31, 2012. As investment advisor, First Trust Advisors provides the Fund
with professional investment supervision and selects the Fund's Sub-Advisor
(with the approval of the Board of Trustees) and permits any of its officers or
employees to serve without compensation as Trustees or officers of the Fund if
elected to such positions. First Trust Advisors supervises the activities of the
Fund's Sub-Advisor and provides the Fund with certain other services necessary
with the management of the portfolio.

First Trust Advisors is an Illinois limited partnership formed in 1991 and
an investment advisor registered with the SEC under the Investment Advisers Act
of 1940 (the "Advisers Act"). First Trust Advisors has one limited partner,
Grace Partners of DuPage L.P. ("Grace Partners"), and one general partner, The
Charger Corporation. Grace Partners is a limited partnership with one general
partner, The Charger Corporation, and a number of limited partners. Grace
Partners' and The Charger Corporation's primary business is investment advisory
and broker/dealer services through their ownership interests. The Charger
Corporation is an Illinois corporation controlled by James A. Bowen, Chief
Executive Officer of the Advisor. First Trust Advisors is controlled by Grace
Partners and The Charger Corporation.

First Trust Advisors is advisor or sub-advisor to 16 mutual funds, six
exchange-traded funds consisting of 73 series and 14 closed-end funds (including
the Fund) and is the portfolio supervisor of certain unit investment trusts
sponsored by First Trust Portfolios L.P. First Trust Portfolios L.P. specializes
in the underwriting, trading and distribution of unit investment trusts and
other securities. First Trust Portfolios L.P., an Illinois limited partnership
formed in 1991, took over the First Trust product line and acts as sponsor for
successive series of The First Trust Combined Series, FT Series (formerly known
as The First Trust Special Situations Trust), The First Trust Insured Corporate
Trust, The First Trust of Insured Municipal Bonds and The First Trust GNMA. The
First Trust product line commenced with the first insured unit investment trust
in 1974, and to date, more than $ billion in gross assets have been deposited
in First Trust Portfolios L.P. unit investment trusts.

First Trust Advisors acts as investment advisor to the Fund pursuant to an
Investment Management Agreement. The Investment Management Agreement continues
in effect from year to year after its initial two-year term so long as its
continuation is approved at least annually by the Trustees including a majority
of the Independent Trustees, or the vote of a majority of the outstanding voting
securities of the Fund. It may be terminated at any time without the payment of
any penalty upon 60 days' written notice by either party, or by a majority vote
of the outstanding voting securities of the Fund or by the Board of Trustees
(accompanied by appropriate notice), and will terminate automatically upon its
assignment. The Investment Management Agreement may also be terminated, at any
time, without payment of any penalty, by the Board or by vote of a majority of
the outstanding voting securities of the Fund, in the event that it shall have
been established by a court of competent jurisdiction that the Advisor, or any
officer or director of the Advisor, has taken any action which results in a
breach of the material covenants of the Advisor set forth in the Investment
Management Agreement. The Investment Management Agreement provides that First
Trust Advisors shall not be liable for any loss sustained by reason of the
purchase, sale or retention of any security, whether or not such purchase, sale
or retention shall have been based upon the investigation and research made by
any other individual, firm or corporation, if the recommendation shall have been
selected with due care and in good faith, except loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Advisor in
performance of its obligations and duties, or by reason of its reckless
disregard of its obligations and duties under the Investment Management
Agreement.

The Investment Management Agreement between the Advisor and the Fund has
been approved by the Board of Trustees of the Fund, including a majority of the

Independent Trustees, and the sole shareholder of the Fund. Information
regarding the Board of Trustees' approval of the Investment Management and
Sub-Advisory Agreements will be available in the Fund's annual report for the
year ended . Pursuant to the Investment Management Agreement, the
Fund has agreed to pay for the services and facilities provided by the Advisor
an annual management fee, payable on a monthly basis, equal to 0.85% of the
Fund's Managed Assets. For purposes of calculation of the management fee, the
Fund's "Managed Assets" means the average daily gross asset value of the Fund
(which includes assets attributable to the Fund's leverage), minus the sum of
the Fund's accrued and unpaid dividends on any outstanding Preferred Shares and
accrued liabilities (other than debt representing leverage).

In addition to the fee of the Advisor, the Fund pays all other costs and
expenses of its operations except the Sub-Advisor's fee, which is paid by the
Advisor out of the Advisor's management fee. The costs and expenses paid by the
Fund include: compensation of its Trustees (other than the Trustee affiliated
with the Advisor), custodian, transfer agent, administrative, accounting and
dividend disbursing expenses, legal fees, leverage expenses, expenses of
independent auditors, expenses of repurchasing shares, expenses of preparing,
printing and distributing shareholder reports, notices, proxy statements and
reports to governmental agencies, and taxes, if any. All fees and expenses are
accrued daily and deducted before payment of dividends to investors.

CODE OF ETHICS

The Fund, the Advisor and the Sub-Advisor have each adopted codes of
ethics under Rule 17j-1 under the 1940 Act. These codes permit personnel subject
to the code to invest in securities, including securities that may be purchased
or held by the Fund. These codes can be reviewed and copied at the SEC's Public
Reference Room in Washington, D.C. Information on the operation of the Public
Reference Room may be obtained by calling the SEC at (202) 942-8090. The codes
of ethics are available on the EDGAR Database on the SEC's website
(http://www.sec.gov), and copies of these codes may be obtained, after paying a
duplicating fee, by electronic request at the following e-mail address:
publicinfo@sec.gov, or by writing the SEC Public Reference Section, Washington,
D.C. 20549-0102.

SUB-ADVISOR

Stonebridge Advisors LLC serves as the Fund's Sub-Advisor. In this
capacity, Stonebridge is responsible for the selection and on-going monitoring
of the securities in the Fund's investment portfolio.

Stonebridge, located at 187 Danbury Road, Wilton, CT 06897, is a
registered investment advisor and serves as investment advisor or portfolio
supervisor to investment portfolios with approximately $1.54 billion of assets
as of December 31, 2012.

Stonebridge, founded in December 2004, is a Delaware limited liability
company and an affiliate of First Trust. As of the date of this Statement of
Additional Information, First Trust Advisors owns a 51% equity interest in the
Sub-Advisor. Stonebridge is a niche asset management firm that provides

specialized expertise in the management of preferred securities for
institutional investors and high net worth individuals, in separately managed
accounts, unified managed accounts, unit investment trusts and other registered
investment companies. In addition to serving as Sub-Advisor to the Fund,
Stonebridge serves as the investment manager to . Stonebridge
currently has a staff of .

The members of Stonebridge's investment committee are Scott T. Fleming,
Robert Wolf, Allen Shepard and Danielle Salters who serve as the Fund's
portfolio managers and share responsibilities for the day-to-day management of
the Fund's investment portfolio.

o Scott T. Fleming serves as President and Chief Investment Officer of
Stonebridge. Prior to founding Stonebridge, Mr. Fleming co-founded
Spectrum Asset Management, Inc., an investment advisor that specializes
in preferred securities asset management for institutional clients and
mutual funds. During his 13-year tenure there, he served as Chairman of
the Board of Directors, Chief Financial Officer and Chief Investment
Officer. Mr. Fleming previously served as Vice President, Portfolio
Manager for DBL Preferred Management, Inc. in New York City. There he
managed over $300 million of institutional assets with a strategy
specializing in preferred securities. Mr. Fleming received a BS in
Accounting from Bentley College in Waltham, MA and his MBA in Finance
from Babson College in Wellesley, MA.

o Robert Wolf serves as Vice President, Portfolio Manager and Senior
Credit Analyst of Stonebridge. Mr. Wolf brings 13 years of fixed-income
experience to Stonebridge. His primary focus is in analyzing both
investment-grade and non-investment-grade securities, where he has
developed a rigorous approach to credit and industry analysis. Prior to
joining Stonebridge, Mr. Wolf was a high-yield fixed-income research
analyst at Lehman Brothers. In this role, his responsibilities included
detailed credit analysis across multiple sectors, relative value
analysis, and developing trade recommendations for Lehman's High-Yield
proprietary trading effort. Mr. Wolf previously worked for Lehman
Brothers Commercial Mortgage-Backed Securities (CMBS) trading desk as a
credit analyst where he provided in-depth analysis of CMBS transactions
and the underlying Commercial Real Estate. Mr. Wolf received his BS
degree in Chemistry from Villanova University in 1999 and his MBA in
Finance from the New York University Stern School of Business in 2004.

o Allen Shepard, PhD, serves as Senior Risk Analyst and Portfolio
Analytics of Stonebridge. Dr. Shepard joined Stonebridge in 2004 and
developed proprietary hedging models for use in managing preferred and
fixed-income securities. Prior to joining Stonebridge, Dr. Shepard held
positions as a Gibbs Instructor in the Mathematics Department at Yale
University and as an Assistant Professor of Mathematics at Allegheny
College. He received a BA in Mathematics from Hampshire College in 1980
and a PhD in Mathematics from Brown University in 1985, specializing in
the field of algebraic topology. Dr. Shepard returned to graduate
school during 1995-1997, first in the Economics Department at MIT and
then in the PhD program in Economics at Boston University.

o Danielle Salters, CFA, serves as Credit Analyst for Stonebridge. Ms.
Salters has five years of investment management experience of which
four years have been focused on fixed income. Previous functions have
included fundamental credit research, relative value analysis and
trading. Prior to beginning at Stonebridge, Ms. Salters was Portfolio
Analyst at a boutique asset manager where she focused on high-yield
credit analysis and portfolio analytics for a hedge fund and
institutional client. Previously, Ms. Salters was employed by UBS
Financial Services, Inc. where she worked in Taxable Fixed Income Sales
and, later, served as the Fixed Income Specialist to a Portfolio
Manager. Ms. Salters received a B.A. in economics from Duke University
in 2007 and is a CFA Charterholder.

-------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OTHER ACCOUNTS MANAGED AND ASSETS BY ACCOUNT TYPE
AS OF DECEMBER 31, 2012
-------------------------------------------------------------------------------------------------------------------------------
REGISTERED OTHER POOLED
REGISTERED INVESTMENT INVESTMENT
INVESTMENT COMPANIES VEHICLES OTHER ACCOUNTS
COMPANIES SUBJECT TO OTHER POOLED SUBJECT TO SUBJECT TO
PORTFOLIO (OTHER THAN PERFORMANCE-BASED INVESTMENT PERFORMANCE-BASED PERFORMANCE-BASED
MANAGER THE FUND) ADVISORY FEES VEHICLES ADVISORY FEES OTHER ACCOUNTS ADVISORY FEES
-------------------------------------------------------------------------------------------------------------------------------

Scott T. Fleming
Number: Number: Number: Number: Number: Number:
Assets: $ Assets: $ Assets: $ Assets: $ Assets: $ Assets: $
-------------------------------------------------------------------------------------------------------------------------------
Robert Wolf
Number: Number: Number: Number: Number: Number:
Assets: $ Assets: $ Assets: $ Assets: $ Assets: $ Assets: $
-------------------------------------------------------------------------------------------------------------------------------
Allen Shepard
Number: Number: Number: Number: Number: Number:
Assets: $ Assets: $ Assets: $ Assets: $ Assets: $ Assets: $
-------------------------------------------------------------------------------------------------------------------------------
Danielle Salters
Number: Number: Number: Number: Number: Number:
Assets: $ Assets: $ Assets: $ Assets: $ Assets: $ Assets: $
-------------------------------------------------------------------------------------------------------------------------------

The portfolio managers are compensated by .

Actual or apparent conflicts of interest may arise when a portfolio
manager has day-to-day management responsibilities with respect to more than one
fund or other account. More specifically, portfolio managers who manage multiple
funds and /or other accounts may be presented with one or more of the potential
conflicts described below.

The management of multiple funds and/or other accounts may result in a
portfolio manager devoting unequal time and attention to the management of each
fund and/or other account. The Sub-Advisor seeks to manage such competing
interests for the time and attention of a portfolio manager by having the
portfolio manager focus on a particular investment discipline. Most other
accounts managed by a portfolio manager are managed using the same investment
models that are used in connection with the management of the Fund.

If a portfolio manager identifies a limited investment opportunity which
may be suitable for more than one fund or other account, a fund may not be able
to take full advantage of that opportunity due to an allocation of filled
purchase or sale orders across all eligible funds and other accounts. To deal
with these situations, the Sub-Advisor has adopted procedures for allocating
portfolio transactions across multiple accounts. In addition, Section 17(d) of
the 1940 Act may limit or prevent the Fund from participating in certain joint
transactions with affiliated persons.

