MACQUARIE/FIRST
TRUST GLOBAL INFRASTRUCTURE/UTILITIES DIVIDEND & INCOME FUND
120
East Liberty Drive, Suite 400
Wheaton,
IL 60187
(630)
765-8000
IMPORTANT
SHAREHOLDER INFORMATION
We
are pleased to enclose a notice, combined proxy statement/prospectus (the “Proxy Statement/Prospectus”), and proxy card(s)
for a special meeting of shareholders (the “Special Meeting”) relating to Macquarie/First Trust Global Infrastructure/Utilities
Dividend & Income Fund, a Massachusetts business trust (the “Acquired Fund”). The Special Meeting is scheduled to be
held at the offices of the Acquired Fund’s investment adviser, First Trust Advisors L.P., located at 120 East Liberty Drive, Suite
400, Wheaton, Illinois 60187, on February 20, 2024, at 12:00 p.m. Central Time. At the Special Meeting, shareholders will
be asked to consider and to vote on the approval of a proposed Agreement and Plan of Reorganization for the Acquired Fund, which contemplates
the reorganization of the Acquired Fund into abrdn Global Infrastructure Income Fund (the “Acquiring Fund”), a Maryland statutory
trust (the “Reorganization”). The Acquiring Fund as it would exist after the Reorganization is referred to as the “Combined
Fund.”
After
careful consideration, the Board of Trustees of the Acquired Fund believes that the Reorganization is in the best interest of
shareholders and therefore recommends that you vote “FOR” the proposal. The Acquired Fund and the Acquiring Fund
are managed by different investment advisers. The Reorganization is anticipated to provide shareholders of the Acquired Fund with,
among other things, exposure to a similar investment objective but substantially different principal investment strategies and
principal risks as discussed in the enclosed Proxy Statement/Prospectus; a net total annual operating expense ratio after
reimbursement for the Combined Fund that is expected to be lower than that of the Acquired Fund; and access to the Acquiring
Fund’s investment adviser’s and its affiliates’ asset management business, including its commitment to the
closed-end fund business, and its investment management experience.
It
is expected that shareholders of the Acquired Fund will not recognize any gain or loss for federal income tax purposes as a result
of the exchange of their shares in the Acquired Fund for shares of the Acquiring Fund in connection with the Reorganization (except
with respect to cash received in lieu of fractional shares of the Acquiring Fund). The Reorganization proposal is described in
more detail, and a comparison of the strategies, expenses and certain other features of the Acquired Fund and the Acquiring Fund
is included, in the enclosed Proxy Statement/Prospectus. We encourage you to review this information carefully.
As
a shareholder of record as of the close of business on October 23, 2023, the record date, you are entitled to notice of, and to vote
at, the Special Meeting. Therefore we are asking that you please take the time to cast your vote prior to the February 20, 2024 Special
Meeting of shareholders. If you do not vote, you may receive a phone call from the Acquired Fund’s proxy solicitor, EQ Fund Solutions,
LLC.
We
appreciate your participation in this important Special Meeting.
Sincerely,
James
A. Bowen
Chairman
of the Board of Trustees, Macquarie/First Trust Global Infrastructure/Utilities Dividend & Income Fund
It
is important that your shares be represented at the Special Meeting. In order to avoid delay
and to ensure that your shares are represented, please vote as promptly as possible. You
may vote easily and quickly by mail, by telephone or via the Internet. You may also vote
in person by attending the Special Meeting (subject to certain requirements). To vote by
mail, please complete and mail your proxy card in the enclosed envelope. To vote by telephone
or via the Internet, please follow the instructions on the proxy card. If you need any assistance
or have any questions regarding the proposal or how to vote your shares, please call the
Acquired Fund’s proxy solicitor, EQ Fund Solutions, LLC, at (866) 864-5057 weekdays
from 9:00 a.m. to 10:00 p.m. Eastern Time. |
MACQUARIE/FIRST
TRUST GLOBAL INFRASTRUCTURE/UTILITIES DIVIDEND & INCOME FUND
120
East Liberty Drive, Suite 400
Wheaton,
IL 60187
(630)
765-8000
NOTICE
OF SPECIAL MEETING OF SHAREHOLDERS
TO
BE HELD February 20, 2024
Notice
is hereby given that a special meeting of shareholders (with any postponements or adjournments, the “Special Meeting”) of
Macquarie/First Trust Global Infrastructure/Utilities Dividend & Income Fund (the “Acquired Fund”), a Massachusetts business
trust, is scheduled to be held at the offices of the Acquired Fund’s investment adviser, First Trust Advisors L.P., located at
120 East Liberty Drive, Suite 400, Wheaton, Illinois 60187, on February 20, 2024, at 12:00 p.m. Central Time. At the Special
Meeting, shareholders will be asked to consider and to vote on the below proposal (the “Proposal”).
To
approve an Agreement and Plan of Reorganization providing for the transfer of all of the assets of the Acquired Fund to abrdn
Global Infrastructure Income Fund (the “Acquiring Fund”) (each, a “Fund” and collectively, the “Funds”)
in exchange solely for newly issued common shares of beneficial interest of the Acquiring Fund (although cash may be distributed
in lieu of fractional shares of the Acquiring Fund) and the assumption by the Acquiring Fund of all of the liabilities of the
Acquired Fund and the distribution of common shares of beneficial interest of the Acquiring Fund to the shareholders of the Acquired
Fund and complete liquidation of the Acquired Fund (the “Reorganization”)
Shareholders
will also be asked to transact such other business as may properly come before the Special Meeting.
Shareholders
of record as of the close of business on October 23, 2023, the record date (the “Record Date”), are entitled to notice
of, and to vote at, the Special Meeting.
The
Reorganization is intended to be treated as a tax-free reorganization for US federal income tax purposes.
Whether
or not you are planning to attend the Special Meeting, please vote prior to the Special Meeting on February 20, 2024. Voting is
quick and easy. Voting by proxy will not prevent you from voting your shares at the Special Meeting. You may revoke your proxy
at any time before the Special Meeting by (i) written notice delivered to the Secretary of the Acquired Fund prior to the exercise
of the proxy; (ii) execution of a subsequent proxy; or (iii) attending and voting at the Special Meeting. If you hold shares through
a broker, bank or other nominee, you must follow the instructions you receive from your nominee in order to revoke your voting
instructions.
By
order of the Board of Trustees of the Acquired Fund,
W.
Scott Jardine, Esq.
Secretary,
Macquarie/First Trust Global Infrastructure/Utilities Dividend & Income Fund
Important
Notice Regarding Internet Availability of Proxy Materials for the Special Meeting to be Held on February 20, 2024:
The
combined proxy statement/prospectus, the Notice of the Special Meeting, any accompanying materials and any amendments or supplements
to the foregoing materials that are required to be furnished to shareholders are available to you on the Internet at https://www.ftportfolios.com/LoadContent/gohdcqj3gy3o.
It
is important that your shares be represented at the Special Meeting. In order to avoid delay
and to ensure that your shares are represented, please vote as promptly as possible. You
may vote easily and quickly by mail, by telephone or via the Internet. You may also vote
in person by attending the Special Meeting (subject to certain requirements). To vote by
mail, please complete and mail your proxy card in the enclosed envelope. To vote by telephone
or via the Internet, please follow the instructions on the proxy card. If you need any assistance
or have any questions regarding the Proposal or how to vote your shares, please call the
Acquired Fund’s proxy solicitor, EQ Fund Solutions, LLC, at (866) 864-5057 weekdays
from 9:00 a.m. to 10:00 p.m. Eastern Time. |
QUESTIONS
& ANSWERS
The
following is a summary of more complete information appearing later in the attached combined proxy statement/prospectus (the “Proxy
Statement/Prospectus”) or incorporated by reference into the Proxy Statement/Prospectus. You should carefully read the entire
Proxy Statement/Prospectus, including the Agreement and Plan of Reorganization (the “Reorganization Agreement”), a
form of which is attached as Appendix A thereto, because it contains details that are not in the Questions & Answers.
Q: |
Why
is a shareholder meeting being held? |
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A: |
The
shareholders of Macquarie/First Trust Global Infrastructure/Utilities Dividend &
Income Fund (the “Acquired Fund”), a Massachusetts business trust, are being
asked to approve a Reorganization Agreement providing for the transfer of all of the
assets of their Fund to abrdn Global Infrastructure Income Fund (the “Acquiring
Fund”) in exchange solely for newly issued common shares of beneficial interest
of the Acquiring Fund (although cash may be distributed in lieu of fractional shares
of the Acquiring Fund) and the assumption by the Acquiring Fund of all of the liabilities
of the Acquired Fund and the distribution of common shares of beneficial interest of
the Acquiring Fund to the shareholders of the Acquired Fund and complete liquidation
of the Acquired Fund (the “Reorganization”). It is currently expected that
the Reorganization will occur in the first quarter of 2024.
As
summarized below and described more fully in the Proxy Statement/Prospectus, the Acquired Fund and the Acquiring Fund (each,
a “Fund” and collectively, the “Funds”) are each a closed-end management investment company with similar
investment objectives but substantially different principal investment strategies and principal risks. Please see below and “Comparison
of the Funds” in the Proxy Statement/Prospectus for a description of differences in the investment approach and other additional
information. The Acquiring Fund would be the accounting and performance survivor of the Reorganization. The Acquiring Fund as
it would exist after the Reorganization is referred to as the “Combined Fund.” |
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Q |
Why
is the Reorganization being proposed? |
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A |
On October 23, 2023, First Trust Advisors L.P. (“First Trust”), abrdn Inc. and, for the purposes specified therein, abrdn
plc., entered into a separate agreement (the “Purchase Agreement”) pursuant to which abrdn Inc. will acquire certain assets
related to First Trust’s business of providing investment management services with respect to the assets of the Acquired Fund and
certain other registered investment companies (the “Business”) if the Reorganization is approved, and upon satisfaction or
waiver of certain other conditions. More specifically, under the Purchase Agreement, First Trust has agreed to transfer to abrdn Inc.,
for a cash payment at the closing of the Asset Transfer (as defined below) and subject to certain exceptions, (i) all right, title and
interest of First Trust in and to the books and records relating to the Business of the Acquired Fund, and (ii) the goodwill of the Business
(the “Asset Transfer.”)
The
Funds are not a party to the Purchase Agreement; however, the completion of the Asset Transfer is subject to certain conditions,
including shareholder approval of the Reorganization described in the Proxy Statement/Prospectus for the Reorganization to proceed.
Therefore, if shareholders do not approve the Reorganization or if the other conditions in the Purchase Agreement are not satisfied
or waived, then the Asset Transfer may not be completed, and the Purchase Agreement may be terminated with respect to the Acquired
Fund. |
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Q: |
Why
is the Reorganization being recommended by the Board of Trustees of the Acquired Fund? |
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A: |
The
Board of Trustees of the Acquired Fund (the “Acquired Fund Board”) has determined
that the Reorganization is in the best interests of the shareholders of the Acquired
Fund. In reaching its decision to approve the Reorganization, the Acquired Fund Board
considered alternatives to the Reorganization, including continuing to operate the Acquired
Fund as a separate fund, and determined to recommend that shareholders approve the Reorganization.
Please
see “Background and Reasons for the Proposed Reorganization” in the Proxy Statement/Prospectus for additional information
on the Acquired Fund Board’s considerations relating to the Reorganization. |
Q: |
What
happens if the Proposal is not approved by the shareholders? |
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A: |
Completion
of the Reorganization requires the approval of the Reorganization Agreement by the Acquired Fund shareholders. If the Reorganization
Agreement is not approved by shareholders of the Acquired Fund, then the Acquired Fund will continue to operate as a separate
fund in the manner in which it is currently managed. |
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Q: |
How
will the fees and expenses of the Combined Fund compare to those of the Acquired Fund? |
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A: |
The
contractual advisory fee of the Acquired Fund is 0.40% of the Fund’s Total Assets
(as defined below) up to and including $250 million and 0.35% of the Acquired Fund’s
Total Assets over $250 million. “Total Assets,” for the purpose of this calculation,
generally means the average daily gross asset value of the Acquired Fund (including assets
attributable to the Fund’s preferred shares, if any, and the principal amount of
borrowings), minus the sum of the Fund’s accrued and unpaid dividends on any outstanding
preferred shares and accrued liabilities (other than the principal amount of any borrowing
incurred, commercial paper or notes issued by the Fund and the liquidation preference
of any outstanding preferred shares). In addition to the contractual advisory fee, the
Acquired Fund pays contractual sub-advisory fees to its sub-advisor, Delaware Investments
Fund Advisers (“DIFA”). The Acquired Fund’s Core Component, which consists
primarily of equity securities and equity-like securities issued by Infrastructure Issuers
(as defined below), is managed by the Global Listed Infrastructure team and, for its
portfolio management services, DIFA is entitled to a quarterly fee calculated at an annual
rate of 0.60% for that portion of the Acquired Fund’s Total Assets. If the Acquired
Fund’s Total Assets are greater than $250 million, DIFA receives an annual portfolio
management fee of 0.65% for that portion of the Acquired Fund’s Total Assets over
$250 million. The Acquired Fund’s Senior Loan Component (the portion of the Acquired
Fund’s investment strategy which consists of senior secured floating-rate U.S.
dollar-denominated loans of Infrastructure Issuers (as defined below) from the funds
raised through the Acquired Fund’s use of leverage) is managed by the Macquarie
High Yield Fixed Income team and, for its portfolio management services, DIFA is entitled
to a quarterly fee calculated at an annual rate of 0.60% for that portion of the Fund’s
Total Assets.
The
contractual advisory fee of the Combined Fund will be 1.35% of the Combined Fund’s average daily Managed Assets.
“Managed Assets” is defined as total assets of the Combined Fund, including assets attributable to any form
of leverage, minus liabilities (other than debt representing leverage and the aggregate liquidation preference of any
preferred stock that may be outstanding). The Acquired Fund currently uses leverage whereas the Acquiring Fund currently
does not but may do so in the future. There can be no guarantee that the Combined Fund will leverage its assets or, to
the extent the Combined Fund utilizes leverage, what percentage of its assets such leverage will represent.
Following
the consummation of the Reorganization, the total annual operating expense ratio of the Combined Fund is expected to be lower than the
current total annual operating expense ratio of the Acquired Fund. |
The
gross total annual operating expense ratios, including interest expense, of the Acquired Fund and the Acquiring Fund, including acquired fund fees and deferred tax expense (deferred tax liability primarily associated with its subsidiary's investments in
partnership), and, following
the consummation of the Reorganization, the gross total annual operating expense ratio, including acquired fund fees and deferred tax expense, of the Combined Fund
is expected to be as follows:
Current
Expense Ratio of Acquired Fund* |
Current
Expense Ratio of the Acquiring Fund** |
Pro
Forma
Combined Fund** |
3.80% |
1.89% |
1.80% |
The
net total annual operating expense ratios, including interest expense, of the Acquired Fund and the Acquiring Fund, including acquired fund fees and
deferred tax expense (deferred tax liability primarily associated with its subsidiary's investments in partnership), and, following the consummation of the Reorganization, the net total annual operating expense ratio, including
acquired fund fees and deferred tax expense, of the Combined Fund is expected to be as follows:
Current
Expense Ratio of Acquired Fund*† |
Current
Expense Ratio of the Acquiring Fund** |
Pro
Forma
Combined Fund** |
3.80% |
1.87% |
1.80% |
The net total annual operating expense ratios, including interest expense, in this table of the Acquiring Fund and Combined Fund reflect
reimbursement of advisory fees waived or reduced and other payments remitted by abrdn Inc. and other expenses reimbursed from abrdn Inc.,
which can be recouped under certain circumstances by abrdn Inc.
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*
As of the Acquired Fund’s most recent semi-annual period end, based on average daily net assets.
**
Information for the Acquiring Fund and Combined Fund is as of the fiscal year ended September 30, 2023.
†
The net total annual operating expense ratio, excluding interest expense, of the Acquired Fund is 1.73%.
Pro
forma Combined Fund fees and expenses are estimated in good faith and are hypothetical. There can be no assurance that future
expenses will not increase or that any estimated expense savings will be realized. |
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abrdn
Inc., the investment adviser of the Acquiring Fund, has contractually agreed to limit the total ordinary operating expenses
of the Combined Fund following the consummation of the Reorganization (excluding leverage costs, interest, taxes, brokerage
commissions, acquired fund fees and expenses and any non-routine expenses) from exceeding 1.65% of the average daily net
assets of the Combined Fund on an annualized basis for twelve months following the closing of the Reorganization, or June
30, 2025, whichever is later. This contractual limitation may not be terminated before twelve months following the closing
of the Reorganization, or June 30, 2025, whichever is later, without the approval of the Combined Fund’s trustees
who are not “interested persons” of the Combined Fund (as defined in the Investment Company Act of 1940, as
amended (the “1940 Act”).
abrdn
Inc. may request and receive reimbursement from the Acquiring Fund or Combined Fund, as applicable, of the advisory fees
waived or reduced and other payments remitted by abrdn Inc. and other expenses reimbursed as of a date not more than three
years after the date when abrdn Inc. limited the fees or reimbursed the expenses; provided that the following requirements
are met: the reimbursements do not cause the Combined Fund to exceed the lesser of the applicable expense limitation in
the contract at the time the fees were limited or expenses are paid or the applicable expense limitation in effect at
the time the expenses are being recouped by abrdn Inc., and the payment of such reimbursement is approved by the Board
of the Combined Fund on a quarterly basis.
Please
see “Fees and Expenses” and “Management of the Funds” in the Proxy Statement/Prospectus for additional
information. |
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Q: |
How
different are the Funds? |
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A: |
As
summarized below and set forth more fully in the Proxy Statement/Prospectus, there are some
substantial differences between the Acquired Fund and the Acquiring Fund. In particular,
they have different investment advisers. First Trust is the investment advisor of the Acquired
Fund, and Delaware Investments Fund Advisers is the sub-advisor of the Acquired Fund. abrdn
Inc. (the “Adviser”) is the investment adviser of the Acquiring Fund, and abrdn
Investments Limited (formerly, Aberdeen Asset Managers Limited) (“aIL” or the
“Sub-Adviser”, and together with abrdn Inc., the “Advisers”) is the
investment sub-adviser of the Acquiring Fund. As further discussed below, the Funds have
similar investment objectives but substantially different principal investment strategies
and principal risks.
Each
Fund is a closed-end management investment company registered under the 1940 Act. The Acquired Fund is a Massachusetts
business trust and a diversified closed-end management investment company. The Acquiring Fund is a Maryland statutory
trust and a non-diversified closed-end management investment company. A non-diversified fund is not limited by the 1940
Act with regard to the percentage of its assets that may be invested in the securities of a single issuer. Consequently,
the securities of a particular issuer or a small number of issuers may constitute a significant portion of the fund’s
investment portfolio. Each Fund’s common shares are listed on the New York Stock Exchange.
The
Acquired Fund’s investment objective is to seek to provide a high level of current return consisting of dividends,
interest, and other similar income while attempting to preserve capital, whereas the Acquiring Fund’s principal
investment objective is to seek to provide a high level of total return with an emphasis on current income.
Each
Fund has a principal investment strategy to invest in infrastructure-related issuers. Both Funds have policies to, under
normal circumstances, invest 80% of net assets plus the amount of any borrowings for investment purposes in US and non-US
infrastructure-related issuers. Specifically, under normal market conditions, at least 80% of the Acquired Fund’s
Total Assets are intended to be invested in securities and instruments of “Infrastructure Issuers,” defined
as US and non-US issuers that have as their primary focus (in terms of income and/or assets) the management, ownership
and/or operation of infrastructure and utilities assets in a select group of countries, that are expected to provide dividends,
interest and other similar income. The Acquiring Fund will invest, under normal circumstances, at least 80% of the Acquiring
Fund’s net assets (plus the amount of any borrowings for investment purposes) in US and non-US infrastructure-related
issuers. The Acquiring Fund considers an issuer to be infrastructure-related if (i) at least 50% of the issuer’s
assets consist of infrastructure assets or (ii) at least 50% of the issuer’s gross income or net profits are attributable
to or derived, directly or indirectly, from the ownership, management, construction, development, operation, utilization
or financing of infrastructure assets.
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Both
Funds invest in issuers located outside of the United States. The Acquired Fund seeks to invest more than 40% of its Total
Assets in securities and instruments of non-U.S. Infrastructure Issuers located in Australia, New Zealand, Canada, the
United Kingdom, certain European Union member countries, Switzerland, Japan, Hong Kong and Singapore, and no more than
60% of the Acquired Fund’s Total Assets may be invested in securities and instruments of U.S. Infrastructure Issuers
at any time. Under normal circumstances, the Acquiring Fund will invest in issuers from at least three different countries
and will invest significantly (at least 40% of its total assets – unless market conditions are not deemed favorable
by the Advisers, in which case the Acquiring Fund would invest at least 30% of its total assets) in non-US issuers.
In
addition, both Funds invest in listed equity securities, with the Core Component (the portion of the Acquired Fund’s
investment strategy which consists primarily of equity securities and securities and instruments with equity characteristics,
and other securities and instruments issued by Infrastructure Issuers) of the Acquired Fund primarily investing in listed
securities and instruments of Infrastructure Issuers, and the Acquiring Fund, under normal circumstances, investing at
least 60%, and generally expects to invest approximately 75%, of its total assets in listed equity securities of infrastructure-related
issuers. The Acquired Fund may invest up to 25% of the Core Component in unlisted securities and instruments of Infrastructure
Issuers. The Acquiring Fund may invest up to 25% of its total assets, measured at the time of investment, in infrastructure
assets through private transactions. The Senior Loan Component of the Acquired Fund consists of senior secured floating-rate
U.S. dollar-denominated loans of Infrastructure Issuers from the funds raised through the Acquired Fund’s use of
leverage.
The
Acquiring Fund has a term whereas the Acquired Fund does not. The Acquiring Fund’s Declaration of Trust provides
that the Acquiring Fund will have a limited period of existence and will dissolve as of the close of business fifteen
(15) years from the effective date of the initial registration statement of the Acquiring Fund (i.e., July 28, 2035) (and
such date, including any extension, the “Termination Date”); provided, that the Board of Trustees may vote
to extend the Termination Date (1) for one period that may in no event exceed one year following the Termination Date,
and (2) for one additional period that may in no event exceed six months, in each case without a vote of the Acquiring
Fund’s shareholders. On or before the Termination Date, the Acquiring Fund will cease its investment operations,
retire or redeem its leverage facilities, if any, liquidate its investment portfolio (to the extent possible) and distribute
all of its liquidated net assets to common shareholders of record in one or more distributions on or after the Termination
Date. Notwithstanding the foregoing, if the Board of Trustees determines to cause the Acquiring Fund to conduct an Eligible
Tender Offer (as defined in the Proxy Statement/Prospectus) and the Eligible Tender Offer is completed, the Board of Trustees
may, in its sole discretion and without any action by the shareholders of the Fund, eliminate the Termination Date and
provide for the Acquiring Fund’s perpetual existence, subject to certain terms and conditions.
The
Acquired Fund currently uses leverage through bank borrowings whereas the Acquiring Fund currently does not but may do
so in the future. The Funds’ strategies relating to their use of leverage, if any, may not be successful, and the
Funds’ use of leverage will cause the Funds’ NAV to be more volatile than it would otherwise be. There can
be no guarantee that the Combined Fund will leverage its assets or, to the extent the Combined Fund utilizes leverage,
what percentage of its assets, within regulatory limits, such leverage will represent. Depending on market conditions,
the Acquiring Fund’s portfolio management team may choose not to use any leverage. Although the use of leverage
by a Fund may create an opportunity for increased after-tax total return for the common shares, it also increases market
exposure, results in additional risks and can magnify the effect of any losses.
Please
see “Comparison of the Funds” in the Proxy Statement/Prospectus for additional information. |
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Q: |
How
will the Reorganization be effected? |
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A: |
Assuming
the Acquired Fund shareholders approve the Reorganization, the Acquired Fund will transfer
all of its assets to the Acquiring Fund in exchange for common shares of the Acquiring
Fund (although shareholders may receive cash for fractional shares of the Acquiring Fund),
and the assumption by the Acquiring Fund of all of the liabilities of the Acquired Fund.
Following the Reorganization, the Acquired Fund will be dissolved and terminated in accordance
with its Amended and Restated Declaration of Trust and Amended and Restated By-Laws and
the 1940 Act.
Following
the Reorganization, you, as an Acquired Fund shareholder, will become a shareholder of the Combined Fund. Holders of common
shares of the Acquired Fund will receive newly issued common shares of the Acquiring Fund, par value $0.001 per share,
the aggregate net asset value (not the market value) of which will equal the aggregate net asset value (not the market
value) of the common shares of the Acquired Fund you held immediately prior to the Reorganization (although shareholders
may receive cash for fractional shares of the Acquiring Fund).
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Based
on each Fund’s net asset value (“NAV”) as of September 29, 2023, the
exchange ratio at which common shares of the Acquired Fund would have converted to common
shares of the Combined Fund is 0.4262 (i.e., assuming the Reorganization was consummated
following the market close on September 29, 2023). An Acquired Fund shareholder would
have received 0.4262 shares of the Combined Fund for each Acquired Fund share held. |
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Q: |
How
will the Reorganization affect the value of my investment? |
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A: |
At
the closing of the Reorganization, the Reorganization Agreement sets forth that the Acquired
Fund assets will be valued in accordance with the Acquired Fund’s valuation procedures
as approved by the Board of Trustees of the Acquired Fund. Upon the consummation of the
Reorganization, the assets transferred to the Acquiring Fund will be valued pursuant
to the Acquiring Fund’s valuation procedures as approved by the Board of Trustees
of the Acquiring Fund.
Certain
differences between the valuation procedures of the Acquired Fund and those of the Acquiring Fund exist. Of relevance
to the Acquired Fund is, for purposes of determining a Fund’s NAV, in certain circumstances, foreign equity securities
that trade on a market that closes prior to the Fund’s valuation time are valued by applying valuation factors to
the last quoted sale price. The Acquired Fund and the Acquiring Fund differ with respect to the circumstances in which
such valuation factors are applied. The impact of this difference on the value of an Acquired Fund shareholder’s
investment immediately after the Reorganization is consummated is uncertain and could be positive or negative depending
on market conditions and could be material. |
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Q: |
At
what prices have common shares of the Acquired Fund and common shares of the Acquiring Fund historically traded? |
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A: |
Common
shares of each Fund have from time to time traded below their NAVs. As of October 3,
2023, the Acquired Fund common shares were trading at a 13.98% discount to its NAV, and
the Acquiring Fund common shares were trading at a 15.50% discount to its NAV. There
can be no assurance that, after the Reorganization, common shares of the Combined Fund
will trade at, above or below NAV. The market value of the common shares of the Combined
Fund may be more or less than the market value of the common shares of either the Acquiring
Fund or the Acquired Fund prior to the Reorganization.
To
the extent the Acquired Fund is trading at a discount to its NAV and the Acquiring Fund is trading at a premium to its NAV at
the time of the Reorganization, the Acquired Fund shareholders would have the potential for an economic benefit. To the extent
the Acquired Fund is trading at a premium to its NAV and the Acquiring Fund is trading at a discount to its NAV at the time of
the Reorganization, the Acquired Fund shareholders would lose the economic benefit. There can be no assurance that, after the
Reorganization, common shares of the Combined Fund will trade at, above or below NAV. The market value of the common shares of
the Combined Fund may be less than the market value of the common shares of the Acquiring Fund prior to the Reorganization. Additionally,
among other potential consequences of the Reorganization, portfolio transitioning due to the Reorganization may result in capital
gains or losses, which may have federal income tax consequences for shareholders of the Combined Fund.
Please
see “Share Price Data” in the Proxy Statement/Prospectus for additional information. |
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Q: |
Will
the Reorganization impact Fund distributions to shareholders? |
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A: |
The
Acquired Fund currently pays a quarterly distribution of $0.20 per share; based on the
market price and NAV as of September 29, 2023, the Acquired Fund’s annualized distribution
rate is 11.53% and 9.82%, respectively. The Acquiring Fund currently pays a monthly distribution
of $0.12 per share; based on the market price and NAV as of September 29, 2023, the Acquiring
Fund’s annualized distribution rate is 8.90% and 7.50%, respectively. The Combined
Fund expects to pay a monthly distribution of $0.12 per share and would have the same
distribution yield as the Acquiring Fund.
Prior
to the closing of the Reorganization, the Acquired Fund expects to declare a distribution to its shareholders that, together
with all previous distributions, will have the effect of distributing to its shareholders all of its investment company
taxable income (computed without regard to the deduction for dividends paid) and net realized capital gains, if any, through
the date of the Reorganization’s closing. All or a portion of such distribution may be taxable to the Acquired Fund’s
shareholders for US federal income tax purposes.
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The
Combined Fund intends to make its first distribution to shareholders in the month immediately following the Reorganization. In addition,
the Combined Fund expects to follow the same frequency of payments as the Acquiring Fund and to make monthly distributions to shareholders. |
|
|
Q: |
Who
will manage the Combined Fund’s portfolio? |
|
|
A: |
The
Combined Fund will be advised by abrdn Inc., the Acquiring Fund’s current investment adviser, and sub-advised by aIL,
the Acquiring Fund’s current investment sub-adviser. Furthermore, the Acquiring Fund’s current portfolio management
team will be primarily responsible for the day-to-day management of the Combined Fund’s portfolio. |
|
|
Q: |
Will
there be any significant portfolio transitioning in connection with the Reorganization? |
|
|
A: |
The
Acquired Fund will be required to pay back its outstanding borrowings in connection with
the closing of the Reorganization. It is anticipated that approximately 28% of the Acquired
Fund’s holdings will be sold by the Acquired Fund before the closing of the Reorganization
in order to pay back its outstanding leverage. This portfolio transition may take a significant
amount of time and result in the Acquired Fund holding large amounts of uninvested cash prior
to the Closing Date, and there may be times when the Acquired Fund is not fully
invested in accordance with its investment objective and strategies during this transition
period, which may cause the Acquired Fund to forgo any appreciation in value of portfolio investments, if any. This may impact the Acquired Fund’s
performance. As of September 21, 2023, the expected costs to de-lever the portfolio would
be approximately $164,300 (or 0.23% of the Acquired Fund’s NAV as of September 21,
2023) or $0.019 per share. To the extent the Acquired Fund has holdings in France, Spain
and/or Italy, such countries may impose an additional foreign transfer tax on the transfer
of such securities to the Acquiring Fund. These taxes are in addition to the transaction
costs disclosed above and would be borne by the Combined Fund. The foregoing estimates are
subject to change depending on the composition of the Acquired Fund’s portfolio and
market circumstances at the time any sales are made.
The
Acquiring Fund currently does not use leverage but may do so in the future. There can be no guarantee that the Combined
Fund will leverage its assets or, to the extent the Combined Fund utilizes leverage, what percentage of its assets such
leverage will represent.
Following
the Reorganization, the Combined Fund expects to realign its portfolio in a manner consistent with its investment strategies and
policies, which will be the same as the Acquiring Fund’s strategies and policies. The Combined Fund may not be invested
consistent with its investment strategies or aIL’s investment approach while such realignment occurs. The realignment is
anticipated to take approximately two weeks following the closing of the Reorganization, based on current market conditions and
assuming that the Acquired Fund’s holdings are the same as of September 21, 2023. Sales and purchases of less liquid
securities could take longer. Based on the Acquired Fund’s holdings as of September 21, 2023, the Combined Fund expects to
sell approximately 87% of the Acquired Fund’s portfolio following the closing of the Reorganization. If the Reorganization was
completed on September 21, 2023, the expected cost to sell 87% of the Acquired Fund’s holdings following the closing of
the Reorganization, which is estimated to equal 10% of the Combined Fund’s portfolio, would be approximately $516,000 (or
0.09% of the estimated NAV of the Combined Fund as of September 21, 2023) or $0.015 per share of the Combined Fund. To the extent there are any transaction costs
(including brokerage commissions, transaction charges and related fees) associated with the sales and purchases made in connection
with the Reorganization, these will be borne by the Acquired Fund with respect to the portfolio transitioning conducted before the
Reorganization and borne by the Combined Fund with respect to the portfolio transitioning conducted after the Reorganization. The
portfolio transitioning pre- and post-Reorganization may result in capital gains or losses, which may have federal income tax
consequences for shareholders of the Acquired Fund and the Combined Fund. |
|
|
Q: |
Will
I have to pay any sales load or commission in connection with the Reorganization? |
|
|
A: |
No.
You will pay no sales load or commission in connection with the Reorganization. |
|
|
Q: |
Who
will pay for the costs associated with the Reorganization? |
|
|
A: |
abrdn
Inc. and aIL and their affiliates and First Trust and its affiliates will bear certain expenses, including portfolio transaction costs and certain taxes, incurred in connection with the
Reorganization, except as otherwise disclosed in the proxy statements to Acquired Fund shareholders, whether or not the Reorganization is consummated. The expenses of the Reorganization expected
to be borne by abrdn and First Trust are estimated to be approximately $590,000. To the extent there are any transaction costs
(including brokerage commissions, transaction charges and related fees) associated with the sales and purchases of portfolio
holdings made in connection with the Reorganization, these will be borne by the Acquired Fund with respect to the portfolio
transitioning and de-levering conducted before the Reorganization and borne by the Combined Fund with respect to the portfolio
transitioning conducted after the Reorganization. In addition, to the extent the Acquired Fund has holdings in France, Spain and/or
Italy, such countries may impose an additional foreign transfer tax on the transfer of such securities to the Acquiring Fund. These
taxes are in addition to the transaction costs disclosed above and would be borne by the Combined Fund. |
Q: |
Is
the Reorganization expected to be taxable to the shareholders of the Acquired Fund? |
|
|
A: |
It
is expected that shareholders of the Acquired Fund will not recognize any gain or loss
for federal income tax purposes as a result of the exchange of their shares in the Acquired
Fund for shares of the Acquiring Fund pursuant to the Reorganization Agreement (except
with respect to cash received in lieu of fractional shares of the Acquiring Fund).
As
a condition to the Acquired Fund’s obligation to consummate the Reorganization, the Acquired Fund and the Acquiring
Fund will receive an opinion from legal counsel to the effect that, on the basis of the existing provisions of the Internal
Revenue Code of 1986, as amended (the “Code”), current administrative rules and court decisions, the transactions
contemplated by the Reorganization Agreement constitute a tax-free reorganization for federal income tax purposes (except
with respect to cash received in lieu of fractional shares of the Acquiring Fund). Despite this opinion, there can be
no assurances that the U.S. Internal Revenue Service will deem the exchanges to be tax-free.
The
portfolio transitioning discussed above may result in capital gains or losses, which may have federal income tax consequences.
The
pre-Reorganization portfolio transitioning noted above is anticipated to result in net capital gains of $78,592, or $0.009 per
share based on Acquired Fund holdings as of September 21, 2023. However, it is anticipated that the Acquired Fund’s capital
loss carryforwards would offset projected realized gains. Prior to the closing date of the Reorganization, the Acquired Fund
will be required to declare a distribution to its shareholders that, together with all previous distributions, will have the
effect of distributing to shareholders all of its investment company taxable income (computed without regard to the deduction
for dividends paid), if any, through the Closing Date, all of its net capital gains, if any, through the Closing Date, and all
of its net tax-exempt interest income, if any, through the Closing Date. Such a distribution may be taxable to the Acquired Fund
shareholders for US federal income tax purposes depending on each shareholder’s individual tax situation, which cannot
be determined by abrdn Inc. or First Trust. The actual tax consequences as a result of the sale of securities in advance of the
Reorganization are dependent on the portfolio composition of the Acquired Fund at the time such sales are made and market conditions.
In
addition, following the Reorganization, the Combined Fund may generate net capital gains or losses as a result of the
portfolio realignment discussed further above. For example, if the Reorganization was completed on September 21, 2023,
it is estimated that approximately $4,250,540, or $0.1473 per share, in capital losses would have resulted from portfolio
transitioning in the Combined Fund following the Reorganization.
The
actual tax consequences as a result of portfolio repositioning after the closing of the Reorganization are dependent on the portfolio
composition of the Acquired Fund at the time of closing and market conditions. Any net capital gain resulting from the realignment
coupled with the results of the Acquiring Fund’s normal operations during the tax year following the close of the Reorganization
would be distributed to the shareholder base of the Combined Fund post-Reorganization in connection with the annual distribution
requirements under US federal tax laws. In addition, the Acquiring Fund is covered by an exemptive order received by the Acquiring
Fund’s investment adviser from the US Securities and Exchange Commission. The exemptive relief allows the Acquiring Fund
to distribute long-term capital gains as frequently as monthly in any one taxable year. It is possible that gains generated post-Reorganization
may be used to supplement the monthly distribution payable to the Combined Fund’s shareholders. |
|
|
Q: |
How
does the Acquired Fund Board suggest that I vote? |
|
|
A: |
The
Acquired Fund Board recommends that you vote “FOR” the Proposal. |
|
|
Q: |
How
do I vote my proxy? |
|
|
A: |
You
may vote in any one of four ways:
• by
mail, by sending the enclosed proxy card, signed and dated, in the enclosed envelope;
• by
phone, by following the instructions set forth on your proxy card; |
|
• via
the Internet, by following the instructions set forth on your proxy card; or
• in
person, by attending the Special Meeting. Please note that shareholders who intend to attend the Special Meeting will need to
provide valid identification and, if they hold shares through a bank, broker or other nominee, satisfactory proof of ownership
of shares, such as a voting instruction form (or a copy thereof) or a letter from their bank, broker or other nominee or broker’s
statement indicating ownership as of October 23, 2023 (the record date), to be admitted to the Special Meeting. You may call
toll-free (866) 864-5057 for information on how to obtain directions to be able to attend the Special Meeting and vote in person.
Broker
dealer firms holding shares in “street name” for the benefit of their customers and clients may request voting instructions
from such customers and clients. You are encouraged to contact your broker dealer and record your voting instructions. |
|
|
Q: |
Whom
do I contact for further information? |
|
|
A: |
If
you need any assistance or have any questions regarding the Proposal or how to vote your shares, please call EQ Fund Solutions, LLC (“EQ”),
the Acquired Fund’s proxy solicitor, at (866) 864-5057 weekdays from 9:00 a.m. to 10:00 p.m. Eastern Time. |
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL MEETING. IN ORDER TO AVOID DELAY AND TO ENSURE THAT YOUR SHARES ARE REPRESENTED, PLEASE VOTE AS PROMPTLY AS POSSIBLE. |
PROXY
STATEMENT FOR
MACQUARIE/FIRST
TRUST GLOBAL INFRASTRUCTURE/UTILITIES DIVIDEND & INCOME FUND
120
East Liberty Drive, Suite 400
Wheaton,
IL 60187
(630)
765-8000
PROSPECTUS
FOR
ABRDN
GLOBAL INFRASTRUCTURE INCOME FUND
1900
Market Street, Suite 200
Philadelphia,
PA 19103
(215)
405-5700
December 18, 2023
This
combined proxy statement/prospectus (the “Proxy Statement/Prospectus”) is furnished to you as a common shareholder of the
Macquarie/First Trust Global Infrastructure/Utilities Dividend & Income Fund (the “Acquired Fund”), a Massachusetts business
trust and a closed-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940
Act”). A special meeting (with any postponements or adjournments, the “Special Meeting”) of shareholders of the Acquired
Fund is scheduled to be held at the offices of the Acquired Fund’s investment adviser, First Trust Advisors L.P. (“First
Trust”), located at 120 East Liberty Drive, Suite 400, Wheaton, Illinois 60187, on February 20, 2024, at 12:00 p.m.
Central Time. At the Special Meeting, shareholders will be asked to consider and to vote on the below proposal (the “Proposal”).
If you are unable to attend the Special Meeting, the Board of Trustees (the “Board”) of the Acquired Fund requests that you
vote your shares by completing and returning the enclosed proxy card or by recording your voting instructions by telephone or via the
Internet. The approximate mailing date of this Proxy Statement/Prospectus is December 26, 2023.
To
approve an Agreement and Plan of Reorganization providing for the transfer of all of the assets of the Acquired Fund to abrdn
Global Infrastructure Income Fund (the “Acquiring Fund”) (each, a “Fund” and collectively, the “Funds”)
in exchange solely for newly issued common shares of beneficial interest of the Acquiring Fund (although cash may be distributed
in lieu of fractional shares of the Acquiring Fund) and the assumption by the Acquiring Fund of all of the liabilities of the
Acquired Fund and the distribution of common shares of beneficial interest of the Acquiring Fund to the shareholders of the Acquired
Fund and complete liquidation of the Acquired Fund (the “Reorganization”)
Shareholders
of record as of the close of business on October 23, 2023, the record date (the “Record Date”), are entitled to notice
of and to vote at the Special Meeting.
Shareholders
of the Acquired Fund are being asked to consider and vote on an Agreement and Plan of Reorganization (the “Reorganization
Agreement”) pursuant to which the Reorganization would be accomplished. The aggregate net asset value (not the market value)
of Acquiring Fund common shares received by the shareholders of the Acquired Fund in the Reorganization would equal the aggregate
net asset value (not the market value) of the Acquired Fund common shares held immediately prior to the Reorganization (although
shareholders may receive cash for fractional shares, which may be taxable).
At
the closing of the Reorganization, the Reorganization Agreement sets forth that the Acquired Fund assets will be valued in accordance
with the Acquired Fund’s valuation procedures as approved by the Board of the Acquired Fund. Upon the consummation of the
Reorganization, the assets transferred to the Acquiring Fund will be valued pursuant to the Acquiring Fund’s valuation procedures
as approved by the Board of Trustees of the Acquiring Fund.
Certain
differences between the valuation procedures of the Acquired Fund and those of the Acquiring Fund exist. Of relevance to the Acquired
Fund is, for purposes of determining a Fund’s net asset value (“NAV”), in certain circumstances, foreign equity
securities that trade on a market that closes prior to the Fund’s valuation time are valued by applying valuation factors
to the last quoted sale price. The Acquired Fund and the Acquiring Fund differ with respect to the circumstances in which such
valuation factors are applied. The impact of this difference on the value of an Acquired Fund shareholder’s investment immediately
after the Reorganization is consummated is uncertain and could be positive or negative depending on market conditions and could
be material.
There
are other differences between the Acquired Fund and the Acquiring Fund. In particular, they have different investment advisers. First
Trust Advisors L.P. (previously defined as “First Trust”), an Illinois limited partnership, is the investment advisor of
the Acquired Fund, and Delaware Investments Fund Advisers (“DIFA”) is the sub-advisor of the Acquired Fund. abrdn Inc. (the
“Adviser”) is the investment adviser of the Acquiring Fund, and abrdn Investments Limited (formerly, Aberdeen Asset Managers
Limited) (“aIL” or the “Sub-Adviser”, and together with abrdn Inc., the “Advisers”) is the investment
sub-adviser of the Acquiring Fund. The Funds have similar investment objectives but substantially different principal investment strategies
and principal risks. The Acquired Fund’s investment objective is to seek to provide a high level of current return consisting of
dividends, interest, and other similar income while attempting to preserve capital, whereas the Acquiring Fund’s principal investment
objective is to seek to provide a high level of total return with an emphasis on current income. The Acquired Fund currently uses leverage
whereas the Acquiring Fund currently does not but may do so in the future. There can be no guarantee that the Combined Fund will leverage
its assets or, to the extent the Combined Fund utilizes leverage, what percentage of its assets such leverage will represent.
The
Acquiring Fund has a term whereas the Acquired Fund does not. The Acquiring Fund’s Declaration of Trust provides that the
Acquiring Fund will have a limited period of existence and will dissolve as of the close of business fifteen (15) years from the
effective date of the initial registration statement of the Acquiring Fund (i.e., July 28, 2035) (and such date, including any
extension, the “Termination Date”); provided, that the Board of Trustees may vote to extend the Termination Date (1)
for one period that may in no event exceed one year following the Termination Date, and (2) for one additional period that may
in no event exceed six months, in each case without a vote of the Acquiring Fund’s shareholders. On or before the Termination
Date, the Acquiring Fund will cease its investment operations, retire or redeem its leverage facilities, if any, liquidate its
investment portfolio (to the extent possible) and distribute all of its liquidated net assets to common shareholders of record
in one or more distributions on or after the Termination Date. Notwithstanding the foregoing, if the Board of Trustees determines
to cause the Acquiring Fund to conduct an Eligible Tender Offer (as defined in the Proxy Statement/Prospectus) and the Eligible
Tender Offer is completed, the Board of Trustees may, in its sole discretion and without any action by the shareholders of the
Fund, eliminate the Termination Date and provide for the Acquiring Fund’s perpetual existence, subject to certain terms
and conditions.
The
common shares of the Acquiring Fund are listed on the New York Stock Exchange (the “NYSE”) under the ticker symbol
“ASGI” and will continue to be so listed following the Reorganization. The common shares of the Acquired Fund are
listed on the NYSE under the ticker symbol “MFD” and would be delisted from the NYSE following the Reorganization.
Shareholder reports, proxy statements and other information concerning Funds can be inspected at the NYSE.
The
following documents have been filed with the Securities and Exchange Commission (“SEC”):
Additionally,
copies of the foregoing and any more recent reports filed after the date hereof may be obtained without charge:
for
the Acquiring Fund:
By Phone: |
|
(800) 522-5465 |
By Mail: |
|
abrdn Global Infrastructure
Income Fund |
|
|
c/o
abrdn Inc.
1900
Market Street, Suite 200 |
|
|
Philadelphia, PA 19103 |
By
Internet: |
|
www.abrdnasgi.com |
for
the Acquired Fund:
By Phone: |
|
(630) 765-8000 |
By Mail: |
|
Macquarie/First Trust
Global Infrastructure/Utilities Dividend & Income Fund |
|
|
120 East Liberty Drive,
Suite 400 |
|
|
Wheaton, IL 60187 |
By
Internet: |
|
https://www.ftportfolios.com |
The
Funds are subject to the informational requirements of the Securities Exchange Act of 1934 (the “Exchange Act”), as
amended, and, in accordance therewith, file reports, proxy statements, proxy materials and other information with the SEC. You
also may view or obtain the foregoing documents from the SEC:
By e-mail: |
|
publicinfo@sec.gov
(duplicating fee required) |
By Internet: |
|
www.sec.gov |
This
Proxy Statement/Prospectus serves as a prospectus of the Acquiring Fund. This Proxy Statement/Prospectus sets forth concisely
the information that shareholders of the Acquired Fund should know before voting on the Proposal. Please read it carefully and
retain it for future reference. No person has been authorized to give any information or make any representation not contained
in this Proxy Statement/Prospectus and, if so given or made, such information or representation must not be relied upon as having
been authorized. This Proxy Statement/Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any
securities in any jurisdiction in which, or to any person to whom, it is unlawful to make such offer or solicitation.
THE
SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE
OF CONTENTS
PROPOSAL |
|
1 |
|
|
|
COMPARISON
OF THE FUNDS |
|
7 |
|
|
|
MANAGEMENT
OF THE FUNDS |
|
40 |
|
|
|
AGREEMENT
BETWEEN FIRST TRUST advisors l.p. AND ABRDN INC. |
|
44 |
|
|
|
NET
ASSET VALUE OF COMMON SHARES OF THE ACQUIRING FUND |
|
47 |
|
|
|
DIVIDEND
REINVESTMENT AND OPTIONAL CASH PURCHASE PLAN |
|
48 |
|
|
|
CERTAIN
PROVISIONS OF THE ACQUIRING FUND’S DECLARATION OF TRUST AND BYLAWS |
|
49 |
|
|
|
ACQUIRING
FUND’S TERM |
|
52 |
|
|
|
APPRAISAL
RIGHTS |
|
54 |
|
|
|
FINANCIAL
HIGHLIGHTS |
|
55 |
|
|
|
INFORMATION
ABOUT THE REORGANIZATION |
|
58 |
|
|
|
TERMS
OF THE REORGANIZATION AGREEMENT |
|
58 |
|
|
|
MATERIAL
FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION |
|
60 |
|
|
|
VOTING
INFORMATION AND REQUIREMENTS |
|
62 |
|
|
|
SHAREHOLDER
INFORMATION |
|
64 |
|
|
|
SHAREHOLDER
PROPOSALS |
|
65 |
|
|
|
SOLICITATION
OF PROXIES |
|
66 |
|
|
|
OTHER
BUSINESS |
|
66 |
PROPOSAL
To
approve a Reorganization Agreement providing for the transfer of all of the assets of the Acquired Fund to the Acquiring Fund
in exchange solely for newly issued common shares of beneficial interest of the Acquiring Fund (although cash may be distributed
in lieu of fractional shares of the Acquiring Fund) and the assumption by the Acquiring Fund of all of the liabilities of the
Acquired Fund and the distribution of common shares of beneficial interest of the Acquiring Fund to the shareholders of the Acquired
Fund and complete liquidation of the Acquired Fund.
Synopsis
The
Board of each Fund, including the Trustees who are not “interested persons” of each Fund (as defined in the 1940 Act)
(the “Independent Trustees”), has approved the Reorganization Agreement. The Acquiring Fund as it would exist after
the Reorganization is referred to as the “Combined Fund.”
Subject
to approval of the Reorganization Agreement by the shareholders of the Acquired Fund, the Reorganization Agreement provides for:
| • | the
transfer of all of the assets of the Acquired Fund to the Acquiring Fund, in exchange
solely for shares of the Acquiring Fund (although cash may be distributed in lieu of
fractional shares of the Acquiring Fund); |
| • | the
assumption by the Acquiring Fund of all of the liabilities of the Acquired Fund; |
| • | the
distribution of common shares of the Acquiring Fund to the shareholders of the Acquired
Fund; and |
| • | the
complete liquidation of the Acquired Fund. |
It
is currently expected that the Reorganization will occur in the first quarter of 2024.
At
the closing of the Reorganization, the Reorganization Agreement sets forth that the Acquired Fund assets will be valued in accordance
with the Acquired Fund’s valuation procedures as approved by the Board of the Acquired Fund. Upon the consummation of the
Reorganization, the assets transferred to the Acquiring Fund will be valued pursuant to the Acquiring Fund’s valuation procedures
as approved by the Board of the Acquiring Fund.
Certain
differences between the valuation procedures of the Acquired Fund and those of the Acquiring Fund exist. Of relevance to the Acquired
Fund is, for purposes of determining a Fund’s net asset value, in certain circumstances, foreign equity securities that
trade on a market that closes prior to the Fund’s valuation time are valued by applying valuation factors to the last quoted
sale price. The Acquired Fund and the Acquiring Fund differ with respect to the circumstances in which such valuation factors
are applied. The impact of this difference on the value of an Acquired Fund shareholder’s investment immediately after the
Reorganization is consummated is uncertain and could be positive or negative depending on market conditions and could be material.
It
is anticipated that approximately 28% of the Acquired Fund’s holdings will be sold by the Acquired Fund before the closing of the
Reorganization in order to pay back the Acquired Fund’s outstanding leverage. This portfolio transition may take a significant amount of time and result in the Acquired Fund holding large amounts of uninvested cash
prior to the Closing Date, and there may be times when the Acquired Fund is not fully invested in accordance
with its investment objective and strategies during this transition period, which may cause the Acquired Fund to forgo any appreciation in value of portfolio investments, if any. This may
impact the Acquired Fund’s performance. As of September 21, 2023 the expected costs to de-lever the portfolio would be approximately
$164,300 (or 0.23% of the Acquired Fund’s NAV as of September 21, 2023) or $0.019 per share. To the extent the Acquired Fund has
holdings in France, Spain and/or Italy, such countries may impose an additional foreign transfer tax on the transfer of such securities
to the Acquiring Fund. These taxes are in addition to the transaction costs disclosed above and would be borne by the Combined Fund.
The foregoing estimates are subject to change depending on the composition of Acquired Fund’s portfolio and market circumstances
at the time any sales are made.
The
portfolio de-leveraging discussed above may result in capital gains or losses, which may have federal income tax consequences
for shareholders of the Acquired Fund.
Following
the Reorganization, the Combined Fund expects to realign its portfolio in a manner consistent with its investment strategies and
policies, which will be the same as the Acquiring Fund’s strategies and policies. The Combined Fund may not be invested
consistent with its investment strategies or abrdn Inc.’s investment approach while such realignment occurs. The realignment
is anticipated to take approximately two weeks, based on current market conditions and assuming that the Acquired Fund’s
holdings are the same as on September 21, 2023. Sales and purchases of less liquid securities will take longer. Due to the increase
in assets, and as a result of the relatively limited availability of infrastructure assets through private transactions (“Private
Infrastructure Opportunities”), the Combined Fund will have a lower percentage of its total assets invested in Private Infrastructure
Opportunities, and a higher percentage of its assets invested in publicly listed infrastructure issuers, following the closing
of the Reorganization. The Combined Fund intends to make additional investments in Private Infrastructure Opportunities in accordance
with its investment strategy following the Reorganization, which could take approximately 12 to 24 months.
Based
on the Acquired Fund’s holdings as of September 21, 2023, the Combined Fund expects to sell approximately 87% of the Acquired
Fund’s portfolio following the closing of the Reorganization. If the Reorganization was completed on September 21,
2023, the expected cost to sell 87% of the Acquired Fund’s holdings following the closing of the Reorganization, which is
estimated to equal 10% of the Combined Fund’s portfolio, would be approximately $516,000 (or 0.09% of the estimated NAV of the
Combined Fund as of September 21, 2023) or $0.015 per share of the Combined Fund. To the extent there are any transaction costs (including brokerage commissions,
transaction charges and related fees) associated with the sales and purchases made in connection with the Reorganization, these will
be borne by the Acquired Fund with respect to the portfolio transitioning conducted before the Reorganization and borne by the
Combined Fund with respect to the portfolio transitioning conducted after the Reorganization.
The
portfolio transitioning pre- and post-Reorganization may result in capital gains or losses, which may have federal income tax consequences
for shareholders of the Acquired Fund and the Combined Fund. The pre-Reorganization transactions noted above are anticipated to result
in net capital gains of $78,592, or $0.009 per share as of September 21, 2023. However, it is anticipated that the Acquired Fund’s
capital loss carryforwards would offset projected realized gains. Prior to the closing date of the Reorganization, the Acquired Fund
will be required to declare a distribution to its shareholders that, together with all previous distributions, will have the effect of
distributing to shareholders all of its investment company taxable income (computed without regard to the deduction for dividends paid),
if any, through the Closing Date, all of its net capital gains, if any, through the Closing Date, and all of its net tax-exempt interest
income, if any, through the Closing Date. Such a distribution may be taxable to the Acquired Fund shareholders for US federal income
tax purposes depending on each shareholder’s individual tax situation, which cannot be determined by abrdn Inc. or First Trust.
The actual tax consequences as a result of the sale of securities in advance of the Reorganization are dependent on the portfolio composition
of the Acquired Fund at the time such sales are made and market conditions.
In
addition, following the Reorganization, the combined portfolio may generate net capital gains or losses as a result of the portfolio
realignment discussed further above. For example, if the Reorganization was completed on September 21, 2023, it is estimated that
approximately $4,250,540 or $0.1473 per share, in capital losses would have resulted from portfolio transitioning in the Fund
following the Reorganization.
The
actual tax consequences as a result of portfolio repositioning after the closing of the Reorganization are dependent on the portfolio
composition of the Acquired Fund at the time of closing and market conditions. Any net capital gain resulting from the realignment
coupled with the results of the Acquiring Fund’s normal operations during the tax year following the close of the Reorganization
would be distributed to the shareholder base of the Combined Fund post-Reorganization in connection with the annual distribution
requirements under US federal tax laws. In addition, the Acquiring Fund is covered by an exemptive order received by the Acquiring
Fund’s investment adviser from the SEC. The exemptive relief allows the Acquiring Fund to distribute long-term capital gains
as frequently as monthly in any one taxable year. It is possible that gains generated post-Reorganization may be used to supplement
the monthly distribution payable to the Combined Fund’s shareholders.
The
Acquired Fund’s investment objective is to seek to provide a high level of current return consisting of dividends, interest,
and other similar income while attempting to preserve capital, whereas the Acquiring Fund’s principal investment objective
is to seek to provide a high level of total return with an emphasis on current income.
Each
Fund has a similar principal investment strategy to invest in infrastructure related issuers, with some substantial differences
described in this Proxy Statement/Prospectus. Both Funds have policies to, under normal circumstances, invest 80% of net assets
plus the amount of any borrowings for investment purposes in US and non-US infrastructure-related issuers. Specifically, under
normal market conditions, at least 80% of the Acquired Fund’s Total Assets are intended to be invested in securities and
instruments of “Infrastructure Issuers,” defined as US and non-US issuers that have as their primary focus (in terms
of income and/or assets) the management, ownership and/or operation of infrastructure and utilities assets in a select group of
countries, that are expected to provide dividends, interest and other similar income. The Acquiring Fund will invest, under normal
circumstances, at least 80% of the Acquiring Fund’s net assets (plus the amount of any borrowings for investment purposes)
in US and non-US infrastructure-related issuers. The Acquiring Fund considers an issuer to be infrastructure-related if (i) at
least 50% of the issuer’s assets consist of infrastructure assets or (ii) at least 50% of the issuer’s gross income
or net profits are attributable to or derived, directly or indirectly, from the ownership, management, construction, development,
operation, utilization or financing of infrastructure assets.
Both
Funds invest in issuers located outside of the United States. The Acquired Fund seeks to invest more than 40% of its Total Assets
in securities and instruments of non-U.S. Infrastructure Issuers located in Australia, New Zealand, Canada, the United Kingdom,
certain European Union member countries, Switzerland, Japan, Hong Kong and Singapore, and no more than 60% of the Acquired Fund’s
Total Assets may be invested in securities and instruments of U.S. Infrastructure Issuers at any time. Under normal circumstances,
the Acquiring Fund will invest in issuers from at least three different countries and will invest significantly (at least 40%
of its total assets – unless market conditions are not deemed favorable by the Adviser, in which case the Acquiring Fund
would invest at least 30% of its total assets) in non-US issuers.
In
addition, both Funds invest in listed equity securities, with the Core Component of the Acquired Fund primarily investing in listed
securities and instruments of Infrastructure Issuers, and the Acquiring Fund, under normal circumstances, investing at least 60%,
and generally expects to invest approximately 75%, of its total assets in listed equity securities of infrastructure-related issuers.
The Acquired Fund may invest up to 25% of the Core Component in unlisted securities and instruments of Infrastructure Issuers.
The Acquiring Fund may invest up to 25% of its total assets, measured at the time of investment, in infrastructure assets through
private transactions.
The
Acquiring Fund has a term whereas the Acquired Fund does not. The Acquiring Fund’s Declaration of Trust provides that the
Acquiring Fund will have a limited period of existence and will dissolve as of the close of business fifteen (15) years from the
effective date of the initial registration statement of the Acquiring Fund (i.e., July 28, 2035) (and such date, including any
extension, the “Termination Date”); provided, that the Board of Trustees may vote to extend the Termination Date (1)
for one period that may in no event exceed one year following the Termination Date, and (2) for one additional period that may
in no event exceed six months, in each case without a vote of the Acquiring Fund’s shareholders. On or before the Termination
Date, the Acquiring Fund will cease its investment operations, retire or redeem its leverage facilities, if any, liquidate its
investment portfolio (to the extent possible) and distribute all of its liquidated net assets to common shareholders of record
in one or more distributions on or after the Termination Date. Notwithstanding the foregoing, if the Board of Trustees determines
to cause the Acquiring Fund to conduct an Eligible Tender Offer (as defined below) and the Eligible Tender Offer is completed,
the Board of Trustees may, in its sole discretion and without any action by the shareholders of the Fund, eliminate the Termination
Date and provide for the Acquiring Fund’s perpetual existence, subject to certain terms and conditions described below.
The
Acquired Fund currently uses leverage whereas the Acquiring Fund currently does not but may do so in the future. The Funds’
strategies relating to their use of leverage, if any, may not be successful, and the Funds’ use of leverage will cause the
Funds’ NAV to be more volatile than it would otherwise be. There can be no guarantee that the Combined Fund will leverage
its assets or, to the extent the Combined Fund utilizes leverage, what percentage of its assets such leverage will represent.
Depending on market conditions, the Acquiring Fund’s portfolio management team may choose not to use any leverage. Although
the use of leverage by a Fund may create an opportunity for increased after-tax total return for the common shares, it also increases
market exposure, results in additional risks and can magnify the effect of any losses.
It
is expected that shareholders of the Acquired Fund will not recognize any gain or loss for federal income tax purposes as a result
of the exchange of their shares in the Acquired Fund for shares of the Acquiring Fund pursuant to the Reorganization Agreement
(except with respect to cash received in lieu of fractional shares of the Acquiring Fund). There can be no assurance that the
U.S. Internal Revenue Service (“IRS”) will deem the exchanges to be tax-free. You should consult your tax adviser
regarding the effect, if any, of the Reorganization in light of your individual circumstances. You should also consult your tax
adviser about other state and local tax consequences of the Reorganization, if any, because the information about tax consequences
in this document relates to the federal income tax consequences of the Reorganization only. For further information about the
federal income tax consequences of the Reorganization, see “Material Federal Income Tax Consequences” below.
As
a condition to the closing of the Reorganization, the Acquired Fund and the Acquiring Fund will receive an opinion from the Acquiring
Fund’s counsel Dechert LLP (based on certain facts, assumptions and representations) to the effect that, on the basis of
the existing provisions of the Internal Revenue Code of 1986, as amended (the “Code”), current administrative rules
and court decisions, the transactions contemplated by the Reorganization Agreement constitute a tax-free reorganization within
the meaning of section 368(a) of the Code (except with respect to cash received in lieu of fractional shares of the Acquiring
Fund). Despite this opinion, there can be no assurances that the IRS will deem the exchanges to be tax-free.
The
portfolio transitioning discussed above may result in capital gains or losses, which may have federal income tax consequences.
Prior
to the date of the Reorganization’s closing, the Acquired Fund may declare one or more distributions to its shareholders
that, together with all previous distributions, will have the effect of distributing to its shareholders all of its investment
company taxable income (computed without regard to the deduction for dividends paid) and net realized capital gains, if any, through
the date of the Reorganization’s closing.
Background and Reasons for the Proposed Reorganization
On October 23, 2023, the Board of the Acquired
Fund approved the Reorganization. For the reasons discussed below, the Board determined that the proposed Reorganization would be in
the overall best interests of the Acquired Fund.
The Board considered the Reorganization over
the course of meetings held in September and October 2023. At those meetings, First Trust discussed with the Board its reasons
for proposing the Reorganization. First Trust stated that it had conducted an evaluation of strategic alternatives for the Acquired Fund
in light of certain factors, including, among others, the Acquired Fund’s discount levels. First Trust reviewed its evaluation
of the strategic alternatives considered for the Acquired Fund, including maintaining the status quo, liquidation, conversion to an open-end
fund, reorganization with an affiliated fund and reorganization with a third-party fund, and advised that, based on its evaluation, First
Trust had determined that a reorganization with a third-party fund would be in the overall best interests of the Acquired Fund. First
Trust reviewed its communications with abrdn Inc. (“AI”), the investment adviser for ASGI, and its affiliate, abrdn Investments
Limited (“AIL” and together with AI, “abrdn”), the investment sub-adviser for ASGI and the due diligence it had
conducted on abrdn, and informed the Board that First Trust was in the process of negotiating an agreement with AI, pursuant to which
AI would acquire certain assets related to First Trust’s business of providing investment management services to the Acquired Fund
and certain other closed-end funds in the First Trust Fund Complex (the “Purchase Transaction”) and that the Reorganization
was being proposed as part of the Purchase Transaction. In connection with the meetings at which the Reorganization was discussed, First
Trust and abrdn provided the Board with a variety of materials relating to the Reorganization and the Purchase Transaction, including
the rationale for and expected benefits and costs of the Reorganization, comparative information about the Funds and information about
the Purchase Transaction and abrdn. Based on all the information reviewed, First Trust expressed its belief that the Reorganization was
the best option for existing shareholders of the Acquired Fund and that the Board should approve and recommend that shareholders of the
Acquired Fund approve the Reorganization. First Trust highlighted that the Reorganization would allow existing shareholders of the Acquired
Fund to remain in a closed-end fund with a similar investment objective, noting that, compared to the Acquired Fund, the Acquiring Fund
has a stronger performance track record on a NAV basis, currently trades at a similar discount, provides a lower yet still above-market
distribution rate, has a lower total expense ratio and offers better overall liquidity in light of its larger size and higher average
daily trade volume. In addition, at the meetings, the Board received presentations from representatives of abrdn and was able to ask
questions about the Reorganization, the Purchase Transaction, abrdn and the Acquiring Fund. In connection with the meetings and prior
to approving the Reorganization, the Independent Trustees of the Acquired Fund met in private sessions and reviewed the information provided
and discussed the proposed Reorganization with their independent legal counsel.
Based upon all the information provided taken
as a whole and the discussions at the meetings, the Board, including all of the Independent Trustees, approved the Reorganization, and
determined that the Reorganization would be in the overall best interests of the Acquired Fund. Accordingly, the Board recommends that
shareholders of the Acquired Fund approve the Reorganization.
In determining to approve the Reorganization
and to recommend that shareholders of the Acquired Fund approve the Reorganization, the Board considered, among other things, the following
factors:
| · | Compatibility
of Investment Objectives and Policies; Closed-End Fund Structure and Term Structure.
The Board noted that the Funds have similar investment objectives, with the Acquired Fund
seeking to provide a high level of current return consisting of dividends, interest, and
other similar income while attempting to preserve capital and the Acquiring Fund seeking
to provide a high level of total return with an emphasis on current income. The Board considered
similarities and differences between the Funds’ investment strategies, noting that
each Fund provides global exposure to income-producing infrastructure assets, while also
noting, among other differences, that the Acquired Fund’s portfolio includes a core
component consisting primarily of equity investments as well as a senior loan component whereas
the Acquiring Fund’s portfolio predominantly consists of equity investments, and that
the Acquiring Fund is able to invest in emerging markets, industrial assets and private infrastructure
assets. The Board also noted that, unlike the Acquired Fund, the Acquiring Fund operates
as a non-diversified fund under the 1940 Act and therefore, the Acquiring Fund may invest
a relatively high percentage of its assets in a smaller number of issuers or may invest a
larger proportion of its assets in a single issuer than the Acquired Fund. The Board considered
that, unlike the Acquired Fund, the Acquiring Fund does not currently utilize leverage and
does not intend to do so for the foreseeable future, and that the Acquired Fund would need
to eliminate its leverage prior to the closing of the Reorganization, which would require
sales of portfolio securities and related transaction costs to the Acquired Fund. The Board
also considered that approximately 87% of the Acquired Fund’s remaining portfolio would
be repositioned post-Reorganization, resulting in transaction costs, which would be borne
by the Acquiring Fund, including shareholders of the Acquired Fund who remain in the Acquiring
Fund. In addition, the Board noted that both Funds are structured as closed-end investment
companies and considered the advantages of such structure, including the ability to use leverage
and hold less liquid and potentially higher yielding assets. The Board also noted that, unlike
the Acquired Fund, the Acquiring Fund has a limited 15-year term that continues to 2035,
after which the Acquiring Fund will liquidate its portfolio and terminate (if no other action
is taken as permitted under the Acquiring Fund’s organizational documents). |
| · | Investment
Capabilities and Financial Condition of abrdn. The Board considered information provided
with respect to abrdn’s investment capabilities and products, including its closed-end
fund business, noting abrdn’s statements that it has managed and operated closed-end
funds for nearly four decades, that its registered closed-end fund business is the third
largest globally and that it continues to view closed-end funds as a core area of growth
for its business. The Board also considered information regarding abrdn’s financial
strength and resources and the services it provides to the Acquiring Fund, noting abrdn’s
representation that abrdn continues to review and provide the required resources to ensure
high quality and professional management services to the Acquiring Fund. In addition, the
Board considered other information regarding abrdn’s investment platform, including
abrdn’s administration and investor support services, abrdn’s valuation process
and abrdn’s risk management infrastructure. The Board also considered the presentations
from representatives of abrdn at the meetings in September and October 2023. In
evaluating the capabilities and resources of abrdn and the rationale for the Reorganization,
the Board also considered First Trust’s assessment of abrdn. The Board noted that the
reorganizations of three other closed-end funds in the First Trust Fund Complex into closed-end
funds managed by abrdn are also contemplated by the Purchase Transaction. |
| · | Portfolio
Management. The Board noted that, like the Acquired Fund, the Acquiring Fund employs
an adviser/sub-adviser management structure, although the Acquired Fund’s sub-adviser
is not affiliated with its adviser whereas the Acquiring Fund’s adviser and sub-adviser
are affiliated. The Board considered the background and experience of the persons responsible
for the management of the Acquiring Fund’s portfolio, including their tenure at abrdn
and their experience managing closed-end funds, as well as information regarding investment
support resources at abrdn that are utilized by the portfolio management team. |
| · | The
Acquiring Fund Board Governance. The Board considered information provided by abrdn regarding
the governance structure of the Acquiring Fund’s Board, the compliance and risk program
and the service providers rendering core services to the Acquiring Fund. |
| · | Valuation
of Portfolio Investments. The Board noted the information provided by abrdn regarding
the valuation procedures used to value the Acquiring Fund’s investments and considered
the uncertain impact on the value of an Acquired Fund shareholder’s investment immediately
after the Reorganization as a result of differences in the Funds’ valuation procedures. |
| · | Comparison
of Fees and Expense Ratios; Expense Savings. The Board considered comparative expense
information for the Funds, including comparisons between the current advisory fee rates and
total expense ratios for the Funds and the estimated pro forma advisory fee rate and
total expense ratio of the combined fund. The Board noted that the Acquiring Fund’s
stated advisory fee rate of 1.35% of managed assets is higher than the Acquired Fund’s
stated advisory fee rate of 1.00% of managed assets and that it would not change as a result
of the Reorganization. The Board considered that AI has contractually agreed to limit the
Acquiring Fund’s total ordinary operating expenses (excluding any leverage expenses,
interest, taxes, brokerage fees and non-routine expenses) to 1.65% of net assets and, in
connection with the Reorganization, has proposed to extend this contractual expense limitation
for 12 months from the closing of the Reorganization or to June 30, 2025, whichever
is later. The Board considered that the estimated pro forma total expense ratio of
the Acquiring Fund post-Reorganization of 1.61% of net assets was lower than the total expense ratio of the Acquired Fund as of the end of its most recent semi-annual fiscal period
of 1.73% of net assets (excluding leverage costs) and 3.80% of net assets (including leverage
costs) and that shareholders of the Acquired Fund were expected to benefit from significant
cost savings as a result of the Reorganization. The Board noted that the estimated pro forma
total expense ratio for the Acquiring Fund post-Reorganization was below the contractual
expense limitation and assumes that the Acquiring Fund does not employ leverage. The Board
considered abrdn’s statement that, although the Acquiring Fund does not currently utilize
leverage and does not intend to do so for the foreseeable future, the Acquiring Fund does
have the ability to utilize leverage and it could be implemented in the future if the portfolio
managers determine it is appropriate and constructive to shareholders based on market conditions
and opportunities available in the market at that time. The Board noted that leverage costs
would not be subject to the contractual expense limitation. |
| · | Fund
Performance and Distribution Rates. The Board reviewed the performance of the Funds,
noting that the Acquiring Fund had outperformed the Acquired Fund on a NAV basis for the
one- and three-year periods ended September 30, 2023. In reviewing the Funds’
performance, the Board took into account the different investment strategies of the Funds.
The Board also received information comparing the Funds’ distribution rates and noted
that although the Acquiring Fund’s distribution rate on NAV of 6.87% as of the end
of its most recent semi-annual fiscal period is lower than the Acquired Fund’s distribution
rate on NAV of 8.94% as of the end of its most recent semi-annual fiscal period, distributions
paid by the Acquiring Fund and the Acquired Fund over the past two fiscal years have been
comprised of 0% and 26% return of capital, respectively, and the Acquiring Fund’s distribution
rate is still above market. |
| · | Anticipated
Tax-Free Reorganization; Other Tax Impact. The Board noted First Trust’s representation
that the Reorganization will be structured with the intention that it qualify as a tax-free
reorganization for federal income tax purposes and that each Fund will obtain an opinion
of counsel substantially to this effect (based on certain factual representations and certain
customary assumptions). In addition, the Board noted information indicating that the Acquired
Fund’s capital loss carryforwards would offset projected realized gains relating to
pre-Reorganization portfolio sales in connection with the elimination of leverage for the
Acquired Fund and that post-Reorganization sales of the Acquired Fund’s portfolio securities
were expected to result in capital losses. |
| · | Potential
for Improved Trading and Liquidity and Narrower Discounts. The Board considered the larger
asset size and higher average daily trading volume of the Acquiring Fund as compared to the
Acquired Fund and that shareholders of the Acquired Fund may benefit from becoming shareholders
of a larger fund with higher trading volume, potentially resulting in improved liquidity
and narrower bid-ask spreads. The Board noted abrdn’s expectation that a larger fund
should provide improved scale and liquidity for shareholders with a larger free float and
engender greater market visibility, analyst and media coverage attracting more buyers and
increased trading of fund shares. The Board considered that, in general, the Acquired Fund’s
shares have historically traded at a narrower discount to NAV compared to the Acquiring Fund’s
shares, although the Acquiring Fund’s shares at times have traded at a narrower discount
compared to the Acquired Fund’s shares and the Funds’ current discounts are similar.
The Board considered abrdn’s statements that the Acquiring Fund’s discount has
trended closer to the Acquired Fund’s recently and that this is likely related to the
Acquiring Fund’s recent reorganization with Macquarie Global Infrastructure Total Return
Fund, which increased the Acquiring Fund’s size from approximately $205 million to
approximately $523 million, improving liquidity and market visibility. The Board noted abrdn’s
expectation that the combination of the Funds should provide improved liquidity and tradability
creating improved potential for a narrower discount and lower discount volatility over time.
The Board also considered that the Acquiring Fund’s term structure would provide shareholders
the opportunity to exit the Fund at NAV as of the termination date. |
| · | Expenses
of the Reorganization. The Board noted that the direct costs of the Reorganization, including
legal costs and costs associated with proxy solicitation, would be borne by First Trust and
abrdn. The Board noted the transaction costs to be borne by the Acquired Fund in connection
with the elimination of leverage pre-Reorganization and the transaction costs to be borne
by the Acquiring Fund (including shareholders of the Acquired Fund who remain in the Acquiring
Fund) as a result of portfolio repositioning post-Reorganization and considered estimates
of such costs. |
| · | Alternatives
to the Reorganization. The Board noted First Trust’s discussion of alternatives
to the Reorganization, including maintaining the status quo, liquidation, conversion to an
open-end fund, reorganization with an affiliated fund and reorganization with a third-party
fund, and First Trust’s recommendation that the Reorganization was the best option for
existing shareholders of the Acquired Fund. As set forth herein, the Board noted the small size of the Acquired Fund and the potential benefits of being a shareholder in a larger
fund; that the Reorganization is expected to qualify as a tax-free reorganization whereas a liquidation may result in a taxable event
for shareholders; the benefits of a closed-end fund structure versus an open-end fund structure; and abrdn's experience managing and operating
closed-end funds. In addition, the Board noted that First Trust indicated that there was no similar global infrastructure product for
a reorganization with an affiliated fund. |
| · | Terms
and Conditions of the Reorganization. The Board considered the terms and conditions of
the Reorganization and whether the Reorganization would result in the dilution of the interests
of existing shareholders of the Acquired Fund in light of the basis on which shares of the
Acquiring Fund would be issued to shareholders of the Acquired Fund. The Board noted abrdn’s
statement indicating that, although none of the reorganizations contemplated by the Purchase
Transaction, including the Reorganization, is contingent upon any other reorganization, if
the reorganizations are not approved, or if the other conditions in the Purchase Transaction
agreement are not satisfied or waived, then the Purchase Transaction may not be completed,
and the Purchase Transaction agreement and the Reorganization may be terminated. |
In addition, the Board considered the Reorganization
in light of the increased focus by activist investors on the First Trust Fund Complex closed-end fund suite and the significant costs
that may be imposed on the Acquired Fund in connection with an activist campaign, including potential litigation costs. The Board considered
that the Reorganization may have the additional benefit of reducing the likelihood of an activist campaign against the larger combined
fund. The Board noted abrdn’s view that the Reorganization will help ensure the viability of the Funds for the benefit of long-term
shareholders by addressing risks arising from lack of scale, primarily liquidity, marketability challenges and fund costs that lead to
wider discounts over time giving investors a poorer outcome and resulting in increasing threats from activists. In evaluating the Reorganization,
the Board also considered that First Trust will receive compensation from abrdn in connection with the Purchase Transaction.
Based upon on all of the foregoing considerations,
the Board, in the exercise of its business judgment, approved the Reorganization, including the proposed Agreement and Plan of Reorganization
and the Reorganization contemplated thereby, and determined that the Reorganization would be in the overall best interests of the Acquired
Fund. No single factor was determinative in the Board’s analysis and all factors were taken as a whole. The Board, including
the Independent Trustees, unanimously recommends that shareholders of the Acquired Fund approve the Reorganization.
On October 23, 2023, First Trust, abrdn Inc. and, for the purposes specified therein, abrdn plc entered into a separate agreement (the
“Purchase Agreement”) pursuant to which abrdn will acquire certain assets related to First Trust’s business of providing
investment management services relating to the assets of the Acquired Fund and certain other registered investment companies (the “Business”)
if the Reorganization is approved, and upon satisfaction or waiver of certain other conditions. More specifically, under the Purchase
Agreement, First Trust has agreed to transfer to abrdn Inc., for a cash payment at the closing of the Asset Transfer (as defined below)
and subject to certain exceptions, (i) all right, title and interest of First Trust in and to the books and records relating to the Business
and the Acquired Fund and (ii) all goodwill of the Business as a going concern. Such transfers hereinafter are referred to collectively
as the “Asset Transfer.”
Vote
Required for the Proposal
The
Proposal will require the affirmative vote of a majority of the outstanding voting shares (as defined under the 1940 Act) of the
Acquired Fund. The 1940 Act defines a majority of the outstanding voting shares as the lesser of either (i) at least 67% of the
voting securities present at the Special Meeting, if at least 50% of such securities are present or represented by proxy, or (ii)
more than 50% of the outstanding voting shares. For additional information regarding voting requirements, see “Voting Information
and Requirements.”
COMPARISON
OF THE FUNDS
Investment
Objectives
Both
of the Funds seek to provide a high level of return.
The
investment objectives of the Funds are similar. The Acquired Fund’s investment objective is to seek to provide a high level
of current return consisting of dividends, interest, and other similar income while attempting to preserve capital. The Acquiring
Fund’s principal investment objective is to seek to provide a high level of total return with an emphasis on current income.
There can be no assurance that either Fund will achieve its investment objective.
The
Acquiring Fund’s investment objective is not fundamental and may be changed without shareholder approval, while the Acquired
Fund’s investment objective is 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.
Principal
Investment Strategies
Each
Fund has a similar principal investment strategy to invest in infrastructure related issuers. Both Funds have policies to, under
normal circumstances, invest 80% of net assets plus the amount of any borrowings for investment purposes in US and non-US infrastructure-related
issuers. Specifically, under normal market conditions, at least 80% of the Acquired Fund’s Total Assets are intended to
be invested in securities and instruments of “Infrastructure Issuers,” defined as US and non-US issuers that have
as their primary focus (in terms of income and/or assets) the management, ownership and/or operation of infrastructure and utilities
assets in a select group of countries, that are expected to provide dividends, interest and other similar income. The Acquiring
Fund will invest, under normal circumstances, at least 80% of the Acquiring Fund’s net assets (plus the amount of any borrowings
for investment purposes) in US and non-US infrastructure-related issuers. The Acquiring Fund considers an issuer to be infrastructure-related
if (i) at least 50% of the issuer’s assets consist of infrastructure assets or (ii) at least 50% of the issuer’s gross
income or net profits are attributable to or derived, directly or indirectly, from the ownership, management, construction, development,
operation, utilization or financing of infrastructure assets.
