Edgar Filing: FIRST TRUST SPECIALTY FINANCE & FINANCIAL OPPORTUNITIES FUND

As filed with the Securities and Exchange Commission on November 26, 2014
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1933 Act File No. 333-
1940 Act File No. 811-22039

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

FORM N-2

(Check appropriate box or boxes)

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

and

[X] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[X] Amendment No. 5

First Trust Specialty Finance and Financial Opportunities
Fund Exact Name of Registrant as Specified in Declaration of Trust

120 East Liberty Drive, Suite 400, Wheaton, Illinois
60187

Address of Principal Executive Offices (Number, Street, City,
State, Zip Code)

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

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

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

Copies of Communications to:

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

Approximate Date of Proposed Public Offering: From time to time after the
effective date of this Registration Statement

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

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

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

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CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933

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------------------------ ---------------------- --------------------- ---------------------- ---------------------
Proposed Maximum Proposed Maximum Amount of
Title of Securities Amount Being Offering Price Aggregate Offering Registration
Being Registered Registered Per Share(1) Price(1) Fee(2)
------------------------ ---------------------- --------------------- ---------------------- ---------------------

Common Shares, $0.01 1,000 shares $8.39 $8,390 $0.97
par value
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(1) Estimated pursuant to Rule 457(c) of the Securities Act of 1933, as
amended, solely for the purpose of determining the registration fee, based
upon the average of high and low prices reported on November 21, 2014, as
reported on the New York Stock Exchange.

(2) Transmitted prior to filing.

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

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

SUBJECT TO COMPLETION, DATED NOVEMBER 26, 2014

BASE PROSPECTUS

FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
UP TO COMMON SHARES

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The Fund. First Trust Specialty Finance and Financial Opportunities Fund (the
"Fund") is a non-diversified, closed-end management investment company which
commenced operations in May 2007.

Investment Objectives. The Fund's primary investment objective is to seek a
high level of current income. The Fund seeks attractive total return as a
secondary objective. There can be no assurance that the Fund's investment
objectives will be achieved.

Investment Strategy. Under normal market conditions, the Fund seeks to
achieve its investment objectives by investing at least 80% of its Managed
Assets (as defined below) in a portfolio of securities of specialty finance and
other financial companies that the Fund's Sub-Advisor (as defined below)
believes offer attractive opportunities for income and capital appreciation.
Under normal market conditions, the Fund will concentrate its investments in
securities of companies within industries in the financial sector. The
concentration of the Fund's assets in a group of industries is likely to present
more risks than a fund that is broadly diversified over several industries or
groups of industries.

The Advisor and the Sub-Advisor believe that specialty finance companies may
be attractive for investors seeking high levels of current income in that
specialty finance company cash flow streams are typically distributed to
shareholders without being taxed at the entity level in the form of coupon
payments and/or dividends. One type of specialty finance company, business
development companies ("BDCs"), has emerged as a significant alternative to
traditional capital providers, such as commercial banks and other financial
institutions. Other examples of specialty finance companies include categories
of real estate investment trusts ("REITs") providing commercial or residential
mortgage financing or lease financing, and other entities that provide
significant capital to private companies. See "The Fund's
Investments--Investment Objectives and Policies."

The Fund's currently outstanding common shares are, and the common shares
offered in this prospectus will be, subject to notice of issuance, listed on the
New York Stock Exchange ("NYSE"), under the trading or "ticker" symbol "FGB."
The net asset value of the Fund's common shares on , 2014 was $ per
common share, and the last sale price of the common shares on the NYSE on such
date was $ .

The Fund may offer, on an immediate, continuous or delayed basis, up to
of the Fund's common shares in one or more offerings. The Fund may offer its
common shares in amounts, at prices and on terms set forth in a prospectus
supplement to this prospectus. See "Description of Shares" beginning on page .
You should read this prospectus and the related prospectus supplement carefully
before you decide to invest in any of the common shares.

The Fund may offer the common shares directly to one or more purchasers,
through agents that the Fund or the purchasers designate from time to time, or
to or through underwriters or dealers. The prospectus supplement relating to the
particular offering will identify any agents or underwriters involved in the
sale of the common shares, and will set forth any applicable purchase price,
fee, commission or discount arrangement between the Fund and such agents or
underwriters or among the underwriters or the basis upon which such amount may
be calculated. For more information about the manner in which the Fund may offer
the common shares, see "Plan of Distribution." The common shares may not be sold
through agents, underwriters or dealers without delivery of a prospectus
supplement.

INVESTING IN COMMON SHARES INVOLVES CERTAIN RISKS. YOU COULD LOSE SOME OR ALL
OF YOUR INVESTMENT. SEE "RISKS" BEGINNING ON PAGE .

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

(CONTINUED ON FOLLOWING PAGE)

Investment Advisor and Sub-Advisor. First Trust Advisors L.P. ("First Trust
Advisors" or the "Advisor") is the Fund's investment advisor, responsible for
supervising the Fund's Sub-Advisor, monitoring the Fund's investment portfolio,
managing the Fund's business affairs and providing certain clerical and
bookkeeping and other administrative services. The Advisor, in consultation with
the Sub-Advisor, is also responsible for determining the Fund's overall
investment strategy and overseeing its implementation. Confluence Investment
Management LLC ("Confluence" or the "Sub-Advisor") is the Fund's sub-advisor and
is primarily responsible for the day-to-day supervision and investment strategy
of, and making investment decisions for, the Fund.

First Trust Advisors serves as investment advisor or portfolio supervisor to
investment portfolios with approximately $ in assets which it managed or
supervised as of , 2014. Confluence had approximately $ of assets
under management as of , 2014. See "Management of the Fund" in this
prospectus and "Investment Advisor" and "Sub-Advisor" in the Fund's Statement of
Additional Information dated , 2014 (the "SAI").

Use of Financial Leverage. The Fund is currently engaged in, and expects to
continue to engage in, the use of financial leverage to seek to enhance the
level of its current distributions to common shareholders (collectively,
"Financial Leverage"). The Fund may use Financial Leverage through the issuance
of preferred shares ("Preferred Shares") and/or through the issuance of
commercial paper or notes and/or other borrowings ("Borrowings") by the Fund. As
of , 2014, the Fund utilized Financial Leverage through the use of
Borrowings under a credit facility representing approximately % of Managed
Assets. The term "Managed Assets" means the average daily gross asset value of
the Fund (which includes 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 Borrowings incurred and the
liquidation preference of any outstanding Preferred Shares). The determination
to use Financial Leverage is subject to the approval of the Fund's Board of
Trustees ("Board of Trustees"). The costs associated with the issuance and use
of Financial Leverage are borne by the holders of the common shares. Leverage is
a speculative technique and investors should note that there are special risks
and costs associated with Financial Leverage. See "Use of Financial Leverage"
and "Risks--Leverage Risk."

You should read this prospectus and any prospectus supplement, which contains
important information about the Fund, before deciding whether to invest in the
common shares of the Fund, and retain it for future reference. This prospectus,
together with any prospectus supplement, sets forth concisely the information
about the Fund that a prospective investor ought to know before investing. The
SAI, dated , 2014, containing additional information about the Fund,
has been filed with the Securities and Exchange Commission and is incorporated
by reference in its entirety into this prospectus. You may request a free copy
of the SAI, the table of contents of which is on page of this prospectus, annual
and semi-annual reports to shareholders, and other information about the Fund,
and make shareholder inquiries by calling (800) 988-5891, by writing to the Fund
or from the Fund's or Advisor's website (http://www.ftportfolios.com). Please
note that the information contained in the Fund's, Advisor's or Sub-Advisor's
website, whether currently posted or posted in the future, is not part of this
prospectus or the documents incorporated by reference in this prospectus. You
also may obtain a copy of the SAI (and other information regarding the Fund)
from the Securities and Exchange Commission's website (http://www.sec.gov).

Shares of common stock of closed-end investment companies, like the Fund,
frequently trade at discounts to their net asset values. If the Fund's common
shares trade at a discount to net asset value, the risk of loss may increase for
purchasers in an offering under this prospectus, especially for those investors
who expect to sell their common shares in a relatively short period after
purchasing shares in such an offering. See "Risks--Market Discount From Net
Asset Value Risk."

The Fund's common shares do not represent a deposit or obligation of, and are
not guaranteed or endorsed by, any bank or other insured depository institution,
and are not federally insured by the Federal Deposit Insurance Corporation, the
Federal Reserve Board or any other government agency.

PROSPECTUS DATED , 2014

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CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

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

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

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

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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus.
This summary does not contain all of the information that you should consider
before investing in the Fund's common shares. You should carefully read the
entire prospectus, any related prospectus supplement and the SAI, including the
documents incorporated by reference, particularly the section entitled "Risks"
beginning on page .

THE FUND ............. First Trust Specialty Finance and Financial Opportunities
Fund (the "Fund") is a non-diversified, closed-end
management investment company which commenced operations
in May 2007. The Fund's primary investment objective is
to seek a high level of current income. The Fund seeks
attractive total return as a secondary objective. The
Fund completed its initial public offering of common
shares in May 2007, raising approximately $234,000,000 in
equity after the payment of offering expenses. As of
, 2014, the Fund had common shares
outstanding and net assets applicable to common shares of
$ . The common shares of beneficial interest offered
by this prospectus are called "Common Shares" and the
holders of Common Shares are called "Common Shareholders"
in this prospectus. As used in this prospectus, unless
the context requires otherwise, "common shares" refers to
the Fund's common shares of beneficial interest currently
outstanding as well as those Common Shares offered by
this prospectus and the holders of common shares are
called "common shareholders."

INVESTMENT ADVISOR
AND SUB-ADVISOR....... First Trust Advisors L.P. ("First Trust Advisors" or
the "Advisor") is the Fund's investment advisor,
responsible for supervising the Fund's Sub-Advisor (as
defined below), monitoring the Fund's investment
portfolio, managing the Fund's business affairs and
providing certain clerical and bookkeeping and other
administrative services. The Advisor, in consultation
with the Sub-Advisor, is also responsible for determining
the Fund's overall investment strategy and overseeing its
implementation. Confluence Investment Management LLC
("Confluence" or the "Sub-Advisor") is the Fund's
sub-advisor and is primarily responsible for the
day-to-day supervision and investment strategy of, and
making investment decisions for, the Fund. See "The
Fund's Investments--Investment Philosophy and Process."

First Trust Advisors, a registered investment advisor, is
an Illinois limited partnership formed in 1991. It serves
as investment advisor or portfolio supervisor to
investment portfolios with approximately $ in assets
which it managed or supervised as of , 2014.

Confluence is a limited liability company and a
registered investment advisor, which provides portfolio
investment management and advisory services to both
institutional and individual clients. Founded in 2007,
Confluence had approximately $ of assets under
management as of , 2014.

THE OFFERING ......... The Fund may offer, on an immediate, continuous or
delayed basis, up to Common Shares on terms to
be determined at the time of the offering. The Common
Shares will be offered at prices and on terms to be set
forth in one or more prospectus supplements to this
prospectus. Offerings of the Common Shares will be
subject to the provisions of the Investment Company Act
of 1940, as amended (the "1940 Act"), which generally
require that the public offering price of common shares
of a closed-end investment company (exclusive of
distribution commissions and discounts) must equal or
exceed the net asset value per share of the company's
common stock (calculated within 48 hours of pricing),
absent shareholder approval or under certain other
circumstances. See "Description of Shares."

The Fund may offer the Common Shares directly to one or
more purchasers, through agents that the Fund or the
purchasers designate from time to time, or to or through
underwriters or dealers. The prospectus supplement
relating to the offering will identify any agents or
underwriters involved in the sale of the Common Shares,
and will set forth any applicable purchase price, fee,
commission or discount arrangement between the Fund and
such agents or underwriters or among underwriters or the
basis upon which such amount may be calculated. See "Plan
of Distribution." The Common Shares may not be sold
through agents, underwriters or dealers without delivery
of a prospectus supplement describing the method and
terms of the offering of the Common Shares.

USE OF PROCEEDS ...... Unless otherwise specified in a prospectus supplement,
the Fund will use the net proceeds from the sale of the
Common Shares primarily to invest in accordance with its
investment objectives and policies, or use such proceeds
for other general corporate purposes.

DISTRIBUTIONS ........ The Fund's present distribution policy, which may be
changed at any time by the Fund's Board of Trustees (the
"Board of Trustees"), is to distribute quarterly all or a
portion of its net investment income to common
shareholders (after the payment of interest and/or
dividends in connection with Financial Leverage (as
defined below)). In addition, the Fund intends to
distribute any net realized long-term capital gains, if
any, to common shareholders as long-term capital gain
dividends at least annually. Unless an election is made
to receive dividends in cash, common shareholders will
automatically have all dividends and distributions
reinvested in common shares through the Fund's Dividend
Reinvestment Plan. See "Dividend Reinvestment Plan."

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

INVESTMENT
OBJECTIVES
AND POLICIES.......... The Fund's primary investment objective is to seek a high
level of current income. The Fund seeks attractive total
return as a secondary objective. There can be no
assurance that the Fund's investment objectives will be
achieved.

Under normal market conditions, the Fund seeks to achieve
its investment objectives by investing at least 80% of
its Managed Assets (as defined below) in a portfolio of
securities of specialty finance and other financial
companies that the Sub-Advisor believes offer attractive
opportunities for income and capital appreciation. The
Fund is not limited with respect to its investments in
securities issued by specific categories of specialty
finance and other financial companies. Under normal
market conditions, the Fund will concentrate its
investments in securities of companies within industries
in the financial sector. The concentration of the Fund's
assets in a group of industries is likely to present more
risks than a fund that is broadly diversified over
several industries or groups of industries. See
"Risks--Risks of Concentration in the Financials Sector."

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specialty finance companies that typically pass cash flow
through to its investors without being taxed at the
entity level include categories of real estate investment
trusts ("REITs") providing commercial or residential
mortgage financing or lease financing, and other entities
that provide significant capital to private companies. As
of , 2014, BDCs and REITs represented
approximately % and %, respectively, of the
Fund's Managed Assets. These percentages are expected to
vary over time as market conditions change. See
"--Portfolio Contents--Specialty Finance Companies"
below. "Managed Assets" means the average daily gross
asset value of the Fund (which includes 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 Borrowings incurred and the
liquidation preference of any outstanding Preferred
Shares).

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

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

PORTFOLIO CONTENTS ... Specialty Finance Companies. Specialty finance companies
and other financial companies invest in a wide range of
securities and financial instruments, including but not
limited to private debt and equity, secured and unsecured
debt, trust preferred securities, subordinated debt, and
preferred and common equity as well as other
equity-linked securities. These various securities offer
distinct risk/reward features which may be more or less
attractive during different points in the market cycle.
Under normal market conditions, the Sub-Advisor will
invest the Fund's Managed Assets in specialty finance
companies with exposure to some or all of these kinds of
securities.

Specialty finance companies provide capital or financing
to businesses within specified market segments. These
companies are often distinguished by their market
specializations which allow them to focus on the specific
financial needs of their clients. Specialty finance
companies often engage in asset-based and other forms of
non-traditional financing activities. While they
generally compete against traditional financial
institutions with broad product lines and, often, greater
financial resources, specialty finance companies seek
competitive advantage by focusing their attention on
market niches, which may provide them with deeper
knowledge of their target market and its needs. Specialty
finance companies include mortgage specialists to certain
consumers, equipment leasing specialists to certain

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industries and equity or debt-capital providers to
certain small businesses. Specialty finance companies
often utilize tax-efficient or other non-traditional
structures, such as BDCs and REITs. See "Risks--Specialty
Finance and Other Financial Companies Risk."

Business Development Companies. BDCs are a type of
closed-end fund regulated under the 1940 Act, whose
shares are typically listed for trading on a U.S.
securities exchange. BDCs typically invest in and lend
to small and medium-sized private and certain public
companies that may not have access to public equity
markets for capital raising. Oftentimes, the financing
a BDC provides includes an equity-like investment such
as warrants or conversion rights, creating an
opportunity for the BDC to participate in capital
appreciation in addition to the interest income earned
from its debt investments. The interest earned by a
BDC flows through to investors in the form of a
dividend, normally without being taxed at the BDC
entity level. BDCs invest in such diverse industries
as healthcare, chemical and manufacturing, technology
and service companies. BDCs are unique in that at
least 70% of their investments must be made in private
and certain public U.S. businesses, and BDCs are
required to make available significant managerial
assistance to their portfolio companies. Unlike
corporations, BDCs are not taxed on income distributed
to their shareholders provided they comply with the
applicable requirements of the Internal Revenue Code
of 1986, as amended (the "Internal Revenue Code"). The
securities of BDCs, which are required to distribute
substantially all of their income on an annual basis
to investors in order to not be subject to entity
level taxation, often offer a yield advantage over
securities of other issuers, such as corporations,
that are taxed on income at the entity level and are
able to retain all or a portion of their income rather
than distributing it to investors. The Fund invests
primarily in BDC shares which are trading in the
secondary market on a U.S. securities exchange but
may, in certain circumstances, invest in an initial
public offering of BDC shares or invest in certain
debt instruments issued by BDCs. The Fund is not
limited with respect to the specific types of BDCs in
which it invests. The Fund will indirectly bear its
proportionate share of any management and other
expenses, and of any performance based or incentive
fees, charged by the BDCs in which it invests, in
addition to the expenses paid by the Fund. See
"Risks--Business Development Company Risk."

REITs and Other Mortgage-Related Securities. REITs
are financial vehicles that pool investors' capital to
invest primarily in income-producing real estate or
real estate-related loans or interests. REIT shares
are typically listed for trading in the secondary
market on a U.S. securities exchange. REITs can
generally be classified as "Mortgage REITs," "Equity
REITs" and "Hybrid REITs." Mortgage REITs, which
invest the majority of their assets in real estate
mortgages, derive their income primarily from interest
payments. The Fund focuses its Mortgage REIT
investments in companies that invest primarily in U.S.
Agency, prime-rated and commercial mortgage
securities. U.S. Agency securities include securities
issued by the Government National Mortgage
Association, the Federal National Mortgage Association
and the Federal Home Loan Mortgage Corporation. Equity
REITs, which invest the majority of their assets
directly in real property, derive their income
primarily from rents, royalties and lease payments.
Equity REITs can also realize capital gains by selling
properties that have appreciated in value. Some REITs
which are classified as Equity REITs provide
specialized financing solutions to their clients in
the form of sale-lease back transactions and triple
net lease financing. Hybrid REITs combine the
characteristics of both Equity REITs and Mortgage
REITs.

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Debt securities issued by REITs are, for the most
part, general and unsecured obligations and are
subject generally to risks associated with REITs.
Distributions received by the Fund from REITs may
consist of dividends, capital gains and/or return of
capital. REITs are not taxed on income distributed to
their shareholders provided they comply with the
applicable requirements of the Internal Revenue Code.
Similar to BDCs, the securities of REITs, which are
required to distribute substantially all of their
income to investors in order to not be subject to
entity level taxation, often offer a yield advantage
over securities of other issuers, such as
corporations, that are taxed on income at the entity
level and are able to retain all or a portion of their
income rather than distributing it to investors. Many
of these distributions, however, will not generally
qualify for favorable treatment as qualified dividend
income. The Fund invests primarily in REIT shares
which are trading in the secondary market on a U.S.
securities exchange but may, in certain circumstances,
invest in an initial public offering of REIT shares or
invest in certain debt instruments issued by REITs.
The Fund is not limited with respect to the specific
types of REITs in which it invests. The Fund will
indirectly bear its proportionate share of any
management and other operating expenses charged by the
REITs in which it invests, in addition to the expenses
paid by the Fund. See "The Fund's
Investments--Portfolio Composition--Specialty Finance
Companies--REITs and Other Mortgage-Related
Securities" and "Risks--REIT, Mortgage-Related and
Asset-Backed Securities Risk."

Other Financial Companies. The principal industry groups
of financial companies include banks, savings
institutions, brokerage firms, investment management
companies, insurance companies, holding companies of the
foregoing and companies that provide related services to
such companies. Banks and savings institutions provide
services to customers such as demand, savings and time
deposit accounts and a variety of lending and related
services. Brokerage firms provide services to customers
in connection with the purchase and sale of securities.
Investment management companies provide investment
advisory and related services to retail customers, high
net-worth individuals and institutions. Insurance
companies provide a wide range of commercial, life,
health, disability, personal property and casualty
insurance products and services to businesses,
governmental units, associations and individuals.

Equity Securities. The Fund may invest in equity
securities, including but not limited to common stocks,
preferred stocks and convertible preferred securities.
Preferred stocks and convertible preferred securities are
not a principal part of the Fund's current investment
strategy. For a discussion of equity securities and other
investments that are not a principal part of the Fund's
current investment strategy, see "Additional Information
About the Fund's Investments and Investment Risks" in the
SAI.

Equity securities may include common stocks that either
are required to and/or customarily distribute a large
percentage of their current earnings as dividends. Common
stock represents an equity ownership interest in a
company, providing voting rights and entitling the holder
to a share of the company's success through dividends
and/or capital appreciation. In the event of liquidation,
common stockholders have rights to a company's remaining
assets after bond holders, other debt holders and
preferred stockholders have been paid in full. Typically,
common stockholders are entitled to one vote per share to
elect the company's board of directors (although the
number of votes is not always directly proportional to
the number of shares owned). Common stockholders also
receive voting rights regarding other company matters
such as mergers and certain important company policies

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such as issuing securities to management. Common stocks
fluctuate in price in response to many factors, including
historical and prospective earnings of the issuer, the
value of its assets, general economic conditions,
interest rates, investor perceptions and market
liquidity. See "Risks--Common Stock Risk."

Master Limited Partnership Interests. Master limited
partnerships ("MLPs") are limited partnerships or limited
liability companies that are taxed as partnerships and
whose interests (limited partnership units or limited
liability company units) are traded on securities
exchanges like shares of common stock. An MLP consists of
a general partner and limited partners. The general
partner manages the partnership, has an ownership stake
in the partnership and is eligible to receive an
incentive distribution. The limited partners provide
capital to the partnership, have a limited (if any) role
in the operation and management of the partnership and
receive cash distributions. Interests in MLPs, which are
required to distribute substantially all of their income
to investors in order to not be subject to entity level
taxation, often offer a yield advantage over other types
of securities. Currently, most MLPs operate in the
energy, natural resources or real estate sectors. The
Fund will not invest more than 20% of its Managed Assets
in MLPs. See "Risks--Master Limited Partnership Risk."

Investment Grade Debt Securities. The Fund may invest in
investment grade bonds of varying maturities issued by
governments, corporations and other business entities.
Bonds are fixed or variable rate debt obligations,
including bills, notes, debentures, money market
instruments and similar instruments and securities. Bonds
generally are used by corporations as well as by
governments and other issuers to borrow money from
investors. The issuer pays the investor a fixed or
variable rate of interest and normally must repay the
amount borrowed on or before maturity. Certain bonds are
"perpetual" in that they have no maturity date. See
"Risks--Fixed-Income Securities Risk."

Non-Investment Grade Debt Securities. The Fund may invest
in fixed income securities of below-investment grade
quality (commonly referred to as "high-yield" or "junk"
bonds). Generally, such lower quality debt securities
offer a higher current yield than is offered by higher
quality debt securities, but also (i) will likely have
some quality and protective characteristics that, in the
judgment of the rating agencies, are outweighed by large
uncertainties or major risk exposures to adverse
conditions and (ii) are predominantly speculative with
respect to the issuer's capacity to pay interest and
repay principal in accordance with the terms of the
obligation. Below-investment grade debt securities are
rated below "Baa" by Moody's Investors Services, Inc.,
below "BBB" by Standard & Poor's Ratings Group, a
division of The McGraw Hill Companies, Inc., comparably
rated by another nationally recognized statistical rating
organization or, if unrated, determined to be of
comparable quality by the Sub-Advisor. See
"Risks--Fixed-Income Securities Risk" and "Risks--Lower
Grade Securities Risk."

Mortgage-Backed Securities. Mortgage-backed securities
represent direct or indirect participations in, or are
secured by and payable from, mortgage loans secured by
real property and include single- and multi-class
pass-through securities and collateralized mortgage
obligations. U.S. government mortgage-backed securities
include mortgage-backed securities issued or guaranteed
as to the payment of principal and interest (but not as
to market value) by the Government National Mortgage
Association (also known as Ginnie Mae), the Federal
National Mortgage Association (also known as Fannie Mae),
the Federal Home Loan Mortgage Corporation (also known as
Freddie Mac) or other government-sponsored enterprises.
Other mortgage-backed securities are issued by private
issuers. Private issuers are generally originators of and
investors in mortgage loans, including savings
associations, mortgage bankers, commercial banks,
investment bankers and special purpose entities. Payments
of principal and interest (but not the market value) of
such private mortgage-backed securities may be supported
by pools of mortgage loans or other mortgage-backed
securities that are guaranteed, directly or indirectly,

-6-

by the U.S. government or one of its agencies or
instrumentalities, or they may be issued without any
government guarantee of the underlying mortgage assets
but with some form of non-government credit enhancement.
Non-governmental mortgage-backed securities may offer
higher yields than those issued by government entities,
but may also be subject to greater price changes than
governmental issues.

Some mortgage-backed securities, such as collateralized
mortgage obligations, make payments of both principal and
interest at a variety of intervals; others make
semi-annual interest payments at a predetermined rate and
repay principal at maturity (like a typical bond).
Stripped mortgage-backed securities are created when the
interest and principal components of a mortgage-backed
security are separated and sold as individual securities.
In the case of a stripped mortgage-backed security, the
holder of the principal-only, or "PO," security receives
the principal payments made by the underlying mortgage,
while the holder of the interest-only, or "IO," security
receives interest payments from the same underlying
mortgage.

Mortgage-backed securities are based on different types
of mortgages including those on commercial real estate or
residential properties. These securities often have
stated maturities of up to thirty years when they are
issued, depending upon the length of the mortgages
underlying the securities. In practice, however,
unscheduled or early payments of principal and interest
on the underlying mortgages may make the securities'
effective maturity shorter than this, and the prevailing
interest rates may be higher or lower than the current
yield of the Fund's portfolio at the time the Fund
receives the prepayments for reinvestment.

Residential mortgage-backed securities represent direct
or indirect participations in, or are secured by and
payable from, pools of assets which include all types of
residential mortgage products. See "Risks--REIT,
Mortgage-Related and Asset-Backed Securities Risk."

Asset-Backed Securities. Asset-backed securities
represent direct or indirect participations in, or are
secured by and payable from, pools of assets such as,
among other things, motor vehicle installment sales
contracts, installment loan contracts, leases of various
types of real and personal property, and receivables from
revolving credit (credit card) agreements or a
combination of the foregoing. These assets are
securitized through the use of trusts and special purpose
corporations. Credit enhancements, such as various forms
of cash collateral accounts or letters of credit, may
support payments of principal and interest on
asset-backed securities. Although these securities may be
supported by letters of credit or other credit
enhancements, payment of interest and principal
ultimately depends upon individuals paying the underlying
loans or accounts, which payment may be adversely
affected by general downturns in the economy.
Asset-backed securities are subject to the same risk of
prepayment described above with respect to
mortgage-backed securities. The risk that recovery on
repossessed collateral might be unavailable or inadequate
to support payments, however, is greater for asset-backed
securities than for mortgage-backed securities. See
"Risks--REIT, Mortgage-Related and Asset-Backed
Securities Risk."

USE OF FINANCIAL
LEVERAGE ............. The Fund is currently engaged in, and expects
to continue to engage in, the use of Financial Leverage
to seek to enhance the level of its current distributions
to common shareholders. On February 2, 2010, the Fund

-7-

entered into a committed facility agreement with BNP
Paribas Prime Brokerage, Inc., which currently has a
maximum commitment amount of $25 million (the "BNP
Facility"). As of , 2014, the principal amount
of Borrowings under the BNP Facility were $ ,
representing approximately % of the Fund's Managed
Assets. As of , 2014, the Fund had
$ million of unutilized funds available for Borrowing
under the BNP Facility.

The Fund's common shares are junior in liquidation and
distribution rights to amounts owed pursuant to the BNP
Facility and any Leverage Instruments (as defined below)
utilized by the Fund in the future. The issuance of
Preferred Shares, if any, and Borrowings (each a
"Leverage Instrument" and collectively, the "Leverage
Instruments") represent the leveraging of the Fund's
common shares. The issuance of additional Common Shares
offered by this prospectus will enable the Fund to
increase the aggregate amount of its leverage. If the
Fund uses additional Leverage Instruments, associated
costs, if any, will be borne immediately by common
shareholders and result in a reduction of the net asset
value of the common shares.

The use of Financial Leverage creates an opportunity for
increased income and capital appreciation for common
shareholders, but at the same time, it creates special
risks that may adversely affect common shareholders.
Because both the Advisor's and the Sub-Advisor's fees are
based on Managed Assets (including assets obtained
through leverage), both the Advisor's and the
Sub-Advisor's fees are higher when the Fund is leveraged.
There can be no assurance that a leveraging strategy will
be successful during any period in which it is used.
Leverage creates a greater risk of loss, as well as
potential for more gain, for the common shares than if
leverage is not used. The determination to use Financial
Leverage is subject to the Board of Trustees' approval
and the ability of the Fund to obtain Financial Leverage.

So long as the rate of return, net of applicable Fund
expenses, on the Fund's portfolio investments purchased
with leverage exceeds the then current interest rate or
dividend rate on the Leverage Instruments, the Fund will
generate more return or income than will be needed to pay
such dividends or interest payments. In this event, the
excess will be available to pay higher distributions to
common shareholders. Conversely, if the income or gains
from the securities and investments purchased with such
proceeds does not cover the cost of leverage, the return
to the common shares will be less than if leverage had
not been used. When leverage is employed, the net asset
value and market prices of the common shares and the
yield to common shareholders will be more volatile.

There is no assurance that the Fund will utilize
Financial Leverage in addition to the BNP Facility or, if
additional Financial Leverage is utilized, that it will
be successful in enhancing the level of the Fund's
current distributions. The Fund may make further use of
Financial Leverage through the issuance of notes or other
senior securities to the extent permitted by the 1940
Act. However, it is possible that the Fund will be unable
to obtain additional Financial Leverage. If the Fund is
unable to increase its Financial Leverage after the
issuance of additional Common Shares pursuant to this
prospectus, there could be an adverse impact on the
return to common shareholders. In addition, to the extent
additional Financial Leverage is utilized, the Fund may
consequently be subject to certain financial covenants
and restrictions that are not currently imposed on the
Fund. See "Use of Financial Leverage" and
"Risks--Leverage Risk."

TAX MATTERS .......... Distributions with respect to the common shares will
constitute dividends to the extent of the Fund's current
and accumulated earnings and profits, as calculated for

-8-

U.S. federal income tax purposes. Such dividends
generally will be taxable as ordinary income to common
shareholders, except to the extent they qualify as
"qualified dividend income" as discussed below.
Distributions of net capital gain that are designated by
the Fund as capital gain dividends will be treated as
long-term capital gains in the hands of common
shareholders receiving such distributions. Distributions
in excess of the Fund's current and accumulated earnings
and profits would first be a tax-free return of capital
to the extent of a common shareholder's adjusted tax
basis in their common shares. After such adjusted tax
basis is reduced to zero, the distribution would
constitute capital gain (assuming the common shares are
held as capital assets). In addition, certain
distributions may constitute "qualified dividend income"
for federal income tax purposes and thus will be eligible
for the lower tax rates on qualified dividend income. See
"Federal Tax Matters."

LISTING .............. The Fund's currently outstanding common shares are, and
the Common Shares offered in this prospectus and any
applicable prospectus supplement will be, subject to
notice of issuance, listed on the NYSE under the trading
or "ticker" symbol "FGB." The net asset value of the
Fund's common shares at the close of business on , 2014
was $ per common share, and the last sale price of the
common shares on the NYSE on such date was $ .

CORPORATE FINANCE
SERVICES AND
CONSULTING AGENT...... Wells Fargo Advisors, LLC, as successor to Wachovia
Securities LLC, as successor to A.G. Edwards, serves as
corporate finance services and consulting agent to the
Advisor, pursuant to a Corporate Finance Services and
Consulting Agreement between A.G. Edwards and the
Advisor. See "Corporate Finance Services and Consulting
Fee."

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

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

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

-9-

the market price of the common shares of the Fund being
greater than, less than or equal to net asset value.

The Board of Trustees has reviewed the structure of the
Fund in light of its investment objectives and policies
and has determined that the closed-end fund structure is
appropriate. As described in this prospectus, however,
the Board of Trustees may review periodically the trading
range and activity of the Fund's common shares with
respect to their net asset value and the Board of
Trustees may take certain actions to seek to reduce or
eliminate any such discount to net asset value. Such
actions may include open market repurchases or tender
offers for the common shares or the possible conversion
of the Fund to an open-end investment company. There can
be no assurance that the Board of Trustees will decide to
undertake any of these actions or that, if undertaken,
such actions would result in the common shares trading at
a price equal to or close to net asset value per common
share. In addition, as noted above, the Board of Trustees
determined in connection with the initial offering of
common shares of the Fund that the closed-end structure
is desirable, given the Fund's investment objectives and
policies. Investors should assume, therefore, that it is
highly unlikely that the Board of Trustees would vote to
convert the Fund to an open-end investment company. See
"Structure of the Fund; Common Share Repurchases and
Conversion to Open-End Fund."

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

Investment and Market Risk. An investment in Common
Shares is subject to investment risk, including the
possible loss of the entire amount that you invest. An
investment in Common Shares represents an indirect
investment in the securities owned by the Fund. The value
of these securities, like other market investments, may
move up or down, sometimes rapidly and unpredictably. The
value of the securities in which the Fund invests will
affect the value of the Common Shares. The Common Shares
at any point in time may be worth less than your original
investment, even after taking into account the
reinvestment of Fund dividends and distributions. If the
Fund's net asset value declines or remains volatile,
there is an increased risk that the Fund may be required
to reduce outstanding leverage, which could adversely
affect the price of the Fund's common shares and ability
to pay distributions at historical levels.

Market Discount From Net Asset Value Risk. Although the
Common Shares offered under this prospectus will be
offered at a public offering price equal to or in excess
of the net asset value per share of the Fund's common
shares at the time such Common Shares are initially sold,
shares of closed-end investment companies frequently
trade at a discount from their net asset value. This
characteristic is a risk separate and distinct from the
risk that the Fund's net asset value per common share
could decrease as a result of its investment activities
and may be greater for investors expecting to sell their
Common Shares in a relatively short period following
completion of an offering under this prospectus and the
applicable prospectus supplement. The net asset value of
the Common Shares offered under this prospectus may be
reduced immediately following an offering as a result of
the payment of certain offering costs. Although the value
of the Fund's net assets is generally considered by
market participants in determining whether to purchase or
sell common shares, whether investors will realize gains
or losses upon the sale of the common shares will depend
entirely upon whether the market price of the common
shares at the time of sale is above or below the
investor's purchase price for the common shares. Because
the market price of the common shares will be determined

-10-

by factors such as net asset value, dividend and
distribution levels and their stability (which will in
turn be affected by levels of dividend and interest
payments by the Fund's portfolio holdings, the timing and
success of the Fund's investment strategies, regulations
affecting the timing and character of the Fund's
distributions, the Fund's expenses and other factors),
supply of and demand for the common shares, trading
volume of the common shares, general market, interest
rate and economic conditions and other factors that may
be beyond the control of the Fund, the Fund cannot
predict whether the Common Shares offered under this
prospectus will trade at, below or above net asset value
or at, below or above the public offering price thereof.

Market Impact Risk. The sale of the Common Shares (or the
perception that such sales may occur) may have an adverse
effect on prices in the secondary market for the Fund's
common shares through increasing the number of shares
available, which may put downward pressure on the market
price for the Fund's common shares. These sales also
might make it more difficult for the Fund to sell
additional equity securities in the future at a time and
price the Fund deems appropriate.

Specialty Finance and Other Financial Companies Risks.
The profitability of specialty finance and other
financial companies is largely dependent upon the
availability and cost of capital funds, and may fluctuate
significantly in response to changes in interest rates,
as well as changes in general economic conditions. Any
impediments to a specialty finance or other financial
company's access to capital markets, such as those caused
by general economic conditions or a negative perception
in the capital markets of the company's financial
condition or prospects, could adversely affect such
company's business. From time to time, severe competition
may also affect the profitability of specialty finance
and other financial companies.

Specialty finance and other financial companies are
subject to rapid business changes, significant
competition, value fluctuations due to the concentration
of loans in particular industries significantly affected
by economic conditions (such as real estate or energy)
and volatile performance based upon the availability and
cost of capital and prevailing interest rates. In
addition, credit and other losses resulting from the
financial difficulties of borrowers or other third
parties potentially may have an adverse effect on
companies in these industries.

During the financial crisis of 2008, negative
developments initially relating to the subprime mortgage
market and subsequently spreading to other parts of the
economy adversely affected credit and capital markets
worldwide and reduced the willingness of lenders to
extend credit, thus making borrowing more difficult. In
addition, the liquidity of certain debt instruments was
reduced or eliminated due to the lack of available market
makers. These and other negative economic events in the
credit markets also led some financial firms to declare
bankruptcy, forced short notice sales to competing firms
or required government intervention. While the overall
financing environment has improved since 2008, further
credit losses or mergers, acquisitions, or bankruptcies
of financial firms could make it difficult for specialty
finance and other financial companies to obtain financing
on favorable terms or at all, which would seriously
affect the profitability of such firms. Furthermore,
accounting rule changes, including with respect to the
standards regarding the valuation of assets,
consolidation in the financial industry and additional
volatility in the stock market have the potential to
significantly impact specialty finance companies as well.

-11-

firms and their holding companies are able to pay
dividends, purchase their own common stock and compensate
officers. Regulatory changes could cause business
disruptions or result in significant loss of revenue to
companies in which the Fund invests, and there can be no
assurance as to the actual impact that these laws and
their regulations will have on the financial markets and
the Fund's investments in specialty finance and other
financial companies. Specialty finance and other
financial companies in a given country may be subject to
greater governmental regulation than many other
industries, and changes in governmental policies and the
need for regulatory approval may have a material effect
on the services offered by companies in the financial
services industry. Governmental regulation may limit both
the financial commitments banks can make, including the
amounts and types of loans, and the interest rates and
fees they can charge. In addition, governmental
regulation in certain foreign countries may impose
interest rate controls, credit controls and price
controls. See "Risks--Specialty Finance and Other
Financial Companies Risk."

Risks of Concentration in the Financials Sector. A fund
concentrated in a single industry or group of industries
is likely to present more risks than a fund that is
broadly diversified over several industries or groups of
industries. Compared to the broad market, an individual
sector may be more strongly affected by changes in the
economic climate, broad market shifts, moves in a
particular dominant stock or regulatory changes. Because,
under normal market conditions, the Fund invests 80% or
more of its total assets in securities of companies
within industries in the financial sector, it may be more
susceptible to adverse economic or regulatory occurrences
affecting this sector, such as changes in interest rates,
loan concentration and competition.

Business Development Company Risk. Investments in
closed-end funds that elect to be treated as BDCs may be
subject to a high degree of risk. BDCs typically invest
in and lend to small and medium-sized private and certain
public companies that may not have access to public
equity markets or capital raising. As a result, a BDC's
portfolio typically will include a substantial amount of
securities purchased in private placements, and its
portfolio may carry risks similar to those of a private
equity or private debt fund. Securities that are not
publicly registered may be difficult to value and may be
difficult to sell at a price representative of their
intrinsic value. Small and medium-sized companies also
may have fewer lines of business so that changes in any
one line of business may have a greater impact on the
value of their stock than is the case with a larger
company. Some BDCs invest substantially, or even
exclusively, in one sector or industry group and
therefore carry risk of that particular sector or
industry group. To the extent a BDC focuses its
investments in a specific sector, the BDC will be
susceptible to adverse conditions and economic or
regulatory occurrences affecting the specific sector or
industry group, which tends to increase volatility and
result in higher risk. Investments in BDCs are subject to
various risks, including management's ability to meet the
BDC's investment objective, and to manage the BDC's
portfolio when the underlying securities are redeemed or
sold, during periods of market turmoil and as investors'
perceptions regarding a BDC or its underlying investments
change. BDC shares are not redeemable at the option of
the BDC shareholder and, as with shares of other
closed-end funds, they may trade in the secondary market
at a discount to their net asset value.

-12-

interest rate on any borrowings rises. During the last
recession, U.S. and global capital markets experienced a
period of disruption caused by the freezing of available
credit, a lack of liquidity in the debt capital markets,
significant losses in the principal value of investments
and the failure of major financial institutions. These
events had material and adverse consequences on the
availability of debt and equity capital relied on by
certain BDCs, and the companies in which they invest, to
grow or otherwise increased the costs of such capital
and/or resulted in less favorable terms and conditions,
thereby decreasing the investment income or otherwise
damaging the business of such BDCs. While current
conditions have improved, a return of severe disruption
and instability in the financial markets or deterioration
in credit and financing conditions could have a material
adverse effect on the profitability, financial condition
and operations of the BDCs in which the Fund invests.

The Fund may be limited by provisions of the 1940 Act
that generally limit the amount the Fund can invest in
any one closed-end fund, including any one BDC, to 3% of
the closed-end fund's total outstanding stock. As a
result, the Fund may hold a smaller position in a BDC
than if it were not subject to this restriction. To
comply with the provisions of the 1940 Act, on any matter
upon which BDC shareholders are solicited to vote, the
Sub-Advisor may be required to vote shares of the BDC
held by the Fund in the same general proportion as shares
held by other shareholders of the BDC. The Fund will
indirectly bear its proportionate share of any management
and other operating expenses, and of any performance
based or incentive fees, charged by the BDCs in which it
invests, in addition to the expenses paid by the Fund.

REIT, Mortgage-Related and Asset-Backed Securities Risk.
Investing in REITs involves certain unique risks in
addition to those risks associated with investing in the
real estate industry in general. An Equity REIT may be
affected by changes in the value of the underlying
properties owned by the REIT. A Mortgage REIT may be
affected by the ability of the issuers of its portfolio
mortgages to repay their obligations. REITs are dependent
upon the skills of their managers and are not necessarily
diversified. REITs are generally dependent upon
maintaining cash flows to repay borrowings and to make
distributions to shareholders and are subject to the risk
of default by lessees or borrowers. REITs whose
underlying assets are concentrated in properties used by
a particular industry, such as health care, are also
subject to risks associated with such industry.

REITs (especially Mortgage REITs) are also subject to
interest rate risks. When interest rates decline, the
value of a REIT's investment in fixed rate obligations
may be expected to rise. Conversely, when interest rates
rise, the value of a REIT's investment in fixed rate
obligations can be expected to decline. If the REIT
invests in adjustable rate mortgage loans, the interest
rates on which are reset periodically, yields on a REIT's
investments in such loans will gradually align themselves
to reflect changes in market interest rates. This causes
the value of such investments to potentially fluctuate
less dramatically in response to interest rate
fluctuations than would investments in fixed rate
obligations.

REITs may have limited financial resources and their
securities may trade less frequently and in a limited
volume and may be subject to more abrupt or erratic price
movements than larger company securities.

The previous economic recession negatively affected many
businesses, including Equity REITs and Mortgage REITs.
The cost and availability of credit to REITs was
adversely affected by illiquid credit markets and wider
credit spreads. In such market conditions, the ability of
REITs and their tenants to timely refinance maturing
liabilities and access the capital markets to meet
liquidity needs may be limited, resulting in materially

-13-

adverse effects to a REIT's financial condition and the
value of its holdings.

In addition to REITs, the Fund may invest in a variety of
other mortgage-related securities, including commercial
mortgage securities and other mortgage-backed
instruments. Rising interest rates tend to extend the
duration of mortgage-related securities, making them more
sensitive to changes in interest rates, and may reduce
the market value of the securities. As a result, in a
period of rising interest rates, mortgage-related
securities held by the Fund may exhibit additional
volatility. This is known as extension risk. In addition,
mortgage-related securities are subject to prepayment
risk, which is the risk that borrowers may pay off their
mortgages sooner than expected, particularly when
interest rates decline. This can reduce the Fund's
returns because the Fund may have to reinvest that money
at lower prevailing interest rates.

Volatility in market conditions for mortgage-related and
asset-backed securities as well as the broader financial
markets may result in a significant contraction in
liquidity for mortgages and mortgage-related assets. In
addition, concerns over economic recession, unemployment,
a declining real estate market, extensive defaults and
credit losses may contribute to increased volatility in
U.S. residential and commercial mortgage markets. During
such periods of volatility, the value of the Fund's
investments in mortgage-related and asset-backed
securities may be adversely affected. In response to
recent volatility, the U.S. government implemented
programs designed to provide homeowners with assistance
in avoiding residential mortgage loan foreclosures, which
included mortgage loan modification programs. These
programs and future legislative action and changes in the
requirements necessary to qualify for financing and
refinancing a mortgage with certain government agencies
may also adversely affect the value of, and the returns
on, the assets in which the Fund invests. The limited
availability of credit in the economic environment
described above in connection with Equity and Mortgage
REITs also applies to the issuers of mortgage-related and
asset-backed securities held by the Fund. The
profitability of these firms may be adversely affected if
they are unable to obtain cost-effective financing for
their investments.

