Form 486APOS Voya Enhanced Securitize
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E-mailAs filed with the U.S. Securities and Exchange Commission on April 11, 2025
Securities Act File No. 333-274872
Investment Company Act File No. 811-23903
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-2
(Check appropriate box or boxes)
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ | |
Pre-Effective Amendment No. | |
Post-Effective Amendment No. | |
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ | |
Amendment No. |
(Exact Name of Registrant as Specified in Charter)
(Address of Principal Executive Offices)
(Number, Street, City, State, Zip Code)
(800 ) 992-0180
(Registrant’s Telephone Number, including Area Code)
Voya Investments, LLC
(Name and Address (Number, Street, City, State, Zip Code) of Agent for Service)
Copies of Communications to:
Elizabeth J. Reza Ropes & Gray LLP Prudential Tower 800 Boylston Street Boston, Massachusetts 02199-3600 |
Approximate Date of Proposed Public Offering:
Check box if the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans. | |
Check box if any securities being registered on this Form will be offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933 (“Securities Act”), other than securities offered in connection with a dividend reinvestment plan. | |
Check box if this Form is a registration statement pursuant to General Instruction A.2 or a post-effective amendment thereto. | |
Check box if this Form is a registration statement pursuant to General Instruction B or a post-effective amendment thereto that will become effective upon filing with the Commission pursuant to Rule 462(e) under the Securities Act. | |
Check box if this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction B to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act. |
It is proposed that this filing will become effective (check appropriate box):
when declared effective pursuant to Section 8(c), or as follows: The following boxes should only be included and completed if the registrant is making this filing in accordance with Rule 486 under the Securities Act. | |
¨ | immediately upon filing pursuant to paragraph (b) of Rule 486. |
¨ | on (date) pursuant to paragraph (b) of Rule 486. |
¨ | 60 days after filing pursuant to paragraph (a) of Rule 486. |
☒ | on (June 12, 2025) pursuant to paragraph (a) of Rule 486 . |
If appropriate, check the following box:
This [post-effective amendment] designates a new effective date for a previously filed [post-effective amendment] [registration statement]. | |
This Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, and the Securities Act registration statement number of the earlier effective registration statement for the same offering is: ______. | |
This Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, and the Securities Act registration statement number of the earlier effective registration statement for the same offering is: ______. | |
This Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, and the Securities Act registration statement number of the earlier effective registration statement for the same offering is: ______. |
Check each box that appropriately characterizes the Registrant:
Registered Closed-End Fund (closed-end company that is registered under the Investment Company Act of 1940 (“Investment Company Act”)). | |
Business Development Company (closed-end company that intends or has elected to be regulated as a business development company under the Investment Company Act). | |
Interval Fund (Registered Closed-End Fund or a Business Development Company that makes periodic repurchase offers under Rule 23c-3 under the Investment Company Act). | |
A.2 Qualified (qualified to register securities pursuant to General Instruction A.2 of this Form). | |
Well-Known Seasoned Issuer (as defined by Rule 405 under the Securities Act). | |
Emerging Growth Company (as defined by Rule 12b-2 under the Securities Exchange Act of 1934 (“Exchange Act”). | |
¨ | If an Emerging Growth Company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of Securities Act. |
New Registrant (registered or regulated under the Investment Company Act for less than 12 calendar months preceding this filing). |
EXPLANATORY NOTE
This Post-Effective Amendment No. 1 (the “Amendment”) to the Registration Statement on Form N-2 of Voya Enhanced
Securitized Income Fund (the “Registrant”) is being filed for the purposes of updating the disclosure in compliance with annual
updating requirements to the Registration Statement filing on Form N-2.
This Amendment is organized as follows: (a) Prospectus; (b) Statement of Additional Information relating to the Registrant; and
(c) Part C Information.
Voya Enhanced Securitized Income Fund
Class/Ticker:
A
/VVJHX;
C
/VVJIX;
I
/VVJJX
Prospectus Dated
June 12
,
2025
Voya Enhanced Securitized Income Fund (the
“
Fund
”
) is a Delaware Statutory trust that is registered under the Investment
Company Act of 1940, as amended (the
“
1940 Act
”
), as a continuously-offered, diversified, closed-end management investment
company. The Fund’s investment objective is to maximize total return through a combination of income and capital appreciation.
Under normal
circumstances
, the Fund invests at least 80% of its net assets (plus
the amount of any
borrowings for investment
purposes) in securitized credit instruments.
For purposes of this 80% policy securitized
credit instruments include
, without
limitation, the following
: commercial mortgage-backed securities; asset-backed securities; collateralized loan obligations;
residential mortgage-backed securities; collateralized mortgage obligations; and other securitized investments representing
interests in cashflows from various assets, such as loans, leases and warehouse facilities. The Fund may invest in securitized
credit instruments directly or indirectly, for example, by investing in derivatives or synthetic instruments with underlying
assets that have similar economic characteristics to the securitized credit instruments in which the Fund may make direct
investments. The Fund may invest in securitized credit instruments of any credit quality, duration, or maturity and may invest
significantly in securities rated below investment grade
(sometimes referred to as
“
high-yield securities
”
,
“
high-yield bonds
”
,
or
“
junk bonds
”
)
.
This Prospectus applies to the offering of three separate classes of shares of beneficial interest (
“
Shares
”
) in the Fund,
designated as Class A Shares, Class C Shares, and Class I Shares.
The Fund has an interval fund structure and conducts quarterly repurchase offers for its Shares at net asset value (
“
NAV
”
)
per Share in an amount not less than 5% nor more than 25% of the Fund’s outstanding Shares, subject to applicable law,
approval of the Fund’s Board of Trustees, and in accordance with the Fund’s repurchase policy established pursuant to
Rule 23c-3 under the 1940 Act.
See
“
Repurchase Offers
”
and
“
Risk Factors and Special Considerations – Limited Liquidity
for Investors
”
later in this Prospectus for further discussion on the Fund’s repurchase policies and related risks.
There is no assurance that you will be able to tender your Shares when or in the amount that you desire.
Shares are speculative
and illiquid securities involving substantial risk of loss. An investment in the Fund is subject to, among others, the following
risks:
•
The Fund’s Shares are not listed on any national securities exchange and it is not anticipated that a secondary market
for the Shares will develop. You should generally not expect to be able to sell your Shares (other than through the repurchase
process). Thus, an investment in the Fund may not be suitable for investors who may need the money they invest in a
specified timeframe.
•
Even though the Fund will offer to repurchase Shares on a quarterly basis, only a limited number of Shares will be eligible
for repurchase by the Fund, so you should consider the Shares to be illiquid. Shares will not be redeemable at a shareholder’s
option nor will they be exchangeable for shares of any other fund. As a result, there is no guarantee that you will be able
to sell your Shares at any given time or in the quantity that you desire.
•
Shares are appropriate only for those investors who can tolerate a high degree of risk and do not require a liquid investment
and for whom an investment in the Fund does not constitute a complete investment program.
•
Shares are speculative and involve a high degree of risk, including the risk of a substantial loss of investment. See
“
Risk
Factors and Special Considerations
”
later in the Prospectus to read about the risks you should consider before buying
Shares.
•
The amount of distributions that the Fund may pay, if any, is uncertain.
•
The Fund may pay distributions in significant part from sources that may not be available in the future and that are unrelated
to the Fund’s performance, such as from offering proceeds and borrowings.
•
With respect to Class A Shares, an investor will pay a sales load of up to 2.50% on the amount invested.
•
The Fund may invest in below investment grade investments (
“
junk
”
instruments), mortgage-backed securities, securities
which are at risk of default as to the repayment of principal and/or interest at the time of acquisition by the Fund or are
rated in the lower rating categories or are unrated. These investments may be difficult to value and may be illiquid. See
“
Risk Factors and Special Considerations – Asset-Backed (including Mortgage-Backed) Securities, Liquidity, and High-Yield
Securities
”
later in this Prospectus.
This Prospectus provides important information that you should know about the Fund before investing. You should read
this Prospectus carefully and retain it for future reference. Additional information about the Fund, including the Statement
of Additional Information (
“
SAI
”
), dated
June 12
,
2025
, has been filed with the SEC. You can request a copy of the SAI and
annual and semi-annual reports of the Fund (when available) without charge on the Fund’s website (www.voyainvestments.com),
by writing to the Fund at 7337 East Doubletree Ranch Road, Suite 100, Scottsdale, Arizona 85258-2034, or by calling the
Fund toll-free at 1-800-992-0180. You may also call the Fund’s toll-free telephone number to request other information
about the Fund or to make shareholder inquiries. The SAI is incorporated by reference into this Prospectus in its entirety.
You can view information about the Fund, including the SAI and other material incorporated by reference into the Fund’s
registration statement on the SEC’s website (
http://www.sec.gov
).
You should rely only on the information contained in this Prospectus and the SAI. The Fund has not authorized anyone to
provide you with different information. You should not assume that the information provided by this Prospectus is accurate
as of any date other than the date shown above. Neither the SEC 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.
Voya Enhanced Securitized Income Fund
This is only a synopsis. This synopsis may not contain all of the information that you should consider before investing in the
Fund’s Shares. You should review the more detailed information contained in this Prospectus and in the SAI. In particular,
you should carefully read the risks of investing in the Fund’s Shares, as discussed under
“
Risk Factors and Special Considerations.
”
DESCRIPTION OF THE FUND
The Fund
The Fund is a continuously-offered, diversified, closed-end management investment company registered under the Investment
Company Act of 1940, as amended, and the rules, regulations and applicable exemptive orders thereunder (the
“
1940 Act
”
).
It was organized as a Delaware statutory trust on September 26, 2023. The Fund operates as an interval fund pursuant to
Rule 23c-3 under the 1940 Act. The Fund offers three separate classes of shares (
“
Shares
”
) in this Prospectus: Class A,
Class C, and Class I. See
“
Classes of Shares
”
later in this Prospectus.
Investment Objective
The Fund seeks to maximize total return through a combination of current income and capital appreciation. There is no assurance
that the Fund will achieve its investment objective. The investment objective is not fundamental and may be changed without
approval of the shareholders of the Fund.
Investment Adviser/Sub-Adviser
Voya Investments, LLC (
“
Voya Investments
”
or the
“
Investment Adviser
”
), an Arizona limited liability company, is registered
with the SEC as an investment adviser. Voya Investments serves as the investment adviser to, and has overall responsibility
for the management of the Fund. Voya Investments oversees all investment advisory and portfolio management services and
assists in managing and supervising all aspects of the general day-to-day business activities and operations of the Fund,
including, but not limited to, the following: custodial, transfer agency, dividend disbursing, accounting, auditing, compliance,
and related services.
Voya Investments began business as an investment adviser in 1994 and currently serves as investment adviser to certain
registered investment companies, consisting of open- and closed-end registered investment companies and collateralized
loan obligations. Voya Investments is an indirect subsidiary of Voya Financial, Inc. Voya Financial, Inc. is a U.S.-based financial
institution whose subsidiaries operate in the retirement, investment, and insurance industries.
Voya Investments' principal business address is 7337 East Doubletree Ranch Road, Suite 100, Scottsdale, Arizona 85258.
The Investment Adviser receives an annual fee, payable monthly, in an amount equal to 1.15% of the Fund's
“
total managed
assets.“ Total managed assets means the total assets of the Fund (including assets attributable to any reverse repurchase
agreements and borrowings) minus the Fund's accrued liabilities (other than liabilities for reverse repurchase agreements
and the principal amount of any borrowings incurred) (“Managed Assets
”
). This definition includes assets acquired through
the Fund's use of leverage.
Voya Investment Management Co. LLC (
“
Voya IM
”
or the
“
Sub-Adviser
”
) serves as sub-adviser to the Fund. Voya IM is an
affiliate of the Investment Adviser.
See
“
Investment Management and Other Service Providers - Sub-Adviser and Portfolio Managers
”
later in this Prospectus.
Distributions
Income dividends on Shares accrue and are declared daily and paid monthly. Income dividends will be automatically reinvested
in additional Shares of the Fund at the Fund's net asset value (
“
NAV
”
) with no sales charge, unless a shareholder elects to
receive distributions in cash or to purchase shares of another Voya mutual fund. The Fund may make one or more annual
payments from any realized capital gains.
1
Voya Enhanced Securitized Income Fund
Principal Investment Strategies
Under normal
circumstances
, the Fund invests at least 80% of its net assets (plus
the amount of any
borrowings for investment
purposes) in securitized credit instruments.
For purposes of this 80%
policy,
securitized credit instruments include
,
without
limitation,
the following:
commercial mortgage-backed
securities
(
“
CMBS
”
);
asset-
backed securities
(
“
ABS
”
); collateralized
loan obligations (
“
CLOs
”
); residential mortgage-backed securities (
“
RMBS
”
); collateralized mortgage obligations (
“
CMOs
”
);
and other securitized investments representing interests in cashflows from various assets, such as loans, leases and warehouse
facilities
.
The Fund may invest in securitized credit instruments directly or indirectly, for example, by investing in derivatives or synthetic
instruments with underlying assets that have similar economic characteristics to the securitized credit instruments in which
the Fund may make direct investments. The Fund may
invest in whole loans and participations in whole loans, including commercial
and residential mortgage loans. Certain loans in which the Fund may invest, or to which the Fund may gain exposure indirectly
through its investments in collateralized debt obligations, CLOs or other types of structured securities, are considered
“
covenant-lite
”
loans.
The Fund’s investments in securitized credit instruments may be fixed rate or floating or variable rate instruments.
The Fund's
investments in
RMBS
may include credit-risk transfer securities, home equity sharing agreements, residuals and warehousing
structures.
The Fund may invest in interest-only (
“
IO
”
), principal-only (
“
PO
”
), or inverse floating rate credit instruments. The Fund may
invest in mortgage dollar rolls and may purchase or sell securities on a when-issued, delayed delivery or forward commitment
basis through the
“
to-be-announced
”
(
“
TBA
”
) market. With TBA transactions, the particular securities to be delivered are not
identified at the trade date but the delivered securities must meet specified terms and standards.
The Fund may invest in securitized credit instruments of any credit quality, duration, or maturity and may invest significantly
in securities rated below investment grade
(sometimes referred to as
“
high-yield securities
”
,
“
high-yield bonds
”
, or
“
junk
bonds
”
)
.
Below investment grade refers to
a rating given by one or more nationally recognized statistical rating organizations
(
e.g
.,
rated Ba1 or below by Moody’s
Ratings
,
or BB+ or below by S&P Global Ratings
or Fitch Ratings, Inc.
) or
, if unrated,
determined by the Fund
to be of comparable quality.
The Fund may invest in any level of the capital structure of an issuer of
mortgage-backed or asset-backed securities, including the equity or
“
first loss
”
tranche.
The Fund may invest in foreign (non-U.S.) securities without limit, which may include non-U.S. dollar denominated foreign
(non-U.S.) securities and credit instruments.
The Fund may invest in other fixed-income instruments, which include bonds, debt instruments and other similar instruments
issued by various U.S. and non-U.S. public or private sector entities. The Fund also may invest in real estate companies and
real estate investment trust (
“
REIT
”
) stocks and other equity securities.
The Fund may invest in derivative instruments including
, without limitation, the following
: futures contracts, options on futures,
and
credit default swap agreements, subject to applicable law. The Fund typically uses derivatives to seek to reduce or hedge
exposures or other risks such as interest rate or currency risk, to substitute for taking a position in the underlying asset,
and/or to enhance returns in the Fund. The Fund may seek to obtain market exposure to the instruments in which it primarily
invests by entering into a series of purchase and sale contracts or by using other investment techniques (such as dollar rolls
and reverse repurchase agreements).
In choosing investments for the Fund, the
sub-adviser (the
“
Sub-Adviser
”
)
combines extensive credit analysis of individual
securities, focusing on factors such as collateral, transaction structure, and the other parties involved in a securitization
such as loan servicers and originators, with relative value analysis to identify investments that the Sub-Adviser believes will
provide above-average returns. In pursuing the Fund’s investment objective, the Sub-Adviser will seek to enhance the Fund’s
income and capital appreciation potential by selecting those securitized credit instruments that the Sub-Adviser believes offer
advantageous yields relative to other similar securities. Leverage may also be utilized to further enhance income potential.
The Sub-Adviser may sell securities for a variety of reasons, such as to secure gains, limit losses, or redeploy assets into
opportunities believed to be more promising.
To seek to increase the yield on the Shares, the Fund may lend portfolio securities on a short-term or long-term basis, up to
33
1
∕
3
% of its total assets. Such lending will be fully secured by investment-grade collateral held by a third-party securities
lending agent.
The Fund may engage in executing repurchase agreements.
To the extent consistent with the applicable liquidity requirements for interval funds under Rule 23c-3 under the 1940 Act,
the Fund may invest without limit in illiquid investments.
Voya Enhanced Securitized Income Fund
2
Borrowing and Leverage
To seek to increase the yield on the Shares, the Fund employs financial leverage primarily through reverse repurchase agreements
and may also obtain leverage through credit default swaps, dollar rolls and borrowings such as through bank loans or commercial
paper and/or other credit facilities. The Fund intends to utilize reverse repurchase agreements, dollar rolls, borrowings and
other forms of leverage opportunistically and may choose to increase or decrease, or eliminate entirely, its use of leverage
over time and from time to time based on the Sub-Adviser’s assessment of the yield curve environment, interest rate trends,
market conditions and other factors. The timing and terms of leverage will be determined by the Investment Adviser or Sub-Adviser.
See
“
Risk Factors and Special Considerations - Leverage
”
later in this Prospectus.
The net proceeds the Fund obtains from reverse repurchase agreements, credit default swaps, dollar rolls or other forms of
leverage utilized will be invested in accordance with the Fund’s investment objective and policies as described in this Prospectus.
So long as the rate of return, net of applicable Fund expenses, on the debt obligations and other investments purchased by
the Fund exceeds the costs to the Fund of the leverage it utilizes, the investment of the Fund’s assets attributable to leverage
will generate more income than will be needed to pay the costs of the leverage. If so, and all other things being equal, the
excess may be used to pay higher dividends to Shareholders than if the Fund were not so leveraged.
The 1940 Act generally prohibits the Fund from engaging in most forms of leverage representing indebtedness (including the
use of bank loans, commercial paper or other credit facilities) unless immediately after the issuance of the leverage the Fund
has satisfied the asset coverage test with respect to senior securities representing indebtedness prescribed by the 1940
Act; that is, the value of the Fund’s total assets less all liabilities and indebtedness not represented by senior securities (for
these purposes,
“
total net assets
”
) is at least 300% of the senior securities representing indebtedness (effectively limiting
the use of leverage through senior securities representing indebtedness to 33
1
∕
3
of the Fund’s total net assets, including
assets attributable to such leverage). In addition, the Fund is not permitted to declare any cash dividend or other distribution
on Shares unless, at the time of such declaration, this asset coverage test is satisfied. To the extent that the Fund engages
in borrowings, it may prepay a portion of the principal amount of the borrowing to the extent necessary in order to maintain
the required asset coverage. Failure to maintain certain asset coverage requirements could result in an event of default by
the Fund with respect to bank borrowings or other arrangements. The Fund's use of derivatives transactions and other similar
instruments is generally subject to a value-at-risk leverage limit, derivatives risk management program, and reporting requirements
under Rule 18f-4 under the 1940 Act unless the Fund qualifies as a
“
limited derivatives user
”
as defined in the rule or the
Fund's use of such an instrument satisfies the conditions of certain exemptions under the rule.
Leveraging is a speculative technique and there are special risks and costs involved. There is no assurance that the Fund
will utilize reverse repurchase agreements, credit default swaps, dollar rolls or borrowings or utilize any other forms of leverage
(such as the use of derivatives strategies). If used, there can be no assurance that the Fund’s leveraging strategies will be
successful or result in a higher yield on your Shares. When leverage is used, the NAV of the Shares and the yield to shareholders
will be more volatile. In addition, interest and other expenses borne by the Fund with respect to its use of reverse repurchase
agreements, dollar rolls, borrowings or any other forms of leverage are borne by the Shareholders and result in a reduction
of the NAV of the Shares. In addition, because the fees received by the Investment Adviser are based on the average daily
“
total managed assets
”
of the Fund (including any assets attributable to any reverse repurchase agreements, dollar rolls and
borrowings, if issued), the Investment Manager has a financial incentive for the Fund to use certain forms of leverage (
e.g
.,
reverse repurchase agreements, dollar rolls and borrowings), which may create a conflict of interest between the Investment
Adviser, on the one hand, and the Shareholders, on the other hand.
The Fund also may borrow money in order to repurchase its shares or as a temporary measure for extraordinary or emergency
purposes, including for the payment of dividends or the settlement of securities transactions which otherwise might require
untimely dispositions of portfolio securities held by the Fund.
Diversification
The Fund maintains a diversified investment portfolio through an investment strategy which seeks to limit exposure to any
one issuer or industry.
The Fund is diversified, as such term is defined in the 1940 Act. The Fund’s policy to be diversified is a fundamental policy
that may not be changed without shareholder approval. A diversified fund may not, as to 75% of its total assets, invest more
than 5% of its total assets in any one issuer and may not purchase more than 10% of the outstanding voting securities of
any one issuer (other than securities issued or guaranteed by the U.S. government or any of its agencies or instrumentalities,
or other investment companies). The Fund will consider a borrower on a loan, including a loan participation, to be the issuer
of that loan. In addition, with respect to a loan under which the Fund does not have privity with the borrower or would not
have a direct cause of action against the borrower in the event of the failure of the borrower to make payment of scheduled
principal or interest, the Fund will separately meet the foregoing requirements and consider each interpositioned lender (a
lender from which the Fund acquires a loan) to be an issuer of the loan. With respect to no more than 25% of its total assets,
the Fund may make investments that are not subject to the foregoing restrictions.
Voya Enhanced Securitized Income Fund
3
Continuous Offering
The Fund continuously offers its Shares for sale. Sales are made through selected broker-dealers and financial services firms
which enter into agreements with Voya Investments Distributor, LLC (the
“
Distributor
”
), the Fund's principal underwriter. Shares
are sold at a public offering price equal to their NAV per share. The Fund and the Distributor reserve the right to reject any
purchase order. Please note that cash, traveler's checks, third party checks, money orders, and checks drawn on non-U.S.
banks (even if payment may be effected through a U.S. bank) generally will not be accepted for purchase of Shares.
Repurchase Offers
To maintain a measure of liquidity, the Fund will offer to repurchase not less than 5% and not more than 25% of its outstanding
Shares on a quarterly basis (
“
Repurchase Offers
”
). This is a fundamental policy that cannot be changed without shareholder
approval. Other than the Fund's quarterly repurchase offers, no market for the Fund's Shares is expected to exist. Even
though the Fund intends to make quarterly repurchase offers to repurchase a portion of its Shares, you should consider the
Shares to be illiquid. The applicable early withdrawal charge (
“
EWC
”
) will be imposed on certain repurchased Class A Shares
and Class I Shares. See
“
Sales Charges
”
and
“
Repurchase Offers
”
later in this Prospectus for important information relating
to the acceptance of Fund offers to repurchase Shares.
Principal Risks
The principal risks are presented in alphabetical order to facilitate readability, and their order does not imply that the realization
of one risk is more likely to occur or have a greater adverse impact than another risk.
Asset-Backed (including Mortgage-Backed) Securities:
Defaults on, or low credit quality or liquidity of the underlying assets
of the asset-backed (including mortgage-backed) securities may impair the value of these securities and result in losses.
There may be limitations on the enforceability of any security interest or collateral granted with respect to those underlying
assets and the value of collateral may not satisfy the obligation upon default. These securities also present a higher degree
of prepayment and extension risk and interest rate risk than do other types of debt instruments.
Small movements in interest rates (both increases and decreases) may quickly and significantly reduce the value of certain
asset-backed securities. The value of longer-term securities generally changes more in response to changes in market interest
rates than shorter-term securities.
Certain asset-backed (including mortgage-backed) securities may pay principal only at maturity or may represent only the
right to receive payments of principal or interest on the underlying assets, but not both. The value of IO and PO instruments
may change more than the value of debt securities that pay both principal and interest during periods of changing interest
rates. PO instruments generally increase in value if interest rates decline, but are also subject to the risk of prepayment. IO
instruments generally increase in value in a rising interest rate environment when fewer of the underlying obligations are
prepaid. IO instruments could lose their entire value in a declining interest rate environment if the underlying obligations are
prepaid.
The Fund may invest in real estate mortgage investment conduits (
“
REMICs
”
), which could include resecuritizations of REMICs
(
“
Re-REMICs
”
). A REMIC is an special purpose entity that pools mortgage loans and issues mortgage-backed securities. An
interest in a Re-REMIC security may be riskier than the securities contributed to the special purpose entity, and the holders
of the Re-REMIC securities may bear the costs associated with the securitization.
Senior tranche investments in mortgage-backed or asset-backed securities are paid from the cash flows from the underlying
assets before the junior tranches and equity or
“
first loss
”
tranches. Any losses on the underlying assets are first borne by
the equity tranches, next by less junior tranches, and finally by the senior tranches. Accordingly, subordinated tranche investments,
and especially
“
first loss
”
tranches, involve greater risk of loss than more senior tranches.
These securities may be affected significantly by government regulation, market interest rates, market perception of the creditworthiness
of an issuer servicer, and loan-to-value ratio of the underlying assets. During an economic downturn, the mortgages, commercial
or consumer loans, trade or credit card receivables, installment purchase obligations, leases, or other debt obligations underlying
an asset-backed security may experience an increase in defaults as borrowers experience difficulties in repaying their loans
which may cause the valuation of such securities to be more volatile and may reduce the value of such securities. These
risks are particularly heightened for investments in asset-backed securities that contain sub-prime loans, which are loans
made to borrowers with weakened credit histories and often have higher default rates.
Collateralized Loan Obligations:
A CLO is an obligation of a trust or other special purpose vehicle typically collateralized by
a pool of loans, which may include senior secured and unsecured loans and subordinate corporate loans, including loans
that may be rated below investment grade, or equivalent unrated loans. CLOs may incur management fees and administration
fees. The risks of investing in a CLO depend largely on the type of the collateral held in the CLO portfolio and the tranche of
Voya Enhanced Securitized Income Fund
4
securities in which the Fund
may invest
, and can generally be summarized as a combination of economic risks of the underlying
loans combined with the risks associated with the CLO structure governing the priority of payments, and include interest rate
risk, credit risk, liquidity risk, prepayment and extension risk, and the risk of default of the underlying asset, among others.
Commercial Real Estate Loans:
The Fund may invest in loans secured by commercial real estate. Loans on commercial real
estate properties generally lack standardized terms, which may complicate their structure and increase due diligence costs.
Commercial real estate properties tend to be unique and are more difficult to value than residential properties. Commercial
real estate loans also tend to have shorter maturities than residential mortgage loans and are generally not fully amortizing,
which means that they may have a significant principal balance or
“
balloon
”
payment due on maturity. Loans with a balloon
payment involve a greater risk to a lender than fully amortizing loans because the ability of a borrower to make a balloon
payment typically will depend upon its ability either to fully refinance the loan or to sell the collateral property at a price sufficient
to permit the borrower to make the balloon payment. The ability of a borrower to effect a refinancing or sale will be affected
by a number of factors, including the value of the property, mortgage rates at the time of sale or refinancing, the borrower’s
equity in the property, the financial condition and operating history of the property and the borrower, tax laws, prevailing
economic conditions and the availability of credit for loans secured by the specific type of property.
Investing in commercial real estate loans is subject to cyclicality and other uncertainties. The cyclicality and leverage associated
with commercial real estate loans also have historically resulted in periods, including significant periods, of adverse performance,
including performance that may be materially more adverse than the performance associated with other investments. Commercial
real estate loans generally are non-recourse to borrowers. Commercial real estate loans are subject to the effects of: (i) the
ability of tenants to make lease payments; (ii) the ability of a property to attract and retain tenants, which may in turn be
affected by local conditions, such as an oversupply of space or a reduction in demand for rental space in the area, the attractiveness
of properties to tenants, competition from other available space and the ability of the owner to pay leasing commissions,
provide adequate maintenance and insurance, pay tenant improvement costs and make other tenant concessions; (iii) the
failure or insolvency of tenant businesses; (iv) interest rate levels and the availability of credit to refinance such loans at or
prior to maturity; (v) compliance with regulatory requirements and applicable laws, including environmental controls and regulations
and (vi) increased operating costs, including energy costs and real estate taxes. Also, there may be costs and delays involved
in enforcing rights of a property owner against tenants in default under the terms of leases with respect to commercial properties
and such tenants may seek the protection of the bankruptcy laws, which can result in termination of lease contracts. If the
properties securing the loans do not generate sufficient income to meet operating expenses, debt service, capital expenditure
and tenant improvements, the obligors under the loans may be unable to make payments of principal and interest in a timely
fashion. Income from and values of properties are also affected by such factors as the quality of the property manager,
applicable laws, including tax laws, interest rate levels, the availability of financing for owners and tenants and the impact of
and costs of compliance with environmental controls and regulations. The economic impacts of COVID-19 have created a
unique challenge for real estate markets. Many businesses have either partially or fully transitioned to a remote-working environment
and this transition may negatively impact the occupancy rates of commercial real estate over time. Similarly, trends in favor
of online shopping may negatively affect the real estate market for commercial properties.
Covenant-Lite Loans:
Loans in which the Fund may invest or to which the Fund may gain exposure indirectly through its investments
in collateralized debt obligations, CLOs or other types of structured securities may be considered
“
covenant-lite
”
loans. Covenant-lite
refers to loans which do not incorporate traditional performance-based financial maintenance covenants. Covenant-lite does
not refer to a loan’s seniority in a borrower’s capital structure nor to a lack of the benefit from a legal pledge of the borrower’s
assets and does not necessarily correlate to the overall credit quality of the borrower. Covenant-lite loans generally do not
include terms which allow a lender to take action based on a borrower’s performance relative to its covenants. Such actions
may include the ability to renegotiate and/or re-set the credit spread on the loan with a borrower, and even to declare a
default or force the borrower into bankruptcy restructuring if certain criteria are breached. Covenant-lite loans typically still
provide lenders with other covenants that restrict a borrower from incurring additional debt or engaging in certain actions.
Such covenants can only be breached by an affirmative action of the borrower, rather than by a deterioration in the borrower’s
financial condition. Accordingly, the Fund may have fewer rights against a borrower when it invests in, or has exposure to,
covenant-lite loans and, accordingly, may have a greater risk of loss on such investments as compared to investments in, or
exposure to, loans with additional or more conventional covenants.
Credit:
The Fund could lose money if the issuer or guarantor of a debt instrument in which the Fund invests, or the counterparty
to a derivative contract the Fund entered into, is unable or unwilling, or is perceived (whether by market participants, rating
agencies, pricing services, or otherwise) as unable or unwilling, to meet its financial obligations.
Asset-backed (including
mortgage-backed) securities that are not issued by U.S. government agencies may have a greater risk of default because
they are not guaranteed by either the U.S. government or an agency or instrumentality of the U.S. government. The credit
quality of typical asset-backed securities depends primarily on the credit quality of the underlying assets and the structural
support (if any) provided to the securities.
Voya Enhanced Securitized Income Fund
5
Credit (Loans):
Prices of the Fund’s investments are likely to fall if the actual or perceived financial health of the borrowers
on, or issuers of, such investments deteriorates, whether because of broad economic or issuer-specific reasons, or if the
borrower or issuer is late (or defaults) in paying interest or principal. The Fund's investments in U.S. dollar-denominated floating
rate secured senior loans are expected to be rated below investment grade. Below investment grade loans
involve a greater
risk that borrowers may not make timely payment of the interest and principal due on their loans and are subject to greater
levels of credit and liquidity risks. They also involve a greater risk that the value of such loans could decline significantly. If
borrowers do not make timely payments of the interest due on their loans, the yield on the Shares will decrease. If borrowers
do not make timely payment of the principal due on their loans, or if the value of such loans decreases, the net asset value
will decrease.
The Fund may also make investments in whole loans and debt instruments backed by residential loans or commercial loans
that may carry additional risks, including the possibility that the quality of the collateral may decline in value and the potential
for the liquidity of residential or commercial loans to vary over time. These risks are greater for subprime loans and loans
secured by a single asset. Because they do not trade in a liquid market, residential and commercial loans can typically only
be sold to a limited universe of institutional investors and may be difficult for the Fund to value. In addition, in the event that
a loan is foreclosed on, the Fund could become the owner (in whole or in part) of any collateral, which may include, among
other things, real estate or other real or personal property, and the Fund would bear the costs and liabilities of owning, holding
or disposing of such property.
Loans that are senior and secured generally involve less risk than unsecured or subordinated (including second lien) debt
and equity instruments of the same borrower because the payment of principal and interest on senior loans is an obligation
of the borrower that, in most instances, takes precedence over the payment of dividends or the return of capital to the borrower’s
shareholders, and payments to bond holders. Loans that are senior and secured also may have collateral supporting the
repayment of the debt instrument. However, the value of the collateral may not equal the Fund’s investment when the debt
instrument is acquired or may decline below the principal amount of the debt instrument subsequent to the Fund’s investment.
Also, to the extent that collateral consists of stocks of the borrower, or its subsidiaries or affiliates, the Fund bears the risk
that the stocks may decline in value, be relatively illiquid, or may lose all or substantially all of their value, causing the Fund’s
investment to be undercollateralized. Therefore, the liquidation of the collateral underlying a loan in which the Fund has invested,
may not satisfy the borrower’s obligation to the Fund in the event of non-payment of scheduled interest or principal, and the
collateral may not be able to be readily liquidated. In addition, it is possible that disputes as to the nature or identity of the
collateral securing a loan may delay the Fund's ability to realize on the collateral or, if the dispute is resolved adversely to
the Fund, may prevent the Fund from realizing on assets it had considered to constitute collateral.
In the event of the bankruptcy of a borrower or issuer, the Fund could experience delays and limitations on its ability to realize
the benefits of the collateral securing the investment. Among the risks involved in a bankruptcy are assertions that the pledge
of collateral to secure a loan constitutes a fraudulent conveyance or preferential transfer that would have the effect of nullifying
or subordinating the Fund’s rights to the collateral.
Lower quality securities (including securities that are or have fallen below investment grade and are classified as
“
junk investments
”
or
“
high yield securities
”
) have greater credit risk and liquidity risk than higher quality (investment grade) securities, and their
issuers’ long-term ability to make payments is considered speculative. Prices of lower quality bonds or other debt instruments
are also more volatile, are more sensitive to negative news about the economy or the issuer, and have greater liquidity risk
and price volatility. Investment decisions are based largely on the credit analysis performed by the manager, and not on
rating agency evaluation. This analysis may be difficult to perform. Information about a loan and its borrower generally is not
in the public domain. Investors in loans may not be afforded the protections of the anti-fraud provisions of the Securities Act
of 1933, as amended, and the Securities Exchange Act of 1934, as amended, because loans may not be considered
“
securities
”
under such laws. In addition, many borrowers have not issued securities to the public and are not subject to reporting requirements
under federal securities laws. Generally, however, borrowers are required to provide financial information to lenders and information
may be available from other loan market participants or agents that originate or administer loans.
Credit Default Swaps:
The Fund may enter into credit default swaps, either as a buyer or a seller of the swap. A buyer of a
credit default swap is generally obligated to pay the seller an upfront or a periodic stream of payments over the term of the
contract until a credit event, such as a default, on a reference obligation has occurred. If a credit event occurs, the seller
generally must pay the buyer the
“
par value
”
(full notional value) of the swap in exchange for an equal face amount of deliverable
obligations of the reference entity described in the swap, or the seller may be required to deliver the related net cash amount
if the swap is cash settled. As a seller of a credit default swap, the Fund would effectively add leverage to its portfolio because,
in addition to its total net assets, the Fund would be subject to investment exposure on the full notional value of the swap.
Credit default swaps are particularly subject to counterparty, credit, valuation, liquidity
and leveraging risks, and the risk that
the swap may not correlate with its reference obligation as expected. Certain standardized credit default swaps are subject
Voya Enhanced Securitized Income Fund
6
to mandatory central clearing. Central clearing is expected to reduce counterparty credit risk and increase liquidity; however,
there is no assurance that it will achieve that result, and in the meantime, central clearing and related requirements expose
the Fund to different kinds of costs and risks. In addition, credit default swaps expose the Fund to the risk of improper valuation.
Credit Risk Transfer Securities
:
Credit risk transfer securities (
“
CRTs
”
) are fixed- or variable-rate unsecured general obligations
issued from time to time by FHLMC, FMNA or other government sponsored entities (
“
GSEs
”
) and in certain cases private
entities. CRTs that are not structured as REMICs are unguaranteed and unsecured debt securities issued by the GSE and
therefore are not directly linked to or backed by the underlying mortgage loans. As a result, in the event that a GSE fails to
pay principal or interest on its non-REMIC CRT or goes through a bankruptcy, insolvency or similar proceeding, holders of such
CRTs have no direct recourse to the underlying mortgage loans and will generally receive recovery on par with other unsecured
creditors in such a scenario. The risks associated with an investment in CRTs are different than the risks associated with an
investment in mortgage-backed securities subject to a guarantee or the credit support of FHLMC, FMNA, or other GSEs because
some or all of the mortgage default or credit risk associated with the underlying mortgage loans is transferred to investors
in CRTs. As a result, the risk of loss is substantially greater. CRTs may also be issued by private entities, such as banks or
other financial institutions. Such securities are subject to risks similar to those associated with credit risk transfer securities
issued by GSEs, though they may be less creditworthy than a GSE.
Currency:
To the extent that the Fund invests directly or indirectly in foreign (non-U.S.) currencies or in securities denominated
in, or that trade in, foreign (non-U.S.) currencies, it is subject to the risk that those foreign (non-U.S.) currencies will decline
in value relative to the U.S. dollar or, in the case of hedging positions, that the U.S. dollar will decline in value relative to the
currency being hedged by the Fund through foreign currency exchange transactions.
Demand for Loans:
An increase in demand for loans may benefit the Fund by providing increased liquidity for such loans and
higher sales prices, but it may also adversely affect the rate of interest payable on such loans and the rights provided to the
Fund under the terms of the applicable loan agreement, and may increase the price of loans in the secondary market. A
decrease in the demand for loans may adversely affect the price of loans in the Fund’s portfolio, which could cause the
Fund’s net asset value to decline and reduce the liquidity of the Fund’s loan holdings.
Derivative Instruments:
Derivative instruments are subject to a number of risks, including the risk of changes in the market
price of the underlying asset, reference rate, or index credit risk with respect to the counterparty, risk of loss due to changes
in market interest rates, liquidity risk, valuation risk, and volatility risk. The amounts required to purchase certain derivatives
may be small relative to the magnitude of exposure assumed by the Fund. Therefore, the purchase of certain derivatives may
have an economic leveraging effect on the Fund and exaggerate any increase or decrease in the net asset value. Derivatives
may not perform as expected, so the Fund may not realize the intended benefits. When used for hedging purposes, the change
in value of a derivative may not correlate as expected with the asset, reference rate, or index being hedged. When used as
an alternative or substitute for direct cash investment, the return provided by the derivative may not provide the same return
as direct cash investment.
Generally, derivatives are sophisticated financial instruments whose performance is derived, at
least in part, from the performance of an underlying asset, reference rate, or index. Derivatives include, among other things,
swap agreements, options, forward foreign currency exchange contracts, and futures. Certain derivatives in which the Fund
may invest may be negotiated over-the-counter with a single counterparty and as a result are subject to credit risks related
to the counterparty’s ability or willingness to perform its obligations; any deterioration in the counterparty’s creditworthiness
could adversely affect the value of the derivative. In addition, derivatives and their underlying instruments may experience
periods of illiquidity which could cause the Fund to hold a position it might otherwise sell, or to sell a position it otherwise
might hold at an inopportune time or price. A manager might imperfectly judge the direction of the market. For instance, if a
derivative is used as a hedge to offset investment risk in another security, the hedge might not correlate to the market’s
movements and may have unexpected or undesired results such as a loss or a reduction in gains. The U.S. government has
enacted legislation that provides for regulation of the derivatives market, including clearing, margin, reporting, and registration
requirements. The European Union (and other jurisdictions outside of the European Union, including the United Kingdom) has
implemented or is in the process of implementing similar requirements, which may affect the Fund when it enters into a
derivatives transaction with a counterparty organized in that jurisdiction or otherwise subject to that jurisdiction’s derivatives
regulations. Because these requirements
continue to evolve
, their ultimate impact remains unclear. Central clearing is expected
to reduce counterparty credit risk and increase liquidity; however, there is no assurance that it will achieve that result, and,
in the meantime, central clearing and related requirements expose the Fund to different kinds of costs and risks.
Duration:
One measure of risk for the Fund’s investments in fixed-income instruments, including certain securitized credit
instruments is duration. Duration measures the sensitivity of a fixed-income instrument’s price to market interest rate movements
and is one of the tools used by a portfolio manager in selecting debt instruments. Duration measures the average life of a
fixed-income instrument on a present value basis by incorporating into one measure a credit instrument’s yield, coupons,
final maturity and call features. As a point of reference, the duration of a non-callable 7% coupon bond with a remaining
maturity of 5 years is approximately 4.5 years and the duration of a non-callable 7% coupon bond with a remaining maturity
Voya Enhanced Securitized Income Fund
7
of 10 years is approximately 8 years. Material changes in market interest rates may impact the duration calculation. Generally,
the Fund’s investments in fixed-income instruments will decrease in value if interest rates rise and increase in value if interest
rates fall. For example, the price of a fixed-income instrument with a duration of 5 years would be expected to fall approximately
5% if market interest rates rose by 1%. Conversely, the price of a fixed-income instrument with a duration of 5 years would
be expected to rise approximately 5% if market interest rates dropped by 1%. Normally, the longer the maturity or duration of
the fixed-income instruments the Fund owns, the more sensitive the value of the Fund’s shares will be to changes in interest
rates.
Floating Rate Investments:
The Fund’s investments will include floating rate investments, which are securities and other
instruments with interest rates that adjust or
“
float
”
periodically based on a specified interest rate or other reference and
include floating rate loans, repurchase agreements, money market securities and shares of money market and short-term
bond funds. The interest rates on these investments may be reset daily, weekly, monthly, quarterly, or some other reset period,
and may have a floor or ceiling on interest rate changes. Changes in short-term market interest rates will directly affect the
yield on investments in floating or variable rate loans. If short-term market interest rates fall, the yield on the Fund’s shares
will also fall. Conversely, when short-term market interest rates rise, because of the lag between changes in such short-term
rates and the resetting of the floating rates on assets in the Fund’s portfolio, the impact of rising rates will be delayed to the
extent of such lag. See also the principal risk titled
“
Interest Rate for Floating or Variable Rate Loans.