Both
Funds invest in issuers located outside of the United States. The Acquired Fund seeks to invest more than 40% of its Total Assets
in securities and instruments of non-U.S. Infrastructure Issuers located in Australia, New Zealand, Canada, the United Kingdom,
certain European Union member countries, Switzerland, Japan, Hong Kong and Singapore, and no more than 60% of the Acquired Fund’s
Total Assets may be invested in securities and instruments of U.S. Infrastructure Issuers at any time. Under normal circumstances,
the Acquiring Fund will invest in issuers from at least three different countries and will invest significantly (at least 40%
of its total assets – unless market conditions are not deemed favorable by the Adviser, in which case the Acquiring Fund
would invest at least 30% of its total assets) in non-US issuers.
In
addition, both Funds invest in listed equity securities, with the Core Component of the Acquired Fund primarily investing in listed
securities and instruments of Infrastructure Issuers, and the Acquiring Fund, under normal circumstances, investing at least 60%,
and generally expects to invest approximately 75%, of its total assets in listed equity securities of infrastructure-related issuers.
The Acquired Fund may invest up to 25% of the Core Component in unlisted securities and instruments of Infrastructure Issuers.
The Acquiring Fund may invest up to 25% of its total assets, measured at the time of investment, in infrastructure assets through
private transactions.
The
Acquired Fund currently uses leverage whereas the Acquiring Fund currently does not but may do so in the future. There can be
no guarantee that the Combined Fund will leverage its assets or, to the extent the Combined Fund utilizes leverage, what percentage
of its assets such leverage will represent. Please see “Leverage” below for additional information regarding the Funds’
strategies with respect to use of leverage.
The
following table shows the principal investment strategies of each Fund.
Acquired
Fund |
Acquiring
Fund |
In
pursuit of the Fund’s objective, the Fund seeks to manage its investments and expenses
so that a significant portion of its distributions to the Fund’s common shareholders
qualify as tax-advantaged dividends, subject to the continued availability of favorable
tax treatment for such qualifying dividends. The Fund seeks to achieve its investment
objective by investing in a portfolio of equity, debt, preferred or convertible securities
and other instruments issued by U.S. and non-U.S. issuers (“Infrastructure Issuers”)
that have as their primary focus (in terms of income and/or assets) the management, ownership
and/or operation of infrastructure and utilities assets (“Infrastructure Assets”)
in a select group of countries (as detailed below).
The
Fund consists of two components: (1) the “Core Component” and (2) the “Senior Loan Component.”
The Core Component consists primarily of equity securities and securities and instruments with equity characteristics,
and other securities and instruments issued by Infrastructure Issuers (collectively, “Core Infrastructure Securities”).
The Senior Loan Component consists of senior secured floating-rate U.S. dollar-denominated loans of Infrastructure Issuers
(“Infrastructure Senior Loans”) from the funds raised through the Fund’s use of leverage.
As
used herein, “Total Assets” generally means the average daily gross asset value of the Fund (including assets
attributable to the proceeds of the Fund’s preferred shares of beneficial interest (“Preferred Shares”),
if any, and the principal amount of any borrowings) minus the sum of the Fund’s accrued and unpaid dividends on
any outstanding Preferred Shares and accrued liabilities (other than the principal amount of any borrowings incurred,
commercial paper or notes issued by the Fund and the liquidation preference of any outstanding Preferred Shares). For
the purposes of determining Total Assets, the liquidation preference of the Preferred Shares is not treated as a liability.
In
pursuit of its investment objective, under normal market conditions:
• The
Fund seeks to invest more than 40% of its Total Assets in securities and instruments of non-U.S. Infrastructure Issuers
located in Australia, New Zealand, Canada, the United Kingdom, certain European Union member countries, Switzerland, Japan,
Hong Kong and Singapore.
|
The
Fund seeks to achieve its investment objective by investing primarily in a portfolio
of income-producing public and private infrastructure equity investments around the world.
Under
normal circumstances, at least 80% of the Fund’s net assets (plus the amount of any borrowings for investment purposes)
will be invested in US and non-US infrastructure-related issuers. The Fund considers an issuer to be infrastructure-related
if (i) at least 50% of the issuer’s assets consist of infrastructure assets or (ii) at least 50% of the issuer’s
gross income or net profits are attributable to or derived, directly or indirectly, from the ownership, management, construction,
development, operation, utilization or financing of infrastructure assets. Infrastructure assets are the physical structures
and networks that provide necessary services to society. Examples of infrastructure assets include, but are not limited
to, transportation assets (e.g., toll roads, bridges, tunnels, parking facilities, railroads, rapid transit links, airports,
refueling facilities and seaports), utility assets (e.g., electric transmission and distribution lines, power generation
facilities, gas and water distribution facilities and sewage treatment plants), communications assets (e.g., wireless
telecommunication services, cable and satellite networks, broadcast and wireless towers), energy infrastructure assets
(e.g., pipelines) and social assets (e.g., courthouses, hospitals, schools, correctional facilities, stadiums and subsidized
housing).
The
Fund may invest in issuers located anywhere in the world, including issuers located in emerging markets. Under normal
circumstances, the Fund will invest in issuers from at least three different countries and will invest significantly (at
least 40% of its total assets – unless market conditions are not deemed favorable by the Advisers, in which case
the Fund would invest at least 30% of its total assets) in non-US issuers. A company is considered a non-US issuer if
Fund management determines that the company meets one or more of the following criteria:
• the
company is organized under the laws of or has its principal place of business in a country outside the US;
• the
company has its principal securities trading market in a country outside the US; and/or
• the
company derives the majority of its annual revenue or earnings or assets from goods produced, sales made or services performed
in a country outside the US.
|
Acquired
Fund |
Acquiring
Fund |
• No
more than 60% of the Fund’s Total Assets may be invested in securities and instruments
of U.S. Infrastructure Issuers at any time.
• No
more than 7% of the Fund’s Total Assets may be invested in the securities and instruments of any single Infrastructure
Issuer at any time.
• At
least 80% of the Fund’s Total Assets are intended to be invested in securities and instruments of Infrastructure
Issuers that are expected to provide dividends, interest and other similar income. This investment policy cannot be changed
unless the shareholders of the Fund receive at least 60 days’ prior notice of any such change.
• No
more than 30% of the Fund’s Total Assets may be invested in the securities and instruments of non-U.S. Infrastructure
Issuers located in any one country at any time.
• Up
to 100% of the Fund’s Total Assets may be comprised of securities and instruments of Infrastructure Issuers that
manage, own and/or operate Infrastructure Assets.
• The
Fund may invest up to 15% of its Total Assets in infrastructure securities in countries which are not members of the Organization
for Economic Corporation and Development (OECD).
• As
to the Core Component:
○ The
Fund primarily invests in listed securities and instruments of Infrastructure Issuers, however the Fund may invest up
to 25% of the Core Component in unlisted securities and instruments of Infrastructure Issuers.
○ The
Fund invests more than 50% of the Core Component (and may invest up to 100%) in securities and instruments of non-U.S.
Infrastructure Issuers.
○ Within
the Core Component, no more than 45% of the Core Infrastructure Securities may, at any time, consist of securities and
instruments of U.S. Infrastructure Issuers.
• As
to the Senior Loan Component:
○ At
least 80%, and up to 100%, of the Senior Loan Component consists of Infrastructure Senior Loans that are rated non-investment
grade. |
It
is currently anticipated that, under normal circumstances, the Fund’s investments
in emerging market issuers will not exceed 30% of the Fund’s total assets. At times,
the Fund may have a significant amount of its assets invested in a country or geographic
region. The Fund may invest in securities denominated in US dollars and currencies of
foreign countries.
The
Fund’s investment portfolio generally will be comprised of the following:
• Public
Infrastructure Investments. The Fund will, under normal circumstances, invest at least 60%, and generally expects
to invest approximately 75%, of its total assets in listed equity securities of infrastructure-related issuers. Equity
securities in which the Fund intends to invest include primarily common stocks, preferred stocks and depositary receipts.
The Fund may invest in securities of any market capitalization. During the period of initial investment in Private Infrastructure
Opportunities (defined below), and as the Fund approaches the end of its 15-year term, the Fund may refrain from making
new investments in Private Infrastructure Opportunities, if necessary, for liquidity purposes, and invest up to 100% of
its total assets in public infrastructure investments.
• Private/Direct
Infrastructure Investments. Under normal circumstances, the Fund will invest at least 10%, and currently intends to generally
invest closer to 25%, of its total assets, measured at the time of investment, in infrastructure assets through private transactions
(“Private Infrastructure Opportunities”). A “private transaction” means an investment in infrastructure
assets through the purchase of securities in a transaction that is exempt from registration under the Securities Act of 1933,
as amended (the “Securities Act”). Private Infrastructure Opportunities include investments in: (i) sponsor vehicles
created for the purpose of investing in private infrastructure companies or assets, as described below; (ii) equity or credit
interests in private infrastructure operating companies; and (iii) to a lesser extent, private equity funds that invest in infrastructure
assets. Private Infrastructure Opportunities may include investments alongside other funds or accounts advised by the Advisers
or their affiliates in certain infrastructure assets (“Co-Investment Opportunities”) or on a stand-alone basis alongside
other investors (“Stand-Alone Opportunities”). Unless and until the Fund receives an exemptive order from the SEC
to co-invest in negotiated Co-Investment Opportunities (which cannot be assured), the Fund will only invest in Co-Investment Opportunities
where the transaction is permitted under existing regulatory guidance, such as transactions in which price is the only negotiated
term. Certain Co-Investment Opportunities and Standalone Opportunities may be issued by sponsor vehicles structured, for administrative
and/or tax purposes, as funds that would be investment companies but for the provisions of Section 3(c)(1) or 3(c)(7) of the 1940
Act (“sponsor vehicles”). Such sponsor vehicles do not generally have the same characteristics as funds relying on
Section 3(c)(1) or 3(c)(7) that are commonly known as “private equity funds”. The Fund will not invest in funds commonly
known as “private equity funds”. The Fund will invest no more than 15% of its net assets, measured at the time of
investment, in all sponsor vehicles and no more than 3% of its net assets, measured at the time of investment, in a single sponsor
vehicle. In addition, at all times, the Fund will own only a minority ownership interest (i.e., less than 50%) in any sponsor
vehicle in which it invests. |
Acquired
Fund |
Acquiring
Fund |
• The
Fund through the issuance of preferred shares, commercial paper or notes and/or borrowings
utilizes leverage up to a maximum of 30% of the Fund’s total assets, immediately
after such issuance and/or borrowing.
• The
Fund is authorized to enter into forward currency contracts or currency futures contracts to selectively hedge certain
currencies for defensive purposes.
To
the extent the Fund enters into derivatives transactions, it will do so pursuant to Rule 18f-4 under the 1940 Act. Rule
18f-4 requires the Fund to implement certain policies and procedures designed to manage its derivatives risks, dependent
upon the Fund’s level of exposure to derivative instruments.
The
Fund utilizes leverage through the issuance of instruments (each a “Leverage Instrument” and collectively,
the “Leverage Instruments”) in an aggregate amount up to 30% of the Fund’s Total Assets immediately
after such issuance and/or borrowing. The Fund expects to invest the proceeds derived from any Leverage Instrument offering
in Infrastructure Senior Loans or other debt securities consistent with the Fund’s investment objective and policies.
Such Infrastructure Senior Loans or other debt securities are anticipated to largely match the interest rate of the Fund’s
then outstanding leverage. The Fund may also 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.
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 to persons unaffiliated with the Fund for services in arranging these
loans.
|
The
Fund may have a lower percentage of its total assets invested in Private Infrastructure
Opportunities and a higher percentage of its assets invested in publicly listed infrastructure
issuers during certain periods in the life-cycle of the Fund, such as during the periods
of initial investment in Private Infrastructure Opportunities and as the Fund approaches
the end of its 15-year term. In addition, as the Fund disposes of individual Private
Infrastructure Opportunities, the Fund will look to redeploy its capital into new Private
Infrastructure Opportunities, which may be scarce. As the Fund approaches the end of
its 15-year term, the Fund may refrain from making new investments in Private Infrastructure
Opportunities, if necessary, for liquidity purposes, and increase its allocation to listed
infrastructure investments. During such periods, the Fund may have a lower percentage
of its total assets invested in Private Infrastructure Opportunities and may invest up
to 100% in public infrastructure investments.
In
addition, the Fund may use derivative instruments from time to time, primarily to hedge currency exposure, although it is not
required to do so. To the extent the Fund invests in derivative instruments that provide economic exposure to infrastructure-related
issuers, such investments will be counted for purposes of the Fund’s 80% investment policy. The Fund will value derivatives
based on market value or fair value for purposes of its 80% investment policy.
|
Acquired
Fund |
Acquiring
Fund |
The
Fund may deviate from its investment guidelines from time to time as deemed appropriate under prevailing economic and market conditions
to achieve its investment objective over the long-term. If any allocation of assets exceeds the applicable investment guideline,
the Fund will seek to reduce the allocation as soon as practicable based on the liquidity of its assets and other market factors.
The Fund may invest its assets temporarily in other investments and securities of various types pending investment or reinvestment
in securities and instruments of Infrastructure Issuers. Pending investment or reinvestment, such temporary investments and securities
will not be taken into account for purposes of the Fund’s allocation guidelines. For temporary defensive purposes, the Fund
may depart from its principal investment strategies and invest part or all of its assets in securities with remaining maturities
of less than one year or cash equivalents, or it may hold cash. During such periods, the Fund may not be able to achieve its investment
objective. |
In
selecting public infrastructure investments, the Advisers seek to invest in quality companies and are an active, engaged
owner. The Advisers evaluate a company against quality criteria and build conviction using a team-based approach and peer
review process. The quality assessment covers five key factors: 1) the durability of the business model, 2) the attractiveness
of the industry, 3) the strength of financials, 4) the capability of management, and 5) the most material environmental,
social and governance (“ESG”) factors impacting a company. The Advisers seek to understand what is changing
in companies, industries and markets but is not being priced into the market or is being mispriced. Through fundamental
research, supported by a global research presence, the Advisers seek to identify companies whose quality is not yet fully
recognized by the market. As active equity investors, the Advisers use deep fundamental research and a disciplined investment
process to pursue the Fund’s investment objective.
With
respect to the Fund’s private/direct infrastructure investments, the Advisers’
process combines the team’s expertise in sourcing, diligencing and monitoring Private
Infrastructure Opportunities developed over the past decade. The Advisers maintain a
database of hundreds of industry contacts and tracks a vast number of investment opportunities
on an ongoing basis. The Advisers use this informational advantage, combined with first
hand research, a disciplined due diligence process and its experience and understanding
of the infrastructure sector and the related risks, in order to select Private Infrastructure
Opportunities that the team believes will help it achieve the Fund’s investment
objective. The Advisers pursue Private Infrastructure Opportunities as a means of dynamically
allocating capital and taking advantage of specific market opportunities. The Advisers
believe that these opportunities can generate incremental returns depending on the timing
and quality of available opportunities.
The
Fund may invest up to 20% of its net assets in securities issued by companies that are not infrastructure companies. The
Fund may also invest in debt securities, including short-term debt obligations, cash or cash equivalents.
The
Fund intends to achieve the income component of its investment objective by investing in dividend-paying listed equity
securities and Private Infrastructure Opportunities. The Fund’s income distributions are supplemented by realized
capital gains and, to the extent necessary, paid-in capital, which is a nontaxable return of capital.
Unless
otherwise stated, the Fund’s investment policies are non-fundamental policies and may be changed by the Board without
prior shareholder approval. The Fund’s policy to invest at least 80% of its net assets (plus any borrowings for
investment purposes) in US and non-US infrastructure-related issuers may be changed by the Board without shareholder approval;
however, if this policy changes, the Fund will provide shareholders at least 60 days’ written notice before implementation
of the change in compliance with SEC rules. Unless otherwise stated, these investment restrictions apply at the time of
purchase; the Fund will not be required to reduce a position due solely to market price fluctuations.
|
Acquired
Fund |
Acquiring
Fund |
|
During
the period in which the Fund was investing the net proceeds of its initial offering, the Fund was permitted to deviate from its
investment policies by investing the net proceeds in money market mutual funds; cash; cash equivalents; securities issued or guaranteed
by the US government or its instrumentalities or agencies; high quality, short-term money market instruments; short-term debt
securities; certificates of deposit; bankers’ acceptances and other bank obligations; commercial paper or other liquid debt
securities. Under adverse market or economic conditions, the Fund may invest up to 100% of its total assets in these securities
on a temporary basis. In addition, immediately leading up to the date of the Fund’s dissolution (see “Term”
below), in connection with an Eligible Tender Offer (as defined below), the Fund may invest a significant portion of its assets
in these securities on a temporary basis. To the extent the Fund invests in these securities, the Fund may not achieve its investment
objective. |
Distribution
Information
The
Acquired Fund currently pays a quarterly distribution of $0.20 per share; based on the market price and NAV as of September 29,
2023, the Acquired Fund’s annualized distribution rate is 11.53% and 9.82%, respectively. The Acquiring Fund currently pays
a monthly distribution of $0.12 per share; based on the market price and NAV as of September 29, 2023, the Acquiring Fund’s
annualized distribution rate is 8.90% and 7.50%, respectively. The Combined Fund expects to pay a monthly distribution of $0.12
per share and would have the same distribution yield as the Acquiring Fund. In addition, the Acquiring Fund is covered by an exemptive order received by the Acquiring
Fund’s investment adviser from the SEC. The exemptive relief allows the Acquiring Fund to distribute long-term capital gains
as frequently as monthly in any one taxable year. It is possible that gains generated post-Reorganization may be used to supplement
the monthly distribution payable to the Combined Fund’s shareholders.
The
Combined Fund intends to make its first distribution to shareholders in the month immediately following the Reorganization. In
addition, the Combined Fund expects to follow the same frequency of payments as the Acquiring Fund and to make monthly distributions
to shareholders.
Please
see “Description of Common Shares to be Issued by the Acquiring Fund; Comparison to the Acquired Fund” below for additional
information.
Leverage
The
Acquired Fund currently uses leverage in the form of bank borrowings whereas the Acquiring Fund currently does not but may do
so in the future. The Funds’ strategies relating to their use of leverage, if any, may not be successful, and the Funds’
use of leverage will cause the Funds’ NAV to be more volatile than it would otherwise be. There can be no guarantee that
the Combined Fund will leverage its assets or, to the extent the Combined Fund utilizes leverage, what percentage of its assets
such leverage will represent. Depending on market conditions, the Acquiring Fund’s portfolio management team may choose
not to use any leverage. Although the use of leverage by a Fund may create an opportunity for increased after-tax total return
for the common shares, it also increases market exposure, results in additional risks and can magnify the effect of any losses.
The
Acquired Fund is required to pay back its outstanding bank borrowings in connection with the closing of the Reorganization. It is
anticipated that approximately 28% of the Acquired Fund’s holdings will be sold by the Acquired Fund before the closing of the
Reorganization in order to pay back its outstanding leverage. This portfolio transition may take a significant amount of time and
result in the Acquired Fund holding large amounts of uninvested cash prior to the Closing Date, and there may be times when the
Acquired Fund is not fully invested in accordance with its investment objective and strategies during this transition period, which
may cause the Acquired Fund to forgo any appreciation in value of portfolio investments, if any. This may impact the Acquired
Fund’s performance. As of September 21, 2023 the expected costs to de-lever the portfolio would be approximately $164,300 (or
0.23% of the Acquired Fund’s NAV as of September 21, 2023) or $0.019 per share. To the extent the Acquired Fund has holdings
in France, Spain and/or Italy, such countries may impose an additional foreign transfer tax on the transfer of such securities to
the Acquiring Fund. These taxes are in addition to the transaction costs disclosed above and would be borne by the Combined Fund.
The foregoing estimates are subject to change depending on the composition of Acquired Fund’s portfolio and market
circumstances at the time any sales are made.
The portfolio de-levering discussed above may result in capital gains or losses, which may have federal income tax consequences. The pre-Reorganization portfolio transitioning noted above is anticipated to result in net capital gains of $78,592, or $0.009 per share
based on Acquired Fund holdings as of September 21, 2023. However, it is anticipated that the Acquired Fund’s capital loss carryforwards
would offset projected realized gains. The actual tax consequences as a result of portfolio repositioning are dependent on the portfolio
composition of the Acquired Fund at the time and market conditions.
Portfolio
Transitioning
Following
the Reorganization, the Combined Fund expects to realign its portfolio in a manner consistent with its investment strategies and
policies, which will be the same as the Acquiring Fund’s strategies and policies. The Combined Fund may not be invested
consistent with its investment strategies or aIL’s investment approach while such realignment occurs. The realignment is
anticipated to take approximately two weeks following the closing of the Reorganization, based on current market conditions and
assuming that the Acquired Fund’s holdings are the same as of September 21, 2023. Sales and purchases of less liquid
securities could take longer. Based on the Acquired Fund’s holdings as of September 21, 2023, the Combined Fund expects to
sell approximately 87% of the Acquired Fund’s portfolio following the closing of the Reorganization. If the Reorganization was
completed on September 21, 2023, the expected cost to sell 87% of the Acquired Fund’s holdings following the closing of
the Reorganization, which is estimated to equal 10% of the Combined Fund’s portfolio,
would be approximately $516,000 (or 0.09% of the estimated NAV of the Combined Fund as of September 21, 2023) or $0.015 per share of the Combined Fund. To the extent
there are any transaction costs (including brokerage commissions, transaction charges and related fees) associated with the sales
and purchases made in connection with the Reorganization, these will be borne by the Acquired Fund with respect to the portfolio
transitioning conducted before the Reorganization and borne by the Combined Fund with respect to the portfolio transitioning
conducted after the Reorganization. The portfolio transitioning pre- and post-Reorganization may result in capital gains or losses,
which may have federal income tax consequences for shareholders of the Acquired Fund and the Combined Fund.
As
of October 3, 2023, the Acquired Fund had aggregate leverage from borrowings, which represented a percentage of its total assets
of 29.05%. The Acquiring Fund had no leverage.
Fees
and Expenses
Below
is a comparison of the fees and expenses of the Funds before and after the Reorganization based on the expenses for the six-month period
ended May 31, 2023 for the Acquired Fund, and the fiscal year ended September 30, 2023, for the Acquiring Fund. The pro forma
information for the Combined Fund is as of September 30, 2023. Pro forma combined fees and expenses are estimated in good
faith and are hypothetical.
It
is important to note that following the Reorganization, shareholders of the Acquired Fund would be subject to the actual fees
and expenses of the Acquiring Fund, which may not be the same as the pro forma combined fees and expenses. Future fees
and expenses may be greater or lesser than those indicated below.
|
|
|
Acquired
Fund |
|
|
|
Acquiring
Fund |
|
|
|
Pro
Forma
Combined
Fund |
|
Common Shareholder
Transaction Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Sales Load (as a percentage
of the offering price)(1) |
|
|
None |
|
|
|
None |
|
|
|
None |
|
Offering expenses (as
a percentage of offering price)(1) |
|
|
None |
|
|
|
None |
|
|
|
None |
|
Dividend reinvestment
and optional cash purchase plan fees (per share for open-market purchases of common shares) |
|
|
|
|
|
|
|
|
|
|
|
|
Fee
for Open Market Purchases of Common Shares |
|
|
None |
|
|
|
$0.02
(per share)(2) |
|
|
|
$0.02
(per share)(2) |
|
Fee
for Optional Shares Purchases |
|
|
None |
|
|
|
$5.00
(max)(2) |
|
|
|
$5.00
(max)(2) |
|
Sales
of Shares Held in a Dividend Reinvestment Account |
|
|
None |
|
|
|
$0.12
(per share)
and
$25.00 (max)(2) |
|
|
|
$0.12
(per share)
and
$25.00 (max)(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual
expenses
(as
a percentage of net assets attributable to Common Shares) |
|
|
|
|
|
|
|
|
|
|
|
|
Advisory fee(3) |
|
|
1.34% |
|
|
|
1.35%
|
|
|
|
1.35% |
|
Interest expense(4) |
|
|
2.07% |
|
|
|
None |
|
|
|
None |
|
Other expenses |
|
|
0.39% |
|
|
|
0.52%(7)
|
|
|
|
0.43%(7) |
|
Acquired Fund Fees and
Expenses(5) |
|
|
None |
|
|
|
0.02%
|
|
|
|
0.02% |
|
Total annual expenses |
|
|
3.80% |
|
|
|
1.89%
|
|
|
|
1.80%(6) |
|
Less: expense reimbursement(6) |
|
|
N/A |
|
|
|
0.02% |
|
|
|
0.00% |
|
Total annual expenses after expense reimbursement |
|
|
3.80% |
|
|
|
1.87% |
|
|
|
1.80% |
|
(1) |
No
sales load will be charged in connection with the issuance of Acquiring Fund common shares
as part of the Reorganization. Common shares are not available for purchase from the Funds
but may be purchased on the NYSE through a broker-dealer subject to individually negotiated
commission rates. Common shares purchased in the secondary market may be subject to brokerage
commissions or other charges.
|
(2) |
Shareholders
who participate in the Acquiring Fund’s Dividend Reinvestment and Optional Cash Purchase
Plan (the “Plan”) may be subject to fees on certain transactions. Fees for Computershare
Trust Company N.A. (the “Plan Agent”) for the handling of the reinvestment of
dividends will be paid by the Acquiring Fund; however, participating shareholders will pay
a $0.02 per share fee incurred in connection with open-market purchases in connection with
the reinvestment of dividends, capital gains distributions and voluntary cash payments made
by the participant, which will be deducted from the value of the dividend. For optional share
purchases, shareholders will also be charged a $2.50 fee for automatic debits from a checking/savings
account, a $5.00 one-time fee for online bank debit and/or $5.00 for check. Shareholders
will be subject to $0.12 per share fee and either a $10.00 fee (for batch orders) or $25.00
fee (for market orders) for sales of shares held in a dividend reinvestment account. Per
share fees include any applicable brokerage commissions the Plan Agent is required to pay.
|
(3) |
The
contractual advisory fee of the Acquired Fund is 0.40% of the Acquired Fund’s Total
Assets (as defined below) up to and including $250 million, and 0.35% of the Acquired Fund’s
Total Assets over $250 million. Total Assets, for the purpose of this calculation, generally
means the average daily gross asset value of the Acquired Fund (including assets attributable
to the Acquired Fund’s preferred shares, if any, and the principal amount of borrowings),
minus the sum of the Fund’s accrued and unpaid dividends on any outstanding preferred
shares and accrued liabilities (other than the principal amount of any borrowings incurred,
commercial paper or notes issued by the Acquired Fund and the liquidation preference of any
outstanding preferred shares). In addition to the contractual advisory fee, the Acquired
Fund pays contractual sub-advisory fees to its sub-advisor, DIFA. The Acquired Fund’s
Core Component, which consists primarily of equity securities and equity-like securities
issued by infrastructure issuers, is managed by the Global Listed Infrastructure team and,
for its portfolio management services, DIFA is entitled to a quarterly fee calculated at
an annual rate of 0.60% for that portion of the Acquired Fund’s Total Assets. If the
Acquired Fund’s Total Assets are greater than $250 million, DIFA receives an annual
portfolio management fee of 0.65% for that portion of the Acquired Fund’s Total Assets
over $250 million. The Acquired Fund’s Senior Loan Component is managed by the Macquarie
High Yield Fixed Income team and, for its portfolio management services, DIFA is entitled
to a quarterly fee calculated at an annual rate of 0.60% for that portion of the Acquired
Fund’s Total Assets.
The
contractual advisory fee of the Acquiring Fund and the Combined Fund is 1.35% of the Fund’s average daily Managed Assets.
“Managed Assets” is defined as total assets of the Fund, including assets attributable to any form of leverage, minus
liabilities (other than debt representing leverage and the aggregate liquidation preference of any preferred stock that may be
outstanding).
The
advisory fee percentage calculation assumes the use of leverage by each Fund as discussed in note (4) below.
|
(4) |
For
the Acquired Fund, the information in the table is based on total borrowings of $27,550,000
for the Acquired Fund (the balance outstanding under the Acquired Fund’s credit facility
as of May 31, 2023, representing approximately 26.47% of the Acquired Fund’s Total
Assets) and a weighted average interest rate during the fiscal period ended May 31, 2023
of 5.51%.
For
the Acquiring Fund, the information in the table is based on total borrowings of $0 for the Acquiring Fund.
For
the Combined Fund, the information in the table is based on estimated total borrowings of $0 for the Combined Fund (the same
amount of borrowing as the Acquiring Fund for the fiscal year ended September 30, 2023).
There
can be no assurances that the Acquired Fund will be able to maintain its current level of borrowing, that the terms under which
the Acquired Fund borrows will not change, or that the Acquired Fund’s use of leverage will be profitable. |
|
|
(5) |
AFFE
are indirect costs incurred by the Acquiring Fund as a result of investment in one or more unregistered funds. Acquired fund fees
and expenses are borne indirectly by the Acquiring Fund, but they are not reflected in the Acquiring Fund’s financial statements;
and the information presented in the table will differ from that presented in the Acquiring Fund’s financial highlights. |
|
|
(6) |
abrdn
Inc., the investment adviser of the Acquiring Fund, has contractually agreed to limit the total ordinary operating expenses of the
Combined Fund following the consummation of the Reorganization (excluding leverage costs, interest, taxes, brokerage commissions,
acquired fund fees and expenses and any non-routine expenses) from exceeding 1.65% of the average daily net assets of the Combined
Fund on an annualized basis for twelve months following the closing of the Reorganization or June 30, 2025, whichever is later.
The Acquiring Fund or Combined Fund, as applicable, may repay any such reimbursement from abrdn Inc. within three years of the reimbursement,
provided that the following requirements are met: the reimbursements do not cause the Acquiring Fund or Combined Fund, as applicable,
to exceed the lesser of the applicable expense limitation in the contract at the time the fees were limited or expenses are paid
or the applicable expense limitation in effect at the time the expenses are being recouped by abrdn Inc. This contractual limitation
may not be terminated before twelve months following the closing of the Reorganization, or June 30, 2025, whichever is later, without
the approval of the Combined Fund’s trustees who are not “interested persons” of the Combined Fund (as defined
in the 1940 Act). |
|
|
(7) |
The Acquiring Fund holds certain
portfolio company investments through abrdn Global Infrastructure Income Fund BL, LLC (the “Subsidiary”). Such Subsidiary
may be subject to U.S. federal and state corporate-level income taxes. The Acquiring Fund recorded a deferred tax liability primarily
associated with its subsidiary’s investments in partnerships for fiscal years ended September 30, 2023 and September 30, 2022.
Deferred tax assets and liabilities are recorded for losses or income at the Subsidiary using statutory tax rates. A valuation allowance
is provided against deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not
be realized. |
Expense
Example
The
following example illustrates the expenses that a shareholder would pay on a $1,000 investment that is held for the time periods
provided in the table. The example set forth below assumes shares of each Fund were owned as of the completion of the Reorganization
and uses a 5% annual rate of return as mandated by SEC regulations.*
| | |
1 Year | | |
3 Years | | |
5 Years | | |
10 Years | |
Acquired Fund | | |
$ | 38 | | |
$ | 116 | | |
$ | 196 | | |
$ | 404 | |
Acquiring Fund | | |
$ | 19 | | |
$ | 59 | | |
$ | 102 | | |
$ | 221 | |
Pro
Forma Combined Fund | | |
$ | 18 | | |
$ | 57 | | |
$ | 97 | | |
$ | 212 | |
*
The example should not be considered a representation of future expenses or rate of return and actual Combined Fund expenses may
be greater or less than those shown. The example assumes that (i) all dividends and other distributions are reinvested at NAV;
(ii) the percentage amounts listed under “Total annual expenses” above remain the same in the years shown; and (iii)
the expense reimbursement agreement for the Combined Fund limiting the total ordinary expenses of the Combined Fund following
the consummation of the Reorganization (excluding leverage costs, interest, taxes, brokerage commissions, acquired fund fees and
expenses and any non-routine expenses) from exceeding 1.65% of the average daily net assets of the Combined Fund on an annualized
basis for twelve months following the closing of the Reorganization or June 30, 2025, whichever is later, as described in note
(6) above.
Principal
Risks
The
principal risks of the Funds are similar, but include some substantial differences. Although the Funds are subject to similar risks in
connection with their investment objectives, their risks materially differ in certain ways on account of distinct investment objectives
and strategies. The Acquiring Fund is subject to certain risks specific to its holdings in emerging markets securities, derivatives and
private placements as well as risks in connection with its limited term and “non-diversified” status, and the Acquired Fund
is subject to risks specific to its senior loan holdings and investments in below-investment grade securities. Therefore, in the chart
below and principal risks that follow, you will notice that the Acquired Fund is subject to certain risks associated with investing in
debt securities to which the Acquiring Fund is not subject and that the Acquiring Fund is subject to certain risks stemming from its
potential exposure to emerging markets, private placements and various derivative instruments to which the Acquired Fund is not subject.
The Acquired Fund and the Acquiring Fund may share similar risks but describe them differently or under a different risk heading. A chart
showing the risks applicable to each Fund based on section headings is included directly below. Because the chart categorizes risk heading
titles only, it is possible that the descriptions of the risks could encompass broader concepts for one Fund compared to the other or
include multiple associated risks under a single heading. Therefore, the descriptions of the risks associated with each heading for each
Fund is included below the chart to provide more descriptive information of each risk.
Principal
Risks |
Acquired
Fund |
Acquiring
Fund |
Anti-takeover
provisions risk |
|
X |
Asset
allocation risk |
|
X |
Canada
risk |
X |
|
Capital
markets risk |
|
X |
Communications
sector risk |
|
X |
COVID-19
risk |
|
X |
Credit
agency risk |
X |
|
Credit
and below-investment grade securities risk |
X |
|
Customer
risk |
|
X |
Cyber
security risk; Terrorism and cybersecurity risk |
X |
X |
Debt
securities risk |
|
X |
Derivatives
risk |
|
X |
Developing
industries risk |
|
X |
Dividend
strategy risk |
|
X |
Emerging
market securities risk |
|
X |
Energy
infrastructure sector risk |
|
X |
Environmental
risk |
|
X |
Equity
securities risk |
X |
X |
Europe
related risk |
|
X |
Financing
risk |
|
X |
Foreign
currency exposure risk |
|
X |
Illiquid
securities risk |
X |
|
Industry
and sector risk |
|
X |
Inflation
risk |
X |
X |
Infrastructure
and industry concentration risk; infrastructure related investments risk |
X |
X |
Interest
rate risk |
X |
X |
Legal,
regulatory and policy risks |
|
X |
Leverage
risk |
X |
X |
LIBOR
risk |
X |
|
Limitations
on transactions with affiliates risk |
|
X |
Principal
Risks |
Acquired
Fund |
Acquiring
Fund |
Limited
term and tender offer risk |
|
X |
Liquidity
risk |
|
X |
Management
risk and reliance on key personnel; Management risk |
X |
X |
Market
discount from net asset value; Market discount risk |
X |
X |
Market
risk; Market events risk |
X |
X |
Master
limited partnership risk |
X |
|
Natural
disasters risk |
|
X |
Non-diversified
risk |
|
X |
Non-U.S.
securities and currency risk; Foreign securities risk |
X |
X |
Operating
results risk |
|
X |
Operational
risk |
X |
X |
Portfolio
turnover risk |
X |
X |
Potential
conflicts of interest |
X |
X |
Preferred
equity risk |
|
X |
Prepayment
risk |
X |
|
Private
company securities risk |
|
X |
Private
placements and other restricted securities risk |
|
X |
Project
risk |
|
X |
Qualified
dividend income tax risk |
X |
|
Regional
or geographic risk |
|
X |
Regulatory
risk |
|
X |
Reinvestment
risk |
X |
|
Restricted
securities risk |
X |
|
Risks
associated with an investment in initial public offerings |
X |
|
Senior
loan risk |
X |
|
Small-
and mid-capitalization company risk |
|
X |
Social
assets sector risk |
|
X |
Stable
distribution plan risk |
|
X |
Strategic
asset risk |
|
X |
Tax
risk |
X |
X |
Technology
risk |
|
X |
Transportation
infrastructure sector risk |
|
X |
United
Kingdom risk |
X |
|
Utilities
risk; Utility sector risk |
X |
X |
Valuation
risk |
X |
X |
Volume
risk |
|
X |
Principal
Risks of Investing in the Acquiring Fund
The
Fund is designed as a long-term investment vehicle and not as a trading tool. An investment in the Fund’s common shares
should not constitute a complete investment program for any investor and involves a high degree of risk. Due to the uncertainty
in all investments, there can be no assurance that the Fund will achieve its investment objective. The value of an investment
in the Fund’s common shares could decline substantially and cause you to lose some or all of your investment. Before investing
in the Fund’s common shares you should consider carefully the following principal risks of investing in the Fund.
Equity
Securities Risk
Equity
Securities Risk, Including Common Stock Risk. Market prices of common stocks and other equity securities may be affected by
macroeconomic and other factors affecting the stock market in general, including changes in financial or political conditions
that may affect particular industries or the economy in general and changes in investor sentiment. Prices of equity securities
of individual issuers also can be affected by fundamentals unique to the issuer, including changes, or perceived changes, in the
issuer’s business, financial condition or prospects, and may fall to zero in the event of the issuer’s bankruptcy.
Equity security prices have historically experienced periods of significant volatility, particularly during recessions or other
periods of financial stress, and can be expected to experience significant volatility in the future. The equity securities the
Fund holds may undergo sudden, unpredictable drops in price or long periods of price decline. There can be no assurance that the
level of dividends paid with respect to the dividend paying equity securities in which the Fund invests will be maintained.
Small-
and Mid-Capitalization Company Risk. Investing in equity securities of small-capitalization and mid-capitalization companies
may involve greater risks than investing in equity securities of larger, more established companies. Small-capitalization and
mid-capitalization companies generally have limited product lines, markets and financial resources. Their equity securities may
trade less frequently and in more limited volumes than the equity securities of larger, more established companies. Also, small-capitalization
and mid-capitalization companies are typically subject to greater changes in earnings and business prospects than larger companies.
As a result, the market prices of their equity securities may experience greater volatility and may decline more than those of
large-capitalization companies in market downturns.
Preferred
Equity Risk. The right of a holder of an issuer’s preferred equity to distributions, dividends and liquidation proceeds
is junior to the rights of the issuer’s creditors, including holders of debt securities. Market prices of preferred equities
may be subject to factors that affect debt and equity securities, including changes in market interest rates and changes, or perceived
changes, in the issuer’s creditworthiness. Holders of preferred equity may suffer a loss of value if distribution or dividend
rates are reduced or distributions or dividends are not paid. Under normal conditions, holders of preferred equity usually do
not have voting rights with respect to the issuer. The ability of holders of preferred equity to participate in the issuer’s
growth may be limited.
Management
Risk
The
Fund’s ability to achieve its investment objective is directly related to the Adviser’s and the Sub-Adviser’s
investment strategies for the Fund. The value of your investment in the Fund’s common shares may vary with the effectiveness
of the research and analysis conducted by the Adviser and the Sub-Adviser and their ability to identify and take advantage of
attractive investment opportunities. If the investment strategies of the Adviser and the Sub-Adviser do not produce the expected
results, the value of your investment could be diminished or even lost entirely, and the Fund could underperform the market or
other funds with similar investment objectives. Additionally, there can be no assurance that all of the personnel of the Adviser
and the Sub-Adviser will continue to be associated with the Adviser or Sub-Adviser for any length of time. The loss of the services
of one or more key employees of the Adviser or Sub-Adviser could have an adverse impact on the Fund’s ability to realize
its investment objective.
Asset
Allocation Risk
The
Fund’s investment performance depends, at least in part, on how the Adviser and Sub-Adviser allocate and reallocate the
Fund’s assets among the various asset classes and security types in which the Fund may invest. Such allocation decisions
could cause the Fund’s investments to be allocated to asset classes and security types that perform poorly or underperform
other asset classes and security types or available investments.
Infrastructure-Related
Investments Risk
Infrastructure-related
issuers may be subject to a variety of factors that may adversely affect their business or operations, including high interest
costs in connection with capital construction programs, high leverage, costs associated with environmental and other regulations,
the effects of economic slowdown, surplus capacity, increased competition from other providers of services, uncertainties concerning
the availability of fuel at reasonable prices, the effects of energy conservation policies and other factors. The following is
a summary of specific risks that infrastructure-related issuers may be particularly affected by or subject to:
Regulatory
Risk. Infrastructure-related issuers may be subject to regulation by various governmental authorities and may also be affected
by governmental regulation of rates charged to services, the imposition of special tariffs and changes in tax laws, environmental
laws and regulations, regulatory policies, accounting standards and general changes in market sentiment towards infrastructure
assets. Infrastructure-related issuers’ inability to predict, influence or respond appropriately to changes in law or regulatory
schemes could adversely impact their results of operations.
Technology
Risk. This risk arises where a change could occur in the way a service or product is delivered rendering the existing technology
obsolete. If such a change were to occur, these assets may have very few alternative uses should they become obsolete.
Developing
Industries Risk. Some infrastructure-related issuers are focused on developing new technologies and are strongly influenced
by technological changes. Product development efforts by such issuers may not result in viable commercial products. These issuers
may bear high research and development costs, which can limit their ability to maintain operations during periods of organizational
growth or instability. Some infrastructure-related issuers in which the Fund invests may be in the early stages of operations
and may have limited operating histories and smaller market capitalizations on average than issuers in other sectors. As a result
of these and other factors, the value of investments in such issuers may be considerably more volatile than that in more established
segments of the economy.
Regional
or Geographic Risk. This risk arises where an infrastructure-related issuer’s assets are not movable. Should an event
that somehow impairs the performance of an infrastructure-related issuer’s assets occur in the geographic location where
the issuer operates those assets, the performance of the issuer may be adversely affected.
Natural
Disasters Risk. Natural risks, such as earthquakes, flood, lightning, hurricanes and wind, are risks facing certain infrastructure-related
issuers. Extreme weather patterns, or the threat thereof, could result in substantial damage to the facilities of certain issuers
located in the affected areas, and significant volatility in the products or services of infrastructure-related issuers could
adversely impact the prices of the securities of such issuer.
Volume
Risk. The revenue of many infrastructure – related issuers may be impacted by the number of users who use the products
or services produced by the infrastructure-related issuer. A significant decrease in the number of users may negatively impact
the profitability of an infrastructure-related issuer.
Environmental
Risk. Infrastructure-related issuers can have substantial environmental impacts. Ordinary operations or operational accidents
may cause major environmental damage, which could cause infrastructure-related issuers significant financial distress, substantial
liabilities for environmental cleanup and restoration costs, claims made by neighboring landowners and other third parties for
personal injury and property damage, and fines or penalties for related violations of environmental laws or regulations. Infrastructure-related
issuers may not be able to recover these costs from insurance. Failure to comply with environmental laws and regulations may trigger
a variety of administrative, civil and criminal enforcement measures, including the assessment of monetary penalties, the imposition
of remedial requirements, and the issuance of orders enjoining future operations. Voluntary initiatives and mandatory controls
have been adopted or are being discussed both in the United States and worldwide to reduce emissions of “greenhouse gases”
such as carbon dioxide, a by-product of burning fossil fuels, and methane, the major constituent of natural gas, which many scientists
and policymakers believe contribute to global climate change. These measures and future measures could result in increased costs
to certain companies in which the Fund may invest.
Project
Risk. To the extent the Fund invests in infrastructure-related issuers which are dependent to a significant extent on new
infrastructure projects, the Fund may be exposed to the risk that the project will not be completed within budget, within the
agreed time frame or to agreed specifications.
Strategic
Asset Risk. Infrastructure-related issuers may control significant strategic assets. Strategic assets are assets that have
a national or regional profile, and may have monopolistic characteristics. Given the national or regional profile and/or their
irreplaceable nature, strategic assets may constitute a higher risk target for terrorist acts or political actions. There is also
a higher probability that the services provided by such issuers will be in constant demand. Should an infrastructure-related issuer
fail to make such services available, users of such services may incur significant damage and may be unable to mitigate any such
damage, thereby heightening any potential loss.
Operation
Risk. The long-term profitability of an infrastructure-related issuer may be partly dependent on the efficient operation and
maintenance of its infrastructure assets. Should an infrastructure-related issuer fail to efficiently maintain and operate the
assets, the infrastructure-related issuer’s ability to maintain payments of dividends or interest to investors may be impaired.
The destruction or loss of an infrastructure asset may have a major impact on the infrastructure-related issuer. Failure by the
infrastructure-related issuer to carry adequate insurance or to operate the asset appropriately could lead to significant losses
and damages.
Customer
Risk. Infrastructure-related issuers can have a narrow customer base. Should these customers or counterparties fail to pay
their contractual obligations, significant revenues could cease and not be replaceable. This would affect the profitability of
the infrastructure-related issuer and the value of any securities or other instruments it has issued.
Interest
Rate Risk. Infrastructure assets can be highly leveraged. As such, movements in the level of interest rates may affect the
returns from these assets more significantly than other assets. Due to the nature of infrastructure assets, the impact of interest
rate fluctuations may be greater for infrastructure-related issuers than for the economy as a whole.
Inflation
Risk. Many infrastructure-related issuers may have fixed income streams and, therefore, be unable to pay higher dividends.
The market value of infrastructure-related issuers may decline in value in times of higher inflation rates. The prices that an
infrastructure-related issuer is able to charge users of its assets may not always be linked to inflation. In this case, changes
in the rate of inflation may affect the forecast profitability of the infrastructure-related issuer.
Financing
Risk. From time to time, infrastructure-related issuers may encounter difficulties in obtaining financing for construction
programs during inflationary periods. Issuers experiencing difficulties in financing construction programs may also experience
lower profitability, which can result in reduced income to the Fund.
Other
factors that may affect the operations of infrastructure-related issuers include difficulty in raising capital in adequate amounts
on reasonable terms in periods of high inflation and unsettled capital markets, inexperience with and potential losses resulting
from a developing deregulatory environment, increased susceptibility to terrorist acts or political actions, and general changes
in market sentiment towards infrastructure assets.
In
addition, as discussed more fully below, infrastructure-related issuers are subject to risks that are specific to the industry
in which they operate. There is no guarantee as to how these industries, or the Fund’s investments generally, will perform
in the future. The Adviser and Sub-Adviser intend to monitor developments and seek to manage the Fund’s portfolio in a manner
consistent with achieving the Fund’s investment objective, but there can be no assurance that it will be successful in doing
so.
Industry
Specific Risks
The
following is a summary of industry specific risks that infrastructure-related issuers may be particularly affected by or subject
to:
Utility
Sector Risk. When interest rates go up, the value of securities issued by utilities companies historically has gone down.
In most countries and localities, the utilities sector is regulated by governmental entities, which can increase costs and delays
for new projects and make it difficult to pass increased costs on to consumers. In certain areas, deregulation of utilities has
resulted in increased competition and reduced profitability for certain companies, and increased the risk that a particular company
will become bankrupt or fail completely. Reduced profitability, as well as new uses for or additional need of funds (such as for
expansion, operations or stock buybacks), could result in reduced dividend payout rates for utilities companies. In addition,
utilities companies face the risk of increases in the cost and reduced availability of fuel (such as oil, coal, natural gas or
nuclear energy) and potentially high interest costs for borrowing to finance new projects.
Communications
Sector Risk. The communications sector is subject to extensive government regulation. The costs of complying with governmental
regulations, delays or failure to receive required regulatory approvals, or the enactment of new regulatory requirements may negatively
affect the business of communications companies. Government actions around the world can be arbitrary and unpredictable. Companies
in the communications sector may encounter distressed cash flows due to the need to commit substantial capital to meet increasing
competition, particularly in developing new products and services using new technology. Technological innovations may make the
products and services of certain communications companies obsolete. Communications providers are generally required to obtain
franchises or licenses in order to provide services in a given location. Licensing and franchise rights in the communications
sector are limited, which may provide an advantage to certain participants. Limited availability of such rights, high barriers
to market entry and regulatory oversight, among other factors, have led to consolidation of companies within the sector, which
could lead to further regulation or other negative effects in the future.
Transportation
Infrastructure Sector Risk. Issuers in the transportation infrastructure sector can be significantly affected by economic
changes, fuel prices, labor relations, technology developments, exchange rates, industry competition, insurance costs and deteriorating
public infrastructure, such as bridges, roads, rails, ports and airports. Transportation companies in certain countries may also
be subject to significant government regulation and oversight, which may adversely affect their businesses. Other risk factors
that may affect the transportation infrastructure sector include the risk of increases in fuel and other operating costs and the
effects of regulatory changes or other government decisions. Companies in the transportation infrastructure sector may be adversely
affected by adverse weather, pandemics, acts of terrorism or catastrophic events, such as air accidents, train crashes or tunnel
fires. Most recently, the transportation infrastructure sector was negatively impacted by COVID-19 and the resulting restrictions
on travel. Companies in the transportation infrastructure sector may also be subject to the risk of widespread disruption of technology
systems and increasing equipment and operational costs.
Energy
Infrastructure Sector Risk. The Fund is subject to adverse economic, environmental, business, regulatory or other occurrences
affecting the energy infrastructure sector. The energy infrastructure sector has historically experienced substantial price volatility.
Companies operating in the energy infrastructure sector are subject to specific risks that could cause the value of the Fund to
decline, including, among others: a downturn in one or more industries within the energy sector; fluctuations in commodity prices;
fluctuations in consumer demand for commodities such as oil, natural gas or petroleum products; fluctuations in the supply of
oil, natural gas or other commodities for transporting, processing, storing or delivering; slowdowns in new construction; extreme
weather or other natural disasters; pandemics; and threats of terrorist attacks. Additionally, changes in economic conditions
of key energy producing and consuming countries, domestic and foreign government regulations (including policies designed to reduce
carbon emissions and/or address climate change), international politics, policies of the Organization of Petroleum Exporting Countries
(OPEC), taxation and tariffs may adversely impact the profitability of energy infrastructure companies. Moreover, energy infrastructure
companies may incur environmental costs and liabilities due to the nature of their businesses and substances handled. Over time,
depletion of natural gas reserves and other energy reserves may also affect the profitability of energy infrastructure companies.
Social
Assets Sector Risk. Social infrastructure assets are those that accommodate social services, including, for example, courthouses,
hospitals, schools, correctional facilities, stadiums and subsidized housing. Social assets are subject to additional risks to
those of other investments in the infrastructure sector, such as political, regulatory and social risks. Most social infrastructure
assets generate fixed cash flows based on the regulatory framework set by the governments that operate the projects. Social infrastructure
projects may operate as public-private partnerships. Ambiguous risk-sharing arrangements between private capital providers and
government entities can increase the risks related to future liabilities of social infrastructure projects.
Foreign
Securities Risk
The
Fund uses various criteria to determine which country is deemed to have issued the securities in which the Fund invests. Because
issuers often have activities and operations in several different countries, an issuer could be considered a non-US issuer even
though changes in the value of its securities held by the Fund are significantly impacted by its US activities. Similarly, an
issuer could be classified as a US issuer even when the changes in the value of the issuer’s securities held by the Fund
are significantly impacted by non-US activities. Foreign securities may be more volatile, harder to price and less liquid than
US securities. Foreign investments involve some of the following risks as well:
| • | political
and economic instability; |
| • | the
impact of currency exchange rate fluctuations; |
| • | reduced
information about issuers; |
| • | higher
transaction costs; |
| • | less
stringent regulatory and accounting standards; and |
Additional
risks include the possibility that a foreign jurisdiction might impose or increase withholding taxes on income payable with respect
to foreign securities; the possible seizure, nationalization or expropriation of the issuer or foreign deposits (in which the
Fund could lose its entire investment in a certain market); and the possible adoption of foreign governmental restrictions such
as exchange controls.
The
risks of investing in foreign securities are increased in connection with investments in emerging markets. See “Other Investment
Risks – Emerging Market Securities Risk”.
Other
Investment Risks
Dividend
Strategy Risk. There is no guarantee that the issuers of the securities held by the Fund will declare dividends in the future
or that, if dividends are declared, they will remain at their current levels or increase over time. The Fund’s emphasis
on dividend paying securities could cause the Fund to underperform similar funds that invest without consideration of a company’s
track record of paying dividends or ability to pay dividends in the future. Dividend paying securities may not participate in
a broad market advance to the same degree as other securities, and a sharp rise in interest rates or an economic downturn could
cause a company to unexpectedly reduce or eliminate its dividend.
Liquidity
Risk. The Fund’s investments in Private Infrastructure Opportunities will be highly illiquid, and the Fund will likely
be able to sell such securities only in private transactions with another investor or group of investors, and there can be no
assurance that the Fund will be able to successfully arrange such transactions if and when it desires to sell any of its Private
Infrastructure Opportunities or, if successfully arranged, that it will be able to obtain favorable values upon the sale of the
Private Infrastructure Opportunities in such transactions.
With
respect to the Fund’s investments in listed equity securities, the Fund may invest in securities of any market capitalization,
including small- and mid-capitalization companies, and may be exposed to liquidity risk when trading volume, lack of a market
maker, or legal restrictions impair its ability to sell particular securities or close call option positions at an advantageous
price or a timely manner. Small- and mid-capitalization companies may be more volatile and more likely than large-capitalization
companies to have narrower product lines, fewer financial resources, less management depth and experience and less competitive
strength. In the event certain securities experience limited trading volumes, the prices of such securities may display abrupt
or erratic movements at times. These securities may be difficult to sell at a favorable price at the times when the Fund believes
it is desirable to do so.
Private
Company Securities Risk. The Fund’s investments in equity or credit interests of private companies may be subject to
higher risk than investments in securities of public companies. Private companies, unlike public companies, are generally not
subject to SEC reporting requirements, are not required to maintain their accounting records in accordance with generally accepted
accounting principles, and are not required to maintain effective internal controls over financial reporting. As a result, the
Fund will be required to rely on the ability of the Adviser and Sub-Adviser to obtain adequate information to evaluate the potential
risks and returns involved in investing in these issuers. The Adviser and Sub-Adviser, however, may not have timely or accurate
information about the business, financial condition and results of operations of the private companies in which the Fund invests
and there is risk that the Fund may invest on the basis of incomplete or inaccurate information, which may adversely affect the
Fund’s investment performance. Private companies in which the Fund may invest may have limited financial resources, shorter
operating histories, more asset concentration risk, narrower product lines and smaller market shares than larger businesses, which
tend to render such private companies more vulnerable to competitors’ actions and market conditions, as well as general
economic downturns. These companies generally have less predictable operating results, may from time to time be parties to litigation,
may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence, and may require substantial
additional capital to support their operations, finance expansion or maintain their competitive position. These companies may
have difficulty accessing the capital markets to meet future capital needs, which may limit their ability to grow or to repay
their outstanding indebtedness upon maturity. In addition, the Fund’s investment also may be structured as pay-in-kind securities
with minimal or no cash interest or dividends until the company meets certain growth and liquidity objectives. These factors could
subject the Fund to greater risk than investments in securities of public companies and negatively affect the Fund’s investment
returns, which could negatively impact the dividends paid to you and the value of your investment. Typically, investments in private
companies are in restricted securities that are not traded in public markets and subject to substantial holding periods, so that
the Fund may not be able to resell some of its holdings for extended periods, which may be several years. The Fund will likely
be able to sell its investments in private companies only in private transactions with another investor or group of investors,
and there can be no assurance that the Fund will be able to successfully arrange such transactions if and when it desires to sell
any of its investments in private companies or, if successfully arranged, that the Fund will be able to obtain favorable values
upon the sale of its investments in private companies in such transactions. Private credit investments are subject to debt securities
risk and can range in credit quality depending on factors including total outstanding leverage, amount of leverage senior to the
investment in question, variability in the issuer’s cash flows, the size of the issuer, the quality of assets securing the
investment and the degree to which such assets cover the debt obligation.
Private
Company Management Risk. Private companies are more likely to depend on the management talents and efforts of a small group
of persons; therefore, the death, disability, resignation or termination of one or more of these persons could have a material
adverse impact on the company. The Fund generally does not intend to hold controlling positions in the private companies in which
it invests. As a result, the Fund is subject to the risk that a company may make business decisions with which the Fund disagrees,
and that the management and/or shareholders of a portfolio company may take risks or otherwise act in ways that are adverse to
the Fund’s interests. Due to the lack of liquidity of such private investments, the Fund may not be able to dispose of its
investments in the event it disagrees with the actions of a private portfolio company and may therefore suffer a decrease in the
value of the investment.
Private
Company Illiquidity Risk. Securities issued by private companies are typically illiquid. If there is no readily available
trading market for privately issued securities, the Fund may not be able to readily dispose of such investments at prices that
approximate those at which the Fund could sell them if they were more widely traded.
Private
Company Valuation Risk. There is typically not a readily available market value for the Fund’s private investments.
The Fund values private company investments in accordance with valuation guidelines adopted by the Board, that the Board, in good
faith, believes are designed to accurately reflect the fair value of securities valued in accordance with such guidelines. The
Fund is not required to but may utilize the services of one or more independent valuation firms to aid in determining the fair
value of these investments. Valuation of private company investments may involve application of one or more of the following factors:
(i) analysis of valuations of publicly traded companies in a similar line of business, (ii) analysis of valuations for comparable
merger or acquisition transactions, (iii) yield analysis and (iv) discounted cash flow analysis. Due to the inherent uncertainty
and subjectivity of determining the fair value of investments that do not have a readily available market value, the fair value
of the Fund’s private investments may differ significantly from the values that would have been used had a readily available
market value existed for such investments and may differ materially from the amounts the Fund may realize on any dispositions
of such investments. In addition, the impact of changes in the market environment and other events on the fair values of the Fund’s
investments that have no readily available market values may differ from the impact of such changes on the readily available market
values for the Fund’s other investments. The Fund’s NAV could be adversely affected if the Fund’s determinations
regarding the fair value of the Fund’s investments were materially higher than the values that the Fund ultimately realizes
upon the disposal of such investments.
Reliance
on the Adviser and the Sub-Adviser Risk. The Fund may enter into private investments identified by the Adviser and the Sub-Adviser,
in which case the Fund will be more reliant upon the ability of the Adviser and the Sub-Adviser to identify, research, analyze,
negotiate and monitor such investments than is the case with investments in publicly traded securities. As little public information
exists about many private companies, the Fund will be required to rely on the Adviser’s and the Sub-Adviser’s diligence
efforts to obtain adequate information to evaluate the potential risks and returns involved in investing in these companies. The
costs of diligencing, negotiating and monitoring private investments will be borne by the Fund, which may reduce the Fund’s
returns.
Co-Investment
Risk. The Fund may also co-invest in private investments sourced by third party investors unaffiliated with either the Fund
or the Adviser or the Sub-Adviser, such as private equity firms. The Fund’s ability to realize a profit on such investments
will be particularly reliant on the expertise of the lead investor in the transaction. To the extent that the lead investor in
such a co-investment opportunity assumes control of the management of the private company, the Fund will be reliant not only upon
the lead investor’s ability to research, analyze, negotiate and monitor such investments, but also on the lead investor’s
ability to successfully oversee the operation of the company’s business. The Fund’s ability to dispose of such investments
is typically severely limited, both by the fact that the securities are unregistered and illiquid and by contractual restrictions
that may preclude the Fund from selling such investments. Often the Fund may exit such investment only in a transaction, such
as an initial public offering or sale of the company, on terms arranged by the lead investor. Such investments may be subject
to additional valuation risk, as the Fund’s ability to accurately determine the fair value of the investments may depend
upon the receipt of information from the lead investor. The valuation assigned to such an investment through application of the
Fund’s valuation procedures may differ from the valuation assigned to that investment by other co-investors.
Private
Company Competition Risk. Many entities may potentially compete with the Fund in making private investments. Some of these
competitors are substantially larger and have considerably greater financial, technical and marketing resources than the Fund.
Some competitors may have a lower cost of funds and access to funding sources that are not available to the Fund. In addition,
some competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety
of, or different structures for, private investments than the Fund. Furthermore, some competitors are not subject to the regulatory
restrictions that the 1940 Act imposes on the Fund. As a result of this competition, the Fund may not be able to pursue attractive
private investment opportunities from time to time.
Affiliation
Risk. There is a risk that the Fund may be precluded from investing in certain private companies due to regulatory implications
under the 1940 Act or other laws, rules or regulations or may be limited in the amount it can invest in the voting securities
of a private company, in the size of the economic interest it can have in a private company or in the scope of influence it is
permitted to have in respect of the management of a private company. Should the Fund be required to treat a private company in
which it has invested as an “affiliated person” under the 1940 Act, the 1940 Act would impose a variety of restrictions
on the Fund’s dealings with the private company. Moreover, these restrictions may arise as a result of investments by other
clients of the Adviser or the Sub-Adviser or their affiliates in a private company. These restrictions may be detrimental to the
performance of the Fund compared to what it would be if these restrictions did not exist, and could impact the universe of investable
private companies for the Fund. The fact that many private companies may have a limited number of investors and a limited amount
of outstanding equity heightens these risks.
Debt
Securities Risk. The principal risks involved with investments in debt securities include interest rate risk, credit risk
and prepayment risk. Interest rate risk refers to the likely decline in the value as interest rates rise. Generally, longer-term
securities are more susceptible to changes in value as a result of interest rate changes than are shorter-term securities. Credit
risk refers to the risk that an issuer of a security may default with respect to the payment of principal and interest. Pre-payment
risk refers to the risk that debt obligations are prepaid ahead of schedule. In this event, the proceeds from the prepaid securities
would likely be reinvested by the Fund in securities bearing a lower interest rate. Pre-payment rates usually increase when interest
rates are falling. Lower-rated securities are more likely to react to developments affecting these risks than are more highly
rated securities. The lower a security is rated, the more it is considered to be a speculative or risky investment. Certain debt
securities purchased by the Fund may have been placed privately.
Private
Placements and Other Restricted Securities Risk. Private placement and other restricted securities include securities that
have been privately placed and are not registered under the Securities Act, such as unregistered securities eligible for resale
without registration pursuant to Rule 144A (“Rule 144A Securities”) and privately placed securities of US and non-US
issuers offered outside of the United States without registration with the SEC pursuant to Regulation S (“Regulation S Securities”).
Private
placements may offer attractive opportunities for investment not otherwise available on the open market.
Private
placements securities typically may be sold only to qualified institutional buyers (or, in the case of the initial sale of certain
securities, such as those issued in collateralized debt obligations or collateralized loan obligations, to accredited investors
(as defined in Rule 501(a) under the Securities Act)), or in a privately negotiated transaction or to a limited number of purchasers,
or in limited quantities after they have been held for a specified period of time and other conditions are met pursuant to an
exemption from registration. Rule 144A Securities and Regulation S Securities may be freely traded among certain qualified institutional
investors, such as the Fund, but their resale in the US is permitted only in limited circumstances.
Issuers
of restricted securities may not be subject to the disclosure and other investor protection requirements that would be applicable
if their securities were publicly traded. Where a registration statement is required for the resale of restricted securities,
the Fund may be required to bear all or part of the registration expenses. The Fund may be deemed to be an “underwriter”
for purposes of the Securities Act when selling restricted securities to the public and, in such event, the Fund may be liable
to purchasers of such securities if the registration statement prepared by the issuer is materially inaccurate or misleading.
Private placements typically are subject to restrictions on resale as a matter of contract or under federal securities laws. Because
there may be relatively few potential purchasers for such securities, especially under adverse market or economic conditions or
in the event of adverse changes in the financial condition of the issuer, the Fund could find it more difficult to sell such securities
when it may be advisable to do so or it may be able to sell such securities only at prices lower than if such securities were
more widely held. At times, it also may be more difficult to determine the fair value of such securities for purposes of computing
the Fund’s NAV due to the absence of a trading market.
Private
placements and restricted securities may be considered illiquid securities, which could have the effect of increasing the level
of the Fund’s illiquidity. Additionally, a restricted security that was liquid at the time of purchase may subsequently
become illiquid.
Disposing
of illiquid investments may involve time-consuming negotiation and legal expenses, and it may be difficult or impossible for the
Fund to sell them promptly at an acceptable price. The Fund may have to bear the extra expense of registering the securities for
resale and the risk of substantial delay in effecting the registration. In addition, market quotations typically are less readily
available for these securities.
Emerging
Market Securities Risk. The risks of investing in foreign securities are increased in connection with investments in emerging
markets. Although there is no universally accepted definition, an emerging or developing country is generally considered to be
a country which is in the initial stages of industrialization. Investing in emerging markets can involve unique risks in addition
to and greater than those generally associated with investing in developed markets. Shareholders should be aware that investing
in the markets of developing countries involves exposure to unstable governments, economies based on only a few industries, and
securities markets which trade a small number of securities. Securities markets of developing countries tend to be more volatile
than the markets of developed countries; however, such markets have in the past provided the opportunity for higher rates of return
to investors.
The
value and liquidity of investments in developing countries may be affected favorably or unfavorably by political, economic, fiscal,
regulatory or other developments in the particular countries or neighboring regions. The extent of economic development, political
stability and market depth of different countries varies widely. Such investments typically involve greater potential for gain
or loss than investments in securities of issuers in developed countries.
The
securities markets in developing countries are substantially smaller, less liquid and more volatile than the major securities
markets in the United States. A high proportion of the shares of issuers in developing countries may be held by a limited number
of persons and financial institutions, which may limit the number of shares available for investment by the Fund. The small size,
limited trading volume and relative inexperience of the securities markets in these countries may make investments in securities
traded in emerging markets less liquid and more volatile than investments in securities traded in more developed countries. For
example, limited market size may cause prices to be unduly influenced by traders who control large positions. A limited number
of issuers in developing countries’ securities markets may represent a disproportionately large percentage of market capitalization
and trading volume. The limited liquidity of securities markets in developing countries may also affect the Fund’s ability
to acquire or dispose of securities at the price and time it wishes to do so. The Fund’s inability to dispose fully and
promptly of positions in declining markets could cause the Fund’s NAV to decline as the value of the unsold positions is
marked to lower prices. In addition, the Fund may be required to establish special custodial or other arrangements before making
investments in securities traded in emerging markets. There may be little financial or accounting information available with respect
to issuers of emerging market securities, and it may be difficult as a result to assess the value of prospects of an investment
in such securities.
The
currencies of certain emerging market countries have experienced devaluations relative to the US dollar, and future devaluations
may adversely affect the value of assets denominated in such currencies. In addition, currency hedging techniques may be unavailable
in certain emerging market countries. Many emerging market countries have experienced substantial, and in some periods extremely
high, rates of inflation or deflation for many years, and future inflation may adversely affect the economies and securities markets
of such countries.
Political
and economic structures in many such countries may be undergoing significant evolution and rapid development, and such countries
may lack the social, political and economic stability characteristics of the United States. In addition, unanticipated political
or social developments may affect the value of investments in emerging markets and the availability of additional investments
in these markets. Any change in the leadership or politics of emerging market countries, or the countries that exercise a significant
influence over those countries, may halt the expansion of or reverse the liberalization of foreign investment policies now occurring
and adversely affect existing investment opportunities. Certain countries have in the past failed to recognize private property
rights and have at times nationalized or expropriated the assets of private companies. As a result, the risks described above,
including the risks of nationalization or expropriation of assets, may be heightened.
Economies
of developing countries may differ favorably or unfavorably from the United States’ economy in such respects as rate of
growth of gross national product, rate of inflation, capital reinvestment, resource self-sufficiency and balance of payments position.
Certain developing countries do not have comprehensive systems of laws, although substantial changes have occurred in many such
countries in this regard in recent years. Laws regarding fiduciary duties of officers and directors and the protection of shareholders
may not be well developed. Even where adequate law exists in such developing countries, it may be impossible to obtain swift and
equitable enforcement of such law, or to obtain enforcement of the judgment by a court of another jurisdiction.
The
risk also exists that an emergency situation may arise in one or more emerging markets as a result of which trading of securities
may cease or may be substantially curtailed and prices for the Fund’s securities in such markets may not be readily available.
The Fund may suspend redemption of its shares for any period during which an emergency exists, as determined by the SEC. Accordingly,
if the Fund believes that appropriate circumstances exist, it will promptly apply to the SEC for a determination that an emergency
is present. During the period commencing from the Fund’s identification of such condition until the date of the SEC action,
the Fund’s securities in the affected markets will be valued at fair value determined in good faith by or under the direction
of the Fund’s Board.
Certain
of the foregoing risks may also apply to some extent to securities of US issuers that are denominated in foreign currencies or
that are traded in foreign markets, or securities of US issuers having significant foreign operations.
Trading
in futures contracts on foreign commodity exchanges may be subject to the same or similar risks as trading in foreign securities.
Foreign
Currency Exposure Risk. The Fund may invest in securities that trade in, or receive revenues in, foreign currencies are subject
to the risk that those currencies may fluctuate in value relative to the US dollar. Currency rates in foreign countries may fluctuate
significantly over short periods of time for a number of reasons, including changes in interest rates, intervention (or the failure
to intervene) by US or foreign governments, central banks or supranational entities such as the International Monetary Fund, or
by the imposition of currency controls or other political developments in the US or abroad. These risks may impact the Fund more
greatly to the extent the Fund does not hedge its currency risk. To manage currency risk, the Fund may enter into foreign currency
exchange contracts to hedge against a decline in the US dollar value of a security it already owns or against an increase in the
value of an asset it expects to purchase. The Fund is not required to hedge currency risk. The Adviser’s and Sub-Adviser’s
use of hedging techniques does not eliminate exchange rate risk. In certain circumstances, the Adviser and the Sub-Adviser may
hedge using a foreign currency other than the currency which the portfolio securities being hedged are denominated. This type
of hedging entails greater risk because it is dependent on a stable relationship between the two currencies paired in the hedge
and the relationship can be very unstable at times. If the Adviser or the Sub-Adviser is unsuccessful in its attempts to hedge
against exchange rate risk, the Fund could be in a less advantageous position than if the Adviser or the Sub-Adviser did not establish
any currency hedge. Losses on foreign currency transactions used for hedging purposes may be offset by gains on the assets that
are the subject of the Fund’s hedge.
The
Fund’s gains from its positions in foreign currencies may accelerate and/or recharacterize the Fund’s income or gains
at the Fund level and its distributions to shareholders. The Fund’s losses from such positions may also recharacterize the
Fund’s income and its distributions to shareholders and may cause a return of capital to Fund shareholders.
To
the extent a foreign government limits or causes delays in the convertibility or repatriation of its currency, this will adversely
affect the US dollar value and/or liquidity of investments denominated in that currency. Such actions could severely affect security
prices, impair the Fund’s ability to purchase or sell foreign securities or transfer the Fund’s assets back into the
US, or otherwise adversely affect the Fund’s operations.
Terrorism
and Cybersecurity Risk. Infrastructure-related issuers are subject to disruption as a result of terrorist activities and other
geopolitical events, including upheaval in the Middle East or other energy-producing regions. Cyber hacking could also cause significant
disruption and harm to infrastructure-related issuers. The US government has issued warnings that certain infrastructure assets,
specifically those related to energy infrastructure, including exploration and production facilities, pipelines and transmission
and distribution facilities, might be specific targets of terrorist activity. Additionally, digital and network technologies (collectively,
“cyber networks”) might be at risk of cyberattacks that could potentially seek unauthorized access to digital systems
for purposes such as misappropriating sensitive information, corrupting data or causing operational disruption. Cyberattacks might
potentially be carried out by persons using techniques that could range from efforts to electronically circumvent network security
or overwhelm websites to intelligence gathering and social engineering functions aimed at obtaining information necessary to gain
access.
In
addition, the Fund is subject to direct cybersecurity risk. Cybersecurity incidents may allow an unauthorized party to gain access
to Fund assets, customer data (including private shareholder information), or proprietary information, or cause the Fund, the
Adviser, the Sub-Adviser and/or the Fund’s service providers (including, but not limited to, Fund accountants, custodians,
sub-custodians and transfer agents) to suffer data breaches, data corruption or lose operational functionality.
Non-Diversified
Risk. The Fund is classified as a “non-diversified” investment company under the 1940 Act. Therefore, the Fund
may invest a relatively high percentage of its assets in a smaller number of issuers or may invest a larger proportion of its
assets in a single issuer than a diversified fund. As a result, the Fund may be more susceptible than a diversified fund to any
single corporate, political, geographic or regulatory occurrence.
Market
Events Risk. The market values of securities or other assets will fluctuate, sometimes sharply and unpredictably, due to changes
in general market conditions, overall economic trends or events, governmental actions or intervention, actions taken by the US
Federal Reserve or foreign central banks, market disruptions caused by trade disputes or other factors, political developments,
investor sentiment and other factors that may or may not be related to the issuer of the security or other asset. Economies and
financial markets throughout the world are increasingly interconnected. Economic, financial or political events, trading and tariff
arrangements, terrorism, natural disasters and other circumstances in one country or region could have profound impacts on global
economies or markets. As a result, whether or not the Fund invests in securities of issuers located in or with significant exposure
to the countries directly affected, the value and liquidity of the Fund’s investments may be negatively affected. In addition,
any spread of an infectious illness, public health threat or similar issue could reduce consumer demand or economic output, result
in market closures, travel restrictions or quarantines, and generally have a significant impact on the world economy, which in
turn could adversely affect the Fund’s investments.
Europe
Related Risk. A number of countries in Europe have experienced severe economic and financial difficulties. Many non-governmental
issuers, and even certain governments, have defaulted on, or been forced to restructure, their debts; many other issuers have
faced difficulties obtaining credit or refinancing existing obligations; financial institutions have in many cases required government
or central bank support, have needed to raise capital, and/or have been impaired in their ability to extend credit; and financial
markets in Europe and elsewhere have experienced extreme volatility and declines in asset values and liquidity. These difficulties
may continue, worsen or spread within and outside Europe. Responses to the financial problems by European governments, central
banks and others, including austerity measures and reforms, may not work, may result in social unrest and may limit future growth
and economic recovery or have other unintended consequences. Further defaults or restructurings by governments and others of their
debt could have additional adverse effects on economies, financial markets and asset valuations around the world.
Derivatives
Risk. The Fund may invest in financial derivative instruments for hedging, including primarily forward foreign exchange contracts
to manage foreign currency risks, although the Adviser and the Sub-Adviser are not required to hedge the Fund’s currency
exposure.
Forward
contracts are obligations to purchase or sell an asset or, most commonly, a specific currency at a future date, which may be any
fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time of the contract. Forward
foreign currency contracts are the primary means of hedging currency exposure.
Derivatives
are speculative and may hurt the Fund’s performance. Derivatives present the risk of disproportionately increased losses
and/or reduced opportunities for gains when the financial asset or measure to which the derivative is linked changes in unexpected
ways. The potential benefits to be derived from the Fund’s derivatives use are dependent upon the portfolio managers’
ability to discern pricing inefficiencies and predict trends in these markets, which decisions could prove to be inaccurate. This
requires different skills and techniques than predicting changes in the price of individual securities, and there can be no assurance
that the use of this strategy will be successful. Some additional risks of investing in derivatives for purposes of hedging include:
• Hedged
Exposure Risk – Losses generated by a derivative or practice used by the Fund for hedging purposes should be substantially
offset by gains on the hedged investment. However, while hedging can reduce or eliminate losses, it can also reduce or eliminate
gains.
• Correlation
Risk – The Fund is exposed to the risk that changes in the value of derivatives may not match or fully offset changes
in the value of the hedged portfolio securities, thereby failing to achieve the original purpose for using the derivatives.
• Counterparty
Risk – Derivative transactions depend on the creditworthiness of the counterparty and the counterparty’s ability
to fulfill its contractual obligations.
Operational
Risks
Limited
Term and Tender Offer Risk. The Fund is scheduled to dissolve as of the Termination Date. The Fund’s investment policies
are not designed to return to common shareholders their original NAV or purchase price. The final distribution to common shareholders
on the Termination Date and the amount paid to participating common shareholders upon completion of an Eligible Tender Offer will
be based upon the Fund’s NAV at such time. Depending on a variety of factors, including the performance of the Fund’s
investment portfolio over the period of its operations, the amount distributed to common shareholders in connection with its termination
or paid to participating common shareholders upon completion of an Eligible Tender Offer may be less, and potentially significantly
less, than your original investment. Additionally, although tendering shareholders will receive an amount equal to NAV for their
shares in an Eligible Tender Offer, given the nature of certain of the Fund’s investments, the Fund’s NAV may be impacted
by the sale of such investments and, as a result, the amount actually distributed upon the Fund’s termination may be less
than the Fund’s NAV per share on the Termination Date, and the amount actually paid upon completion of an Eligible Tender
Offer may be less than the Fund’s NAV per share on the expiration date of the Eligible Tender Offer.
Because
the Fund’s assets will be liquidated in connection with its termination or to pay for common shares tendered in an Eligible
Tender Offer, the Fund may be required to sell portfolio securities when it otherwise would not, including at times when market
conditions are not favorable, which may cause the Fund to lose money. Given the nature of certain of the Fund’s investments,
particularly the Private Infrastructure Opportunities, the Fund may be unable to liquidate certain of its investments until well
after the Termination Date. In this case, the Fund may make one or more additional distributions after the Termination Date of
any cash received from the ultimate liquidation of those investments. This would delay distribution payments, perhaps for an extended
period of time, and there can be no assurance that the total value of the cash distribution made on the Termination Date and such
subsequent distributions, if any, will equal the Fund’s NAV on the Termination Date, depending on the ultimate results of
such post-Termination Date asset liquidations. If, as a result of lack of market liquidity or other adverse market conditions,
the Board of Trustees determines it is in the best interest of the Fund, the Fund may transfer any illiquid portfolio investments
that remain unsold on the Termination Date to a liquidating trust and distribute interests in such liquidating trust to common
shareholders as part of its final distribution. The liquidating trust, if used, would be a separate entity from the Fund and,
in reliance on Section 7 of the 1940 Act, would not be a registered investment company under the 1940 Act. Interests in the liquidating
trust are expected to be nontransferable, except by operation of law. The sole purpose of the liquidating trust would be to hold
illiquid investments of the Fund that were unable to be sold and to dispose of such investments. As such investments are sold
over time by the liquidating trust, the liquidating trust would distribute cash to its shareholders. There can be no assurance
as to the timing of or the value obtained from the liquidation of any investments transferred to a liquidating trust.
The
obligation to terminate on the Termination Date also may impact adversely the implementation of the Fund’s investment strategies.
There can be no assurance that the Adviser and the Sub-Adviser will be successful in their efforts to minimize any detrimental
effects on the Fund’s investment performance caused by the Fund’s obligation to liquidate its investment portfolio
and distribute all of its liquidated net assets to common shareholders of record on the Termination Date. In particular, the Adviser
and the Sub-Adviser may face difficulties exiting the Private Infrastructure Opportunities on or prior to the Termination Date
at favorable prices, if at all. In addition, as the Fund approaches the Termination Date, the Fund may invest the proceeds of
sold, matured or called securities in money market mutual funds; cash; cash equivalents; securities issued or guaranteed by the
US government or its instrumentalities or agencies; high quality, short-term money market instruments; short-term debt securities;
certificates of deposit; bankers’ acceptances and other bank obligations; commercial paper or other liquid debt securities,
which may adversely affect the Fund’s investment performance. In the course of the liquidation, the Fund must continue to
satisfy the asset diversification requirements to qualify as a regulated investment company (“RIC”) for federal income
tax purposes, which may also have a negative effect on the Fund’s investment performance. If the Fund fails to comply with
these requirements, it may be liable for federal income tax in the year of the liquidation. Moreover, rather than reinvesting
the proceeds of sold, matured or called securities, the Fund may distribute the proceeds in one or more liquidating distributions
prior to the final liquidation, which may cause fixed expenses to increase when expressed as a percentage of its total assets.