The Fund's investments in other asset-backed securities
are subject to risks similar to those associated with
mortgage-related securities, as well as additional risks
associated with the nature of the assets and the
servicing of those assets.

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

Potential Conflicts of Interest Risk. First Trust
Advisors, Confluence and the portfolio managers have
interests which may conflict with the interests of the
Fund. In particular, First Trust Advisors and Confluence
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. As a result, First Trust
Advisors, Confluence and the Fund's portfolio managers
must allocate their time and investment ideas across

-14-

multiple funds and accounts. First Trust Advisors,
Confluence and the Fund's portfolio managers may identify
a limited investment opportunity that may be suitable for
multiple funds and accounts, and the opportunity may be
allocated among these several funds and accounts, which
may limit the Fund's ability to take full advantage of
the investment opportunity. Additionally, transaction
orders may be aggregated for multiple accounts for
purposes of execution, which may cause the price or
brokerage costs to be less favorable to the Fund than if
similar transactions were not being executed concurrently
for other accounts. At times, a portfolio manager may
determine that an investment opportunity may be
appropriate for only some of the funds and accounts for
which he or she exercises investment responsibility, or
may decide that certain of the funds and accounts should
take differing positions with respect to a particular
security. In these cases, the portfolio manager may place
separate transactions for one or more funds or accounts
which may affect the market price of the security or the
execution of the transaction, or both, to the detriment
or benefit of one or more other funds and accounts. For
example, a portfolio manager may determine that it would
be in the interest of another account to sell a security
that the Fund holds, potentially resulting in a decrease
in the market value of the security held by the Fund.

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

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

Value Investing Risk. The Fund focuses a portion of its
investments on securities that the Sub-Advisor believes
are undervalued or inexpensive relative to other
investments. These types of securities may present risks
in addition to the general risks associated with
investing in them. These securities generally are
selected on the basis of an issuer's business and
economic fundamentals or the securities' current and
projected credit profiles, relative to current market
price. Such securities are subject to the risk of
misestimating certain fundamental factors. Disciplined
adherence to a "value" investment mandate during periods
in which that style is "out of favor" can result in
significant underperformance relative to overall market
indices and other managed investment vehicles that pursue
growth style investments and/or flexible style mandates.

Income Risk. The income common shareholders receive from
the Fund is based primarily on the dividends and interest
it earns from its investments, which can vary widely over
the short and long-term. If prevailing market interest
rates drop, distribution rates of the Fund's portfolio

-15-

holdings of preferred securities and debt securities may
decline which then may adversely affect the Fund's
distributions on its common shares as well. The Fund's
income also would likely be adversely affected when
prevailing short-term interest rates increase and the
Fund is utilizing Financial Leverage.

Leverage Risk. Part of the successful use of leverage
depends on the Sub-Advisor's ability to predict or hedge
correctly interest rate and market movements. Although
the use of leverage by the Fund may create an opportunity
for increased returns for the common shares, it also
results in additional risks and can magnify the effect of
any losses for the common shares. If the income and gains
earned on securities and investments purchased with the
leverage proceeds are greater than the cost of the
leverage, the common shares' return will be greater than
if leverage had not been used. Conversely, if the income
or gains from the securities and investments purchased
with such proceeds does not cover the cost of leverage,
the return to the common shares will be less than if
leverage had not been used. There is no assurance that a
leveraging strategy will continue to be used or will be
successful. Leverage involves risks and special
considerations for common shareholders including:

o the likelihood of greater volatility of net asset
value and market price of the common shares than a
comparable portfolio without leverage;

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

o the effect of leverage in a declining market, which is
likely to cause a greater decline in the net asset
value of the common shares than if the Fund were not
leveraged, which may result in a greater decline in
the market price of the common shares; and

o when the Fund uses 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.

The issuance of Leverage Instruments by the Fund, in
addition to Borrowings under the BNP Facility, involve
offering expenses and other costs, including interest or
dividend payments, which would be borne directly by the
common shareholders. Increased operating costs, including
the financing cost associated with any leverage, may
reduce the Fund's total return. In addition, any turmoil
in the credit markets could adversely impact borrowing
availability and costs. Because common shareholders
directly bear the cost of leverage, an increase in
interest and dividend obligations on the Fund's Financial
Leverage may reduce the total return to common
shareholders.

While the Fund may from time to time consider reducing
leverage in response to actual or anticipated changes in
interest rates in an effort to mitigate the increased
volatility of current income and net asset value
associated with leverage, there can be no assurance that
the Fund will actually reduce leverage in the future or
that any reduction, if undertaken, will benefit the
common shareholders. Changes in the future direction of
interest rates are very difficult to predict accurately.
If the Fund were to reduce leverage based on a prediction
about future changes to interest rates, and that
prediction turned out to be incorrect, the reduction in
leverage would likely operate to reduce the income and/or
total returns to common shareholders relative to the
circumstance if the Fund had not reduced leverage. The
Fund may decide that this risk outweighs the likelihood
of achieving the desired reduction to volatility in
income and common share price if the prediction were to
turn out to be correct, and determine not to reduce
leverage as described above.

-16-

The funds borrowed pursuant to a borrowing program (such
as a credit line or commercial paper program) or obtained
through the issuance of Preferred Shares constitute a
substantial lien and burden by reason of their prior
claim against the income of the Fund and against the net
assets of the Fund in liquidation. The rights of lenders
to receive payments of interest on and repayments of
principal of any Borrowings made by the Fund under a
borrowing program are senior to the rights of holders of
common shares and the holders of Preferred Shares, with
respect to the payment of dividends or upon liquidation.
Certain types of leverage may result in the Fund being
subject to covenants relating to asset coverage and
portfolio composition and may impose special restrictions
on the Fund's use of various investment techniques or
strategies or in its ability to pay dividends and other
distributions on common shares in certain instances. The
Fund may not be permitted to declare dividends or other
distributions, including dividends and distributions with
respect to common shares or Preferred Shares, or purchase
common shares or Preferred Shares unless, at the time
thereof, the Fund meets these asset coverage and
portfolio composition requirements and no event of
default exists under any borrowing program. In addition,
the Fund may not be permitted to pay dividends on common
shares unless all dividends on the Preferred Shares
and/or accrued interest on Borrowings have been paid, or
set aside for payment. In an event of default under a
borrowing program, the lenders have the right to cause a
liquidation of collateral (i.e., sell assets of the Fund)
and, if any such default is not cured, the lenders may be
able to control the liquidation as well. The Fund also
may be subject to certain restrictions on investments
imposed by guidelines of one or more rating agencies,
which may issue ratings for the Preferred Shares or other
leverage securities issued by the Fund. These guidelines
may impose asset coverage or Fund composition
requirements that are more stringent than those imposed
by the 1940 Act. The Sub-Advisor does not believe that
these covenants or guidelines will impede it from
managing the Fund's portfolio in accordance with the
Fund's investment objectives and policies.

The loan documents under the BNP Facility include
provisions that restrict the Fund's ability to pledge its
assets and contains customary events of default including
failure of the Fund to meet the asset coverage test of
the 1940 Act. There is no assurance that the Fund will
not violate financial covenants relating to Financial
Leverage in the future. In such event, the Fund may be
required to repay all outstanding Borrowings immediately.
In order to repay such amounts the Fund may be required
to sell assets quickly which could have a material
adverse effect on the Fund and could trigger negative tax
implications. In addition, the Fund would be precluded
from declaring or paying any distribution on the common
shares during the continuance of such event of default.

It is possible that the Fund will be unable to obtain
additional leverage. If the Fund is unable to increase
its Financial Leverage after the issuance of additional
Common Shares pursuant to this prospectus and the
applicable prospectus supplement, there could be an
adverse impact on the return to common shareholders. See
"Risks--Leverage Risk."

Common Stock Risk. Investments in common stocks and other
equity securities involve the risk that such securities
held by the Fund will fall in value due to general market
or economic conditions, perceptions regarding the
industries in which the issuers of securities held by the
Fund participate, and the particular circumstances and
performance of individual companies whose securities the
Fund holds. For example, an adverse event, such as an
unfavorable earnings report, may depress the value of
equity securities of an issuer held by the Fund; the
price of common stock of an issuer may be particularly
sensitive to general movements in the stock market; or a

-17-

drop in the stock market may depress the price of most or
all of the common stocks and other equity securities held
by the Fund. In addition, the common stock of an issuer
held in the Fund's portfolio may decline in price if the
issuer of such common stock fails to make anticipated
dividend payments because, among other reasons, the
issuer of the security experiences a decline in its
financial condition. While broad market measures of
common stocks have historically generated higher average
returns than fixed income securities, common stocks have
also experienced significantly more volatility in those
returns.

Master Limited Partnership Risk. Investments in MLP
interests are subject to the risks generally applicable
to companies in the energy and natural resources sectors,
including commodity pricing risk, supply and demand risk,
depletion risk and exploration risk. An investment in MLP
interests involves risks that differ from a similar
investment in equity securities, such as common stock, of
a corporation. Holders of MLP interests have the rights
typically afforded to limited partners in a limited
partnership. As compared to common stockholders of a
corporation, holders of MLP interests may have more
limited control and limited rights to vote on matters
affecting the partnership. Additionally, conflicts of
interest may exist among common unit holders,
subordinated unit holders and the general partner or
managing member of an MLP; for example, a conflict may
arise as a result of incentive distribution payments.

There are certain tax risks associated with the MLP
interests in which the Fund may invest, including the
risk that U.S. taxing authorities could challenge the
Fund's treatment for federal income tax purposes of MLPs.
These tax risks, and any adverse determination with
respect thereto, could have a negative impact on the
after-tax income available for distribution by MLPs
and/or the value of the Fund's investments. There can be
no assurance that future changes to Canadian and U.S. tax
laws or tax rules would not adversely affect the Fund's
investments in MLP interests or the value of the common
shares.

The types of MLPs in which the Fund may invest
historically have made cash distributions to limited
partners or members that exceed the amount of taxable
income allocable to limited partners or members, due to a
variety of factors, including significant non-cash
deductions, such as depreciation and depletion. If cash
distributions from an MLP exceed the taxable income
reported in a particular tax year, a portion of the
excess cash distribution would not be treated as income
to the Fund in that tax year but would rather be treated
as a return of capital for federal income tax purposes to
the extent of the Fund's basis in its MLP units. The
Fund's tax basis in its MLP units is the amount paid for
the units, increased by the Fund's allocable share of net
income and gains and the MLP's debt, if any, and capital
contributions to the MLP, and decreased for any
distributions received by the Fund, by the Fund's
allocable share of net losses and by reductions in the
Fund's allocable share of the MLP's debt, if any. Thus,
although cash distributions in excess of taxable income
and net tax losses may create a temporary economic
benefit to the Fund, they will increase the amount of
gain (or decrease the amount of loss) on the sale of an
interest in an MLP.

Fixed-Income Securities Risk. In addition to the other
risks discussed in this prospectus regarding certain
fixed-income investments, debt securities, including
high-yield securities, are subject to certain additional
risks, including issuer/credit risk, interest rate risk,
call or prepayment risk and reinvestment risk. See
"Risks--Fixed-Income Securities Risk."

Lower Grade Securities Risk. Investment in
below-investment grade debt securities, commonly referred
to as "high-yield" or "junk" bonds, may involve a

-18-

substantial risk of loss as they are predominantly
speculative with respect to the issuer's capacity to pay
interest and repay principal when due and are susceptible
to default or decline in market value due to adverse
economic and business developments. These securities are
generally less liquid than investment grade debt
securities as well. An economic downturn could severely
affect the ability of highly leveraged issuers to service
their debt obligations or to repay their obligations upon
maturity. In addition, lower rated securities and
comparable unrated securities present a higher degree of
credit risk. The risk of loss due to default by these
issuers is significantly greater because such lower rated
securities and unrated securities of comparable quality
generally are unsecured and frequently are subordinated
to the prior payment of senior indebtedness. For these
reasons, your investment in the Fund could be subject to
the following specific risks: (i) increased price
sensitivity to changing interest rates and to a
deteriorating economic environment; (ii) greater risk of
loss due to default or declining credit quality; (iii)
adverse company specific events more likely to render the
issuer unable to make interest and/or principal payments;
and (iv) negative perception of the high-yield market
which may depress the price and liquidity of high-yield
securities. See "Risks--Lower Grade Securities Risk."

Tax Risks. The extent to which the Fund may invest in
securities issued by MLP interests may be limited by the
Fund's intention to qualify as a regulated investment
company ("RIC") for federal income tax purposes. Failure
in any year for the Fund to qualify as a RIC under
applicable federal tax laws would result in the Fund
being subject to tax as an ordinary corporation, which
would have a material and adverse effect on the earnings
and distributions of the Fund. See "Risks--Tax Risk" and
"Federal Tax Matters."

Non-Diversification Risk. The Fund is, and certain of the
BDCs in which the Fund may invest may be, classified as
"non-diversified" under the 1940 Act. A non- diversified
fund has the ability to invest more of its assets in
securities of a single issuer than if it were classified
as a "diversified" fund, which may increase volatility.
If the Fund's investment in a BDC, or a BDC's investment
in an issuer, represents a relatively significant
percentage of the Fund's or the BDC's portfolio, as
applicable, the value of the respective portfolio will be
more impacted by a change in value on that investment
than if the portfolio were more diversified.

Inflation/Deflation Risk. Inflation risk is the risk that
the value of the Fund's assets or income from the Fund's
investments will be worth less in the future as inflation
decreases the value of money. As inflation increases, the
real value of the common shares and distributions can
decline. In addition, during any periods of rising
inflation, the dividend rates or borrowing costs
associated with the Fund's Financial Leverage could
increase, which could further reduce returns to common
shareholders. Deflation risk is the risk that prices
throughout the economy decline over time. Deflation may
have an adverse affect on the creditworthiness of issuers
and may make issuer default more likely, which may result
in a decline in the value of the Fund's portfolio.

Market and Economic Developments. The Fund's performance
was adversely impacted by the weakness in the credit
markets and broad stock market that occurred in 2008, and
may again be adversely affected if the weakness in the
credit and stock markets reoccur. In response to the
financial crises affecting the banking system and
financial markets, the U.S. and foreign governments have
intervened to an unprecedented degree in the financial
and credit markets. Among other things, U.S. government
regulators have encouraged, and in some cases structured
and provided financial assistance for, banks, securities
firms, insurers and other financial companies. Existing
and future government intervention programs could have an

-19-

impact on the securities markets. There can be no
assurance that any or all of these measures will succeed
in preventing extreme levels of volatility. Such
volatility could materially and adversely affect the
financial condition of the Fund, the performance of the
Fund's investments (including dividends paid by companies
in which the Fund invests) and the trading price of the
Fund's common shares.

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

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

-20-

SUMMARY OF FUND EXPENSES

The following table and example contains information about the costs and
expenses that common shareholders will bear directly or indirectly. In
accordance with SEC requirements, the table below shows the Fund's expenses,
including leverage costs, as a percentage of the Fund's net assets as of October
31, 2014, and not as a percentage of gross assets or Managed Assets. By showing
expenses as a percentage of net assets, expenses are not expressed as a
percentage of all the assets the Fund invests. The table and example are based
on the Fund's capital structure as of October 31, 2014. As of that date, the
Fund had $25,000,000 of leverage outstanding pursuant to the BNP Facility. Such
leverage represented 18.20% of total assets as of October 31, 2014.

SHAREHOLDER TRANSACTION EXPENSES:
Sales Load (as a percentage of offering price) ......................... -- %*
Offering Expenses Borne by the Common Shareholders
(as a percentage of offering price)(1) ............................... -- %*
Dividend Reinvestment Plan Fees......................................... None(2)

PERCENTAGE OF NET
ASSETS ATTRIBUTABLE
TO COMMON SHARES,
(ASSUMES 18.20% LEVERAGE
IS OUTSTANDING)
--------------------------
ANNUAL EXPENSES:
Management Fees(3)............................................. 1.12%
Interest and Fees on Leverage(4)............................... 0.19%
Other Expenses................................................. 0.30%
Acquired Fund (BDC) Fees and Expenses(5)....................... 9.51%
Total Annual Expenses..........................................11.12%
------
Fee and Expense Reimbursement.................................. --%
------
Total Net Annual Expenses.................................11.12%
------
--------------------------------------------------------------------------------
* The applicable prospectus supplement to be used in connection with any
sales of Common Shares will set forth any applicable sales load and the
estimated offering expenses borne by the Fund.

(1) The Fund will pay all offering costs other than the sales load.

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

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

(4) Interest and fees on leverage in the table reflect the cost to the Fund of
Borrowings, expressed as a percentage of the Fund's net assets as of
October 31, 2014, based on interest rates in effect as of October 31,
2014. The table assumes total Borrowings of $25,000,000, which reflects
leverage in an amount representing 18.20% of total assets. The Borrowings
bear interest at variable rates.

(5) Fund investors will bear not only the Fund's management fees and operating
expenses, but also the fees and expenses (including any interest expenses
and other leverage costs) of any other investment companies, including
BDCs, in which the Fund may invest ("Acquired Funds"). Certain of the
Acquired Funds may pay performance based or incentive fees based upon an
increase, if any, in the net asset value of such Acquired Fund, typically
up to 20% of returns above a pre-determined hurdle rate. Estimates of such
Acquired Fund fees and expenses, including any interest expenses, are
based upon current fiscal year performance of representative Acquired
Funds, and such fees and expenses may be substantially higher or lower in
the future because certain fees are based on the performance of the
Acquired Funds, which may fluctuate over time. Investors would not bear
the Fund's management fees and operating expenses set forth above if they
invested directly in such Acquired Funds.

The purpose of the tables above and the example below is to help you
understand all fees and expenses that you, as a holder of Common Shares, would
bear directly or indirectly. The expenses shown in the tables under "Other
Expenses," "Acquired Fund (BDC) Fees and Expenses" and "Total Net Annual
Expenses" are based on estimated amounts for the Fund's 12 months of operations
after October 31, 2014 unless otherwise indicated and assumes that the Fund has
not issued any additional common shares.

The following examples illustrate the expenses that you would pay on a $1,000
investment in Common Shares, assuming: (i) total annual expenses of 11.12% of
net assets attributable to Common Shares through year 10, (ii) a 5% annual
return and (iii) all distributions are reinvested at net asset value:(1)

1 YEAR 3 YEARS 5 YEARS 10 YEARS
$108 $304 $477 $825

-21-

(1) This example does not include sales load or estimated offering costs. THE
EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES. The
example assumes that the estimated "Other Expenses" set forth in the
Annual Expenses table are accurate, that all dividends and distributions
are reinvested at net asset value and that the Fund is engaged in leverage
of 18.20% of total assets, assuming interest and fees on leverage of
0.85%. The interest and fees on leverage is expressed as an interest rate
and represents interest and fees payable on the BNP Facility. ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. Moreover, the Fund's
actual rate of return may be greater or less than the hypothetical 5%
return shown in the example.

-22-

FINANCIAL HIGHLIGHTS

The information in the following table shows selected data for a common share
outstanding throughout each period listed below. The information in this table
for the year ended November 30, 2014 and each of the prior years then ended is
derived from the Fund's financial statements audited by ,
whose report on the 2014 financial statements and the financial highlights for
the five years in the period then ended is contained in the Fund's 2014 Annual
Report. The 2014 Annual Report is incorporated by reference into the Fund's SAI
and is available from the Fund upon request.

YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
11/30/2014 11/30/2013 11/30/2012 11/30/2011
------------ ------------ ------------ ------------

Net asset value, beginning of period ........... $ $ 7.85 $ 6.98 $ 7.69
---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) ................... 0.62 0.59 0.66
Net realized and unrealized gain (loss) ........ 0.81 0.93 (0.74)
---------- ---------- ---------- ----------
Total from investment operations ............... 1.43 1.52 (0.08)
---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income .......................... (0.67) (0.65) (0.63)
Return of capital .............................. -- (0.00) (c) (0.00) (c)
---------- ---------- ---------- ----------
Total distributions to Common Shareholders ..... (0.67) (0.65) (0.63)
---------- ---------- ---------- ----------
Net asset value, end of period ................. $ $ 8.61 $ 7.85 $ 6.98
========== ========== ========== ==========
Market value, end of period .................... $ $ 8.19 $ 8.07 $ 6.20
========== ========== ========== ==========
TOTAL RETURN BASED ON NET ASSET VALUE (a) ...... % 18.91% 22.48% (1.01)%
========== ========== ========== ==========
TOTAL RETURN BASED ON MARKET VALUE (a) ......... % 10.03% 41.76% (9.84)%
========== ========== ========== ==========

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

RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) ........... $ $ 123,081 $ 112,133 $ 99,697
Ratio of total expenses to average net assets... % 1.73% 1.83% 1.85%
Ratio of total expenses to average net assets
excluding interest expense ................... % 1.50% 1.55% 1.58%
Ratio of net investment income (loss) to average
net assets ................................... % 7.51% 7.81% 8.32%
Portfolio turnover rate ........................ % 13% 18% 11%
INDEBTEDNESS:
Total loan outstanding (in 000's) .............. $ $ 25,000 $ 23,000 $ 20,000
Asset coverage per $1,000 of indebtedness (b)... $ $ 5,923 $ 5,875 $ 5,985

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

(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 less than one year. Past performance is not
indicative of future results.

(b) Calculated by taking the Fund's total assets less the Fund's total
liabilities (not including the loan outstanding) and dividing by the loan
outstanding in 000's.

-23-

YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
11/30/2010 11/30/2009 11/30/2008 (b) 11/30/2007 (a)
------------ ------------ -------------- --------------

Net asset value, beginning of period............ $ 5.98 $ 4.51 $ 13.73 $ 19.10 (c)
---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).................... 0.56 0.65 1.02 0.70
Net realized and unrealized gain (loss)......... 1.76 1.43 (8.88) (5.32)
---------- ---------- ---------- ----------
Total from investment operations................ 2.32 2.08 (7.86) (4.62)
---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income........................... (0.59) (0.55) (1.27) (0.71)
Net realized gain............................... -- -- -- --
Return of capital............................... (0.02) (0.06) (0.09) --
---------- ---------- ---------- ----------
Total from distributions........................ (0.61) (0.61) (1.36) (0.71)
---------- ---------- ---------- ----------
Net asset value, end of period.................. $ 7.69 $ 5.98 $ 4.51 $ 13.73
========== ========== ========== ==========
Market value, end of period..................... $ 7.50 $ 5.43 $ 3.29 $ 14.23
========== ========== ========== ==========
TOTAL RETURN BASED ON NET ASSET VALUE (d)....... 40.04% 56.00% (61.38)% (24.53)%
========== ========== ========== ==========
TOTAL RETURN BASED ON MARKET VALUE (d).......... 50.41% 94.18% (72.80)% (25.36)%
========== ========== ========== ==========
-------------------------

RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)............ $ 109,861 $ 85,069 $ 64,208 $ 193,070
Ratio of total expenses to average net assets... 1.83% 2.29% 2.72% 1.99% (e)
Ratio of total expenses to average net assets
excluding interest expense and fees........... 1.58% 1.94% 1.73% 1.41% (e)
Ratio of net investment income (loss) to average
net assets.................................... 7.93% 13.36% 9.53% 8.64% (e)
Portfolio turnover rate ........................ 24% 20% 15% 3%
INDEBTEDNESS:
Total loan outstanding (in 000's)............... $ 18,000 $ 14,350 $ 11,450 $ 36,000
Asset coverage per $1,000 of indebtedness (f)... $ 7,103 $ 6,928 $ 6,608 $ 6,363

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

(a) Initial seed date of April 23, 2007. The Fund commenced operations on May
25, 2007.

(b) On July 29, 2008, Confluence Investment Management LLC became the
sub-advisor to the Fund.

(d) 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 less than one year. Past performance is not
indicative of future results.

(e) Annualized.

(f) Calculated by taking the Fund's total assets less the Fund's total
liabilities (not including the loan outstanding) and dividing by the loan
outstanding in 000's.

-24-

MARKET AND NET ASSET VALUE INFORMATION

The Fund's currently outstanding common shares are, and the Common Shares
offered by this prospectus and the applicable prospectus supplement, subject to
notice of issuance, will be, listed on the NYSE. The Fund's common shares
commenced trading on the NYSE on May 25, 2007.

The Fund's common shares have traded both at a premium and at a discount in
relation to net asset value. Shares of closed-end investment companies
frequently trade at a discount from net asset value. The Fund's issuance of the
Common Shares may have an adverse effect on prices in the secondary market for
the Fund's common shares by increasing the number of common shares available,
which may put downward pressure on the market price for the Fund's common
shares. See "Risks-Market Discount From Net Asset Value."

The following table sets forth for each of the periods indicated the high and
low closing market prices for common shares of the Fund on the NYSE, the net
asset value per share and the premium or discount to net asset value per share
at which the Fund's common shares were trading. Net asset value is determined
daily as of the close of regular trading on the NYSE (normally 4:00 p.m. Eastern
Time). See "Net Asset Value" for information as to the determination of the
Fund's net asset value.

PREMIUM/(DISCOUNT)
MARKET PRICE(1) NET ASSET VALUE (2) TO NET ASSET VALUE(3)
QUARTER ENDED HIGH LOW HIGH LOW HIGH LOW

September 28, 2007..................... $19.99 $13.55 $18.70 $14.44 9.40% -9.43%
December 31, 2007...................... $16.26 $11.55 $16.95 $12.84 9.01% -16.61%
March 31, 2008......................... $13.75 $11.24 $14.34 $11.17 9.94% -11.36%
June 30, 2008.......................... $14.10 $9.00 $13.10 $9.73 9.30% -9.98%
September 30, 2008..................... $9.64 $6.80 $9.97 $8.14 -0.44% -24.13%
December 31, 2008...................... $7.19 $2.27 $8.67 $3.42 -4.87% -33.63%
March 31, 2009......................... $4.88 $1.82 $5.50 $2.35 -5.61% -22.55%
June 30, 2009.......................... $4.58 $3.21 $4.82 $3.58 -3.17% -13.14%
September 30, 2009..................... $5.54 $3.93 $6.12 $4.48 -5.37% -13.32%
December 31, 2009...................... $5.98 $5.20 $6.50 $5.65 -4.67% -11.53%
March 31, 2010......................... $7.09 $5.53 $7.38 $6.26 -1.50% -12.36%
June 30, 2010.......................... $8.04 $6.09 $7.93 $6.41 10.14% -6.16%
September 30, 2010..................... $7.28 $6.23 $7.45 $6.48 1.82% -6.15%
December 31, 2010...................... $8.02 $7.13 $8.15 $7.43 0.00% -6.70%
March 31, 2011......................... $8.43 $7.71 $8.42 $7.67 4.20% -5.48%
June 30, 2011.......................... $8.25 $7.22 $8.23 $7.55 1.90% -5.12%
September 30, 2011..................... $7.65 $5.82 $7.92 $6.25 -0.61% -11.14%
December 30, 2011...................... $6.61 $5.52 $7.27 $6.02 -6.25% -11.68%
March 30, 2012......................... $7.30 $6.46 $7.68 $7.09 -1.75% -8.99%
June 29, 2012.......................... $7.46 $6.88 $7.66 $6.98 1.99% -6.19%
September 28, 2012..................... $8.12 $7.35 $8.32 $7.73 1.37% -6.13%
December 31, 2012...................... $8.45 $7.40 $8.28 $7.35 4.98% -4.25%
March 28, 2013......................... $8.97 $8.00 $8.66 $8.22 4.07% -2.68%
June 28, 2013.......................... $8.82 $8.16 $8.80 $7.84 5.23% -2.75%
September 30, 2013..................... $8.91 $7.96 $8.54 $7.81 6.99% -2.20%
December 31, 2013...................... $8.44 $7.74 $8.61 $8.05 0.84% -7.05%
March 31, 2014......................... $8.17 $7.70 $8.75 $8.15 -3.82% -7.77%
June 30, 2014.......................... $8.11 $7.54 $8.44 $7.81 -0.50% -7.13%
September 30, 2014..................... $8.85 $7.90 $8.47 $7.65 9.28% -5.58%

-25-

The last reported sale price, net asset value per share and percentage
premium to net asset value per share of the common shares as of , 2014
were $ , $ and %, respectively. As of , 2014, the Fund
had common shares outstanding and net assets of the Fund were
$ .

(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.

-26-

THE FUND

The Fund is a non-diversified, closed-end management investment company
registered under the Investment Company Act of 1940 (the "1940 Act"). The Fund
was organized on March 20, 2007 as a Massachusetts business trust pursuant to a
Declaration of Trust (the "Declaration of Trust"). On May 25, 2007, the Fund
issued an aggregate of 12,300,000 common shares in its initial public offering.
Pursuant to an overallotment option, the Fund issued an additional 1,725,000
common shares for a total of 14,025,000. The Fund's currently outstanding common
shares are, and the Common Shares offered in this prospectus and any applicable
prospectus supplement will be, listed on the NYSE under the symbol "FGB." The
Fund's principal office is located at 120 East Liberty Drive, Suite 400,
Wheaton, Illinois 60187. Investment in the Fund involves certain risks and
special considerations, including risks associated with the Fund's use of
leverage.

The following table provides information about the Fund's outstanding
securities as of , 2014:

AMOUNT HELD BY
AMOUNT THE FUND OR FOR AMOUNT
TITLE OF CLASS AUTHORIZED ITS ACCOUNT OUTSTANDING

Common shares.................. Unlimited 0

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

USE OF PROCEEDS

Unless otherwise specified in a prospectus supplement, the Fund will invest
the net proceeds from any sales of Common Shares in accordance with the Fund's
investment objectives and policies as stated below, or use such proceeds for
other general corporate purposes. Pending any such use, the proceeds may be
invested in cash, cash equivalents or other securities.

THE FUND'S INVESTMENTS

INVESTMENT OBJECTIVES AND POLICIES

The Fund's primary investment objective is to seek a high level of current
income. The Fund seeks attractive total return as a secondary objective. There
can be no assurance that the Fund's investment objectives will be achieved.

Under normal market conditions, the Fund seeks to achieve its investment
objectives by investing at least 80% of its Managed Assets (as defined below) in
a portfolio of securities of specialty finance and other financial companies
that the Sub-Advisor believes offer attractive opportunities for income and
capital appreciation. The Fund is not limited with respect to its investments in
securities issued by specific categories of specialty finance and other
financial companies. Under normal market conditions, the Fund will concentrate
its investments in securities of companies within industries in the financial
sector. The concentration of the Fund's assets in a group of industries is
likely to present more risks than a fund that is broadly diversified over
several industries or groups of industries. See "Risks--Risks of Concentration
in the Financials Sector."

The Advisor and the Sub-Advisor believe that specialty finance companies may
be attractive for investors seeking high levels of current income in that
specialty finance company cash flow streams are typically distributed to
shareholders without being taxed at the entity level in the form of coupon
payments and/or dividends. One type of specialty finance company, business
development companies ("BDCs"), has emerged as a significant alternative to
traditional capital providers, such as commercial banks and other financial
institutions. Other examples of specialty finance companies that typically pass
cash flow through to its investors without being taxed at the entity level
include categories of real estate investment trusts ("REITs") providing
commercial or residential mortgage financing or lease financing, and other
entities that provide significant capital to private companies. As of
2014, BDCs and REITs represented % and %, respectively,
of the Fund's Managed Assets. These percentages are expected to vary over time
as market conditions change. See "--Portfolio Composition--Specialty Finance
Companies" below. "Managed Assets" means the average daily gross asset value of

-27-

the Fund (which includes 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 Borrowings incurred and the
liquidation preference of any outstanding Preferred Shares).

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

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

INVESTMENT PHILOSOPHY AND PROCESS

With over 120 years of aggregate portfolio management experience,
Confluence's professionals have invested in a wide range of specialty finance
and other financial company securities during various market cycles in their
attempt to provide attractive risk-adjusted returns to their clients. Confluence
employs a value-oriented management style, seeking to invest in attractive
opportunities at discounted valuations. Confluence believes this philosophy can
enhance long-term total return while limiting downside risk.

When evaluating financial companies, Confluence performs company-specific
analysis, evaluating the capability, resources and track records of management
teams. The ability to consistently deliver attractive returns to shareholders
while prudently making sound capital allocation decisions are of high
importance. Confluence also evaluates the nature of risks embedded in a
financial company's primary business, as well as risks systemic to industries
and the broader sector.

Valuation plays a critical role in portfolio construction. Confluence
believes that an important way to address risk is by not overpaying for assets.
Therefore, investments are made with a discipline that involves the evaluation
of company, industry, sector and market valuations. Security selection is made
with consideration of the entire portfolio, in addition to the analytical work
performed at the individual company level.

PORTFOLIO COMPOSITION

The Fund's portfolio is composed principally of the following investments.
Additional information on the Fund's investment policies and restrictions and
the Fund's portfolio investments, including non-principal investments in which
the Fund currently invests or may in the future invest, is contained in the SAI.

Specialty Finance Companies. Specialty finance companies and other financial
companies invest in a wide range of securities and financial instruments,
including but not limited to private debt and equity, secured and unsecured
debt, trust preferred securities, subordinated debt, and preferred and common
equity as well as other equity-linked securities. These various securities offer
distinct risk/reward features which may be more or less attractive during
different points in the market cycle. Under normal market conditions, the
Sub-Advisor will invest the Fund's Managed Assets in specialty finance companies
with exposure to some or all of these kinds of securities.

-28-

often, greater financial resources, specialty finance companies seek competitive
advantage by focusing their attention on market niches, which may provide them
with deeper knowledge of their target market and its needs. Specialty finance
companies include mortgage specialists to certain consumers, equipment leasing
specialists to certain industries and equity or debt-capital providers to
certain small businesses. Specialty finance companies often utilize
tax-efficient or other non-traditional structures, such as BDCs and REITs. See
"Risks--Specialty Finance and Other Financial Companies Risk."

Business Development Companies. BDCs are a type of closed-end fund
regulated under the 1940 Act, whose shares are typically listed for
trading on a U.S. securities exchange. BDCs typically invest in and lend
to small and medium-sized private and certain public companies that may
not have access to public equity markets for capital raising. Oftentimes,
the financing a BDC provides includes an equity-like investment such as
warrants or conversion rights, creating an opportunity for the BDC to
participate in capital appreciation in addition to the interest income
earned from its debt investments. The interest earned by a BDC flows
through to investors in the form of a dividend, normally without being
taxed at the BDC entity level. BDCs invest in such diverse industries as
healthcare, chemical and manufacturing, technology and service companies.
BDCs are unique in that at least 70% of their investments must be made in
private and certain public U.S. businesses, and BDCs are required to make
available significant managerial assistance to their portfolio companies.
Unlike corporations, BDCs are not taxed on income distributed to their
shareholders provided they comply with the applicable requirements of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code").
The securities of BDCs, which are required to distribute substantially all
of their income on an annual basis to investors in order to not be subject
to entity level taxation, often offer a yield advantage over securities of
other issuers, such as corporations, that are taxed on income at the
entity level and are able to retain all or a portion of their income
rather than distributing it to investors. The Fund invests primarily in
BDC shares which are trading in the secondary market on a U.S. securities
exchange but may, in certain circumstances, invest in an initial public
offering of BDC shares or invest in certain debt instruments issued by
BDCs. The Fund is not limited with respect to the specific types of BDCs
in which it invests. The Fund will indirectly bear its proportionate share
of any management and other expenses, and of any performance based or
incentive fees, charged by the BDCs in which it invests, in addition to
the expenses paid by the Fund. See "Risks--Business Development Company
Risk."

REITs and Other Mortgage-Related Securities. REITs are financial
vehicles that pool investors' capital to invest primarily in
income-producing real estate or real estate-related loans or interests.
REIT shares are typically listed for trading in the secondary market on a
U.S. securities exchange. REITs can generally be classified as "Mortgage
REITs," "Equity REITs" and "Hybrid REITs." Mortgage REITs, which invest
the majority of their assets in real estate mortgages, derive their income
primarily from interest payments. The Fund focuses its Mortgage REIT
investments in companies that invest primarily in U.S. Agency, prime-rated
and commercial mortgage securities. U.S. Agency securities include
securities issued by the Government National Mortgage Association, the
Federal National Mortgage Association and the Federal Home Loan Mortgage
Corporation. Equity REITs, which invest the majority of their assets
directly in real property, derive their income primarily from rents,
royalties and lease payments. Equity REITs can also realize capital gains
by selling properties that have appreciated in value. Some REITs which are
classified as Equity REITs provide specialized financing solutions to
their clients in the form of sale-lease back transactions and triple net
lease financing. Hybrid REITs combine the characteristics of both Equity
REITs and Mortgage REITs.

Debt securities issued by REITs are, for the most part, general and
unsecured obligations and are subject generally to risks associated with
REITs. Distributions received by the Fund from REITs may consist of
dividends, capital gains and/or return of capital. REITs are not taxed on
income distributed to their shareholders provided they comply with the
applicable requirements of the Internal Revenue Code. Similar to BDCs, the
securities of REITs, which are required to distribute substantially all of
their income to investors in order to not be subject to entity level
taxation, often offer a yield advantage over securities of other issuers,
such as corporations, that are taxed on income at the entity level and are
able to retain all or a portion of their income rather than distributing
it to investors. Many of these distributions, however, will not generally
qualify for favorable treatment as qualified dividend income. The Fund
invests primarily in REIT shares which are trading in the secondary market
on a U.S. securities exchange but may, in certain circumstances, invest in
an initial public offering of REIT shares or invest in certain debt
instruments issued by REITs. The Fund is not limited with respect to the

-29-

specific types of REITs in which it invests. The Fund will indirectly bear
its proportionate share of any management and other operating expenses
charged by the REITs in which it invests, in addition to the expenses paid
by the Fund.

Other mortgage-related securities in which the Fund may invest include
debt instruments which provide periodic payments consisting of interest
and/or principal that are derived from or related to payments of interest
and/or principal on underlying mortgages. Additional payments on
mortgage-related securities may be made out of unscheduled prepayments of
principal resulting from the sale of the underlying property or from
refinancing or foreclosure, net of fees or costs that may be incurred.

The Fund may invest in commercial mortgage-related securities issued by
corporations. These are securities that represent an interest in, or are
secured by, mortgage loans secured by commercial property, such as
industrial and warehouse properties, office buildings, retail space and
shopping malls, multifamily properties and cooperative apartments, hotels
and motels, nursing homes, hospitals and senior living centers. They may
pay fixed or adjustable rates of interest. The commercial mortgage loans
that underlie commercial mortgage-related securities have certain distinct
risk characteristics. Commercial mortgage loans generally lack
standardized terms, which may complicate their structure. Commercial
properties themselves tend to be unique and difficult to value. Commercial
mortgage loans tend to have shorter maturities than residential mortgage
loans and may not be fully amortizing, meaning that they may have a
significant principal balance, or "balloon" payment, due on maturity. In
addition, commercial properties, particularly industrial and warehouse
properties, are subject to environmental risks and the burdens and costs
of compliance with environmental laws and regulations.

The Fund also may invest in mortgage pass-through securities,
collateralized mortgage obligations ("CMOs"), mortgage dollar rolls, CMO
residuals (other than residual interests in real estate mortgage
investment conduits), stripped mortgage-backed securities and other
securities that directly or indirectly represent a participation in, or
are secured by and payable from, mortgage loans on real property.

In addition, the Fund may invest in other types of asset-backed
securities that are offered in the marketplace. Other asset-backed
securities may be collateralized by the fees earned by service providers.
The value of asset-backed securities may be substantially dependent on the
servicing of the underlying asset pools and are therefore subject to risks
associated with the negligence of, or defalcation by, their servicers. In
certain circumstances, the mishandling of related documentation may also
affect the rights of the security holders in and to the underlying
collateral. The insolvency of entities that generate receivables or that
utilize the underlying assets may result in added costs and delays in
addition to losses associated with a decline in the value of the
underlying assets. See "--Mortgage-Backed Securities" and "--Asset-Backed
Securities" below.

Other Financial Companies. The principal industry groups of financial
companies include banks, savings institutions, brokerage firms, investment
management companies, insurance companies, holding companies of the foregoing
and companies that provide related services to such companies. Banks and savings
institutions provide services to customers such as demand, savings and time
deposit accounts and a variety of lending and related services. Brokerage firms
provide services to customers in connection with the purchase and sale of
securities. Investment management companies provide investment advisory and
related services to retail customers, high net-worth individuals and
institutions. Insurance companies provide a wide range of commercial, life,
health, disability, personal property and casualty insurance products and
services to businesses, governmental units, associations and individuals.

Equity Securities. The Fund may invest in equity securities, including but
not limited to common stocks, preferred stocks and convertible preferred
securities. Preferred stocks and convertible preferred securities are not a
principal part of the Fund's current investment strategy. For a discussion of
equity securities and other investments that are not a principal part of the
Fund's current investment strategy, see "Additional Information About the Fund's
Investments and Investment Risks" in the SAI.

Equity securities may include common stocks that either are required to
and/or customarily distribute a large percentage of their current earnings as
dividends. Common stock represents an equity ownership interest in a company,
providing voting rights and entitling the holder to a share of the company's
success through dividends and/or capital appreciation. In the event of
liquidation, common stockholders have rights to a company's remaining assets
after bond holders, other debt holders and preferred stockholders have been paid
in full. Typically, common stockholders are entitled to one vote per share to
elect the company's board of directors (although the number of votes is not
always directly proportional to the number of shares owned). Common stockholders
also receive voting rights regarding other company matters such as mergers and
certain important company policies such as issuing securities to management.
Common stocks fluctuate in price in response to many factors, including

-30-

historical and prospective earnings of the issuer, the value of its assets,
general economic conditions, interest rates, investor perceptions and market
liquidity. See "Risks--Common Stock Risk."

Master Limited Partnership Interests. Master limited partnerships ("MLPs")
are limited partnerships or limited liability companies that are taxed as
partnerships and whose interests (limited partnership units or limited liability
company units) are traded on securities exchanges like shares of common stock.
An MLP consists of a general partner and limited partners. The general partner
manages the partnership, has an ownership stake in the partnership and is
eligible to receive an incentive distribution. The limited partners provide
capital to the partnership, have a limited (if any) role in the operation and
management of the partnership and receive cash distributions. Interests in MLPs,
which are required to distribute substantially all of their income to investors
in order to not be subject to entity level taxation, often offer a yield
advantage over other types of securities. Currently, most MLPs operate in the
energy, natural resources or real estate sectors. The Fund will not invest more
than 20% of its Managed Assets in MLPs. See "Risks--Master Limited Partnership
Risk."

Investment Grade Debt Securities. The Fund may invest in investment grade
bonds of varying maturities issued by governments, corporations and other
business entities. Bonds are fixed or variable rate debt obligations, including
bills, notes, debentures, money market instruments and similar instruments and
securities. Bonds generally are used by corporations as well as by governments
and other issuers to borrow money from investors. The issuer pays the investor a
fixed or variable rate of interest and normally must repay the amount borrowed
on or before maturity. Certain bonds are "perpetual" in that they have no
maturity date. See "Risks--Fixed-Income Securities Risk."

Non-Investment Grade Debt Securities. The Fund may invest in fixed income
securities of below-investment grade quality (commonly referred to as
"high-yield" or "junk" bonds). Generally, such lower quality debt securities
offer a higher current yield than is offered by higher quality debt securities,
but also (i) will likely have some quality and protective characteristics that,
in the judgment of the rating agencies, are outweighed by large uncertainties or
major risk exposures to adverse conditions and (ii) are predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation. Below-investment grade
debt securities are rated below "Baa" by Moody's Investors Services, Inc. below
"BBB" by Standard & Poor's Ratings Group, a division of The McGraw Hill
Companies, Inc., comparably rated by another nationally recognized statistical
rating organization or, if unrated, determined to be of comparable quality by
the Sub-Advisor. See "Risks--Fixed-Income Securities Risk" and "Risks--Lower
Grade Securities Risk."

Mortgage-Backed Securities. Mortgage-backed securities represent direct or
indirect participations in, or are secured by and payable from, mortgage loans
secured by real property and include single- and multi-class pass-through
securities and collateralized mortgage obligations. U.S. government
mortgage-backed securities include mortgage-backed securities issued or
guaranteed as to the payment of principal and interest (but not as to market
value) by the Government National Mortgage Association (also known as Ginnie
Mae), the Federal National Mortgage Association (also known as Fannie Mae), the
Federal Home Loan Mortgage Corporation (also known as Freddie Mac) or other
government-sponsored enterprises. Other mortgage-backed securities are issued by
private issuers. Private issuers are generally originators of and investors in
mortgage loans, including savings associations, mortgage bankers, commercial
banks, investment bankers and special purpose entities. Payments of principal
and interest (but not the market value) of such private mortgage-backed
securities may be supported by pools of mortgage loans or other mortgage-backed
securities that are guaranteed, directly or indirectly, by the U.S. government
or one of its agencies or instrumentalities, or they may be issued without any
government guarantee of the underlying mortgage assets but with some form of
non-government credit enhancement. Non-governmental mortgage-backed securities
may offer higher yields than those issued by government entities, but may also
be subject to greater price changes than governmental issues.