”
Floating or Variable Rate Loans:
In the event a borrower fails to pay scheduled interest or principal payments on a floating
or variable rate loan, the Fund will experience a reduction in its income and a decline in the market value of such floating rate
loan. If a floating rate loan is held by the Fund through another financial institution, or the Fund relies upon another financial
institution to administer the loan, the receipt of scheduled interest or principal payments may be subject to the credit risk of
such financial institution. Investors in floating rate loans may not be afforded the protections of the anti-fraud provisions of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, because loans may not be
considered
“
securities
”
under such laws. Additionally, the value of collateral, if any, securing a floating rate loan can decline
or may be insufficient to meet the borrower’s obligations under the loan, and such collateral may be difficult to liquidate.
This risk is increased if the Fund’s loans are with a single borrower or secured by a single asset. No active trading market
may exist for many floating rate loans and many floating rate loans are subject to restrictions on resale. Transactions in loans
typically settle on a delayed basis and may take longer than 7 days to settle. As a result, the Fund may not receive the proceeds
from a sale of a floating rate loan for a significant period of time. Delay in the receipts of settlement proceeds may impair
the ability of the Fund to meet its redemption obligations, and may limit the ability of the Fund to repay debt, pay dividends,
or to take advantage of new investment opportunities.
Foreign (Non-U.S.) Investments:
Investing in foreign (non-U.S.) securities may result in the Fund experiencing more rapid and
extreme changes in value than a fund that invests exclusively in securities of U.S. companies due, in part, to: smaller markets;
differing reporting, accounting, auditing and financial reporting standards and practices; nationalization, expropriation, or
confiscatory taxation; foreign currency fluctuations, currency blockage, or replacement; potential for default on sovereign debt;
and political changes or diplomatic developments, which may include the imposition of economic sanctions (or the threat of
new or modified sanctions) or other measures by the U.S. or other governments and supranational organizations. Markets
and economies throughout the world are becoming increasingly interconnected, and conditions or events in one market, country
or region may adversely impact investments or issuers in another market, country or region.
Futures Contracts:
The loss to the Fund resulting from its use of futures contracts (or
“
futures
”
) is potentially unlimited.
Futures markets are highly volatile, and the use of futures contracts increases the volatility of the Fund’s net asset value.
The Fund’s ability to establish and close out positions in futures contracts requires a liquid secondary market. A liquid secondary
market may not exist for any particular futures contract at any particular time, and as a result the Fund runs the risk that it
will be unable when it wishes to effect closing transactions to terminate its exposure under that contract. In using futures
contracts, the Fund relies on the Sub-Adviser’s ability to predict market and price movements correctly. The skills needed to
use futures contracts successfully are different from those needed for traditional portfolio management. If the Fund uses
futures contracts for hedging purposes, it runs the risk that changes in the prices of the contracts will not correlate perfectly
with changes in the securities, index, or other asset underlying the contracts or movements in the prices of the Fund’s investments
that are subject to the hedge.
The Fund typically will be required to post margin with its futures commission merchant when purchasing a futures contract.
If the Fund has insufficient cash to meet margin requirements, the Fund typically will have to sell other investments and runs
the risk of having to do so at a disadvantageous time. The Fund also runs the risk of being unable to recover, or be delayed
in recovering, margin or other amounts deposited with a futures commission merchant. For example, should the futures commission
merchant become insolvent, the Fund may be unable to recover all (or any) of the margin it has deposited or realize the value
of an increase in the price of its positions.
Voya Enhanced Securitized Income Fund
8
The Fund may invest in futures contracts traded on exchanges outside the United States. Neither those contracts nor the
foreign exchanges are subject to regulation by the Commodity Futures Trading Commission or other U.S. regulators. In addition,
foreign futures contracts may be less liquid and more volatile than U.S. futures contracts.
High-Yield Securities:
Lower-quality securities (including securities that are or have fallen below investment grade
have greater
credit risk and liquidity risk than higher-quality (investment grade) securities, and their issuers' long-term ability to make payments
is considered speculative. Prices of lower-quality bonds or other debt instruments are also more volatile, are more sensitive
to negative news about the economy or the issuer, and have greater liquidity risk and price volatility.
Interest in Loans:
The value and the income streams of interests in loans (including participation interests in lease financings
and assignments in secured variable or floating rate loans) will decline if borrowers delay payments or fail to pay altogether.
A significant rise in market interest rates could increase this risk. Although loans may be fully collateralized when purchased,
such collateral may become illiquid or decline in value.
Interest Rate:
Changes in short-term market interest rates will directly affect the yield on Shares. If short-term market interest
rates fall, the yield on Shares will also fall. To the extent that the interest rate spreads on loans in the Fund’s portfolio experience
a general decline, the yield on the Shares will fall and the value of the Fund’s assets may decrease, which will cause the
Fund’s net asset value to decrease. Conversely, when short-term market interest rates rise, because of the lag between
changes in such short-term rates and the resetting of the floating rates on assets in the Fund’s portfolio, the impact of rising
rates will be delayed to the extent of such lag. In the case of inverse securities, the interest rate paid by such securities
generally will decrease when the market rate of interest to which the inverse security is indexed increases. With respect to
investments in fixed rate instruments, a rise in market interest rates generally causes values of such instruments to fall. The
values of fixed rate instruments with longer maturities or duration are more sensitive to changes in market interest rates.
As of the date of this Prospectus, the United States has recently experienced a rising market interest rate environment, which
may increase the Fund’s exposure to risks associated with rising market interest rates. Rising market interest rates could
have unpredictable effects on the markets and may expose debt and related markets to heightened volatility, which could
reduce liquidity for certain investments, adversely affect values, and increase costs. If dealer capacity in debt and related
markets is insufficient for market conditions, it may further inhibit liquidity and increase volatility in the debt and related
markets. Further, recent and potential changes in government policy may affect interest rates.
Interest Rate for Floating or Variable Rate Loans:
Changes in short-term market interest rates will directly affect the yield
on investments in floating or variable rate loans. If short-term market interest rates fall, the yield on the Fund’s shares will
also fall. To the extent that the interest rate spreads on loans in the Fund’s portfolio experience a general decline, the yield
on the Fund’s shares will fall and the value of the Fund’s assets may decrease, which will cause the Fund’s net asset value
to decrease. Conversely, when short-term market interest rates rise, because of the lag between changes in such short-term
rates and the resetting of the floating rates on assets in the Fund’s portfolio, the impact of rising rates will be delayed to the
extent of such lag. The impact of market interest rate changes on the Fund’s yield will also be affected by whether, and the
extent to which, the floating or variable rate loans in the Fund’s portfolio are subject to floors on the secured overnight funding
rate (
“
SOFR
”
) base rate or other reference benchmark on which interest is calculated for such loans (a
“
benchmark floor
”
).
So long as the base rate for a loan remains under the applicable benchmark floor, changes in short-term market interest
rates will not affect the yield on such loans. In addition, to the extent that changes in market interest rates are reflected not
in a change to a base rate such as SOFR but in a change in the spread over the base rate which is payable on the floating
rate loans of the type and quality in which the Fund invests, the Fund’s net asset value could also be adversely affected. As
of the date of this Prospectus, the U.S has recently experienced a rising market interest rate environment, which may increase
the Fund’s exposure to risks associated with rising market interest rates. Rising market interest rates have unpredictable
effects on the markets and may expose debt and related markets to heightened volatility, which could reduce liquidity for
certain investments, adversely affect values, and increase costs. Increased redemptions may cause the Fund to liquidate
portfolio positions when it may not be advantageous to do so and may lower returns. If dealer capacity in debt and related
markets is insufficient for market conditions, it may further inhibit liquidity and increase volatility in the debt and related
markets. Further, recent and potential future changes in government policy may affect interest rates.
Inverse Floating Rate Instrument:
Inverse floaters are leveraged inverse floating rate credit instruments. The interest rate
on an inverse floater resets in the opposite direction from the market rate of interest to which the inverse floater is indexed.
An inverse floater may be considered to be leveraged to the extent that its interest rate varies by a magnitude that exceeds
the magnitude of the change in the index rate of interest. The higher degree of leverage inherent in inverse floaters is associated
with greater volatility in their market values. Accordingly, the duration of an inverse floater may exceed its stated final maturity.
Leverage:
The Fund currently utilizes leverage primarily through reverse repurchase agreements and may also obtain leverage
through credit default swaps, dollar rolls and borrowings such as through bank loans or commercial paper and/or other credit
facilities.
Voya Enhanced Securitized Income Fund
9
The Fund’s use of leverage, if any, creates the opportunity for increased Share net income, but also creates special risks for
shareholders. To the extent used, there is no assurance that the Fund’s leveraging strategies will be successful. Leverage is
a speculative technique that may expose the Fund to greater risk and increased costs. The Fund’s assets attributable to
leverage, if any, will be invested in accordance with the Fund’s investment objective and policies. Interest expense payable
by the Fund with respect to derivatives transactions and other forms of leverage, will generally be based on shorter-term
interest rates that would be periodically reset. So long as the Fund’s portfolio investments provide a higher rate of return
(net of applicable Fund expenses) than the interest expenses and other costs to the Fund of such leverage, the investment
of the proceeds thereof will generate more income than will be needed to pay the costs of the leverage. If so, and all other
things being equal, the excess may be used to pay higher dividends to shareholders than if the Fund were not so leveraged.
If, however, shorter-term interest rates rise relative to the rate of return on the Fund’s portfolio, the interest and other costs
to the Fund of leverage could exceed the rate of return on the debt obligations and other investments held by the Fund,
thereby reducing return to shareholders. In addition, fees and expenses of any form of leverage used by the Fund will be
borne entirely by the shareholders and will reduce the investment return of the Shares. Therefore, there can be no assurance
that the Fund’s use of leverage will result in a higher yield on the Shares, and it may result in losses. Leverage creates
several major types of risks for shareholders, including:
•
the likelihood of greater volatility of NAV and market price of Shares, and of the investment return to shareholders, than a
comparable portfolio without leverage;
•
the possibility either that Share dividends will fall if the interest and other costs of leverage rise, or that dividends paid on
Shares will fluctuate because such costs vary over time; and
•
the effects of leverage in a declining market or a rising interest rate environment, as leverage is likely to cause a greater
decline in the NAV of the Shares than if the Fund were not leveraged and may result in a greater decline in the market value
of the Shares.
Capital raised through leverage will be subject to interest and other costs, and these costs could exceed the income earned
by the Fund on the proceeds of such leverage. There can be no assurance that the Fund’s income from the proceeds of
leverage will exceed these costs. The manager seeks to use leverage for the purposes of making additional investments only
if they believe, at the time of using leverage, that the total return on the assets purchased with such funds will exceed interest
payments and other costs on the leverage.
The Fund is not permitted to declare dividends or other distributions, including dividends and distributions with respect to
Shares, or to purchase Shares unless the Fund meets certain asset coverage requirements. The failure to pay distributions
or dividends could result in the Fund ceasing to qualify as a regulated investment company (
“
RIC
”
) under the Internal Revenue
Code of 1986, as amended
(the
“
Code
”
)
.
Because the fees received by the Investment Adviser are based on the average daily total managed assets of the Fund (including
assets attributable to any reverse repurchase agreements, dollar rolls and borrowings) minus accrued liabilities (other than
liabilities representing reverse repurchase agreements, dollar rolls and borrowings), the Investment Adviser has a financial
incentive for the Fund to use certain forms of leverage (e.g., reverse repurchase agreements, dollar rolls and borrowings),
which may create a conflict of interest between the Investment Adviser, on the one hand, and the shareholders, on the other
hand.
Limited Liquidity For Investors:
The Fund does not repurchase its shares on a daily basis and no market for the Shares is
expected to exist. To provide a measure of liquidity, the Fund will normally make quarterly repurchase offers for not less than
5% and not more than 25% of its outstanding Shares. If more than 5% of Shares are tendered, investors may not be able to
completely liquidate their holdings in any quarter. Shareholders also will not have liquidity between these quarterly repurchase
dates.
Repurchase offers and the need to fund repurchase obligations may affect the ability of the Fund to be fully invested or force
the Fund to maintain a higher percentage of its assets in liquid investments, which may harm the Fund’s investment performance.
Moreover, diminution in the size of the Fund through repurchases may result in untimely sales of portfolio securities (with
associated imputed transaction costs, which may be significant), and may limit the ability of the Fund to participate in new
investment opportunities or to achieve its investment objective. The Fund may accumulate cash by holding back (i.e., not
reinvesting) payments received in connection with the Fund’s investments. The Fund believes that payments received in connection
with the Fund’s investments will generate sufficient cash to meet the maximum potential amount of the Fund’s repurchase
obligations. If at any time cash and other liquid assets held by the Fund are not sufficient to meet the Fund’s repurchase
obligations, the Fund intends, if necessary, to sell investments. If, as expected, the Fund employs investment leverage, repurchases
of Shares would compound the adverse effects of leverage in a declining market. In addition, if the Fund borrows to finance
repurchases, interest on that borrowing will negatively affect Shareholders who do not tender their Shares by increasing the
Fund’s expenses and reducing any net investment income.
Voya Enhanced Securitized Income Fund
10
If a repurchase offer is oversubscribed, the Fund's Board of Trustees (the
“
Board
”
) may determine to increase the amount
repurchased by up to 2% of the Fund’s outstanding Shares as of the date of the Repurchase Request Deadline. In the event
that the Board determines not to repurchase more than the repurchase offer amount, or if Shareholders tender more than
the repurchase offer amount plus 2% of the Fund’s outstanding Shares as of the date of the Repurchase Request Deadline,
the Fund will repurchase the Shares tendered on a pro rata basis, and Shareholders will have to wait until the next repurchase
offer to make another repurchase request. As a result, Shareholders may be unable to liquidate all or a given percentage of
their investment in the Fund during a particular repurchase offer. Some Shareholders, in anticipation of proration, may tender
more Shares than they wish to have repurchased in a particular quarter, thereby increasing the likelihood that proration will
occur. A Shareholder may be subject to market and other risks, and the NAV per Share of Shares tendered in a repurchase
offer may decline between the Repurchase Request Deadline and the date on which the NAV per Share for tendered Shares
is determined. In addition, the repurchase of Shares by the Fund may be a taxable event to Shareholders.
Limited Operating History:
The Fund has a limited operating history. As a result, prospective investors have a limited track
record and history on which to base their investment decision. In addition, there can be no assurance that the Fund will be
able to implement its investment strategy and investment approach or achieve its investment objective.
Limited Secondary Market for Loans:
Because of the limited secondary market for loans, the Fund, through its investments
in loans directly or indirectly through its investments in securitized credit instruments, may be limited in its ability to sell
loans in its portfolio in a timely fashion and/or at a favorable price. Transactions in loans typically settle on a delayed basis
and typically take longer than 7 days to settle. As a result the Fund may not receive the proceeds from a sale of a floating
rate loan for a significant period of time. Delay in the receipts of settlement proceeds may impair the ability of the Fund to
meet its repurchase obligations and may increase the amounts the Fund may be required to borrow. It may also limit the
ability of the Fund to repay debt, pay dividends, or to take advantage of new investment opportunities.
Although the re-sale,
or secondary market for loans has grown substantially in recent years, both in overall size and number of market participants,
there is no organized exchange or board of trade on which loans are traded. Instead, the secondary market for loans is a
private, unregulated inter-dealer or inter-bank re-sale market.
Loans usually trade in large denominations and trades can be infrequent and the market for loans may experience volatility.
The market has limited transparency so that information about actual trades may be difficult to obtain. Accordingly, some
loans will be relatively illiquid.
In addition, loans may require the consent of the borrower and/or the agent prior to sale or assignment. These consent
requirements can delay or impede the Fund’s ability to sell loans and can adversely affect the price that can be obtained.
These considerations may cause the Fund to sell assets at lower prices than it would otherwise consider to meet cash needs
or cause the Fund to maintain a greater portion of its assets in cash equivalents than it would otherwise, which could negatively
impact performance. The Fund may seek to avoid the necessity of selling assets to meet such needs by the use of borrowings.
From time to time, the occurrence of one or more of the factors described above may create a cascading effect where the
market for debt instruments (including the market for loans) first experiences volatility and then decreased liquidity. Such
conditions, or other similar conditions, may then adversely affect the value of loans and other instruments, widening spreads
against higher-quality debt instruments, and making it harder to sell loans at prices at which they have historically or recently
traded, thereby further reducing liquidity.
Declines in the Fund's share price or other market developments (which may be more severe than these prior declines) may
lead to increased repurchases, which could cause the Fund to have to sell loans and other instruments at disadvantageous
prices and inhibit the ability of the Fund to retain its assets in the hope of greater stabilization in the secondary markets. In
addition, these or similar circumstances could cause the Fund to sell its highest quality and most liquid loans and other
investments in order to satisfy an initial wave of repurchases while leaving the Fund with a remaining portfolio of lower-quality
and less liquid investments. In anticipation of such circumstances, the Fund may also need to maintain a larger portion of
its assets in liquid instruments than usual. However, there can be no assurance that the Fund will foresee the need to maintain
greater liquidity or that actual efforts to maintain a larger portion of assets in liquid investments would successfully mitigate
the foregoing risks.
During its quarterly repurchase offers, the Fund is required to maintain a percentage of its portfolio, equal to the value of
the repurchase amounts, in securities that can be sold or disposed of at approximately the price at which the Fund has valued
the investment, within a period equal to the period between a repurchase request deadline and the repurchase payment
deadline, or of assets that mature by the next repurchase payment deadline. The requirement to keep a portion of the portfolio
in liquid securities, however, could negatively impact performance.
Liquidity:
If an investment is illiquid, the Fund might be unable to sell the investment at a time when the Fund’s manager
might wish to sell, or at all. Many of the Fund’s investments may be illiquid. The term
“
illiquid investments
”
for this purpose
means any investment that the Fund reasonably expects cannot be sold or disposed of in current market conditions in seven
Voya Enhanced Securitized Income Fund
11
calendar days or less without the sale or disposition significantly changing the market value of the investment. Further, the
lack of an established secondary market may make it more difficult to value illiquid investments, exposing the Fund to the
risk that the prices at which it sells illiquid investments will be less than the prices at which they were valued when held by
the Fund, which could cause the Fund to lose money. Illiquid investments may become harder to value, especially in changing
markets. The prices of illiquid investments may be more volatile than more liquid securities, and the risks associated with
illiquid securities may be greater in times of financial stress.
The Fund’s investments in illiquid investments may reduce the returns of the Fund because it may be unable to sell the
illiquid investments at an advantageous time or price or possibly require the Fund to dispose of other investments at unfavorable
times or prices in order to satisfy its obligations, which could prevent the Fund from taking advantage of other investment
opportunities. Additionally, the market for certain investments may become illiquid under adverse market or economic conditions
independent of any specific adverse changes in the conditions of a particular issuer. In such cases, the Fund, due to limitations
on investments in illiquid investments and the difficulty in purchasing and selling such securities or instruments, may be
unable to achieve its desired level of exposure to a certain sector.
The risks associated with illiquid instruments may be particularly acute in situations in which the Fund’s operations require
cash (such as in connection with repurchase offers) and could result in the Fund borrowing to meet its short-term needs or
incurring losses on the sale of illiquid instruments. It may also be the case that other market participants may be attempting
to liquidate fixed income holdings at the same time as the Fund, causing increased supply in the market and contributing to
liquidity risk and downward pricing pressure.
Market:
The market values of securities will fluctuate, sometimes sharply and unpredictably, based on overall economic conditions,
governmental actions or intervention, market disruptions caused by trade disputes or other factors, political developments,
and other factors. Prices of equity securities tend to rise and fall more dramatically than those of debt instruments. Additionally,
legislative, regulatory or tax policies or developments may adversely impact the investment techniques available to a manager,
add to costs, and impair the ability of the Fund to achieve its investment objectives.
Market Disruption and Geopolitical:
The Fund is subject to the risk that geopolitical events will disrupt securities markets
and adversely affect global economies and markets. Due to the increasing interdependence among global economies and
markets, conditions in one country, market, or region might adversely impact markets, issuers and/or foreign exchange rates
in other countries, including the United States. Wars, terrorism, global health crises and pandemics,
tariffs
and other
restrictions
on trade or economic sanctions, rapid technological developments (such as artificial intelligence technologies), and other
geopolitical events that have led, and may continue to lead, to increased market volatility and may have adverse short- or
long-term effects on U.S. and global economies and markets, generally. For example, the COVID-19 pandemic resulted in
significant market volatility, exchange suspensions and closures, declines in global financial markets, higher default rates,
supply chain disruptions, and a substantial economic downturn in economies throughout the world. The economic impacts
of COVID-19 have created a unique challenge for real estate markets. Many businesses have either partially or fully transitioned
to a remote-working environment and this transition may negatively impact the occupancy rates of commercial real estate
over time. Natural and environmental disasters and systemic market dislocations are also highly disruptive to economies and
markets. In addition, military action by Russia in Ukraine has, and may continue to, adversely affect global energy and financial
markets and therefore could affect the value of the Fund’s investments, including beyond the Fund’s direct exposure to Russian
issuers or nearby geographic regions.
Furthermore, the prolonged conflict between Hamas and Israel, and the potential expansion
of the conflict in the surrounding areas and the involvement of other nations in such conflict, such as the Houthi movement's
attacks on marine vessels in the Red Sea, could further destabilize the Middle East region and introduce new uncertainties
in global markets, including the oil and natural gas markets.
The extent and duration of the military action, sanctions, and
resulting market disruptions are impossible to predict and could be substantial. A number of U.S. domestic banks and foreign
(non-U.S.) banks have
experienced financial difficulties and, in some cases, failures. There can be no certainty that the actions
taken by regulators to limit the effect of those financial difficulties and failures on other banks or other financial institutions
or on the U.S. or foreign (non-U.S.) economies generally will be successful. It is possible that more banks or other financial
institutions will experience financial difficulties or fail, which may affect adversely other U.S. or foreign (non-U.S.) financial
institutions and economies. These events as well as other changes in foreign (non-U.S.) and domestic economic, social, and
political conditions also could adversely affect individual issuers or related groups of issuers, securities markets, interest
rates, credit ratings, inflation, investor sentiment, and other factors affecting the value of the Fund’s investments. Any of
these occurrences could disrupt the operations of the Fund and of the Fund’s service providers.
Options:
The Fund may buy or write (sell) call options and put options on futures and other instruments. The market price of
options will be affected by many factors, including changes in the market price or other economic attributes of the underlying
investment; changes in the realized or perceived volatility of the relevant market and underlying investment; and the time
remaining before an option’s expiration. The ability to trade in or exercise options may be restricted, including in the event
that trading in the underlying reference becomes restricted. There can be no assurance that a liquid market will exist when
Voya Enhanced Securitized Income Fund
12
the Fund seeks to close out an option position by buying or selling the option. Reasons for the absence of a liquid secondary
market on an exchange include the following: (i) there may be insufficient trading interest in certain options; (ii) restrictions
may be imposed by an exchange on opening transactions or closing transactions or both; (iii) trading halts, suspensions or
other restrictions may be imposed with respect to particular classes or series of options; (iv) unusual or unforeseen circumstances
may interrupt normal operations on an exchange; (v) the facilities of an exchange or clearinghouse may not at all times be
adequate to handle current trading volume; or (vi) a regulator or one or more exchanges could, for economic or other reasons,
decide to discontinue the trading of options (or a particular class or series of options) at some future date. If trading were
discontinued, the secondary market on that exchange (or in that class or series of options) would cease to exist. The Options
can also be traded off exchanges in the over-the-counter (
“
OTC
”
) market. Unlike exchange-traded options, which are standardized
with respect to the underlying instrument, expiration date, contract size, and strike price, the terms of OTC options are generally
established through negotiation with the other party to the option contract. While this type of arrangement allows the Fund
greater flexibility to tailor an option to its needs, OTC options can be less liquid than exchange-traded options and generally
involve greater counterparty credit risk than exchange traded options, which are guaranteed by the clearing organization of
the exchanges where they are traded. The market price of options, particularly OTC options, may be adversely affected if the
market for the options becomes less liquid or smaller. Purchasers of options who fail to exercise their options prior to the
expiration date suffer a loss of the premium paid.
Prepayment and Extension:
Many types of debt instruments are subject to prepayment and extension risk. Prepayment risk
is the risk that the issuer of a debt instrument will pay back the principal earlier than expected. This risk is heightened in a
falling market interest rate environment. Prepayment may expose the Fund to a lower rate of return upon reinvestment of
principal. Also, if a debt instrument subject to prepayment has been purchased at a premium, the value of the premium would
be lost in the event of prepayment. Extension risk is the risk that the issuer of a debt instrument will pay back the principal
later than expected. This risk is heightened in a rising market interest rate environment. This may negatively affect performance,
as the value of the debt instrument decreases when principal payments are made later than expected. Additionally, the Fund
may be prevented from investing proceeds it would have received at a given time at the higher prevailing interest rates.
Real Estate Companies and Real Estate Investment Trusts:
Investing in real estate companies and REITs may subject the
Fund to risks similar to those associated with the direct ownership of real estate, including losses from casualty or condemnation,
changes in local and general economic conditions, supply and demand, market interest rates, zoning laws, regulatory limitations
on rents, property taxes, overbuilding, high foreclosure rates, and operating expenses in addition to terrorist attacks, wars,
or other acts that destroy real property. Some REITs may invest in a limited number of properties, in a narrow geographic
area or in a single property type, which increases the risk that the Fund could be unfavorably affected by the poor performance
of a single investment or investment type. These companies are also sensitive to factors such as changes in real estate
values and property taxes, market interest rates, cash flow of underlying real estate assets, supply and demand, and the
management skill and creditworthiness of the issuer. Borrowers could default on or sell investments the REIT holds, which
could reduce the cash flow needed to make distributions to investors. In addition, REITs may also be affected by tax and
regulatory requirements in that a REIT may not qualify for favorable tax treatment or regulatory exemptions. Investments in
REITs are affected by the management skill of the REIT’s sponsor. The Fund will indirectly bear its proportionate share of
expenses, including management fees, paid by each REIT in which it invests.
Regulatory Risks for Loans:
To the extent that legislation or state or federal regulators that regulate certain financial institutions
impose additional requirements or restrictions with respect to the ability of such institutions to make loans, particularly in
connection with highly leveraged transactions, the availability of loans for investment may be adversely affected. Further,
such legislation or regulation could depress the market value of loans. In November 2022, the SEC proposed rule amendments
which, among other things, would amend the liquidity rule framework for open-end funds. While the proposal is not directly
applicable to the Fund, if the rule amendments are adopted as proposed, they could have a negative impact on the market
for loans as open-end funds subject to the rule exit the market. The nature and extent of the proposal’s impact will not be
known unless and until any final rulemaking is adopted.
Repurchase Agreements:
In the event that the other party to a repurchase agreement defaults on its obligations, the Fund
would generally seek to sell the underlying security serving as collateral for the repurchase agreement. However, the value
of collateral may be insufficient to satisfy the counterparty's obligation and/or the Fund may encounter delay and incur costs
before being able to sell the security. Such a delay may involve loss of interest or a decline in price of the security, which
could result in a loss. In addition, if the Fund is characterized by a court as an unsecured creditor, it would be at risk of losing
some or all of the principal and interest involved in the transaction.
Residential Mortgage Loans:
The Fund may invest in loans secured by residential real estate, including potentially mortgages
made to borrowers with lower credit scores, through its investments in loans directly or indirectly through its investments in
securitized credit instruments. Accordingly, such mortgage loans may be more sensitive to economic factors that could affect
the ability of borrowers to pay their obligations under the mortgage loans. A decline or an extended flattening of home prices
Voya Enhanced Securitized Income Fund
13
and appraisal values may result in increases in delinquencies and losses on residential mortgage loans, particularly with
respect to second homes and investor properties and with respect to any residential mortgage loan where the aggregate loan
amount (including any subordinate liens) is close to or greater than the related property value. Mortgage loans, including
mortgage loans backing mortgage-backed securities, in which the Fund may invest, may include non-qualified mortgage (
“
Non-QM
”
)
loans. Non-QM loans do not comply with the rules of the Consumer Financial Protection Bureau relating to qualified mortgages
and are subject to increased risk of loss.
Another factor that may result in higher delinquency rates is the increase in monthly payments on adjustable-rate mortgage
loans. Borrowers with adjustable payment mortgage loans will be exposed to increased monthly payments when the related
mortgage interest rate adjusts upward from the initial fixed rate or a low introductory rate, as applicable, to the rate computed
in accordance with the applicable index and margin.
Certain residential mortgage loans may be structured with negative amortization features. Negative amortization arises when
the mortgage payment in respect of a loan is smaller than the interest due on such loan. On any such mortgage loans, if the
required minimum monthly payments are less than the interest accrued on the loan, the interest shortfall is added to the
principal balance, causing the loan balance to increase rather than decrease over time. Because the related mortgagors may
be required to make a larger single payment upon maturity, the default risk associated with such mortgage loans may be
greater than that associated with fully amortizing mortgage loans.
Reverse Repurchase Agreements and Dollar Roll Transactions:
Reverse repurchase agreements involve sales of portfolio
securities to another party and an agreement by the Fund to repurchase the same securities at a later date at a fixed price.
During the reverse repurchase agreement period, the Fund continues to receive principal and interest payments on the securities
and also has the opportunity to earn a return on the collateral furnished by the counterparty to secure its obligation to redeliver
the securities.
Dollar rolls involve selling securities (
e.g
., mortgage-backed securities or U.S. Treasury securities) and simultaneously entering
into a commitment to purchase those or similar securities on a specified future date and price from the same party. Mortgage-dollar
rolls and U.S. Treasury rolls are types of dollar rolls. During the roll period, principal and interest paid on the securities is not
received but proceeds from the sale can be invested.
Reverse repurchase agreements involve the risks that the interest income earned on the investment of the proceeds will be
less than the interest expense and Fund expenses associated with the repurchase agreement, that the market value of the
securities sold by the Fund may decline below the price at which the Fund is obligated to repurchase such securities and that
the securities may not be returned to the Fund. If the buyer of securities under a reverse repurchase agreement or dollar
rolls files for bankruptcy or becomes insolvent, such a buyer or its trustee or receiver may receive an extension of time to
determine whether to enforce the obligation to repurchase the securities and use of the proceeds of the reverse repurchase
agreement may effectively be restricted pending such decision.
Reverse repurchase agreements entail many of the same risks as over-the-counter derivatives. These include the risk that
the counterparty to the reverse repurchase agreement may not be able to fulfill its obligations, that the parties may disagree
as to the meaning or application of contractual terms, or that the instrument may not perform as expected. If the broker/dealer
to whom the Fund sells securities becomes insolvent, the Fund’s right to purchase or repurchase securities may be restricted.
There is no assurance that reverse repurchase agreements or dollar rolls can be successfully employed.
Further, the Fund’s investments in reverse repurchase agreements will be treated as
“
derivatives
”
in connection with the
Fund’s compliance with Rule 18f-4. Pursuant to Rule 18f-4, the Fund has adopted and implemented a derivatives risk management
program to govern its use of derivatives, and the Fund’s derivatives exposure (including its use of reverse repurchase agreements)
is limited through a VaR test. Rule 18f-4 may restrict the Fund’s ability to enter into reverse repurchase agreements and/or
increase the costs of such reverse repurchase agreements, which could adversely affect the value of the Fund’s investments
and/or the performance of the Fund.
Securities Lending:
Securities lending involves two primary risks:
“
investment risk
”
and
“
borrower default risk.
”
When lending
securities, the Fund will receive cash or U.S. government securities as collateral. Investment risk is the risk that the Fund
will lose money from the investment of the cash collateral received from the borrower. Borrower default risk is the risk that
the Fund will lose money due to the failure of a borrower to return a borrowed security. Securities lending may result in leverage.
The use of leverage may exaggerate any increase or decrease in the net asset value, causing the Fund to be more volatile.
The use of leverage may increase expenses and increase the impact of the Fund’s other risks.
Voya Enhanced Securitized Income Fund
14
Temporary Defensive Positions:
When market conditions make it advisable, the Fund may hold a portion of its assets in
cash and short-term interest bearing instruments. Moreover, in periods when, in the opinion of the manager, a temporary
defensive position is appropriate, up to 100% of the Fund’s assets may be held in cash, short-term interest bearing instruments
and/or any other securities the manager considers consistent with a temporary defensive position. The Fund may not achieve
its investment objective when pursuing a temporary defensive position.
U.S. Government Securities and Obligations:
U.S. government securities are obligations of, or guaranteed by, the U.S. government,
its agencies, or government-sponsored enterprises. U.S. government securities are subject to market risk and interest rate
risk, and may be subject to varying degrees of credit risk.
Valuation of Loans:
The Fund values its assets every day the New York Stock Exchange is open for regular trading. However,
because the secondary market for loans is limited, it may be difficult to value loans, exposing the Fund to the risk that the
price at which it sells loans will be less than the price at which they were valued when held by the Fund. Reliable market value
quotations may not be readily available for some loans, and determining the fair valuation of such loans may require more
research than for securities that trade in a more active secondary market. In addition, elements of judgment may play a
greater role in the valuation of loans than for more securities that trade in a more developed secondary market because there
is less reliable, objective market value data available. If the Fund purchases a relatively large portion of a loan, the limitations
of the secondary market may inhibit the Fund from selling a portion of the loan and reducing its exposure to a borrower when
the manager deems it advisable to do so. Even if the Fund itself does not own a relatively large portion of a particular loan,
the Fund, in combination with other similar accounts under management by the same portfolio managers, may own large
portions of loans. The aggregate amount of holdings could create similar risks if and when the portfolio managers decide to
sell those loans. These risks could include, for example, the risk that the sale of an initial portion of the loan could be at a
price lower than the price at which the loan was valued by the Fund, the risk that the initial sale could adversely impact the
price at which additional portions of the loan are sold, and the risk that the foregoing events could warrant a reduced valuation
being assigned to the remaining portion of the loan still owned by the Fund.
Warehouse Investments:
In connection with its investments in certain securitized credit instruments, such as CLOs, ABS
and RMBS, the Fund may also invest in interests in warehouse investments (
“
Warehouse Investments
”
). Warehouses are
financing structures created prior to and in anticipation of a securitization closing and issuing securities and are intended to
aggregate direct loans, mortgage loans, corporate loans, and/or other debt obligations that may be used to form the basis
of securitized credit instruments. To finance the acquisition of a warehouse’s assets, a financing facility (a
“
Warehouse Facility
”
)
is often opened by (i) the entity or affiliates of the entity that will become the securitized credit instruments manager (in the
case of CLOs) upon its closing and/or (ii) third-party investors or arrangers that may or may not invest in the securitized credit
instruments. The period from the date that a warehouse is opened and asset accumulation begins to the date that the securitized
credit instrument closes is commonly referred to as the
“
warehousing period.
”
In practice, Warehouse Investments are structured
in a variety of legal forms, including subscriptions for equity interests, loss sharing agreements or subordinated debt investments
in special purpose vehicles that obtain a Warehouse Facility secured by the assets acquired in anticipation of closing.
A Warehouse Investment generally bears the risk that (i) the warehoused assets will drop in value during the warehousing
period, (ii) certain of the warehoused assets default or for another reason are not permitted to be included in the securitization
and a loss is incurred upon their disposition, and (iii) the anticipated securitization is delayed past the maturity date of the
related Warehouse Facility or does not close at all, and, in either case, losses are incurred upon disposition of all of the
warehoused assets. In the case of (iii), a particular securitization may not close for many reasons, including as a result of a
market-wide material adverse change, a manager-related material adverse change or the discretion of the manager or the
underwriter.
There can be no assurance that a securitization related to Warehouse Investments will be consummated. In the event a planned
securitization is not consummated, investors in a warehouse (which may include the Fund) may be responsible for either
holding or disposing of the warehoused assets. Because leverage is sometimes used in warehouses, the potential risk of
loss may be increased for the owners of Warehouse Investments where leverage is utilized. This could expose the Fund to
losses, including in some cases a complete loss of all capital invested in a Warehouse Investment.
The Warehouse Investments represent temporary financing of the underlying assets of a warehouse, in some instances without
the benefit of protection from losses. Therefore, the value of a Warehouse Investment is often directly affected by, among
other things, (i) changes in the market value of the underlying assets of the warehouse; (ii) distributions, defaults, recoveries,
capital gains, capital losses and prepayments on the underlying assets of the warehouse; and (iii) the prices, interest rates
and availability of eligible assets for reinvestment. Due to the nature of a Warehouse Investment, a significant portion (and
in some circumstances all) of the Warehouse Investments made by the Fund may not be repaid.
Voya Enhanced Securitized Income Fund
15
When-Issued, Delayed Delivery, and Forward Commitment Transactions:
When-issued, delayed delivery, and forward commitment
transactions involve the risk that the security the Fund buys will lose value prior to its delivery. These transactions may result
in leverage. The use of leverage may exaggerate any increase or decrease in the net asset value, causing the Fund to be
more volatile. The use of leverage may increase expenses and increase the impact of the Fund’s other risks. There also is
the risk that the security will not be issued or that the other party will not meet its obligation. If this occurs, the Fund loses
both the investment opportunity for the assets it set aside to pay for the security and any gain in the security’s price.
Voya Enhanced Securitized Income Fund
16
WHAT YOU PAY TO INVEST - FUND EXPENSES
This table is intended to assist investors in understanding the various costs and expenses directly or indirectly associated
with investing in the Fund. The cost you pay to invest in the Fund varies depending upon which class of Shares you
purchase. In accordance with SEC requirements, the table below shows the expenses of the Fund, including interest
expense on borrowings, as a percentage of the average net assets of the Fund and not as a percentage of gross
assets or Managed Assets. By showing expenses as a percentage of the average net assets, expenses are not expressed
as a percentage of all of the assets that are invested for the Fund. The table below assumes that the Fund has borrowed
an amount equal to 20% of its Managed Assets. For information about the Fund’s expense ratios if the Fund had not
borrowed, see
“
Risk Factors and Special Considerations - Annual Expenses Without Borrowings.
”
Investors investing
in the Fund through an intermediary should consult the Appendix to this Prospectus, which includes information regarding
financial intermediary specific sales charges and related discount policies that apply to purchases through certain
specified intermediaries.
Fees and Expenses of the Fund
|
Class |
Class A |
Class C |
Class I |
|
Shareholder Transaction Expenses |
|
|
|
|
Maximum sales load on your investment ( 1 |
2 |
|
|
|
Dividend Reinvestment and Cash Purchase Plan Fees |
|
|
|
|
Early Withdrawal Charge (as a percentage of repurchased amount) |
3 |
3 |
|
|
Exchange Fee |
|
|
|
|
Annual Expenses ( |
|
|
|
|
Management Fees 4 |
|
|
|
|
Service Fee |
|
|
|
|
Distribution Fee |
|
|
|
|
Interest Expense on Borrowed Funds |
|
|
|
|
Other Expenses |
|
|
|
|
Total Annual Expenses |
|
|
|
|
Fee Waivers/Reimbursements/Recoupment 5 |
|
|
|
|
Net Annual Expenses 6 |
|
|
|
1
The Distributor will pay a dealer reallowance for Class A Shares from the sales load. The Distributor will pay a sales commission for Class C Shares to authorized dealers from
its own assets.
2
Reduced for purchases of $100,000 and over for Class A Shares, please see
“
Sales Charges.
”
3
There is no front-end sales charge if you purchase Class A Shares in the amount of $500,000 or more. Class A Shares purchased in an amount of $500,000 or more are
subject to a 1.00% EWC if repurchased by the Fund within 12 months of purchase. Class C Shares repurchased by the Fund within the first year after purchase will incur a
1.00% EWC. See
“
Sales Charges - Early Withdrawal Charge.
”
No EWC will be charged on redemptions that are due to the closing of shareholder accounts having a value of
less than $1,000.
4
Pursuant to the investment management agreement with the Fund, the Investment Adviser is paid a fee of 1.15% of the Fund's Managed Assets. For the description of
“
Managed
Assets,
”
please see
“
Description of the Fund – Investment Adviser/Sub-Adviser
”
earlier in this Prospectus.
5
The Investment Adviser is contractually obligated to limit expenses of the Fund through
[
July 31,
2026]
to the following: Class A Shares – 1.15% of Managed Assets plus
1.05% of average daily net assets; Class C Shares – 1.15% of Managed Assets plus 1.55% of average daily net assets; and Class I Shares – 1.15% of Managed Assets plus
0.80% of average daily net assets. The obligation is subject to possible recoupment by the Investment Adviser within 36 months of the waiver or reimbursement, to the extent
such recoupment does not cause the Fund's operating expense ratio to exceed the lesser of (i) the expense limitation in effect at the time of the waiver, and (ii) the expense
limitation in effect at the time of such repayment. These limitations do not extend to interest, taxes, investment-related costs, leverage expenses, extraordinary expenses,
and Acquired Fund Fees and Expenses. Termination or modification of these obligations requires approval by the Fund’s Board.
6
If the expenses of the Fund are calculated on the Managed Assets of the Fund (assuming that the Fund has used leverage by borrowing an amount equal to 20% of the Fund’s
Managed Assets), the Net Annual Expenses for the Fund would be lower than the expenses shown in the table. Such lower Net Annual Expense ratios would be as follows:
[
3.12%, 3.62%, and 2.87%
]
for Class A, Class C, and Class I shares, respectively.
17
WHAT YOU PAY TO INVEST - FUND EXPENSES
(continued)
Examples
The following Examples show the amount of the expenses that an investor in the Fund would bear on a $1,000 investment
in the Fund that is held for the different time periods in the table. In the first table, it is assumed that the $1,000
remains invested over the entire 10-year period. As a result, no EWCs are included in the listed expense amounts.
The second table assumes that the $1,000 investment is tendered and repurchased at the end of each period shown.
As a result, EWCs are imposed on certain of those repurchases.