If
the Fund conducts an Eligible Tender Offer, it anticipates that funds to pay the aggregate purchase price of common shares accepted
for purchase pursuant to the tender offer will be first derived from any cash on hand and then from the proceeds from the sale
of portfolio investments. In addition, the Fund may be required to dispose of portfolio investments in connection with any reduction
in any outstanding leverage necessary in order to maintain its desired leverage ratios following an Eligible Tender Offer. The
risks related to the disposition of portfolio investments in connection with the Fund’s termination also would be present
in connection with the disposition of portfolio investments in connection with an Eligible Tender Offer. It is likely that during
the pendency of an Eligible Tender Offer, and possibly for a time thereafter, the Fund will hold a greater than normal percentage
of its total assets in money market mutual funds; cash; cash equivalents; securities issued or guaranteed by the US government
or its instrumentalities or agencies; high quality, short-term money market instruments; short-term debt securities; certificates
of deposit; bankers’ acceptances and other bank obligations; commercial paper or other liquid debt securities, which may
adversely affect its investment performance. If the Fund’s tax basis for the portfolio investments sold is less than the
sale proceeds, the Fund will recognize capital gains, which it will be required to distribute to common shareholders. In addition,
the Fund’s purchase of tendered common shares pursuant to an Eligible Tender Offer will have tax consequences for tendering
common shareholders and may have tax consequences for non-tendering common shareholders. The purchase of common shares pursuant
to an Eligible Tender Offer will have the effect of increasing the proportionate interest in the Fund of non-tendering common
shareholders. All shareholders remaining after an Eligible Tender Offer will be subject to proportionately higher expenses due
to the reduction in the Fund’s total assets resulting from payment for the tendered common shares. Such reduction in the
Fund’s total assets also may result in less investment flexibility, reduced diversification and greater volatility for the
Fund, and may have an adverse effect on the Fund’s investment performance.
The
Fund is not required to conduct an Eligible Tender Offer. If the Fund conducts an Eligible Tender Offer, there can be no assurance
that the number of tendered common shares would not result in the Fund’s net assets totaling less than the Termination Threshold,
in which case the Eligible Tender Offer will be terminated, no common shares will be repurchased pursuant to the Eligible Tender
Offer and the Fund will terminate on the Termination Date subject to permitted extensions. Following the completion of an Eligible
Tender Offer in which the number of tendered common shares would result in the Fund’s net assets totaling greater than the
Termination Threshold, the Board of Trustees may eliminate the Termination Date upon the affirmative vote of a majority of the
Board of Trustees and without a vote of the shareholders. Thereafter, the Fund will have a perpetual existence. The Adviser may
have a conflict of interest in recommending to the Board of Trustees that the Termination Date be eliminated and the Fund have
a perpetual existence. The Fund is not required to conduct additional tender offers following an Eligible Tender Offer and conversion
to perpetual existence. Therefore, remaining common shareholders may not have another opportunity to participate in a tender offer.
Shares of closed-end management investment companies frequently trade at a discount from their NAV, and as a result remaining
common shareholders may only be able to sell their common shares at a discount to NAV.
Stable
Distribution Plan Risk. The Fund has adopted a Stable Distribution Plan, which may be changed at any time by the Board, to
support a stable distribution of income, capital gains, and/or return of capital. In the event the Fund does not generate a total
return from dividends and interest received and net realized capital gains in an amount equal to or in excess of its stated distribution
in a given year, the Fund may return capital as part of such distribution. Any return of capital should not be considered by investors
as yield or total return on their investment in the Fund.
The
composition of each distribution to be made by the Fund is estimated based on the earnings of the Fund as of the record date for
each distribution. The actual composition of each of the current year’s distributions will be based on the Fund’s
investment activity through the end of the calendar year. Under the Fund’s Stable Distribution Plan, the Fund declares and
pays monthly distributions from net investment income, capital gains and paid-in capital. The actual source of the distribution
is determined after the end of the year. Pursuant to the Stable Distribution Plan, distributions during the year may be made in
excess of required distributions. To the extent such distributions are made from current or accumulated earnings and profits,
they are considered ordinary income or long term capital gains. Shareholders should not draw any conclusions about the Fund’s
investment performance from the amount of its distributions or from the terms of the Stable Distribution Plan.
Operating
Results Risk. The Fund could experience fluctuations in its operating results due to a number of factors, including the return
on its investments, the level of its expenses, and the degree to which the Fund encounters competition in its markets and general
economic conditions. As a result of these factors, results for any period should not be relied upon as being indicative of performance
in future periods.
Market
Discount Risk. Shares of closed-end investment companies frequently trade at a discount from NAV. Continued development of
alternative vehicles for investing in essential asset companies may contribute to reducing or eliminating any premium or may result
in the Fund’s common shares trading at a discount. The risk that the Fund’s common shares may trade at a discount
is separate from the risk of a decline in the Fund’s NAV as a result of investment activities.
Whether
shareholders will realize a gain or loss for federal income tax purposes upon the sale of their common shares depends upon whether
the market value of the common shares at the time of sale is above or below the shareholder’s basis in such common shares,
taking into account transaction costs, and it is not directly dependent upon the Fund’s NAV. Because the market price of
the Fund’s common shares will be determined by factors such as the relative demand for and supply of the shares in the market,
general market conditions and other factors beyond the Fund’s control, the Fund cannot predict whether its common shares
will trade at, below or above NAV, or at, below or above the public offering price for the Fund’s common shares.
Portfolio
Turnover Risk. At times, the Fund’s portfolio turnover may be higher. High portfolio turnover involves greater transaction
costs for the Fund and may result in greater realization of capital gains, including short-term capital gains.
Valuation
Risk. The Private Infrastructure Opportunities will typically consist of securities for which a liquid trading market does
not exist. The fair value of these securities may not be readily determinable. The Fund will value these securities in accordance
with valuation procedures adopted by the Board of Trustees. The types of factors that may be considered in fair value pricing
of the Fund’s investments include, as applicable, the nature and realizable value of any collateral, the issuer’s
ability to make payments, the markets in which the issuer does business, comparison to publicly traded companies, discounted cash
flow and other relevant factors. Because such valuations, and particularly valuations of non-traded securities and private companies,
are inherently uncertain, they may fluctuate over short periods of time and may be based on estimates. The determination of fair
value by the Board of Trustees may differ materially from the values that would have been used if a liquid trading market for
these securities existed. The Fund’s NAV could be adversely affected if the determinations regarding the fair value of its
investments were materially higher than the values that the Fund ultimately realizes upon the disposition of such securities.
Tax
Risk. The Fund intends to elect to be treated, and to qualify each year, as a RIC under the Code. To maintain its qualification
for federal income tax purposes as a RIC under the Code, the Fund must meet certain source-of-income, asset diversification and
annual distribution requirements. If for any taxable year the Fund fails to qualify for the special federal income tax treatment
afforded RICs, all of its taxable income will be subject to federal income tax at regular corporate rates (without any deduction
for distributions to the Fund’s shareholders) and its income available for distribution will be reduced.
Leverage
Risk. The Fund currently does not intend to use leverage, but may do so in the future. The use of leverage can magnify the
effect of any losses. If the income and gains from the securities and investments purchased with leverage proceeds do not cover
the cost of leverage, the return to the holders of common shares will be less than if leverage had not been used. Any leveraging
strategy the Fund employs may not be successful.
Leverage
involves risks and special considerations for common shareholders, including:
| • | the
likelihood of greater volatility of NAV, market price and dividend rate of the common shares than a comparable portfolio without leverage; |
| • | the
risk that fluctuations in interest rates or dividend rates on any leverage that the Fund must pay will reduce the return to the common
shareholders; |
| • | the
effect of leverage in a declining market, which is likely to cause a greater decline in the NAV of the common shares than if the Fund
were not leveraged, which may result in a greater decline in the market price of the common shares; |
| • | when
the Fund uses financial leverage, the management fee payable to the Adviser and the Sub-Adviser will be higher than if the Fund did not
use leverage; and |
| • | leverage
may increase operating costs, which may reduce total return. |
The
Fund currently does not intend to borrow money or issue debt securities or preferred shares, but may in the future borrow funds
from banks or other financial institutions, or issue debt securities or preferred shares, as described in this prospectus.
Capital
Markets Risk. In the event of an economic downturn or period of increased financial stress, like the one caused by the COVID-19
outbreak, the cost of raising capital in the debt and equity capital markets may increase, and the ability to raise capital may
be limited. In particular, concerns about the general stability of financial markets and specifically the solvency of lending
counterparties may impact the cost of raising capital from the credit markets through increased interest rates, tighter lending
standards, difficulties in refinancing debt on existing terms or at all and reduced, or in some cases ceasing to provide, funding
to borrowers. In addition, lending counterparties under existing revolving credit facilities and other debt instruments may be
unwilling or unable to meet their funding obligations. As a result of any of the foregoing, the Fund or the companies in which
the Fund invests may be unable to obtain new debt or equity financing on acceptable terms. If funding is not available when needed,
or is available only on unfavorable terms, the Fund or the companies in which the Fund invests may not be able to meet obligations
as they come due. Moreover, without adequate funding, essential asset companies may be unable to execute their growth strategies,
complete future acquisitions, take advantage of other business opportunities or respond to competitive pressures, any of which
could have a material adverse effect on their revenues and results of operations and, consequently, the performance of the Fund.
Legal,
Regulatory and Policy Risks. Legal and regulatory changes could occur that may adversely affect the Fund, its investments
and its ability to pursue its investment strategies and/or increase the costs of implementing such strategies. New or revised
laws or regulations may be imposed by the SEC, the US Commodity Futures Trading Commission (the “CFTC”), the IRS,
the US Federal Reserve or other governmental regulatory authorities or self-regulatory organizations that could adversely affect
us. The Fund may also be adversely affected by changes in the enforcement or interpretation of existing statutes and rules by
governmental regulatory authorities or self-regulatory organizations.
Due
to recent instability in financial markets, US federal and state governments and foreign governments, their regulatory agencies
or self-regulatory organizations have taken and 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 may be suddenly and/or substantially eliminated or otherwise negatively impacted.
Given the complexities of the global financial markets and the limited timeframe within which governments may be required to take
action, these interventions may result in confusion and uncertainty, which in itself may be materially detrimental to the efficient
functioning of such markets as well as previously successful investment strategies.
Limitations
on Transactions with Affiliates Risk. The 1940 Act limits the Fund’s ability to enter into certain transactions with
certain of its affiliates. As a result of these restrictions, the Fund may be prohibited from buying or selling any security directly
from or to any portfolio company that is considered its affiliate under the 1940 Act. However, the Fund may under certain circumstances
purchase any such portfolio company’s securities in the secondary market, which could create a conflict for the Adviser
or Sub-Adviser between the Fund’s interests and the interests of the portfolio company, in that the ability of the Adviser
or Sub-Adviser, as applicable, to recommend actions in the Fund’s best interests might be impaired.
The
1940 Act also prohibits certain “joint” transactions by the Fund with certain of its affiliates, including other accounts
advised by the Adviser and Sub-Adviser, which imposes limits on investments in the same issuer (whether at the same or different
times). The Adviser and the Sub-Adviser may in the future seek exemptive relief from the SEC that would permit the Fund, among
other things, greater flexibility to co-invest with certain other persons, including certain other accounts, subject to certain
terms and conditions. Such relief may not cover all circumstances and the Fund may be precluded from participating in certain
transactions due to regulatory restrictions on transactions with affiliates.
Potential
Conflicts of Interest Risk. The portfolio managers’ management of “other accounts” may give rise to potential
conflicts of interest in connection with their management of the Fund’s investments, on the one hand, and the investments
of the other accounts, on the other. The other accounts may have the same investment objective as the Fund. Therefore, a potential
conflict of interest may arise as a result of the identical investment objectives, whereby the portfolio manager could favor one
account over another. However, the Adviser and the Sub-Adviser believe that these risks are mitigated by the fact that: (i) accounts
with like investment strategies managed by a particular portfolio manager are generally managed in a similar fashion, subject
to exceptions to account for particular investment restrictions or policies applicable only to certain accounts, differences in
cash flows and account sizes, and similar factors; and (ii) portfolio manager personal trading is monitored to avoid potential
conflicts. In addition, the Adviser and the Sub-Adviser have adopted trade allocation procedures that require equitable allocation
of trade orders for a particular security among participating accounts.
In
some cases, another account managed by the same portfolio manager may compensate the Adviser and the Sub-Adviser based on the
performance of the portfolio held by that account. The existence of such a performance-based fee may create additional conflicts
of interest for the portfolio manager in the allocation of management time, resources and investment opportunities.
Another
potential conflict could include instances in which securities considered as investments for the Fund also may be appropriate
for other investment accounts managed by the Adviser, the Sub-Adviser or their affiliates. Whenever decisions are made to buy
or sell securities by the Fund and one or more of the other accounts simultaneously, the Adviser or the Sub-Adviser may aggregate
the purchases and sales of the securities and will allocate the securities transactions in a manner that it believes to be equitable
under the circumstances. As a result of the allocations, there may be instances where the Fund will not participate in a transaction
that is allocated among other accounts. While these aggregation and allocation policies could have a detrimental effect on the
price or amount of the securities available to the Fund from time to time, it is the opinion of the Adviser that the benefits
from the policies outweigh any disadvantage that may arise from exposure to simultaneous transactions. The Adviser and the Sub-Adviser
have adopted policies that are designed to eliminate or minimize conflicts of interest, although there is no guarantee that procedures
adopted under such policies will detect each and every situation in which a conflict arises.
The
Adviser and the Sub-Adviser also have adopted written allocation procedures for transactions involving private placement securities,
which are designed to result in a fair and equitable participation in offerings or sales for participating clients over time.
From
time to time, the Adviser or the Sub-Adviser may seed proprietary accounts for the purpose of evaluating a new investment strategy
that eventually may be available to clients through one or more product structures. Such accounts also may serve the purpose of
establishing a performance record for the strategy. The management by the Adviser and the Sub-Adviser of accounts with proprietary
interests and nonproprietary client accounts may create an incentive to favor the proprietary accounts in the allocation of investment
opportunities, and the timing and aggregation of investments. The Adviser’s and Sub-Adviser’s proprietary seed accounts
may include long-short strategies, and certain client strategies may permit short sales. A conflict of interest arises if a security
is sold short at the same time as a long position, and continuous short selling in a security may adversely affect the stock price
of the same security held long in client accounts. The Adviser and Sub-Adviser have adopted various policies to mitigate these
conflicts.
In
addition, the 1940 Act limits the Fund’s ability to enter into certain transactions with certain affiliates of the Advisers.
As a result of these restrictions, the Fund may be prohibited from buying or selling any security directly from or to any portfolio
company of a fund managed by the Advisers or one of their affiliates. Nonetheless, the Fund may under certain circumstances purchase
any such portfolio company’s loans or securities in the secondary market, which could create a conflict for the Advisers
between the interests of the Fund and the portfolio company, in that the ability of the Advisers to recommend actions in the best
interest of the Fund might be impaired. The 1940 Act also prohibits certain “joint” transactions with certain of the
Fund’s affiliates (which could include other abrdn-managed Funds), which could be deemed to include certain types of investments,
or restructuring of investments, in the same portfolio company (whether at the same or different times). These limitations may
limit the scope of investment opportunities that would otherwise be available to the Fund. The Board has approved policies and
procedures reasonably designed to monitor potential conflicts of interest. The Board will review these procedures and any conflicts
that may arise.
Conflicts
of interest may arise where the Fund and other funds or accounts managed or administered by the Advisers simultaneously hold securities
representing different parts of the capital structure of a stressed or distressed issuer. In such circumstances, decisions made
with respect to the securities held by one fund or account may cause (or have the potential to cause) harm to the different class
of securities of the issuer held by other fund or account (including the Fund). For example, if such an issuer goes into bankruptcy
or reorganization, becomes insolvent or otherwise experiences financial distress or is unable to meet its payment obligations
or comply with covenants relating to credit obligations held by the Fund or by the other funds or accounts managed by the Advisers,
such other funds or accounts may have an interest that conflicts with the interests of the Fund. If additional financing for such
an issuer is necessary as a result of financial or other difficulties, it may not be in the best interests of the Fund to provide
such additional financing, but if the other funds or accounts were to lose their respective investments as a result of such difficulties,
the Advisers may have a conflict in recommending actions in the best interests of the Fund. In such situations, the Advisers will
seek to act in the best interests of each of the funds and accounts (including the Fund) and will seek to resolve such conflicts
in accordance with its compliance policies and procedures.
The
Adviser and the Sub-Adviser have the ability to allocate investment opportunities of certain negotiated transactions between the
Fund, other funds registered under the 1940 Act and other accounts managed by the Adviser and the Sub-Adviser pro rata based on
available capital, up to the amount proposed to be invested by each (“Co-Investment Opportunities”). The 1940 Act
and a rule thereunder impose limits on the Fund’s ability to participate in Co-Investment Opportunities, and the Fund generally
will not be permitted to co-invest alongside other funds registered under the 1940 Act and other accounts managed by the Adviser
and the Sub-Adviser in privately negotiated transactions unless the Fund obtains an exemptive order from the SEC or the transaction
is otherwise permitted under existing regulatory guidance, such as certain transactions in publicly traded securities and transactions
in which price is the only negotiated term. To the extent an investment opportunity in a transaction involving the negotiation
of any term of the investment other than price or quantity (a “negotiated transaction”) arises, and the Adviser and
the Sub-Adviser determine that it would be appropriate for both the Fund and other accounts managed by the Adviser, the opportunity
will be allocated to the other accounts and the Fund will not participate in the negotiated transaction. To the extent that the
Adviser and the Sub-Adviser source and structure private investments in publicly traded issuers, certain employees of the Adviser
and the Sub-Adviser may become aware of actions planned by such issuers, such as acquisitions, which may not be announced to the
public. It is possible that the Fund could be precluded from investing in or selling securities of an issuer about which the Adviser
and the Sub-Adviser have material, nonpublic information, however, it is the Adviser’s and Sub-Adviser’s intention
to ensure that any material, non-public information available to certain employees of the Adviser and the Sub-Adviser is not shared
with the employees responsible for the purchase and sale of publicly traded securities or to confirm prior to receipt of any material
non-public information that the information will shortly be made public. The Fund’s investment opportunities also may be
limited by affiliations of the Adviser, the Sub-Adviser or their affiliates with infrastructure companies.
The
Adviser (or Sub-Adviser) or their respective members, officers, directors, employees, principals or affiliates may come into possession
of material, non-public information. The possession of such information may limit the ability of the Fund to buy or sell a security
or otherwise to participate in an investment opportunity. Situations may occur where the Fund could be disadvantaged because of
the investment activities conducted by the Adviser (or Sub-Adviser) for other clients, and the Adviser (or Sub-Adviser) will not
employ information barriers with regard to its operations on behalf of its registered and private funds, or other accounts. In
certain circumstances, employees of the Adviser (or Sub-Adviser) may serve as board members or in other capacities for portfolio
or potential portfolio companies, which could restrict the Fund’s ability to trade in the securities of such companies.
Anti-Takeover
Provisions Risk. The Fund’s Declaration of Trust and Bylaws include provisions that could delay, defer or prevent other
entities or persons from acquiring control of the Fund, causing the Fund to engage in certain transactions or modify its structure.
These provisions may be regarded as “anti-takeover” provisions. Such provisions could limit the ability of common
shareholders to sell their shares at a premium over the then-current market prices by discouraging a third party from seeking
to obtain control of us.
Principal
Risks of Investing in the Acquired Fund
The
Fund is a closed-end management investment company designed primarily as a long-term investment and not as a trading vehicle.
The Fund is not intended to be a complete investment program and, due to the uncertainty inherent in all investments, there can
be no assurance that the Fund will achieve its investment objective. The following discussion summarizes the principal risks associated
with investing in the Fund, which includes the risk that you could lose some or all of your investment in the Fund. The Fund is
subject to the informational requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940 and, in
accordance therewith, files reports, proxy statements and other information that is available for review.
Canada
Risk. The Fund invests in securities of Canadian issuers and is therefore subject to certain risks specifically associated
with investments in the securities of Canadian issuers. The Canadian economy is heavily dependent on the demand for natural resources
and agricultural products. Canada is a major producer of commodities such as forest products, metals, agricultural products, and
energy related products like oil, gas, and hydroelectricity. Accordingly, a change in the supply and demand of these resources,
both domestically and internationally, can have a significant effect on Canadian market performance. Canada is a top producer
of zinc and uranium and a global source of many other natural resources, such as gold, nickel, aluminum, and lead. Conditions
that weaken demand for such products worldwide could have a negative impact on the Canadian economy as a whole. Changes to the
U.S. economy may significantly affect the Canadian economy because the U.S. is Canada’s largest trading partner and foreign
investor. These and other factors could have a negative impact on the Fund and its investments in Canada.
Credit
Agency Risk. Credit ratings are determined by credit rating agencies and are only the opinions of such entities. Ratings assigned
by a rating agency are not absolute standards of credit quality and do not evaluate market risk or the liquidity of securities.
Any shortcomings or inefficiencies in credit rating agencies’ processes for determining credit ratings may adversely affect
the credit ratings of securities held by the Fund or such credit agency’s ability to evaluate creditworthiness and, as a
result, may adversely affect those securities’ perceived or actual credit risk.
Credit
and Below-Investment Grade Securities Risk. Credit risk is the risk that the issuer or other obligated party of a debt security
in the Fund’s portfolio will fail to pay dividends or interest and/or repay principal, when due. Below-investment grade
instruments are commonly referred to as high-yield securities or “junk” bonds and are considered speculative with
respect to the issuer’s capacity to pay dividends or interest and repay principal and are susceptible to default or decline
in market value due to adverse economic and business developments. High-yield securities are often unsecured and subordinated
to other creditors of the issuer. The market values for high-yield securities tend to be very volatile, and these securities are
generally less liquid than investment grade securities. For these reasons, an investment in the Fund is subject to the following
specific risks: (i) increased price sensitivity to changing interest rates and to a deteriorating economic environment; (ii) greater
risk of loss due to default or declining credit quality; (iii) adverse company specific events more likely to render the issuer
unable to make dividend, interest and/or principal payments; (iv) negative perception of the high-yield market which may depress
the price and liquidity of high-yield securities; (v) volatility; and (vi) liquidity.
Cyber
Security Risk. The Fund is susceptible to potential operational risks through breaches in cyber security. A breach in cyber
security refers to both intentional and unintentional events that may cause the Fund to lose proprietary information, suffer data
corruption or lose operational capacity. Such events could cause the Fund to incur regulatory penalties, reputational damage,
additional compliance costs associated with corrective measures and/or financial loss. Cyber security breaches may involve unauthorized
access to the Fund’s digital information systems through “hacking” or malicious software coding, but may also
result from outside attacks such as denial-of-service attacks through efforts to make network services unavailable to intended
users. In addition, cyber security breaches of the Fund’s third-party service providers, such as its administrator, transfer
agent, custodian, sub-advisor, or issuers in which the Fund invests, can also subject the Fund to many of the same risks associated
with direct cyber security breaches. The Fund has established risk management systems designed to reduce the risks associated
with cyber security. However, there is no guarantee that such efforts will succeed, especially because the Fund does not directly
control the cyber security systems of issuers or third party service providers. Substantial costs may be incurred by the Fund
in order to resolve or prevent cyber incidents in the future.
Equity
Securities Risk. The value of the Fund’s shares will fluctuate with changes in the value of the equity securities in
which the Fund invests. Prices of equity securities fluctuate for several reasons, including changes in investors’ perceptions
of the financial condition of an issuer or the general condition of the relevant stock market, such as market volatility, or when
political or economic events affecting the issuers occur. Common stock prices may be particularly sensitive to rising interest
rates, as the cost of capital rises and borrowing costs increase. Equity securities may decline significantly in price over short
or extended periods of time, and such declines may occur in the equity market as a whole, or they may occur in only a particular
country, company, industry or sector of the market.
Illiquid
Securities Risk. The Fund may invest in securities that are considered to be illiquid securities. Illiquid 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 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 securities are also more difficult to value,
especially in challenging markets. Although the resale or secondary market for senior loans is growing, it is currently
limited. There is no organized exchange or board of trade on which senior loans are traded. Instead, the secondary market for
senior loans is an unregulated inter-dealer or inter-bank resale market. In addition, the senior loans in which the Fund
invests may require the consent of the borrower and/or agent prior to the settlement of the sale or assignment. These consent
requirements can delay or impede the Fund’s ability to settle the sale of senior loans. Depending on market conditions,
the Fund may have difficulty disposing its senior loans, which may adversely impact its ability to obtain cash to repay debt,
to pay dividends, to pay expenses or to take advantage of new investment opportunities.
Inflation
Risk. Certain of the Fund’s investments are subject to inflation risk. Inflation risk is the risk that the value of
assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases,
the present value of the Fund’s assets and distributions may decline. This risk is more prevalent with respect to debt securities.
Inflation creates uncertainty over the future real value (after inflation) of an investment. Inflation rates may change frequently
and drastically as a result of various factors, including unexpected shifts in the domestic or global economy, and the Fund’s
investments may not keep pace with inflation, which may result in losses to Fund investors.
Infrastructure
and Industry Concentration Risk. Given the Fund’s concentration in the infrastructure industry, the Fund is more susceptible
to adverse economic or regulatory occurrences affecting that industry than an investment company that is not concentrated in a
single industry. Infrastructure issuers, including utilities and companies involved in infrastructure projects, may be subject
to a variety of factors that may adversely affect their business or operations, including high interest costs in connection with
capital construction programs, high leverage costs associated with environmental and other regulations, the effects of economic
slowdown, surplus capacity, increased competition from other providers of services, uncertainties concerning the availability
of fuel at reasonable prices, the effects of energy conservation policies, increased regulation and other factors. In addition,
infrastructure assets can have a substantial environmental impact. Ordinary operation or an accident with respect to such assets
could cause major environmental damage which could cause the owner of such assets significant financial distress. Community and
environmental groups may protest about the development or operation of infrastructure assets, and these protests may induce government
action to the detriment of the owner of the infrastructure asset.
Interest
Rate Risk. Interest rate risk is the risk that securities will decline in value because of changes in market interest rates.
The yield on the Fund’s common shares will tend to rise or fall as market interest rates rise and fall, as senior loans
pay interest at rates which float in response to changes in market rates. Changes in prevailing interest rates can be expected
to cause some fluctuation in the Fund’s net asset value. Similarly, a sudden and significant increase in market interest
rates may cause a decline in the Fund’s net asset value.
Leverage
Risk. The use of leverage by the Fund can magnify the effect of any losses. If the income and gains from the securities and
investments purchased with leverage 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: (i) the likelihood
of greater volatility of net asset value and market price of the common shares than a comparable portfolio without leverage; (ii)
the risk that fluctuations in interest rates on borrowings will reduce the return to the common shareholders or will result in
fluctuations in the dividends paid on the common shares; (iii) in a declining market, the use of leverage is likely to cause a
greater decline in the net asset value of the common shares than if the Fund was not leveraged, which may result in a greater
decline in the market price of the common shares; and (iv) when the Fund uses certain types of leverage, the investment advisory
fee payable to the Advisor and by the Advisor to the Sub-Advisor will be higher than if the Fund did not use leverage.
LIBOR
Risk. Many financial instruments use or may use a floating rate based upon the London Interbank Offered Rate (“LIBOR”).
The United Kingdom’s Financial Conduct Authority (the “FCA”), which regulates LIBOR, has ceased making LIBOR
available as a reference rate over a phase-out period that began on December 31, 2022. There is no assurance that any alternative
reference rate, including the Secure Overnight Financing Rate (“SOFR”) will be similar to or produce the same value
or economic equivalence as LIBOR or that instruments using an alternative rate will have the same volume or liquidity. The unavailability
or replacement of LIBOR may affect the value, liquidity or return on certain Fund investments and may result in costs incurred
in connection with closing out positions and entering into new trades. Any potential effects of the transition away from LIBOR
on the Fund or on certain instruments in which the Fund invests can be difficult to ascertain, and they may vary depending on
a variety of factors, and they could result in losses to the Fund.
Management
Risk and Reliance on Key Personnel. The implementation of the Fund’s investment strategy depends upon the continued
contributions of certain key employees of the Advisor and 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.
Market
Discount from Net Asset Value. Shares of closed-end investment companies such as the Fund frequently trade at a discount from
their net asset value. The Fund cannot predict whether its common shares will trade at, below or above net asset value.
Market
Risk. Securities held by the Fund, as well as shares of the Fund itself, are subject to market fluctuations caused by factors
such as general economic conditions, political events, regulatory or market developments, changes in interest rates and perceived
trends in securities prices. Shares of the Fund could decline in value or underperform other investments as a result of the risk
of loss associated with these market fluctuations. In addition, local, regional or global events such as war, acts of terrorism,
spread of infectious diseases or other public health issues, recessions, or other events could have a significant negative impact
on the Fund and its investments. For example, the coronavirus (COVID-19) global pandemic and the aggressive responses taken by
many governments, including closing borders, restricting international and domestic travel, and the imposition of prolonged quarantines
or similar restrictions, had negative impacts, and in many cases severe impacts, on markets worldwide. While the development of
vaccines has slowed the spread of the virus and allowed for the resumption of reasonably normal business activity in the United
States, many countries continue to impose lockdown measures in an attempt to slow the spread. Additionally, there is no guarantee
that vaccines will be effective against emerging variants of the disease. Also, in February 2022, Russia invaded Ukraine which
has caused and could continue to cause significant market disruptions and volatility across markets globally, including the United
States. The hostilities and sanctions resulting from these hostilities could have a significant impact on certain Fund investments
as well as Fund performance. As the global pandemic and conflict in Ukraine have illustrated, such events may affect certain geographic
regions, countries, sectors and industries more significantly than others. These events also may adversely affect the prices and
liquidity of the Fund’s portfolio securities or other instruments and could result in disruptions in the trading markets.
Any of such circumstances could have a materially negative impact on the value of the Fund’s shares and result in increased
market volatility. During any such events, the Fund’s shares may trade at increased premiums or discounts to their net asset
value and the bid/ask spread on the Fund’s shares may widen.
MLP
Risk. As a result of the Fund’s exposure to MLPs, a downturn in one or more industries within the energy sector,
material declines in energy- related commodity prices, adverse political, legislative or regulatory developments or other
events could have a larger impact on the Fund than on an investment company that does not invest in the group of industries
that are part of the energy sector. Certain risks inherent in investing in MLPs include: commodity pricing risk, commodity
supply and demand risk, lack of diversification of and reliance on MLP customers and suppliers risk, commodity depletion and
exploration risk, energy sector and energy utility industry regulatory risk, including risks associated with the prices and
methodology of determining prices that energy companies may charge for their products and services, interest rate risk, risk
of lack of acquisition or reinvestment opportunities for MLPs, risk of lacking of funding for MLPs, dependency on MLP
affiliate risk, weather risk, catastrophe risk, terrorism and MLP market disruption risk, and technology risk. Certain MLP
securities may trade in relatively low volumes due to their smaller market capitalizations or other factors, which may cause
them to have a high degree of price volatility and illiquidity. The structures of MLPs create certain risks, including, for
example, risks related to the limited ability of investors to control an MLP and to vote on matters affecting the MLP, risks
related to potential conflicts of interest between an MLP and the MLP’s general partner, the risk that an MLP will
generate insufficient cash flow to meet its current operating requirements, the risk that an MLP will issue additional
securities or engage in other transactions that will have the effect of diluting the interests of existing investors, and
risks related to the general partner’s right to require unit-holders to sell their common units at an undesirable time
or price. Companies that own interstate pipelines are subject to regulation by the Federal Energy Regulatory Commission
(“FERC”) with respect to the tariff rates that they may charge customers and may change policies to no longer
permit such companies to include certain costs in their costs of services. This may lower the tariff rates charged to
customers which will in turn negatively affect performance. Other factors which may reduce the amount of cash an MLP has
available to pay its debt and equity holders include increased operating costs, maintenance capital expenditures, acquisition
costs, expansion or construction costs and borrowing costs (including increased borrowing costs as a result of additional
collateral requirements as a result of ratings downgrades by credit agencies).
Non-U.S.
Securities and Currency Risk. Investing in non-U.S. securities involves certain risks not involved in domestic investments,
including, but not limited to: fluctuations in currency exchange rates; future foreign economic, financial, political and social
developments; different legal systems; the possible imposition of exchange controls or other foreign governmental laws or restrictions;
lower trading volume; withholding taxes; greater price volatility and illiquidity; different trading and settlement practices;
less governmental supervision; high and volatile rates of inflation; fluctuating interest rates; less publicly available information;
and different accounting, auditing and financial recordkeeping standards and requirements. Because the Fund may invest in securities
denominated or quoted in non-U.S. currencies, changes in the non-U.S. currency/United States dollar exchange rate may affect the
value of the Fund’s securities and the unrealized appreciation or depreciation of investments. There may be very limited
regulatory oversight of certain non-U.S. banks or securities depositories that hold non-U.S. securities and non-U.S. currency
and the laws of certain countries may limit the ability to recover such assets if a non-U.S. bank or depository or their agents
go bankrupt. There may also be an increased risk of loss of portfolio securities. Investing in non-U.S. securities may also involve
a greater risk for excessive trading due to “time-zone arbitrage.” If an event occurring after the close of a non-U.S.
market, but before the time the Fund computes its current net asset value, causes a change in the price of the non-U.S. securities
and such price is not reflected in the Fund’s current net asset value, investors may attempt to take advantage of anticipated
price movements in securities held by the Fund based on such pricing discrepancies.
Operational
Risk. The Fund is subject to risks arising from various operational factors, including, but not limited to, human error, processing
and communication errors, errors of the Fund’s service providers, counterparties or other third-parties, failed or inadequate
processes and technology or systems failures. The Fund relies on third parties for a range of services, including custody. Any
delay or failure relating to engaging or maintaining such service providers may affect the Fund’s ability to meet its investment
objective. Although the Fund and the Advisor seek to reduce these operational risks through controls and procedures, there is
no way to completely protect against such risks.
Portfolio
Turnover Risk. The Fund may engage in portfolio trading to accomplish its investment objective. The investment policies of
the Fund may lead to frequent changes in investments, particularly in periods of rapidly fluctuating interest or currency exchange
rates. There are no limits on the rate of portfolio turnover and investments may be sold without regard to length of time held
when the Fund’s investment strategy so dictates. 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 shareholders, will be taxable as ordinary income.
Potential
Conflicts of Interest Risk. First Trust, DIFA and the portfolio managers have interests which may conflict with the interests
of the Fund. In particular, First Trust and DIFA currently manage and may in the future manage and/or advise other investment
funds or accounts with the same or substantially similar investment objective and strategies as the Fund. In addition, while the
Fund is using leverage, the amount of the fees paid to First Trust (and by First Trust to DIFA) for investment advisory and management
services are higher than if the Fund did not use leverage because the fees paid are calculated based on managed assets. Therefore,
First Trust and DIFA have a financial incentive to leverage the Fund.
Prepayment
Risk. Loans are subject to prepayment risk. Prepayment risk is the risk that a borrower repays principal prior to the scheduled
maturity date. The degree to which borrowers prepay loans, whether as a contractual requirement or at their election, may be affected
by general actual outstanding debt on which the Fund derives interest income will be reduced. The Fund may not be able to reinvest
the proceeds received on terms as favorable as the prepaid loan.
Qualified
Dividend Income Tax Risk. There can be no assurance as to what portion of the distributions paid to the Fund’s common
shareholders will consist of tax-advantaged qualified dividend income. Certain distributions reported by the Fund as derived from
qualified dividend income will be taxed in the hands of non-corporate common shareholders at the rates applicable to long-term
capital gains, provided certain holding period and other requirements are satisfied by both the Fund and the common shareholders.
Additional requirements apply in determining whether distributions by foreign issuers should be regarded as qualified dividend
income. Certain investment strategies of the Fund will limit the Fund’s ability to meet these requirements and consequently
will limit the amount of qualified dividend income received and distributed by the Fund. A change in the favorable provisions
of the federal tax laws with respect to qualified dividends may result in a widespread reduction in announced dividends and may
adversely impact the valuation of the shares of dividend-paying companies.
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 instruments at market interest rates that are below the Fund’s portfolio’s current
earnings rate. A decline in income could affect the common shares’ market price, level of distributions or the overall return
of the Fund.
Restricted
Securities Risk. The Fund may invest in restricted securities. The term “restricted securities” refers to securities
that are unregistered or are held by control persons of the issuer and securities that are subject to contractual restrictions
on their resale. As a result, restricted securities may be more difficult to value and the Fund may have difficulty disposing
of such assets either in a timely manner or for a reasonable price. In order to dispose of an unregistered security, the Fund,
where it has contractual rights to do so, may have to cause such security to be registered. A considerable period may elapse between
the time the decision is made to sell the security and the time the security is registered 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.
Risks
Associated with an Investment in Initial Public Offerings. Securities purchased in initial public offerings (“IPOs”)
are often subject to the general risks associated with investments in companies with small market capitalizations, and typically
to a heightened degree. Securities issued in IPOs have no trading history, and information about the companies may be available
for very limited periods. In addition, the prices of securities sold in an IPO may be highly volatile. At any particular time
or from time to time, the Fund may not be able to invest in IPOs, or to invest to the extent desired, because, for example, only
a small portion (if any) of the securities being offered in an IPO may be available to the Fund. In addition, under certain market
conditions, a relatively small number of companies may issue securities in IPOs. The Fund’s investment performance during
periods when it is unable to invest significantly or at all in IPOs may be lower than during periods when it is able to do so.
IPO securities may be volatile, and the Fund cannot predict whether investments in IPOs will be successful.
Senior
Loan Risk. The Fund invests in senior loans and therefore is subject to the risks associated therewith. Investments in senior
loans are subject to the same risks as investments in other types of debt securities, including credit risk, interest rate risk,
liquidity risk and valuation risk (which may be heightened because of the limited public information available regarding senior
loans and because loan borrowers may be leveraged and tend to be more adversely affected by changes in market or economic conditions).
Further, no active trading market may exist for certain senior loans, which may impair the ability of the Fund to realize full
value in the event of the need to sell a senior loan and which may make it difficult to value senior loans. Senior loans may not
be considered “securities” and the Fund may not be entitled to rely on the anti-fraud protections of the federal securities
laws. In the event a borrower fails to pay scheduled interest or principal payments on a senior loan held by the Fund, the Fund
will experience a reduction in its income and a decline in the value of the senior loan, which will likely reduce dividends and
lead to a decline in the net asset value of the Fund’s common shares. If the Fund acquires a senior loan from another lender,
for example, by acquiring a participation, the Fund may also be subject to credit risks with respect to that lender. Although
senior loans may be secured by specific collateral, the value of the collateral may not equal the Fund’s investment when
the senior loan is acquired or may decline below the principal amount of the senior loan subsequent to the Fund’s investment.
Also, to the extent that collateral consists of stock of the borrower or its subsidiaries or affiliates, the Fund bears the risk
that the stock may decline in value, be relatively illiquid, and/or may lose all or substantially all of its value, causing the
senior loan to be under collateralized. Therefore, the liquidation of the collateral underlying a senior loan may not satisfy
the issuer’s obligation to the Fund in the event of non-payment of scheduled interest or principal, and the collateral may
not be readily liquidated. The senior loan market has seen a significant increase in loans with weaker lender protections including,
but not limited to, limited financial maintenance covenants or, in some cases, no financial maintenance covenants (i.e., “covenant-lite
loans”) that would typically be included in a traditional loan agreement and general weakening of other restrictive covenants
applicable to the borrower such as limitations on incurrence of additional debt, restrictions on payments of junior debt or restrictions
on dividends and distributions. Weaker lender protections such as the absence of financial maintenance covenants in a loan agreement
and the inclusion of “borrower- favorable” terms may impact recovery values and/or trading levels of senior loans
in the future. The absence of financial maintenance covenants in a loan agreement generally means that the lender may not be able
to declare a default if financial performance deteriorates. This may hinder the Fund’s ability to reprice credit risk associated
with a particular borrower and reduce the Fund’s ability to restructure a problematic loan and mitigate potential loss.
As a result, the Fund’s exposure to losses on investments in senior loans may be increased, especially during a downturn
in the credit cycle or changes in market or economic conditions.
Tax
Risk. Changes in tax laws or regulations, or interpretations thereof in the future, could adversely affect the Fund or the
MLPs, MLP-related entities and other energy sector and energy utility companies in which the Fund invests. A change in current
tax law, a change in the business of a given MLP, or a change in the types of income earned by a given MLP could result in an
MLP being treated as a corporation for United States federal income tax purposes, which would result in such MLP being required
to pay United States federal income tax on its taxable income. Recent events have caused some MLPs to be reclassified or restructured
as corporations. The classification of an MLP as a corporation for United States federal income tax purposes has the effect of
reducing the amount of cash available for distribution by the MLP and causing any such distributions received by the Fund to be
taxed as dividend income to the extent of the MLP’s current or accumulated earnings and profits. A reduction in the percentage
of the income offset by tax deductions or an increase in sales of the Fund’s MLP holdings that result in capital gains will
reduce that portion of the Fund’s distribution from an MLP treated as a return of capital and increase that portion treated
as income, and may result in lower after-tax distributions to the Fund’s common shareholders. On the other hand, to the
extent a distribution received by the Fund from an MLP is treated as a return of capital, the Fund’s adjusted tax basis
in the interests of the MLP may be reduced, which will result in an increase in the amount of income or gain or decrease in the
amount of loss that will be recognized by the Fund for tax purposes upon the sale of any such interests. Sale of MLPs may result
in the Fund realizing significant amounts of taxable ordinary income even for MLP positions sold at an overall loss with such
amounts of taxable ordinary income being very difficult for the Fund to estimate or accrue for, and the tax reporting being significantly
delayed, subject to dramatic revisions, and depending on the MLP issuers so reporting.
United
Kingdom Risk. The Fund is subject to certain risks specifically associated with investments in the securities of United Kingdom
issuers. Investments in issuers located in the United Kingdom may subject the Fund to regulatory, political, currency, security,
and economic risk specific to the United Kingdom. The United Kingdom has one of the largest economies in Europe, and the United
States, China and other European countries are substantial trading partners of the United Kingdom. As a result, the British economy
may be impacted by changes to the economic health of the United States, China and other European countries. The United Kingdom’s
official departure from the European Union (commonly referred to as “Brexit”) led to volatility in global financial
markets, in particular those of the United Kingdom and across Europe, and the weakening in political, regulatory, consumer, corporate
and financial confidence in the United Kingdom and Europe. Given the size and importance of the United Kingdom’s economy,
uncertainty or unpredictability about its legal, political and/or economic relationships with Europe has been, and may continue
to be, a source of instability and could lead to significant currency fluctuations and other adverse effects on international
markets and international trade even under the post-Brexit trade guidelines. The negative impact of Brexit on not only the United
Kingdom and European economies, but the broader global economy, could be significant, potentially resulting in increased volatility
and illiquidity and lower economic growth for companies that rely significantly on Europe for their business activities and revenues.
It is not currently possible to determine the extent of the impact that Brexit may have on the Fund’s investments and this
uncertainty could negatively impact current and future economic conditions in the United Kingdom and other countries, which could
negatively impact the value of the Fund’s investments.
Utilities
Risk. Utility companies include companies producing or providing gas, electricity or water. These companies are subject to
the risk of the imposition of rate caps, increased competition due to deregulation, the difficulty in obtaining an adequate return
on invested capital or in financing large construction projects, the limitations on operations and increased costs and delays
attributable to environmental considerations and the capital market’s ability to absorb utility debt. In addition, in many
regions, including the United States, the utility industry is experiencing increasing competitive pressures, primarily in wholesale
markets, as a result of consumer demand, technological advances, greater availability of natural gas with respect to electric
utility companies and other factors. Taxes, government regulation, international politics, price and supply fluctuations, volatile
interest rates and energy conservation also may negatively affect utility companies.
Valuation
Risk. The valuation of senior loans may carry more risk than that of common stock. Because the secondary market for senior
loans is limited, it may be difficult to value the loans held by the Fund. Market quotations may not be readily available for
some senior loans and valuation may require more research than for liquid securities. In addition, elements of judgment may play
a greater role in the valuation of senior loans than for securities with a secondary market, because there is less reliable objective
data available. These difficulties may lead to inaccurate asset pricing.
Investment
Restrictions and Policies
The
following is a comparison of the fundamental investment restrictions of the Acquired Fund and the Acquiring Fund, which are substantially
similar except that the Acquired Fund is diversified, whereas the Acquiring Fund is non-diversified. Additionally, the Acquired
Fund identifies the infrastructure and utilities asset class as an industry in which it may make significant investments and states
that it may invest 25% or more of its Total Assets in the infrastructure and utilities industry. The Acquiring Fund does not treat
infrastructure assets as an industry so it does not make this representation.
Acquired
Fund |
Acquiring
Fund |
Differences |
The
Acquired Fund may not issue senior securities, as defined in the 1940 Act, 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; |
The
Acquiring Fund may not issue senior securities, except as permitted by the 1940 Act and
the rules and interpretive positions of the SEC thereunder.
|
Substantially
similar. |
The
Acquired Fund may not borrow money, except as permitted by the 1940 Act. |
The
Acquiring Fund may not borrow money, except as permitted by the 1940 Act and the rules and interpretive positions of the SEC
thereunder. |
Substantially
similar. |
The
Acquired Fund may not 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 (“Securities Act”) in connection with the
purchase and sale of portfolio securities. |
The
Acquiring Fund may not underwrite securities issued by others, except to the extent that we may be considered an underwriter
within the meaning of the Securities Act of 1933, as amended (the “Securities Act”), in the disposition of restricted
securities held in our portfolio. |
Substantially
similar. |
The
Acquired Fund may not 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. |
The
Acquiring Fund may not purchase or sell real estate unless acquired as a result of ownership of securities or other instruments,
except that the Fund may invest in securities or other instruments backed by real estate or securities of companies that invest
in real estate or interests therein (including real estate investment trusts (“REITs”)). |
Substantially
similar. |
The
Acquired Fund may not 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). |
The
Acquiring Fund may not purchase or sell physical commodities unless acquired as a result of the ownership of securities or
other instruments, except that we may purchase or sell options and futures contracts or invest in securities or other instruments
backed by physical commodities. |
Substantially
similar. |
Acquired
Fund |
Acquiring
Fund |
Differences |
The
Acquired Fund may not 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 objective, policies and limitations. |
The
Acquiring Fund may not make loans, except by the purchase of debt obligations, by entering into repurchase agreements or through
the lending of portfolio securities and as otherwise permitted by the 1940 Act and the rules and interpretive positions of
the SEC thereunder. |
Substantially
similar. |
The
Acquired Fund may not Invest 25% or more of its Total Assets in securities and instruments of issuers in any single industry
except to the extent the Fund invests in the infrastructure and utilities industry, provided there shall be no limitation
on the purchase of obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities. |
The
Acquiring Fund may not purchase the securities of any issuer (other than securities issued or guaranteed by the US government
or any of its agencies or instrumentalities) if, as a result, more than 25% of the Fund’s total assets would be invested
in the securities of companies whose principal business activities are in the same industry. |
The
Acquired Fund states that it may invest 25% or more of its Total Assets in the infrastructure and utilities industry. |
Term
of the Funds
The
Acquiring Fund has a term whereas the Acquired Fund does not. The Acquiring Fund’s Declaration of Trust provides that the
Acquiring Fund will have a limited period of existence and will dissolve as of the close of business fifteen (15) years from the
effective date of the initial registration statement of the Acquiring Fund (i.e., July 28, 2035) (and such date, including any
extension, the “Termination Date”); provided, that the Board of Trustees may vote to extend the Termination Date (1)
for one period that may in no event exceed one year following the Termination Date, and (2) for one additional period that may
in no event exceed six months, in each case without a vote of the Acquiring Fund’s shareholders. On or before the Termination
Date, the Acquiring Fund will cease its investment operations, retire or redeem its leverage facilities, if any, liquidate its
investment portfolio (to the extent possible) and distribute all of its liquidated net assets to common shareholders of record
in one or more distributions on or after the Termination Date. Notwithstanding the foregoing, if the Board of Trustees determines
to cause the Acquiring Fund to conduct an Eligible Tender Offer (as defined below) and the Eligible Tender Offer is completed,
the Board of Trustees may, in its sole discretion and without any action by the shareholders of the Fund, eliminate the Termination
Date and provide for the Acquiring Fund’s perpetual existence, subject to certain terms and conditions described below.
Rights
of Fund Shareholders
The
Acquired Fund was organized as a Massachusetts business trust on January 21, 2004. The Acquiring Fund was organized as a statutory
trust under the laws of the State of Maryland on November 12, 2019.
The
Acquired Fund and the Acquiring Fund are also each governed by their own Amended and Restated Declaration of Trust and By-laws.
Copies of these documents are available to shareholders without charge upon written request to the applicable Fund.
The
below table summarizes a number of provisions of the respective governing documents of the Acquired Fund and the Acquiring Fund, which
are in each case subject to any other applicable provision of the governing instruments of the relevant Fund and applicable law. The
governing instruments have certain similar provisions, however there are differences that might impact how each Fund is governed. There
are certain differences between the matters in which shareholders of the Funds have the right to vote, as highlighted below. Additionally,
the Funds are subject to different criteria regarding shareholder quorum, removal of Trustees, approval of a consolidation or reorganization
and termination of the respective Trust (as defined subsequently.) The term “the Trust,” when used in the below table, refers
to the applicable Fund.
|
Acquired
Fund |
Acquiring
Fund |
Voting
Rights |
The
shareholders shall have power to vote only (i) for the election of Trustees when that issue is submitted to shareholders,
and for the removal of Trustees; (ii) with respect to any investment advisory or management contract on which a shareholder
vote is required by the 1940 Act; (iii) with respect to termination of the Trust under certain circumstances; (iv) with respect
to certain amendments of the Amended and Restated Declaration of Trust (the “Declaration”), such as those affecting
a shareholder’s voting rights or otherwise required by law or as determined by the Trustees; (v) generally with respect
to any merger, consolidation, or reorganization; (vi) with respect to any conversion of the Trust to an “open-end company”;
(vii) to the same extent as the stockholders of a Massachusetts business corporation as to whether or not a court action,
proceeding or claim should or should not be brought or maintained derivatively or as a class action on behalf of the Trust
or the shareholders; and (viii) with respect to such additional matters relating to the Trust as may be required by the Declaration,
the Amended and Restated By-Laws, or any registration of the Trust with the SEC (or any successor agency) or any other regulator
having jurisdiction over the Trust, or as the Trustees may consider necessary or desirable. |
The
shareholders shall be entitled to vote only on the following matters: (a) the election and removal of Trustees; (b) amendments
to the Declaration of Trust, but only to the extent that such amendments require shareholder approval; (c) the dissolution
of the Trust, but only to the extent that a dissolution requires shareholder approval; (d) a merger, conversion or consolidation
of the Trust, or the sale of all or substantially all of the assets of the Trust, but only to the extent that such transactions
require shareholder approval; (e) matters requiring shareholder approval under the 1940 Act or the rules of any national securities
exchange on which the Shares may then be listed for trading; and (f) such other matters with respect to which the Board of
Trustees has adopted a resolution declaring that a proposed action is advisable and directing that the matter be submitted
to the Shareholders for approval or ratification. |
|
Acquired
Fund |
Acquiring
Fund |
Shareholder
Quorum |
Thirty-three
and a third percent (33-1/3%) of the outstanding shares entitled to vote present in person or by proxy shall constitute a
quorum at any meeting of the shareholders. |
Except
when a larger quorum is required by applicable law, the Declaration of Trust or the Bylaws, a majority of the shares entitled
to vote at a shareholders meeting, which are present in person or represented by proxy shall constitute a quorum at such meeting.
|
Election
of Trustees
|
A
plurality of shares voted at a meeting at which as quorum is present shall elect a Trustee, except in the case of a contested
election, where a majority of the outstanding shares entitled to vote is required. |
A
plurality of all the votes cast at a meeting of shareholders duly called and at which a quorum is present shall be sufficient
to elect a Trustee. |
Removal
of Trustees
|
Any
Trustee may be removed at any time, with or without cause, by written instrument signed
by at least three-quarters of the Trustees.
A
Trustee may also be removed at any meeting of shareholders by a two-thirds vote of the outstanding shares of the Trust
entitled to vote for the election of such Trustee.
|
Any
Trustee, or the entire Board of Trustees, may be removed from office at any time, but only for cause and then only by the
affirmative vote of at least two-thirds of the votes entitled to be cast generally in the election of Trustees. For the purpose
of this provision, “cause” shall mean, with respect to any particular Trustee, conviction of a felony or a final
judgment of a court of competent jurisdiction holding that such Trustee caused demonstrable, material harm to the Trust through
bad faith or active and deliberate dishonesty. |
Approval
of a Reorganization or Merger |
The
affirmative vote or consent of the holders of not less than two-thirds of the shares outstanding and entitled to vote is required
to approve a merger, consolidation or sale of substantially all of the assets of the Trust (except where the merger, consolidation
or sale is with a non-operating entity), provided, however, that if such merger, consolidation, or sale, has been previously
approved by the affirmative vote of two-thirds of the Trustees, the vote of a majority of the outstanding voting securities
(as defined in the 1940 Act), is required. |
The
affirmative vote of the holders of shares entitled to cast at least 80% of the votes entitled to be cast on the matter, each
voting as a separate class, shall be necessary to effect any merger, conversion, consolidation, share exchange or sale or
exchange of all or substantially all of the assets of the Trust that the Maryland General Corporation Law requires be approved
by the stockholders of a Maryland corporation, provided, however, if approved by a vote of at least two-thirds of the continuing
Trustees (as defined in the Declaration of Trust) and the Board of Trustees, no shareholder approval is required. |
Termination
of the Trust |
The
Trust may be terminated at any time (i) by the affirmative vote of the holders of not less than two-thirds of the shares outstanding
and entitled to vote at any meeting of shareholders, or (ii) by the Trustees by written notice to the shareholders. |
Notwithstanding
the term of the Fund discussed above, the Trust may be liquidated or dissolved upon the affirmative vote of the holders of
shares entitled to cast at least 80% of the votes entitled to be cast on the matter. |
MANAGEMENT
OF THE FUNDS
The
Boards of the Funds
The
Board of each Fund is responsible for the overall supervision of the operations of the Fund and performs the various duties imposed
on the directors of investment companies by the 1940 Act, under Maryland law (in the case of the Acquiring Fund) and under Massachusetts
law (in the case of the Acquired Fund).
The
Advisers of the Funds
First
Trust, located at 120 East Liberty Drive, Suite 400, Wheaton, IL 60187, serves as the investment adviser to the Acquired Fund
pursuant to an investment management agreement between the Acquired Fund and First Trust (the “Investment Management Agreement”).
In addition, First Trust is responsible for providing certain clerical, bookkeeping and other administrative services to the Acquired
Fund and also provides fund reporting services to the Acquired Fund for a flat annual fee. First Trust is an investment adviser
registered with the SEC under the Investment Advisers Act of 1940, as amended. First Trust 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. The Charger
Corporation is an Illinois corporation controlled by James A. Bowen, the Chief Executive Officer of First Trust and the sole Trustee
of the Acquired Fund who is not an Independent Trustee. As of September 30, 2023, First Trust had collective assets under management or
supervision of approximately $195 billion through unit investment trusts, exchange-traded funds, closed-end funds, mutual funds
and separately managed accounts. Subject to the general supervision of the Acquired Fund’s Board, and in accordance with
the investment objective, policies, and restrictions of the Acquired Fund, First Trust is responsible for determining the Acquired
Fund’s overall investment strategy and overseeing its implementation. First Trust provides such services to the Acquired
Fund pursuant to the Investment Management Agreement. The Investment Management Agreement became effective for an initial two-year
term and continues in effect from year to year provided such continuance is specifically approved at least annually in the manner
required by the 1940 Act. A discussion regarding the basis for the Board’s renewal of the Investment Management Agreement
is available in the Acquired Fund’s annual report to shareholders for the period ended November 30, 2022. The Acquired Fund
pays to First Trust an investment management fee in consideration of the advisory and other services provided by First Trust to
the Acquired Fund. Pursuant to the Investment Management Agreement, the Acquired Fund has agreed to pay First Trust a management
fee payable on a quarterly basis at the annual rate of 0.40% of the Acquired Fund’s Total Assets (as defined below) up to
and including $250 million, and 0.35% of the Acquired Fund’s Total Assets over $250 million. Total Assets, for the purpose
of this calculation, generally means the average daily gross asset value of the Acquired Fund (including assets attributable to
the Fund’s preferred shares, if any, and the principal amount of borrowings), minus the sum of the Acquired Fund’s
accrued and unpaid dividends on any outstanding preferred shares and accrued liabilities (other than the principal amount of any
borrowings incurred, commercial paper or notes issued by the Acquired Fund and the liquidation preference of any outstanding preferred
shares). The Acquired Fund commenced investment operations on March 25, 2004.
Delaware
Investments Fund Advisers (“DIFA”), located at 100 Independence, 610 Market Street, Philadelphia, PA 19106, serves
as the Acquired Fund’s sub-adviser and manages the Acquired Fund’s portfolio subject to First Trust’s supervision.
The Acquired Fund pays contractual sub-advisory fees to DIFA. The Acquired Fund’s Core Component, which consists primarily
of equity securities and equity-like securities issued by infrastructure issuers, is managed by the Global Listed Infrastructure
team and, for its portfolio management services, DIFA is entitled to a quarterly fee calculated at an annual rate of 0.60% for
that portion of the Acquired Fund’s Total Assets. If the Acquired Fund’s Total Assets are greater than $250 million,
DIFA receives an annual portfolio management fee of 0.65% for that portion of the Acquired Fund’s Total Assets over $250
million. The Acquired Fund’s Senior Loan Component is managed by the Macquarie High Yield Fixed Income team and, for its
portfolio management services, DIFA is entitled to a quarterly fee calculated at an annual rate of 0.60% for that portion of the
Fund’s Total Assets.
abrdn
Inc. serves as the investment adviser to the Acquiring Fund pursuant to an advisory agreement between the Acquiring Fund and abrdn
Inc. (the “Advisory Agreement”) and is located at 1900 Market Street, Suite 200, Philadelphia, PA 19103. aIL serves
as the investment sub-adviser to the Acquiring Fund and has its registered office at 10 Queens Terrace, Aberdeen, Aberdeenshire,
United Kingdom, AB101XL. abrdn Inc. and aIL are each a wholly-owned subsidiary of abrdn Holdings Limited. abrdn Inc. and aIL are
each an indirect wholly-owned subsidiary of abrdn plc, which manages or administers approximately $632.2 billion in assets as
of June 30, 2023. The Acquiring Fund pays abrdn Inc. a monthly fee computed at the annual rate of 1.35% of the Acquiring Fund’s
average daily Managed Assets. “Managed Assets” is defined as total assets of the Fund, including assets attributable
to any form of leverage, minus liabilities (other than debt representing leverage and the aggregate liquidation preference of
any preferred stock that may be outstanding). The Acquiring Fund commenced operations on July 29, 2020.
abrdn
Inc. has contractually agreed to limit the total ordinary operating expenses of the Combined Fund following the consummation of
the Reorganization (excluding leverage costs, interest, taxes, brokerage commissions, acquired fund fees and expenses and any
non-routine expenses) from exceeding 1.65% of the average daily net assets of the Combined Fund on an annualized basis for twelve
months following the closing of the Reorganization or June 30, 2025, whichever is later. This contractual limitation may not be
terminated before twelve months following the closing of the Reorganization, or June 30, 2025, whichever is later, without the
approval of the Combined Fund’s trustees who are not “interested persons” of the Combined Fund (as defined in
the 1940 Act).
The
Combined Fund may reimburse abrdn Inc., for the advisory fees waived or reduced and other payments remitted by abrdn Inc. and
other expenses reimbursed as of a date not more than three years after the date when abrdn Inc. limited the fees or reimbursed
the expenses; provided that the following requirements are met: the reimbursements do not cause the Combined Fund to exceed the
lesser of the applicable expense limitation in the contract at the time the fees were limited or expenses are paid or the applicable
expense limitation in effect at the time the expenses are being recouped by abrdn Inc., and the payment of such reimbursement
is approved by the Board of the Combined Fund on a quarterly basis.
Information
regarding the basis of the Board of the Acquiring Fund’s approval of the investment advisory and sub-advisory agreements with abrdn
Inc. and aIL, respectively, is available in the Acquiring Fund’s annual shareholder report for the fiscal year ended September
30, 2023. aIL, a U.K. Company, serves as the investment sub-adviser to the Acquiring Fund, pursuant to a sub-advisory agreement among
abrdn Inc., the Acquiring Fund and aIL (the “Sub-Advisory Agreement”). aIL’s principal place of business is located
at 280 Bishopsgate, London, EC2M 4AG. For its services as the investment sub-adviser, aIL is paid only by abrdn Inc. out of its fees,
and is not paid directly by the Acquiring Fund.
Under
the Sub-Advisory Agreement, subject to the directions of abrdn Inc. and the Board, abrdn Inc. has retained aIL to monitor on a
continuous basis the performance of the Acquiring Fund’s assets and to assist abrdn Inc. in conducting a continuous program
of investment, evaluation and, if appropriate, sale and reinvestment of the Acquiring Fund’s assets.
The
Advisory and Sub-Advisory Agreements with abrdn Inc. and aIL, respectively, were effective for an initial term of two years and
may be continued thereafter from year to year provided such continuance is specifically approved at least annually in the manner
required by the 1940 Act. The Advisory and Sub-Advisory Agreements may be terminated at any time without payment of penalty by
the Acquiring Fund or by aIL upon 60 days’ written notice. The Advisory and Sub-Advisory Agreements will automatically terminate
in the event of its assignment, as defined under the 1940 Act. Under the Advisory and Sub-Advisory Agreements, abrdn Inc. and
aIL are permitted to provide investment advisory services to other clients.
In
rendering investment advisory services to the Acquiring Fund, aIL and abrdn Inc. may use the resources of subsidiaries owned by
abrdn plc. The abrdn plc affiliates have entered into a memorandum of understanding/personnel sharing procedures pursuant to which
investment professionals from the abrdn plc affiliates may render portfolio management, research and/or trade services to U.S.
clients of aIL or abrdn Inc.
Portfolio
Management of the Acquired Fund
The
portfolio managers who have primary responsibility for the day-to-day management of the Acquired Fund’s portfolio are Anthony
Felton, CFA, and Adam H. Brown, CFA.
Listed
below are the biographies for the members of the portfolio management team of the Acquired Fund.
Anthony
Felton, CFA – Anthony Felton is a founding member of Macquarie’s Global Listed Infrastructure Securities business,
joining the firm in 2004. He has more than 16 years of experience as a global listed infrastructure investor and 10 years of experience
as a portfolio manager for Macquarie’s Global Listed Infrastructure strategies. Mr. Felton has significant experience in
the analysis of regulated infrastructure companies, such as water, electricity, and gas distribution assets, as well as user demand
infrastructure assets such as airports, toll roads, and rail as well as energy and communications infrastructure. He has a Bachelor
of Commerce from the University of New South Wales.
Adam
H. Brown, CFA – Adam H. Brown is a Senior Portfolio Manager for the firm’s high yield strategies within Macquarie
Asset Management Fixed Income (MFI). He manages MFI’s bank loan portfolios and is a co-portfolio manager for the high yield,
fixed rate multisector, and core plus strategies. Mr. Brown joined Macquarie Asset Management (MAM) in April 2011 as part of the
firm’s integration of Macquarie Four Corners Capital Management, where he had worked since 2002. At Four Corners, he was
a co-portfolio manager on the firm’s collateralized loan obligations (CLOs) and a senior research analyst supporting noninvestment
grade portfolios. Before that, Mr. Brown was with the predecessor of Wells Fargo Securities, where he worked in the leveraged
finance group arranging senior secured bank loans and high yield bond financings for financial sponsors and corporate issuers.
He earned an MBA from the A.B. Freeman School of Business at Tulane University and a bachelor’s degree in Accounting from
the University of Florida
Portfolio
Management of the Acquiring Fund
The
Acquiring Fund is managed by abrdn’s Global Equity team, which is responsible for the Acquiring Fund’s public infrastructure
investments, and abrdn’s Real Assets Team, which is responsible for the Acquiring Fund’s private/direct infrastructure
investments. The portfolio managers are responsible for the day-to-day management of their respective sleeves of the Acquiring
Fund’s overall investment portfolio. As of the date of filing this Proxy Statement/Prospectus, the following individuals
have primary responsibility for the day-to-day management of the Acquiring Fund’s portfolio:
Dominic
Byrne, CFA – Head of Global Equities – Dominic Byrne is Head of Global Equities and is portfolio manager on abrdn’s
global and responsible range of equity funds. He joined the firm in 2000 as part of the UK Equity Team at Standard Life (which
merged in August 2017 with the Adviser’s parent company to form what is now abrdn plc). In December 2008, he joined the
Global Equity Team and has managed a range of global equity strategies. In 2018, he was appointed Deputy Head of Global Equities
and in 2020, he became Head of Global Equity. He graduated with a mEng in Engineering Science and is a CFA® charterholder.
Joshua
Duitz – Deputy Head of Global Equities – Currently, Deputy Head of the Global Equities Team, Mr. Duitz is responsible
for managing abrdn Global Infrastructure Fund, abrdn Total Dynamic Dividend Fund, abrdn Global Dynamic Dividend Fund and the abrdn
Dynamic Dividend Fund (AIFRX, AOD, AGD and ADVDX). He joined ASII in 2018 from Alpine Woods Capital Investors LLC where he was
a Portfolio Manager. Previously, Mr. Duitz worked for Bear Stearns where he was a Managing Director, Principal and traded international
equities. Prior to that, he worked for Arthur Andersen where he was a senior auditor.
Eric
Purington — Investment Director–- Eric Purington is an Investment Director on the Real Assets Team and
is a Portfolio Manager for the abrdn Global Infrastructure Income Fund (ASGI), responsible for managing the Fund’s private/direct
infrastructure investments. Eric joined abrdn in April 2022. Previous to abrdn, Mr. Purington worked at Tribay (2019 to 2022)
and EverStream Capital (2014 to 2019) as an Investment Director focused on renewable energy investment in the US and Asia. He
started his career in infrastructure investment in 2010 at Highstar Capital, now part of Oaktree. Mr. Purington is a graduate
of Yale College.
Donal
Reynolds, CFA – Investment Director – Global Equities – Donal Reynolds is an Investment Director in the
Global Equity Team and is lead Portfolio Manager for the Global Equity SICAV and the Global Focused Funds (OIEC & SICAV),
as well as being co-lead of the Global Innovation Fund. He joined abrdn in 2006 as an Investment Process Analyst. In 2010, he
transferred to the US Equity Team in Boston as Vice President. In 2014, he was promoted to Senior Vice President, Global Equities.
Prior to this, he worked for a number of firms, including BIL-Dexia, ING, JP Morgan and Aegon. He graduated with an MA in Chinese
Studies and a BSC in Management. Additionally, he holds the Investment Management Certificate and is a CFA Charterholder.
Other
Service Providers
The
other service providers for the Funds are as follows. The other service providers for the Acquiring Fund will be the service providers
to the Combined Fund.
|
Service
Providers to the Acquired Fund |
Service
Providers to the Acquiring Fund |
Administrator |
The
Bank of New York Mellon |
abrdn
Inc. |
Custodian |
The
Bank of New York Mellon |
State
Street Bank and Trust Company |
Transfer
Agent, Dividend Paying Agent and Registrar
|
Computershare,
Inc. |
Computershare
Trust Company, N.A. |
Fund
Accounting Services Provider
|
The
Bank of New York Mellon |
State
Street Bank and Trust Company |
Independent
Registered Public Accounting Firm |
Deloitte
& Touche LLP |
KPMG
LLP |
Fund
Counsel |
Chapman
and Cutler LLP |
Dechert
LLP |
Counsel
to the Independent Trustees
|
Vedder
Price P.C. |
Faegre
Drinker Biddle & Reath LLP |
Capitalization
The
table below sets forth the capitalization of the Acquired Fund and the Acquiring Fund as of September 30, 2023, and the pro forma
capitalization of the Combined Fund as if the Reorganization had occurred on that date. As shown below, it is anticipated that the
NAV of the Acquiring Fund shareholders’ shares would remain the same and Acquiring Fund assets would increase. However, differences
between the valuation procedures of the Acquired Fund and those of the Acquiring Fund exist. Of relevance to the Acquired Fund is, for
purposes of determining a Fund’s NAV, in certain circumstances, foreign equity securities that trade on a market that closes prior
to the Fund’s valuation time are valued by applying valuation factors to the last quoted sale price. The Acquired Fund and the
Acquiring Fund differ with respect to the circumstances in which such valuation factors are applied. The impact of this difference on
the value of an Acquired Fund shareholder’s investment immediately after the Reorganization is consummated is uncertain and could
be positive or negative depending on market conditions and could be material.
| |
Acquired Fund | | |
Acquiring Fund | | |
Adjustments | | |
Pro
Forma Combined
Fund | |
Net Assets | |
$ | 69,649,548 | | |
$ | 481,826,629 | | |
| None | | |
$ | 551,476,177 | |
Common Shares Outstanding(a) | |
| 8,547,442 | | |
| 25,206,605 | | |
| 4,904,683 | (b) | |
| 28,849,364 | |
Net Asset Value Per Share | |
$ | 8.15 | | |
$ | 19.12 | | |
$ | (8.15 | )(b) | |
$ | 19.12 | |
(a) |
Based on the number of outstanding common shares
as of September 30, 2023. |
(b) |
Reflects the exchange of Acquired Fund shares
for Acquiring Fund shares as a result of the Reorganization. |
AGREEMENT
BETWEEN FIRST TRUST ADVISORS L.P. AND ABRDN INC.
First
Trust and abrdn Inc. have entered into the Purchase Agreement pursuant to which abrdn Inc. will acquire the Business if the Reorganization
is approved, and upon satisfaction or waiver of certain other conditions. More specifically, under the Purchase Agreement, First
Trust has agreed to transfer to abrdn Inc., for a cash payment at the closing of the Asset Transfer (as defined below) and subject
to certain exceptions, (i) all right, title and interest of First Trust in and to the books and records relating to the Business
and the Acquired Fund and (ii) all goodwill of the Business as a going concern. Such transfers hereinafter are referred to collectively
as the “Asset Transfer.”
Section
15(f) of the 1940 Act is a non-exclusive safe harbor provision that permits an investment adviser of a registered investment company
(or any affiliated persons of the investment adviser) to receive any amount or benefit in connection with a sale of securities
of, or a sale of any other interest in, the investment adviser that results in an “assignment” (as defined in the
1940 Act) of an investment advisory contract with such registered investment company, provided that two conditions are satisfied.
First, during the three-year period after such transaction, at least 75% of the members of the investment company’s board
of trustees may not be “interested persons” (as defined in the 1940 Act) of the investment adviser or its predecessor.
Second, an “unfair burden,” as that term is described in Section 15(f), must not be imposed on such registered investment
company as a result of such transaction or any express or implied terms, conditions, or understandings relating to such transaction
during the two-year period after the date on which any such transaction occurs. The term “unfair burden,” as defined
in the 1940 Act, includes any arrangement during the two-year period after the sale whereby the investment adviser (or predecessor
or successor adviser), or any “interested person” of the adviser (as defined in the 1940 Act), receives or is entitled
to receive any compensation, directly or indirectly, from the investment company or its security holders (other than fees for
bona fide investment advisory or other services), or from any person in connection with the purchase or sale of securities or
other property to, from or on behalf of the investment company (other than ordinary fees for bona fide principal underwriting
services).
First
Trust intends to qualify for the “safe harbor” provided by Section 15(f), and consequently: (i) for a period of three
years after the Closing Date, at least 75% of the trustees of the Combined Fund will not be “interested persons”
(as defined in the 1940 Act) of abrdn Inc., aIL or First Trust, and (ii) for a period of two years after the Closing Date, no
“unfair burden,” as defined in the 1940 Act, will be imposed on the Combined Fund as a result of the Reorganization
or any express or implied terms, conditions, or understandings applicable thereto.
ADDITIONAL
INFORMATION ABOUT THE COMMON SHARES OF THE FUNDS
Description
of Common Shares to be Issued by the Acquiring Fund; Comparison to the Acquired Fund
General.
Both Funds offer one class of shares: common shares. As a general matter, with respect to the Acquiring Fund and the Acquired
Fund, the common shares have equal voting rights and equal rights with respect to the payment of dividends and the distribution
of assets upon dissolution, liquidation or winding up of the affairs of their respective Fund and have no preemptive, conversion
or exchange rights or rights to cumulative voting. Holders of whole common shares of each Fund are entitled to one vote per share
on any matter on which the shares are entitled to vote, while each fractional share is entitled to a proportional fractional vote.
The
Acquiring Fund’s Declaration of Trust authorizes an 100,000,000 common shares, par value $0.001 per share. If the Reorganization
is consummated, the Acquiring Fund will issue common shares to the shareholders of common shares of the Acquired Fund based on
the relative per share NAV of the Acquiring Fund and the NAV of the assets of the Acquired Fund, in each case as of the date of
the Reorganization. The Acquiring Fund common shares, when issued, will be fully paid and non-assessable.
Preferred
Shares and Other Securities. Currently, neither the Acquired Fund nor the Acquiring Fund have issued preferred shares.
Under
the Acquired Fund’s Amended and Restated Declaration of Trust, the Board of the Acquired Fund may authorize the issuance
of preferred shares and debt instruments as provided therein.
The
Acquiring Fund’s Amended and Restated Declaration of Trust provides that the Board of the Fund may, subject to such restrictions
or limitations, if any, as may be set forth in the Fund’s Amended and Restated Declaration of Trust or the Bylaws of the
Trust and the requirements of the 1940 Act, authorize and issue such other securities (or series thereof) of the Fund as they
determine to be necessary, desirable or appropriate, having such terms, rights, preferences, privileges, limitations and restrictions
as the Trustees see fit, including preferred shares of beneficial interest, debt securities or other senior securities.
Distributions.
The Funds have different dividend policies with respect to the payment of dividends on their shares. Distributions of
investment company taxable income for the Acquiring Fund are declared and paid on a monthly basis, whereas distributions of investment
company taxable income for the Acquired Fund are declared and paid on a quarterly basis. Capital gains distributions, if any,
are paid at least annually by both Funds.
Outstanding
Common Shares as of the Record Date
| | |
Outstanding
Shares | |
Acquired
Fund | | |
| 8,547,442 | |
Acquiring
Fund | | |
| 25,206,605 | |
Purchase
and Sale
Each
Fund’s common shares are listed on the NYSE. The common shares of the Acquiring Fund are listed on the NYSE under the ticker
symbol “ASGI” and will continue to be so listed following the Reorganization. The common shares of the Acquired Fund
are listed on the NYSE under the ticker symbol “MFD” and would be delisted from the NYSE following the Reorganization.
Purchase
and sale procedures for the common shares of each of the Funds are similar. Investors typically purchase and sell common shares
of the Funds through a registered broker-dealer on the NYSE, thereby incurring a brokerage commission set by the broker-dealer.
Alternatively, investors may purchase or sell common shares of the Funds through privately negotiated transactions with existing
shareholders.
Share
Price Data
The
Funds’ common shares have traded both at a premium and at a discount to the Funds’ NAV per common share. There can
be no assurance that the Funds’ common shares will not trade at a discount in the future. Shares of closed-end investment
companies frequently trade at a discount to NAV. It is not possible to state whether Combined Fund shares will trade at a discount
or premium to NAV, or what the extent of any such discount or premium might be.
The
following table sets forth for the fiscal quarters indicated the highest and lowest daily prices during the applicable quarter
at the close of market on the NYSE per common share along with (i) the net asset value calculated on the day of the highest and
lowest closing market prices at the close of the market on the NYSE and (ii) the highest and lowest premium or discount from NAV
represented by such prices at the close of the market on the NYSE.
Acquired
Fund
| |
Market Price ($)(1) | | |
NAV ($)(2) | | |
Premium/discount to NAV (%)(3) | |
Quarter Ended | |
High | | |
Low | | |
High | | |
Low | | |
High | | |
Low | |
November 30, 2023 | |
$ | 7.73 | | |
$ | 6.63 | | |
$ | 8.76 | | |
$ | 8.11 | | |
| -11.76 | % | |
| -18.25 | % |
August 31, 2023 | |
$ | 8.15 | | |
$ | 7.46 | | |
$ | 9.28 | | |
$ | 8.37 | | |
| -12.18 | % | |
| -10.87 | % |
May 31, 2023 | |
$ | 8.56 | | |
$ | 7.60 | | |
$ | 9.73 | | |
$ | 8.95 | | |
| -12.02 | % | |
| -15.08 | % |
February 28, 2023 | |
$ | 8.83 | | |
$ | 8.01 | | |
$ | 9.65 | | |
$ | 9.12 | | |
| -8.50 | % | |
| -12.17 | % |
November 30, 2022 | |
$ | 9.74 | | |
$ | 7.68 | | |
$ | 9.46 | | |
$ | 8.22 | | |
| 2.96 | % | |
| -6.57 | % |
August 31, 2022 | |
$ | 10.42 | | |
$ | 8.55 | | |
$ | 10.70 | | |
$ | 9.69 | | |
| -2.62 | % | |
| -11.76 | % |
May 31, 2022 | |
$ | 10.92 | | |
$ | 9.41 | | |
$ | 11.30 | | |
$ | 10.52 | | |
| -3.36 | % | |
| -10.55 | % |
February 28, 2022 | |
$ | 10.05 | | |
$ | 9.28 | | |
$ | 10.76 | | |
$ | 10.22 | | |
| -6.60 | % | |
| -9.20 | % |
November 30, 2021 | |
$ | 9.87 | | |
$ | 9.39 | | |
$ | 10.55 | | |
$ | 10.36 | | |
| -6.45 | % | |
| -9.36 | % |
August 31, 2021 | |
$ | 10.11 | | |
$ | 9.71 | | |
$ | 10.81 | | |
$ | 10.54 | | |
| -6.48 | % | |
| -7.87 | % |
(1)
Based on high and low closing market price for the respective quarter.
(2)
Based on the net asset value calculated on the day of the high and low closing market prices, as applicable, as of the close of
regular trading on the NYSE (normally 4:00 p.m. eastern time).
(3)
Calculated based on the information presented.
Acquiring
Fund
| |
Market Price ($)(1) | | |
NAV ($)(2) | | |
Premium/discount to NAV (%)(3) | |
Quarter Ended | |
High | | |
Low | | |
High | | |
Low | | |
High | | |
Low | |
September 30, 2023 | |
| 18.33 | | |
| 16.1 | | |
| 21.58 | | |
| 19.12 | | |
| -13.92 | % | |
| -16.80 | % |
June 30, 2023 | |
| 18.16 | | |
| 16.91 | | |
| 21.6 | | |
| 20.25 | | |
| -14.31 | % | |
| -17.23 | % |
March 31, 2023 | |
| 18.55 | | |
| 17.1 | | |
| 21.57 | | |
| 20.16 | | |
| -13.50 | % | |
| -16.12 | % |
December 31, 2022 | |
| 18.3 | | |
| 15.56 | | |
| 21.27 | | |
| 18.37 | | |
| -13.26 | % | |
| -17.02 | % |
September 30, 2022 | |
| 19.75 | | |
| 15.73 | | |
| 22.25 | | |
| 18.77 | | |
| -8.56 | % | |
| -16.57 | % |
June 30, 2022 | |
| 20.62 | | |
| 17.65 | | |
| 23.49 | | |
| 20.51 | | |
| -11.39 | | |
| -14.15 | |
March 31, 2022 | |
| 20.69 | | |
| 18.76 | | |
| 23.23 | | |
| 21.45 | | |
| -10.24 | | |
| -14.26 | |
December 31, 2021 | |
| 21.19 | | |
| 19.32 | | |
| 23.24 | | |
| 22.00 | | |
| -8.39 | | |
| -12.18 | |
September 30, 2021 | |
| 21.77 | | |
| 19.70 | | |
| 23.78 | | |
| 22.27 | | |
| -6.73 | | |
| -11.97 | |
June 30, 2021 | |
| 22.35 | | |
| 19.71 | | |
| 23.87 | | |
| 22.13 | | |
| -6.33 | | |
| -12.05 | |
(1)
Based on high and low closing market price for the respective quarter.
(2)
Based on the net asset value calculated on the day of the high and low closing market prices, as applicable, as of the close of
regular trading on the NYSE (normally 4:00 p.m. eastern time).