Some mortgage-backed securities, such as collateralized mortgage obligations,
make payments of both principal and interest at a variety of intervals; others
make semi-annual interest payments at a predetermined rate and repay principal
at maturity (like a typical bond). Stripped mortgage-backed securities are
created when the interest and principal components of a mortgage-backed security
are separated and sold as individual securities. In the case of a stripped
mortgage-backed security, the holder of the principal-only, or "PO," security
receives the principal payments made by the underlying mortgage, while the
holder of the interest-only, or "IO," security receives interest payments from
the same underlying mortgage.

-31-

Mortgage-backed securities are based on different types of mortgages
including those on commercial real estate or residential properties. These
securities often have stated maturities of up to thirty years when they are
issued, depending upon the length of the mortgages underlying the securities. In
practice, however, unscheduled or early payments of principal and interest on
the underlying mortgages may make the securities' effective maturity shorter
than this, and the prevailing interest rates may be higher or lower than the
current yield of the Fund's portfolio at the time the Fund receives the
prepayments for reinvestment.

Residential mortgage-backed securities represent direct or indirect
participations in, or are secured by and payable from, pools of assets which
include all types of residential mortgage products. See "Risks--REIT,
Mortgage-Related and Asset-Backed Securities Risk."

Asset-Backed Securities. Asset-backed securities represent direct or indirect
participations in, or are secured by and payable from, pools of assets such as,
among other things, motor vehicle installment sales contracts, installment loan
contracts, leases of various types of real and personal property, and
receivables from revolving credit (credit card) agreements or a combination of
the foregoing. These assets are securitized through the use of trusts and
special purpose corporations. Credit enhancements, such as various forms of cash
collateral accounts or letters of credit, may support payments of principal and
interest on asset-backed securities. Although these securities may be supported
by letters of credit or other credit enhancements, payment of interest and
principal ultimately depends upon individuals paying the underlying loans or
accounts, which payment may be adversely affected by general downturns in the
economy. Asset-backed securities are subject to the same risk of prepayment
described above with respect to mortgage-backed securities. The risk that
recovery on repossessed collateral might be unavailable or inadequate to support
payments, however, is greater for asset-backed securities than for
mortgage-backed securities. See "Risks--REIT, Mortgage-Related and Asset-Backed
Securities Risk."

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

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

INVESTMENT PRACTICES

Portfolio Turnover. The Fund's annual portfolio turnover rate may vary
greatly from year to year. Although the Fund cannot accurately predict its
annual portfolio turnover rate, it is not expected to exceed 50% under normal
circumstances, but may be higher or lower in certain periods. For the fiscal
year ended November 30, 2013, the Fund's portfolio turnover rate was
approximately %. Portfolio turnover rate is not considered a limiting factor
in the execution of investment decisions for the Fund. There are no limits on
the rate of portfolio turnover, and investments may be sold without regard to
length of time held when the 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 Common Shareholders, will be taxable as ordinary
income. See "Federal Tax Matters" and "Risks--Portfolio Turnover Risk."

USE OF FINANCIAL LEVERAGE

The Fund is currently engaged in, and expects to continue to engage in, the
use of Financial Leverage to seek to enhance the level of its current
distributions to common shareholders. As of , 2014, the Fund

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utilized leverage in an amount equal to approximately % of the Fund's Managed
Assets. Borrowings, commercial paper or notes and Preferred Shares are each
considered a "Leverage Instrument" and collectively the "Leverage Instruments."

On September 12, 2008, the Fund entered into a credit agreement and credit
annex thereto with Credit Suisse Securities (USA) LLC, which provided for an
uncommitted credit facility to be used as leverage for the Fund (the "Credit
Suisse Facility"). The maximum amount that could be outstanding at any one time
under the Credit Suisse Facility was $70 million. On February 2, 2010, the Fund
entered into a committed facility agreement with BNP Paribas Prime Brokerage
Inc., which currently has a maximum commitment amount of $25 million (the "BNP
Facility"). On February 17, 2010, all outstanding borrowings under the Credit
Suisse Facility, in the amount of $15,850,000, were paid in full using the BNP
Facility. Borrowings under the BNP Facility represent the only Borrowings of the
Fund as of the date of this prospectus.

The Fund may, in the future, incur additional Borrowings or issue series of
notes or other senior securities to the extent permitted by the 1940 Act. The
Fund's common shares, including the Common Shares, are junior in liquidation and
distribution rights to Borrowings under the BNP Facility and any Leverage
Instruments (as defined below) utilized by the Fund in the future. The issuance
of Preferred Shares, if any, and Borrowings represent the leveraging of the
Fund's common shares. The issuance of additional Common Shares offered by this
prospectus and an applicable prospectus supplement will enable the Fund to
increase the aggregate amount of its leverage. The use of leverage creates an
opportunity for increased income and capital appreciation for common
shareholders, but at the same time it creates special risks that may adversely
affect common shareholders. In addition, because both the Advisor's and
Sub-Advisor's fees are based on Managed Assets (including assets obtained
through leverage), both the Advisor's and Sub-Advisor's fees are higher when the
Fund is leveraged. There can be no assurance that a leveraging strategy will be
successful during any period in which it is used.

It is possible that the Fund will be unable to obtain additional leverage.
The availability of credit may be reduced during periods of volatility and
disruption in the capital and credit markets. The availability of leverage will
depend on a variety of factors, such as market conditions, the general
availability of credit, the volume of trading activities, the overall
availability of credit to the closed-end management investment companies, the
Fund's credit ratings and credit capacity, the Fund's asset class, as well as
the possibility that lenders could develop a negative perception of the Fund's
long- or short-term financial prospects if the Fund incurs large investment
losses due to a market downturn. Similarly, the Fund's access to leverage may be
impaired if regulatory authorities or rating agencies take negative actions
against the Fund. The Fund may not be able to successfully obtain additional
leverage on favorable terms, or at all. In certain economic environments, it
could be difficult for borrowers, including the Fund, to find third parties
willing to extend credit or purchase securities that would constitute leverage.
If the Fund is unable to increase its Financial Leverage after the issuance of
additional Common Shares pursuant to this prospectus and an applicable
prospectus supplement, there could be an adverse impact on the return to common
shareholders.

Leverage creates a greater risk of loss, as well as potential for more gain,
for the common shares than if leverage is not used. The Leverage Instruments
have complete priority upon distribution of assets over common shares. The
issuance of Leverage Instruments leverages the common shares. Although based on
recommendations by the Advisor and the Sub-Advisor, the determination of whether
to utilize Financial Leverage as well as timing and other terms of the offering
of Leverage Instruments and the terms of the Leverage Instruments would be
determined by the Board of Trustees. The Fund expects to invest the net proceeds
derived from any future Leverage Instrument offering according to the investment
program described in this prospectus. So long as the Fund's portfolio is
invested in securities that provide a higher rate of return than the dividend
rate or interest rate of the Leverage Instrument, after taking expenses into
consideration, the leverage will cause common shareholders to receive a higher
rate of income than if the Fund were not leveraged.

Leverage creates risk for holders of the common shares, including the
likelihood of greater volatility of net asset value and market price of the
common shares, and the risk that fluctuations in interest rates on borrowings
and debt or in the dividend rates on any Preferred Shares may affect the return
to the holders of the common shares or will result in fluctuations in the
dividends paid on the common shares. To the extent total return exceeds the cost
of leverage, the Fund's return will be greater than if leverage had not been
used. Conversely, if the total return derived from securities purchased with
funds received from the use of leverage is less than the cost of leverage, the
Fund's return will be less than if leverage had not been used, and therefore the
amount available for distribution to common shareholders as dividends and other
distributions will be reduced. In the latter case, the Sub-Advisor in its best

-33-

judgment nevertheless may determine to maintain the Fund's leveraged position if
it expects that the benefits to the Fund's common shareholders of maintaining
the leveraged position will outweigh the current reduced return. Under normal
market conditions, the Fund anticipates that it will be able to invest the
proceeds from leverage at a higher rate than the costs of leverage, which would
enhance returns to common shareholders. For a discussion of other risks and
special considerations associated with the Fund's use of leverage, see
"Risks--Leverage Risk."

The Declaration of Trust authorizes the Fund, without prior approval of the
common shareholders, to borrow money. In this connection, the Fund may issue
notes or other evidence of indebtedness (including bank Borrowings or commercial
paper) and may secure any such Borrowings by mortgaging, pledging or otherwise
subjecting as security the Fund's assets. In connection with such borrowing, the
Fund may be required to maintain minimum average balances with the lender or to
pay a commitment or other fee to maintain a line of credit. Any such
requirements will increase the cost of borrowing over the stated interest rate.
Under the requirements of the 1940 Act, the Fund, immediately after any such
borrowings, must have an "asset coverage" of at least 300% (33-1/3% of total
assets). With respect to such borrowings, asset coverage means the ratio which
the value of the total assets of the Fund, less all liabilities and indebtedness
not represented by senior securities (as defined in the 1940 Act), bears to the
aggregate amount of such borrowing represented by senior securities issued by
the Fund.

The rights of lenders to the Fund to receive interest on and repayment of
principal of any such Borrowings will be senior to those of the common
shareholders, and the terms of any such Borrowings may contain provisions which
limit certain activities of the Fund, including the payment of dividends to
common shareholders in certain circumstances. Further, the 1940 Act does (in
certain circumstances) grant to the lenders to the Fund certain voting rights in
the event of default in the payment of interest on or repayment of principal. In
the event that the Fund elects to be treated as a regulated investment company,
and that such provisions would impair the Fund's status as a regulated
investment company under the Internal Revenue Code, the Fund, subject to its
ability to liquidate its relatively illiquid portfolio, intends to repay the
Borrowings.

Certain types of Borrowings may result in the Fund being subject to covenants
in credit agreements including covenants relating to asset coverage and
portfolio composition requirements. The Fund may be subject to certain
restrictions on investments imposed by guidelines of one or more rating
agencies, which may issue ratings for the short-term corporate debt securities
or Preferred Shares, if any, issued by the Fund. These guidelines may impose
asset coverage or portfolio composition requirements that are more stringent
than those imposed by the 1940 Act. In addition, the loan documents under the
BNP Facility include provisions including a restriction on the Fund's ability to
pledge its assets and contains customary events of default including failure of
the Fund to meet the asset coverage test of the 1940 Act as described in this
prospectus. There is no assurance that the Fund will not violate asset coverage
covenants relating to the BNP Facility in the future. In such event, the Fund
may be required to repay all outstanding Borrowings immediately. In order to
repay such amounts the Fund may be required to sell assets quickly which could
have a material adverse effect on the Fund and could trigger negative tax
implications. In addition, the Fund would be precluded from declaring or paying
any distribution on the common shares during the continuance of such event of
default.

The BNP Facility can be used by the Fund for general corporate purposes,
including for financing a portion of the Fund's investments. The BNP Facility is
secured by a first priority perfected security interest in the assets of the
Fund. In addition, the loan documents under the BNP Facility restrict the Fund's
ability to change its investment advisor, sub-advisor or custodian, amend its
fundamental investment policies or fundamental investment objectives, or take on
additional indebtedness without prior consent from the provider of the BNP
Facility.

If Preferred Shares are issued, they could pay adjustable rate dividends
based on shorter-term interest rates or a fixed rate. In the event the dividends
are paid at adjustable rates, the adjustment period for Preferred Shares
dividends could be as short as one day or as long as a year or more.

Under the 1940 Act, the Fund is not permitted to issue Preferred Shares
unless immediately after such issuance the value of the Fund's total assets is
at least 200% of the liquidation value of the outstanding Preferred Shares
(i.e., the liquidation value may not exceed 50% of the Fund's total assets). In
addition, the Fund is not permitted to declare any cash dividend or other
distribution on its common shares unless, at the time of such declaration, the
value of the Fund's total assets is at least 200% of such liquidation value. If
Preferred Shares are issued, the Fund intends, to the extent possible, to
purchase or redeem Preferred Shares from time to time to the extent necessary in
order to maintain coverage of any Preferred Shares of at least 200%. In
addition, as a condition to obtaining ratings on the Preferred Shares, the terms

-34-

of any Preferred Shares issued are expected to include asset coverage
maintenance provisions which will require the redemption of the Preferred Shares
in the event of non-compliance by the Fund and may also prohibit dividends and
other distributions on the common shares in such circumstances. In order to meet
redemption requirements, the Fund may have to liquidate portfolio securities.
Such liquidations and redemptions would cause the Fund to incur related
transaction costs and could result in capital losses to the Fund. Prohibitions
on dividends and other distributions on the common shares could impair the
Fund's ability to qualify as a regulated investment company under the Internal
Revenue Code. If the Fund has Preferred Shares outstanding, two of the Fund's
trustees will be elected by the holders of Preferred Shares as a class. The
remaining trustees of the Fund will be elected by holders of common shares and
Preferred Shares, if any, voting together as a single class. In the event the
Fund failed to pay dividends on Preferred Shares for two years, holders of
Preferred Shares would be entitled to elect a majority of the trustees of the
Fund.

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.

EFFECTS OF LEVERAGE

The aggregate principal amount of Borrowings under the BNP Facility
represented approximately % of Managed Assets as of , 2014.
Asset coverage with respect to the Borrowings under the BNP Facility was %
and the Fund had $ of unutilized funds available for Borrowing under
the BNP Facility as of that date. Outstanding balances under the BNP Facility
generally accrue interest at a variable annual rate equal to the one-month LIBOR
plus 0.70%. As of , 2014, the rate was %. As of , 2014,
the Fund had $ outstanding under the BNP Facility. In addition, under the
BNP facility, the Fund pays a commitment fee of 0.85% on the undrawn amount. The
total annual interest and fee rate as of , 2014 was %.

Assuming that the Fund's leverage costs remain as described above (at an
assumed average annual cost of %), the annual return that the Fund's
portfolio must experience (net of expenses) in order to cover its leverage costs
would be %.

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

The table further assumes leverage representing % of the Fund's Managed
Assets, net of expenses, and the Fund's current annual leverage interest and fee
rate of %.

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

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

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

While the Fund is using leverage, the amount of the fees paid to both the
Advisor and the Sub-Advisor for investment advisory and management services are
higher than if the Fund did not use leverage because the fees paid are
calculated based on the Fund's Managed Assets, which include assets purchased
with leverage. Therefore, the Advisor and the Sub-Advisor have a financial
incentive to leverage the Fund, which may create a conflict of interest between
the Advisor and Sub-Advisor on the one hand and the common shareholders on the
other. Because payments on any leverage would be paid by the Fund at a specified
rate, only the Fund's common shareholders would bear the Fund's management fees
and other expenses.

-35-

RISKS

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

INVESTMENT AND MARKET RISK

An investment in Common Shares is subject to investment risk, including the
possible loss of the entire amount that you invest. An investment in Common
Shares represents an indirect investment in the securities owned by the Fund. An
investment in the Fund's Common Shares is not intended to constitute a complete
investment program and should not be viewed as such. The value of these
securities, like other market investments, may move up or down, sometimes
rapidly and unpredictably. The value of the securities in which the Fund invests
will affect the value of the Common Shares. The Common Shares at any point in
time may be worth less than your original investment, even after taking into
account the reinvestment of Fund dividends and distributions. If the Fund's net
asset value declines or remains volatile, there is an increased risk that the
Fund may be required to reduce outstanding leverage, which could adversely
affect the price of the Fund's common shares and ability to pay distributions at
historical levels.

MARKET DISCOUNT FROM NET ASSET VALUE RISK

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

MARKET IMPACT RISK

The sale of the Common Shares (or the perception that such sales may occur)
may have an adverse effect on prices in the secondary market for the Fund's
common shares through increasing the number of shares available, which may put
downward pressure on the market price for the Fund's common shares. These sales
also might make it more difficult for the Fund to sell additional equity
securities in the future at a time and price the Fund deems appropriate.

SPECIALTY FINANCE AND OTHER FINANCIAL COMPANIES RISK

The profitability of specialty finance and other financial companies is
largely dependent upon the availability and cost of capital funds, and may
fluctuate significantly in response to changes in interest rates, as well as
changes in general economic conditions. Any impediments to a specialty finance
or other financial company's access to capital markets, such as those caused by
general economic conditions or a negative perception in the capital markets of
the company's financial condition or prospects, could adversely affect such
company's business. From time to time, severe competition may also affect the
profitability of specialty finance and other financial companies.

-36-

(such as real estate or energy) and volatile performance based upon the
availability and cost of capital and prevailing interest rates. In addition,
credit and other losses resulting from the financial difficulties of borrowers
or other third parties potentially may have an adverse effect on companies in
these industries.

During the financial crisis of 2008, negative developments initially relating
to the subprime mortgage market and subsequently spreading to other parts of the
economy adversely affected credit and capital markets worldwide and reduced the
willingness of lenders to extend credit, thus making borrowing more difficult.
In addition, the liquidity of certain debt instruments was reduced or eliminated
due to the lack of available market makers. These and other negative economic
events in the credit markets also led some financial firms to declare
bankruptcy, forced short notice sales to competing firms or required government
intervention. While the overall financing environment has improved since 2008,
further credit losses or mergers, acquisitions, or bankruptcies of financial
firms could make it difficult for specialty finance and other financial
companies to obtain financing on favorable terms or at all, which would
seriously affect the profitability of such firms. Furthermore, accounting rule
changes, including with respect to the standards regarding the valuation of
assets, consolidation in the financial industry and additional volatility in the
stock market have the potential to significantly impact specialty finance
companies as well.

Specialty finance and other financial companies in general are subject to
extensive governmental regulation, which may change frequently. For example,
recent laws and regulations contain provisions limiting the way financial firms
and their holding companies are able to pay dividends, purchase their own common
stock and compensate officers. Regulatory changes could cause business
disruptions or result in significant loss of revenue to companies in which the
Fund invests, and there can be no assurance as to the actual impact that these
laws and their regulations will have on the financial markets and the Fund's
investments in specialty finance and other financial companies. Specialty
finance and other financial companies in a given country may be subject to
greater governmental regulation than many other industries, and changes in
governmental policies and the need for regulatory approval may have a material
effect on the services offered by companies in the financial services industry.
Governmental regulation may limit both the financial commitments banks can make,
including the amounts and types of loans, and the interest rates and fees they
can charge. In addition, governmental regulation in certain foreign countries
may impose interest rate controls, credit controls and price controls.

Under current regulations of the SEC, the Fund may not invest more than 5% of
its total assets in the securities of any company that derives more than 15% of
its gross revenues from securities brokerage, underwriting or investment
management activities. In addition, the Fund may not acquire more than 5% of the
outstanding equity securities, or more than 10% of the outstanding principal
amount of debt securities, of any such company. This may limit the Fund's
ability to invest in certain specialty finance and other financial companies.

In addition to the risks of the Fund's investments in specialty finance and
other financial companies generally, investments in certain types of specialty
finance and other financial companies are subject to additional risks.

Banks may invest and operate in an especially highly regulated environment
and are subject to extensive supervision by numerous federal and state
regulatory agencies including, but not limited to, the Federal Reserve Board,
the Federal Deposit Insurance Corporation and state banking authorities. Such
regulation is intended primarily for the protection of bank depositors and
customers rather than for the benefit of investors. Changes in regulations and
governmental policies and accounting principles could adversely affect the
business and operations of banks in which the Fund invests.

Savings institutions frequently have a large proportion of their assets in
the form of loans and securities secured by residential real estate. As a
result, the financial condition and results of operations of such savings
institutions would likely be affected by the conditions in the residential real
estate markets in the areas in which these savings institutions do business.

Investment management companies in which the Fund may invest operate in a
highly competitive environment with investors generally favoring investment
advisors with a sustained successful performance record. The performance of
investment management companies may be affected by factors over which such
companies have little or no control, including general economic conditions,
other factors influencing the capital markets, the net sales of mutual fund
shares generally and interest rate fluctuations.

Leasing companies can be negatively impacted by changes in tax laws which
affect the types of transactions in which such companies engage.

-37-

The performance of the Fund's investments in insurance companies will be
subject to risk from several additional factors. The earnings of insurance
companies will be affected by, in addition to general economic conditions,
pricing (including severe pricing competition from time to time), claims
activity and marketing competition. Particular insurance lines will also be
influenced by specific matters. Property and casualty insurer profits may be
affected by certain weather catastrophes and other disasters. Life and health
insurer profits may be affected by mortality and morbidity rates. Individual
companies may be exposed to material risks, including reserve inadequacy,
problems in investment portfolios (due to real estate or "junk" bond holdings,
for example), and the inability to collect from reinsurance carriers. Insurance
companies are subject to extensive governmental regulation, including the
imposition of maximum rate levels, which may not be adequate for some lines of
business. Proposed or potential anti-trust or tax law changes also may affect
adversely insurance companies' policy sales, tax obligations and profitability.

RISKS OF CONCENTRATION IN THE FINANCIALS SECTOR

A fund concentrated in a single industry or group of industries is likely to
present more risks than a fund that is broadly diversified over several
industries or groups of industries. Compared to the broad market, an individual
sector may be more strongly affected by changes in the economic climate, broad
market shifts, moves in a particular dominant stock or regulatory changes.
Because, under normal market conditions, the Fund invests 80% or more of its
total assets in securities of companies within industries in the financial
sector, it may be more susceptible to adverse economic or regulatory occurrences
affecting this sector, such as changes in interest rates, loan concentration and
competition.

BUSINESS DEVELOPMENT COMPANY RISK

Investments in closed-end funds that elect to be treated as BDCs may be
subject to a high degree of risk. BDCs typically invest in and lend to small and
medium-sized private and certain public companies that may not have access to
public equity markets or capital raising. As a result, a BDC's portfolio
typically will include a substantial amount of securities purchased in private
placements, and its portfolio may carry risks similar to those of a private
equity or private debt fund. Securities that are not publicly registered may be
difficult to value and may be difficult to sell at a price representative of
their intrinsic value. Small and medium-sized companies also may have fewer
lines of business so that changes in any one line of business may have a greater
impact on the value of their stock than is the case with a larger company. Some
BDCs invest substantially, or even exclusively, in one sector or industry group
and therefore carry risk of that particular sector or industry group.

To the extent a BDC focuses its investments in a specific sector, the BDC will
be susceptible to adverse conditions and economic or regulatory occurrences
affecting the specific sector or industry group, which tends to increase
volatility and result in higher risk. Investments in BDCs are subject to various
risks, including management's ability to meet the BDC's investment objective,
and to manage the BDC's portfolio when the underlying securities are redeemed or
sold, during periods of market turmoil and as investors' perceptions regarding a
BDC or its underlying investments change. BDC shares are not redeemable at the
option of the BDC shareholder and, as with shares of other closed-end funds,
they may trade in the secondary market at a discount to their net asset value.
BDCs generally qualify as "regulated investment companies" under the federal tax
laws and, provided they distribute all of their income in the time and manner as
required by the tax law, generally will not pay federal income taxes.

BDCs in which the Fund typically invests may employ the use of leverage in
their portfolios through borrowings or the issuance of preferred stock. While
leverage often serves to increase the yield of a BDC, this leverage also
subjects the BDC to increased risks, including the likelihood of increased
volatility and the possibility that the BDC's common share income may fall if
the interest rate on any borrowings rises. During the last recession, U.S. and
global capital markets experienced a period of disruption caused by the freezing
of available credit, a lack of liquidity in the debt capital markets,
significant losses in the principal value of investments and the failure of
major financial institutions. These events had material and adverse consequences
on the availability of debt and equity capital relied on by certain BDCs, and
the companies in which they invest, to grow or otherwise increased the costs of
such capital and/or resulted in less favorable terms and conditions, thereby
decreasing the investment income or otherwise damaging the business of such
BDCs. While current conditions have improved, a return of severe disruption and
instability in the financial markets or deterioration in credit and financing
conditions could have a material adverse effect on the profitability, financial
condition and operations of the BDCs in which the Fund invests.

-38-

Fund may hold a smaller position in a BDC than if it were not subject to this
restriction. To comply with the provisions of the 1940 Act, on any matter upon
which BDC shareholders are solicited to vote, the Sub-Advisor may be required to
vote shares of the BDC held by the Fund in the same general proportion as shares
held by other shareholders of the BDC. The Fund will indirectly bear its
proportionate share of any management and other operating expenses, and of any
performance based or incentive fees, charged by the BDCs in which it invests, in
addition to the expenses paid by the Fund.

REIT, MORTGAGE-RELATED AND ASSET-BACKED SECURITIES RISK

Investing in REITs involves certain unique risks in addition to those risks
associated with investing in the real estate industry in general. An Equity REIT
may be affected by changes in the value of the underlying properties owned by
the REIT. A Mortgage REIT may be affected by the ability of the issuers of its
portfolio mortgages to repay their obligations. REITs are dependent upon the
skills of their managers and are not necessarily diversified. REITs are
generally dependent upon maintaining cash flows to repay borrowings and to make
distributions to shareholders and are subject to the risk of default by lessees
or borrowers. REITs whose underlying assets are concentrated in properties used
by a particular industry, such as health care, are also subject to risks
associated with such industry.

REITs (especially Mortgage REITs) are also subject to interest rate risks.
When interest rates decline, the value of a REIT's investment in fixed rate
obligations may be expected to rise. Conversely, when interest rates rise, the
value of a REIT's investment in fixed rate obligations can be expected to
decline. If the REIT invests in adjustable rate mortgage loans, the interest
rates on which are reset periodically, yields on a REIT's investments in such
loans will gradually align themselves to reflect changes in market interest
rates. This causes the value of such investments to potentially fluctuate less
dramatically in response to interest rate fluctuations than would investments in
fixed rate obligations.

REITs may have limited financial resources and their securities may trade
less frequently and in a limited volume and may be subject to more abrupt or
erratic price movements than larger company securities.

The previous economic recession negatively affected many businesses,
including Equity REITs and Mortgage REITs. The cost and availability of credit
to REITs was adversely affected by illiquid credit markets and wider credit
spreads. In such market conditions, the ability of REITs and their tenants to
timely refinance maturing liabilities and access the capital markets to meet
liquidity needs may be limited, resulting in materially adverse effects to a
REIT's financial condition and the value of its holdings.

In addition to REITs, the Fund may invest in a variety of other
mortgage-related securities, including commercial mortgage securities and other
mortgage-backed instruments. Rising interest rates tend to extend the duration
of mortgage-related securities, making them more sensitive to changes in
interest rates, and may reduce the market value of the securities. As a result,
in a period of rising interest rates, mortgage-related securities held by the
Fund may exhibit additional volatility. This is known as extension risk. In
addition, mortgage-related securities are subject to prepayment risk, which is
the risk that borrowers may pay off their mortgages sooner than expected,
particularly when interest rates decline. This can reduce the Fund's returns
because the Fund may have to reinvest that money at lower prevailing interest
rates.

Volatility in market conditions for mortgage-related and asset-backed
securities as well as the broader financial markets may result in a significant
contraction in liquidity for mortgages and mortgage-related assets. In addition,
concerns over economic recession, unemployment, a declining real estate market,
extensive defaults and credit losses may contribute to increased volatility in
U.S. residential and commercial mortgage markets. During such periods of
volatility, the value of the Fund's investments in mortgage-related and
asset-backed securities may be adversely affected. In response to recent
volatility, the U.S. government implemented programs designed to provide
homeowners with assistance in avoiding residential mortgage loan foreclosures,
which included mortgage loan modification programs. These programs and future
legislative action and changes in the requirements necessary to qualify for
financing and refinancing a mortgage with certain government agencies may also
adversely affect the value of, and the returns on, the assets in which the Fund
invests. The limited availability of credit in the economic environment
described above in connection with Equity and Mortgage REITs also applies to the
issuers of mortgage-related and asset-backed securities held by the Fund. The
profitability of these firms may be adversely affected if they are unable to
obtain cost-effective financing for their investments.

-39-

The Fund's investments in other asset-backed securities are subject to risks
similar to those associated with mortgage-related securities, as well as
additional risks associated with the nature of the assets and the servicing of
those assets.

MANAGEMENT RISK AND RELIANCE ON KEY PERSONNEL

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

POTENTIAL CONFLICTS OF INTEREST RISK

First Trust Advisors, Confluence and the portfolio managers have interests
which may conflict with the interests of the Fund. In particular, First Trust
Advisors and Confluence 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. As a result, First Trust
Advisors, Confluence and the Fund's portfolio managers must allocate their time
and investment ideas across multiple funds and accounts. First Trust Advisors,
Confluence and the Fund's portfolio managers may identify a limited investment
opportunity that may be suitable for multiple funds and accounts, and the
opportunity may be allocated among these several funds and accounts, which may
limit the Fund's ability to take full advantage of the investment opportunity.
Additionally, transaction orders may be aggregated for multiple accounts for
purposes of execution, which may cause the price or brokerage costs to be less
favorable to the Fund than if similar transactions were not being executed
concurrently for other accounts. At times, a portfolio manager may determine
that an investment opportunity may be appropriate for only some of the funds and
accounts for which he or she exercises investment responsibility, or may decide
that certain of the funds and accounts should take differing positions with
respect to a particular security. In these cases, the portfolio manager may
place separate transactions for one or more funds or accounts which may affect
the market price of the security or the execution of the transaction, or both,
to the detriment or benefit of one or more other funds and accounts. For
example, a portfolio manager may determine that it would be in the interest of
another account to sell a security that the Fund holds, potentially resulting in
a decrease in the market value of the security held by the Fund.

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

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

VALUE INVESTING RISK

The Fund focuses a portion of its investments on securities that the
Sub-Advisor believes are undervalued or inexpensive relative to other
investments. These types of securities may present risks in addition to the
general risks associated with investing in them. These securities generally are
selected on the basis of an issuer's business and economic fundamentals or the
securities' current and projected credit profiles, relative to current market
price. Such securities are subject to the risk of misestimating certain
fundamental factors. Disciplined adherence to a "value" investment mandate
during periods in which that style is "out of favor" can result in significant

-40-

underperformance relative to overall market indices and other managed investment
vehicles that pursue growth style investments and/or flexible style mandates.

INCOME RISK

The income common shareholders receive from the Fund is based primarily on
the dividends and interest it earns from its investments, which can vary widely
over the short and long-term. If prevailing market interest rates drop,
distribution rates of the Fund's portfolio holdings of preferred securities and
debt securities may decline which then may adversely affect the Fund's
distributions on its common shares as well. The Fund's income also would likely
be adversely affected when prevailing short-term interest rates increase and the
Fund is utilizing Financial Leverage.

LEVERAGE RISK

Part of the successful use of leverage depends on the Sub-Advisor's ability
to predict or hedge correctly interest rate and market movements. Although the
use of leverage by the Fund may create an opportunity for increased returns for
the common shares, it also results in additional risks and can magnify the
effect of any losses for the common shares. If the income and gains earned on
securities and investments purchased with the leverage proceeds are greater than
the cost of the leverage, the common shares' return will be greater than if
leverage had not been used. Conversely, if the income or gains from the
securities and investments purchased with such proceeds does not cover the cost
of leverage, the return to the common shares will be less than if leverage had
not been used. There is no assurance that a leveraging strategy will continue to
be used or will be successful. Leverage involves risks and special
considerations for common shareholders including:

o the likelihood of greater volatility of net asset value and market price
of the common shares than a comparable portfolio without leverage;

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

o the effect of leverage in a declining market, which is likely to cause a
greater decline in the net asset value of the common shares than if the
Fund were not leveraged, which may result in a greater decline in the
market price of the common shares; and

o when the Fund uses 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.

The issuance of Leverage Instruments by the Fund, in addition to Borrowings
under the BNP Facility, involve offering expenses and other costs, including
interest or dividend payments, which would be borne directly by the common
shareholders. Increased operating costs, including the financing cost associated
with any leverage, may reduce the Fund's total return. In addition, any turmoil
in the credit markets could adversely impact borrowing availability and costs.
Because common shareholders directly bear the cost of leverage, an increase in
interest and dividend obligations on the Fund's Financial Leverage may reduce
the total return to common shareholders.

While the Fund may from time to time consider reducing leverage in response
to actual or anticipated changes in interest rates in an effort to mitigate the
increased volatility of current income and net asset value associated with
leverage, there can be no assurance that the Fund will actually reduce leverage
in the future or that any reduction, if undertaken, will benefit the common
shareholders. Changes in the future direction of interest rates are very
difficult to predict accurately. If the Fund were to reduce leverage based on a
prediction about future changes to interest rates, and that prediction turned
out to be incorrect, the reduction in leverage would likely operate to reduce
the income and/or total returns to common shareholders relative to the
circumstance if the Fund had not reduced leverage. The Fund may decide that this
risk outweighs the likelihood of achieving the desired reduction to volatility
in income and common share price if the prediction were to turn out to be
correct, and determine not to reduce leverage as described above.

-41-

principal of any Borrowings made by the Fund under a borrowing program are
senior to the rights of holders of common shares and the holders of Preferred
Shares, with respect to the payment of dividends or upon liquidation. Certain
types of leverage may result in the Fund being subject to covenants relating to
asset coverage and portfolio composition and may impose special restrictions on
the Fund's use of various investment techniques or strategies or in its ability
to pay dividends and other distributions on common shares in certain instances.
The Fund may not be permitted to declare dividends or other distributions,
including dividends and distributions with respect to common shares or Preferred
Shares, or purchase common shares or Preferred Shares unless, at the time
thereof, the Fund meets these asset coverage and portfolio composition
requirements and no event of default exists under any borrowing program. In
addition, the Fund may not be permitted to pay dividends on common shares unless
all dividends on the Preferred Shares and/or accrued interest on Borrowings have
been paid, or set aside for payment. In an event of default under a borrowing
program, the lenders have the right to cause a liquidation of collateral (i.e.,
sell assets of the Fund) and, if any such default is not cured, the lenders may
be able to control the liquidation as well. The Fund also may be subject to
certain restrictions on investments imposed by guidelines of one or more rating
agencies, which may issue ratings for the Preferred Shares or other leverage
securities issued by the Fund. These guidelines may impose asset coverage or
Fund composition requirements that are more stringent than those imposed by the
1940 Act. The Sub-Advisor does not believe that these covenants or guidelines
will impede it from managing the Fund's portfolio in accordance with the Fund's
investment objectives and policies.

The loan documents under the BNP Facility include provisions that restrict
the Fund's ability to pledge its assets and contains customary events of default
including failure of the Fund to meet the asset coverage test of the 1940 Act.
There is no assurance that the Fund will not violate financial covenants
relating to Financial Leverage in the future. In such event, the Fund may be
required to repay all outstanding Borrowings immediately. In order to repay such
amounts the Fund may be required to sell assets quickly which could have a
material adverse effect on the Fund and could trigger negative tax implications.
In addition, the Fund would be precluded from declaring or paying any
distribution on the common shares during the continuance of such event of
default.

With respect to a borrowing program instituted by the Fund, the credit
agreements governing such a program, including the BNP Facility, includes usual
and customary covenants for this type of transaction, including, but not limited
to, limits on the Fund's ability to: (i) issue Preferred Shares; (ii) incur
liens or pledge portfolio securities or investments; (iii) change its investment
objectives or fundamental investment restrictions without the approval of
lenders; (iv) make changes in any of its business objectives, purposes or
operations that could result in a material adverse effect; (v) make any changes
in its capital structure; (vi) amend the Fund documents in a manner which could
adversely affect the rights, interests or obligations of any of the lenders;
(vii) engage in any business other than the business currently engaged in;
(viii) create, incur, assume or permit to exist certain debt except for certain
specific types of debt; and (ix) permit any of its Employee Retirement Income
Security Act ("ERISA") affiliates to cause or permit to occur an event that
could result in the imposition of a lien under the Internal Revenue Code or
ERISA. In addition, the BNP Facility does not permit the Fund's asset coverage
ratio (as defined in the BNP Facility) to fall below 300% at any time. The BNP
Facility limits the Fund's ability to pay dividends or make other distributions
on the Fund's common shares unless the Fund complies with the 300% asset
coverage test. In addition, the BNP Facility does not permit the Fund to declare
dividends or other distributions or purchase or redeem common shares or
Preferred Shares: (i) at any time that any event of default under the BNP
Facility has occurred and is continuing; or (ii) if, after giving effect to such
declaration, the Fund would not meet the BNP Facility's 300% asset coverage test
set forth in the credit agreements governing the BNP Facility. To the extent
necessary, the Fund intends to repay indebtedness to maintain the required asset
coverage. Doing so may require the Fund to liquidate portfolio securities at a
time when it would not otherwise be desirable to do so.

It is possible that the Fund will be unable to obtain additional leverage.
The availability of leverage will depend on a variety of factors, such as market
conditions, the general availability of credit, the volume of trading
activities, the overall availability of credit to the closed-end management
investment companies, the Fund's credit ratings and credit capacity, the Fund's
asset class, as well as the possibility that lenders could develop a negative
perception of the Fund's long- or short-term financial prospects if the Fund
incurs large investment losses due to a market downturn. Similarly, the Fund's
access to leverage may be impaired if regulatory authorities or rating agencies
take negative actions against the Fund. The Fund may not be able to successfully
obtain additional leverage on favorable terms, or at all. In certain economic
environment, it could be difficult for borrowers, including the Fund, to find
third parties willing to extend credit or purchase securities that would
constitute leverage. If the Fund is unable to increase its Financial Leverage

-42-

after the issuance of additional Common Shares pursuant to this prospectus and
applicable prospectus supplement, there could be an adverse impact on the return
to common shareholders. See "Use of Financial Leverage."

COMMON STOCK RISK

Investments in common stocks and other equity securities involve the risk
that such securities held by the Fund will fall in value due to general market
or economic conditions, perceptions regarding the industries in which the
issuers of securities held by the Fund participate, and the particular
circumstances and performance of individual companies whose securities the Fund
holds. For example, an adverse event, such as an unfavorable earnings report,
may depress the value of equity securities of an issuer held by the Fund; the
price of common stock of an issuer may be particularly sensitive to general
movements in the stock market; or a drop in the stock market may depress the
price of most or all of the common stocks and other equity securities held by
the Fund. In addition, the common stock of an issuer held in the Fund's
portfolio may decline in price if the issuer of such common stock fails to make
anticipated dividend payments because, among other reasons, the issuer of the
security experiences a decline in its financial condition. While broad market
measures of common stocks have historically generated higher average returns
than fixed income securities, common stocks have also experienced significantly
more volatility in those returns.

MASTER LIMITED PARTNERSHIP RISK

Investments in MLP interests are subject to the risks generally applicable to
companies in the energy and natural resources sectors, including commodity
pricing risk, supply and demand risk, depletion risk and exploration risk. An
investment in MLP interests involves risks that differ from a similar investment
in equity securities, such as common stock, of a corporation. Holders of MLP
interests have the rights typically afforded to limited partners in a limited
partnership. As compared to common stockholders of a corporation, holders of MLP
interests may have more limited control and limited rights to vote on matters
affecting the partnership. Additionally, conflicts of interest may exist among
common unit holders, subordinated unit holders and the general partner or
managing member of an MLP; for example, a conflict may arise as a result of
incentive distribution payments.

There are certain tax risks associated with the MLP interests in which the
Fund may invest, including the risk that U.S. taxing authorities could challenge
the Fund's treatment for federal income tax purposes of MLPs. These tax risks,
and any adverse determination with respect thereto, could have a negative impact
on the after-tax income available for distribution by MLPs and/or the value of
the Fund's investments. There can be no assurance that future changes to
Canadian and U.S. tax laws or tax rules would not adversely affect the Fund's
investments in MLP interests or the value of the common shares.

The types of MLPs in which the Fund may invest historically have made cash
distributions to limited partners or members that exceed the amount of taxable
income allocable to limited partners or members, due to a variety of factors,
including significant non-cash deductions, such as depreciation and depletion.
If cash distributions from an MLP exceed the taxable income reported in a
particular tax year, a portion of the excess cash distribution would not be
treated as income to the Fund in that tax year but would rather be treated as a
return of capital for federal income tax purposes to the extent of the Fund's
basis in its MLP units. The Fund's tax basis in its MLP units is the amount paid
for the units, increased by the Fund's allocable share of net income and gains
and the MLP's debt, if any, and capital contributions to the MLP, and decreased
for any distributions received by the Fund, by the Fund's allocable share of net
losses and by reductions in the Fund's allocable share of the MLP's debt, if
any. Thus, although cash distributions in excess of taxable income and net tax
losses may create a temporary economic benefit to the Fund, they will increase
the amount of gain (or decrease the amount of loss) on the sale of an interest
in an MLP.

FIXED-INCOME SECURITIES RISK

In addition to the other risks discussed in this prospectus regarding certain
fixed-income investments, debt securities, including high-yield securities, are
subject to certain risks, including:

o Issuer/Credit Risk. The value of fixed-income securities may decline for a
number of reasons which directly relate to the issuer, such as management
performance, financial leverage, reduced demand for the issuer's goods and
services and failure.

-43-

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

o Call or Prepayment Risk. During periods of declining interest rates, the
issuer of a security may exercise its option to prepay principal earlier
than scheduled, forcing the Fund to reinvest the proceeds from such
prepayment in lower yielding securities. Debt securities frequently have
call features that allow the issuer to repurchase the security prior to
its stated maturity. An issuer may redeem an obligation if the issuer can
refinance the debt at a lower cost due to declining interest rates or an
improvement in the credit standing of the issuer.

o Reinvestment Risk. Reinvestment risk is the risk that income from the
Fund's portfolio will decline if the Fund invests the proceeds from
matured, traded or called bonds at market interest rates that are below
the Fund portfolio's current earnings rate. A decline in income could
affect the common shares' market price or their overall returns.

LOWER GRADE SECURITIES RISK

Investment in below-investment grade debt securities, commonly referred to as
"high-yield" or "junk" bonds, may involve a substantial risk of loss as they are
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal when due and are susceptible to default or decline in market
value due to adverse economic and business developments. These securities are
generally less liquid than investment grade debt securities as well. An economic
downturn could severely affect the ability of highly leveraged issuers to
service their debt obligations or to repay their obligations upon maturity. In
addition, lower rated securities and comparable unrated securities present a
higher degree of credit risk. The risk of loss due to default by these issuers
is significantly greater because such lower rated securities and unrated
securities of comparable quality generally are unsecured and frequently are
subordinated to the prior payment of senior indebtedness. For these reasons,
your investment in the Fund could be subject to the following specific risks:
(i) increased price sensitivity to changing interest rates and to a
deteriorating economic environment; (ii) greater risk of loss due to default or
declining credit quality; (iii) adverse company specific events more likely to
render the issuer unable to make interest and/or principal payments; and (iv)
negative perception of the high-yield market which may depress the price and
liquidity of high-yield securities.

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

TAX RISK

MLPs that are not "qualified publicly traded partnerships" (as defined for
U.S. federal income tax purposes) generally pass through tax items such as
income, gain or loss to interest holders. In such cases, the Fund will be
required to monitor the individual underlying items of income that it receives
from such entities to determine how it will characterize such income for
purposes of meeting the 90% gross income requirement. In addition, the Fund will
be deemed to own the assets of such entities and would need to look to such
assets in determining the Fund's compliance with the asset diversification rules
applicable to RICs (as defined below). Thus, the extent to which the Fund may
invest in securities issued by such entities may be limited by the Fund's
intention to qualify as a regulated investment company ("RIC") for federal
income tax purposes. Prospective investors should be aware that if, contrary to
the Fund's intention, the Fund fails to limit its direct and indirect

-44-

investments in such entities, or if such investments are re-characterized for
U.S. federal income tax purposes, the Fund's status as a RIC may be jeopardized.
Failure in any year for the Fund to qualify as a RIC under applicable federal
tax laws would result in the Fund being subject to tax as an ordinary
corporation, which would have a material and adverse effect on the earnings and
distributions of the Fund. See "Federal Tax Matters."

NON-DIVERSIFICATION RISK

The Fund is, and certain of the BDCs in which the Fund may invest may be,
classified as "non-diversified" under the 1940 Act. A non-diversified fund has
the ability to invest more of its assets in securities of a single issuer than
if it were classified as a "diversified" fund, which may increase volatility. If
the Fund's investment in a BDC, or a BDC's investment in an issuer, represents a
relatively significant percentage of the Fund's or the BDC's portfolio, as
applicable, the value of the respective portfolio will be more impacted by a
change in value on that investment than if the portfolio were more diversified.

INFLATION/DEFLATION RISK

Inflation risk is the risk that the value of the Fund's assets or income from
the Fund's investments will be worth less in the future as inflation decreases
the value of money. As inflation increases, the real value of the common shares
and distributions can decline. In addition, during any periods of rising
inflation, the dividend rates or borrowing costs associated with the Fund's
Financial Leverage could increase, which could further reduce returns to common
shareholders. Deflation risk is the risk that prices throughout the economy
decline over time. Deflation may have an adverse affect on the creditworthiness
of issuers and may make issuer default more likely, which may result in a
decline in the value of the Fund's portfolio.