With respect to securities transactions for the Fund, the Sub-Advisor
determines which broker to use to execute each order, consistent with its duty
to seek best execution of the transaction. However, with respect to certain
other accounts (such as mutual funds for which the Sub-Advisor acts as
sub-advisor, other pooled investment vehicles that are not registered mutual
funds, and other accounts managed for organizations and individuals), the
Sub-Advisor may be limited by the client with respect to the selection of
brokers or may be instructed to direct trades through a particular broker. In
these cases, trades for a fund in a particular security may be placed separately
from, rather than aggregated with, such other accounts. Having separate
transactions with respect to a security may temporarily affect the market price
of the security or the execution of the transaction, or both, to the possible
detriment of such fund or other account(s) involved.

The Sub-Advisor, the Advisor and the Fund have adopted certain compliance
procedures which are designed to address these types of conflicts. However,
there is no guarantee that such procedures will detect each and every situation
in which a conflict arises.

The Sub-Advisor, subject to the Board of Trustees' and Advisor's
supervision, provides the Fund with discretionary investment services.
Specifically, the Sub-Advisor is responsible for managing the investments of the
Fund in accordance with the Fund's investment objectives, policies and
restrictions as provided in the Prospectus and this Statement of Additional
Information, as may be subsequently changed by the Board of Trustees and
communicated to the Sub-Advisor in writing. The Sub-Advisor further agrees to
conform to all applicable laws and regulations of the SEC in all material
respects and to conduct its activities under the Sub-Advisory Agreement (as
defined below) in all material respects in accordance with applicable
regulations of any governmental authority pertaining to its investment advisory
services. In the performance of its duties, the Sub-Advisor will in all material
respects satisfy any applicable fiduciary duties it may have to the Fund, will
monitor the Fund's investments, and will comply with the provisions of the
Fund's Declaration of Trust and By-laws, as amended from time to time, and the
stated investment objectives, policies and restrictions of the Fund. The
Sub-Advisor is responsible for effecting all security transactions for the
Fund's assets. The Sub-Advisory Agreement provides that the Sub-Advisor shall
not be liable for any loss suffered by the Fund or the Advisor (including,
without limitation, by reason of the purchase, sale or retention of any
security) in connection with the performance of the Sub-Advisor's duties under
the Sub-Advisory Agreement, except for a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Sub-Advisor in
performance of its duties under such Sub-Advisory Agreement, or by reason of its
reckless disregard of its obligations and duties under such Sub-Advisory
Agreement.

Pursuant to a sub-advisory agreement among the Fund, the Advisor and the
Sub-Advisor, (the "Sub-Advisory Agreement"), the Sub-Advisor receives a
portfolio management fee equal to % of the Fund's Managed Assets. The
Sub-Advisor's fee is paid by the Advisor out of the Advisor's management fee.
Because the fee paid to the Advisor and by the Advisor to the Sub-Advisor will
be calculated on the basis of the Fund's Managed Assets, which include the
proceeds of leverage, the dollar amount of the Advisor's and Sub-Advisor's fees
will be higher (and the Advisor and Sub-Advisor will be benefited to that
extent) when leverage is utilized.

The Sub-Advisory Agreement may be terminated without the payment of any
penalty by First Trust Advisors, the Fund's Board of Trustees, or a majority of
the outstanding voting securities of the Fund (as defined in the 1940 Act), upon
60 days' written notice to the Sub-Advisor.

All fees and expenses are accrued daily and deducted before payment of
dividends to investors. The Sub-Advisory Agreement has been approved by the
Board of Trustees, including a majority of the Independent Trustees of the Fund,
and the initial shareholder of the Fund.

PROXY VOTING POLICIES AND PROCEDURES

The Fund has adopted a proxy voting policy that seeks to ensure that
proxies for securities held by the Fund are voted consistently and solely in the
best interests of the Fund.

The Board of Trustees is responsible for oversight of the Fund's proxy
voting process. The Board has delegated day-to-day proxy voting responsibility
to the Sub-Advisor. The Proxy Voting Guidelines of the Sub-Advisor are set forth
in Appendix B to this Statement of Additional Information.

Information regarding how the Fund voted proxies (if any) relating to
portfolio securities during the most recent 12-month period ended will be
available: (i) without charge, upon request, by calling (800) 621-1675; (ii) on
the Fund's website at http://www.ftportfolios.com; and (iii) by accessing the
SEC's website at http://www.sec.gov.

PORTFOLIO TRANSACTIONS AND BROKERAGE

Subject to the supervision of the Board of Trustees, the Sub-Advisor shall
have authority and discretion to select brokers and dealers to execute
transactions initiated by the Sub-Advisor and to select the market in which the
transactions will be executed. In placing orders for the sale and purchase of
securities for the Fund, the Sub-Advisor's primary responsibility shall be to
seek the best execution of orders at the most favorable prices. However, this
responsibility shall not obligate the Sub-Advisor to solicit competitive bids
for each transaction or to seek the lowest available commission cost to the
Fund, so long as the Sub-Advisor reasonably believes that the broker or dealer
selected by it can be expected to obtain a "best execution" market price on the
particular transaction and determines in good faith that the commission cost is
reasonable in relation to the value of the brokerage and research services
(within the meaning of Section 28(e)(3) of the 1934 Act) provided by such broker
or dealer to the Sub-Advisor, viewed in terms of either that particular

transaction or of the overall responsibilities with respect to its clients,
including the Fund, as to which the Sub-Advisor exercises investment discretion,
notwithstanding that the Fund may not be the direct or exclusive beneficiary of
any such services or that another broker may be willing to charge the Fund a
lower commission on the particular transaction.

The Sub-Advisor's objective in selecting brokers and dealers and in
effecting portfolio transactions is to seek to obtain the best combination of
price and execution with respect to its clients' portfolio transactions. Steps
associated with seeking best execution include, but are not limited to, the
following: (i) determine each client's trading requirements; (ii) select
appropriate trading methods, venues, and agents to execute the trades under the
circumstances; (iii) evaluate market liquidity of each security and take
appropriate steps to avoid excessive market impact; (iv) maintain client
confidentiality and proprietary information inherent in the decision to trade;
and (v) review the results on a periodic basis.

In arranging for the purchase and sale of clients' portfolio securities,
the Sub-Advisor takes numerous factors into consideration. The best net price,
giving effect to brokerage commissions, spreads and other costs, is normally an
important factor in this decision, but a number of other judgmental factors are
considered as they are deemed relevant. The factors include, but are not limited
to: the execution capabilities required by the transactions; the ability and
willingness of the broker or dealer to facilitate the accounts' portfolio
transactions by participating therein for its own account; the importance to the
account of speed, efficiency and confidentiality; the broker or dealer's
apparent familiarity with sources from or to whom particular securities might be
purchased or sold; the reputation and perceived soundness of the broker or
dealer; the Sub-Advisor's knowledge of negotiated commission rates and spreads
currently available; the nature of the security being traded; the size and type
of the transaction; the nature and character of the markets for the security to
be purchased or sold; the desired timing of the trade; the activity existing and
expected in the market for the particular security; confidentiality; the
execution, clearance and settlement capabilities as well as the reputation and
perceived soundness of the broker-dealer selected and others which are
considered; the Sub-Advisor's knowledge of actual or apparent operational
problems of any broker-dealer; the broker-dealer's execution services rendered
on a continuing basis and in other transactions; the reasonableness of spreads
or commissions; as well as other matters relevant to the selection of a broker
or dealer for portfolio transactions for any account. The Sub-Advisor does not
adhere to any rigid formula in making the selection of the applicable broker or
dealer for portfolio transactions, but weighs a combination of the preceding
factors.

When buying or selling securities in dealer markets, the Sub-Advisor
generally prefers to deal directly with market makers in the securities. The
Sub-Advisor will typically effect these trades on a "net" basis, and will not
pay the market maker any commission, commission equivalent or markup/markdown
other than the "spread." Usually, the market maker profits from the "spread,"
that is, the difference between the price paid (or received) by the Sub-Advisor
and the price received (or paid) by the market maker in trades with other
broker-dealers or other customers.

The Sub-Advisor may use Electronic Communications Networks ("ECN") or
Alternative Trading Systems ("ATS") to effect such over-the-counter trades for
equity securities when, in the Sub-Advisor's judgment, the use of an ECN or ATS
may result in equal or more favorable overall executions for the transactions.

Portfolio transactions for each client account will generally be completed
independently, except when the Sub-Advisor is in the position of buying or
selling the same security for a number of clients at approximately the same
time. Because of market fluctuations, the prices obtained on such transactions
within a single day may vary substantially. In order to avoid having clients
receive different prices for the same security on the same day, the Sub-Advisor
endeavors, when possible, to use an "averaging" procedure.

Under this procedure, purchases or sales of a particular security for
clients' accounts will at times be combined or "batched" with purchases or sales
for other advisory clients by the Sub-Advisor unless the client has expressly
directed otherwise. Such batched trades may be used to facilitate best
execution, including negotiating more favorable prices, obtaining more timely or
equitable execution or reducing overall commission charges. In such cases, the
price shown on confirmations of clients' purchases or sales will be the average
execution price on all of the purchases and sales that are aggregated for this
purpose.

The Sub-Advisor may also consider the following when deciding on
allocations: (i) cash flow changes (including available cash, redemptions,
exchanges, capital additions and capital withdrawals) may provide a basis to
deviate from a pre-established allocation as long as it does not result in an
unfair advantage to specific accounts or types of accounts over time; (ii)
accounts with specialized investment objectives or restrictions emphasizing
investment in a specific category of securities may be given priority over other
accounts in allocating such securities; and (iii) for bond trades, street
convention and good delivery often dictate the minimum size and par amounts and
may result in deviations from pro rata distribution.

DESCRIPTION OF SHARES

COMMON SHARES

The beneficial interest of the Fund may be divided from time to time into
shares of beneficial interest of such classes and of such designations and par
values (if any) and with such rights, preferences, privileges and restrictions
as shall be determined by the Trustees from time to time in their sole
discretion, without shareholder vote. The Fund's Declaration of Trust initially
authorizes the issuance of an unlimited number of Common Shares. The Common
Shares being offered have a par value of $0.01 per share and, subject to the
rights of holders of Preferred Shares, if issued, have equal rights as to the
payment of dividends and the distribution of assets upon liquidation of the
Fund. The Common Shares being offered will, when issued, be fully paid and,
subject to matters discussed in "Certain Provisions in the Declaration of Trust
and By-Laws," non-assessable, and currently have no pre-emptive or conversion
rights (except as may otherwise be determined by the Trustees in their sole
discretion) or rights to cumulative voting in the election of Trustees.

The Common Shares have been approved for listing on the NYSE, subject to
notice of issuance. The trading or "ticker" symbol of the Common Shares is
expected to be " ". The Fund intends to hold annual meetings of shareholders so
long as the Common Shares are listed on a national securities exchange and such
meetings are required as a condition to such listing.

Shares of closed-end investment companies may frequently trade at prices
lower than NAV. NAV will be reduced immediately following this offering after
payment of the sales load and organization and offering expenses. Although the
value of the Fund's net assets is generally considered by market participants in
determining whether to purchase or sell shares, whether investors will realize
gains or losses upon the sale of Common Shares will depend entirely upon whether
the market price of the Common Shares at the time of sale is above or below the
original purchase price for the shares. Since the market price of the Fund's
Common Shares will be determined by factors beyond the control of the Fund, the
Fund cannot predict whether the Common Shares will trade at, below, or above NAV
or at, below or above the initial public offering price. Accordingly, the Common
Shares are designed primarily for long-term investors, and investors in the
Common Shares should not view the Fund as a vehicle for trading purposes. See
"Repurchase of Fund Shares; Conversion to Open-End Fund" below and "The Fund's
Investments" in the Fund's Prospectus.

PREFERRED SHARE AUTHORIZATION

Under the terms of the Declaration of Trust, the Board of Trustees has the
authority in its sole discretion, without prior approval of the Common
Shareholders, to authorize the issuance of Preferred Shares in one or more
classes or series with such rights and terms, including voting rights, dividend
rates, redemption provisions, liquidation preferences and conversion provisions,
as determined by the Board of Trustees. See "Description of Shares--Preferred
Shares" in the Fund's Prospectus.