(3)
Calculated based on the information presented.
On
November 30, 2023, the Acquired Fund’s NAV per share was $8.76 and the last reported sale price
of a common share on the NYSE was $7.73, representing a discount to NAV of 11.76%. On
November 30, 2023, the Acquiring Fund’s NAV per share was $20.17 and the last reported sale price of a common share on the NYSE
was $17.46, representing a discount to NAV of 13.44%.
Performance
Information
The
performance table below illustrates the past performance of an investment in shares of the Acquired Fund and Acquiring Fund by setting
forth the average total returns for the Acquired Fund for the fiscal year ended November 30, 2022, and for the Acquiring Fund for the
fiscal year ended September 30, 2023. A Fund’s past performance does not necessarily indicate how its shares will perform in the
future and the deduction of taxes that a shareholder would pay on fund distributions or the sale of fund shares is not reflected in the
below.
| | |
Average
Annual Total Return
on NAV | | |
Average
Annual Total Return
on Market Value | | |
|
| | |
Ten
Years | |
| Five
Years | | |
| One
Year | | |
| Since
Inception | | |
Ten
Years | |
| Five
Years | | |
| One
Year | | |
| Since
Inception | | |
Inception
Date |
Acquired Fund | | |
4.10 | % |
| 2.46 | % | |
| 1.03 | % | |
| 6.28 | % | |
4.05 | % |
| 1.71 | % | |
| -1.51 | % | |
| 5.59 | % | |
March 25, 2004 |
Acquiring Fund | | |
n/a | |
| n/a | | |
| 9.80 | % | |
| 5.69 | % | |
n/a | |
| n/a | | |
| 11.04 | % | |
| 0.05 | % | |
July 29, 2020 |
For
the Acquired Fund, Total Return is based on the combination of reinvested dividend, capital gain, and return of capital distributions,
if any, at prices obtained by the Dividend Reinvestment Plan and changes in NAV per share for NAV returns and changes in Common
Share Price for market value returns. Total returns do not reflect sales load and are not annualized for periods of less than
one year. Past performance is not indicative of future results.
For
the Acquiring Fund Average Annual Total Return on NAV is the combination of changes in common share NAV, reinvested dividend income
at NAV and reinvested capital gains distributions at NAV, if any. The last dividend declared in the period is assumed to be reinvested
at the ending NAV. The actual reinvestment price for the last dividend declared in the period may often be based on a Fund’s
market price (and not its NAV), and therefore may be different from the price used in the calculation. Average Annual Total Return
on Market Value is the combination of changes in the market price per share and the effect of reinvested dividend income and reinvested
capital gains distributions, if any, at the average price paid per share at the time of reinvestment. The last dividend declared
in the period is assumed to be reinvested at the ending market price. The actual reinvestment for the last dividend declared in
the period may take place over several days, and in some instances it may not be based on the market price, so the actual reinvestment
price may be different from the price used in the calculation.
NET
ASSET VALUE OF COMMON SHARES OF THE ACQUIRING FUND
Common
shares of the Acquiring Fund are listed on the NYSE. The NAV of the common shares of the Acquiring Fund is computed based upon
the value of the Fund’s total assets. NAV is generally determined daily by the Acquiring Fund’s custodian as of the
close of the regular trading session on each day that the NYSE is open for business. The NAV of the common shares of the Acquiring
Fund is determined by calculating the total value of the Fund’s assets (the value of the securities, plus cash or other
assets, including interest accrued but not yet received), deducting its total liabilities (including accrued expenses or dividends),
and dividing the result by the number of common shares outstanding of the Fund. The Acquiring Fund reserves the right to calculate
the NAV more frequently if deemed desirable.
The
Acquiring Fund values its securities at current market value or fair value, consistent with regulatory requirements. Equity securities
that are traded on an exchange are valued at the last quoted sale price on the principal exchange on which the security is traded
at the “Valuation Time”, subject to application, when appropriate, of the valuation factors described in the paragraph
below. Under normal circumstances, the Valuation Time is as of the close of regular trading on the NYSE (usually 4:00pm ET). In
the absence of a sale price, the security is valued at the mean of the bid/ask quoted at the close on the principal exchange on
which the security is traded. Securities traded on NASDAQ are valued at the NASDAQ official closing price. Open end mutual funds
are valued at the respective NAV as reported by such company. The prospectuses for the registered open-end management investment
companies in which the Fund invests explain the circumstances under which those companies will use fair value pricing and the
effects of using fair value pricing. Closed-end funds and ETFs are valued at the market price of the security at the Valuation
Time.
Foreign
equity securities that are traded on foreign exchanges that close prior to the Valuation Time are valued by applying valuation
factors to the last sale price or the mean price as noted above. Valuation factors are provided by an independent pricing service
provider. These valuation factors are used when pricing the Fund’s portfolio holdings to estimate market movements between
the time foreign markets close and the time the Fund values such foreign securities. These valuation factors are based on inputs
such as depositary receipts, indices, futures, sector indices/ETFs, exchange rates, and local exchange opening and closing prices
of each security. When prices with the application of valuation factors are utilized, the value assigned to the foreign securities
may not be the same as quoted or published prices of the securities on their primary markets. Valuation factors are not utilized
if the independent pricing service provider is unable to provide a valuation factor or if the valuation factor falls below a predetermined
confidence threshold.
Derivative
instruments are generally valued according to the following procedures. Forward currency exchange contracts are generally valued
based on the current spot exchange rates and the forward exchange rate points (ex. 1-month, 3-month) that are obtained from an
approved pricing agent. Based on the actual settlement dates of the forward contracts held, an interpolated value of the forward
points is combined with the spot exchange rate to derive the valuation. Futures contracts are generally valued at the most recent
settlement price as of NAV determination. Swap agreements are generally valued by an approved pricing agent based on the terms
of the swap agreement (including future cash flows). When market quotations or exchange rates are not readily available, or if
the Adviser concludes that such market quotations do not accurately reflect fair value, the fair value of a Fund’s assets
are determined in good faith in accordance with the Valuation Procedures.
Pursuant
to Rule 2a-5 under the 1940 Act, the Acquiring Fund Board designated aIL as the valuation designee (“Valuation Designee”)
for the Acquiring Fund to perform the fair value determinations relating to Acquiring Fund investments for which market quotations
are not readily available. In the event that a security’s market quotations are not readily available or are deemed unreliable
(for reasons other than because the foreign exchange on which it trades closed before the Valuation Time), the security is valued
at fair value as determined by the Valuation Designee, taking into account the relevant factors and surrounding circumstances
using valuation and liquidity procedures approved by the Acquiring Fund’s Board of Trustees.
Investments
in Private Infrastructure Opportunities will typically be securities for which a liquid trading market does not exist. The fair
value of these securities may not be readily determinable. The Fund will value these securities in accordance with the valuation
and liquidity procedures discussed above. The types of factors that may be considered in fair value pricing of the Fund’s
investments include, as applicable, the nature and realizable value of any collateral, the issuer’s ability to make payments,
the markets in which the issuer does business, comparison to publicly traded companies discounted cash flows and other relevant
factors. Because such valuations, and particularly valuations of non-traded securities and private companies, are inherently uncertain,
they may fluctuate over short periods of time and may be based on estimates. The determination of fair value by the Board of Trustees
may differ materially from the values that would have been used if a liquid trading market for these securities existed. In addition,
the impact of changes in the market environment and other events on the fair values of the Fund’s investments that have
no readily available market values may differ from the impact of such changes on the readily available market values for the Fund’s
other investments. The Fund’s NAV could be adversely affected if the Fund’s determinations regarding the fair value
of the Fund’s investments were materially higher than the values that the Fund ultimately realizes upon the disposal of
such investments. The Adviser will attempt to obtain current information to value all fair valued securities, but it is anticipated
that such information for certain of the private investments in the Fund’s portfolio could be available on no more than
a quarterly basis, based on valuations issued by the underlying sponsors of the private investments.
When
an Acquiring Fund common shareholder sells common shares, he or she will typically receive the market price for such common shares,
which may be less than the NAV of such common shares.
DIVIDEND
REINVESTMENT AND OPTIONAL CASH PURCHASE PLAN
The
dividend reinvestment plan (the “Plan”) of the Acquiring Fund, described below, will be the dividend reinvestment
plan of the Combined Fund.
The
Acquiring Fund intends to distribute to shareholders substantially all of its net investment income and to distribute any net
realized capital gains at least annually. Net investment income for this purpose is income other than net realized long-term and
short-term capital gains net of expenses. Pursuant to the Dividend Reinvestment and Optional Cash Purchase Plan (the “Plan”),
shareholders whose shares of common stock are registered in their own names will be deemed to have elected to have all distributions
automatically reinvested by Computershare Trust Company N.A. (the “Plan Agent” or “Computershare”) in
the Acquiring Fund shares pursuant to the Plan, unless such shareholders elect to receive distributions in cash. Shareholders
who elect to receive distributions in cash will receive such distributions paid by check in US dollars mailed directly to the
shareholder by the Plan Agent, as dividend paying agent. In the case of shareholders such as banks, brokers or nominees that hold
shares for others who are beneficial owners, the Plan Agent will administer the Plan on the basis of the number of shares certified
from time to time by the shareholders as representing the total amount registered in such shareholders’ names and held for
the account of beneficial owners that have not elected to receive distributions in cash. Investors that own shares registered
in the name of a bank, broker or other nominee should consult with such nominee as to participation in the Plan through such nominee
and may be required to have their shares registered in their own names in order to participate in the Plan. Please note that the
Acquiring Fund does not issue certificates so all shares will be registered in book entry form. The Plan Agent serves as agent
for the shareholders in administering the Plan. If the Trustees of the Acquiring Fund declare an income dividend or a capital
gains distribution payable either in the Acquiring Fund’s common stock or in cash, nonparticipants in the Plan will receive
cash and participants in the Plan will receive common stock, to be issued by the Acquiring Fund or purchased by the Plan Agent
in the open market, as provided below. If the market price per share (plus expected per share fees) on the valuation date equals
or exceeds NAV per share on that date, the Acquiring Fund will issue new shares to participants at NAV; provided, however, that
if the NAV is less than 95% of the market price on the valuation date, then such shares will be issued at 95% of the market price.
The valuation date will be the payable date for such distribution or dividend or, if that date is not a trading day on the NYSE,
the immediately preceding trading date. If NAV exceeds the market price of Acquiring Fund shares at such time, or if the Acquiring
Fund should declare an income dividend or capital gains distribution payable only in cash, the Plan Agent will, as agent for the
participants, buy Acquiring Fund shares in the open market, on the NYSE or elsewhere, for the participants’ accounts on,
or shortly after, the payment date. If, before the Plan Agent has completed its purchases, the market price exceeds the NAV of
an Acquiring Fund share, the average per share purchase price paid by the Plan Agent may exceed the NAV of the Acquiring Fund’s
shares, resulting in the acquisition of fewer shares than if the distribution had been paid in shares issued by the Acquiring
Fund on the dividend payment date. Because of the foregoing difficulty with respect to open-market purchases, the Plan provides
that if the Plan Agent is unable to invest the full dividend amount in open-market purchases during the purchase period or if
the market discount shifts to a market premium during the purchase period, the Plan Agent will cease making open-market purchases
and will receive the uninvested portion of the dividend amount in newly issued shares at the close of business on the last purchase
date.
Participants
have the option of making additional cash payments of a minimum of $50 per investment (by check, one-time online bank debit or
recurring automatic monthly ACH debit) to the Plan Agent for investment in the Acquiring Fund’s common stock, with an annual
maximum contribution of $250,000. The Plan Agent will wait up to three business days after receipt of a check or electronic funds
transfer to ensure it receives good funds. Following confirmation of receipt of good funds, the Plan Agent will use all such funds
received from participants to purchase Acquiring Fund shares in the open market on the 25th day of each month or the
next trading day if the 25th is not a trading day.
If
the participant sets up recurring automatic monthly ACH debits, funds will be withdrawn from his or her US bank account on the
20th of each month or the next business day if the 20th is not a banking business day and invested on the
next investment date. The Plan Agent maintains all shareholder accounts in the Plan and furnishes written confirmations of all
transactions in an account, including information needed by shareholders for personal and tax records. Shares in the account of
each Plan participant will be held by the Plan Agent in the name of the participant, and each shareholder’s proxy will include
those shares purchased pursuant to the Plan. There will be no brokerage charges with respect to common shares issued directly
by the Acquiring Fund. However, each participant will pay a per share fee of $0.02 incurred with respect to the Plan Agent’s
open market purchases in connection with the reinvestment of dividends, capital gains distributions and voluntary cash payments
made by the participant. Per share fees include any applicable brokerage commissions the Plan Agent is required to pay.
Participants
also have the option of selling their shares through the Plan. The Plan supports two types of sales orders. Batch order sales
are submitted on each market day and will be grouped with other sale requests to be sold. The price will be the average sale price
obtained by Computershare’s broker, net of fees, for each batch order and will be sold generally within 2 business days
of the request during regular open market hours. Please note that all written sales requests are always processed by Batch Order.
($10 and $0.12 per share). Market Order sales will sell at the next available trade. The shares are sold real time when they hit
the market, however an available trade must be presented to complete this transaction. Market Order sales may only be requested
by phone at 1-800-647-0584 or using Investor Center through www.computershare.com/buyaberdeen. ($25 and $0.12 per share).
The
receipt of dividends and distributions under the Plan will not relieve participants of any income tax that may be payable on such
dividends or distributions. The Acquiring Fund or the Plan Agent may terminate the Plan as applied to any voluntary cash payments
made and any dividend or distribution paid subsequent to notice of the termination sent to members of the Plan at least 30 days
prior to the record date for such dividend or distribution. The Plan also may be amended by the Acquiring Fund or the Plan Agent,
but (except when necessary or appropriate to comply with applicable law or the rules or policies of the SEC or any other regulatory
authority) only by mailing a written notice at least 30 days’ prior to the effective date to the participants in the Plan.
All correspondence concerning the Plan should be directed to the Plan Agent by phone at 1-800-647-0584, using Investor Center
through www.computershare.com/buyaberdeen or in writing to Computershare Trust Company N.A., P.O. Box 43006, Providence, RI 02940-3078.
CERTAIN
PROVISIONS OF THE ACQUIRING FUND’S DECLARATION OF TRUST AND BYLAWS
The
following description of certain provisions of the Acquiring Fund’s Declaration of Trust and Bylaws is only a summary. For
a complete description, please refer to the Declaration of Trust and Bylaws, which have been filed as exhibits to the Proxy Statement/Prospectus.
The
Declaration of Trust and Bylaws include provisions that could delay, defer or prevent other entities or persons from acquiring
control of the Acquiring Fund, causing the Acquiring Fund to engage in certain transactions or modifying the Acquiring Fund’s
structure. Furthermore, these provisions may have the effect of depriving shareholders of the opportunity to sell their shares
at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of the Acquiring Fund.
These provisions, which are summarized below, may be regarded as “anti-takeover” provisions.
In
addition, with respect to provisions in the Acquiring Fund’s Bylaws relating to actions by shareholders, described below,
shareholders should be aware that they cannot waive their rights under the federal securities laws. The exclusive forum provisions
in the Acquiring Fund’s Bylaws, described below, may increase costs for a shareholder to bring a claim and may discourage
claims or limit investors’ ability to bring a claim in a judicial forum that they find favorable. Further, the enforceability
of an exclusive forum provision is questionable.
Fifteen-year
term
The
Acquiring Fund’s Declaration of Trust provides that the Acquiring Fund will have a limited period of existence and will
dissolve as of the close of business fifteen (15) years from the effective date of the initial registration statement of the Acquiring
Fund (such date, including any extension, the “Termination Date”); provided, that the Board of Trustees may vote to
extend the Termination Date (1) for one period that may in no event exceed one year following the Termination Date, and (2) for
one additional period that may in no event exceed six months, in each case without a vote of the Acquiring Fund’s shareholders.
On or before the Termination Date, the Acquiring Fund will cease its investment operations, retire or redeem its leverage facilities,
if any, liquidate its investment portfolio (to the extent possible) and distribute all of its liquidated net assets to common
shareholders of record in one or more distributions on or after the Termination Date. Notwithstanding the foregoing, if the Board
of Trustees determines to cause the Acquiring Fund to conduct an Eligible Tender Offer (as defined herein) and the Eligible Tender
Offer is completed, the Board of Trustees may, in its sole discretion and without any action by the shareholders of the Acquiring
Fund, eliminate the Termination Date and provide for the Acquiring Fund’s perpetual existence, subject to the terms and
conditions described herein.
The
Acquiring Fund’s Declaration of Trust provides that an eligible tender offer (an “Eligible Tender Offer”) is
a tender offer by the Acquiring Fund to purchase up to 100% of the then-outstanding common shares of beneficial interest (“common
shares”) of the Acquiring Fund as of a date within the 12 months preceding the Termination Date. It is anticipated that
shareholders who properly tender common shares in the Eligible Tender Offer will receive a purchase price equal to the NAV per
share as of a date following the expiration date of the Eligible Tender Offer and prior to the payment date. The Declaration of
Trust provides that, following an Eligible Tender Offer, the Acquiring Fund must have at least $100 million of net assets to ensure
its continued viability (the “Termination Threshold”). If the number of properly tendered common shares would result
in Fund’s net assets totaling less than the Termination Threshold, the Eligible Tender Offer will be terminated and no common
shares will be repurchased pursuant to the Eligible Tender Offer. Instead, the Acquiring Fund will begin (or continue) liquidating
its investment portfolio and proceed to terminate on the Termination Date. If the number of properly tendered common shares would
result in the Acquiring Fund’s net assets totaling greater than the Termination Threshold, the Acquiring Fund will purchase
all common shares properly tendered and not withdrawn pursuant to the terms of the Eligible Tender Offer. Following the completion
of an Eligible Tender Offer, the Board of Trustees may vote to eliminate the Termination Date without a vote of the Acquiring
Fund shareholders and cause the Acquiring Fund to have a perpetual existence.
Classification
of the Board of Trustees; Election of Trustees
The
Acquiring Fund’s Declaration of Trust provides that the Acquiring Fund’s trustees are designated as Trustees, and
that the Acquiring Fund’s business and affairs are managed under the direction of the Board of Trustees.
The
Acquiring Fund’s Declaration of Trust provides that the number of Trustees may be established only by a majority of the
Board of Trustees then in office pursuant to the Bylaws. The Bylaws provide that the number of Trustees may not be greater than
nine or less than one. Subject to any applicable limitations of the 1940 Act, and subject to any preferential rights of a class
or series of preferred shares, any vacancy may be filled, at any regular meeting or at any special meeting called for that purpose,
only by a majority of the remaining Trustees, even if those remaining Trustees do not constitute a quorum and any Trustee elected
to fill a vacancy will serve for the remainder of the full term of the class in which the vacancy occurred and until a successor
is elected and qualifies. Pursuant to the Declaration of Trust, on the first day the Acquiring Fund has more than one shareholder
of record, the Board of Trustees is divided into three classes: Class I, Class II and Class III. Upon the expiration of their
current terms, Trustees of each class will be elected to serve until the third annual meeting following their election and until
their successors are duly elected and qualify. Each year only one class of Trustees will be elected by the shareholders. The classification
of the Board of Trustees should help to assure the continuity and stability of the Acquiring Fund’s strategies and policies
as determined by the Board of Trustees.
The
classified Board provision could have the effect of making the replacement of incumbent Trustees more time-consuming and difficult.
At least two annual meetings of shareholders, instead of one, generally will be required to effect a change in a majority of the
Board of Trustees. Thus, the classified Board provision could increase the likelihood that incumbent Trustees will retain their
positions. The staggered terms of Trustees may delay, defer or prevent a change in control of the Acquiring Fund, even though
a change in control might be in the best interests of the shareholders.
Removal
of Trustees
The
Acquiring Fund’s Declaration of Trust provides that, subject to the rights of holders of one or more classes of preferred
shares, if any, a Trustee may be removed only for cause and only by the affirmative vote of at least two-thirds of the votes entitled
to be cast in the election of Trustees. This provision, when coupled with the provisions in the Declaration of Trust and Bylaws
authorizing only the Board of Trustees to fill vacancies, precludes shareholders from removing incumbent Trustees, except for
cause and by a substantial affirmative vote, and filling the vacancies created by the removal with nominees of shareholders.
Approval
of Extraordinary Trust Action; Amendment of Declaration of Trust and Bylaws
Subject
to certain exceptions described below, the Acquiring Fund’s Declaration of Trust provides for approval of amendments to
the Declaration of Trust by the shareholders entitled to cast at least a majority of the votes entitled to be cast on the matter.
The Declaration of Trust also provides that (1) the Acquiring Fund’s liquidation or dissolution, or any merger, conversion,
consolidation, share exchange or sale or exchange of all or substantially all of its assets that would require the approval of
the shareholders of a Maryland corporation under the Maryland General Corporation Law; (2) certain transactions between the Acquiring
Fund and any person or group of persons acting together, and any person controlling, controlled by or under common control with
any such person or member of such group, that may exercise or direct the exercise of 10% or more of the Acquiring Fund’s
voting power in the election of Trustees; (3) any amendment to the Declaration of Trust converting the Acquiring Fund from a closed-end
investment company to an open-end investment company or otherwise make the common shares a redeemable security and (4) any amendment
to certain provisions of the Declaration of Trust, including the provisions relating to the number, qualifications, certain other
duties specified in the Declaration of Trust, classification, election and removal of Trustees, requires the approval of the shareholders
entitled to cast at least 80% of the votes entitled to be cast on such matter. If such a proposal is approved by at least two-thirds
of the Continuing Trustees (defined below), in addition to approval by the full Board, such proposal may be approved by the affirmative
vote of the shareholders entitled to cast a majority of the votes entitled to be cast on such matter or, in the case of transactions
described in (2) above or any merger, conversion, consolidation, share exchange or sale or exchange of all or substantially all
of the Acquiring Fund’s assets, no shareholder approval is required, unless expressly required by the Declaration of Trust
or the 1940 Act. The “Continuing Trustees” are defined in the Declaration of Trust as (1) the current Trustees that
were serving at the time of closing of the initial public offering by the Acquiring Fund of common shares (“Initial Trustees”);
(2) those Trustees whose nomination for election by the shareholders or whose election by the Board to fill vacancies is approved
by a majority of Initial Trustees on the Board at the time of the nomination or election, as applicable or (3) any successor Trustees
whose nomination for election by the shareholders or whose election by the Trustees to fill vacancies is approved by a majority
of the Continuing Trustees or successor Continuing Trustees then in office. This provision could make it more difficult for certain
extraordinary transactions to be approved if they are opposed by the Continuing Trustees and discourage proxy contests for control
of the Board by persons wishing to cause such transactions to take place.
Notwithstanding
the foregoing vote requirements, the Acquiring Fund’s Declaration of Trust provides that a sale or exchange of all or substantially
all of the Acquiring Fund’s assets in connection with the termination or an Eligible Tender Offer does not require shareholder
approval.
Subject
to certain exceptions described above and as otherwise provided in the Acquiring Fund’s Declaration of Trust or in the terms
of any series or class of shares of beneficial interest, a majority of the entire Board of Trustees, with the vote of a majority
of the Continuing Trustees, may amend the Declaration of Trust without any action by the shareholder. The Declaration of Trust
and Bylaws provide that the Board of Trustees has the exclusive power to make, alter, amend or repeal any provision of the Acquiring
Fund’s Bylaws.
Advance
Notice of Trustee Nominations and New Business
The
Bylaws of the Acquiring Fund provide that, with respect to an annual meeting of shareholders, nominations of persons for election
to the Board of Trustees and the proposal of other business to be considered by shareholders may be made only (1) by or at the
direction of the Board of Trustees, or (2) by a shareholder who was a shareholder of record from the time such shareholder gives
notice to the time of the annual meeting who is entitled to vote at the annual meeting in the election of each individual so nominated
and who has complied with the advance notice procedures of the Bylaws. With respect to special meetings of shareholders, only
the business specified in the notice of the meeting may be brought before the meeting. Nominations of persons for election to
the Board of Trustees at a special meeting may be made only (1) by or at the direction of the Board of Trustees, or (2) provided
that the Board of Trustees has determined that Trustees shall be elected at such special meeting, by a shareholder who was a shareholders
of record from the time the shareholder gives notice to the time of the special meeting who is entitled to vote at the special
meeting and who has complied with the advance notice provisions of the Bylaws.
Shareholder-Requested
Special Meetings
The
Acquiring Fund’s Bylaws provide that special meetings of shareholders may be called by the Board of Trustees and certain
of the Acquiring Fund’s officers. In addition, the Bylaws provide that, subject to the satisfaction of certain procedural
and informational requirements by the shareholders requesting the meeting, a special meeting of shareholders will be called by
the Acquiring Fund’s secretary upon the written request of shareholders entitled to cast not less than a majority of all
the votes entitled to be cast at such meeting.
Action
by Shareholders
Under
the Acquiring Fund’s Declaration of Trust and Bylaws, shareholder action can be taken only at an annual or special meeting
of shareholders. In addition, the Acquiring Fund’s Declaration of Trust prohibits derivative actions on behalf of the Trust
by any person who is not a Trustee or shareholder of the Trust, except that such provision does not apply to any claims asserted
under the US federal securities laws including, without limitation, the 1940 Act.
Exclusive
Forum
The
Acquiring Fund’s Bylaws provide that, unless the Acquiring Fund consents in writing to the selection of an alternative forum,
the Circuit Court for Baltimore City, Maryland, or, if that Court does not have jurisdiction, the United States District Court
for the District of Maryland, Baltimore Division, shall be the sole and exclusive forum for (a) any derivative action or proceeding
brought on behalf of the Acquiring Fund, (b) any action asserting a claim of breach of any duty owed by any Trustee, officer or
employee of the Acquiring Fund to the Acquiring Fund or to the shareholders of the Acquiring Fund, (c) any action asserting a
claim against the Acquiring Fund or any Trustee, officer or employee of the Acquiring Fund arising pursuant to any provision of
the Trust Act, the Declaration of Trust or the Bylaws, or (d) any other action asserting a claim against the Acquiring Fund or
any Trustee, officer or employee of the Acquiring Fund that is governed by the internal affairs doctrine. This exclusive forum
provision does not apply to any claim under the US federal securities laws.
ACQUIRING
FUND’S TERM
The
Acquiring Fund’s Declaration of Trust provides that the Acquiring Fund will have a limited period of existence and will
dissolve as of the close of business fifteen (15) years from the effective date of the initial registration statement of the Acquiring
Fund, on the Termination Date; provided that the Board of Trustees may, in its sole discretion and without any action by the shareholders
of the Acquiring Fund, vote to extend the Termination Date (1) for one period that may in no event exceed one year following the
Termination Date, and (2) for one additional period that may in no event exceed six months. Notwithstanding the foregoing, if
the Board of Trustees determines to cause the Acquiring Fund to conduct an Eligible Tender Offer, and the Eligible Tender Offer
is completed, the Board of Trustees may, in its sole discretion and without any action by the shareholders of the Acquiring Fund,
eliminate the Termination Date and provide for the Acquiring Fund’s perpetual existence, subject to the terms and conditions
described below.
Eligible
Tender Offer
The
Acquiring Fund’s Declaration of Trust provides that an Eligible Tender Offer is a tender offer by the Acquiring Fund to
purchase up to 100% of the then outstanding common shares as of a date within the 12 months preceding the Termination Date. It
is anticipated that shareholders who properly tender common shares in the Eligible Tender Offer will receive a purchase price
equal to the NAV per share as of a date following the expiration date of the Eligible Tender Offer and prior to the payment date.
In an Eligible Tender Offer, the Acquiring Fund will offer to purchase all outstanding common shares held by each shareholder.
The Acquiring Fund’s Declaration of Trust provides that, following an Eligible Tender Offer, the Acquiring Fund must have
net assets greater than or equal to the Termination Threshold of $100 million of net assets to ensure the Acquiring Fund’s
continued viability.
If
the number of common shares properly tendered in an Eligible Tender Offer would result in the Acquiring Fund’s net assets
totaling greater than the Termination Threshold, the Acquiring Fund will purchase all common shares properly tendered and not
withdrawn pursuant to the terms of the Eligible Tender Offer and following the completion of such Eligible Tender Offer, the Board
of Trustees may, in its sole discretion and without any action by the shareholders of the Acquiring Fund, eliminate the Termination
Date and cause the Acquiring Fund to have a perpetual existence. In making a decision to eliminate the Termination Date to provide
for the Acquiring Fund’s perpetual existence, the Board of Trustees will take such actions with respect to the Acquiring
Fund’s continued operations as it deems to be in the best interests of the Acquiring Fund, based on market conditions at
such time, the extent of common shareholder participation in the Eligible Tender Offer and all other factors deemed relevant by
the Board of Trustees in consultation with the Adviser, taking into account that the Adviser may have a potential conflict of
interest in seeking to convert the Acquiring Fund to a perpetual fund.
If
the number of properly tendered common shares would result in the Acquiring Fund’s net assets totaling less than the Termination
Threshold, the Eligible Tender Offer will be terminated, no common shares will be repurchased pursuant to the Eligible Tender
Offer and the Acquiring Fund will begin (or continue) liquidating the Acquiring Fund’s investment portfolio and proceed
to terminate on the Termination Date.
The
Adviser will pay all costs and expenses associated with the making of an Eligible Tender Offer, other than brokerage and related
transaction costs associated with disposition of portfolio investments in connection with the Eligible Tender Offer, which will
be borne by the Acquiring Fund and its common shareholders. An Eligible Tender Offer would be made, and common shareholders would
be notified thereof, in accordance with the Acquiring Fund’s Declaration of Trust, the 1940 Act, the Exchange Act, and the
applicable tender offer rules thereunder (including Rule 13e-4 and Regulation 14E under the Exchange Act).
Termination
and Liquidation
On
or before the Termination Date, the Acquiring Fund will cease its investment operations, retire or redeem its leverage facilities,
if any, liquidate its investment portfolio (to the extent possible) and distribute all of its liquidated net assets to common
shareholders of record in one or more distributions on or after the Termination Date. In determining whether to extend the term,
the Board of Trustees may consider a number of factors, including, without limitation, whether the Acquiring Fund would be unable
to sell its assets at favorable prices in a time frame consistent with the Termination Date due to lack of market liquidity or
other adverse market conditions, or whether market conditions are such that it is reasonable to believe that, with an extension,
the Acquiring Fund’s remaining assets would appreciate and generate income in an amount that, in the aggregate, is meaningful
relative to the cost and expense of continuing its operations.
The
Acquiring Fund’s Adviser and Sub-Adviser will seek to manage its investment portfolio consistent with its obligation to
cease operations on the Termination Date. To that end, the Adviser and Sub-Adviser intend to seek Private Infrastructure Opportunities
that they reasonably expect can be sold or otherwise exited at favorable prices on or before the Termination Date. However, there
is no assurance that a market or other exit strategy will be available for the Acquiring Fund’s less liquid investments,
including investments in Private Infrastructure Opportunities. As the Termination Date approaches, the Acquiring Fund expects
that the Adviser and Sub-Adviser will seek to liquidate the Acquiring Fund’s less liquid investments. As a result, based
on prevailing market conditions, available investment opportunities and other factors, the Acquiring Fund may invest the proceeds
from the sale of such investments in corporate debt securities or in listed equity securities, thereby increasing the portion
of its total assets invested in those types of securities, or the Adviser may invest the proceeds in money market mutual funds;
cash; cash equivalents; securities issued or guaranteed by the US government or its instrumentalities or agencies; high quality,
short-term money market instruments; short-term debt securities; certificates of deposit; bankers’ acceptances and other
bank obligations; commercial paper or other liquid debt securities. As a result, as the Termination Date approaches, the Acquiring
Fund’s monthly cash distributions may decline, and there can be no assurance that the Acquiring Fund will achieve its investment
objective or that its investment strategies will be successful.
Depending
on a variety of factors, including the performance of the Acquiring Fund’s investment portfolio over the period of its operations,
the amount distributed to common shareholders in connection with the Acquiring Fund’s termination or paid to participating
common shareholders upon completion of an Eligible Tender Offer may be less, and potentially significantly less, than your original
investment. The Acquiring Fund’s final distribution to common shareholders on the Termination Date and the amount paid to
participating common shareholders upon completion of an Eligible Tender Offer will be based upon the Acquiring Fund’s NAV
at such time, and initial investors and any investors that purchase the Acquiring Fund’s common shares may receive less,
and potentially significantly less, than their original investment. Additionally, although tendering shareholders will receive
an amount equal to NAV for their shares in an Eligible Tender Offer, given the nature of certain of the Acquiring Fund’s
investments, the Acquiring Fund’s NAV may be impacted by the sale of such investments and, as a result, the amount actually
distributed upon the Acquiring Fund’s termination may be less than the Acquiring Fund’s net asset value per share
on the Termination Date, and the amount actually paid upon completion of an Eligible Tender Offer may be less than the Acquiring
Fund’s NAV per share on the expiration date of the Eligible Tender Offer.
Because
the Acquiring Fund’s assets will be liquidated in connection with its termination or to pay for common shares tendered in
an Eligible Tender Offer, the Acquiring Fund may be required to sell portfolio securities when it otherwise would not, including
at times when market conditions are not favorable, which may cause the Acquiring Fund to lose money. The Acquiring Fund will make
a distribution on the Termination Date of all cash raised from the liquidation of its assets prior to that time. However, given
the nature of certain of the Acquiring Fund’s investments, particularly its investments in Private Infrastructure Opportunities,
the Acquiring Fund may be unable to liquidate certain of its investments until well after the Termination Date. In this case,
the Acquiring Fund may make one or more additional distributions after the Termination Date of any cash received from the ultimate
liquidation of those investments. This would delay distribution payments, perhaps for an extended period of time, and there can
be no assurance that the total value of the cash distribution made on the Termination Date and such subsequent distributions,
if any, will equal the Acquiring Fund’s NAV on the Termination Date, depending on the ultimate results of such post-Termination
Date asset liquidations. If, as a result of lack of market liquidity or other adverse market conditions, the Acquiring Fund’s
Board of Trustees determines it is in the best interests of the Acquiring Fund, the Acquiring Fund may transfer any illiquid portfolio
investments that remain unsold on the Termination Date to a liquidating trust and distribute interests in such liquidating trust
to common shareholders as part of its final distribution. The liquidating trust, if used, would be a separate entity from the
Acquiring Fund and, in reliance on Section 7 of the 1940 Act, would not be a registered investment company under the 1940 Act.
Interests in the liquidating trust are expected to be nontransferable, except by operation of law. The sole purpose of the liquidating
trust would be to hold illiquid investments of the Acquiring Fund that were unable to be sold and to dispose of such investments.
As such investments are sold over time by the liquidating trust, the liquidating trust would distribute cash to its shareholders.
There
can be no assurance as to the timing of or the value obtained from such liquidation.
The
Acquiring Fund is not a so called “target date” or “life cycle” fund whose asset allocation becomes more
conservative over time as its target date, often associated with retirement, approaches. In addition, the Acquiring Fund is not
a “target term” fund whose investment objective is to return its original NAV on the Termination Date or in an Eligible
Tender Offer. The final distribution of net assets per common share upon termination or the price per common share in an Eligible
Tender Offer may be more than, equal to or less than the initial public offering price per common share.
APPRAISAL
RIGHTS
Shareholders
of the Acquired Fund and the Acquiring Fund do not have appraisal rights in connection with the proposed transactions.
FINANCIAL
HIGHLIGHTS
The
Acquired Fund
The
information for the six months ended May 31, 2023, is unaudited. The information for the other periods shown has been audited
by Deloitte & Touche LLP, the Acquired Fund’s independent registered public accounting firm, unless identified as unaudited.
Financial statements for the fiscal year ended November 30, 2022, and the Report of the Independent Registered Public Accounting
Firm thereon appear in the Acquired
Fund’s Annual Report for the fiscal year ended November 30, 2022,
which is available at https://www.ftportfolios.com and upon request.
| |
Six Months | | |
| | |
| | |
| | |
| | |
| |
| |
Ended | | |
| | |
| | |
| | |
| | |
| |
| |
5/31/2023 | | |
Year Ended November 30, | |
| |
(Unaudited) | | |
2022 | | |
2021 | | |
2020 | | |
2019 | | |
2018 | |
Net asset value, beginning of period | |
$ | 9.42 | | |
$ | 10.14 | | |
$ | 9.49 | | |
$ | 11.08 | | |
$ | 10.77 | | |
$ | 13.34 | |
Income from investment operations: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net investment income (loss) | |
| 0.21 | | |
| 0.49 | | |
| 0.70 | | |
| 0.77 | | |
| 0.85 | | |
| 1.10 | |
Net realized and unrealized gain (loss) | |
| (0.28 | ) | |
| (0.41 | ) | |
| 0.75 | | |
| (1.51 | ) | |
| 0.51 | | |
| (2.47 | ) |
Total from investment operations | |
| (0.07 | ) | |
| 0.08 | | |
| 1.45 | | |
| (0.74 | ) | |
| 1.36 | | |
| (1.37 | ) |
Distributions paid to shareholders from: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net investment income | |
| (0.40 | ) | |
| (0.52 | ) | |
| (0.66 | ) | |
| (0.85 | ) | |
| (0.45 | ) | |
| (0.94 | ) |
Return of capital | |
| — | | |
| (0.28 | ) | |
| (0.14 | ) | |
| — | | |
| (0.60 | ) | |
| (0.26 | ) |
Total distributions paid to Common Shareholders | |
| (0.40 | ) | |
| (0.80 | ) | |
| (0.80 | ) | |
| (0.85 | ) | |
| (1.05 | ) | |
| (1.20 | ) |
Net asset value, end of period | |
$ | 8.95 | | |
$ | 9.42 | | |
$ | 10.14 | | |
$ | 9.49 | | |
$ | 11.08 | | |
$ | 10.77 | |
Market value, end of period | |
$ | 7.60 | | |
$ | 8.74 | | |
$ | 9.65 | | |
$ | 8.20 | | |
$ | 10.21 | | |
$ | 10.41 | |
Total return based on net asset value (a) | |
| (0.17 | )% | |
| 1.03 | % | |
| 15.96 | % | |
| (5.54 | )% | |
| 13.75 | % | |
| (10.29 | )% |
Total return based on market value (a) | |
| (8.63 | )% | |
| (1.51 | )% | |
| 27.71 | % | |
| (11.42 | )% | |
| 8.44 | % | |
| (9.91 | )% |
Ratios to average net assets/supplemental data: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net assets, end of period (in 000’s) | |
$ | 76,524 | | |
$ | 80,481 | | |
$ | 86,659 | | |
$ | 81,102 | | |
$ | 94,686 | | |
$ | 92,096 | |
Ratio of total expenses to average net assets | |
| 3.80 | %(b) | |
| 2.66 | % | |
| 2.13 | % | |
| 2.50 | % | |
| 3.15 | % | |
| 3.04 | % |
Ratio of total expenses to average net assets excluding interest expense | |
| 1.73 | %(b) | |
| 1.75 | % | |
| 1.70 | % | |
| 1.85 | % | |
| 1.80 | % | |
| 1.79 | % |
Ratio of net investment income (loss) to average net assets | |
| 4.45 | %(b) | |
| 4.85 | % | |
| 6.84 | % | |
| 7.85 | % | |
| 7.57 | % | |
| 9.16 | % |
Portfolio turnover rate | |
| 38 | % | |
| 66 | % | |
| 92 | % | |
| 209 | % | |
| 153 | % | |
| 216 | % |
Indebtedness: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total loan outstanding (in 000’s) | |
$ | 27,550 | | |
$ | 27,550 | | |
$ | 33,250 | | |
$ | 27,050 | | |
$ | 38,100 | | |
$ | 39,200 | |
Asset coverage per $1,000 of indebtedness (c) | |
$ | 3,778 | | |
$ | 3,921 | | |
$ | 3,606 | | |
$ | 3,998 | | |
$ | 3,485 | | |
$ | 3,349 | |
| (a) | Total
return is based on the combination of reinvested dividend, capital gain and return of
capital distributions, if any, at prices obtained by the Dividend Reinvestment Plan,
and changes in net asset value per share for net asset value returns and changes in Common
Share Price for market value returns. Total returns do not reflect sales load and are
not annualized for periods of less than one year. Past performance is not indicative
of future results. |
| (c) | Calculated
by subtracting the Fund’s total liabilities (not including the loan outstanding)
from the Fund’s total assets, and dividing by the outstanding loan balance in 000’s. |
The Acquired Fund
| |
Year
Ended November 30, | |
| |
2017 | | |
2016 | | |
2015 | | |
2014 | | |
2013 | |
Net asset value, beginning of period | |
$ | 12.67 | | |
$ | 13.51 | | |
$ | 17.66 | | |
$ | 16.65 | | |
$ | 15.91 | |
Income from investment operations: | |
| | | |
| | | |
| | | |
| | | |
| | |
Net investment income (loss) | |
| 1.18 | | |
| 1.13 | | |
| 1.44 | | |
| 1.23 | | |
| 1.29 | |
Net realized and unrealized gain (loss) | |
| 0.69 | | |
| (0.77 | ) | |
| (4.19 | ) | |
| 1.18 | | |
| 0.85 | |
Total from investment operations | |
| 1.87 | | |
| 0.36 | | |
| (2.75 | ) | |
| 2.41 | | |
| 2.14 | |
Distributions paid to shareholders from: | |
| | | |
| | | |
| | | |
| | | |
| | |
Net investment income | |
| (1.13 | ) | |
| (1.02 | ) | |
| (1.34 | ) | |
| (1.40 | ) | |
| (1.40 | ) |
Return of capital | |
| (0.07 | ) | |
| (0.18 | ) | |
| (0.06 | ) | |
| — | | |
| — | |
Total distributions paid to Common
Shareholders | |
| (1.20 | ) | |
| (1.20 | ) | |
| (1.40 | ) | |
| (1.40 | ) | |
| (1.40 | ) |
Common Share repurchases | |
| 0.00 | (a) | |
| — | | |
| — | | |
| — | | |
| — | |
Net asset value, end of period | |
$ | 13.34 | | |
$ | 12.67 | | |
$ | 13.51 | | |
$ | 17.66 | | |
$ | 16.65 | |
Market value, end of period | |
$ | 12.84 | | |
$ | 11.08 | | |
$ | 12.27 | | |
$ | 16.97 | | |
$ | 16.02 | |
Total return based on net asset value (b) | |
| 15.39 | % | |
| 3.73 | % | |
| (15.79 | )% | |
| 14.81 | % | |
| 14.41 | % |
Total return based on market value (b) | |
| 27.00 | % | |
| (0.12 | )% | |
| (20.41 | )% | |
| 14.73 | % | |
| 17.94 | % |
Ratios to average net assets/supplemental data: | |
| | | |
| | | |
| | | |
| | | |
| | |
Net assets, end of period (in 000’s) | |
$ | 113,872 | | |
$ | 108,269 | | |
$ | 115,393 | | |
$ | 150,671 | | |
$ | 142,058 | |
Ratio of total expenses to average net assets | |
| 2.61 | % | |
| 2.32 | % | |
| 2.04 | % | |
| 1.95 | % | |
| 2.08 | % |
Ratio of total expenses to average net assets excluding
interest expense | |
| 1.72 | % | |
| 1.73 | % | |
| 1.69 | % | |
| 1.65 | % | |
| 1.70 | % |
Ratio of net investment income (loss) to average net assets | |
| 8.66 | % | |
| 8.37 | % | |
| 9.00 | % | |
| 6.81 | % | |
| 7.78 | % |
Portfolio turnover rate | |
| 181 | % | |
| 199 | % | |
| 223 | % | |
| 158 | % | |
| 177 | % |
Indebtedness: | |
| | | |
| | | |
| | | |
| | | |
| | |
Total loan outstanding (in 000’s) | |
$ | 42,500 | | |
$ | 42,500 | | |
$ | 45,000 | | |
$ | 57,500 | | |
$ | 47,500 | |
Asset coverage per $1,000 of indebtedness (c) | |
$ | 3,679 | | |
$ | 3,547 | | |
$ | 3,564 | | |
$ | 3,620 | | |
$ | 3,991 | |
| (a) | Amount represents
less than $0.01 per share. |
| (b) | Total return is
based on the combination of reinvested dividend, capital gain and return of capital distributions,
if any, at prices obtained by the Dividend Reinvestment Plan, and changes in net asset value
per share for net asset value returns and changes in Common Share price for market value
returns. Total returns do not reflect sales load and are not annualized for periods of less
than one year. Past performance is not indicative of future results. |
| (c) | Calculated by subtracting
the Fund’s total liabilities (not including the loan outstanding) from the Fund’s
total assets, and dividing by the outstanding loan balance in 000’s. |
The
Acquiring Fund
The
information shown has been audited by KPMG LLP, the Acquiring Fund’s independent registered public accounting firm, unless identified
as unaudited. Financial statements for the fiscal year ended September 30, 2023, and the Report of the Independent Registered Public
Accounting Firm thereon appear in the Acquiring
Fund’s Annual Report for the fiscal year ended September 30, 2023, which is available at https://www.abrdnasgi.com/ and
upon request.
| |
For
the Fiscal Years Ended September 30, | | |
For
the
Period Ended
September
30, | |
| |
| 2023 | | |
| 2022 | | |
| 2021 | | |
| 2020(a) | |
PER SHARE OPERATING PERFORMANCE(b): | |
| | | |
| | | |
| | | |
| | |
Net asset value per common share, beginning
of period | |
$ | 18.93 | | |
$ | 22.27 | | |
$ | 19.43 | | |
$ | 20.00 | |
Net investment income | |
| 0.28 | | |
| 0.04 | | |
| 0.20 | | |
| 0.02 | |
Net realized and unrealized
gains/(losses) on investments and foreign currency transactions | |
| 1.39 | | |
| (2.01 | ) | |
| 3.94 | | |
| (0.59 | ) |
Total from investment
operations applicable to common shareholders | |
| 1.67 | | |
| (1.97 | ) | |
| 4.14 | | |
| (0.57 | ) |
Distributions
to common shareholders from: | |
| | | |
| | | |
| | | |
| | |
Net investment income | |
| (0.68 | ) | |
| (0.22 | ) | |
| (1.20 | ) | |
| – | |
Net realized gains | |
| (0.76 | ) | |
| (1.15 | ) | |
| (0.10 | ) | |
| – | |
Total distributions | |
| (1.44 | ) | |
| (1.37 | ) | |
| (1.30 | ) | |
| – | |
Net asset value per common share, end
of year | |
$ | 19.16 | | |
$ | 18.93 | | |
$ | 22.27 | | |
$ | 19.43 | |
Market price, end of year | |
$ | 16.10 | | |
$ | 15.73 | | |
$ | 19.93 | | |
$ | 17.51 | |
Total Investment Return Based on(c): | |
| | | |
| | | |
| | | |
| | |
Market price | |
| 11.04 | % | |
| (15.23 | )% | |
| 21.54 | % | |
| (12.45 | )% |
Net asset value | |
| 9.80 | %(d) | |
| (8.70 | )%(d) | |
| 22.39 | %(d) | |
| (2.85 | )% |
Ratio to Average Net Assets Applicable
to Common Shareholders/Supplementary Data: | |
| | | |
| | | |
| | | |
| | |
Net assets applicable to common shareholders,
end of period (000 omitted) | |
$ | 482,924 | | |
$ | 167,645 | | |
$ | 197,185 | | |
$ | 172,015 | |
Average net assets applicable to common
shareholders (000 omitted) | |
$ | 372,392 | | |
$ | 195,544 | | |
$ | 196,015 | | |
$ | 177,052 | |
Net operating expenses, net of fee waivers | |
| 1.83 | %(e) | |
| 1.99 | %(e) | |
| 1.78 | % | |
| 2.00 | %(f)(g) |
Net operating expenses, excluding deferred
tax expense | |
| 1.65 | % | |
| 1.79 | % | |
| 1.78 | % | |
| 2.00 | %(f)(g) |
Net operating expenses, excluding fee waivers | |
| 1.85 | % | |
| 1.99 | % | |
| 1.78 | % | |
| 2.00 | %(f)(g) |
Net Investment income | |
| 1.36 | % | |
| 0.20 | % | |
| 0.92 | % | |
| 0.55 | %(f) |
Portfolio turnover | |
| 28 | %(h) | |
| 25 | % | |
| 28 | % | |
| – | (i) |
| (a) | For the period
from July 29, 2020 (commencement of operations) through September 30, 2020. |
| (b) | Based on average shares outstanding. |
| (c) | Total investment return based on market value is calculated assuming that shares of the Fund’s common
stock were purchased at the closing market price as of the beginning of the period, dividends, capital gains and
other distributions were reinvested as provided for in the Fund’s dividend reinvestment plan and then sold
at the closing market price per share on the last day of the period. The computation does not reflect any sales
commission investors may incur in purchasing or selling shares of the Fund. The total investment return based on
the net asset value is similarly computed except that the Fund’s net asset value is substituted for the closing
market value. |
| (d) | The total return shown above includes the impact of
financial statement rounding of the NAV per share and/or financial statement adjustments. |
| (e) | The Fund recorded a deferred tax liability primarily associated with its subsidiary’s investments in
partnerships of $654,810 and $402,135 for the years ended September 30, 2023 and September 30, 2022, respectively. |
| (f) | Annualized. |
| (g) | The expense ratio is higher than the Fund anticipates
for a typical fiscal year due to the short fiscal period covered by the report. |
| (h) | The portfolio turnover calculation excludes $194,946,484 and $181,919,462 of proceeds received and cost of
investments related to rebalancing the portfolio after the fund reorganization which occurred on March 10, 2023. |
| (i) | Not annualized. |
Amounts
listed as “–” are $0 or round to $0.
INFORMATION
ABOUT THE REORGANIZATION
Pursuant
to the Reorganization Agreement (a form of which is attached as Appendix A to this Proxy Statement/Prospectus), the Acquired Fund
will transfer all of its assets to the Acquiring Fund and the Acquiring Fund will assume all of the Acquired Fund’s liabilities
and obligations in exchange solely for newly issued common shares of the Acquiring Fund, which will be distributed by the Acquired
Fund to its shareholders in the form of a liquidating distribution. Acquiring Fund common shares issued to the Acquired Fund shareholders
will have an aggregate NAV equal to the aggregate NAV of the Acquired Fund’s outstanding common shares immediately prior
to the Reorganization. Each shareholder of the Acquired Fund will receive the number of Acquiring Fund common shares corresponding
to his or her proportionate interest in the common shares of the Acquired Fund (with cash in lieu of fractional shares of the
Acquiring Fund, which may be taxable). The Reorganization, together with related acts necessary to consummate the same, shall
occur at the principal office of the Acquiring Fund or via electronic exchange of documents in the first quarter of 2024 and
after satisfaction or waiver of the conditions precedent to the Closing, immediately after the close of regular trading on the
NYSE, or at such other place and/or on such other date as to which the parties may agree. As soon as practicable after the Closing
Date for the Reorganization, the Acquired Fund will dissolve pursuant to Massachusetts law.
The
distribution of Acquiring Fund common shares to the Acquired Fund shareholders will be accomplished by opening new accounts on
the books of the Acquiring Fund in the names of the shareholders of the Acquired Fund and transferring to those shareholder accounts
Acquiring Fund common shares. Each newly-opened account on the books of the Acquiring Fund for the former shareholders of the
Acquired Fund will represent the respective pro rata number of Acquiring Fund common shares due to such shareholder.
TERMS
OF THE REORGANIZATION AGREEMENT
The
following is a summary of the significant terms of the Reorganization Agreement. The form of Reorganization Agreement is attached
as Appendix A to the Proxy Statement/Prospectus.
Valuation
of Common Shares
The
NAV per Acquiring Fund share shall be computed as of the time at which the Acquired Fund and the Acquiring Fund calculate their
NAV as set forth in their respective prospectuses (normally the close of regular trading on the NYSE) on the Closing Date (the
“Effective Time”), after the declaration and payment of any dividends and/or other distributions on that date. At
the closing of the Reorganization, the Reorganization Agreement sets forth that the Acquired Fund assets will be valued in accordance
with the Acquired Fund’s valuation procedures as approved by the Board of the Acquired Fund. Upon the consummation of the
Reorganization, the assets transferred to the Acquiring Fund will be valued pursuant to the Acquiring Fund’s valuation procedures
as approved by the Board of Trustees of the Acquiring Fund.
Calculation
of Number of Acquiring Fund Shares
As
of the Effective Time, each Acquired Fund share outstanding immediately prior to the Effective Time shall be exchanged for Acquiring
Fund shares in an amount equal to the ratio of the NAV per share of the Acquired Fund to the NAV per share of the Acquiring Fund.
No fractional Acquiring Fund shares will be distributed unless such shares are to be held in a dividend reinvestment plan account.
In the event Acquired Fund shareholders would be entitled to receive fractional Acquiring Fund shares, the Acquiring Fund’s
transfer agent will aggregate such fractional shares and sell the resulting whole shares on the exchange on which such shares
are listed for the account of all such Acquired Fund shareholders, and each such Acquired Fund shareholder will be entitled to
a pro rata share of the proceeds from such sale. With respect to the aggregation and sale of fractional Acquiring Fund shares,
the Acquiring Fund’s transfer agent will act directly on behalf of the Acquired Fund shareholders entitled to receive fractional
shares and will accumulate such fractional shares, sell the shares and distribute the cash proceeds net of brokerage commissions,
if any, directly to Acquired Fund shareholders entitled to receive the fractional shares (without interest and subject to withholding
taxes).
Conditions
Under
the terms of the Reorganization Agreement, the Reorganization is conditioned upon, among other things, approval of the Proposal
by shareholders of the Acquired Fund and each Fund’s receipt of certain routine certificates and legal opinions.
Termination
The
Reorganization Agreement may be terminated (i) by mutual agreement of the parties at any time prior to the Effective Time, if
circumstances should develop that, in the opinion of such Board of the Acquiring Fund and the Board of the Acquired Fund, make
proceeding with the Reorganization Agreement inadvisable; (ii) if one party breaches any representation, warranty or agreement
contained in the Reorganization Agreement to be performed at or before the Closing Date, which breach would give rise to the failure
of a condition precedent to the obligation of a party as set forth in the Reorganization Agreement, and it is not cured within
30 days after being provided notice by the non-breaching party; or (iii) if the Agreement referred to in “AGREEMENT BETWEEN
FIRST TRUST ADVISORS L.P. AND ABRDN INC.” above is validly terminated.
Expenses
of the Reorganization
abrdn
Inc. and aIL and their affiliates and First Trust and its affiliates will bear certain expenses incurred in connection with the Reorganization,
except as otherwise disclosed in the proxy statements to Acquired Fund shareholders including portfolio transaction costs and certain
taxes, whether or not the Reorganization is consummated. The expenses of the Reorganization expected to be borne by abrdn and First Trust
are estimated to be approximately $590,000. To the extent there are any transaction costs (including brokerage commissions, transaction
charges and related fees) associated with the sales and purchases made in connection with the Reorganization, these will be borne by
the Acquired Fund with respect to the portfolio transitioning and de-levering conducted before the Reorganization and borne by the Combined
Fund with respect to the portfolio transitioning conducted after the Reorganization.
MATERIAL
FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION
Treatment
as a Tax Free Reorganization
The
Reorganization is intended to qualify as a tax-free reorganization for federal income tax purposes under section 368(a) of the
Code. As a condition to the closing of the Reorganization, the Acquired Fund and the Acquiring Fund each will receive an opinion
from Dechert LLP, dated as of the Closing Date, regarding the characterization of the Reorganization as a “reorganization”
within the meaning of section 368(a) of the Code. The opinion of Dechert LLP will be based on US federal income tax law in effect
on the Closing Date. In rendering its opinion, Dechert LLP will also rely upon certain representations of the management of the
Acquired Fund and the Acquiring Fund and assume, among other things, that the Reorganization will be consummated in accordance
with the Reorganization Agreement and other operative documents and as described herein.
As
a reorganization, the US federal income tax consequences of the Reorganization can be summarized as follows:
| • | The
transfer of the Acquired Fund assets in exchange solely for Acquiring Fund shares and the
assumption by the Acquiring Fund of all liabilities of the Acquired Fund followed by the
distribution by the Acquired Fund of Acquiring Fund shares to the Acquired Fund shareholders
in exchange for their Acquired Fund shares in liquidation of the Acquired Fund pursuant to
and in accordance with the terms of the Reorganization Agreement will constitute a “reorganization”
within the meaning of section 368(a)(1) of the Code; |
| • | No
gain or loss will be recognized by the Acquiring Fund upon the receipt of the Acquired Fund
assets solely in exchange for the Acquiring Fund shares and the assumption by the Acquiring
Fund of all liabilities of the Acquired Fund; |
| • | No
gain or loss will be recognized by the Acquired Fund upon the transfer of the Acquired Fund
assets to the Acquiring Fund in exchange solely for Acquiring Fund shares and the assumption
by the Acquiring Fund of all liabilities or upon the distribution of the Acquiring Fund shares
to the Acquired Fund shareholders in exchange for their Acquired Fund shares, except that
the Acquired Fund may be required to recognize gain or loss with respect to contracts described
in section 1256(b) of the Code or stock in a passive foreign investment company, as defined
in section 1297(a) of the Code; |
| • | No
gain or loss will be recognized by the Acquired Fund shareholders upon the exchange of
the Acquired Fund shares for Acquiring Fund shares (except with respect to cash received
in lieu of fractional shares of the Acquiring Fund); |
| • | The
aggregate tax basis for the Acquiring Fund shares received by each Acquired Fund shareholder
pursuant to the Reorganization will be the same as the aggregate tax basis of the Acquired
Fund shares held by each such Acquired Fund shareholder immediately prior to the Reorganization
(reduced by any amount of tax basis allocable to fractional shares of the Acquiring Fund
for which cash is received); |
| • | The
holding period of the Acquiring Fund shares to be received by each Acquired Fund shareholder
will include the period during which the Acquired Fund shares surrendered in exchange
therefor were held (provided such Acquired Fund shares were held as capital assets on
the date of the Reorganization); |
| • | Except
for assets which may be marked to market for federal income tax purposes as a consequence
of a termination of the Acquired Fund’s taxable year, the tax basis of the Acquired
Fund assets acquired by the Acquiring Fund will be the same as the tax basis of such
assets to the Acquired Fund in exchange therefor; and |
| • | The
holding period of the Acquired Fund assets in the hands of the Acquiring Fund will include
the period during which those assets were held by the Acquired Fund (except where the
investment activities of the Acquiring Fund have the effect of reducing or eliminating
such periods with respect to an Acquired Fund asset). |
The
Funds have not sought a tax ruling from the IRS. Opinions of counsel are not binding upon the IRS or the courts. If the Reorganization
is consummated but does not qualify as a tax free reorganization under the Code, and thus is taxable, the Acquired Fund would
recognize gain or loss on the transfer of its assets to the Acquiring Fund and each shareholder of the Acquired Fund would recognize
a taxable gain or loss equal to the difference between its tax basis in the Acquired Fund shares and the fair market value of
the shares of the Acquiring Fund it received.
Capital
Loss Carryforwards
As of
the fiscal year ended November 30, 2022, the Acquired Fund had $52,306,452 of capital loss carryforwards. As of the fiscal year ended
September 30, 2023, the Acquiring Fund had $0 of capital loss carryforwards. The Acquiring Fund’s ability to carry forward and
use the Acquired Fund’s pre-Reorganization capital losses may be limited following the Reorganization under the loss limitation
rules of sections 382, 383 and 384 of the Code. A Fund’s “pre-acquisition losses” (including capital loss carryforwards,
net current-year capital losses, and unrealized losses that exceed certain thresholds) cannot be used to offset unrealized gains in another
Fund that are “built in” (unrealized) at the time of the Reorganization and that exceed certain thresholds (“non-de
minimis built-in gains”) for five calendar years. Further, a portion of a Fund’s pre-acquisition losses may become subject
to an annual limitation on the amount that may be used to offset future gain. Any remaining pre-acquisition losses will offset capital
gains realized after the Reorganization and this will reduce subsequent capital gain distributions to a broader group of shareholders
than would have been the case absent such Reorganization. Therefore, in certain circumstances, shareholders of a Fund may be subject
to tax sooner or incur more taxes as a result of the transactions that would take place as part of the Reorganization than they would
have had the Reorganization not occurred.
The
impact of the rules described above will depend on the relative sizes of, and the losses and gains (both realized and unrealized)
in, each of the Acquired Fund and the Acquiring Fund at the time of the Reorganization and thus cannot be calculated precisely
at this time.
Cash
in lieu of Fractional Shares of the Acquiring Fund
If
an Acquired Fund shareholder receives cash in lieu of a fractional share of Acquiring Fund, the Acquired Fund shareholder will
be treated as having received the fractional share of the Acquiring Fund pursuant to the Reorganization and then as having sold
that fractional share of the Acquiring Fund for cash. As a result, each such Acquired Fund shareholder generally will recognize
gain or loss equal to the difference between the amount of cash received and the tax basis in his, her or its fractional share
of the Acquiring Fund. This gain or loss generally will be a capital gain or loss and will be long-term capital gain or loss if,
as of the date of Reorganization, the holding period for the shares (including the holding period of the Acquired Fund shares
surrendered therefor) is greater than one year. The deductibility of capital losses is subject to limitations.
Distribution
of Income and Gains
The
Acquired Fund’s tax year is expected to end as a result of the Reorganization. The Acquired Fund generally will be required
to declare to its shareholders of record one or more distributions of all of its previously undistributed investment company taxable
income and net realized capital gain (if any), including capital gain realized on any securities disposed of in connection with
the Reorganization, in order to maintain its treatment as a RIC during its tax year ending with the date of the Reorganization
and to eliminate any US federal income tax on its taxable income in respect of such tax year.
The
pre-Reorganization portfolio transitioning is anticipated to result in net capital gains of $78,592, or $0.009 per share based on Acquired
Fund holdings as of September 21, 2023. However, it is anticipated that the Acquired Fund’s capital loss carryforwards would offset
projected realized gains. The actual tax consequences as a result of portfolio repositioning are dependent on the portfolio composition
of the Acquired Fund at the time and market conditions.
Moreover,
if the Acquiring Fund has investment company taxable income or net realized capital gain, but has not distributed such income
or gain prior to the Reorganization and you acquire shares of the Acquiring Fund in the Reorganization, a portion of your subsequent
distributions from the Combined Fund may, in effect, be a taxable return of part of your investment. Similarly, if you acquire
Acquiring Fund shares in the Reorganization when the Acquiring Fund holds appreciated securities, you may receive a taxable return
of part of your investment if and when the Combined Fund sells the appreciated securities and distributes the realized gain.
Tracking
Your Basis and Holding Period; State and Local Taxes
After
the Reorganization of the Acquired Fund, you will continue to be responsible for tracking the adjusted tax basis and holding period
for your shares of the Combined Fund for federal income tax purposes. You should consult your tax adviser regarding the effect,
if any, of the Reorganization in light of your individual circumstances. You should also consult your tax adviser about the state
and local tax consequences, if any, of the Reorganization because the discussion above only relates to the federal income tax
consequences.
Portfolio
Transitioning
Portfolio
transitioning after the Reorganization may result in capital gains or losses, which may have federal income tax consequences. For example,
if the Reorganization was completed on September 21, 2023, it is estimated that approximately $4,250,540, or $0.1473 per share, in
capital losses would have resulted from portfolio transitioning in the Combined Fund following the Reorganization.
VOTING
INFORMATION AND REQUIREMENTS
Record
Date
Shareholders
of record of the Acquired Fund as of the close of business on October 23, 2023, the record date (previously defined as the “Record
Date”), are entitled to notice of and to vote at the Special Meeting. Shareholders on the Record Date will be entitled to
one vote for each share held, and each fractional share held shall be entitled to a proportionate fractional vote.
Proxies
Shareholders
of record as of the Record Date may vote by attending the Special Meeting or, prior to the Special Meeting, may vote their shares
by returning the enclosed proxy card or by casting their vote by telephone or via the Internet using the instructions provided
on the enclosed proxy card. The giving of such a proxy will not affect your right to vote should you decide to attend the Special
Meeting. If your shares are held in “street name” by a broker or bank, you will receive information regarding how
to instruct your bank or broker to cast your votes. For more information on attending the Special Meeting, see “Additional
Information about Attending the Special Meeting” below.
You
may revoke your proxy at any time before the Special Meeting by (i) written notice delivered to the Secretary of the Acquired
Fund prior to the exercise of the proxy; (ii) execution of a subsequent proxy; or (iii) by attending and voting at the Special
Meeting.
If
you hold shares through a broker, bank or other nominee, you must follow the instructions you receive from your nominee in order
to revoke your voting instructions.
If
you hold your shares directly (not through a broker-dealer, bank or other financial institution) and if you return a properly
executed proxy card that does not specify how you wish to vote on the Proposal, your shares will be voted “FOR” the
Proposal.
Quorum
A
quorum of shareholders must be present for any business to be conducted at the Special Meeting. Thirty-three and a third percent
(33-1/3%) of the outstanding Acquired Fund shares entitled to vote present in person or represented by proxy at the Special Meeting
shall constitute a quorum.
Broker
Non-Votes and Abstentions
Broker
non-votes occur when a beneficial owner of shares held in “street name” does not give instructions to the broker holding
the shares as to how to vote on matters deemed “non-routine.” Generally, if shares are held in street name, the beneficial
owner of the shares is entitled to give voting instructions to the broker holding the shares. If the beneficial owner does not
provide voting instructions, the broker can still vote the shares with respect to matters that are considered to be “routine,”
but cannot vote the shares with respect to “non-routine” matters. The Proposal is considered “non-routine,”
so brokers will not have discretionary voting power with respect to the Proposal, and the Acquired Fund does not expect to receive
any broker non-votes.
Abstentions,
if any, will be included for purposes of determining whether a quorum is present at the Special Meeting and will be treated as shares
present at the Special Meeting, but will not be treated as votes cast.
Adjournments
Any
meeting of shareholders may, by action of the chair of the meeting, be adjourned from time to time with respect to one or more
matters to a date that may be more than one hundred and twenty (120) days after the date set for the original meeting, whether
or not a quorum is present with respect to such matter or matters; upon motion of the chair of the meeting, the question of adjournment
may be submitted to a vote of the shareholders, and in that case, any adjournment with respect to one or more matters must be
approved by the vote of holders of a majority of the shares present and entitled to vote with respect to the matter or matters
adjourned, and without further notice. Unless a proxy is otherwise limited in this regard, any shares present and entitled to
vote at a meeting, including those that are represented by broker non-votes, may, at the discretion of the proxies named therein,
be voted in favor of such an adjournment or adjournments. Any adjourned meeting may be held as adjourned without further notice
if the new date, time and place of the meeting was announced at the meeting that was adjourned. Unless otherwise specifically
limited by their terms, proxies shall entitle the holder thereof to vote at any postponements or adjournments of a meeting, and
no proxy shall be valid after eleven months from its date unless a longer period is expressly provided in the appointment.
Additional
Information about Attending the Special Meeting
As
stated earlier in this Proxy Statement/Prospectus, the Special Meeting is scheduled to be held on February 20, 2024, at 12:00 p.m.
Central Time at the offices of First Trust, located at 120 East Liberty Drive, Suite 400, Wheaton, Illinois 60187. Please note that shareholders
who intend to attend the Special Meeting will need to provide valid identification and, if they hold shares through a bank, broker or
other nominee, satisfactory proof of ownership of shares, such as a voting instruction form (or a copy thereof) or a letter from their
bank, broker or other nominee or broker’s statement indicating ownership as of the Record Date to be admitted to the Special Meeting.
You may call toll-free (866) 864-5057 for information on how to obtain directions to be able to attend the Special Meeting and vote in
person.
List
of Acquired Fund Shareholders
A
list of shareholders of record of the Acquired Fund entitled to notice of the Special Meeting will be available at First Trust’s
offices, located at 120 East Liberty Drive, Suite 400, Wheaton, Illinois 60187, for inspection by any shareholder during regular
business hours beginning on the second business day after notice is given of the Special Meeting, subject to restrictions that
may be imposed on a requesting shareholder on the copying, use or distribution of the information contained in the list. Shareholders
will need to provide advance written notice to the Acquired Fund to inspect the list of shareholders and will also need to show
valid identification and proof of share ownership to inspect such list.
Householding
Please
note that only one copy of shareholder documents, including annual or semi-annual reports and proxy materials may be delivered
to two or more shareholders of the Acquired Fund who share an address, unless the Acquired Fund has received instructions to the
contrary. This practice is commonly called “householding” and it is intended to reduce expenses and eliminate duplicate
mailings of shareholder documents. Mailings of your shareholder documents may be householded indefinitely unless you instruct
the Acquired Fund otherwise. To request a separate copy of any shareholder document, or for instructions as to how to request
a separate copy of these documents or as to how to request a single copy if multiple copies of these documents are received, shareholders
should contact the Acquired Fund at the address and phone number set forth above.
Shareholder
Communications
Shareholders
of the Acquired Fund who want to communicate with the Board of the Acquired Fund or any individual Trustee should write the Acquired
Fund to the attention of the Acquired Fund Secretary, W. Scott Jardine, at 120 East Liberty Drive, Suite 400, Wheaton, IL 60187.
The letter should indicate that you are a shareholder of the Acquired Fund. If the communication is intended for a specific Trustee
and so indicates, it will be sent only to that Trustee. If a communication does not indicate a specific Trustee, it will be sent
to the Chair of the Nominating and Governance Committee of the Board of the Acquired Fund and the independent legal counsel to
the Independent Trustees for further distribution as deemed appropriate by such persons.
Vote
Required for the Proposal
The
Proposal will require the affirmative vote of a majority of the outstanding voting shares (as defined under the 1940 Act) of the
Acquired Fund. The 1940 Act defines a majority of the outstanding voting shares as the lesser of either (i) at least 67% of the
voting securities present at the Special Meeting, if at least 50% of such securities are present or represented by proxy, or (ii)
more than 50% of the outstanding voting shares.
SHAREHOLDER
INFORMATION
As
of November 30, 2023, to each Fund’s knowledge, no single shareholder or “group” (as that term is used in Section
13(d) of the Exchange Act) beneficially owned more than 5% of either Fund’s outstanding common shares, except as described in
the following tables. A control person is one who owns, either directly or indirectly, more than 25% of the voting securities of a
Fund or acknowledges the existence of control. A party that controls a Fund may be able to significantly affect the outcome of any
item presented to shareholders for approval. Information as to beneficial ownership of common shares, including percentage of common
shares beneficially owned, is based on, among other things, reports filed with the SEC by such holders.
The
Acquired Fund
Shareholder
Name and Address | |
Class
of Shares / Beneficial or Record Owner | |
Share
Holdings | | |
Percentage
Owned | | |
Estimated
Pro Forma Percentage of Ownership of Combined Fund | |
Charles
Schwab & Co., Inc. 2423 E Lincoln Drive Phoenix, Arizona 85016 | |
Common
Shares/Record Owner | |
| 1,594,401 | | |
| 18.66 | % | |
| 2.36 | % |
National
Financial Services LLC 499 Washington Boulevard Jersey City, New Jersey 07310 | |
Common
Shares/Record Owner | |
| 1,332,939 | | |
| 15.60 | % | |
| 1.97 | % |
Morgan
Stanley Smith Barney LLC 1300 Thames St 6th Floor Baltimore, Maryland 21231 | |
Common
Shares/Record Owner | |
| 850,555 | | |
| 9.95 | % | |
| 1.26 | % |
Pershing
LLC One Pershing Plaza Jersey City, New Jersey 07399 | |
Common
Shares/Record Owner | |
| 646,639 | | |
| 7.57 | % | |
| 0.96 | % |
LPL
Financial LLC* 1055 LPL Way Fort Mill, South Carolina 29715 | |
Common
Shares/Beneficial and Record Owner | |
| Record
Shares – 139,064 Beneficial Shares – 456,491 | * | |
| Record
Shares – 1.63
Beneficial Shares – 5.30 | %
%* | |
| Record Shares – 0.21
Beneficial Shares – 0.67 | %
% |
Merrill
Lynch, Pierce, Fenner Smith Incorporated/8862 MLPF&S TS SUB 4804 Deer Lake Dr E Jacksonville, Florida 32246 | |
Common
Shares/Record Owner | |
| 526,102 | | |
| 6.16 | % | |
| 0.78 | % |
RBC
Capital Markets, LLC 60 S 6th Street P-09 Minneapolis, Minnesota 55402 | |
Common
Shares/Record Owner | |
| 452,465 | | |
| 5.30 | % | |
| 0.67 | % |
* For
the beneficial share holdings, based solely upon information presented in a Schedule 13G filed February 3, 2023 by LPL Financial LLC.
The
Acquiring Fund
Shareholder Name
and
Address | |
Class of Shares
/ Beneficial or Record Owner | |
Share
Holdings | | |
Percentage
Owned as of September 30, 2023 | | |
Estimated
Pro Forma Percentage of Ownership of Combined Fund | |
Saba Capital Management, L.P., et al.*
405 Lexington Avenue, 58th Floor New York, New York 10174 | |
Common Shares/Beneficial Owner* | |
| 1,276,866 | * | |
| 5.1 | %* | |
| 4.43 | % |
Morgan
Stanley 1585
Broadway New
York, NY 10036 | |
Common Shares/Beneficial Owner | |
| 1,282,146 | | |
| 5.1 | % | |
| 4.44 | % |
* Based solely upon
information presented in a Schedule 13G filed August 7, 2023 jointly by Saba Capital Management, L.P., Saba Capital Management GP,
LLC and Boaz R. Weinstein.
Security
Ownership of Management
As
of November 30, 2023, the officers and Trustees of the Acquired Fund, in the aggregate, owned less than 1% of the outstanding
shares of the Acquired Fund. As of November 30, 2023, the officers and Trustees of the Acquiring Fund, in the aggregate, owned less than
1% of the outstanding shares of the Acquiring Fund.
SHAREHOLDER
PROPOSALS
In
order to nominate persons to the Board of the Acquired Fund or to present any other permitted proposal for action by shareholders
at an annual meeting of shareholders of the Acquired Fund, a shareholder must comply with any requirements under applicable law
(including without limitation the proxy rules under the Exchange Act) and the requirements of the Acquired Fund’s Amended
and Restated By-Laws (the “By-Laws”). The By-Laws provide, among other requirements, that a proposing shareholder
be entitled to vote on the proposal and that timely written notice which includes the information required by the By-Laws must
be provided to the Secretary of the Acquired Fund. In order to be considered timely, unless a greater or lesser period is required
under applicable law, the shareholder notice must be delivered to or mailed and received at the Acquired Fund’s principal
executive offices, Attn: W. Scott Jardine, Secretary, not less than one hundred and five (105) days nor more than one hundred
and twenty (120) days prior to the first anniversary date of the date the Acquired Fund’s proxy statement was released to
shareholders for the preceding year’s annual meeting. However, if and only if an annual meeting is not scheduled to be held
within a period that commences thirty (30) days before the first anniversary date of the annual meeting for the preceding year
and ends thirty (30) days after such anniversary date (an annual meeting date outside such period being referred to herein as
an “Other Annual Meeting Date”), such shareholder notice must be given as described above not more than one hundred
and twenty (120) days prior to such Other Annual Meeting Date and not less than the close of business on the later of (i) the
date one hundred and five (105) days prior to such Other Annual Meeting Date or (ii) the tenth (10th) business day following the
date such Other Annual Meeting Date is first publicly announced or disclosed. Timely submission of a proposal does not mean that
such proposal will be included in the Acquired Fund’s proxy statement. The Acquired Fund’s proxy materials for its
2023 annual meeting were mailed to shareholders on or about March 14, 2023, and such annual meeting was held on April 17, 2023.
Shareholders should consult the Acquired Fund’s By-Laws for more information about the requirements for shareholder proposals.
Copies of the By-Laws can be found in the Current Report on Form 8-K filed by the Acquired Fund with the SEC on June 23, 2023,
which is available at www.sec.gov, and may also be obtained by writing to the Secretary of the Acquired Fund at such Fund’s
principal executive offices.
To
be considered for presentation at the Acquired Fund’s 2024 annual meeting, if any, a shareholder proposal submitted pursuant
to Rule 14a-8 of the Exchange Act must have been received at the offices of the Acquired Fund at 120 East Liberty Drive, Suite
400, Wheaton, Illinois 60187, no later than November 15, 2023. However, if the Reorganization is approved and will be consummated,
the Acquired Fund will be dissolved and will no longer hold annual meetings of shareholders.
In
addition, the By-Laws of the Acquired Fund provide that, unless required by applicable law, no matter shall be considered at or
brought before any annual or special meeting unless such matter has been deemed a proper matter for shareholder action by at least
sixty-six and two-thirds percent (66-2/3%) of the Trustees. Timely submission of a proposal does not mean that such proposal will
be brought before a meeting.
SOLICITATION
OF PROXIES
Solicitation
of proxies is being made primarily by the mailing of the Notice and this Proxy Statement/Prospectus with its enclosures on or about December 26, 2023. Proxy solicitations may also be made by telephone or personal interviews conducted by officers and service providers of the
Acquired Fund, including any agents or affiliates of such service providers. In addition, as noted above, a proxy solicitation firm,
EQ Fund Solutions, LLC, has been engaged to assist in the solicitation of proxies. Shareholders of the Acquired Fund whose shares are
held by nominees such as brokers can vote their proxies by contacting their respective nominee.
OTHER
BUSINESS
The
Board knows of no other business to be presented for action at the Special Meeting. If any matters do come before the Special
Meeting on which action can properly be taken in accordance with the Acquired Fund’s By-Laws, it is intended that the proxies
shall vote in accordance with the judgment of the person or persons exercising the authority conferred by the proxy at the Special
Meeting. The submission of a proposal does not guarantee its inclusion in the proxy statement or presentation at the Special Meeting
unless certain securities law requirements are met.
If
you need any assistance or have any questions regarding the Proposal or how to vote your
shares, please call the Acquired Fund’s Proxy Solicitor, EQ Fund Solutions, LLC, at
(866) 864-5057 weekdays from 9:00 a.m. to 10:00 p.m. Eastern Time. |
APPENDIX
A
FORM OF
AGREEMENT AND PLAN OF REORGANIZATION
THIS
AGREEMENT AND PLAN OF REORGANIZATION (the “Agreement”) is made as of [March 15, 2024], by and between abrdn Global
Infrastructure Income Fund, a Maryland statutory trust (the “Acquiring Fund”), and Macquarie/First Trust Global Infrastructure/Utilities
Dividend & Income Fund, a Massachusetts business trust (the “Acquired Fund” and, together with the Acquiring Fund,
the “Funds”). First Trust Advisors L.P., an Illinois limited partnership and the investment adviser to the Acquired Fund
(the “Seller”), joins this Agreement solely for purposes of paragraphs 8.2, 11.1, 11.2 and 11.3, and abrdn Inc., a Delaware
corporation registered under the Investment Advisers Act of 1940 and the investment adviser to the Acquiring Fund (the “Purchaser”),
joins this Agreement solely for purposes of paragraphs 5.12, 5.13, 8.2, 11.1, 11.2 and 11.3.
The
reorganization will consist of the transfer of all of the Assets (as defined in paragraph 1.2) of the Acquired Fund to the Acquiring
Fund in exchange solely for newly issued common shares of beneficial interest of the Acquiring Fund, par value of $0.001 per share (the
“Acquiring Fund Shares”), the assumption by the Acquiring Fund of Liabilities (as defined in paragraph 1.3) of the Acquired
Fund, and the distribution of the Acquiring Fund Shares to the shareholders of the Acquired Fund as part of the complete liquidation
of the Acquired Fund, all upon the terms and conditions hereinafter set forth in this Agreement (the “Reorganization”).