MARKET AND ECONOMIC DEVELOPMENTS

The Fund's performance was adversely impacted by the weakness in the credit
markets and broad stock market that occurred in 2008, and may again be adversely
affected if the weakness in the credit and stock markets reoccur. If the Fund's
net asset value declines or remains volatile, there is an increased risk that
the Fund may be required to reduce outstanding leverage, which could adversely
affect the price of the Fund's common shares and ability to pay distributions at
historical levels. In response to the financial crises affecting the banking
system and financial markets, the U.S. and foreign governments have intervened
to an unprecedented degree in the financial and credit markets. Among other
things, U.S. government regulators have encouraged, and in some cases structured
and provided financial assistance for, banks, securities firms, insurers and
other financial companies. Existing and future government intervention programs
could have an impact on the securities markets. There can be no assurance that
any or all of these measures will succeed in preventing extreme levels of
volatility. Such volatility could materially and adversely affect the financial
condition of the Fund, the performance of the Fund's investments (including
dividends paid by companies in which the Fund invests) and the trading price of
the Fund's common shares.

MARKET DISRUPTION AND GEOPOLITICAL RISK

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

PORTFOLIO TURNOVER RISK

-45-

portfolio turnover rate is not considered a limiting factor in the execution of
investment decisions for the Fund. High portfolio turnover may result in the
realization of net short-term capital gains by the Fund which, when distributed
to common shareholders, will be taxable as ordinary income to the Fund. A high
portfolio turnover may increase the Fund's current and accumulated earnings and
profits, resulting in a greater portion of the Fund's distributions being
treated as a dividend for U.S. federal income tax purposes to the Fund's common
shareholders. In addition, a higher portfolio turnover rate results in
correspondingly greater brokerage commissions and other transactional expenses
that are borne by the Fund. See "The Fund's Investments--Investment
Practices--Portfolio Turnover" and "Federal Tax Matters."

SECONDARY MARKET FOR THE FUND'S COMMON SHARES

The issuance of common shares through the Fund's Dividend Reinvestment Plan
may have an adverse effect on the secondary market for the Fund's common shares.
The increase in the number of outstanding common shares resulting from issuances
pursuant to the Fund's Dividend Reinvestment Plan and the discount to the market
price at which such common shares may be issued may put downward pressure on the
market price for the common shares. Common shares will not be issued pursuant to
the Dividend Reinvestment Plan at any time when common shares are trading at a
lower price than the Fund's net asset value per common share. When the Fund's
common shares are trading at a premium, the Fund may also issue common shares
that may be sold through private transactions effected on the NYSE or through
broker-dealers. In addition, the increase in the number of outstanding common
shares resulting from offerings under this prospectus and the applicable
prospectus supplement may put downward pressure on the market price for common
shares.

ANTI-TAKEOVER PROVISIONS

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

MANAGEMENT OF THE FUND

TRUSTEES AND OFFICERS

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

INVESTMENT ADVISOR

First Trust Advisors, 120 East Liberty Drive, Suite 400, Wheaton, Illinois
60187, is the investment advisor to the Fund and is responsible for supervising
the Sub-Advisor. First Trust Advisors serves as investment advisor or portfolio
supervisor to investment portfolios with approximately $ in assets
which it managed or supervised as of , 2014.

First Trust Advisors is also responsible for the ongoing monitoring of the
Fund's investment portfolio, managing the Fund's business affairs and providing
certain clerical, bookkeeping and other administrative services.

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

-46-

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

SUB-ADVISOR

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

On August 25, 2008, Confluence and First Trust Advisors entered into an
agreement pursuant to which Confluence provides certain financial advisory
services to First Trust Advisors for an annual fee. In addition, First Trust
Advisors and Confluence entered into an agreement as of May 7, 2008 pursuant to
which Confluence assists in providing sub-portfolio supervisory services to a
limited number of unit investment trusts sponsored by First Trust Portfolios
L.P. for an annual fee. Confluence does not provide services to the Fund
pursuant to either of the agreements described in this paragraph.

Confluence, located at 20 Allen Avenue, Suite 300, St. Louis, Missouri 63119,
is a registered investment advisor. The investment professionals at Confluence
have over 80 years of aggregate portfolio management experience. Confluence
provides portfolio investment management and advisory services to both
institutional and individual clients. As of , 2014, Confluence
managed or supervised over $ in assets.

Confluence will be responsible for the day-to-day management of the Fund's
portfolio utilizing a team of portfolio managers comprised of the Confluence
personnel listed below.

MARK A. KELLER, CFA - CHIEF EXECUTIVE OFFICER AND CHIEF INVESTMENT OFFICER

Mr. Keller has 30 years of investment experience with a focus on
value-oriented equity analysis and management. From 1994 to May 2008, he was the
Chief Investment Officer of Gallatin Asset Management, Inc. and its predecessor
organization, A.G. Edwards Asset Management, the investment management arm of
A.G. Edwards, Inc. From 1999 to 2008, Mr. Keller was Chairman of A.G. Edwards'
Investment Strategy Committee, which set investment policy and established asset
allocation models for the entire organization. Mr. Keller was a founding member
of the A.G. Edwards Investment Strategy Committee, on which he served for over
20 years, the last ten years of which as Chairman of the Committee. Mr. Keller
began his career with A.G. Edwards in 1978, serving as an equity analyst for the
firm's Securities Research Department from 1979 to 1994. During his last five
years in Securities Research, Mr. Keller was Equity Strategist and manager of
the firm's Focus List. Mark was a Senior Vice President of A.G. Edwards & Sons,
Inc. and of Gallatin Asset Management, Inc., and was a member of the Board of
Directors of both companies. Mr. Keller received a Bachelor of Arts from Wheaton
College (Illinois) and is a CFA charterholder.

DAVID B. MIYAZAKI, CFA - SENIOR VICE PRESIDENT AND PORTFOLIO MANAGER

Prior to joining Confluence in May 2008, Mr. Miyazaki served as a Portfolio
Manager and Analyst with Gallatin Asset Management, Inc., the investment
management arm of A.G. Edwards, Inc. Mr. Miyazaki was responsible for equity
investments in value-oriented separately managed accounts. He also co-managed
the A.G. Edwards' ETF-based asset allocation program. In addition to portfolio
management, Mr. Miyazaki served as a member of the A G Edwards' Investment
Strategy Committee. As a strategist, he was responsible for the firm's
quantitative asset allocation models, including its Cyclical Asset Allocation
program. Prior to joining A.G. Edwards in 1999, Mr. Miyazaki was a Portfolio
Manager at Koch Industries in Wichita, Kansas. His previous experience includes
working as an Investment Analyst at Prudential Capital Group in Dallas, Texas,
and as a Bond Trader at Barre & Company, also in Dallas. Mr. Miyazaki received a
Bachelor of Business Administration from Texas Christian University and is a CFA
charterholder.

DANIEL T. WINTER, CFA - SENIOR VICE PRESIDENT AND PORTFOLIO MANAGER

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Edwards ETF focused strategies. Prior to joining the firm's Asset Management
division in 1996, Mr. Winter served as a portfolio manager for A.G. Edwards
Trust Company. Mr. Winter earned a Bachelor of Arts in business management from
Eckerd College and a Master of Business Administration from Saint Louis
University. Mr. Winter is a CFA charterholder.

For additional information concerning Confluence, including a description of
the services provided, and additional information about the Fund's portfolio
managers, including portfolio managers' compensation, other accounts managed by
the portfolio managers, and the portfolios managers' ownership of Fund shares,
see "Sub-Advisor" in the SAI.

INVESTMENT MANAGEMENT AGREEMENT

Pursuant to an investment management agreement between the Advisor and the
Fund (the "Investment Management Agreement"), the Fund has agreed to pay a fee
for the services and facilities provided by the Advisor at the annual rate of
1.00% of Managed Assets.

For purposes of calculation of the management fee, the Fund's "Managed
Assets" means the average daily gross asset value of the Fund (which includes
assets attributable to the Fund's 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 and the liquidation preference of
any outstanding Preferred Shares).

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

The Sub-Advisor receives a portfolio management fee at the annual rate of
0.50% of Managed Assets, which is paid by the Advisor out of the Advisor's
management fee.

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

NET ASSET VALUE

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

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

-48-

procedures established by the Fund's Board of Trustees, and in accordance with
the provisions of the 1940 Act.

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

o the fundamental business data relating to the issuer;

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

o the type, size and cost of the security;

o the financial statements of the issuer;

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

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

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

o the coupon payments;

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

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

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

o other relevant factors.

DISTRIBUTIONS

The Fund's present policy, which may be changed at any time by the Board of
Trustees, is to distribute to common shareholders quarterly dividends of all or
a portion of its net income after payment of dividends and interest in
connection with Financial Leverage used by the Fund. The Fund expects that all
or a portion of any net long-term capital gains will be distributed at least
annually.

The SEC has granted an exemption from Section 19(b) of the 1940 Act and Rule
19b-1 thereunder (the "Exemptive Relief") to the Fund. The Exemptive Relief
generally permits the Fund, subject to certain terms and conditions, to make
distributions of long-term capital gains with respect to its common shares more
frequently than would otherwise be permitted under the 1940 Act (generally once
per taxable year). To rely on the Exemptive Relief, the Fund must comply with
the terms and conditions therein, including, among other things, a requirement
that the Board of Trustees approve the Fund's adoption of a distribution policy
with respect to its common shares which calls for periodic distributions of an
amount equal to a fixed percentage of the market price of the Fund's common
shares at a particular point in time, or a fixed percentage of net asset value
per common share at a particular point in time, or a fixed amount per common
share, any of which could be adjusted from time to time. Under such a
distribution policy, it is possible that the Fund might distribute more than its
income and net realized capital gains; therefore, distributions to shareholders
may result in a return of capital. The Fund has no current intention to adopt
such a distribution policy or implement the Exemptive Relief. The Exemptive
Relief also permits the Fund to make distributions of long-term capital gains
with respect to any Preferred Shares that may be issued by the Fund in
accordance with such shares' terms.

The level distribution described above would result in the payment of
approximately the same amount or percentage to common shareholders each quarter.
Section 19(a) of the 1940 Act and Rule 19a-1 thereunder require the Fund to
provide a written statement accompanying any such payment that adequately
discloses the source or sources of the distributions. Thus, if the source of the
dividend or other distribution were the original capital contribution of the
common shareholder, and the payment amounted to a return of capital, the Fund
would be required to provide written disclosure to that effect. Nevertheless,

-49-

persons who periodically receive the payment of a dividend or other distribution
may be under the impression that they are receiving net profits when they are
not. Common shareholders should read any written disclosure provided pursuant to
Section 19(a) and Rule 19a-1 carefully, and should not assume that the source of
any distribution from the Fund is net profit. In addition, in cases where the
Fund would return capital to common shareholders, such distribution may impact
the Fund's ability to maintain its asset coverage requirements and to pay the
dividends on any Preferred Shares that the Fund may issue.

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

DIVIDEND REINVESTMENT PLAN

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

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

(1) If the common shares are trading at or above net asset value at the time
of valuation, the Fund will issue new shares at a price equal to the greater of
(i) net asset value per common share on that date or (ii) 95% of the market
price on that date.

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

You may elect to opt-out of or withdraw from the Plan at any time by giving
written notice to the Plan Agent, or by telephone at (866) 340-1104, in
accordance with such reasonable requirements as the Plan Agent and the Fund may
agree upon. If you withdraw or the Plan is terminated, you will receive a
certificate for each whole share in your account under the Plan and you will
receive a cash payment for any fraction of a share in your account. If you wish,
the Plan Agent will sell your shares and send you the proceeds, minus brokerage
commissions.

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

-50-

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

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

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

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

PLAN OF DISTRIBUTION

The Fund may sell the Common Shares being offered under this prospectus in
any one or more of the following ways:

o directly to purchasers;

o through agents;

o to or through underwriters; or

o through dealers.

The Fund may distribute the Common Shares from time to time in one or more
transactions at:

o a fixed price or prices, which may be changed;

o market prices prevailing at the time of sale;

o prices related to prevailing market prices; or

o negotiated prices.

The Fund may directly solicit offers to purchase Common Shares, or the Fund
may designate agents to solicit such offers. The Fund will, in a prospectus
supplement relating to such offering, name any agent that could be viewed as an
underwriter under the Securities Act of 1933 (the "1933 Act") and describe any
commissions the Fund must pay. Any such agent will be acting on a best efforts
basis for the period of its appointment or, if indicated in the applicable
prospectus supplement or other offering materials, on a firm commitment basis.
Agents, dealers and underwriters may be customers of, engage in transactions
with, or perform services for the Fund in the ordinary course of business.

If any underwriters or agents are utilized in the sale of Common Shares in
respect of which this prospectus is delivered, the Fund will enter into an
underwriting agreement or other agreement with them at the time of sale to them,
and the Fund will set forth in the prospectus supplement relating to such
offering their names and the terms of the Fund's agreement with them.

If a dealer is utilized in the sale of Common Shares in respect of which this
prospectus is delivered, the Fund will sell such Common Shares to the dealer, as
principal. The dealer may then resell such Common Shares to the public at
varying prices to be determined by such dealer at the time of resale.

The Fund may engage in at-the-market offerings to or through a market maker
or into an existing trading market, on an exchange or otherwise, in accordance
with Rule 415(a)(4). An at-the-market offering may be through an underwriter or
underwriters acting as principal or agent for the Fund.

Agents, underwriters and dealers may be entitled under agreements which they
may enter into with the Fund to indemnification by the Fund against certain
civil liabilities, including liabilities under the 1933 Act, and may be
customers of, engage in transactions with or perform services for the Fund in
the ordinary course of business.

In order to facilitate the offering of the Common Shares, any underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Shares or any other Common Shares the prices of which may be

-51-

used to determine payments on the Common Shares. Specifically, any underwriters
may over-allot in connection with the offering, creating a short position for
their own accounts. In addition, to cover over-allotments or to stabilize the
price of the Common Shares or of any such other Common Shares, the underwriters
may bid for, and purchase, the Common Shares or any such other Common Shares in
the open market. Finally, in any offering of the Common Shares through a
syndicate of underwriters, the underwriting syndicate may reclaim selling
concessions allowed to an underwriter or a dealer for distributing the Common
Shares in the offering if the syndicate repurchases previously distributed
Common Shares in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Common Shares above independent market
levels. Any such underwriters are not required to engage in these activities and
may end any of these activities at any time.

The Fund may enter into derivative transactions with third parties, or sell
Common Shares not covered by this prospectus to third parties in privately
negotiated transactions. If the applicable prospectus supplement indicates, in
connection with those derivatives, the third parties may sell Common Shares
covered by this prospectus and the applicable prospectus supplement or other
offering materials, including in short sale transactions. If so, the third
parties may use Common Shares pledged by the Fund or borrowed from the Fund or
others to settle those sales or to close out any related open borrowings of
stock, and may use Common Shares received from the Fund in settlement of those
derivatives to close out any related open borrowings of stock. The third parties
in such sale transactions will be underwriters and, if not identified in this
prospectus, will be identified in the applicable prospectus supplement or other
offering materials (or a post-effective amendment).

The Fund or one of the Fund's affiliates may loan or pledge Common Shares to
a financial institution or other third party that in turn may sell the Common
Shares using this prospectus. Such financial institution or third party may
transfer its short position to investors in our Common Shares or in connection
with a simultaneous offering of other Common Shares offered by this prospectus
or otherwise.

The maximum commission or discount to be received by any member of the
Financial Industry Regulatory Authority will not be greater than eight percent
of the initial gross proceeds from the sale of any security being sold.

Any underwriter, agent or dealer utilized in the initial offering of Common
Shares will not confirm sales to accounts over which it exercises discretionary
authority without the prior specific written approval of its customer.

DESCRIPTION OF SHARES

COMMON SHARES

The Declaration of Trust authorizes the issuance of an unlimited number of
common shares. The Common Shares being offered in an offering under this
prospectus and the applicable prospectus supplement have a par value of $0.01
per share and, subject to the rights of holders of Preferred Shares, if any,
have equal rights to the payment of dividends and the distribution of assets
upon liquidation. As of , 2014, the Fund had common shares
outstanding. The Common Shares being offered by this prospectus will, when
issued, be fully paid and, subject to matters discussed in "Certain Provisions
in the Declaration of Trust and By-Laws," non-assessable, and currently have no
preemptive or conversion rights (except as may otherwise be determined by the
Board of Trustees in its sole discretion) or rights to cumulative voting.

The Fund's currently outstanding common shares are, and the Common Shares
offered in this prospectus will be, subject to notice of issuance, listed on the
NYSE under the trading or "ticker" symbol "FGB."

Unlike open-end funds, closed-end funds like the Fund do not continuously
offer shares and do not provide daily redemptions. Rather, if a shareholder
determines to buy additional common shares or sell shares already held, the
shareholder may conveniently do so by trading on the exchange through a broker
or otherwise. Shares of closed-end investment companies may frequently trade on
an exchange at prices lower than net asset value. Shares of closed-end
investment companies like the Fund have during some periods traded at prices
higher than net asset value and during other periods have traded at prices lower
than net asset value. Because the market value of the common shares may be
influenced by such factors as dividend levels (which are in turn affected by
expenses), dividend stability, portfolio credit quality, net asset value,
relative demand for and supply of such shares in the market, general market and

-52-

economic conditions and other factors that may be beyond the control of the
Fund, the Fund cannot assure you that the common shares will trade at a price
equal to or higher than net asset value in the future. The common shares are
designed primarily for long-term investors, and investors in the common shares
should not view the Fund as a vehicle for trading purposes. See "Structure of
the Fund; Common Share Repurchases and Change in Fund Structure."

PREFERRED SHARES

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

The Fund may elect to issue Preferred Shares as part of its leverage
strategy. The Board of Trustees also reserves the right to issue Preferred
Shares to the extent permitted by the 1940 Act, which currently limits the
aggregate liquidation preference of all outstanding Preferred Shares to 50% of
the value of the Fund's Managed Assets less liabilities and indebtedness of the
Fund. The Fund cannot assure you, however, that any Preferred Shares will be
issued. Although the terms of any Preferred Shares, including dividend rate,
liquidation preference and redemption provisions, will be determined by the
Board of Trustees, subject to applicable law and the Declaration of Trust, it is
likely that the Preferred Shares will be structured to carry a relatively
short-term dividend rate reflecting interest rates on short-term bonds, by
providing for the periodic redetermination of the dividend rate at relatively
short intervals through an auction, remarketing or other procedure. The Fund
also believes that it is likely that the liquidation preference, voting rights
and redemption provisions of the Preferred Shares, if issued, will be similar to
those stated below.

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

Voting Rights. The 1940 Act requires that the holders of any Preferred
Shares, voting separately as a single class, have the right to elect at least
two trustees at all times, and the remaining trustees nominated for election
would be elected by the holders of common shares and Preferred Shares, voting
together as a single class. In addition, subject to the prior rights, if any, of
the holders of any other class of senior securities outstanding, the holders of
any Preferred Shares have the right to elect a majority of the trustees of the
Fund at any time two years' dividends on any Preferred Shares are unpaid. The
1940 Act also requires that, in addition to any approval by shareholders that
might otherwise be required, the approval of the holders of a majority of any
outstanding Preferred Shares, voting separately as a class, would be required to
(1) adopt any plan of reorganization that would adversely affect the Preferred
Shares, and (2) take any action requiring a vote of security holders under
Section 13(a) of the 1940 Act, including, among other things, changes in the
Fund's subclassification as a closed-end investment company or changes in its
fundamental investment restrictions. See "Certain Provisions in the Declaration
of Trust and By-Laws." As a result of these voting rights, the Fund's ability to
take any such actions may be impeded to the extent that there are any Preferred
Shares outstanding. The Board of Trustees presently intends that, except as
otherwise indicated in this prospectus and except as otherwise required by
applicable law or the Declaration of Trust, holders of Preferred Shares will
have equal voting rights with common shareholders (one vote per share, unless
otherwise required by the 1940 Act) and will vote together with common
shareholders as a single class.

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

Redemption, Purchase and Sale of Preferred Shares by the Fund. The terms of
any Preferred Shares issued are expected to provide that (1) they are redeemable
by the Fund in whole or in part at the original purchase price per share plus
accrued dividends per share, (2) the Fund may tender for or purchase Preferred
Shares and (3) the Fund may subsequently resell any shares so tendered for or
purchased. Any redemption or purchase of Preferred Shares by the Fund will
reduce the leverage applicable to the common shares, while any resale of shares
by the Fund will increase that leverage.

-53-

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

DESCRIPTION OF BORROWINGS

The Fund's Declaration of Trust authorizes the Fund, without prior approval
of the common shareholders, to borrow money. In this connection, the Fund may
issue notes or other evidence of indebtedness (including bank borrowings or
commercial paper) and may secure any such borrowings by mortgaging, pledging or
otherwise subjecting as security the Fund's assets. In connection with such
borrowing, the Fund may be required to maintain minimum average balances with
the lender or to pay a commitment or other fee to maintain a line of credit. Any
such requirements will increase the cost of borrowing over the stated interest
rate. Under the requirements of the 1940 Act, the Fund, immediately after any
such borrowings, must have an "asset coverage" of at least 300% (33-1/3% of
total assets after borrowings). With respect to such borrowing, asset coverage
means the ratio which the value of the total assets of the Fund, less all
liabilities and indebtedness not represented by senior securities (as defined in
the 1940 Act), bears to the aggregate amount of such borrowing represented by
senior securities issued by the Fund.

The rights of lenders to the Fund to receive interest on and repayment of
principal of any such borrowings will be senior to those of the common
shareholders, and the terms of any such borrowings may contain provisions which
limit certain activities of the Fund, including the payment of dividends to
common shareholders in certain circumstances. Further, the 1940 Act does (in
certain circumstances) grant to the lenders to the Fund certain voting rights in
the event of default in the payment of interest on or repayment of principal. In
the event that the Fund elects to be treated as a regulated investment company,
and that such provisions would impair the Fund's status as a regulated
investment company under the Internal Revenue Code, the Fund, subject to its
ability to liquidate its relatively illiquid portfolio, intends to repay the
borrowings. Any borrowing will likely be ranked equal to all other existing and
future borrowings of the Fund.

Certain types of borrowings may result in the Fund being subject to covenants
in credit agreements relating to asset coverage and portfolio composition
requirements. The Fund may be subject to certain restrictions on investments
imposed by guidelines of one or more rating agencies, which may issue ratings
for the short-term corporate debt securities or Preferred Shares issued by the
Fund. These guidelines may impose asset coverage or portfolio composition
requirements that are more stringent than those imposed by the 1940 Act. It is
not anticipated that these covenants or guidelines will impede the Sub-Advisor
from managing the Fund's portfolio in accordance with the Fund's investment
objectives and policies.

The BNP Facility can be used by the Fund for general corporate purposes,
including for financing a portion of the Fund's investments. The BNP Facility is
secured by a first priority perfected security interest in the assets of the
Fund. In addition, the loan documents under the BNP Facility restrict the Fund's
ability to change its investment advisor, sub-advisor or custodian, amend its
fundamental investment policies or investment objectives, or take on additional
indebtedness without prior consent from the provider of the BNP Facility.

CERTAIN PROVISIONS IN THE DECLARATION OF TRUST AND BY-LAWS

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

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The Declaration of Trust requires a common shareholder vote only on those
matters where the 1940 Act or the Fund's listing with an exchange require a
common shareholder vote, but otherwise permits the Trustees to take actions
without seeking the consent of common shareholders. For example, the Declaration
of Trust gives the Trustees broad authority to approve reorganizations between
the Fund and another entity, such as another closed-end fund, and the sale of
all or substantially all of its assets without common shareholder approval if
the 1940 Act would not require such approval. The Declaration of Trust further
provides that the Trustees may amend the Declaration of Trust in any respect
without common shareholder approval. The Declaration of Trust, however,
prohibits amendments that impair the exemption from personal liability granted
in the Declaration of Trust to persons who are or have been shareholders,
Trustees, officers or employees of the Fund or that limit the rights to
indemnification or insurance provided in the Declaration of Trust with respect
to actions or omissions of persons entitled to indemnification under the
Declaration of Trust prior to the amendment. The Declaration of Trust and
By-Laws include provisions that could limit the ability of other entities or
persons to acquire control of the Fund or to convert the Fund to open-end
status. The number of Trustees is currently five, but by action of two-thirds of
the Trustees, the Board of Trustees may from time to time be increased or
decreased. The Board of Trustees is divided into three classes of trustees
serving staggered three-year terms, with the terms of one class expiring at each
annual meeting of shareholders. If the Fund issues Preferred Shares, the Fund
may establish a separate class for the Trustees elected by the holders of the
Preferred Shares. Subject to applicable provisions of the 1940 Act, vacancies on
the Board of Trustees may be filled by a majority action of the remaining
Trustees. Such provisions may work to delay a change in the majority of the
Board of Trustees. The provisions of the Declaration of Trust relating to the
election and removal of Trustees may be amended only by a vote of two-thirds of
the Trustees then in office. Generally, the Declaration of Trust requires a vote
by holders of at least two-thirds of the common shares and Preferred Shares, if
any, voting together as a single class, except as described below and in the
Declaration of Trust, to authorize: (1) a conversion of the Fund from a
closed-end to an open-end investment company; (2) a merger or consolidation of
the Fund with any corporation, association, trust or other organization,
including a series or class of such other organization (in the limited
circumstances where a vote by shareholders is otherwise required under the
Declaration of Trust); (3) a sale, lease or exchange of all or substantially all
of the Fund's assets (in the limited circumstances where a vote by shareholders
is otherwise required under the Declaration); (4) in certain circumstances, a
termination of the Fund; (5) a removal of Trustees by shareholders; or (6)
certain transactions in which a Principal Shareholder (as defined in the
Declaration of Trust) is a party to the transaction. However, with respect to
(1) above, if there are Preferred Shares outstanding, the affirmative vote of
the holders of two-thirds of the Preferred Shares voting as a separate class
shall also be required. With respect to (2) above, except as otherwise may be
required, if the transaction constitutes a plan of reorganization which
adversely affects Preferred Shares, if any, then an affirmative vote of
two-thirds of the Preferred Shares voting together as a separate class is
required as well. With respect to (1) through (3), if such transaction has
already been authorized by the affirmative vote of two-thirds of the Trustees,
then the affirmative vote of the majority of the outstanding voting securities,
as defined in the 1940 Act (a "Majority Shareholder Vote"), is required,
provided that when only a particular class is affected (or, in the case of
removing a Trustee, when the Trustee has been elected by only one class), only
the required vote of the particular class will be required. Such affirmative
vote or consent shall be in addition to the vote or consent of the holders of
the Fund's shares otherwise required by law or any agreement between the Fund
and any national securities exchange. Approval of Fund shareholders is not
required, however, for any transaction, whether deemed a merger, consolidation,
reorganization, exchange of shares or otherwise whereby the Fund issues shares
in connection with the acquisition of assets (including those subject to
liabilities) from any other investment company or similar entity. None of the
foregoing provisions may be amended except by the vote of at least two-thirds of
the common shares and Preferred Shares, if any, outstanding and entitled to
vote. See the SAI under "Certain Provisions in the Declaration of Trust and
By-Laws."

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

-55-

The Declaration of Trust also provides that prior to bringing a derivative
action, a demand must first be made on the Trustees by three unrelated
shareholders that hold shares representing at least 5% of the voting power of
the Fund or affected class. The Declaration of Trust details various
information, certifications, undertakings and acknowledgements that must be
included in the demand. Following receipt of the demand, the Trustees have a
period of 90 days, which may be extended by an additional 60 days, to consider
the demand. If a majority of the Trustees who are considered independent for the
purposes of considering the demand determine that maintaining the suit would not
be in the best interests of the Fund, the Trustees are required to reject the
demand and the complaining shareholders may not proceed with the derivative
action unless the shareholders are able to sustain the burden of proof to a
court that the decision of the Trustees not to pursue the requested action was
not a good faith exercise of their business judgment on behalf of the Fund. If a
demand is rejected, the complaining shareholders will be responsible for the
costs and expenses (including attorneys' fees) incurred by the Fund in
connection with the consideration of the demand under a number of circumstances.
If a derivative action is brought in violation of the Declaration of Trust, the
shareholders bringing the action may be responsible for the Fund's costs,
including attorney's fee. The Declaration of Trust also includes a forum
selection clause requiring that any shareholder litigation be brought in certain
courts in Illinois and further provides that any shareholder bringing an action
against the Fund waive the right to trial by jury to the fullest extent
permitted by law.

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

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

CLOSED-END STRUCTURE

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

However, shares of closed-end investment companies listed for trading on a
securities exchange frequently trade at a discount from net asset value, but in
some cases trade at a premium. The market price may be affected by trading
volume of the shares, general market and economic conditions and other factors
beyond the control of the closed-end fund. The foregoing factors may result in
the market price of the common shares being greater than, less than or equal to
net asset value. The Board of Trustees has reviewed the structure of the Fund in
light of its investment objectives and policies and has determined that the
closed-end structure is in the best interests of the shareholders. As described
below, however, the Board of Trustees will review periodically the trading range
and activity of the Fund's shares with respect to its net asset value and the
Board of Trustees may take certain actions to seek to reduce or eliminate any
such discount. Such actions may include open market repurchases or tender offers
for the common shares at net asset value or the possible conversion of the Fund
to an open-end fund. There can be no assurance that the Board of Trustees will
decide to undertake any of these actions or that, if undertaken, such actions
would result in the common shares trading at a price equal to or close to net
asset value per common share. In addition, as noted above, the Board of Trustees
determined in connection with the initial offering of common shares of the Fund
that the closed-end structure is desirable, given the Fund's investment
objectives and policies. Investors should assume, therefore, that it is highly
unlikely that the Board of Trustees would vote to convert the Fund to an
open-end investment company.

REPURCHASE OF COMMON SHARES AND TENDER OFFERS

In recognition of the possibility that the common shares might trade at a
discount to net asset value and that any such discount may not be in the
interest of common shareholders, the Board of Trustees, in consultation with the
Advisor, Sub-Advisor and the corporate finance services and consulting agent
that the Advisor has retained, from time to time will review possible actions to
reduce any such discount. The Board of Trustees of the Fund will consider from
time to time open market repurchases of and/or tender offers for common shares
to seek to reduce any market discount from net asset value that may develop. In
connection with its consideration from time to time of open market repurchases
of and/or tender offers for common shares, the Board of Trustees of the Fund

-56-

will consider whether to commence a tender offer or share-repurchase program at
the first quarterly board meeting following a calendar year in which the Fund's
common shares have traded at an average weekly discount from net asset value of
more than 10% in the last 12 weeks of that calendar year. After any
consideration of potential actions to seek to reduce any significant market
discount, the Board of Trustees may, subject to its fiduciary obligations and
compliance with applicable state and federal laws, authorize the commencement of
a share-repurchase program or tender offer. The size and timing of any such
share repurchase program or tender offer will be determined by the Board of
Trustees in light of the market discount of the common shares, trading volume of
the common shares, information presented to the Board of Trustees regarding the
potential impact of any such share repurchase program or tender offer, and
general market and economic conditions. There can be no assurance that the Fund
will in fact effect repurchases of or tender offers for any of its common
shares. The Fund may, subject to its investment limitation with respect to
borrowings and limitations on seniority within the Fund's capital structure if
the Fund has other borrowings at such time, incur debt to finance such
repurchases or a tender offer or for other valid purposes. Interest on any such
borrowings would increase the Fund's expenses and reduce the Fund's net income.

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

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

CONVERSION TO OPEN-END FUND

The Fund may be converted to an open-end investment company at any time if
approved by the holders of two-thirds of the Fund's common shares outstanding
and entitled to vote, provided that, unless otherwise required by law, if there
are Preferred Shares outstanding, the affirmative vote of the holders of
two-thirds of the Preferred Shares voting as a separate class shall also be
required; provided, however, that such votes shall be by Majority Shareholder
Vote if the action in question was previously approved by the affirmative vote
of two-thirds of the Board of Trustees. Such affirmative vote or consent shall
be in addition to the vote or consent of the holders of the shares otherwise
required by law or any agreement between the Fund and any national securities
exchange. In the event of conversion, the common shares would cease to be listed
on the NYSE or other national securities exchange or market system. Any
Preferred Shares would need to be redeemed and any Borrowings may need to be
repaid upon conversion to an open-end investment company. Additionally, the 1940
Act imposes limitations on open-end funds' investments in illiquid securities,
which could restrict the Fund's ability to invest in certain securities
discussed in this prospectus to the extent discussed herein. Such limitations
could adversely affect distributions to Fund common shareholders in the event of
conversion to an open-end fund. The Board of Trustees believes, however, that
the closed-end structure is desirable, given the Fund's investment objectives
and policies. Investors should assume, therefore, that it is unlikely that the
Board of Trustees would vote to convert the Fund to an open-end investment
company. Shareholders of an open-end investment company may require the company
to redeem their shares at any time (except in certain circumstances as
authorized by or under the 1940 Act) at their net asset value, less such
redemption charge or contingent deferred sales charge, if any, as might be in
effect at the time of a redemption. The Fund would expect to pay all such
redemption requests in cash, but intends to reserve the right to pay redemption
requests in a combination of cash or securities. If such partial payment in

-57-

securities were made, investors may incur brokerage costs in converting such
securities to cash. If the Fund were converted to an open-end fund, it is likely
that new common shares would be sold at net asset value plus a sales load.

FEDERAL TAX MATTERS

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

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

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

Fund Status. The Fund intends to qualify as a "regulated investment company"
under the federal tax laws. If the Fund qualifies as a regulated investment
company and distributes all of its income in the time and manner as required by
the tax law, the Fund generally will not pay federal income taxes. Prospective
investors should be aware that if, contrary to the Fund's intention, the Fund
fails to limit its direct and indirect investments in MLPs or if such
investments are re- characterized for U.S. federal income tax purposes, the
Fund's status as a RIC may be jeopardized.

Distributions. Fund distributions generally will be taxable to you. After the
end of each year, you will receive a tax statement that separates the Fund's
distributions into two categories, ordinary income distributions and capital
gains dividends. Ordinary income distributions are generally taxed at your
ordinary tax rate, however, as further discussed below, certain ordinary income
distributions received from the Fund may be taxed at the capital gains tax
rates. Generally, you will treat all capital gains dividends as long-term
capital gains regardless of how long you have owned your shares. To determine
your actual tax liability for your capital gains dividends, you must calculate
your total net capital gain or loss for the tax year after considering all of
your other taxable transactions, as described below. In addition, the Fund may
make distributions that represent a return of capital for tax purposes and thus
will generally not be taxable to you. The tax status of your distributions from
the Fund is not affected by whether you reinvest your distributions in
additional shares or receive them in cash. The income from the Fund that you
must take into account for federal income tax purposes is not reduced by amounts
used to pay a deferred sales fee, if any. The tax laws may require you to treat
distributions made to you in January as if you had received them on December 31
of the previous year.

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

Sale or Redemption of Shares. If you sell or redeem your shares, you will
generally recognize a taxable gain or loss. To determine the amount of this gain
or loss, you must subtract your tax basis in your shares from the amount you
receive in the transaction. Your tax basis in your shares is generally equal to
the cost of your shares, generally including sales charges. In some cases,
however, you may have to adjust your tax basis after you purchase your shares.

Capital Gains and Losses and Certain Ordinary Income Dividends. If you are an
individual, the maximum marginal federal tax rate for net capital gain is
generally 20% (0% for certain taxpayers in the 10% or 15% tax brackets). An
additional 3.8% "Medicare tax" may also apply to gain from the sale or
redemption of Units in the Trust, subject to the income thresholds as described
above.

Capital gain received from assets held for more than one year that is
considered "unrecaptured section 1250 gain" and certain dividends from REITs are
taxed at a maximum stated tax rate of 25%. In the case of capital gains
dividends, the determination of which portion of the capital gains dividend, if
any, is subject to the 25% tax rate, will be made based on rules prescribed by
the United States Treasury.

-58-

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

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

Deductibility of Fund Expenses. Expenses incurred and deducted by the Fund
will generally not be treated as income taxable to you.

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

In addition, distributions and dispositions of interests in the Fund may be
subject to a U.S. withholding tax of 30% in the case of distributions to (i)
certain non-U.S. financial institutions that have not entered into an agreement
with the U.S. Treasury to collect and disclose certain information and are not
resident in a jurisdiction that has entered into an intergovernmental agreement
with the United States and (ii) certain other non-U.S. entities that do not
provide certain certifications and information about the entity's U.S. owners.

Investments in Certain Foreign Corporations. If the Fund holds an equity
interest in any "passive foreign investment companies" ("PFICs"), which are
generally certain foreign corporations that receive at least 75% of their annual
gross income from passive sources (such as interest, dividends, certain rents
and royalties or capital gains) or that hold at least 50% of their assets in
investments producing such passive income, the Fund could be subject to U.S.
federal income tax and additional interest charges on gains and certain
distributions with respect to those equity interests, even if all the income or
gain is timely distributed to its shareholders. The Fund will not be able to
pass through to its shareholders any credit or deduction for such taxes. The
Fund may be able to make an election that could ameliorate these adverse tax
consequences. In this case, the Fund would recognize as ordinary income any
increase in the value of such PFIC shares, and as ordinary loss any decrease in
such value to the extent it did not exceed prior increases included in income.
Under this election, the Fund might be required to recognize in a year income in
excess of its distributions from PFICs and its proceeds from dispositions of
PFIC stock during that year, and such income would nevertheless be subject to
the distribution requirement and would be taken into account for purposes of the
4% excise tax. Dividends paid by PFICs will not be treated as qualified dividend
income.

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

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

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

-59-

CORPORATE FINANCE SERVICES AND CONSULTING FEE

First Trust Advisors (and not the Fund) has entered into a Corporate Finance
Services and Consulting Agreement with Wells Fargo Advisors, LLC, as successor
to Wachovia Securities LLC, as successor to A.G. Edwards (the "Consultant") and
has agreed to pay from its own assets a service fee to the Consultant. This fee
is payable quarterly at the annual rate of 0.15% of the Fund's average daily net
assets and will be payable only so long as the Investment Management Agreement
remains in effect between the Fund and First Trust Advisors or any successor in
interest or affiliate of First Trust Advisors, as and to the extent that such
Investment Management Agreement is renewed or continued periodically in
accordance with the 1940 Act. Pursuant to the Corporate Finance Services and
Consulting Agreement, the Consultant will: (i) provide relevant information,
studies or reports regarding closed-end investment companies with similar
investment objectives and/or strategies as the Fund as well as general trends in
the closed-end investment company and asset management industries, and consult
with representatives of First Trust Advisors in connection therewith; (ii) at
the request of First Trust Advisors, provide certain economic research and
statistical information and reports on behalf of First Trust Advisors or the
Fund and consult with representatives of First Trust Advisors or the Fund,
and/or trustees of the Fund in connection therewith, which information and
reports shall include: (a) statistical and financial market information with
respect to the Fund's market performance; and (b) comparative information
regarding the Fund and other closed-end management investment companies with
respect to (x) the net asset value of their respective shares (as made publicly
available by the Fund and such investment companies), (y) the respective market
performance of the Fund and such other companies, and (z) other relevant
performance indicators; and (iii) provide First Trust Advisors with such other
services in connection with the common shares relating to the trading price and
market price thereof upon which First Trust Advisors and the Consultant shall,
from time to time, agree, including after-market services designed to maintain
the visibility of the Fund in the market. The incremental additional amounts
paid as service fees applicable to daily assets of the Fund attributable to the
common shares initially offered by the Fund will not exceed 3.7458% of the
offering price of such common shares.

CUSTODIAN, ADMINISTRATOR AND TRANSFER AGENT

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

LEGAL OPINIONS

Certain legal matters in connection with the Common Shares will be passed
upon for the Fund by Chapman and Cutler LLP, Chicago, Illinois. Chapman and
Cutler LLP may rely as to certain matters of Massachusetts law on the opinion of
Morgan, Lewis & Bockius LLP. If certain legal matters in connection with an
offering of Common Shares are passed upon by counsel for the underwriters or
sales agent of such offering, such counsel will be named in a prospectus
supplement.

-60-

TABLE OF CONTENTS FOR THE STATEMENT OF ADDITIONAL INFORMATION

PAGE
Use of Proceeds ............................................................ 1
Investment Objectives and Policies.......................................... 1
Investment Restrictions .................................................... 1
Additional Information About the Fund's Investments
and Investment Risks ..................................................... 3
Other Investment Strategies and Techniques ................................. 17
Management of the Fund ..................................................... 36
Investment Advisor ......................................................... 46
Proxy Voting Policies and Procedures ....................................... 49
Sub-Advisor ................................................................ 49
Portfolio Transactions and Brokerage ....................................... 53
Description of Shares ...................................................... 55
Certain Provisions in the Declaration of Trust and By-Laws ................. 57
Repurchase of Fund Shares; Conversion to Open-End Fund ..................... 60
Federal Income Tax Matters ................................................. 62
Performance Related and Comparative Information ............................ 69
Independent Registered Public Accounting Firm .............................. 71
Custodian, Administrator, Fund Accountant and Transfer Agent ............... 72
Additional Information ..................................................... 72
Financial Statements and Report of Independent Registered
Public Accounting Firm ................................................... F-1
Appendix A -- Description of Ratings ....................................... A-1
Appendix B -- Confluence Investment Management LLC
Proxy Voting Policy ..................................................... B-1

-61-

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS. THE FUND HAS NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
DIFFERENT INFORMATION. THE FUND IS NOT MAKING AN OFFER OF THESE SECURITIES IN
ANY STATE WHERE THE OFFER IS NOT PERMITTED.

TABLE OF CONTENTS

PAGE

Prospectus Summary........................................................... 1

Summary of Fund Expenses..................................................... 21

Financial Highlights......................................................... 23

Market and Net Asset Value Information....................................... 25

The Fund..................................................................... 27

Use of Proceeds.............................................................. 27

The Fund's Investments....................................................... 27

Use of Financial Leverage.................................................... 33

Risks........................................................................ 36

Management of the Fund....................................................... 46

Net Asset Value.............................................................. 48

Distributions................................................................ 49

Dividend Reinvestment Plan................................................... 50

Plan of Distribution......................................................... 51

Description of Shares........................................................ 52

Certain Provisions in the Declaration of Trust
and By-Laws.............................................................. 54

Structure of the Fund; Common Share Repurchases
and Conversion to Open-End Fund.......................................... 56

Federal Tax Matters.......................................................... 58

Corporate Finance Services and Consulting Fee................................ 60

Custodian, Administrator and Transfer Agent.................................. 60

Legal Opinions............................................................... 60

Table of Contents for the Statement of
Additional Information................................................... 61

First Trust Specialty Finance and Financial
Opportunities Fund

Up to Common Shares

, 2014

-62-

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

SUBJECT TO COMPLETION, DATED NOVEMBER 26, 2014

FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
STATEMENT OF ADDITIONAL INFORMATION

First Trust Specialty Finance and Financial Opportunities Fund (the
"Fund") is a closed-end, non-diversified management investment company which
commenced operations in May 2007.

This Statement of Additional Information relates to the offering, on an
immediate, continuous or delayed basis, of up to common shares of
beneficial interest in the Fund in one or more offerings (the "Common Shares").
This Statement of Additional Information does not constitute a prospectus, but
should be read in conjunction with the Fund's prospectus dated , 2014
and any related prospectus supplement. The Fund's currently outstanding common
shares are, and the Common Shares offered by the Prospectus and any prospectus
supplement will be, subject to notice of issuance, listed on the New York Stock
Exchange under the symbol "FGB."

This Statement of Additional Information does not include all information
that a prospective investor should consider before purchasing Common Shares.
Investors should obtain and read the Prospectus and any prospectus supplement
prior to purchasing such Common Shares. A copy of the Fund's Prospectus and any
prospectus supplement may be obtained without charge by calling (800) 988-5891.
You also may obtain a copy of the Prospectus on the Securities and Exchange
Commission's web site (http://www.sec.gov). As used in this Statement of
Additional Information, unless the context requires otherwise, "common shares"
refers to the Fund's common shares of beneficial interest currently outstanding
as well as those Common Shares offered by the Prospectus and any prospectus
supplement and the holders of the common shares are called "common
shareholders." Capitalized terms used but not defined in this Statement of
Additional Information have the meanings ascribed to them in the Prospectus and
any prospectus supplement.

This Statement of Additional Information is dated , 2014.

TABLE OF CONTENTS

PAGE
----

USE OF PROCEEDS................................................................1

INVESTMENT OBJECTIVES AND POLICIES.............................................1

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

ADDITIONAL INFORMATION ABOUT THE FUND'S INVESTMENTS AND INVESTMENT RISKS.......3

OTHER INVESTMENT STRATEGIES AND TECHNIQUES....................................17

MANAGEMENT OF THE FUND........................................................36

INVESTMENT ADVISOR............................................................46

PROXY VOTING POLICIES AND PROCEDURES..........................................49

SUB-ADVISOR...................................................................49

PORTFOLIO TRANSACTIONS AND BROKERAGE..........................................53

DESCRIPTION OF SHARES.........................................................55

CERTAIN PROVISIONS IN THE DECLARATION OF TRUST AND BY-LAWS....................57

REPURCHASE OF FUND SHARES; CONVERSION TO OPEN-END FUND........................60

FEDERAL INCOME TAX MATTERS....................................................62

PERFORMANCE RELATED AND COMPARATIVE INFORMATION...............................69

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.................................71

CUSTODIAN, ADMINISTRATOR AND TRANSFER AGENT...................................72

ADDITIONAL INFORMATION........................................................72

FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM...........................................................F-1

APPENDIX A - DESCRIPTION OF RATINGS..........................................A-1

APPENDIX B - CONFLUENCE INVESTMENT MANAGEMENT LLC PROXY VOTING GUIDELINES....B-1

- i -

USE OF PROCEEDS

The Fund will invest substantially all of the net proceeds from any sales
of Common Shares pursuant to the Prospectus and any prospectus supplement in
accordance with the Fund's investment objectives and policies as stated below or
for other general corporate purposes.