BORROWINGS

The Declaration of Trust authorizes the Fund, without prior approval of
the Common Shareholders, to borrow money. In this connection, the Fund may enter
into reverse repurchase agreements, issue notes or other evidence of
indebtedness (including bank borrowings or commercial paper) ("Borrowings") and
may secure any such Borrowings by mortgaging, pledging or otherwise subjecting
as security the Fund's assets. In connection with such Borrowings, the Fund may
be required to maintain average balances with the lender or to pay a commitment
or other fee to maintain a line of credit. Any such requirements will increase
the cost of borrowing over the borrowing instrument's stated interest rate. The
Fund may borrow from banks and other financial institutions.

Limitations on Borrowings. Under the requirements of the 1940 Act, the
Fund, immediately after any Borrowings, must have an "asset coverage" of at
least 300% (33 1/3% of Managed Assets after Borrowings). With respect to such
Borrowings, "asset coverage" means the ratio which the value of the total assets
of the Fund, less all liabilities and indebtedness not represented by senior
securities (as defined in the 1940 Act), bears to the aggregate amount of such
Borrowings represented by senior securities issued by the Fund. Certain types of

Borrowings may result in the Fund being subject to covenants in credit
agreements relating to asset coverage or portfolio composition or otherwise. In
addition, the Fund may be subject to certain restrictions imposed by the
guidelines of one or more NRSROs which may issue ratings for short-term
corporate debt securities and/or Preferred Shares issued by the Fund. Such
restrictions may be more stringent than those imposed by the 1940 Act.

Distribution Preference. The rights of lenders to the Fund to receive
interest on and repayment of principal of any such Borrowings will be senior to
those of the Common Shareholders, and the terms of any such Borrowings may
contain provisions which limit certain activities of the Fund, including the
payment of dividends to Common Shareholders in certain circumstances.

Voting Rights. The 1940 Act grants (in certain circumstances) to the
lenders to the Fund certain voting rights in the event the asset coverage falls
below specified levels. In the event that the Fund elects to be treated as a
regulated investment company under the Code and such provisions would impair the
Fund's status as a regulated investment company, the Fund, subject to its
ability to liquidate its portfolio, intends to repay the Borrowings as soon as
practicable. Any Borrowings will likely be ranked senior or equal to all other
existing and future borrowings of the Fund.

The discussion above describes the Fund's Board of Trustees' present
intention with respect to Borrowings. If authorized by the Board of Trustees,
the terms of any Borrowings may be the same as, or different from, the terms
described above, subject to applicable law and the Fund's Declaration of Trust.

CERTAIN PROVISIONS IN THE DECLARATION OF TRUST AND BY-LAWS

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

The Declaration and By-Laws include provisions that could limit the
ability of other entities or persons to acquire control of the Fund or to
convert the Fund to open-end status. The number of trustees is currently five,
but by action of two-thirds of the trustees, the Board of Trustees may from time
to time be increased or decreased. The Board of Trustees is divided into three
classes of trustees serving staggered three-year terms, with the terms of one
class expiring at each annual meeting of shareholders. If the Fund issues
Preferred Shares, the Fund may establish a separate class for the trustees
elected by the holders of the Preferred Shares. Subject to applicable provisions
of the 1940 Act, vacancies on the Board of Trustees may be filled by a majority

action of the remaining trustees. Such provisions may work to delay a change in
the majority of the Board of Trustees. The provisions of the Declaration of
Trust relating to the election and removal of trustees may be amended only by a
vote of two-thirds of the trustees then in office. The By-Laws may be amended
only by the Board of Trustees.

Generally, the Declaration requires the affirmative vote or consent by
holders of at least two-thirds of the shares outstanding and entitled to vote,
except as described below, to authorize (1) a conversion of the Fund from a
closed-end to an open-end investment company, (2) a merger or consolidation of
the Fund with any corporation, association, trust or other organization,
including a series or class of such other organization (in the limited
circumstances where a vote by shareholders is otherwise required under the
Declaration of Trust), (3) a sale, lease or exchange of all or substantially all
of the Fund's assets (in the limited circumstances where a vote by shareholders
is otherwise required under the Declaration of Trust), (4) in certain
circumstances, a termination of the Fund, (5) removal of Trustees by
shareholders, or (6) certain transactions in which a Principal Shareholder (as
defined below) is a party to the transactions. However, with respect to items
(1), (2) and (3) above, if the applicable transaction has been already approved
by the affirmative vote of two-thirds of the Trustees, then the majority of the
outstanding voting securities as defined in the 1940 Act (a "Majority
Shareholder Vote") is required. In addition, if there are then Preferred Shares
outstanding, with respect to (1) above, two-thirds of the Preferred Shares
voting as a separate class shall also be required unless the action has already
been approved by two-thirds of the Trustees, in which case then a Majority
Shareholder Vote is required. Such affirmative vote or consent shall be in
addition to the vote or consent of the holders of the shares otherwise required
by law or by the terms of any class or series of Preferred Shares, whether now
or hereafter authorized, or any agreement between the Fund and any national
securities exchange. Further, in the case of items (2) or (3) that constitute a
plan of reorganization (as such term is used in the 1940 Act) which adversely
affects the Preferred Shares within the meaning of section 18(a)(2)(D) of the
1940 Act, except as may otherwise be required by law, the approval of the action
in question will also require the affirmative vote of two thirds of the
Preferred Shares voting as a separate class provided, however, that such
separate class vote shall be by a Majority Shareholder Vote if the action in
question has previously been approved by the affirmative vote of two-thirds of
the Trustees.

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

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

The Declaration provides that the obligations of the Fund are not binding
upon the Trustees of the Fund individually, but only upon the assets and
property of the Fund, and that the Trustees shall not be liable to any person in
connection with the Fund property or the affairs of the Fund or for any neglect
or wrongdoing of any officer, employee or agent of the Fund or for the act or
omission of any other Trustee. Nothing in the Declaration, however, protects a

Trustee against any liability to which he or she would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office with or on behalf of the
Fund.

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

REPURCHASE OF FUND SHARES; CONVERSION TO OPEN-END FUND

The Fund is a closed-end investment company and as such its shareholders
will not have the right to cause the Fund to redeem their shares. Instead, the
Fund's Common Shares trade in the open market at a price that will be a function
of several factors, including dividend levels (which are in turn affected by
expenses), NAV, price, dividend stability, relative demand for and supply of
such shares in the market, general market and economic conditions and other
factors. Because shares of a closed-end investment company may frequently trade
at prices lower than NAV, the Trustees, in consultation with the Fund's Advisor,
Sub-Advisor and the corporate finance services and consulting agent that the
Advisor may retain from time to time, may review possible actions to reduce any
such discount. Actions may include the repurchase of such shares in the open
market or in private transactions, the making of a tender offer for such shares,
or the conversion of the Fund to an open-end investment company. There can be no
assurance, however, that the Trustees will decide to take any of these actions,
or that share repurchases or tender offers, if undertaken, will reduce a market
discount. After any consideration of potential actions to seek to reduce any
significant market discount, the Trustees may, subject to their fiduciary
obligations and compliance with applicable state and federal laws, authorize the
commencement of a share-repurchase program or tender offer. The size and timing
of any such share repurchase program or tender offer will be determined by the
Trustees in light of the market discount of the Common Shares, trading volume of
the Common Shares, information presented to the Trustees regarding the potential
impact of any such share repurchase program or tender offer, and general market
and economic conditions. There can be no assurance that the Fund will in fact
effect repurchases of or tender offers for any of its Common Shares. Before
deciding whether to take any action if the Fund's Common Shares trade below NAV,
the Trustees would consider all relevant factors, including the extent and
duration of the discount, the liquidity of the Fund's portfolio, the impact of
any action that might be taken on the Fund or its shareholders and market
considerations. Based on these considerations, even if the Fund's shares should
trade at a discount, the Trustees may determine that, in the interest of the
Fund and its shareholders, no action should be taken.

Further, the staff of the SEC currently requires that any tender offer
made by a closed-end investment company for its shares must be at a price equal
to the NAV of such shares on the close of business on the last day of the tender
offer. Any service fees incurred in connection with any tender offer made by the
Fund will be borne by the Fund and will not reduce the stated consideration to
be paid to tendering shareholders.

Subject to its investment limitations, the Fund may borrow to finance the
repurchase of shares or to make a tender offer. Interest on any borrowings to
finance share repurchase transactions or the accumulation of cash by the Fund in
anticipation of share repurchases or tenders will increase the Fund's expenses

and reduce the Fund's net income. Any share repurchase, tender offer or
borrowing that might be approved by the Trustees would have to comply with the
Securities Exchange Act of 1934, as amended, and the 1940 Act and the rules and
regulations thereunder.

Although the decision to take action in response to a discount from NAV
will be made by the Trustees at the time they consider such issue, it is the
Trustees' present policy, which may be changed by the Trustees, not to authorize
repurchases of Common Shares or a tender offer for such shares if (1) such
transactions, if consummated, would (a) result in the delisting of the Common
Shares from the NYSE, or (b) impair status as a registered closed-end investment
company under the 1940 Act; (2) the Fund would not be able to liquidate
portfolio securities in an orderly manner and consistent with the Fund's
investment objective and policies in order to repurchase shares; or (3) there
is, in the Board of Trustees' judgment, any (a) material legal action or
proceeding instituted or threatened challenging such transactions or otherwise
materially adversely affecting the Fund, (b) general suspension of or limitation
on prices for trading securities on the NYSE, (c) declaration of a banking
moratorium by Federal or state authorities or any suspension of payment by
United States or state banks in which the Fund invests, (d) material limitation
affecting the Fund or the issuers of its portfolio securities by Federal or
state authorities on the extension of credit by lending institutions or on the
exchange of non-U.S. currency, (e) commencement of war, armed hostilities or
other international or national calamity directly or indirectly involving the
United States, or (f) other event or condition which would have a material
adverse effect (including any adverse tax effect) on the Fund or its
shareholders if shares were repurchased. The Trustees may in the future modify
these conditions in light of experience with respect to the Fund.

Conversion to an open-end company would require the approval of the
holders of at least two-thirds of the Fund's shares outstanding and entitled to
vote; provided, however, that unless otherwise provided by law, if there are
Preferred Shares outstanding, the affirmative vote of two-thirds of the
Preferred Shares voting as a separate class shall be required; provided,
however, that such votes shall be by the affirmative vote of the majority of the
outstanding voting securities, as defined in the 1940 Act, if the action in
question was previously approved by the affirmative vote of two-thirds of the
Trustees. Such affirmative vote or consent shall be in addition to the vote or
consent of the holders of the shares otherwise required by law or by the terms
of any class or series of Preferred Shares, whether now or hereafter authorized,
or any agreement between the Fund and any national securities exchange. See the
Prospectus under "Closed-End Fund Structure" for a discussion of voting
requirements applicable to conversion of the Fund to an open-end company. If the
Fund converted to an open-end company, the Fund's Common Shares would no longer
be listed on the NYSE. Any Preferred Shares would need to be redeemed and any
Borrowings may need to be repaid upon conversion to an open-end investment
company. Additionally, the 1940 Act imposes limitations on open-end funds'
investments in illiquid securities, which could restrict the Fund's ability to
invest in certain securities discussed in the Prospectus to the extent discussed
therein. Such limitations could adversely affect distributions to the Fund's
Common Shareholders in the event of conversion to an open-end fund. Shareholders
of an open-end investment company may require the company to redeem their shares
on any business day (except in certain circumstances as authorized by or under
the 1940 Act) at their NAV, less such redemption charge, if any, as might be in

effect at the time of redemption. In order to avoid maintaining large cash
positions or liquidating favorable investments to meet redemptions, open-end
companies typically engage in a continuous offering of their shares. Open-end
companies are thus subject to periodic asset in-flows and out-flows that can
complicate portfolio management. The Trustees may at any time propose conversion
of the Fund to an open-end company depending upon their judgment as to the
advisability of such action in light of circumstances then prevailing.

The repurchase by the Fund of its shares at prices below NAV will result
in an increase in the NAV of those shares that remain outstanding. However,
there can be no assurance that share repurchases or tenders at or below NAV will
result in the Fund's shares trading at a price equal to their NAV. Nevertheless,
the fact that the Fund's shares may be the subject of repurchase or tender
offers from time to time may reduce any spread between market price and NAV that
might otherwise exist.

In addition, a purchase by the Fund of its Common Shares will decrease the
Fund's Managed Assets which would likely have the effect of increasing the
Fund's expense ratio.