The Examples assume that all dividends and other distributions are reinvested at NAV and that the percentage amounts
listed under Net Annual Expenses in the previous table remain the same in the years shown (except that the Fee
Waivers/Reimbursements only apply for the first year). The tables and the assumption in the Examples of a 5% annual
return are required by regulations of the SEC applicable to all investment companies. The assumed 5% annual return
is not a prediction of, and does not represent, the projected or actual performance of the Fund's Shares. For more
complete descriptions of certain of the Fund's costs and expenses, see
“
Classes of Shares,
”
“
Sales Charges,
”
and
“
Investment Management and Other Service Providers.
”
Example #1 — No Repurchases | 1 Year | 3 Years | 5 Years | 10 Years | ||
You would pay the following expenses on a $1,000 investment, assuming a 5% annual return and borrowings by the Fund in an amount equal to 20% of its Managed Assets. | ||||||
Class A Shares | $ | |||||
Class C Shares | $ | |||||
Class I Shares | $ | |||||
Example #2 — With Repurchases at Period End | 1 Year | 3 Years | 5 Years | 10 Years | ||
You would pay the following expenses on a $1,000 investment, assuming a 5% annual return, borrowings by the Fund in an amount equal to 20% of its Managed Assets, and the tender and repurchase of the entire investment at the end of each period shown. | ||||||
Class A Shares | $ | |||||
Class C Shares | $ | |||||
Class I Shares | $ | |||||
The purpose of each table is to assist you in understanding the various costs and expenses that an investor in the
Fund will bear directly or indirectly. See
“
Classes of Shares - Choosing a Share Class.
”
The foregoing Examples should not be considered a representation of future expenses and actual expenses may be
greater or less than those shown.
18
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand
the Fund
'
s financial performance for the periods shown.
Certain
information
reflects the financial results for a single share
.
The total returns in the table represent the rate of return that an
investor would have earned or lost on an investment in the Fund
(assuming reinvestment of all dividends and/or distributions).
The information has been audited by
[
], whose report, along with
the Fund
’
s
financial statements,
is included
in the Fund’s
annual
report,
which
is available upon request
.
19
FINANCIAL HIGHLIGHTS
(continued)
Selected data for a share of beneficial interest outstanding throughout each year or period.
Per Share Operating Performance | Ratios to average net assets after reimbursement/ recoupment | Ratios to average net assets before reimbursement/ recoupment | Supplemental data | |||||||||||||||||||
Net asset value, beginning of year or period | Net investment income (loss) | Net realized and unrealized gain (loss) | Total from investment operations | Distributions from net investment income | Distributions from net realized gains on investments | Distributions from return of capital | Total distributions | Net asset value, end of year or period | Total Investment Return (1) | Expenses (before interest and other fees related to revolving credit facility) (2)(3) | Expenses (with interest and other fees related to revolving credit facility) (2)(3) | Net investment income (loss) (2)(3) | Expenses (before interest and other fees related to revolving credit facility) (3) | Expenses (with interest and other fees related to revolving credit facility) (3) | Net investment income (loss) (3) | Net assets, end of year or period | Portfolio Turnover | Borrowings at end of year or period | Asset coverage per $1,000 of debt | Average borrowings (4) | Shares outstanding at end of year or period | |
Year or period ended | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ($) | (%) | (%) | (%) | (%) | (%) | (%) | (%) | ($000's) | (%) | ($000's) | ($) | ($000's) | (000's) |
Class A | ||||||||||||||||||||||
5/01/24 4 -2/28/2025 | ||||||||||||||||||||||
Class C | ||||||||||||||||||||||
5/01/24 4 -2/28/2025 | ||||||||||||||||||||||
Class I | ||||||||||||||||||||||
5/01/24 4 -2/28/2025 | ||||||||||||||||||||||
(1)
Total investment return has been calculated assuming a purchase at the beginning of each period and a sale at the end of each period and assumes reinvestment of dividends, capital gain distributions, and return
of capital distributions/allocations, if any, on the dividend/distribution date. Total investment return does not include sales load.
(2)
The Investment Adviser has agreed to limit expenses excluding interest, taxes, brokerage commissions, leverage expenses, other investment related costs and extraordinary expenses, subject to possible recoupment
by the Investment Adviser within three years.
(3)
Annualized for periods less than one year.
(4)
Commencement of operations.
*
Calculated using average amount of shares outstanding throughout the period.
20
INVESTMENT OBJECTIVE AND POLICIES
Investment Objective
The Fund's investment objective is to maximize total return through a combination of current income and capital appreciation.
The investment objective is non-fundamental and may be changed by a vote of the Trustees (the
“
Board
”
) without
approval of the shareholders of the Fund. The Fund will provide 60 days’ prior written notice of any change in a non-fundamental
investment objective.
There
is no guarantee the Fund will achieve its investment objective. The Fund seeks to achieve
this investment objective by investing in the types of assets described below:
Under normal market conditions, the Fund invests at least 80% of its net assets (plus borrowings for investment
purposes) in securitized credit instruments. The Fund will provide shareholders with at least 60 days’ prior written
notice of any change in this investment policy.
Securitized credit instruments include
without limitation
: commercial mortgage-backed securities (
“
CMBS
”
), asset-backed
securities (
“
ABS
”
) or collateralized loan obligations (
“
CLOs
”
);
residential mortgage-backed securities (
“
RMBS
”
); collateralized
mortgage obligations (
“
CMOs
”
); and other securitized investments representing interests in cashflows from various
assets, such as loans, leases and warehouse facilities. These instruments may be fixed rate or adjustable rate instruments.
The Fund may also invest in other fixed-income instruments, which include bonds, debt instruments and other similar
instruments issued by various U.S. and non-U.S. public or private sector entities.
Fundamental Policies
1.
Industry Concentration.
The Fund may invest in any industry. The Fund may not invest more than 25% of its total
assets, measured at the time of investment, in any single industry.
2.
Borrower Diversification.
The Fund is diversified, as such term is defined in the 1940 Act. A diversified fund may
not, as to 75% of its total assets, invest more than 5% of its total assets in any one issuer and may not purchase
more than 10% of the outstanding voting securities of any one issuer (other than securities issues or guaranteed
by the U.S. government or any of its agencies or instrumentalities, or other investment companies). The Fund will
consider the borrower on a loan, including a loan participation, to be the issuer of such loan. With respect to no
more than 25% of its total assets, the Fund may make investments that are not subject to the foregoing restrictions.
Fundamental Policy on Repurchase Offers
3.
Repurchase Offers.
As a fundamental policy, which may not be changed without shareholder approval, the Fund
offers shareholders the opportunity to redeem their Shares on a quarterly basis. The Fund is required to offer to
repurchase not less than 5% and not more than 25% of its outstanding Shares with each Repurchase Offer, pursuant
to Rule 23c-3 under the 1940 Act, unless such offer is suspended or postponed in accordance with relevant regulatory
requirements. Quarterly repurchases will occur in the months of March, June, September and December, beginning
with the initial repurchase offer conducted in September 2024. If more Shares are tendered for repurchase than
the Fund has offered to repurchase, the Board may, but is not obligated to, increase the number of Shares to be
repurchased by up to 2% of the Fund's Shares outstanding per quarter, subject to the 25% limitation on the repurchase
of the Fund’ outstanding Shares during any calendar quarter. If there are more Shares tendered than are offered
for repurchase, Shares will be repurchased on a pro-rata basis. Other than the Fund's quarterly repurchase offers,
no market for the Fund's Shares is expected to exist. Even though the Fund intends to make quarterly repurchase
offers to repurchase a portion of its Shares, you should consider the Shares to be illiquid. The applicable early
withdrawal charge will be imposed on certain repurchased Class A Shares and Class I Shares. See
“
Sales Charges
”
and
“
Repurchase Offers
”
later in this Prospectus for important information relating to the acceptance of Fund
offers to repurchase Shares.
These fundamental policies may only be changed by a majority vote of the shareholders. See
“
Description of the Fund
– Fundamental and Non-Fundamental Investment Policies of the Fund
”
later in this Prospectus.
Investment Policies
The Investment Adviser and Sub-Adviser follow certain investment policies set by the Fund's Board. Some of those
policies are set forth below. Please refer to the SAI for additional information on these and other investment policies.
Use of Leverage.
The Fund may borrow money to the fullest extent permitted by the 1940 Act. See
“
Investment Objective
and Policies - Policy on Borrowing.
”
21
INVESTMENT OBJECTIVE AND POLICIES
(continued)
Policy on Borrowing
The Fund has a policy of borrowing for investment purposes. The Fund seeks to use proceeds from borrowing to acquire
securitized credit investments and other investments which pay interest at a rate higher than the rate the Fund pays
on borrowings. Accordingly, borrowing has the potential to increase the Fund's total income available to holders of its
Shares. The Fund may also borrow to finance the repurchase of its Shares or to meet cash requirements.
The Fund may issue notes, commercial paper, or other evidences of indebtedness and may be required to secure
repayment by mortgaging, pledging, or otherwise granting a security interest in the Fund's assets. The terms of any
such borrowings will be subject to the provisions of the 1940 Act and they will also be subject to the more restrictive
terms of any credit agreements relating to borrowings and, to the extent the Fund seeks a rating for borrowings, to
additional guidelines imposed by rating agencies, which are expected
to be more restrictive than the provisions of the 1940 Act. The Fund is permitted to borrow an amount up to 33
1
∕
3
%, or such other percentage permitted by law,
of its total assets (including the amount borrowed) less all liabilities other than borrowings. See
“
Risk Factors and
Special Considerations - Leverage
”
and
“
Risk Factors and Special Considerations - Restrictive Covenants and 1940
Act Restrictions.
”
Additional Information About 80% Investment Policy Related to Fund Name
The Fund has adopted a policy to invest in accordance with the investment focus that the Fund’s name suggests, as
set forth in the table below (the
“
80% Investment Policy
”
). The Fund will provide shareholders with at least 60 days'
prior notice of any change in its 80% Investment Policy.
For purposes of satisfying its 80% Investment Policy, the Fund may also invest in derivatives and other synthetic instruments
and other investment companies, including ETFs, as applicable, that provide investment exposure to, or exposure to
risk factors associated with, the investment focus that the Fund's name suggests.
Fund | 80% Investment Policy | Additional Information About the 80% Investment Policy |
Voya Enhanced Securitized Income Fund | Under normal circumstances, the Fund invests at least 80% of its net assets (plus the amount of any borrowings for investment purposes) in securitized credit instruments. | For purposes of this 80% policy, securitized credit instruments include, without limitation, the following: CMBS; ABS, CLOs, RMBS; CMOs; and other securitized investments representing interests in cashflows from various assets, such as loans, leases and warehouse facilities. |
22
RISK FACTORS AND SPECIAL CONSIDERATIONS
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,
please see the SAI.
Asset-Backed (including Mortgage-Backed) Securities:
Defaults on, or low credit quality or liquidity of the underlying
assets of the asset-backed (including mortgage-backed) securities may impair the value of these securities and result
in losses. There may be limitations on the enforceability of any security interest or collateral granted with respect to
those underlying assets and the value of collateral may not satisfy the obligation upon default. These securities also
present a higher degree of prepayment and extension risk and interest rate risk than do other types of debt instruments.
Small movements in interest rates (both increases and decreases) may quickly and significantly reduce the value of
certain asset-backed securities. The value of longer-term securities generally changes more in response to changes
in market interest rates than shorter-term securities.
Certain asset-backed (including mortgage-backed) securities may pay principal only at maturity or may represent only
the right to receive payments of principal or interest on the underlying assets, but not both. The value of IO and PO
instruments may change more than the value of debt securities that pay both principal and interest during periods of
changing interest rates. PO instruments generally increase in value if interest rates decline, but are also subject to
the risk of prepayment. IO instruments generally increase in value in a rising interest rate environment when fewer of
the underlying obligations are prepaid. IO instruments could lose their entire value in a declining interest rate environment
if the underlying obligations are prepaid.
The Fund may invest in real estate mortgage investment conduits (
“
REMICs
”
), which could include resecuritizations
of REMICs (
“
Re-REMICs
”
). A REMIC is an special purpose entity that pools mortgage loans and issues mortgage-backed
securities. An interest in a Re-REMIC security may be riskier than the securities contributed to the special purpose
entity, and the holders of the Re-REMIC securities may bear the costs associated with the securitization.
Senior tranche investments in mortgage-backed or asset-backed securities are paid from the cash flows from the
underlying assets before the junior tranches and equity or
“
first loss
”
tranches. Any losses on the underlying assets
are first borne by the equity tranches, next by less junior tranches, and finally by the senior tranches. Accordingly,
subordinated tranche investments, and especially
“
first loss
”
tranches, involve greater risk of loss than more senior
tranches.
These securities may be affected significantly by government regulation, market interest rates, market perception of
the creditworthiness of an issuer servicer, and loan-to-value ratio of the underlying assets. During an economic downturn,
the mortgages, commercial or consumer loans, trade or credit card receivables, installment purchase obligations,
leases, or other debt obligations underlying an asset-backed security may experience an increase in defaults as borrowers
experience difficulties in repaying their loans which may cause the valuation of such securities to be more volatile
and may reduce the value of such securities. These risks are particularly heightened for investments in asset-backed
securities that contain sub-prime loans, which are loans made to borrowers with weakened credit histories and often
have higher default rates.
Collateralized Loan Obligations:
A CLO is an obligation of a trust or other special purpose vehicle typically collateralized
by a pool of loans, which may include senior secured and unsecured loans and subordinate corporate loans, including
loans that may be rated below investment grade, or equivalent unrated loans. CLOs may incur management fees and
administration fees. The risks of investing in a CLO depend largely on the type of the collateral held in the CLO portfolio
and the tranche of securities in which the Fund
may invest
, and can generally be summarized as a combination of
economic risks of the underlying loans combined with the risks associated with the CLO structure governing the priority
of payments, and include interest rate risk, credit risk, liquidity risk, prepayment and extension risk, and the risk of
default of the underlying asset, among others.
Commercial Real Estate Loans:
The Fund may invest in loans secured by commercial real estate. Loans on commercial
real estate properties generally lack standardized terms, which may complicate their structure and increase due diligence
costs. Commercial real estate properties tend to be unique and are more difficult to value than residential properties.
Commercial real estate loans also tend to have shorter maturities than residential mortgage loans and are generally
not fully amortizing, which means that they may have a significant principal balance or
“
balloon
”
payment due on
maturity. Loans with a balloon payment involve a greater risk to a lender than fully amortizing loans because the ability
of a borrower to make a balloon payment typically will depend upon its ability either to fully refinance the loan or to
23
RISK FACTORS AND SPECIAL CONSIDERATIONS
(continued)
sell the collateral property at a price sufficient to permit the borrower to make the balloon payment. The ability of a
borrower to effect a refinancing or sale will be affected by a number of factors, including the value of the property,
mortgage rates at the time of sale or refinancing, the borrower’s equity in the property, the financial condition and
operating history of the property and the borrower, tax laws, prevailing economic conditions and the availability of
credit for loans secured by the specific type of property.
Investing in commercial real estate loans is subject to cyclicality and other uncertainties. The cyclicality and leverage
associated with commercial real estate loans also have historically resulted in periods, including significant periods,
of adverse performance, including performance that may be materially more adverse than the performance associated
with other investments. Commercial real estate loans generally are non-recourse to borrowers. Commercial real estate
loans are subject to the effects of: (i) the ability of tenants to make lease payments; (ii) the ability of a property to
attract and retain tenants, which may in turn be affected by local conditions, such as an oversupply of space or a
reduction in demand for rental space in the area, the attractiveness of properties to tenants, competition from other
available space and the ability of the owner to pay leasing commissions, provide adequate maintenance and insurance,
pay tenant improvement costs and make other tenant concessions; (iii) the failure or insolvency of tenant businesses;
(iv) interest rate levels and the availability of credit to refinance such loans at or prior to maturity; (v) compliance with
regulatory requirements and applicable laws, including environmental controls and regulations and (vi) increased operating
costs, including energy costs and real estate taxes. Also, there may be costs and delays involved in enforcing rights
of a property owner against tenants in default under the terms of leases with respect to commercial properties and
such tenants may seek the protection of the bankruptcy laws, which can result in termination of lease contracts. If
the properties securing the loans do not generate sufficient income to meet operating expenses, debt service, capital
expenditure and tenant improvements, the obligors under the loans may be unable to make payments of principal and
interest in a timely fashion. Income from and values of properties are also affected by such factors as the quality of
the property manager, applicable laws, including tax laws, interest rate levels, the availability of financing for owners
and tenants and the impact of and costs of compliance with environmental controls and regulations. The economic
impacts of COVID-19 have created a unique challenge for real estate markets. Many businesses have either partially
or fully transitioned to a remote-working environment and this transition may negatively impact the occupancy rates
of commercial real estate over time. Similarly, trends in favor of online shopping may negatively affect the real estate
market for commercial properties.
Covenant-Lite Loans:
Loans in which the Fund may invest or to which the Fund may gain exposure indirectly through
its investments in collateralized debt obligations, CLOs or other types of structured securities may be considered
“
covenant-lite
”
loans. Covenant-lite refers to loans which do not incorporate traditional performance-based financial
maintenance covenants. Covenant-lite does not refer to a loan’s seniority in a borrower’s capital structure nor to a
lack of the benefit from a legal pledge of the borrower’s assets and does not necessarily correlate to the overall credit
quality of the borrower. Covenant-lite loans generally do not include terms which allow a lender to take action based
on a borrower’s performance relative to its covenants. Such actions may include the ability to renegotiate and/or
re-set the credit spread on the loan with a borrower, and even to declare a default or force the borrower into bankruptcy
restructuring if certain criteria are breached. Covenant-lite loans typically still provide lenders with other covenants
that restrict a borrower from incurring additional debt or engaging in certain actions. Such covenants can only be
breached by an affirmative action of the borrower, rather than by a deterioration in the borrower’s financial condition.
Accordingly, the Fund may have fewer rights against a borrower when it invests in, or has exposure to, covenant-lite
loans and, accordingly, may have a greater risk of loss on such investments as compared to investments in, or exposure
to, loans with additional or more conventional covenants.
Credit:
The Fund could lose money if the issuer or guarantor of a debt instrument in which the Fund invests, or the
counterparty to a derivative contract the Fund entered into, is unable or unwilling, or is perceived (whether by market
participants, rating agencies, pricing services, or otherwise) as unable or unwilling, to meet its financial obligations.
Asset-backed (including mortgage-backed) securities that are not issued by U.S. government agencies may have a
greater risk of default because they are not guaranteed by either the U.S. government or an agency or instrumentality
of the U.S. government. The credit quality of typical asset-backed securities depends primarily on the credit quality
of the underlying assets and the structural support (if any) provided to the securities.
Credit (Loans):
Prices of the Fund’s investments are likely to fall if the actual or perceived financial health of the
borrowers on, or issuers of, such investments deteriorates, whether because of broad economic or issuer-specific
reasons, or if the borrower or issuer is late (or defaults) in paying interest or principal. The Fund's investments in U.S.
24
RISK FACTORS AND SPECIAL CONSIDERATIONS
(continued)
dollar-denominated floating rate secured senior loans are expected to be rated below investment grade. Below investment
grade loans
involve a greater risk that borrowers may not make timely payment of the interest and principal due on
their loans and are subject to greater levels of credit and liquidity risks. They also involve a greater risk that the value
of such loans could decline significantly. If borrowers do not make timely payments of the interest due on their loans,
the yield on the Shares will decrease. If borrowers do not make timely payment of the principal due on their loans, or
if the value of such loans decreases, the net asset value will decrease.
The Fund may also make investments in whole loans and debt instruments backed by residential loans or commercial
loans that may carry additional risks, including the possibility that the quality of the collateral may decline in value
and the potential for the liquidity of residential or commercial loans to vary over time. These risks are greater for
subprime loans and loans secured by a single asset. Because they do not trade in a liquid market, residential and
commercial loans can typically only be sold to a limited universe of institutional investors and may be difficult for the
Fund to value. In addition, in the event that a loan is foreclosed on, the Fund could become the owner (in whole or in
part) of any collateral, which may include, among other things, real estate or other real or personal property, and the
Fund would bear the costs and liabilities of owning, holding or disposing of such property.
Loans that are senior and secured generally involve less risk than unsecured or subordinated (including second lien)
debt and equity instruments of the same borrower because the payment of principal and interest on senior loans is
an obligation of the borrower that, in most instances, takes precedence over the payment of dividends or the return
of capital to the borrower’s shareholders, and payments to bond holders. Loans that are senior and secured also may
have collateral supporting the repayment of the debt instrument. However, the value of the collateral may not equal
the Fund’s investment when the debt instrument is acquired or may decline below the principal amount of the debt
instrument subsequent to the Fund’s investment. Also, to the extent that collateral consists of stocks of the borrower,
or its subsidiaries or affiliates, the Fund bears the risk that the stocks may decline in value, be relatively illiquid, or
may lose all or substantially all of their value, causing the Fund’s investment to be undercollateralized. Therefore, the
liquidation of the collateral underlying a loan in which the Fund has invested, may not satisfy the borrower’s obligation
to the Fund in the event of non-payment of scheduled interest or principal, and the collateral may not be able to be
readily liquidated. In addition, it is possible that disputes as to the nature or identity of the collateral securing a loan
may delay the Fund's ability to realize on the collateral or, if the dispute is resolved adversely to the Fund, may prevent
the Fund from realizing on assets it had considered to constitute collateral.
In the event of the bankruptcy of a borrower or issuer, the Fund could experience delays and limitations on its ability
to realize the benefits of the collateral securing the investment. Among the risks involved in a bankruptcy are assertions
that the pledge of collateral to secure a loan constitutes a fraudulent conveyance or preferential transfer that would
have the effect of nullifying or subordinating the Fund’s rights to the collateral.
Lower quality securities (including securities that are or have fallen below investment grade and are classified as
“
junk investments
”
or
“
high yield securities
”
) have greater credit risk and liquidity risk than higher quality (investment
grade) securities, and their issuers’ long-term ability to make payments is considered speculative. Prices of lower
quality bonds or other debt instruments are also more volatile, are more sensitive to negative news about the economy
or the issuer, and have greater liquidity risk and price volatility. Investment decisions are based largely on the credit
analysis performed by the manager, and not on rating agency evaluation. This analysis may be difficult to perform.
Information about a loan and its borrower generally is not in the public domain. Investors in loans may not be afforded
the protections of the anti-fraud provisions of the Securities Act of 1933, as amended, and the Securities Exchange
Act of 1934, as amended, because loans may not be considered
“
securities
”
under such laws. In addition, many
borrowers have not issued securities to the public and are not subject to reporting requirements under federal securities
laws. Generally, however, borrowers are required to provide financial information to lenders and information may be
available from other loan market participants or agents that originate or administer loans.
The Fund’s ability to pay
dividends and repurchase its Shares is dependent upon the performance of the assets in its portfolio.
Credit Default Swaps:
The Fund may enter into credit default swaps, either as a buyer or a seller of the swap. A buyer
of a credit default swap is generally obligated to pay the seller an upfront or a periodic stream of payments over the
term of the contract until a credit event, such as a default, on a reference obligation has occurred. If a credit event
occurs, the seller generally must pay the buyer the
“
par value
”
(full notional value) of the swap in exchange for an
equal face amount of deliverable obligations of the reference entity described in the swap, or the seller may be required
to deliver the related net cash amount if the swap is cash settled. As a seller of a credit default swap, the Fund would
effectively add leverage to its portfolio because, in addition to its total net assets, the Fund would be subject to investment
25
RISK FACTORS AND SPECIAL CONSIDERATIONS
(continued)
exposure on the full notional value of the swap. Credit default swaps are particularly subject to counterparty, credit,
valuation, liquidity
and leveraging risks, and the risk that the swap may not correlate with its reference obligation as
expected. Certain standardized credit default swaps are subject to mandatory central clearing. Central clearing is
expected to reduce counterparty credit risk and increase liquidity; however, there is no assurance that it will achieve
that result, and in the meantime, central clearing and related requirements expose the Fund to different kinds of
costs and risks. In addition, credit default swaps expose the Fund to the risk of improper valuation.
Credit Risk Transfer Securities
:
Credit risk transfer securities (
“
CRTs
”
) are fixed- or variable-rate unsecured general
obligations issued from time to time by FHLMC, FMNA or other government sponsored entities (
“
GSEs
”
) and in certain
cases private entities. CRTs that are not structured as REMICs are unguaranteed and unsecured debt securities issued
by the GSE and therefore are not directly linked to or backed by the underlying mortgage loans. As a result, in the
event that a GSE fails to pay principal or interest on its non-REMIC CRT or goes through a bankruptcy, insolvency or
similar proceeding, holders of such CRTs have no direct recourse to the underlying mortgage loans and will generally
receive recovery on par with other unsecured creditors in such a scenario. The risks associated with an investment
in CRTs are different than the risks associated with an investment in mortgage-backed securities subject to a guarantee
or the credit support of FHLMC, FMNA, or other GSEs because some or all of the mortgage default or credit risk
associated with the underlying mortgage loans is transferred to investors in CRTs. As a result, the risk of loss is
substantially greater. CRTs may also be issued by private entities, such as banks or other financial institutions. Such
securities are subject to risks similar to those associated with credit risk transfer securities issued by GSEs, though
they may be less creditworthy than a GSE.
Currency:
To the extent that the Fund invests directly or indirectly in foreign (non-U.S.) currencies or in securities denominated
in, or that trade in, foreign (non-U.S.) currencies, it is subject to the risk that those foreign (non-U.S.) currencies will
decline in value relative to the U.S. dollar or, in the case of hedging positions, that the U.S. dollar will decline in value
relative to the currency being hedged by the Fund through foreign currency exchange transactions.
Currency rates may
fluctuate significantly over short periods of time. Currency rates may be affected by changes in market interest rates,
intervention (or the failure to intervene) by the U.S. or foreign (non-U.S.) governments, central banks or supranational
entities such as the International Monetary Fund, by the imposition of currency controls, or other political or economic
developments in the U.S. or abroad.
Demand for Loans:
An increase in demand for loans may benefit the Fund by providing increased liquidity for such
loans and higher sales prices, but it may also adversely affect the rate of interest payable on such loans and the
rights provided to the Fund under the terms of the applicable loan agreement, and may increase the price of loans in
the secondary market. A decrease in the demand for loans may adversely affect the price of loans in the Fund’s
portfolio, which could cause the Fund’s net asset value to decline and reduce the liquidity of the Fund’s loan holdings.
Derivative Instruments:
Derivative instruments are subject to a number of risks, including the risk of changes in the
market price of the underlying asset, reference rate, or index credit risk with respect to the counterparty, risk of loss
due to changes in market interest rates, liquidity risk, valuation risk, and volatility risk. The amounts required to purchase
certain derivatives may be small relative to the magnitude of exposure assumed by the Fund. Therefore, the purchase
of certain derivatives may have an economic leveraging effect on the Fund and exaggerate any increase or decrease
in the net asset value. Derivatives may not perform as expected, so the Fund may not realize the intended benefits.
When used for hedging purposes, the change in value of a derivative may not correlate as expected with the asset,
reference rate, or index being hedged. When used as an alternative or substitute for direct cash investment, the return
provided by the derivative may not provide the same return as direct cash investment.
Generally, derivatives are sophisticated
financial instruments whose performance is derived, at least in part, from the performance of an underlying asset,
reference rate, or index. Derivatives include, among other things, swap agreements, options, forward foreign currency
exchange contracts, and futures. Certain derivatives in which the Fund may invest may be negotiated over-the-counter
with a single counterparty and as a result are subject to credit risks related to the counterparty’s ability or willingness
to perform its obligations; any deterioration in the counterparty’s creditworthiness could adversely affect the value
of the derivative. In addition, derivatives and their underlying instruments may experience periods of illiquidity which
could cause the Fund to hold a position it might otherwise sell, or to sell a position it otherwise might hold at an
inopportune time or price. A manager might imperfectly judge the direction of the market. For instance, if a derivative
is used as a hedge to offset investment risk in another security, the hedge might not correlate to the market’s movements
and may have unexpected or undesired results such as a loss or a reduction in gains. The U.S. government has enacted
legislation that provides for regulation of the derivatives market, including clearing, margin, reporting, and registration
26
RISK FACTORS AND SPECIAL CONSIDERATIONS
(continued)
requirements. The European Union (and other jurisdictions outside of the European Union, including the United Kingdom)
has implemented or is in the process of implementing similar requirements, which may affect the Fund when it enters
into a derivatives transaction with a counterparty organized in that jurisdiction or otherwise subject to that jurisdiction’s
derivatives regulations. Because these requirements
continue to evolve
, their ultimate impact remains unclear. Central
clearing is expected to reduce counterparty credit risk and increase liquidity; however, there is no assurance that it
will achieve that result, and, in the meantime, central clearing and related requirements expose the Fund to different
kinds of costs and risks.
Duration:
One measure of risk for the Fund’s investments in fixed-income instruments, including certain securitized
credit instruments is duration. Duration measures the sensitivity of a fixed-income instrument’s price to market interest
rate movements and is one of the tools used by a portfolio manager in selecting debt instruments. Duration measures
the average life of a fixed-income instrument on a present value basis by incorporating into one measure a credit
instrument’s yield, coupons, final maturity and call features. As a point of reference, the duration of a non-callable
7% coupon bond with a remaining maturity of 5 years is approximately 4.5 years and the duration of a non-callable
7% coupon bond with a remaining maturity of 10 years is approximately 8 years. Material changes in market interest
rates may impact the duration calculation. Generally, the Fund’s investments in fixed-income instruments will decrease
in value if interest rates rise and increase in value if interest rates fall. For example, the price of a fixed-income instrument
with a duration of 5 years would be expected to fall approximately 5% if market interest rates rose by 1%. Conversely,
the price of a fixed-income instrument with a duration of 5 years would be expected to rise approximately 5% if market
interest rates dropped by 1%. Normally, the longer the maturity or duration of the fixed-income instruments the Fund
owns, the more sensitive the value of the Fund’s shares will be to changes in interest rates.
Floating Rate Investments:
The Fund’s investments will include floating rate investments, which are securities and
other instruments with interest rates that adjust or
“
float
”
periodically based on a specified interest rate or other
reference and include floating rate loans, repurchase agreements, money market securities and shares of money
market and short-term bond funds. The interest rates on these investments may be reset daily, weekly, monthly, quarterly,
or some other reset period, and may have a floor or ceiling on interest rate changes. Changes in short-term market
interest rates will directly affect the yield on investments in floating or variable rate loans. If short-term market interest
rates fall, the yield on the Fund’s shares will also fall. Conversely, when short-term market interest rates rise, because
of the lag between changes in such short-term rates and the resetting of the floating rates on assets in the Fund’s
portfolio, the impact of rising rates will be delayed to the extent of such lag. See also the principal risk titled
“
Interest
Rate for Floating or Variable Rate Loans.
”
Floating or Variable Rate Loans:
In the event a borrower fails to pay scheduled interest or principal payments on a
floating or variable rate loan, the Fund will experience a reduction in its income and a decline in the market value of
such floating rate loan. If a floating rate loan is held by the Fund through another financial institution, or the Fund
relies upon another financial institution to administer the loan, the receipt of scheduled interest or principal payments
may be subject to the credit risk of such financial institution. Investors in floating rate loans may not be afforded the
protections of the anti-fraud provisions of the Securities Act of 1933, as amended, and the Securities Exchange Act
of 1934, as amended, because loans may not be considered
“
securities
”
under such laws. Additionally, the value of
collateral, if any, securing a floating rate loan can decline or may be insufficient to meet the borrower’s obligations
under the loan, and such collateral may be difficult to liquidate. This risk is increased if the Fund’s loans are with a
single borrower or secured by a single asset. No active trading market may exist for many floating rate loans and
many floating rate loans are subject to restrictions on resale. Transactions in loans typically settle on a delayed basis
and may take longer than 7 days to settle. As a result, the Fund may not receive the proceeds from a sale of a floating
rate loan for a significant period of time. Delay in the receipts of settlement proceeds may impair the ability of the
Fund to meet its redemption obligations, and may limit the ability of the Fund to repay debt, pay dividends, or to take
advantage of new investment opportunities.
Foreign (Non-U.S.) Investments:
To the extent the Fund invests in securities of issuers in markets outside the U.S.,
its share price may be more volatile than if it invested in securities of issuers in the U.S. market due to, among other
things, the following factors: comparatively unstable political, social
,
and economic conditions and limited or ineffectual
judicial systems; wars; comparatively small market sizes, making securities less liquid and securities prices more
sensitive to the movements of large investors and more vulnerable to manipulation; governmental policies or actions,
such as high taxes, restrictions on currency movements, replacement of currency, potential for default on sovereign
debt, trade or diplomatic disputes, which may include the imposition of economic sanctions
(o
r the threat of new or 27
RISK FACTORS AND SPECIAL CONSIDERATIONS
(continued)
modified sanctions) or other measures by the U.S. or other governments and supranational organizations, creation
of monopolies, and seizure of private property through confiscatory taxation and expropriation or nationalization of
company assets; incomplete, outdated, or unreliable information about securities issuers due to less stringent market
regulation and accounting, auditing and financial reporting standards and practices; comparatively undeveloped markets
and weak banking and financial systems; market inefficiencies, such as higher transaction costs, and administrative
difficulties, such as delays in processing transactions; and fluctuations in foreign currency exchange rates, which
could reduce gains or widen losses.
Economic or other sanctions imposed on a foreign (non-U.S.) country or issuer by the U.S. or on the U.S. by a foreign
(non-U.S.) country, could impair the Fund's ability to buy, sell, hold, receive, deliver, or otherwise transact in certain
securities. In addition, foreign withholding or other taxes could reduce the income available to distribute to shareholders,
and special U.S. tax considerations could apply to foreign (non-U.S.) investments. Depositary receipts are subject to
risks of foreign (non-U.S.) investments and might not always track the price of the underlying foreign (non-U.S.) security.
Markets and economies throughout the world are becoming increasingly interconnected, and conditions or events in
one market, country or region may adversely impact investments or issuers in another market, country or region.
Futures Contracts:
The loss to the Fund resulting from its use of futures contracts (or
“
futures
”
) is potentially unlimited.
Futures markets are highly volatile, and the use of futures contracts increases the volatility of the Fund’s net asset
value. The Fund’s ability to establish and close out positions in futures contracts requires a liquid secondary market.
A liquid secondary market may not exist for any particular futures contract at any particular time, and as a result the
Fund runs the risk that it will be unable when it wishes to effect closing transactions to terminate its exposure under
that contract. In using futures contracts, the Fund relies on the Sub-Adviser’s ability to predict market and price movements
correctly. The skills needed to use futures contracts successfully are different from those needed for traditional portfolio
management. If the Fund uses futures contracts for hedging purposes, it runs the risk that changes in the prices of
the contracts will not correlate perfectly with changes in the securities, index, or other asset underlying the contracts
or movements in the prices of the Fund’s investments that are subject to the hedge.
The Fund typically will be required to post margin with its futures commission merchant when purchasing a futures
contract. If the Fund has insufficient cash to meet margin requirements, the Fund typically will have to sell other investments
and runs the risk of having to do so at a disadvantageous time. The Fund also runs the risk of being unable to recover,
or be delayed in recovering, margin or other amounts deposited with a futures commission merchant. For example,
should the futures commission merchant become insolvent, the Fund may be unable to recover all (or any) of the
margin it has deposited or realize the value of an increase in the price of its positions.
The Fund may invest in futures contracts traded on exchanges outside the United States. Neither those contracts nor
the foreign exchanges are subject to regulation by the Commodity Futures Trading Commission or other U.S. regulators.
In addition, foreign futures contracts may be less liquid and more volatile than U.S. futures contracts.
High-Yield Securities:
Lower-quality securities (including securities that are or have fallen below investment grade
have greater credit risk and liquidity risk than higher-quality (investment grade) securities, and their issuers' long-term
ability to make payments is considered speculative. Prices of lower-quality bonds or other debt instruments are also
more volatile, are more sensitive to negative news about the economy or the issuer, and have greater liquidity risk
and price volatility.
Interest in Loans:
The value and the income streams of interests in loans (including participation interests in lease
financings and assignments in secured variable or floating rate loans) will decline if borrowers delay payments or fail
to pay altogether. A significant rise in market interest rates could increase this risk. Although loans may be fully collateralized
when purchased, such collateral may become illiquid or decline in value.
Interest Rate:
Changes in short-term market interest rates will directly affect the yield on Shares. If short-term market
interest rates fall, the yield on Shares will also fall. To the extent that the interest rate spreads on loans in the Fund’s
portfolio experience a general decline, the yield on the Shares will fall and the value of the Fund’s assets may decrease,
which will cause the Fund’s net asset value to decrease. Conversely, when short-term market interest rates rise,
because of the lag between changes in such short-term rates and the resetting of the floating rates on assets in the
Fund’s portfolio, the impact of rising rates will be delayed to the extent of such lag. In the case of inverse securities,
the interest rate paid by such securities generally will decrease when the market rate of interest to which the inverse
28
RISK FACTORS AND SPECIAL CONSIDERATIONS
(continued)
security is indexed increases. With respect to investments in fixed rate instruments, a rise in market interest rates
generally causes values of such instruments to fall. The values of fixed rate instruments with longer maturities or
duration are more sensitive to changes in market interest rates.
As of the date of this Prospectus, the United States has recently experienced a rising market interest rate environment,
which may increase the Fund’s exposure to risks associated with rising market interest rates. Rising market interest
rates could have unpredictable effects on the markets and may expose debt and related markets to heightened volatility,
which could reduce liquidity for certain investments, adversely affect values, and increase costs. If dealer capacity in
debt and related markets is insufficient for market conditions, it may further inhibit liquidity and increase volatility in
the debt and related markets. Further, recent and potential changes in government policy may affect interest rates.
Market interest rate changes also may cause the Fund’s net asset value to experience moderate volatility. This is
because the value of a loan asset held by the Fund is partially a function of whether it is paying what the market
perceives to be a market rate of interest for the particular loan, given its individual credit and other characteristics.
If market interest rates change, a loan’s value could be affected to the extent the interest rate paid on that loan does
not reset at the same time. As discussed above, the Fund will ordinarily maintain a dollar-weighted average time until
the next interest rate adjustment on its loans of 90 days or less. Therefore, the impact of the lag between a change
in market interest rates and the change in the overall rate on the portfolio is expected to be minimal.
To the extent that changes in market rates of interest are reflected not in a change to a base rate but in a change in
the spread over the base rate which is payable on loans of the type and quality in which the Fund invests, the Fund’s
net asset value could also be adversely affected. However, unlike changes in market rates of interest for which there
is only a temporary lag before the portfolio reflects those changes, changes in a loan’s value based on changes in
the market spread on loans in the Fund’s portfolio may be of longer duration.
Finally, substantial increases in interest rates may cause an increase in loan defaults as borrowers may lack the
resources to meet higher debt service requirements. In the case of inverse securities, the interest rate paid by the
securities is a floating rate, which generally will decrease when the market rate of interest to which the inverse security
is indexed increases and will increase when the market rate of interest to which the inverse security is indexed decreases.
Interest Rate for Floating or Variable Rate Loans:
Changes in short-term market interest rates will directly affect the
yield on investments in floating or variable rate loans. If short-term market interest rates fall, the yield on the Fund’s
shares will also fall. To the extent that the interest rate spreads on loans in the Fund’s portfolio experience a general
decline, the yield on the Fund’s shares will fall and the value of the Fund’s assets may decrease, which will cause
the Fund’s net asset value to decrease. Conversely, when short-term market interest rates rise, because of the lag
between changes in such short-term rates and the resetting of the floating rates on assets in the Fund’s portfolio,
the impact of rising rates will be delayed to the extent of such lag. The impact of market interest rate changes on the
Fund’s yield will also be affected by whether, and the extent to which, the floating or variable rate loans in the Fund’s
portfolio are subject to floors on the secured overnight funding rate (
“
SOFR
”
) base rate or other reference benchmark
on which interest is calculated for such loans (a
“
benchmark floor
”
). So long as the base rate for a loan remains
under the applicable benchmark floor, changes in short-term market interest rates will not affect the yield on such
loans. In addition, to the extent that changes in market interest rates are reflected not in a change to a base rate
such as SOFR but in a change in the spread over the base rate which is payable on the floating rate loans of the type
and quality in which the Fund invests, the Fund’s net asset value could also be adversely affected. As of the date of
this Prospectus, the U.S has recently experienced a rising market interest rate environment, which may increase the
Fund’s exposure to risks associated with rising market interest rates. Rising market interest rates have unpredictable
effects on the markets and may expose debt and related markets to heightened volatility, which could reduce liquidity
for certain investments, adversely affect values, and increase costs. Increased redemptions may cause the Fund to
liquidate portfolio positions when it may not be advantageous to do so and may lower returns. If dealer capacity in
debt and related markets is insufficient for market conditions, it may further inhibit liquidity and increase volatility in
the debt and related markets. Further, recent and potential future changes in government policy may affect interest
rates.
Inverse Floating Rate Instrument:
Inverse floaters are leveraged inverse floating rate credit instruments. The interest
rate on an inverse floater resets in the opposite direction from the market rate of interest to which the inverse floater
is indexed. An inverse floater may be considered to be leveraged to the extent that its interest rate varies by a magnitude
29
RISK FACTORS AND SPECIAL CONSIDERATIONS
(continued)
that exceeds the magnitude of the change in the index rate of interest. The higher degree of leverage inherent in
inverse floaters is associated with greater volatility in their market values. Accordingly, the duration of an inverse floater
may exceed its stated final maturity.
Leverage:
The Fund currently utilizes leverage primarily through reverse repurchase agreements and may also obtain
leverage through credit default swaps, dollar rolls and borrowings such as through bank loans or commercial paper
and/or other credit facilities.
The Fund’s use of leverage, if any, creates the opportunity for increased Share net income, but also creates special
risks for shareholders. To the extent used, there is no assurance that the Fund’s leveraging strategies will be successful.