Pending investment in securities that meet the Fund's investment
objectives and policies, the net proceeds of an offering under the Prospectus
and the applicable prospectus supplement will be invested in cash or cash
equivalents.

INVESTMENT OBJECTIVES AND POLICIES

Investment Objectives. The Fund's primary investment objective is to seek
a high level of current income. The Fund seeks attractive total return as a
secondary objective. There can be no assurance that the Fund's investment
objectives will be achieved.

Under normal market conditions, the Fund seeks to achieve its investment
objectives by investing at least 80% of its Managed Assets in a portfolio of
securities of specialty finance and other financial companies that the
Sub-Advisor believes offer attractive opportunities for income and capital
appreciation. Under normal market conditions, the Fund will concentrate its
investments in securities of companies within industries in the financial
sector. The concentration of the Fund's assets in a group of industries is
likely to present more risks than a fund that is broadly diversified over
several industries or groups of industries.

Percentage limitations described in this Statement of Additional
Information are as of the time of investment by the Fund and may be exceeded on
a going-forward basis as a result of market value fluctuations of the Fund's
portfolio and other events.

The Common Shares may trade at a discount or premium to net asset value
("NAV"). An investment in the Fund may not be appropriate for all investors and
is not intended to be a complete investment program. No assurance can be given
that the Fund will achieve its investment objectives. For further discussion of
the Fund's portfolio composition and associated special risk considerations, see
"The Fund's Investments" and "Risks" in the Prospectus.

INVESTMENT RESTRICTIONS

FUNDAMENTAL INVESTMENT POLICIES

The Fund's investment objectives and certain investment policies of the
Fund are described in the Prospectus. In addition, the Fund, as a fundamental
policy, may not:

1. Purchase any security if, as a result of the purchase, 25% or
more of the Fund's total assets (taken at current value) would be invested
in the securities of borrowers and other issuers having their principal
business activities in the same industry; provided, that this limitation
shall not apply with respect to securities of companies within industries

- 1 -

in the financial sector or obligations issued or guaranteed by the U.S.
government or by its agencies or instrumentalities;

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

3. 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%; (iii) the borrowings
permitted by investment restriction 2 above; or (iv) pursuant to a
Securities and Exchange Commission exemptive order;

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

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

6. 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; and

7. 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 or
derivative instruments or from investing in securities or other
instruments backed by physical commodities).

Except as noted above, the foregoing fundamental investment policies,
together with the investment objectives of the Fund, cannot be changed without
approval by holders of a majority of the outstanding voting securities of the
Fund, as defined in the 1940 Act, which includes common shares and Preferred
Shares, if any, voting together as a single class, and of the holders of the
outstanding Preferred Shares, if any, voting as a single class. Under the 1940
Act, a "majority of the outstanding voting securities" means the vote of: (A)
67% or more of the Fund's shares present at a meeting, if the holders of more
than 50% of the Fund's shares are present or represented by proxy; or (B) more
than 50% of the Fund's shares, whichever is less.

- 2 -

NON-FUNDAMENTAL INVESTMENT POLICIES

In addition to the foregoing investment policies, the Fund is also subject
to the following non-fundamental restrictions and policies, which may be changed
by the Board of Trustees. The Fund may not:

1. Sell securities short, unless the Fund owns or has the right to
obtain securities equivalent in kind and amount to the securities sold at
no added cost, and provided that transactions in options, futures
contracts, options on futures contracts, or other derivative instruments
are not deemed to constitute selling securities short; or

2. Purchase securities of listed companies for the purpose of
exercising control.

ADDITIONAL INFORMATION ABOUT THE FUND'S INVESTMENTS AND INVESTMENT RISKS

PORTFOLIO COMPOSITION

The following information supplements the discussion in the Fund's
Prospectus and reflects certain investments in which the Fund currently or may
in the future invest. For a discussion of the investments in which the Fund
principally invests, see "The Fund's Investments--Portfolio Composition" in the
Fund's Prospectus.

Preferred Stock. Preferred stock represents an equity ownership interest
in a company and has a preference over common stock in liquidation (and
generally as to dividends as well), but is subordinated to the liabilities of
the issuer in all respects. Some preferred stock entitles their holders to
receive additional liquidation proceeds on the same basis as holders of a
company's common stock. As a general rule, the market value of preferred stock
with a fixed dividend rate and no conversion element varies inversely with
interest rates and perceived credit risk, while the market price of convertible
preferred stock generally also reflects some element of conversion value.
Because preferred stock is junior to debt securities and other obligations of
the issuer, deterioration in the credit quality of the issuer will cause greater
changes in the value of preferred stock than in a more senior debt security with
similarly stated yield characteristics. The market value of preferred stock will
also generally reflect whether (and, if so, when) the issuer may force holders
to sell their preferred shares back to the issuer and whether (and, if so, when)
the holders may force the issuer to buy back their preferred shares. See
"--Risks--Preferred Stock and Trust Preferred Securities Risk."

Trust Preferred Securities. Trust preferred securities are limited-life
preferred securities that are typically issued by corporations, generally in the
form of interest-bearing notes or preferred securities issued by an affiliated
business trust of a corporation whose only assets are generally in the form of
beneficial interests in subordinated debentures issued by the corporation, or
similarly structured securities. The maturity and dividend rate of the trust
preferred securities are structured to match the maturity and coupon interest
rate of the underlying subordinated debentures owned by the affiliated trust.
Trust preferred securities usually mature on the stated maturity date of the
subordinated debentures and may be redeemed or liquidated prior to the stated
maturity date of such instruments for any reason on or after their stated call

- 3 -

date or upon the occurrence of certain extraordinary circumstances at any time.
Distributions from trust preferred securities will not generally qualify for
favorable treatment as qualified dividend income. See "--Risks--Preferred Stock
and Trust Preferred Securities Risk."

Convertible Securities. Convertible securities include bonds, debentures,
notes, preferred stocks and other securities that may be converted into or
exchanged for a prescribed amount of common stock or other security of the same
or a different issuer or into cash within a particular period of time at a
specified price or formula. Convertible securities have general characteristics
similar to both debt and equity securities. A convertible security generally
entitles the holder to receive interest or preferred dividends paid or accrued
until the convertible security matures or is redeemed, converted or exchanged.
The market value of convertible securities tends to decline as interest rates
rise and, because of the conversion feature, tends to vary with fluctuations in
the market value of the underlying securities. Convertible securities ordinarily
provide a stream of income with generally higher yields than those of common
stock of the same or similar issuers. Convertible securities generally rank
senior to common stock in a corporation's capital structure but are usually
subordinated to comparable non-convertible securities. Convertible securities
generally do not participate directly in any dividend increases or decreases of
the underlying securities although the market prices of convertible securities
may be affected by any dividend changes or other changes in the underlying
securities. See "--Risks--Convertible Securities Risk."

Infrastructure Trust Interests. Infrastructure trusts are statutory trusts
structured to own operating companies which own infrastructure assets.
Infrastructure trusts are typically classified as grantor trusts for U.S.
federal income tax purposes and, as such, are not taxed at the trust level.
Interests in infrastructure trusts, which are required to distribute
substantially all of their income to investors in order to not be subject to
entity level taxation, often offer a yield advantage over other types of
securities. Investors in infrastructure trusts will generally be treated as the
beneficial owner of a pro rata portion of the interests of the operating
companies held by the infrastructure trusts. Beneficial owners of shares of an
infrastructure trust will be required to take into account their allocable share
of the trust's income, gain, loss, deduction and other items for U.S. federal
income tax purposes. Infrastructure assets can be broadly divided into four
categories: (i) assets that are natural or near-natural monopolies and are
regulated in the level of revenue earned or charges imposed, and include certain
power and gas transmission, generation and distribution assets, as well as
certain water/waste-water treatment facilities and incumbent local exchange
carriers; (ii) assets that depend on a form of user pay system for their main
revenue source (e.g., toll roads, airports, railways, ports and certain parking
lots); (iii) assets that provide basic social services to the community (e.g.,
schools, hospitals and correction facilities); and (iv) assets that compete in a
market for the sale of a product or service and are therefore exposed to market
risks (e.g., electricity generation facilities, solid waste disposal facilities,
city and local carparks, and certain communication asset classes). See
"--Risks--Infrastructure Trust Risk."

Income Trust Interests. Income trusts in which the Fund may invest are
generally equity investments and include investment trusts, royalty/energy
trusts (or their successor companies), and business trusts. These trusts
typically earn income through the acquisition of equity and debt instruments,
royalty interest or real properties. An income trust can receive interest,

- 4 -

royalty or lease payments from an operating entity carrying on a business, as
well as dividends and a return of capital. The income is passed on to investors
through monthly or quarterly distributions. Income trusts are generally
structured to own debt and equity of an underlying entity that carries on an
active business (typically natural resource or energy related), or a royalty in
revenues generated by the assets thereof. The income trust structure was
developed to facilitate distributions to investors on a tax-efficient basis. The
projected life of distributions and the sustainability of distribution levels
tend to vary with the nature of the business underlying an income trust. The
variety of businesses upon which income trusts have been created is broad, both
in the nature of the underlying industry and assets and in geographic location.
See "--Risks--Income Trust Risk."

Foreign Securities. The Fund may invest a significant portion of its
Managed Assets in securities of foreign issuers, including income trusts. The
Fund's investments in foreign issuers may include investments in equity and/or
fixed-income securities of such issuers. Foreign securities include securities
issued or guaranteed by companies organized under the laws of countries other
than the United States, securities issued or guaranteed by foreign national,
provincial, state, municipal or other governments with taxing authority or by
their agencies or instrumentalities and debt obligations of supra-national
governmental entities such as the World Bank or European Union. These securities
may be U.S. dollar-denominated or non-U.S. dollar-denominated. Foreign
securities also include U.S. dollar-denominated debt obligations, such as
"Yankee Dollar" obligations, of foreign issuers and of supra-national government
entities. Yankee Dollar obligations are U.S. dollar-denominated obligations
issued in the U.S. capital markets by foreign corporations, banks and
governments. Foreign securities also may be traded on foreign securities
exchanges or in over-the-counter capital markets.

The Fund's investments in foreign issuers may include American Depositary
Receipts, Global Depositary Receipts, European Depositary Receipts and other
depositary receipts. Such depositary receipts represent common stock deposited
with a custodian in a depositary. They are issued by a bank or a trust company
to evidence ownership of underlying securities issued by a foreign corporation.
These instruments may not necessarily be denominated in the same currency as the
securities into which they may be converted. See "--Risks--Foreign Securities
Risk."

Loans. The Fund may invest a portion of its assets in loan participations
and other direct claims against a borrower. The Sub-Advisor believes corporate
loans to be high-yield debt instruments if the issuer has outstanding debt
securities rated below-investment grade or has no rated securities. The
corporate loans in which the Fund may invest primarily consist of direct
obligations of a borrower and may include debtor-in-possession financings
pursuant to Chapter 11 of the U.S. Bankruptcy Code, obligations of a borrower
issued in connection with a restructuring pursuant to Chapter 11 of the U.S.
Bankruptcy Code (a "bankruptcy reorganization proceeding"), leveraged buy-out
loans, leveraged recapitalization loans, receivables purchase facilities and
privately placed notes. The Fund may invest in a corporate loan at origination
as a co-lender or by acquiring in the secondary market participations in,
assignments of or novations of a corporate loan. By purchasing a participation,
the Fund acquires some or all of the interest of a bank or other lending
institution in a loan to a corporate or government borrower. The participations
typically will result in the Fund having a contractual relationship only with

- 5 -

the lender, not the borrower. The Fund will have the right to receive payments
of principal, interest and any fees to which it is entitled only from the lender
selling the participation and only upon receipt by the lender of the payments
from the borrower. Many such loans are secured, although some may be unsecured.
Such loans may be in default at the time of purchase. Loans that are fully
secured offer the Fund more protection than an unsecured loan in the event of
non-payment of scheduled interest or principal. However, there is no assurance
that the liquidation of collateral from a secured loan would satisfy the
corporate borrower's obligation, or that the collateral can be liquidated.
Direct debt instruments may involve a risk of loss in case of default or
insolvency of the borrower and may offer less legal protection to the Fund in
the event of fraud or misrepresentation. In addition, loan participations
involve a risk of insolvency of the lending bank or other financial
intermediary. The markets in loans are not regulated by federal securities laws
or the Securities and Exchange Commission (the "SEC").

As in the case of other high-yield investments, such corporate loans may
be rated in the lower rating categories of the established rating services (such
as "Baa3" or lower by Moody's Investors Services, Inc. ("Moody's") or "BBB-" or
lower by Standard & Poor's Ratings Group, a division of The McGraw Hill
Companies, Inc. ("S&P")), or may be unrated investments determined to be of
comparable quality by the Sub-Advisor. As in the case of other high-yield
investments, such corporate loans can be expected to provide higher yields than
lower yielding, higher rated fixed income securities, but may be subject to
greater risk of loss of principal and income. There are, however, some
significant differences between corporate loans and high-yield bonds. Corporate
loan obligations are frequently secured by pledges of liens and security
interests in the assets of the borrower, and the holders of corporate loans are
frequently the beneficiaries of debt service subordination provisions imposed on
the borrower's bondholders. These arrangements are designed to give corporate
loan investors preferential treatment over high-yield investors in the event of
deterioration in the credit quality of the issuer. Even when these arrangements
exist, however, there can be no assurance that the borrowers of the corporate
loans will repay principal and/or pay interest in full. Corporate loans
generally bear interest at rates set at a margin above a generally recognized
base lending rate that may fluctuate on a day-to-day basis, in the case of the
prime rate of a U.S. bank, or which may be adjusted on set dates, typically 30
days but generally not more than one year, in the case of the London Interbank
Offered Rate. Consequently, the value of corporate loans held by the Fund may be
expected to fluctuate significantly less than the value of other fixed rate
high-yield instruments as a result of changes in the interest rate environment;
however, the secondary dealer market for certain corporate loans may not be as
well developed as the secondary dealer market for high-yield bonds and,
therefore, presents increased market risk relating to liquidity and pricing
concerns. See "--Risks--Loan Risk."

Distressed Securities. The Fund may invest up to 10% of its Managed Assets
in distressed securities. Distressed securities are securities issued by a
company in a bankruptcy reorganization proceeding; subject to some other form of
public or private debt restructuring; otherwise in default or in significant
risk of being in default as to the payment of interest or repayment of
principal; or trading at prices substantially below other below-investment grade
debt securities of companies in similar industries. These are securities
generally rated in the lower rating categories ("Ca" or lower by Moody's or "CC"
or lower by S&P) or, if unrated, are determined to be of comparable quality by
the Sub-Advisor. Distressed securities frequently do not produce current income.

- 6 -

Although distressed securities are particularly speculative investments, the
Sub-Advisor believes they provide the opportunity for enhanced income and/or
capital appreciation. See "--Risks--Distressed Securities Risk."

Collateralized Debt Obligations. A collateralized debt obligation ("CDO")
is an asset-backed security whose underlying collateral is typically a portfolio
of bonds, bank loans, other structured finance securities and/or synthetic
instruments. Where the underlying collateral is a portfolio of bonds, a CDO is
referred to as a collateralized bond obligation ("CBO"). Where the underlying
collateral is a portfolio of bank loans, a CDO is referred to as a
collateralized loan obligation ("CLO"). CDOs may also be backed by a pool of
credit derivatives, including credit default swaps, forward contracts and
options. Investors in CDOs bear the credit risk of the underlying collateral.
Multiple tranches of securities are generally issued by CDOs, offering investors
various maturity and credit risk characteristics. Tranches are categorized as
senior, mezzanine and subordinated-equity according to their degree of risk. If
there are defaults or a CDO's collateral otherwise underperforms, scheduled
payments to senior tranches take precedence over those of mezzanine or
subordinated-equity tranches, and scheduled payments to mezzanine tranches take
precedence over those to subordinated-equity tranches. CDOs are subject to the
same risk of prepayment described with respect to asset-backed and
mortgage-related securities described above. See "--Risks--Collateralized Debt
Obligations Risk."

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

The Fund may invest in securities that, at the time of investment, are
illiquid (determined using the SEC's standard applicable to investment
companies, i.e., securities that cannot be disposed of by the Fund within seven
days in the ordinary course of business at approximately the amount at which the
Fund has valued the securities). Investments currently considered to be illiquid
include, among others, repurchase agreements not entitling the holder to
repayment of principal and payment of interest within seven days, non-government
stripped fixed-rate mortgage-backed securities, and over-the-counter options. In
the absence of readily available market quotations, a committee appointed by the
Fund's Board of Trustees will price illiquid investments at a fair value as
determined in good faith. Valuing illiquid securities typically requires greater
judgment than valuing securities for which there is an active trading market.

- 7 -

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 illiquid securities. Investment of the Fund's
assets in illiquid securities may restrict the Fund's ability to take advantage
of market opportunities. The risks associated with an investment in illiquid
securities may be particularly acute in situations in which the Fund's
operations require cash and could result in the Fund borrowing to meet its
short-term needs or incurring losses on the sale of illiquid securities. See
"--Risks--Restricted and Illiquid Securities Risk."

Other Investment Companies. The Fund may invest in the securities of other
investment companies, including BDCs and exchange-traded funds ("ETFs"), to the
extent that such investments are consistent with the Fund's investment
objectives and policies and permissible under the 1940 Act, including any
exemptive relief or no-action guidance from the Securities and Exchange
Commission (the "SEC"). Generally, the provisions of the 1940 Act limit the
amount the Fund can invest in any one closed-end fund, including BDCs, to 3% of
the closed-end fund's total outstanding voting securities. As a result, the Fund
may hold a smaller position in a BDC than if it were not subject to this
restriction. To comply with the provisions of the 1940 Act, on any matter upon
which BDC shareholders are solicited to vote, the Sub-Advisor may be required to
vote BDC shares in the same general proportion as shares held by other
shareholders of the BDC. These limitations do not apply to the purchase of
shares of any investment company in connection with a merger, consolidation,
reorganization or acquisition of substantially all the assets of another
investment company.

The Fund, as a holder of the securities of other investment companies,
will bear its pro rata portion of the other investment companies' expenses,
including advisory fees. These expenses are in addition to the direct expenses
of the Fund's own operations.

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

Short-Term Debt Securities; Temporary Defensive Position; Invest-Up
Period. During the period which the net proceeds of the offering of Common
Shares are being invested, the issuance of Preferred Shares, if any, commercial
paper or notes and/or borrowings are being invested or during periods in which
the Advisor or the Sub-Advisor determines that it is temporarily unable to
follow the Fund's investment strategy or that it is impractical to do so, the
Fund may deviate from its investment strategy and invest all or any portion of
its Managed Assets in cash and cash equivalents. The Advisor's or the
Sub-Advisor's determination that it is temporarily unable to follow the Fund's
investment strategy or that it is impracticable to do so will generally occur
only in situations in which a market disruption event has occurred and where

- 8 -

trading in the securities selected through application of the Fund's investment
strategy is extremely limited or absent. In such a case, the Fund may not pursue
or achieve its investment objectives.

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

1. U.S. government securities, including bills, notes and bonds
differing as to maturity and rates of interest that are either issued or
guaranteed by the U.S. Treasury or by U.S. government agencies or
instrumentalities. U.S. government agency securities include securities
issued by: (i) the Federal Housing Administration, Farmers Home
Administration, Export-Import Bank of the United States, Small Business
Administration, and the Government National Mortgage Association, whose
securities are supported by the full faith and credit of the U.S.
government; (ii) the Federal Home Loan Banks, Federal Intermediate Credit
Banks, and the Tennessee Valley Authority, whose securities are supported
by the right of the agency to borrow from the U.S. Treasury; (iii) the
Federal National Mortgage Association and the Federal Home Loan Mortgage
Corporation; and (iv) the Student Loan Marketing Association, whose
securities are supported only by its credit. While the U.S. government
provides financial support to such U.S. government-sponsored agencies or
instrumentalities, no assurance can be given that it always will do so
since it is not so obligated by law. The U.S. government, its agencies and
instrumentalities do not guarantee the market value of their securities.
Consequently, the value of such securities may fluctuate.

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

3. Repurchase agreements, which involve purchases of debt
securities. At the time the Fund purchases securities pursuant to a
repurchase agreement, it simultaneously agrees to resell and redeliver
such securities to the seller, who also simultaneously agrees to buy back
the securities at a fixed price and time. This assures a predetermined
yield for the Fund during its holding period, since the resale price is
always greater than the purchase price and typically reflects current
market interest rates. Such actions afford an opportunity for the Fund to
invest temporarily available cash. Pursuant to the Fund's policies and
procedures, the Fund may enter into repurchase agreements only with
respect to obligations of the U.S. government, its agencies or
instrumentalities; certificates of deposit; or bankers' acceptances in
which the Fund may invest. Repurchase agreements may be considered loans
to the seller, collateralized by the underlying securities. The risk to
the Fund is limited to the ability of the seller to pay the agreed-upon
sum on the repurchase date; in the event of default, the repurchase
agreement provides that the Fund is entitled to sell the underlying

- 9 -

collateral. If the seller defaults under a repurchase agreement when the
value of the underlying collateral is less than the repurchase price, the
Fund could incur a loss of both principal and interest. The Sub-Advisor
monitors the value of the collateral at the time the action is entered
into and at all times during the term of the repurchase agreement. The
Sub-Advisor does so in an effort to determine that the value of the
collateral always equals or exceeds the agreed-upon repurchase price to be
paid to the Fund. If the seller were to be subject to a federal bankruptcy
proceeding, the ability of the Fund to liquidate the collateral could be
delayed or impaired because of certain provisions of the bankruptcy laws.

4. Commercial paper, which consists of short-term unsecured
promissory notes, including variable rate master demand notes issued by
corporations to finance their current operations. Master demand notes are
direct lending arrangements between the Fund and a corporation. There is
no secondary market for such notes. However, they are redeemable by the
Fund at any time. The Sub-Advisor will consider the financial condition of
the corporation (e.g., earning power, cash flow, and other liquidity
measures) and will continuously monitor the corporation's ability to meet
all its financial obligations, because the Fund's liquidity might be
impaired if the corporation were unable to pay principal and interest on
demand. Investments in commercial paper will be limited to commercial
paper rated in the highest categories by a nationally recognized
statistical rating organization (an "NRSRO") and which mature within one
year of the date of purchase or carry a variable or floating rate of
interest.

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

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

7. The Fund may invest in shares of money market funds in accordance
with the provisions of the 1940 Act, the rules thereunder and
interpretations thereof.

RISKS

The following information supplements the discussion in the Fund's
Prospectus and summarizes some of the risks associated with certain of the
investments in which the Fund currently or may in the future invest. For a
discussion of the risks associated with investing in the Fund, see "Risks" in
the Fund's Prospectus.

- 10 -

Income Trust Risk. Investments in income trusts are subject to the risks
generally applicable to companies in the energy and natural resources sectors,
including commodity pricing risk, supply and demand risk, depletion risk and
exploration risk. The return on the Fund's investments in income trusts will be
dependent on the prices for natural gas, natural gas liquids, crude oil, refined
petroleum products, coal or other natural resources. These prices may fluctuate
widely in response to a variety of factors including global and domestic
economic conditions, weather conditions, the supply and price of imported energy
commodities, the production and storage levels of energy commodities in certain
regions or in the world, political stability, transportation facilities, energy
conservation, domestic and foreign governmental regulation and taxation and the
availability of local, intrastate and interstate transportation systems. Income
trusts have naturally depleting assets. As a result, in order to maintain or
grow their revenues, income trusts or their customers need to maintain or expand
their reserves through new sources of supply, the development of existing
sources or acquisitions, and the inability to do so may adversely affect the
financial performance of the income trusts.

There are certain tax risks associated with the income trusts in which the
Fund may invest, including the possibility that Canadian and U.S. taxing
authorities may challenge the deductibility of certain interest payments and
certain other costs and expenses inherent in the structure of certain income
trusts and the risk that U.S. taxing authorities could challenge the Fund's
treatment for federal income tax purposes of the income trusts in which the Fund
invests. These tax risks, and any adverse determination with respect thereto,
could have a negative impact on the after-tax income available for distribution
by the income trusts and/or the value of the Fund's investments. There can be no
assurance that future changes to Canadian and U.S. tax laws or tax rules would
not adversely affect the Fund's investments in income trusts or the value of the
common shares.

Preferred Stock and Trust Preferred Securities Risk. There are special
risks associated with investing in preferred securities, including risks related
to deferral, non-cumulative dividends, subordination, liquidity, limited voting
rights and special redemption rights. Preferred stocks are unique securities
that combine some of the characteristics of both common stocks and bonds, but
are typically subordinated to bonds and other debt instruments in a company's
capital structure, in terms of priority to corporate income, and therefore will
be subject to greater credit risk than those debt instruments. Unlike interest
payments on debt securities, preferred stock dividends are payable only if
declared by the issuer's board of directors. Preferred stock also may be subject
to optional or mandatory redemption provisions. Certain of the preferred stocks
in which the Fund may invest may be convertible preferred stocks, which have
risks similar to convertible securities as described below in "--Convertible
Securities Risk."

Trust preferred securities are limited-life preferred securities typically
issued by corporations, generally in the form of interest- bearing notes or
preferred securities issued by an affiliated business trust of a corporation
whose only assets are generally in the form of beneficial interests in
subordinated debentures or similarly structured securities. Dividend payments on
the trust preferred securities generally coincide with interest payments on the
underlying obligations. Trust preferred securities generally have a yield
advantage over traditional preferred stocks, but unlike preferred stocks,
distributions are treated as interest rather than dividends for federal income
tax purposes and therefore, are not eligible for the dividends-received

- 11 -

deduction and do not constitute qualified dividend income. Trust preferred
securities prices fluctuate for several reasons including changes in investors'
perception of the financial condition of an issuer or the general economic
condition of the market for trust preferred securities, or when political or
economic events affecting the issuers occur. Trust preferred securities are also
sensitive to interest rate fluctuations, as the cost of capital rises and
borrowing costs increase in a rising interest rate environment and there is risk
that a trust preferred security may be called for redemption in a falling
interest rate environment. Certain of the other risks unique to trust preferred
securities include: (i) distributions on trust preferred securities will be made
only if interest payments on the interest-bearing notes, preferred securities or
subordinated debentures are made; (ii) a corporation issuing the
interest-bearing notes, preferred securities or subordinated debentures may
defer interest payments on these instruments for up to 20 consecutive quarters
and if such election is made, distributions will not be made on the trust
preferred securities during the deferral period; (iii) certain tax or regulatory
events may trigger the redemption of the interest-bearing notes, preferred
securities or subordinated debentures by the issuing corporation and result in
prepayment of the trust preferred securities prior to their stated maturity
date; (iv) future legislation may be proposed or enacted that may prohibit the
corporation from deducting its interest payments on the interest-bearing notes,
preferred securities or subordinated debentures for tax purposes, making
redemption of these instruments likely; (v) a corporation may redeem the
interest-bearing notes, preferred securities or subordinated debentures in whole
at any time or in part from time to time on or after a stated call date; (vi)
trust preferred securities holders have very limited voting rights; and (vii)
payment of interest on the interest bearing notes, preferred securities or
subordinated debentures, and therefore distributions on the trust preferred
securities, is dependent on the financial condition of the issuing corporation.

Convertible Securities Risk. Convertible securities generally offer lower
interest or dividend yields than non-convertible securities of similar quality.
Similar to traditional fixed-income securities, the market values of convertible
securities tend to decline as interest rates increase and, conversely, increase
as interest rates decline. However, when the market price of the common stock
underlying a convertible security exceeds the conversion price, the convertible
security tends to reflect the market price of the underlying common stock. As
the market price of the underlying common stock declines, the convertible
security tends to trade increasingly on a yield basis and thus may not decline
in price to the same extent as the underlying common stock. Convertible
securities often rank senior to common stock in an issuer's capital structure
and consequently may entail less risk than the issuer's common stock.

Infrastructure Trust Risk. Infrastructure issuers, including utilities and
companies involved in infrastructure projects, are subject to a variety of
factors that may adversely affect their business operations, including high
interest costs in connection with capital construction programs, costs
associated with environmental and other regulations, the effects of economic
slowdown and 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.
Infrastructure issuers may be subject to regulation by various governmental
authorities and may also be affected by governmental regulation of rates charged
to customers, service interruption due to environmental, operational or other

- 12 -

mishaps and the imposition of special tariffs and changes in tax laws,
regulatory policies and accounting standards.

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

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

Currency Risk. The value of securities denominated or quoted in foreign
currencies may be adversely affected by fluctuations in the relative currency
exchange rates and by exchange control regulations. The Fund's investment
performance may be negatively affected by a devaluation of a currency in which
the Fund's investments are denominated or quoted. Further, the Fund's investment
performance may be significantly affected, either positively or negatively, by
currency exchange rates because the U.S. dollar value of securities denominated
or quoted in another currency will increase or decrease in response to changes
in the value of such currency in relation to the U.S. dollar.

Loan Risk. There may not be as much public information available
regarding certain of the types of loans in which the Fund may invest as is

- 13 -

available for other Fund investments, such as exchange-listed securities and
there may not be an active trading market for some loans, meaning they may be
illiquid and more difficult to value than other more liquid securities.
Settlement periods for loans are longer than for exchange-traded securities,
typically ranging between 1 and 3 weeks, and in some cases much longer. There is
no central clearing house for loan trades, and the loan market has not
established enforceable settlement standards or remedies for failure to settle.
Because the interest rates of floating rate loans in which the Fund may invest
may reset frequently, if market interest rates fall, the loans' interest rates
will be reset to lower levels, potentially reducing the Fund's income. The Fund
may not have access to material non-public information regarding an obligor to
which other investors may have access.

Distressed Securities Risk. The Fund may invest up to 10% of its Managed
Assets in securities issued by companies in a bankruptcy reorganization
proceeding, subject to some other form of a public or private debt
restructuring, or otherwise in default or in significant risk of default in the
payment of interest or repayment of principal or trading at prices substantially
below other below-investment grade debt securities of companies in similar
industries. Distressed securities frequently do not produce income while they
are outstanding. The Fund may be required to incur certain extraordinary
expenses in order to protect and recover its investment in distressed
securities. For additional risks associated with an investment in distressed
securities, see "Risks--Lower Grade Securities Risk" in the Fund's Prospectus.

Collateralized Debt Obligations Risk. In addition to the general risks
associated with fixed-income securities discussed in the Fund's Prospectus, CDOs
carry additional risks,including: (i) the possibility that distributions from
collateral securities will not be adequate to make interest or other payments;
(ii) the quality of the collateral may decline in value or default;(iii) the
possibility that the CDO securities are subordinate to other classes; and (iv)
the complex structure of the security may not be fully understood at the time of
investment and may produce disputes with the issuer or unexpected investment
results.

The credit quality of CDOs depends primarily upon the quality of the
underlying assets and the level of credit support and/or enhancement provided.
The underlying assets (e.g.,securities or loans) of CDOs may be subject to
prepayments, which would shorten the weighted average maturity and may lower the
return of the CDO. If a credit support or enhancement is exhausted, losses or
delays in payment may result if the required payments of principal and interest
are not made. The transaction documents relating to the issuance of CDOs may
impose eligibility criteria on the assets of the issuing special purpose vehicle
("SPV"), restrict the ability of the investment manager to trade investments and
impose certain portfolio-wide asset quality requirements. These criteria,
restrictions and requirements may limit the ability of the SPV's investment
manager to maximize returns on the CDOs. In addition, other parties involved in
structured products, such as third party credit enhancers and investors in the
rated tranches, may impose requirements that have an adverse effect on the
returns of the various tranches of CDOs. Furthermore, CDO transaction documents
generally contain provisions that, in the event that certain tests are not met
(generally interest coverage and over-collateralization tests at varying levels
in the capital structure), require that proceeds that would otherwise be
distributed to holders of a junior tranche must be diverted to pay down the
senior tranches until such tests are satisfied. Failure (or increased likelihood
of failure) of a CDO to make timely payments on a particular tranche will have
an adverse effect on the liquidity and market value of such tranche.

-14-

Payments to holders of CDOs may be subject to deferral. If cash flows
generated by the underlying assets are insufficient to make all current and, if
applicable, deferred payments on the CDOs, no other assets will be available for
payment of the deficiency and, following realization of the underlying assets,
the obligations of the issuer to pay such deficiency will be extinguished.

The value of CDO securities also may change because of changes in the
market's perception of the creditworthiness of the servicing agent for the pool,
the originator of the pool,or the financial institution or fund providing the
credit support or enhancement. Furthermore, the leveraged nature of each
subordinated class may magnify the adverse impact on such class of changes in
the value of the assets, changes in the distributions on the assets, defaults
and recoveries on the assets, capital gains and losses on the assets, prepayment
on the assets and availability, price and interest rates of the assets. CDOs are
limited recourse, may not be paid in full and may be subject to up to 100% loss.

CDOs are typically privately offered and sold, and thus are not registered
under the securities laws. As a result, investments in CDOs may be characterized
by the Fund as illiquid securities; however, an active dealer market may exist
which would allow such securities to be considered liquid in some circumstances.

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

Privately-Issued Securities Risk. In addition to being subject to the
risks applicable to restricted and/or illiquid securities, as described above,
privately-issued securities are also subject to the following risks:

o Availability Risk. The Fund's ability to make investments in
privately-issued securities is dependent upon the availability of a
sufficient supply of such securities that meets the investment

-15-

criteria established by the Advisor and Sub-Advisor. While the Fund
may purchase a substantial portion of such securities from or
through one or more broker-dealers or intermediaries and/or directly
from the issuers thereof, the Fund has no current obligations to
purchase any such securities and none of such parties has a current
obligation to sell any such securities to the Fund. To the extent
the Fund must pay any fees associated with the issuance of such
securities, including brokers' or finders' fees, it may reduce the
Fund's targeted yield. If the Fund is unsuccessful in obtaining any
such securities, the Fund's overall current yield and tax-advantaged
benefits may be adversely affected. In addition, under such
circumstances the Fund may be required to invest in other
investments that do not pay rates of return that are as high as
those expected to be paid on such securities, in which case the Fund
may not be able to achieve its investment objectives.

o Valuation Risk. The Fund will use an independent pricing service to
value any privately-issued preferred securities, which generally are
expected initially, and for some extended period of time, to be
illiquid. Based on information provided to the Fund by such
independent pricing service, in determining the value of
privately-issued preferred securities, such pricing service will
consider (i) the characteristics of, and fundamental analytical data
relating to, the privately-issued securities, including cost, size
of the issuance, current dividend rate and the time period until the
next dividend rate readjustment, (ii) the credit quality of the
issuer, based on an evaluation of its financial condition and
regulatory filings and (iii) transactions in securities comparable
to such privately-issued securities and various relationships
between securities that are recognized by institutional traders. The
Fund will use a fair value methodology if the independent pricing
service is unable to provide a price for a privately-issued
security, if the price provided by the independent pricing service
is deemed unreliable or if events occurring after the close of a
securities market and before the Fund values its Managed Assets
would materially affect net asset value. A security that is fair
valued may be valued at a price higher or lower than (i) the price
that may be received if such security were to be sold or (ii) the
value determined by other funds using their own fair valuation
procedures. In addition, where no market currently exists for
privately-issued securities, there can be no assurance that any such
market will develop in the future, which may adversely affect the
valuation of such securities, which in turn may adversely affect the
ability of the Fund to sell such securities at times or prices
desired by the Fund.

Risks of Investing in Other Investment Companies. To the extent the Fund
invests a portion of its assets in other investment companies, including
open-end funds, closed-end funds, ETFs and other types of funds, those assets
will be subject to the risks of the purchased funds' portfolio securities, and a
shareholder in the Fund will bear not only his or her proportionate share of the
Fund's expenses, but also indirectly the expenses of the purchased funds. Common
shareholders of the Fund would therefore be subject to duplicative expenses to
the extent the Fund invests in other funds. The Fund's investments in other
funds also are subject to the ability of the managers of those funds to achieve
the funds' investment objectives. Risks associated with investments in
closed-end funds generally include the risks described in the Prospectus
associated with the Fund's structure as a closed-end fund, including market

-16-

risk, leverage risk, risk of market price discount from net asset value, risk of
anti-takeover provisions and non-diversification. In addition, investments in
closed-end funds may be subject to dilution risk, which is the risk that
strategies employed by a closed-end fund, such as rights offerings, may, under
certain circumstances, have the effect of reducing its share price and the
Fund's proportionate interest.

The Fund may invest in the securities of ETFs, to the extent permitted by
law. Most ETFs are investment companies that aim to track or replicate a desired
index, such as a sector, market or global segment. Most ETFs are passively
managed and their shares are traded on a national exchange. ETFs do not sell
individual shares directly to investors and only issue their shares in large
blocks known as "creation units." The investor purchasing a creation unit may
sell the individual shares on a secondary market. Therefore, the liquidity of
ETFs depends on the adequacy of the secondary market. There can be no assurance
that an ETF's investment objective will be achieved, as ETFs based on an index
may not replicate and maintain exactly the composition and relative weightings
of securities in the index. ETFs are subject to the risks of investing in the
underlying securities. The Fund, as a holder of the securities of the ETF, will
bear its pro rata portion of the ETF's expenses, including advisory fees. These
expenses are in addition to the direct expenses of the Fund's own operations.
ETF shares may trade at a premium or discount to their NAV. As ETFs trade on an
exchange, they are subject to the risks of any exchange-traded instrument,
including: (i) an active trading market for its shares may not develop or be
maintained, (ii) trading of its shares may be halted by the exchange, and (iii)
its shares may be delisted from the exchange. Some ETFs are highly leveraged and
therefore will expose the Fund to risks posed by leverage, including the risk
that the use of leverage by an ETF can magnify the effect of any of its losses.

OTHER INVESTMENT STRATEGIES AND TECHNIQUES

DERIVATIVE TRANSACTIONS

The Fund may, but is not required to, enter into various derivative
transactions to seek to (i) reduce interest rate risks arising from any use of
leverage; (ii) facilitate portfolio management; (iii) mitigate other risks,
including, without limitation, interest rate, currency and credit risks; and/or
(iv) earn income. The Fund may purchase and sell derivative instruments such as
exchange-listed and over-the-counter put and call options on currencies,
securities, equity, fixed-income, currency and/or interest rate indices and
other financial instruments, purchase and sell financial futures contracts and
options thereon, enter into various interest rate transactions such as swaps,
caps, floors or collars, enter into various currency transactions such as
currency forward contracts, currency futures contracts, currency swaps or
options on currency or currency futures, or enter into various credit
transactions, total rate of return swap transactions, credit default swaps, swap
options and other credit derivative instruments. The Fund also may purchase
derivative instruments that combine features of these instruments and other
similar transactions which may be developed in the future to the extent the
Sub-Advisor determines that they are consistent with the Fund's investment
objectives and policies and applicable regulatory requirements.

-17-

Derivative transactions, if any, generally provide for the transfer from
one counterparty to another of certain risks inherent in the ownership of a
financial asset such as a common stock or debt instrument. The transfer of risk
may be complete or partial, and may be for the life of the related asset or for
a shorter period. Derivative transactions may provide the Fund with the
opportunity to gain or reduce exposure to one or more reference securities or
other financial assets without actually owning or selling such assets in order,
for example, to increase or reduce a concentration risk or to diversify a
portfolio.

The Fund may seek to use derivative transactions to generate income and
enhance potential gain, protect against possible adverse changes in the market
value of securities held in or to be purchased for the Fund's portfolio and
protect the overall value of the Fund's portfolio, preserve a return on a
particular investment or portion of its portfolio, facilitate the sale of
certain securities for investment purposes, manage the effective interest rate
and currency exposure of the Fund, protect against changes in currency exchange
rates, manage the effective maturity or duration of the Fund's portfolio or
establish positions in the derivatives markets as a substitute for purchasing or
selling particular securities. Market conditions will determine in part whether
and in what circumstances the Fund would employ any of these hedging and
strategic techniques. No assurance can be given that these practices will
achieve the desired result. The values of certain derivatives can be affected
dramatically by even small market movements, sometimes in ways that are
difficult to predict. The successful utilization of derivative transactions
requires skills different from those needed in the selection of the Fund's
portfolio securities. In addition, the Fund's ability to use derivative
instruments may be limited by tax considerations. The Fund will incur brokerage
and other costs in connection with its derivative transactions.

Hedging Strategies. Derivative transactions may be used for hedging or
risk management purposes. Hedging is an attempt to establish with more certainty
than would otherwise be possible the effective price or rate of return on
portfolio securities or securities that the Fund proposes to acquire or the
exchange rate of currencies in which the portfolio securities are quoted or
denominated. Hedging or derivative instruments on securities may be used to
hedge against price movements in one or more particular securities positions
that the Fund owns or intends to acquire. Such instruments may also be used to
"lock-in" recognized but unrealized gains in the value of portfolio securities.
Hedging strategies, if successful, can reduce the risk of loss by wholly or
partially offsetting the negative effect of unfavorable price movements in the
investments being hedged. However, hedging strategies also can reduce the
opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments. The use of hedging instruments is subject
to applicable regulations of the SEC, the exchanges or trading facilities upon
which they are traded, the central clearing organizations through which they are
cleared, the Commodity Futures Trading Commission (the "CFTC") and various state
regulatory authorities.

Options. The Fund may purchase and write (sell) call and put options on
any securities, securities indices and currencies. These options may be listed
on national domestic securities exchanges or foreign securities exchanges or
traded in the over-the-counter market. The Fund may write covered put and call
options and purchase put and call options as a substitute for the purchase or

-18-

sale of securities or to protect against declines in the value of the portfolio
securities and against increases in the cost of securities to be acquired.

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

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

The Fund may terminate its obligations under an exchange traded call or
put option by purchasing an option identical to the one it has written.
Obligations under over-the-counter options may be terminated only by entering
into an offsetting transaction with the counterparty to such option. Such
purchases are referred to as "closing purchase transactions." There can be no
assurance that a closing purchase transaction can be effected when the Fund so
desires.

The Fund may purchase call options in anticipation of an increase, or put
options in anticipation of a decrease ("protective puts"), in the market value
of securities of the type in which it may invest. The Fund may also sell call
and put options to close out its purchased options. The ability of the Fund to
enter into a closing sale transaction depends on the existence of a liquid
secondary market. There can be no assurance that a closing sale transaction can
be effected when the Fund so desires.

The purchase of a call option would entitle the Fund, in return for the
premium paid, to purchase specified securities or currency at a specified price
during the option period. The Fund would ordinarily realize a gain on the
purchase of a call option if, during the option period, the value of such
securities or currency exceeded the sum of the exercise price, the premium paid
and transaction costs; otherwise the Fund would realize either no gain or a loss
on the purchase of the call option.

-19-

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

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

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

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

-20-

The Fund's ability to terminate over-the-counter options is more limited
than with exchange-traded options and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations.

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

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

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

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

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

In entering into futures contracts, the Fund may, for example, take a
"short" position in the futures market by selling futures contracts in an
attempt to hedge against an anticipated decline in market prices that would
adversely affect the value of the Fund's portfolio securities. Such futures
contracts may include contracts for the future delivery of securities held by
the Fund or securities with characteristics similar to those of the Fund's
portfolio securities. When a short hedging position is successful, any
depreciation in the value of portfolio securities will be substantially offset

-21-

by appreciation in the value of the futures position. On the other hand, any
unanticipated appreciation in the value of the Fund's portfolio securities would
be substantially offset by a decline in the value of the futures position. On
other occasions, the Fund may take a "long" position by purchasing futures
contracts. When securities prices are rising, the Fund, through the purchase of
futures contracts, can attempt to secure better rates or prices than might later
be available in the market when it effects anticipated purchases.

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

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

Margin Requirements for Futures and Swaps Contracts and Associated Risks.
Exchange-traded derivatives and over-the-counter derivative transactions
submitted for clearing through a central counterparty will be subject to minimum
initial and variation margin requirements set by the relevant clearinghouse, as
well as possible SEC or CFTC mandated margin requirements. The regulators also
have broad discretion to impose margin requirements on non-cleared

-22-

over-the-counter derivatives. These margin requirements will increase the
overall costs for the Fund.

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

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

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

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

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

-23-

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

Some futures contracts or options on futures may become illiquid under
adverse market conditions. In addition, in certain circumstances such as during
periods of market volatility, a commodity exchange may suspend or limit trading
in a futures contract or related option, which may make the instrument
temporarily illiquid and difficult to price and, thus, expose the Fund to a
potential loss. The regulated exchanges may also have discretion under their
rules to halt trading in other circumstances, such as when the exchange
determines that the halt would be advisable in maintaining a fair and orderly
market. Commodity exchanges also may establish daily limits on the amount that
the price of a futures contract or related option can vary from the previous
day's settlement price. Once the daily limit is reached, no trades may be made
that day at a price beyond the limit. This may prevent the Fund from closing out
positions and limiting its losses.