WHEREAS,
the Acquiring Fund and the Acquired Fund are each registered closed-end management investment companies, and the Acquired Fund owns securities
which are assets of the character in which the Acquiring Fund is permitted to invest; and
WHEREAS,
both the Acquired Fund and the Acquiring Fund are authorized to issue their shares of beneficial interest; and
WHEREAS,
the Board of Trustees of the Acquiring Fund and the Board of Trustees of the Acquired Fund have authorized and approved the Reorganization;
and
WHEREAS,
each of the Seller and the Purchaser have entered into a purchase agreement (the “Purchase Agreement”) pursuant to which
Purchaser agreed to acquire, and Seller agreed to sell, certain assets relating to the Seller’s business with respect to the Acquired
Fund; and
WHEREAS,
it is intended that, for United States federal income tax purposes, (i) the transactions contemplated by this Agreement shall qualify
as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
“Code”), and (ii) that the Agreement shall constitute a “plan of reorganization” for purposes
of the Code.
NOW,
THEREFORE, in consideration of the premises and of the covenants and agreements hereinafter set forth, intending to be legally bound
hereby, the parties hereto covenant and agree as follows:
| 1. | THE
REORGANIZATION AND FUND TRANSACTIONS |
1.1. The
Reorganization. Subject to the requisite approvals and other terms and conditions herein set forth and on the basis of the representations
and warranties contained herein, at the Effective Time (as defined in paragraph 2.4), the Acquired Fund shall assign, deliver and otherwise
transfer the Assets (as defined in paragraph 1.2) of the Acquired Fund to the Acquiring Fund, and the Acquiring Fund shall assume the
Liabilities (as defined in paragraph 1.3) of the Acquired Fund. In consideration of the foregoing, at the Effective Time, the Acquiring
Fund shall issue Acquiring Fund Shares to the Acquired Fund. The number of Acquiring Fund Shares to be delivered shall be determined
as set forth in paragraph 2.3.
1.2. Assets
of the Acquired Fund. The assets of the Acquired Fund to be acquired by the Acquiring Fund shall consist of all assets and property
that can legally be transferred whether accrued or contingent, known or unknown, including, without limitation, all cash, cash equivalents,
securities, receivables (including securities, interests and dividends receivable), commodities and futures interests, rights to register
shares under applicable securities laws, any deferred or prepaid expenses shown as an asset on the books of the Acquired Fund at the
Effective Time (as defined in paragraph 2.4), books and records of the Acquired Fund, and any other property owned by the Acquired Fund
at the Effective Time (collectively, the “Assets”). For the avoidance of doubt, Assets shall not include any assets or property
that cannot be transferred to the Acquiring Fund pursuant to applicable law or regulation.
1.3. Liabilities
of the Acquired Fund. The Acquired Fund will use commercially reasonable efforts to discharge all of its known liabilities and
obligations prior to the Effective Time consistent with its obligation to continue its operations and to pursue its investment objective
and strategies in accordance with the terms as presented in the Proxy Statement/Prospectus (as defined in paragraph 5.6) in connection
with the Reorganization. The Acquiring Fund will assume all liabilities of the Acquired Fund whether accrued or contingent, known or
unknown (collectively, the “Liabilities”). At and after the Effective Time, the Liabilities of the Acquired Fund shall become
and be the liabilities of the Acquiring Fund and may be enforced against the Acquiring Fund to the extent as if the same had been incurred
by the Acquiring Fund.
1.4. Distribution
of Acquiring Fund Shares. At the Effective Time (or as soon thereafter as is reasonably practicable), the Acquired Fund will
distribute the Acquiring Fund Shares received from the Acquiring Fund pursuant to paragraph 1.1 (cash may be distributed in lieu of fractional
Acquiring Fund Shares, as set forth in paragraph 2.3), pro rata to the record holders of the shares of the Acquired Fund determined as
of the Effective Time (the “Acquired Fund Shareholders”) in complete liquidation of the Acquired Fund. Such distribution
and liquidation will be accomplished by the transfer of the Acquiring Fund Shares then credited to the account of the Acquired Fund on
the books of the Acquiring Fund to open accounts on the share records of the Acquiring Fund in the names of the Acquired Fund Shareholders.
The aggregate net asset value of the Acquiring Fund Shares to be so credited to Acquired Fund Shareholders shall be equal to the aggregate
net asset value of the then outstanding shares of beneficial interest of the Acquired Fund (the “Acquired Fund Shares”) owned
by Acquired Fund Shareholders at the Effective Time other than with respect to any fractional Acquiring Fund Shares for which cash may
be distributed in lieu thereof, pursuant to paragraph 2.3. All issued and outstanding shares of the Acquired Fund will be canceled on
the books of the Acquired Fund. The Acquiring Fund shall not issue share certificates representing the Acquiring Fund Shares in connection
with such transfer, except for any global certificate or certificates required by a securities depository in connection with the establishment
of book-entry ownership of the Acquiring Fund Shares.
1.5. Recorded
Ownership of Acquiring Fund Shares. Ownership by Acquired Fund Shareholders of Acquiring Fund Shares will be shown on the books
of the Acquiring Fund’s transfer agent.
1.6. Filing
Responsibilities of Acquired Fund. Any reporting responsibility of the Acquired Fund, including, but not limited to, the responsibility
for filing regulatory reports, tax returns, or other documents with the Securities and Exchange Commission (the “Commission”),
the exchange on which the Acquired Fund’s shares are listed, any state securities commission, any state corporate registry, and
any Federal, state or local tax authorities or any other relevant regulatory authority, is and shall remain the responsibility of the
Acquired Fund.
1.7. Transfer
Taxes. Any transfer taxes payable upon issuance of the Acquiring Fund Shares in a name other than the registered holder of the
Acquired Fund Shares on the books of the Acquired Fund as of that time shall, as a condition of such issuance and transfer, be paid by
the person to whom such Acquiring Fund Shares are to be issued and transferred.
1.8. Termination.
Promptly after the distribution of Acquiring Fund Shares pursuant to paragraph 1.4, the Acquired Fund shall take, in accordance with
Massachusetts law and the Investment Company Act of 1940, as amended (the “1940 Act”), all steps as may be necessary or appropriate
to effect a complete deregistration, liquidation, dissolution and termination of the Acquired Fund.
2.1. Net
Asset Value per Acquired Fund Share. The net asset value per Acquired Fund Share shall be computed as of the Effective Time,
after the declaration and payment of any dividends and/or other distributions on that date, using the valuation procedures of the Acquired
Fund adopted by the Acquired Fund’s Board of Trustees.
2.2. Net
Asset Value per Acquiring Fund Share. The net asset value per Acquiring Fund Share shall be computed as of the Effective Time,
after the declaration and payment of any dividends and/or other distributions on that date, using the valuation procedures of the Acquiring
Fund adopted by the Acquiring Fund’s Board of Trustees.
2.3. Calculation
of Number of Acquiring Fund Shares. As of the Effective Time, each Acquired Fund Share outstanding immediately prior to the Effective
Time shall be exchanged for Acquiring Fund Shares in an amount equal to the ratio of the net asset value per share of the Acquired Fund
determined in accordance with paragraph 2.1 to the net asset value per share of the Acquiring Fund determined in accordance with paragraph
2.2. No fractional Acquiring Fund Shares will be distributed unless such shares are to be held in a Dividend Reinvestment Plan account.
In the event Acquired Fund Shareholders would be entitled to receive fractional Acquiring Fund Shares, the Acquiring Fund’s transfer
agent will aggregate such fractional shares and sell the resulting whole shares on the exchange on which such shares are listed for the
account of all such Acquired Fund Shareholders, and each such Acquired Fund Shareholder will be entitled to a pro rata share of the proceeds
from such sale. With respect to the aggregation and sale of fractional Acquiring Fund Shares, the Acquiring Fund’s transfer agent
will act directly on behalf of the Acquired Fund Shareholders entitled to receive fractional shares and will accumulate such fractional
shares, sell the shares and distribute the cash proceeds net of brokerage commissions, if any, directly to Acquired Fund Shareholders
entitled to receive the fractional shares (without interest and subject to withholding taxes).
2.4. Effective
Time. The Effective Time shall be the time at which the Funds calculate their net asset values as set forth in their respective
valuation procedures (normally the close of regular trading on the New York Stock Exchange) on the Closing Date (as defined in paragraph
3.1) (the “Effective Time”).
3.1. Closing.
The Reorganization, together with related acts necessary to consummate the same (“Closing”), shall occur at the principal
office of the Acquiring Fund or via the electronic exchange of documents on the Closing Date (as defined in the Purchase Agreement) applicable
to the Acquired Fund, or such other date or place as an officer of the Acquiring Fund and an officer of the Acquired Fund may agree in
writing and after satisfaction or waiver (to the extent permitted by applicable law) of the conditions precedent to the Closing set forth
in Section 6 of this Agreement (other than those conditions that by their terms are to be satisfied by actions taken at the Closing,
but subject to the satisfaction or, to the extent permitted, waiver of those conditions at the Closing), immediately after the close
of regular trading on the New York Stock Exchange (the “Closing Date”). All acts taking place at the Closing shall be deemed
to take place simultaneously as of the Effective Time.
3.2. Transfer
and Delivery of Assets. The Acquired Fund shall direct The Bank of New York Mellon (“BNY”), as custodian for the
Acquired Fund, to deliver, at the Closing, a certificate of an authorized officer stating that the Assets were delivered in proper form
to the Acquiring Fund at the Effective Time. The Acquired Fund’s portfolio securities represented by a certificate or other written
instrument, if any, shall be presented by BNY, on behalf of the Acquired Fund, to State Street Bank and Trust Company (“State Street”),
as custodian for the Acquiring Fund. Such presentation shall be made for examination as soon as reasonably practicable following the
Effective Time and shall be transferred and delivered by the Acquired Fund as soon as reasonably practicable following the Effective
Time for the account of the Acquiring Fund duly endorsed in proper form for transfer in such condition as to constitute good delivery
thereof. BNY, on behalf of the Acquired Fund, shall deliver to State Street, as custodian of the Acquiring Fund, as of the Effective
Time by book entry, in accordance with the customary practices of BNY and of each securities depository, as defined in Rule 17f-4
under the 1940 Act, in which the Assets are deposited, the Assets deposited with such depositories. The cash to be transferred by the
Acquired Fund shall be delivered by wire transfer of Federal funds at the Effective Time or by such other manner as State Street, as
custodian of the Acquiring Fund, deems appropriate.
3.3. Share
Records. The Acquired Fund shall direct Computershare Inc., in its capacity as transfer agent for the Acquired Fund (the “Transfer
Agent”), to deliver at the Closing a certificate of an authorized officer stating that its records contain the names and addresses
of the Acquired Fund Shareholders and the number and percentage ownership of outstanding Acquired Fund Shares owned by each such Acquired
Fund Shareholder immediately prior to the Closing. The Acquiring Fund shall issue and deliver to the Secretary of the Acquired Fund a
confirmation evidencing that the Transfer Agent has been instructed to credit an appropriate number of Acquiring Fund Shares to the Acquired
Fund as of the Effective Time, or provide other evidence satisfactory to the Acquired Fund as of the Effective Time that such Acquiring
Fund Shares will be credited to the Acquired Fund’s accounts on the books of the Acquiring Fund.
3.4. Postponement
of Effective Time. In the event that at the Effective Time, the primary trading market for portfolio securities of the Acquiring
Fund or the Acquired Fund (the “Market”) shall be closed to trading or trading thereupon shall be restricted, or trading
or the reporting of trading on such Market or elsewhere shall be disrupted so that, in the mutual judgment of the Boards of Trustees
or officers of the Acquired Fund and the Acquiring Fund, accurate appraisal of the value of the net assets of the Acquired Fund or the
Acquiring Fund, respectively, is impracticable, the Effective Time shall be postponed until the first business day, or other mutually
agreed business day, after the day when trading shall have been fully resumed and reporting shall have been restored.
3.5. Failure
To Deliver Assets. If the Acquired Fund is unable to make delivery pursuant to paragraph 3.2 to the custodian for the Acquiring
Fund of any of the Assets of the Acquired Fund for the reason that any of such Assets have not yet been delivered to it by the Acquired
Fund’s broker, dealer or other counterparty, then, in lieu of such delivery, the Acquired Fund shall deliver, with respect to said
Assets, executed copies of an agreement of assignment and due bills executed on behalf of said broker, dealer or other counterparty,
together with such other documents as may be required by the Acquiring Fund or its custodian, including brokers’ confirmation slips,
and shall use its reasonable best efforts to deliver any such Assets to the custodian as soon as reasonably practicable. In addition,
with respect to any Asset that requires additional documentation by an Asset’s issuer or other third party in order to effect a
transfer of such Asset, the Acquired Fund will identify each such asset to the Acquiring Fund on a mutually agreed upon date prior to
the Closing Date and will engage with the Acquiring Fund to complete such documentation as necessary to transfer such Assets to the Acquiring
Fund’s custodian as soon as reasonably practicable.
| 4. | REPRESENTATIONS
AND WARRANTIES |
4.1. Representations
and Warranties of the Acquired Fund. Except as has been fully disclosed to the Acquiring Fund as of the date hereof in a written
instrument executed by an officer of the Acquired Fund, the Acquired Fund represents and warrants to the Acquiring Fund as follows:
(a) The
Acquired Fund is a business trust duly organized, validly existing, and in good standing under the laws of the Commonwealth of Massachusetts
with power under its Amended and Restated Declaration of Trust and Amended and Restated By-Laws, each as amended from time-to-time, to
own all of its properties and assets and to carry on its business as it is presently conducted.
(b) The
Acquired Fund is registered with the Commission as a closed-end management investment company under the 1940 Act, and the Acquired Fund
Shares have been registered under the Securities Act of 1933, as amended (the “1933 Act”).
(c) At
the Effective Time, the Acquired Fund will have good and marketable title to the Assets and full right, power, and authority to sell,
assign, transfer and deliver such Assets hereunder free of any liens or other encumbrances except as otherwise disclosed to the Acquiring
Fund, and upon delivery and payment for such Assets, the Acquiring Fund will acquire all rights of the Acquired Fund thereto, subject
to no restrictions on the full transfer thereof other than such restrictions as might arise under the 1933 Act or as otherwise disclosed
to the Acquiring Fund.
(d) No
consent, approval, authorization, or order of any court or governmental authority is required for the consummation by the Acquired Fund
of the transactions contemplated herein, except such as have been obtained under the 1933 Act, the Securities Exchange Act of 1934, as
amended (the “1934 Act”), and the 1940 Act, and such as may be required under state securities laws.
(e) The
shareholder reports, marketing and other related materials of the Acquired Fund and each prospectus and statement of additional information
of the Acquired Fund used for a period of six (6) years prior to the date of this Agreement conform or conformed at the time of
their use in all material respects to the applicable requirements of the 1933 Act, the 1934 Act and the 1940 Act and the rules and
regulations of the Commission thereunder and do not or did not at the time of their use include any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances
under which they were made, not materially misleading.
(f) The
Acquired Fund is not engaged currently, and the execution, delivery and performance of this Agreement will not result, in: (i) a
violation of federal securities laws (including the 1940 Act) or of Massachusetts law in any material respect or a material violation
of its Amended and Restated Declaration of Trust and Amended and Restated By-Laws, each as amended from time-to-time, or of any agreement,
indenture, instrument, contract, lease or other undertaking to which the Acquired Fund is a party or by which it is bound, or (ii) the
acceleration of any obligation, or the imposition of any penalty, under any agreement, indenture, instrument, contract, lease, judgment
or decree to which the Acquired Fund is a party or by which it is bound.
(g) All
material contracts or other commitments of the Acquired Fund (other than this Agreement and investment contracts, including options,
futures, forward contracts and other similar instruments) will terminate without liability or obligation to the Acquired Fund on or prior
to the Effective Time.
(h) Except
as otherwise disclosed to and accepted by the Acquiring Fund in writing, no litigation or administrative proceeding or investigation
of or before any court or governmental body is presently pending or, to the Acquired Fund’s knowledge, threatened against the Acquired
Fund or any of the Acquired Fund’s properties or assets that, if adversely determined, is reasonably likely to materially and adversely
affect the Acquired Fund’s financial condition or the conduct of its business. The Acquired Fund knows of no facts which are reasonably
likely to form the basis for the institution of such proceedings and is not a party to or subject to the provisions of any order, decree
or judgment of any court or governmental body that materially and adversely affects the Acquired Fund’s business or its ability
to consummate the transactions herein contemplated.
(i) The
financial statements and financial highlights of the Acquired Fund at [November 30, 2023], have been audited by Deloitte &
Touche LLP, independent registered public accounting firm, and are in accordance with accounting principles generally accepted in the
United States of America (“GAAP”), and such statements present fairly, in all material respects, the financial position of
the Acquired Fund as of such date in accordance with GAAP, and there are no known contingent liabilities of the Acquired Fund required
to be reflected on the statement of assets and liabilities (including the notes thereto) in accordance with GAAP as of such date not
disclosed therein.
(j)
Since [November 30, 2023], there has not been any material adverse change in the Acquired Fund’s financial
condition, assets, liabilities or business, other than changes occurring in the ordinary course of business, or any incurrence by the
Acquired Fund of indebtedness, except as otherwise disclosed to the Acquiring Fund. For the purposes of this subparagraph (j), a decline
in net asset value per share of Acquired Fund Shares due to declines in market values of securities held by the Acquired Fund, the discharge
of the Acquired Fund’s liabilities, or the redemption of the Acquired Fund’s shares by shareholders of the Acquired Fund
shall not constitute a material adverse change.
(k) At
the Effective Time, all material Federal and other tax returns, dividend reporting forms, and other tax-related reports of the Acquired
Fund required by law to have been filed by such date (including any extensions, if any) shall have been filed and are or will be correct
in all material respects, and all Federal and other taxes shown as due or required to be shown as due on said returns and reports shall
have been paid or provision shall have been made for the payment thereof, and no such return is currently under audit, and no assessment
has been asserted, in writing, with respect to such returns.
(l) The
Acquired Fund has not taken any action and does not know of any fact or circumstance that could reasonably be expected to prevent the
Reorganization from qualifying as a reorganization within the meaning of Section 368(a) of the Code.
(m) The
Acquired Fund has elected to be treated as a “regulated investment company” under Subchapter M of the Code. For each taxable
year since its commencement of operations (including the taxable year ending on the Closing Date), the Acquired Fund has met the requirements
of Subchapter M of the Code for qualification and treatment as a regulated investment company within the meaning of Section 851
et seq. of the Code and has been eligible to and has computed its federal income tax under Section 852 of the Code in respect of
each taxable year since its commencement of operations (including the taxable year ending on the Closing Date) and expects to continue
to meet such requirements at all times through the Closing Date. The Acquired Fund has not at any time since its inception been liable
for, nor is now liable for, any material income or excise tax pursuant to Sections 852 or 4982 of the Code. There is no other material
tax liability (including any foreign, state or local tax liability) of the Acquired Fund except as set forth and accrued on the Acquired
Fund’s books. The Acquired Fund has no earnings or profits accumulated with respect to any taxable year in which the provisions
of Subchapter M of the Code did not apply. The Acquired Fund will not be subject to corporate-level taxation on the sale of any assets
currently held by it as a result of the application of Section 337(d) of the Code and the regulations thereunder.
(n) The
Acquired Fund is in compliance in all material respects with applicable regulations of the Internal Revenue Service pertaining to the
reporting of dividends and other distributions on and redemptions of its shares of beneficial interest. To the knowledge of its officers,
the Acquired Fund has complied with the requirements for collection and maintenance of Forms W-9 and/or Forms W-8 and has withheld in
respect of dividends and other distributions and paid to the proper taxing authorities all taxes required to be withheld and is not liable
for any penalties which could be imposed thereunder. The Acquired Fund is not under audit by any federal, state or local taxing authority,
and there are no actual or proposed tax deficiencies with respect to the Acquired Fund that have been presented to the Acquired Fund
in writing.
(o) All
of the issued and outstanding shares of the Acquired Fund will, at the time of Closing, be held by the persons and in the amounts set
forth in the records of the Transfer Agent, on behalf of the Acquired Fund, as provided in paragraph 3.3. The Acquired Fund does not
have outstanding any options, warrants or other rights to subscribe for or purchase any of the shares of the Acquired Fund, nor is there
outstanding any security convertible into any of the Acquired Fund’s shares.
(p) The
execution, delivery and performance of this Agreement have been duly authorized by all necessary action, if any, on the part of the Trustees
of the Acquired Fund, and, subject to the approval of the shareholders of the Acquired Fund, this Agreement will constitute a valid and
binding obligation of the Acquired Fund, enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting creditors’ rights and to general equity principles.
(q) The
Proxy Statement/Prospectus (as defined in paragraph 5.6), insofar as it relates to information provided by the Acquired Fund for the
use therein, will, as of the effective time of the Acquiring Fund’s registration statement on Form N-14 (the “Registration
Statement”) in which it is included and any time prior to the Effective Time: (i) not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances
under which such statements were made, not materially misleading and (ii) comply in all material respects with the provisions of
the 1933 Act, the 1934 Act and the 1940 Act and the rules and regulations of the Commission thereunder; provided, however, that
the representations and warranties of this subparagraph (q) shall not apply to statements in or omissions from the Proxy Statement/Prospectus
made in reliance upon and in conformity with information that was furnished by the Acquiring Fund for use therein.
4.2. Representations
and Warranties of the Acquiring Fund. Except as has been fully disclosed to the Acquired Fund as of the date hereof in a written
instrument executed by an officer of the Acquiring Fund, Acquiring Fund represents and warrants to the Acquired Fund as follows:
(a) The
Acquiring Fund is a statutory trust duly organized, validly existing, and in good standing under the laws of the State of Maryland with
power under its Amended and Restated Declaration of Trust and Amended and Restated By-Laws, each as amended from time-to-time, to own
all of its properties and assets and to carry on its business as it is presently conducted.
(b) The
Acquiring Fund is registered with the Commission as a closed-end management investment company under the 1940 Act, and the Acquiring
Fund Shares have been registered under the 1933 Act.
(c) The
Acquiring Fund has not taken any action and does not know of any fact or circumstance that could reasonably be expected to prevent the
Reorganization from qualifying as a reorganization within the meaning of Section 368(a) of the Code.
(d) At
the Effective Time, all material Federal and other tax returns, dividend reporting forms, and other tax-related reports of the Acquiring
Fund required by law to have been filed by such date (including any extensions, if any) shall have been filed and are or will be correct
in all material respects, and all Federal and other taxes shown as due or required to be shown as due on said returns and reports shall
have been paid or provision shall have been made for the payment thereof, and no such return is currently under audit, and no assessment
has been asserted, in writing, with respect to such returns.
(e) The
Acquiring Fund has elected to be treated as a “regulated investment company” under Subchapter M of the Code. For each taxable
year since its commencement of operations (including the period through the Closing Date), the Acquiring Fund has met the requirements
of Subchapter M of the Code for qualification and treatment as a regulated investment company within the meaning of Section 851
et seq. of the Code and has been eligible to and has computed its federal income tax under Section 852 of the Code and expects to
continue to meet such requirements at all times through the Closing Date. The Acquiring Fund has not at any time since its inception
been liable for, nor is now liable for, any material income or excise tax pursuant to Sections 852 or 4982 of the Code. There is no other
material tax liability (including any foreign, state or local tax liability) of the Acquiring Fund except as set forth and accrued on
the Acquiring Fund’s books. The Acquiring Fund has no earnings or profits accumulated with respect to any taxable year in which
the provisions of Subchapter M of the Code did not apply. The Acquiring Fund will not be subject to corporate-level taxation on the sale
of any assets currently held by it as a result of the application of Section 337(d) of the Code and the regulations thereunder.
(f) The
Acquiring Fund is in compliance in all material respects with applicable regulations of the Internal Revenue Service pertaining to the
reporting of dividends and other distributions on and redemptions of its common shares of beneficial interest. To the actual knowledge
of its officers, the Acquiring Fund has complied with the requirements for collection and maintenance of Forms W-9 and/or Forms W-8 and
has withheld in respect of dividends and other distributions and paid to the proper taxing authorities all taxes required to be withheld
and is not liable for any penalties which could be imposed thereunder. The Acquiring Fund is not under audit by any federal, state or
local taxing authority, and there are no actual or proposed tax deficiencies with respect to the Acquiring Fund that have been presented
to the Acquiring Fund in writing.
(g) No
consent, approval, authorization, or order of any court or governmental authority is required for the consummation by the Acquiring Fund
of the transactions contemplated herein, except such as have been obtained under the 1933 Act, the 1934 Act and the 1940 Act and such
as may be required under state securities laws.
(h) The
shareholder reports, marketing and other related materials of the Acquiring Fund and each prospectus and statement of additional information
of the Acquiring Fund used at all times prior to the date of this Agreement conform or conformed at the time of their use in all material
respects to the applicable requirements of the 1933 Act, the 1934 Act and the 1940 Act and the rules and regulations of the Commission
thereunder and do not or did not at the time of their use include any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made,
not materially misleading.
(i) The
Acquiring Fund is not engaged currently, and the execution, delivery and performance of this Agreement will not result, in: (i) a
violation of federal securities laws (including the 1940 Act) or of Maryland law in any material respect or a material violation of its
Amended and Restated Declaration of Trust and Amended and Restated By-Laws, each as amended from time-to-time, or of any agreement, indenture,
instrument, contract, lease or other undertaking to which the Acquiring Fund is a party or by which it is bound, or (ii) the acceleration
of any obligation, or the imposition of any penalty, under any agreement, indenture, instrument, contract, lease, judgment or decree
to which the Acquiring Fund is a party or by which it is bound.
(j) Except
as otherwise disclosed to and accepted by the Acquired Fund in writing, no litigation or administrative proceeding or investigation of
or before any court or governmental body is presently pending or, to the Acquiring Fund’s knowledge, threatened against the Acquiring
Fund or any of the Acquiring Fund’s properties or assets that, if adversely determined, is reasonably likely to materially and
adversely affect the Acquiring Fund’s financial condition or the conduct of its business. The Acquiring Fund knows of no facts
which are reasonably likely to form the basis for the institution of such proceedings and is not a party to or subject to the provisions
of any order, decree or judgment of any court or governmental body that materially and adversely affects the Acquiring Fund’s business
or its ability to consummate the transactions herein contemplated.
(k) The
Statement of Assets and Liabilities, Statement of Operations, Statements of Changes in Net Assets and Schedule of Investments of the
Acquiring Fund at September 30, 2023, have been audited by KPMG LLP, independent registered public accounting firm, and are in accordance
with GAAP consistently applied, and such statements present fairly, in all material respects, the financial condition of the Acquiring
Fund as of such date in accordance with GAAP, and there are no known contingent liabilities of the Acquiring Fund required to be reflected
on a balance sheet (including the notes thereto) in accordance with GAAP as of such date not disclosed therein.
(l) Since
September 30, 2023, there has not been any material adverse change in the Acquiring Fund’s financial condition, assets, liabilities
or business, other than changes occurring in the ordinary course of business, or any incurrence by the Acquiring Fund of indebtedness,
except as otherwise disclosed to the Acquired Fund. For the purposes of this subparagraph (l), a decline in net asset value per share
of Acquiring Fund shares due to declines in market values of securities held by the Acquiring Fund, the discharge of the Acquiring Fund’s
liabilities, or the redemption of the Acquiring Fund’s shares by shareholders of the Acquiring Fund shall not constitute a material
adverse change.
(m) The
execution, delivery and performance of this Agreement have been duly authorized by all necessary action, if any, on the part of the Trustees
of the Acquiring Fund, and this Agreement will constitute a valid and binding obligation of the Acquiring Fund, enforceable in accordance
with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting
creditors’ rights and to general equity principles.
(n) The
Acquiring Fund Shares to be issued and delivered to the Acquired Fund, for the account of the Acquired Fund Shareholders, pursuant to
the terms of this Agreement, will at the Effective Time have been duly authorized and, when so issued and delivered, will be duly and
validly issued Acquiring Fund Shares, will be fully paid and non-assessable by the Acquiring Fund and will have been issued in every
jurisdiction in compliance in all material respects with applicable registration requirements and applicable securities laws. The Acquiring
Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any of the shares of the Acquiring
Fund, nor is there outstanding any security convertible into any of the Acquiring Fund’s shares.
(o) The
Proxy Statement/Prospectus (as defined in paragraph 5.6), insofar as it relates to the Acquiring Fund, will, as of the effective time
of the Registration Statement in which it is included and any time prior to the Effective Time: (i) not contain any untrue statement
of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light
of the circumstances under which such statements were made, not materially misleading and (ii) comply in all material respects with
the provisions of the 1933 Act, the 1934 Act and the 1940 Act and the rules and regulations of the Commission thereunder; provided,
however, that the representations and warranties of this subparagraph (o) shall not apply to statements in or omissions from the
Proxy Statement/Prospectus made in reliance upon and in conformity with information that was furnished by the Acquired Fund for use therein.
| 5. | COVENANTS
AND AGREEMENTS |
5.1. Conduct
of Business. The Acquiring Fund and the Acquired Fund each will operate its business in the ordinary course consistent with prior
practice between the date hereof and the Effective Time, it being understood that such ordinary course of business will include the declaration
and payment of customary dividends and distributions, and any other distribution that may be advisable. Notwithstanding the forgoing,
the Acquired Fund will manage its portfolio with the same approximate level of trading, turnover and leverage consistent with past practice,
except as set forth in the Proxy Statement/Prospectus or to the extent agreed in advance with the Acquiring Fund.
5.2. No
Distribution of Acquiring Fund Shares. The Acquired Fund covenants that the Acquiring Fund Shares to be issued hereunder are
not being acquired for the purpose of making any distribution thereof, other than in accordance with the terms of this Agreement.
5.3. Information.
The Acquired Fund will assist the Acquiring Fund in obtaining such information as the Acquiring Fund reasonably requests concerning the
beneficial ownership of the Acquired Fund Shares.
5.4. Other
Necessary Action. Subject to the provisions of this Agreement, the Acquiring Fund and the Acquired Fund will each take, or cause
to be taken, all action, and do or cause to be done all things, reasonably necessary, proper or advisable to consummate and make effective
the transactions contemplated by this Agreement.
5.5. Shareholder
Meeting. The Acquired Fund has called or will call a meeting of its shareholders to consider and act upon this Agreement and
to take such other action under applicable federal and state law to obtain approval of the transactions contemplated herein.
5.6. Proxy
Statement/Prospectus. The Acquired Fund has provided the Acquiring Fund with information regarding the Acquired Fund, and the
Acquiring Fund has provided the Acquired Fund with information regarding the Acquiring Fund, reasonably necessary for the preparation
by the Acquiring Fund of a Proxy Statement/Prospectus to be included in the Registration Statement (the “Proxy Statement/Prospectus”)
in compliance with the 1933 Act, the 1934 Act and the 1940 Act. If at any time prior to the Closing, the Acquired Fund or the Acquiring
Fund becomes aware of any untrue statement of material fact or omission to state a material fact required to be stated therein or necessary
to make the statements made not misleading in light of the circumstances under which they were made, the party discovering the item will
notify the other party and the parties will cooperate in promptly preparing, filing and clearing with the Commission and, if appropriate,
distributing to shareholders appropriate disclosure with respect to the item.
5.7. Liquidating
Distribution. As soon as is reasonably practicable after the Closing, the Acquired Fund will make a liquidating distribution
to its shareholders consisting of the Acquiring Fund Shares received at the Closing.
5.8. Efforts.
The Acquiring Fund and the Acquired Fund shall each use their reasonable best efforts to fulfill or obtain the fulfillment of the conditions
precedent set forth in Article 6 to effect the transactions contemplated by this Agreement as promptly as reasonably practicable;
provided, that neither the Acquiring Fund nor the Acquired Fund shall be obligated to waive any condition precedent.
5.9. Other
Instruments. Each of the Acquired Fund and the Acquiring Fund covenants that it will, from time-to-time, execute and deliver
or cause to be executed and delivered all such assignments and other instruments, and will take or cause to be taken such further action
as the other party may reasonably deem necessary or desirable in order to vest in and confirm: (a) to the Acquired Fund, title to
and possession of the Acquiring Fund Shares to be delivered hereunder, and (b) to the Acquiring Fund, title to and possession of
all the Assets and assumption of the Liabilities assumed hereunder and otherwise to carry out the intent and purpose of this Agreement.
5.10. Regulatory
Approvals. The Acquiring Fund will use all reasonable efforts to obtain the approvals and authorizations required by the 1933
Act, the 1934 Act, the 1940 Act and such of the state blue sky or securities laws as may be necessary in order to continue its operations
after the Effective Time.
5.11. Final
Tax Distribution. To the extent necessary to avoid entity-level income or excise tax, the Acquired Fund will declare one or more
dividends payable prior to the time of Closing to its shareholders.
5.12. Section 15(f). The Acquiring Fund and Purchaser shall from and after the Effective Time comply in all material respects with Section 15(f) of
the 1940 Act and any rules and regulations of the Commission thereunder.
5.13. Fee
Limitation. The Purchaser covenants that it will limit the total ordinary operating expenses of the Acquiring Fund following
the consummation of the Reorganization (excluding leverage costs, interest, taxes, brokerage commissions, acquired fund fees and expenses
and any non-routine expenses) from exceeding 1.65% of the average daily net assets of the Acquiring Fund on an annualized basis for twelve
months following the Closing, or June 30, 2025, whichever is later.
5.14 Supplemental
Listing Application. The Acquiring Fund shall file a Supplemental Listing Application with the New York Stock Exchange for the
authorization of the listing of the number of additional Acquiring Fund Shares to be exchanged in the Reorganization as set forth in
Section 1.4 of this Agreement.
6.1. Conditions
Precedent to Obligations of Acquired Fund. The obligations of the Acquired Fund to complete the transactions provided for herein
shall be subject, at the Acquired Fund’s election, to the following conditions:
(a) All
representations and warranties of the Acquiring Fund contained in this Agreement shall be true and correct in all material respects as
of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Effective Time,
with the same force and effect as if made on and as of the Effective Time.
(b) The
Acquiring Fund shall have delivered to the Acquired Fund a certificate executed in the name of the Acquiring Fund by its President or
Vice President and its Treasurer, in a form reasonably satisfactory to the Acquired Fund, and dated as of the Effective Time, to the
effect that the representations and warranties of the Acquiring Fund made in this Agreement are true and correct in all material respects
at and as of the Effective Time, except as they may be affected by the transactions contemplated by this Agreement, and as to such other
matters as the Acquired Fund shall reasonably request.
(c) The
Acquiring Fund shall have performed in all material respects all of the covenants and complied in all material respects with all of the
provisions required by this Agreement to be performed or complied with by the Acquiring Fund, on or before the Effective Time.
(d) The
Acquired Fund and the Acquiring Fund shall have agreed on the number of Acquiring Fund Shares to be issued in connection with the Reorganization
after such number has been calculated in accordance with paragraph 2.3.
(e) The
Acquired Fund shall have received on the Closing Date the opinion of Dechert LLP, counsel to the Acquiring Fund (which may reasonably
rely as to matters governed by the laws of the State of Maryland on an opinion of Maryland counsel and/or certificates of officers or
Trustees of the Acquiring Fund) dated as of the Closing Date, covering the following points:
(i) The
Acquiring Fund is a statutory trust duly organized, validly existing and in good standing under the laws of the State of Maryland and
has the power to own all of its properties and assets and to carry on its business including as a registered investment company, and
the Acquiring Fund has all necessary federal, state and local authorizations to carry on its business as now being conducted;
(ii) The
Agreement has been duly authorized, executed and delivered by the Acquiring Fund and, assuming due authorization, execution and delivery
of the Agreement by the Acquired Fund, is a valid and binding obligation of the Acquiring Fund enforceable against the Acquiring Fund
in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization, moratorium and other laws relating
to or affecting creditors’ rights generally and to general equity principles;
(iii) The
Acquiring Fund Shares to be issued to the Acquired Fund Shareholders as provided by this Agreement are duly authorized, upon such delivery
will be validly issued and outstanding, and are fully paid and non-assessable by the Acquiring Fund, and no shareholder of the Acquiring
Fund has any preemptive rights to subscription or purchase in respect thereof;
(iv) The
execution and delivery of the Agreement did not, and the consummation of the transactions contemplated hereby will not, result in a violation
of the Acquiring Fund’s Amended and Restated Declaration of Trust or its Amended and Restated By-Laws, each as amended from time-to-time,
or a material violation of any provision of any agreement (known to such counsel) to which the Acquiring Fund is a party or by which
it is bound or, to the knowledge of such counsel, result in the acceleration of any obligation or the imposition of any penalty under
any agreement not disclosed to the Acquired Fund, judgment or decree to which the Acquiring Fund is a party or by which it is bound;
(v) To
the knowledge of such counsel, no consent, approval, authorization or order of any court or governmental authority of the United States
or the State of Maryland is required to be obtained by the Acquiring Fund in order to consummate the transactions contemplated herein,
except such as have been obtained under the 1933 Act, the 1934 Act and the 1940 Act, and such as may be required under state securities
or blue sky laws (other than those of the State of Maryland);
(vi) The
Acquiring Fund is a registered investment company classified as a management company of the closed-end type under the 1940 Act, and its
registration with the Commission as an investment company under the 1940 Act is in full force and effect; and
(vii) To
the knowledge of such counsel, no litigation or administrative proceeding or investigation of or before any court or governmental body
is presently pending or threatened as to the Acquiring Fund or any of its properties or assets and the Acquiring Fund is not a party
to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects
its business.
6.2. Conditions
Precedent to Obligations of Acquiring Fund. The obligations of the Acquiring Fund to complete the transactions provided for herein
shall be subject, at the Acquiring Fund’s election, to the following conditions:
(a) All
representations and warranties of the Acquired Fund contained in this Agreement shall be true and correct in all material respects as
of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Effective Time,
with the same force and effect as if made on and as of the Effective Time.
(b) The
Acquired Fund shall have delivered to the Acquiring Fund a certificate executed in the name of the Acquired Fund by its President or
Vice President and its Treasurer, in a form reasonably satisfactory to the Acquiring Fund and dated as of the Effective Time, to the
effect that the representations and warranties of the Acquired Fund made in this Agreement are true and correct in all material respects
at and as of the Effective Time, except as they may be affected by the transactions contemplated by this Agreement, and as to such other
matters as the Acquiring Fund shall reasonably request.
(c) The
Acquired Fund shall have performed in all material respects all of the covenants and complied in all material respects with all of the
provisions required by this Agreement to be performed or complied with by the Acquired Fund, on or before the Effective Time.
(d) The
Acquired Fund and the Acquiring Fund shall have agreed on the number of Acquiring Fund Shares to be issued in connection with the Reorganization
after such number has been calculated in accordance with paragraph 2.3.
(e) The
Acquiring Fund shall have received on the Closing Date the opinion of Chapman and Cutler LLP, counsel to the Acquired Fund (which may
reasonably rely as to matters governed by the laws of the Commonwealth of Massachusetts on an opinion of Massachusetts counsel and/or
certificates of officers of the Acquired Fund) dated as of the Closing Date, covering the following points:
(i) The
Acquired Fund is a business trust duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts
and has the power to own all of its properties and assets and to carry on its business as so described in the Proxy Statement/Prospectus,
including as a registered investment company, and the Acquired Fund has all necessary federal, state and local authorizations to carry
on its business as now being conducted and as so described in the Proxy Statement/Prospectus;
(ii) The
Agreement has been duly authorized, executed and delivered by the Acquired Fund and, assuming due authorization, execution and delivery
of the Agreement by the Acquiring Fund is a valid and binding obligation of the Acquired Fund enforceable against the Acquired Fund in
accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization, moratorium and other laws relating
to or affecting creditors’ rights generally and to general equity principles;
(iii) The
execution and delivery of the Agreement did not, and the consummation of the transactions contemplated hereby will not, result in a violation
of the Acquired Fund’s Amended and Restated Declaration of Trust or its Amended and Restated By-Laws, each as amended from time-to-time,
or a material violation of any provision of any agreement (known to such counsel) to which the Acquired Fund is a party or by which it
is bound or, to the knowledge of such counsel, result in the acceleration of any obligation or the imposition of any penalty under any
agreement not disclosed to the Acquiring Fund, judgment or decree to which the Acquired Fund is a party or by which it is bound;
(iv) To
the knowledge of such counsel, no consent, approval, authorization or order of any court or governmental authority of the United States
or the Commonwealth of Massachusetts is required to be obtained by the Acquired Fund in order to consummate the transactions contemplated
herein, except such as have been obtained under the 1933 Act, the 1934 Act and the 1940 Act, and such as may be required under state
securities or blue sky laws;
(v) The
Acquired Fund is a registered investment company classified as a management company of the closed-end type under the 1940 Act, and its
registration with the Commission as an investment company under the 1940 Act is in full force and effect;
(vi) The
outstanding shares of the Acquired Fund have been registered under the 1933 Act; and
(vii) To
the knowledge of such counsel, no litigation or administrative proceeding or investigation of or before any court or governmental body
is presently pending or threatened as to the Acquired Fund or any of its properties or assets and the Acquired Fund is not a party to
or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects
its business.
6.3. Other
Conditions Precedent. If any of the conditions set forth in this paragraph 6.3 have not been satisfied on or before the Effective
Time, the Acquired Fund or the Acquiring Fund shall, at its option, not be required to consummate the transactions contemplated by this
Agreement.
(a) The
Agreement and the transactions contemplated herein shall have been approved by (i) the Board of Trustees of the Acquired Fund and
(ii) the requisite shareholders of the Acquired Fund, and certified copies of the resolutions of the Board of Trustees of the Acquired
Fund evidencing such approvals shall have been delivered to the Acquiring Fund.
(b) Each
of the conditions to Closing (as defined in the Purchase Agreement) set forth in Section 7 of the Purchase Agreement have been satisfied
and the transactions contemplated by the Purchase Agreement will close concurrently with the Closing.
(c) Certified
copies of the resolutions evidencing the approval of the Agreement and the transactions contemplated herein by the Board of Trustees
of the Acquiring Fund shall have been delivered to the Acquired Fund, and certified copies of the resolutions evidencing the approval
of the Agreement and the transactions contemplated herein by the Board of Trustees of the Acquired Fund shall have been delivered to
the Acquiring Fund.
(d) The
Registration Statement of the Acquiring Fund shall have become effective under the 1933 Act, and no stop orders suspending the effectiveness
thereof shall have been issued.
(e) On
the Closing Date, the Commission shall not have issued an unfavorable report under Section 25(b) of the 1940 Act or instituted
any proceeding seeking to enjoin the consummation of the transactions contemplated by this Agreement under Section 25(c) of
the 1940 Act.
(f) At
the Effective Time, no action, suit or other proceeding shall be pending or, to the knowledge of the Acquired Fund or the Acquiring Fund,
threatened before any court or governmental agency in which it is sought to restrain or prohibit, or obtain damages or other relief in
connection with, this Agreement or the transactions contemplated herein.
(g) All
consents of other parties and all other consents, orders and permits of Federal, state and local regulatory authorities deemed necessary
by the parties to permit consummation, in all material respects, of the transactions contemplated hereby shall have been obtained, except
where failure to obtain any such consent, order or permit would not reasonably be expected to have a material adverse effect on the assets
or properties of the Acquiring Fund or the Acquired Fund, provided that either party hereto may for itself waive any such conditions.
(h) BNY
shall have delivered such certificates or other documents as set forth in paragraph 3.2.
(i) The
Transfer Agent shall have delivered a certificate of its authorized officer as set forth in paragraph 3.3.
(j) The
Acquiring Fund shall have issued and delivered to the Secretary of the Acquired Fund the confirmation as set forth in paragraph 3.3.
(k) The
New York Stock Exchange shall have authorized the listing of the number of additional Acquiring Fund Shares exchanged in the Reorganization
as set forth in Section 1.4 of this Agreement.
(l) The
parties hereto shall have received the opinion of the law firm of Dechert LLP (based on certain facts, assumptions and representations),
addressed to the Acquiring Fund and the Acquired Fund, substantially to the effect that, for federal income tax purposes:
(i) The
transfer of the Acquired Fund’s Assets in exchange solely for Acquiring Fund Shares and the assumption by the Acquiring Fund of
the Liabilities of the Acquired Fund followed by the distribution by the Acquired Fund of Acquiring Fund Shares to the Acquired Fund
Shareholders in exchange for their Acquired Fund Shares in liquidation of the Acquired Fund pursuant to and in accordance with the terms
of this Agreement will constitute a “reorganization” within the meaning of Section 368(a)(1) of the Code;
(ii) No
gain or loss will be recognized by the Acquiring Fund upon the receipt of the Acquired Fund Assets solely in exchange for Acquiring Fund
Shares and the assumption by the Acquiring Fund of the Liabilities of the Acquired Fund;
(iii) No
gain or loss will be recognized by the Acquired Fund upon the transfer of the Acquired Fund Assets to the Acquiring Fund in exchange
solely for Acquiring Fund Shares and the assumption by the Acquiring Fund of the Liabilities of the Acquired Fund or upon the distribution
of Acquiring Fund Shares to the Acquired Fund Shareholders in exchange for their Acquired Fund Shares, except that the Acquired Fund
may be required to recognize gain or loss with respect to contracts described in Section 1256(b) of the Code or stock in a
passive foreign investment company, as defined in Section 1297(a) of the Code;
(iv) No
gain or loss will be recognized by the Acquired Fund Shareholders upon the exchange of the Acquired Fund Shares for Acquiring Fund Shares
(except with respect to cash received in lieu of fractional shares);
(v) The
aggregate tax basis for Acquiring Fund Shares received by each Acquired Fund Shareholder pursuant to the Reorganization will be the same
as the aggregate tax basis of the Acquired Fund Shares held by each such Acquired Fund Shareholder immediately prior to the Reorganization
(reduced by any amount of tax basis allocable to fractional shares for which cash is received);
(vi) The
holding period of Acquiring Fund Shares to be received by each Acquired Fund Shareholder will include the period during which the Acquired
Fund Shares surrendered in exchange therefor were held (provided such Acquired Fund Shares were held as capital assets on the date of
the Reorganization);
(vii) Except
for assets which may be marked to market for federal income tax purposes as a consequence of a termination of the Acquired Fund’s
taxable year, the tax basis of the Acquired Fund Assets acquired by the Acquiring Fund will be the same as the tax basis of such assets
to the Acquired Fund in exchange therefor; and
(viii) The
holding period of the Acquired Fund Assets in the hands of the Acquiring Fund will include the period during which those assets were
held by the Acquired Fund (except where the investment activities of the Acquiring Fund have the effect of reducing or eliminating such
periods with respect to an Acquired Fund Asset).
(ix) The
Acquiring Fund will succeed to and take into account the items of the Acquired Fund described in Section 381(c) of the Code,
subject to the provisions and limitations specified in Sections 381, 382, 383, and 384 of the Code and the United States Treasury regulations
promulgated thereunder.
Notwithstanding
anything herein to the contrary, neither the Acquiring Fund nor the Acquired Fund, may waive the conditions set forth in this paragraph
6.3(l).
7.1. Indemnification
by the Acquiring Fund. The Acquiring Fund, solely out of its assets and property, agrees to indemnify and hold harmless the Acquired
Fund, and its Trustees, officers, employees and agents (the “Acquired Fund Indemnified Parties”) from and against any and
all losses, claims, damages, liabilities or expenses (including, without limitation, the payment of reasonable legal fees and reasonable
costs of investigation) to which the Acquired Fund Indemnified Parties may become subject, insofar as such loss, claim, damage, liability
or expense (or actions with respect thereto) arises out of or is based on: (a) any breach by the Acquiring Fund of any of its representations,
warranties, covenants or agreements set forth in this Agreement or (b) any act, error, omission, neglect, misstatement, materially
misleading statement, breach of duty or other act wrongfully done or attempted to be committed by the Acquiring Fund or the Acquiring
Fund’s Trustees, officers, employees or agents prior to the Closing Date, provided that this indemnification shall not apply to
the extent such loss, claim, damage, liability or expense (or actions with respect thereto) shall be due to any negligent, intentional
or fraudulent act, omission or error of the Acquired Fund Indemnified Parties.
7.2. Indemnification
by the Acquired Fund. The Acquired Fund, solely out of its assets and property, agrees to indemnify and hold harmless the Acquiring
Fund, and its Trustees, officers, employees and agents (the “Acquiring Fund Indemnified Parties”) from and against any and
all losses, claims, damages, liabilities or expenses (including, without limitation, the payment of reasonable legal fees and reasonable
costs of investigation) to which the Acquiring Fund Indemnified Parties may become subject, insofar as such loss, claim, damage, liability
or expense (or actions with respect thereto) arises out of or is based on: (a) any breach by the Acquired Fund of any of its representations,
warranties, covenants or agreements set forth in this Agreement or (b) any act, error, omission, neglect, misstatement, materially
misleading statement, breach of duty or other act wrongfully done or attempted to be committed by the Acquired Fund or the Acquired Fund’s
Trustees, officers, employees or agents prior to the Closing Date, provided that this indemnification shall not apply to the extent such
loss, claim, damage, liability or expense (or actions with respect thereto) shall be due to any negligent, intentional or fraudulent
act, omission or error of the Acquiring Fund Indemnified Parties.
7.3. Liability
of the Acquired Fund. The parties understand and agree that the obligations of the Acquired Fund under this Agreement shall not
be binding upon any Trustee, shareholder, nominee, officer, agent or employee of or adviser to the Acquired Fund personally, but bind
only the Acquired Fund’s property. Moreover, all persons shall look only to the assets of the Acquired Fund to satisfy the obligations
of the Acquired Fund hereunder. The parties represent that they each have notice of the provisions of the Amended and Restated Declaration
of Trust of the Acquired Fund, which is on file with the Secretary of the Commonwealth of Massachusetts, disclaiming such shareholder
and Trustee liability for acts or obligations of the Acquired Fund.
7.4. Liability
of the Acquiring Fund. The parties understand and agree that the obligations of the Acquiring Fund under this Agreement shall
not be binding upon any Trustee, shareholder, nominee, officer, agent or employee of or adviser to the Acquiring Fund personally, but
bind only the Acquiring Fund’s property. Moreover, all persons shall look only to the assets of the Acquiring Fund to satisfy the
obligations of the Acquiring Fund hereunder. The parties represent that they each have notice of the provisions of the Amended and Restated
Declaration of Trust of the Acquiring Fund disclaiming such shareholder and Trustee liability for acts or obligations of the Acquiring
Fund.
7.5. Remedies
Exclusive. From and after the Closing Date, except in the case of fraud, the remedies provided for in this Section 7 shall
constitute the sole and exclusive remedies for any claims made for breach of this Agreement. Each party hereby waives any provision of
applicable law to the extent that it would limit or restrict this paragraph 7.5.
| 8. | BROKERAGE
FEES AND EXPENSES |
8.1. No
Broker or Finder Fees. The Acquiring Fund and the Acquired Fund represent and warrant to each other that there are no brokers
or finders entitled to receive any payments in connection with the transactions provided for herein,
8.2. Expenses
of Reorganization. All fees and expenses incurred directly in connection with the consummation of the Reorganization and the
transactions contemplated by this Agreement will be borne by the Purchaser and the Seller as agreed between them, without regard to whether
the Reorganization is consummated, as set forth in the Purchase Agreement or otherwise agreed in writing. Notwithstanding the foregoing,
to the extent there are any transaction costs (including brokerage commissions, transaction charges and related fees) associated with
the sales and purchases made in connection with the Reorganization, these will be borne by the Acquired Fund with respect to the portfolio
transitioning conducted before the Reorganization and borne by the Acquiring Fund with respect to the portfolio transitioning conducted
after the Reorganization.
| 9. | AMENDMENTS
AND TERMINATION |
9.1. Amendments.
This Agreement may be amended, modified or supplemented in a signed writing in such manner as may be deemed necessary or advisable by
the authorized officers of each party, on behalf of either the Acquired Fund and the Acquiring Fund, subject to the authorization of
each such Fund’s Board of Trustees; provided, however, that following a meeting of the shareholders of the Acquired Fund called
by the Board of Trustees of the Acquired Fund pursuant to paragraph 5.5 of this Agreement, no such amendment may have the effect of changing
the provisions for determining the number of Acquiring Fund Shares to be issued to the Acquired Fund Shareholders under this Agreement
to the detriment of the shareholders of the Acquired Fund without the approval of the Board of Trustees of the Acquired Fund and the
Board of Trustees of the Acquiring Fund and the Acquired Fund Shareholders and, further provided, that the officers of the Acquired Fund
and the Acquiring Fund may change the Effective Time and Closing Date through an agreement in writing without additional specific authorization
by their respective Board of Trustees.
9.2. Termination.
This Agreement may be terminated and the transactions contemplated hereby may be abandoned by mutual agreement of the parties, at any
time prior to the Effective Time, if circumstances should develop that, in the opinion of the Board of Trustees of the Acquiring Fund
and the Board of Trustees of the Acquired Fund, make proceeding with the Agreement inadvisable. In addition, either the Acquiring Fund
or the Acquired Fund may at its option terminate this Agreement at or before the Closing Date due to: a breach by the other of any representation,
warranty, or agreement contained herein to be performed at or before the Closing Date, if not cured within 30 days after being provided
notice by the non-breaching party, or the failure of a condition set forth in paragraphs 6.1, 6.2 or 6.3, if it reasonably appears that
the condition will not or cannot be met, unless such condition is waived by the applicable party or parties (if applicable). Notwithstanding
the foregoing, if Purchaser validly terminates the Purchase Agreement, the Acquiring Fund shall be entitled to terminate this Agreement
by providing written notice to the Acquired Fund, and if Seller validly terminates the Purchase Agreement, the Acquired Fund shall be
entitled to terminate this Agreement by providing written notice to the Acquiring Fund. In the event of any such termination, in the
absence of willful default or breach, there shall be no liability for damages on the part of any of the Acquiring Fund, the Acquired
Fund or their respective Trustees or officers, to the other party or its Trustees or officers.
Any
notice, report, statement or demand required or permitted by any provisions of this Agreement shall be in writing and shall be given
by facsimile, electronic delivery (i.e., e-mail), personal service or prepaid or certified mail addressed as follows:
If to the Acquired Fund:
Macquarie/First Trust Global Infrastructure/Utilities Dividend &
Income Fund
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
Attention: W. Scott Jardine, Esq.
With copies (which shall not constitute notice) to:
Chapman and Cutler LLP
320 South Canal Street
Chicago, IL 60606
Attention: Jonathan A. Koff, Esq.
If to the Acquiring Fund:
abrdn Global Infrastructure Income Fund
1900 Market Street, Suite 200
Philadelphia, PA 19103
Attention: Lucia Sitar, Esq.
With copies (which shall not constitute notice) to:
abrdn Inc.
1900 Market Street, Suite 200
Philadelphia, PA 19103
Attn: Legal Department / Alan Goodson / Lucia Sitar / Katherine
Corey / Benjamin Brust
Dechert LLP
1900 K Street NW
Washington, D.C. 20006
Attention: Thomas C. Bogle, Esq. and William J. Bielefeld, Esq.
| 11. | PUBLICITY
AND CONFIDENTIALITY |
11.1. Any
public announcements or similar publicity with respect to this Agreement or the transactions contemplated herein will be made at such
time and in such manner as the Acquired Fund, the Acquiring Fund, Purchaser and Seller mutually shall agree, provided that nothing herein
shall prevent either party from making such public announcements as may be required by law, in which case the party issuing such statement
or communication shall advise the other party prior to such issuance.
11.2. The
Acquired Fund, Acquiring Fund, Purchaser and Seller (for purposes of the paragraph 11.2, the “Protected Persons”) will hold,
and will cause their board members, officers, employees, representatives, agents and affiliates to hold, in strict confidence, and not
disclose to any other person, and not use in any way except in connection with the transactions herein contemplated, without the prior
written consent of the other Protected Persons, all non-public, confidential or proprietary information obtained from the other Protected
Persons in connection with the transactions contemplated by this Agreement, except such information may be disclosed: (i) to governmental
or regulatory bodies, and, where necessary, to any other person in connection with the obtaining of consents or waivers as contemplated
by this Agreement; (ii) if required by court order or decree or applicable law; (iii) if it is publicly available through no
act or failure to act of such party; (iv) if it was already known to such party on a non-confidential basis on the date of receipt;
(v) during the course of or in connection with any litigation, government investigation, arbitration, or other proceedings based
upon or in connection with the subject matter of this Agreement, including, without limitation, the failure of the transactions contemplated
hereby to be consummated; or (vi) if it is otherwise expressly provided for herein.
11.3. In
the event of a termination of this Agreement, the Acquiring Fund, the Acquired Fund Purchaser and Seller agree that they along with their
board members, employees, representative agents and affiliates shall, and shall cause their affiliates to, except with the prior written
consent of the other Protected Persons, keep secret and retain in strict confidence, and not use for the benefit of itself or themselves,
nor disclose to any other persons, any and all non-public, confidential or proprietary information relating to the other Protected Persons
and their affiliates, whether obtained through their due diligence investigation, this Agreement or otherwise, except such information
may be disclosed: (i) if required by court order or decree or applicable law; (ii) if it is publicly available through no act
or failure to act of such party; (iii) if it was already known to such party on a non-confidential basis on the date of receipt;
(iv) during the course of or in connection with any litigation, government investigation, arbitration, or other proceedings based
upon or in connection with the subject matter of this Agreement, including, without limitation, the failure of the transactions contemplated
hereby to be consummated; or (v) if it is otherwise expressly provided for herein.
12.1. Entire
Agreement. The parties agree that neither party has made any representation, warranty or covenant not set forth herein, and that
this Agreement constitutes the entire agreement between the parties.
12.2. Survival.
The representations, warranties and covenants contained in this Agreement or in any document delivered pursuant hereto or in connection
herewith, and the obligations with respect to indemnification of the Acquired Fund and Acquiring Fund contained in paragraphs 7.1 and
7.2, shall survive the Closing.
12.3. Headings.
The Article and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
12.4. Governing
Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without regard to
its principles of conflicts of laws.
12.5. Assignment.
This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns, but no assignment
or transfer hereof or of any rights or obligations hereunder shall be made by any party without the written consent of the other party.
Nothing herein expressed or implied is intended or shall be construed to confer upon or give any person, firm or corporation, other than
the parties hereto and their respective successors and assigns, any rights or remedies under or by reason of this Agreement.
12.6. Counterparts.
This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all taken together shall constitute
one agreement.
12.7. Waiver.
At any time before the Closing Date, any of the terms or conditions of this Agreement may be waived by either the Acquired Fund Board
or the Acquiring Fund Board (whichever is entitled to the benefit thereof), if, in the judgment of such board after consultation with
fund counsel, such action or waiver will not have a material adverse effect on the benefits intended in this Agreement to the shareholders
of their respective fund, on behalf of which such action is taken.
IN
WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed as of the date first above written.
Macquarie/first trust Global Infrastructure/utilities dIvidend &
income Fund |
|
ABRDN GLOBAL INFRASTRUCTURE INCOME FUND |
Name: |
|
Name: |
Title: |
|
Title: |
|
|
|
FIRST TRUST ADVISORS L.P. agrees to the provisions of paragraphs
8.2, 11.1, 11.2 and 11.3 herein: |
|
ABRDN INC. agrees to the provisions of paragraphs 5.12, 5.13,
8.2, 11.1, 11.2 and 11.3 herein: |
Name: |
|
Name: |
Title: |
|
Title: |
![](https://www.sec.gov/Archives/edgar/data/1793855/000110465923126835/tm2328855d2_proxyimg003.jpg)
|
[PROXY ID NUMBER HERE] [BAR CODE HERE] [CUSIP HERE]
MACQUARIE/FIRST TRUST GLOBAL INFRASTRUCTURE/UTILITIES DIVIDEND & INCOME FUND
PROXY FOR A SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON February 22, 2024
The undersigned holder of shares of the Macquarie/First Trust Global Infrastructure/Utilities Dividend & Income Fund (“MFD” or the “Fund”), a Massachusetts business trust,
hereby appoints W. Scott Jardine, Kristi A. Maher, James M. Dykas, Derek Maltbie and Erin E. Klassman or any one of them, as attorneys and proxies for the undersigned, with full
powers of substitution and revocation, to represent the undersigned and to vote on behalf of the undersigned all shares of the Fund that the undersigned is entitled to vote at the
Special Meeting of Shareholders (the “Meeting”) which is expected to be held at the offices of First Trust Advisors L.P., 120 East Liberty Drive, Suite 400, Wheaton, IL 60187, on
February 22, 2024, at 12:00 p.m. Central time, and any adjournments or postponements thereof.
The undersigned hereby acknowledges receipt of the Notice of Special Meeting of Shareholders and Proxy Statement/Prospectus dated December 18, 2023 (the “Proxy
Statement/Prospectus”), and hereby instructs said attorneys and proxies to vote said shares as indicated hereon. In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the Meeting and any other adjournments or postponements thereof not set forth in the Proposal for the Fund (set forth on the
reverse side of this proxy card) (including, but not limited to, any questions as to adjournments or postponements of the Meeting). A majority of the proxies present and acting at
the Meeting in person or by substitute (or, if only one shall be so present, then that one) shall have and may exercise all of the power and authority of said proxies hereunder. The
undersigned hereby revokes any proxy previously given. This proxy, if properly executed, will be voted in the manner directed by the undersigned shareholder. If no direction
is made, this proxy will be voted FOR the Fund’s Proposal set forth on the reverse side of this proxy card.
This proxy is solicited on behalf of the Board of Trustees, and the Proposal for the Fund (set forth on the reverse side of this proxy card) has been approved by the Board of
Trustees and recommended for approval by shareholders.
This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted in accordance with the recommendation
of the Board of Trustees.
Do you have questions? If you have any questions about how to vote your proxy or about the Meeting in general, please call toll-free 1-866-864-
5057. Representatives are available to assist you Monday through Friday 9 a.m. to 10 p.m. Eastern Time. Important Notice Regarding the Availability of Proxy
Materials for the Special Meeting of Shareholders to be held on February 22, 2024. The proxy statement of the Fund is available at:
https://www.ftportfolios.com/LoadContent/gohdcqj3gy3o
1. MAIL your signed and voted proxy back in
the postage paid envelope provided
2. ONLINE at vote.proxyonline.com using your
proxy control number found below
3. By PHONE when you dial toll-free 1-866-
864-5057 to reach an automated touchtone
voting line
4. By PHONE with a live operator when you call
toll-free 1-866-864-5057 Monday through
Friday 9 a.m. to 10 p.m. Eastern time
SHAREHOLDER NAME
AND ADDRESS HERE
PROXY VOTING OPTIONS
CONTROL
PLEASE CAST YOUR PROXY VOTE TODAY! NUMBER
SIGN, DATE AND VOTE ON THE REVERSE SIDE
PROXY CARD
YOUR VOTE IS IMPORTANT NO
MATTER HOW MANY SHARES
YOU OWN. PLEASE CAST YOUR
PROXY VOTE TODAY! |
![GRAPHIC](https://www.sec.gov/Archives/edgar/data/1793855/000110465923126835/tm2328855d2_proxycard-img002.jpg)
|
[PROXY ID NUMBER HERE] [BAR CODE HERE] [CUSIP HERE]
Macquarie/First Trust Global
Infrastructure/Utilities Dividend & Income Fund
IF YOU VOTE ONLINE OR BY PHONE, YOU NEED NOT RETURN THIS PROXY CARD.
THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO DIRECTION IS INDICATED, WILL BE VOTED “FOR” THE PROPOSAL SET
FORTH BELOW.
TO VOTE, MARK ONE CIRCLE BELOW IN BLUE OR BLACK INK AS FOLLOWS. Example:●
THE BOARD OF TRUSTEES RECOMMENDS A VOTE “FOR” THE FUND’S PROPOSAL SET FORTH BELOW.
FOR AGAINST ABSTAIN
1.
To approve the Agreement and Plan of Reorganization providing for the transfer
of all of the assets of MFD to abrdn Global Infrastructure Income Fund (the
“Acquiring Fund”) in exchange solely for newly issued common shares of beneficial
interest of the Acquiring Fund (although cash may be distributed in lieu of
fractional shares of the Acquiring Fund) and the assumption by the Acquiring Fund
of all of the liabilities of MFD and the distribution of common shares of beneficial
interest of the Acquiring Fund to the shareholders of MFD and complete
liquidation of MFD
○ ○ ○
THANK YOU FOR VOTING
YOUR SIGNATURE IS REQUIRED FOR YOUR VOTE TO BE
COUNTED. The signer(s) acknowledges receipt of the Proxy Statement
of the Fund. Your signature(s) on this Proxy should be exactly as your
name(s) appear on this Proxy (reverse side). If the shares are held jointly,
each holder should sign this Proxy. Attorneys-in-fact, executors,
administrators, trustees or guardians should indicate the full title and
capacity in which they are signing.
_______________________________________________________________
SIGNATURE (AND TITLE IF APPLICABLE) DATE
_______________________________________________________________
SIGNATURE (IF HELD JOINTLY) DATE
PROXY CARD |
STATEMENT OF ADDITIONAL INFORMATION
RELATING TO THE REORGANIZATION OF
MACQUARIE/FIRST TRUST GLOBAL INFRASTRUCTURE/UTILITIES
DIVIDEND & INCOME FUND
WITH AND INTO
ABRDN GLOBAL INFRASTRUCTURE INCOME FUND
December 18,
2023
This Statement
of Additional Information (“SAI”) is available to shareholders of abrdn Global Infrastructure Income Fund (the “Fund”)
and Macquarie/First Trust Global Infrastructure/Utilities Dividend & Income Fund (the “Acquired Fund”) in connection
with the proposed reorganization of the Acquired Fund into the Fund. With respect to the reorganization, the Agreement and Plan of Reorganization
provides for: (1) the transfer of all of the assets of the Acquired Fund to the Fund, in exchange solely for shares of the Fund (although
cash may be distributed in lieu of fractional shares); (2) the assumption by the Fund of all liabilities of the Acquired Fund; (3) the
distribution of common shares of the Fund to the shareholders of the Acquired Fund; and (4) the complete liquidation of the Acquired
Fund (the “Reorganization”). The Fund as it would exist after the Reorganization is referred to as the “Combined Fund.”
This
SAI is not a prospectus and should be read in conjunction with the Proxy Statement/Prospectus dated December 18, 2023, and filed on
Form N-14 with the Securities and Exchange Commission (“SEC”) relating to the proposed Reorganization (the
“Proxy Statement/Prospectus”). A copy of the Proxy Statement/Prospectus and other information may be obtained without
charge by writing to the Fund c/o abrdn Inc., 1900 Market Street, Suite 200, Philadelphia, PA 19103, by calling 1-800-522-5465. You
may also obtain a copy of the Proxy Statement/Prospectus on the website of the SEC (http://www.sec.gov). Capitalized terms used but
not defined in this SAI have the meanings assigned to them in the Proxy Statement/Prospectus.
TABLE
OF CONTENTS
General |
3 |
|
|
Investment Objectives, Policies and Risks
of the Fund |
3 |
|
|
Investment Restrictions of the Fund |
21 |
|
|
Management of the Fund |
22 |
|
|
Execution of Portfolio Transactions |
34 |
|
|
Material U.S. federal income tax considerations |
37 |
|
|
Proxy voting policy and proxy voting record |
45 |
|
|
Incorporation by reference |
45 |
|
|
Financial statements and supplemental financial
information |
46 |
|
|
Legal counsel |
49 |
|
|
Additional information |
49 |
|
|
Appendix A—Description of securities
ratings |
A-1 |
|
|
Appendix B—Proxy voting guidelines |
B-1 |
General
Prior to June 30, 2022, abrdn Global Infrastructure
Income Fund was known as Aberdeen Standard Global Infrastructure Income Fund.
Investment Objectives,
Policies and Risks of the Fund
The following information supplements the
information contained in the Proxy Statement/Prospectus concerning the investment objectives and policies of the Fund. The investment
policies described below, except as set forth under “Investment Restrictions” or as otherwise noted, are not fundamental
policies and may be changed by the Fund’s Board of Trustees (the “Board”), without the approval of shareholders.
The following information supplements the
discussion of the Fund’s investment objectives, principal investment strategies and principal risks that appears in the Proxy
Statement/Prospectus and does not, by itself, present a complete or accurate explanation of the matters disclosed. Readers must
refer also to the Proxy Statement/Prospectus for a complete presentation of the matters disclosed below. The following is not meant
to be an exclusive list of all the securities and instruments in which the Fund may invest or investment strategies in which it
may engage, and the Fund may invest in instruments and securities and engage in strategies other than those listed below.
Closed-End Funds
The value of the shares of a closed-end
fund may be higher or lower than the value of the portfolio securities held by the closed-end fund. Closed-end funds may trade
infrequently and with small volume, which may make it difficult for the Fund to buy and sell shares. Also, the market price of
closed-end funds tends to rise more in response to buying demand and fall more in response to selling pressure than is the case
with larger capitalization companies.
“Commodity Pool” Exclusion
The Commodity Futures Trading Commission
(“CFTC”) subjects advisers to registered investment companies to regulation by the CFTC if a fund that is advised by
the investment adviser either (i) invests, directly or indirectly, more than a prescribed level of its liquidation value in CFTC-regulated
futures, options and swaps (“CFTC Derivatives”), or (ii) markets itself as providing investment exposure to such instruments.
To the extent the Fund uses CFTC Derivatives, it intends to do so below such prescribed levels and will not market itself as a
“commodity pool” or a vehicle for trading such instruments. Accordingly, abrdn Inc. (the “Adviser”) has
claimed an exclusion from the definition of the term “commodity pool operator” under the Commodity Exchange Act (“CEA”)
pursuant to Rule 4.5 under the CEA. The Adviser is not, therefore, subject to registration or regulation as a “commodity
pool operator” under the CEA in respect of the Fund.
Currency Transactions
The Fund may engage in currency transactions
as described in the prospectus or this statement of additional information. Generally, except as provided otherwise, the Fund may
engage with counterparties primarily in order to hedge, or manage the risk of the value of portfolio holdings denominated in particular
currencies against fluctuations in relative value. Currency transactions include forward currency contracts, exchange listed currency
futures, exchange listed and over-the-counter (“OTC”) options on currencies, and currency swaps. The Fund may enter
into currency transactions with creditworthy counterparties that have been approved by the Adviser’s Counterparty Credit
Risk Department in accordance with its Credit Risk Management Policy.
Forward
Currency Contracts. A forward currency contract involves an obligation to purchase or sell a specific currency at a future
date, which may be any fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are entered into in the interbank market conducted directly between currency traders (usually
large commercial banks) and their customers.
At
or before the maturity of a forward currency contract, the Fund may either sell a portfolio security and make delivery of the
currency, or retain the security and fully or partially offset its contractual obligation to deliver the currency by purchasing
a second contract. If the Fund retains the portfolio security and engages in an offsetting transaction, the Fund, at the time
of execution of the offsetting transaction, will incur a gain or a loss to the extent that movement has occurred in forward currency
contract prices.
The precise matching
of forward currency contract amounts and the value of the securities involved generally will not be possible because the value
of such securities, measured in the foreign currency, will change after the foreign currency contract has been established. Thus, the Fund might need to purchase or sell foreign currencies in the spot (cash) market to the extent such foreign currencies
are not covered by forward currency contracts. The projection of short-term currency market movements is extremely difficult, and
the successful execution of a short-term hedging strategy is highly uncertain.
Under current regulations,,
the Fund covers its daily obligation requirements for outstanding forward foreign currency contracts by earmarking or segregating
liquid portfolio securities. To the extent that the Fund is not able to cover its forward currency positions with underlying portfolio
securities, the Fund segregates cash. If the value of the securities used to cover a position or the value of segregated assets
declines, the Fund will find alternative cover or segregate additional cash or other liquid assets on a daily basis so that the
value of the ear-marked or segregated assets will be equal to the amount of the Fund’s commitments with respect to such contracts.
Transaction hedging
is entering into a currency transaction with respect to specific assets or liabilities of the Fund, which will generally arise
in connection with the purchase or sale of its portfolio securities or the receipt of income therefrom. Position hedging is entering
into a currency transaction with respect to portfolio security positions denominated or generally quoted in that currency.
Cross Hedge.
If a particular currency is expected to decrease against another currency, the Fund may sell the currency expected to decrease
and purchase a currency which is expected to increase against the currency sold in an amount approximately equal to the lesser
of some or all of the Fund’s portfolio holdings denominated in or exposed to the currency sold.
Proxy
- Hedge. The Fund may also enter into a position hedge transaction in a currency other than the currency being
hedged (a “proxy hedge”). The Fund may enter into a proxy hedge if the Adviser believes there is a correlation
between the currency being hedged and the currency in which the proxy hedge is denominated. Proxy hedging is often used when
the currency to which the Fund’s portfolio is exposed is difficult to hedge or to hedge against the dollar. This type
of hedging entails an additional risk beyond a direct position hedge because it is dependent on a stable relationship
between two currencies paired as proxies. Overall risk to the Fund may increase or decrease as a consequence of the use of
proxy hedges.
Currency
Hedging. While the value of forward currency contracts, currency options, currency futures and options on futures
may be expected to correlate with exchange rates, they will not reflect other factors that may affect the value of
the Fund’s investments. A currency hedge, for example, should protect a yen-denominated bond against a decline in the
yen, but will not protect the Fund against price decline if the issuer’s creditworthiness deteriorates. Because the
value of the Fund’s investments denominated in foreign currency will change in response to many factors other than
exchange rates, a currency hedge may not be entirely successful in mitigating changes in the value of the Fund’s
investments denominated in that currency over time.
A decline in the dollar
value of a foreign currency in which the Fund’s securities are denominated will reduce the dollar value of the securities,
even if their value in the foreign currency remains constant. The use of currency hedges does not eliminate fluctuations in the
underlying prices of the securities, but it does establish a rate of exchange that can be achieved in the future. In order to protect
against such diminutions in the value of securities it holds, the Fund may purchase put options on the foreign currency. If the
value of the currency does decline, the Fund will have the right to sell the currency for a fixed amount in dollars and will thereby
offset, in whole or in part, the adverse effect on its securities that otherwise would have resulted. Conversely, if a rise in
the dollar value of a currency in which securities to be acquired are denominated is projected, thereby potentially increasing
the cost of the securities, the Fund may purchase call options on the particular currency. The purchase of these options could
offset, at least partially, the effects of the adverse movements in exchange rates. Although currency hedges limit the risk of
loss due to a decline in the value of a hedged currency, at the same time, they also limit any potential gain that might result
should the value of the currency increase.
The Fund may enter
into foreign currency exchange transactions to hedge its currency exposure in specific transactions or portfolio positions. Transaction
hedging is the purchase or sale of forward currency contracts with respect to specific receivables or payables of the Fund generally
accruing in connection with the purchase or sale of its portfolio securities. Position hedging is the sale of forward currency
contracts with respect to portfolio security positions.
The
currencies of certain emerging market countries have experienced devaluations relative to the U.S. Dollar, and future devaluations
may adversely affect the value of assets denominated in such currencies. In addition, currency hedging techniques may be unavailable
in certain emerging market countries. Many emerging market countries have experienced substantial, and in some periods extremely
high, rates of inflation or deflation for many years, and future inflation may adversely affect the economies and securities markets
of such countries.
Position
Hedge. The Fund may hedge some or all of its investments denominated in a foreign currency or exposed to foreign
currency fluctuations against a decline in the value of that currency relative to the U.S. Dollar by entering into forward
foreign currency contracts to sell an amount of that currency approximating the value of some or all of its portfolio
securities denominated in or exposed to that currency and buying U.S. Dollars or by participating in options or future
contracts with respect to the currency. Such transactions do not eliminate fluctuations caused by changes in the local
currency prices of security investments, but rather, establish an exchange rate at a future date. Although such contracts are
intended to minimize the risk of loss due to a decline in the value of the hedged currencies, at the same time they tend to
limit any potential gain which might result should the value of such currencies increase. The Adviser may from time to time
seek to reduce foreign currency risk by hedging some or all of the Fund’s foreign currency exposure back into the U.S.
Dollar.
Currency Futures.
The Fund may also seek to enhance returns or hedge against the decline in the value of a currency through use of currency futures
or options thereon. Currency futures are similar to forward foreign exchange transactions except that futures are standardized,
exchange-traded contracts while forward foreign exchange transactions are traded in the OTC market. Currency futures involve currency
risk equivalent to currency forwards.
Currency Options.
If the Fund invests in foreign currency-denominated securities, it may buy or sell put and call options on foreign currencies either
on exchanges or in the OTC market. A put option on a foreign currency gives the purchaser of the option the right to sell a foreign
currency at the exercise price until the option expires. A call option on a foreign currency gives the purchaser of the option
the right to purchase the currency at the exercise price until the option expires. The Fund may also write covered options on foreign
currencies. For example, to hedge against a potential decline in the U.S. Dollar value of foreign currency denominated securities
due to adverse fluctuations in exchange rates, the Fund could, instead of purchasing a put option, write a call option on the relevant
currency. If the expected decline occurs, the option will most likely not be exercised and the decline in value of portfolio securities
will be offset by the amount of the premium received. Currency options traded on U.S. or other exchanges may be subject to position
limits which may limit the ability of the Fund to reduce foreign currency risk using such options. OTC options differ from exchange
traded options in that they are two-party contracts with price and other terms negotiated between buyer and seller, and generally
do not have as much market liquidity as exchange-traded options.
Currency hedging involves
some of the same risks and considerations as other transactions with similar instruments. Currency transactions can result in losses
to the Fund if the currency being hedged fluctuates in value to a degree or in a direction that is not anticipated. Further, there
is the risk that the perceived correlation between various currencies may not be present or may not be present during the particular
time that the Fund is engaging in proxy hedging. If the Fund enters into a currency hedging transaction, the Fund will comply with
any asset segregation requirements applicable under current regulations.
Risks of Currency
Transactions. Currency transactions are subject to risks different from those of other portfolio transactions. Because
currency control is of great importance to the issuing governments and influences economic planning and policy, purchases and sales
of currency and related instruments can be negatively affected by government exchange controls, blockages, and manipulations or
exchange restrictions imposed by governments. These can result in losses to the Fund if it is unable to deliver or receive currency
or funds in settlement of obligations and could also cause hedges it has entered into to be rendered useless, resulting in full
currency exposure as well as incurring transaction costs. Buyers and sellers of currency futures are subject to the same risks
that apply to the use of futures generally. Further, settlement of a currency futures contract for the purchase of most currencies
must occur at a bank based in the issuing nation. Trading options on currency futures is relatively new, and the ability to establish
and close out positions on such options is subject to the maintenance of a liquid market which may not always be available. Currency
exchange rates may fluctuate based on factors extrinsic to that country’s economy.
Risk
Factors in Hedging Foreign Currency Risks. Hedging transactions involving currency instruments involve substantial risks,
including correlation risk. While an objective of the Fund’s use of currency instruments to effect hedging strategies is
intended to reduce the volatility of the net asset value (“NAV”) of the Fund’s shares, the NAV of the Fund’s
shares will fluctuate. Moreover, although currency instruments will be used with the intention of hedging against adverse currency
movements, transactions in currency instruments involve the risk that such currency movements may not occur and that the Fund’s
hedging strategies may be ineffective. To the extent that the Fund hedges against anticipated currency movements that do not occur,
the Fund may realize losses and decrease its total return as the result of its hedging transactions. Furthermore, the Fund will
only engage in hedging activities from time to time and may not be engaging in hedging activities when movements in currency exchange
rates occur.
In connection with
its trading in forward foreign currency contracts, the Fund will contract with a foreign or domestic bank, or foreign or domestic
dealer, to make or take future delivery of a specified amount of a particular currency. There are no limitations on daily price
moves in such forward contracts, and banks and dealers are not required to continue to make markets in such contracts. There have
been periods during which certain banks or dealers have refused to quote prices for such forward contracts or have quoted prices
with an unusually wide spread between the price at which the bank or dealer is prepared to buy and that at which it is prepared
to sell. Governmental imposition of credit controls might limit any such forward contract trading. With respect to its trading
of forward contracts, if any, the Fund may be subject to the risk of bank or dealer failure and the inability of, or refusal by,
a bank or dealer to perform with respect to such contracts. Any such default would deprive the Fund of any profit potential or
force the Fund to cover its commitments for resale, if any, at the then market price and could result in a loss to the Fund. It
may not be possible for the Fund to hedge against currency exchange rate movements, even if correctly anticipated, in the event
that (i) the currency exchange rate movement is so generally anticipated that the Fund is not able to enter into a hedging transaction
at an effective price, or (ii) the currency exchange rate movement relates to a market with respect to which currency instruments
are not available and it is not possible to engage in effective foreign currency hedging. The cost to the Fund of engaging in foreign
currency transactions varies with such factors as the currencies involved, the length of the contract period and the market conditions
then prevailing. In addition, the Fund may not always be able to enter into forward contracts at attractive prices and may be limited
in its ability to use these contracts to hedge Fund assets. Since transactions in foreign currency contracts usually are conducted
on a principal basis, no fees or commissions are involved.