NET ASSET VALUE

The NAV of the Common Shares of the Fund is computed based upon the value
of the Fund's portfolio securities and other assets. The NAV is determined daily
as of the close of regular session trading on the NYSE (normally 4:00 p.m.
eastern time). U.S. debt securities will normally be priced using data
reflecting the earlier closing of the principal markets for those securities.
The Fund calculates NAV per Common Share by subtracting the Fund's liabilities
(including accrued expenses, dividends payable, any Borrowings of the Fund,
liabilities under reverse repurchase agreements and [THE MARKET VALUE OF WRITTEN
CALL OPTIONS]) and the liquidation value of any outstanding Preferred Shares
from the Fund's Managed Assets (the value of the securities and other
investments the Fund holds plus cash or other assets, including interest accrued
but not yet received and [OPTION PREMIUMS]) and dividing the result by the total
number of Common Shares outstanding.

The assets in the Fund's portfolio are valued daily in accordance with
Valuation Procedures (as defined below) adopted by the Trustees. The Sub-Advisor
anticipates that a majority of the Fund's assets will be valued using market
information supplied by third parties. In the event that market quotations are
not readily available, the pricing service does not provide a valuation for a
particular asset (as is the case for unlisted investments), or the valuations
are deemed unreliable, or if events occurring after the close of the principal
markets for particular securities (e.g., U.S. debt securities), but before the
Fund values its assets, would materially affect NAV, the Fund may use a fair
value method in good faith to value the Fund's securities and investments. The
use of fair value pricing by the Fund is governed by Valuation Procedures
adopted by the Trustees, and in accordance with the provisions of the 1940 Act.

For purposes of determining the NAV of the Fund, readily marketable
portfolio securities listed on any U.S. exchange other than The Nasdaq Stock
Market ("Nasdaq") are valued, except as indicated below, at the last sale price
on the business day as of which such value is being determined. If there has
been no sale on such day, the securities are valued at the mean of the most

recent bid and asked prices on such day. Securities admitted to trade on Nasdaq
are valued at the Nasdaq Official Closing Price as determined by Nasdaq.
Portfolio securities traded on more than one securities exchange are valued at
the last sale price on the business day as of which such value is being
determined at the close of the exchange representing the principal market for
such securities.

Equity securities traded in the over-the-counter market, but excluding
securities admitted to trading on Nasdaq, are valued at the closing bid prices.
Debt securities with a remaining maturity of 60 days or more will be valued by
the Fund using a pricing service. When price quotes are not available, fair
market value is based on prices of comparable securities. Debt securities
maturing within 60 days are valued by the Fund on an amortized cost basis.
Non-U.S. securities, currencies and other assets denominated in non-U.S.
currencies are translated into U.S. dollars at the exchange rate of such
currencies against the U.S. dollar as provided by a pricing service. All assets
denominated in non-U.S. currencies will be converted into U.S. dollars at the
exchange rates in effect at the time of valuation.

Any derivative transaction that the Fund enters into may, depending on the
applicable market environment, have a positive or negative value for purposes of
calculating NAV. Any option transaction that the Fund enters into may, depending
on the applicable market environment, have no value or a positive value.
Exchange traded options and futures contracts are valued at the closing price in
the market where such contracts are principally traded.

The value of any portfolio security held by the Fund for which reliable
market quotations are not readily available, including illiquid securities, or
if a valuation is deemed inappropriate, will be determined under procedures
adopted by the Board of Trustees in a manner that reflects fair market value of
the security on the valuation date.

Foreign Listed Securities. Foreign exchange-listed securities will
generally be valued using information provided by an independent third party
pricing service. If the pricing service cannot or does not provide a valuation
for a particular foreign listed security or such valuation is deemed unreliable,
the Board of Trustees or its designee may value such security at a fair value as
determined in good faith under procedures established by the Board of Trustees,
and in accordance with the provisions of the 1940 Act.

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

o the fundamental business data relating to the issuer;

o an evaluation of the forces which influence the market in which the
securities of the issuer are purchased and sold;

o the type, size and cost of the security;

o the financial statements of the issuer;

o the credit quality and cash flow of the issuer, based on the
Sub-Advisor's or external analysis;

o the information as to any transactions in or offers for the security;

o the price and extent of public trading in similar securities (or equity
securities) of the issuer, or comparable companies;

o the coupon payments;

o the quality, value and saleability of collateral, if any, securing the
security;

o the business prospects of the issuer, including any ability to obtain
money or resources from a parent or affiliate and an assessment of the
issuer's management;

o the prospects for the issuer's industry, and multiples (of earnings
and/or cash flow) being paid for similar businesses in that industry;

o the issuer's competitive position within the industry;

o the issuer's ability to access additional liquidity through public and
private markets; and

o other relevant factors.

If the Board of Trustees or its designee cannot obtain a market value or
the Board of Trustees or its designee determines that the value of a security as
so obtained does not represent a fair value as of the valuation time (due to a
significant development subsequent to the time its price is determined or
otherwise), fair value for the security shall be determined pursuant to
methodologies established by the Board of Trustees (the "Valuation Procedures").
The Valuation Procedures provide that direct placements of securities of private
companies (i.e., companies with no outstanding public securities) will be valued
based upon a fair value methodology, which has typically been at cost. The
Valuation Procedures provide that securities that are convertible into publicly
traded securities (i.e., subordinated units) ordinarily will be valued at the
market value of the publicly traded security less a discount equal in amount to
the discount negotiated at the time of purchase. A report of any prices
determined pursuant to such fair value methodologies will be presented to the
Board of Trustees or a designated committee thereof no less frequently than
quarterly.

TAX MATTERS

The following discussion of federal income tax matters is based upon the
advice of Chapman and Cutler LLP, counsel to the Fund.

GENERAL

Set forth below is a discussion of certain U.S. federal income tax issues
concerning the Fund and the purchase, ownership and disposition of Common
Shares. This discussion does not purport to be complete or to deal with all
aspects of federal income taxation that may be relevant to shareholders in light
of their particular circumstances. This discussion also does not address the tax
consequences to shareholders that are subject to special rules, including
without limitation, banks or financial institutions, insurance companies,
dealers in securities, non-U.S. shareholders, tax-exempt or tax-deferred plans,
accounts or entities, shareholders that are subject to the alternative minimum
tax or shareholders that hold their Common Shares as or in a hedge against
currency risk, constructive sale or a conversion transaction. Unless otherwise
noted, this discussion assumes you are a U.S. shareholder and that you hold your
Common Shares as a capital asset. This discussion is based upon present
provisions of the Code, the regulations promulgated thereunder, and judicial and
administrative ruling authorities, all of which are subject to change, which
change may be retroactive. In addition, this discussion does not address state,
local or foreign tax consequences. Prospective investors should consult their
own tax advisors with regard to the federal tax consequences of the purchase,
ownership, or disposition of Common Shares, as well as the tax consequences
arising under the laws of any state, locality, non-U.S. country, or other taxing
jurisdiction.

The Fund intends to qualify annually and to elect to be treated as a
regulated investment company under the Code and to comply with applicable
distribution requirements so that it will not pay federal income tax on income
and capital gains distributed to its shareholders.

Subject to certain exceptions for de minimis failures and reasonable
cause, to qualify for the favorable U.S. federal income tax treatment generally
accorded to regulated investment companies, the Fund must, among other things,
(a) derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stock, securities or foreign currencies or other income
derived with respect to its business of investing in such stock, securities or
currencies; (b) diversify its holdings so that, at the end of each quarter of
the taxable year, (i) at least 50% of the market value of the Fund's assets is
represented by cash and cash items (including receivables), U.S. Government
securities, the securities of other regulated investment companies and other
securities, with such other securities of any one issuer generally limited for
the purposes of this calculation to an amount not greater than 5% of the value
of the Fund's total assets and not greater than 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets is invested in the securities (other than U.S. Government securities or
the securities of other regulated investment companies) of any one issuer, or
two or more issuers which the Fund controls and are engaged in the same, similar
or related trades or businesses; and (c) distribute at least 90% of its
investment company taxable income (which includes, among other items, dividends,
interest and net short-term capital gains in excess of net long-term capital
losses) and at least 90% of its net tax-exempt interest income each taxable
year.

As a regulated investment company, the Fund generally will not be subject
to U.S. federal income tax on its investment company taxable income (as that
term is defined in the Code, but without regard to the deduction for dividends
paid) and net capital gain (the excess of net long-term capital gain over net

short-term capital loss), if any, that it distributes to shareholders. The Fund
intends to distribute to its shareholders, at least annually, substantially all
of its investment company taxable income and net capital gain. If the Fund
retains any net capital gain or investment company taxable income, it will
generally be subject to federal income tax at regular corporate rates on the
amount retained. In addition, amounts not distributed on a timely basis in
accordance with a calendar year distribution requirement are subject to a
nondeductible 4% excise tax unless, generally, the Fund distributes during each
calendar year an amount equal to the sum of (1) at least 98% of its ordinary
income (not taking into account any capital gains or losses) for the calendar
year, (2) at least 98.2% of its capital gains in excess of its capital losses
(adjusted for certain ordinary losses) for the one-year period ending October 31
of the calendar year, and (3) any ordinary income and capital gains for previous
years that were not distributed during those years. To prevent application of
the excise tax, the Fund intends to make its distributions in accordance with
the calendar year distribution requirement. A distribution will be treated as
paid on December 31 of the current calendar year if it is declared by the Fund
in October, November or December with a record date in such a month and paid by
the Fund during January of the following calendar year. These distributions will
be taxable to shareholders in the calendar year in which the distributions are
declared, rather than the calendar year in which the distributions are received.

If the Fund failed to qualify as a regulated investment company or failed
to satisfy the 90% distribution requirement in any taxable year, the Fund would
be taxed as an ordinary corporation on its taxable income (even if such income
were distributed to its shareholders) and all distributions out of earnings and
profits would be taxed to shareholders as ordinary income.

DISTRIBUTIONS

Dividends paid out of the Fund's investment company taxable income
generally are taxable to a shareholder as ordinary income to the extent of the
Fund's earnings and profits, whether paid in cash or reinvested in additional
shares. If the Fund holds equity securities, certain ordinary income
distributions received from the Fund may be taxed at lower tax rates. In
particular, a portion of the ordinary income dividends received by an individual
shareholder from a regulated investment company such as the Fund are generally
taxed at the same rates that apply to net capital gain (as discussed below),
provided certain holding period requirements are satisfied and provided the
dividends are attributable to qualified dividends received by the Fund itself.
Dividends received by the Fund from foreign corporations are qualified dividends
eligible for this lower tax rate only in certain circumstances.

Distributions of net capital gain (the excess of net long-term capital
gain over net short-term capital loss), if any, properly designated as capital
gain dividends are taxable to a shareholder as long-term capital gains,
regardless of how long the shareholder has held Common Shares. Shareholders
receiving distributions in the form of additional Common Shares, rather than
cash, generally will have a cost basis in each such Common Share equal to the
value of a Common Share of the Fund on the reinvestment date. A distribution of
an amount in excess of the Fund's current and accumulated earnings and profits
will be treated by a shareholder as a return of capital which is applied against
and reduces the shareholder's basis in his or her Common Shares. To the extent
that the amount of any distribution exceeds the shareholder's basis in his or

her Common Shares, the excess will be treated by the shareholder as gain from a
sale or exchange of the Common Shares.

Shareholders will be notified annually as to the U.S. federal tax status
of distributions, and shareholders receiving distributions in the form of
additional Common Shares will receive a report as to the value of those Common
Shares.

DIVIDENDS RECEIVED DEDUCTION

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

SALE OR EXCHANGE OF FUND SHARES

Upon the sale or other disposition of Common Shares, which a shareholder
holds as a capital asset, a shareholder may realize a capital gain or loss which
will be long-term or short-term, depending upon the shareholder's holding period
for the Common Shares. Generally, a shareholder's gain or loss will be a
long-term gain or loss if the Common Shares have been held for more than one
year. If you are an individual, the maximum marginal federal rate for net
capital gains is generally 20% (0% for certain taxpayers in the 10%
or 15% brackets).

Any loss realized on a sale or exchange will be disallowed to the extent
that Common Shares disposed of are replaced (including through reinvestment of
dividends) within a period of 61 days beginning 30 days before and ending 30
days after disposition of Common Shares or to the extent that the shareholder,
during such period, acquires or enters into an option or contract to acquire,
substantially identical stock or securities. In this case, the basis of the
shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized by a shareholder on a disposition of Common Shares held by the
shareholder for six months or less will be treated as a long-term capital loss
to the extent of any distributions of net capital gain received by the
shareholder with respect to the Common Shares.

The information statement you receive in regard to the sale or redemption
of your Common Shares may contain information about your basis in the Common
Shares and whether any gain or loss recognized by you should be considered
long-term or short-term capital gain. The information reported to you is based
upon rules that do not take into consideration all facts that may be known to
you or your advisors. You should consult with your tax advisors about any
adjustments that may need to be made to the information reported to you.