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

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

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

Swap agreements may increase or decrease the overall volatility of the
investments of the Fund and its share price. The performance of swap agreements
may be affected by a change in the specific interest rate, currency or other
factors that determine the amounts of payments due to and from the Fund. If a

-24-

swap agreement calls for payments by the Fund, the Fund must be prepared to make
such payments when due. In addition, if the counterparty's creditworthiness
declines, the value of a swap agreement would be likely to decline, potentially
resulting in losses.

Generally, swap agreements have fixed maturity dates that are agreed upon
by the parties to the swap. The agreement can be terminated before the maturity
date only under limited circumstances, such as default by one of the parties or
insolvency, among others, and can be transferred by a party only with the prior
written consent of the other party. The Fund may be able to eliminate its
exposure under a swap agreement either by assignment or by other disposition, or
by entering into an offsetting swap agreement with the same party or a similarly
creditworthy party.

Equity Swaps. In a typical equity swap, one party agrees to pay another
party the return on a security, security index or basket of securities in return
for a specified interest rate. By entering into an equity index swap, for
example, the index receiver can gain exposure to securities making up the index
of securities without actually purchasing those securities. Equity index swaps
involve not only the risk associated with investment in the securities
represented in the index, but also the risk that the performance of such
securities, including dividends, will not exceed the interest that the Fund will
be committed to pay under the swap.

Total Return Swaps. Total return swap agreements are contracts in which
one party agrees to make periodic payments to another party based on the change
in market value of the assets underlying the contract, which may include a
specified security, basket of securities or securities indices during the
specified period, in return for periodic payments based on a fixed or variable
interest rate or the total return from other underlying assets. Total return
swap agreements may be used to obtain exposure to a security or market without
owning or taking physical custody of such security or investing directly in such
market.

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

The purchase of an interest rate cap entitles the purchaser, to the extent
that a specified index exceeds a predetermined interest rate, to receive
payments of interest at the difference of the index and the predetermined rate

-25-

on a notional principal amount (i.e., the reference amount with respect to which
interest obligations are determined although no actual exchange of principal
occurs) from the party selling the interest rate cap. The purchase of an
interest rate floor entitles the purchaser, to the extent that a specified index
falls below a predetermined interest rate, to receive payments of interest at
the difference of the index and the predetermined rate on a notional principal
amount from the party selling the interest rate floor. The Fund may also engage
in interest rate collars, which is the combination of a cap and a floor that
preserves a certain return within a predetermined range of interest rates.

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

Depending on whether the Fund would be entitled to receive net payments
from the counterparty on a swap or cap, which in turn would depend on the
general state of short-term interest rates at that point in time, a default by a
counterparty could negatively impact the performance of the common shares of the
Fund. In addition, at the time an interest rate swap or cap transaction reaches
its scheduled termination date, there is a risk that the Fund would not be able
to obtain a replacement transaction or that the terms of the replacement would
not be as favorable as on the expiring transaction. If this occurs, it could
have a negative impact on the performance of the common shares of the Fund.
Early termination of a swap could result in a termination payment by or to the
Fund. Early termination of a cap could result in a termination payment to the
Fund. The Fund will not enter into interest rate swap or cap transactions having
a notional amount that exceeds the outstanding amount of the Fund's Financial
Leverage.

To the extent there is a decline in interest rates, the value of the
interest rate swap or cap could decline, and could result in a decline in the
net asset value of the common shares of the Fund. In addition, if short-term
interest rates are lower than the Fund's fixed rate of payment on the interest
rate swap, the swap will reduce common share net earnings. If, on the other
hand, short-term interest rates are higher than the fixed rate of payment on the
interest rate swap, the swap will enhance common share net earnings. Buying
interest rate caps could decrease the net earnings of the common shares of the
Fund in the event that the premium paid by the Fund to the counterparty exceeds
the additional amount the Fund would have been required to pay had it not
entered into the cap agreement.

Interest rate swaps and caps do not involve the delivery of securities or
other underlying assets or principal. Accordingly, the risk of loss with respect
to interest rate swaps is limited to the net amount of interest payments that
the Fund is contractually obligated to make. If the counterparty defaults, the

-26-

Fund would not be able to use the anticipated net receipts under the swap or cap
to offset any declines in the value of the Fund's portfolio assets being hedged
or the increase in the Fund's cost of Financial Leverage.

The successful use of swaps, caps and floors to preserve the rate of
return on a portfolio of financial instruments depends on the Sub-Advisor's
ability to predict correctly the direction and extent of movements in interest
rates. Although the Fund believes that use of the hedging and risk management
techniques described above may benefit the Fund, if the Sub-Advisor's judgment
about the direction or extent of the movement in interest rates is incorrect,
the Fund's overall performance would be worse than if it had not entered into
any such transactions.

Typically, the Fund will enter into derivative interest rate transactions
either on an exchange or a regulated trading facility, or, if on an
over-the-counter basis, with financial institutions. The Fund will not enter
into any interest rate swap, cap or floor transaction unless the unsecured
senior debt or the claims-paying ability of the other party thereto is rated
investment grade by at least one NRSRO at the time of entering into such
transaction or whose creditworthiness is believed by the Sub-Advisor to be
equivalent to such rating. If there is a default by the other party to such a
transaction, the Fund will have contractual remedies pursuant to the agreements
related to the transaction but remedies may be subject to bankruptcy and
insolvency laws which could affect the Fund's right as a creditor. There can be
no assurance, however, that the Fund will be able to enter into interest rate
swaps or to purchase interest rate caps or floors at prices or on terms the
Sub-Advisor believes are advantageous to the Fund. In addition, although the
terms of interest rate swaps, caps and floors may provide for termination, there
can be no assurance that the Fund will be able to terminate an interest rate
swap or to sell or offset interest rate caps or floors that it has purchased.

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

Credit Default Swap Agreements. The Fund may enter into credit default
swap agreements. The "buyer" in a credit default contract is obligated to pay
the "seller" a periodic stream of payments over the term of the contract
provided that no event of default on an underlying reference obligation has
occurred. If an event of default occurs, the seller must pay the buyer the full
notional value, or "par value," of the reference obligation. Credit default swap

-27-

transactions are either "physical delivery" settled or "cash" settled. Physical
delivery entails the actual delivery of the reference asset to the seller in
exchange for the payment of the full par value of the reference asset. Cash
settled entails a net cash payment from the seller to the buyer based on the
difference of the par value of the reference asset and the current value of the
reference asset that may have, through default, lost some, most or all of its
value. The Fund may be either the buyer or seller in a credit default swap
transaction. If the Fund is a buyer and no event of default occurs, the Fund
will have made a series of periodic payments and recover nothing of monetary
value. However, if an event of default occurs, the Fund (if the buyer) will
receive the full notional value of the reference obligation either through a
cash payment in exchange for the asset or a cash payment in addition to owning
the reference assets. As a seller, the Fund receives a fixed rate of income
throughout the term of the contract, which typically is between six months and
five years, provided that there is no event of default. If an event of default
occurs, the seller must pay the buyer the full notional value of the reference
obligation.

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

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

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

It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of a forward contract. Accordingly, it
may be necessary for the Fund to purchase additional currency on the spot market
(and bear the expense of such purchase) if the market value of the security is
less than the amount of currency that the Fund is obligated to deliver and if a

-28-

decision is made to sell the security and make delivery of the currency.
Conversely, it may be necessary to sell on the spot market some of the currency
received upon the sale of the portfolio security if its market value exceeds the
amount of currency the Fund is obligated to deliver.

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

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

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

A swap agreement can be a form of leverage, which can magnify a fund's
gains or losses. In order to reduce the risk associated with leveraging, a fund
may cover its current obligations under swap agreements according to guidelines
established by the SEC.

Because the Fund intends to segregate assets on the Fund's records in the
form of cash, cash equivalents or liquid securities in an amount equal to the
net exposure under a derivative instrument or the notional value of a derivative
instrument (depending on the applicable segregation requirements pursuant to
interpretations of the SEC and SEC staff) or enter into offsetting positions in
respect of derivative instruments, the Sub-Advisor and the Fund believe these
hedging transactions do not constitute senior securities. The Fund usually will
enter into interest rate swaps on a net basis (i.e., where the two parties make
net payments with the Fund receiving or paying, as the case may be, only the net
amount of the two payments). The net amount of the excess, if any, of the Fund's

-29-

obligations over its entitlements with respect to each swap contract will be
accrued and an amount of cash or liquid securities having an aggregate net asset
value at least equal to the accrued excess will be maintained in a segregated
account by the Fund's custodian. If the Fund enters into a swap on other than a
net basis, the Fund will maintain in the segregated account the full amount of
the Fund's obligations under each swap. Accordingly, the Fund would not treat
swaps as senior securities.

Regulation as a "Commodity Pool." The CFTC has recently adopted amendments
to CFTC Rule 4.5 which requires operators of registered investment companies to
either limit such investment companies' use of futures, options on futures and
swaps or register as a "commodity pool operator" ("CPO") and submit to dual
regulation by the CFTC and the SEC. In order to be able to comply with the
exclusion from the CPO definition pursuant to CFTC Rule 4.5 with respect to the
Fund, the Advisor must limit the Fund's transactions in commodity futures,
commodity option contracts and swaps for non-hedging purposes by either (a)
limiting the aggregate initial margin and premiums required to establish
non-hedging commodities positions to not more than 5% of the liquidation value
of the Fund's portfolio after taking into account unrealized profits and losses
on any such contract or (b) limiting the aggregate net notional value of
non-hedging commodities positions to not more than 100% of the liquidation value
of the Fund's portfolio after taking into account unrealized profits and losses
on such positions. In the event that the Fund's investments in such instruments
exceed one of these thresholds, the Advisor would no longer be excluded from the
CPO definition and may be required to register as a CPO, and the Sub-Advisor may
be required to register as a commodity trading advisor ("CTA"). In the event the
Advisor or the Sub-Advisor is required to register as a CPO or CTA, as
applicable, it will become subject to additional recordkeeping and reporting
requirements with respect to the Fund and the Fund may incur additional expenses
as a result of the CFTC's regulatory requirements. The Advisor has claimed an
exclusion from the definition of a CPO with respect to the Fund under the
amended rules. The Fund reserves the right to engage in transactions involving
futures, options thereon and swaps in accordance with the Fund's policies.

Special Considerations Concerning Derivative Transactions. The derivatives
markets have become subject to comprehensive regulation. In particular, the
implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act
(the "Dodd-Frank Act") may impact the availability, liquidity and cost of
derivative transactions, including potentially limiting or restricting the
ability of the Fund to use certain derivative transactions or certain
counterparties as a part of its investment strategy, increasing the costs of
using these derivative transactions or making them less effective. For instance,
the Dodd-Frank Act requires most over-the-counter derivatives to be executed on
a regulated market and cleared through a central counterparty, which may result
in increased margin requirements and costs for the Fund. Furthermore, OTC
derivatives dealers have also become subject to new business conduct standards,
disclosure requirements, reporting and recordkeeping requirements, transparency
requirements, position limits, limitations on conflicts of interest, margin
requirements with respect to uncleared derivatives and other regulatory burdens.
These new margin and regulatory requirements will increase the overall costs for
OTC derivatives dealers. Dealers can be expected to try to pass those increased
costs along, at least partially, to market participants such as a Fund in the
form of higher fees or less advantageous dealer marks. The overall impact of the

-30-

Dodd-Frank Act on the Fund is highly uncertain and it is unclear how the OTC
derivatives markets will adapt to this new regulatory regime.

The SEC has also indicated that it may adopt new policies on the use of
derivative transactions by registered investment companies. Such policies could
affect the nature and extent of derivative transactions entered into by the
Fund. In addition, at any time after the date of this Statement of Additional
Information, legislation may be enacted that could negatively affect the assets
of the Fund or the issuers of such assets. Changing approaches to regulation may
have a negative impact on entities in which the Fund invests. There can be no
assurance that future legislation, regulation or deregulation will not have a
material adverse effect on the Fund or will not impair the ability of the
issuers of the assets held in the Fund to achieve their business goals, and
hence, for the Fund to achieve its investment objectives.

Failure of Futures Commission Merchants and Clearing Organizations. The
Fund may deposit funds required to margin open positions in the derivative
instruments subject to the CEA with a clearing broker registered as a "futures
commission merchant" ("FCM"). The CEA requires an FCM to segregate all funds
received from customers with respect to any orders for the purchase or sale of
U.S. domestic futures contracts and cleared swaps from the FCM's proprietary
assets. Similarly, the CEA requires each FCM to hold in a separate secure
account all funds received from customers with respect to any orders for the
purchase or sale of foreign futures contracts and segregate any such funds from
the funds received with respect to domestic futures contracts. However, all
funds and other property received by a clearing broker from its customers are
held by the clearing broker on a commingled basis in an omnibus account and may
be freely accessed by the clearing broker, which may also invest any such funds
in certain instruments permitted under the applicable regulation. There is a
risk that assets deposited by the Fund with any swaps or futures clearing broker
as margin for futures contracts or cleared swaps may, in certain circumstances,
be used to satisfy losses of other clients of the Fund's clearing broker. In
addition, the assets of the Fund may not be fully protected in the event of the
clearing broker's bankruptcy, as the Fund would be limited to recovering only a
pro rata share of all available funds segregated on behalf of the clearing
broker's combined domestic customer accounts.

Similarly, the CEA requires a clearing organization approved by the CFTC
as a derivatives clearing organization to segregate all funds and other property
received from a clearing member's clients in connection with domestic futures,
swaps and options contracts from any funds held at the clearing organization to
support the clearing member's proprietary trading. Nevertheless, with respect to
futures and options contracts, a clearing organization may use assets of a
non-defaulting customer held in an omnibus account at the clearing organization
to satisfy payment obligations of a defaulting customer of the clearing member
to the clearing organization. As a result, in the event of a default or the
clearing broker's other clients or the clearing broker's failure to extend own
funds in connection with any such default, the Fund would not be able to recover
the full amount of assets deposited by the clearing broker on its behalf with
the clearing organization.

Risks Concerning Derivative Transactions. The use of derivative
transactions involves certain general risks and considerations, including the
imperfect correlation between the value of such instruments and the underlying

-31-

assets of the Fund, which creates the possibility that the loss on such
instruments may be greater than the gain in the value of the underlying assets
in the Fund's portfolio; the loss of principal; the possible default of the
other party to the transaction; and illiquidity of the derivative instruments.
Certain of the derivative transactions in which the Fund may invest may, in
certain circumstances, give rise to a form of financial leverage, which may
magnify the risk of owning such instruments. See "Risks--Leverage Risk" in the
Prospectus.

Furthermore, the ability to successfully use derivative transactions
depends on the ability of the Sub-Advisor to predict pertinent market movements,
which cannot be assured. Thus, the use of derivative transactions to generate
income, for hedging, for currency or interest rate management or other purposes
may result in losses greater than if they had not been used, may require the
Fund to sell or purchase portfolio securities at inopportune times or for prices
other than current market values, may limit the amount of appreciation the Fund
can realize on an investment or may cause the Fund to hold a security that it
might otherwise sell. In addition, there may be situations in which the
Sub-Advisor elects not to use derivative transactions that result in losses
greater than if they had been used. Amounts paid by the Fund as premiums and
cash or other assets held in margin accounts with respect to the Fund's
derivative transactions, if any, are not otherwise available to the Fund for
investment purposes.

With respect to some of its derivative positions, if any, the Fund may
segregate an amount of cash, cash equivalents or liquid securities on the Fund's
records in an amount equal to the face value of those positions. The Fund also
may offset derivatives positions against one another or against other assets to
manage the effective market exposure resulting from derivatives in its
portfolio. To the extent that the Fund does not segregate liquid assets or
otherwise cover its obligations under any such transactions (e.g., through
offsetting positions), certain types of these transactions will be treated as
senior securities representing leverage for purposes of the requirements under
the 1940 Act; and therefore, the Fund may not enter into any such transactions
if the Fund's leverage would thereby exceed the limits of the 1940 Act. In
addition, to the extent that any offsetting positions do not perform in relation
to one another as expected, the Fund may perform as if it were leveraged. The
foregoing risks concerning derivative transactions are more fully described
below.

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

-32-

(2) Credit/Counterparty Risk. Credit risk is the risk that a loss is
sustained as a result of the failure of a counterparty to comply with the
terms of a derivative instrument. The counterparty risk for
exchange-traded derivatives is generally lower than for over-the-counter
derivatives not cleared through a central counterparty, since generally a
clearing organization provides a guarantee of performance and cleared
derivative transactions benefit from daily mark-to-market and settlement
as well as from segregation and minimum capital requirements applicable to
intermediaries. For privately-negotiated instruments not cleared through a
central counterparty, there are no similar protections. In all
transactions, the Fund will bear the risk that the counterparty will
default, and this could result in a loss of the expected benefit of the
derivative transactions and possibly other losses to the Fund. Such
counterparty risk is accentuated in the case of contracts with longer
maturities where there is a greater risk that a specific event may prevent
or delay settlement, or where the Fund has concentrated its transactions
with a single or small group of counterparties. The Fund is not restricted
from dealing with any particular counterparty or from concentrating any or
all of its transactions with one counterparty. The Fund will enter into
transactions in derivative instruments only with counterparties that the
Sub-Advisor reasonably believes are capable of performing under the
contract.

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

(4) Liquidity Risk. Liquidity risk is the risk that a derivative
instrument cannot be sold, closed out, or replaced quickly at or very
close to its fundamental value. Generally, exchange contracts are more
liquid than over-the-counter transactions. The illiquidity of the
derivatives markets may be due to various factors, including congestion,
disorderly markets, limitations on deliverable supplies, the participation
of speculators, government regulation and intervention, and technical and
operational or system failures. In addition, daily limits on price
fluctuations and speculative position limits on exchanges on which the

-33-

Fund may conduct its transactions in derivative instruments may prevent
prompt liquidation of positions, subjecting the Fund to the potential of
greater losses. The Fund might be required by applicable regulatory
requirements to maintain assets as "cover," maintain segregated accounts
and/or make margin payments when it takes positions in derivative
instruments involving obligations to third parties (i.e., instruments
other than purchase options). If the Fund is unable to close out its
positions in such instruments, it might be required to continue to
maintain such accounts or make such payments until the position expires,
matures, or is closed out. These requirements might impair the Fund's
ability to sell a security or make an investment at a time when it would
otherwise be favorable to do so, or require that the Fund sell a portfolio
security at a disadvantageous time. The Fund's ability to sell or close
out a position in an instrument prior to expiration or maturity depends
upon the existence of a liquid secondary market or, in the absence of such
a market, the ability and willingness of the counterparty to enter into a
transaction closing out the position. Due to liquidity risk, there is no
assurance that any derivatives position can be sold or closed out at a
time and price that is favorable to the Fund.

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

(6) Volatility. The prices of many derivative instruments, including
many options and swaps, are highly volatile. Price movements of options
contracts and payments pursuant to swap agreements are influenced by,
among other things, interest rates, changing supply and demand
relationships, trade, fiscal, monetary and exchange control programs and
policies of governments, and national and international political and
economic events and policies. The value of options and swap agreements
also depends upon the price of the securities or currencies underlying
them.

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

RESTRICTIVE COVENANTS AND 1940 ACT RESTRICTIONS

With respect to the leverage borrowing program instituted by the Fund, the
credit agreements governing such program (the "Credit Agreements") include usual
and customary covenants for this type of transaction, including, but not limited
to, limits on the Fund's ability to: (i) issue Preferred Shares; (ii) incur

-34-

liens or pledge portfolio securities or investments; (iii) change its investment
objectives or fundamental investment restrictions without the approval of
lenders; (iv) make changes in any of its business objectives, purposes or
operations that could result in a material adverse effect; (v) make any changes
in its capital structure; (vi) amend the Fund documents in a manner which could
adversely affect the rights, interests or obligations of any of the lenders;
(vii) engage in any business other than the business currently engaged in;
(viii) create, incur, assume or permit to exist certain debt except for certain
specific types of debt; and (ix) permit any of its Employee Retirement Income
Security Act ("ERISA") affiliates to cause or permit to occur an event that
could result in the imposition of a lien under the Code or ERISA. In addition,
the Credit Agreements do not permit the Fund's asset coverage ratio (as defined
in the Credit Agreements) to fall below 300% at any time.

Under the requirements of the 1940 Act, the Fund must have asset coverage
of at least 300% immediately after any borrowing, including borrowing under any
leverage borrowing program the Fund implements. For this purpose, asset coverage
means the ratio which the value of the total assets of the Fund, less
liabilities and indebtedness not represented by senior securities, bears to the
aggregate amount of borrowings represented by senior securities issued by the
Fund. The Credit Agreements would limit the Fund's ability to pay dividends or
make other distributions on the Fund's common shares unless the Fund complies
with the Credit Agreements' 300% asset coverage test. In addition, the Credit
Agreements will not permit the Fund to declare dividends or other distributions
or purchase or redeem common shares or Preferred Shares: (i) at any time that
any event of default under the Credit Agreements has occurred and is continuing;
or (ii) if, after giving effect to such declaration, the Fund would not meet the
Credit Agreements' 300% asset coverage test set forth in the Credit Agreements.

LENDING OF PORTFOLIO SECURITIES

To generate additional income, the Fund may lend portfolio securities in
an amount up to 33-1/3% of its Managed Assets to broker-dealers, major banks or
other recognized domestic institutional borrowers of securities. 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 would have the right to call the loan and obtain the securities loaned at
any time on notice of not more than five business days. The Fund would not have
the right to vote the securities during the existence of the loan but would call
the loan to permit voting of the securities, if, in the Sub-Advisor's judgment,
a material event requiring a stockholder vote would otherwise occur before the
loan was repaid. In the event of bankruptcy or other default of the borrower,
the Fund could experience both delays in liquidating the loan collateral or
recovering the loaned securities and/or incur losses, including possible decline
in the value of the collateral or in the value of the securities loaned during
the period while the Fund seeks to enforce its rights thereto, possible
subnormal levels of income and lack of access to income during this period and
expenses of enforcing its rights. As with other extensions of credit, there are
risks of delay in the recovery or even loss of rights in the collateral should a

-35-

borrower default or fail financially. The Fund intends to engage in lending
portfolio securities only when such lending is fully secured by investment grade
collateral held by an independent agent.

PORTFOLIO TURNOVER

The Fund's annual portfolio turnover rate may vary greatly from year to
year. Although the Fund cannot accurately predict its annual portfolio turnover
rate, it is not expected to exceed 50% under normal circumstances, but may be
higher or lower in certain periods. For the fiscal year ended November 30, 2014,
the Fund's portfolio turnover rate was approximately %. Portfolio turnover rate
is not considered a limiting factor in the execution of investment decisions for
the Fund. There are no limits on the rate of portfolio turnover, and investments
may be sold without regard to length of time held when the 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 common shareholders of the Fund, will be taxable as ordinary income. See
"Federal Income Tax Matters."

MANAGEMENT OF THE FUND

TRUSTEES AND OFFICERS

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

-36-

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

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

James A. Bowen(1) Chairman of the o Class III Chief Executive 114 None
120 East Liberty Drive, Board and (3)(4) Officer (December Portfolios
Wheaton, IL 60187 Trustee 2010 to present),
D.O.B.: 09/55 President (until
o 2007 December 2010), First
Trust Advisors L.P.
and First Trust
Portfolios L.P.;
Chairman of the Board
of Directors,
BondWave LLC
(Software Development
Company/Investment
Advisor) and
Stonebridge Advisors
LLC (Investment
Advisor)

Independent Trustees
----------------------------
Richard E. Erickson Trustee o Class II Physician; President, 114 None
c/o First Trust Advisors (3)(4) Wheaton Orthopedics; Portfolios
120 East Liberty Drive, Co-Owner and
Suite 400 Co-Director (January
Wheaton, IL 60187 o 2007 1996 to May 2007),
D.O.B.: 04/51 Sports Med Center for
Fitness; Limited
Partner, Gundersen
Real Estate Limited
Partnership; Member,
Sportsmed LLC

Thomas R. Kadlec Trustee o Class II President (March 2010 114 Director of ADM
c/o First Trust Advisors (3)(4) to present), Senior Portfolios Investor
L.P. Vice President and Services, Inc.
120 East Liberty Drive, o 2007 Chief Financial and ADM
Suite 400 Officer (May 2007 Investor
Wheaton, IL 60187 to March 2010), Services
D.O.B.: 11/57 Vice President International
and Chief Financial
Officer (1990 to
May 2007), ADM
Investor Services,
Inc.
(Futures Commission
Merchant)

Robert F. Keith Trustee o Class I President (2003 to 114 Director of
c/o First Trust Advisors (3)(4) present), Hibs Portfolios Trust Company
L.P. Enterprises of Illinois
120 East Liberty Drive, o 2007 (Financial and
Suite 400 Management
Wheaton, IL 60187 Consulting)
D.O.B.: 11/56

-37-

Niel B. Nielson Trustee o Class III President and Chief 114 Director of
c/o First Trust Advisors (3)(4) Executive Officer Portfolios Covenant
L.P. (June 2012 to Transport Inc.
120 East Liberty Drive, o 2007 present), Dew
Suite 400 Learning LLC
Wheaton, IL 60187 (Educational Products
D.O.B.: 03/54 and Services);
President (June 2002
to June 2012),
Covenant College

Officers of the Fund
----------------------------
Mark R. Bradley President and o Indefinite Chief Financial N/A N/A
120 East Liberty Drive Chief Executive term Officer and Chief
Wheaton, IL 60187 Officer Operating Officer
D.O.B.: 11/57 (December 2010 to
o 2007 present), First Trust
Advisors L.P. and
First Trust
Portfolios L.P.;
Chief Financial
Officer, BondWave LLC
(Software Development
Company/Investment
Advisor) and
Stonebridge Advisors
LLC (Investment
Advisor)

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

W. Scott Jardine Secretary and o Indefinite General Counsel, N/A N/A
120 East Liberty Drive Chief Legal term First
Suite 400 Officer Trust Advisors L.P.
Wheaton, IL 60187 o 2007 and
D.O.B.: 05/60 First Trust
Portfolios L.P.;
Secretary and General
Counsel, BondWave LLC
(Software Development
Company/Investment
Advisor) and
Secretary,
Stonebridge Advisors
LLC
(Investment Advisor)

Daniel J. Lindquist Vice President o Indefinite Managing Director N/A N/A
120 East Liberty Drive term (July 2012 to
Suite 400 present), Senior Vice
Wheaton, IL 60187 o 2007 President (September
D.O.B.: 02/70 2005 to July 2012),
First Trust Advisors
L.P. and First Trust
Portfolios L.P.

-38-

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

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

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

(2) Officer positions with the Fund have an indefinite term.

(3) Currently, Robert F. Keith, as a Class I Trustee, is serving a term until
the Fund's 2017 annual meeting. Richard E. Erickson and Thomas R. Kadlec,
as Class II Trustees, are each serving a term until the Fund's 2015 annual
meeting. James A. Bowen and Niel B. Nielson, as Class III Trustees, are
each serving a term until the Fund's 2016 annual meeting.

(4) Each Trustee has served in such capacity since the Fund's inception except
for Robert F. Keith, who was elected in June 2006.

- 37 -

UNITARY BOARD LEADERSHIP STRUCTURE

Each Trustee serves as a trustee of all open-end and closed-end funds in
the First Trust Fund Complex (as defined below), which is known as a "unitary"
board leadership structure. Each Trustee currently serves as a trustee of the
Fund; First Trust Series Fund and First Trust Variable Insurance Trust, open-end
funds with five portfolios advised by First Trust Advisors; First Trust New
Opportunities MLP & Energy Fund, First Trust Intermediate Duration Preferred &
Income Fund, First Trust Energy Infrastructure Fund, First Trust Senior Floating
Rate Income Fund II, Macquarie/First Trust Global Infrastructure/Utilities
Dividend & Income Fund, First Trust Energy Income and Growth Fund, First Trust
Enhanced Equity Income Fund, First Trust/Aberdeen Global Opportunity Income
Fund, First Trust Mortgage Income Fund, First Trust Strategic High Income Fund
II, First Trust/Aberdeen Emerging Opportunity Fund, First Trust Dividend and
Income Fund, First Trust High Income Long/Short Fund and First Trust MLP and
Energy Income Fund, closed-end funds advised by First Trust Advisors; and First
Trust Exchange-Traded Fund, First Trust Exchange-Traded Fund II, First Trust
Exchange-Traded Fund III, First Trust Exchange-Traded Fund IV, First Trust
Exchange-Traded Fund V, First Trust Exchange-Traded Fund VI, First Trust
Exchange-Traded Fund VII, First Trust Exchange-Traded AlphaDEX(R) Fund and First
Trust Exchange-Traded AlphaDEX(R) Fund II, exchange-traded funds with 94
portfolios advised by First Trust Advisors (each a "First Trust Fund" and
collectively, the "First Trust Fund Complex"). None of the Trustees who are not
"interested persons" of the Fund, nor any of their immediate family members, has
ever been a director, officer or employee of, or consultant to, First Trust
Advisors, First Trust Portfolios L.P. or their affiliates. Mr. Bowen serves as
the Chairman of the Board of each Fund in the First Trust Fund Complex. The
officers of the Fund listed above hold the same positions with the other funds
in the First Trust Fund Complex as they hold with the Fund.

The same five persons serve as Trustees on the Fund's Board of Trustees
and on the boards of all other First Trust Funds. The unitary board structure
was adopted for the First Trust Funds because of the efficiencies it achieves

-39-

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

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

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

The Board of Trustees has established four standing committees (as
described below) and has delegated certain of its responsibilities to those
committees. The Board of Trustees and its committees meet throughout the year to
oversee the activities of the Fund, review contractual arrangements with and
performance of service providers, oversee compliance with regulatory
requirements, and review Fund performance. The Independent Trustees are
represented by independent legal counsel at all Board and committee meetings
(other than meetings of the Executive Committee). Generally, the Board of
Trustees acts by majority vote of all the Trustees, including a majority vote of
the Independent Trustees if required by applicable law.

The three Committee Chairmen and the Lead Independent Trustee rotate every
three years in serving as Chairmen of the Audit Committee, the Nominating and

-40-

Governance Committee or the Valuation Committee, or as Lead Independent Trustee.
The Lead Independent Trustee and immediate past Lead Independent Trustee also
serve on the Executive Committee with the Interested Trustee.

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

The Nominating and Governance Committee is responsible for appointing and
nominating non-interested persons to the Board of Trustees. Messrs. Erickson,
Kadlec, Keith and Nielson are members of the Nominating and Governance
Committee, and each is an Independent Trustee who is also an "independent
director" within the meaning of the listing standards of the NYSE. The
Nominating and Governance Committee operates under a written charter adopted and
approved by the Board, a copy of which is available on the Fund's website at
http://www.ftportfolios.com. If there is no vacancy on the Board of Trustees,
the Board of Trustees will not actively seek recommendations from other parties,
including shareholders. The Board of Trustees adopted a mandatory retirement age
of 72 for Trustees, beyond which age Trustees are ineligible to serve. The
Nominating and Governance Committee will not consider new trustee candidates who
are 72 years of age or older or will turn 72 years old during the initial term.
When a vacancy on the Board of Trustees of the Fund occurs and nominations are
sought to fill such vacancy, the Nominating and Governance Committee may seek
nominations from those sources it deems appropriate in its discretion, including
shareholders of the Fund. To submit a recommendation for nomination as a
candidate for a position on the Board of Trustees, shareholders of the Fund
shall mail such recommendation to W. Scott Jardine, Secretary, at the Fund's
address, 120 East Liberty Drive, Suite 400, Wheaton, Illinois 60187. Such
recommendation shall include the following information: (i) evidence of Fund
ownership of the person or entity recommending the candidate (if a Fund
shareholder); (ii) a full description of the proposed candidate's background,
including their education, experience, current employment and date of birth;
(iii) names and addresses of at least three professional references for the
candidate; (iv) information as to whether the candidate is an "interested
person" in relation to the Fund, as such term is defined in the 1940 Act, and
such other information that may be considered to impair the candidate's
independence; and (v) any other information that may be helpful to the
Nominating and Governance Committee in evaluating the candidate. If a
recommendation is received with satisfactorily completed information regarding a
candidate during a time when a vacancy exists on the Board of Trustees or during

-41-

such other time as the Nominating and Governance Committee is accepting
recommendations, the recommendation will be forwarded to the Chairman of the
Nominating and Governance Committee and the counsel to the Independent Trustees.
Recommendations received at any other time will be kept on file until such time
as the Nominating and Governance Committee is accepting recommendations, at
which point they may be considered for nomination. The Nominating and Governance
met times during the Fund's last fiscal year.

The Valuation Committee is responsible for the oversight of the pricing
procedures of the Fund. Messrs. Erickson, Kadlec, Keith and Nielson are members
of the Valuation Committee. The Valuation Committee met times during the Fund's
last fiscal year.

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

RISK OVERSIGHT

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

Not all risks that may affect the Fund can be identified nor can controls
be developed to eliminate or mitigate their occurrence or effects. It may not be

-42-

practical or cost-effective to eliminate or mitigate certain risks, the
processes and controls employed to address certain risks may be limited in their
effectiveness, and some risks are simply beyond the reasonable control of the
Fund or the Advisor or other service providers. Moreover, it is necessary to
bear certain risks (such as investment related risks) to achieve the Fund's
goals. As a result of the foregoing and other factors, the Fund's ability to
manage risk is subject to substantial limitations.

BOARD DIVERSIFICATION AND TRUSTEE QUALIFICATIONS

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

Listed below for each current Trustee are the experiences, qualifications
and attributes that led to the conclusion, as of the date of this Statement of
Additional Information, that each current Trustee should serve as a Trustee in
light of the Fund's business and structure.

Independent Trustees. Richard E. Erickson, M.D., is an orthopedic surgeon
and President of Wheaton Orthopedics. He also has been a co-owner and director
of a fitness center and a limited partner of two real estate companies. Dr.
Erickson has served as a Trustee of the First Trust Funds since 1999. Dr.
Erickson has also served as the Lead Independent Trustee and on the Executive
Committee (2008 - 2009), Chairman of the Nominating and Governance Committee
(2003 - 2007), Chairman of the Audit Committee (2012 - 2013) and Chairman of the
Valuation Committee (June 2006 - 2007 and 2010 - 2011) of the First Trust Funds.
He currently serves as Chairman of the Nominating and Governance Committee
(since January 1, 2014) of the First Trust Funds.

Thomas R. Kadlec is President of ADM Investor Services Inc. ("ADMIS"), a
futures commission merchant and wholly-owned subsidiary of the Archer Daniels
Midland Company ("ADM"). Mr. Kadlec has been employed by ADMIS and its
affiliates since 1990 in various accounting, financial, operations and risk
management capacities. Mr. Kadlec serves on the boards of several international
affiliates of ADMIS and is a member of ADM's Integrated Risk Committee, which is
tasked with the duty of implementing and communicating enterprise-wide risk
management. Mr. Kadlec has served as a Trustee of each First Trust closed-end
fund since its inception. Mr. Kadlec also served on the Executive Committee from
the organization of the first First Trust closed-end fund in 2003 until he was
elected as the first Lead Independent Trustee in December 2005, serving as such
through 2007. He also served as Chairman of the Valuation Committee (2008 -
2009), Chairman of the Audit Committee (2010 - 2011) and Chairman of the
Nominating and Governance Committee (2012 - 2013). He currently serves as Lead
Independent Trustee and is on the Executive Committee (since January 1, 2014) of
the First Trust Funds.

-43-

Robert F. Keith is President of Hibs Enterprises, a financial and
management consulting firm. Mr. Keith has been with Hibs Enterprises since 2003.
Prior thereto, Mr. Keith spent 18 years with ServiceMaster and Aramark,
including three years as President and COO of ServiceMaster Consumer Services,
where he led the initial expansion of certain products overseas, five years as
President and COO of ServiceMaster Management Services and two years as
President of Aramark ServiceMaster Management Services. Mr. Keith is a certified
public accountant and also has held the positions of Treasurer and Chief
Financial Officer of ServiceMaster, at which time he oversaw the financial
aspects of ServiceMaster's expansion of its Management Services division into
Europe, the Middle East and Asia. Mr. Keith has served as a Trustee of the First
Trust Funds since June 2006. Mr. Keith has also served as the Chairman of the
Audit Committee (2008 - 2009) and Chairman of the Nominating and Governance
Committee (2010 - 2011) of the First Trust Funds. He served as Lead Independent
Trustee and on the Executive Committee (2012 - 2013) and currently serves as
Chairman of the Valuation Committee (since January 1, 2014) and is on the
Executive Committee (since January 31, 2014) of the First Trust Funds.

Niel B. Nielson, Ph.D., has served as the President and Chief Executive
Officer of Dew Learning LLC (a global provider of digital and on-line
educational products and services) since 2012. Mr. Nielson formerly served as
President of Covenant College (2002 - 2012), and as a partner and trader (of
options and futures contracts for hedging options) for Ritchie Capital Markets
Group (1996 - 1997), where he held an administrative management position at this
proprietary derivatives trading company. He also held prior positions in new
business development for ServiceMaster Management Services Company, and in
personnel and human resources for NationsBank of North Carolina, N.A. and
Chicago Research and Trading Group, Ltd. ("CRT"). His international experience
includes serving as a director of CRT Europe, Inc. for two years, directing out
of London all aspects of business conducted by the U.K. and European subsidiary
of CRT. Prior to that, Mr. Nielson was a trader and manager at CRT in Chicago.
Mr. Nielson has served as a Trustee of the First Trust Funds since 1999. Mr.
Nielson has also served as the Chairman of the Audit Committee (2003 - 2006),
Chairman of the Valuation Committee (2007 - 2008), Chairman of the Nominating
and Governance Committee (2008 - 2009) and Lead Independent Trustee and a member
of the Executive Committee (2010 - 2011). He currently serves as Chairman of the
Audit Committee (since January 1, 2014) of the First Trust Funds.

Interested Trustee. James A. Bowen is the Chairman of the Board of
Trustees of the First Trust Funds and Chief Executive Officer of First Trust
Advisors L.P. and First Trust Portfolios L.P., and until January 23, 2012, also
served as President and Chief Executive Officer of the First Trust Funds. Mr.
Bowen also serves on the Executive Committee. He has over 26 years of experience
in the investment company business in sales, sales management and executive
management. Mr. Bowen has served as a Trustee of the First Trust Funds since
1999.

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

-44-

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

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

AGGREGATE COMPENSATION FROM THE TOTAL COMPENSATION FROM
NAME OF TRUSTEE FUND(1) THE FIRST TRUST FUND COMPLEX(2)

Richard E. Erickson $ $
Thomas R. Kadlec $ $
Robert F. Keith $ $
Niel B. Nielson $ $

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

(1) The compensation paid by the Fund to the Independent Trustees for the last
fiscal year for services to the Fund.

(2) The total compensation paid to the Independent Trustees for the calendar
year ended , for services to the five portfolios of First Defined
Portfolio Fund, LLC, First Trust Series Fund and First Trust Variable
Insurance Trust, open-end funds, 15 closed-end funds and 94 series of the
First Trust Exchange-Traded Fund, First Trust Exchange-Traded Fund II,
First Trust Exchange-Traded Fund III, First Trust Exchange-Traded Fund IV,
First Trust Exchange-Traded Fund V, First Trust Exchange-Traded Fund VI,
First Trust Exchange-Traded Fund VII, First Trust Exchange-Traded
AlphaDEX(R) Fund and First Trust Exchange-Traded AlphaDEX(R) Fund II, all
advised by First Trust Advisors.

-45-

The following table sets forth the dollar range of equity securities
beneficially owned by the Trustees in the Fund and in other funds overseen by
the Trustees in the First Trust Fund Complex as of December 31, 2013:

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

Interested Trustee
James A. Bowen
Independent Trustees
Richard E. Erickson
Thomas R. Kadlec
Robert F. Keith
Niel B. Nielson

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

As of , the officers and Trustees, in the aggregate, owned
less than 1% of the shares of the Fund.

CONTROL PERSONS

To the knowledge of the Fund, as of , no single shareholder or "group" (as
that term is used in Section 13(d) of the Securities Exchange Act of 1934, as
amended (the "1934 Act")) beneficially owned more than 5% of the Fund's
outstanding common shares, except as described in the following table.
Information as to the beneficial ownership of common shares of the Fund,
including the percentage of common shares beneficially owned, is based on
reports filed with the SEC by such holders and a securities position listing
report from The Depository Trust & Clearing Corporation as of . The Fund does
not have any knowledge of the identity of the ultimate beneficiaries of the
common shares of beneficial interest listed below. 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.

PERCENT NUMBER OF
SHAREHOLDER AND ADDRESS* OWNERSHIP SHARES HELD

-46-

INVESTMENT ADVISOR

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

First Trust Advisors is advisor or sub-advisor to 5 mutual funds,
exchange-traded funds consisting of 94 series and 15 closed-end funds (including
the Fund) and is the portfolio supervisor of certain unit investment trusts
sponsored by First Trust Portfolios L.P. First Trust Portfolios L.P. specializes
in the underwriting, trading and distribution of unit investment trusts and
other securities. First Trust Portfolios L.P., an Illinois limited partnership
formed in 1991, took over the First Trust product line and acts as sponsor for
successive series of The First Trust Combined Series, FT Series (formerly known
as The First Trust Special Situations Trust), The First Trust Insured Corporate
Trust, The First Trust of Insured Municipal Bonds and The First Trust GNMA. The
First Trust product line commenced with the first insured unit investment trust
in 1974 and, to date, more than $ in gross assets have been deposited in First
Trust Portfolios L.P. unit investment trusts.

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

First Trust Advisors acts as investment advisor to the Fund pursuant to an
investment management agreement between the Advisor and the Fund (the
"Investment Management Agreement"). The Investment Management Agreement
continues in effect for the Fund from year to year so long as its continuation
is approved at least annually by the Trustees including a majority of the
Independent Trustees, or the vote of a majority of the outstanding voting
securities of the Fund. It may be terminated at any time without the payment of
any penalty upon 60 days' written notice by either party, or by a majority vote
of the outstanding voting securities of the Fund (accompanied by appropriate
notice), and will terminate automatically upon its assignment. The Investment
Management Agreement also may be terminated, at any time, without payment of any
penalty, by the Board or by vote of a majority of the outstanding voting
securities of the Fund, in the event that it shall have been established by a
court of competent jurisdiction that the Advisor, or any officer or director of
the Advisor, has taken any action which results in a breach of the material
covenants of the Advisor set forth in the Investment Management Agreement. The
Investment Management Agreement provides that First Trust Advisors shall not be

-47-

liable for any loss sustained by reason of the purchase, sale or retention of
any security, whether or not such purchase, sale or retention shall have been
based upon the investigation and research made by any other individual, firm or
corporation, if the recommendation shall have been selected with due care and in
good faith, except loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Advisor in performance of its obligations and
duties, or by reason of its reckless disregard of its obligations and duties
under the Investment Management Agreement.

The Investment Management Agreement has been approved by the Board of
Trustees of the Fund, including a majority of the Independent Trustees.
Information regarding the Board of Trustees' approval of the Investment
Management Agreement is available in the Fund's annual report for the period
ended November 30, . Pursuant to the Investment Management Agreement, the
Fund has agreed to pay for the services and facilities provided by the Advisor
an annual management fee, payable on a monthly basis, equal to 1.00% of the
Fund's Managed Assets.

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

The Sub-Advisor receives a portfolio management fee at the annual rate of
0.50% of Managed Assets, which is paid by the Advisor out of the Advisor's
management fee. Because the fee paid to the Advisor and by the Advisor to the
Sub-Advisor will be calculated on the basis of the Fund's Managed Assets, which
include the proceeds of leverage, the dollar amount of the Advisor's and
Sub-Advisor's fees will be higher (and the Advisor and Sub-Advisor will be
benefited to that extent) when leverage is utilized. In this regard, if the Fund
uses leverage in the amount equal to % of the Fund's Managed Assets (after
their issuance), the Fund's management fee would be % of net assets
attributable to common shares. See "Summary of Fund Expenses" in the Fund's
Prospectus.

CODES OF ETHICS

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

-48-

duplicating fee, by electronic request at the following e-mail address:
publicinfo@sec.gov, or by writing the SEC Public Reference Section, Washington,
D.C. 20549-0102.

PROXY VOTING POLICIES AND PROCEDURES

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

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

Information regarding how the Fund voted proxies relating to portfolio
securities is available: (i) without charge, upon request, by calling (800)
621-1675; (ii) on the Fund's website at http://www.ftportfolios.com; and (iii)
by accessing the SEC's website at http://www.sec.gov.

SUB-ADVISOR

Confluence Investment Management LLC serves as the Fund's Sub-Advisor
pursuant to an investment sub-advisory agreement (the "Sub-Advisory Agreement").
In this capacity, Confluence is responsible for the selection and on-going
monitoring of the securities in the Fund's investment portfolio.

Confluence, located at 20 Allen Avenue, Suite 300, St. Louis, Missouri
63119, is a registered investment advisor. The investment professionals at
Confluence have over 120 years of aggregate portfolio management experience.
Confluence provides portfolio investment management and advisory services to
both institutional and individual clients. As of , 2014, Confluence
managed or supervised over $ in assets.