Cybersecurity Risk
With the increased use of technologies
such as mobile devices and Web-based or “cloud” applications, and the dependence on the Internet and computer systems
to conduct business, the Fund is susceptible to operational, information security and related risks. In general, cybersecurity
incidents can result from deliberate attacks or unintentional events (arising from external or internal sources) that may cause
the Fund to lose proprietary information, suffer data corruption, physical damage to a computer or network system or lose operational
capacity. Cybersecurity attacks include, but are not limited to, infection by malicious software, such as malware or computer viruses
or gaining unauthorized access to digital systems, networks or devices that are used to service the Fund’s operations (e.g.,
through “hacking,” “phishing” or malicious software coding) or other means for purposes of misappropriating
assets or sensitive information, corrupting data, or causing operational disruption. Cybersecurity attacks may also be carried
out in a manner that does not require gaining unauthorized access, such as causing denial-of-service attacks on the Fund’s
website (i.e., efforts to make network services unavailable to intended users). In addition, authorized persons could inadvertently
or intentionally release confidential or proprietary information stored on the Fund’s systems.
Cybersecurity incidents affecting the Fund’s
Adviser and Sub-Adviser (the “Advisers”), other service providers to the Fund or its shareholders (including, but not
limited to, fund accountants, custodians, sub-custodians, transfer agents and financial intermediaries) have the ability to cause
disruptions and impact business operations, potentially resulting in financial losses to both the Fund and shareholders, interference
with the Fund’s ability to calculate its NAV, impediments to trading, the inability of Fund shareholders to transact business
and of the Fund to process transactions (including fulfillment of Fund share purchases and redemptions), violations of applicable
privacy and other laws (including the release of private shareholder information) and attendant breach notification and credit
monitoring costs, regulatory fines, penalties, litigation costs, reputational damage, reimbursement or other compensation costs,
forensic investigation and remediation costs, and/or additional compliance costs. Similar adverse consequences could result from
cybersecurity incidents affecting issuers of securities in which the Fund invests, counterparties with which the Fund engages in
transactions, governmental and other regulatory authorities, exchange and other financial market operators, banks, brokers, dealers,
insurance companies and other financial institutions (including financial intermediaries and other service providers ) and other
parties. In addition, substantial costs may be incurred in order to safeguard against and reduce the risk of any cybersecurity
incidents in the future. In addition to administrative, technological and procedural safeguards, the Adviser has established business
continuity plans in the event of such cybersecurity incidents. However, there are inherent limitations in such plans and systems,
including the possibility that certain risks have not been identified, as well as the rapid development of new threats. Furthermore,
the Fund cannot control the cybersecurity plans and systems put in place by its service providers or any other third parties whose
operations may affect the Fund or its shareholders. The Fund and its shareholders could be negatively impacted as a result.
Depositary Receipts
Depositary
receipts include American Depositary Receipts (“ADRs”), European Depositary Receipts (“EDRs”) and Global
Depositary Receipts (“GDRs”) or other securities convertible into securities of issuers based in foreign countries.
These securities may not necessarily be denominated in the same currency as the securities into which they may be converted. Generally,
ADRs, in registered form, are denominated in U.S. Dollars and are designed for use in the U.S. securities markets, GDRs, in bearer
form, are issued and designed for use outside the United States and EDRs (also referred to as Continental Depositary Receipts
(“CDRs”)), in bearer form, may be denominated in other currencies and are designed for use in European securities
markets. ADRs are receipts typically issued by a U.S. bank or trust company evidencing ownership of the underlying securities.
EDRs are European receipts evidencing a similar arrangement. GDRs are receipts typically issued by non-U.S. banks and trust companies
that evidence ownership of either foreign or domestic securities. For purposes of the Fund’s investment policies, ADRs,
GDRs and EDRs are deemed to have the same classification as the underlying securities they represent. Thus, an ADR, GDR or EDR
representing ownership of common stock will be treated as common stock.
The Fund may invest in depositary receipts
through “sponsored” or “unsponsored” facilities. While ADRs issued under these two types of facilities
are in some respects similar, there are distinctions between them relating to the rights and obligations of ADR holders and the
practices of market participants.
A depositary may establish an unsponsored
facility without participation by (or even necessarily the acquiescence of) the issuer of the deposited securities, although typically
the depositary requests a letter of non-objection from such issuer prior to the establishment of the facility. Holders of unsponsored
ADRs generally bear all the costs of such facilities. The depositary usually charges fees upon the deposit and withdrawal of the
deposited securities, the conversion of dividends into U.S. Dollars, the disposition of non-cash distributions, and the performance
of other services. The depositary of an unsponsored facility frequently is under no obligation to pass through voting rights to
ADR holders in respect of the deposited securities. In addition, an unsponsored facility is generally not obligated to distribute
communications received from the issuer of the deposited securities or to disclose material information about such issuer in the
U.S. and thus there may not be a correlation between such information and the market value of the depositary receipts. Unsponsored
ADRs tend to be less liquid than sponsored ADRs.
Sponsored ADR facilities are created in
generally the same manner as unsponsored facilities, except that the issuer of the deposited securities enters into a deposit agreement
with the depositary. The deposit agreement sets out the rights and responsibilities of the issuer, the depositary, and the
ADR holders. With sponsored facilities, the issuer of the deposited securities generally will bear some of the costs relating
to the facility (such as dividend payment fees of the depositary), although ADR holders continue to bear certain other costs (such
as deposit and withdrawal fees). Under the terms of most sponsored arrangements, depositaries agree to distribute notices
of shareholder meetings and voting instructions, and to provide shareholder communications and other information to the ADR holders
at the request of the issuer of the deposited securities.
Derivatives
Derivatives are financial instruments whose
values are derived from another security, a commodity (such as gold or oil), an index or a currency (a measure of value or rates,
such as the S&P 500 Index or the prime lending rate). The Fund typically uses derivatives as a substitute for taking a
position or reducing exposure to underlying assets. The Fund may invest in derivative instruments including the purchase or sale
of futures contracts, swaps (including credit default swaps), options (including options on futures and options on swaps), forward
contracts, structured notes, and other equity-linked derivatives. The Fund may use derivative instruments for hedging (offset risks
associated with an investment) purposes. The Fund may also use derivatives for non-hedging purposes to seek to enhance returns.
When the Fund invests in a derivative for non-hedging purposes, the Fund will be fully exposed to the risks of loss of that derivative,
which may sometimes be greater than the derivative’s cost. The Fund may not use any derivative to gain exposure to an asset
or class of assets that it would be prohibited by its investment restrictions from purchasing directly. Investments in derivatives
in general are subject to market risks that may cause their prices to fluctuate over time. Investments in derivatives may not correctly
correlate with the price movements of the underlying instrument. As a result, the use of derivatives may expose the Fund to additional
risks that it would not be subject to if it invested directly in the assets underlying those derivatives. The use of derivatives
may result in larger losses or smaller gains than otherwise would be the case. The Fund may also take a short position through
a derivative. The Fund may increase its use of derivatives in response to unusual market conditions.
Derivatives can be volatile and may involve
significant risks, including:
Accounting risk
— the accounting treatment of derivative instruments, including their initial recording, income recognition, and valuation,
may require detailed analysis of relevant accounting guidance as it applies to the specific instrument structure.
Correlation risk
— if the value of a derivative does not correlate well with the particular market or other asset class the derivative
is intended to provide exposure to, the derivative may not have the anticipated effect.
Counterparty
risk — the risk that the counterparty (the party on the other side of the transaction) on a derivative transaction will
be unable to honor its financial obligation to the Fund.
Currency risk —
the risk that changes in the exchange rate between currencies will adversely affect the value (in U.S. Dollar terms) of an investment.
Index risk —
if the derivative is linked to the performance of an index, it will be subject to the risks associated with changes in that index.
If the index changes, the Fund could receive lower interest payments or experience a reduction in the value of the derivative to
below what the Fund paid. Certain indexed securities may create leverage, to the extent that they increase or decrease in value
at a rate that is a multiple of the changes in the applicable index.
Leverage risk —
the risk associated with certain types of leveraged investments or trading strategies pursuant to which relatively small market
movements may result in large changes in the value of an investment.
Certain investments or trading strategies
that involve leverage can result in losses that greatly exceed the amount originally invested.
Liquidity risk —
the risk that certain securities may be difficult or impossible to sell at the time that the seller would like or at the price
that the seller believes the security is currently worth.
Operational risk
— derivatives may require customized, manual processing and documentation of transactions and may not fit within existing
automated systems for confirmations, reconciliations and other operational processes used for (traditional) securities.
Short position risk
— the Fund will incur a loss from a short position if the value of the reference asset increases after the Fund has entered
into the short position. Short positions generally involve a form of leverage, which can exaggerate the Fund’s losses. If
the Fund engages in a short derivatives position, it may lose more money than the actual cost of the short position and its potential
losses may be unlimited. Any gain from a short position will be offset in whole or in part by the transaction costs associated
with the short position.
Tax risk —
derivatives raise issues under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code” or the “Internal
Revenue Code”) requirements for qualifications as a regulated investment company (“RIC”).
Valuation risk —
depending on their structure, some categories of derivatives may present special valuation challenges.
Derivatives may generally be traded OTC
or on an exchange. OTC derivatives, such as structured notes, are agreements that are individually negotiated between parties and
can be tailored to meet a purchaser’s needs. OTC derivatives are not guaranteed by a clearing agency and may be subject to
increased credit risk. The CFTC and the SEC continue to review the current regulatory requirements applicable to derivatives, and
it is not certain at this time how the regulators may change these requirements. Any such changes may, among various possible effects,
increase the cost of entering into certain derivatives transactions, require more assets of the Fund to be used for collateral
in support of those derivatives than is currently the case, or restrict the ability of the Fund to enter into certain types of
derivative transactions. Regulations are now in effect that require swap dealers to post and collect variation margin (comprised
of specified liquid instruments and subject to a required haircut) in connection with trading of OTC swaps with the Fund, and in
some cases, initial margin as well. Shares of investment companies (other than certain money market funds) may not be posted as
collateral under these regulations. Requirements for posting of initial margin in connection with OTC swaps will be phased-in through
at least September 2022. In addition, regulations adopted by prudential regulators that are now in effect require certain
bank-regulated counterparties and certain of their affiliates to include in certain financial contracts, including many derivatives
contracts, terms that delay or restrict the rights of counterparties, such as the Fund, to terminate such contracts, foreclose
upon collateral, exercise other default rights or restrict transfers of credit support in the event that the counterparty and/or
its affiliates are subject to certain types of resolution or insolvency proceedings.
Common Units of MLPs and LLCs
An
MLP is a publicly traded company organized as a limited partnership or limited liability company (“LLC”) and generally
treated as a qualified publicly traded partnership for federal income tax purposes. Common units represent an equity ownership
interest in an MLP, however, MLP common unit holders generally have limited voting rights, compared to the voting rights of holders
of a corporation’s common stock, and play a limited role in the MLP’s operations and management. Common units of an
LLC represent an equity ownership in an LLC. LLC common unit holders typically have broader voting rights than common unit holders
of entities organized as limited partnerships. Interests in MLP or LLC common units entitle the holder to a share of the company’s
success through distributions and/or capital appreciation. As a RIC under the Code, the Fund may invest no more than 25% of its
total assets in securities of entities treated as qualified publicly traded partnerships for federal income tax purposes, which
generally includes MLPs.
Equity Securities of MLP Affiliates
In addition to common units of MLPs, the
Fund also may invest in equity securities issued by MLP affiliates, such as shares of common stock of corporations that own MLP
general partner interests. General partner interests often confer direct board participation rights and, in many cases, operating
control with respect to the MLP.
Equity-Linked Securities
The Fund may invest in equity-linked
securities, including, but not limited to, participation notes and certificates of participation. Equity-linked securities are
privately issued securities whose investment results are designed to correspond generally to the performance of a specified stock
index or “basket” of stocks or a single stock. To the extent that the Fund invests in equity-linked securities whose
return corresponds to the performance of a foreign security index or one or more foreign stocks, investing in equity-linked securities
will involve risks similar to the risks of investing in foreign securities and subject to the Fund’s restrictions on investments
in foreign securities. In addition, the Fund bears the risk that the counterparty of an equity-linked security may default on its
obligations under the security. If the underlying security is determined to be illiquid, the equity-linked security would also
be considered illiquid and thus subject to the Fund’s restrictions on investments in illiquid securities.
Participation notes, also known
as participation certificates, are issued by banks or broker-dealers and are designed to replicate the performance of foreign companies
or foreign securities markets and can be used by the Fund as an alternative means to access the securities market of a country.
The performance results of participation notes will not replicate exactly the performance of the foreign companies or foreign securities
markets that they seek to replicate due to transaction and other expenses. Investments in participation notes involve the same
risks associated with a direct investment in the underlying foreign companies or foreign securities markets that they seek to replicate.
There can be no assurance that the trading price of participation notes will equal the underlying value of the foreign companies
or foreign securities markets that they seek to replicate. Participation notes are generally traded over-the-counter. Participation
notes are subject to counterparty risk, which is the risk that the broker-dealer or bank that issues them will not fulfill its
contractual obligation to complete the transaction with the Fund. Participation notes constitute general unsecured contractual
obligations of the banks or broker-dealers that issue them, the counterparty, and the Fund is relying on the creditworthiness of
such counterparty and has no rights under a participation note against the issuer of the underlying security. Participation notes
involve transaction costs. If the underlying security is determined to be illiquid, participation notes may be illiquid. Participation
notes offer a return linked to a particular underlying equity, debt or currency.
Exchange-Traded Funds
(ETFs)
ETFs are regulated as registered
investment companies under the 1940 Act. Investments in ETFs are subject to 1940 Act investment limits and would be aggregated
with other types of investment companies in calculating limitations. Index ETFs generally acquire and hold stocks of all companies,
or a representative sampling of companies, that are components of a particular index. Index ETFs are intended to provide
investment results that, before expenses, generally correspond to the price and yield performance of the corresponding market index,
and the value of their shares should, under normal circumstances, closely track the value of the index’s underlying component
stocks. Because an ETF has operating expenses and transaction costs, while a market index does not, Index ETFs that
track particular indices typically will be unable to match the performance of the index exactly; however one cannot invest directly
in an index. ETF shares may be purchased and sold in the secondary trading market on a securities exchange, in lots of any
size, at any time during the trading day. The Fund will bear its proportionate share of an ETF’s operating and transaction
costs. As a result, an investment by the Fund in an ETF could cause the Fund’s operating expenses to be higher and,
in turn, performance to be lower than if it were to invest directly in the securities underlying the ETF.
The
shares of an ETF may be assembled in a block (typically 50,000 shares) known as a creation unit and generally redeemed in-kind
for a portfolio of the underlying securities (based on the ETF’s NAV) together with a cash payment generally equal to accumulated
dividends as of the date of redemption. Conversely, a creation unit may generally be purchased from the ETF by depositing a specified
portfolio of the ETF’s underlying securities, as well as a cash payment generally equal to accumulated dividends of the
securities (net of expenses) up to the time of deposit. Although the Fund, like most other investors in ETFs, intends to purchase
and sell ETF shares primarily in the secondary trading market, the Fund may redeem creation units for the underlying securities
(and any applicable cash), and may assemble a portfolio of the underlying securities and use it (and any required cash) to purchase
creation units, if the Adviser believes it is in the Fund’s best interest to do so.
An investment in an ETF also is subject
to all of the risks of investing in the securities held by the ETF. In addition, the market value of the ETF shares may differ
from their NAV because the supply and demand in the market for ETF shares at any point in time is not always identical to the supply
and demand in the market for the underlying basket of securities. Because of the ability of large market participants to
arbitrage price differences by purchasing or redeeming creation units, the difference between the market value and the NAV of ETF
shares should in most cases be small. Under certain circumstances, an ETF could be terminated. Should termination occur,
the ETF might have to liquidate its portfolio securities at a time when the prices for those securities are falling.
Foreign Currencies Risk
Because investments in foreign securities
usually will involve currencies of foreign countries, and because the Fund may hold foreign currencies and forward contracts, futures
contracts and options on foreign currencies and foreign currency futures contracts, the value of the assets of the Fund as measured
in U.S. Dollars may be affected favorably or unfavorably by changes in foreign currency exchange rates and exchange control regulations,
and the Fund may incur costs and experience conversion difficulties and uncertainties in connection with conversions between various
currencies. Fluctuations in exchange rates may also affect the earning power and asset value of the foreign entity issuing
the security.
The strength or weakness of the U.S. Dollar
against these currencies is responsible for part of the Fund’s investment performance. If the U.S. Dollar falls in
value relative to the Japanese yen, for example, the U.S. Dollar value of a Japanese stock held by the Fund will rise even though
the price of the stock remains unchanged. Conversely, if the U.S. Dollar rises in value relative to the Japanese yen, the
U.S. Dollar value of the Japanese stock will fall. Many foreign currencies have experienced significant devaluation relative
to the U.S. Dollar.
Although the Fund values its assets daily
in terms of U.S. Dollars (and translates the value of its holdings denominated in foreign currencies to U.S. Dollars daily), it
does not intend to physically convert its holdings denominated in foreign currencies into U.S. Dollars on a daily basis. It will
do so from time to time, and investors should be aware of the costs of currency conversion. Although foreign exchange dealers typically
do not charge a fee for conversion, they do realize a profit based on the difference (the “spread”) between the prices
at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at one
rate, while offering a lesser rate of exchange should the Fund desire to resell that currency to the dealer. The Fund will conduct
its foreign currency exchange transactions (“FX transactions”) either on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market, or through entering into options or forward or futures contracts to purchase
or sell foreign currencies.
In
general, the FX transactions executed for the Fund are divided into two main categories: (1) FX transactions in restricted
markets (“Restricted Market FX”) and (2) FX transactions in unrestricted markets (“Unrestricted Market
FX”). Restricted Market FX are required to be executed by a local bank in the applicable market. Unrestricted Market FX
are not required to be executed by a local bank. The Adviser or a third-party agent executes Unrestricted Market FX relating
to trading decisions. The Fund’s custodian executes all Restricted Market FX because it has local banks or
relationships with local banks in each of the restricted markets where custodial client accounts hold securities.
Unrestricted Market FX relating to the repatriation of dividends and/or income/expense items not directly relating to trading
may be executed by the Adviser or by the Fund’s custodian due to the small currency amount and lower volume of such
transactions. The Fund and the Adviser have limited ability to negotiate prices at which certain FX transactions are
customarily executed by the Fund’s custodian, i.e., transactions in Restricted Market FX and repatriation
transactions.
Foreign Securities
Investing
in foreign securities (including through the use of depositary receipts) involves certain special considerations which
typically are not associated with investing in United States securities. Since investments in foreign companies will
frequently be denominated in the currencies of foreign countries (these securities are translated into U.S. Dollars on a
daily basis in order to value the Fund’s shares), and since the Fund may hold securities and funds in foreign
currencies, the Fund may be affected favorably or unfavorably by changes in currency rates and in exchange control
regulations, if any, and may incur costs in connection with conversions between various currencies. There may be less
information publicly available about a foreign issuer than about a U.S. issuer, and foreign issuers may not be subject to
accounting, auditing and financial reporting standards and practices comparable to those in the U.S. Most foreign stock
markets, while growing in volume of trading activity, have less volume than the New York Stock Exchange, and securities of
some foreign companies are less liquid and more volatile than securities of comparable domestic companies. Similarly, volume
and liquidity in most foreign bond markets are less than in the United States and, at times, volatility of price can be
greater than in the United States. Additionally, a foreign jurisdiction may halt trading of securities for an extended period
of time, which poses liquidity, valuation and other risks. Additionally, a foreign jurisdiction may halt trading of
securities for an extended period of time, which poses liquidity, valuation and other risks. Fixed commissions on foreign
securities exchanges are generally higher than negotiated commissions on United States exchanges, although the Fund endeavors
to achieve the most favorable net results on its portfolio transactions. There is generally less government supervision and
regulation of securities exchanges, brokers and listed companies in foreign countries than in the United States. Foreign
settlement procedures and trade regulations may involve certain risks (such as delay in payment or delivery of securities or
in the recovery of the Fund’s assets held abroad) and expenses not present in the settlement of investments in U.S.
markets. Payment for securities without delivery may be required in certain foreign markets.
In addition, foreign 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 diplomatic developments which
could affect the value of the Fund’s investments in certain foreign countries. Governments of many countries have exercised
and continue to exercise substantial influence over many aspects of the private sector through the ownership or control of many
companies, including some of the largest in these countries. As a result, government actions in the future could have a significant
effect on economic conditions which may adversely affect prices of certain portfolio securities. Foreign securities may be subject
to foreign government taxes, higher custodian fees, higher brokerage costs and dividend collection fees which could reduce the
yield on such securities.
Foreign economies may differ favorably
or unfavorably from the U.S. economy in various respects, including growth of gross domestic product, rates of inflation, currency
depreciation, capital reinvestment, resource self-sufficiency, and balance of payments positions. Many foreign securities are less
liquid and their prices more volatile than comparable U.S. securities. From time to time, foreign securities may be difficult to
liquidate rapidly without adverse price effects. Legal remedies available to investors in certain foreign countries may be more
limited than those available with respect to investments in the U.S. or in other foreign countries. The laws of some foreign
countries may limit the Fund’s ability to invest in securities of certain issuers organized under the laws of those foreign
countries.
Of particular importance, many foreign
countries are heavily dependent upon exports, particularly to developed countries, and, accordingly, have been and may continue
to be adversely affected by trade barriers, managed adjustments in relative currency values, and other protectionist measures imposed
or negotiated by the U.S. and other countries with which they trade. These economies also have been and may continue to be negatively
impacted by economic conditions in the U.S. and other trading partners, which can lower the demand for goods produced in those
countries.
Frontier Market Securities
The risks associated with investments in
frontier market countries include all the risks foreign securities and emerging markets securities, although the risks are magnified
for frontier market countries. Because frontier markets are among the smallest, least mature and least liquid of the emerging markets,
investments in frontier markets generally are subject to a greater risk of loss than are investments in developed markets or traditional
emerging markets. Frontier market countries have smaller economies, less developed capital markets, greater market volatility,
lower trading volume, more political and economic instability, greater risk of a market shutdown and more governmental limitations
on foreign investments than are typically found in more developed markets.
Futures
Futures are generally bought and sold on
the commodities exchanges where they are listed with payment of initial and variation margin as described below. The Fund may enter
into futures contracts or purchase or sell put and call options on such futures as a hedge against anticipated interest rate, currency
or equity market changes, and for duration management, risk management and return enhancement purposes.
The sale of a futures contract creates
a firm obligation by the Fund, as seller, to deliver to the buyer the specific type of financial instrument called for in the contract
at a specific future time for a specified price (or, with respect to index futures and Eurodollar instruments, the net cash amount).
Options on futures contracts are similar to options on securities except that an option on a futures contract gives the purchaser
the right in return for the premium paid to assume a position in a futures contract and obligates the seller to deliver such position.
Futures
and options on futures may be entered into for bona fide hedging, risk management (including duration management) or other portfolio
and return enhancement management purposes to the extent consistent with the exclusion from commodity pool operator registration.
Typically, maintaining a futures contract or selling an option thereon requires the Fund to deposit with a financial intermediary
as security for its obligations an amount of cash or other specified assets (initial margin) which initially is typically 1% to
10% of the face amount of the contract (but may be higher in some circumstances). Additional cash or assets (variation margin)
may be required to be deposited thereafter on a daily basis as the marked to market value of the contract fluctuates. The purchase
of an option on financial futures involves payment of a premium for the option without any further obligation on the part of the
Fund. If the Fund exercises an option on a futures contract it will be obligated to post initial margin (and potential subsequent
variation margin) for the resulting futures position just as it would for any position. Futures contracts and options thereon
are generally settled by entering into an offsetting transaction but there can be no assurance that the position can be offset
prior to settlement at an advantageous price, or that delivery will occur.
Under certain circumstances, futures exchanges
may establish daily limits on the amount that the price of a future or option on a futures contract can vary from the previous
day’s settlement price; once that limit is reached, no trades may be made that day at a price beyond the limit. Daily
price limits do not limit potential losses because prices could move to the daily limit for several consecutive days with little
or no trading, thereby preventing liquidation of unfavorable positions.
If the Fund were unable to liquidate a
futures or option on a futures contract position due to the absence of a liquid secondary market or the imposition of price limits,
it could incur substantial losses, because it would continue to be subject to market risk with respect to the position. In
addition, except in the case of purchased options, the Fund would continue to be required to make daily variation margin payments
and might be required to maintain the position being hedged by the future or option or to maintain cash or securities in a segregated
account.
Certain characteristics of the futures
market might increase the risk that movements in the prices of futures contracts or options on futures contracts might not correlate
perfectly with movements in the prices of the investments being hedged. For example, all participants in the futures and
options on futures contracts markets are subject to daily variation margin calls and might be compelled to liquidate futures or
options on futures contracts positions whose prices are moving unfavorably to avoid being subject to further calls. These
liquidations could increase price volatility of the instruments and distort the normal price relationship between the futures or
options and the investments being hedged. Also, because initial margin deposit requirements in the futures markets are less
onerous than margin requirements in the securities markets, there might be increased participation by speculators in the future
markets. This participation also might cause temporary price distortions. In addition, activities of large traders
in both the futures and securities markets involving arbitrage, “program trading” and other investment strategies might
result in temporary price distortions.
Initial Public Offerings (“IPOs”)
An IPO is a type of public offering where
shares of stock in a company are sold to the general public, on a securities exchange, for the first time. Through this process,
a private company transforms into a public company. IPOs are used by companies to raise expansion capital, to possibly monetize
the investments of early private investors, and to become publicly traded enterprises. A company selling shares is never required
to repay the capital to its public investors. The availability of IPOs may be limited and the Fund may not be able to
buy any shares at the offering price, or may not be able to buy as many shares at the offering price as it would like. Further, IPO
prices often are subject to greater and more unpredictable price changes than more established stocks.
Interests in Publicly Traded Limited Partnerships
Publicly
traded limited partnerships represent equity interests in the assets and earnings of the partnership’s trade or business.
Unlike common stock in a corporation, limited partnership interests or units have limited or no voting rights. However, many of
the risks of investing in common stocks are still applicable to investments in limited partnership interests. In addition, limited
partnership interests are subject to risks not present in common stock. For example, non-investment income generated from limited
partnerships deemed not to be “publicly traded” will not be considered “qualifying income” under the Code
and may trigger adverse tax consequences. Also, since publicly traded limited partnerships are a less common form of organizational
structure than corporations, the limited partnership units may be less liquid than publicly traded common stock. Also, because
of the difference in organizational structure, the fair value of limited partnership units in the Fund’s portfolio may be
based either upon the current market price of such units, or if there is no current market price, upon the pro rata value of the
underlying assets of the partnership. Limited partnership units also have the risk that the limited partnership might, under certain
circumstances, be treated as a general partnership, giving rise to broader liability exposure to the limited partners for activities
of the partnership. Further, the general partners of a limited partnership may be able to significantly change the business or
asset structure of a limited partnership without the limited partners having any ability to disapprove any such changes. In certain
limited partnerships, limited partners may also be required to return distributions previously made in the event that excess distributions
have been made by the partnership, or in the event that the general partners, or their affiliates, are entitled to indemnification.
Medium Company, Small Company and
Emerging Growth Securities
Investing in securities of medium-sized
companies, small-sized (including micro-capitalization companies) and emerging growth companies, may involve greater risks than
investing in the securities of larger, more established companies, including possible risk of loss. Also, because these securities
may have limited marketability, their prices may be more volatile than securities of larger, more established companies or the
market averages in general. Because medium-sized, small-sized and emerging growth companies normally have fewer shares outstanding
than larger companies, it may be more difficult for the Fund to buy or sell significant numbers of such shares without an unfavorable
impact on prevailing prices. Medium-sized, small-sized and emerging growth companies may have limited product lines, markets
or financial resources and may lack management depth. In addition, medium-sized, small-sized and emerging growth companies
are typically subject to wider variations in earnings and business prospects than are larger, more established companies. There is typically less publicly available information concerning medium sized, small-sized and emerging growth companies than
for larger, more established ones.
Money Market Instruments
The Fund may invest without limit in short-term
investment grade money market obligations. Money market instruments may include the following types of instruments:
| • | obligations issued or guaranteed as to interest and principal by the U.S. Government, its agencies,
or instrumentalities, or any federally chartered corporation, with remaining maturities of 397 days or less; |
| • | obligations of sovereign foreign governments, their agencies, instrumentalities and political subdivisions,
with remaining maturities of 397 days or less; |
| • | obligations of municipalities and states, their agencies and political subdivisions with remaining
maturities of 397 days or less; |
| • | asset-backed commercial paper whose own rating or the rating of any guarantor is in one of the
two highest categories of any nationally recognized statistical rating organization (“NRSRO”); |
| • | certificates of deposit maturing in one year or less; |
| • | bank or savings and loan obligations; |
| • | commercial paper (including asset-backed commercial paper), which are short-term unsecured promissory
notes issued by corporations in order to finance their current operations. It may also be issued by foreign governments,
and states and municipalities. Generally the commercial paper or its guarantor will be rated within the top two rating categories
by a NRSRO, or if not rated, is issued and guaranteed as to payment of principal and interest by companies which at the date of
investment have a high quality outstanding debt issue; |
| • | bank loan participation agreements representing obligations of corporations having a high quality
short-term rating, at the date of investment, and under which the Fund will look to the creditworthiness of the lender bank, which
is obligated to make payments of principal and interest on the loan, as well as to creditworthiness of the borrower; |
| • | high quality short-term (maturity in 397 days or less) corporate obligations, rated within the
top two rating categories by a NRSRO or, if not rated, deemed to be of comparable quality by the Adviser; |
| • | extendable commercial notes, which differ from traditional commercial paper because the issuer
can extend the maturity of the note up to 397 days with the option to call the note any time during the extension period; and |
| • | unrated short-term (maturing in 397 days or less) debt obligations that are determined by the Adviser
to be of comparable quality to the securities described above. |
Preferred Stock
Preferred stocks, like some debt obligations,
are generally fixed income securities. Shareholders of preferred stocks normally have the right to receive dividends at a
fixed rate when and as declared by the issuer’s board of directors, but do not participate in other amounts available for
distribution by the issuing corporation. Dividends on the preferred stock may be cumulative, and all cumulative dividends
usually must be paid prior to common shareholders of common stock receiving any dividends. Because preferred stock dividends
must be paid before common stock dividends, preferred stocks generally entail less risk than common stocks. Upon liquidation,
preferred stocks are entitled to a specified liquidation preference, which is generally the same as the par or stated value, and
are senior in right of payment to common stock. Preferred stocks are, however, equity securities in the sense that they do
not represent a liability of the issuer and, therefore, do not offer as great a degree of protection of capital or assurance of
continued income as investments in corporate debt securities. Preferred stocks are generally subordinated in right of payment
to all debt obligations and creditors of the issuer, and convertible preferred stocks may be subordinated to other preferred stock
of the same issuer.
Real Estate Investment Trusts
REITs are pooled investment vehicles which
invest primarily in income-producing real estate or real estate related loans or interests. REITs are sometimes informally
characterized as equity REITs, mortgage REITs and hybrid REITs. Equity REITs invest the majority of their assets directly in real
property and derive income primarily from the collection of rents. Equity REITs can also realize capital gains by selling
properties that have appreciated in value. Mortgage REITs invest the majority of their assets in real estate mortgages and
derive income from the collection of interest payments. Hybrid REITs combine the investment strategies of equity REITs and
mortgage REITs.
Investment in REITs may subject the Fund
to risks associated with the direct ownership of real estate, such as decreases in real estate values, overbuilding, increased
competition and other risks related to local or general economic conditions, increases in operating costs and property taxes, changes
in zoning laws, casualty or condemnation losses, possible environmental liabilities, regulatory limitations on rent and fluctuations
in rental income. Equity REITs generally experience these risks directly through fee or leasehold interests, whereas mortgage
REITs generally experience these risks indirectly through mortgage interests, unless the mortgage REIT forecloses on the underlying
real estate. Changes in interest rates may also affect the value of the Fund’s investment in REITs. For instance,
during periods of declining interest rates, certain mortgage REITs may hold mortgages that the mortgagors elect to prepay, which
prepayment may diminish the yield on securities issued by those REITs.
Certain REITs have relatively small market
capitalizations, which may tend to increase the volatility of the market price of their securities. Furthermore, REITs are
dependent upon specialized management skills, have limited diversification and are, therefore, subject to risks inherent in operating
and financing a limited number of projects. Like RICs such as the Fund, REITs are not taxed on income distributed to shareholders
provided that they comply with certain requirements under the Code. The Fund will indirectly bear its proportionate share of any
expenses paid by REITs in which it invests in addition to the expenses paid by the Fund. REITs are dependent upon management skills,
are not diversified (except to the extent the Code requires), and are subject to the risks of financing projects and illiquid markets.
REITs are also subject to heavy cash flow dependency, defaults by borrowers and the possibility of failing to qualify for tax-free
pass-through of income under the Code, and to maintain exemption from the registration requirements of the 1940 Act. By investing
in REITs indirectly through the Fund, a shareholder will bear not only his or her proportionate share of the expenses of the Fund,
but also, indirectly, similar expenses of the REITs. In addition, REITs depend generally on their ability to generate cash
flow to make distributions to shareholders. The management of a REIT may be subject to conflicts of interest with respect
to the operation of the business of the REIT and may be involved in real estate activities competitive with the REIT. REITs may
own properties through joint ventures or in other circumstances in which the REIT may not have control over its investments. REITs
may incur significant amounts of leverage.
Real Estate Related Securities
Although
the Fund may not invest directly in real estate, the Fund may invest in equity securities of issuers that are principally engaged
in the real estate industry. Such investments are subject to certain risks associated with the ownership of real estate and with
the real estate industry in general. These risks include, among others: possible declines in the value of real estate; risks related
to general and local economic conditions; possible lack of availability of mortgage funds or other limitations on access to capital;
overbuilding; risks associated with leverage; market illiquidity; extended vacancies of properties; increase in competition, property
taxes, capital expenditures and operating expenses; changes in zoning laws or other governmental regulation; costs resulting from
the clean-up of, and liability to third parties for damages resulting from, environmental problems; tenant bankruptcies or other
credit problems; casualty or condemnation losses; uninsured damages from floods, earthquakes or other natural disasters; limitations
on and variations in rents, including decreases in market rates for rents; investment in developments that are not completed or
that are subject to delays in completion; and changes in interest rates. To the extent that assets underlying the Fund’s
investments are concentrated geographically, by property type or in certain other respects, the Fund may be subject to certain
of the foregoing risks to a greater extent. Investments by the Fund in securities of companies providing mortgage servicing may
be subject to the risks associated with refinancings and their impact on servicing rights. In addition, if the Fund receives rental
income or income from the disposition of real property acquired as a result of a default on securities the Fund owns, the receipt
of such income may adversely affect the Fund’s ability to retain its tax status as a RIC because of certain income source
requirements applicable to RICs under the Code.
Real Estate Securities Risk
The value of the shares of the Fund will
be affected by factors affecting the value of real estate and the earnings of companies engaged in the real estate industry. These
factors include, among others: (1) changes in general economic and market conditions; (2) changes in the value of real
estate properties; (3) risks related to local economic conditions, overbuilding and increased competition; (4) increases
in property taxes and operating expenses; (5) changes in zoning laws; (6) casualty and condemnation losses; (7) variations
in rental income, neighborhood values or the appeal of property to tenants; and (8) changes in interest rates. Many real estate
companies utilize leverage, which increases investment risk and could adversely affect a company’s operations and market
value in periods of rising interest rates. The value of securities of companies in the real estate industry may go through cycles
of relative under performance and out performance in comparison to equity securities markets in general.
There are also special risks associated
with particular sectors of real estate investments:
Retail Properties. Retail
properties are affected by the overall health of the economy and may be adversely affected by, among other things, 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, changes in spending patterns and lease terminations.
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.
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.
Hotel properties tend to be more sensitive to adverse economic conditions and competition than many other commercial properties.
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, rates, equipment, personnel and other factors
regarding operations, continued availability of revenue from government reimbursement programs and competition on a local and regional
basis. The failure of any healthcare operator to comply with governmental laws and regulations may affect its ability to operate
its facility or receive government reimbursements.
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, the presence of competing properties, adverse economic
conditions in the locale, oversupply and rent control laws or other laws affecting such properties.
Community Centers.
Community center properties are dependent upon the successful operations and financial condition of their tenants, particularly
certain of their major tenants, and could be adversely affected by bankruptcy of those tenants. In some cases a tenant may lease
a significant portion of the space in one center, and the filing of bankruptcy could cause significant revenue loss. Like others
in the commercial real estate industry, community centers are subject to environmental risks and interest rate risk. They also
face the need to enter into new leases or renew leases on favorable terms to generate rental revenues. Community center properties
could be adversely affected by changes in the local markets where their properties are located, as well as by adverse changes in
national economic and market conditions.
Self-Storage
Properties. The value and successful operation of a self-storage property may be affected by a number of factors, such
as the ability of the management team, the location of the property, the presence of competing properties, changes in traffic
patterns and effects of general and local economic conditions with respect to rental rates and occupancy levels.
Other factors may contribute to the risk
of real estate investments:
Development Issues.
Certain real estate companies may engage in the development or construction of real estate properties. These companies in which
the Fund invests (“portfolio companies”) are exposed to a variety of risks inherent in real estate development and
construction, such as the risk that there will be insufficient tenant demand to occupy newly developed properties, and the risk
that prices of construction materials or construction labor may rise materially during the development.
Lack of Insurance.
Certain of the portfolio companies may fail to carry comprehensive liability, fire, flood, earthquake extended coverage and rental
loss insurance, or insurance in place may be subject to various policy specifications, limits and deductibles. Should any type
of uninsured loss occur, the portfolio company could lose its investment in, and anticipated profits and cash flows from, a number
of properties and, as a result, adversely affect the Fund’s investment performance.
Financial Leverage.
Global real estate companies may be highly leveraged and financial covenants may affect the ability of global real estate companies
to operate effectively.
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. The existence of any such material environmental liability
could have a material adverse effect on the results of operations and cash flow of any such portfolio company and, as a result,
the amount available to make distributions on shares of the Fund could be reduced.
Recent Events.
The value of real estate is particularly susceptible to acts of terrorism and other changes in foreign and domestic conditions
(including for example the inability of lessees to pay rent as a result of the ramifications of COVID-19).
Financing Issues.
Financial institutions in which the Fund may invest are subject to extensive government regulation. This regulation may limit both
the amount and types of loans and other financial commitments a financial institution can make, and the interest rates and fees
it can charge. In addition, interest and investment rates are highly sensitive and are determined by many factors beyond a financial
institution’s control, including general and local economic conditions (such as inflation, recession, money supply and unemployment)
and the monetary and fiscal policies of various governmental agencies such as the Federal Reserve Board. These limitations may
have a significant impact on the profitability of a financial institution since profitability is attributable, at least in part,
to the institution’s ability to make financial commitments such as loans. Profitability of a financial institution is largely
dependent upon the availability and cost of the institution’s funds, and can fluctuate significantly when interest rates
change.
Rights Issues and Warrants
Rights issues give the right, to existing
shareholders, to buy a proportional number of additional securities at a given price (generally at a discount) within a fixed period
(generally on a short term period) and are offered at the company’s discretion.
Warrants are securities that give the holder
the right, but not the obligation, to subscribe for newly created equity issues (consisting of common and preferred stock, convertible
preferred stock and warrants that themselves are only convertible into common, preferred or convertible preferred stock) of the
issuing company or a related company at a fixed price either on a certain date or during a set period. Warrants are speculative
and have no value if they are not exercised before the expiration date.
The equity issue underlying an equity warrant
is outstanding at the time the equity warrant is issued or is issued together with the warrant. At the time the Fund acquires an
equity warrant convertible into a warrant, the terms and conditions under which the warrant received upon conversion can be exercised
will have been determined; the warrant received upon conversion will only be convertible into a common, preferred or convertible
preferred stock. Equity warrants are generally issued in conjunction with an issue of bonds or shares, although they also may be
issued as part of a rights issue or scrip issue. When issued with bonds or shares, they usually trade separately from the bonds
or shares after issuance.
OTC
equity warrants are usually traded only by financial institutions that have the ability to settle and clear these instruments.
OTC warrants are instruments between the Fund and its counterparty (usually a securities dealer or bank) with no clearing organization
guarantee. Thus, when the Fund purchases an OTC warrant, the Fund relies on the counterparty to fulfill its obligations to the
Fund if the Fund decides to exercise the warrant.
Index warrants are rights created by an
issuer, typically a financial institution, entitling the holder to purchase, in the case of a call, or sell, in the case of a put,
an equity index at a certain level over a fixed period of time. Index warrant transactions settle in cash.
Covered warrants are rights created by
an issuer, typically a financial institution, ordinarily entitling the holder to purchase from the issuer of the covered warrant
outstanding securities of another company (or in some cases a basket of securities), which issuance may or may not have been authorized
by the issuer or issuers of the securities underlying the covered warrants. In most cases, the holder of the covered warrant is
entitled on its exercise to delivery of the underlying security, but in some cases the entitlement of the holder is to be paid
in cash the difference between the value of the underlying security on the date of exercise and the strike price. The securities
in respect of which covered warrants are issued are usually common stock, although they may entitle the holder to acquire warrants
to acquire common stock. Covered warrants may be fully covered or partially covered. In the case of a fully covered warrant, the
issuer of the warrant will beneficially own all of the underlying securities or will itself own warrants (which are typically issued
by the issuer of the underlying securities in a separate transaction) to acquire the securities. The underlying securities or warrants
are, in some cases, held by another member of the issuer’s group or by a custodian or other fiduciary for the holders of
the covered warrants.
Interest rate warrants are rights that
are created by an issuer, typically a financial institution, entitling the holder to purchase, in the case of a call, or sell,
in the case of a put, a specific bond issue or an interest rate index (Bond Index) at a certain level over a fixed time period.
Interest rate warrants can typically be exercised in the underlying instrument or settle in cash.
Long term options operate much like covered
warrants. Like covered warrants, long term options are call options created by an issuer, typically a financial institution, entitling
the holder to purchase from the issuer outstanding securities of another issuer. Long-term options have an initial period of one
year or more, but generally have terms between three and five years. Unlike U.S. options, long term European options do not settle
through a clearing corporation that guarantees the performance of the counterparty. Instead, they are traded on an exchange and
subject to the exchange’s trading regulations. The Fund may only acquire covered warrants, index warrants, interest rate
warrants and long term options that are issued by entities deemed to be creditworthy by the Adviser. Investment in these instruments
involves the risk that the issuer of the instrument may default on its obligation to deliver the underlying security or warrants
to acquire the underlying security (or cash in lieu thereof).
Secondary Offerings
The Fund may invest a portion of its assets
in secondary offerings. A secondary offering is a registered offering of a large block of a security that has been previously issued
to the public. A secondary offering can occur when an investor sells to the public a large block of stock or other securities it
has been holding in its portfolio. In a sale of this kind, all of the profits go to the seller rather than the issuer. Secondary
offerings can also originate when the issuer issues new shares of its stock over and above those sold in its IPO, usually in order
to raise additional capital. However, because an increase in the number of shares devalues those that have already been issued,
many companies make a secondary offering only if their stock prices are high or they are in need of capital. Secondary offerings
may have a magnified impact on the performance of the Fund with a small asset base. Secondary offering shares frequently are volatile
in price. Therefore, the Fund may hold secondary offering shares for a very short period of time. This may increase the portfolio
turnover rate of the Fund and may lead to increased expenses for the Fund, such as commissions and transaction costs. In addition,
secondary offering shares can experience an immediate drop in value if the demand for the securities does not continue to support
the offering price.
Securities of Investment Companies
To the extent the Fund invests in another
investment company, the Fund indirectly will bear its proportionate share of any management fees paid by an investment company
in which it invests in addition to the advisory fee paid by the Fund. Some of the countries in which the Fund may invest
may not permit direct investment by outside investors. Investments in such countries may only be permitted through foreign
government-approved or government-authorized investment vehicles, which may include other investment companies.
Special Situation Companies
Companies
may experience “special situations,” which are unusual developments that could affect a company’s market value.
Examples of “special situations” include mergers, acquisitions, reorganizations, consolidations, recapitalizations
and liquidations; distributions of cash, securities or other assets; tender or exchange offers; a breakup or workout of a holding
company; or litigation.
Strategic Transactions, Derivatives and Synthetic Investments
The Fund may, but is not required to, utilize
various other investment strategies as described below for a variety of purposes, such as hedging various market risks, managing
the effective maturity or duration of the fixed income securities in the Fund’s portfolio or enhancing potential gain. These strategies may be executed through the use of derivative contracts. In certain circumstances, the Fund may wish to
obtain the price performance of a security without actually purchasing the security in circumstances where, for example, the security
is illiquid, or is unavailable for direct investment or available only on less attractive terms. In such circumstances, the
Fund may invest in synthetic or derivative alternative investments (“Synthetic Investments”) that are based upon or
otherwise relate to the economic performance of the underlying securities. Synthetic Investments may include swap transactions,
notes or units with variable redemption amounts, and other similar instruments and contracts. Synthetic Investments typically
do not represent beneficial ownership of the underlying security, usually are not collateralized or otherwise secured by the counterparty
and may or may not have any credit enhancements attached to them.
In the course of pursuing these investment
strategies, the Fund may purchase and sell exchange-listed and OTC put and call options on securities, equity and fixed income
indices and other instruments, purchase and sell futures contracts and options thereon, enter into various transactions such as
swaps, caps, floors, collars, currency forward contracts, currency futures contracts, currency swaps or options on currencies,
or currency futures and various other currency transactions (collectively, all the above are called “Strategic Transactions”). In addition, strategic transactions may also include new techniques, instruments or strategies that are permitted as regulatory
changes occur. Strategic Transactions may be used subject to certain limits imposed by the 1940 Act to attempt to protect
against possible changes in the market value of securities held in or to be purchased for the Fund’s portfolio resulting
from securities markets or currency exchange rate fluctuations, to protect the Fund’s unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment purposes, to manage the effective maturity or duration
of the Fund’s portfolio, or to establish a position in the derivatives markets as a substitute for purchasing or selling
particular securities. Any or all of these investment techniques may be used at any time and in any combination, and there
is no particular strategy that dictates the use of one technique rather than another, as use of any Strategic Transaction is a
function of numerous variables including market conditions. The ability of the Fund to utilize these Strategic Transactions
successfully will depend on the Adviser’s ability to predict pertinent market movements, which cannot be assured. The
Fund will comply with applicable regulatory requirements when implementing these strategies, techniques and instruments. Strategic Transactions will not be used to alter fundamental investment purposes and characteristics of the Fund, and under current
regulations, the Fund will segregate assets (or as provided by applicable regulations, enter into certain offsetting positions)
to cover its obligations under options, futures and swaps to limit leveraging of the Fund.
Strategic
Transactions, including derivative contracts and Synthetic Investments, have risks associated with them including possible default
by the other party to the transaction, illiquidity and, to the extent the Adviser’s view as to certain market movements
is incorrect, the risk that the use of such Strategic Transactions could result in losses greater than if they had not been used.
Synthetic Investments also involve exposure to the creditworthiness of the issuer of the underlying security, changes in exchange
rates and future governmental actions taken by the jurisdiction in which the underlying security is issued, and counterparties
involved. Use of put and call options may result in losses to the Fund, force the sale or purchase of portfolio securities at
inopportune times or for prices higher than (in the case of put options) or lower than (in the case of call options) current market
values, limit the amount of appreciation the Fund can realize on its investments or cause the Fund to hold a security it might
otherwise sell. The use of currency transactions can result in the Fund incurring losses as a result of a number of factors including
the imposition of exchange controls, suspension of settlements, or the inability to deliver or receive a specified currency. The
use of options and futures transactions entails certain other risks. In particular, the variable degree of correlation between
price movements of futures contracts and price movements in the related portfolio position of the Fund creates the possibility
that losses on the hedging instrument may be greater than gains in the value of the Fund’s position. In addition, futures
and options markets may not be liquid in all circumstances and certain OTC options may have no markets. As a result, in certain
markets, the Fund might not be able to close out a transaction without incurring substantial losses, if at all. Although the use
of futures and options transactions for hedging should tend to minimize the risk of loss due to a decline in the value of the
hedged position, at the same time they tend to limit any potential gain which might result from an increase in value of such position.
Finally, the daily variation margin posting and collection requirements for futures contracts and swaps would allow for greater
exposure to leverage and operational risks than would purchases of options, where the exposure generally is limited to the cost
of the initial premium. On the other hand, the out-of-pocket cost of purchasing near term options can often be substantially greater
than entering into swaps or futures contracts. Losses resulting from the use of Strategic Transactions would reduce NAV, and possibly
income, and such losses can be greater than if the Strategic Transactions had not been utilized. In some cases, strategic transactions
also may not provide the exposure or risk management benefits sought.
As described above, the Fund may also trade
in physically-settled currency forward contracts. There is less protection against defaults in the forward trading of currencies
since such forward contracts are currently not guaranteed by an exchange or clearing house and are not subject to the margin requirements
applicable to swaps as well as the mandatory clearing and exchange trading requirements applicable to swaps. The Dodd-Frank
Act includes in the definition of “swaps” that are regulated by the CFTC most types of currency derivatives including
cash-settled or non-deliverable foreign currency forwards.
Risks of Strategic Transactions Outside
the U.S. When conducted outside the U.S., Strategic Transactions may not be regulated as rigorously as in the U.S.
(which may depend on whether the Fund is executing trades with a CFTC or SEC registered dealer), may not involve a clearing mechanism
and related guarantees, and are subject to the risk of governmental actions affecting trading in, or the prices of, foreign securities,
currencies and other instruments. The value of such positions also could be adversely affected by: (i) other complex
foreign political, legal and economic factors; (ii) lesser availability than in the U.S. of data on which to make trading
decisions; (iii) delays in the Fund’s ability to act upon economic events occurring in foreign markets during non-business
hours in the U.S.; (iv) the imposition of different exercise and settlement terms and procedures and margin requirements than
in the U.S.; and (v) lower trading volume and liquidity.
Use of Segregated and Other Special
Accounts. Under current regulations, many Strategic Transactions, in addition to other requirements, require that
the Fund segregate cash or liquid assets with its custodian to the extent fund obligations are not otherwise “covered”
through ownership of the underlying security, financial instrument or currency. In general, either the full amount of any
obligation by the Fund to pay or deliver securities or assets must be covered at all times by the securities, instruments or currency
required to be delivered, or, subject to any regulatory restrictions, an amount of cash or liquid assets at least equal to the
current amount of the obligation must be segregated with the custodian. The segregated assets cannot be sold or transferred
unless equivalent assets are substituted in their place or it is no longer necessary to segregate them. For example, a call
option written or sold by the Fund will require the Fund to hold the securities deliverable under the call upon exercise (or securities
convertible into the needed securities without additional consideration) or to segregate cash or liquid assets sufficient to purchase
and deliver the securities or deliver the cash strike price if the call is exercised. A cash-settled call option sold by
the Fund on an index will require the Fund to segregate cash or liquid assets equal to the excess of the index value over the exercise
price on a current basis. A physically-settled put option written or sold by the Fund requires the Fund to segregate cash
or liquid assets equal to the exercise price.
Except when the Fund enters into a forward
contract for the purchase or sale of a security denominated in a particular currency, which requires no segregation under current
regulations, a currency contract which obligates the Fund to buy or sell currency will generally require the Fund to hold an amount
of that currency or liquid assets denominated in that currency equal to the Fund’s obligations or to segregate cash or liquid
assets equal to the amount of the Fund’s obligation.
Under current regulations, OTC options
entered into by the Fund, including those on securities, currency, financial instruments or indices and OCC-issued and exchange
listed index options, may provide for cash settlement. As a result, when the Fund sells these instruments it will only segregate
an amount of cash or liquid assets equal to its accrued net obligations, as there is no requirement for payment or delivery of
amounts in excess of the net amount. These amounts will equal the in-the-money amount plus any sell-back formula amount in
the case of a cash-settled put or call. In addition, when the Fund sells a cash-settled call option on an index at a time
when the in-the-money amount exceeds the exercise price, the Fund will segregate, until the option expires or is closed out, cash
or cash equivalents equal in value of such excess. OCC-issued and exchange listed options sold by the Fund that settle with
physical delivery, or with an election of either physical delivery or cash settlement, will require the Fund to segregate an amount
of cash or liquid assets equal to the full value of the cash securities or commodities deliverable under the option by the seller
on exercise. Holders of long options are not required to segregate assets. OTC options settling with physical delivery,
or with an election of either physical delivery or cash settlement, will be treated the same as other options settling with physical
delivery.
In the case of a futures contract or an
option thereon, the Fund must deposit initial margin and possible daily variation margin. Under current regulations, the Fund may
also need to segregate additional cash or liquid assets sufficient to meet its obligation under the contracts. Such liquid
assets may consist of cash, cash equivalents, liquid debt or equity securities or other acceptable assets.
Under
current regulations, with respect to swaps, the Fund will accrue the net amount of the excess, if any, of its obligations (including
any pre-payment penalties and premium payments) over its entitlements with respect to each swap on a daily basis and will segregate
an amount of cash or liquid assets having a value equal to the accrued excess. The Fund’s obligation to segregate the accrued
excess of its obligations over its entitlements with respect to a credit default swap (“CDS”) it buys (for example,
the cost to the Fund to unwind the CDS, enter into an offsetting CDS, or pay a third-party to relieve the Fund of its obligation)
may be equal to the notional value of the CDS. When the Fund is a seller of the CDS, the Fund will segregate the notional value
of the CDS. Caps, floors and collars require segregation of assets with a value equal to the Fund’s net obligation,
if any.
Under Current regulations, strategic Transactions
may be covered by other means when consistent with applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets, equals its net outstanding obligation in related
options and Strategic Transactions. For example, the Fund could purchase a put option if the strike price of that option
is the same or higher than the strike price of a put option sold by the Fund. Moreover, instead of segregating cash or liquid
assets if the Fund held a futures or forward contract, it could purchase a put option on the same futures or forward contract with
a strike price as high or higher than the price of the contract held. Other Strategic Transactions may also be offset in
combinations. If the offsetting transaction terminates at the time of or after the primary transaction, no segregation is
required, but if it terminates prior to such time, cash or liquid assets equal to any remaining obligation would need to be segregated.
Recent Regulatory Activity.
In October 2020, the SEC adopted Rule 18f-4 under the 1940 Act governing a registered investment company’s use of derivatives,
short sales, reverse repurchase agreements, and certain other instruments. Rule 18f-4 could limit the Fund’s ability to engage
in certain derivatives and other transactions and/or increase the costs of such transactions, which could adversely affect the
value or performance of the Fund. Under Rule 18f-4, a fund’s derivatives exposure is limited through a value-at-risk test
and requires the adoption and implementation of a derivatives risk management program for certain derivatives users. However, subject
to certain conditions, funds that do not invest heavily in derivatives may be deemed limited derivatives users and would not be
subject to the full requirements of Rule 18f-4. In connection with the adoption of Rule 18f-4, the SEC also eliminated the asset
segregation and cover framework arising from prior SEC guidance for covering derivatives and certain financial instruments. Compliance
with Rule 18f-4 became required on August 19, 2022.
Combined Transactions. The Fund may enter into multiple transactions, including multiple options transactions, multiple futures transactions, multiple
currency transactions (including forward currency contracts) and multiple interest rate transactions and any combination of futures,
options, currency and interest rate transactions (“component” transactions), instead of a single Strategic Transaction,
as part of a single or combined strategy when, in the opinion of the Adviser, it is in the best interests of the Fund to do so. A combined transaction will usually contain elements of risk that are present in each of its component transactions. Although
combined transactions are normally entered into based on the Adviser’s judgment that the combined strategies will reduce
risk or otherwise more effectively achieve the desired portfolio management goal, it is possible that the combination will instead
increase such risks or hinder achievement of the portfolio management objective.
Close-out Risk for Qualified Financial
Contracts. Regulations adopted by the prudential regulators require counterparties of the banks and other financial intermediaries
that are part of U.S. or foreign global systemically important banking organizations to include contractual restrictions on close-out
and cross-default in agreements relating to qualified financial contracts. Qualified financial contracts include agreements relating
to swaps, currency forwards and other derivatives as well as repurchase agreements and securities lending agreements. The restrictions
prevent the Fund from closing out a qualified financial contract during a specified time period if the counterparty is subject
to resolution proceedings and prohibit the Fund from exercising default rights due to a receivership or similar proceeding of an
affiliate of the counterparty. These requirements may increase credit and other risks to the Fund.
Temporary Investments and Defensive Investments
Pending investment of the proceeds of an
offering, the Fund may invest offering proceeds in money market mutual funds, cash, cash equivalents, securities issued or guaranteed
by the U.S. government or its instrumentalities or agencies, high quality, short-term money market instruments, short-term debt
securities, certificates of deposit, bankers’ acceptances and other bank obligations, commercial paper or other liquid debt
securities. The Fund also may invest in these instruments on a temporary basis to meet working capital needs, including, but not
limited to, for collateral in connection with certain investment techniques, to hold a reserve pending payment of distributions
and to facilitate the payment of expenses and settlement of trades.
Under adverse market or economic conditions,
the Fund may invest up to 100% of its total assets in these securities on a temporary basis. In addition, immediately leading up
to the Termination Date, in connection with the Eligible Tender Offer, the Fund may invest a significant portion of its assets
in these securities on a temporary basis. To the extent the Fund invests in these securities, it may not achieve its investment
objective. The yield on these securities may be lower than the returns on equity securities or yields on lower rated debt securities.
When-Issued Securities and Delayed-Delivery
The
Fund may purchase equity and debt securities on a “when-issued,” “delayed delivery” or “forward
delivery” basis. The price of such securities, which may be expressed in yield terms, is fixed at the time the commitment
to purchase is made, but delivery and payment for the securities takes place at a later date. During the period between purchase
and settlement, no payment is made by the Fund to the issuer and no interest accrues to the Fund. When the Fund purchases such
securities, it immediately assumes the risks of ownership, including the risk of price fluctuation. Failure to deliver a security
purchased on this basis may result in a loss or missed opportunity to make an alternative investment.
To the extent that assets of the Fund are
held in cash pending the settlement of a purchase of securities, the Fund would earn no income. While such securities may
be sold prior to the settlement date, the Fund intends to purchase them with the purpose of actually acquiring them unless a sale
appears desirable for investment reasons. At the time the Fund makes the commitment to purchase a security on this basis,
it will record the transaction and reflect the value of the security in determining its NAV. The market value of the securities
may be more or less than the purchase price. Under current regulations, the Fund will establish a segregated account in which
it will maintain cash and liquid assets equal in value to commitments for such securities.
Under current regulations, when the Fund
agrees to purchase when-issued or delayed-delivery securities, to the extent required by the SEC, its custodian will set aside
permissible liquid assets equal to the amount of the commitment in a segregated account. Normally, the custodian will set
aside portfolio securities to satisfy a purchase commitment, and in such a case the Fund may be required subsequently to place
additional assets in the segregated account in order to ensure that the value of the account remains equal to the amount of the
Fund’s commitment. It may be expected that the Fund’s net assets will fluctuate to a greater degree when it sets
aside portfolio securities to cover such purchase commitments than when it sets aside cash. In addition, because the Fund
will set aside cash or liquid assets to satisfy its purchase commitments in the manner described above, the Fund’s liquidity
and the ability of the Advisers to manage it might be affected by its commitments to purchase “when-issued” securities. When the Fund engages in when-issued or delayed-delivery transactions, it relies on the other party to consummate the trade. Failure of the seller to do so may result in the Fund incurring a loss or missing an opportunity to obtain a price considered to
be advantageous.
When the Fund enters into a
delayed delivery transaction, a when-issued transaction or a forward transaction, the Fund may be required to provide collateral
to cover potential losses of the counterparty, due to changes in the value of the security, in the event that the event that the
transaction is unable to settle (e.g., in the event of a default on the Fund). Similarly, the counterparty may be
required to provide collateral to cover the potential losses of the Fund, due to changes in the value of the security, in the event
that the transaction is unable to settle (e.g., the seller fails to deliver the security). Under current regulations,
the Fund may reduce the amount of liquid assets it will segregate to the extent it provides such collateral.
There can be no assurance that the securities
subject to a standby commitment will be issued and the value of the security, if issued, on the delivery date may be more or less
than its purchase price. Since the issuance of the security underlying the commitment is at the option of the issuer, the
Fund may bear the risk of a decline in the value of such security and may not benefit from appreciation in the value of the security
during the commitment period if the security is not ultimately issued.
The purchase of a security subject to a
standby commitment agreement and the related commitment fee will be recorded on the date on which the security can reasonably be
expected to be issued, and the value of the security will thereafter be reflected in the calculation of the Fund’s NAV. The cost basis of the security will be adjusted by the amount of the commitment fee. In the event the security is not issued,
the commitment fee will be recorded as income on the expiration date of the standby commitment.
Investment Restrictions
of the Fund
The following are the
fundamental investment limitations of the Fund set forth in their entirety. Investment limitations identified as fundamental may
be changed only with the approval of the holders of a majority of the Fund’s outstanding voting securities (which for this
purpose and under the 1940 Act, means the lesser of (1) 67% of the voting shares present in person or by proxy at a meeting at
which more than 50% of the outstanding voting shares are present in person or by proxy, or (2) more than 50% of the outstanding
voting shares).
Investment limitations
stated as a maximum percentage of the Fund’s assets are applied by the Fund’s adviser at the time of an investment
or a transaction to which the limitation is applicable (other than the limitations on borrowing). Accordingly, any later increase
or decrease resulting from a change in values, net assets or other circumstances will not be considered in determining whether
the investment complies with the Fund’s investment limitations. All limitations are based on a percentage of the Fund’s
total assets (including assets obtained through leverage). The Fund may not:
| 1. | issue senior securities, except as permitted by the 1940 Act and the rules and interpretive positions
of the SEC thereunder; |
| 2. | borrow money, except as permitted by the 1940 Act and the rules and interpretive positions of the
SEC thereunder. |
| 3. | make loans, except by the purchase of debt obligations, by entering into repurchase agreements
or through the lending of portfolio securities and as otherwise permitted by the 1940 Act and the rules and interpretive positions
of the SEC thereunder; |
| 4. | purchase the securities of any issuer (other than securities issued or guaranteed by the U.S. government
or any of its agencies or instrumentalities) if, as a result, more than 25% of the Fund’s total assets would be invested
in the securities of companies whose principal business activities are in the same industry; |
| 5. | underwrite securities issued by others, except to the extent that we may be considered an underwriter
within the meaning of the Securities Act of 1933, as amended (the “Securities Act”), in the disposition of restricted
securities held in our portfolio; |
| 6. | purchase or sell real estate unless acquired as a result of ownership of securities or other instruments,
except that the Fund may invest in securities or other instruments backed by real estate or securities of companies that invest
in real estate or interests therein (including real estate investment trusts (“REITs”)); and |
| 7. | purchase or sell physical commodities unless acquired as a result of the ownership of securities
or other instruments, except that we may purchase or sell options and futures contracts or invest in securities or other instruments
backed by physical commodities. |
All other investment
policies are considered non-fundamental and may be changed by the Board without prior approval of a majority of the Fund’s
outstanding voting securities.
Management of the
Fund
Trustees and Officers
The
business and affairs of the Fund are managed under the direction of the Board and the Fund’s officers appointed by the Board.
The tables below list the trustees and officers of the Fund and their present positions and principal occupations during the past
five years. The business address of the Fund, its Board members and officers and the Adviser is 1900 Market Street, Suite 200,
Philadelphia, PA 19103, unless specified otherwise below. The term “Fund Complex” includes each of the registered
investment companies advised by the Adviser or their affiliates as of the date of this SAI. Trustees serve three-year terms or
until their successors are duly elected and qualified. Officers are annually elected by the Trustees.
Trustees
Name,
Address
and
Age |
|
Position(s)
Held with
Fund(s) |
|
Term
of
Office
and
Length
of
Time
Served |
|
Principal Occupation(s)
During the Past Five Years |
|
Number
of Registered Investment Companies (“Registrant”) consisting of investment portfolios
(“Portfolios”)
in Fund
Complex*
Overseen
by
Trustee |
|
Other
Directorships
Held by
Trustee
During the
Past
Five Years |
|
|
|
|
|
|
|
|
|
|
|
Interested Trustee |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen Bird**
c/o abrdn Inc.
1900 Market Street,
Suite 200
Philadelphia, PA 19103
Year of Birth: 1967
|
|
Class III Trustee |
|
Term expires 2026;
Trustee since 2021
|
|
Mr. Bird joined the Board of
abrdn plc (formerly, Standard Life Aberdeen plc) in July 2020 as Chief Executive-Designate, and was formally appointed Chief Executive
Officer in September 2020. Previously, Mr. Bird served as chief executive officer of global consumer banking at Citigroup from 2015,
retiring from the role in November 2019. His responsibilities encompassed all consumer and commercial banking businesses in 19 countries,
including retail banking and wealth management, credit cards, mortgages, and operations and technology supporting these businesses.
Prior to this, Mr. Bird was chief executive for all of Citigroup’s Asia Pacific business lines across 17 markets in the region,
including India and China. Mr. Bird joined Citigroup in 1998, and during his 21 years with the company he held a number of leadership
roles in banking, operations and technology across its Asian and Latin American businesses. Before this, he held management positions
in the UK at GE Capital – where he was director of UK operations from 1996 to 1998 – and at British Steel. |
|
10 Registrants
consisting of 28 Portfolios |
|
None. |
|
|
|
|
|
|
|
|
|
Independent Trustees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nancy Yao
c/o abrdn Inc.,
1900 Market Street,
Suite 200
Philadelphia, PA 19103
Year of Birth: 1972
|
|
Class III Trustee |
|
Term
expires 2026;
Trustee
since 2020 |
|
Ms. Yao is a strategic consultant.
Ms. Yao was the President of the Museum of Chinese in America from 2015 until 2023. Prior to that, she served as the executive
director of the Yale-China Association and managing director of the corporate program at the Council on Foreign Relations. Prior
to her work in non-profit, Ms. Yao launched the Asia coverage at the Center for Financial Research and Analysis (currently known
as RiskMetrics), served as the inaugural director of policy research of Goldman Sachs’ Global Markets Institute, and was an
investment banker at Goldman Sachs (Asia) L.L.C. Ms. Yao is a board member of the National Committee on U.S.-China Relations, a member
of the Council on Foreign Relations, and a lecturer on accounting and governance at Yale University. |
|
7 Registrants
consisting of 7 Portfolios |
|
None. |
Name,
Address
and
Age |
|
Position(s)
Held with
Fund(s) |
|
Term
of
Office
and
Length
of
Time
Served |
|
Principal Occupation(s)
During the Past Five Years |
|
Number
of Registered Investment Companies (“Registrant”) consisting of investment portfolios
(“Portfolios”)
in Fund
Complex*
Overseen
by
Trustee |
|
Other
Directorships
Held by
Trustee
During the
Past
Five Years |
P. Gerald Malone
c/o abrdn Inc.
1900 Market
Street,
Suite 200
Philadelphia,
PA 19103
Year of Birth: 1950
|
|
Chair of the Board; Class II Trustee |
|
Term expires 2025;
Trustee since 2020 |
|
Mr. Malone is, by profession, a lawyer of over 40 years. Currently, he is a non-executive director of a number of U.S. companies, including Medality Medical (medical technology company) and Bionik Laboratories Corp. (US healthcare company) since 2018. He is also Chairman of many of the open and closed end funds in the Fund Complex. He previously served as Independent Chairman of UK companies Crescent OTC Ltd (pharmaceutical services) until February 2018; and fluidOil Ltd. (oil services) until June 2018; U.S. company Rejuvenan llc (wellbeing services) until September 2017 and as chairman of UK company Ultrasis plc (healthcare software services company) until October 2014. Mr. Malone was previously a Member of Parliament in the U.K. from 1983 to 1997 and served as Minister of State for Health in the U.K. government from 1994 to 1997. |
|
9 Registrants consisting of 27 Portfolios |
|
None |
|
|
|
|
|
|
|
|
|
|
|
Todd Reit
c/o abrdn Inc.,
1900 Market Street,
Suite 200
Philadelphia, PA 19103
Year of Birth: 1968 |
|
Class II Trustee |
|
Term expires 2025;
Trustee since 2020 |
|
Mr. Reit is a Managing Member of Cross Brook Partners LLC, a real estate investment and management company since 2017. Mr. Reit is also Director and Financial Officer of Shelter Our Soldiers, a charity to support military veterans, since 2016. Mr. Reit was formerly a Managing Director and Global Head of Asset Management Investment Banking for UBS AG, where he was responsible for overseeing all the bank’s asset management client relationships globally, including all corporate security transactions, mergers and acquisitions. Mr. Reit retired from UBS in 2017 after an over 25-year career at the company and its predecessor company, PaineWebber Incorporated (merged with UBS AG in 2000). |
|
5 Registrants consisting of 5 Portfolios |
|
None. |
Name,
Address
and
Age |
|
Position(s)
Held with
Fund(s) |
|
Term
of
Office
and Length
of
Time
Served |
|
Principal Occupation(s)
During the Past Five Years |
|
Number
of Registered Investment Companies (“Registrant”) consisting of investment portfolios
(“Portfolios”)
in Fund
Complex*
Overseen
by
Trustee |
|
Other
Directorships
Held by
Trustee
During the
Past
Five Years |
John Sievwright
c/o abrdn Inc.
1900 Market
Street,
Suite 200
Philadelphia, PA 19103
Year of Birth: 1955
|
|
Class I Trustee |
|
Term expires 2024;
Trustee since 2020
|
|
Mr. Sievwright is a Non-Executive Director of Burford Capital Ltd (since May 2020) (provider of legal, finance, complex strategies, post-settlement finance and asset management services and products) and Revolut Limited, a UK-based digital banking firm (since August 2021); and Chair of the Board of LoopFX (fin-tech start-up operating in large foreign currency institutional transactions) (since Sept. 2022). Previously he was a Non-Executive Director for the following UK companies: NEX Group plc (2017-2018) (financial); and ICAP plc (2009-2016) (financial). |
|
6 Registrants consisting of 8 Portfolios |
|
Non-Executive Director of Burford Capital Ltd (provider of legal finance, complex strategies, post-settlement finance and asset management services and products) since May 2020. |
|
|
|
|
|
|
|
|
|
|
|
Gordon A. Baird
c/o abrdn Inc.,
1900 Market Street,
Suite 200
Philadelphia, PA 19103
Year of Birth: 1968
|
|
Class I Trustee |
|
Term expires 2024;
Trustee since 2023 |
|
Mr. Baird is the President and Chief Executive Officer of Nexos Technologies Inc. from 2019 to present. Mr. Baird is also the founder and Managing Partner of G. A. Baird Partners & Co from 2015 to present. Mr. Baird was the Chief Executive Officer of Independence Bancshares, Inc. from 2013 to 2015 and an Operating Advisor to Thomas H. Lee Partners L.P. in 2011 and 2012. From 2003 to 2011, Mr. Baird was Chief Executive Officer of Paramax Capital Partners LLC. Prior to 2003, Mr. Baird was a Director at Citigroup Global Markets, Inc., an investment analyst at State Street Bank and Trust Company and real estate analyst at John Hancock Real Estate Finance Inc. |
|
1 Registrant consisting of 1 Portfolio |
|
None |
Name,
Address
and
Age |
|
Position(s)
Held with
Fund(s) |
|
Term
of
Office
and Length
of
Time
Served |
|
Principal Occupation(s)
During the Past Five Years |
|
Number
of Registered Investment Companies (“Registrant”) consisting of investment portfolios
(“Portfolios”)
in Fund
Complex*
Overseen
by
Trustee |
|
Other
Directorships
Held by
Trustee
During the
Past
Five Years |
Chris LaVictoire Mahai
1900 Market
Street,
Suite 200
Philadelphia, PA
19103
Year of Birth: 1955
|
|
Class II Trustee |
|
Term expires 2025;
Trustee since 2023 |
|
Ms. Mahai is Managing Partner of clavm, LLC, a cross-industry strategic consultancy. She served as President of Aveus, a division of Medecision and Executive Vice President of Medecision, Inc. from May 2018 to December 2021. Prior to that she was Founder, Owner and Managing Partner of Aveus LLC from 1999 to May 2018. Her corporate executive roles prior to establishing Aveus included serving as a Poynter Institute Fellow; Senior Vice President and General Manager, Star Tribune/Cowles Media Company; and several executive roles at then Frist Bank System, now US Bank. |
|
1 Registrant consisting of 1 Portfolio |
|
None |
|
|
|
|
|
|
|
|
|
|
|
Thomas W. Hunersen
c/o abrdn Inc.,
1900 Market
Street,
Suite 200
Philadelphia,
PA 19103
Year of Birth:
1958
|
|
Class III Trustee |
|
Term expires 2026;
Trustee since 2023 |
|
Mr. Hunersen is the Principal of CKW Ventures LLC (since 2013). Prior to 2013, Executive Vice President/General Manager North America/Global Head of Energy & Utilities, National Australia Bank Limited, New York, NY; Group Executive, Corporate & Institutional Recovery, Irish Bank Resolution Corporation, Dublin, Ireland; Group Executive, Bank of Ireland, Greenwich, CT; Chief Executive Officer, Slingshot GT Incorporated, Boston, MA; Assistant Vice President, Mellon Bank Corporation, Pittsburgh, PA. |
|
1 Registrant consisting of 1 Portfolio |
|
None |
*
As of the date of this SAI, the “Fund Complex” has a total of 14 Registrants with each Trustee serving on the Boards
of the number of Registrants listed. Each Registrant in the Fund Complex has one Portfolio except for two Registrants that are
open-end funds, abrdn Funds and abrdn ETFs, which each have multiple Portfolios. The Registrants in the Fund Complex are as follows:
abrdn Asia-Pacific Income Fund, Inc., abrdn Global Income Fund, Inc., abrdn Australia Equity Fund, Inc., abrdn Emerging Markets
Equity Income Fund, Inc., The India Fund, Inc., abrdn Japan Equity Fund, Inc., abrdn Income Credit Strategies Fund, abrdn Global
Dynamic Dividend Fund, abrdn Global Premier Properties Fund, abrdn Total Dynamic Dividend Fund, abrdn Global Infrastructure Income
Fund, abrdn National Municipal Income Fund, abrdn Funds (19 Portfolios), and abrdn ETFs (3 Portfolios).
** Mr. Bird is considered to be an “interested person”
of the Fund as defined in the 1940 Act as a result of his role with the Adviser.
Officers
The
information contained under the heading “OFFICERS” in the Fund’s definitive proxy statement on Schedule
14A for its 2023 meeting of shareholders, filed with the SEC on April 14, 2023 (“Proxy Statement”) is incorporated
herein by reference.
Experience of Trustees
The
information contained under the heading “Additional Information About the Trustees”
in the Fund’s Proxy
Statement is incorporated herein by reference.
Compensation
The following
table sets forth information regarding compensation of Trustees by the Fund and by the Fund Complex of which the Fund is a part for the
fiscal year ended September 30, 2023. Officers of the do not receive any compensation directly from the Fund or any other fund
in the Fund Complex for performing their duties as officers. The Fund does not have any bonus, profit sharing, pension or retirement
plans.
Name of Trustee | |
Aggregate Compensation
from Fund for Fiscal Year Ended September 30, 2023 | |
Total Compensation
From Fund and Fund Complex Paid To Trustees* | |
P. Gerald Malone | |
$ | 51,711 | |
$ | 575,720 | |
Nancy Yao | |
$ | 32,627 | |
$ | 314,091 | |
Todd Reit | |
$ | 47,026 | |
$ | 84,687 | |
John Sievwright | |
$ | 44,554 | |
$ | 271,310 | |
Gordon A. Baird | |
$ | 21,471 | |
$ | 21,471 | |
Chris LaVictoire Mahai | |
$ | 21,471 | |
$ | 21,471 | |
Thomas W. Hunersen | |
$ | 21,471 | |
$ | 21,471 | |
Stephen Bird | |
$ | 0 | |
$ | 0 | |
* See
the “Trustees” table for the number of Funds within the Fund Complex that each Trustee services.
Board and Committee
Structure
The Board of Trustees of the Fund is composed
of eight Trustees, seven of whom are not “interested persons” of the Fund (as defined in the 1940 Act) (the “Independent
Trustees”). The Fund divides the Board into three classes, each class having a term of three years. Each year, the term of
office of one class will expire and the successor(s) elected to such class will serve for a three year term.
The Board has appointed Mr. Malone, an
Independent Trustee, as Chair. The Chair presides at meetings of the Trustees, participates in the preparation of the agenda for
meetings of the Board, and acts as a liaison between the Trustees and management between Board meetings. Except for any duties
specified herein, the designation of the Chair does not impose on such Trustee any duties, obligations or liability that is greater
than the duties, obligations or liability imposed on such person as a member of the Board, generally.
The Board holds regular quarterly meetings
each year to consider and address matters involving the Fund. The Board also may hold special meetings to address matters arising
between regular meetings. The Independent Trustees also meet outside the presence of management in executive session at least quarterly
and have engaged separate, independent legal counsel to assist them in performing their oversight responsibilities.
The Board has established a committee structure
that includes an Audit Committee and a Nominating and Corporate Governance Committee (each discussed in more detail below) to assist
the Board in the oversight and direction of the business affairs of the Fund, and from time to time may establish informal ad hoc
committees or working groups to review and address the practices of the Fund with respect to specific matters. The Committee system
facilitates the timely and efficient consideration of matters by the Trustees, and facilitates effective oversight of compliance
with legal and regulatory requirements and of the Fund’s activities and associated risks. The standing Committees currently
conduct an annual review of their charters, which includes a review of their responsibilities and operations.
The Nominating
and Corporate Governance Committee and the Board as a whole also conduct an annual self-assessment of the performance of the Board, including
consideration of the effectiveness of the Board’s Committee structure. The Committee is comprised entirely of Independent Trustees.
Each Committee member is also “independent” within the meaning of the NYSE listing standards. The Board reviews its structure
regularly and believes that its leadership structure, including having a super-majority of Independent Trustees, coupled with an Independent
Trustee as Chair, is appropriate because it allows the Board to exercise informed and independent judgment over the matters under its
purview and it allocates areas of responsibility among the Committees and the full Board in a manner that enhances efficient and effective
oversight. During the fiscal year ended September 30, 2023, the Board held five meetings.
Audit Committee
The Board has an Audit Committee consisting
of four Independent Trustees. In addition, the members of the Audit Committee are also “independent,” as defined in
the Fund’s written Audit Committee Charter. The members of the Audit Committee are Mr. Reit, Ms. Yao, Mr. Malone and Mr.
Sievwright. Mr. Sievwright serves as the Chair of the Audit Committee and the Audit Committee Financial Expert.