MEDICARE TAX

Under the "Health Care and Education Reconciliation Act of 2010," income
from the Fund may also be subject to a new 3.8 percent "medicare tax" imposed

for taxable years beginning after 2012. This tax will generally apply to the net
investment income of individual investors if your adjusted gross income exceeds
certain threshold amounts, which are $250,000 in the case of married couples
filing joint returns and $200,000 in the case of single individuals.

NATURE OF THE FUND'S INVESTMENTS

Certain of the Fund's investment practices may be subject to special and
complex federal income tax provisions that may, among other things, (1)
disallow, suspend or otherwise limit the allowance of certain losses or
deductions, (2) convert lower taxed long-term capital gain into higher taxed
short-term capital or ordinary income, (3) convert an ordinary loss or a
deduction into a capital loss (the deductibility of which is more limited), (4)
cause the Fund to recognize income or gain without a corresponding receipt of
cash, (5) adversely affect the time as to when a purchase or sale of stock or
securities is deemed to occur and (6) adversely alter the characterization of
certain complex financial transactions. The Fund will monitor its transactions,
will make the appropriate tax elections and take appropriate actions in order to
mitigate the effect of these rules and prevent disqualification of the Fund from
being taxed as a regulated investment company (including disposing of certain
investments to generate cash or borrowing cash to satisfy its distribution
requirements).

INVESTMENTS IN CERTAIN FOREIGN CORPORATIONS

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

BACKUP WITHHOLDING

The Fund may be required to withhold U.S. federal income tax from all
taxable distributions and sale proceeds payable to shareholders who fail to
provide the Fund with their correct taxpayer identification number or to make

required certifications, or who have been notified by the Internal Revenue
Service that they are subject to backup withholding. The withholding percentage
is 28%. Corporate shareholders and certain other shareholders specified in the
Code generally are exempt from backup withholding. This withholding is not an
additional tax. Any amounts withheld may be credited against the shareholder's
U.S. federal income tax liability.

FOREIGN INVESTORS

If you are a foreign investor (i.e., investor other than a U.S. citizen or
resident or a U.S. corporation, partnership, estate or fund), you should be
aware that, generally, subject to applicable tax treaties, distributions from
the Fund will be characterized as dividends for federal income tax purposes
(other than dividends which the Fund designates as capital gain dividends) and
will be subject to U.S. federal income taxes, including withholding taxes,
subject to certain exceptions described below. However, distributions received
by a foreign investor from the Fund that are properly designated by the Fund as
capital gain dividends may not be subject to U.S. federal income taxes,
including withholding taxes, provided that the Fund makes certain elections and
certain other conditions are met. There can be no assurance as to what portion,
if any, of the Fund's distributions will constitute interest related dividends
or short-term capital gain dividends. Foreign investors should consult their tax
advisors with respect to U.S. tax consequences of ownership of Common Shares.

In addition, distributions after December 31, 2013 may be subject to a
U.S. withholding tax of 30% in the case of distributions to (i) certain non-U.S.
financial institutions that have not entered into an agreement with the U.S.
Treasury to collect and disclose certain information and are not resident in a
jurisdiction that has entered into such an agreement, and (ii) certain other
non-U.S. entities that do not provide certain certifications and information
about the entity's U.S. owners. Dispositions of Common Shares may be subject to
withholding after December 31, 2016, under similar requirements.

PERFORMANCE RELATED AND COMPARATIVE INFORMATION

The Fund may quote certain performance-related information and may compare
certain aspects of its portfolio and structure to other substantially similar
closed-end funds. In reports or other communications to shareholders of the Fund
or in advertising materials, the Fund may compare its performance with that of
(1) other investment companies listed in the rankings prepared by Lipper, Inc.
("Lipper"), Morningstar Inc. or other independent services; publications such as
Barrons, Business Week, Forbes, Fortune, Institutional Investor, Kiplinger's
Personal Finance, Money, Morningstar Mutual Fund Values, The New York Times, The
Wall Street Journal and USA Today; or other industry or financial publications
or (2) the Standard & Poor's Index of 500 Stocks, the Dow Jones Industrial
Average, NASDAQ Composite Index and other relevant indices and industry
publications. Comparison of the Fund to an alternative investment should be made
with consideration of differences in features and expected performance. The Fund
may obtain data from sources or reporting services, such as Bloomberg Financial
and Lipper, that the Fund believes to be generally accurate.

From time to time, the Fund may quote the Fund's total return, aggregate
total return or yield in advertisements or in reports and other communications
to shareholders. The Fund's performance will vary depending upon market
conditions, the composition of its portfolio and its operating expenses.
Consequently any given performance quotation should not be considered
representative of the Fund's performance in the future. In addition, because
performance will fluctuate, it may not provide a basis for comparing an
investment in the Fund with certain bank deposits or other investments that pay
a fixed yield for a stated period of time. Investors comparing the Fund's
performance with that of other investment companies should give consideration to
the quality and type of the respective investment companies' portfolio
securities.

The Fund's "average annual total return" is computed according to a
formula prescribed by the SEC. The formula can be expressed as follows:

Average Annual Total Return will be computed as follows:

ERV = P(1+T)/n/

Where P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the 1-, 5-, or 10-year periods at the end of
the 1-, 5-, or 10-year periods (or fractional portion).

The Fund may also quote after-tax total returns to show the impact of
assumed federal income taxes on an investment in the Fund. The Fund's total
return "after taxes on distributions" shows the effect of taxable distributions,
but not any taxable gain or loss, on an investment in shares of the Fund for a
specified period of time. The Fund's total return "after taxes on distributions
and sale of Fund shares" shows the effect of both taxable distributions and any
taxable gain or loss realized by the shareholder upon the sale of Fund shares at
the end of a specified period. To determine these figures, all income,
short-term capital gain distributions, and long-term capital gains distributions
are assumed to have been taxed at the highest marginal individualized federal
tax rate then in effect. Those maximum tax rates are applied to distributions
prior to reinvestment and the after-tax portion is assumed to have been
reinvested in the Fund. State and local taxes are ignored.

Actual after-tax returns depend on a shareholder's tax situation and may
differ from those shown. After-tax returns reflect past tax effects and are not
predictive of future tax effects.

Average Annual Total Return (After Taxes on Distributions) will be
computed as follows:

ATV/D/ = P(1+T)/n/

Where: P = a hypothetical initial investment of $1,000
T = average annual total return (after taxes on distributions)
n = number of years
ATV/D/ = ending value of a hypothetical $1,000 investment made at the
beginning of the period, at the end of the period (or
fractional portion thereof), after taxes on fund distributions
but not after taxes on redemptions.

Average Annual Total Return (After Taxes on Distributions and Sale of Fund
Shares) will be computed as follows:

ATV/DR/ = P(1+T)/n/

Where: P = a hypothetical initial investment of $1,000
T = average annual total return (after taxes on distributions and
redemption)
n = number of years
ATV/DR/ = ending value of a hypothetical $1,000 investment made at the
beginning periods, at the end of the periods (or fractional
portion thereof), after taxes on fund distributions and
redemptions.

Quotations of yield for the Fund will be based on all investment income
per share earned during a particular 30-day period (including dividends and
interest), less expenses accrued during the period ("net investment income") and
are computed by dividing net investment income by the maximum offering price per
share on the last day of the period, according to the following formula:

Yield = 2 [( a-b/cd +1)/6/ - 1]

Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share on the last day of the
period

Past performance is not indicative of future results. At the time
shareholders sell their shares, they may be worth more or less than their
original investment.

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Statement of Assets and Liabilities of the Fund as of , 2013,
appearing in this Statement of Additional Information has been audited by ,
an independent registered public accounting firm, as stated in their report
appearing herein, and is included in reliance upon the report of such firm given

upon their authority as experts in accounting and auditing. audits and
reports on the Fund's annual financial statements, and performs other
professional accounting, auditing and advisory services when engaged to do so by
the Fund. The principal business address of .

CUSTODIAN, ADMINISTRATOR AND TRANSFER AGENT

The Bank of New York Mellon, One Wall Street, New York, New York 10286
serves as custodian for the Fund. As such, The Bank of New York Mellon has
custody of all securities and cash of the Fund and attends to the collection of
principal and income and payment for and collection of proceeds of securities
bought and sold by the Fund. BNY Mellon Investment Servicing (US) Inc., 301
Bellevue Parkway, Wilmington, Delaware 19809, is the transfer agent, registrar,
dividend disbursing agent and shareholder servicing agent for the Fund and
provides certain clerical, bookkeeping, shareholder servicing and administrative
services necessary for the operation of the Fund and maintenance of shareholder
accounts. BNY Mellon Investment Servicing (US) Inc. also provides certain
accounting and administrative services to the Fund pursuant to an Administration
and Accounting Services Agreement, including maintaining the Fund's books of
account, records of the Fund's securities transactions, and certain other books
and records; acting as liaison with the Fund's independent registered public
accounting firm and providing the independent registered public accounting firm
with certain Fund accounting information; and providing other continuous
accounting and administrative services.

ADDITIONAL INFORMATION

A Registration Statement on Form N-2, including amendments thereto,
relating to the shares of the Fund offered hereby, has been filed by the Fund
with the SEC. The Fund's Prospectus and this Statement of Additional Information
do not contain all of the information set forth in the Registration Statement,
including any exhibits and schedules thereto. For further information with
respect to the Fund and the shares offered hereby, reference is made to the
Fund's Registration Statement. Statements contained in the Fund's Prospectus and
this Statement of Additional Information as to the contents of any contract or
other document referred to are not necessarily complete and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. Copies of the Registration Statement may be
inspected without charge at the SEC's principal office in Washington, D.C., and
copies of all or any part thereof may be obtained from the SEC upon the payment
of certain fees prescribed by the SEC.

[REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM]

FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND

[STATEMENT OF ASSETS AND LIABILITIES]

FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND

COMMON SHARES

STATEMENT OF ADDITIONAL INFORMATION

, 2013

APPENDIX A
RATINGS OF INVESTMENTS

STANDARD & POOR'S RATINGS GROUP -- A BRIEF DESCRIPTION OF CERTAIN STANDARD
& POOR'S RATINGS GROUP, A DIVISION OF THE MCGRAW-HILL COMPANIES ("STANDARD &
POOR'S" OR "S&P") RATING SYMBOLS AND THEIR MEANINGS (AS PUBLISHED BY S&P)
FOLLOWS:

A Standard & Poor's issue credit rating is a forward-looking opinion about
the creditworthiness of an obligor with respect to a specific financial
obligation, a specific class of financial obligations, or a specific financial
program (including ratings on medium-term note programs and commercial paper
programs). It takes into consideration the creditworthiness of guarantors,
insurers, or other forms of credit enhancement on the obligation and takes into
account the currency in which the obligation is denominated. The opinion
reflects Standard & Poor's view of the obligor's capacity and willingness to
meet its financial commitments as they become due, and may assess terms, such as
collateral security and subordination, which could affect ultimate payment in
the event of default.

Issue credit ratings can be either long term or short term. Short-term
ratings are generally assigned to those obligations considered short-term in the
relevant market. In the U.S., for example, that means obligations with an
original maturity of no more than 365 days--including commercial paper.
Short-term ratings are also used to indicate the creditworthiness of an obligor
with respect to put features on long-term obligations. The result is a dual
rating, in which the short-term rating addresses the put feature, in addition to
the usual long-term rating. Medium-term notes are assigned long-term ratings.

LONG-TERM ISSUE CREDIT RATINGS

Issue credit ratings are based, in varying degrees, on Standard & Poor's
analysis of the following considerations:

o Likelihood of payment--capacity and willingness of the obligor to meet
its financial commitment on an obligation in accordance with the terms
of the obligation;

o Nature of and provisions of the obligation; and

o Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the
laws of bankruptcy and other laws affecting creditors' rights.

Issue ratings are an assessment of default risk, but may incorporate an
assessment of relative seniority or ultimate recovery in the event of default.
Junior obligations are typically rated lower than senior obligations, to reflect
the lower priority in bankruptcy as noted above. (Such differentiation may apply
when an entity has both senior and subordinated obligations, secured and
unsecured obligations, or operating company and holding company obligations.)

A-1

AAA

An obligation rated 'AAA' has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.

An obligation rated 'AA' differs from the highest-rated obligations only
to a small degree. The obligor's capacity to meet its financial commitment on
the obligation is very strong.

An obligation rated 'A' is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.