On August 25, 2008, Confluence and First Trust Advisors entered into an
agreement pursuant to which Confluence provides certain financial advisory
services to First Trust Advisors for an annual fee. In addition, First Trust
Advisors and Confluence entered into an agreement as of May 7, 2008 pursuant to
which Confluence assists in providing sub-portfolio supervisory services to a
limited number of unit investment trusts sponsored by First Trust Portfolios
L.P. for an annual fee. Confluence will not provide services to the Fund
pursuant to either of the agreements described in this paragraph. In addition to
serving as a sub-adviser to the Fund, Confluence also serves as a sub-adviser to
advised by First Trust Advisors.

Confluence is responsible for the day-to-day management of the Fund's
portfolio utilizing a team of portfolio managers comprised of the Confluence
personnel listed below.

-49-

MARK A. KELLER, CFA - CHIEF EXECUTIVE OFFICER AND CHIEF INVESTMENT OFFICER

Mr. Keller has 30 years of investment experience with a focus on
value-oriented equity analysis and management. From 1994 to May 2008, he was the
Chief Investment Officer of Gallatin Asset Management, Inc., and its predecessor
organization, A.G. Edwards Asset Management, the investment management arm of
A.G. Edwards, Inc. From 1999 to 2008, Mr. Keller was Chairman of A.G. Edwards'
Investment Strategy Committee, which set investment policy and established asset
allocation models for the entire organization. Mr. Keller was a founding member
of the A.G. Edwards Investment Strategy Committee, on which he served for over
20 years, the last ten years of which as Chairman of the Committee. Mr. Keller
began his career with A.G. Edwards in 1978, serving as an equity analyst for the
firm's Securities Research Department from 1979 to 1994. During his last five
years in Securities Research, Mr. Keller was Equity Strategist and manager of
the firm's Focus List. Mr. Keller was a Senior Vice President of A.G. Edwards &
Sons, Inc. and of Gallatin Asset Management, Inc., and was a member of the Board
of Directors of both companies. Mr. Keller received a Bachelor of Arts from
Wheaton College (Illinois) and is a CFA charterholder.

DAVID B. MIYAZAKI, CFA - SENIOR VICE PRESIDENT AND PORTFOLIO MANAGER

Prior to joining Confluence in May 2008, Mr. Miyazaki served as a
Portfolio Manager and Analyst with Gallatin Asset Management, Inc., the
investment management arm of A.G. Edwards, Inc. Mr. Miyazaki was responsible for
equity investments in value-oriented separately managed accounts. He also
co-managed the A.G. Edwards' ETF-based asset allocation program. In addition to
portfolio management, Mr. Miyazaki served as a member of the A G Edwards'
Investment Strategy Committee. As a strategist, he was responsible for the
firm's quantitative asset allocation models, including its Cyclical Asset
Allocation program. Prior to joining A.G. Edwards in 1999, Mr. Miyazaki was a
Portfolio Manager at Koch Industries in Wichita, Kansas. His previous experience
includes working as an Investment Analyst at Prudential Capital Group in Dallas,
Texas, and as a Bond Trader at Barre & Company, also in Dallas. Mr. Miyazaki
received a Bachelor of Business Administration from Texas Christian University
and is a CFA charterholder.

DANIEL T. WINTER, CFA - SENIOR VICE PRESIDENT AND PORTFOLIO MANAGER

Prior to joining Confluence in May 2008, Mr. Winter served as a Portfolio
Manager and Analyst with Gallatin Asset Management, Inc., the investment arm of
A.G. Edwards, Inc. While at Gallatin, Mr. Winter chaired the portfolio
management team responsible for the firm's six value-oriented equity strategies.
His responsibilities also included directing the strategy implementation and
trading execution for the equity portfolios. Mr. Winter also served as a
portfolio manager for the Cyclical Growth ETF Portfolio and the Cyclical Growth
and Income ETF Portfolio which were offered through variable annuities. He was
also a member of the firm's Allocation Advisor Committee which oversaw the A.G.
Edwards ETF focused strategies. Prior to joining the firm's Asset Management
division in 1996, Mr. Winter served as a portfolio manager for A.G. Edwards
Trust Company. Mr. Winter earned a Bachelor of Arts in business management from
Eckerd College and a Master of Business Administration from Saint Louis
University. Mr. Winter is a CFA charterholder.

-50-

The portfolio managers also have responsibility for the day-to-day
management of accounts other than the Fund, including separate accounts and
unregistered funds. The advisory fees received by Confluence in connection with
the management of the Fund and other accounts are not based on the performance
of the Fund or the other accounts. Information regarding those other accounts is
set forth below.

------------------------------------------------------------------------------------------------------------------
NUMBER OF OTHER ACCOUNTS MANAGED AND ASSETS BY ACCOUNT TYPE

AS OF
------------------------------------------------------------------------------------------------------------------
REGISTERED INVESTMENT OTHER POOLED
COMPANIES INVESTMENT
PORTFOLIO MANAGER (OTHER THAN THE FUND) VEHICLES OTHER ACCOUNTS
------------------------------ --------------------------- --------------------------- ---------------------------

Mark Keller Number: Number: Number:
Assets: $ Assets: $ Assets: $
------------------------------ --------------------------- --------------------------- ---------------------------
David Miyazaki Number: Number: Number:
Assets: $ Assets: $ Assets: $
------------------------------ --------------------------- --------------------------- ---------------------------
Daniel Winter Number: Number: Number:
Assets: $ Assets: $ Assets: $
------------------------------ --------------------------- --------------------------- ---------------------------

As shown in the table above, certain portfolio managers may manage other
accounts with investment strategies similar to the Fund. Fees earned by
Confluence may vary among these accounts. Such management of other accounts
could create conflicts of interest if a portfolio manager identified a limited
investment opportunity that may be appropriate for more than one account, but
the Fund is not able to take full advantage of that opportunity due to the need
to allocate that opportunity among multiple accounts. In addition, the portfolio
manager may execute transactions for another account that may adversely impact
the value of securities held by the Fund. However, Confluence 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; (ii) the equity securities in
which the Fund will invest are typically liquid securities; and (iii) portfolio
manager personal trading is monitored to avoid potential conflicts. In addition,
Confluence has adopted trade allocation procedures that require equitable
allocation of trade orders for a particular security among participating
accounts.

Securities considered as investments for the Fund also may be appropriate
for other investment accounts managed by the Sub-Advisor 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 Sub-Advisor may aggregate the
purchases and sales of the securities and will allocate the securities
transactions in a manner which 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

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Fund from time to time, it is the opinion of the Trustees of the Fund that the
benefits from the Sub-Advisor organization outweigh any disadvantage that may
arise from exposure to simultaneous transactions.

As of , the portfolio managers received all of their
compensation from Confluence. Confluence seeks to maintain a highly competitive
compensation program designed to attract and retain qualified investment
professionals, which includes portfolio managers and research analysts, and to
align the interests of its investment professionals with that of its clients and
overall firm results. The principal components of compensation for portfolio
managers include a base salary, annual bonus, annual discretionary merit bonus,
and various retirement benefits.

At , none of the portfolio managers beneficially owned (as
determined pursuant to Rule 16a-1(a)(2) under the 1934 Act) any shares of the
Fund. The portfolio managers may purchase common shares of the Fund for their
personal accounts.

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

The Fund paid the Advisor $ in advisory fees in the aggregate for
the last three fiscal years ending November 30, 2014. The Advisor paid the
Sub-Advisor $ in sub-advisory fees in the aggregate for the last three
fiscal years ending November 30, 2014. See "Summary of Fund Expenses" and
"Management of the Fund--Investment Management Agreement" in the Fund's
Prospectus. All fees and expenses are accrued daily and deducted before payment
of dividends to investors.

The Sub-Advisory Agreement may be terminated without the payment of any
penalty by the Advisor, First Trust Advisors, the Board of Trustees or a

-52-

majority of the outstanding voting securities of the Fund (as defined in the
1940 Act), upon 60 days' written notice to the Sub-Advisor.

The Sub-Advisory Agreement has been approved by the Board of Trustees of
the Fund, including a majority of the Independent Trustees. Information
regarding the Board of Trustees' approval of the Sub-Advisory Agreement is
available in the Fund's annual report for the period ended November 30, .

PORTFOLIO TRANSACTIONS AND BROKERAGE

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

The Sub-Advisor's objective in selecting brokers and dealers and in
effecting portfolio transactions is to seek to obtain the best combination of
price and execution with respect to its clients' portfolio transactions. Steps
associated with seeking best execution include, but are not limited to, the
following: (1) determine each client's trading requirements; (2) select
appropriate trading methods, venues, and agents to execute the trades under the
circumstances; (3) evaluate market liquidity of each security and take
appropriate steps to avoid excessive market impact; (4) maintain client
confidentiality and proprietary information inherent in the decision to trade;
and (5) review the results on a periodic basis.

In arranging for the purchase and sale of clients' portfolio securities,
the Sub-Advisor takes numerous factors into consideration. The best net price,
giving effect to brokerage commissions, spreads and other costs, is normally an
important factor in this decision, but a number of other judgmental factors are
considered as they are deemed relevant. The factors include, but are not limited
to: the execution capabilities required by the transactions; the ability and
willingness of the broker or dealer to facilitate the accounts' portfolio
transactions by participating therein for its own account; the importance to the
account of speed, efficiency and confidentiality; the broker or dealer's
apparent familiarity with sources from or to whom particular securities might be
purchased or sold; the reputation and perceived soundness of the broker or
dealer; the Sub-Advisor's knowledge of negotiated commission rates and spreads

-53-

currently available; the nature of the security being traded; the size and type
of the transaction; the nature and character of the markets for the security to
be purchased or sold; the desired timing of the trade; the activity existing and
expected in the market for the particular security; confidentiality; the
execution, clearance and settlement capabilities as well as the reputation and
perceived soundness of the broker-dealer selected and others which are
considered; the Sub-Advisor's knowledge of actual or apparent operational
problems of any broker-dealer; the broker-dealer's execution services rendered
on a continuing basis and in other transactions; the reasonableness of spreads
or commissions; as well as other matters relevant to the selection of a broker
or dealer for portfolio transactions for any account. The Sub-Advisor does not
adhere to any rigid formula in making the selection of the applicable broker or
dealer for portfolio transactions, but weighs a combination of the preceding
factors.

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

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

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

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

The Sub-Advisor may also consider the following when deciding on
allocations: (1) cash flow changes (including available cash, redemptions,
exchanges, capital additions and capital withdrawals) may provide a basis to
deviate from a pre-established allocation as long as it does not result in an
unfair advantage to specific accounts or types of accounts over time; (2)
accounts with specialized investment objectives or restrictions emphasizing
investment in a specific category of securities may be given priority over other
accounts in allocating such securities; and (3) for bond trades, street

-54-

convention and good delivery often dictate the minimum size and par amounts and
may result in deviations from pro rata distribution.

DESCRIPTION OF SHARES

COMMON SHARES

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

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

PREFERRED SHARE AUTHORIZATION

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

-55-

BORROWINGS

The Declaration of Trust authorizes the Fund, without prior approval of
the common shareholders of the Fund, to borrow money. In this connection, the
Fund may enter into reverse repurchase agreements, issue notes or other evidence
of indebtedness (including bank borrowings or commercial paper) ("Borrowings")
and may secure any such Borrowings by mortgaging, pledging or otherwise
subjecting as security the Fund's assets. In connection with such Borrowings,
the Fund may be required to maintain average balances with the lender or to pay
a commitment or other fee to maintain a line of credit. Any such requirements
will increase the cost of borrowing over the borrowing instrument's stated
interest rate. A reverse repurchase agreement, although structured as a sale and
repurchase obligation, acts as a financing under which the Fund effectively
pledges its securities as collateral to secure a short-term loan. Generally, the
other party to the agreement makes the loan in an amount equal to a percentage
of the market value of the pledged collateral. At the maturity of the reverse
repurchase agreement, the Fund will be required to repay the loan and
correspondingly receive back its collateral. While used as collateral, the
securities continue to pay principal and interest which are for the benefit of
the Fund. The Fund may borrow from banks and other financial institutions.

Limitations on Borrowings. Under the requirements of the 1940 Act, the
Fund, immediately after any Borrowings, must have "asset coverage" of at least
300% (33 1/3% of total assets). With respect to such Borrowings, "asset
coverage" means the ratio which the value of the total assets of the Fund, less
all liabilities and indebtedness not represented by senior securities (as
defined in the 1940 Act), bears to the aggregate amount of such Borrowings
represented by senior securities issued by the Fund. Certain types of Borrowings
may result in the Fund being subject to covenants in credit agreements relating
to asset coverage or portfolio composition or otherwise. In addition, the Fund
may be subject to certain restrictions imposed by the guidelines of one or more
nationally recognized statistical rating organizations which may issue ratings
for short-term corporate debt securities and/or Preferred Shares issued by the
Fund. Such restrictions may be more stringent than those imposed by the 1940
Act. See "Other Investment Strategies and Techniques--Derivative
Transactions--Asset Coverage and Asset Segregation" above and "Use of Financial
Leverage" in the Fund's Prospectus.

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

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

-56-

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

CERTAIN PROVISIONS IN THE DECLARATION OF TRUST AND BY-LAWS

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

The Declaration provides that the obligations of the Fund are not binding
upon the Trustees of the Fund individually, but only upon the assets and
property of the Fund. The Declaration further provides that a Trustee acting in
his or her capacity as Trustee is not personally liable to any person other than
the Fund or its shareholders, for any act, omission, or obligation of the Fund.
A present or former Trustee, officer or employee of the Fund is not liable to
the Fund or its shareholders for any action or failure to act (including without
limitation the failure to compel in any way any former or acting trustee to
redress any breach of trust) except for his or her own bad faith, willful
misfeasance, gross negligence or reckless disregard of his or her duties
involved in the conduct of the individual's office, and for nothing else and is
not liable for errors of judgment or mistakes of fact or law.

The Declaration requires the Fund to indemnify any persons who are or who
have been Trustees, officers or employees of the Fund for any liability for
actions or failure to act except to extent prohibited by applicable federal law.
In making any determination as to whether any person is entitled to the
advancement of expenses or indemnification, such person is entitled to a
rebuttable presumption that he or she did not engage in conduct for which
indemnification is not available.

The Declaration also clarifies that any Trustee who serves as chair of the
board or of a committee of the board, lead independent Trustee, or audit
committee financial expert, or in any other similar capacity will not be subject
to any greater standard of care or liability because of such position.

The Declaration requires a shareholder vote only on those matters where
the 1940 Act or the Fund's listing with an exchange require a shareholder vote,
but otherwise permits the Trustees to take actions without seeking the consent
of shareholders. For example, the Declaration gives the Trustees broad authority

-57-

to approve reorganizations between the Fund and another entity, such as another
closed end fund, and the sale of all or substantially all of its assets without
shareholder approval if the 1940 Act would not require such approval. The
Declaration further provides that the Trustees may amend the Declaration in any
respect without shareholder approval. The Declaration, however, prohibits
amendments that impair the exemption from personal liability granted in the
Declaration to persons who are or have been shareholders, Trustees, officers or,
employees of the Fund or that limit the rights to indemnification or insurance
provided in the Declaration with respect to actions or omissions of persons
entitled to indemnification under the Declaration prior to the amendment.

The Declaration and By-Laws include provisions that could limit the
ability of other entities or persons to acquire control of the Fund or to
convert the Fund to open-end status. The number of trustees is currently five,
but by action of two-thirds of the Trustees, the Board of Trustees may from time
to time be increased or decreased. The Board of Trustees is divided into three
classes, with the terms of one class expiring at each annual meeting of
shareholders. If the Fund issues Preferred Shares, the Fund may establish a
separate class for the Trustees elected by the holders of the Preferred Shares.
Vacancies on the Board of Trustees may be filled by a majority action of the
remaining trustees. Such provisions may work to delay a change in the majority
of the Board of Trustees. The provisions of the Declaration relating to the
election and removal of Trustees may be amended only by vote of two-thirds of
the Trustees then in office.

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

-58-

Majority Shareholder Vote if the action in question has previously been approved
by the affirmative vote of two-thirds of the trustees.

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

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

The Declaration of Trust also provides that prior to bringing a derivative
action, a demand must first be made on the Trustees by three unrelated

-59-

shareholders that hold shares representing at least 5% of the voting power of
the Fund or affected class. The Declaration details various information,
certifications, undertakings and acknowledgements that must be included in the
demand. Following receipt of the demand, the Trustees have a period of 90 days,
which may be extended by an additional 60 days, to consider the demand. If a
majority of the trustees who are considered independent for the purposes of
considering the demand determine that maintaining the suit would not be in the
best interests of the Fund, the Trustees are required to reject the demand and
the complaining shareholders may not proceed with the derivative action unless
the shareholders are able to sustain the burden of proof to a court that the
decision of the Trustees not to pursue the requested action was not a good faith
exercise of their business judgment on behalf of the Fund. If a demand is
rejected, the complaining shareholders will be responsible for the costs and
expenses (including attorneys' fees) incurred by the Fund in connection with the
consideration of the demand under a number of circumstances. If a derivative
action is brought in violation of the Declaration, the shareholders bringing the
action may be responsible for the Fund's costs, including attorney's fees. The
Declaration also includes a forum selection clause requiring that any
shareholder litigation be brought in certain courts in Illinois and further
provides that any shareholder bringing an action against the Fund waive the
right to trial by jury to the fullest extent permitted by law.

Reference should be made to the Declaration on file with the Securities
and Exchange Commission for the full text of these provisions.

REPURCHASE OF FUND SHARES; CONVERSION TO OPEN-END FUND

The Fund is a closed-end investment company and as such its shareholders
will not have the right to cause the Fund to redeem their shares. Instead, the
Fund's common shares trade in the open market at a price that will be a function
of several factors, including dividend levels (which are in turn affected by
expenses), net asset value, call protection, price, dividend stability, relative
demand for and supply of such shares in the market, general market and economic
conditions and other factors. Because shares of a closed-end investment company
may frequently trade at prices lower than net asset value, the Trustees, in
consultation with the Fund's Advisor, Sub-Advisor and any corporate finance
services and consulting agent that the Advisor may retain, from time to time may
review possible actions to reduce any such discount. Actions may include the
repurchase of such shares in the open market or in private transactions, the
making of a tender offer for such shares, or the conversion of the Fund to an
open-end investment company. There can be no assurance, however, that the
Trustees will decide to take any of these actions, or that share repurchases or
tender offers, if undertaken, will reduce a market discount. After any
consideration of potential actions to seek to reduce any significant market
discount, the Trustees may, subject to their fiduciary obligations and
compliance with applicable state and federal laws, authorize the commencement of
a share-repurchase program or tender offer. The size and timing of any such
share repurchase program or tender offer will be determined by the Trustees in
light of the market discount of the common shares, trading volume of the common
shares, information presented to the Trustees regarding the potential impact of
any such share repurchase program or tender offer, and general market and
economic conditions. There can be no assurance that the Fund will in fact effect
repurchases of or tender offers for any of its common shares. In addition, any
service fees incurred in connection with any tender offer made by the fund will
be borne by the Fund and will not reduce the stated consideration to be paid to

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tendering shareholders. Before deciding whether to take any action if the Fund's
common shares trade below net asset value, the Trustees would consider all
relevant factors, including the extent and duration of the discount, the
liquidity of the Fund's portfolio, the impact of any action that might be taken
on the Fund or its shareholders and market considerations. Based on these
considerations, even if the Fund's shares should trade at a discount, the
Trustees may determine that, in the interest of the Fund and its shareholders,
no action should be taken.

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

Subject to its investment limitations, the Fund may borrow to finance the
repurchase of shares or to make a tender offer. Interest on any borrowings to
finance share repurchase transactions or the accumulation of cash by the Fund in
anticipation of share repurchases or tenders will increase the Fund's expenses
and reduce the Fund's net income. Any share repurchase, tender offer or
borrowing that might be approved by the Trustees would have to comply with the
1934 Act and the 1940 Act and the rules and regulations thereunder.

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

Conversion to an open-end company would require the approval of the
holders of at least two-thirds of the Fund's shares outstanding and entitled to
vote; provided, however, that unless otherwise provided by law, if there are
Preferred Shares outstanding, the affirmative vote of two-thirds of the
Preferred Shares voting as a separate class shall be required; provided,
however, that such votes shall be by the affirmative vote of the majority of the

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outstanding voting securities, as defined in the 1940 Act, if the action in
question was previously approved by the affirmative vote of two-thirds of the
Trustees. Such affirmative vote or consent shall be in addition to the vote or
consent of the holders of the shares otherwise required by law or by the terms
of any class or series of preferred shares, whether now or hereafter authorized,
or any agreement between the Fund and any national securities exchange. See the
Prospectus under "Closed-End Fund Structure" for a discussion of voting
requirements applicable to conversion of the Fund to an open-end company. If the
Fund converted to an open-end company, the Fund's common shares would no longer
be listed on the New York Stock Exchange. Any Preferred Shares would need to be
redeemed and any Borrowings may need to be repaid upon conversion to an open-end
investment company. Additionally, the 1940 Act imposes limitations on open-end
funds' investments in illiquid securities, which could restrict the Fund's
ability to invest in certain securities discussed in the Prospectus to the
extent discussed therein. Such limitations could adversely affect distributions
to common shareholders of the Fund in the event of conversion to an open-end
fund. Shareholders of an open-end investment company may require the company to
redeem their shares on any business day (except in certain circumstances as
authorized by or under the 1940 Act) at their net asset value, less such
redemption charge or contingent deferred sales change, if any, as might be in
effect at the time of redemption. In order to avoid maintaining large cash
positions or liquidating favorable investments to meet redemptions, open-end
companies typically engage in a continuous offering of their shares. Open-end
companies are thus subject to periodic asset in-flows and out-flows that can
complicate portfolio management. The Trustees may at any time propose conversion
of the Fund to an open-end company depending upon their judgment as to the
advisability of such action in light of circumstances then prevailing.

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

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

FEDERAL INCOME TAX MATTERS

The following discussion of federal income tax matters is based upon the
advice of Chapman and Cutler LLP, counsel to the Fund.

GENERAL

Set forth below is a discussion of certain U.S. federal income tax issues
concerning the Fund and the purchase, ownership and disposition of Fund shares.
This discussion does not purport to be complete or to deal with all aspects of
U.S. federal income taxation that may be relevant to shareholders in light of
their particular circumstances. This discussion also does not address the tax

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consequences to shareholders that are subject to special rules, including
without limitation, banks or financial institutions, insurance companies,
dealers in securities, non-U.S. shareholders, tax-exempt or tax-deferred plans,
accounts or entities, shareholders that are subject to the alternative minimum
tax or shareholders that holds their shares as or in a hedge against currency
risk, constructive sale or a conversion transaction. Unless otherwise noted,
this discussion assumes you are a U.S. shareholder and that you hold your shares
as a capital asset. This discussion is based upon present provisions of the
Code, the regulations promulgated thereunder, and judicial and administrative
ruling authorities, all of which are subject to change, which change may be
retroactive. In addition, this discussion does not address state, local or
foreign tax consequences. Prospective investors should consult their own tax
advisors with regard to the federal tax consequences of the purchase, ownership,
or disposition of Fund shares, as well as the tax consequences arising under the
laws of any state, locality, non-U.S. country, or other taxing jurisdiction.

The Fund intends to qualify annually and to elect to be treated as a
regulated investment company under the Code and to comply with applicable
distribution requirements so that it will not pay U.S. federal net income tax on
income and capital gains distributed to its shareholders.

To qualify for the favorable U.S. federal income tax treatment generally
accorded to regulated investment companies, the Fund must, among other things,
(a) derive in each taxable year at least 90% of its gross income from (i)
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of stock, securities or foreign currencies or
other income derived with respect to its business of investing in such stock,
securities or currencies and (ii) net income from interests in "qualified
publicly traded partnerships" (as defined in the Code); (b) diversify its
holdings so that, at the end of each quarter of the taxable year, (i) at least
50% of the market value of the Fund's assets is represented by cash and cash
items (including receivables), U.S. government securities, the securities of
other regulated investment companies and other securities, with such other
securities of any one issuer generally limited for the purposes of this
calculation to an amount not greater than 5% of the value of the Fund's total
assets and not greater than 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its total assets is invested
in the securities (other than U.S. government securities or the securities of
other regulated investment companies) of (I) any one issuer, (II) two or more
issuers which the Fund controls and are engaged in the same, similar or related
trades or businesses or (III) any one or more "qualified publicly traded
partnerships" (as defined in the Code); and (c) distribute at least 90% of its
investment company taxable income (which includes, among other items, dividends,
interest and net short-term capital gains in excess of net long-term capital
losses) and at least 90% of its net tax-exempt interest income each taxable
year.

As a regulated investment company, the Fund generally will not be subject
to U.S. federal income tax on its investment company taxable income (as that
term is defined in the Code, but without regard to the deduction for dividends
paid) and net capital gain (the excess of net long-term capital gain over net
short-term capital loss), if any, that it distributes to shareholders. The Fund
intends to distribute to its shareholders, at least annually, all or
substantially all of its investment company taxable income and net capital gain.
If the Fund retains any net capital gain or investment company taxable income,
it will generally be subject to federal income tax at regular corporate rates on

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the amount retained. In addition, amounts not distributed on a timely basis in
accordance with a calendar year distribution requirement are subject to a
nondeductible 4% excise tax unless, generally, the Fund distributes during each
calendar year an amount equal to the sum of (1) at least 98% of its ordinary
income (not taking into account any capital gains or losses) for the calendar
year, (2) at least 98.2% of its capital gains in excess of its capital losses
(adjusted for certain ordinary losses) for the one-year period ending October 31
of the calendar year, and (3) any ordinary income and capital gains for previous
years that were not distributed during those years. To prevent application of
the excise tax, the Fund intends to make its distributions in accordance with
the calendar year distribution requirement. A distribution will be treated as
paid on December 31 of the current calendar year if it is declared by the Fund
in October, November or December with a record date in such a month and paid by
the Fund during January of the following calendar year. These distributions will
be taxable to shareholders in the calendar year in which the distributions are
declared, rather than the calendar year in which the distributions are received.

Subject to certain reasonable cause and de minimus exceptions, if the Fund
failed to qualify as a regulated investment company or failed to satisfy the 90%
distribution requirement in any taxable year, the Fund would be taxed as an
ordinary corporation on its taxable income (even if such income were distributed
to its shareholders) and all distributions out of earnings and profits would be
taxed to shareholders as ordinary income.

DISTRIBUTIONS

Dividends paid out of the Fund's investment company taxable income
generally are taxable to a shareholder as ordinary income to the extent of the
Fund's current and accumulated earnings and profits, whether paid in cash or
reinvested in additional shares. If the Fund holds certain equity securities,
certain ordinary income distributions that are designated by the Fund and
received from the Fund by non-corporate shareholders may be taxed at lower tax
rates applicable to net capital gains, provided certain holding period and other
requirements are satisfied by both the fund and the shareholder and provided the
dividends are attributable to "qualified dividend income" received by the Fund
itself. Dividends received by the Fund from REITs and foreign corporations are
qualified dividends eligible for this lower tax rate only in certain
circumstances.

Distributions of net capital gain (the excess of net long-term capital
gain over net short-term capital loss), if any, properly designated as capital
gain dividends are taxable to a shareholder as long-term capital gains,
regardless of how long the shareholder has held Fund shares. Shareholders
receiving distributions in the form of additional shares, rather than cash,
generally will have a cost basis in each such share equal to the value of a
share of the Fund on the reinvestment date. A distribution of an amount in
excess of the Fund's current and accumulated earnings and profits will be
treated by a shareholder as a return of capital which is applied against and
reduces the shareholder's tax basis in his or her shares. To the extent that the
amount of any distribution exceeds the shareholder's basis in his or her shares,
the excess will be treated by the shareholder as gain from a sale or exchange of
the shares.

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Shareholders will be notified annually as to the U.S. federal income tax
status of distributions, and shareholders receiving distributions in the form of
additional shares will receive a report as to the value of those shares.

DIVIDENDS RECEIVED DEDUCTION

A corporation that owns shares generally will not be entitled to the
dividends received deduction with respect to dividends received from the Fund
because the dividends received deduction is generally not available for
distributions from regulated investment companies. However, if the Fund holds
equity securities, certain ordinary income dividends on shares that are
attributable to dividends received by the Fund from certain domestic
corporations may be designated by the Fund as being eligible for the dividends
received deduction, but this amount is not expected to be significant.

SALE OR EXCHANGE OF FUND SHARES

Upon the sale or other disposition of shares of the Fund, which a
shareholder holds as a capital asset, a shareholder may realize a capital gain
or loss which will be long-term or short-term, depending upon the shareholder's
holding period for the shares. Generally, a shareholder's gain or loss will be a
long-term gain or loss if the shares have been held for more than one year.

Any loss realized on a sale or exchange will be disallowed to the extent
that shares disposed of are replaced by substantially identical shares
(including through reinvestment of dividends) within a period of 61 days
beginning 30 days before and ending 30 days after disposition of shares or to
the extent that the shareholder, during such period, acquires or enters into an
option or contract to acquire, substantially identical stock or securities. In
this case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized by a shareholder on a disposition of Fund
shares held by the shareholder for six months or less will be treated as a
long-term capital loss to the extent of any distributions of net capital gain
received by the shareholder with respect to the shares. The ability to otherwise
deduct capital losses may be subject to other limitations under the Code.

NATURE OF THE FUND'S INVESTMENTS

Certain of the Fund's investment practices may be subject to special and
complex federal income tax provisions that may, among other things, (1)
disallow, suspend or otherwise limit the allowance of certain losses or
deductions, (2) convert lower taxed long-term capital gain into higher taxed
short-term capital or ordinary income, (3) convert an ordinary loss or a
deduction into a capital loss (the deductibility of which is more limited), (4)
cause the Fund to recognize income or gain without a corresponding receipt of
cash, (5) adversely affect the time as to when a purchase or sale of stock or
securities is deemed to occur and (6) adversely alter the characterization of
certain complex financial transactions. The Fund will monitor its transactions,
will make the appropriate tax elections and take appropriate actions in order to
mitigate the effect of these rules and prevent disqualification of the Fund from

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being taxed as a regulated investment company (including disposing of certain
investments to generate cash or borrowing cash to satisfy its distribution
requirements).

Certain income trusts (such as U.S. royalty trusts) and master limited
partnerships that are not "qualified publicly traded partnerships" (as defined
for U.S. federal income tax purposes) generally pass through tax items such as
income, gain or loss to interest holders. In such cases, the Fund will be
required to monitor the individual underlying items of income that it receives
from such entities to determine how it will characterize such income for
purposes of meeting the 90% gross income requirement. In addition, in certain
circumstances, the Fund will be deemed to own the assets of such entities and
would need to look to such assets in determining the Fund's compliance with the
asset diversification rules applicable to regulated investment companies. Thus,
the extent to which the Fund may invest in securities issued by such entities
may be limited by the Fund's intention to qualify as a regulated investment
company under the Internal Revenue Code. Prospective investors should be aware
that if, contrary to the Fund's intention, the Fund fails to limit its direct
and indirect investments in such entities, or if such investments are
re-characterized for U.S. federal income tax purposes, the Fund's status as a
regulated investment company may be jeopardized.

INVESTMENT IN SECURITIES OF UNCERTAIN TAX CHARACTER

The Fund may invest in preferred securities or other securities the U.S.
federal income tax treatment of which may not be clear or may be subject to
recharacterization by the Internal Revenue Service. To the extent the tax
treatment of such securities or the income from such securities differs from the
tax treatment expected by the Fund, it could affect the timing or character of
income recognized by the Fund, requiring the Fund to purchase or sell
securities, or otherwise change its portfolio, in order to comply with the tax
rules applicable to regulated investment companies under the Code.

INVESTMENT IN CERTAIN REMIC INTERESTS

If the Fund acquires a residual interest in a REMIC, the Fund may realize
excess inclusion income. Excess inclusion income is an amount, with respect to
any calendar quarter, equal to the excess, if any, of (i) the taxable income of
the REMIC allocable to the holder of a residual interest in a REMIC during such
calendar quarter over (ii) the sum of amounts allocated to each day in the
calendar quarter equal to its ratable portion of the product of (a) the adjusted
issue price of the interest at the beginning of the quarter multiplied by (b)
120% of the long term federal rate (determined on the basis of compounding at
the close of each calendar quarter and properly adjusted for the length of such
quarter). Excess inclusion income generated by a residual interest in a REMIC
would be allocated among the holders of the Fund, generally in a manner set
forth under the applicable Treasury regulations. A stockholder's share of any
excess inclusion income: (i) could not be offset by net operating losses of a
stockholder; (ii) would be subject to tax as unrelated business taxable income
to a tax-exempt holder; (iii) would be subject to the application of the U.S.
federal income tax withholding (without reduction pursuant to any otherwise
applicable income tax treaty) with respect to amounts allocable to non-U.S.
stockholders; and (iv) would be taxable (at the highest corporate tax rates) to
the Fund, rather than the Fund's stockholders, to the extent allocable to shares

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held by disqualified organizations (generally, tax-exempt entities not subject
to unrelated business income tax, including governmental organizations).

INVESTMENTS IN CERTAIN FOREIGN CORPORATIONS

If the Fund holds an equity interest in any "passive foreign investment
companies" ("PFICs"), which are generally certain foreign corporations that
receive at least 75% of their annual gross income from passive sources (such as
interest, dividends, certain rents and royalties or capital gains) or that hold
at least 50% of their assets in investments producing such passive income, the
Fund could be subject to U.S. federal income tax and additional interest charges
on gains and certain distributions with respect to those equity interests, even
if all the income or gain is timely distributed to its shareholders. The Fund
will not be able to pass through to its shareholders any credit or deduction for
such taxes. The Fund may be able to make an election that could ameliorate these
adverse tax consequences. In this case, the Fund would recognize as ordinary
income any increase in the value of such PFIC shares, and as ordinary loss any
decrease in such value to the extent it did not exceed prior increases included
in income. Under this election, the Fund might be required to recognize in a
year income in excess of its distributions from PFICs and its proceeds from
dispositions of PFIC stock during that year, and such income would nevertheless
be subject to the distribution requirement and would be taken into account for
purposes of the 4% excise tax. Dividends paid by PFICs will not be treated as
qualified dividend income.

MEDICARE TAX

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

BACKUP WITHHOLDING

The Fund may be required to withhold U.S. federal income tax from all
taxable distributions and sale proceeds payable to shareholders who fail to
provide the Fund with their correct taxpayer identification number or to make
required certifications, or who have been notified by the Internal Revenue
Service that they are subject to backup withholding. The withholding percentage
is 28%. Corporate shareholders and certain other shareholders specified in the
Code generally are exempt from backup withholding. This withholding is not an
additional tax. Any amounts withheld may be credited against the shareholder's
U.S. federal income tax liability.

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NON-U.S. SHAREHOLDERS

U.S. taxation of a shareholder who, as to the United States, is a
nonresident alien individual, a foreign trust or estate, a foreign corporation
or foreign partnership ("non-U.S. shareholder") depends on whether the income of
the Fund is "effectively connected" with a U.S. trade or business carried on by
the shareholder.

Income Not Effectively Connected. If the income from the Fund is not
"effectively connected" with a U.S. trade or business carried on by the non-U.S.
shareholder, distributions of investment company taxable income will generally
be subject to U.S. tax of 30% (or lower treaty rate), which tax is generally
withheld from such distributions, subject to certain exceptions described below.

Distributions of capital gain dividends and any amounts retained by the
Fund which are designated as undistributed capital gains will not be subject to
U.S. tax at the rate of 30% (or lower treaty rate) unless the non-U.S.
shareholder is a nonresident alien individual and is physically present in the
United States for more than 182 days during the taxable year and meets certain
other requirements. However, this 30% tax on capital gains of nonresident alien
individuals who are physically present in the United States for more than the
182 day period only applies in exceptional cases because any individual present
in the United States for more than 182 days during the taxable year is generally
treated as a resident for U.S. income tax purposes; in that case, he or she
would be subject to U.S. income tax on his or her worldwide income at the
graduated rates applicable to U.S. citizens, rather than the 30% U.S. tax. In
the case of a non-U.S. shareholder who is a nonresident alien individual, the
Fund may be required to withhold U.S. income tax from distributions of net
capital gain unless the non-U.S. shareholder certifies his or her non-U.S.
status under penalties of perjury or otherwise establishes an exemption. If a
non-U.S. shareholder is a nonresident alien individual, any gain such
shareholder realizes upon the sale or exchange of such shareholder's shares of
the Fund in the United States will ordinarily be exempt from U.S. tax unless the
gain is U.S. source income and such shareholder is physically present in the
United States for more than 182 days during the taxable year and meets certain
other requirements.

Income Effectively Connected. If the income from the Fund is "effectively
connected" with a U.S. trade or business carried on by a non-U.S. shareholder,
then distributions of investment company taxable income and capital gain
dividends, any amounts retained by the Fund which are designated as
undistributed capital gains and any gains realized upon the sale or exchange of
shares of the Fund will be subject to U.S. income tax at the graduated rates
applicable to U.S. citizens, residents and domestic corporations. Non-U.S.
corporate shareholders may also be subject to the branch profits tax imposed by
the Code. The tax consequences to a non-U.S. shareholder entitled to claim the
benefits of an applicable tax treaty may differ from those described herein.
Non-U.S. shareholders are advised to consult their own tax advisors with respect
to the particular tax consequences to them of an investment in the Fund.

FATCA Withholding. In addition to the rules described above concerning the
potential imposition of withholding on distributions to non-U.S. persons,
distributions to non-U.S. persons that are "financial institutions" may be

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subject to a withholding tax of 30% unless an agreement is in place between the
financial institution and the U.S. Treasury to collect and disclose information
about accounts, equity investments, or debt interests in the financial
institution held by one or more U.S. persons. Similarly, dispositions of shares
in the Fund by non-U.S. person that are "financial institutions" may be subject
to withholding on the gross proceeds of the sale unless such an agreement is in
place between the financial institution and the U.S. Treasury. For these
purpose, a "financial institution" means any entity that (i) accepts deposits in
the ordinary course of a banking or similar business, (ii) holds financial
assets for the account of others as a substantial portion of its business, or
(iii) is engage (or holds itself out as being engaged) primarily in the business
of investing, reinvesting or trading in securities, partnership interests,
commodities or any interest (including a futures contract or option) in such
securities, partnership interests or commodities.

Distributions to non-financial non-U.S. entities (other than publicly
traded foreign entities, entities owned by residents of U.S. possessions,
foreign governments, international organizations, or foreign central banks) may
also be subject to a withholding tax of 30% if the non-U.S. entity does not
certify that the entity does not have any substantial U.S. owners or provide the
name, address and TIN of each substantial U.S. owner. Similarly, dispositions of
shares in the Fund by non-U.S. person that are non-financial entities may be
subject to withholding on the gross proceeds of the sale unless such a
certification is provided.

PERFORMANCE RELATED AND COMPARATIVE INFORMATION

The Fund may quote certain performance-related information and may compare
certain aspects of its portfolio and structure to other substantially similar
closed-end funds or indices. In reports or other communications to shareholders
of the Fund or in advertising materials, the Fund may compare its performance
with that of (i) other investment companies listed in the rankings prepared by
Lipper, Inc., Morningstar Inc. or other independent services; publications such
as Barrons, Business Week, Forbes, Fortune, Institutional Investor, Kiplinger's
Personal Finance, Money, Morningstar Mutual Fund Values, The New York Times, The
Wall Street Journal and USA Today; or other industry or financial publications
or (ii) the Standard & Poor's Index of 500 stocks, the Dow Jones Industrial
Average, NASDAQ Composite Index and other relevant indices and industry
publications. The Fund may also compare the historical volatility of its
portfolio to the volatility of such indices during the same time periods.
(Volatility is a generally accepted barometer of the market risk associated with
a portfolio of securities and is generally measured in comparison to the stock
market as a whole -- the beta -- or in absolute terms -- the standard
deviation.) Comparison of the Fund to an alternative investment should be made
with consideration of differences in features and expected performance. The Fund
may obtain data from sources or reporting services, such as Bloomberg Financial
and Lipper, Inc., that the Fund believes to be generally accurate.

The Fund may, from time to time, show the standard deviation of either the
Fund or the Fund's investment strategy and the standard deviation of the Fund's
benchmark index. Standard deviation is a statistical measure of the historical
volatility of a portfolio. Standard deviation is the measure of dispersion of
historical returns around the mean rate of return.

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From time to time, the Fund may quote the Fund's total return, aggregate
total return or yield in advertisements or in reports and other communications
to shareholders. The Fund's performance will vary depending upon market
conditions, the composition of its portfolio and its operating expenses.
Consequently any given performance quotation should not be considered
representative of the Fund's performance in the future. In addition, because
performance will fluctuate, it may not provide a basis for comparing an
investment in the Fund with certain bank deposits or other investments that pay
a fixed yield for a stated period of time. Investors comparing the Fund's
performance with that of other investment companies should give consideration to
the quality and type of the respective investment companies' portfolio
securities.

The Fund's "average annual total return" is computed according to a
formula prescribed by the SEC. The formula can be expressed as follows:

Average Annual Total Return will be computed as follows:

ERV = P(1+T)/n/

Where P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the 1-, 5-, or 10-year periods at the end of
the 1-, 5-, or 10-year periods (or fractional portion).

The Fund may also quote after-tax total returns to show the impact of
assumed U.S. federal income taxes on an investment in the Fund. The Fund's total
return "after taxes on distributions" shows the effect of taxable distributions,
but not any taxable gain or loss, on an investment in shares of the Fund for a
specified period of time. The Fund's total return "after taxes on distributions
and sale of Fund shares" shows the effect of both taxable distributions and any
taxable gain or loss realized by the shareholder upon the sale of Fund shares at
the end of a specified period. To determine these figures, all income,
short-term capital gain distributions, and long-term capital gains distributions
are assumed to have been taxed at the highest marginal individualized federal
tax rate then in effect. Those maximum tax rates are applied to distributions
prior to reinvestment and the after-tax portion is assumed to have been
reinvested in the Fund. State and local taxes are ignored.

Actual after-tax returns depend on a shareholder's tax situation and may
differ from those shown. After-tax returns reflect past tax effects and are not
predictive of future tax effects.

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Average Annual Total Return (After Taxes on Distributions) will be
computed as follows:

ATV/D/ = P(1+T)/n/

Where: P = a hypothetical initial investment of $1,000
T = average annual total return (after taxes on distributions)
n = number of years
ATV/D/ = ending value of a hypothetical $1,000 investment made at the
beginning of the period, at the end of the period (or
fractional portion thereof), after taxes on fund distributions
but not after taxes on redemptions.

Average Annual Total Return (After Taxes on Distributions and Sale of Fund
Shares) will be computed as follows:

ATV/DR/ = P(1+T)/n/

Where: P = a hypothetical initial investment of $1,000
T = average annual total return (after taxes on distributions and
redemption)
n = number of years
ATV/DR/ = ending value of a hypothetical $1,000 investment made at the
beginning periods, at the end of the periods (or fractional
portion thereof), after taxes on fund distributions and
redemptions.

Quotations of yield for the Fund will be based on all investment income
per share earned during a particular 30-day period (including dividends and
interest), less expenses accrued during the period ("net investment income") and
are computed by dividing net investment income by the maximum offering price per
share on the last day of the period, according to the following formula:

Yield = 2 [( a-b/cd +1)/6/ - 1]

Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share on the last day of the
period

Past performance is not indicative of future results. At the time
shareholders sell their shares, they may be worth more or less than their
original investment.

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Financial Statements of the Fund as of November 30, 2014, incorporated
by reference in this Statement of Additional Information, have been audited by
, an independent registered public accounting firm, as
stated in their report which is incorporated herein by reference. Such financial
statements have been so incorporated in reliance upon the report of such firm

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given upon their authority as experts in accounting and auditing. provides
auditing services to the Fund. The principal business address of
is .

CUSTODIAN, ADMINISTRATOR AND TRANSFER AGENT

The Bank of New York Mellon, One Wall Street, New York, New York 10286
serves as custodian for the Fund. As such, The Bank of New York Mellon has
custody of all securities and cash of the Fund and attends to the collection of
principal and income and payment for and collection of proceeds of securities
bought and sold by the Fund. BNY Mellon Investment Servicing (US) Inc., 301
Bellevue Parkway, Wilmington, Delaware 19809, is the transfer agent, registrar,
dividend disbursing agent and shareholder servicing agent for the Fund and
provides certain clerical, bookkeeping, shareholder servicing and administrative
services necessary for the operation of the Fund and maintenance of shareholder
accounts. BNY Mellon Investment Servicing (US) Inc. also provides certain
accounting and administrative services to the Fund pursuant to an Administration
and Accounting Services Agreement, including maintaining the Fund's books of
account, records of the Fund's securities transactions, and certain other books
and records; acting as liaison with the Fund's independent registered public
accounting firm and providing the independent registered public accounting firm
with certain Fund accounting information; and providing other continuous
accounting and administrative services.