Leverage is a speculative technique that may expose the Fund to greater risk and increased costs. The Fund’s assets
attributable to leverage, if any, will be invested in accordance with the Fund’s investment objective and policies. Interest
expense payable by the Fund with respect to derivatives transactions and other forms of leverage, will generally be
based on shorter-term interest rates that would be periodically reset. So long as the Fund’s portfolio investments
provide a higher rate of return (net of applicable Fund expenses) than the interest expenses and other costs to the
Fund of such leverage, the investment of the proceeds thereof will generate more income than will be needed to pay
the costs of the leverage. If so, and all other things being equal, the excess may be used to pay higher dividends to
shareholders than if the Fund were not so leveraged. If, however, shorter-term interest rates rise relative to the rate
of return on the Fund’s portfolio, the interest and other costs to the Fund of leverage could exceed the rate of return
on the debt obligations and other investments held by the Fund, thereby reducing return to shareholders. In addition,
fees and expenses of any form of leverage used by the Fund will be borne entirely by the shareholders and will reduce
the investment return of the Shares. Therefore, there can be no assurance that the Fund’s use of leverage will result
in a higher yield on the Shares, and it may result in losses. Leverage creates several major types of risks for shareholders,
including:
•
the likelihood of greater volatility of NAV and market price of Shares, and of the investment return to shareholders,
than a comparable portfolio without leverage;
•
the possibility either that Share dividends will fall if the interest and other costs of leverage rise, or that dividends
paid on Shares will fluctuate because such costs vary over time; and
•
the effects of leverage in a declining market or a rising interest rate environment, as leverage is likely to cause
a greater decline in the NAV of the Shares than if the Fund were not leveraged and may result in a greater
decline in the market value of the Shares.
Capital raised through leverage will be subject to interest and other costs, and these costs could exceed the income
earned by the Fund on the proceeds of such leverage. There can be no assurance that the Fund’s income from the
proceeds of leverage will exceed these costs. The manager seeks to use leverage for the purposes of making additional
investments only if they believe, at the time of using leverage, that the total return on the assets purchased with such
funds will exceed interest payments and other costs on the leverage.
The Fund is not permitted to declare dividends or other distributions, including dividends and distributions with respect
to Shares, or to purchase Shares unless the Fund meets certain asset coverage requirements. The failure to pay
distributions or dividends could result in the Fund ceasing to qualify as a regulated investment company (
“
RIC
”
) under
the Internal Revenue Code of 1986, as amended
(the
“
Code
”
)
.
Because the fees received by the Investment Adviser are based on the average daily total managed assets of the
Fund (including assets attributable to any reverse repurchase agreements, dollar rolls and borrowings) minus accrued
liabilities (other than liabilities representing reverse repurchase agreements, dollar rolls and borrowings), the Investment
Adviser has a financial incentive for the Fund to use certain forms of leverage (e.g., reverse repurchase agreements,
dollar rolls and borrowings), which may create a conflict of interest between the Investment Adviser, on the one hand,
and the shareholders, on the other hand.
Limited Liquidity For Investors:
The Fund does not repurchase its shares on a daily basis and no market for the
Shares is expected to exist. To provide a measure of liquidity, the Fund will normally make quarterly repurchase offers
for not less than 5% and not more than 25% of its outstanding Shares. If more than 5% of Shares are tendered,
investors may not be able to completely liquidate their holdings in any quarter. Shareholders also will not have liquidity
between these quarterly repurchase dates.
30
RISK FACTORS AND SPECIAL CONSIDERATIONS
(continued)
Repurchase offers and the need to fund repurchase obligations may affect the ability of the Fund to be fully invested
or force the Fund to maintain a higher percentage of its assets in liquid investments, which may harm the Fund’s
investment performance. Moreover, diminution in the size of the Fund through repurchases may result in untimely
sales of portfolio securities (with associated imputed transaction costs, which may be significant), and may limit the
ability of the Fund to participate in new investment opportunities or to achieve its investment objective. The Fund may
accumulate cash by holding back (i.e., not reinvesting) payments received in connection with the Fund’s investments.
The Fund believes that payments received in connection with the Fund’s investments will generate sufficient cash to
meet the maximum potential amount of the Fund’s repurchase obligations. If at any time cash and other liquid assets
held by the Fund are not sufficient to meet the Fund’s repurchase obligations, the Fund intends, if necessary, to sell
investments. If, as expected, the Fund employs investment leverage, repurchases of Shares would compound the
adverse effects of leverage in a declining market. In addition, if the Fund borrows to finance repurchases, interest on
that borrowing will negatively affect Shareholders who do not tender their Shares by increasing the Fund’s expenses
and reducing any net investment income.
If a repurchase offer is oversubscribed, the Fund's Board of Trustees (the
“
Board
”
) may determine to increase the
amount repurchased by up to 2% of the Fund’s outstanding Shares as of the date of the Repurchase Request Deadline.
In the event that the Board determines not to repurchase more than the repurchase offer amount, or if Shareholders
tender more than the repurchase offer amount plus 2% of the Fund’s outstanding Shares as of the date of the Repurchase
Request Deadline, the Fund will repurchase the Shares tendered on a pro rata basis, and Shareholders will have to
wait until the next repurchase offer to make another repurchase request. As a result, Shareholders may be unable
to liquidate all or a given percentage of their investment in the Fund during a particular repurchase offer. Some Shareholders,
in anticipation of proration, may tender more Shares than they wish to have repurchased in a particular quarter, thereby
increasing the likelihood that proration will occur. A Shareholder may be subject to market and other risks, and the
NAV per Share of Shares tendered in a repurchase offer may decline between the Repurchase Request Deadline and
the date on which the NAV per Share for tendered Shares is determined. In addition, the repurchase of Shares by the
Fund may be a taxable event to Shareholders.
Limited Operating History:
The Fund has a limited operating history. As a result, prospective investors have a limited
track record and history on which to base their investment decision. In addition, there can be no assurance that the
Fund will be able to implement its investment strategy and investment approach or achieve its investment objective.
Limited Secondary Market for Loans:
Because of the limited secondary market for loans, the Fund, through its investments
in loans directly or indirectly through its investments in securitized credit instruments, may be limited in its ability to
sell loans in its portfolio in a timely fashion and/or at a favorable price. Transactions in loans typically settle on a
delayed basis and typically take longer than 7 days to settle. As a result the Fund may not receive the proceeds from
a sale of a floating rate loan for a significant period of time. Delay in the receipts of settlement proceeds may impair
the ability of the Fund to meet its repurchase obligations and may increase the amounts the Fund may be required to
borrow. It may also limit the ability of the Fund to repay debt, pay dividends, or to take advantage of new investment
opportunities.
Although the re-sale, or secondary market for loans has grown substantially in recent years, both in
overall size and number of market participants, there is no organized exchange or board of trade on which loans are
traded. Instead, the secondary market for loans is a private, unregulated inter-dealer or inter-bank re-sale market.
Loans usually trade in large denominations and trades can be infrequent and the market for loans may experience
volatility. The market has limited transparency so that information about actual trades may be difficult to obtain. Accordingly,
some loans will be relatively illiquid.
In addition, loans may require the consent of the borrower and/or the agent prior to sale or assignment. These consent
requirements can delay or impede the Fund’s ability to sell loans and can adversely affect the price that can be obtained.
These considerations may cause the Fund to sell assets at lower prices than it would otherwise consider to meet
cash needs or cause the Fund to maintain a greater portion of its assets in cash equivalents than it would otherwise,
which could negatively impact performance. The Fund may seek to avoid the necessity of selling assets to meet such
needs by the use of borrowings.
31
RISK FACTORS AND SPECIAL CONSIDERATIONS
(continued)
From time to time, the occurrence of one or more of the factors described above may create a cascading effect where
the market for debt instruments (including the market for loans) first experiences volatility and then decreased liquidity.
Such conditions, or other similar conditions, may then adversely affect the value of loans and other instruments,
widening spreads against higher-quality debt instruments, and making it harder to sell loans at prices at which they
have historically or recently traded, thereby further reducing liquidity.
Declines in the Fund's share price or other market developments (which may be more severe than these prior declines)
may lead to increased repurchases, which could cause the Fund to have to sell loans and other instruments at disadvantageous
prices and inhibit the ability of the Fund to retain its assets in the hope of greater stabilization in the secondary markets.
In addition, these or similar circumstances could cause the Fund to sell its highest quality and most liquid loans and
other investments in order to satisfy an initial wave of repurchases while leaving the Fund with a remaining portfolio
of lower-quality and less liquid investments. In anticipation of such circumstances, the Fund may also need to maintain
a larger portion of its assets in liquid instruments than usual. However, there can be no assurance that the Fund will
foresee the need to maintain greater liquidity or that actual efforts to maintain a larger portion of assets in liquid
investments would successfully mitigate the foregoing risks.
During its quarterly repurchase offers, the Fund is required to maintain a percentage of its portfolio, equal to the
value of the repurchase amounts, in securities that can be sold or disposed of at approximately the price at which
the Fund has valued the investment, within a period equal to the period between a repurchase request deadline and
the repurchase payment deadline, or of assets that mature by the next repurchase payment deadline. The requirement
to keep a portion of the portfolio in liquid securities, however, could negatively impact performance.
Liquidity:
If an investment is illiquid, the Fund might be unable to sell the investment at a time when the Fund’s manager
might wish to sell, or at all. Many of the Fund’s investments may be illiquid. The term
“
illiquid investments
”
for this
purpose means any investment that the Fund reasonably expects cannot be sold or disposed of in current market
conditions in seven calendar days or less without the sale or disposition significantly changing the market value of
the investment. Further, the lack of an established secondary market may make it more difficult to value illiquid
investments, exposing the Fund to the risk that the prices at which it sells illiquid investments will be less than the
prices at which they were valued when held by the Fund, which could cause the Fund to lose money. Illiquid investments
may become harder to value, especially in changing markets. The prices of illiquid investments may be more volatile
than more liquid securities, and the risks associated with illiquid securities may be greater in times of financial stress.
The Fund’s investments in illiquid investments may reduce the returns of the Fund because it may be unable to sell
the illiquid investments at an advantageous time or price or possibly require the Fund to dispose of other investments
at unfavorable times or prices in order to satisfy its obligations, which could prevent the Fund from taking advantage
of other investment opportunities. Additionally, the market for certain investments may become illiquid under adverse
market or economic conditions independent of any specific adverse changes in the conditions of a particular issuer.
In such cases, the Fund, due to limitations on investments in illiquid investments and the difficulty in purchasing and
selling such securities or instruments, may be unable to achieve its desired level of exposure to a certain sector.
The risks associated with illiquid instruments may be particularly acute in situations in which the Fund’s operations
require cash (such as in connection with repurchase offers) and could result in the Fund borrowing to meet its short-term
needs or incurring losses on the sale of illiquid instruments. It may also be the case that other market participants
may be attempting to liquidate fixed income holdings at the same time as the Fund, causing increased supply in the
market and contributing to liquidity risk and downward pricing pressure.
Market:
The market values of securities will fluctuate, sometimes sharply and unpredictably, based on overall economic
conditions, governmental actions or intervention, market disruptions caused by trade disputes or other factors, political
developments, and other factors. Prices of equity securities tend to rise and fall more dramatically than those of debt
instruments. Additionally, legislative, regulatory or tax policies or developments may adversely impact the investment
techniques available to a manager, add to costs, and impair the ability of the Fund to achieve its investment objectives.
Market Disruption and Geopolitical:
The Fund is subject to the risk that geopolitical events will disrupt securities
markets and adversely affect global economies and markets. Due to the increasing interdependence among global
economies and markets, conditions in one country, market, or region might adversely impact markets, issuers and/or
foreign exchange rates in other countries, including the United States. Wars, terrorism, global health crises and pandemics,
tariffs
and other
restrictions on trade or economic sanctions, rapid technological developments (such as artificial
intelligence technologies), and other
geopolitical events that have led, and may continue to lead, to increased market
32
RISK FACTORS AND SPECIAL CONSIDERATIONS
(continued)
volatility and may have adverse short- or long-term effects on U.S. and global economies and markets, generally. For
example, the COVID-19 pandemic resulted in significant market volatility, exchange suspensions and closures, declines
in global financial markets, higher default rates, supply chain disruptions, and a substantial economic downturn in
economies throughout the world. The economic impacts of COVID-19 have created a unique challenge for real estate
markets. Many businesses have either partially or fully transitioned to a remote-working environment and this transition
may negatively impact the occupancy rates of commercial real estate over time. Natural and environmental disasters
and systemic market dislocations are also highly disruptive to economies and markets. In addition, military action by
Russia in Ukraine has, and may continue to, adversely affect global energy and financial markets and therefore could
affect the value of the Fund’s investments, including beyond the Fund’s direct exposure to Russian issuers or nearby
geographic regions.
Furthermore, the prolonged conflict between Hamas and Israel, and the potential expansion of
the conflict in the surrounding areas and the involvement of other nations in such conflict, such as the Houthi movement's
attacks on marine vessels in the Red Sea, could further destabilize the Middle East region and introduce new uncertainties
in global markets, including the oil and natural gas markets.
The extent and duration of the military action, sanctions,
and resulting market disruptions are impossible to predict and could be substantial. A number of U.S. domestic banks
and foreign (non-U.S.) banks have
experienced financial difficulties and, in some cases, failures. There can be no
certainty that the actions taken by regulators to limit the effect of those financial difficulties and failures on other
banks or other financial institutions or on the U.S. or foreign (non-U.S.) economies generally will be successful. It is
possible that more banks or other financial institutions will experience financial difficulties or fail, which may affect
adversely other U.S. or foreign (non-U.S.) financial institutions and economies. These events as well as other changes
in foreign (non-U.S.) and domestic economic, social, and political conditions also could adversely affect individual
issuers or related groups of issuers, securities markets, interest rates, credit ratings, inflation, investor sentiment,
and other factors affecting the value of the Fund’s investments. Any of these occurrences could disrupt the operations
of the Fund and of the Fund’s service providers
.Options:
The Fund may buy or write (sell) call options and put options on futures and other instruments. The market
price of options will be affected by many factors, including changes in the market price or other economic attributes
of the underlying investment; changes in the realized or perceived volatility of the relevant market and underlying investment;
and the time remaining before an option’s expiration. The ability to trade in or exercise options may be restricted,
including in the event that trading in the underlying reference becomes restricted. There can be no assurance that a
liquid market will exist when the Fund seeks to close out an option position by buying or selling the option. Reasons
for the absence of a liquid secondary market on an exchange include the following: (i) there may be insufficient trading
interest in certain options; (ii) restrictions may be imposed by an exchange on opening transactions or closing transactions
or both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or
series of options; (iv) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the
facilities of an exchange or clearinghouse may not at all times be adequate to handle current trading volume; or (vi)
a regulator or one or more exchanges could, for economic or other reasons, decide to discontinue the trading of options
(or a particular class or series of options) at some future date. If trading were discontinued, the secondary market
on that exchange (or in that class or series of options) would cease to exist. The Options can also be traded off
exchanges in the over-the-counter (
“
OTC
”
) market. Unlike exchange-traded options, which are standardized with respect
to the underlying instrument, expiration date, contract size, and strike price, the terms of OTC options are generally
established through negotiation with the other party to the option contract. While this type of arrangement allows the
Fund greater flexibility to tailor an option to its needs, OTC options can be less liquid than exchange-traded options
and generally involve greater counterparty credit risk than exchange traded options, which are guaranteed by the clearing
organization of the exchanges where they are traded. The market price of options, particularly OTC options, may be
adversely affected if the market for the options becomes less liquid or smaller. Purchasers of options who fail to
exercise their options prior to the expiration date suffer a loss of the premium paid.
Prepayment and Extension:
Many types of debt instruments are subject to prepayment and extension risk. Prepayment
risk is the risk that the issuer of a debt instrument will pay back the principal earlier than expected. This risk is heightened
in a falling market interest rate environment. Prepayment may expose the Fund to a lower rate of return upon reinvestment
of principal. Also, if a debt instrument subject to prepayment has been purchased at a premium, the value of the
premium would be lost in the event of prepayment. Extension risk is the risk that the issuer of a debt instrument will
pay back the principal later than expected. This risk is heightened in a rising market interest rate environment. This
33
RISK FACTORS AND SPECIAL CONSIDERATIONS
(continued)
may negatively affect performance, as the value of the debt instrument decreases when principal payments are made
later than expected. Additionally, the Fund may be prevented from investing proceeds it would have received at a given
time at the higher prevailing interest rates.
Real Estate Companies and Real Estate Investment Trusts:
Investing in real estate companies and REITs may subject
the Fund to risks similar to those associated with the direct ownership of real estate, including losses from casualty
or condemnation, changes in local and general economic conditions, supply and demand, market interest rates, zoning
laws, regulatory limitations on rents, property taxes, overbuilding, high foreclosure rates, and operating expenses in
addition to terrorist attacks, wars, or other acts that destroy real property. Some REITs may invest in a limited number
of properties, in a narrow geographic area or in a single property type, which increases the risk that the Fund could
be unfavorably affected by the poor performance of a single investment or investment type. These companies are
also sensitive to factors such as changes in real estate values and property taxes, market interest rates, cash flow
of underlying real estate assets, supply and demand, and the management skill and creditworthiness of the issuer.
Borrowers could default on or sell investments the REIT holds, which could reduce the cash flow needed to make
distributions to investors. In addition, REITs may also be affected by tax and regulatory requirements in that a REIT
may not qualify for favorable tax treatment or regulatory exemptions. Investments in REITs are affected by the management
skill of the REIT’s sponsor. The Fund will indirectly bear its proportionate share of expenses, including management
fees, paid by each REIT in which it invests.
Regulatory Risks for Loans:
To the extent that legislation or state or federal regulators that regulate certain financial
institutions impose additional requirements or restrictions with respect to the ability of such institutions to make loans,
particularly in connection with highly leveraged transactions, the availability of loans for investment may be adversely
affected. Further, such legislation or regulation could depress the market value of loans. In November 2022, the SEC
proposed rule amendments which, among other things, would amend the liquidity rule framework for open-end funds.
While the proposal is not directly applicable to the Fund, if the rule amendments are adopted as proposed, they could
have a negative impact on the market for loans as open-end funds subject to the rule exit the market. The nature and
extent of the proposal’s impact will not be known unless and until any final rulemaking is adopted.
Repurchase Agreements:
In the event that the other party to a repurchase agreement defaults on its obligations,
the Fund would generally seek to sell the underlying security serving as collateral for the repurchase agreement. However,
the value of collateral may be insufficient to satisfy the counterparty's obligation and/or the Fund may encounter
delay and incur costs before being able to sell the security. Such a delay may involve loss of interest or a decline in
price of the security, which could result in a loss. In addition, if the Fund is characterized by a court as an unsecured
creditor, it would be at risk of losing some or all of the principal and interest involved in the transaction.
Residential Mortgage Loans:
The Fund may invest in loans secured by residential real estate, including potentially
mortgages made to borrowers with lower credit scores, through its investments in loans directly or indirectly through
its investments in securitized credit instruments. Accordingly, such mortgage loans may be more sensitive to economic
factors that could affect the ability of borrowers to pay their obligations under the mortgage loans. A decline or an
extended flattening of home prices and appraisal values may result in increases in delinquencies and losses on residential
mortgage loans, particularly with respect to second homes and investor properties and with respect to any residential
mortgage loan where the aggregate loan amount (including any subordinate liens) is close to or greater than the related
property value. Mortgage loans, including mortgage loans backing mortgage-backed securities, in which the Fund
may invest, may include non-qualified mortgage (
“
Non-QM
”
) loans. Non-QM loans do not comply with the rules of the
Consumer Financial Protection Bureau relating to qualified mortgages and are subject to increased risk of loss.
Another factor that may result in higher delinquency rates is the increase in monthly payments on adjustable-rate
mortgage loans. Borrowers with adjustable payment mortgage loans will be exposed to increased monthly payments
when the related mortgage interest rate adjusts upward from the initial fixed rate or a low introductory rate, as applicable,
to the rate computed in accordance with the applicable index and margin.
Certain residential mortgage loans may be structured with negative amortization features. Negative amortization arises
when the mortgage payment in respect of a loan is smaller than the interest due on such loan. On any such mortgage
loans, if the required minimum monthly payments are less than the interest accrued on the loan, the interest shortfall
is added to the principal balance, causing the loan balance to increase rather than decrease over time. Because the
related mortgagors may be required to make a larger single payment upon maturity, the default risk associated with
such mortgage loans may be greater than that associated with fully amortizing mortgage loans.
34
RISK FACTORS AND SPECIAL CONSIDERATIONS
(continued)
Reverse Repurchase Agreements and Dollar Roll Transactions:
Reverse repurchase agreements involve sales of
portfolio securities to another party and an agreement by the Fund to repurchase the same securities at a later date
at a fixed price. During the reverse repurchase agreement period, the Fund continues to receive principal and interest
payments on the securities and also has the opportunity to earn a return on the collateral furnished by the counterparty
to secure its obligation to redeliver the securities.
Dollar rolls involve selling securities (
e.g
., mortgage-backed securities or U.S. Treasury securities) and simultaneously
entering into a commitment to purchase those or similar securities on a specified future date and price from the
same party. Mortgage-dollar rolls and U.S. Treasury rolls are types of dollar rolls. During the roll period, principal and
interest paid on the securities is not received but proceeds from the sale can be invested.
Reverse repurchase agreements involve the risks that the interest income earned on the investment of the proceeds
will be less than the interest expense and Fund expenses associated with the repurchase agreement, that the market
value of the securities sold by the Fund may decline below the price at which the Fund is obligated to repurchase such
securities and that the securities may not be returned to the Fund. If the buyer of securities under a reverse repurchase
agreement or dollar rolls files for bankruptcy or becomes insolvent, such a buyer or its trustee or receiver may receive
an extension of time to determine whether to enforce the obligation to repurchase the securities and use of the proceeds
of the reverse repurchase agreement may effectively be restricted pending such decision.
Reverse repurchase agreements entail many of the same risks as over-the-counter derivatives. These include the risk
that the counterparty to the reverse repurchase agreement may not be able to fulfill its obligations, that the parties
may disagree as to the meaning or application of contractual terms, or that the instrument may not perform as expected.
If the broker/dealer to whom the Fund sells securities becomes insolvent, the Fund’s right to purchase or repurchase
securities may be restricted. There is no assurance that reverse repurchase agreements or dollar rolls can be successfully
employed.
Further, the Fund’s investments in reverse repurchase agreements will be treated as
“
derivatives
”
in connection with
the Fund’s compliance with Rule 18f-4. Pursuant to Rule 18f-4, the Fund has adopted and implemented a derivatives
risk management program to govern its use of derivatives, and the Fund’s derivatives exposure (including its use of
reverse repurchase agreements) is limited through a VaR test. Rule 18f-4 may restrict the Fund’s ability to enter into
reverse repurchase agreements and/or increase the costs of such reverse repurchase agreements, which could adversely
affect the value of the Fund’s investments and/or the performance of the Fund.
Securities Lending:
To generate additional income, the Fund may lend portfolio securities, on a short- or long-term
basis, in an amount up to 33
1
∕
3
% of the Fund’s total assets, to broker-dealers, major banks, or other recognized
domestic institutional borrowers of securities. When the Fund lends its securities, it is responsible for investing the
cash collateral it receives from the borrower of the securities, and the Fund could incur losses in connection with the
investment of such cash collateral. As with other extensions of credit, there are risks of delay in recovery or even loss
of rights in the collateral should the 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.
The Fund seeks to minimize investment risk by limiting the investment of cash collateral to high-quality instruments
of short maturity. In the event of a borrower default, the Fund will be protected to the extent the Fund is able to exercise
its rights in the collateral promptly and the value of such collateral is sufficient to purchase replacement securities.
The Fund is protected by its securities lending agent, which has agreed to indemnify the Fund from losses resulting
from borrower default.
Temporary Defensive Positions:
When market conditions make it advisable, the Fund may hold a portion of its assets
in cash and short-term interest bearing instruments. Moreover, in periods when, in the opinion of the manager, a
temporary defensive position is appropriate, up to 100% of the Fund’s assets may be held in cash, short-term interest
bearing instruments and/or any other securities the manager considers consistent with a temporary defensive position.
The Fund may not achieve its investment objective when pursuing a temporary defensive position.
U.S. Government Securities and Obligations:
U.S. government securities are obligations of, or g
uara
nteed by, the U.S. government, its agencies, or government-sponsored enterprises. U.S. government securities are subject to market
risk and interest rate risk, and may be subject to varying degrees of credit risk.
Some U.S. government securities are
backed by the full faith and credit of the U.S. government and are guaranteed as to both principal and interest by the
U.S. Treasury. These include direct obligations of the U.S. Treasury such as U.S. Treasury notes, bills, and bonds,
35
RISK FACTORS AND SPECIAL CONSIDERATIONS
(continued)
as well as indirect obligations including certain securities of the Government National Mortgage Association, the Small
Business Administration, and the Farmers Home Administration, among others. Other U.S. government securities are
not direct obligations of the U.S. Treasury, but rather are backed by the ability to borrow directly from the U.S. Treasury,
including certain securities of the Federal Financing Bank, the Federal Home Loan Bank, and the U.S. Postal Service.
Other U.S. government securities are backed solely by the credit of the agency or instrumentality itself and are neither
guaranteed nor insured by the U.S. government and, therefore, involve greater risk. These include securities issued
by the Federal Home Loan Bank, the Federal Home Loan Mortgage Corporation, and the Federal Farm Credit Bank,
among others. Consequently, the investor must look principally to the age
ncy
issuing or guaranteeing the obligation for ultimate repayment. No assurance can be given that the U.S. government would provide financial support to such
agencies if it is not obligated to do so by law. The impact of greater governmental scrutiny into the operations of
certain agencies and government-sponsored enterprises may adversely affect the value of securities issued by these
entities. U.S. government securities may be subject to price declines due to changing market interest rates. From
time to time, uncertainty regarding the status of negotiations in the U.S. government to increase the statutory debt
ceiling could increase the risk that the U.S. government may default on payments on certain U.S. government securities,
cause the credit rating of the U.S. government to be downgraded, increase volatility in the stock and bond markets,
result in higher interest rates, reduce prices of U.S. Treasury securities, and/or increase the costs of various kinds
of debt. If a U.S. government-sponsored entity is negatively impacted by legislative or regulatory action (or lack thereof),
is unable to meet its obligations, or its creditworthiness declines, the performance of the Fund that holds securities
of the ent
ity
will be adversely impacted. There is no assurance that the U.S. Congress will act to raise the debt ceiling;
a failure to do so could cause market turmoil and substantial investment risks that cannot now be fully predicted.
Valuation of Loans:
The Fund values its assets every day the New York Stock Exchange is open for regular trading.
However, because the secondary market for loans is limited, it may be difficult to value loans, exposing the Fund to
the risk that the price at which it sells loans will be less than the price at which they were valued when held by the
Fund. Reliable market value quotations may not be readily available for some loans, and determining the fair valuation
of such loans may require more research than for securities that trade in a more active secondary market. In addition,
elements of judgment may play a greater role in the valuation of loans than for more securities that trade in a more
developed secondary market because there is less reliable, objective market value data available. If the Fund purchases
a relatively large portion of a loan, the limitations of the secondary market may inhibit the Fund from selling a portion
of the loan and reducing its exposure to a borrower when the manager deems it advisable to do so. Even if the Fund
itself does not own a relatively large portion of a particular loan, the Fund, in combination with other similar accounts
under management by the same portfolio managers, may own large portions of loans. The aggregate amount
of holdings could create similar risks if and when the portfolio managers decide to sell those loans. These risks could include,
for example, the risk that the sale of an initial portion of the loan could be at a price lower than the price at which
the loan was valued by the Fund, the risk that the initial sale could adversely impact the price at which additional
portions of the loan are sold, and the risk that the foregoing events could warrant a reduced valuation being assigned
to the remaining portion of
the
loan still owned by the Fund.Warehouse Investments:
In connection with its investments in certain securitized credit instruments, such as CLOs,
ABS and RMBS, the Fund may also invest in interests in warehouse investments (
“
Warehouse Investments
”
). Warehouses
are financing structures created prior to and in anticipation of a securitization closing and issuing securities and are
intended to aggregate direct loans, mortgage loans, corporate loans, and/or other debt obligations that may be used
to form the basis of securitized credit instruments. To finance the acquisition of a warehouse’s assets, a financing
facility (a
“
Warehouse Facility
”
) is often opened by (i) the entity or affiliates of the entity that will become the securitized
credit instruments manager (in the case of CLOs) upon its closing and/or (ii) third-party investors or arrangers that
may or may not invest in the securitized credit instruments. The period from the date that a warehouse is opened and
asset accumulation begins to the date that the securitized credit instrument closes is commonly referred to as the
“
warehousing period.
”
In practice, Warehouse Investments are structured in a variety of legal forms, including subscriptions
for equity interests, loss sharing agreements or subordinated debt investments in special purpose vehicles that obtain
a Warehouse Facility secured by the assets acquired in anticipation of closing.
A Warehouse Investment generally bears the risk that (i) the warehoused assets will drop in value during the warehousing
period, (ii) certain of the warehoused assets default or for another reason are not permitted to be included in the
securitization and a loss is incurred upon their disposition, and (iii) the anticipated securitization is delayed past the
maturity date of the related Warehouse Facility or does not close at all, and, in either case, losses are incurred upon
36
RISK FACTORS AND SPECIAL CONSIDERATIONS
(continued)
disposition of all of the warehoused assets. In the case of (iii), a particular securitization may not close for many
reasons, including as a result of a market-wide material adverse change, a manager-related material adverse change
or the discretion of the manager or the underwriter.
There can be no assurance that a securitization related to Warehouse Investments will be consummated. In the event
a planned securitization is not consummated, investors in a warehouse (which may include the Fund) may be responsible
for either holding or disposing of the warehoused assets. Because leverage is sometimes used in warehouses, the
potential risk of loss may be increased for the owners of Warehouse Investments where leverage is utilized. This
could expose the Fund to losses, including in some cases a complete loss of all capital invested in a Warehouse
Investment.
The Warehouse Investments represent temporary financing of the underlying assets of a warehouse, in some instances
without the benefit of protection from losses. Therefore, the value of a Warehouse Investment is often directly affected
by, among other things, (i) changes in the market value of the underlying assets of the warehouse; (ii) distributions,
defaults, recoveries, capital gains, capital losses and prepayments on the underlying assets of the wa
reho
use; and (iii) the prices, interest rates and availability of eligible assets for reinvestment. Due to the nature of a Warehouse
Investment, a significant portion (and in some circumstances all) of the Warehouse Investments made by the Fund
may not be repaid.
When-Issued, Delayed Delivery, and Forward Commitment Transactions:
When-issued, delayed delivery, and forward
commitment transactions involve the risk that the security the Fund buys will lose value prior to its delivery. These
transactions may result in leverage. The use of leverage may exaggerate any increase or decrease in the net asset
value, causing the Fund to be more volatile. The use of leverage may increase expenses and increase the impact of
the Fund’s other risks. There also is the risk that the security will not be issued or that the other party will not meet
its obligation. If this occurs, the Fund loses both the investment opportunity for the assets it set aside to pay for the
security and any gain in the security’s price.
37
RISK FACTORS AND SPECIAL CONSIDERATIONS
(continued)
Further Information About Principal Risks
The following provides additional information about certain aspects of the principal risks described above.
Counterparty:
The entity with which the Fund conducts portfolio-related business (such as trading or securities lending),
or that underwrites, distributes or guarantees investments or agreements that the Fund owns or is otherwise exposed
to, may refuse or may become unable to honor its obligations under the terms of a transaction or agreement. As a
result, the Fund may sustain losses and be less likely to achieve its investment objective. These risks may be greater
when engaging in over-the-counter transactions or when the Fund conducts business with a limited number of counterparties.
Inflation:
Inflation risk is the risk that the value of assets or income from the Fund's investments will be worth less
in the future as inflation decreases the value of payments at future dates. As inflation increases, the value of the
Fund could decline. Inflation rates may change frequently and drastically as a result of various factors and the Fund's
investments may not keep pace with inflation, which may result in losses to the Fund’s investors or adversely affect
the value of shareholders' investments in the Fund.
Manager:
The Fund is subject to manager risk because it is an actively managed investment portfolio. The Investment
Adviser, the Sub-Adviser, or each individual portfolio manager will make judgments and apply investment techniques
and risk analyses in making investment decisions, but there can be no guarantee that these decisions will produce
the desired results. The Fund’s portfolio may fail to produce the intended results, and the Fund’s portfolio may underperform
other comparable funds because of portfolio management decisions related to, among other things, the selection of
investments, portfolio construction, risk assessments, and/or the outlook on market trends and opportunities.
Operational:
The
Fund, its service providers, and other market participants increasingly depend on complex information
technology and communications systems to conduct business functions. These systems are subject to a number of
different threats or risks that could adversely affect the Fund and its shareholders, despite the efforts of the Fund
and its service providers to adopt technologies, processes, and practices intended to mitigate these risks. Cyber-attacks,
disruptions, or failures that affect the Fund’s service providers, counterparties, market participants, or issuers of
securities held by the Fund may adversely affect the Fund and its shareholders, including by causing losses or impairing
the Fund’s operations. Information relating to the Fund’s investments has been and will in the future be delivered
electronically, which can give rise to a number of risks, including, but not limited to, the risks that such communications
may not be secure and may contain computer viruses or other defects, may not be accurately replicated on other
systems, or may be intercepted, deleted or interfered with, without the knowledge of the sender or the intended recipient.
38
CLASSES OF SHARES
Choosing a Share Class
When choosing between classes of Shares, you should carefully consider: (1) how long you plan to hold shares of the
Fund; (2) the amount of your investment; (3) the expenses you will pay for each class, including ongoing annual expenses
along with the initial sales charge or the EWC; and (4) whether you qualify for any sales charge discounts. Please
review the disclosure about all of the available share classes carefully. Before investing, you should discuss with your
financial intermediary which share class may be right for you.
The tables below summarize the features of the classes of shares available through this Prospectus. Fund charges
may vary so you should review the Fund's fee table as well as the section entitled
“
Sales Charges
”
in this Prospectus.
Class A Shares | |
Initial Sales Charge | Up to 2.50% (reduced for purchases of $100,000 or more and eliminated for purchases of $500,000 or more) |
Early Withdrawal Charge | None (except that a charge of 1.00% applies to certain repurchases by the Fund made within 12 months of purchase) |
Distribution and/or Shareholder Services (12b-1) Fees | 0.25% annually |
Purchase Maximum | None |
Minimum Initial Purchase/Minimum Account Size | $1,000 ($250 for IRAs)/$1,000 ($250 for IRAs) |
Minimum Subsequent Purchases | None (At least $100/month for Pre-Authorized Investment Plan) |
Conversion | None |
Class C Shares | |
Initial Sales Charge | None |
Early Withdrawal Charge | 1.00% on shares sold within one year of purchase |
Distribution and/or Shareholder Services (12b-1) Fees | 0.75% annually |
Purchase Maximum | $1,000,000 |
Minimum Initial Purchase/Minimum Account Size | $1,000 ($250 for IRAs)/$1,000 ($250 for IRAs) |
Minimum Subsequent Purchases | None (At least $100/month for Pre-Authorized Investment Plan) |
Conversion | Automatic conversion to Class A Shares at net asset value (without the imposition of a sales charge) after 8 years |
Class I Shares | |
Initial Sales Charge | None |
Early Withdrawal Charge | None |
Distribution and/or Shareholder Services (12b-1) Fees | None |
Purchase Maximum | None |
Minimum Initial Purchase 1 /Minimum Account Size | $250,000/$250,000 |
Minimum Subsequent Purchases | None (At least $100/month for Pre-Authorized Investment Plan) |
Conversion | None |
1
There is no minimum investment requirement for: (i) qualified retirement plans or other defined contribution plans and defined benefit plans that invest in the Voya funds
through omnibus arrangements; (ii) employees of Voya IM who are eligible to participate in
“
notional
”
bonus programs sponsored by Voya IM; or (iii) (a) investors transacting
in Class I Shares through brokerage platforms that invest in the Voya funds’ Class I Shares through omnibus accounts and have agreements with the Distributor to offer such
shares and (b) such brokerage platforms’ omnibus accounts.
The relative impact of the initial sales charge, if applicable, and ongoing annual expenses will depend on the length
of time a share is held. Higher distribution fees mean a higher expense ratio, so Class C Shares pay correspondingly
lower dividends and may have a lower net asset value (
“
NAV
”
) than Class A Shares or Class I Shares.
39
CLASSES OF SHARES
(continued)
Because the Fund may not be able to identify an individual investor’s trading activities when investing through omnibus
account arrangements, you and/or your financial intermediary are responsible for ensuring that your investment in
Class C Shares does not exceed $1,000,000. The Fund cannot ensure that it will identify purchase orders that would
cause your investment in Class C Shares to exceed the maximum allowed amount. When investing through such arrangements,
you and/or your financial intermediary should be diligent in determining that you have selected the appropriate share
class for you.
You and/or your financial intermediary should also take care to assure that you are receiving any sales charge reductions
or other benefits to which you may be entitled. As an example, as is discussed below, you may be able to reduce a
Class A sales charge payable by aggregating purchases to achieve breakpoint discounts. The Fund uses the net amount
invested when determining whether a shareholder has reached the required investment amount in order to be eligible
for a breakpoint discount. In order to ensure that you are receiving any applicable sales charge reduction, it may be
necessary for you to inform the Fund or your financial intermediary of the existence of other accounts that may be
eligible to be aggregated. The SAI discusses specific classes of investors who may be eligible for a reduced sales
charge. In addition, investors investing in the Fund through an intermediary should consult Appendix A to this Prospectus,
which includes information regarding financial intermediary specific sales charges and related discount policies that
apply to purchases through certain specified intermediaries. Before investing you should discuss which share class
may be right for you with your financial intermediary.
Distribution and Service (12b-1) Fees
The Fund pays a fee to the Distributor on an ongoing basis as compensation for the services the Distributor provides
and the expenses it bears in connection with the sale and distribution of Fund shares (
“
distribution fee
”
) and/or in
connection with personal services rendered to Fund shareholders and the maintenance of shareholder accounts (
“
shareholder
service fee
”
). These payments are made pursuant to a distribution and/or shareholder service plan adopted by the
Fund pursuant to Rule 12b-1 of the 1940 Act (each, a
“
Rule 12b-1 Plan
”
). Because these distribution and shareholder
service fees are paid on an ongoing basis, over time these fees will increase the cost of your investment and may
cost you more than paying other types of sales charges.
The table below reflects the maximum annual rates at which the distribution and/or shareholder service fees may be
paid under a Rule 12b-1 Plan (calculated as a percentage of the Fund's average daily net assets attributable to the
particular class of shares).
“
N/A
”
in the table below means the share class does not pay distribution and/or shareholder
service fees.
Fund | Class A | Class C | Class I |
Voya Enhanced Securitized Income Fund | 0.25% | 0.75% | N/A |
40
SALES CHARGES
The Fund makes available in a clear and prominent format, free of charge, on its website,
(
https://individuals.voya.com/product/share-classes-and-expenses
), information regarding applicable sales loads, reduced
sales charges (
i.e
., breakpoint discounts), sales load waivers, eligibility minimums and purchases of the Fund's Shares.
The website includes hyperlinks that facilitate access to the information.
Class A Shares
This section includes important information about sales charges and sales charge reduction programs available to
investors in the Fund's Class A Shares and describes the information or records you may need to provide to the Distributor
or your financial intermediary in order to be eligible for sales charge reduction programs.
Unless you are eligible for a waiver, the public offering price you pay when you buy Class A Shares is the NAV of the
shares at the time of purchase, plus an initial sales charge. The initial sales charge varies depending on the size of
your purchase, as set forth in the following tables. No sales charge is imposed when Class A Shares are issued to
you pursuant to the automatic reinvestment of income dividends or capital gains distributions. For investors investing
in Class A Shares through a financial intermediary, it is the responsibility of the financial intermediary to ensure that
the investor obtains the proper breakpoint discount, if any.
Because the offering price is calculated to two decimal places, the dollar amount of the sales charge as a percentage
of the offering price and your net amount invested for any particular purchase of Fund shares may be higher or lower
depending on whether downward or upward rounding was required during the calculation process.
Class A Shares are sold subject to the following sales charge:
Your Investment | As a % of the offering price | As a % of net asset value |
Less than $100,000 | 2.50 | 2.56 |
$100,000 - $499,999 | 2.00 | 2.04 |
$500,000 or more 1 | N/A | N/A |
1
See Early Withdrawal Charge below.
Early Withdrawal Charge
Class A Shares
There is no front-end sales charge if you purchase Class A Shares in an amount of $500,000 or more. However, the
shares will be subject to a 1.00% EWC if they are repurchased by the Fund within 12 months of purchase. Former
Class C Shareholders that were converted to Class A Shareholders are not subject to an EWC for the life of their
account on purchases made directly with the Fund.
Class C Shares
Class C Shares are offered at their NAV per share without any initial sales charge. However, you may be charged an
EWC on Class C Shares that you offer to the Fund for repurchase (and are repurchased) within a certain period of
time after you bought them. The amount of the EWC is based on the NAV of the Shares at the time of purchase. The
EWCs are as follows:
41
SALES CHARGES
(continued)
Class C Shares
Sold during | EWC on shares being repurchased |
1st year | 1.00% |
After 1st year | none |
To keep your EWC as low as possible, each time you offer your Shares for repurchase, the Fund will first repurchase
Shares in your account that are not subject to an EWC and then will repurchase Shares that have the lowest EWC.
Sales Charge Reductions and Waivers
Reduced Sales Charges.
The sales charge and EWC waiver categories described in this section do not apply to customers
purchasing Shares of the Fund through any of the financial intermediaries specified in the Appendix A to this Prospectus
(each a
“
Specified Intermediary
”
). In all instances, it is the investor’s responsibility to notify the Fund or the investor’s
financial intermediary at the time of purchase of any relationship or other facts qualifying the purchaser for sales
charge waivers or discounts.
Different financial intermediaries may apply different sales charge or EWC waivers. Please refer to the Appendix A for
the sales charge or EWC waivers that are applicable to each Specified Intermediary.
Investors in the Fund could reduce or eliminate sales charges applicable to the purchase of Class A Shares through
utilization of the Letter of Intent, Rights of Accumulation, or Combination Privilege. These programs are summarized
below and are described in greater detail in the SAI.
•
Letter of Intent
—
lets you purchase shares over a 13 month period and pay the same sales charge as if the
shares had all been purchased at once.
•
Rights of Accumulation
—
lets you add the value of shares of any open-end Voya mutual fund (excluding Voya Government
Money Market Fund) you already own to the amount of your next purchase for purposes of calculating the sales
charge.
•
Combination Privilege
—
shares held by investors in the Voya mutual funds which impose a contingent deferred
sales charge (
“
CDSC
”
) may be combined with Class A Shares for a reduced sales charge.