BBB

An obligation rated 'BBB' exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.

BB, B, CCC, CC, AND C

Obligations rated 'BB', 'B', 'CCC', 'CC', and 'C' are regarded as having
significant speculative characteristics. 'BB' indicates the least degree of
speculation and 'C' the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.

An obligation rated 'BB' is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions, which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.

An obligation rated 'B' is more vulnerable to nonpayment than obligations
rated 'BB', but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.

A-2

CCC

An obligation rated 'CCC' is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.

An obligation rated 'CC' is currently highly vulnerable to nonpayment.

A 'C' rating is assigned to obligations that are currently highly
vulnerable to nonpayment, obligations that have payment arrearages allowed by
the terms of the documents, or obligations of an issuer that is the subject of a
bankruptcy petition or similar action which have not experienced a payment
default. Among others, the 'C' rating may be assigned to subordinated debt,
preferred stock or other obligations on which cash payments have been suspended
in accordance with the instrument's terms or when preferred stock is the subject
of a distressed exchange offer, whereby some or all of the issue is either
repurchased for an amount of cash or replaced by other instruments having a
total value that is less than par.

An obligation rated 'D' is in payment default. The 'D' rating category is
used when payments on an obligation, including a regulatory capital instrument,
are not made on the date due even if the applicable grace period has not
expired, unless Standard & Poor's believes that such payments will be made
during such grace period. The 'D' rating also will be used upon the filing of a
bankruptcy petition or the taking of similar action if payments on an obligation
are jeopardized. An obligation's rating is lowered to 'D' upon completion of a
distressed exchange offer, whereby some or all of the issue is either
repurchased for an amount of cash or replaced by other instruments having a
total value that is less than par.

PLUS (+) OR MINUS (-)

The ratings from 'AA' to 'CCC' may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within the major rating
categories.

This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular obligation as a matter of policy.

A-3

SHORT-TERM ISSUE CREDIT RATINGS

A-1

A short-term obligation rated 'A-1' is rated in the highest category by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is strong. Within this category, certain obligations are
designated with a plus sign (+). This indicates that the obligor's capacity to
meet its financial commitment on these obligations is extremely strong.

A-2

A short-term obligation rated 'A-2' is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.

A-3

A short-term obligation rated 'A-3' exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.

A short-term obligation rated 'B' is regarded as having significant
speculative characteristics. Ratings of 'B-1', 'B-2', and 'B-3' may be assigned
to indicate finer distinctions within the 'B' category. The obligor currently
has the capacity to meet its financial commitment on the obligation; however, it
faces major ongoing uncertainties which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.

B-1

A short-term obligation rated 'B-1' is regarded as having significant
speculative characteristics, but the obligor has a relatively stronger capacity
to meet its financial commitments over the short-term compared to other
speculative-grade obligors.

B-2

A short-term obligation rated 'B-2' is regarded as having significant
speculative characteristics, and the obligor has an average speculative-grade
capacity to meet its financial commitments over the short-term compared to other
speculative-grade obligors.

A-4

B-3

A short-term obligation rated 'B-3' is regarded as having significant
speculative characteristics, and the obligor has a relatively weaker capacity to
meet its financial commitments over the short-term compared to other
speculative-grade obligors.

C
A short-term obligation rated 'C' is currently vulnerable to nonpayment
and is dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation.

A short-term obligation rated 'D' is in payment default. The 'D' rating
category is used when payments on an obligation, including a regulatory capital
instrument, are not made on the date due even if the applicable grace period has
not expired, unless Standard & Poor's believes that such payments will be made
during such grace period. The 'D' rating also will be used upon the filing of a
bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.

SPUR (STANDARD & POOR'S UNDERLYING RATING)

This is a rating of a stand-alone capacity of an issue to pay debt service
on a credit-enhanced debt issue, without giving effect to the enhancement that
applies to it. These ratings are published only at the request of the debt
issuer/obligor with the designation SPUR to distinguish them from the
credit-enhanced rating that applies to the debt issue. Standard & Poor's
maintains surveillance of an issue with a published SPUR.

MUNICIPAL SHORT-TERM NOTE RATINGS DEFINITIONS

A Standard & Poor's U.S. municipal note rating reflects Standard & Poor's
opinion about the liquidity factors and market access risks unique to the notes.
Notes due in three years or less will likely receive a note rating. Notes with
an original maturity of more than three years will most likely receive a
long-term debt rating. In determining which type of rating, if any, to assign,
Standard & Poor's analysis will review the following considerations:

o Amortization schedule--the larger the final maturity relative to other
maturities, the more likely it will be treated as a note; and

o Source of payment--the more dependent the issue is on the market for
its refinancing, the more likely it will be treated as a note.

A-5

Note rating symbols are as follows:

SP-1

Strong capacity to pay principal and interest. An issue determined to
possess a very strong capacity to pay debt service is given a plus (+)
designation.

SP-2

Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.

SP-3

Speculative capacity to pay principal and interest.

DUAL RATINGS

Standard and Poor's assigns "dual" ratings to all debt issues that have a
put option or demand feature as part of their structure. The first rating
addresses the likelihood of repayment of principal and interest as due, and the
second rating addresses only the demand feature. The long-term rating symbols
are used for bonds to denote the long-term maturity and the short-term rating
symbols for the put option (for example, 'AAA/A-1+'). With U.S. municipal
short-term demand debt, note rating symbols are used with the short-term issue
credit rating symbols (for example, 'SP-1+/A-1+').

ACTIVE QUALIFIERS (CURRENTLY APPLIED AND/OR OUTSTANDING)

This subscript is used for issues in which the credit factors, terms, or
both, that determine the likelihood of receipt of payment of interest are
different from the credit factors, terms or both that determine the likelihood
of receipt of principal on the obligation. The 'i' subscript indicates that the
rating addresses the interest portion of the obligation only. The 'i' subscript
will always be used in conjunction with the 'p' subscript, which addresses the
likelihood of receipt of principal. For example, a rated obligation could be
assigned ratings of 'AAAp NRi' indicating that the principal portion is rated
'AAA' and the interest portion of the obligation is not rated.

Ratings qualified with 'L' apply only to amounts invested up to federal
deposit insurance limits.

A-6

This subscript is used for issues in which the credit factors, the terms,
or both, that determine the likelihood of receipt of payment of principal are
different from the credit factors, terms or both that determine the likelihood
of receipt of interest on the obligation. The 'p' subscript indicates that the
rating addresses the principal portion of the obligation only. The 'p' subscript
will always be used in conjunction with the 'i' subscript, which addresses
likelihood of receipt of interest. For example, a rated obligation could be
assigned ratings of 'AAAp NRi' indicating that the principal portion is rated
'AAA' and the interest portion of the obligation is not rated.

Ratings with a 'pi' subscript are based on an analysis of an issuer's
published financial information, as well as additional information in the public
domain. They do not, however, reflect in-depth meetings with an issuer's
management and therefore may be based on less comprehensive information than
ratings without a 'pi' subscript. Ratings with a 'pi' subscript are reviewed
annually based on a new year's financial statement, but may be reviewed on an
interim basis if a major event occurs that may affect the issuer's credit
quality.

PRELIMINARY

Preliminary ratings, with the 'prelim' qualifier, may be assigned to
obligors or obligations, including financial programs, in the circumstances
described below. Assignment of a final rating is conditional on the receipt by
Standard & Poor's of appropriate documentation. Standard & Poor's reserves the
right not to issue a final rating. Moreover, if a final rating is issued, it may
differ from the preliminary rating.

o Preliminary ratings may be assigned to obligations, most commonly
structured and project finance issues, pending receipt of final
documentation and legal opinions.

o Preliminary ratings are assigned to Rule 415 Shelf Registrations. As
specific issues, with defined terms, are offered from the master
registration, a final rating may be assigned to them in accordance with
Standard & Poor's policies.

o Preliminary ratings may be assigned to obligations that will likely be
issued upon the obligor's emergence from bankruptcy or similar
reorganization, based on late-stage reorganization plans, documentation
and discussions with the obligor. Preliminary ratings may also be
assigned to the obligors. These ratings consider the anticipated
general credit quality of the reorganized or postbankruptcy issuer as
well as attributes of the anticipated obligation(s).

o Preliminary ratings may be assigned to entities that are being formed
or that are in the process of being independently established when, in
Standard & Poor's opinion, documentation is close to final. Preliminary
ratings may also be assigned to these entities' obligations.

A-7

o Preliminary ratings may be assigned when a previously unrated entity is
undergoing a well-formulated restructuring, recapitalization,
significant financing or other transformative event, generally at the
point that investor or lender commitments are invited. The preliminary
rating may be assigned to the entity and to its proposed obligation(s).
These preliminary ratings consider the anticipated general credit
quality of the obligor, as well as attributes of the anticipated
obligation(s) assuming successful completion of the transformative
event. Should the transformative event not occur, Standard & Poor's
would likely withdraw these preliminary ratings.

o A preliminary recovery rating may be assigned to an obligation that has
a preliminary issue credit rating.

The (sf) subscript is assigned to all issues and issuers to which a
regulation, such as the European Union Regulation on Credit Rating Agencies,
requires the assignment of an additional symbol which distinguishes a structured
finance instrument or obligor (as defined in the regulation) from any other
instrument or obligor. The addition of this subscript to a credit rating does
not change the definition of that rating or our opinion about the issue's or
issuer's creditworthiness.

This symbol indicates termination structures that are designed to honor
their contracts to full maturity or, should certain events occur, to terminate
and cash settle all of their contracts before their final maturity date.

UNSOLICITED

Unsolicited ratings are those credit ratings assigned at the initiative of
Standard & Poor's and not at the request of the issuer or its agents.

INACTIVE QUALIFIERS (NO LONGER APPLIED OR OUTSTANDING)

This symbol indicated continuance of the ratings is contingent upon
Standard & Poor's receipt of an executed copy of the escrow agreement or closing
documentation confirming investments and cash flows. Discontinued use in August
1998.

This qualifier was used to provide additional information to investors
that the bank may terminate its obligation to purchase tendered bonds if the

A-8

long-term credit rating of the issuer is below an investment-grade level and/or
the issuer's bonds are deemed taxable. Discontinued use in January 2001.

The letters 'pr' indicate that the rating is provisional. A provisional
rating assumes the successful completion of the project financed by the debt
being rated and indicates that payment of debt service requirements is largely
or entirely dependent upon the successful, timely completion of the project.
This rating, however, while addressing credit quality subsequent to completion
of the project, makes no comment on the likelihood of or the risk of default
upon failure of such completion. The investor should exercise his own judgment
with respect to such likelihood and risk.

A 'q' subscript indicates that the rating is based solely upon
quantitative analysis of publicly available information. Discontinued use in
April 2001.

The 'r' modifier was assigned to securities containing extraordinary
risks, particularly market risks, that are not covered in the credit rating. The
absence of an 'r' modifier should not be taken as an indication that an
obligation will not exhibit extraordinary non-credit related risks. Standard &
Poor's discontinued the use of the 'r' modifier for most obligations in June
2000 and for the balance of the obligations (mainly structured finance
transactions) in November 2002.

MOODY'S INVESTORS SERVICE, INC. -- A BRIEF DESCRIPTION OF CERTAIN MOODY'S
INVESTORS SERVICE, INC. ("MOODY'S") RATING SYMBOLS AND THEIR MEANINGS (AS
PUBLISHED BY MOODY'S) FOLLOWS:

LONG-TERM OBLIGATION RATINGS

Moody's long-term ratings are opinions of the relative credit risk of
financial obligations with an original maturity of one year or more. They
address the possibility that a financial obligation will not be honored as
promised. Such ratings use Moody's Global Scale and reflect both the likelihood
of default and any financial loss suffered in the event of default.

Aaa

Obligations rated Aaa are judged to be of the highest quality, with
minimal credit risk.

Obligations rated Aa are judged to be of high quality and are subject to
very low credit risk.

A-9

Obligations rated A are considered upper-medium grade and are subject to
low credit risk.

Baa

Obligations rated Baa are subject to moderate credit risk. They are
considered medium grade and as such may possess certain speculative
characteristics.

Obligations rated Ba are judged to have speculative elements and are
subject to substantial credit risk.

Obligations rated B are considered speculative and are subject to high
credit risk.

Caa

Obligations rated Caa are judged to be of poor standing and are subject to
very high credit risk.

Obligations rated Ca are highly speculative and are likely in, or very
near, default, with some prospect of recovery of principal and interest.

Obligations rated C are the lowest rated class and are typically in
default with little prospect for recovery of principal or interest.

Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of
that generic rating category.

MEDIUM-TERM NOTE PROGRAM RATINGS

Moody's assigns ratings to medium-term note (MTN) programs and to the
individual debt securities issued from them (referred to as drawdowns or notes).
These ratings may be expressed on Moody's general long-term or short-term rating
sale, depending upon the intended tenor of the notes to be issued under the
program.

A-10

MTN program ratings are intended to reflect the ratings likely to be
assigned to drawdowns issued from the program with the specific priority of
claim (e.g., senior or subordinated). However, the rating assigned to a drawdown
from a rated MTN program may differ from the program if the drawdown is exposed
to additional credit risks besides the issuer's default, such as links to the
defaults of other issuers, or has other structural features that warrant a
different rating. In some circumstances, no rating may be assigned to a
drawdown.

Market participants must determine whether any particular note is rated,
and if so, at what rating level. Moody's encourages market participants to
contact Moody's Ratings Desks or visit www.moody's.com directly if they have
questions regarding ratings for specific notes issued under a medium-term note
program. Unrated notes issued under an MTN program may be assigned an NR (not
rated) symbol.

SHORT-TERM OBLIGATION RATINGS

Moody's short-term ratings are opinions of the ability of issuers to honor
short-term financial obligations. Ratings may be assigned to issuers, short-term
programs or to individual short-term debt instruments. Such obligations
generally have an original maturity not exceeding thirteen months, unless
explicitly noted.

Moody's employs the following designations to indicate the relative
repayment ability of rated issuers:

P-1

Issuers (or supporting institutions) rated Prime-1 have a superior ability
to repay short-term debt obligations.

P-2

Issuers (or supporting institutions) rated Prime-2 have a strong ability
to repay short-term debt obligations.

P-3

Issuers (or supporting institutions) rated Prime-3 have an acceptable
ability to repay short-term obligations.

Issuers (or supporting institutions) rated Not Prime do not fall within
any of the Prime rating categories.

Note: Canadian issuers rated P-1 or P-2 have their short-term ratings enhanced
by the senior-most long-term rating of the issuer, its guarantor or
support-provider.

A-11

U.S. MUNICIPAL SHORT-TERM OBLIGATION RATINGS

There are three rating categories for short-term municipal obligations
that are considered investment grade. These ratings are designated as Municipal
Investment Grade (MIG) and are divided into three levels -- MIG 1 through MIG 3.
In addition, those short-term obligations that are of speculative quality are
designated SG, or speculative grade. MIG ratings expire at the maturity of the
obligation.

MIG 1

This designation denotes superior credit quality. Excellent protection is
afforded by established cash flows, highly reliable liquidity support, or
demonstrated broad-based access to the market for refinancing.

MIG 2

This designation denotes strong credit quality. Margins of protection are
ample, although not as large as in the preceding group.

MIG 3

This designation denotes acceptable credit quality. Liquidity and
cash-flow protection may be narrow, and market access for refinancing is likely
to be less well-established.

This designation denotes speculative-grade credit quality. Debt
instruments in this category may lack sufficient margins of protection.

U.S. MUNICIPAL DEMAND OBLIGATION RATINGS

In the case of variable rate demand obligations (VRDOs), a two-component
rating is assigned; a long or short-term debt rating and a demand obligation
rating. The first element represents Moody's evaluation of the degree of risk
associated with scheduled principal and interest payments. The second element
represents Moody's evaluation of the degree of risk associated with the ability
to receive purchase price upon demand ("demand feature"), using a variation of
the MIG rating scale, the Variable Municipal Investment Grade or VMIG rating.
When either the long- or short-term aspect of a VRDO is not rated, that piece is
designated NR, e.g., Aaa/NR or NR/VMIG 1. VMIG rating expirations are a function
of each issue's specific structural or credit features.

A-12

VMIG 1

This designation denotes superior credit quality. Excellent protection is
afforded by the superior short-term credit strength of the liquidity provider
and structural and legal protections that ensure the timely payment of purchase
price upon demand.

VMIG 2

This designation denotes strong credit quality. Good protection is
afforded by the strong short-term credit strength of the liquidity provider and
structural and legal protections that ensure the timely payment of purchase
price upon demand.

VMIG 3

This designation denotes acceptable credit quality. Adequate protection is
afforded by the satisfactory short-term credit strength of the liquidity
provider and structural and legal protections that ensure the timely payment of
purchase price upon demand.

This designation denotes speculative-grade credit quality. Demand features
rated in this category may supported by a liquidity provider that does not have
an investment grade short-term rating or may lack the structural and/or legal
protections necessary to ensure the timely payment of purchase price upon
demand.

FITCH RATINGS -- A BRIEF DESCRIPTION OF CERTAIN FITCH RATINGS ("FITCH")
RATINGS SYMBOLS AND THEIR MEANINGS (AS PUBLISHED BY FITCH) FOLLOWS:

INTERNATIONAL ISSUER AND CREDIT RATING SCALES

The Primary Credit Rating Scales (those featuring the symbols 'AAA'-'D'
and 'F1'-'D') are used for debt and financial strength ratings.

LONG-TERM RATING SCALES--ISSUER CREDIT RATING SCALES

Rated entities in a number of sectors, including financial and
non-financial corporations, sovereigns and insurance companies, are generally
assigned Issuer Default Ratings (IDRs). IDRs opine on an entity's relative
vulnerability to default on financial obligations. The "threshold" default risk
addressed by the IDR is generally that of the financial obligations whose
non-payment would best reflect the uncured failure of that entity. As such, IDRs
also address relative vulnerability to bankruptcy, administrative receivership
or similar concepts, although the agency recognizes that issuers may also make
pre-emptive and therefore voluntary use of such mechanisms.

A-13

In aggregate, IDRs provide an ordinal ranking of issuers based on the
agency's view of their relative vulnerability to default, rather than a
prediction of a specific percentage likelihood of default.

AAA

Highest credit quality. 'AAA' ratings denote the lowest expectation of
default risk. They are assigned only in cases of exceptionally strong capacity
for payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.

Very high credit quality. 'AA' ratings denote expectations of very low
default risk. They indicate very strong capacity for payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.

High credit quality. 'A' ratings denote expectations of low default risk.
The capacity for payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to adverse business or economic
conditions than is the case for higher ratings.

BBB

Good credit quality. 'BBB' ratings indicate that expectations of default
risk are currently low. The capacity for payment of financial commitments is
considered adequate but adverse business or economic conditions are more likely
to impair this capacity.

Speculative. 'BB' ratings indicate an elevated vulnerability to default
risk, particularly in the event of adverse changes in business or economic
conditions over time; however, business or financial flexibility exists which
supports the servicing of financial commitments.

Highly speculative. 'B' ratings indicate that material default risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued payment is vulnerable to
deterioration in the business and economic environment.

CCC

Substantial credit risk. Default is a real possibility.

A-14

Very high levels of credit risk. Default of some kind appears probable.

Exceptionally high levels of credit risk. Default is imminent or
inevitable, or the issuer is in standstill. Conditions that are indicative of a
'C' category rating of an issuer include:

a. the issuer has entered into a grace or cure period following
non-payment of a material financial obligation;

b. the issuer has entered into a temporary negotiated waiver or
standstill agreement following a payment default on a material financial
obligation; or

c. Fitch Ratings otherwise believes a condition of 'RD' or 'D' to
be imminent or inevitable, including through the formal announcement of a
coercive debt exchange.

Restricted default. 'RD' ratings indicate an issuer that in Fitch Ratings'
opinion has experienced an uncured payment default on a bond, loan or other
material financial obligation but which has not entered into bankruptcy filings,
administration, receivership, liquidation or other formal winding-up procedure,
and which has not otherwise ceased business. This would include:

a. the selective payment default on a specific class or currency
of debt;

b. the uncured expiry of any applicable grace period, cure period
or default forbearance period following a payment default on a bank loan,
capital markets security or other material financial obligation;

c. the extension of multiple waivers or forbearance periods upon a
payment default on one or more material financial obligations, either in
series or in parallel; or

d. execution of a coercive debt exchange on one or more material
financial obligations.

Default. 'D' ratings indicate an issuer that in Fitch Ratings' opinion has
entered into bankruptcy filings, administration, receivership, liquidation or
other formal winding-up procedure, or which has otherwise ceased business.

A-15

Default ratings are not assigned prospectively to entities or their
obligations; within this context, non-payment on an instrument that contains a
deferral feature or grace period will generally not be considered a default
until after the expiration of the deferral or grace period, unless a default is
otherwise driven by bankruptcy or other similar circumstance, or by a coercive
debt exchange.

"Imminent" default typically refers to the occasion where a payment
default has been intimated by the issuer, and is all but inevitable. This may,
for example, be where an issuer has missed a scheduled payment, but (as is
typical) has a grace period during which it may cure the payment default.
Another alternative would be where an issuer has formally announced a coercive
debt exchange, but the date of the exchange still lies several days or weeks in
the immediate future.

In all cases, the assignment of a default rating reflects the agency's
opinion as to the most appropriate rating category consistent with the rest of
its universe of ratings, and may differ from the definition of default under the
terms of an issuer's financial obligations or local commercial practice.

Note: The modifiers "+" or "-" may be appended to a rating to denote relative
status within the major rating categories. Such suffixes are not added to the
'AAA' Long-Term IDR category, or to Long-Term IDR categories below 'B'.

Limitations of the Issuer Credit Rating Scale:

Specific limitations relevant to the issuer credit rating scale include:

o The ratings do not predict a specific percentage of default likelihood
over any given time period.

o The ratings do not opine on the market value of any issuer's securities
or stock, or the likelihood that this value may change.

o The ratings do not opine on the liquidity of the issuer's securities or
stock.

o The ratings do not opine on the possible loss severity on an obligation
should an issuer default.

o The ratings do not opine on the suitability of an issuer as
counterparty to trade credit.

o The ratings do not opine on any quality related to an issuer's
business, operational or financial profile other than the agency's
opinion on its relative vulnerability to default.

Ratings assigned by Fitch Ratings articulate an opinion on discrete and
specific areas of risk. The above list is not exhaustive, and is provided for
the reader's convenience.

A-16

SHORT-TERM RATINGS -- SHORT-TERM RATINGS ASSIGNED TO ISSUERS OR OBLIGATIONS IN
CORPORATE, PUBLIC AND STRUCTURED FINANCE

A short-term issuer or obligation rating is based in all cases on the
short-term vulnerability to default of the rated entity or security stream and
relates to the capacity to meet financial obligations in accordance with the
documentation governing the relevant obligation. Short-Term Ratings are assigned
to obligations whose initial maturity is viewed as "short term" based on market
convention. Typically, this means up to 13 months for corporate, sovereign, and
structured obligations, and up to 36 months for obligations in U.S. public
finance markets.

Highest short-term credit quality. Indicates the strongest intrinsic
capacity for timely payment of financial commitments; may have an added "+" to
denote any exceptionally strong credit feature.

Good short-term credit quality. Good intrinsic capacity for timely payment
of financial commitments.

Fair short-term credit quality. The intrinsic capacity for timely payment
of financial commitments is adequate.

Speculative short-term credit quality. Minimal capacity for timely payment
of financial commitments, plus heightened vulnerability to near term adverse
changes in financial and economic conditions.

C
High short-term default risk. Default is a real possibility.

Restricted default. Indicates an entity that has defaulted on one or more
of its financial commitments, although it continues to meet other financial
obligations. Applicable to entity ratings only.

A-17

Default. Indicates a broad-based default event for an entity, or the
default of a short-term obligation.

Limitations of the Short-Term Ratings Scale:

Specific limitations relevant to the Short-Term Ratings scale include:

o The ratings do not predict a specific percentage of default likelihood
over any given time period.

o The ratings do not opine on the market value of any issuer's securities
or stock, or the likelihood that this value may change.

o The ratings do not opine on the liquidity of the issuer's securities or
stock.

o The ratings do not opine on the possible loss severity on an obligation
should an obligation default.

o The ratings do not opine on any quality related to an issuer or
transaction's profile other than the agency's opinion on the relative
vulnerability to default of the rated issuer or obligation.

Ratings assigned by Fitch Ratings articulate an opinion on discrete and
specific areas of risk. The above list is not exhaustive, and is provided for
the reader's convenience.

ADDITIONAL INFORMATION

'Not Rated' or 'NR': A designation of 'Not Rated' or 'NR' is used to
denote securities not rated by Fitch where Fitch has rated some, but not all,
securities comprising an issuance capital structure.