The Audit
Committee oversees the scope of the Fund’s audit, the Fund’s accounting and financial reporting policies and practices and
its internal controls. The Audit Committee assists the Board in fulfilling its responsibilities for oversight of the integrity of the
Fund’s accounting, auditing and financial reporting practices, the qualifications and independence of the Fund’s independent
registered public accounting firm and the Fund’s compliance with legal and regulatory requirements. The Audit Committee approves,
and recommends to the Board for ratification, the selection, appointment, retention or termination of the Fund’s independent registered
public accounting firm and approves the compensation of the independent registered public accounting firm. The Audit Committee also approves
all audit and permissible non-audit services provided to the Fund by the independent registered public accounting firm and all permissible
non-audit services provided by the Fund’s independent registered public accounting firm to the Adviser and service providers if
the engagement relates directly to the Fund’s operations and financial reporting. The Audit Committee is also responsible for monitoring
the valuation of portfolio securities and other investments. During the fiscal year ended September 30, 2023, the Audit Committee met
four times.
Service providers to the Fund, primarily
the Adviser, have responsibility for the day-to-day management of the Fund, which includes responsibility for risk management.
As an integral part of its responsibility for oversight of the Fund, the Board oversees risk management of the Fund’s investment
program and business affairs. Oversight of the risk management process is part of the Board’s general oversight of the Fund
and its service providers.
Nominating and Corporate Governance
Committee; Consideration of Potential Trustee Nominees
The Board has a Nominating and Corporate
Governance Committee (the “Nominating Committee”) consisting of all the Independent Trustees. The members of the Nominating
Committee are Mr. Reit, Ms. Yao, Mr. Malone and Mr. Sievwright. Mr. Malone serves as the Chair of the Nominating Committee.
The Nominating Committee is responsible
for overseeing Board governance and related Trustee practices, including selecting and recommending candidates to fill vacancies
on the Board. The Nominating Committee will consider Trustee candidates recommended by shareholders of the Fund. Recommendations
for consideration by a Nominating Committee should be sent to the Chair of the Nominating Committee in writing together with the
appropriate biographical information concerning each such recommended nominee.
In identifying
and evaluating nominees for Trustee, the Nominating Committee seeks to ensure that the Board possesses, in the aggregate, the strategic,
managerial and financial skills and experience necessary to fulfill its duties and to achieve its objectives, and also seeks to ensure
that the Board of Trustees is comprised of trustees who have broad and diverse backgrounds. The Nominating Committee looks at each nominee
on a case-by-case basis. In looking at the qualification of each candidate to determine if his or her election would further the goals
described above, the Nominating Committee takes into account all factors it considers appropriate, which may include strength of character,
mature judgment, career specialization, relevant technical skills or financial acumen, diversity of viewpoint and industry knowledge.
However, the Board believes that to be recommended as a nominee, whether by the Nominating Committee or at the suggestion of a shareholder,
each candidate must: (1) display the highest personal and professional ethics, integrity and values; (2) have the ability to exercise
sound business judgment; (3) be highly accomplished in his or her respective field; (4) have relevant expertise and experience; (5) be
able to represent all shareholders and be committed to enhancing long-term shareholder value; and (6) have sufficient time available
to devote to activities of the Board and enhance his or her knowledge of the Fund’s business. The Nominating Committee met two
times during the fiscal year ended September 30, 2023.
Risk Oversight
The
information contained under the heading “BOARD AND COMMITTEE STRUCTURE—Board Oversight of Risk Management” in
the Fund’s Proxy
Statement is incorporated herein by reference.
Shareholder Communications
Shareholders who wish to communicate with
Trustees with respect to matters relating to the Fund may address their written correspondence to the Board as a whole or to individual
Trustees c/o abrdn Inc. (the “Administrator”), the Fund’s administrator, at 1900 Market Street, Suite 200, Philadelphia,
PA 19103, or via e-mail to the Trustee(s) c/o abrdn Inc. at Investor.relations@abrdn.com.
Trustee Beneficial
Ownership of Securities
As of September 30, 2023, the Fund’s
trustees and executive officers, as a group, owned less than 1% of the Fund’s outstanding Common Shares. The information
as to ownership of securities which appears below is based on statements furnished to the Fund by its trustees and executive officers.
As of September 30, 2023, the dollar range
of equity securities owned beneficially by each Trustee in the Fund and in all registered investment companies overseen by the
trustee within the same family of investment companies as the Fund appears in the chart below. The following key relates to
the dollar ranges in the chart:
A. None
B. $1 — $10,000
C. $10,001 — $50,000
D. $50,001 — $100,000
E. over $100,000
Name of Trustee |
|
Dollar Range of Equity
Securities Owned(1) |
|
Aggregate Dollar Range of Equity
Securities in All Funds Overseen by
Trustee in the Family of
Investment Companies(2) |
|
Independent Trustees: |
|
|
|
|
|
P. Gerald Malone |
|
C |
|
E |
|
Nancy Yao |
|
C |
|
D |
|
Todd Reit |
|
C |
|
C |
|
John Sievwright |
|
C |
|
D |
|
Gordon A. Baird |
|
B |
|
B |
|
Chris LaVictoire Mahai |
|
C |
|
C |
|
Thomas W. Hunersen |
|
C |
|
C |
|
Interested Trustee: |
|
|
|
|
|
Stephen Bird |
|
C |
|
E |
|
(1) “Beneficial ownership”
is determined in accordance with Rule 16a-1(a)(2) promulgated under the Exchange Act.
(2) “Family of Investment Companies”
means those registered investment companies that are advised by the Adviser or an affiliate and that hold themselves out to investors
as related companies for purposes of investment and investor services.
As of September 30, 2023, none of
the Independent Trustees or their immediate family members owned any shares of the Advisers or principal underwriter of the Fund
or of any person (other than a registered investment company) directly or indirectly controlling, controlled by, or under common
control with the Advisers or principal underwriter.
Codes of Ethics
The
Fund and the Advisers have each adopted a code of ethics under Rule 17j-1 of the 1940 Act governing the personal securities transactions
of their respective personnel. Under each code of ethics, personnel may invest in securities for their personal accounts (including
securities that may be purchased or held by the Fund), subject to certain general restrictions and procedures. Copies of these
Codes of Ethics are on the EDGAR Database on the SEC’s internet site at www.sec.gov and may be obtained, after paying a
duplicating fee, by electronic request to publicinfo@sec.gov.
Beneficial
Ownership
As of
November 30, 2023, to the Fund’s knowledge, no single shareholder or “group” (as that term is used in Section 13(d)
of the Exchange Act) beneficially owned more than 5% of the Fund’s outstanding common shares, except as described in the following
table. A control person is one who owns, either directly or indirectly, more than 25% of the voting securities of the Fund or acknowledges
the existence of control. A party that controls the Fund may be able to significantly affect the outcome of any item presented to shareholders
for approval. Information as to beneficial ownership of common shares, including percentage of common shares beneficially owned, is based
on, among other things, reports filed with the SEC by such holders.
Shareholder Name
and
Address | |
Class of Shares
/ Beneficial or Record Owner | |
Share
Holdings | | |
Percentage
Owned as of September 30, 2023 | | |
Estimated
Pro Forma Percentage of Ownership of Combined Fund | |
Saba Capital Management, L.P., et al.*
405 Lexington Avenue, 58th Floor New York, New York 10174 | |
Common Shares/Beneficial Owner* | |
| 1,276,866 | * | |
| 5.1 | %* | |
| 4.43 | % |
Morgan
Stanley 1585
Broadway New
York, NY 10036 | |
Common Shares/Beneficial Owner | |
| 1,282,146 | | |
| 5.1 | % | |
| 4.44 | % |
* Based solely upon
information presented in a Schedule 13G filed August 7, 2023 jointly by Saba Capital Management, L.P., Saba Capital Management GP,
LLC and Boaz R. Weinstein.
The Adviser
abrdn Inc., the Fund’s investment
adviser, is located at 1900 Market Street, Suite 200, Philadelphia, PA 19103 and is an indirect wholly-owned subsidiary of abrdn
plc, which manages or administers approximately $632.2 billion in assets as of June 30, 2023. abrdn plc and its affiliates (collectively,
“abrdn”) provide asset management and investment solutions for clients and customers worldwide and also have a strong
position in the pensions and savings market.
The Sub-Adviser
abrdn Investments Limited (formerly, Aberdeen
Asset Mangers Limited) (“aIL”) serves as the sub-adviser to the Fund, pursuant to a sub-advisory agreement. The Sub-Adviser
has its registered address at 10 Queen’s Terrace, Aberdeen, Aberdeenshire, United Kingdom, AB10 1XL and is an indirect wholly-owned
subsidiary of abrdn plc. aIL’s principal place of business is located at 280 Bishopsgate, London, EC2M 4AG.
Advisory Agreements
The Fund and the Adviser are parties to
an advisory agreement (the “Advisory Agreement”). Under the Advisory Agreement, the Fund appoints the Adviser to act
as investment adviser to the Fund in accordance with the stated investment policies and restrictions of the Fund as set forth in
the Fund’s registration statement.
The Adviser, the Sub-Adviser and the Fund
are parties to a sub-advisory agreement (the “Sub-Advisory Agreement”). Under the Sub-Advisory Agreement, is responsible
for the investment management of the Fund’s assets subject to the supervision of the Adviser and the Board.
In
rendering investment advisory services, the Advisers may use the resources of investment advisor subsidiaries of abrdn plc. These
affiliates have entered into a memorandum of understanding / personnel sharing procedures (“MOU”) pursuant to which
investment professionals from each affiliate may render portfolio management, research or trading services to U.S. clients of
the abrdn plc affiliates, including the Fund, as associated persons of the Adviser. Each investment professional who renders portfolio
management, research or trading services under a MOU or personnel sharing arrangement must comply with the provisions of the Investment
Advisers Act of 1940, as amended, the 1940 Act, the Securities Act of 1933, as amended, the Exchange Act, and the Employee Retirement
Income Security Act of 1974, and the laws of states or countries in which the Advisers do business or has clients. No remuneration
is paid by the Fund with regards to the MOU/personnel sharing arrangements.
The
Fund will pay all of its other expenses, including, among others, legal fees and expenses of counsel to the Fund and the Fund’s
independent trustees; insurance (including trustees’ and officers’ errors and omissions insurance); auditing and accounting
expenses; taxes and governmental fees; listing fees; dues and expenses incurred in connection with membership in investment company
organizations; fees and expenses of the Fund’s custodians, administrators, transfer agents, registrars and other service
providers; expenses for portfolio pricing services by a pricing agent, if any; other expenses in connection with the issuance,
offering and underwriting of shares or debt instruments issued by the Fund or with the securing of any credit facility or other
loans for the Fund; expenses relating to investor and public relations; expenses of registering or qualifying securities of the
Fund for public sale; brokerage commissions and other costs of acquiring or disposing of any portfolio holding of the Fund; expenses
of preparation and distribution of reports, notices and dividends to shareholders; expenses of the dividend reinvestment and optional
cash purchase plan (except for brokerage expenses paid by participants in such plan); compensation and expenses of trustees; costs
of stationery; any litigation expenses; and costs of shareholders’ and other meetings.
Pursuant
to the Advisory Agreement, the Fund will pay the Adviser a monthly management fee at an annual rate equal to 1.35% of the average
daily value of the Fund’s Managed Assets. Under the Subadvisory Agreement with the Sub-Adviser,
and for the investment management services it provides to the Fund, the Sub-Adviser will
be entitled to 65% of the advisory fee received, after fee waivers and expense reimbursements, if any, by the Adviser. The subadvisory
fee payable to the Sub-Adviser will be paid by the Adviser out of the management
fees it receives from the Fund.
During
periods when the Fund is using leverage, the fee paid to the Adviser will be higher than if the Fund did not use leverage because
the fees paid are calculated on the basis of the Fund’s Managed Assets, which includes the assets purchased through leverage.
abrdn
Inc. has contractually agreed to limit the total ordinary operating expenses of the Combined Fund following the consummation of
the Reorganization (excluding leverage costs, interest, taxes, brokerage commissions, acquired fund fees and expenses and any
non-routine expenses) from exceeding 1.65% of the average daily net assets of the Combined Fund on an annualized basis for twelve
months following the closing of the Reorganization, or June 30, 2025, whichever is later. This contractual limitation may not
be terminated before twelve months following the closing of the Reorganization, or June 30, 2025, whichever is later, without
the approval of the Combined Fund’s trustees who are not “interested persons” of the Combined Fund (as defined
in the 1940 Act).
The
Combined Fund may reimburse abrdn Inc., for the advisory fees waived or reduced and other payments remitted by abrdn Inc. and
other expenses reimbursed as of a date not more than three years after the date when abrdn Inc. limited the fees or reimbursed
the expenses; provided that the following requirements are met: the reimbursements do not cause the Combined Fund to exceed the
lesser of the applicable expense limitation in the contract at the time the fees were limited or expenses are paid or the applicable
expense limitation in effect at the time the expenses are being recouped by abrdn Inc., and the payment of such reimbursement
is approved by the Board of the Combined Fund on a quarterly basis.
The
Advisory and Sub-Advisory Agreements continue for an initial term of two (2) years and may be continued thereafter from year to
year provided such continuance is specifically approved at least annually in the manner required by the 1940 Act. Each of the
Advisory Agreement and the Subadvisory Agreement provides that it may be terminated at any time, without the payment of any penalty,
by the Board of Trustees or by the vote of the holders of a majority of the outstanding voting securities of the Fund on 60 days’
written notice to the Adviser or the Sub-Adviser, as applicable. In addition, the Subadvisory Agreement provides that it may be
terminated by the Adviser at any time, without the payment of any penalty, on 60 days’ written notice to the Sub-Adviser.
Each of the Advisory Agreement and the Subadvisory Agreement provides that it may be terminated by the Adviser (with respect to
the Advisory Agreement and Subadvisory Agreement) or the Sub-Adviser (with respect to the Subadvisory Agreement), at any time,
without the payment of any penalty, upon 60 days’ written notice to the Fund. Each of the Advisory Agreement and the Subadvisory
Agreement also provides that it will automatically terminate in the event of an “assignment” (as defined in the 1940
Act), and the Subadvisory Agreement provides that it will automatically terminate in the event of the termination of the Advisory
Agreement. The Advisory and Sub-Advisory Agreements, the Advisers are permitted to provide investment advisory services to other
clients.
Effective
June 19, 2020, abrdn Inc. became the Fund’s investment adviser and aIL became the Fund’s investment sub-adviser.
For
the fiscal years ended September 30, 2021, 2022 and 2023, the Adviser earned gross advisory fees of $2,646,202, $2,639,837 and $5,027,290,
respectively. The subadvisory fees paid to the Sub-Adviser are paid by the Fund. For the fiscal years ended September 30, 2021, 2022
and 2023, the Sub-Adviser earned gross sub-advisory fees of $1,720,031, $1,715,894 and $1,715,894, respectively.
The
Administrator
abrdn
Inc., located at 1900 Market Street, Suite 200, Philadelphia, PA 19103, serves as administrator to the Fund. Under the administration
agreement, abrdn Inc. is generally responsible for managing the administrative affairs of the Fund.
For
administration related services, abrdn Inc. is entitled to receive a fee at an annual rate of 0.08% of the Fund’s average
daily net assets.
For
the fiscal years ended September 30, 2022, and September 30, 2023, abrdn Inc. earned fees of $156,435 and $297,913 respectively from
the Fund for administration services.
State
Street Bank and Trust Company (“State Street”) serves as sub-administrator of the Fund and is paid by abrdn Inc. out
of the fees it receives as the Fund’s administrator.
Custodian,
Dividend Paying Agent, Transfer Agent and Registrar
State
Street serves as custodian (the “Custodian”) for the Fund. State Street also provides accounting services to the Fund.
State Street serves as the Fund’s dividend paying agent, transfer agent and registrar.
Independent
Registered Public Accountant
KPMG
LLP is the Fund’s independent registered public accountant. KPMG provides audit services and consultation with respect to
the preparation of filings with the SEC.
Investor
Relations Provider
Under
the terms of the Investor Relations Services Agreement, abrdn Inc. provides and/or engages third parties to provide investor relations
services to the Fund and certain other funds advised by the Adviser or its affiliates as part of an Investor Relations Program.
Under the Investor Relations Services Agreement, the Fund owes a portion of the fees related to the Investor Relations Program
(the “Fund’s Portion”). However, investor relations services fees are limited by abrdn Inc. so that the Fund
will only pay up to an annual rate of 0.05% of the Fund’s average weekly net assets. Any difference between the capped rate
of 0.05% of the Fund’s average weekly net assets and the Fund’s Portion is paid for by abrdn Inc.
Pursuant
to the terms of the Investor Relations Services Agreement, abrdn Inc. (or third parties engaged by abrdn Inc.), among other things,
provides objective and timely information to stockholders based on publicly available information; provides information efficiently
through the use of technology while offering stockholders immediate access to knowledgeable investor relations representatives;
develops and maintains effective communications with investment professionals from a wide variety of firms; creates and maintains
investor relations communication materials such as fund manager interviews, films and webcasts, published white papers, magazine
articles and other relevant materials discussing the Fund’s investment results, portfolio positioning and outlook; develops
and maintains effective communications with large institutional shareholders; responds to specific shareholder questions; and
reports activities and results to the Board and management detailing insight into general shareholder sentiment.
Portfolio
Management
The
information contained under “Item 8. Portfolio Managers of Closed-End Management Investment Companies” of the Fund’s
Form N-CSR, which contains the Annual Report for the fiscal year ended September 30, 2023, is incorporated herein by reference.
Potential
Conflicts of Interest of the Advisers
The
portfolio managers’ management of “other accounts” may give rise to potential conflicts of interest in connection
with their management of a Fund’s investments, on the one hand, and the investments of the other accounts, on the other.
The other accounts may have the same investment objective as the Fund. Therefore, a potential conflict of interest may arise as
a result of the identical investment objectives, whereby the portfolio manager could favor one account over another. However,
the Adviser (or Subadviser) believes that these risks are mitigated by the fact that: (i) accounts with like investment strategies
managed by a particular portfolio manager are generally managed in a similar fashion, subject to exceptions to account for particular
investment restrictions or policies applicable only to certain accounts, differences in cash flows and account sizes, and similar
factors; and (ii) portfolio manager personal trading is monitored to avoid potential conflicts. In addition, the Adviser (or Sub-Adviser)
has adopted trade allocation procedures that require equitable allocation of trade orders for a particular security among participating
accounts.
In
some cases, another account managed by the same portfolio manager may compensate abrdn based on the performance of the portfolio
held by that account. The existence of such a performance-based fee may create additional conflicts of interest for the portfolio
manager in the allocation of management time, resources and investment opportunities.
Another
potential conflict could include instances in which securities considered as investments for the Fund also may be appropriate
for other investment accounts managed by the Adviser or its affiliates. Whenever decisions are made to buy or sell securities
by the Fund and one or more of the other accounts simultaneously, the Adviser (or Sub-Adviser) may aggregate the purchases and
sales of the securities and will allocate the securities transactions in a manner that it believes to be equitable under the circumstances.
As a result of the allocations, there may be instances where the Fund will not participate in a transaction that is allocated
among other accounts. While these aggregation and allocation policies could have a detrimental effect on the price or amount of
the securities available to the Fund from time to time, it is the opinion of the Adviser (or Sub-Adviser) that the benefits from
the policies outweigh any disadvantage that may arise from exposure to simultaneous transactions. The Trust has adopted policies
that are designed to eliminate or minimize conflicts of interest, although there is no guarantee that procedures adopted under
such policies will detect each and every situation in which a conflict arises.
From
time to time, the Adviser or the Sub-Adviser may seed proprietary accounts for the purpose of evaluating a new investment strategy
that eventually may be available to clients through one or more product structures. Such accounts also may serve the purpose of
establishing a performance record for the strategy. The management by the Adviser and the Sub-Adviser of accounts with proprietary
interests and nonproprietary client accounts may create an incentive to favor the proprietary accounts in the allocation of investment
opportunities, and the timing and aggregation of investments. The Adviser’s and Sub-Adviser’s proprietary seed accounts
may include long-short strategies, and certain client strategies may permit short sales. A conflict of interest arises if a security
is sold short at the same time as a long position, and continuous short selling in a security may adversely affect the stock price
of the same security held long in client accounts. The Adviser and Sub-Adviser have adopted various policies to mitigate these
conflicts.
In
addition, the 1940 Act limits the Fund’s ability to enter into certain transactions with certain affiliates of the Advisers.
As a result of these restrictions, the Fund may be prohibited from buying or selling any security directly from or to any portfolio
company of a fund managed by the Advisers or one of their affiliates. Nonetheless, the Fund may under certain circumstances purchase
any such portfolio company’s loans or securities in the secondary market, which could create a conflict for the Advisers
between the interests of the Fund and the portfolio company, in that the ability of the Advisers to recommend actions in the best
interest of the Fund might be impaired. The 1940 Act also prohibits certain “joint” transactions with certain of the
Fund’s affiliates (which could include other abrdn-managed Funds), which could be deemed to include certain types of investments,
or restructuring of investments, in the same portfolio company (whether at the same or different times). These limitations may
limit the scope of investment opportunities that would otherwise be available to the Fund. The Board has approved policies and
procedures reasonably designed to monitor potential conflicts of interest. The Board will review these procedures and any conflicts
that may arise.
Conflicts
of interest may arise where the Fund and other funds or accounts managed or administered by the Advisers simultaneously hold securities
representing different parts of the capital structure of a stressed or distressed issuer. In such circumstances, decisions made
with respect to the securities held by one fund or account may cause (or have the potential to cause) harm to the different class
of securities of the issuer held by other fund or account (including the Fund). For example, if such an issuer goes into bankruptcy
or reorganization, becomes insolvent or otherwise experiences financial distress or is unable to meet its payment obligations
or comply with covenants relating to credit obligations held by the Fund or by the other funds or accounts managed by the Advisers,
such other funds or accounts may have an interest that conflicts with the interests of the Fund. If additional financing for such
an issuer is necessary as a result of financial or other difficulties, it may not be in the best interests of the Fund to provide
such additional financing, but if the other funds or accounts were to lose their respective investments as a result of such difficulties,
the Advisers may have a conflict in recommending actions in the best interests of the Fund. In such situations, the Advisers will
seek to act in the best interests of each of the funds and accounts (including the Fund) and will seek to resolve such conflicts
in accordance with its compliance policies and procedures.
The
Adviser (or Sub-Adviser) has the ability to allocate investment opportunities of certain negotiated transactions between the Fund,
other funds registered under the 1940 Act and other accounts managed by the Adviser pro rata based on available capital, up to
the amount proposed to be invested by each (“Co-Investment Opportunities”). The 1940 Act and a rule thereunder imposes
limits on the Fund’s ability to participate in Co-Investment Opportunities, and the Fund generally will not be permitted
to co-invest alongside other funds registered under the 1940 Act and other accounts managed by the Adviser in privately negotiated
transactions unless the Fund obtains an exemptive order from the SEC or the transaction is otherwise permitted under existing
regulatory guidance, such as certain transactions in publicly traded securities and transactions in which price is the only negotiated
term. To the extent an investment opportunity in a transaction involving the negotiation of any term of the investment other than
price or quantity (a “negotiated transaction”) arises, and the Adviser determines that it would be appropriate for
both the Fund and other accounts managed by the Adviser, the opportunity will be allocated to the other accounts and the Fund
will not participate in the negotiated transaction. To the extent that the Adviser sources and structures private investments
in publicly traded issuers, certain employees of the Adviser may become aware of actions planned by such issuers, such as acquisitions,
which may not be announced to the public. It is possible that the Fund could be precluded from investing in or selling securities
of an issuer about which the Adviser has material, nonpublic information, however, it is the Adviser’s intention to ensure
that any material, non-public information available to certain employees of the Adviser is not shared with the employees responsible
for the purchase and sale of publicly traded securities or to confirm prior to receipt of any material non-public information
that the information will shortly be made public. The Fund’s investment opportunities also may be limited by affiliations
of the Adviser, the Sub-Adviser or their affiliates with infrastructure companies.
The
Adviser (or Sub-Adviser) or their respective members, officers, directors, employees, principals or affiliates may come into possession
of material, non-public information. The possession of such information may limit the ability of the Fund to buy or sell a security
or otherwise to participate in an investment opportunity. Situations may occur where the Fund could be disadvantaged because of
the investment activities conducted by the Adviser (or Sub-Adviser) for other clients, and the Adviser (or Sub-Adviser) will not
employ information barriers with regard to its operations on behalf of its registered and private funds, or other accounts. In
certain circumstances, employees of the Adviser (or Sub-Adviser) may serve as board members or in other capacities for portfolio
or potential portfolio companies, which could restrict the Fund’s ability to trade in the securities of such companies.
Execution
of Portfolio Transactions
The
Adviser or Sub-Adviser is responsible for decisions to buy and sell securities and other investments for the Fund, the selection
of brokers and dealers to effect the transactions and the negotiation of brokerage commissions, if any. In transactions on stock
and commodity exchanges in the United States, these commissions are negotiated, whereas on foreign stock and commodity exchanges
these commissions are generally fixed and are generally higher than brokerage commissions in the United States. In the case of
securities traded on the OTC markets or for securities traded on a principal basis, there is generally no commission, but the
price includes a spread between the dealer’s purchase and sale price. This spread is the dealer’s profit. In underwritten
offerings, the price includes a disclosed, fixed commission or discount. Most short-term obligations are normally traded on a
“principal” rather than agency basis. This may be done through a dealer (e.g., a securities firm or bank) who
buys or sells for its own account rather than as an agent for another client, or directly with the issuer.
Except
as described below, the primary consideration in portfolio security transactions is best execution of the transaction (i.e.,
execution at a favorable price and in the most effective manner possible). “Best execution” encompasses many factors
affecting the overall benefit obtained by the client account in the transaction including, but not necessarily limited to, the
price paid or received for a security, the commission charged, the promptness, available liquidity and reliability of execution,
the confidentiality and placement accorded the order, and customer service. Therefore, “best execution” does not necessarily
mean obtaining the best price alone but is evaluated in the context of all the execution services provided. Both the Adviser and
Sub-Adviser have freedom as to the markets in and the broker-dealers through which they seek this result, except where mandates
have restrictions in place.
Subject
to the primary consideration of seeking best execution and as discussed below, securities may be bought or sold through broker-dealers
who have furnished statistical, research, corporate access, and other information or services to the Adviser or Sub-Adviser. SEC
regulations provide a “safe harbor” that allows an investment adviser to pay for research and brokerage services with
commission dollars generated by client transactions. Effective with the implementation of Markets in Financial Instruments Directive
II (“MiFID II”), the Adviser absorbs all research costs and will generally no longer rely on the “safe harbor”
under Section 28(e) of the Securities Exchange Act of 1934.
There
may be occasions when portfolio transactions for the Fund are executed as part of concurrent authorizations to purchase or sell
the same security for trusts or other accounts (including other mutual funds) served by the Adviser or Sub-Adviser or by an affiliated
company thereof. Although such concurrent authorizations potentially could be either advantageous or disadvantageous to the Fund,
they are affected only when the Adviser or Sub-Adviser believes that to do so is in the interest of the Fund. When such concurrent
authorizations occur, the executions will be allocated in an equitable manner in accordance with the Advisers’ trade allocation
policies and procedures.
In
purchasing and selling investments for the Fund, it is the policy of the Adviser and Sub-Adviser to seek best execution through
responsible broker-dealers. The determination of what may constitute best execution in a securities transaction by a broker involves
a number of considerations, including the overall direct net economic result to the Fund (involving both price paid or received
and any commissions and other costs paid), the efficiency with which the transaction is effected, the ability to effect the transaction
at all when a large block is involved, the availability of the broker to stand ready to execute possibly difficult transactions
in the future, the professionalism of the broker, and the financial strength and stability of the broker. These considerations
are judgmental and are weighed by the Adviser or Sub-Adviser in determining the overall reasonableness of securities executions
and commissions paid. In selecting broker-dealers, the Adviser or Sub-Adviser will consider various relevant factors, including,
but not limited to, the size and type of the transaction; the nature and character of the markets for the security or asset to
be purchased or sold; the execution efficiency, settlement capability, and financial condition of the broker-dealer’s firm;
the broker-dealer’s execution services, rendered on a continuing basis; and the reasonableness of any commissions.
With
respect to FX transactions, different considerations or circumstances may apply, particularly with respect to Restricted Market
FX. FX transactions executed for the Fund are divided into two main categories: (1) Restricted Market FX and (2) Unrestricted
Market FX. Restricted Market FX are required to be executed by a local bank in the applicable market. Unrestricted Market FX are
not required to be executed by a local bank. The Adviser, Sub-Adviser or third-party agent execute Unrestricted Market FX relating
to trading decisions. The Fund’s custodian executes all Restricted Market FX because it has local banks or relationships
with local banks in each of the restricted markets where custodial client accounts hold securities. Unrestricted Market FX relating
to the repatriation of dividends and/or income/expense items not directly relating to trading may be executed by the Adviser or
Sub-Adviser or by the Fund’s custodian due to the small currency amount and lower volume of such transactions. The Fund,
the Adviser and the Sub-Adviser have limited ability to negotiate prices at which certain FX transactions are customarily executed
by the Fund’s custodian, i.e., transactions in Restricted Market FX and repatriation transactions.
With
regards to the Fund’s investments in Private Infrastructure Opportunities, the Advisers do not arrange trades with a broker
or dealer. The advice conducted with regards to Private Infrastructure Opportunities generally relates to private offered securities
in partnerships or similar relevant structures. The Fund may, from time to time, enter into arrangements with placement agents
in connection with direct placement transactions. In evaluating placement agent proposals, the Adviser will consider each placement
agent’s access to infrastructure issuers and experience in infrastructure markets, particularly the direct placement market.
In such cases, a third-party sponsor or sponsor vehicle, not the Fund, will bear the associated placement agent fees. In addition
to these factors, the Adviser will consider whether the proposed services are customary, whether the proposed fee schedules are
within the range of customary rates, whether any proposal would obligate the Fund to enter into transactions involving a minimum
fee, dollar amount or volume of securities, or into any transaction whatsoever, and other terms such as indemnification provisions.
The
Adviser or Sub-Adviser may cause the Fund to pay a broker-dealer a commission that is in excess of the commission another broker-dealer
would have received for executing the transaction if it is determined to be consistent with the Adviser’s or Sub-Adviser’s
obligation to seek best-execution pursuant to the standards described above.
Under
the 1940 Act, “affiliated persons” of the Fund are prohibited from dealing with it as a principal in the purchase
and sale of securities unless an exemptive order allowing such transactions is obtained from the SEC. However, the Fund may purchase
securities from underwriting syndicates of which a subadviser (if applicable) or any of its affiliates, as defined in the 1940
Act, is a member under certain conditions, in accordance with Rule 10f-3 under the 1940 Act.
The
Fund contemplates that, consistent with the policy of seeking to obtain best execution, brokerage transactions may be conducted
through “affiliated brokers or dealers,” as defined in rules under the 1940 Act. Under the 1940 Act, commissions paid
by the Fund to an “affiliated broker or dealer” in connection with a purchase or sale of securities offered on a securities
exchange may not exceed the usual and customary broker’s commission. Accordingly, it is the Fund’s policy that the
commissions to be paid to an affiliated broker-dealer must, in the judgment of the Adviser or the Sub-Adviser, be (1) at least
as favorable as those that would be charged by other brokers having comparable execution capability and (2) at least as favorable
as commissions contemporaneously charged by such broker or dealer on comparable transactions for the broker’s or dealer’s
unaffiliated customers. The Adviser and the Sub-Adviser do not necessarily deem it practicable or in the Fund’s best interests
to solicit competitive bids for commissions on each transaction. However, consideration regularly is given to information concerning
the prevailing level of commissions charged on comparable transactions by other brokers during comparable periods of time.
Not
one of the Fund, the Adviser or the Sub-Adviser has an agreement or understanding with a broker-dealer, or other arrangements to direct
the Fund’s brokerage transactions to a broker-dealer because of the research services such broker provides to the Fund or the Adviser.
While the Advisers do not have arrangements with any broker-dealers to direct such brokerage transactions to them because of research
services provided, the Advisers may receive research services from such broker-dealers. The dollar amount of transactions and related
commissions for transactions paid to a broker from which the Advisers also received research services for the fiscal year ended September
30, 2023 are in the table below:
Total
Dollar Amount of
Transactions |
|
Total
Commissions Paid on
Such Transactions |
|
$
|
499,275,557 |
|
$
|
156,462 |
|
|
|
|
|
|
|
For
the fiscal years ended September 30, 2022, and September 30, 2023, the Fund paid brokerage commissions of $44,213 and $179,263 respectively.
During
the fiscal year ended September 30, 2023, the Fund did not hold any investments in securities of its regular broker-dealers (as defined
in Rule 10b-1 under the 1940 Act).
Portfolio
Turnover
The
Fund’s annual portfolio turnover rate may vary greatly from year to year. The Fund may engage in frequent and active trading
of portfolio securities, but does not intend to do so under normal circumstances. The Fund’s portfolio turnover is expected
to be higher as it transitions a portion of its publicly traded securities portfolio to Private Infrastructure Opportunities.
High portfolio turnover involves correspondingly greater transaction costs in the form of dealer spreads and brokerage commissions,
which are borne directly by the Fund. In addition, a high rate of portfolio turnover may result in certain tax consequences, such
as increased capital gain dividends and/or ordinary income dividends.
For the fiscal year ended September 30, 2022, the Fund’s portfolio turnover rate
was 25%. For the fiscal year ended September 30, 2023,
the Fund’s portfolio turnover rate was 28%.
Material
U.S. federal income tax considerations
The
following discussion is a general summary of material U.S. federal income tax considerations affecting the Fund and its shareholders.
The discussion reflects applicable U.S. federal income tax laws as of the date of this statement of additional information, which
tax laws may be changed or subject to new interpretations by the courts or the Internal Revenue Service (the “IRS”),
possibly with retroactive effect. No attempt is made to present a detailed explanation of all U.S. federal income, estate, gift,
state, local or foreign tax considerations affecting the Fund and its shareholders (including shareholders owning large positions
in the Fund). The discussion set forth herein does not constitute tax advice. Investors are urged to consult their own tax advisers
to determine the specific tax consequences to them of investing in the Fund, including applicable federal, state, local and foreign
tax consequences to them or the effect of possible changes in tax laws.
In
addition, no attempt is made to address tax considerations applicable to an investor with a special tax status, such as a financial
institution, REIT, insurance company, RIC, individual retirement account, other tax-exempt organization, dealer in securities
or currencies, person holding shares of the Fund as part of a hedging, integrated, conversion or straddle transaction or constructive
sale, trader in securities that has elected the mark-to-market method of accounting for its securities, U.S. holder (as defined
below) whose functional currency is not the U.S. dollar, or investor with “applicable financial statements” within
the meaning of section 451(b) of the Code. Furthermore, this discussion does not reflect possible application of the alternative
minimum tax. Unless otherwise noted, this discussion assumes the Fund’s shares are held by U.S. persons and that such shares
are held as capital assets.
A
“U.S. holder” is a beneficial owner that is for U.S. federal income tax purposes:
| • | a
citizen or individual resident of the United States (including certain former citizens and former long-term residents); |
| • | a
corporation or other entity treated as a corporation for U.S. federal income tax purposes, created or organized in or under the
laws of the United States or any state thereof or the District of Columbia; |
| • | an
estate, the income of which is subject to U.S. federal income taxation regardless of its source; or |
| • | a
trust with respect to which a court within the United States is able to exercise primary supervision over its administration and
one or more U.S. persons have the authority to control all of its substantial decisions or the trust has made a valid election
in effect under applicable U.S. Department of the Treasury (“Treasury”) regulations to be treated as a U.S. person. |
A
“Non-U.S. holder” is a beneficial owner of shares of the Fund that is an individual, corporation, trust or estate
and is not a U.S. holder. If a partnership (including any entity treated as a partnership for U.S. federal income tax purposes)
holds shares of the Fund, the tax treatment of a partner in the partnership generally will depend upon the status of the partner
and the activities of the partnership.
Taxation
as a RIC
The
Fund has elected to be treated as and intends to qualify each year for the special tax treatment afforded a RIC under Subchapter
M of the Code. As long as the Fund meets certain requirements that govern the Fund’s source of income, diversification of
assets and distribution of earnings to shareholders, the Fund will not be subject to U.S. federal income tax on income distributed
(or treated as distributed, as described below) to its shareholders. With respect to the source of income requirement, the Fund
must derive in each taxable year at least 90% of its gross income (including tax-exempt interest) from (1) dividends, interest,
payments with respect to certain securities loans, gains from the sale or other disposition of stock, securities or foreign currencies
or other income (including, but not limited to, gains from options, futures and forward contracts) derived with respect to its
business of investing in such stock, securities or currencies and (2) net income derived from interests in qualified publicly
traded partnerships. A qualified publicly traded partnership is generally defined as a publicly traded partnership under section
7704 of the Code but does not include a publicly traded partnership if 90% or more of its gross income is described in (1) above.
With
respect to the diversification of assets requirement, the Fund must diversify its holdings so that, at the end of each quarter
of each taxable year, (1) at least 50% of the value of the Fund’s total assets is represented by cash and cash items, U.S.
government securities, the securities of other RICs and other securities, with such other securities limited for purposes of such
calculation, in respect of any one issuer, to an amount not greater than 5% of the value of the Fund’s total assets and
not more than 10% of the outstanding voting securities of such issuer and (2) not more than 25% of the value of the Fund’s
total assets is invested in the securities (other than U.S. government securities or the securities of other RICs) of any one
issuer, the securities (other than the securities of other RICs) of two or more issuers that the Fund controls and that are determined
to be engaged in the same, similar or related trades or businesses or the securities of one or more qualified publicly traded
partnerships.
For
purposes of the income test, the character and source of the Fund’s distributive share of items of income, gain and loss
derived through any entity properly treated as a partnership for U.S. federal income tax purposes (other than qualified publicly
traded partnerships), including, in general, any unregistered fund, generally will be determined as if the Fund realized its distributive
share of such tax items directly. Similarly, for the purpose of the asset diversification test, the Fund, in appropriate circumstances,
will “look through” to the assets held by any such partnership.
If
the Fund qualifies as a RIC and distributes to its shareholders at least 90% of the sum of (1) its “investment company taxable
income,” as that term is defined in the Code (which includes, among other items, dividends, taxable interest and the excess
of any net short-term capital gains over net long-term capital losses, as reduced by certain deductible expenses) without regard
to the deduction for dividends paid and (2) the excess of its gross tax-exempt interest, if any, over certain deductions attributable
to such interest that are otherwise disallowed, the Fund will be relieved of U.S. federal income tax on any income of the Fund,
including long-term capital gains, distributed to shareholders. However, if the Fund retains any investment company taxable income
or “net capital gain” (i.e., the excess of net long-term capital gain over net short-term capital loss), it will be
subject to U.S. federal income tax at regular corporate federal income tax rates on the amount retained. The Fund intends to distribute
at least annually substantially all of its investment company taxable income, net tax-exempt interest and net capital gain. Under
the Code, the Fund generally will also be subject to a nondeductible 4% federal excise tax on the undistributed portion of its
ordinary income and capital gains if it fails to meet certain distribution requirements with respect to each calendar year. In
order to avoid the 4% federal excise tax, the required minimum distribution is generally equal to the sum of (1) 98% of the Fund’s
ordinary income (computed on a calendar year basis), (2) 98.2% of the Fund’s capital gain net income (generally computed
for the one-year period ending on October 31), and (3) certain amounts from previous years to the extent such amounts have not
been treated as distributed or been subject to tax under Subchapter M of the Code. The Fund generally intends to make distributions
in a timely manner in an amount at least equal to the required minimum distribution and therefore, under normal conditions, does
not currently expect to be subject to this excise tax.
Failure
to Qualify as a RIC
If
the Fund fails to qualify as a RIC in any taxable year, it will be taxed in the same manner as an ordinary corporation on all
of its taxable income and gains, and distributions to the Fund’s shareholders will not be deductible by the Fund in computing
its taxable income. In such event, the Fund’s distributions, to the extent derived from the Fund’s current or accumulated
earnings and profits, would be taxed to shareholders as dividend income. Such distributions would generally be eligible for the
dividends received deduction available to corporate shareholders, and non-corporate shareholders would generally be able to treat
such distributions as “qualified dividend income” eligible for reduced rates of U.S. federal income taxation, provided
in each case that certain holding period and other requirements are satisfied. Distributions in excess of the Fund’s current
and accumulated earnings and profits would be treated first as a return of capital to the extent of the shareholders’ tax
basis in their Fund shares, and any remaining distributions would be treated as a capital gain. Current earnings and profits are
generally treated, for federal income tax purposes, as first being used to pay distributions on preferred shares and then to the
extent remaining, if any, to pay distributions on common shares. To qualify as a RIC in a subsequent taxable year, the Fund would
be required to satisfy the source-of-income, the asset diversification and the annual distribution requirements for that year
and distribute any earnings and profits from any year in which the Fund failed to qualify as a RIC. Subject to a limited exception
applicable to a RIC that qualified as such under the Code for at least one year prior to disqualification and that requalifies
as a RIC no later than the second year following the nonqualifying year, the Fund would be subject to tax on any unrealized built-in
gains in the assets held by it at the time the Fund requalified as a RIC that are recognized within the subsequent five years,
unless the Fund made an election to pay corporate-level tax on such built-in gain at the time of its requalification as a RIC.
The remainder of this discussion assumes the Fund will qualify for taxation as a RIC.
Taxation
of Certain Fund Investments
Investments
in Partnerships
The
Fund may invest in unregistered funds and other entities properly treated as partnerships for U.S. federal income tax purposes
(other than qualified publicly traded partnerships). An entity that is properly classified as a partnership (and not an association
or publicly traded partnership taxable as a corporation) is generally not itself subject to federal income tax. Instead, each
partner of the partnership is required to take into account its distributive share of the partnership’s net capital gain
or loss, net short-term capital gain or loss, and its other items of ordinary income or loss (including all items of income, gain,
loss and deduction allocable to that partnership from investments in other partnerships) for each taxable year of the partnership
ending with or within the partner’s taxable year. Each such item will have the same character to a partner and will generally
have the same source (either United States or foreign), as though the partner realized the item directly. Partners of a partnership
must report these items regardless of the extent to which, or whether, the partners receive cash distributions with respect to
such items. Accordingly, the Fund may be required to recognize items of taxable income and gain prior to the time that any corresponding
cash distributions are made to the Fund (including in circumstances where investments by an underlying partnership, such as investments
in debt instrument with “original issue discount,” generate income prior to a corresponding receipt of cash). In such
case, the Fund may have to dispose of assets that it would otherwise have continued to hold in order to generate cash for distributions
to Fund shareholders. In addition, the Fund may have to dispose of an investment in a partnership or devise other methods of cure
(such as holding the investment through a taxable subsidiary), to the extent the partnership earns income of a type that is not
qualifying income for purposes of the gross income test or holds assets that could cause the Fund not to satisfy the RIC asset
diversification tests.
Any
distribution by a partnership to the Fund in excess of the Fund’s allocable share of the partnership’s net taxable
income will decrease the Fund’s tax basis in its partnership interest and will therefore increase the amount of gain (or
decrease the amount of loss) that will be recognized by the Fund on the disposition of its partnership interest.
A
portion of any gain or loss recognized by the Fund on a disposition of a partnership interest (or by a partnership on a disposition
of an underlying asset) may be separately computed and treated as ordinary income or loss under the Code to the extent attributable
to assets of the partnership that give rise to depreciation recapture, intangible drilling and development cost recapture, or
other “unrealized receivables” or “inventory items” under the Code. Any such gain may exceed net taxable
gain realized on the disposition and will be recognized even if there is a net taxable loss on the disposition. The Fund’s
net capital losses may only be used to offset capital gains and therefore cannot be used to offset gains that are treated as ordinary
income. Thus, the Fund could recognize both gain that is treated as ordinary income and a capital loss on a disposition of a partnership
interest (or on a partnership’s disposition of an underlying asset) and would not be able to use the capital loss to offset
that gain. Any capital losses that the Fund recognizes on a disposition of a partnership interest can only be used to offset capital
gains that the Fund recognizes. Any capital losses that the Fund is unable to use may be carried forward to reduce its capital
gains in later years.
The
Fund may invest a portion of the assets allocated to the Private Infrastructure Opportunities indirectly through one or more wholly
owned subsidiaries formed in one or more jurisdictions and treated as corporations for U.S. federal income tax purposes (each,
a “Blocker Corporation,” and together, the “Blocker Corporations”). The Fund may invest indirectly through
a Blocker Corporation if it believes it is desirable to do so to comply with the requirements for qualification as a RIC under
the Code.
For
example, the Fund may hold equity interests in an operating company conducted in “pass-through” form (i.e., as a partnership
for U.S. federal income tax purposes) through a taxable domestic Blocker Corporation because such an investment, if made directly,
would produce income that is not qualifying income for a RIC. Any Blocker Corporation organized in the United States will generally
be subject to U.S. federal, state and local income tax at corporate rates on its taxable income, which taxes (and any other taxes
borne by subsidiaries) would adversely affect the returns from investments held through the Blocker Corporation. In general, in
order to comply with the diversification requirements under Subchapter M of the Code, the Fund may not invest more than 25% of
the value of its assets in the stock of one or more Blocker Corporations that are engaged in the same or similar or related trades
or businesses.
Other
Considerations
The
application of certain requirements for qualification as a RIC and the application of certain other federal income tax rules may
be unclear in some respects in connection with certain investments. As a result, the Fund may be required to limit the extent
to which it invests in such investments and it is also possible that the IRS may not agree with the Fund’s treatment of
such investments. In addition, the tax treatment of certain investments may be affected by future legislation, Treasury regulations
and guidance issued by the IRS (which could apply retroactively) that could affect the timing, character and amount of the Fund’s
income and gains and distributions to shareholders, affect whether the Fund has made sufficient distributions and otherwise satisfied
the requirements to maintain its qualification as a RIC and avoid federal income and excise taxes or limit the extent to which
the Fund may invest in certain investments in the future.
Certain
of the Fund’s investment practices are subject to special and complex federal income tax provisions that may, among other
things, (1) convert distributions that would otherwise constitute qualified dividend income into ordinary income taxed at the
higher rate applicable to ordinary income; (2) treat distributions that would otherwise be eligible for the corporate dividends
received deduction as ineligible for such treatment; (3) disallow, suspend or otherwise limit the allowance of certain losses
or deductions; (4) convert long-term capital gain into short-term capital gain or ordinary income; (5) convert an ordinary loss
or deduction into a capital loss (the deductibility of which is more limited); (6) cause the Fund to recognize income or gain
without a corresponding receipt of cash; (7) adversely affect the time as to when a purchase or sale of stock or securities is
deemed to occur; (8) adversely alter the characterization of certain complex financial transactions; and (9) produce income that
will not be included in the sources of income from which a RIC must derive at least 90% of its gross income each year. While it
may not always be successful in doing so, the Fund will seek to avoid or minimize any adverse tax consequences of its investment
practices.
Some
of the investments that the Fund is expected to make, such as investments in debt securities that are treated as issued with original
issue discount, will cause the Fund to recognize income or gain for U.S. federal income tax purposes prior to the receipt of any
corresponding cash or other property. Because the distribution requirements described above will apply to this income, the Fund
may be required to borrow money or dispose of other securities at disadvantageous times in order to make the relevant distributions.
The
Fund may be subject to withholding and other taxes imposed by foreign countries, including taxes on interest, dividends and capital
gains with respect to its investments in those countries, which would, if imposed, reduce the yield on or return from those investments.
Tax treaties between certain countries and the United States may reduce or eliminate such taxes in some cases. The Fund does not
expect to satisfy the requirements for passing through to its shareholders their pro rata shares of qualified foreign taxes paid
by the Fund, with the result that shareholders will not be entitled to a tax deduction or credit for such taxes on their own U.S.
federal income tax returns, although the Fund’s payment of such taxes may be eligible for a foreign tax credit or a deduction
in computing the Fund’s taxable income.
Foreign
exchange gains and losses realized by the Fund in connection with certain transactions involving foreign currency-denominated
debt securities, certain options and futures contracts relating to foreign currency, foreign currency forward contracts, foreign
currencies, or payables or receivables denominated in a foreign currency are subject to section 988 of the Code, which generally
causes such gain and loss to be treated as ordinary income or loss.
If
the Fund acquires any equity interest in certain foreign investment entities (i) 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 (ii) where at least
50% of the corporation’s assets (computed based on average fair market value) either produce or are held for the production
of passive income (“passive foreign investment companies” or “PFICs”), the Fund will generally be subject
to one of the following special tax regimes: (i) the Fund may be liable for U.S. federal income tax, and an additional interest
charge, on a portion of any “excess distribution” from such foreign entity or any gain from the disposition of such
shares, even if the entire distribution or gain is paid out by the Fund as a dividend to its shareholders; (ii) if the Fund were
able and elected to treat a PFIC as a “qualified electing fund” or “QEF,” the Fund would be required each
year to include in income, and distribute to shareholders in accordance with the distribution requirements set forth above, the
Fund’s pro rata share of the ordinary earnings and net capital gains of the PFIC, whether or not such earnings or gains
are distributed to the Fund; or (iii) the Fund may be entitled to mark-to-market annually shares of the PFIC, and in such event
would be required to distribute to shareholders any such mark-to-market gains in accordance with the distribution requirements
set forth above. The Fund intends to make the appropriate tax elections, if possible, and take any additional steps that are necessary
to mitigate the effect of these rules. The Fund may limit and/or manage its holdings in PFICs to limit its tax liability or maximize
its return from these investments. Amounts included in income each year by the Fund arising from a QEF election will be qualifying
income for purposes of the income test described above even if not distributed to the Fund, if the Fund derives such income from
its business of investing in stock, securities or currencies.
Section
163(j) of the Code limits the deductibility of business interest. Generally, the provision limits the deduction for net business
interest expenses to 30% of a taxpayer’s adjusted taxable income (50% for taxable years beginning in 2019 or 2020). The
deduction for interest expenses is not limited to the extent of any business interest income, which is interest income attributable
to a trade or business and not investment income. Under applicable Treasury regulations, all interest expense and interest income
of a RIC is treated as properly allocable to a trade or business for purposes of the limitation on the deductibility of business
interest. As a result, this limitation may impact the Fund’s ability to use leverage (e.g., borrow money, issue debt
securities, etc.).
In
determining its net capital gain, including in connection with determining the amount available to support a capital gain dividend,
its taxable income and its earnings and profits, the Fund generally may elect to treat part or all of any post-October capital
loss (defined as any net capital loss attributable to the portion, if any, of the taxable year after October 31 or, if there is
no such loss, the net long-term capital loss or net short-term capital loss attributable to any such portion of the taxable year)
or late-year ordinary loss (generally, the sum of its (i) net ordinary loss, if any, from the sale, exchange or other taxable
disposition of property, attributable to the portion, if any, of the taxable year after October 31, and its (ii) other net ordinary
loss, if any, attributable to the portion, if any, of the taxable year after December 31) as if incurred in the succeeding taxable
year.
The
Fund is generally permitted to carry forward a net capital loss in any taxable year to offset its own capital gains, if any. These
amounts are available to be carried forward to offset future capital gains to the extent permitted by the Code and applicable
tax regulations. Any such loss carryforwards will retain their character as short-term or long-term. In the event that the Fund
were to experience an ownership change as defined under the Code, the capital loss carryforwards and other favorable tax attributes
of the Fund, if any, may be subject to limitation.
Taxation
for U.S. Shareholders
Distributions
paid to you by the Fund from its investment company taxable income generally will be taxable to you as ordinary income to the
extent of the Fund’s earnings and profits, whether paid in cash or reinvested in additional shares. A portion of such distributions
(if properly reported by the Fund) may qualify (1) in the case of corporate shareholders, for the dividends received deduction
under section 243 of the Code to the extent that the Fund’s income consists of dividend income from U.S. corporations, excluding
distributions from certain entities, such as REITs, or (2) in the case of individual shareholders, as qualified dividend income
eligible to be taxed at the federal income tax rates applicable to net capital gain under section 1(h)(11) of the Code to the
extent that the Fund receives qualified dividend income, and provided in each case that certain holding period and other requirements
are met at both the Fund and shareholder levels. Qualified dividend income is, in general, dividend income from taxable domestic
corporations and qualified foreign corporations (for example, generally, if the issuer is incorporated in a possession of the
United States or in a country with a qualified comprehensive income tax treaty with the United States, or if the shares with respect
to which such dividend is paid are readily tradable on an established securities market in the United States). To be treated as
qualified dividend income, the shareholder must hold the shares paying otherwise qualifying dividend income more than 60 days
during the 121-day period beginning 60 days before the ex-dividend date (or, in the case of certain preferred shares, more than
90 days during the 181-day period beginning 90 days before the ex-dividend date). A shareholder’s holding period may be
reduced for purposes of this rule if the shareholder engages in certain risk reduction transactions with respect to the shares.
A qualified foreign corporation generally excludes any foreign corporation that, for the taxable year of the corporation in which
the dividend was paid or the preceding taxable year, is a passive foreign investment company. Given the Fund’s investment
strategy, it is not expected that a large portion of the distributions made by the Fund will be eligible for the dividends-received
deduction (in the case of corporate shareholders) or for treatment as “qualified dividend income” (in the case of
individual shareholders). Distributions made to you from an excess of net long-term capital gain over net short-term capital losses
(“capital gain dividends”), including capital gain dividends credited to you but retained by the Fund (as described
below), will be taxable to you as long-term capital gain if they have been properly designated by the Fund, regardless of the
length of time you have owned the Fund’s shares.
Distributions
in excess of the Fund’s earnings and profits will be treated by you, first, as a tax-free return of capital, which is applied
against and will reduce the adjusted basis of your shares and, after such adjusted basis is reduced to zero, generally will constitute
capital gain to you. After the close of its taxable year, the Fund will provide you with information on the federal income tax
status of the dividends and distributions you received from the Fund during the year.
For
taxable years beginning before January 1, 2026, qualified REIT dividends (i.e., REIT dividends other than capital gain dividends
and portions of REIT dividends designated as qualified dividend income) are generally eligible for a 20% federal income tax deduction
in the case of individuals, trusts and estates, provided certain holding period requirements are met with respect to the REIT
stock. If the Fund receives qualified REIT dividends, it may elect to pass the special character of this income through to its
shareholders. To be eligible to treat distributions from the Fund as qualified REIT dividends, a shareholder must hold shares
of the Fund for more than 45 days during the 91-day period beginning on the date that is 45 days before the date on which the
shares become ex-dividend with respect to such dividend and the shareholder must not be under an obligation (whether pursuant
to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property.
If the Fund does not elect to pass the special character of this income through to shareholders or if a shareholder does not satisfy
the above holding period requirements, the shareholder will not be entitled to the 20% deduction for the shareholder’s share
of the Fund’s qualified REIT dividend income while direct investors in REITs may be entitled to the deduction. Subject to
any future regulatory guidance to the contrary, any distribution of income attributable to the Fund’s investments in a qualified
publicly traded partnership will currently not qualify for the deduction that would be available to a non-corporate shareholder
were the shareholder to own such qualified publicly traded partnership directly. As a result, it is possible that a non-corporate
shareholder will be subject to a higher effective tax rate on any such distributions received from the Fund compared to the effective
rate applicable to any qualified publicly traded partnership income the shareholder would derive if the shareholder invested directly
in the qualified publicly traded partnership.
Certain
distributions reported by the Fund as Section 163(j) interest dividends may be treated as interest income by shareholders for
purposes of the tax rules applicable to interest expense limitations under Section 163(j) of the Code. Such treatment by the shareholder
is generally subject to holding period requirements and other potential limitations, although the holding period requirements
are generally not applicable to dividends declared by money market funds and certain other funds that declare dividends daily
and pay such dividends on a monthly or more frequent basis. The amount that the Fund is eligible to report as a Section 163(j)
dividend for a tax year is generally limited to the excess of the Fund’s business interest income over the sum of the Fund’s
(i) business interest expense and (ii) other deductions properly allocable to the Fund’s business interest income.
Sales
and other dispositions of the Fund’s shares (including upon a termination of the Fund) generally are taxable events. You
should consult your own tax adviser with reference to your individual circumstances to determine whether any particular transaction
in the Fund’s shares is properly treated as a sale or exchange for federal income tax purposes and the tax treatment of
any gains or losses recognized in such transactions. The sale or other disposition of shares of the Fund generally will result
in capital gain or loss to you, equal to the difference between the amount realized and your adjusted basis in the shares sold
or exchanged (taking into account any reductions in such basis resulting from prior returns of capital), and will be long-term
capital gain or loss if your holding period for the shares is more than one year at the time of sale. Different tax consequences
may apply for tendering and non-tendering shareholders in connection with a repurchase offer. For example, if a shareholder does
not tender all of his or her shares, such repurchase may not be treated as a sale or exchange for U.S. federal income tax purposes,
and may result in deemed distributions to non-tendering shareholders. On the other hand, shareholders holding shares as capital
assets who tender all of their shares (including shares deemed owned by shareholders under constructive ownership rules) will
be treated as having sold their shares and generally will recognize capital gain or loss.
Any
loss upon the sale or exchange of shares held for six months or less will be treated as long-term capital loss to the extent of
any capital gain dividends you received (including amounts credited as an undistributed capital gain dividend) with respect to
such shares. A loss you realize on a sale or exchange of shares of the Fund generally will be disallowed if you acquire other
shares of the Fund (whether through the automatic reinvestment of dividends or otherwise) or other substantially identical shares
within a 61-day period beginning 30 days before and ending 30 days after the date that you dispose of the shares. In such case,
the basis of the shares acquired will be adjusted to reflect the disallowed loss. Present law taxes both long-term and short-term
capital gain of corporations at the same rate applicable to ordinary income of corporations. For non-corporate taxpayers, short-term
capital gain will currently be taxed at the rate applicable to ordinary income, while long-term capital gain generally will be
taxed at the long-term capital gain rates. Capital losses are subject to certain limitations.
For
purpose of determining (1) whether the annual distribution requirement to maintain RIC status is satisfied for any year and (2)
the amount of capital gain dividends paid for that year, the Fund may, under certain circumstances, elect to treat a distribution
that is paid during the following taxable year as if it had been paid during the taxable year in question. If the Fund makes such
an election, the U.S. shareholder will still be treated as receiving the distribution in the taxable year in which the distribution
is made. However, if the Fund pays you a distribution in January that was declared in the previous October, November or December
to shareholders of record on a specified date in one of such months, then such distribution will be treated for federal income
tax purposes as being paid by the Fund and received by you on December 31 of the year in which the distribution was declared.
A shareholder may elect not to have all distributions automatically reinvested in Fund shares pursuant to the Plan. If a shareholder
elects not to participate in the Plan, such shareholder will receive distributions in cash. For taxpayers subject to U.S. federal
income tax, all distributions generally will be taxable, as discussed above, regardless of whether a shareholder takes them in
cash or they are reinvested pursuant to the Plan in additional shares of the Fund.
If
a shareholder’s distributions are automatically reinvested pursuant to the Plan, for U.S. federal income tax purposes, the
shareholder generally will be treated as having received a taxable distribution in the amount of the cash dividend that the shareholder
would have received if the shareholder had elected to receive cash. Under certain circumstances, however, if a shareholder’s
distributions are automatically reinvested pursuant to the Plan and the Plan Agent invests the distribution in newly issued shares
of the Fund, the shareholder may be treated as receiving a taxable distribution equal to the fair market value of the shares the
shareholder receives.
The
Fund intends to distribute substantially all realized capital gains, if any, at least annually. If, however, the Fund were to
retain any net capital gain, the Fund may designate the retained amount as undistributed capital gains in a notice to shareholders
who, if subject to U.S. federal income tax on long-term capital gains, (1) will be required to include in income as long-term
capital gain, their proportionate shares of such undistributed amount and (2) will be entitled to credit their proportionate shares
of the federal income tax paid by the Fund on the undistributed amount against their U.S. federal income tax liabilities, if any,
and to claim refunds to the extent the credit exceeds such liabilities. If such an event occurs, the basis of the shares owned
by a shareholder of the Fund will, for U.S. federal income tax purposes, generally be increased by the difference between the
amount of undistributed net capital gain included in the shareholder’s gross income and the tax deemed paid by the shareholder.
Backup
Withholding
The
Fund is required in certain circumstances to backup withhold at a current rate of 24% on distributions and certain other payments
paid to certain holders of the Fund’s shares who do not furnish the Fund with their correct taxpayer identification number
(in the case of individuals, their social security number) and certain certifications or who are otherwise subject to backup withholding.
Backup withholding is not an additional tax. Any amounts withheld from payments made to you may be refunded or credited against
your U.S. federal income tax liability, if any, provided that the required information is furnished to the IRS.
Medicare
Tax
An
additional 3.8% tax is imposed on the net investment income of certain individuals with a modified adjusted gross income of over
$200,000 ($250,000 in the case of joint filers) and on the undistributed net investment income of certain estates and trusts.
For these purposes, “net investment income” generally will include interest, dividends, annuities, royalties, rent,
net gain attributable to the disposition of property not held in a trade or business (including net gain from the sale, exchange
or other taxable disposition of shares of the Fund) and certain other income, but will be reduced by any deductions properly allocable
to such income or net gain. Thus, certain of the Fund’s taxable distributions and gains on the sale of Fund shares to shareholders
may be subject to this additional tax.
U.S.
Federal Income Tax Considerations for Non-U.S. Shareholders
The
following discussion is a general summary of the material U.S. federal income tax considerations applicable to a Non-U.S. holder
of Fund shares.
This
summary does not purport to be a complete description of the income tax considerations for a Non-U.S. holder. For example, the
following does not describe income tax consequences that are assumed to be generally known by investors or certain considerations
that may be relevant to certain types of holders subject to special treatment under U.S. federal income tax laws. This summary
does not discuss any aspects of U.S. estate or gift tax or state or local tax. In addition, this summary assumes that at all times
the Fund’s common shares will be “regularly traded” for purposes of section 897 of the Code and does not address
(1) any Non-U.S. holder that holds, at any time, more than 5% of the Fund’s shares, directly or under ownership attribution
rules applicable for purposes of section 897 of the Code (a “5% holder”), or (2) any Non-U.S. holder whose ownership
of shares of the Fund is effectively connected with the conduct of a trade or business in the United States. A 5% holder may be
subject to adverse consequences, including obligations to file U.S. tax returns and to pay tax at the rates applicable to U.S.
persons, with respect to Fund distributions that are attributable to USRPIs (as defined below) or gain on the disposition of Fund
shares. Such holders should consult their tax advisors regarding an investment in the Fund.
As
indicated above, the Fund has elected to be treated, and intends to qualify each year, as a RIC for U.S. federal income tax purposes.
This summary is based on the assumption that the Fund will qualify as a RIC in each of its taxable years. Distributions of the
Fund’s investment company taxable income to Non-U.S. holders will, except as discussed below, generally be subject to withholding
of U.S. federal income tax at a 30% rate (or lower rate provided by an applicable income tax treaty) to the extent of the Fund’s
current and accumulated earnings and profits. In order to obtain a reduced rate of withholding, a Non-U.S. holder will be required
to provide the Fund with the applicable IRS Form W-8 certifying its entitlement to benefits under a treaty. The Fund generally
will not be required to withhold tax on any amounts paid to a Non-U.S. holder with respect to dividends attributable to “qualified
short-term gain” (i.e., the excess of net short-term capital gain over net long-term capital loss) and dividends attributable
to certain U.S. source interest income that would not be subject to federal withholding tax if earned directly by a non-U.S. person,
provided in each case that such amounts are properly reported by the Fund and the shareholder complies with applicable certification
requirements relating to its non-U.S. status. The Fund may choose not to report such amounts.
Actual
or deemed distributions of the Fund’s net capital gains to a Non-U.S. holder, and gains realized by a Non-U.S. holder upon
the sale of the Fund’s shares, will, except as described below, generally not be subject to U.S. federal income or withholding
tax unless the Non-U.S. holder is an individual, has been present in the United States for 183 days or more during the taxable
year and certain other conditions are satisfied.
If
the Fund distributes its net capital gains in the form of deemed rather than actual distributions (which the Fund may do in the
future), a Non-U.S. holder may be entitled to a federal income tax credit or tax refund equal to the shareholder’s allocable
share of the tax the Fund paid on the capital gains deemed to have been distributed. In order to obtain the refund, the Non-U.S.
holder must obtain a U.S. taxpayer identification number and file a federal income tax return even if the Non-U.S. holder would
not otherwise be required to obtain a U.S. taxpayer identification number or file a federal income tax return.
A
Non-U.S. holder who is a non-resident alien individual, and who is otherwise subject to withholding of federal income tax, may
be subject to information reporting and backup withholding of federal income tax on dividends unless the Non-U.S. holder provides
the Fund or the dividend paying agent with an IRS Form W-8BEN (or an acceptable substitute form) or otherwise meets documentary
evidence requirements for establishing that it is a Non-U.S. holder or otherwise establishes an exemption from backup withholding.
The amount of any backup withholding from a payment to a Non-U.S. holder will be allowed as a credit against such Non-U.S. holder’s
U.S. federal income tax liability and may entitle such holder to a refund, provided that the required information is furnished
to the IRS.
Special
rules may apply to Non-U.S. holders who receive distributions from the Fund that are attributable to gain from “United States
real property interests” (“USRPIs”). The Code defines USRPIs to include direct holdings of U.S. real property
and, subject to certain exceptions, any interest (other than an interest solely as a creditor) in a “United States real
property holding corporation” or a former United States real property holding corporation. The Code defines a United States
real property holding corporation as any corporation whose USRPIs make up 50% or more of the fair market value of its USRPIs,
its interests in real property located outside the United States, plus any other assets it uses in a trade or business. Certain
of the Fund’s investments may constitute interests in United States real property holding corporations or other USRPIs.
In general, if the Fund is a United States real property holding corporation (determined without regard to certain exceptions),
distributions (including capital gain dividends) by the Fund that are attributable to (1) gains realized on the disposition of
USPRIs by the Fund and (2) distributions received by the Fund from a lower-tier RIC or REIT that the Fund is required to treat
as USRPI gain in its hands will generally be subject to U.S. federal withholding tax as an ordinary income dividend (i.e., subject
to withholding tax at a 30% rate (or lower treaty rate)).
Non-U.S.
persons should consult their own tax advisers with respect to the U.S. federal income tax and withholding tax and state, local
and foreign tax consequences of an investment in the shares.
Foreign
Account Tax Compliance Act
The
Fund generally must obtain information sufficient to identify the status of each of its shareholders under sections 1471-1474
of the Code and the Treasury and IRS guidance issued thereunder (collectively, “FATCA”) or under an applicable intergovernmental
agreement (an “IGA”) entered into by the United States and a foreign jurisdiction to implement FATCA. If a shareholder
fails to provide this information or otherwise fails to comply with FATCA or an IGA, the Fund may be required to withhold 30%
of ordinary dividends the Fund pays to that shareholder. If a payment by the Fund is subject to FATCA withholding, the Fund or
its agent is required to withhold even if such payment would otherwise be exempt from withholding under the rules applicable to
foreign shareholders described above. The IRS and the Treasury have issued proposed regulations, on which taxpayers may currently
rely, providing that the gross proceeds of share redemptions or exchanges and capital gain dividends the Fund pays will not be
subject to FATCA withholding. You are encouraged to consult with your own tax adviser regarding the possible implications of FATCA
on your investment in Fund shares, including investments through an intermediary. In addition, some foreign countries have implemented
and others are considering, and may implement, laws similar in purpose and scope to FATCA.
The
foregoing is a general and abbreviated summary of the provisions of the Code and the Treasury regulations in effect as they directly
govern the taxation of the Fund and its shareholders. These provisions are subject to change by legislative and administrative
action, and any such change may be retroactive. Shareholders are urged to consult their own tax advisers regarding specific questions
as to U.S. federal, foreign, state, local income or other taxes based on their particular circumstances.
Proxy
voting policy and proxy voting record
The
Board has delegated the day-to-day responsibility to the Advisers to vote the Fund’s proxies. Proxies are voted by the Advisers
pursuant to the Board approved proxy guidelines, a copy of which as currently in effect as of the date of this SAI is attached
hereto as Appendix B. Also attached hereto in Appendix B is the Advisers’ Listed Company
Stewardship Guidelines, which among other things, expands upon how the Advisers approach environmental, social and governance
issues when engaging with company management and voting proxies.
Information
on how the Fund voted proxies (if any) relating to portfolio securities during the most recent 12 month period ending June 30
is available: (i) upon request and without charge by calling Investor Relations toll-free at 1-800-522-5465, or (ii) on the SEC’s
website at http://www.sec.gov.
Incorporation
by reference
This
SAI is part of a registration statement that the Fund
has filed with the SEC. The Fund is permitted
to “incorporate by reference” the information that it files with the SEC, which means that the Fund can
disclose important information to you by referring you to those documents. The information incorporated by reference is
an important part of this SAI.
The
documents listed below are incorporated by reference into this SAI and deemed to be part of this SAI from the date of the filing
of such reports and documents:
| • | the
description of common shares on Form
8-A (Investment Company
Act File No. 001-339400; Accession No. 0001104659-20-085155) filed with
the SEC on July 21, 2020. |
Additionally,
copies of the foregoing and any more recent reports filed after the date hereof may be obtained without charge:
for
the Fund:
By Phone: |
|
1-800-522-5465 |
By Mail: |
|
abrdn Global Infrastructure Income Fund |
|
|
c/o
abrdn Inc.
1900
Market Street, Suite 200 |
|
|
Philadelphia, PA 19103 |
By Internet: |
|
www.abrdnasgi.com |
for
the Acquired Fund:
By Phone: |
|
(630) 765-8000 |
By Mail: |
|
Macquarie/First Trust Global Infrastructure/Utilities
Dividend & Income Fund |
|
|
120 East Liberty Drive, Suite 400 |
|
|
Wheaton, IL 60187 |
By Internet: |
|
https://www.ftportfolios.com |
The
Funds are subject to the informational requirements of the Exchange Act, and, in accordance therewith, file reports, proxy statements,
proxy materials and other information with the SEC. You also may view or obtain the foregoing documents from the SEC:
By e-mail: |
|
publicinfo@sec.gov (duplicating
fee required) |
By Internet: |
|
www.sec.gov |
Financial
statements and supplemental financial information
The
consolidated financial statements
of the Fund as of September 30, 2023 have been incorporated by reference herein in reliance upon the report of KPMG LLP, independent
registered public accounting firm, incorporated by reference herein, and upon the authority of said firm as experts in accounting and
auditing.
The
Fund shall be the accounting and performance survivor in the Reorganization.
A
table showing the fees and expenses of the Fund and Acquired Fund and the fees and expenses of the Fund on a pro forma basis
after giving effect to the proposed Reorganization is included in the section titled “Fees and Expenses” of the Proxy
Statement/ Prospectus.
It
is anticipated that approximately 28% of the Acquired Fund’s holdings will be sold before the closing of the Reorganization
in order to pay back the Acquired Fund’s outstanding leverage. Based on the Acquired Fund’s holdings as of May 31,
2023, the Combined Fund expects to sell approximately 87% of the Acquired Fund’s portfolio following the closing of the
Reorganization. The resulting proceeds of sales made by the Combined Fund after the Reorganization will be invested in accordance
with the Combined Fund’s principal investment strategies (which are those of the Acquiring Fund). A schedule of investments
of the Acquired Fund as of May 31, 2023 is included below and is annotated to reflect the anticipated sale of a portion of the
Acquired Fund’s portfolio holdings in connection with the Reorganization. Notwithstanding the foregoing, changes may be
made to the Acquired Fund’s portfolio in advance of the Reorganization and/or to the Combined Fund’s portfolio following
the Reorganization.
In
evaluating the valuation procedures of the Acquired Fund compared to those used by the Fund, abrdn has identified some differences.
Of relevance to the Acquired Fund is, for purposes of determining a Fund’s net asset value, in certain circumstances, foreign
equity securities that trade on a market that closes prior to the Fund’s valuation time are valued by applying valuation
factors to the last quoted sale price. The Acquired Fund and the Fund differ with respect to the circumstances in which such valuation
factors are applied. The impact of this difference on the value of an Acquired Fund shareholder’s investment immediately
after the Reorganization is consummated is uncertain and could be positive or negative depending on market conditions and could
be material.
Macquarie/First
Trust Global Infrastructure/Utilities Dividend & Income Fund (MFD)
Portfolio
of Investments
May
31, 2023 (Unaudited)
Shares | | |
Description | |
Value | |
| | |
| |
| |
COMMON STOCKS (a) – 85.5% | |
| |
| Australia – 2.0% | |
| |
156,912 | | |
Transurban Group (b)(g) | |
$ | 1,514,621 | |
| | |
| |
| | |
| | |
Canada – 20.2% | |
| | |
112,315 | | |
Enbridge, Inc. (b)(h) | |
| 3,953,984 | |
199,939 | | |
Gibson Energy, Inc. (b)(g) | |
| 3,227,008 | |
110,886 | | |
Hydro One Ltd. (b) (c) (d) (g) | |
| 3,160,353 | |
46,450 | | |
Pembina Pipeline Corp. (b) (g) | |
| 1,406,332 | |
94,560 | | |
TC Energy Corp. (b) (g) | |
| 3,680,700 | |
| | |
| |
| 15,428,377 | |
| | |
Hong Kong – 6.2% | |
| | |
653,500 | | |
CLP Holdings, Ltd. (b)(h) | |
| 4,761,179 | |
| | |
| |
| | |
| | |
Italy – 13.2% | |
| | |
220,601 | | |
Enav S.p.A. (b) (c) (d) (h) | |
| 931,412 | |
353,208 | | |
Enel S.p.A. (b) (h) | |
| 2,211,653 | |
809,284 | | |
Snam S.p.A. (b) (g) | |
| 4,230,063 | |
324,186 | | |
Terna-Rete Elettrica Nazionale S.p.A. (b)(g) | |
| 2,713,964 | |
| | |
| |
| 10,087,092 | |
| | |
Japan – 2.0% | |
| | |
37,000 | | |
West Japan Railway Co. (b) (g) | |
| 1,551,172 | |
| | |
| |
| | |
| | |
United Kingdom – 28.0% | |
| | |
472,954 | | |
National Grid PLC (b) (h) | |
| 6,506,942 | |
398,650 | | |
Pennon Group PLC (b)(g) | |
| 3,835,792 | |
136,302 | | |
Severn Trent PLC (b)(g) | |
| 4,701,701 | |
96,727 | | |
SSE PLC (b) (h) | |
| 2,263,888 | |
328,214 | | |
United Utilities Group PLC (b)(g) | |
| 4,133,853 | |
| | |
| |
| 21,442,176 | |
| | |
United States – 13.9% | |
| | |
57,313 | | |
Eversource Energy (b)(g) | |
| 3,967,779 | |
145,974 | | |
Kinder Morgan, Inc. (b)(h) | |
| 2,351,641 | |
30,053 | | |
Sempra Energy (b)(g) | |
| 4,313,507 | |
| | |
| |
| 10,632,927 | |
| | |
Total Common Stocks | |
| | |
| | |
(Cost $67,587,084) | |
| 65,417,544 | |
Units |
| |
Description | |
Value | |
|
| |
| |
| |
MASTER LIMITED PARTNERSHIPS (a) – 2.1% | |
| | |
|
| |
United States – 2.1% | |
| | |
63,048 |
| |
Enterprise Products Partners, L.P. (b)(g) | |
| | |
|
| |
(Cost $1,013,121) | |
| 1,597,006 | |
Principal Value | | |
Description | |
Rate (e) | | |
Stated Maturity (f) | |
Value | |
| | |
| |
| | |
| |
| |
SENIOR FLOATING-RATE LOAN INTERESTS – 35.5% | |
| | | |
| |
| | |
| | | |
Canada – 0.3% | |
| | | |
| |
| | |
$ | 248,125 | | |
Air Canada, Term Loan B, 3 Mo. LIBOR + 3.50%, 0.75% Floor (g) | |
| 8.84 | % | |
08/11/28 | |
| 247,763 | |
| | | |
| |
| | | |
| |
| | |
| | | |
Cayman Islands – 1.2% | |
| | | |
| |
| | |
| 500,000 | | |
AAdvantage Loyalty IP Ltd., Initial Term Loan, 3 Mo. LIBOR + 4.75%, 0.75% Floor (g) | |
| 10.00 | % | |
04/20/28 | |
| 503,008 | |
See
Notes to Financial Statements
Macquarie/First
Trust Global Infrastructure/Utilities Dividend & Income Fund (MFD)
Portfolio
of Investments (Continued)
May
31, 2023 (Unaudited)
Principal Value | | |
Description | |
Rate (e) | | |
Stated Maturity (f) | |
Value | |
| | |
| |
| | |
| |
| |
SENIOR FLOATING-RATE LOAN INTERESTS (Continued) | |
| | | |
| |
| | |
| | | |
Cayman Islands (Continued) | |
| | | |
| |
| | |
$ | 450,000 | | |
SkyMiles IP Ltd., Initial Term Loan, 3 Mo. SOFR + 3.75%, 1.00% Floor(g) | |
| 8.80 | % | |
10/20/27 | |
$ | 466,625 | |
| | | |
| |
| | | |
| |
| 969,633 | |
| | | |
Ireland – 1.1% | |
| | | |
| |
| | |
| 569,221 | | |
Castlelake Aviation One DAC, Initial Term Loans, 3 Mo. LIBOR + 2.75%, 0.50% Floor(g) | |
| 7.62 | % | |
10/22/26 | |
| 559,894 | |
| 300,000 | | |
Setanta Aircraft Leasing DAC, Term Loan, 3 Mo. LIBOR + 2.00%, 0.00% Floor (g) | |
| 7.16 | % | |
11/05/28 | |
| 298,098 | |
| | | |
| |
| | | |
| |
| 857,992 | |
| | | |
Luxembourg – 2.6% | |
| | | |
| |
| | |
| 1,977,308 | | |
Connect Finco SARL, Term Loan B, 1 Mo. LIBOR + 3.50%, 1.00% Floor (g) | |
| 8.66 | % | |
12/11/26 | |
| 1,966,195 | |
| | | |
| |
| | | |
| |
| | |
| | | |
United States 30.3% | |
| | | |
| |
| | |
| 453,957 | | |
Calpine Construction Finance Co., L.P., Term Loan B, 1 Mo. LIBOR + 2.00%, 0.00% Floor (g) | |
| 7.15 | % | |
01/15/25 | |
| 453,707 | |
| 599,528 | | |
Calpine Corp., Term Loan B5, 1 Mo. LIBOR + 2.50%, 0.00% Floor (g) | |
| 7.66 | % | |
12/16/27 | |
| 595,457 | |
| 671,806 | | |
Calpine Corp., Term Loan B9, 1 Mo. LIBOR + 2.00%, 0.00% Floor (g) | |
| 7.16 | % | |
04/05/26 | |
| 666,928 | |
| 2,098,842 | | |
Charter Communications Operating LLC, Term Loan B2, 3 Mo. SOFR + 1.75%, 0.00% Floor (g) | |
| 6.80%-6.90 | % | |
02/01/27 | |
| 2,060,150 | |
| 703,204 | | |
Core & Main L.P., Term Loan B-1 Loan, 1 Mo. SOFR + 2.50%, 0.00% Floor(g) | |
| 7.69%-7.74 | % | |
07/27/28 | |
| 698,004 | |
| 199,485 | | |
CSC Holdings LLC, Term Loan B5, 1 Mo. LIBOR + 2.50%, 0.00% Floor (g) | |
| 7.61 | % | |
04/15/27 | |
| 168,922 | |
| 790,574 | | |
CSC Holdings LLC, Term Loan B6, 1 Mo. SOFR + 4.50%, 0.00% Floor (g) | |
| 9.56 | % | |
01/18/28 | |
| 700,646 | |
| 639,937 | | |
Cumulus Media New Holdings, Inc., Initial Term Loan, 1 Mo. LIBOR + 3.75%, 1.00% Floor (g) | |
| 8.78 | % | |
03/31/26 | |
| 505,016 | |
| 1,081,250 | | |
Directv Financing LLC, Initial Term Loan, 1 Mo. LIBOR + 5.00%, 0.75% Floor (g) | |
| 10.15 | % | |
08/02/27 | |
| 1,029,047 | |
| 1,445,500 | | |
Frontier Communications Holdings LLC, Term Loan B-Exit, 3 Mo. LIBOR + 3.75%, 0.75% Floor (g) | |
| 8.94 | % | |
10/08/27 | |
| 1,346,397 | |
| 1,670,952 | | |
Hamilton Projects Acquiror LLC, Term Loan B, 3 Mo. LIBOR + 4.50%, 0.75% Floor (g) | |
| 9.66 | % | |
06/17/27 | |
| 1,649,021 | |
| 1,062,500 | | |
Mileage Plus Holdings LLC, Term Loan B, 3 Mo. LIBOR + 5.25%, 1.00% Floor (g) | |
| 10.21 | % | |
06/21/27 | |
| 1,101,844 | |
| 750,000 | | |
Northwest Fiber LLC, Term Loan B, 1 Mo. SOFR + 3.75%, 0.00% Floor (g) | |
| 8.95 | % | |
04/30/27 | |
| 717,656 | |
| 987,500 | | |
Olympus Water US Holding Corp., Term Loan B, 3 Mo. LIBOR + 3.75%, 0.50% Floor (g) | |
| 8.94 | % | |
11/09/28 | |
| 924,428 | |
| 1,881,352 | | |
Parkway Generation LLC, Term Loan B, 1 Mo. SOFR + 4.75%, 0.75% Floor (g) | |
| 10.28 | % | |
02/18/29 | |
| 1,829,032 | |
| 247,402 | | |
Parkway Generation LLC, Term Loan C, 1 Mo. SOFR + 4.75%, 0.75% Floor (g) | |
| 10.28 | % | |
02/18/29 | |
| 240,405 | |
| 2,222,716 | | |
PG&E Corp., Term Loan B, 1 Mo. LIBOR + 3.00%, 0.50% Floor | |
| | | |
| |
| | |
| 1,433,785 | | |
Standard Industries Inc./NJ, Initial Term Loan, 1 Mo. SOFR + 2.25%, 0.50% Floor (g) | |
| 7.71 | % | |
09/22/28 | |
| 1,426,272 | |
| 1,488,750 | | |
Terraform Power Operating, Term Loan B, 1 Mo. SOFR + 2.50%, 0.50% Floor (g) | |
| 7.50 | % | |
05/21/29 | |
| 1,470,141 | |
| 498,728 | | |
United Airlines, Inc., Class B Term Loan, 3 Mo. LIBOR + 3.75%, 0.75% Floor (g) | |
| 8.89 | % | |
04/21/28 | |
| 496,995 | |
See
Notes to Financial Statements
Macquarie/First
Trust Global Infrastructure/Utilities Dividend & Income Fund (MFD)
Portfolio
of Investments (Continued)
May
31, 2023 (Unaudited)
Principal Value | | |
Description | |
Rate (e) | | |
Stated Maturity (f) | |
Value | |
| | |
| |
| | |
| |
| |
SENIOR FLOATING-RATE LOAN INTERESTS (Continued) |
| | | |
| |
| | |
| | | |
United States (Continued) | |
| | | |
| |
| | |
$ | 2,484,981 | | |
Viasat, Inc., Term Loan B, 1 Mo. SOFR + 4.50%, 0.50% Floor | |
| 9.60 | % | |
03/04/29 | |
$ | 2,399,560 | |
| 494,383 | | |
Vistra Operations Co., LLC, 2018 Incremental Term Loans, 1 Mo. LIBOR + 1.75%, 0.00% Floor (g) | |
| 6.86%-6.90 | % | |
12/31/25 | |
| 491,294 | |
| | | |
| |
| | | |
| |
| | |
| | | |
| |
| | | |
| |
| 23,180,201 | |
| | | |
Total Senior Floating-Rate Loan Interests | |
| | | |
| |
| 27,221,784 | |
| | | |
(Cost $27,590,057) | |
| | | |
| |
| | |
| | | |
Total Investments – 123.1% | |
| | | |
| |
| 94,236,334 | |
| | | |
(Cost $96,190,262) | |
| | | |
| |
| | |
| | | |
Outstanding Loan – (36.0)% | |
| | | |
| |
| (27,550,000 | ) |
| | | |
Net Other Assets and Liabilities – 12.9% | |
| | | |
| |
| 9,837,459 | |
| | | |
Net Assets – 100.0% | |
| | | |
| |
$ | 76,523,793 | |
(a) | Portfolio
securities are categorized based upon their country of incorporation. |
(b) | All
or a portion of this security serves as collateral on the outstanding loan. At May 31,
2023, the segregated value of these securities amounts to $67,014,550. |
(c) | This
security may be resold to qualified foreign investors and foreign institutional buyers
under Regulation S of the Securities Act of 1933, as amended (the “1933 Act”). |
(d) | This
security is exempt from registration upon resale under Rule 144A of the 1933 Act and
may be resold in transactions exempt from registration, normally to qualified institutional
buyers. This security is not restricted on the foreign exchange where it trades freely
without any additional registration. As such, it does not require the additional disclosure
required of restricted securities. |
(e) | Senior
Floating-Rate Loan Interests (“Senior Loans”) in which the Fund invests pay
interest at rates which are periodically predetermined by reference to a base lending
rate plus a premium. These base lending rates are generally (i) the lending rate offered
by one or more major European banks, such as the LIBOR, (ii) the SOFR obtained from the
U.S. Department of the Treasury’s Office of Financial Research, (iii) the prime
rate offered by one or more United States banks or (iv) the certificate of deposit rate.