ADDITIONAL INFORMATION

A Registration Statement on Form N-2, including amendments thereto,
relating to the shares of the Fund offered hereby, has been filed by the Fund
with the SEC. The Fund's Prospectus and this Statement of Additional Information
do not contain all of the information set forth in the Registration Statement,
including any exhibits and schedules thereto. For further information with
respect to the Fund and the shares offered hereby, reference is made to the
Fund's Registration Statement. Statements contained in the Fund's Prospectus and
this Statement of Additional Information as to the contents of any contract or
other document referred to are not necessarily complete and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. Copies of the Registration Statement may be
inspected without charge at the SEC's principal office in Washington, D.C., and
copies of all or any part thereof may be obtained from the SEC upon the payment
of certain fees prescribed by the SEC.

-72-

FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Fund s financial statements and financial highlights and the report of
thereon, contained in the following documents filed by the Fund with the SEC,
are hereby incorporated by reference into, and are made part of, this Statement
of Additional Information: The Fund s Annual Report for the year ended November
30, 2014 contained in the Fund s Form N-CSR filed with the SEC on .
A copy of such Annual Report must accompany the delivery of this Statement of
Additional Information.

APPENDIX A

RATINGS OF INVESTMENTS

STANDARD & POOR'S RATINGS GROUP -- A BRIEF DESCRIPTION OF CERTAIN STANDARD
& POOR'S RATINGS GROUP, A DIVISION OF THE MCGRAW-HILL COMPANIES ("STANDARD &
POOR'S" OR "S&P") RATING SYMBOLS AND THEIR MEANINGS (AS PUBLISHED BY S&P)
FOLLOWS:

A Standard & Poor's issue credit rating is a forward-looking opinion about
the creditworthiness of an obligor with respect to a specific financial
obligation, a specific class of financial obligations, or a specific financial
program (including ratings on medium-term note programs and commercial paper
programs). It takes into consideration the creditworthiness of guarantors,
insurers, or other forms of credit enhancement on the obligation and takes into
account the currency in which the obligation is denominated. The opinion
reflects Standard & Poor's view of the obligor's capacity and willingness to
meet its financial commitments as they become due, and may assess terms, such as
collateral security and subordination, which could affect ultimate payment in
the event of default.

Issue credit ratings can be either long term or short term. Short-term
ratings are generally assigned to those obligations considered short-term in the
relevant market. In the U.S., for example, that means obligations with an
original maturity of no more than 365 days--including commercial paper.
Short-term ratings are also used to indicate the creditworthiness of an obligor
with respect to put features on long-term obligations. Medium-term notes are
assigned long-term ratings.

LONG-TERM ISSUE CREDIT RATINGS

Issue credit ratings are based, in varying degrees, on Standard & Poor's
analysis of the following considerations:

o Likelihood of payment--capacity and willingness of the obligor to
meet its financial commitment on an obligation in accordance with
the terms of the obligation;

o Nature of and provisions of the obligation; and

o Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization, or other arrangement under
the laws of bankruptcy and other laws affecting creditors' rights.

Issue ratings are an assessment of default risk, but may incorporate an
assessment of relative seniority or ultimate recovery in the event of default.
Junior obligations are typically rated lower than senior obligations, to reflect
the lower priority in bankruptcy as noted above. (Such differentiation may apply
when an entity has both senior and subordinated obligations, secured and
unsecured obligations, or operating company and holding company obligations.)

A-1

AAA

An obligation rated 'AAA' has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.

An obligation rated 'AA' differs from the highest-rated obligations only
to a small degree. The obligor's capacity to meet its financial commitment on
the obligation is very strong.

An obligation rated 'A' is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.

BBB

An obligation rated 'BBB' exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.

BB, B, CCC, CC, AND C

Obligations rated 'BB', 'B', 'CCC', 'CC', and 'C' are regarded as having
significant speculative characteristics. 'BB' indicates the least degree of
speculation and 'C' the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.

An obligation rated 'BB' is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.

An obligation rated 'B' is more vulnerable to nonpayment than obligations
rated 'BB', but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.

A-2

CCC

An obligation rated 'CCC' is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.

An obligation rated 'CC' is currently highly vulnerable to nonpayment.

A 'C' rating is assigned to obligations that are currently highly
vulnerable to nonpayment, obligations that have payment arrearages allowed by
the terms of the documents, or obligations of an issuer that is the subject of a
bankruptcy petition or similar action which have not experienced a payment
default.

An obligation rated 'D' is in default or in breach of an imputed promise.
For non-hybrid capital instruments, the 'D' rating category is used when
payments on an obligation are not made on the date due, unless Standard & Poor's
believes that such payments will be made within five business days in the
absence of a stated grace period or within the earlier of the stated grace
period or 30 calendar days. The 'D' rating also will be used upon 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.
An obligation's rating is lowered to 'D' if it is subject to a distressed
exchange offer.

PLUS (+) OR MINUS (-)

The ratings from 'AA' to 'CCC' may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within the major rating
categories.

This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular obligation as a matter of policy.

A-3

SHORT-TERM ISSUE CREDIT RATINGS

A-1

A short-term obligation rated 'A-1' is rated in the highest category by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is strong. Within this category, certain obligations are
designated with a plus sign (+). This indicates that the obligor's capacity to
meet its financial commitment on these obligations is extremely strong.

A-2

A short-term obligation rated 'A-2' is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.

A-3

A short-term obligation rated 'A-3' exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.

A short-term obligation rated 'B' is regarded as having significant
speculative characteristics. 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.

A short-term obligation rated 'C' is currently vulnerable to nonpayment
and is dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation.

A short-term obligation rated 'D' is in default or in breach of an
imputed promise. For non-hybrid capital instruments, the 'D' rating category is
used when payments on an obligation are not made on the date due, unless
Standard & Poor's believes that such payments will be made within any stated
grace period. However, any stated grace period longer than five business days
will be treated as five business days. The 'D' rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action and where
default on an obligation is a virtual certainty, for example due to automatic
stay provisions. An obligation's rating is lowered to 'D' if it is subject to a
distressed exchange offer.

A-4

SPUR (STANDARD & POOR'S UNDERLYING RATING)

This is a rating of a stand-alone capacity of an issue to pay debt service
on a credit-enhanced debt issue, without giving effect to the enhancement that
applies to it. These ratings are published only at the request of the debt
issuer/obligor with the designation SPUR to distinguish them from the
credit-enhanced rating that applies to the debt issue. Standard & Poor's
maintains surveillance of an issue with a published SPUR.

MUNICIPAL SHORT-TERM NOTE RATINGS DEFINITIONS

A Standard & Poor's U.S. municipal note rating reflects Standard & Poor's
opinion about the liquidity factors and market access risks unique to the notes.
Notes due in three years or less will likely receive a note rating. Notes with
an original maturity of more than three years will most likely receive a
long-term debt rating. In determining which type of rating, if any, to assign,
Standard & Poor's analysis will review the following considerations:

o Amortization schedule--the larger the final maturity relative to
other maturities, the more likely it will be treated as a note; and

o Source of payment--the more dependent the issue is on the market for
its refinancing, the more likely it will be treated as a note.

Note rating symbols are as follows:

SP-1

Strong capacity to pay principal and interest. An issue determined to
possess a very strong capacity to pay debt service is given a plus (+)
designation.

SP-2

Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.

SP-3

Speculative capacity to pay principal and interest.

DUAL RATINGS

Dual ratings may be assigned to debt issues that have a put option or
demand feature. The first component of the rating addresses the likelihood of
repayment of principal and interest as due, and the second component of the
rating addresses only the demand feature. The first component of the rating can
relate to either a short-term or long-term transaction and accordingly use
either short-term or long-term rating symbols. The second component of the

A-5

rating relates to the put option and is assigned a short-term rating symbol (for
example, 'AAA/A1+' or 'A1+/A1'). With U.S. municipal short-term demand debt, the
U.S. municipal short-term note rating symbols are used for the first component
of the rating (for example, 'SP1+/A1+').

ACTIVE QUALIFIERS (CURRENTLY APPLIED AND/OR OUTSTANDING)

Ratings qualified with 'L' apply only to amounts invested up to federal
deposit insurance limits.

This suffix is used for issues in which the credit factors, the terms, or
both, that determine the likelihood of receipt of payment of principal are
different from the credit factors, terms or both that determine the likelihood
of receipt of interest on the obligation. The 'p' suffix indicates that the
rating addresses the principal portion of the obligation only.

Ratings with a 'pi' suffix are based on an analysis of an issuer's
published financial information, as well as additional information in the public
domain. They do not, however, reflect in-depth meetings with an issuer's
management and therefore may be based on less comprehensive information than
ratings without a 'pi' subscript. Ratings with a 'pi' subscript are reviewed
annually based on a new year's financial statement, but may be reviewed on an
interim basis if a major event occurs that may affect the issuer's credit
quality.

PRELIMINARY

Preliminary ratings, with the 'prelim' suffix, may be assigned to obligors
or obligations, including financial programs, in the circumstances described
below. Assignment of a final rating is conditional on the receipt by Standard &
Poor's of appropriate documentation. Standard & Poor's reserves the right not to
issue a final rating. Moreover, if a final rating is issued, it may differ from
the preliminary rating.

o Preliminary ratings may be assigned to obligations, most commonly
structured and project finance issues, pending receipt of final
documentation and legal opinions.

o Preliminary ratings are assigned to Rule 415 Shelf Registrations. As
specific issues, with defined terms, are offered from the master
registration, a final rating may be assigned to them in accordance with
Standard & Poor's policies.

o Preliminary ratings may be assigned to obligations that will likely be
issued upon the obligor's emergence from bankruptcy or similar
reorganization, based on late-stage reorganization plans, documentation
and discussions with the obligor. Preliminary ratings may also be

A-6

assigned to the obligors. These ratings consider the anticipated
general credit quality of the reorganized or post bankruptcy issuer as
well as attributes of the anticipated obligation(s).

o Preliminary ratings may be assigned to entities that are being formed
or that are in the process of being independently established when, in
Standard & Poor's opinion, documentation is close to final. Preliminary
ratings may also be assigned to the obligations of these entities.

o Preliminary ratings may be assigned when a previously unrated entity is
undergoing a well-formulated restructuring, recapitalization,
significant financing or other transformative event, generally at the
point that investor or lender commitments are invited. The preliminary
rating may be assigned to the entity and to its proposed obligation(s).
These preliminary ratings consider the anticipated general credit
quality of the obligor, as well as attributes of the anticipated
obligation(s) assuming successful completion of the transformative
event. Should the transformative event not occur, Standard & Poor's
would likely withdraw these preliminary ratings.

o A preliminary recovery rating may be assigned to an obligation that has
a preliminary issue credit rating.

This symbol indicates termination structures that are designed to honor
their contracts to full maturity or, should certain events occur, to terminate
and cash settle all of their contracts before their final maturity date.

UNSOLICITED

Unsolicited ratings are those credit ratings assigned at the initiative of
Standard & Poor's and not at the request of the issuer or its agents.

INACTIVE QUALIFIERS (NO LONGER APPLIED OR
OUTSTANDING)

This symbol indicated continuance of the ratings was contingent upon
Standard & Poor's receipt of an executed copy of the escrow agreement or closing
documentation confirming investments and cash flows. Discontinued use in August
1998.

This qualifier was used to provide additional information to investors
that the bank may terminate its obligation to purchase tendered bonds if the

A-7

long-term credit rating of the issuer was lowered below an investment-grade
level and/or the issuer's bonds are deemed taxable. Discontinued use in January
2001.

The letter 'G' followed the rating symbol when a fund's portfolio
consisted primarily of direct U.S. government securities.

The letters 'pr' indicate that the rating is provisional. A provisional
rating assumes the successful completion of the project financed by the debt
being rated and indicates that payment of debt service requirements was largely
or entirely dependent upon the successful, timely completion of the project.
This rating, however, while addressing credit quality subsequent to completion
of the project, made no comment on the likelihood of or the risk of default upon
failure of such completion.

A 'q' subscript indicates that the rating is based solely upon
quantitative analysis of publicly available information. Discontinued use in
April 2001.

The 'r' modifier was assigned to securities containing extraordinary
risks, particularly market risks, which are not covered in the credit rating.
The absence of an 'r' modifier should not be taken as an indication that an
obligation will not exhibit extraordinary non-credit related risks. Standard &
Poor's discontinued the use of the 'r' modifier for most obligations in June
2000 and for the balance of the obligations (mainly structured finance
transactions) in November 2002.

MOODY'S INVESTORS SERVICE, INC. -- A BRIEF DESCRIPTION OF CERTAIN MOODY'S
INVESTORS SERVICE, INC. ("MOODY'S") RATING SYMBOLS AND THEIR MEANINGS (AS
PUBLISHED BY MOODY'S) FOLLOWS:

LONG-TERM OBLIGATION RATINGS

Moody's long-term ratings are opinions of the relative credit risk of
financial obligations with an original maturity of one year or more. They
address the possibility that a financial obligation will not be honored as
promised. Such ratings use Moody's Global Scale and reflect both the likelihood
of default and any financial loss suffered in the event of default.

A-8

Aaa

Obligations rated Aaa are judged to be of the highest quality, subject to
the lowest level of credit risk.

Obligations rated Aa are judged to be of high quality and are subject to
very low credit risk.

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.

Obligations rated Ba are judged to be speculative and are subject to
substantial credit risk.

Obligations rated B are considered speculative and are subject to high
credit risk.

Caa

Obligations rated Caa are judged to be speculative of poor standing and
are subject to very high credit risk.

Obligations rated Ca are highly speculative and are likely in, or very
near, default, with some prospect of recovery of principal and interest.

Obligations rated C are the lowest rated and are typically in default with
little prospect for recovery of principal or interest.

A-9

Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of
that generic rating category. Additionally, a "(hyb)" indicator is appended to
all ratings of hybrid securities issued by banks, insurers, finance companies,
and securities firms.

MEDIUM-TERM NOTE PROGRAM RATINGS

Moody's assigns ratings to medium-term note (MTN) programs and to the
individual debt securities issued from them (referred to as drawdowns or notes).

MTN program ratings are intended to reflect the ratings likely to be
assigned to drawdowns issued from the program with the specific priority of
claim (e.g., senior or subordinated). To capture the contingent nature of a
program rating, Moody's assigns provisional ratings to MTN programs. A
provisional rating is denoted by (P) in front of the rating when the assignment
of a final rating is subject to the fulfillment of contingencies but is highly
likely that the rating will become definitive after all document are received or
an obligation is issued into the market.

The rating assigned to a drawdown from a rated MTN or bank/deposit note
program is definitive in nature, and may differ from the program rating if the
drawdown is exposed to additional credit risks besides the issuer's default,
such as links to the defaults of other issuers, or has other structural features
that warrant a different rating. In some circumstances, no rating may be
assigned to a drawdown.

Moody's encourages market participants to contact Moody's Ratings Desks or
visit www.moody's.com directly if they have questions regarding ratings for
specific notes issued under a medium-term note program. Unrated notes issued
under an MTN program may be assigned an NR (not rated) symbol.

SHORT-TERM OBLIGATION RATINGS

Moody's short-term ratings are opinions of the ability of issuers to honor
short-term financial obligations. Ratings may be assigned to issuers, short-term
programs or to individual short-term debt instruments. Such obligations
generally have an original maturity not exceeding thirteen months, unless
explicitly noted.

Moody's employs the following designations to indicate the relative
repayment ability of rated issuers:

P-1

Issuers (or supporting institutions) rated Prime-1 have a superior ability
to repay short-term debt obligations.

A-10

P-2

Issuers (or supporting institutions) rated Prime-2 have a strong ability
to repay short-term debt obligations.

P-3

Issuers (or supporting institutions) rated Prime-3 have an acceptable
ability to repay short-term obligations.

Issuers (or supporting institutions) rated Not Prime do not fall within
any of the Prime rating categories.

U.S. MUNICIPAL SHORT-TERM OBLIGATION RATINGS

There are three rating categories for short-term municipal obligations
that are considered investment grade. These ratings are designated as Municipal
Investment Grade (MIG) and are divided into three levels -- MIG 1 through MIG 3.
In addition, those short-term obligations that are of speculative quality are
designated SG, or speculative grade. MIG ratings expire at the maturity of the
obligation.

MIG 1

This designation denotes superior credit quality. Excellent protection is
afforded by established cash flows, highly reliable liquidity support, or
demonstrated broad-based access to the market for refinancing.

MIG 2

This designation denotes strong credit quality. Margins of protection are
ample, although not as large as in the preceding group.

MIG 3

This designation denotes acceptable credit quality. Liquidity and
cash-flow protection may be narrow, and market access for refinancing is likely
to be less well-established.

This designation denotes speculative-grade credit quality. Debt
instruments in this category may lack sufficient margins of protection.

A-11

U.S. MUNICIPAL DEMAND OBLIGATION RATINGS

In the case of variable rate demand obligations (VRDOs), a two-component
rating is assigned; a long or short-term debt rating and a demand obligation
rating. The first element represents Moody's evaluation of the degree of risk
associated with scheduled principal and interest payments. The second element
represents Moody's evaluation of the degree of risk associated with the ability
to receive purchase price upon demand ("demand feature"). The second element
uses a rating variation of the MIG scale called the Variable Municipal
Investment Grade or VMIG rating.

VMIG 1

This designation denotes superior credit quality. Excellent protection is
afforded by the superior short-term credit strength of the liquidity provider
and structural and legal protections that ensure the timely payment of purchase
price upon demand.

VMIG 2

This designation denotes strong credit quality. Good protection is
afforded by the strong short-term credit strength of the liquidity provider and
structural and legal protections that ensure the timely payment of purchase
price upon demand.

VMIG 3

This designation denotes acceptable credit quality. Adequate protection is
afforded by the satisfactory short-term credit strength of the liquidity
provider and structural and legal protections that ensure the timely payment of
purchase price upon demand.

This designation denotes speculative-grade credit quality. Demand features
rated in this category may be supported by a liquidity provider that does not
have an investment grade short-term rating or may lack the structural and/or
legal protections necessary to ensure the timely payment of purchase price upon
demand.

FITCH RATINGS -- A BRIEF DESCRIPTION OF CERTAIN FITCH RATINGS, INC.
("FITCH") RATINGS SYMBOLS AND THEIR MEANINGS (AS PUBLISHED BY FITCH) FOLLOWS:

INTERNATIONAL ISSUER AND CREDIT RATING SCALES

The Primary Credit Rating Scales (those featuring the symbols 'AAA'-'D'
and 'F1'-'D') are used for debt and financial strength ratings.

A-12

LONG-TERM RATING SCALES--ISSUER CREDIT RATING SCALES

Rated entities in a number of sectors, including financial and
non-financial corporations, sovereigns and insurance companies, are generally
assigned Issuer Default Ratings (IDRs). IDRs opine on an entity's relative
vulnerability to default on financial obligations. The "threshold" default risk
addressed by the IDR is generally that of the financial obligations whose
non-payment would best reflect the uncured failure of that entity. As such, IDRs
also address relative vulnerability to bankruptcy, administrative receivership
or similar concepts, although the agency recognizes that issuers may also make
pre-emptive and therefore voluntary use of such mechanisms.

In aggregate, IDRs provide an ordinal ranking of issuers based on the
agency's view of their relative vulnerability to default, rather than a
prediction of a specific percentage likelihood of default.

AAA

Highest credit quality. 'AAA' ratings denote the lowest expectation of
default risk. They are assigned only in cases of exceptionally strong capacity
for payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.

Very high credit quality. 'AA' ratings denote expectations of very low
default risk. They indicate very strong capacity for payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.

High credit quality. 'A' ratings denote expectations of low default risk.
The capacity for payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to adverse business or economic
conditions than is the case for higher ratings.

BBB

Good credit quality. 'BBB' ratings indicate that expectations of default
risk are currently low. The capacity for payment of financial commitments is
considered adequate but adverse business or economic conditions are more likely
to impair this capacity.

Speculative. 'BB' ratings indicate an elevated vulnerability to default
risk, particularly in the event of adverse changes in business or economic
conditions over time; however, business or financial flexibility exists which
supports the servicing of financial commitments.

A-13

Highly speculative. 'B' ratings indicate that material default risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued payment is vulnerable to
deterioration in the business and economic environment.

CCC

Substantial credit risk. Default is a real possibility.

Very high levels of credit risk. Default of some kind appears probable.

Exceptionally high levels of credit risk. Default is imminent or
inevitable, or the issuer is in standstill. Conditions that are indicative of a
'C' category rating of an issuer include:

a. the issuer has entered into a grace or cure period following
non-payment of a material financial obligation;

b. the issuer has entered into a temporary negotiated waiver or
standstill agreement following a payment default on a material financial
obligation; or

c. Fitch Ratings otherwise believes a condition of 'RD' or 'D' to
be imminent or inevitable, including through the formal announcement of a
coercive debt exchange.

Restricted default. 'RD' ratings indicate an issuer that in Fitch Ratings'
opinion has experienced an uncured payment default on a bond, loan or other
material financial obligation but which has not entered into bankruptcy filings,
administration, receivership, liquidation or other formal winding-up procedure,
and which has not otherwise ceased business. This would include:

a. the selective payment default on a specific class or currency of
debt;

b. the uncured expiry of any applicable grace period, cure period or
default forbearance period following a payment default on a bank loan,
capital markets security or other material financial obligation;

c. the extension of multiple waivers or forbearance periods upon a
payment default on one or more material financial obligations, either in
series or in parallel; or

A-14

d. execution of a coercive debt exchange on one or more material
financial obligations.

Default. 'D' ratings indicate an issuer that in Fitch Ratings' opinion has
entered into bankruptcy filings, administration, receivership, liquidation or
other formal winding-up procedure, or which has otherwise ceased business.

Default ratings are not assigned prospectively to entities or their
obligations; within this context, non-payment on an instrument that contains a
deferral feature or grace period will generally not be considered a default
until after the expiration of the deferral or grace period, unless a default is
otherwise driven by bankruptcy or other similar circumstance, or by a coercive
debt exchange.

"Imminent" default typically refers to the occasion where a payment
default has been intimated by the issuer, and is all but inevitable. This may,
for example, be where an issuer has missed a scheduled payment, but (as is
typical) has a grace period during which it may cure the payment default.
Another alternative would be where an issuer has formally announced a coercive
debt exchange, but the date of the exchange still lies several days or weeks in
the immediate future.

In all cases, the assignment of a default rating reflects the agency's
opinion as to the most appropriate rating category consistent with the rest of
its universe of ratings, and may differ from the definition of default under the
terms of an issuer's financial obligations or local commercial practice.

Note: The modifiers "+" or "-" may be appended to a rating to denote relative
status within the major rating categories. Such suffixes are not added to the
'AAA' Long-Term IDR category, or to Long-Term IDR categories below 'B'.

Limitations of the Issuer Credit Rating Scale:

Specific limitations relevant to the issuer credit rating scale include:

o The ratings do not predict a specific percentage of default
likelihood over any given time period.

o The ratings do not opine on the market value of any issuer's
securities or stock, or the likelihood that this value may change.

o The ratings do not opine on the liquidity of the issuer's securities
or stock.

o The ratings do not opine on the possible loss severity on an
obligation should an issuer default.

A-15

o The ratings do not opine on the suitability of an issuer as
counterparty to trade credit.

o The ratings do not opine on any quality related to an issuer's
business, operational or financial profile other than the agency's
opinion on its relative vulnerability to default.

Ratings assigned by Fitch Ratings articulate an opinion on discrete and
specific areas of risk. The above list is not exhaustive, and is provided for
the reader's convenience.

SHORT-TERM RATINGS -- SHORT-TERM RATINGS ASSIGNED TO ISSUERS OR OBLIGATIONS IN
CORPORATE, PUBLIC AND STRUCTURED FINANCE

A short-term issuer or obligation rating is based in all cases on the
short-term vulnerability to default of the rated entity or security stream and
relates to the capacity to meet financial obligations in accordance with the
documentation governing the relevant obligation. Short-Term Ratings are assigned
to obligations whose initial maturity is viewed as "short term" based on market
convention. Typically, this means up to 13 months for corporate, sovereign, and
structured obligations, and up to 36 months for obligations in U.S. public
finance markets.

Highest short-term credit quality. Indicates the strongest intrinsic
capacity for timely payment of financial commitments; may have an added "+" to
denote any exceptionally strong credit feature.

Good short-term credit quality. Good intrinsic capacity for timely payment
of financial commitments.

Fair short-term credit quality. The intrinsic capacity for timely payment
of financial commitments is adequate.

Speculative short-term credit quality. Minimal capacity for timely payment
of financial commitments, plus heightened vulnerability to near term adverse
changes in financial and economic conditions.

High short-term default risk. Default is a real possibility.

A-16

Restricted default. Indicates an entity that has defaulted on one or more
of its financial commitments, although it continues to meet other financial
obligations. Applicable to entity ratings only.

Default. Indicates a broad-based default event for an entity, or the
default of a short-term obligation.

Limitations of the Short-Term Ratings Scale:

Specific limitations relevant to the Short-Term Ratings scale include:

o The ratings do not predict a specific percentage of default
likelihood over any given time period.

o The ratings do not opine on the market value of any issuer's
securities or stock, or the likelihood that this value may change.

o The ratings do not opine on the liquidity of the issuer's securities
or stock.

o The ratings do not opine on the possible loss severity on an
obligation should an obligation default.

o The ratings do not opine on any quality related to an issuer or
transaction's profile other than the agency's opinion on the
relative vulnerability to default of the rated issuer or obligation.

Ratings assigned by Fitch Ratings articulate an opinion on discrete and
specific areas of risk. The above list is not exhaustive, and is provided for
the reader's convenience.

ADDITIONAL INFORMATION

'Not Rated' or 'NR': A designation of 'Not Rated' or 'NR' is used to
denote securities not rated by Fitch where Fitch has rated some, but not all,
securities comprising an issuance capital structure.

'Withdrawn': The rating has been withdrawn and the issue or issuer is no
longer rated by Fitch. Indicated in rating databases with the symbol 'WD'.

A-17

RATING WATCHES AND RATING OUTLOOKS

Rating Watches and Outlooks form part of the Credit Rating and indicate
the likely direction of the rating.

Rating Watch

Rating Watches indicate that there is a heightened probability of a rating
change and the likely direction of such a change. These are designated as
"Positive", indicating a potential upgrade, "Negative", for a potential
downgrade, or "Evolving", if ratings may be raised, lowered or affirmed.
However, ratings that are not on Rating Watch can be raised or lowered without
being placed on Rating Watch first, if circumstances warrant such an action.

A Rating Watch is typically event-driven and, as such, it is generally
resolved over a relatively short period. The event driving the Watch may be
either anticipated or have already occurred, but in both cases, the exact rating
implications remain undetermined. The Watch period is typically used to gather
further information and/or subject the information to further analysis.
Additionally, a Watch may be used where the rating implications are already
clear, but where a triggering event (e.g. shareholder or regulatory approval)
exists. The Watch will typically extend to cover the period until the triggering
event is resolved or its outcome is predictable with a high enough degree of
certainty to permit resolution of the Watch.

Rating Watches can be employed by all analytical groups and are applied to
the ratings of individual entities and/or individual instruments. At the lowest
categories of speculative grade ('CCC', 'CC' and 'C') the high volatility of
credit profiles may imply that almost all ratings should carry a Watch. Watches
are nonetheless only applied selectively in these categories, where a committee
decides that particular events or threats are best communicated by the addition
of the Watch designation.

Rating Outlook

Rating Outlooks indicate the direction a rating is likely to move over a
one- to two-year period. They reflect financial or other trends that have not
yet reached the level that would trigger a rating action, but which may do so if
such trends continue. The majority of Outlooks are generally Stable, which is
consistent with the historical migration experience of ratings over a one- to
two-year period. Positive or Negative rating Outlooks do not imply that a rating
change is inevitable and, similarly, ratings with Stable Outlooks can be raised
or lowered without a prior revision to the Outlook, if circumstances warrant
such an action. Occasionally, where the fundamental trend has strong,
conflicting elements of both positive and negative, the Rating Outlook may be
described as Evolving.

Outlooks are currently applied on the long-term scale to issuer ratings in
corporate finance (including sovereigns, industrials, utilities, financial
institutions and insurance companies) and public finance outside the U.S.; to
issue ratings in public finance in the U.S.; to certain issues in project
finance; to Insurer Financial Strength Ratings; to issuer and/or issue ratings
in a number of National Rating scales; and to the ratings of structured finance

A-18

transactions and covered bonds. Outlooks are not applied to ratings assigned on
the short-term scale and are applied selectively to ratings in the 'CCC', 'CC'
and 'C' categories. Defaulted ratings typically do not carry an Outlook.

Deciding When to Assign Rating Watch or Outlook

Timing is informative but not critical to the choice of a Watch rather
than an Outlook. A discrete event that is largely clear and the terms of which
are defined, but which will not happen for more than six months - such as a
lengthy regulatory approval process - would nonetheless likely see ratings
placed on Watch rather than a revision to the Outlook.

An Outlook revision may, however, be deemed more appropriate where a
series of potential event risks has been identified, none of which individually
warrants a Watch but which cumulatively indicate heightened probability of a
rating change over the following one to two years.

A revision to the Outlook may also be appropriate where a specific event
has been identified, but where the conditions and implications of that event are
largely unclear and subject to high execution risk over an extended period - for
example a proposed, but politically controversial, privatization.

STANDARD RATING ACTIONS

Affirmed*

The rating has been reviewed with no change in rating. Ratings
affirmations may also include an affirmation of, or change to an Outlook when an
Outlook is used.

Confirmed

Action taken in response to an external request or change in terms. Rating
has been reviewed in either context, and no rating change has been deemed
necessary. For servicer ratings, action taken in response to change in financial
condition or IDR of servicer where servicer rating is reviewed in that context
exclusively, and no rating action has been deemed necessary.

Downgrade*

The rating has been lowered in the scale.

Matured*/Paid-In-Full

a. 'Matured' - This action is used when an issue has reached the end of
its repayment term and rating coverage is discontinued. Denoted as 'NR'.

A-19

b. 'Paid-In-Full' - This action indicates that the issue has been paid in
full. As the issue no longer exists, it is therefore no longer rated. Denoted as
'PIF'.

New Rating*

Rating has been assigned to a previously unrated issue primarily used in
cases of shelf issues such as MTNs or similar programs.

Pre-refunded*

Assigned to long-term US Public Finance issues after Fitch assesses
refunding escrow.

Publish*

Initial public announcement of rating on the agency's website, although
not necessarily the first rating assigned. This action denotes when a previously
private rating is published.

Upgrade*

The rating has been raised in the scale.

Withdrawn*

The rating has been withdrawn and the issue or issuer is no longer rated
by Fitch Ratings. Indicated in the rating databases with symbol "WD."

* A rating action must be recorded for each rating in a required cycle to
be considered compliant with Fitch policy concerning aging of ratings. Not all
Ratings or Data Actions, or changes in rating modifiers, will meet this
requirement. Actions that meet this requirement are noted with an * in the above
definitions.

A-20

APPENDIX B

CONFLUENCE INVESTMENT MANAGEMENT LLC
PROXY VOTING GUIDELINES

B-1

PART C - OTHER INFORMATION

Item 25: Financial Statements and Exhibits

1. Financial Statements:

The Registrant's audited financial statements, notes to the financial
statements and the report of independent public accounting firm thereon will be
incorporated into Part B of a Pre-effective Amendment to the Registration
Statement by reference to Registrant's Annual Report for the fiscal year ended
November 30, 2014 contained in its Form N-CSR, as described in the statement of
additional information.

2. Exhibits:

a.1 Declaration of Trust dated March 20, 2007.(1)

a.2 Amendment to Declaration of Trust dated July 29, 2008.*

a.3 Amendment to Declaration of Trust dated October 27, 2008.*

b. Amended and Restated By-Laws of Fund.*

c. None.

d. Form of Global Certificate.(2)

e. Terms and Conditions of the Dividend Reinvestment Plan.(2)

f. None.

g.1 Investment Management Agreement between Registrant and First Trust
Advisors L.P. dated January 3, 2011.*

g.2 Investment Sub-Advisory Agreement by and among Registrant, First Trust
Advisors L.P. and Confluence Investment Management LLC dated January 3,
2011.*

h.1 Form of Underwriting Agreement.*

h.2 Form of Sales Agreement.*

i. None.

j.1 Form of Custodian Services Agreement dated April 20, 2007.(2)

j.2 Custodian Services Agreement Amendment dated September 9, 2011.*

k.1 Transfer Agency Services Agreement dated May 25, 2007.(2)

k.2 Administration and Accounting Services Agreement dated May 25, 2007.(2)

k.3 Committed Facility Agreement dated February 2, 2010.*

-3-

k.4. Amendment No. 1 to Committed Facility Agreement dated December 31, 2010.*

k.5. Amendment No. 2 to Committed Facility Agreement dated June 13, 2011*

k.6 Amendment No. 3 to Committed Facility Agreement dated October 21, 2013.*

l.1 Opinion and consent of Chapman and Cutler LLP.*

l.2 Opinion and consent of Bingham McCutchen LLP.*

m. None.

n. Consent of Independent Registered Public Accounting Firm.*

o. None.

p. Subscription Agreement dated April 20, 2007.(2)

q. None.

r.1 Code of Ethics of Registrant.**

r.2 Code of Ethics of First Trust Portfolios L.P.**

r.3 Code of Ethics of First Trust Advisors L.P.**

r.4 Code of Ethics of Confluence Investment Management LLC.*

s. Powers of Attorney.**

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

* To be filed by amendment.

** Filed herewith.

(1) Filed on March 21, 2007 as an Exhibit to Registrant's Registration
Statement on Form N-2 (File No. 333-141457) and incorporated herein by
reference.

(2) Filed on May 24, 2007 as an Exhibit to Registrant's Amended Registration
Statement on Form N-2/A (File No. 333-141457) and incorporated herein by
reference.

Item 26: Marketing Arrangements

Reference is made to the form of underwriting agreement and/or sales
agreement for the Registrant's common shares to be filed in a post-effective
amendment to the Registrant's Registration Statement and the section entitled
"Plan of Distribution" contained in Registrant's Prospectus, filed herewith as
Part A of Registrant's Registration Statement.

-4-

Item 27: Other Expenses of Issuance and Distribution

---------------------------------------------------------- ---------------------
Securities and Exchange Commission Fees $ *
---------------------------------------------------------- ---------------------
Financial Industry Regulatory Authority, Inc. Fees $ *
---------------------------------------------------------- ---------------------
Printing and Engraving Expenses $ *
---------------------------------------------------------- ---------------------
Legal Fees $ *
---------------------------------------------------------- ---------------------
Listing Fees $ *
---------------------------------------------------------- ---------------------
Accounting Expenses $ *
---------------------------------------------------------- ---------------------
Blue Sky Filing Fees and Expenses $ *
---------------------------------------------------------- ---------------------
Miscellaneous Expenses $ *
---------------------------------------------------------- ---------------------
Total $ *
---------------------------------------------------------- ---------------------

* To be completed by amendment.

Item 28: Persons Controlled by or under Common Control with Registrant

Not applicable.

Item 29: Number of Holders of Securities

At ______________, 2014

------------------------------------------------------- ------------------------
Title of Class Number of Record Holders
------------------------------------------------------- ------------------------
Common Shares, $0.01 par value *
------------------------------------------------------- ------------------------

* To be completed by amendment.

-5-

Item 30: Indemnification

Section 5.3 of the Registrant's Declaration of Trust provides as follows:

Section 5.3. Mandatory Indemnification. (a) Subject to the exceptions and
limitations contained in paragraph (b) below:

(i) every person who is or has been a Trustee or officer of the
Trust (hereinafter referred to as a "Covered Person") shall be indemnified
by the Trust against all liability and against all expenses reasonably
incurred or paid by him or her in connection with any claim, action, suit
or proceeding in which that individual becomes involved as a party or
otherwise by virtue of being or having been a Trustee or officer and
against amounts paid or incurred by that individual in the settlement
thereof;

(ii) the words "claim," "action," "suit" or "proceeding" shall apply
to all claims, actions, suits or proceedings (civil, criminal,
administrative or other, including appeals), actual or threatened; and the
words "liability" and "expenses" shall include, without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement or
compromise, fines, penalties and other liabilities.

(b) No indemnification shall be provided hereunder to a Covered Person:

(i) against any liability to the Trust or the Shareholders by reason
of a final adjudication by the court or other body before which the
proceeding was brought that the Covered Person engaged in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of that individual's office;

(ii) with respect to any matter as to which the Covered Person shall
have been finally adjudicated not to have acted in good faith in the
reasonable belief that that individual's action was in the best interest
of the Trust; or

(iii) in the event of a settlement involving a payment by a Trustee
or officer or other disposition not involving a final adjudication as
provided in paragraph (b)(i) or (b)(ii) above resulting in a payment by a
Covered Person, unless there has been either a determination that such
Covered Person did not engage in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of
that individual's office by the court or other body approving the
settlement or other disposition or by a reasonable determination, based
upon a review of readily available facts (as opposed to a full trial-type
inquiry) that that individual did not engage in such conduct:

(A) by vote of a majority of the Disinterested Trustees (as
defined below) acting on the matter (provided that a majority of the
Disinterested Trustees then in office act on the matter); or

(B) by written opinion of (i) the then-current legal counsel
to the Trustees who are not Interested Persons of the Trust or (ii)
other legal counsel chosen by a majority of the Disinterested
Trustees (or if there are no Disinterested Trustees with respect to
the matter in question, by a majority of the Trustees who are not
Interested Persons of the Trust) and determined by them in their
reasonable judgment to be independent.

(c) The rights of indemnification herein provided may be insured against
by policies maintained by the Trust, shall be severable, shall not affect any
other rights to which any Covered Person may now or hereafter be entitled, shall
continue as to a person who has ceased to be a Covered Person and shall inure to
the benefit of the heirs, executors and administrators of such person. Nothing
contained herein shall limit the Trust from entering into other insurance

-6-

arrangements or affect any rights to indemnification to which Trust personnel,
including Covered Persons, may be entitled by contract or otherwise under law.

(d) Expenses of preparation and presentation of a defense to any claim,
action, suit, or proceeding of the character described in paragraph (a) of this
Section 5.3 shall be advanced by the Trust prior to final disposition thereof
upon receipt of an undertaking by or on behalf of the Covered Person to repay
such amount if it is ultimately determined that the Covered Person is not
entitled to indemnification under this Section 5.3, provided that either:

(i) such undertaking is secured by a surety bond or some other
appropriate security or the Trust shall be insured against losses arising
out of any such advances; or

(ii) a majority of the Disinterested Trustees acting on the matter
(provided that a majority of the Disinterested Trustees then in office act
on the matter) or legal counsel meeting the requirement in Section
5.3(b)(iii)(B) above in a written opinion, shall determine, based upon a
review of readily available facts (as opposed to a full trial-type
inquiry), that there is reason to believe that the Covered Person
ultimately will be found entitled to indemnification.

As used in this Section 5.3 a "Disinterested Trustee" is one (i) who is
not an "Interested Person" of the Trust (including anyone who has been exempted
from being an "Interested Person" by any rule, regulation or order of the
Commission), and (ii) against whom none of such actions, suits or other
proceedings or another action, suit or other proceeding on the same or similar
grounds is then or had been pending.

(e) With respect to any such determination or opinion referred to in
clause (b)(iii) above or clause (d)(ii) above, a rebuttable presumption shall be
afforded that the Covered Person has not engaged in willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of such Covered Person's office in accordance with pronouncements of the
Commission.

Item 31: Business and Other Connections of Investment Advisers

The information in the Statement of Additional Information under the captions
"Management of the Fund--Trustees and Officers" is hereby incorporated by
reference.

Item 32: Location of Accounts and Records.

First Trust Advisors L.P. maintains the Declaration of Trust, By-Laws, minutes
of trustees and shareholders meetings and contracts of the Registrant, all
advisory material of the investment adviser, all general and subsidiary ledgers,
journals, trial balances, records of all portfolio purchases and sales, and all
other required records.

Item 33: Management Services

Not applicable.

Item 34: Undertakings

1. Registrant undertakes to suspend the offering of its shares until it
amends its prospectus if (1) subsequent to the effective date of its
Registration Statement, the net asset value declines more than 10 percent
from its net asset value as of the effective date of the Registration
Statement, or (2) the net asset value increases to an amount greater than
its net proceeds as stated in the prospectus.

2. Not applicable.

3. Not applicable.

-7-

4. The Registrant undertakes (a) to file, during any period in which offers
or sales are being made, a post-effective amendment to this Registration
Statement:

(1) to include any prospectus required by Section 10(a)(3) of the Securities
Act of 1933;

(2) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; and

(3) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;

(b) that, for the purpose of determining liability under the Securities Act of
1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of those securities at that time shall be deemed to be the
initial bona fide offering thereof; and

(c) to remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering;

(d) that, for the purpose of determining liability under the Securities Act of
1933 to any purchaser, if the Registrant is subject to Rule 430C; each
prospectus filed pursuant to Rule 497(b), (c), (d) or (e) under the
Securities Act of 1933, shall be deemed to be part of and included in this
Registration Statement as of the date it is first used after
effectiveness. Provided, however, that no statement made in this
Registration Statement or prospectus that is part of this registration
statement or made in a document incorporated or deemed incorporated by
reference into this registration statement or prospectus that is art of
this registration statement will, as to a purchaser with a time of
contract of sale prior to such first use, supercede or modify any
statement that was made in this registration statement or prospectus that
was part of this registration statement or made in any such document
immediately prior to such date of first use;

(e) that for the purpose of determining liability of the Registrant under the
Securities Act of 1933 to any purchaser in the initial distribution of
securities:

The undersigned Registrant undertakes that in a primary offering of
securities of the undersigned Registrant pursuant to this registration
statement, regardless of the underwriting method used to sell the
securities to the purchaser, if the securities are offered or sold to such
purchaser by means of any of the following communications, the undersigned
Registrant will be a seller to the purchaser and will be considered to
offer or sell such securities to the purchaser:

(1) any preliminary prospectus or prospectus of the undersigned Registrant
relating to the offering required to be filed pursuant to Rule 497 under
the Securities Act of 1933;

(2) the portion of any advertisement pursuant to Rule 482 under the Securities
Act of 1933 relating to the offering containing material information about
the undersigned Registrant or its securities provided by or on behalf of
the undersigned Registrant; and

(3) any other communication that is an offer in the offering made by the
undersigned Registrant to the purchaser.

5. The Registrant undertakes that:

a. For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
a registration statement in reliance upon Rule 430A and contained in the

-8-

form of prospectus filed by the Registrant under Rule 497(h) under the
Securities Act of 1933 shall be deemed to be part of the Registration
Statement as of the time it was declared effective; and

b. For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of the securities at that
time shall be deemed to be the initial bona fide offering thereof.

6. The Registrant undertakes to send by first class mail or other means
designed to ensure equally prompt delivery, within two business days of
receipt of a written or oral request, any Statement of Additional
Information.

7. Upon each issuance of securities pursuant to this Registration Statement,
the Registrant undertakes to file a form of prospectus and/or prospectus
supplement pursuant to Rule 497 and a post-effective amendment to the
extent required by the Securities Act of 1933 and the rules and
regulations thereunder, including, but not limited to a post-effective
amendment pursuant to Rule 462(c) or Rule 462(d) under the Securities Act
of 1933.

-9-

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in this City of Wheaton, and State of Illinois, on the 26th day of
November, 2014.

FIRST TRUST SPECIALTY FINANCE AND FINANCIAL
OPPORTUNITIES FUND

By: /s/ Mark R. Bradley
---------------------------------------
Mark R. Bradley, President and
Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.

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

Signature Title Date
--------------------------------------- ------------------------------------- ------------------------------------
By: /s/ Mark R. Bradley President and Chief Executive November 26, 2014
------------------------- Officer (Principal Executive
Mark R. Bradley Officer)
--------------------------------------- ------------------------------------- ------------------------------------
By: /s/ James M. Dykas Chief Financial Officer, Chief November 26, 2014
------------------------- Accounting Officer and Treasurer
James M. Dykas (Principal Financial and Accounting
Officer)
--------------------------------------- ------------------------------------- ------------------------------------
James A. Bowen(1) Chairman of the Board and Trustee )
--------------------------------------- -------------------------------------
Richard E. Erickson(1) Trustee ) By: /s/ W. Scott Jardine
--------------------------------------- ------------------------------------- -----------------------------
Thomas R. Kadlec(1) Trustee ) W. Scott Jardine
--------------------------------------- ------------------------------------- Attorney-In-Fact
Robert F. Keith(1) Trustee ) November 26, 2014
--------------------------------------- -------------------------------------
Niel B. Nielson(1) Trustee )
--------------------------------------- -------------------------------------

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

(1) Original powers of attorney authorizing James A. Bowen, Mark R. Bradley,
W. Scott Jardine, Kristi A. Maher and Eric F. Fess to execute Registrant's
Registration Statement, and Amendments thereto, for each of the trustees
of the Registrant on whose behalf this Registration Statement is filed,
were previously executed and filed as an exhibit hereto.

-10-

INDEX TO EXHIBITS

r.1 Code of Ethics of Registrant.**

r.2 Code of Ethics of First Trust Portfolios L.P.**

r.3 Code of Ethics of First Trust Advisors L.P.**

s. Powers of Attorney.**

-11-