'Withdrawn': The rating has been withdrawn and the issue or issuer is no
longer rated by Fitch. Indicated in rating databases with the symbol 'WD'.

A-18

APPENDIX B

STONEBRIDGE ADVISORS LLC
PROXY VOTING POLICY

GENERAL POLICY

Stonebridge does not anticipate acquiring securities subject to a proxy vote,
but in the event that a proxy vote is required, the following guidelines ensure
that proxies are voted in the best economic interests of the client. In
determining how to vote on any proposal, we will consider the proposal's
expected impact on shareholder value and will not consider any benefit to us,
our employees or affiliates.

When we evaluate a company for investment, we consider the reputation,
experience and competence of the company's management. We invest in companies in
which we believe management goals and shareholder goals are aligned. Therefore,
we generally will vote in accordance with management's recommendations. However,
when we believe management's position on a particular issue is not in the best
interests of our clients, we will vote contrary to management's recommendation.

PROXY VOTING GUIDELINES

If we acquire the equity securities of a company subject to a proxy vote, we may
choose to refrain from voting a proxy for a particular security. In such
instances, we will document our reasons for the decision.

We will generally vote proxies in accordance with the following guidelines
unless we determine that it is in the best economic interests of our clients to
vote contrary to the guidelines.

o With respect to a company's board of directors, we believe there should be
a majority of independent directors and that audit, compensation and nominating
committees should consist solely of independent directors, and we will normally
vote in favor of proposals that insure such independence.

o With respect to auditors, we believe that the relationship between a
public company and its auditors should be limited primarily to the audit
engagement, and we will normally vote in favor of proposals to prohibit or limit
fees paid to auditors for any services other than auditing and closely-related
activities that do not raise any appearance of impaired independence.

o With respect to equity based compensation plans, we believe that
appropriately designed plans approved by a company's shareholders can be an
effective way to align the interests of long-term shareholders and the interests
of management. However, we will normally vote against plans that substantially
dilute our ownership interest in the company or provide participants with
excessive awards. We will also normally vote in favor of proposals to require
the expensing of options.

B-1

o With respect to shareholder rights, we believe that all shareholders of a
company should have an equal voice and that barriers that limit the ability to
effect corporate change and to realize the full value of their investment are
not desirable. Therefore, we will normally vote against proposals for
supermajority voting rights, against the adoption of poison pill plans, and
against proposals for different classes of stock with different voting rights.

o With respect to "social responsibility" issues, we believe that a
company's day-to-day business operations are primarily the responsibility of
management. We are focused on maximizing long-term shareholder value and will
normally vote against shareholder proposals requesting that a company disclose
or change certain business practices unless we believe the proposal would have a
substantial, positive economic impact on the company.

RESPONSIBILITY

The CCO or his designee is responsible for the overall monitoring of the proxy
voting policy, practices, disclosures and recordkeeping. The Portfolio Manager
is responsible for monitoring corporate actions, making the voting decisions,
and ensuring that proxies are submitted in a timely manner.

We have adopted procedures to implement the firm's policy, along with reviews to
monitor and ensure the firm's policy is observed, implemented properly and
amended or updated as appropriate. The procedures are as follows:

o A description of the Proxy Policy is disclosed in Form ADV Part 2A, along
with contact information for clients interested in requesting a copy of
the Policy.

o An offer is made to all existing clients on an annual basis to allow them
to request, at no charge, a copy of the Proxy Voting Policy and
Procedures.

o If a proxy vote were to be required, the Portfolio Manager will maintain
documentation of all proxies/corporate action information that was
received, records of how the proxies were voted, when the vote was
submitted, and any other applicable details that may be needed.

o Client requests for information regarding proxy votes or policies and
procedures will be forwarded to the CCO for tracking and response.

o The CCO will prepare a written response to the client with the information
requested.

o The CCO periodically reviews documentation maintained by the Portfolio
Manager to provide reasonable assurance that procedures are followed and
proxies are being voted in the best interest of the clients.

B-2

PART C - OTHER INFORMATION

Item 25: Financial Statements and Exhibits

1. Financial Statements:

Registrant has not conducted any business as of the date of this filing,
other than in connection with its organization. Financial Statements indicating
that the Registrant has met the net worth requirements of Section 14(a) of the
Investment Company Act of 1940 will be filed by Pre-effective Amendment to the
Registration Statement.

2. Exhibits:

a. Declaration of Trust dated January 31, 2013.

b. By-Laws of Fund.*

c. None.

d. None.

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

f. None.

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

g.2 Form of Sub-Advisory Agreement between Registrant, First Trust Advisors
L.P. and Stonebridge Advisors LLC.*

h.1 Form of Underwriting Agreement.*

i. None.

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

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

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

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

l.2 Opinion and consent of Bingham McCutchen LLP.*

m. None.

n. Consent of Independent Registered Public Accounting Firm.*

o. None.

p. Subscription Agreement between Registrant and First Trust Advisors L.P.*

q. None.

r.1 Code of Ethics of Registrant.*

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

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

r.4. Code of Ethics of Stonebridge Advisors LLC.*

s. Powers of Attorney.*

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

* To be filed by amendment.

Item 26: Marketing Arrangements

[TO COME]

Item 27: Other Expenses of Issuance and Distribution

---------------------------------------------------------- -------------------
Securities and Exchange Commission Fees $ *
---------------------------------------------------------- -------------------
Financial Industry Regulatory Authority, Inc. Fees $ *
---------------------------------------------------------- -------------------
Printing and Engraving Expenses $ *
---------------------------------------------------------- -------------------
Legal Fees $ *
---------------------------------------------------------- -------------------
Listing Fees $ *
---------------------------------------------------------- -------------------
Accounting Expenses $ *
---------------------------------------------------------- -------------------
Blue Sky Filing Fees and Expenses $ *
---------------------------------------------------------- -------------------
Miscellaneous Expenses $ *
---------------------------------------------------------- -------------------
Total $ *
---------------------------------------------------------- -------------------
* To be completed by amendment

Item 28: Persons Controlled by or under Common Control with Registrant

Not applicable.

Item 29: Number of Holders of Securities

At __________, 2013

------------------------------------------- ------------------------------
Title of Class Number of Record Holders
------------------------------------------- ------------------------------
Common Shares, $0.01 par value *
------------------------------------------- ------------------------------
* To be completed by amendment

Item 30: Indemnification

Section 9.5 of the Registrant's Declaration of Trust provides as follows:

Indemnification and Advancement of Expenses. Subject to the exceptions and
limitations contained in this Section 9.5, every person who is, or has been, a
Trustee, officer or employee of the Trust, including persons who serve at the
request of the Trust as directors, trustees, officers, employees or agents of
another organization in which the Trust has an interest as a shareholder,
creditor or otherwise (hereinafter referred to as a "Covered Person"), shall be
indemnified by the Trust to the fullest extent permitted by law against
liability and against all expenses reasonably incurred or paid by him in
connection with any claim, action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of his being or having been such a
Trustee, director, officer, employee or agent and against amounts paid or
incurred by him in settlement thereof.

No indemnification shall be provided hereunder to a Covered Person to the
extent such indemnification is prohibited by applicable federal law.

The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not affect any other
rights to which any Covered Person may now or hereafter be entitled, shall
continue as to a person who has ceased to be such a Covered Person and shall
inure to the benefit of the heirs, executors and administrators of such a
person.

Subject to applicable federal law, expenses of preparation and
presentation of a defense to any claim, action, suit or proceeding subject to a
claim for indemnification under this Section 9.5 shall be advanced by the Trust
prior to final disposition thereof upon receipt of an undertaking by or on
behalf of the recipient to repay such amount if it is ultimately determined that
he is not entitled to indemnification under this Section 9.5.

To the extent that any determination is required to be made as to whether
a Covered Person engaged in conduct for which indemnification is not provided as
described herein, or as to whether there is reason to believe that a Covered
Person ultimately will be found entitled to indemnification, the Person or
Persons making the determination shall afford the Covered Person a rebuttable
presumption that the Covered Person has not engaged in such conduct and that
there is reason to believe that the Covered Person ultimately will be found
entitled to indemnification.

As used in this Section 9.5, the words "claim," "action," "suit" or "proceeding"
shall apply to all claims, demands, actions, suits, investigations, regulatory
inquiries, proceedings or any other occurrence of a similar nature, whether
actual or threatened and whether civil, criminal, administrative or other,
including appeals, and the words "liability" and "expenses" shall include
without limitation, attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.

Item 31: Business and Other Connections of Investment Advisers

The information in the Statement of Additional Information under the captions
"Management of the Fund - Trustees and Officers" and "Sub-Advisor" is hereby
incorporated by reference.

Item 32: Location of Accounts and Records.

First Trust Advisors L.P. maintains the Declaration of Trust, By-Laws, minutes
of trustees and shareholders meetings and contracts of the Registrant, all
advisory material of the investment adviser, all general and subsidiary ledgers,
journals, trial balances, records of all portfolio purchases and sales, and all
other required records.

Item 33: Management Services

Not applicable.

Item 34: Undertakings

1. Registrant undertakes to suspend the offering of its shares until it
amends its prospectus if (1) subsequent to the effective date of its
Registration Statement, the net asset value declines more than 10 percent
from its net asset value as of the effective date of the Registration
Statement, or (2) the net asset value increases to an amount greater than
its net proceeds as stated in the prospectus.

2. Not applicable.

3. Not applicable.

4. The Registrant undertakes (a) to file, during any period in which offers
or sales are being made, a post-effective amendment to this Registration
Statement:

(1) to include any prospectus required by Section 10(a)(3) of the Securities
Act of 1933;

(2) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; and

(3) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;

(b) to remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering;

(c) that, for the purpose of determining liability under the Securities Act of
1933 to any purchaser, if the Registrant is subject to Rule 430C; each
prospectus filed pursuant to Rule 497(b), (c), (d) or (e) under the
Securities Act of 1933, shall be deemed to be part of and included in this
Registration Statement as of the date it is first used after
effectiveness. Provided, however, that no statement made in this
Registration Statement or prospectus that is part of this registration
statement or made in a document incorporated or deemed incorporated by
reference into this registration statement or prospectus that is art of

this registration statement will, as to a purchaser with a time of
contract of sale prior to such first use, supercede or modify any
statement that was made in this registration statement or prospectus that
was part of this registration statement or made in any such document
immediately prior to such date of first use;

(d) that for the purpose of determining liability of the Registrant under the
Securities Act of 1933 to any purchaser in the initial distribution of
securities:

The undersigned Registrant undertakes that in a primary offering of
securities of the undersigned Registrant pursuant to this registration
statement, regardless of the underwriting method used to sell the
securities to the purchaser, if the securities are offered or sold to such
purchaser by means of any of the following communications, the undersigned
Registrant will be a seller to the purchaser and will be considered to
offer or sell such securities to the purchaser:

(1) any preliminary prospectus or prospectus of the undersigned Registrant
relating to the offering required to be filed pursuant to Rule 497 under
the Securities Act of 1933;

(2) the portion of any advertisement pursuant to Rule 482 under the Securities
Act of 1933 relating to the offering containing material information about
the undersigned Registrant or its securities provided by or on behalf of
the undersigned Registrant; and

(3) any other communication that is an offer in the offering made by the
undersigned Registrant to the purchaser.

5. The Registrant undertakes that:

a. For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
a registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrant under Rule 497(h) under the
Securities Act of 1933 shall be deemed to be part of the Registration
Statement as of the time it was declared effective; and

b. For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of the securities at that
time shall be deemed to be the initial bona fide offering thereof.

6. The Registrant undertakes to send by first class mail or other means
designed to ensure equally prompt delivery, within two business days of
receipt of a written or oral request, any Statement of Additional
Information.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in this City of Wheaton, and State of Illinois, on the 4th day of
February, 2013.

FIRST TRUST INTERMEDIATE DURATION
PREFERRED & INCOME FUND

By: /s/ Mark R. Bradley
---------------------------------
Mark R. Bradley, President and
Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.

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

Signature Title Date
-------------------------------------- ------------------------------------ ------------------------------------
President and Chief Executive
/s/ Mark R. Bradley Officer February 4, 2013
-------------------------------- (Principal Executive Officer)
Mark R. Bradley
-------------------------------------- ------------------------------------ ------------------------------------
Chief Financial Officer, Chief
Accounting Officers and Treasurer
/s/ James M. Dykas (Principal Financial and February 4, 2013
-------------------------------- Accounting Officer)
James M. Dykas
-------------------------------------- ------------------------------------ ------------------------------------

INDEX TO EXHIBITS

a. Declaration of Trust dated January 31, 2013.