See the Account Application or the SAI for details, or contact your financial intermediary or a Shareholder Services
Representative for more information.
EWC Waivers.
The EWC for Class A and Class C Shares will be waived in the following cases (in determining whether
an EWC is applicable, it will be assumed that Shares held in the shareholder's account that are not subject to such
charge are repurchased first):
•
The EWC on shares will be waived in the case of repurchase following the death or permanent disability of a
shareholder. The waiver is available for total or partial repurchases of shares of the Fund owned by an individual
or an individual in joint tenancy (with rights of survivorship), but only for those Shares held at the time of death
or initial determination of permanent disability.
•
The EWC will also be waived in the case of a total or partial repurchase of Shares of the Fund in connection
with any mandatory distribution from a tax-deferred retirement plan or an IRA. The shareholder must have attained
the age of 70½ to qualify for the EWC waiver relating to mandatory distributions. This waiver does not apply in
the case of a tax-free rollover or transfer of assets, other than one following a separation of service, except
that an EWC may be waived in certain circumstances involving repurchases in connection with a distribution
from a qualified employer retirement plan in connection with termination of employment or termination of the
employer's plan and the transfer to another employer's plan or to an IRA. The shareholder must notify the Transfer
Agent either directly or through the Distributor, at the time of repurchase, that the shareholder is entitled to a
waiver of the EWC. The EWC Waiver Form included in the New Account Application must be completed and provided
to the Transfer Agent at the time of the repurchase request. The waiver will be granted subject to confirmation
of the grounds for the waiver. The foregoing waivers may be changed at any time.
•
Reinvestment of dividends and capital gains distributions.
42
SALES CHARGES
(continued)
•
The EWC which may be imposed on Class A Shares purchased in excess of $500,000, may also be waived for
registered investment advisors, trust companies and bank trust departments investing on their own behalf or
on behalf of their clients. These waivers may be changed at any time.
In addition, the EWC will be waived on the redemption of Shares held through an intermediary if the intermediary has
entered into an agreement with the Distributor to waive the EWC.
Reinstatement Privilege.
Shareholders who have had their Class A and Class C Shares repurchased within the previous
90 days may purchase Class A and Class C Shares at NAV (at the time of reinstatement) in an amount up to the
repurchase proceeds. Reinstated Class A and Class C Shares will retain their original purchase date for purposes of
the EWC. The amount of any EWC also will be reinstated.
To exercise this privilege, a written order for the purchase of new Class A and Class C Shares must be received by
the transfer agent or be postmarked within 90 days after the date of repurchase pursuant to the repurchase offer.
This privilege can be used only once per calendar year. If a loss is incurred on the repurchase and the reinstatement
privilege is used, some or all of the loss may not be allowed as a tax deduction.
43
HOW SHARES ARE PRICED
The Fund is open for business every day the New York Stock Exchange (the
“
NYSE
”
) opens for regular trading (each
such day, a
“
Business Day
”
). The NAV per Share of each class of the Fund is determined each Business Day as of
the close of the regular trading session (
“
Market Close
”
), as determined by the Consolidated Tape Association (the
“
CTA
”
), the central distributor of transaction prices for exchange-traded securities (normally 4:00 p.m. Eastern Time
unless otherwise designated by the CTA). The data reflected on the consolidated tape provided by the CTA is generated
by various market centers, including all securities exchanges, electronic communications networks, and third-market
broker-dealers. The NAV per Share of each class of the Fund is calculated by dividing the value of the Fund’s loan
assets plus all cash and other assets (including accrued expenses but excluding capital and surplus) attributable to
that class of Shares by the number of Shares outstanding. The NAV per Share is made available for publication. On
days when the Fund is closed for business, Fund Shares will not be priced and the Fund does not transact purchase
and redemption orders. To the extent the Fund’s assets are traded in other markets on days when the Fund does not
price its Shares, the value of the Fund’s assets will likely change and you will not be able to purchase or redeem
shares of the Fund.
Portfolio holdings for which market quotations are readily available are valued at market value. Investments in open-end
registered investment companies that do not trade on an exchange are valued at the end
-
of
-
day NAV per share. The
prospectuses of the open-end registered investment companies in which the Fund may invest explain the circumstances
under which they will use fair value pricing and the effects of using fair value pricing. Foreign (non-U.S.) securities’
prices are converted into U.S. dollar amounts using the applicable exchange rates as of Market Close.
When a market quotation for a portfolio security is not readily available or is deemed unreliable (for example, when
trading has been halted or there are unexpected market closures or other material events that would suggest that
the market quotation is unreliable) and for purposes of determining the value of other portfolio holdings, the portfolio
holding is priced at its fair value. The Board has designated the Investment Adviser, as the valuation designee, to
make fair value determinations in good faith. In determining the fair value of the Fund’s portfolio holdings, the Investment
Adviser, pursuant to its fair valuation policy, may consider inputs from pricing service providers, broker-dealers, or the
Fund’s Sub-Adviser(s). Issuer specific events, transaction price, position size, nature and duration of restrictions on
disposition of the security, market trends, bid/ask quotes of brokers, and other market data may be reviewed in the
course of making a good faith determination of the fair value of a portfolio holding. Because trading hours for certain
foreign (non-U.S.) securities end before Market Close, closing market quotations may become unreliable. The prices
of foreign (non-U.S.) securities will generally be adjusted based on inputs from a third-party pricing service that are
intended to reflect valuation changes through Market Close. Because of the inherent uncertainties of fair valuation,
the values used to determine the Fund’s NAV may materially differ from the value received upon actual sale of those
investments. Thus, fair valuation may have an unintended dilutive or accretive effect on the value of shareholders’
investments in the Fund.
44
HOW TO BUY SHARES
Customer Identification
To help the government fight the funding of terrorism and money laundering activities, federal law requires all financial
institutions to obtain, verify, and record information that identifies each person that opens an account, and to determine
whether such person’s name appears on government lists of known or suspected terrorists and terrorist organizations.
What this means for you: the Fund, the Distributor, or a third-party selling you the Fund, must obtain the following
information for each person that opens an account:
•
Name;
•
Date of birth (for individuals);
•
Physical residential address (although post office boxes are still permitted for mailing); and
•
Social Security number, taxpayer identification number, or other identifying number.
You may also be asked to show your driver’s license, passport, or other identifying documents in order to verify your
identity. In addition, it may be necessary to verify your identity by cross-referencing your identification information with
a consumer report or other electronic database. Additional information may be required to open accounts for corporations
and other non-natural persons.
Federal law prohibits the Fund, the Distributor, and other financial institutions from opening accounts unless they receive
the minimum identifying information listed above. They also may be required to close your account if they are unable
to verify your identity within a reasonable time.
The Fund and the Distributor reserve the right to reject any purchase order. Please note that cash, traveler's checks,
third-party checks, money orders, and checks drawn on non-U.S. banks (even if payment may be effected through a
U.S. bank) generally will not be accepted. The Fund and the Distributor reserve the right to waive minimum investment
amounts. Waiver of the minimum investment amount can increase operating expenses of the Fund. The Fund and the
Distributor reserve the right to liquidate sufficient shares to recover annual transfer agent fees or to close your account
and redeem your shares should you fail to maintain your account value minimum.
The Fund reserves the right to suspend the offering of shares.
Class A and Class C Shares
Class A and Class C Shares may be purchased from certain financial services firms that have sales agreements with
Voya Investments Distributor, LLC (
“
Authorized Dealers
”
). Investors may be charged a fee for transactions made through
a broker or agent.
A shareholder’s Class C Shares will automatically convert to Class A Shares on the second calendar day of the following
month in which the 8th anniversary of the issuance of the Class C Shares occurs, together with a
pro rata
portion of
all Class C Shares representing dividends and other distributions paid in additional Class C Shares.
Class I Shares
Class I Shares may be purchased without a sales charge by: (1) qualified retirement plans such as 401(a), 401(k),
or other defined contribution plans and defined benefit plans; (2) 529 college savings plans; (3) insurance companies
and foundations investing for their own account; (4) wrap programs offered by broker-dealers and financial institutions;
(5) accounts of, or managed by, trust departments; (6) individuals whose accounts are managed by an investment
adviser representative; (7) employees of Voya IM who are eligible to participate in
“
notional
”
bonus programs sponsored
by Voya IM; (8) retirement plans affiliated with Voya Financial, Inc.; (9) Voya Financial, Inc. affiliates for purposes of
corporate cash management; (10) other registered investment companies; and (11) (a) investors purchasing Class I
shares through brokerage platforms that invest in the Voya funds’ Class I shares through omnibus accounts and have
agreements with the Distributor to offer such shares and (b) such brokerage platforms’ omnibus accounts. An investor
transacting in Class I shares on such brokerage platforms may be required to pay a commission and/or other forms
of compensation to the broker.
Price of Shares
Purchase and exchange orders for Shares of the Fund are effected at NAV, determined after the order is received by
the Transfer Agent in proper form. A purchase order will be deemed to be in proper form when all of the required steps
set forth above have been completed. In the case of an investment by wire, however, the order will be deemed to be
45
HOW TO BUY SHARES
(continued)
in proper form after the telephone notification and the federal funds wire have been received. A shareholder who
purchases by wire must submit an application form in a timely fashion. If an order or payment by wire is received after
the close of regular trading on the NYSE (normally 4:00 p.m. Eastern Time), the shares will not be credited until the
next business day.
You will receive a confirmation of each new transaction in your account, which also will show you the number of Fund
Shares you own including the number of shares being held in safekeeping by the Transfer Agent for your account. You
may rely on these confirmations in lieu of certificates as evidence of your ownership. Certificates representing Shares
of the Fund will not be issued unless you request them in writing.
The Fund may, on occasion, suspend the continuous offering of its Shares. If this occurs, shareholders will still be
permitted to reinvest dividends in additional Shares, and qualified plan investors will be permitted to continue making
automatic contributions for additional Shares.
Pre-Authorized Investment Plan
You may establish a pre-authorized investment plan to purchase Shares with automatic bank account debiting. For
further information on pre-authorized investment plans, see the New Account Application or contact a Shareholder
Services Representative at
1-800-992-0180
.
Retirement Plans
The Fund has available prototype qualified retirement plans for corporations and self-employed individuals. The Fund
also has available prototype IRA, Roth IRA and Simple IRA plans (for both individuals and employers), Simplified Employee
Pension Plans and Pension and Profit Sharing Plans. BNY Mellon Investment Servicing Trust Company acts as the
custodian under these plans. For further information, contact a Shareholder Services Representative at
1-800-992-0180
.
BNY Mellon Investment Servicing Trust Company currently receives a $12 custodial fee annually for the maintenance
of each such account.
Make your investment using the purchase minimum guidelines in the following table.
Minimum Investments | Class | Initial Purchase | Subsequent Purchases |
Non-retirement accounts | A/C I 1 | $1,000 $250,000 | No minimum |
Retirement accounts | A/C I 1 | $250 $250,000 | No minimum |
Pre-authorized investment plan | A/C I 1 | $1,000 $250,000 | At least $100/month |
Certain omnibus accounts | A/C | $250 | No minimum |
1
For Class I Shares, there is no minimum initial investment requirement for: (i) qualified retirement plans or other defined contribution plans and defined benefit plans that
invest in the Voya funds through omnibus arrangements; (ii) employees of Voya IM who are eligible to participate in
“
notional
”
bonus programs sponsored by Voya IM; or (iii)
(a) investors transacting in Class I Shares through brokerage platforms that invest in the Voya funds’ Class I Shares through omnibus accounts and have agreements with the
Distributor to offer such Shares and (b) such brokerage platforms’ omnibus accounts.
Make your investment using the methods outlined in the following table.
If you are a participant in a qualified retirement
plan, you should make purchases through your plan administrator or sponsor, who is responsible for transmitting
orders.
46
HOW TO BUY SHARES
(continued)
Buying Shares | Opening an Account | Adding to an Account |
By Contacting Your Financial Intermediary | A financial intermediary with an authorized firm can help you establish and maintain your account. | Contact your financial intermediary. |
By Mail | Make your check payable to Voya Investment Management and mail it with a completed Account Application. Please indicate your financial intermediary on the New Account Application. | Fill out the Account Additions form at the bottom of your account statement and mail it along with your check payable to Voya Investment Management to the address on the account statement. Please write your account number on the check. |
By Wire | Call Shareholder Services at 1-800-992-0180 to obtain an account number and indicate your financial intermediary on the account. Instruct your bank to wire funds to the Fund in the care of: Bank of New York Mellon ABA # 011001234 credit to: BNY Mellon Investment Servicing (US) Inc. as Agent for Voya mutual funds A/C #0000733938; for further credit to Shareholder A/C # (A/C # you received over the telephone) Shareholder Name: (Your Name Here) After wiring funds you must complete the Account Application and send it to: Voya Investment Management P.O. Box 534480 Pittsburgh, PA 15253-4480 | Wire the funds in the same manner described under “ Opening an Account. ” |
Execution of Purchase Orders
Purchase orders are executed at the next NAV determined after the order is received in proper form by the Transfer
Agent or the Distributor. A purchase order will be deemed to be in proper form when all of the required steps set forth
under
“
How to Buy Shares
”
have been completed. If you purchase by wire, however, the order will be deemed to be
in proper form after the federal funds wire has been received. If you are opening a new account and you purchase by
wire, you must submit an application form prior to Market Close. If an order or payment by wire is received after Market
Close, your order will not be executed until the next NAV is determined. For your transaction to be counted on the day
you place your order with your broker-dealer or other financial institution, your broker-dealer or financial institution
must receive your order in proper form before Market Close and transmit the order to the Transfer Agent or the Distributor
in a timely manner.
You will receive a confirmation of each new transaction in your account, which also will show you the number of shares
you own including the number of shares being held in safekeeping by the Transfer Agent for your account. You may
rely on these confirmations in lieu of certificates as evidence of your ownership.
47
HOW TO EXCHANGE SHARES
Exchanges Between Shares of the Voya Mutual Funds
You may exchange shares of certain other Voya mutual funds into Shares of the Fund. You may also move your investment
in the Shares of the Fund into certain other Voya mutual funds in conjunction with quarterly repurchases made by the
Fund. In this case, rather than tendering your shares for cash, you would elect to have the dollar value of those Shares
accepted for purchases of shares of the other Voya mutual fund.
The total value of shares being exchanged into the Fund must at least equal the minimum investment requirement
applicable to the relevant class of Shares of the Fund, and the total value of shares being exchanged out of the Fund
into other Voya mutual funds must meet the minimum investment requirements of those products, as applicable. The
exchange privilege is only available in states where shares of the Fund being acquired may be legally sold.
Early Withdrawal Charge on Exchanges
You are not required to pay an applicable EWC upon an exchange of Shares from the Fund to any Voya mutual fund.
However, if you exchange and subsequently redeem your shares, the EWC from the Fund (not the CDSC schedule
from the fund into which you exchanged your Shares) will apply. However, the time period for application of the EWC
will be calculated based on the first date you acquired your Shares of the Fund so that you get the benefit of the full
period of time you owned your Shares of the Fund.
Exchanges Between Classes of Shares of the Fund
You may exchange Class C Shares of the Fund for Class I Shares of the Fund, or you may exchange Class A Shares
and Class I Shares of the Fund for any other class of the Fund, if you otherwise meet the eligibility requirements of
the class of Shares to be received in the exchange, or you may exchange Class C Shares of the Fund for Class A
Shares of the Fund after you have held your Class C Shares for 8 year or more, except that (1) you may not exchange
Shares that are subject to an EWC until the EWC period has expired, unless the Distributor approves the exchange
and determines that no EWC is payable in connection with the exchange; and (2) you may not exchange Class C Shares
for Class A Shares unless your intermediary has agreed to waive its right to receive the front end sales charge that
otherwise would be applicable to the Class A Shares. All exchanges within the Fund are subject to the discretion of
the Distributor to permit or reject such exchanges.
Shareholders generally should not recognize gain or loss for U.S. federal income tax purposes for an exchange between
classes of shares of the same Fund provided that the transaction is undertaken and processed, with respect to any
shareholder, as a direct exchange transaction. Shareholders should consult their tax advisors as to the
U.S.
federal,
state
and
local and non-U.S. tax consequences of an exchange between classes of shares of the same Fund.
Exchanges between classes of shares within the Fund are not subject to the frequent trading and market timing policies
of Voya mutual funds.
Additional Information About Exchanges
Fees and expenses differ among Voya mutual funds and among share classes of the same Fund. Please read the
prospectus for the Voya mutual fund and share class you are interested in prior to exchanging into that Voya mutual
fund or share class. Contact your financial intermediary or consult your plan documents for additional information.
An exchange of Shares of the Fund for shares of another Voya mutual fund is treated as a sale and purchase of
shares and may result in the recognition of a gain or loss for U.S. federal
,
state
and
local and
state income tax purposes.
For exchanges between Voya mutual funds, you should consult your own tax advisor for advice about the particular
U.S.
federal, state, and local
and non-U.S.
tax consequences to you of such exchange. The total value of shares being
exchanged must at least equal the minimum investment requirement of the Voya mutual fund into which they are
being exchanged.
In addition to the Fund, the Distributor offers many other funds. Shareholders exercising the exchange privilege with
any other Voya mutual fund should carefully review the prospectus of that fund before exchanging their shares. Investors
may obtain a copy of a prospectus of any Voya mutual fund not discussed in this Prospectus by calling
1-800-992-0180
or by going to
https://individuals.voya.com/product/mutual-fund/prospectuses-reports
.
Exchanges between classes of Shares of the Fund are not subject to the frequent trading and market timing policies
of Voya mutual funds.
48
FREQUENT TRADING - MARKET TIMING
Because the Fund conducts repurchase offers only quarterly, the Fund believes that the potential adverse effects
from short-term trading are less significant than in open-end funds, and the Fund does not monitor trading activity of
shareholders to attempt to identify market timers.
The Fund believes that market timing or frequent, short-term trading in any account is not in the best interest of the
Fund or its shareholders. Due to the disruptive nature of this activity, it can adversely affect the ability of the Investment
Adviser or Sub-Adviser to invest assets in an orderly, long-term manner. Frequent trading can raise Fund expenses
through: increased trading and transaction costs; increased administrative costs; and lost opportunity costs. This, in
turn, can have an adverse effect on Fund performance.
It is possible that certain shareholders holding large amounts of shares of the Fund may tender for repurchase all or
some of their shares through the normal quarterly offers to repurchase made by the Fund. If more shares are tendered
for repurchase in any quarterly repurchase offer than the Fund offered to repurchase that quarter, repurchases may
be made on a
pro-rata
basis. As a result, shareholders who tender their shares for repurchase may not have their
entire tender accepted by the Fund.
49
PAYMENTS TO FINANCIAL INTERMEDIARIES
Voya mutual funds are distributed by the Distributor. The Distributor is a broker-dealer that is licensed to sell securities.
The Distributor generally does not sell directly to the public but sells and markets its products through intermediaries
such as other broker-dealers. Each Voya mutual fund also has an investment adviser which is responsible for managing
the money invested in each of the mutual funds. Both of these entities or their affiliates (collectively,
“
Voya
”
) may
compensate an intermediary for selling Voya mutual funds.
Persons licensed with the Financial Industry Regulatory Authority (
“
FINRA
”
) as a registered representative (often referred
to as a broker or financial adviser) and associated with a specific broker-dealer may receive compensation from the
Fund for providing services which are primarily intended to result in the sale of Fund shares. The Distributor has an
agreement in place with each broker-dealer selling the Fund defining specifically what that broker-dealer will be paid
for the sale of a particular Voya mutual fund. The broker-dealer then pays the registered representative who sold you
the mutual fund some or all of what they receive from Voya. A registered representative may receive a payment when
the sale is made and in some cases, can continue to receive payments while you are invested in the mutual fund. In
addition, other entities may receive compensation from the Fund for providing services which are primarily intended
to result in the sale of Fund shares, so long as such entities are permitted to receive these fees under applicable
rules and regulations.
The Distributor may pay, from its own resources, additional fees to these broker-dealers or other financial institutions
including affiliated entities. These additional fees paid to intermediaries may take the following forms: (1) a percentage
of that entity’s customer assets invested in Voya mutual funds; (2) a percentage of that entity's gross sales; or (3)
some combination of these payments. Depending on the broker-dealer's satisfaction of the required conditions, these
payments may be periodic and may be up to: (1) 0.30% per annum of the value of the Fund's shares held by the
broker-dealer’s customers; or (2) 0.30% of the value of the Fund's shares sold by the broker-dealer during a particular
period. For example, if that initial investment averages a value of $10,000 over the year, the Distributor could pay a
maximum of $30 on those assets. If you invested $10,000, the Distributor could pay a maximum of $30 for that sale.
Voya, out of its own resources and without additional cost to the Fund or its shareholders, may provide additional
cash or non-cash compensation to intermediaries selling shares of the Fund, including affiliates of Voya. These amounts
would be in addition to the distribution payments made by the Fund under the distribution agreements. Management
personnel of Voya may receive additional compensation if the overall amount of investments in funds advised by Voya
meets certain target levels or increases over time.
Voya may provide additional cash or non-cash compensation to third parties selling our mutual funds including affiliated
companies. This may take the form of cash incentives and non-cash compensation and may include, but is not limited
to: cash; merchandise; trips; occasional entertainment; meals or tickets to a sporting event; client appreciation events;
payment for travel expenses (including meals and lodging) to pre-approved training and education seminars; and payment
for advertising and sales campaigns. The Distributor may also pay concessions in addition to those described above
to broker-dealers so that Voya mutual funds are made available by those broker-dealers for their customers. The Sub-Adviser
of the Fund may contribute to non-cash compensation arrangements.
The compensation paid by Voya to a financial intermediary is typically paid continually over time, during the period
when the intermediary’s clients hold investments in the Voya mutual funds. The amount of continuing compensation
paid by Voya to different financial intermediaries for distribution and/or shareholder services varies. The compensation
is typically a percentage of the value of the financial intermediary’s clients’ investments in Voya mutual funds or a
per account fee. The variation in compensation may, but will not necessarily, reflect enhanced or additional services
provided by the intermediary.
Voya or a Voya mutual fund may pay service fees to intermediaries for administration, recordkeeping, and other shareholder
services. Intermediaries receiving these payments may include, among others, brokers, financial planners or advisers,
banks, and insurance companies. The Voya mutual funds may reimburse Voya for some or all of the payments made
by Voya to intermediaries for these services.
In some cases, a financial intermediary may hold its clients’ mutual fund shares in nominee or street name accounts.
These financial intermediaries may (though they will not necessarily) provide services including, among other things:
processing and mailing trade confirmations; capturing and processing tax data; issuing and mailing dividend checks
to shareholders who have selected cash distributions; preparing record date shareholder lists for proxy solicitations;
collecting and posting distributions to shareholder accounts; and establishing and maintaining systematic withdrawals
and automated investment plans and shareholder account registrations.
50
PAYMENTS TO FINANCIAL INTERMEDIARIES
(continued)
The top firms Voya paid to sell its mutual funds as of the last calendar year are:
Ameriprise Financial Services, LLC
; Broadridge Business Process Outsourcing, LLC; Cetera Financial Holdings, Inc.;
Charles Schwab & Co. Inc.; Directed Services LLC; Empower Financial Services, Inc.; Fidelity Brokerage Services,
LLC
;
J.P. Morgan Securities, LLC; LPL Financial, LLC; Merrill Lynch, Pierce, Fenner & Smith Inc.; Mid Atlantic Clearing
& Settlement Corporation, Inc
.
; Morgan Stanley;
New York Life Insurance & Annuity Corp;
Osaic, Inc
.
; Pershing, LLC;
Raymond James & Associates, Inc.; RBC Capital Markets, LLC; Reliance Trust Company; ReliaStar Life Insurance Company
of New York;
Standard Insurance Company
;
UBS Financial Services
, Inc.;
Vanguard Marketing Corporation
;
Voya Financial
Advisers, Inc.; Voya Retirement Insurance and Annuity Company; and Wells Fargo Clearing Services, LLC.
Your registered representative or broker-dealer could have a financial interest in selling you a particular mutual fund,
or the mutual funds of a particular company, to increase the compensation they receive. Please make sure you read
fully each mutual fund prospectus and discuss any questions you have with your registered representative.
51
ACCOUNT POLICIES
Telephone Orders
Neither the Fund nor the transfer agent will be responsible for the authenticity of phone instructions or losses, if any,
resulting from unauthorized shareholder transactions if they reasonably believe that such instructions were genuine.
The Fund and the transfer agent have established reasonable procedures to confirm that instructions communicated
by telephone are genuine. These procedures include recording telephone instructions for exchanges and expedited
redemptions, requiring the caller to give certain specific identifying information, and providing written confirmation to
shareholders of record not later than 5 days following any such telephone transactions. If the Fund or the transfer
agent do not employ these procedures, they may be liable for any losses due to unauthorized or fraudulent telephone
instructions.
Small Accounts
Due to the relatively high cost of handling small investments, the Fund reserves the right, upon 30 days’ prior written
notice, to redeem at NAV (less any applicable deferred sales charge), the shares of any shareholder whose account
(except for IRAs) has a total value that is less than the Fund's minimum. Before the Fund redeems such shares and
sends the proceeds to the shareholder, it will notify the shareholder that the value of the shares in the account is
less than the minimum amount allowed and will allow the shareholder 30 days to make an additional investment in
an amount that will increase the value of the account to the minimum before the redemption is processed. Your account
will not be closed if its drop in value is due to Fund performance.
Account Access
Unless your Fund Shares are held through a third-party fiduciary or in an omnibus registration at your bank or brokerage
firm, you will be able to access your account information over the Internet at
https://individuals.voya.com/product/mutual-fund/prospectuses-reports
or via telephone by calling
1-800-992-0180
.
Should you wish to speak with a Shareholder Services Representative, you may call the toll-free number listed above.
Privacy Policy
The Fund has adopted a policy concerning investor privacy. To review the privacy policy, contact a Shareholder Services
Representative at
1-800-992-0180
, obtain a policy over the Internet at
https://individuals.voya.com/product/mutual-fund/prospectuses-reports
, or see the privacy promise that accompanies
any Prospectus obtained by mail.
Householding
To reduce expenses, we may mail only one copy of the Fund's Prospectus and each annual and semi-annual shareholder
report to those addresses shared by two or more accounts. If you wish to receive individual copies of these documents,
please call a Shareholder Services Representative at
1-800-992-0180
or speak to your investment professional. We
will begin sending you individual copies 30 days after receiving your request.
52
REPURCHASE OFFERS
Repurchase Offers
As a fundamental policy, which may not be changed without shareholder approval, the Fund offers shareholders the
opportunity to redeem their Shares on a quarterly basis. Quarterly repurchases will occur in the months of March,
June, September and December
. At least 21 and no more than 42 calendar days prior to the repurchase request
deadline (
i.e.
, the date by which shareholders can tender their Shares in response to a repurchase offer) (the
“
Repurchase
Request Deadline
”
), the Fund will send notice to each shareholder setting forth, among other things: (i) the number
of Shares the Fund will repurchase; (ii) the Repurchase Request Deadline and other terms of the offer to repurchase;
and (iii) the procedures for shareholders to follow to request a repurchase. Shareholders and financial intermediaries
must submit repurchase requests in good order by 4:00 p.m. Eastern time on the Repurchase Request Deadline. The
Repurchase Request Deadline will be strictly observed. Shareholders and financial intermediaries failing to submit
repurchase requests in good order by such deadline will be unable to liquidate Shares until a subsequent repurchase
offer.
The Fund is required to offer to repurchase not less than 5% and not more than 25% of its outstanding Shares with
each Repurchase Offer, pursuant to Rule 23c-3 under the 1940 Act, unless such offer is suspended or postponed in
accordance with relevant regulatory requirements (as discussed below). In connection with any given repurchase offer,
it is possible that the Fund may offer to repurchase only the minimum allowable amount of 5% of its outstanding
Shares. The repurchase price will be the NAV per Share of the respective Share class applicable to the repurchase
offer determined on the repurchase pricing date, which will be a date not more than 14 calendar days following the
Repurchase Request Deadline, or the next business day if the 14th day is not a business day (
“
Repurchase Offer
Amount
”
). Payment for all Shares repurchased pursuant to these offers will be made not later than 7 calendar days
after the repurchase pricing date (
“
Repurchase Payment Deadline
”
). Under normal circumstances, it is expected that
the repurchase pricing date will be the Repurchase Request Deadline and that the repurchase price will be the Fund's
NAV determined after close of business on the Repurchase Request Deadline. If the tendered shares have been purchased
immediately prior to the tender, the Fund will not release repurchase proceeds until payment for the tendered shares
has settled. During the period the offer to repurchase is open, shareholders may obtain the current NAV by calling
1-800-992-0180
.
If more Shares are tendered for repurchase than the Fund has offered to repurchase, the Board may, but is not obligated
to, increase the number of Shares to be repurchased by up to 2% of the Fund's Shares outstanding per quarter,
subject to the 25% limitation on the repurchase of the Fund's outstanding Shares during any calendar quarter. If there
are still more Shares tendered than are offered for repurchase, Shares will be repurchased on a
pro-rata
basis. However,
the Fund may determine to alter the
pro-rata
allocation and the Fund may accept all Shares tendered by persons who
own, in the aggregate, fewer than 100 Shares and who tender all of their Shares, before prorating shares tendered
by others.
Because of the foregoing, shareholders may be unable to liquidate all, or a given percentage, of their Shares and
some shareholders may tender more Shares than they wish to have repurchased in order to ensure repurchase of at
least a specific number of shares. Shareholders may withdraw Shares tendered for repurchase at any time prior to
the Repurchase Request Deadline.
The Fund does not presently intend to deduct any repurchase fees, other than any applicable EWC, from the repurchase
amount. However, in the future, the Board may determine to charge a repurchase fee payable to the Fund, to reasonably
compensate it for its expenses directly related to the repurchase. These fees could be used to compensate the Fund
for, among other things, its costs incurred in disposing of securities or in borrowing in order to make payment for
repurchased shares. Any repurchase fees will never exceed 2% of the proceeds of the repurchase. It should be noted
that the Board may implement repurchase fees without a shareholder vote.
Repurchase offers and the need to fund repurchase obligations may affect the ability of the Fund's portfolio to be
fully invested, which may reduce returns. Moreover, diminution in the size of the Fund's portfolio through repurchases
without offsetting new sales, may result in untimely sales of portfolio securities and a higher expense ratio, and may
limit the ability of the Fund to participate in new investment opportunities. Repurchases resulting in portfolio turnover
will result in additional expenses being borne by the Fund. The Fund may also sell portfolio securities to meet repurchase
obligations which, in certain circumstances, may adversely affect the market for loans and reduce the Fund's value.
Notwithstanding the foregoing, it is the Investment Adviser's or Sub-Adviser's intention to fund repurchases with the
proceeds of borrowings whenever practical.
53
REPURCHASE OFFERS
(continued)
See
“
Tax Matters
”
for a general summary for U.S. shareholders. Investors should rely on their own tax adviser for
advice about the particular
U.S.
federal, state and local
and non-U.S.
tax consequences of investing in the Fund and
participating in the Fund's repurchase offer program.
Suspension or Postponement of a Repurchase Offer
The Fund may suspend or postpone a repurchase offer only: (i) if making or effecting the repurchase offer would
cause the Fund to lose its status as a
RIC
under the
Code
; (ii) for any period during which the NYSE or any market in
which the securities owned by the Fund are principally traded is closed, other than customary weekend and holiday
closings, or during which trading in such market is restricted; (iii) for any period during which an emergency exists as
a result of which disposal by the Fund of securities owned by it is not reasonably practicable, or during which it is not
reasonably practicable for the Fund fairly to determine the value of its net assets; or (iv) for such other periods as the
SEC may by order permit for the protection of shareholders of the Fund.
Liquidity Requirements
From the time that the notification is sent to shareholders until the repurchase pricing date, the Fund will ensure that
a percentage of its net assets equal to at least 100% of the Repurchase Offer Amount consists of assets: (i) that can
be sold or disposed of in the ordinary course of business at approximately the price at which the Fund has valued the
investment within the time period between the Repurchase Request Deadline and the Repurchase Payment Deadline;
or (ii) that mature by the Repurchase Payment Deadline.
The Board has adopted procedures that are reasonably designed to ensure that the Fund's assets are sufficiently
liquid so that the Fund can comply with the repurchase policy and the liquidity requirements described in the previous
paragraph.
The Fund intends to finance repurchase offers with cash on hand, cash raised through borrowings, or the liquidation
of portfolio securities. Diminution in the size of the Fund through repurchases may result in untimely sales of portfolio
securities and may limit the ability of the Fund to participate in new investment opportunities or to achieve its investment
objective.
Redemption of Senior Securities
In order to permit the Fund to repurchase Shares, the borrowing or other indebtedness issued by the Fund must either
mature by the next repurchase pricing date or provide for their redemption, call or repayment by the next repurchase
pricing date without penalty or premium. Although the Fund ordinarily does not expect to redeem any senior security,
it may be required to redeem such securities if, for example, the Fund does not meet an asset coverage ratio required
by law or correct a failure to meet a rating agency guideline in a timely manner.
54
INVESTMENT MANAGEMENT AND OTHER SERVICE PROVIDERS
Investment Adviser
The business and affairs of the Fund, including supervision of the duties performed by the Fund's Investment Adviser
and Sub-Adviser, are managed under the direction of the Board. The names and business addresses of the Trustees
and Officers of the Fund and their principal occupations and other affiliations during the past five years are set forth
under
“
Management of the Fund
”
in the SAI.
Voya Investments, an Arizona limited liability company, is registered with the SEC as an investment adviser. Voya Investments
serves as the investment adviser to, and has overall responsibility for the management of, the Fund. Voya Investments
oversees all investment advisory and portfolio management services and assists in managing and supervising all
aspects of the general day-to-day business activities and operations of the Fund, including, but not limited to, the
following: custodial, transfer agency, dividend disbursing, accounting, auditing, compliance, and related services.
Voya Investments began business as an investment adviser in 1994 and currently serves as investment adviser to
certain registered investment companies, consisting of open- and closed-end registered investment companies and
collateralized loan obligations. Voya Investments is an indirect subsidiary of Voya Financial, Inc. Voya Financial, Inc.
is a U.S.-based financial institution whose subsidiaries operate in the retirement, investment, and insurance industries.
Voya Investments' principal business address is 7337 East Doubletree Ranch Road, Suite 100, Scottsdale, Arizona
85258.
Management Fee
The Investment Adviser bears the expenses of providing the services described above. The Investment Adviser currently
receives from the Fund an annual fee of 1.15% of the Fund’s Managed Assets.
The Investment Adviser is responsible for all of its own costs, including costs of its personnel required to carry out
its duties.
Information regarding the basis for the Board’s approval of the investment advisory and investment sub-advisory relationships
is
available in the Fund’s
semi-annual report to shareholders
for the period ended August 31, 2024
.
Sub-Adviser
The Investment Adviser has engaged a sub-adviser to provide the day-to-day management of the Fund's portfolio.
The
sub-adviser is an affiliate of the Investment Adviser. The Investment Adviser is responsible for monitoring the investment
program and performance of the sub-adviser. Under the terms of the sub-advisory agreement, the agreement can be
terminated by either the Investment Adviser or the Board. In the event the sub-advisory agreement is terminated, the
sub-adviser may be replaced subject to any regulatory requirements or the Investment Adviser may assume day-to-day
investment management of the Fund.
Voya Investment Management Co. LLC
Voya IM, a Delaware limited liability company, was founded in 1972 and is registered with the SEC as an investment
adviser. Voya IM has acted as an investment adviser or sub-adviser to mutual funds since 1994 and has managed
institutional accounts since 1972. Voya IM is an indirect subsidiary of Voya Financial, Inc. and is an affiliate of the
Investment Adviser. Voya IM's principal business address is
200
Park Avenue, New York, New York
10169.
The Sub-Adviser currently receives an annual fee, paid by the Investment Adviser, of 0.52% of the Fund’s Managed
Assets.
Portfolio Management
. The following individuals are jointly responsible for the day-to-day management of the Fund's
portfolio.
Portfolio Manager | Sub-Adviser | Fund | Professional Experience |
Colin Dugas | Voya IM | Voya Enhanced Securitized Income Fund | Mr. Dugas has been a portfolio manager on the securitized team at Voya Investment Management since March 2009, focusing on portfolio management and security selection, as well as credit monitoring and analysis. |
55
INVESTMENT MANAGEMENT AND OTHER SERVICE PROVIDERS
(continued)
Portfolio Manager | Sub-Adviser | Fund | Professional Experience |
David Goodson | Voya IM | Voya Enhanced Securitized Income Fund | Mr. Goodson, Senior Portfolio Manager for mortgage-backed securities and asset-backed securities strategies, is head of securitized fixed-income at Voya IM. Prior to joining Voya IM in 2002, he was a principal at an independent investment bank focused on asset-backed commercial paper transactions. Mr. Goodson began his career as a vice-president in Wachovia Securities’ asset-backed finance group, marketing and executing securitizations for the bank’s corporate clients. |
Additional Information Regarding the Portfolio Managers
The SAI provides additional information about each portfolio manager’s compensation, other accounts managed by
each portfolio manager, and the securities each portfolio manager owns in the Fund(s) the portfolio manager manages.
The Transfer Agent, Dividend Disbursing Agent, and Registrar
BNY Mellon Investment Servicing (US) Inc. (
“
Transfer Agent
”
) serves as the transfer agent, dividend disbursing agent,
and registrar for the Shares of the Fund. Its principal office is located at 301 Bellevue Parkway, Wilmington, Delaware
19809.
The Custodian
The Fund's securities and cash are held and maintained under a Custody Agreement with Bank of New York Mellon
(
“
Custodian
”
). Its principal office is located at 225 West Liberty Street, New York, New York 10286.
The Distributor
Voya Investments Distributor, LLC (the
“
Distributor
”
), a Delaware limited liability company, is the principal underwriter
and distributor of the Fund. The Distributor is an indirect subsidiary of Voya Financial, Inc. and is an affiliate of the
Investment Adviser. The Distributor’s principal office is located at 7337 East Doubletree Ranch Road, Suite 100,
Scottsdale, Arizona 85258. See
“
Principal Underwriter
”
in the SAI.
The Distributor is a member of FINRA. To obtain information about FINRA member firms and their associated persons,
you may contact FINRA at www.finra.org or the Public Disclosure Hotline at 800-289-9999.
Contractual Arrangements
The Fund has contractual arrangements with various service providers, which may include, among others, investment
advisers, distributors, custodians and fund accounting agents, shareholder service providers, and transfer agents,
who provide services to the Fund. Shareholders are not parties to, or intended (
“
third-party
”
) beneficiaries of, any of
those contractual arrangements, and those contractual arrangements are not intended to create in any individual
shareholder or group of shareholders any right to enforce them against the service providers or to seek any remedy
under them against the service providers, either directly or on behalf of the Fund. This paragraph is not intended to
limit any rights granted to shareholders under federal or state securities laws.
56
DIVIDENDS AND DISTRIBUTIONS
Distribution Policy
Income dividends on Shares are calculated and declared daily and paid monthly under guidelines approved by the
Board. The Fund may make one or more annual payments from any realized capital gains.
Dividend Reinvestment
Unless you instruct the Fund to pay you dividends in cash, dividends and distributions paid by the Fund will be reinvested
in additional shares of the Fund.
You may, upon written request or by completing the appropriate section of the Account
Application, elect to have all dividends and other distributions paid on Shares of the Fund invested in another Voya
mutual fund that offers the same class of shares.
Plan of Distribution
The Fund has entered into a distribution agreement with the Distributor (
“
Distribution Agreement
”
). Subject to the
terms and conditions of the Distribution Agreement, the Fund may issue and sell Shares of the Fund from time to
time through certain broker-dealers which have entered into dealer agreements with the Distributor. The Shares will
be offered on a continuous basis and may be purchased at NAV.
In connection with the sale of Class A Shares, the Distributor will reallow to broker-dealers participating in the offering
from the sales charge depending on the amount of the sale as follows: 2.50% for amounts less than $100,000; and
2.00% for amounts of $100,000 to $499,999. For purchases of Class A Shares that are subject to a 1.00% EWC,
the Distributor may compensate broker-dealers participating in the offering at the rate of 1.00% for amounts of $500,000
or more.
The Distributor will compensate broker-dealers participating in the offering at a rate of 1.00% of the gross sales price per
share for Class C Shares purchased from the Fund by such broker-dealer.
Settlements of sales of Shares will occur on the third business day following the date on which any such sales are
made. Unless otherwise indicated in a prospectus supplement, the Distributor will act as underwriter on a reasonable
efforts basis.
In addition, the Distributor will compensate broker-dealers participating in the offering on a quarterly basis at rates
that are based on the average daily net assets of shares that are registered in the name of such broker-dealer as
nominee or held in a shareholder account that designates such broker-dealer as the dealer of record. The rates, on
an annual basis, are as follows: 0.25% for Class A Shares and 0.75% for Class C Shares. Rights to these ongoing
payments generally begin accruing in the 13th month following a purchase of Class A Shares, although the Distributor
may, in its discretion, make payments prior to the 13th month.
Use of Proceeds
It is expected that 100% of the net proceeds of Shares issued pursuant to the offering will be invested in securities
consistent with the Fund's investment objective and policies within three months. Pending investments, the proceeds
will be used to pay down the Fund's outstanding borrowings under its credit facilities
,
if any,
or to fund redemptions.
See
“
Investment Objective and Policies - Policy on Borrowing.
”
By paying down the Fund's borrowings, the Fund can avoid adverse impacts on yields pending investment of such
proceeds. As investment opportunities are subsequently identified, it is expected that the Fund will reborrow amounts
previously repaid and invest such amounts or to fund redemptions.
57
DESCRIPTION OF THE FUND
The Fund is a Delaware statutory trust organized on September 26, 2023 and is registered with the SEC as a
continuously-offered, diversified, closed-end management investment company that makes quarterly repurchase offers
for its Shares, subject to certain conditions. The business and affairs of the Fund, including supervision of the duties
performed by the Fund's Investment Adviser and Sub-Adviser are managed under the direction of its Board. The names
and business addresses of the Trustees and Officers of the Fund and their principal occupations and other affiliations
during the past five years are set forth under
“
Management of the Fund
”
in the SAI. The Trustees are experienced
executives who oversee the Fund's activities, review contractual arrangements with companies that provide services
to the Fund, and review the Fund's performance.