Certain Senior Loans are subject to a LIBOR or SOFR floor that establishes a minimum
LIBOR or SOFR rate. When a range of rates is disclosed, the Fund holds more than one
contract within the same tranche with identical LIBOR or SOFR period, spread and floor,
but different LIBOR or SOFR reset dates. |
(f) | Senior
Loans generally are subject to mandatory and/or optional prepayment. As a result, the
actual remaining maturity of Senior Loans may be substantially less than the stated maturities
shown. |
(g) | Position
currently expected to be disposed of in connection with the Reorganization. |
(h) | Position
currently expected to be partially disposed of in connection with the Reorganization. |
LIBOR |
London Interbank
Offered Rate |
SOFR |
Secured Overnight Financing Rate |
Currency
Exposure Diversification | |
%
of Total
Investments | |
United
States Dollar | |
| 41.9 | % |
British
Pound Sterling | |
| 22.8 | |
Canadian
Dollar | |
| 16.4 | |
Euro | |
| 10.7 | |
Hong
Kong Dollar | |
| 5.0 | |
Japanese
Yen | |
| 1.6 | |
Australian
Dollar | |
| 1.6 | |
Total | |
| 100.0 | % |
See
Notes to Financial Statements
Legal
counsel
Counsel
to the Fund is Dechert LLP.
Additional
information
The
Proxy Statement/Prospectus and this SAI do not contain all of the information set forth in the registration statement, including
any exhibits and schedules thereto. The Fund will
provide without charge to each person, upon written or oral request, a copy of any and all of the information that has been incorporated
by reference in this SAI or the Prospectus. Information contained on the Fund’s website at http:/www.abrdnasgi.com or the Acquired Fund’s website at https://www.ftportfolios.com is not incorporated
by reference into this SAI or the Proxy Statement/Prospectus and should not be considered
to be part of this SAI or the Proxy Statement/Prospectus.
Appendix
A—Description of securities ratings
S&P
GLOBAL RATINGS DEBT RATINGS
An
S&P Global Ratings issue credit rating is a forward-looking opinion about the creditworthiness of an obligor with respect
to a specific financial obligation, a specific class of financial obligations, or a specific financial program (including ratings
on medium-term note programs and commercial paper programs). It takes into consideration the creditworthiness of guarantors, insurers,
or other forms of credit enhancement on the obligation and takes into account the currency in which the obligation is denominated.
The opinion reflects S&P Global Ratings’ view of the obligor’s capacity and willingness to meet its financial
commitments as they come due, and this opinion 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. Short-term ratings are also used to indicate the creditworthiness of an obligor with respect
to put features on long-term obligations. Medium-term notes are assigned long-term ratings.
| 1. | Long-Term
Issue Credit Ratings |
Issue
credit ratings are based, in varying degrees, on S&P Global Ratings’ analysis of the following considerations:
| • | The
likelihood of payment—the capacity and willingness of the obligor to meet its financial
commitments on an obligation in accordance with the terms of the obligation; |
| • | The
nature and provisions of the financial obligation, and the promise we impute; and |
| • | The
protection afforded by, and relative position of, the financial obligation in the event
of a bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and
other laws affecting creditors’ rights. |
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.)
Long-Term
Issue Credit Ratings*
AAA
- An obligor rated ‘AAA’ has extremely strong capacity to meet its financial commitments. ‘AAA’ is the
highest issuer credit rating assigned by S&P Global Ratings. AA - An obligor rated ‘AA’ has very strong capacity
to meet its financial commitments. It differs from the highest-rated obligors only to a small degree.
AA-
An obligor rated ‘AA’ has very strong capacity to meet its financial commitments. It differs from the highest rated
obligors only in small degree.
A
- An obligor rated ‘A’ has strong capacity to meet its financial commitments but is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than obligors in higher-rated categories.
BBB
- An obligor rated ‘BBB’ has adequate capacity to meet its financial commitments. However, adverse economic conditions
or changing circumstances are more likely to weaken the obligor’s capacity to meet its financial commitments.
Obligors
rated ‘BB’, ‘B’, ‘CCC’, and ‘CC’ are regarded as having significant speculative
characteristics. ‘BB’ indicates the least degree of speculation and ‘CC’ the highest. While such obligors
will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposure
to adverse conditions.BB - An obligor rated ‘BB’ is less vulnerable in the near term than other lower-rated obligors.
However, it faces major ongoing uncertainties and exposure to adverse business, financial, or economic conditions that could lead
to the obligor’s inadequate capacity to meet its financial commitments.
B
- An obligor rated ‘B’ is more vulnerable than the obligors rated ‘BB’, but the obligor currently has
the capacity to meet its financial commitments. Adverse business, financial, or economic conditions will likely impair the obligor’s
capacity or willingness to meet its financial commitments.
CCC
- An obligor rated ‘CCC’ is currently vulnerable and is dependent upon favorable business, financial, and economic
conditions to meet its financial commitments.CC - An obligation rated ‘CC’ is currently highly vulnerable to nonpayment.
The ‘CC’ rating is used when a default has not yet occurred but S&P Global Ratings expects default to be a virtual
certainty, regardless of the anticipated time to default.
CC
- An obligation rated ‘CC’ is currently highly vulnerable to nonpayment. The ‘CC’ rating is used when
a default has not yet occurred but S&P Global Ratings expects default to be a virtual certainty, regardless of the anticipated
time to default.
C
– A subordinated debt or preferred stock obligation rated ‘C’ is currently highly vulnerable to nonpayment.
The ‘C’ rating may be used to cover a situation where a bankruptcy petition has been filed or similar action taken,
but payments on this obligation are being continued. A ‘C’ also will be assigned to a preferred stock issue in arrears
on dividends or sinking fund payments, but that is currently paying.
R
- An obligor rated ‘R’ is under regulatory supervision owing to its financial condition. During the pendency of the
regulatory supervision, the regulators may have the power to favor one class of obligations over others or pay some obligations
and not others.
SD
and D - An obligor is rated ’SD’ (selective default) or ‘D’ has failed to pay one or more of its financial
obligations (rated or unrated) when it came due. A ‘D’ rating is assigned when Standard & Poor’s believes
that the default will be a general default and that the obligor will fail to pay all or substantially all of its obligations as
they come due. An ’SD’ rating is assigned when Standard & Poor’s believes that the obligor has selectively
defaulted on a specific issue or class of obligations but it will continue to meet its payment obligations on other issues or
classes of obligations in a timely manner.
NR
- Indicates that a rating has not been assigned or is no longer assigned.
*
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.
| 2. | Short-Term
Issue Credit Ratings |
Short-Term
Issue Credit Ratings
A-1
- An obligor rated ‘A-1’ has strong capacity to meet its financial commitments. It is rated in the highest category
by S&P Global Ratings. Within this category, certain obligors are designated with a plus sign (+). This indicates that the
obligor’s capacity to meet its financial commitments is extremely strong.
A-2
- An obligor rated ‘A-2’ has satisfactory capacity to meet its financial commitments. However, it is somewhat more
susceptible to the adverse effects of changes in circumstances and economic conditions than obligors in the highest rating category.
A-3
- An obligor rated ‘A-3’ has adequate capacity to meet its financial obligations. However, adverse economic conditions
or changing circumstances are more likely to weaken the obligor’s capacity to meet its financial commitments.
B
- An obligor 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.
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
- An obligor rated ‘C’ is currently highly vulnerable to nonpayment. The ‘C’ rating may be used to cover
a situation where a bankruptcy petition has been filed or similar action taken, but payments on this obligation are being continued.
A ‘C’ also will be assigned to a preferred stock issue in arrears on dividends or sinking fund payments, but that
is currently paying.
R
- An obligor rated ‘R’ is under regulatory supervision owing to its financial condition. During the pendency of the
regulatory supervision, the regulators may have the power to favor one class of obligations over others or pay some obligations
and not others.
SD
and D - An obligor is rated ’SD’ (selective default) or ‘D’ has failed to pay one or more of its financial
obligations (rated or unrated) when it came due. A ‘D’ rating is assigned when Standard & Poor’s believes
that the default will be a general default and that the obligor will fail to pay all or substantially all of its obligations as
they come due. An ’SD’ rating is assigned when Standard & Poor’s believes that the obligor has selectively
defaulted on a specific issue or class of obligations but it will continue to meet its payment obligations on other issues or
classes of obligations in a timely manner.
NR
- Indicates that a rating has not been assigned or is no longer assigned.
| B. | Municipal
Short-Term Note Ratings |
An
S&P Global Ratings U.S. municipal note rating reflects S&P Global Ratings’ opinion about the liquidity factors and
market access risks unique to the notes. Notes due in three years or less will likely receive a note rating. Notes with an original
maturity of more than three years will most likely receive a long-term debt rating. In determining which type of rating, if any,
to assign, S&P Global Ratings’ analysis will review the following considerations:
| • | Amortization
schedule—the larger the final maturity relative to other maturities, the more likely
it will be treated as a note; and |
| • | Source
of payment—the more dependent the issue is on the market for its refinancing, the
more likely it will be treated as a note. |
Municipal
Short-Term Note Ratings
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.
D
- ‘D’ is assigned upon failure to pay the note when due, completion of a distressed exchange offer, or the filing
of a bankruptcy petition or the taking of similar action and where default on an obligation is a virtual certainty, for example
due to automatic stay provisions.
MOODY’S
INVESTORS SERVICE INC. (“Moody’s”) LONG-TERM DEBT RATINGS*
Aaa
— Obligations rated Aaa are judged to be of the highest quality, subject to the lowest level of credit risk.
Aa
—Obligations rated Aa are judged to be of high quality and are subject to very low credit risk.
A
— Obligations rated A are judged to be upper-medium grade and are subject to low credit risk.
Baa
— Obligations rated Baa are judged to be medium-grade and subject to moderate credit risk and as such may possess certain
speculative characteristics.
Ba
— Obligations rated Ba are judged to be speculative and are subject to substantial credit risk.
B
— Obligations rated B are considered speculative and are subject to high credit risk.
Caa
— Obligations rated Caa are judged to be speculative of poor standing and are subject to very high credit risk.
Ca
— Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery of
principal and interest.
C
— Obligations rated C are the lowest rated and are typically in default, with little prospect for recovery of principal
and interest.
*
Moody’s appends numerical modifiers 1, 2, and 3 to each generic rating classification from Aa through Caa. The modifier
1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking;
and the modifier 3 indicates a ranking in the lower end of that generic rating category.
STATE
AND MUNICIPAL NOTES
Excerpts
from Moody’s description of state and municipal note ratings:
MIG
1 This designation denotes superior credit quality. Excellent protection is afforded by established cash flows, highly reliable
liquidity support, or demonstrated broad-based access to the market for refinancing.
MIG
2 This designation denotes strong credit quality. Margins of protection are ample, although not as large as in the preceding group.
MIG
3 This designation denotes acceptable credit quality. Liquidity and cash-flow protection may be narrow, and market access for
refinancing is likely to be less well-established.
SG
This designation denotes speculative-grade credit quality. Debt instruments in this category may lack sufficient margins of protection.
FITCH,
INC. BOND RATINGS
Fitch’s
credit ratings relating to issuers are an opinion on the relative ability of an entity to meet financial commitments, such as
interest, preferred dividends, repayment of principal, insurance claims or counterparty obligations. Credit ratings relating to
securities and obligations of an issuer can include a recovery expectation. Credit ratings are used by investors as indications
of the likelihood of receiving the money owed to them in accordance with the terms on which they invested. The agency’s
credit ratings cover the global spectrum of corporate, sovereign financial, bank, insurance, and public finance entities (including
supranational and sub-national entities) and the securities or other obligations they issue, as well as structured finance securities
backed by receivables or other financial assets. AAA’ ratings denote the lowest expectation of default risk. They are assigned
only in cases of exceptionally strong capacity for payment of financial commitments. This capacity is highly unlikely to be adversely
affected by foreseeable events. ‘AA’ ratings denote expectations of very low default risk. They indicate very strong
capacity for payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events. ‘A’
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’ ratings indicate that expectations of default risk are currently low. The capacity for payment of financial
commitments is considered adequate, but adverse business or economic conditions are more likely to impair this capacity. ‘BB’
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 that supports the servicing of financial commitments.
‘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 - Default is a real possibility. CC - Default of some kind appears probable.
C
- A default or default-like process has begun, or the issuer is in standstill, or for a closed funding vehicle, payment capacity
is irrevocably impaired. ‘RD’ ratings indicate an issuer that in Fitch’s opinion has experienced: a) an uncured
payment default or distressed debt exchange on a bond, loan or other material financial obligation, but b) has not entered into
bankruptcy filings, administration, receivership, liquidation, or other formal winding-up procedure, and c) has not otherwise
ceased operating.
‘D’
ratings indicate an issuer that in Fitch’s opinion has entered into bankruptcy filings, administration, receivership, liquidation
or other formal winding-up procedure or that has otherwise ceased business.
MOODY’S
Ratings
assigned on Moody’s global long-term and short-term rating scales are forward-looking opinions of the relative credit risks
of financial obligations issued by non-financial corporates, financial institutions, structured finance vehicles, project finance
vehicles, and public sector entities. Long-term ratings are assigned to issuers or obligations with an original maturity of one
year or more and reflect both on the likelihood of a default on contractually promised payments and the expected financial loss
suffered in the event of default. Short-term ratings are assigned to obligations with an original maturity of thirteen months
or less and reflect both on the likelihood of a default on contractually promised payments and the expected financial loss suffered
in the event of default.
Moody’s
differentiates structured finance ratings from fundamental ratings (i.e., ratings on nonfinancial corporate, financial
institution, and public sector entities) on the global long-term scale by adding (sf) to all structured finance ratings. The addition
of (sf ) to structured finance ratings should eliminate any presumption that such ratings and fundamental ratings at the same
letter grade level will behave the same. The (sf) indicator for structured finance security ratings indicates that otherwise similarly
rated structured finance and fundamental securities may have different risk characteristics. Through its current methodologies,
however, Moody’s aspires to achieve broad expected equivalence in structured finance and fundamental rating performance
when measured over a long period of time.
GLOBAL
SHORT-TERM RATING SCALE
P-1
Issuers (or supporting institutions) rated Prime-1 have a superior ability to repay short-term debt obligations.
P-2
Issuers (or supporting institutions) rated Prime-2 have a strong ability to repay short-term debt obligations.
P-3
Issuers (or supporting institutions) rated Prime-3 have an acceptable ability to repay short-term obligations.
NP
Issuers (or supporting institutions) rated Not Prime do not fall within any of the Prime rating categories.
U.S.
MUNICIPAL SHORT-TERM DEBT AND DEMAND OBLIGATION RATINGS
SHORT-TERM
OBLIGATION RATINGS
While
the global short-term ‘prime’ rating scale is applied to US municipal tax-exempt commercial paper, these programs
are typically backed by external letters of credit or liquidity facilities and their short-term prime ratings usually map to the
long-term rating of the enhancing bank or financial institution and not to the municipality’s rating. Other short-term municipal
obligations, which generally have different funding sources for repayment, are rated using two additional short-term rating scales
(i.e., the MIG and VMIG scales discussed below).
The
Municipal Investment Grade (MIG) scale is used to rate US municipal bond anticipation notes of up to three years maturity. Municipal
notes rated on the MIG scale may be secured by either pledged revenues or proceeds of a take-out financing received prior to note
maturity. MIG ratings expire at the maturity of the obligation, and the issuer’s long-term rating is only one consideration
in assigning the MIG rating. MIG ratings are divided into three levels—MIG 1 through MIG 3—while speculative grade
short-term obligations are designated SG.
MIG
1 This designation denotes superior credit quality. Excellent protection is afforded by established cash flows, highly reliable
liquidity support, or demonstrated broad-based access to the market for refinancing.
MIG
2 This designation denotes strong credit quality. Margins of protection are ample, although not as large as in the preceding group.
MIG
3 This designation denotes acceptable credit quality. Liquidity and cash-flow protection may be narrow, and market access for
refinancing is likely to be less well-established.
SG
This designation denotes speculative-grade credit quality. Debt instruments in this category may lack sufficient margins of protection.
FITCH’S
SHORT-TERM RATINGS
A
short-term issuer or obligation rating is based in all cases on the short-term vulnerability to default of the rated entity and
relates to the capacity to meet financial obligations in accordance with the documentation governing the relevant obligation.
Short-term deposit ratings may be adjusted for loss severity. Short-Term Ratings are assigned to obligations whose initial maturity
is viewed as “short term” based on market convention. Typically, this means up to 13 months for corporate, sovereign,
and structured obligations and up to 36 months for obligations in U.S. public finance markets.
F1
- Indicates the strongest intrinsic capacity for timely payment of financial commitments; may have an added “+” to
denote any exceptionally strong credit feature.
F2
- Good intrinsic capacity for timely payment of financial commitments.
F3
- The intrinsic capacity for timely payment of financial commitments is adequate.
B
- Minimal capacity for timely payment of financial commitments, plus heightened vulnerability to near term adverse changes in
financial and economic conditions.
C
— Default is a real possibility.
RD
— Indicates an entity that has defaulted on one or more of its financial commitments, although it continues to meet other
financial obligations. Typically applicable to entity ratings only.
D
— Indicates a broad-based default event for an entity, or the default of a short-term obligation.
Appendix
B—Proxy voting guidelines
U.S.
Registered Advisers (the “abrdn Advisers”)
Proxy
Voting Guidelines
Effective
as of October 26, 2022
Rule
206(4)-6 under the Investment Advisers Act of 1940, as amended (the “Advisers Act”) requires the abrdn Advisers to
vote proxies in a manner consistent with clients’ best interest and must not place its interests above those of its clients
when doing so. It requires the abrdn Advisers to: (i) adopt and implement written policies and procedures that are reasonably
designed to ensure that the abrdn Advisers vote proxies in the best interest of the clients, and (ii) to disclose to the clients
how they may obtain information on how the abrdn Advisers voted proxies. In addition, Rule 204-2 requires the abrdn Advisers to
keep records of proxy voting and client requests for information.
As
registered investment advisers, the abrdn Advisers have an obligation to vote proxies with respect to securities held in its client
portfolios in the best interests of the clients for which it has proxy voting authority.
The
abrdn Advisers are committed to exercising responsible ownership with a conviction that companies adopting best practices in corporate
governance will be more successful in their core activities and deliver enhanced returns to shareholders.
The
abrdn Advisers have adopted a proxy voting policy. The proxy voting policy is designed and implemented in a way that is reasonably
expected to ensure that proxies are voted in the best interests of clients.
Resolutions
are analysed by a member of our regional investment teams or our Active Ownership Team and votes instructed following consideration
of our policies, our views of the company and our investment insights. To enhance our analysis, we will often engage with a company
prior to voting to understand additional context and explanations, particularly where there is a deviation from what we believe
to be best practice.
Where
contentious issues arise in relation to motions put before a shareholders’ meeting, abrdn Advisers will usually contact
the management of the company to exchange views and give management the opportunity to articulate its position. The long-term
nature of the relationships that we develop with investee company boards should enable us to deal with any concerns that we may
have over strategy, the management of risk or governance practices directly with the chairman or senior independent director.
In circumstances where this approach is unsuccessful, abrdn Advisers are prepared to escalate their intervention by expressing
their concerns through the company’s advisers, through interaction with other shareholders or attending and speaking at
General Meetings.
In
managing third party money on behalf of clients, there are a limited number of situations where potential conflicts of interest
could arise in the context of proxy voting. One case is where funds are invested in companies that are either clients or related
parties of clients. Another case is where one fund managed by abrdn invests in other funds managed by abrdn.
For
cases involving potential conflicts of interest, abrdn Advisers have implemented procedures to ensure the appropriate handling
of proxy voting decisions. The guiding principle of abrdn Advisers’ conflicts of interest policy is simple – to exercise
our right to vote in the best interests of the clients on whose behalf we are managing funds.
We
employ ISS as a service provider to facilitate electronic voting. We require ISS to provide recommendations based on our own set
of parameters to tailored abrdn’s assessment and approach but remain conscious always that all voting decisions are our
own on behalf of our clients. We consider ISS’s recommendations and those based on our custom parameters as input to our
voting decisions. We make use of the ISS standard research and recommendations and those based on our own custom policy as input
to our voting decisions. Where our analysts make a voting decision that is different from the recommendations based on our custom
policy they will provide a rationale for such decisions which will be made publicly available in our voting disclosures.
In
order to make proxy voting decisions, an abrdn analyst will assess the resolutions at general meetings in our active investment
portfolios. This analysis will be based on our knowledge of the company, but will also make use of the custom and standard recommendations
provided by ISS as described above. The product of this analysis will be final voting decision instructed through ISS applied
to all funds for which abrdn have been appointed to vote. For funds managed by a sub-adviser, we may delegate to the sub-adviser
the authority to vote proxies; however, the sub-adviser will be required to either follow our policies and procedures or to demonstrate
that their policies and procedures are consistent with ours, or otherwise implemented in the best interest of clients.
There
may be certain circumstances where abrdn may take a more limited role in voting proxies. We will not vote proxies for client accounts
in which the client contract specifies that abrdn will not vote. We may abstain from voting a client proxy if the voting is uneconomic
or otherwise not in clients’ best interests. For companies held only in passively managed portfolios the abrdn custom recommendations
provided by ISS will be used to automatically apply our voting approach; we have scope to intervene to test that this delivers
appropriate results, and will on occasions intrude to apply a vote more fully in clients’ best interests. If voting securities
are part of a securities lending program, we may be unable to vote while the securities are on loan. However, we have the ability
to recall shares on loan or to restrict lending when required, in order to ensure all shares have voted. In addition, certain
jurisdictions may impose share-blocking restrictions at various times which may prevent abrdn from exercising our voting authority.
We
recognize that there may be situations in which we vote at a company meeting where we encounter a conflict of interest. Such situations
include:
| • | where
a portfolio manager owns the holding in a personal account |
| • | An
investee company that is also a segregated client |
| • | An
investee company where an executive director or officer of our company is also a director
of that company |
| • | An
investee company where an employee of abrdn is a director of that company |
| • | A
significant distributor of our products |
| • | Any
other companies which may be relevant from time to time |
In
order to manage such conflicts of interests, we have established procedures to escalate decision-making so as to ensure that our
voting decisions are based on our clients’ best interests and are not impacted by any conflict.
The
implementation of this policy, along with conflicts of interest, will be reviewed periodically by the Active Ownership team. abrdn’s
Global ESG Principles & Voting Policies are published on our website.
To
the extent that an abrdn Adviser may rely on sub-advisers, whether affiliated or unaffiliated, to manage any client portfolio
on a discretionary basis, the abrdn Adviser may delegate responsibility for voting proxies to the sub-adviser. However, such sub-advisers
will be required either to follow these Policies and Procedures or to demonstrate that their proxy voting policies and procedures
are consistent with these Policies and Procedures or otherwise implemented in the best interests of the abrdn Advisers’
clients. Clients that have not granted abrdn voting authority over securities held in their accounts will receive their proxies
in accordance with the arrangements they have made with their service providers.
As
disclosed in Part 2A of each abrdn Adviser’s Form ADV, a client may obtain information on how its proxies were voted by
requesting such information from its abrdn Adviser. Unless specifically requested by a client in writing, and other than as required
for the Funds, the abrdn Advisers do not generally disclose client-specific proxy votes to third parties.
Our
proxy voting records are available per request and on the SEC’s website at SEC.gov.
On
occasions when it is deemed to be a fiduciary for an ERISA client’s assets, abrdn will vote the Plan assets in accordance
with abrdn’s Proxy Voting Policy and in line with DOL guidance.
![](https://www.sec.gov/Archives/edgar/data/1793855/000110465923126835/tm2328854d1_sp8img001.jpg)
Contents
Introduction |
3 |
|
Dividends |
14 |
![](https://www.sec.gov/Archives/edgar/data/1793855/000110465923126835/tm2328854d1_sp8img002.jpg) |
Our
expectations |
3 |
|
Share
Capital |
14 |
Our
approach to stewardship |
3 |
|
Share
Issuance |
15 |
Engagement |
4 |
|
Buyback |
15 |
Proxy
Voting |
5 |
|
Related
Party Transactions |
15 |
Voting
Process |
5 |
|
Article/Bylaw
amendments |
15 |
Governance |
6 |
|
Anti-Takeover
Defences |
15 |
Strategy |
7 |
|
Voting
Rights |
16 |
Board
of Directors |
7 |
|
General
Meetings |
16 |
Board
Composition |
7 |
|
Sustainability |
17 |
Leadership |
7 |
|
The
Environment |
18 |
Independence |
8 |
|
Labour
and employment |
19 |
Succession
Planning & Refreshment |
8 |
|
Human
rights |
19 |
Diversity |
8 |
|
Business
ethics |
20 |
Directors’
Time Commitment |
9 |
|
Environmental &
Social Resolutions |
21 |
Board
Committees |
9 |
|
Management
Proposals |
22 |
Director
Accountability |
10 |
|
Shareholder
Proposals |
22 |
Reporting |
11 |
|
Climate
Change |
23 |
Political
Donations & Lobbying |
11 |
|
Diversity &
Inclusion |
23 |
Risk &
Audit |
12 |
|
Human
Rights |
24 |
Remuneration |
12 |
|
Corporate
Lobbying & Political Contributions |
24 |
Investor
Rights |
14 |
|
Nuclear
Energy |
24 |
Corporate
Transactions |
14 |
|
|
|
Listed Company ESG Principles & Voting Policies | 2 |
Introduction
Active
Ownership and Environmental, Social & Governance (ESG) considerations are a driver of our investment process, our investment activity,
our client journey and our corporate influence.
Through
engagement with the companies in which we invest, and by exercising votes on behalf of our clients, we seek to improve the financial
resilience and performance of our clients’ investments. Where we believe change is needed, we endeavour to catalyse this through
our stewardship capabilities.
|
Our
expectations
As
global investors, we are particularly aware that ESG structures and frameworks vary across regions. Furthermore, what we expect of the
companies in which we invest varies between different stages of business development and the underlying history and nature of the company
in question. We seek to understand each company’s individual circumstances and so evaluate how it can best be governed and overseen.
As such, we strive to apply the principles and policies set out on these pages in response to the needs of that individual company
at that particular time. Our heritage as a predominantly active fund manager helps drive this bespoke approach to understanding good
governance and risk management.
We
have a clear perception of what we consider to be best practice globally - as set out in this document. However we will reflect the nature
of the business, our close understanding of individual companies and regional considerations, where
appropriate, in our approach to applying these policies, which are not exhaustive.
This
document has received approval from the Head of Public Markets and the Investment Vector’s Chief Sustainability Officer following consultation
with various internal stakeholders.
Our
approach to stewardship
We
seek to integrate and appraise environmental, social and governance factors in our investment process. Our aim is to generate the best
long- term outcomes for our clients and we will actively take steps as stewards and owners to protect and enhance the value of our clients’
assets.
Stewardship
is a reflection of this bespoke approach to good governance and risk management. We seek to understand each company’s specific approach
to governance, how value is created through business success and how investors’ interests are protected through the management of risks
that materially impact business success. This requires us to play our part in the governance process by being active stewards of companies,
involved in dialogue with management and non-executive directors where appropriate, understanding the material risks and opportunities
- including those relating to environmental and social factors and helping to shape the future success of the business.
|
Listed Company ESG Principles & Voting Policies | 3 |
We
will:
▪ | Take
into consideration, in our investment process, the policies and practices on environmental,
social and governance matters of the companies in which we invest. |
| |
▪ | Seek
to enhance long-term shareholder value through constructive engagement with the companies
in which we invest. |
| |
▪ | Actively
engage with the companies and assets in which we invest where we believe we can influence
or gain insight. |
| |
▪ |
Seek to exercise voting rights,
where held, in a manner consistent with our clients’ long-term best interests. |
|
|
▪ |
Seek to influence the development
of high standards of corporate governance and corporate responsibility in relation to environmental and social factors for the benefit
of our clients. |
|
|
▪ |
Communicate our Listed Company
ESG Principles and Voting Policies to clients, companies and other interested parties. |
|
|
▪ |
Be
accountable to clients within the constraints of professional confidentiality and legislative and regulatory requirements. |
|
|
▪ |
Be transparent in reporting
our engagement and voting activities. |
abrdn
is committed to exercising responsible ownership with a conviction that companies adopting improving practices in corporate governance
and risk management will be more successful in their core activities and deliver enhanced returns to shareholders. As owners of companies,
the process of stewardship is a natural part of our investment approach as we seek to benefit from their long-term success on our clients’
behalf.
Engagement
It
is a central tenet of our active investment approach that we strive to meet with the management and directors of our investee companies
on a regular basis. The discussions we have cover a wide range of topics, including: strategic, operational, and ESG issues and consider
the long-term drivers of value. Engagement with companies on ESG risks and opportunities is a fundamental part of our investment process.
It is a process by which we can discuss how a company identifies, prioritises and mitigates its key risks and optimises its most significant
opportunities. As such, we regard engagement as:
▪ |
Important
to understanding investee companies as a whole. |
▪ |
Helpful
when conducting proper ESG analysis. |
▪ |
Useful
to maintaining open dialogue and solid relationships with companies. |
▪ |
An opportunity
to inflect positive change on a company’s holistic risk management programme - be active with our holdings rather than activist. |
Listed Company ESG Principles & Voting Policies | 4 |
Proxy
Voting
Proxy
voting is an integral part of our active stewardship approach and we seek to exercise voting rights in a manner in line with our clients’
best interests. We seek to ensure that voting reflects our understanding of the companies in which we invest on behalf of our clients.
We believe that voting is a vital mechanism for holding boards and management teams to account, and is an important tool for escalation
and shareholder action.
This
document includes our process and overarching policy guidelines which we apply when voting at general meetings. These policies are
not exhaustive and we evaluate our voting on a case by case basis. As a global investment firm we recognise the importance of
adopting a regional approach, taking into account differing and developing market practices. Where a policy is specific to one
region this is denoted.
We
endeavour to engage with companies regarding our voting decisions to maintain a dialogue on matters of concern.
Voting
Process
In
line with our active ownership approach, we review the majority of general meeting agendas convened by companies which are held in our
active equity portfolios. Analysis is undertaken by a member of our regional investment teams or our Active Ownership team and votes
instructed following consideration of our policies, our views of the company and our investment insights. To enhance our analysis we
may engage with a company prior to voting to understand additional context and explanations, particularly where there is deviation from
what we believe to be best practice.
To
supplement our own analysis we make use of the benchmark research and recommendations provided by ISS, a provider of proxy voting services.
In the UK we also make use of the Investment Association’s (IA) Institutional
Voting Information Service. We have implemented regional
voting policy guidelines with ISS which ISS applies to all meetings in order to produce customised vote recommendations. These custom
recommendations help identify resolutions which deviate from our expectations. They are also used to determine votes where a company
is held only in passive funds. Within our custom policies, however, we do specify numerous resolutions which should be referred to us
for active review. For example we will analyse all proposals marked by ISS as environmental or social proposals.
While
it is most common for us to vote in line with a board’s voting recommendation we will vote our clients’ shares against resolutions which
are not consistent with their best interests. We may also vote against resolutions which conflict with local governance guidelines,
such as the IA in the UK. Although we seek to vote either in favour or against a resolution we do make use of an abstain vote where this
is considered appropriate. For example we may use an abstention to acknowledge some improvement, but as a means to reserve our position
in expectation that further improvement is needed before we can vote in favour.
Where
we vote against a resolution we endeavour to inform companies of our rationale.
In
exceptional circumstances we may attend and speak at a shareholder meeting to reinforce our views to the company’s board.
We
endeavour to vote all shares for which we have voting authority. We may not vote when there are obstacles to do so, for example those
impacting liquidity, such as share-blocking, or where there is a significant conflict of interest. We use the voting platform of ISS
to instruct our votes.
Where
we lend stock on behalf of clients, and subject to the terms of client agreements, we hold the right to recall shares where it is in
clients’ interests and we take the view that it will impact the final vote to maintain full voting weight on a particular meeting or
resolution.
Our
votes are disclosed publicly on our website one day after a general meeting has taken place.
Listed Company ESG Principles & Voting Policies | 5 |
Listed Company ESG Principles & Voting Policies | 6 |
Governance |
![](https://www.sec.gov/Archives/edgar/data/1793855/000110465923126835/tm2328854d1_sp8img008.jpg) |
Strategy
We
invest in companies to create the best outcome for our clients. Companies must be clear about the drivers of their business success
and their strategy for maintaining and enhancing it. Investment is a forward-looking process; we seek to understand the opportunity
for a business and its scope for future value-creation over the long term. In order to do this, we need clarity on past
business delivery and its drivers, and on the effective track record of management; we require honest and open reporting to build
confidence in that track record. We seek confidence that companies and their management can maintain their competitive positioning
and operational performance and subsequently enhance returns for investors. A clear strategy and clarity about the drivers of
operational success provides the lens through which we will consider most corporate issues, not least assessing performance and risk
management.
▪ |
We will consider voting against executive or non-executive
directors if we have serious concerns regarding the oversight or implementation of strategy. |
Board
of Directors
We
believe effective board governance promotes the long-term success and value creation of the company.
The
board should be responsible for establishing the company’s purpose and strategy, overseeing management in their
implementation of strategy and performance against objectives. The board should ensure a strong framework of control and risk
oversight, including material ESG risks. The board should assess and monitor culture and be engaged with the workforce, shareholders
and wider society.
Board
Composition
Effective
decision making requires a mix of skills around the table and constructive debate between diverse and different-minded individuals. A
range of skills, experience and perspectives should be drawn together on the board.
These
include industry knowledge, experience from other sectors and relevant geographical knowledge. Independence of thought plays a
crucial role in the ability of a board to generate the debate and discussion that will challenge management, help enhance business
performance and improve decision-making. Board assessments will help the board ensure it has the necessary mix of skills,
diversity and quality of individuals to address the current risks and opportunities the company faces. Unitary boards should
comprise an appropriate combination of executive and non-executive directors such that no group of individuals dominates decision-making. We expect the size of the board to reflect the
size, nature and complexity of the business. We also expect regular internal and external board evaluations which include an
assessment of board composition and effectiveness.
Leadership
Running
businesses effectively for the long term requires effective collaboration and cooperation, with no individual or small group having unfettered
powers. Nor should they have dominant influence over the way a business is run or over major decisions about its operations or
future. There should be a division of responsibility between board leadership and executive leadership of the business.
We
believe that there should be a division of roles at the top of the organisation, typically between a Chief Executive Officer (CEO) and
an independent Chair.
▪ |
We will consider supporting the re-election of an existing
Chair & CEO role combination, recognising that this remains common in certain geographies. In reviewing on a case by case
basis we will take account of the particular circumstances of the company and consider what checks and balances are in place, such
as the presence of a strong Senior Independent Director with a clear scope of responsibility. |
▪ |
We will generally oppose any re-combination of the
roles of CEO and Chair, unless the move is on a temporary basis due to exceptional circumstances or other mitigating factors. |
▪ |
We will generally oppose any move of a retiring
CEO to the role of Chair. |
Listed Company ESG Principles & Voting Policies | 7 |
Governance
Independence
Companies
should be led and overseen by genuinely independent boards. When looking at board composition we generally expect to see a majority of
independent directors, with boards identifying their independence classifications in the Annual Report. It is preferable to see an identified
Senior Independent Director (SID) on the board, who will lead the appraisal of and succession planning for the Chair. We expect SIDs
to meet with investors and be a point of contact for escalating concerns if required.
In
assessing a director’s independence we will have due regard for whether a director:
i. |
Has been an employee of the company within the last
five years. |
ii. |
Has had within the last three years a material business
relationship with the company. |
iii. |
Has received remuneration in addition to director fees
or participates in the company’s option or variable incentive schemes, or is a member of the company’s pension scheme. |
iv. |
Has close family ties with any of the company’s advisers,
directors or senior employees. |
v. |
Holds cross- directorships or has significant links
with other directors through involvement in other companies or bodies. |
vi. |
Represents a significant shareholder. |
vii. |
Has served on the board for more than 12 years (or
9 for UK companies). |
▪ |
We will consider voting
against the re-election of non-independent
directors if the board is not majority independent (excluding employee representatives). In
doing so we will have regard for whether a company is controlled and the nature of the non-independence - for example, we are unlikely
to vote against shareholder representatives unless their representation is disproportionate to their shareholding. |
Succession
Planning & Refreshment
Regular
refreshment of the non-executive portion of a board helps draw in fresh perspectives, not least in the context of changes to business
and emerging opportunities and risks. It also helps limit the danger of group- think. Thoughtful and proactive succession planning is
therefore needed for board continuity, to ensure that a board is populated by individuals with an appropriate mix of skills, experience
and perspective.
We
expect the board to implement a formal process for the recruitment and appointment of new directors, and to provide transparency of this
in the Annual Report.
| ▪ | We will
vote against non-executive directors where there are concerns regarding board refreshment or excessive tenure. Where there are
directors who have served for over 12 years on a board which has seen no refreshment in 3 years (2 in UK), we will generally vote
against their re-election. If a director has served for over 15 years we will generally vote against their re- election. We will,
however, consider the impact on board continuity and the company’s succession planning efforts prior to doing so. We may not apply
the tenure limit to directors who are founders or shareholder representatives. |
Diversity
We
believe that companies that make progress in diversity and inclusion (D&I) are better positioned for long-term sustainability and
outperformance. Diversity of thought, paired with a culture of inclusion, can help companies to tackle increasingly complex challenges
and markets. We expect boards to report on how they promote D&I throughout the business and believe that setting targets is important
to addressing imbalances. We recognise the importance of adopting a regional approach to diversity and inclusion, allowing us to press
for progress with appropriate consideration for the starting point. We have for several years, actively encouraged progress in gender
diversity at all levels, and have expanded our scope in relation to diversity and inclusion across geographies. In respect of ethnic
diversity, this is coming increasingly into focus as we encourage boards to progress in ensuring that their composition reflects their
employee and customer bases.
Listed Company ESG Principles & Voting Policies | 8 |
Governance |
![](https://www.sec.gov/Archives/edgar/data/1793855/000110465923126835/tm2328854d1_sp8img009.jpg) |
Our
regional specific policies are below. In determining our votes we will take account of mitigating factors, such as the sudden
departure of a female board member. We will also consider any clear progress being made by the company on diversity and any
assurance that diversity shortfalls will soon be addressed.
Gender
Diversity
▪ |
UK:
We will generally vote against the Nomination Committee Chair of FTSE 350 companies if the board is not comprised of at least one third
female directors. For smaller companies, we will take this action if the board does not include at least one female director. |
|
|
▪ |
Europe: We will generally vote
against the Nomination Committee Chair of LargeCap companies if the supervisory board is not comprised of at least 30% female directors,
or is not in line with the local standard if higher. For smaller companies, we will take this action if the supervisory board does
not include at least one female director. |
▪ |
Australia: We will generally
vote against the Nomination Committee Chair of ASX300 companies if the board is not comprised of at least 30% female directors. |
|
|
▪ |
North
America: We will generally vote against the Nomination Committee Chair of LargeCap companies if the board is not comprised of at least
30% female directors. For smaller companies, we will take this action if the board does not include at least one female director |
|
|
Ethnic
Diversity |
|
|
▪ |
UK:
We will generally vote against the Nomination Committee Chair at the boards of FTSE 100 companies, if the board does not include at least
one member from an ethnic minority background. This is in line with targets set up by the Parker Review. |
|
|
▪ |
US:
We will generally vote against the Nomination Committee Chair at the boards of S&P 1500 & Russell 3000 companies if the
board does not include at least one member from a racial or ethnic minority background. |
Directors’
Time Commitment
Individual
directors need sufficient time to carry out their role effectively and therefore we seek to ensure that all directors maintain an appropriate
level of overall commitments such that allows them to be properly diligent.
▪ |
We will consider opposing the
election or re-election of any director where there is a concern regarding their ability to dedicate sufficient time to the role.
In making this assessment we will have regard for the ISS classification of ‘overboarding’. |
▪ |
We will
generally oppose the re-election of any director who has attended fewer than 75% of board meetings in two consecutive years. |
Board
Committees
Boards
should establish committees, populated by independent and appropriately skilled non-executive directors, to oversee (as a minimum) the
nomination, audit and remuneration processes. It may also be appropriate for additional committees to be established, such as a risk
or sustainability committee. These committees should report openly on an annual basis about their activities and key decisions taken.
▪ |
We will consider voting against
committee members if we have concerns regarding the composition of a committee. |
Nomination
Committee
This
committee has responsibility for leading the process for orderly non-executive and senior management succession planning and recruitment,
and for overseeing the composition of the board including skillset, experience and diversity. We expect the committee to be comprised
of a majority of independent directors with an independent Chair.
▪ |
We will consider voting against
the re-election of the Nomination Committee Chair if we have concerns regarding the composition of the board or concerns regarding
poor succession planning. |
Listed Company ESG Principles & Voting Policies | 9 |
Governance
Audit Committee
This committee has
responsibility for monitoring the integrity of the financial statements, reviewing the company’s internal financial controls and
risk management systems, reviewing the effectiveness of the company’s internal audit function and appointing auditors. While we
prefer the committee to be wholly independent, at minimum we expect the committee to be comprised of a majority of independent
directors with an independent Chair and at least one member having recent and relevant financial experience.
| ▪ | We will generally vote against the re-election of the Audit Committee Chair if at least one member
of the Committee does not have recent and relevant financial experience. |
Remuneration Committee
This committee is responsible for determining the policy and setting
remuneration for executive and non-executive directors. The committee should ensure that remuneration is aligned with strategy and company
performance and should clearly demonstrate regard for the company’s employees, for wider society and be cognisant of the company’s licence
to operate when considering policy and the overall level of remuneration. We expect remuneration committees to be robust in their approach
to developing and implementing remuneration policies, with formal and transparent procedures for developing policies and for determining
remuneration packages. Remuneration committees should be comprised of a majority of independent directors with an independent Chair and
we expect members to have appropriate experience and knowledge of the business. No executive should be involved in setting their own
remuneration.
▪ |
Where
we have significant concerns regarding the company’s remuneration policy or reward outcomes we may escalate these concerns through
a vote against the Chair or members of the Remuneration Committee. |
Director Accountability
We expect to be able to hold boards to account through engagement
and regular director re-elections and directors should feel that they are accountable to investors. We encourage individual, rather
than bundled, director elections. While our preference is for directors to be subject to re-election annually, we expect
re-elections to take place at least every three years. Lengthier board mandates, while not uncommon in some markets, risk divorcing
directors from an appropriate sense of accountability. Directors and management should make themselves available for discussions
with major shareholders as we expect to have open dialogue to share our perspectives and gain confidence that the individuals are
carrying out their roles with appropriate vigour and diligence. A further important element of director accountability to
shareholders is that investors should have the right, both formal and informal, to propose and promote individual directors to be
considered for election to the board by all shareholders.
▪ |
We
will generally oppose the re-election of non-independent NEDs who are proposed for a term exceeding three years. We may not apply
this to directors who are shareholder representatives. |
▪ |
Where
we have significant concerns regarding a board member’s performance, actions or inaction to address issues raised we may vote against
their re-election. |
▪ |
We may
vote against directors who decline appropriate requests for meeting without a clear justification. |
▪ |
Where
a director has held a position of responsibility at a company which has suffered a material governance failure, we will consider
whether we are comfortable to support their re-election at other listed companies. |
▪ |
We will
generally support resolutions to discharge the supervisory board or management board members unless we have serious concerns regarding
actions taken during the year under review. Where there is insufficient information
regarding allegations of misconduct, we may prefer to abstain. In exceptional circumstances we may vote against the discharge
resolution to reflect serious ESG concerns if there is not another appropriate resolution. |
▪ |
We will
not support the election of directors who are not personally identified but are proposed as corporations. |
Listed Company ESG Principles & Voting Policies | 10 |
Governance
Reporting
A company’s board should present a fair, balanced and understandable
assessment of the company’s position and prospects - financial and non-financial - and of how it has fulfilled its responsibilities.
We support the principle of full disclosure of relevant and useful information, subject to issues of commercial confidentiality and prejudice.
Boilerplate disclosure should be avoided. We encourage companies to consider using the appropriate globally developed standards and would
particularly encourage the use of those created by the Taskforce for Climate related Financial Disclosures (TCFD), the International Integrated
Reporting Council (IIRC), the Sustainability Accounting Standards Board (SASB) and the Global Reporting Initiative (GRI). Audited reporting
and financial numbers should be published ahead of any relevant shareholder meetings. We continue to monitor the evolving reporting landscape
and consider new reporting developments as they emerge, either voluntary or regulatory.
▪ |
We
may consider voting against a company’s Annual Report & Accounts if we have concerns regarding timely provision or disclosure. |
Political Donations & Lobbying
Companies should be consistent in their
public statements and not undermine these in private commentary to market participants or to politicians and regulators. We welcome
transparency from companies about their lobbying activities and believe that good companies have nothing to hide in this respect.
Similarly we encourage transparency of any political donations that companies deem appropriate - and we expect a clear explanation
of why such donations are an appropriate use of corporate funds.
![](https://www.sec.gov/Archives/edgar/data/1793855/000110465923126835/tm2328854d1_sp8img010.jpg)
![](https://www.sec.gov/Archives/edgar/data/1793855/000110465923126835/tm2328854d1_sp8img011.jpg)
Listed Company ESG Principles & Voting Policies | 11 |
Governance
|
![](https://www.sec.gov/Archives/edgar/data/1793855/000110465923126835/tm2328854d1_n148c-img01.jpg) |
Risk & Audit
The board is responsible for determining the company’s risk appetite,
establishing procedures to manage risk and for monitoring the company’s internal controls. We expect boards to conduct robust assessments
of the company’s material risks and report to shareholders on risks, controls and effectiveness. The introduction of global accounting
standards has led to much greater investor confidence in the accounts produced by companies around the world. It has also assisted in
creating consistency of reporting across companies, enabling fairer comparisons between different operating businesses. We therefore
encourage companies seeking international investment to report under International Financial Reporting Standards (IFRS) or US GAAP. As
a firm abrdn supports the continued development of high quality global accounting standards.
An independent audit, delivered by a respected audit firm, is a
required element for investor confidence in reporting by companies. We strongly favour meaningful, transparent and informative
auditor reports, giving us additional insights into the audit process and accounting outcomes. Audit fees must be sufficient to pay
for an appropriately in-depth assurance process. We would be concerned if a company sought to make savings in this respect as the
cost in terms of damage to audit effectiveness and confidence in the company’s accounts would be much more substantial.
The independence of the auditor and the
standard of their work, particularly in challenging management, should be subject to regular assessment that is appropriately disclosed.
Even when individuals carrying out the audit are refreshed, we believe that the independence of the audit firm erodes over time and we
will encourage a tender process and change of audit firm where an engagement has lasted for an extended period. In order to demonstrate
the level of independence, companies should not have the same audit firm in place for more than 20 years.
The relationship with the auditor should be mediated through the audit
committee. Where we are significant shareholders, we expect to be consulted on plans to tender and replace auditors.
▪ |
We will generally vote against the re-election of an
auditor which has a tenure of 20 years or over, if there are no plans for rotation in the near term. |
▪ |
We
will consider voting against the auditors if we have concerns regarding the accounts presented or the audit procedures used. |
▪ |
We will vote against the approval of auditor fees if
we have concerns regarding the level of fees or the balance of non-audit and audit fees. |
Remuneration
Remuneration policies and the overall levels
of pay should be aligned with strategy, attracting and retaining talent and incentivising the decisions and behaviours needed to create
long-term value. The component parts of remuneration should be structured so as to link rewards to corporate and individual performance
and they should be considered in the context of the remuneration policies when taken as a whole. We recognise the benefits of simplicity
in forming the policy, which should clearly link outcomes and expectations for those receiving the remuneration, as well as external
stakeholders. The structure should be transparent and understandable.
A company’s annual report should contain an informative statement of
remuneration policy which communicates clearly to stakeholders how it has developed and evolved. This should include details of any stress
testing that may have been undertaken to understand the policy outcomes for different business scenarios. The remuneration committee
should provide a clear description of the application of policy and the outcomes achieved.
Listed Company ESG Principles & Voting Policies | 12 |
Governance
|
![](https://www.sec.gov/Archives/edgar/data/1793855/000110465923126835/tm2328854d1_sp8img013.jpg) |
Base salary should be set at a level appropriate for the role and
responsibility of the executive. We discourage increases which are driven by peer benchmarking, and expect increases to be aligned
with the wider workforce. Consideration should also be given to the knock on impact to variable remuneration potential. Pension
arrangements and benefits should be clearly disclosed. We generally expect pension structures to be aligned with the wider
workforce.
A company should structure variable, performance-related pay to
incentivise and reward management in a manner that is aligned with the company’s sustainable performance and risk appetite over the
long term. We expect all variable pay to be capped, preferably as a proportion of base salary. In the UK we expect variable pay to
be capped as a proportion of salary. In other markets, if variable pay is capped at a number of shares, we expect the value of
grants to be kept under review annually to ensure the value remains appropriate and is not excessive.
Performance metrics used to determine
variable pay should be clearly disclosed and aligned with the company’s strategy. A significant portion of performance metrics
should seek to measure significant improvements in the underlying financial performance of the company. We also encourage the
inclusion of non-financial metrics linked to targets which are aligned with the company’s progress on its ESG strategy. Where
possible we expect these targets to be quantifiable and disclosed.
Variable pay arrangements should incentivise participants to
achieve above-average performance through the use of challenging targets. We encourage sliding-scale performance measures and expect
performance target ranges to be disclosed to enable shareholders to assess the level of challenge and pay for performance alignment.
We expect annual bonus targets to be disclosed retrospectively and encourage the disclosure of long term incentive (LTI) targets at
the beginning of the performance period, but at minimum we expect retrospective disclosure. Where bonus or LTI targets are not
disclosed due to commercial sensitivity we expect an explanation of why the targets continue to be considered sensitive
retrospectively and expect some detail regarding the level of achievement vs target. Where a share price metric is being used, we
expect this to be underpinned by a challenging measure of underlying performance.
We encourage settlement of a portion of the annual bonus in shares
which are deferred for at least one year.
We expect settlement of long term incentives to be in shares,
with rationale provided for any awards settled in cash. Long term incentives should have a performance period of no less than three years.
In the UK we expect a further holding period of two years to be applied, and we encourage this in other markets.
We do not generally support restricted share schemes or value creation
plans. We will consider supporting the use of restricted share plans which have been structured consistent with the guidelines of the
Investment Association.
We expect appropriate malus and clawback provisions to be applied
to variable remuneration plans.
We expect shareholding guidelines to be adopted for executive directors
and encourage the adoption of post-departure shareholding guidelines.
We expect details of any use of discretion to be disclosed and its
use should be justifiable, appropriate and clearly explained. We would expect policies to be sufficiently robust so that discretion is
only necessary in exceptional circumstances. We do not generally support exceptional awards, and are particularly sensitive to such awards
being granted to reward a corporate transaction.
We expect executive service contracts to provide for a maximum notice
period of 12 months. We will consider local best practice provisions related to severance arrangements when voting.
Non-executive fees should reflect the role’s level of responsibility
and time commitment. We do not support NED’s participation in option or performance-related arrangements. However we do support the payment
of fees in shares, particularly where conservation of cash is an issue.
In the UK our expectations of companies
are aligned with the Investment Association’s Principles of Remuneration.
Where significant changes to remuneration arrangements are being considered, we would expect remuneration committees to consult with their
largest shareholders prior to finalising any changes. Where any increase to variable remuneration is proposed, we would expect this to
be accompanied by a demonstrable increase in the stretch of the targets. Furthermore we expect any increases to remuneration to be subject
to shareholder approval.
Listed Company ESG Principles & Voting Policies | 13 |
Governance
In response to the issues arising from the cost of living
crisis being experienced by many people in the UK, we expect companies to focus any additional help towards those members of the workforce
who need it most. We expect Remuneration Committees to take into account factors arising from the cost of living crisis when deliberating
over executive pay outcomes. We would be concerned by reputational issues arising from decisions made in these unusual circumstances and
may make this a factor in our voting decisions at relevant AGMs.
In
line with the expectations set out above we will generally vote against the appropriate resolution(s) where:
▪ | We consider the overall reward
potential or outcome to be excessive. |
| |
▪ |
A
significant increase to salary has been granted which is not aligned with the workforce or is not sufficiently justified. |
|
|
▪ |
A
significant increase to performance-related pay has been granted which is not sufficiently justified, is not accompanied by an increase
in the level of stretch required for achievement or results in the potential for excessive reward. |
|
|
▪ | There is no appropriate cap on
variable incentive schemes. |
| |
▪ | Performance targets for annual
bonus awards are not disclosed retrospectively and the absence of disclosure is not explained. |
| |
▪ |
Performance
targets for long term incentive awards are not disclosed up front and there is no compelling explanation regarding the absence of
disclosure or a commitment to disclose retrospectively. |
|
|
▪ |
Performance
targets are not considered sufficiently challenging, either at threshold, target or maximum. |
|
|
▪ | Relative performance targets allow
vesting of awards for below median performance. |
| |
▪ | Retesting provisions
apply. |
| |
▪ | Incentives that have been
conditionally awarded have been repriced or performance conditions changed part way through a performance period. |
| |
▪ |
We
have concerns regarding the use of discretion or the grant of exceptional awards. |
|
|
▪ |
Pension
arrangements are excessive. |
|
|
▪ |
Pension
arrangements are not aligned with the wider workforce (UK). |
Investor Rights
The interests of minority shareholders
must be protected and any major, or majority, investor should not enjoy preferential treatment. The structure of ownership or control
should minimise the potential for abuse of public shareholders.
Corporate Transactions
Companies should not make significant
changes to their structure or nature without being fully transparent to their investors. Shareholders should have the opportunity to
vote on significant corporate activity, such as mergers and acquisitions. Where a transaction is with a related party, only independent
shareholders should have a vote. Even in markets where no vote is given to shareholders in these circumstances, investors need transparent
disclosure of the reasons for any such major change. Companies should expect that shareholders may want to discuss and debate proposed
developments
Diversification
beyond the core skills of the business needs to be justified as it is more often than not a distraction from operational performance.
All major deals need to be clearly explained and justified in the context of the pre-existing strategy and be subject to shareholder
approval.
▪ |
We
will vote on corporate transactions on a case by case basis. |
Dividends
We will generally support the payment
of dividends but will scrutinise the proposed level where it appears excessive given the company’s financial position.
Share Capital
The board carries responsibility for
prudent capital management and allocation.
![](https://www.sec.gov/Archives/edgar/data/1793855/000110465923126835/tm2328854d1_n148c-img02.jpg)
Listed Company ESG Principles & Voting Policies | 14 |
| Governance | ![](https://www.sec.gov/Archives/edgar/data/1793855/000110465923126835/tm2328854d1_sp8img014.jpg) |
Share Issuance
We will consider capital raises which
are proposed for a specific purpose on a case by case basis but recognise that it can be beneficial for companies to have some
general flexibility to issue shares to raise capital. However we expect issuances to be limited to the needs of the business and
companies should not issue significant portions of shares unless offering these on a pro-rata basis to existing shareholders to
protect against inappropriate dilution of investments.
| ▪ | Where a company seeks a general authority to issue shares we generally expect this to be limited to
25% of the company’s share capital for pre-emptive issuances. In the UK we are aligned with the guidance of the Investment
Association Share Capital Management Guidelines. |
▪ |
Where a company seeks a general authority to issue
shares we generally expect this to be limited to 10% of the company’s share capital for non-pre-emptive issuances. In
the UK we are aligned with the guidance of the Investment Association Share Capital Management Guidelines and those of the Pre-Emption
Group. |
▪ |
We will not generally support share issuances at investment
trusts unless there is a commitment that shares would only be issued at a price at or above net asset value. |
When considering our votes we will, however, take account of the company’s
circumstances and any further detail regarding proposed capital issuance authorities prior to voting.
Following changes to the UK’s Pre-Emption Group Guidelines in November 2022, which reflect an increase on previous limits, we will
hold the Chair of the company accountable for any perceived misuse of the increased flexibility through a vote against their re-election.
Buyback
We recognise that share buybacks can be a flexible means of returning
cash to shareholders.
▪ We
will generally support buyback authorities of up to 10% of the issued share capital.
Related Party Transactions
The nature of relations - particularly any related party
transactions (RPTs)- with parent or related companies, or other major investors, must be disclosed fully. Related party transactions
must be agreed on arm’s length terms and be made fully transparent. Where they are material, they should be subject to the approval
of independent shareholders.
|
▪ |
We will vote against RPTs where there is insufficient
transparency of the nature of the transaction, the rationale, the terms or the views
and assessment of directors and advisors. |
Article/Bylaw amendments
While it is standard to see proposals from companies to amend their
articles of association or bylaws, we will review these on a case by case basis. When doing so we expect full transparency of the proposed
changes to be disclosed.
|
▪ |
We will vote against amendments which will reduce shareholder
rights. |
Anti-Takeover Defences
There should be no artificial structures
put in place to entrench management and protect companies from takeover. The best defence from hostile takeover is strong operational
delivery.
|
▪ |
We will generally vote against anti-takeover/‘poison
pill’ proposals. |
Listed Company ESG Principles & Voting Policies | 15 |
Governance
|
![](https://www.sec.gov/Archives/edgar/data/1793855/000110465923126835/tm2328854d1_sp9img001.jpg) |
Voting
Rights
We are strong supporters of the principle of ‘one share, one vote’ and therefore favour equal voting rights for all shareholders.
| ▪ | We will generally vote against proposals which seek to introduce or continue capital structures
with multiple voting rights. |
|
▪ |
We will consider voting
against proposals to raise new capital at companies with multiple share classes and voting rights. |
General
Meetings
Shareholder meetings provide an
important opportunity to hold boards to account not only through voting on the proposed resolutions but also by enabling investors
the opportunity to raise questions, express views and emphasise concerns to the entire board. We may make a statement at a company’s
AGM as a means of escalation to reinforce our views to a company’s board.
We welcome the opportunity to attend
meetings virtually, being of the view that this can increase participation given obstacles such as location or meeting
concentration. However we are not supportive of companies adopting virtual-only meetings as we believe this format reduces
accountability. Our preference is for a hybrid meeting format to balance the flexibility of remote attendance with the
accountability of an in-person meeting.
▪ |
We will generally support resolutions seeking approval
to shorten the EGM notice period to minimum 14 days, unless we have concerns regarding previous inappropriate use of this flexibility. |
▪ |
We will generally support proposals to enable virtual
meetings to take place as long as there is confirmation that the format will be hybrid, with physical meetings continuing to take
place (unless prohibited by law). We expect virtual attendees to have the same rights to
speak and raise questions as those attending in-person. |
![](https://www.sec.gov/Archives/edgar/data/1793855/000110465923126835/tm2328854d1_sp9img002.jpg)
Listed Company ESG Principles & Voting Policies | 16 |
Listed Company ESG Principles & Voting Policies | 17 |
Sustainability
As
part of strategic planning, boards need to have oversight of, and clearly articulate, the key opportunities and risks affecting the sustainability
of the business model. This includes having a process for, and transparent disclosure of, potential and emerging opportunities and risks
and the actions being taken to address them.
The
effective management of risks extends to long- term issues that are hard to measure and whose timeframe is uncertain and will include
the management of environmental and social issues. We use the UN Global Compact’s four areas of focus in assessing how companies are
performing in this area.
Specifically
we expect companies to be able to demonstrate how they manage their exposures under the following headings.
The
Environment
It
is generally accepted that companies are responsible for the effects of their operations and products on the environment. The steps
they take to assess and reduce those impacts can lead to cost savings and reduce potential reputational damage. Companies are responsible
for their impact on the climate and they face increased regulation from world governments on activities that contribute to climate change.
We
expect that companies will:
▪ |
Identify,
manage and reduce their environmental impacts. |
▪ |
Understand
the impact of climate change along the company value chain. |
▪ |
Develop
group-level climate policies and, where relevant, set targets to manage the impact, report on policies, practices and actions taken
to reduce carbon and other environmental risks within their operations. |
▪ |
Comply
with all environmental laws and regulations, or recognised international best practice as a minimum. |
Where we have serious concerns regarding a board’s actions, or inaction, in relation to the environment we will consider taking
voting action on an appropriate resolution. We will use the indicators within the Carbon Disclosure Project to identify companies which
are not fulfilling their climate commitments. Where appropriate we will take voting action to encourage better practice among companies
which we deem to be laggards.
Listed Company ESG Principles & Voting Policies | 18 |
Sustainability
Labour
and employment
Companies that respect internationally
recognised labour rights and provide safe and healthy working environments for employees are likely to reap the benefits. This approach
is likely to foster a more committed and productive workforce, and help reduce damage to reputation and a company’s license to operate.
We expect companies to comply with all employment laws and regulations and adopt practices in line with the International Labour Organization’s
core labour standards. a minimum.
In particular, companies will:
▪ |
Take
affirmative steps to ensure that they uphold decent labour standards. |
|
|
▪ |
Adopt
strong health and safety policies and programmes to implement such policies. |
▪ |
Adopt
equal employment opportunity and diversity policies and a programme for ensuring compliance with such policies. |
|
|
▪ |
Adopt
policies and programmes for investing in employee training and development. |
|
|
▪ |
Adopt
initiatives to attract and retain talented employees, foster higher productivity and quality, and encourage in their workforce a
commitment to achieving the company’s purpose. |
|
|
▪ |
Ensure
policies are in place for a company’s suppliers that promote decent labour standards, and programmes are in place to ensure high
standards of labour along supply chains. |
|
|
▪ |
Report
regularly on its policy and implementation of managing human capital. |
Where
we have serious concerns regarding a board’s actions, or inaction, in relation to labour and employment we will consider taking voting
action on an appropriate resolution.
Human
rights
We
recognise the impact that human-rights issues can have on our investments and the role we can play in stimulating progress. We draw
upon a number of international, legal and voluntary agreements for guidance on human-rights
responsibilities and compliance. Our primary sources are the International
Bill of Rights and the core conventions of the International Labour Organisation (ILO), which form the list of internationally
agreed human rights, and the UN Guiding Principles on Business and Human Rights (UNGPs), which clarifies the roles of states and
businesses. We encourage companies to use the UNGPs Reporting Framework and encourage disclosure in line with this
guidance.
We
expect companies to:
▪ |
Continually
work to understand their actual and potential impacts on human rights. |
▪ |
Establish
systems that actively ensure respect for human rights. |
▪ |
Take
appropriate action to remedy any infringements on human rights. |
Where
we have serious concerns regarding a board’s actions, or inaction, in relation to human rights we will consider taking voting action
on an appropriate resolution.
|
![](https://www.sec.gov/Archives/edgar/data/1793855/000110465923126835/tm2328854d1_sp9img005.jpg) |
Listed Company ESG Principles & Voting Policies | 19 |
Sustainability
Business
ethics
As
institutions of
wealth and influence, companies
have a significant impact on
the prosperity
of their local communities
and the wider world. Having
a robust code of ethics and ensuring
professional conduct mean companies operate more effectively, particularly when it
comes to ethical principles governing
decision-making. A company’s failure to
conform to internationally recognised
standards of business ethics on matters
such as bribery and corruption, can increase
its risk of facing
investigation, litigation and fines.
This could undermine
its license
to operate, and affect its
reputation and image.
We
expect companies to have policies
in place
to support the following:
▪ | Ethics
at
the heart of the organisation’s
governance. |
| |
▪ | A zero-tolerance policy on bribery and corruption. |
| |
▪ | How people
are rewarded,
as pay can influence
behaviour. |
| |
▪ | Respect for
human rights. |
| |
▪ | Tax transparency. |
| |
▪ | Ethical training
for employees. |
Where
we have serious concerns regarding a board’s
actions, or
inaction, related to
business ethics we will consider taking voting action on an appropriate resolution.
![](https://www.sec.gov/Archives/edgar/data/1793855/000110465923126835/tm2328854d1_sp9img006.jpg)
Listed Company ESG Principles & Voting Policies | 20 |
Listed Company ESG Principles & Voting Policies | 21 |
Environmental
& Social
Resolutions
We
will review any resolution at company meetings which ISS has identified as covering environmental and social factors. The following will
detail our overarching approach and expectations.
Our
approach to vote analysis is consistent across active and quantitative
investment strategies:
▪ | Review
the resolution, proponent
and board statements, existing disclosures, and external research. |
▪ | Engage with
the company, proponents, and other stakeholders as required. |
▪ | Involve thematic
experts, regional specialists, and investment analysts in decision-making
to harness a wide range of expertise and include
all material factors in our
analysis. |
▪ | Ensure consistency
by using our own in-house
guidance to frame case-by-case
analysis. |
▪ | Monitor the
outcomes of votes. |
▪ | Follow-up with on-going
engagement as required. |
Given
the nature of the topics covered by these
resolutions we do not apply binary voting policies. We
adopt a nuanced approach to our voting research
and outcomes and will consider the specific
circumstances of the company concerned. Our objective is
not to vote in favour of all
shareholder resolutions but to determine the
best outcome for the company
in the context of the best outcome for our clients. There
are instances where we are supportive
of the spirit of a resolution
however there may be a reason
which prevents our support for the proposal.
For example, where the purpose of the
resolution is unclear, where the wording is overly
prescriptive, when suggested implementation is overly burdensome
or where the proposal strays too closely to
the board’s responsibility for
setting the company’s strategy.
Management
Proposals
We are
supportive of the steps being
taken by companies to provide transparent, detailed reporting of their ESG
strategies and targets. While shareholder proposals on environmental and social topics have
been common on AGM agendas for several years, an increasing number
of companies are presenting management proposals, such as so called ’say
on climate’ votes, for shareholder approval. While we welcome the intention of
accountability behind these votes, we have reservations about
the potential for them to
limit the scope for subsequent investor
challenge and diminish the direct responsibility and
accountability of the board and individual directors. We believe
it is the role of the board
and the executive to develop and apply strategy, including
ESG strategies, and we will continue to use existing voting items
to hold boards to account
on the implementation of these strategies. As active investors
we also regularly engage with investee
companies on ESG topics and
find this dialogue to
be the best opportunity to
provide feedback.
We will review the appropriateness of ’say on climate’ votes and consider if other voting mechanisms should be applied to
ensure both Boards and Executives apply the appropriate rigour to initiate and deliver strategies to support the climate transition.
Shareholder
Proposals
The number
of resolutions focused on environmental and social (E&S) issues filed
by shareholders continues to
grow rapidly. The following
provides an overview of some of the factors we consider when assessing the most
prevalent themes for shareholder proposals.
![](https://www.sec.gov/Archives/edgar/data/1793855/000110465923126835/tm2328854d1_sp9img008.jpg)
Listed Company ESG Principles & Voting Policies | 22 |
Environmental
& Social
Resolutions
Climate
Change
We are
members of the Net Zero Asset
Managers Initiatives and this is reflected in our Active
Ownership approach. We encourage the companies in which
we invest to demonstrate a robust
methodology underpinning Paris aligned goals and targets and
are supportive of resolutions that will help companies
to achieve this. Once a credible climate strategy is
in place, we prioritise evidence of implementation over requests to re-draft strategies
and targets after only a year
or two.
A growing number
of resolutions call on companies
to increase the transparency of their
reporting on climate-related lobbying. These proposals
typically encompass direct lobbying
undertaken by the company and indirect lobbying undertaken by
trade associations and other organisations of which it is
a member or supporter.
Lobbying
contrary to the objectives of
the Paris Agreement is effective in creating climate
policy inertia and impeding
the transition to net zero economies.
We do not
evaluate resolutions
in isolation. Our approach recognises
the links between corporate governance, strategy and climate approach. Where a company’s operational
response to climate change is
inadequate, the effectiveness of board oversight and corporate governance may also be called into
question.
We expect and encourage
companies to:
▪ | Demonstrate that a
robust methodology underpins Paris aligned,
net zero goals and targets. |
▪ | Set targets
for absolute emission reduction, not
just carbon intensity,
to show a clear pathway to
net zero. |
▪ | Report in alignment
with the TCFD framework. |
▪ | Link
targets to remuneration and ensure
they are
reflected in capital
expenditure and R&D plans. |
▪ | Carefully manage
climate-related lobbying by
ensuring appropriate oversight, transparent disclosure
of activities, and alignment of activities with the company’s
strategy and publicly stated positions. |
Diversity & Inclusion
Diversity
& Inclusion (D&I)
is an important and growing theme for shareholder resolutions.
In recent years resolutions
have focussed on racial equity
audits, pay gap reporting, transparent disclosure of
D&I metrics and assessments of the
efficacy of D&I programmes.
A
racial equity audit is an independent analysis
of a company’s business practices designed to identify practices that
may have a discriminatory effect. We are supportive of racial equity
audits in relation to internal and external
D&I programmes. It is appropriate
that these programmes should have KPIs
and audit mechanisms in place to measure and evaluate outcomes.
Some proposals request racial equity audits of provision of
services. We are aware that measuring provision of service is challenging
and gathering racial data on customers can be difficult and inappropriate. There are
also multiple different factors
that can influence service
provision and which could be misconstrued as
being racially motivated. We will however, support resolutions which
are not unduly prescriptive and allow companies to carry
out audits within a reasonable timeframe, at
a reasonable cost, and excluding confidential or
proprietary information.
We
consider standardised gender pay gap disclosure to be an important tool for
assessing how companies are addressing gender inequality.
Reporting on gender pay gaps across global operations can help companies to remain ahead
of the regulatory curve. It also
enables them to offer better opportunities and remuneration
for women around the world. We are therefore supportive
of resolutions which are likely to deliver these benefits. Proposals must
be carefully drafted to achieve these outcomes. For instance, in the past
we have been unable to
support resolutions which
called for global median gender and racial pay
gap reporting as it was unclear how
this would reveal potential pay disparities at a local level and how
it could be implemented by
companies with operations in jurisdictions where
collection of racial identity data is
illegal.
Listed Company ESG Principles & Voting Policies | 23 |
Environmental
& Social
Resolutions
In the US market we
support public disclosure of EEO-1 forms by companies. The
EEO-1 form details a
comprehensive breakdown of workforce by race and gender
according to ten employment categories. The
form is submitted privately to the US
Equal Employment Opportunity Commission on an annual basis. When
publicly disclosed, it offers investors and
other stakeholders data in a standardised and comparable
form. We have used our engagement programme to ask the companies in which
we invest to disclose this
form for their US operations
while making it central to our D&I voting
approach and supporting resolutions
that request it.
Human Rights
As
a supporter of the UN Guiding Principles
on Business and Human
Rights (UNGPs), we expect companies to demonstrate
how human rights due diligence is
conducted across operations, services, product use and
the supply chain. Companies
can have a significant impact
on human rights directly through
operations and provision of services, and indirectly through product
use and the supply
chain. In recent years the sale and end-use of controversial technologies, such as facial recognition
software, has emerged as a
prominent theme.
We expect and encourage companies
to:
| ▪ | Have
robust due diligence processes to
assess the actual and potential
human rights impacts of their operations, services, product use
and supply chain. |
| ▪ | Conduct customer and supplier vetting
processes commensurate with the
risk of human rights abuse. |
| ▪ | Publicly disclose
information about the operation
of these processes and utilise
the UNGPs’ Reporting Framework. This will
improve the standard and consistency of human
rights reporting and enable more informed
investment decision making. |
Corporate Lobbying
& Political Contributions
Corporate lobbying and
political contributions are a recurrent theme of shareholder
resolutions, particularly in the US. These proposals typically encompass
direct lobbying undertaken by the company
and indirect lobbying undertaken by trade associations
and other organisations of which it is a member or
supporter. Proposals may also request the disclosure
of more information regarding the process and rationale for
political contributions. We expect companies to make
transparent, consolidated disclosures of direct and indirect lobbying and
political expenditure. This disclosure should be underpinned by
a coherent policy that: explains public policy priorities and the
rationale for associated expenditure, identifies the
management positions responsible for
public policy engagement, and provides appropriate mechanisms for board oversight. These measures
should mitigate the risks associated with corporate lobbying and
political contributions, protecting the interest of
shareholders and other stakeholders.
Nuclear Energy
In the Japanese market
nuclear energy is a
recurrent theme of shareholder
resolutions. The Japanese government
is seeking to
reduce the nation’s reliance
on coal and its energy
strategy presents safe
nuclear power generation as an important
source of base-load power. In
this context, resolutions which seek to
limit or cease the nuclear
operations of an individual
company do not appear to
be in the best interests of shareholders and
other stakeholders. The
health & safety risks associated with nuclear energy are high,
must be managed carefully across the industry,
and are an important
consideration in our
voting.
![](https://www.sec.gov/Archives/edgar/data/1793855/000110465923126835/tm2328854d1_sp9img009.jpg)
Listed Company ESG Principles & Voting Policies | 24 |
Important Information
This document is strictly for information purposes only
and should not be considered as an offer, investment recommendation, or solicitation, to deal in any of the investments or funds mentioned
herein and does not constitute investment research. abrdn does not warrant the accuracy, adequacy or completeness of the information and
materials contained in this document and expressly disclaims liability for errors or omissions in such information and materials.
Any research or analysis used in the preparation of
this document has been procured by abrdn for its own use and may have been acted on for its own purpose. The results thus obtained are
made available only coincidentally and the information is not guaranteed as to its accuracy. Some of the information in this document
may contain projections or other forward looking statements regarding future events or future financial performance of countries, markets
or companies. These statements are only predictions and actual events or results may differ materially. The reader must make their own
assessment of the relevance, accuracy and adequacy of the information contained in this document and make such independent investigations,
as they may consider necessary or appropriate for the purpose of such assessment. This material serves to provide general information
and is not meant to be investment, legal or tax advice for any particular investor. No warranty whatsoever is given and no liability
whatsoever is accepted for any loss arising whether directly or indirectly as a result of the reader, any person or group of persons
acting on any information, opinion or estimate contained in this document. abrdn reserves the right to make changes and corrections to
any information in this document at any time, without notice. This material is not to be reproduced in whole or in part without the prior
written consent of abrdn.
Applying ESG and sustainability criteria in the investment
process may result in the exclusion of securities within the universe of potential investments. The interpretation of ESG and sustainability
criteria is subjective meaning that products may invest in companies which similar products do not (and thus perform differently) and
which do not align with the personal views of any individual investor. Furthermore, the lack of common or harmonized definitions and
labels regarding ESG and sustainability criteria may result in different approaches by managers when integrating ESG and sustainability
criteria into investment decisions. This means that it may be difficult to compare strategies within ostensibly similar objectives
and that these strategies will employ different security selection and exclusion criteria. Consequently, the
performance profile of otherwise similar vehicles may deviate more substantially than might otherwise be expected. Additionally, in the
absence of common or harmonized definitions and labels, a degree of subjectivity is required and this will mean that a product
may invest in a security that another manager or an investor would not.
abrdn plc is registered in Scotland (SC286832) at 1 George
Street, Edinburgh EH2 2LL.
Listed Company ESG Principles & Voting Policies | 25 |
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more information
visit abrdn.com
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