The Fund's Agreement and Declaration of Trust (
“
Declaration of Trust
”
) authorizes the issuance of an unlimited number
of shares of beneficial interest.
Under Delaware law, Fund shareholders are entitled to the same limitation of personal liability extended to stockholders
of private corporations organized under the general corporation law of Delaware. As an added protection, the Fund's
Declaration of Trust disclaims shareholder liability for acts or obligations of the Fund. The Fund's Declaration of Trust
provides for indemnification out of the Fund's property for all losses and expenses of any shareholder held liable on
account of being or having been a shareholder. Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Fund would be unable to meet its obligations wherein the
complaining party was held not to be bound by the disclaimer.
The Fund will send unaudited reports at least semi-annually and audited financial statements annually to all of its
shareholders.
The Declaration of Trust provides that obligations of the Fund are not binding upon Trustees individually but only upon
the property of the Fund. It also provides that the Trustees will not be liable for errors of judgment or mistakes of fact
or law, but nothing in the Declaration of Trust protects a Trustee against any liability to which he or she would otherwise
be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved
in the conduct of his or her office.
The Fund is responsible for paying all of the expenses of its operations, including, without limitation, the management
fee payable and extraordinary expenses, such as litigation expenses.
Under the Declaration of Trust, each Trustee, officer, shareholder, and person beneficially owning an interest in the
Fund, to the fullest extent permitted by law, including Section 3804(e) of the Delaware Statutory Trust Act (the
“
DSTA
”
),
(i) agrees that any claims, suits, actions or proceedings related to the Fund, except claims brought under the federal
securities laws, must be exclusively brought in the Court of Chancery of the State of Delaware or, if such court does
not have subject matter jurisdiction thereof, any other court in the State of Delaware with subject matter jurisdiction;
(ii) submits to the exclusive jurisdiction of such courts in connection with any such claim, suit, action or proceeding;
and (iii) waives any and all rights to trial by jury in any such claims, suits, actions or proceedings.
In addition to the requirements set forth in Section 3816 of the DSTA and except for claims brought under the federal
securities laws, a shareholder may bring a derivative action on behalf of the Fund only if the shareholder makes a
pre-suit demand upon the Board to bring the subject action unless an effort to cause the Board to bring such an
action is not likely to succeed. Unless a demand is not required, (i) shareholders eligible to bring a derivative action
under the Delaware Statutory Trust Act who collectively hold Shares representing ten percent (10%) or more of all
Shares issued and outstanding (or, if such action does not related to all Classes, of the Classes to which such action
relates), shall join in the request for the Board to commence such action; and (ii) the Board must be afforded a reasonable
amount of time to consider such shareholder request and to investigate the basis of such claim. The Board is entitled
to retain counsel or other advisors in considering the merits of the request and may require an undertaking by the
shareholders making such request to reimburse the Fund for the expense of any such advisors in the event that the
Board determines not to bring such action.
Under the Declaration of Trust, to the fullest extent permitted by law, shareholders may not bring a general direct
action against the Fund and/or the Board, except for a general direct action to enforce an individual shareholder’s
right to vote or an individual shareholder’s rights under Sections 3805(e) or 3819 of the DSTA.
58
DESCRIPTION OF THE FUND
(continued)
Dividends, Voting and Liquidation Rights
Each Share of the Fund has one vote and shares equally in dividends and distributions, when and if, declared by the
Fund, and in the Fund's net assets upon liquidation. Matters such as approval of new advisory agreements and changes
in a fundamental policy of the Fund require the affirmative vote of all shareholders. Matters affecting a certain class
of the Fund will be voted on by shareholders of that particular class.
All Shares, when issued, are fully paid and are non-assessable by the Fund. There are no preemptive or conversion
rights applicable to any of the Shares. Shares do not have cumulative voting rights and, as such, holders of more
than 50% of the Shares voting for trustees representing the holder of Shares can elect all trustees representing the
holders of Shares and the remaining shareholders would not be able to elect any such trustees.
Trustees will be elected by holders of Shares voting separately as a single class.
Status of Shares
The following table sets forth information about the Fund's outsta
ndin
g Shares as of May 15
,
2025
:
Title of Class | Number Authorized | Number Held By the Fund or for its Own Account | Number Outstanding |
Unlimited | |||
Unlimited | |||
Unlimited |
Fundamental and Non-Fundamental Investment Policies of the Fund
The investment objective of the Fund, certain policies of the Fund specified herein as fundamental, and the investment
restrictions of the Fund described in the SAI are fundamental policies of the Fund and may not be changed without a
majority vote of the shareholders of the Fund. The term majority vote means the affirmative vote of: (i) more than 50%
of the outstanding shares of the Fund; or (ii) 67% or more of the shares present at a meeting if more than 50% of
the outstanding shares of the Fund are represented at the meeting in person or by proxy, whichever is less. All other
policies of the Fund may be modified by resolution of the Board.
59
DESCRIPTION OF THE CAPITAL STRUCTURE
Shares
The Fund's Declaration of Trust authorizes the issuance of an unlimited number of Shares of beneficial interest. All
Shares have equal rights to the payment of dividends and the distribution of assets upon liquidation. Shares will,
when issued, be fully paid and non-assessable and will have no pre-emptive or conversion rights or rights to cumulative
voting.
Borrowings
The Fund's Declaration of Trust authorizes the Fund, without the prior approval of holders of Shares, to borrow money.
In this connection, the Fund may issue notes or other evidence of indebtedness (including bank borrowings, reverse
repurchase agreements or commercial paper) and may secure any such borrowings by mortgaging, pledging, or otherwise
granting a security interest in the Fund's assets. See
“
Risk Factors and Special Considerations.
”
60
TAX MATTERS
The following information is meant as a general summary for
of certain
U.S.
federal income tax issues generally affecting
the Fund and its U.S.
shareholders. Please see the SAI for additional information. Investors should rely on their own
tax adviser for advice about the particular
U.S.
federal, state, and local
and non-U.S.
tax consequences to them of
investing in the Fund. The Investment Adviser is not obligated to consider the tax consequences related to its management
of the Fund’s investments or other activities. It is possible that the actions taken by the Fund or the Investment Adviser
on the Fund’s behalf could be disadvantageous to shareholders that hold shares through a taxable account. However,
such actions likely will have no tax effect to shareholders that invest through a tax-advantaged account. Circumstances
among investors may vary, so you are encouraged to discuss an investment in
the
Fund with your tax advisor.
Distributions.
The Fund will distribute all or substantially all of its net investment income and net realized capital gains,
if any, to its shareholders each year. Although the Fund will not be taxed on amounts it distributes, most shareholders
will be taxed on amounts they receive. A particular distribution generally will be taxable as either ordinary income or
long-term capital gain. It generally does not matter how long a shareholder has held the Fund's Shares or whether the
shareholder elects to receive distributions in cash or reinvest them in additional Shares. For example, if the Fund
properly reports a particular distribution as a capital gain dividend, it will be taxable to a shareholder at his or her
long-term capital gains rate.
Dividends from the Fund are not expected to be eligible for the reduced rate of tax that may apply to distributions
attributable to certain qualifying dividends on corporate stocks. Distributions attributable to non-qualifying dividends,
interest income, other types of ordinary income, and short-term capital gains will be taxed at the ordinary income tax
rate applicable to the shareholder.
Dividends declared by the Fund and payable to shareholders of record in October, November, or December and paid
during the following January will be treated as having been received by shareholders in the year the distributions were
declared.
Each shareholder will receive an annual statement summarizing the shareholder's dividend and capital gains distributions.
If you purchase Shares of the Fund through a financial intermediary, that entity will provide this information to you.
Tax Status of the Fund.
The Fund intends to be treated as a RIC under Subchapter M of the Code and intends each
year to qualify and to be eligible to be treated as such. A RIC generally is not subject to tax at the fund level on income
and gains from investments that are timely distributed to shareholders. However, the Fund’s failure to qualify as a
RIC would result in fund level taxation and therefore, a reduction in income available for distribution.
Tax Advantaged Accounts.
If a shareholder invests through a tax-advantaged account such as a
qualified
retirement
plan, the shareholder generally will not have to pay tax on dividends
or gains from the disposition of Fund Shares
, at
least until they are distributed from the account. These accounts are subject to complex tax rules
,
and shareholders
should consult a tax adviser about investing through a tax-advantaged account.
Sales, Redemptions and Exchanges
.
There may be tax consequences to a shareholder if the shareholder sells the Fund's
Shares.
If,
pursuant to an offer by the Fund to repurchase its Shares,
a shareholder tenders all Shares of the Fund
that he or she owns or is considered to own, the shareholder may realize a taxable gain or loss.
This gain or loss will
be treated as
capital gain or loss
if the Fund's Shares are held as capital assets and
will be long-term or short-term,
generally depending on how long the shareholder has held those Shares. If a shareholder exchanges shares, the
shareholder may be treated as if he or she sold them. Any capital loss incurred on the sale or exchange of Fund
shares held for six months or less will be treated as long-term
capital
loss to the extent of capital gain dividends
received with respect to such shares.
Additionally, any loss realized on a sale, redemption, or exchange of shares of the Fund may be disallowed under
“
wash sale
”
rules to the extent the shares disposed of are replaced with other shares of the Fund within a period of
61 days beginning 30 days before and ending 30 days after the shares are disposed of, including pursuant to a dividend
reinvestment plan. If disallowed, the loss will be reflected as an adjustment to the tax basis of the shares acquired.
You are responsible for any tax liabilities generated by your transactions.
If, pursuant to an offer by the Fund to repurchase its Shares, a shareholder tenders fewer than all of the Shares of
the Fund that he or she owns or is considered to own, the redemption may not qualify as a sale or exchange, and the
proceeds received may be treated as a dividend, return of capital or capital gain, depending on the Fund's earnings
61
TAX MATTERS
(continued)
and profits and the shareholder's basis in the tendered Shares. If that occurs, there is a risk that non-tendering shareholders
may be considered to have received a deemed distribution as a result of the Fund's purchase of tendered Shares,
and all or a portion of that deemed distribution may be taxable as a dividend.
Backup Withholding
.
The Fund generally is required to withhold U.S. federal income tax on all taxable distributions
and redemption proceeds
payable to a shareholder if the shareholder fails to provide the Fund with his or her correct
taxpayer identification number or to make required certifications
that the shareholder is not subject to backup withholding
,
or if the shareholder has been notified by the Internal Revenue Service (
“
IRS
”
) that he or she is subject to backup
withholding. Backup withholding is not an additional tax; rather, it is a way in which the IRS ensures it will collect taxes
otherwise due. Any amounts withheld may be credited against a shareholder's U.S. federal income tax liability.
Buying
a Dividend
.
Unless your investment is in a tax-advantaged account, you may want to avoid buying shares shortly
before the Fund makes a distribution as doing so can increase your tax liability. If you buy shares when the Fund has
declared but not distributed
a dividend of
ordinary income or capital gains, you will pay the full price for the shares
and later receive a portion of the price back in the form of a taxable dividend. This is known as
“
buying a dividend.
”
To avoid buying a dividend, you may want to consult your tax advisor or check the Fund’s distribution schedule before
you invest.
Foreign shareholders
.
Foreign shareholders
invested in the Fund should consult with their tax advisors as to if and
how the U.S. federal income tax law and its withholding requirements apply to them. Generally, the Fund will withhold
30% (or lower applicable treaty rate) on distributions to foreign shareholders.
Cost Basis Reporting
.
The IRS requires mutual fund companies and brokers to report on Form 1099-B the cost basis
on the sale or exchange of Fund shares acquired on or after January 1, 2012 (
“
covered shares
”
). If you acquire and
hold shares directly through the Fund and not through a financial intermediary, the Fund will use an average cost
single category methodology for tracking and reporting your cost basis on covered shares, unless you request, in
writing, another cost basis reporting methodology.
Net Investment Income Tax
.
An additional 3.8% Medicare tax is imposed on certain net investment income (including
ordinary dividends and capital gain distributions received from the Fund and net gains from redemptions, sales, exchanges
or other taxable dispositions of Fund shares) of U.S. individuals, estates and trusts to the extent their income exceeds
certain threshold amounts.
62
MORE INFORMATION ABOUT THE FUND
Legal Matters
The validity of the Shares offered hereby will be passed upon for the Fund by Ropes & Gray LLP, Prudential Tower,
800 Boylston Street, Boston Massachusetts 02199-3600, counsel to the Fund.
Independent Registered Public Accounting Firm
[
]
serves as the independent registered public accounting firm for the Fund. The principal address of
[
]
is
[
]
.
63
APPENDIX A
Financial Intermediary Specific Sales Charge Waiver and Related Discount Policy
Information
As described in the Prospectus, Class A Shares may be subject to an initial sales charge and an EWC and Class C
Shares may be subject to an EWC. Certain financial intermediaries may impose different initial sales charges or waive
the initial sales charge or EWC in certain circumstances. This Appendix details the variations in sales charge waivers
by financial intermediary. You should consult your financial representative for assistance in determining whether you
may qualify for a particular sales charge waiver.
AMERIPRISE FINANCIAL
Front-End Sales Charge Reductions on Class A Shares Purchased Through Ameriprise Financial
Shareholders purchasing Class A Shares of the Fund through an Ameriprise Financial platform or account are eligible
only for the following sales charge reductions, which may differ from those disclosed elsewhere in this Prospectus or
the SAI. Such shareholders can reduce their initial sales charge on the purchase of Class A Shares as follows:
•
Transaction size breakpoints, as described in this Prospectus or the SAI.
•
Rights of accumulation (ROA), as described in this Prospectus or the SAI.
•
Letter of intent, as described in this Prospectus or the SAI.
Front-End Sales Charge Waivers
on Class A Shares Purchased Through
Ameriprise Financial
Shareholders purchasing
Class A Shares of the Fund
through an Ameriprise Financial
platform or
account are eligible
only
for the following front-end sales charge waivers
,
which may differ from those disclosed elsewhere in this
Prospectus
or
the
SAI:
Such shareholders may purchase Class A Shares at NAV without payment of a front-end sales charge as
follows:
•
Shares purchased by employer
-sponsored retirement plans (e.g., 401(k) plans, 457 plans, employer-sponsored
403(b) plans, profit sharing and money purchase pension plans and defined benefit plans). For purposes of this
provision, employer-sponsored retirement plans do not include SEP IRAs, Simple IRAs or SAR-SEPs.
•
Shares purchased through reinvestment of capital gains distributions and dividend reinvestment when purchasing
Shares
of the same Fund (but not any other fund within the same fund family).
•
Shares exchanged from Class C Shares of the same fund in the month of or following the 7-year anniversary of
the purchase date. To the extent that this
Prospectus
elsewhere provides for a waiver with respect to such
Shares
following a shorter holding period, that waiver will apply
to exchanges following such shorter period
.
To
the extent that this Prospectus elsewhere provides for a waiver with respect to the exchanges of Class C Shares
for load waived Shares, that waiver will also apply to such exchanges.
•
Shares purchased by employees
and registered representatives of Ameriprise Financial or its affiliates and their
immediate family members.
•
Shares purchased by or through qualified accounts (including IRAs, Coverdell Education Savings Accounts, 401(k)s,
403(b) TSCAs subject to ERISA and defined benefit plans) that are held by a covered family member, defined
as an Ameriprise
Financial
advisor and/or the advisor’s spouse, advisor’s lineal ascendant (mother, father, grandmother,
grandfather, great grandmother, great grandfather), advisor’s lineal descendant (son, step-son, daughter, step-daughter,
grandson, granddaughter, great grandson, great granddaughter) or any spouse of a covered family member who
is a lineal descendant.
•
Shares purchased from the proceeds of redemptions within the same fund family, provided (1) the repurchase
occurs within 90 days following the redemption, (2) the redemption and purchase occur in the same account,
and (3) redeemed Shares were subject to a front-end or deferred sales load (
i.e.
Rights of Reinstatement).
CDSC Waivers on Class A and C Shares Purchased Through Ameriprise Financial
Fund Shares purchased through an Ameriprise Financial platform or account are eligible only for the following CDSC
waivers, which may differ from those disclosed elsewhere in this Prospectus or the SAI:
•
Redemptions due to death or disability of the shareholder.
•
Shares sold as part of a systematic withdrawal plan as described in this Prospectus or the SAI.
64
APPENDIX A
(continued)
•
Redemptions made in connection with a return of excess contributions from an IRA account.
•
Shares purchased through a Right of Reinstatement (as defined above).
•
Redemptions made as part of a required minimum distribution for IRA and retirement accounts pursuant to the
Internal Revenue Code.
ROBERT W. BAIRD & CO. INC. (
“
BAIRD
”
)
Shareholders purchasing fund shares through a Baird platform or account will only be eligible for the following sales
charge waivers (front-end sales charge waivers and EWC waivers) and discounts, which may differ from those disclosed
elsewhere in this Prospectus or the SAI.
Front-End Sales Charge Waivers on Class A Shares Available at Baird
•
Shares purchased through reinvestment of capital gains distributions and dividend reinvestment when purchasing
share of the same Fund.
•
Shares purchased by employees and registered representatives of Baird or its affiliates and their family members
as designated by Baird.
•
Shares purchased from the proceeds of redemptions from another Voya fund, provided (1) the repurchase occurs
within 90 days following the redemption, (2) the redemption and purchase occur in the same accounts, and (3)
redeemed shares were subject to a front-end or deferred sales charge (known as rights of reinstatement).
•
A shareholder in the Fund’s Class C Shares will have their shares converted at net asset value to Class A
Shares of the Fund if the shares are no longer subject to EWC and the conversion is in line with the policies
and procedures of Baird.
•
Employer-sponsored retirement plans or charitable accounts in a transactional brokerage account at Baird, including
401(k) plans, 457 plans, employer-sponsored 403(b) plans, profit sharing and money purchase pension plans
and defined benefit plans. For purposes of this provision, employer-sponsored retirement plans do not include
SEP IRAs, Simple IRAs or SAR-SEPs.
CDSC Waivers on Class A and C Shares Available at Baird
•
Shares sold due to death or disability of the shareholder.
•
Shares sold as part of a systematic withdrawal plan as described in the Fund’s Prospectus.
•
Shares bought due to returns of excess contributions from an IRA Account.
•
Shares sold as part of a required minimum distribution for IRA and retirement accounts due to the shareholder
reaching age 72 as described in the Fund’s Prospectus.
•
Shares sold to pay Baird fees but only if the transaction is initiated by Baird.
•
Shares acquired through a right of reinstatement.
Front-End Sales Charge Discounts Available at Baird: Breakpoints and/or Rights of Accumulations
•
Breakpoints as described in this Prospectus.
•
Rights of accumulations which entitles shareholders to breakpoint discounts will be automatically calculated
based on the aggregated holding of fund assets held by accounts within the purchaser’s household at Baird.
Eligible fund assets not held at Baird may be included in the rights of accumulations calculation only if the
shareholder notifies his or her financial advisor about such assets.
•
Letters of Intent (
“
LOI
”
) allow for breakpoint discounts based on anticipated purchases of fund shares through
Baird, over a 13-month period of time.
D.A. DAVIDSON & CO. (
“
D.A. DAVIDSON
”
)
Shareholders purchasing Fund shares, including existing Fund shareholders, through a D.A. Davidson &. Co. (
“
D.A.
Davidson
”
) platform or account, or through an introducing broker-dealer or independent registered investment advisor
for which D.A. Davidson provides trade execution, clearance, and/or custody services, will be eligible for the following
sales charge waivers (front-end sales charge waivers and contingent deferred, or back-end, sales charge waivers) and
discounts, which may differ from those disclosed elsewhere in this Prospectus or the Fund’s SAI.
65
APPENDIX A
(continued)
Front-End Sales Charge Waivers on Class A Shares available at D.A. Davidson
•
Shares purchased within the same fund family through a systematic reinvestment of capital gains and dividend
distributions.
•
Employees and registered representatives of D.A. Davidson or its affiliates and their family members as designated
by D.A. Davidson.
•
Shares purchased from the proceeds of redemptions within the same fund family, provided (1) the repurchase
occurs within 90 days following the redemption, (2) the redemption and purchase occur in the same account,
and (3) redeemed shares were subject to a front-end or deferred sales charge (known as Rights of Reinstatement).
•
A shareholder in the Fund’s Class C Shares will have their shares converted at net asset value to Class A
Shares (or the appropriate share class) of the Fund after 6 years from the date of first purchase of the Class
C Shares and if the shares are no longer subject to a EWC and the conversion is consistent with D.A. Davidson’s
policies and procedures.
EWC Waivers on Class A and Class C Shares available at D.A. Davidson
•
Death or disability of the shareholder.
•
Shares sold as part of a systematic withdrawal plan as described in the Fund’s prospectus.
•
Return of excess contributions from an IRA account.
•
Shares sold as part of a required minimum distribution for IRA or other qualifying retirement accounts pursuant
to the Code.
•
Shares acquired through a right of reinstatement.
Front-end sales charge discounts available at D.A. Davidson: breakpoints, rights of accumulation and/or letters of intent
•
Breakpoints as described in this Prospectus.
•
Rights of accumulation which entitle shareholders to breakpoint discounts will be automatically calculated based
on the aggregated holding of fund family assets held by accounts within the purchaser’s household at D.A.
Davidson. Eligible fund family assets not held at D.A. Davidson may be included in the calculation of rights of
accumulation only if the shareholder notifies his or her financial advisor about such assets.
•
Letters of intent which allow for breakpoint discounts based on anticipated purchases within a fund family, over
a 13-month time period. Eligible fund family assets not held at D.A. Davidson may be included in the calculation
of letters of intent only if the shareholder notifies his or her financial advisor about such assets.
EDWARD D. JONES & CO., L.P. (
“
EDWARD JONES
”
)
Policies Regarding Transactions Through Edward Jones
The following information has been provided by Edward Jones:
The following information supersedes prior information with respect to transactions and positions held in Fund Shares
through an Edward Jones system. Clients of Edward Jones (also referred to as
“
shareholders
”
) purchasing Fund Shares
on the Edward Jones commission and fee-based platforms are eligible only for the following sales charge discounts
(also referred to as
“
breakpoints
”
) and waivers, which can differ from discounts and waivers described elsewhere in
this Prospectus or the SAI or through another broker-dealer. In all instances, it is the shareholder's responsibility to
inform Edward Jones at the time of purchase of any relationship, holdings of Voya funds and Voya 529 Plans or other
facts qualifying the purchaser for discounts or waivers. Edward Jones can ask for documentation of such circumstance.
Shareholders should contact Edward Jones if they have questions regarding their eligibility for these discounts and
waivers.
Breakpoints
•
Breakpoint pricing, otherwise known as volume pricing,
will be
at dollar thresholds as described in this Prospectus.
Rights of Accumulation (
“
ROA
”
)
66
APPENDIX A
(continued)
•
The applicable sales charge on a purchase of Class A Shares is determined by taking into account all share
classes (except certain money market funds and any assets held in group retirement plans) of the Voya funds
and Voya 529 Plans held by the shareholder or in an account grouped by Edward Jones with other accounts for
the purpose of providing certain pricing considerations (
“
pricing groups
”
). If grouping assets as a shareholder,
this includes all share classes held on the Edward Jones platform and/or held on another platform. The inclusion
of eligible fund family assets in the ROA calculation is dependent on the shareholder notifying Edward Jones of
such assets at the time of calculation. Money market funds are included only if such shares were sold with a
sales charge at the time of purchase or acquired in exchange for shares purchased with a sales charge.
•
The employer maintaining a SEP IRA plan and/or SIMPLE IRA plan may elect to establish or change ROA for the
IRA accounts associated with the plan to a plan-level grouping as opposed to including all share classes at a
shareholder or pricing group level.
•
ROA is determined by calculating the higher of cost minus redemptions or market value (current shares x NAV).
Letter of Intent (
“
LOI
”
)
•
Through a LOI, shareholders can receive the sales charge and breakpoint discounts for purchases shareholders
intend to make over a 13-month period from the date Edward Jones receives the LOI. The LOI is determined by
calculating the higher of cost or market value of qualifying holdings at LOI initiation in combination with the
value that the shareholder intends to buy over a 13-month period to calculate the front-end sales charge and
any breakpoint discounts. Each purchase the shareholder makes during that 13-month period will receive the
sales charge and breakpoint discount that applies to the total amount. The inclusion of eligible fund family
assets in the LOI calculation is dependent on the shareholder notifying Edward Jones of such assets at the
time of calculation. Purchases made before the LOI is received by Edward Jones are not adjusted under the LOI
and will not reduce the sales charge previously paid. Sales charges will be adjusted if LOI is not met.
•
If the employer maintaining a SEP IRA plan and/or SIMPLE IRA plan has elected to establish or change ROA for
the IRA accounts associated with the plan to a plan-level grouping, LOIs will also be at the plan-level and may
only be established by the employer.
Sales Charge Waivers
Sales charges are waived for the following shareholders and in the following situations:
•
Associates of Edward Jones and its affiliates and other accounts in the same pricing group (as determined by
Edward Jones under its policies and procedures) as the associate. This waiver will continue for the remainder
of the associate's life if the associate retires from Edward Jones in good-standing and remains in good standing
pursuant to Edward Jones' policies and procedures.
•
Shares purchased in an Edward Jones fee-based program.
•
Shares purchased through reinvestment of capital gains distributions and dividend reinvestment.
•
Shares purchased from the proceeds of redeemed
Shares
of the same fund family so long as the following
conditions are met: the proceeds are from the sale of
Shares
within 60 days of the purchase,
and
the sale and
purchase are made from a share class that charges a front-end sales charge
(
“
Right of Reinstatement
”
). The
Right of Reinstatement excludes systematic or automatic transactions including, but not limited to, purchases
made through payroll deductions. In addition,
one of the following
conditions must be met
:
○
The redemption and repurchase occur in the same account.
○
The redemption proceeds are used to process an: IRA contribution, excess contributions, conversion,
recharacterizing of contributions, or distribution, and the repurchase is done in an account within the
same Edward Jones grouping for ROA.
•
Shares exchanged into Class A Shares from another share class so long as the exchange is into the same fund
and was initiated at the discretion of Edward Jones. Edward Jones is responsible for any remaining EWC due
to the fund company, if applicable. Any future purchases are subject to the applicable sales charge as disclosed
in the prospectus.
•
Exchanges from Class C Shares to Class A Shares of the same fund, generally, in the 84th month following the
anniversary of the purchase date or earlier at the discretion of Edward Jones.
67
APPENDIX A
(continued)
•
Purchases of Class 529-A Common Shares through a rollover from either another education savings plan or a
security used for qualified distributions.
•
Purchases of Class 529 Common Shares made for recontribution of refunded amounts.
Early Withdrawal Charge (
“
EWC
”
) Waivers
If the shareholder purchases Shares that are subject to an EWC and those Shares are redeemed before the EWC is
expired, the shareholder is responsible to pay the EWC except in the following conditions:
•
The death or disability of the shareholder
•
Systematic withdrawals with up to 10% per year of the account value
•
Return of excess contributions from an Individual Retirement Account (IRA)
•
Shares sold as part of a required minimum distribution for IRA and retirement accounts if the redemption is
taken in or after the year the shareholder reaches qualified age based on applicable IRS regulations
•
Shares redeemed to pay Edward Jones fees or costs in such cases where the transaction is initiated by Edward
Jones
•
Shares exchanged in an Edward Jones fee-based program
•
Shares acquired through NAV reinstatement
•
Shares redeemed at the discretion of Edward Jones for Minimum Balances, as described below.
Other Important Information Regarding Transactions Through Edward Jones
Minimum Purchase Amounts
•
Initial purchase minimum: $250
•
Subsequent purchase minimum: none
Minimum Balances
•
Edward Jones has the right to redeem at its discretion fund holdings with a balance of $250 or less. The following
are examples of accounts that are not included in this policy:
○
A fee-based account held on an Edward Jones platform
○
A 529 account held on an Edward Jones platform
○
An account with an active systematic investment plan or LOI
Exchanging Share Classes
•
At any time it deems necessary, Edward Jones has the authority to exchange at NAV a shareholder's holdings
in
the Fund
to Class A Shares of the same fund.
E*TRADE FRONT-END SALES CHARGE WAIVER
Shareholders purchasing Fund shares through an E*TRADE brokerage account will be eligible for a waiver of the front-end
sales charge with respect to Class A Shares (or the equivalent). This includes shares purchased through the reinvestment
of dividends and capital gains distributions.
JANNEY MONTGOMERY SCOTT LLC
Shareholders purchasing Fund Shares through a Janney Montgomery Scott LLC (
“
Janney
”
) account will be eligible
only for the following load waivers (front-end sales charge waivers and early withdrawal charge (
“
EWC
”
), or back-end,
sales charge waivers) and discounts, which may differ from those disclosed elsewhere in the Fund’s Prospectus or
SAI.
EWC waivers on Class A Shares available at Janney
•
Shares purchased through reinvestment of capital gains distributions and dividend reinvestment when purchasing
shares of the Fund (but not any other fund within the fund family).
•
Shares purchased by employees and registered representatives of Janney or its affiliates and their family members
as designated by Janney.
68
APPENDIX A
(continued)
•
Shares purchased from the proceeds of redemptions within the same fund family, provided (1) the repurchase
occurs within ninety (90) days following the redemption, (2) the redemption and purchase occur in the same
account, and (3) redeemed shares were subject to a front-end or deferred sales load (
i.e.,
right of reinstatement).
•
Class C Shares that are no longer subject to a contingent deferred sales charge and are converted to Class A
Shares of the Fund pursuant to Janney’s policies and procedures.
Sales charge waivers on Class A and C Shares available at Janney
•
Shares sold upon the death or disability of the shareholder.
•
Shares sold as part of a systematic withdrawal plan as described in the Fund’s Prospectus.
•
Shares purchased in connection with a return of excess contributions from an IRA account.
•
Shares sold as part of a required minimum distribution for IRA and retirement accounts due to the shareholder
reaching age 70½ as described in the Fund’s Prospectus.
•
Shares sold to pay Janney fees but only if the transaction is initiated by Janney.
•
Shares acquired through a right of reinstatement.
Front-end load discounts available at Janney: breakpoints, and/or rights of accumulation
•
Breakpoints as described in the Fund’s Prospectus.
•
Rights of accumulation (
“
ROA
”
), which entitle shareholders to breakpoint discounts, will be automatically calculated
based on the aggregated holding of fund family assets held by accounts within the purchaser’s household at
Janney. Eligible fund family assets not held at Janney may be included in the ROA calculation only if the shareholder
notifies his or her financial advisor about such assets.
J.P. MORGAN SECURITIES LLC
If you purchase or hold fund shares through an applicable J.P. Morgan Securities LLC brokerage account, you will be
eligible for the following sales charge waivers (front-end sales charge waivers and contingent deferred sales charge
(
“
CDSC
”
), or back-end sales charge, waivers), share class conversion policy and discounts, which may differ from
those disclosed elsewhere in this fund’s prospectus or Statement of Additional Information.
Front-end sales charge waivers on Class A Shares available at J.P. Morgan Securities LLC
•
Shares exchanged from Class C (
i.e
. level-load) Shares that are no longer subject to a CDSC and are exchanged
into Class A Shares of the same fund pursuant to J.P. Morgan Securities LLC’s share class exchange policy.
•
Qualified employer-sponsored defined contribution and defined benefit retirement plans, nonqualified deferred
compensation plans, other employee benefit plans and trusts used to fund those plans. For purposes of this
provision, such plans do not include SEP IRAs, SIMPLE IRAs, SAR-SEPs or 501(c)(3) accounts.
•
Shares of funds purchased through J.P. Morgan Securities LLC Self-Directed Investing accounts.
•
Shares purchased through rights of reinstatement.
•
Shares purchased through reinvestment of capital gains distributions and dividend reinvestment when purchasing
shares of the same fund (but not any other fund within the fund family).
•
Shares purchased by employees and registered representatives of J.P. Morgan Securities LLC or its affiliates
and their spouse or financial dependent as defined by J.P. Morgan Securities LLC.
Class C to Class A Shares conversion
•
A shareholder in the fund’s Class C Shares will have their shares converted to Class A Shares (or the appropriate
share class) of the same fund if the shares are no longer subject to a CDSC and the conversion is consistent
with J.P. Morgan Securities LLC’s policies and procedures.
CDSC waivers on Class A and C Shares available at J.P. Morgan Securities LLC
•
Shares sold upon the death or disability of the shareholder.
•
Shares sold as part of a systematic withdrawal plan as described in the fund’s prospectus.
•
Shares purchased in connection with a return of excess contributions from an IRA account.
69
APPENDIX A
(continued)
•
Shares sold as part of a required minimum distribution for IRA and retirement accounts pursuant to the Internal
Revenue Code.
•
Shares acquired through a right of reinstatement.
Front-end load discounts available at J.P. Morgan Securities LLC: breakpoints, rights of accumulation & letters of intent
•
Breakpoints as described in the prospectus.
•
Rights of Accumulation (
“
ROA
”
) which entitle shareholders to breakpoint discounts as described in the fund’s
prospectus will be automatically calculated based on the aggregated holding of fund family assets held by accounts
within the purchaser’s household at J.P. Morgan Securities LLC. Eligible fund family assets not held at J.P. Morgan
Securities LLC (including 529 program holdings, where applicable) may be included in the ROA calculation only
if the shareholder notifies their financial advisor about such assets.
•
Letters of Intent (
“
LOI
”
) which allow for breakpoint discounts based on anticipated purchases within a fund
family, through J.P. Morgan Securities LLC, over a 13-month period of time (if applicable).
MERRILL LYNCH (
“
Merrill
”
)
Purchases or sales of front-end (i.e.
,
Class A) or level-load (i.e., Class C) mutual fund shares through a Merrill platform
or account will be eligible only for the following sales load waivers (front-end, contingent deferred, or back-end waivers)
and discounts, which differ from those disclosed elsewhere in this Fund’s Prospectus. Purchasers will have to buy
mutual fund shares directly from the mutual fund company or through another intermediary to be eligible for waivers
or discounts not listed below.
It is the shareholder’s responsibility to notify Merrill at the time of purchase or sale of any relationship or other facts
that qualify the transaction for a waiver or discount. A Merrill representative may ask for reasonable documentation
of such facts and Merrill may condition the granting of a waiver or discount on the timely receipt of such documentation.
Additional information on waivers and discounts is available in the Merrill Sales Load Waiver and Discounts Supplement
(the
“
Merrill SLWD Supplement
”
) and in the Mutual Fund Investing at Merrill pamphlet at ml.com/funds. Shareholders
are encouraged to review these documents and speak with their financial advisor to determine whether a transaction
is eligible for a waiver or discount.
Front-End Sales Charge Waivers on Class A Shares Available at Merrill
•
Employer-sponsored retirement, deferred compensation and employee benefit plans (including health savings
accounts) and trusts used to fund those plans provided that the Shares are not held in a commission-based
brokerage account and Shares are held for the benefit of the plan. For purposes of this provision, employer-sponsored
retirement plans do not include Simplified Employee Pension IRAs (
“
SEP IRA
”
), Simple IRAs, SAR-SEPs or Keogh
plans.
•
Shares purchased through a Merrill investment advisory program.
•
Brokerage class Shares exchanged from advisory class shares due to the holdings moving from a Merrill investment
advisory program to a Merrill brokerage account.
•
Shares of Funds purchased through the Merrill Edge Self-Directed platform.
•
Shares purchased through the systematic reinvestment of capital gains distributions and dividend reinvestment
when purchasing shares of the same mutual fund in the same account.
•
Shares exchanged from level-load shares to front-end sales charge Shares of the same Fund in accordance
with the description in the Merrill SLWD Supplement.
•
Shares purchased by eligible employees of Merrill or its affiliates and their family members who purchase Shares
in accounts within the employee’s Merrill Household (as defined in the Merrill SLWD Supplement).
•
Trustees of the Fund, and employees of the Investment Adviser or any of its affiliates, as described in this
Prospectus.
70
APPENDIX A
(continued)
•
Shares purchased from the proceeds of the Fund’s redemption in front-end sales charge shares provided: (1)
the repurchase is in a mutual fund within the same fund family; (2) the repurchase occurs within 90 calendar
days from the redemption trade date, and (3) the redemption and purchase occur in the same account
(known
as Rights of Reinstatement). Automated transactions (i.e. systematic purchases and withdrawals) and purchases
made after Shares are automatically sold to pay Merrill’s account maintenance fees are not eligible for Rights
of Reinstatement.
CDSC Waivers on Class A and Class C Shares Available at Merrill
•
Shares sold due to shareholder’s death or disability (as defined by Internal Revenue Code Section 22e(3)).
•
Shares sold pursuant to a systematic withdrawal program subject to Merrill’s maximum systematic withdrawal
limits as described in the Merrill SLWD Supplement.
•
Shares sold due to return of excess contributions from an IRA account.
•
Shares sold as part of a required minimum distribution for IRA and retirement accounts due to the investor
reaching the qualified age based on applicable IRS regulation.
•
Front-end or level-load Shares held in commission-based, non-taxable retirement brokerage accounts (e.g. traditional,
Roth, rollover, SEP IRAs, Simple IRAs, SAR-SEPs or Keogh plans) that are transferred to fee-based accounts or
platforms and exchanged for a lower cost share class of the same Fund.
Front-End Load Discounts Available at Merrill: Breakpoints, ROA & LOI
•
Breakpoints as described in this Prospectus, where the sales charge is at or below the maximum sales charge
that Merrill permits to be assessed to a front-end load purchase, as described in the Merrill SLWD Supplement.
•
ROA, as described in the Merrill SLWD Supplement, which entitle shareholders to breakpoint discounts based
on the aggregated holdings of mutual fund family assets held in accounts in their Merrill Household.
•
LOI: which allow for breakpoint discounts on eligible new purchases based on anticipated future eligible purchases
within a fund family at Merrill, in accounts within your Merrill Household, as further described in the Merrill
SLWD Supplement.
MORGAN STANLEY WEALTH MANAGEMENT
Shareholders purchasing Fund shares through a Morgan Stanley Wealth Management transactional brokerage account
will be eligible only for the following front-end sales charge waivers with respect to Class A Shares, which may differ
from and may be more limited than those disclosed elsewhere in this Fund’s Prospectus or SAI.
Front-end Sales Charge Waivers on Class A Shares available at Morgan Stanley Wealth Management
•
Employer-sponsored retirement plans (
e.g.
, 401(k) plans, 457 plans, employer-sponsored 403(b) plans, profit
sharing and money purchase pension plans and defined benefit plans). For purposes of this provision,
employer-sponsored retirement plans do not include SEP IRAs, Simple IRAs, SAR-SEPs or Keogh plans
•
Morgan Stanley employee and employee-related accounts according to Morgan Stanley’s account linking rules
•
Shares purchased through reinvestment of dividends and capital gains distributions when purchasing Shares
of the same fund
•
Shares purchased through a Morgan Stanley self-directed brokerage account
•
Class C Shares (
i.e.
, level-load) shares that are no longer subject to an EWC and are converted to Class A
Shares of the same fund pursuant to Morgan Stanley Wealth Management’s share class conversion program
– Shares purchased from the proceeds of redemptions within the same fund family, provided (i) the repurchase
occurs within 90 days following the redemption, (ii) the redemption and purchase occur in the same account,
and (iii) redeemed shares were subject to a frontend or deferred sales charge.
OPPENHEIMER & CO. (
“
OPCO
”
)
Shareholders purchasing Fund shares through an OPCO platform or account are eligible only for the following load
waivers (front-end sales charge waivers and early withdrawal, or back-end, sales charge waivers) and discounts, which
may differ from those disclosed elsewhere in this Fund's Prospectus or SAI.
Front-end Sales Load Waivers on Class A Shares available at OPCO
71
APPENDIX A
(continued)
•
Employer-sponsored retirement, deferred compensation and employee benefit plans (including health savings
accounts) and trusts used to fund those plans, provided that the shares are not held in a commission-based
brokerage account and shares are held for the benefit of the plan.
•
Shares purchased through an OPCO affiliated investment advisory program.
•
Shares purchased through reinvestment of capital gains distributions and dividend reinvestment when purchasing
shares of the same fund (but not any other fund within the fund family).
•
Shares purchased from the proceeds of redemptions within the same fund family, provided (1) the repurchase
occurs within 90 days following the redemption, (2) the redemption and purchase occur in the same amount,
and (3) redeemed shares were subject to a front-end or deferred sales load (known as
“
Rights of Restatement
”
).
•
A shareholder in the Fund’s Class C Shares will have their shares converted at net asset value to Class A
Shares (or the appropriate share class) of the Fund after 5 years from the date of first purchase of the Class
C Shares and if the shares are no longer subject to an EWC and the conversion is in line with the policies and
procedures of OPCO.
•
Employees and registered representatives of OPCO or its affiliates and their family members.
•
Directors or Trustees of the Fund, and employees of the Fund’s investment adviser or any of its affiliates, as
described in the Fund’s Prospectus.
EWC Waivers on Class A and C Shares available at OPCO
•
Death or disability of the shareholder
•
Shares sold as part of a systematic withdrawal plan as described in the Fund's prospectus
•
Return of excess contributions from an IRA Account
•
Shares sold as part of a required minimum distribution for IRA and retirement accounts due to the shareholder
reaching age 70½ as described in the Fund’s Prospectus
•
Shares sold to pay OPCO fees but only if the transaction is initiated by OPCO
•
Shares acquired through a right of reinstatement
Front-end load Discounts Available at OPCO: Breakpoints, Rights of Accumulation & Letters of Intent
•
Breakpoints as described in the Fund’s Prospectus.
•
Rights of Accumulation (
“
ROA
”
) which entitle shareholders to breakpoint discounts will be automatically calculated
based on the aggregated holding of fund family assets held by accounts within the purchaser's household at
OPCO. Eligible fund family assets not held at OPCO may be included in the ROA calculation only if the shareholder
notifies his or her financial advisor about such assets
RAYMOND JAMES & ASSOCIATES, INC., RAYMOND JAMES FINANCIAL SERVICES, INC. and each entity’s affiliates (
“
RAYMOND
JAMES
”
)
Shareholders purchasing fund shares through a Raymond James platform or account, or through an introducing broker-dealer
or independent registered investment adviser for which Raymond James provides trade execution, clearance, and/or
custody services, will be eligible only for the following load waivers (front-end sales charge waivers and contingent
deferred, or back-end, sales charge waivers) and discounts, which may differ from those disclosed elsewhere in this
Fund’s Prospectus or SAI.
Front-end sales load waivers on Class A Shares available at Raymond James
•
Shares purchased in an investment advisory program.
•
Shares purchased within the same fund family through a systematic reinvestment of capital gains and dividend
distributions.
•
Employees and registered representatives of Raymond James or its affiliates and their family members as designated
by Raymond James.
•
Shares purchased from the proceeds of redemptions within the same fund family, provided (1) the repurchase
occurs within 90 days following the redemption, (2) the redemption and purchase occur in the same account,
and (3) redeemed shares were subject to a front-end or deferred sales load (known as Rights of Reinstatement).
72
APPENDIX A
(continued)
•
A shareholder in the Fund’s Class C Shares will have their shares converted at net asset value to Class A
Shares (or the appropriate share class) of the Fund if the shares are no longer subject to an EWC and the
conversion is in line with the policies and procedures of Raymond James.
EWC Waivers on Classes A and C Shares available at Raymond James
•
Death or disability of the shareholder.
•
Shares sold as part of a systematic withdrawal plan as described in the Fund’s Prospectus.
•
Return of excess contributions from an IRA Account.
•
Shares sold as part of a required minimum distribution for IRA and retirement accounts due to the shareholder
reaching age 70½ as described in the Fund’s Prospectus.
•
Shares sold to pay Raymond James fees but only if the transaction is initiated by Raymond James.
•
Shares acquired through a right of reinstatement.
Front-end load discounts available at Raymond James: breakpoints, rights of accumulation, and/or letters of intent
•
Breakpoints as described in this Prospectus.
•
Rights of accumulation which entitle shareholders to breakpoint discounts will be automatically calculated based
on the aggregated holding of fund family assets held by accounts within the purchaser’s household at Raymond
James. Eligible fund family assets not held at Raymond James may be included in the calculation of rights of
accumulation calculation only if the shareholder notifies his or her financial advisor about such assets.
•
Letters of intent which allow for breakpoint discounts based on anticipated purchases within a fund family, over
a 13-month time period. Eligible fund family assets not held at Raymond James may be included in the calculation
of letters of intent only if the shareholder notifies his or her financial advisor about such assets.
STIFEL, NICOLAUS & COMPANY, INCORPORATED (
“
STIFEL
”
)
The following information applies to shareholders purchasing Class C Shares of the Fund through a Stifel platform or
account or who own Class C Shares for which Stifel or an affiliate is the broker-dealer of record. This information may
differ from information about Class C Shares disclosed elsewhere in this Fund’s Prospectus or SAI.
Class C Conversion to Class A; Class A Shares Front-End Sales Waiver Available at Stifel:
•
A Class C Shares shareholder of the Fund will have such shareholder’s Class C Shares converted at net asset
value to Class A Shares of the Fund in accordance with Stifel’s policies and procedures. Stifel has informed
the Fund that its policies and procedures currently provide for such a conversion following the seventh (7th)
anniversary of the shareholder’s purchase of the Class C Shares.
73
Voya Enhanced Securitized Income Fund
7337 East Doubletree Ranch Road, Suite 100
Scottsdale, Arizona 85258-2034
1-800-992-0180
FUND ADVISERS AND SERVICE PROVIDERS
Investment Adviser
Voya Investments, LLC
7337 East Doubletree Ranch Road, Suite 100
Scottsdale, Arizona 85258
Sub-Adviser
Voya Investment Management Co. LLC
230 Park Avenue
New York, New York 10169
Custodian
Bank of New York Mellon
801 Pennsylvania Avenue
Kansas City, Missouri 64105
Independent Registered Public Accounting Firm
[
]
[
]
Distributor
Voya Investments Distributor, LLC
7337 East Doubletree Ranch Road, Suite 100
Scottsdale, Arizona 85258
Transfer Agent
BNY Mellon Investment Servicing (US) Inc.
301 Bellevue Parkway
Wilmington, Delaware 19809
Legal Counsel
Ropes & Gray LLP
Prudential Tower
800 Boylston Street
Boston Massachusetts 02199-3600
Institutional Investors and Analysts
Call 1-800-336-3436
The Fund has not authorized any person to provide you with any information or to make any representations other than those contained
in this Prospectus in connection with this offer. You should rely only on the information in this Prospectus or other information to which we
have referred you. This Prospectus is not an offer to sell, or the solicitation of any offer to buy, any security other than the Shares offered
by this Prospectus; nor does it constitute an offer to sell, or a solicitation of any offer to buy, the Shares by anyone in any jurisdiction in
which such offer or solicitation is not authorized, or in which the person making such offer or solicitation is not qualified to do so, or to
any person to whom it is unlawful to make such an offer or solicitation. The delivery of this Prospectus or any sale made pursuant to this
Prospectus does not imply that the information contained in this Prospectus is correct as of any time after the date of this Prospectus.
However, if any material change occurs while this Prospectus is required by law to be delivered, this Prospectus will be amended or supplemented.
Reports and other information about the Funds are available on the EDGAR Database on the SEC's Internet website at
https://www.sec.gov
, and copies of this information may be obtained, upon payment of a duplicating fee, by electronic
request at the following e-mail address:
.
When contacting the SEC, you will want to refer to the Fund's SEC file number. The file number is as follows:
1940 Act File No. | 811-23903 |
225957
(0625-061225)
STATEMENT OF ADDITIONAL INFORMATION
June 12, 2025
Voya Enhanced Securitized Income Fund
7337 East Doubletree Ranch Road, Suite 100
Scottsdale, Arizona 85258-2034
1-800-992-0180
7337 East Doubletree Ranch Road, Suite 100
Scottsdale, Arizona 85258-2034
1-800-992-0180
Class/Ticker: A/VVJHX; C/VVJIX; I/VVJJX
INTRODUCTION AND GLOSSARY
This SAI is designed to elaborate upon information contained in the Fund’s Prospectus, including the discussion of certain securities and investment techniques. The more detailed information contained in this SAI is intended
for investors who have read the Prospectus and are interested in a more detailed explanation of certain aspects of some of the Fund’s securities and investment techniques. Some investment techniques are described only in the Prospectus and are not repeated here.
Capitalized terms used, but not defined, in this SAI have the same meaning as in the
Prospectus and some additional terms are defined particularly for this SAI.
Following are definitions of general terms that may be used throughout this SAI:
1933 Act: Securities Act of 1933, as amended
1934 Act: Securities Exchange Act of 1934, as amended
1940 Act: Investment Company Act of 1940, as amended, including the rules and regulations
thereunder, and the terms of applicable no-action relief or exemptive orders granted thereunder
Affiliated Fund: A fund within the Voya family of funds
Board: The Board of Trustees for the Trust
Business Day: Each day the NYSE opens for regular trading
CDSC: Contingent deferred sales charge
CFTC: United States Commodity Futures Trading Commission
Code: Internal Revenue Code of 1986, as amended
Distributor: Voya Investments Distributor, LLC
Distribution Agreement: The Distribution Agreement for the Fund, as described herein
ETF: Exchange-Traded Fund
EU: European Union
Expense Limitation Agreement: The Expense Limitation Agreement(s) for the Fund, as described herein
FDIC: Federal Deposit Insurance Corporation
FHLMC: Federal Home Loan Mortgage Corporation
FINRA: Financial Industry Regulatory Authority, Inc.
Fiscal Year End of the Fund: February 28 or 29, as applicable
Fitch: Fitch Ratings
FNMA: Federal National Mortgage Association
Fund: Voya Enhanced Securitized Credit Fund
GNMA: Government National Mortgage Association
Independent Trustees: The Trustees of the Board who are not “interested persons” (as defined in the 1940 Act) of the Fund
Investment Adviser: Voya Investments, LLC or Voya Investments
Investment Management Agreement: The Investment Management Agreement for the Fund, as described herein
IPO: Initial Public Offering
IRA: Individual Retirement Account
IRS: United States Internal Revenue Service
LIBOR: London Interbank Offered Rate
Moody’s: Moody’s Investors Service, Inc.
NAV: Net Asset Value
NRSRO: Nationally Recognized Statistical Rating Organization
NYSE: New York Stock Exchange
OTC: Over-the-counter
1
Principal Underwriter: Voya Investments Distributor, LLC or the “Distributor”
Prospectus: One or more prospectuses for the Fund
REIT: Real Estate Investment Trust
REMICs: Real Estate Mortgage Investment Conduits
RIC: A “Regulated Investment Company,” pursuant to the Code
Rule 12b-1: Rule 12b-1 (under the 1940 Act)
Rule 12b-1 Plan: A Distribution and/or Shareholder Service Plan adopted under Rule 12b-1
Rule 144A: Rule 144A under the 1933 Act
S&L: Savings & Loan Association
S&P: S&P Global Ratings
SEC: United States Securities and Exchange Commission
SOFR: Secured Overnight Financing Rate
Sub-Adviser: One or more sub-advisers for the Fund, as described herein
Sub-Advisory Agreement: The Sub-Advisory Agreement(s) for the Fund, as described herein
UK: United Kingdom
Underlying Funds: Unless otherwise stated, other mutual funds or ETFs in which the Fund may invest
Voya family of funds or the “funds”: All of the registered investment companies managed by Voya Investments
Voya IM: Voya Investment Management Co. LLC
The Trust: Voya Enhanced Securitized Income Fund
2
HISTORY OF the Trust
Voya Enhanced Securitized Income Fund, a continuously-offered, diversified, closed-end
investment company that is registered under the 1940 Act, was organized as a Delaware statutory trust on September 26, 2023.
3
SUPPLEMENTAL DESCRIPTION OF Fund INVESTMENTS AND RISKS
Some of the different types of securities in which the Fund may invest, subject to
its investment objective, policies, and restrictions, are described in the Prospectus under “Investment Objective and Policies.” Additional information concerning certain of the Fund’s investments and investment techniques is set forth below.
EQUITY SECURITIES
Common Stocks: Common stock represents an equity or ownership interest in an issuer. A common stock
may decline in value due to an actual or perceived deterioration in the prospects of the issuer, an actual or anticipated
reduction in the rate at which dividends are paid, or other factors affecting the value of an investment, or due to a decline in the
values of stocks generally or of stocks of issuers in a particular industry or market sector. The values of common stocks may be highly volatile.
If an issuer of common stock is liquidated or declares bankruptcy, the claims of owners of debt instruments and preferred stock
take precedence over the claims of those who own common stock, and as a result the common stock could become worthless.
Convertible Securities: Convertible securities are securities that combine the investment characteristics
of debt instruments and common stocks. Convertible securities typically consist of debt instruments or preferred
stock that may be converted (on a voluntary or mandatory basis) within a specified period of time (normally for the entire life of the security)
into a certain amount of common stock or other equity security of the same or a different issuer at a predetermined price. Convertible securities
also include debt instruments with warrants or common stock attached and derivatives combining the features of debt instruments and
equity securities. Other convertible securities with additional or different features and risks may become available in the future.
Convertible securities involve risks similar to those of both debt instruments and equity securities. In a corporation’s capital structure, convertible securities are senior to common stock but are usually subordinated to senior debt instruments of the issuer.
The market value of a convertible security is a function of its “investment value” and its “conversion value.” A security’s “investment value” represents the value of the security without its conversion feature (i.e., a nonconvertible debt instrument). The investment value may be determined by reference to its credit quality and the current value of its
yield to maturity or probable call date. At any given time, investment value is dependent upon such factors as the general level of interest rates,
the yield of similar nonconvertible securities, the financial strength of the issuer, and the seniority of the security in the issuer’s capital structure. A security’s “conversion value” is determined by multiplying the number of shares the holder is entitled to receive upon conversion
or exchange by the current price of the underlying security. If the conversion value of a convertible security is significantly below
its investment value, the convertible security will trade like a nonconvertible debt instruments or preferred stock and its market value will not
be influenced greatly by fluctuations in the market price of the underlying security. In that circumstance, the convertible security takes on
the characteristics of a debt instrument, and the price moves in the opposite direction from interest rates. Conversely, if the conversion
value of a convertible security is near or above its investment value, the market value of the convertible security will be more heavily
influenced by fluctuations in the market price of the underlying security. In that case, the convertible security’s price may be as volatile as that of common stock. Because both interest rates and market movements can influence its value, a convertible security generally is
not as sensitive to interest rates as a similar debt instrument, nor is it as sensitive to changes in share price as its underlying equity
security. Convertible securities are often rated below investment grade or are not rated, and they are generally subject to greater levels
of credit risk and liquidity risk.
Contingent Convertible Securities (“CoCos”): CoCos are a form of hybrid debt instrument. They are subordinated instruments that
are designed to behave like bonds or preferred equity in times of economic health for
the issuer, yet absorb losses when a pre-determined trigger event affecting the issuer occurs. CoCos are either convertible into equity
at a predetermined share price or written down if a pre-specified trigger event occurs. Trigger events vary by individual security and
are defined by the documents governing the contingent convertible security. Such trigger events may include a decline in the issuer’s capital below a specified threshold level, an increase in the issuer’s risk-weighted assets, the share price of the issuer falling to a particular level for a certain period of time, and certain regulatory events. CoCos are subject to credit, interest rate, high-yield securities, foreign
investments and market risks associated with both debt instruments and equity securities. In addition, CoCos have no stated maturity and
have fully discretionary coupons. If the CoCos are converted into the issuer’s underlying equity securities following a conversion event, each holder will be subordinated due to their conversion from being the holder of a debt instrument to being the holder of an equity instrument, hence worsening the holder’s standing in a bankruptcy proceeding.
Initial Public Offerings: The value of an issuer’s securities may be highly unstable at the time of its IPO and for a period thereafter due to factors such as market psychology prevailing at the time of the IPO, the absence of
a prior public market, the small number of shares available, and limited availability of investor information. Securities purchased
in an IPO may be held for a very short period of time. As a result, investments in IPOs may increase portfolio turnover, which increases brokerage
and administrative costs and may result in additional distributions to shareholders. Investors in IPOs can be adversely affected
by substantial dilution of the value of their shares due to sales of additional shares, and by concentration of control in existing management
and principal shareholders.
Investments in IPOs may have a substantial beneficial effect on investment performance.
Investment returns earned during a period of substantial investment in IPOs may not be sustained during other periods of more-limited,
or no, investments in IPOs. In addition, as an investment portfolio increases in size, the impact of IPOs on performance will generally
decrease. Investment in securities offered in an IPO may lose money. There can be no assurance that investments in IPOs will be available
or improve performance. Investments in secondary public offerings may be subject to certain of the foreign risks. The Fund will not
necessarily participate in an IPO in which other mutual funds or accounts managed by the Investment Adviser or Sub-Adviser participate.
4
Other Investment Companies and Pooled Investment Vehicles: Securities of other investment companies and pooled investment vehicles, including shares of closed-end investment companies, unit investment trusts, ETFs,
open-end investment companies, and private investment funds represent interests in managed portfolios that may invest in various types of
instruments. Investing in another investment company or pooled investment vehicle exposes the Fund to all the risks of that other investment
company or pooled investment vehicle as well as additional expenses at the other investment company or pooled investment vehicle-level,
such as a proportionate share of portfolio management fees and operating expenses. Such expenses are in addition to the expenses the Fund
pays in connection with its own operations. Investing in a pooled investment vehicle involves the risk that the vehicle will not perform
as anticipated. The amount of assets that may be invested in another investment company or pooled investment vehicle or in other investment
companies or pooled investment vehicles generally may be limited by applicable law.
The securities of other investment companies, particularly closed-end funds, may be
leveraged and, therefore, will be subject to the risks of leverage. The securities of closed-end investment companies and ETFs carry the
risk that the price paid or received may be higher or lower than their NAV. Closed-end investment companies and ETFs are also subject to
certain additional risks, including the risks of illiquidity and of possible trading halts due to market conditions or other factors.
In making decisions on the allocation of the assets in other investment companies,
the Investment Adviser and Sub-Adviser are subject to several conflicts of interest when they serve as the investment adviser and sub-adviser
to one or more of the other investment companies. These conflicts could arise because the Investment Adviser or Sub-Adviser or their
affiliates earn higher net advisory fees (the advisory fee received less any sub-advisory fee paid and fee waivers or expense subsidies)
on some of the other investment companies than others. For example, where the other investment companies have a sub-adviser that
is affiliated with the Investment Adviser, the entire advisory fee is retained by a Voya company. Even where the net advisory fee is not
higher for other investment companies sub-advised by an affiliate of the Investment Adviser or Sub-Adviser, the Investment Adviser and
Sub-Adviser may have an incentive to prefer affiliated sub-advisers for other reasons, such as increasing assets under management or supporting
new investment strategies, which in turn would lead to increased income to Voya. Further, the Investment Adviser and Sub-Adviser
may believe that redemption from another investment company will be harmful to that investment company, the Investment Adviser and Sub-Adviser
or an affiliate. Therefore, the Investment Adviser and Sub-Adviser may have incentives to allocate and reallocate in a fashion
that would advance its own economic interests, the economic interests of an affiliate, or the interests of another investment company.
The Investment Adviser has informed the Board that its investment process may be influenced
by an affiliated insurance company that issues financial products in which the Fund may be offered as an investment option.
In certain of those products an affiliated insurance company may offer guaranteed lifetime income or death benefits. The Investment Adviser’s and Sub-Adviser’s investment decisions, including their allocation decisions with respect to the other investment companies, may benefit
the affiliated insurance company issuing such benefits. For example, selecting and allocating assets to other investment companies
which invest primarily in debt instruments or in a more conservative or less volatile investment style, may reduce the regulatory capital
requirements which the affiliated insurance company must satisfy to support its guarantees under its products, may help reduce the affiliated insurance company’s risk from the lifetime income or death benefits, or may make it easier for the insurance company to manage
its risk through the use of various hedging techniques.
The Investment Adviser and Sub-Adviser have adopted various policies and procedures
that are intended to identify, monitor, and address actual or potential conflicts of interest. Nonetheless, investors bear the risk that the Investment Adviser's and Sub-Adviser’s allocation decisions may be affected by their conflicts of interest.
Exchange-Traded Funds: ETFs are investment companies whose shares trade like a stock throughout the day.
Certain ETFs use a “passive” investment strategy and will not attempt to take defensive positions in volatile or
declining markets. Other ETFs are actively managed (i.e., they do not seek to replicate the performance of a particular index). The value of an ETF’s shares will change based on changes in the values of the investments it holds. The value of an ETF’s shares will also likely be affected by factors affecting trading in the market for those shares, such as illiquidity, exchange or market rules, and overall market
volatility. The market price for ETF shares may be higher or lower than the ETF’s NAV. The timing and magnitude of cash flows in and out of an ETF could create cash balances that act as a drag on the ETF’s performance. An active secondary market in an ETF’s shares may not develop or be maintained and may be halted or interrupted due to actions by its listing exchange, unusual market conditions or other reasons.
Substantial market or other disruptions affecting ETFs could adversely affect the liquidity and value of the shares of the Fund to the extent
it invests in ETFs. There can be no assurance an ETF’s shares will continue to be listed on an active exchange.
Holding Company Depositary Receipts: Holding Company Depositary Receipts (“HOLDRs”) are securities that represent beneficial ownership in a group of common stocks of specified issuers in a particular industry. HOLDRs
are typically organized as grantor trusts, and are generally not required to register as investment companies under the 1940 Act. Each
HOLDR initially owns a set number of stocks, and the composition of a HOLDR does not change after issue, except in special cases like
corporate mergers, acquisitions or other specified events. As a result, stocks selected for those HOLDRs with a sector focus may not
remain the largest and most liquid in their industry, and may even leave the industry altogether. If this happens, HOLDRs invested may not
provide the same targeted exposure to the industry that was initially expected. Because HOLDRs are not subject to concentration limits,
the relative weight of an individual stock may increase substantially, causing the HOLDRs to be less diversified and creating more risk.
Private Funds: Private funds are private investment funds, pools, vehicles, or other structures,
including hedge funds and private equity funds. They may be organized as corporations, partnerships, trusts, limited partnerships,
limited liability companies, or any other form of business organization (collectively, “Private Funds”). Investments in Private Funds may be highly speculative and highly volatile and
5
may produce gains or losses at rates that exceed those of the Fund’s other holdings and of publicly offered investment pools. Private Funds may engage actively in short selling. Private Funds may utilize leverage without
limit and, to the extent the Fund invests in Private Funds that utilize leverage, the Fund will indirectly be exposed to the risks associated
with that leverage and the values of its shares may be more volatile as a result.
Many Private Funds invest significantly in issuers in the early stages of development,
including issuers with little or no operating history, issuers operating at a loss or with substantial variation in operation results from
period to period, issuers with the need for substantial additional capital to support expansion or to maintain a competitive position, or
issuers with significant financial leverage. Such issuers may also face intense competition from others including those with greater financial
resources or more extensive development, manufacturing, distribution or other attributes, over which the Fund will have no control.
Interests in a Private Fund will be subject to substantial restrictions on transfer
and, in some instances, may be non-transferable for a period of years. Private Funds may participate in only a limited number of investments
and, as a consequence, the return of a particular Private Fund may be substantially adversely affected by the unfavorable performance
of even a single investment. Certain Private Funds may pay their investment managers a fee based on the performance of the Private Fund,
which may create an incentive for the manager to make investments that are riskier or more speculative than would be the case if
the manager was paid a fixed fee. Many Private Funds are not registered under the 1940 Act and, consequently, such funds are not subject
to the restrictions on affiliated transactions and other protections applicable to registered investment companies. The valuations of
securities held by Private Funds, which are generally unlisted and illiquid, may be very difficult and will often depend on the subjective
valuation of the managers of the Private Funds, which may prove to be inaccurate. Inaccurate valuations of a Private Fund’s portfolio holdings will affect the ability of the Fund to calculate its NAV accurately.
Preferred Stocks: Preferred stock represents an equity interest in an issuer that generally entitles
the holder to receive, in preference to the holders of other stocks such as common stocks, dividends and a fixed share of
the proceeds resulting from a liquidation of the issuer.
Preferred stocks may pay fixed or adjustable rates of return. Preferred stock dividends
may be cumulative or noncumulative, fixed, participating, auction rate or other. If interest rates rise, a fixed dividend on preferred stocks
may be less attractive, causing the value of preferred stocks to decline either absolutely or relative to alternative investments. Preferred
stock may have mandatory sinking fund provisions, as well as provisions that allow the issuer to redeem or call the stock.
Preferred stock is subject to issuer-specific and market risks applicable generally
to equity securities. In addition, because a substantial portion of the return on a preferred stock may be the dividend, its value may react
similarly to that of a debt instrument to changes in interest rates. An issuer’s preferred stock generally pays dividends only after the issuer makes required payments to holders of its debt instruments and other debt. For this reason, the value of preferred stock will usually
react more strongly than debt instruments to actual or perceived changes in the issuer’s financial condition or prospects. Preferred stocks of smaller issuers may be more vulnerable to adverse developments than preferred stock of larger issuers.
Real Estate Securities and Real Estate Investment Trusts: Investments in equity securities of issuers that are principally engaged in the real estate industry are subject to certain risks associated with the ownership of
real estate and with the real estate industry in general. These risks include, among others: possible declines in the value of real estate;
risks related to general and local economic conditions; possible lack of availability of mortgage funds or other limitations on access to
capital; overbuilding; risks associated with leverage; market illiquidity; extended vacancies of properties; increase in competition, property taxes,
capital expenditures and operating expenses; changes in zoning laws or other governmental regulation; costs resulting from the clean-up
of, and liability to third parties for damages resulting from, other acts that destroy real property; tenant bankruptcies or other credit problems;
casualty or condemnation losses; uninsured damages from floods, earthquakes or other natural disasters; limitations on and variations
in rents, including decreases in market rates for rents; investment in developments that are not completed or that are subject to
delays in completion; and changes in interest rates. To the extent that assets underlying the Fund’s investments are concentrated geographically, by property type or in certain other respects, the Fund may be subject to certain of the foregoing risks to a greater extent. Investments
by the Fund in securities of issuers providing mortgage servicing will be subject to the risks associated with refinancing and their
impact on servicing rights.
In addition, if the Fund receives rental income or income from the disposition of
real property acquired as result of a default on securities the Fund owns, the receipt of such income may adversely affect the Fund’s ability to qualify as a RIC because of certain income source requirements applicable to RICs under the Code.
REITs are pooled investment vehicles that invest primarily in income-producing real
estate or real estate-related loans or interests. The affairs of REITs are managed by the REIT's sponsor and, as such, the performance of
the REIT is dependent on the management skills of the REIT's sponsor. REITs are not diversified, and are subject to the risks of
financing projects. REITs possess certain risks which differ from an investment in common stocks. REITs are financial vehicles that pool investor’s capital to purchase or finance real estate. REITs may concentrate their investments in specific geographic areas or in specific property
types, i.e., hotels, shopping malls, residential complexes and office buildings. REITs are subject to management fees and other expenses, and
so the Fund that invests in REITs will bear its proportionate share of the costs of the REITs’ operations. There are three general categories of REITs: Equity REITs, Mortgage REITs and Hybrid REITs. Equity REITs invest primarily in direct fee ownership or leasehold ownership of real
property; they derive most of their income from rents. Mortgage REITs invest mostly in mortgages on real estate, which may secure construction,
development or long-term loans; the main source of their income is mortgage interest payments. Hybrid REITs hold both ownership
and mortgage interests in real estate.
Investing in REITs involves certain unique risks in addition to those risks associated
with investing in the real estate industry in general. The market value of REIT shares and the ability of the REITs to distribute income
may be adversely affected by several factors, including rising interest rates, changes in the national, state and local economic climate and
real estate conditions, perceptions of prospective
6
tenants of the safety, convenience and attractiveness of the properties, the ability
of the owners to provide adequate management, maintenance and insurance, the cost of complying with the Americans with Disabilities Act, increased
competition from new properties, the impact of present or future environmental legislation and compliance with environmental laws,
failing to maintain their eligibility for favorable tax-treatment under the Code and for exemptions from registration under the 1940 Act, changes in
real estate taxes and other operating expenses, adverse changes in governmental rules and fiscal policies, adverse changes in zoning
laws and other factors beyond the control of the issuers of the REITs.
REITs (especially mortgage REITs) are also subject to interest rate risk. Rising interest
rates may cause REIT investors to demand a higher annual yield, which may, in turn, cause a decline in the market price of the equity
securities issued by a REIT. Rising interest rates also generally increase the costs of obtaining financing, which could cause the value of
investments in REITs to decline. During periods when interest rates are declining, mortgages are often refinanced. Refinancing may reduce
the yield on investments in mortgage REITs. In addition, since REITs depend on payment under their mortgage loans and leases to generate
cash to make distributions to their shareholders, investments in REITs may be adversely affected by defaults on such mortgage loans
or leases.
Investing in certain REITs, which often have small market capitalizations, may also
involve the same risks as investing in other small-capitalization issuers. REITs may have limited financial resources and their securities may trade
less frequently and in limited volume and may be subject to more abrupt or erratic price movements than larger issuer securities. Historically,
small capitalization stocks, such as REITs, have been more volatile in price than the larger capitalization stocks such as those
included in the S&P 500® Index. The management of a REIT may be subject to conflicts of interest with respect to the operation of
the business of the REIT and may be involved in real estate activities competitive with the REIT. REITs may own properties through joint
ventures or in other circumstances in which the REIT may not have control over its investments. REITs may involve significant amounts of
leverage.
Small- and Mid-Capitalization Issuers: Issuers with smaller market capitalizations, including small- and mid-capitalization
issuers, may have limited product lines, markets, or financial resources, may lack the competitive
strength of larger issuers, may have inexperienced managers or depend on a few key employees. In addition, their securities often are
less widely held and trade less frequently and in lesser quantities, and their market prices are often more volatile, than the securities
of issuers with larger market capitalizations. Issuers with smaller market capitalizations may include issuers with a limited operating history
(unseasoned issuers). Investment decisions for these securities may place a greater emphasis on current or planned product lines and the reputation and experience of the issuer’s management and less emphasis on fundamental valuation factors than would be the case
for more mature issuers. In addition, investments in unseasoned issuers are more speculative and entail greater risk than do investments
in issuers with an established operating record. The liquidation of significant positions in small- and mid-capitalization issuers
with limited trading volume, particularly in a distressed market, could be prolonged and result in investment losses.
Trust Preferred Securities: Trust preferred securities have the characteristics of both subordinated debt and
preferred stock. Generally, trust preferred securities are issued by a trust that is wholly owned by a financial
institution or other corporate entity, typically a bank holding company. The financial institution creates the trust and owns the trust’s common stocks, which may typically represent a small percentage of the trust’s capital structure. The remainder of the trust’s capital structure typically consists of trust preferred securities, which are sold to investors. The trust uses the sale proceeds of its common stocks
to purchase subordinated debt instruments issued by the financial institution. The financial institution uses the proceeds from the
sale of the subordinated debt instruments to increase its capital while the trust receives periodic interest payments from the financial institution
for holding the subordinated debt instruments. The interests of the holders of the trust preferred securities are senior to those
of common stockholders in the event that the financial institution is liquidated, although their interests are typically subordinated to
those of other holders of other debt instruments issued by the financial institution. The primary advantage of this structure to the financial
institution is that the trust preferred securities issued by the trust are treated by the financial institution as debt instruments for U.S. federal
income tax purposes, the interest on which is generally a deductible expense for U.S. federal income tax purposes, and as equity for the calculation
of capital requirements.
The trust uses interest payments it receives from the financial institution to make
dividend payments to the holders of the trust preferred securities. Trust preferred securities typically bear a market rate coupon comparable
to interest rates available on debt of a similarly rated issuer. Typical characteristics of trust preferred securities include long-term maturities,
early redemption option by the issuer, and maturities at face value. Holders of trust preferred securities have limited voting rights to
control the activities of the trust and no voting rights with respect to the financial institution. The market value of trust preferred securities
may be more volatile than those of conventional debt instruments. Trust preferred securities may be issued in reliance on Rule 144A and subject to restrictions on resale. There can be no assurance as to the liquidity of trust preferred securities and the ability of holders
to sell their holdings. The condition of the financial institution can be considered when seeking to identify the risks of trust preferred
securities as the trust typically has no business operations other than to issue the trust preferred securities. If the financial institution defaults
on interest payments to the trust, the trust will not be able to make dividend payments to holders of its securities.
DEBT INSTRUMENTS
Asset-Backed Securities: Asset-backed securities are securities backed by assets that may include such items
as credit card and automobile finance receivables, home equity sharing agreements or loans, student loans, consumer
loans, installment loan contracts, home equity loans, mobile home loans, boat loans, business and small business loans, project finance
loans, airplane leases, and leases of various other types of real and personal property (including those relating to railcars, containers,
or telecommunication, energy, and/or other infrastructure assets and infrastructure-related assets), and other non mortgage-related income streams, such as income from renewable energy projects and franchise rights. Asset-backed securities are “pass-through” securities, meaning that principal and interest payments – net of expenses – made by the borrower on the underlying assets (such as credit card receivables) are passed through to the investor. The value of asset-backed securities based on debt instruments, like that of traditional
debt instruments, typically increases when interest
7
rates fall and decreases when interest rates rise. However, these asset-backed securities
differ from traditional debt instruments because of their potential for prepayment. A home equity sharing agreement is an agreement
between a financial services company and a homeowner which allows a homeowner to access some of the equity in their home in exchange for
a specified equity stake in the property. Unlike a mortgage, a home equity sharing agreement is not a loan and does not require a monthly
payment. Instead, at the conclusion of the agreement term, the homeowner pays back the equity advance and a percentage of any
appreciation in the property value. The price paid for asset-backed securities, the yield expected from such securities and the average
life of the securities are based on a number of factors, including the anticipated rate of prepayment of the underlying assets. In
a period of declining interest rates, borrowers may prepay the underlying assets more quickly than anticipated, thereby reducing the yield to
maturity and the average life of the asset-backed security. Moreover, when the proceeds of a prepayment are reinvested in these circumstances,
a rate of interest will likely be received that is lower than the rate on the security that was prepaid. To the extent that asset-backed securities
are purchased at a premium, prepayments may result in a loss to the extent of the premium paid. If such securities are bought
at a discount, both scheduled payments and unscheduled prepayments generally will also result in the recognition of income. In a period of
rising interest rates, prepayments of the underlying assets may occur at a slower than expected rate, creating maturity extension risk.
This particular risk may effectively change a security that was considered short- or intermediate-term at the time of purchase into a longer
term security. Since the value of longer-term asset-backed securities generally fluctuates more widely in response to changes in interest rates
than the value of shorter term asset-backed securities maturity extension risk could increase volatility. When interest rates decline, the
value of an asset-backed security with prepayment features may not increase as much as that of other debt instruments, and as noted above, changes
in market rates of interest may accelerate or retard prepayments and thus affect maturities. During periods of deteriorating economic
conditions, such as recessions or periods of rising unemployment, delinquencies and losses generally increase, sometimes dramatically,
with respect to securitizations involving loans, sales contracts, receivables and other obligations underlying asset-backed securities.
The effects of COVID-19, and governmental responses to the effects of the pandemic may result in increased delinquencies and losses and
may have other, potentially unanticipated, adverse effects on such investments and the markets for those investments.
The credit quality of asset-backed securities depends primarily on the quality of
the underlying assets, the rights of recourse available against the underlying assets and/or the issuer, the level of credit enhancement,
if any, provided for the securities, and the credit quality of the credit-support provider, if any. The values of asset-backed securities may
be affected by other factors, such as the availability of information concerning the pool of assets and its structure, the market’s perception of the asset backing the security, the creditworthiness of the servicing agent for the pool of assets, the originator of the underlying assets,
or the entities providing the credit enhancement. The market values of asset-backed securities also can depend on the ability of their servicers
to service the underlying assets and are, therefore, subject to risks associated with servicers’ performance. In some circumstances, a servicer’s or originator’s mishandling of documentation related to the underlying assets (e.g., failure to document a security interest in the underlying assets properly) may affect
the rights of the security holders in and to the underlying assets. In addition, the insolvency
of an entity that generated the assets underlying an asset-backed security is likely to result in a decline in the market price of that security as
well as costs and delays. Asset-backed securities that do not have the benefit of a security interest in the underlying assets present certain additional
risks that are not present with asset-backed securities that do have a security interest in the underlying assets. For example,
many securities backed by credit card receivables are unsecured.
Collateralized Debt Obligations: Collateralized Debt Obligations (“CDOs”) are a type of asset-backed security and include collateralized bond obligations (“CBOs”), collateralized loan obligations (“CLOs”), and other similarly structured securities. A CBO is an obligation of a trust or other special purpose vehicle backed by a pool of bonds. A CLO is an obligation
of a trust or other special purpose vehicle typically collateralized by a pool of loans, which may include senior secured and unsecured
loans and subordinate corporate loans, including loans that may be rated below investment grade, or equivalent unrated loans. CDOs may incur
management fees and administrative expenses.
For both CBOs and CLOs, the cash flows from the trust are split into two or more portions,
called tranches, which vary in risk and yield. The riskier portions are the residual, equity, and subordinate tranches, which bear
some or all of the risk of default by the debt instruments or loans in the trust, and therefore protect the other, more senior tranches from
default in all but the most severe circumstances. Since they are partially protected from defaults, senior tranches of a CBO trust or CLO
trust typically have higher ratings and lower yields than junior tranches. Despite the protection from the riskier tranches, senior CBO or CLO
tranches can experience substantial losses due to actual defaults (including collateral default), the total loss of the riskier tranches
due to losses in the collateral, market anticipation of defaults, fraud by the trust, and the illiquidity of CBO or CLO securities.
The risks of an investment in a CDO largely depend on the type of underlying collateral
securities and the tranche in which there are investments. Typically, CBOs, CLOs, and other CDOs are privately offered and sold,
and thus are not registered under the securities laws. As a result, investments in CDOs may be characterized as illiquid. CDOs are subject
to the typical risks associated with debt instruments discussed elsewhere in this SAI and the Prospectus, including interest rate risk,
prepayment and extension risk, credit risk, liquidity risk and market risk. Additional risks of CDOs include: (i) the possibility that distributions
from collateral securities will be insufficient to make interest or other payments; (ii) the possibility that the quality of the collateral
may decline in value or default, due to factors such as the availability of any credit enhancement, the level and timing of payments and recoveries
on and the characteristics of the underlying collateral, remoteness of those collateral assets from the originator or transferor, the adequacy
of and ability to realize upon any related collateral, and the capability of the servicer of the securitized assets; and (iii) market and
liquidity risks affecting the price of a structured finance investment, if required to be sold, at the time of sale. In addition, due to the complex
nature of a CDO, an investment in a CDO may not perform as expected. An investment in a CDO also is subject to the risk that the issuer
and the investors may interpret the terms of the instrument differently, giving rise to disputes.
8
Bank Instruments: Bank instruments include certificates of deposit (“CDs”), fixed-time deposits, and other debt and deposit-type obligations (including promissory notes that earn a specified rate of return) issued by: (i) a
U.S. branch of a U.S. bank; (ii) a non-U.S. branch of a U.S. bank; (iii) a U.S. branch of a non-U.S. bank; or (iv) a non-U.S. branch of a
non-U.S. bank. Bank instruments may be structured as fixed-, variable- or floating-rate obligations.
CDs typically are interest-bearing debt instruments issued by banks and have maturities
ranging from a few weeks to several years. Yankee dollar certificates of deposit are negotiable CDs issued in the United States by branches
and agencies of non-U.S. banks. Eurodollar certificates of deposit are CDs issued by non-U.S. banks with interest and principal
paid in U.S. dollars. Eurodollar and Yankee Dollar CDs typically have maturities of less than two years and have interest rates that typically are pegged to SOFR. Bankers’ acceptances are negotiable drafts or bills of exchange, normally drawn by an importer or exporter
to pay for specific merchandise, which are “accepted” by a bank, meaning, in effect, that the bank unconditionally agrees to pay the face value of the instrument on maturity. Bankers’ acceptances are a customary means of effecting payment for merchandise sold in import-export transactions
and are a general source of financing. A fixed-time deposit is a bank obligation payable at a stated maturity date and bearing
interest at a fixed rate. There are generally no contractual restrictions on the right to transfer a beneficial interest in a fixed-time
deposit to a third party, although there is generally no market for such deposits. Typically, there are penalties for early withdrawals of
time deposits. Promissory notes are written commitments of the maker to pay the payee a specified sum of money either on demand or at a fixed
or determinable future date, with or without interest.
Certain bank instruments, such as some CDs, are insured by the FDIC up to certain
specified limits. Many other bank instruments, however, are neither guaranteed nor insured by the FDIC or the U.S. government. These bank
instruments are “backed” only by the creditworthiness of the issuing bank or parent financial institution. U.S. and non-U.S. banks are subject
to different governmental regulation. They are subject to the risks of investing in the particular issuing bank and of investing
in the banking and financial services sector generally. Certain obligations of non-U.S. banks, including Eurodollar and Yankee dollar obligations,
involve different and/or heightened investment risks than those affecting obligations of U.S. banks, including, among others, the
possibilities that: (i) their liquidity could be impaired because of political or economic developments; (ii) the obligations may be less marketable
than comparable obligations of U.S. banks; (iii) a non-U.S. jurisdiction might impose withholding and other taxes at high levels
on interest income; (iv) non-U.S. deposits may be seized or nationalized; (v) non-U.S. governmental restrictions such as exchange controls
may be imposed, which could adversely affect the payment of principal and/or interest on those obligations; (vi) there may be less
publicly available information concerning non-U.S. banks issuing the obligations; and (vii) the reserve requirements and accounting,
auditing and financial reporting standards, practices and requirements applicable to non-U.S. banks may differ (including those that are
less stringent) from those applicable to U.S. banks. Non-U.S. banks generally are not subject to examination by any U.S. government agency
or instrumentality.
Commercial Paper: Commercial paper represents short-term unsecured promissory notes issued in bearer
form by banks or bank holding companies, corporations and finance companies. Commercial paper may consist of U.S.
dollar- or foreign currency-denominated obligations of U.S. or non-U.S. issuers, and may be rated or unrated. The rate of return on commercial
paper may be linked or indexed to the level of exchange rates between the U.S. dollar and a foreign currency or currencies.
Section 4(a)(2) commercial paper is commercial paper issued in reliance on the so-called
“private placement” exemption from registration afforded by Section 4(a)(2) of the 1933 Act (“Section 4(a)(2) paper”). Section 4(a)(2) paper is restricted as to disposition under the U.S. federal securities laws, and generally is sold to investors who agree that they are
purchasing the paper for investment and not with a view to public distribution. Any resale by the purchaser must be in an exempt transaction.
Section 4(a)(2) paper is normally resold to other investors through or with the assistance of the issuer or dealers who make a market
in Section 4(a)(2) paper, thus providing liquidity.
Corporate Debt Instruments: Corporate debt instruments are long and short-term debt instruments typically issued
by businesses to finance their operations. Corporate debt instruments are issued by public or private issuers,
as distinct from debt instruments issued by a government or its agencies. The issuer of a corporate debt instrument typically has a contractual
obligation to pay interest at a stated rate on specific dates and to repay principal periodically or on a specified maturity date. The broad
category of corporate debt instruments includes debt issued by U.S. or non-U.S. issuers of all kinds, including those with small-, mid-
and large-capitalizations. The category also includes bank loans, as well as assignments, participations and other interests in bank loans. Corporate
debt instruments may be rated investment grade or below investment grade and may be structured as fixed-, variable or floating-rate
obligations or as zero-coupon, pay-in-kind and step-coupon securities and may be privately placed or publicly offered. They may also
be senior or subordinated obligations. Because of the wide range of types and maturities of corporate debt instruments, as well as the
range of creditworthiness of issuers, corporate debt instruments can have widely varying risk/return profiles.
Corporate debt instruments carry both credit risk and interest rate risk. Credit risk
is the risk that an investor could lose money if the issuer of a corporate debt instrument is unable to pay interest or repay principal
when it is due. Some corporate debt instruments that are rated below investment grade (commonly referred to as “junk bonds”) are generally considered speculative because they present a greater risk of loss, including default, than higher rated debt instruments. The credit risk of a particular issuer’s debt instrument may vary based on its priority for repayment. For example, higher-ranking (senior) debt
instruments have a higher priority than lower ranking (subordinated) debt instruments. This means that the issuer might not make payments
on subordinated debt instruments while continuing to make payments on senior debt instruments. In addition, in the event of bankruptcy,
holders of higher-ranking senior debt instruments may receive amounts otherwise payable to the holders of more junior securities. The
market value of corporate debt instruments may be expected to rise and fall inversely with interest rates generally. In general, corporate
debt instruments with longer terms tend to fall more in value when interest rates rise than corporate debt instruments with shorter terms.
The value of a corporate debt instrument may also
9
be affected by supply and demand for similar or comparable securities in the marketplace.
Fluctuations in the value of portfolio securities subsequent to their acquisition will not affect cash income from such securities but
will be reflected in NAV. Corporate debt instruments generally trade in the over-the-counter market and can be less liquid that other types
of investments, particularly during adverse market and economic conditions.
Credit-Linked Notes: Credit-linked notes are privately negotiated obligations whose returns are linked
to the returns of one or more designated securities or other instruments that are referred to as “reference securities,” such as an emerging market bond. A credit-linked note typically is issued by a special purpose trust or similar entity and is a direct obligation
of the issuing entity. The entity, in turn, invests in debt instruments or derivative contracts in order to provide the exposure set forth
in the credit-linked note. The periodic interest payments and principal obligations payable under the terms of the note typically are conditioned upon the entity’s receipt of payments on its underlying investment. Purchasing a credit-linked note assumes the risk of the default or, in
some cases, other declines in credit quality of the reference securities. There is also exposure to the issuer of the credit-linked note
in the full amount of the purchase price of the note and the note is often not secured by the reference securities or other collateral.
The market for credit-linked notes may be or may become illiquid. The number of investors
with sufficient understanding to support transacting in the notes may be quite limited, and may include only the parties to the original
purchase/sale transaction. Changes in liquidity may result in significant, rapid and unpredictable changes in the value for credit-linked
notes. In certain cases, a market price for a credit-linked note may not be available and it may be difficult to determine a fair value of the
note.
Floating or Variable Rate Instruments: Variable and floating rate instruments are a type of debt instrument that provides
for periodic adjustments in the interest rate paid on the instrument. Variable rate instruments provide for
the automatic establishment of a new interest rate on set dates, while floating rate instruments provide for an automatic adjustment in
the interest rate whenever a specified interest rate changes. Variable rate instruments will be deemed to have a maturity equal to the
period remaining until the next readjustment of the interest rate.
There is a risk that the current interest rate on variable and floating rate instruments
may not accurately reflect current market interest rates or adequately compensate the holder for the current creditworthiness of the
issuer. The interest rates on floating or variable rate instruments may be reset daily, weekly, monthly, quarterly, or some other reset period,
and may have a floor or ceiling on interest rate changes. Changes in short-term market interest rates will directly affect the yield
on investments in floating or variable rate loans. If short-term market interest rates fall, the yield on the Fund's shares will also fall.
Conversely, when short-term market interest rates rise, because of the lag between changes in such short-term rates and the resetting of the
floating rates on assets in the Fund's portfolio, the impact of rising rates will be delayed to the extent of such lag. Some variable
or floating rate instruments are structured with liquidity features such as: (1) put options or tender options that permit holders (sometimes
subject to conditions) to demand payment of the unpaid principal balance plus accrued interest from the issuers or certain financial
intermediaries; or (2) auction rate features, remarketing provisions, or other maturity-shortening devices designed to enable the issuer to
refinance or redeem outstanding debt instruments (market-dependent liquidity features). The market-dependent liquidity features may not operate as intended as a result of the issuer’s declining creditworthiness, adverse market conditions, or other factors or the inability or unwillingness of a
participating broker-dealer to make a secondary market for such instruments. As a result, variable or floating rate instruments that include
market-dependent liquidity features may lose value and the holders of such instruments may be required to retain them for an extended
period of time or indefinitely.
Generally, changes in interest rates will have a smaller effect on the market value
of variable and floating rate instruments than on the market value of comparable debt instruments. Thus, investing in variable and floating
rate instruments generally allows less potential for capital appreciation and depreciation than investing in comparable debt instruments.
Guaranteed Investment Contracts: Guaranteed Investment Contracts (“GICs”) are issued by insurance companies. An insurance company issuing a GIC typically agrees, in return for the purchase price of the contract,
to pay interest at an agreed upon rate (which may be a fixed or variable rate) and to repay principal. GICs typically guarantee that the
interest rate will not be less than a certain minimum rate. The insurance company may assess periodic charges against a GIC for expense and service
costs allocable to it, and the charges will be deducted from the value of the deposit fund. A GIC is a general obligation of the
issuing insurance company and not a separate account. The purchase price paid for a GIC becomes part of the general assets of the insurance
company, and the contract is paid from the insurance company’s general assets. Generally, a GIC is not assignable or transferable without the permission of the issuing insurance company, and an active secondary market in GICs does not currently exist. In addition, the
issuer may not be able to pay the principal amount to the Fund on seven days’ notice or less, at which time the investment may be considered illiquid securities. GICs are not backed by the U.S. government nor are they insured by the FDIC. GICs are generally guaranteed only
by the insurance companies that issue them.
High-Yield Securities: High-yield securities (commonly referred to as “junk bonds”) are debt instruments that are rated below investment grade. Investing in high-yield securities involves special risks in addition to the
risks associated with investments in higher rated debt instruments. While investments in high-yield securities generally provide greater
income and increased opportunity for capital appreciation than investments in higher quality securities, investments in high-yield securities
typically entail greater price volatility as well as principal and income risk. High-yield securities are regarded as predominantly speculative with respect to the issuer’s continuing ability to meet principal and interest payments. Analysis of the creditworthiness of issuers of high-yield
securities may be more complex than for issuers of higher quality debt instruments.
High-yield securities may be more susceptible to real or perceived adverse economic
and competitive industry conditions than investment grade securities. The prices of high-yield securities are likely to be sensitive to
adverse economic downturns or individual corporate developments. A projection of an economic downturn or of a period of rising interest rates, for
example, could cause a decline in high-yield security prices
10
because the advent of a recession could lessen the ability of a highly leveraged issuer
to make principal and interest payments on its debt instruments. If an issuer of high-yield securities defaults, in addition to risking
payment of all or a portion of interest and principal, additional expenses to seek recovery may be incurred.
The secondary market on which high-yield securities are traded may be less liquid
than the market for higher grade securities. Less liquidity in the secondary trading market could adversely affect the price at which a high-yield
security could be sold, and could adversely affect daily NAV. Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of high-yield securities, especially in a thinly traded market. When secondary markets
for high-yield securities are less liquid than the market for higher grade securities, it may be more difficult to value lower rated
securities because such valuation may require more research, and elements of judgment may play a greater role in the valuation because
there is less reliable, objective data available.
Credit ratings issued by credit rating agencies are designed to evaluate the safety
of principal and interest payments of rated securities. They do not, however, evaluate the market value risk of lower-quality securities and,
therefore, may not fully reflect the true risks of an investment. In addition, credit rating agencies may or may not make timely changes
in a rating to reflect changes in the economy or in the condition of the issuer that affect the market value of the securities. Consequently,
credit ratings are used only as a preliminary indicator of investment quality. Each credit rating agency applies its own methodology
in measuring creditworthiness and uses a specific rating scale to publish its ratings. For more information on credit agency ratings,
please see Appendix A. Furthermore, high-yield debt instruments may not be registered under the 1933 Act, and, unless so registered, the
Fund will not be able to sell such high-yield debt instruments except pursuant to an exemption from registration under the 1933 Act.
This may further limit the Fund's ability to sell high-yield debt instruments or to obtain the desired price for such securities.
Special tax considerations are associated with investing in high-yield securities
structured as zero-coupon or pay-in-kind instruments. Income accrues on these instruments prior to the receipt of cash payments, which income
must be distributed to shareholders when it accrues, potentially requiring the liquidation of other investments, including at
times when such liquidation may not be advantageous, in order to comply with the distribution requirements applicable to RICs under the Code.
LIBOR Transition and Reference Benchmarks: LIBOR was the offered rate for short-term Eurodollar deposits between major international
banks. The terms of investments, financings or other transactions (including certain
derivatives transactions) to which the Fund may be a party, have historically been tied to LIBOR. In connection with the global transition
away from LIBOR led by regulators and market participants, LIBOR was last published on a representative basis at the end of June 2023. Alternative
reference rates to LIBOR have been established in most major currencies and markets in these new rates are continuing to develop.
The transition away from LIBOR to the use of replacement rates has gone relatively smoothly but the full impact of the transition on the Fund
or the financial instruments in which the Fund invests cannot yet be fully determined.
For example, SOFR is the replacement rate for USD-LIBOR and is published by the Federal
Reserve Bank of New York. SOFR is a broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury securities
in the repurchase agreement (repo) market. SOFR is published in various forms including as a daily, compounded, and forward-looking
term rate. Markets in these new rates such as SOFR are continuing to develop. The transition away from LIBOR to the use of replacement
rates has gone relatively smoothly although the full impact of the transition on the Fund or the financial instruments in which
the Fund invests cannot yet be fully determined.
While LIBOR was an unsecured rate, SOFR is a secured rate. SOFR, unlike LIBOR, reflects
actual market transactions. Accordingly, SOFR is not the economic equivalent of LIBOR. Consequently, there can be no assurance that
SOFR will perform in the same way as LIBOR would have at any time, including, without limitation, as a result of changes in interest
and yield rates in the market, monetary policy, bank credit risk, market volatility or global or regional economic, financial, political,
regulatory, judicial or other events.
In addition, interest rates or other types of rates and indices which are classed
as “benchmarks” have been the subject of ongoing national and international regulatory reform, including under the EU regulation on indices
used as benchmarks in financial instruments and financial contracts (known as the “Benchmarks Regulation”). The Benchmarks Regulation has been enacted into UK law by virtue of the European Union (Withdrawal) Act 2018 (as amended), subject to amendments made by the Benchmarks
(Amendment and Transitional Provision) (EU Exit) Regulations 2019 (SI 2019/657) and other statutory instruments. Following
the implementation of these reforms, the manner of administration of benchmarks has changed and may further change in the future,
with the result that relevant benchmarks may perform differently than in the past, the use of benchmarks that are not compliant with the
new standards by certain supervised entities may be restricted, and certain benchmarks may be eliminated entirely. Such changes could
cause increased market volatility and disruptions in liquidity for instruments that rely on or are impacted by such benchmarks. Additionally,
there could be other consequences which cannot be predicted.
Mortgage-Related Securities (including Collateralized Mortgaged Obligations): Mortgage-related securities are interests in pools of residential or commercial mortgage loans, including mortgage loans made by savings and loan institutions,
mortgage bankers, commercial banks and others. Pools of mortgage loans are assembled as securities for sale to investors
by various governmental, government-related and private organizations. There may also be investments in debt instruments which are
secured with collateral consisting of mortgage-related securities (see “Collateralized Mortgage Obligations”).
Financial downturns (particularly an increase in delinquencies and defaults on residential
mortgages, falling home prices, and unemployment) may adversely affect the market for mortgage-related securities. Many so-called sub-prime
mortgage pools become distressed during periods of economic distress and may trade at significant discounts to their face
value during such periods. In addition, various market and governmental actions may impair the ability to foreclose on or exercise other
remedies against underlying mortgage holders, or may reduce the amount received upon foreclosure. These factors may cause certain mortgage-related
securities to experience lower valuations and reduced liquidity. There is also no assurance that the U.S. government will take
further action to support the mortgage-related securities
11
industry, as it has in the past, should the economy experience another downturn. Further,
legislative action and any future government actions may significantly alter the manner in which the mortgage-related securities
market functions. Each of these factors could ultimately increase the risk of losses on mortgage-related securities.
Mortgage Pass-Through Securities: Interests in pools of mortgage-related securities differ from other forms of debt
instruments, which normally provide for periodic payment of interest in fixed amounts with principal
payments at maturity or specified call dates. Instead, these securities provide a monthly payment which consists of both interest and principal
payments. In effect, these payments are a “pass-through” of the monthly payments made by the individual borrowers on their residential or
commercial mortgage loans, net of any fees paid to the issuer or guarantor of such securities. Additional payments are caused
by repayments of principal resulting from the sale of the underlying property, refinancing or foreclosure, net of fees or costs which
may be incurred. Some mortgage-related securities (such as securities issued by GNMA) are described as “modified pass-through.” These securities entitle the holder to receive all interest and principal payments owed on the mortgage pool, net of certain fees, at the scheduled
payment dates regardless of whether or not the mortgagor actually makes the payment.
The rate of pre-payments on underlying mortgages will affect the price and volatility
of a mortgage-related security, and may have the effect of shortening or extending the effective duration of the security relative
to what was anticipated at the time of purchase. To the extent that unanticipated rates of pre-payment on underlying mortgages increase the
effective duration of a mortgage-related security, the volatility of such security can be expected to increase. The residential mortgage
market in the United States has in the past experienced difficulties that may adversely affect the performance and market value of certain
mortgage-related investments. Delinquencies and losses on residential mortgage loans (especially subprime and second-lien mortgage loans)
generally have increased in the past and may continue to increase, and a decline in or flattening of housing values (as has occurred in
the past and which may continue to occur in many housing markets) may exacerbate such delinquencies and losses. Borrowers with adjustable rate
mortgage loans are more sensitive to changes in interest rates, which affect their monthly mortgage payments, and may be unable
to secure replacement mortgages at comparably low interest rates. Also, a number of residential mortgage loan originators have experienced
serious financial difficulties or bankruptcy. Due largely to the foregoing, reduced investor demand for mortgage loans and mortgage-related
securities and increased investor yield requirements have caused limited liquidity in the secondary market for certain mortgage-related
securities, which can adversely affect the market value of mortgage-related securities. It is possible that such limited liquidity in such
secondary markets could continue or worsen.
Adjustable Rate Mortgage-Backed Securities: Adjustable rate mortgage-backed securities (“ARM MBSs”) have interest rates that reset at periodic intervals. Acquiring ARM MBSs permits participation in increases in prevailing
current interest rates through periodic adjustments in the coupons of mortgages underlying the pool on which ARM MBSs are based. Such
ARM MBSs generally have higher current yield and lower price fluctuations than is the case with more traditional debt instruments of
comparable rating and maturity. In addition, when prepayments of principal are made on the underlying mortgages during periods of rising interest
rates, there can be reinvestment in the proceeds of such prepayments at rates higher than those at which they were previously invested.
Mortgages underlying most ARM MBSs, however, have limits on the allowable annual or lifetime increases that can be made in the
interest rate that the mortgagor pays. Therefore, if current interest rates rise above such limits over the period of the limitation, there
is no benefit from further increases in interest rates. Moreover, when interest rates are in excess of coupon rates (i.e., the rates being paid by mortgagors) of the mortgages, ARM MBSs behave more like debt instruments and less like adjustable rate debt instruments and
are subject to the risks associated with debt instruments. In addition, during periods of rising interest rates, increases in the coupon rate
of adjustable rate mortgages generally lag current market interest rates slightly, thereby creating the potential for capital depreciation on
such securities.
Agency Mortgage-Related Securities: The principal governmental guarantor of mortgage-related securities is GNMA. GNMA
is a wholly owned U.S. government corporation within the Department of Housing and Urban Development.
GNMA is authorized to guarantee, with the full faith and credit of the U.S. government, the timely payment of principal
and interest on securities issued by institutions approved by GNMA (such as savings and loan institutions, commercial banks and mortgage bankers)
and backed by pools of mortgages insured by the Federal Housing Administration (the “FHA”), or guaranteed by the Department of Veterans Affairs (the “VA”). Government-related guarantors (i.e., not backed by the full faith and credit of the U.S. government) include FNMA and
FHLMC. FNMA is a government-sponsored corporation. FNMA purchases conventional (i.e., not insured or guaranteed by any government agency) residential mortgages from
a list of approved sellers/servicers which include state and federally chartered savings
and loan associations, mutual savings banks, commercial banks and credit unions and mortgage bankers. Pass-through securities issued by FNMA
are guaranteed as to timely payment of principal and interest by FNMA, but are not backed by the full faith and mortgage credit for
residential housing. It is a government-sponsored corporation that issues Participation Certificates (“PCs”), which are pass-through securities, each representing an undivided interest in a pool of residential mortgages. FHLMC guarantees the timely payment of interest and
ultimate collection of principal, but PCs are not backed by the full faith and credit of the U.S. government.
On September 6, 2008, the Federal Housing Finance Agency (“FHFA”) placed FNMA and FHLMC into conservatorship. As the conservator, FHFA succeeded to all rights, titles, powers and privileges of FNMA and FHLMC and
of any stockholder, officer or director of FNMA and FHLMC with respect to FNMA and FHLMC and the assets of FNMA and FHLMC. FHFA selected
a new chief executive officer and chairman of the board of directors for each of FNMA and FHLMC.
FNMA and FHLMC are continuing to operate as going concerns while in conservatorship
and each remain liable for all of its obligations, including its guaranty obligations, associated with its mortgage-backed securities.
The Senior Preferred Stock Purchase Agreement is intended to enhance each of FNMA’s and FHLMC’s ability to meet its obligations. The FHFA has indicated that the conservatorship of each enterprise will end when the director of FHFA determines that FHFA’s plan to restore the enterprise to a safe and solvent condition has been completed.
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Under the Federal Housing Finance Regulatory Reform Act of 2008 (the “Reform Act”), which was included as part of the Housing and Economic Recovery Act of 2008, FHFA, as conservator or receiver, has the power to
repudiate any contract entered into by FNMA or FHLMC prior to FHFA’s appointment as conservator or receiver, as applicable, if FHFA determines, in its sole discretion, that performance of the contract is burdensome and that repudiation of the contract promotes the orderly administration of FNMA’s or FHLMC’s affairs. The Reform Act requires FHFA to exercise its right to repudiate any contract within
a reasonable period of time after its appointment as conservator or receiver.
FHFA, in its capacity as conservator, has indicated that it has no intention to repudiate
the guaranty obligations of FNMA or FHLMC because FHFA views repudiation as incompatible with the goals of the conservatorship. However,
in the event that FHFA, as conservator or if it is later appointed as receiver for FNMA or FHLMC, were to repudiate any such guaranty
obligation, the conservatorship or receivership estate, as applicable, would be liable for actual direct compensatory damages in accordance
with the provisions of the Reform Act. Any such liability could be satisfied only to the extent of FNMA’s or FHLMC’s assets available therefor.
In the event of repudiation, the payments of interest to holders of FNMA or FHLMC
mortgage-backed securities would be reduced if payments on the mortgage loans represented in the mortgage loan groups related to such mortgage-backed
securities are not made by the borrowers or advanced by the servicer. Any actual direct compensatory damages for repudiating
these guaranty obligations may not be sufficient to offset any shortfalls experienced by such mortgage-backed security holders.
Further, in its capacity as conservator or receiver, FHFA has the right to transfer
or sell any asset or liability of FNMA or FHLMC without any approval, assignment or consent. Although FHFA has stated that it has no present
intention to do so, if FHFA, as conservator or receiver, were to transfer any such guaranty obligation to another party, holders
of FNMA or FHLMC mortgage-backed securities would have to rely on that party for satisfaction of the guaranty obligation and would be
exposed to the credit risk of that party.
In addition, certain rights provided to holders of mortgage-backed securities issued
by FNMA and FHLMC under the operative documents related to such securities may not be enforced against FHFA, or enforcement of such
rights may be delayed, during the conservatorship or any future receivership. The operative documents for FNMA and FHLMC mortgage-backed
securities may provide (or with respect to securities issued prior to the date of the appointment of the conservator may have
provided) that upon the occurrence of an event of default on the part of FNMA or FHLMC, in its capacity as guarantor, which includes
the appointment of a conservator or receiver, holders of such mortgage-backed securities have the right to replace FNMA or FHLMC as trustee
if the requisite percentage of mortgage-backed securities holders consent. The Reform Act prevents mortgage-backed security holders
from enforcing such rights if the event of default arises solely because a conservator or receiver has been appointed. The Reform Act
also provides that no person may exercise any right or power to terminate, accelerate or declare an event of default under certain contracts
to which FNMA or FHLMC is a party, or obtain possession of or exercise control over any property of FNMA or FHLMC, or affect any
contractual rights of FNMA or FHLMC, without the approval of FHFA, as conservator or receiver, for a period of 45 or 90 days following
the appointment of FHFA as conservator or receiver, respectively.
To the extent third party entities involved with mortgage-backed securities issued
by private issuers are involved in litigation relating to the securities, actions may be taken that are adverse to the interests of holders
of the mortgage-backed securities, including the Fund. For example, third parties may seek to withhold proceeds due to holders of the mortgage-related
securities, including the Fund, to cover legal or related costs. Any such action could result in losses to the Fund.
Collateralized Mortgage Obligations: Collateralized Mortgage Obligations (“CMOs”) are debt obligations of a legal entity that are collateralized by mortgages and divided into classes. Similar to a bond, interest and prepaid principal
is paid, in most cases, on a monthly basis. CMOs may be collateralized by whole mortgage loans or private mortgage bonds, but are more
typically collateralized by portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC, or FNMA, and their income streams.
The issuer of a series of mortgage pass-through securities may elect to be treated as a REMIC. REMICs include governmental and/or
private entities that issue a fixed pool of mortgages secured by an interest in real property. REMICs are similar to CMOs in that they issue
multiple classes of securities, but unlike CMOs, which are required to be structured as debt instruments, REMICs may be structured
as indirect ownership interests in the underlying assets of the REMICs themselves. Although CMOs and REMICs differ in certain respects,
characteristics of CMOs described below apply in most cases to REMICs as well.
CMOs are structured into multiple classes, often referred to as “tranches,” with each class bearing a different stated maturity and entitled to a different schedule for payments of principal and interest, including pre-payments.
Actual maturity and average life will depend upon the pre-payment experience of the collateral. In the case of certain CMOs (known as
“sequential pay” CMOs), payments of principal received from the pool of underlying mortgages, including pre-payments, are applied to the
classes of CMOs in the order of their respective final distribution dates. Thus, no payment of principal will be made to any class of sequential
pay CMOs until all other classes having an earlier final distribution date have been paid in full.
As CMOs have evolved, some classes of CMO bonds have become more common. For example,
there may be investments in parallel-pay and planned amortization class (“PAC”) CMOs and multi-class pass-through certificates. Parallel-pay CMOs and multi-class
pass-through certificates are structured to provide payments of principal on each payment date
to more than one class. These simultaneous payments are taken into account in calculating the stated maturity date or final distribution
date of each class, which, as with other CMO and multi-class pass-through structures, must be retired by its stated maturity date or final distribution
date but may be retired earlier. PACs generally require payments of a specified amount of principal on each payment date. PACs are
parallel-pay CMOs with the required principal amount on such securities having the highest priority after interest has been paid to all
classes. Any CMO or multi-class pass through structure that includes PAC securities must also have support tranches—known as support bonds, companion bonds or non-PAC bonds—which lend or absorb principal cash flows to allow the PAC securities to maintain their
stated maturities and final distribution dates within a
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range of actual prepayment experience. These support tranches are subject to a higher
level of maturity risk compared to other mortgage-related securities, and usually provide a higher yield to compensate investors. If principal
cash flows are received in amounts outside a pre-determined range such that the support bonds cannot lend or absorb sufficient cash flows to the
PAC securities as intended, the PAC securities are subject to heightened maturity risk. A manager may invest in various tranches of CMO
bonds, including support bonds.
CMO Residuals: CMO residuals are mortgage securities issued by agencies or instrumentalities of
the U.S. government or by private originators of, or investors in, mortgage loans, including savings and loan associations,
homebuilders, mortgage banks, commercial banks, investment banks and special purpose entities of the foregoing.
The cash flow generated by the mortgage assets underlying a series of CMOs is applied
first to make required payments of principal and interest on the CMOs and second to pay the related administrative expenses and any
management fee of the issuer. The residual in a CMO structure generally represents the interest in any excess cash flow remaining
after making the foregoing payments. Each payment of such excess cash flow to a holder of the related CMO residual represents income
and/or a return of capital. The amount of residual cash flow resulting from a CMO will depend on, among other things, the characteristics
of the mortgage assets, the coupon rate of each class of CMO, prevailing interest rates, the amount of administrative expenses and
the pre-payment experience on the mortgage assets. In particular, the yield to maturity on CMO residuals is extremely sensitive to pre-payments
on the related underlying mortgage assets, in the same manner as an interest-only (“IO”) class of stripped mortgage-backed securities. See “Mortgage-Related Securities—Stripped Mortgage-Backed Securities.” In addition, if a series of a CMO includes a class that bears interest at an adjustable
rate, the yield to maturity on the related CMO residual will also be extremely sensitive to changes in
the level of the index upon which interest rate adjustments are based. As described below with respect to stripped mortgage-backed securities,
in certain circumstances, the initial investment in a CMO residual may never be fully recouped.
CMO residuals are generally purchased and sold by institutional investors through
several investment banking firms acting as brokers or dealers. Transactions in CMO residuals are generally completed only after careful
review of the characteristics of the securities in question. In addition, CMO residuals may, or pursuant to an exemption therefrom may not, have
been registered under the 1933 Act. CMO residuals, whether or not registered under the 1933 Act, may be subject to certain restrictions
on transferability.
Commercial Mortgage-Backed Securities: Commercial mortgage-backed securities include securities that reflect an interest
in, and are secured by, mortgage loans on commercial real property. Many of the risks of investing
in commercial mortgage-backed securities reflect the risks of investing in the real estate securing the underlying mortgage loans.
These risks reflect the effects of local and other economic conditions on real estate markets, the ability of tenants to make loan payments, and
the ability of a property to attract and retain tenants. Commercial mortgage-backed securities may be less liquid and exhibit greater price
volatility than other types of mortgage- or asset-backed securities.
Credit Risk Transfer Securities: Credit risk transfer securities are fixed- or floating-rate unsecured general obligations
issued from time to time by Freddie Mac, Fannie Mae or another government-sponsored entity. Typically,
such securities are issued at par and have stated final maturities. The securities are structured so that: (i) interest is paid directly
by the issuing entity, and (ii) principal is paid by the issuing entity in accordance with the principal payments and default performance of
a certain pool of residential mortgage loans acquired by the entity (“reference obligations”). The performance of the securities will be directly affected by the selection of
the reference obligations by the entity. Such securities are issued in tranches to which are allocated certain
principal repayments and credit losses corresponding to the seniority of the particular tranche. Each tranche of securities will have credit
exposure to the reference obligations and the yield to maturity will be directly related to, among other things, the amount and timing
of certain defined credit events on the reference obligations, any prepayments by borrowers, and any removals of a reference obligation from the
pool. Credit risk transfer securities are unguaranteed and unsecured debt securities issued by the entity and therefore are not directly
linked to or backed by the underlying mortgage loans. As a result, in the event that the entity fails to pay principal or interest on its
credit risk transfer securities or goes through a bankruptcy, insolvency or similar proceeding, holders of such credit risk transfer securities
have no direct recourse to the underlying mortgage loans and will generally receive recovery on par with other unsecured creditors in such
a scenario. The Fund may also invest in credit risk transfer securities that are issued by private entities, such as banks or other financial institutions.
Such securities are subject to risks similar to those associated with credit risk transfer securities issued by government-sponsored
entities, though they may be less creditworthy than those issued by a government-sponsored entity. The risks associated with an investment in credit risk transfer securities are different
than the risks associated with an investment in mortgage-backed securities subject
to a guarantee or the credit support of Fannie Mae, Freddie Mac, or other government-sponsored entities because some or all of the mortgage
default or credit risk associated with the underlying mortgage loans is transferred to investors in credit risk transfer securities. As
a result, the risk of loss is substantially greater with credit risk transfer securities.
Reverse Mortgage-Related Securities and Other Mortgage-Related Securities: Reverse mortgage-related securities and other mortgage-related securities include securities other than those described above that directly or indirectly
represent a participation in, or are secured by and payable from, mortgage loans on real property, including mortgage dollar rolls,
or stripped mortgage-backed securities (“SMBS”). Other mortgage-related securities may be equity or debt instruments issued by agencies
or instrumentalities of the U.S. government or by private originators of, or investors in, mortgage loans, including savings and
loan associations, homebuilders, mortgage banks, commercial banks, investment banks, partnerships, trusts and special purpose entities of the
foregoing.
Mortgage-related securities include, among other things, securities that reflect an
interest in reverse mortgages. In a reverse mortgage, a lender makes a loan to a homeowner based on the homeowner’s equity in his or her home. While a homeowner must be age 62 or older to qualify for a reverse mortgage, reverse mortgages may have no income restrictions.
Repayment of the interest or principal for the loan is generally not required until the homeowner dies, sells the home, or ceases
to use the home as his or her primary residence.
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There are three general types of reverse mortgages: (1) single-purpose reverse mortgages,
which are offered by certain state and local government agencies and nonprofit organizations; (2) federally-insured reverse mortgages,
which are backed by the U.S. Department of Housing and Urban Development; and (3) proprietary reverse mortgages, which are privately
offered loans. A mortgage-related security may be backed by a single type of reverse mortgage. Reverse mortgage-related securities
include agency and privately issued mortgage-related securities. The principal government guarantor of reverse mortgage-related securities
is GNMA.
Reverse mortgage-related securities may be subject to risks different than other types
of mortgage-related securities due to the unique nature of the underlying loans. The date of repayment for such loans is uncertain
and may occur sooner or later than anticipated. The timing of payments for the corresponding mortgage-related security may be uncertain.
Because reverse mortgages are offered only to persons 62 and older and there may be no income restrictions, the loans may react
differently than traditional home loans to market events.
Stripped Mortgage-Backed Securities: SMBS are derivative multi-class mortgage securities. SMBS may be issued by agencies
or instrumentalities of the U.S. government, or by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage banks, commercial banks, investment banks and special purpose entities of the foregoing.
SMBS are usually structured with two classes that receive different proportions of
the interest and principal distributions on a pool of mortgage assets. A common type of SMBS will have one class receiving some of the interest
and most of the principal from the mortgage assets, while the other class will receive most of the interest and the remainder
of the principal. In the most extreme case, one class will receive all of the interest (the “IO class”), while the other class will receive all of the principal (the principal-only or
“PO class”). The yield to maturity on an IO class is extremely sensitive to the rate of principal payments
(including pre-payments) on the related underlying mortgage assets, and a rapid rate of principal payments may have a material adverse
effect on a yield to maturity from these securities. If the underlying mortgage assets experience greater than anticipated pre-payments
of principal, there may be failure to recoup some or all of the initial investment in these securities even if the security is in one of
the highest rating categories.
Privately Issued Mortgage-Related Securities: Commercial banks, savings and loan institutions, private mortgage insurance companies,
mortgage bankers and other secondary market issuers also create pass-through pools
of conventional residential mortgage loans. Such issuers may be the originators and/or servicers of the underlying mortgage loans as
well as the guarantors of the mortgage-related securities. Pools created by such non-governmental issuers generally offer a higher rate of interest
than government and government-related pools because there are no direct or indirect government or agency guarantees of payments
in the former pools. However, timely payment of interest and principal of these pools may be supported by various forms of insurance
or guarantees, including individual loan, title, pool and hazard insurance and letters of credit, which may be issued by governmental entities
or private insurers. Such insurance and guarantees and the creditworthiness of the issuers thereof will be considered in determining
whether a mortgage-related security meets certain investment quality standards. There can be no assurance that insurers or guarantors can meet
their obligations under the insurance policies or guarantee arrangements. Mortgage-related securities without insurance or guarantees may be bought
if, through an examination of the loan experience and practices of the originators/servicers and poolers, the Investment Adviser or
Sub-Adviser determines that the securities meet certain quality standards. Securities issued by certain private organizations may not be readily
marketable.
Privately issued mortgage-related securities are not subject to the same underwriting
requirements for the underlying mortgages that are applicable to those mortgage-related securities that have a government or government-sponsored
entity guarantee. As a result, the mortgage loans underlying privately issued mortgage-related securities may, and frequently
do, have less favorable collateral, credit risk or other underwriting characteristics than government or government-sponsored mortgage-related
securities and have wider variances in a number of terms including interest rate, term, size, purpose and borrower characteristics.
Mortgage pools underlying privately issued mortgage-related securities more frequently include second mortgages, high loan-to-value ratio mortgages
and manufactured housing loans, in addition to commercial mortgages and other types of mortgages where a government or government
sponsored entity guarantee is not available. The coupon rates and maturities of the underlying mortgage loans in a privately-issued
mortgage-related securities pool may vary to a greater extent than those included in a government guaranteed pool, and the pool may
include subprime mortgage loans. Subprime loans are loans made to borrowers with weakened credit histories or with a lower capacity
to make timely payments on their loans. For these reasons, the loans underlying these securities have had in many cases higher default
rates than those loans that meet government underwriting requirements.
The risk of non-payment is greater for mortgage-related securities that are backed
by loans that were originated under weak underwriting standards, including loans made to borrowers with limited means to make repayment.
A level of risk exists for all loans, although, historically, the poorest performing loans have been those classified as subprime. Other types of
privately issued mortgage-related securities, such as those classified as pay-option adjustable rate or Alt-A have also performed poorly.
Even loans classified as prime have experienced higher levels of delinquencies and defaults. Market factors that may adversely affect
mortgage loan repayment include adverse economic conditions, unemployment, a decline in the value of real property, or an increase
in interest rates.
Privately issued mortgage-related securities are not traded on an exchange and there
may be a limited market for the securities, especially when there is a perceived weakness in the mortgage and real estate market sectors.
Without an active trading market, mortgage-related securities may be particularly difficult to value because of the complexities involved
in assessing the value of the underlying mortgage loans.
Privately issued mortgage-related securities are originated, packaged and serviced
by third party entities. It is possible that these third parties could have interests that are in conflict with the holders of mortgage-related
securities, and such holders could have rights against the third parties or their affiliates. For example, if a loan originator, servicer
or its affiliates engaged in negligence or willful misconduct in carrying out its duties, then a holder of the mortgage-related security could seek
recourse against the originator/servicer or its affiliates,
15
as applicable. Also, as a loan originator/servicer, the originator/servicer or its
affiliates may make certain representations and warranties regarding the quality of the mortgages and properties underlying a mortgage-related
security. If one or more of those representations or warranties is false, then the holders of the mortgage-related securities could trigger
an obligation of the originator/servicer or its affiliates, as applicable, to repurchase the mortgages from the issuing trust. Notwithstanding
the foregoing, many of the third parties that are legally bound by trust and other documents have failed to perform their respective
duties, as stipulated in such trust and other documents, and investors have had limited success in enforcing terms.
Mortgage-related securities that are issued or guaranteed by the U.S. government,
its agencies or instrumentalities, are not subject to the investment restrictions related to industry concentration by virtue of the exclusion
from that test available to all U.S. government securities. The assets underlying such securities may be represented by a portfolio
of residential or commercial mortgages (including both whole mortgage loans and mortgage participation interests that may be senior
or junior in terms of priority of repayment) or portfolios of mortgage pass-through securities issued or guaranteed by GNMA, FNMA or FHLMC. Mortgage
loans underlying a mortgage-related security may in turn be insured or guaranteed by the FHA or the VA. In the case of
privately issued mortgage-related securities whose underlying assets are neither U.S. government securities nor U.S. government-insured
mortgages, to the extent that real properties securing such assets may be located in the same geographical region, the security may be subject
to a greater risk of default than other comparable securities in the event of adverse economic, political or business developments that
may affect such region and, ultimately, the ability of residential homeowners to make payments of principal and interest on the underlying
mortgages.
Tiered Index Bonds: Tiered index bonds are relatively new forms of mortgage-related securities. The
interest rate on a tiered index bond is tied to a specified index or market rate. So long as this index or market rate
is below a predetermined “strike” rate, the interest rate on the tiered index bond remains fixed. If, however, the specified index or market
rate rises above the “strike” rate, the interest rate of the tiered index bond will decrease. Thus, under these circumstances, the interest
rate on a tiered index bond, like an inverse floater, will move in the opposite direction of prevailing interest rates, with the result
that the price of the tiered index bond may be considerably more volatile than that of a fixed-rate bond.
Municipal Securities: Municipal securities are debt instruments issued by state and local governments,
municipalities, territories and possessions of the United States, regional government authorities, and their agencies
and instrumentalities of states, and multi-state agencies or authorities, the interest of which, in the opinion of bond counsel to
the issuer at the time of issuance, is exempt from U.S. federal income tax. Municipal securities include both notes (which have maturities
of less than one (1) year) and bonds (which have maturities of one (1) year or more) that bear fixed or variable rates of interest.
In general, municipal securities are issued to obtain funds for a variety of public
purposes such as the construction, repair, or improvement of public facilities including airports, bridges, housing, hospitals, mass transportation,
schools, streets, water and sewer works. Municipal securities may be issued to refinance outstanding obligations as well as to raise
funds for general operating expenses and lending to other public institutions and facilities.
The two principal classifications of municipal securities are “general obligation” securities and “revenue” securities. General obligation securities are obligations secured by the issuer’s pledge of its full faith, credit, and taxing power for the payment of principal and interest. Characteristics and methods of enforcement of general obligation bonds vary according
to the law applicable to a particular issuer, and the taxes that can be levied for the payment of debt instruments may be limited or
unlimited as to rates or amounts of special assessments. Revenue securities are payable only from the revenues derived from a particular facility,
a class of facilities or, in some cases, from the proceeds of a special excise tax. Revenue bonds are issued to finance a wide variety
of capital projects including, among others: electric, gas, water, and sewer systems; highways, bridges, and tunnels; port and airport facilities;
colleges and universities; and hospitals. Conditions in those sectors may affect the overall municipal securities markets.
Some longer-term municipal bonds give the investor the right to “put” or sell the security at par (face value) to the issuer within a specified number of days following the investor’s request. This demand feature enhances a security’s liquidity by shortening its effective maturity and enables it to trade at a price equal to or very close to par. If a demand feature
terminates prior to being exercised, the longer-term securities still held could experience substantially more volatility.
Insured municipal debt involves scheduled payments of interest and principal guaranteed
by a private, non-governmental or governmental insurance company. The insurance does not guarantee the market value of the municipal
debt or the value of the shares.
Municipal securities are subject to credit and market risk. Generally, prices of higher
quality issues tend to fluctuate less with changes in market interest rates than prices of lower quality issues and prices of longer
maturity issues tend to fluctuate more than prices of shorter maturity issues. The secondary market for municipal bonds typically has been
less liquid than that for taxable debt instruments, and this may affect the Fund’s ability to sell particular municipal bonds at then-current market prices, especially in periods when other investors are attempting to sell the same securities.
Prices and yields on municipal bonds are dependent on a variety of factors, including
general money-market conditions, the financial condition of the issuer, general conditions of the municipal bond market, the size
of a particular offering, the maturity of the obligation and the rating of the issue. A number of these factors, including the ratings of particular
issues, are subject to change from time to time. Information about the financial condition of an issuer of municipal bonds may not
be as extensive as that which is made available by corporations whose securities are publicly traded.
Securities, including municipal securities, are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors, such as the federal Bankruptcy Code (including special provisions
related to municipalities and other public entities), and laws, if any, that may be enacted by Congress or state legislatures extending
the time for payment of principal or interest, or both,
16
or imposing other constraints upon enforcement of such obligations. There is also
the possibility that, as a result of litigation or other conditions, the power, ability or willingness of issuers to meet their obligations
for the payment of interest and principal on their municipal securities may be materially affected or their obligations may be found to be invalid
or unenforceable. Such litigation or conditions may from time to time have the effect of introducing uncertainties in the market for municipal
securities or certain segments thereof, or of materially affecting the credit risk with respect to particular securities. Adverse
economic, business, legal or political developments might affect all or a substantial portion of the Fund’s municipal securities in the same manner.
From time to time, proposals have been introduced before Congress that, if enacted,
would have the effect of restricting or eliminating the U.S. federal income tax exemption for interest on debt instruments issued by states
and their political subdivisions. U.S. federal tax laws limit the types and amounts of tax-exempt bonds issuable for certain purposes,
especially industrial development bonds and private activity bonds. Such limits may affect the future supply and yields of these types
of municipal securities. Further proposals limiting the issuance of municipal securities may well be introduced in the future.
Industrial Development and Pollution Control Bonds: Industrial development bonds and pollution control bonds, which in most cases are
revenue bonds and generally are not payable from the unrestricted revenues of an issuer,
are issued by or on behalf of public authorities to raise money to finance privately operated facilities for business, manufacturing,
housing, sport complexes, and pollution control. The principal security for these bonds is generally the net revenues derived from a particular
facility, group of facilities, or in some cases, the proceeds of a special excise tax or other specific revenue sources. Consequently,
the credit quality of these securities is dependent upon the ability of the user of the facilities financed by the bonds and any guarantor
to meet its financial obligations.
Moral Obligation Securities: Moral obligation securities are usually issued by special purpose public authorities.
A moral obligation security is a type of state issued municipal bond which is backed by a moral, not a legal,
obligation. If the issuer of a moral obligation security cannot fulfill its financial responsibilities from current revenues, it may draw upon
a reserve fund, the restoration of which is a moral commitment, but not a legal obligation, of the state or municipality that created
the issuer.
Municipal Lease Obligations and Certificates of Participation: Municipal lease obligations and participations in municipal leases are undivided
interests in an obligation in the form of a lease or installment purchase or conditional
sales contract which is issued by a state, local government, or a municipal financing corporation to acquire land, equipment, and/or
facilities (collectively hereinafter referred to as “Lease Obligations”). Generally Lease Obligations do not constitute general obligations of the municipality for which the municipality’s taxing power is pledged. Instead, a Lease Obligation is ordinarily backed by the municipality’s covenant to budget for, appropriate, and make the payments due under the Lease Obligation. As a result of this structure, Lease
Obligations are generally not subject to state constitutional debt limitations or other statutory requirements that may apply to other municipal
securities.
Lease Obligations may contain “non-appropriation” clauses, which provide that the municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated for that purpose on
a yearly basis. If the municipality does not appropriate in its budget enough to cover the payments on the Lease Obligation, the lessor may
have the right to repossess and relet the property to another party. Depending on the property subject to the lease, the value of the
property may not be sufficient to cover the debt.
In addition to the risk of “non-appropriation,” municipal lease securities may not have as highly liquid a market as conventional
municipal bonds.
Participation on Creditors’ Committees: The Fund may from time to time participate on committees formed by creditors to negotiate
with the management of financially troubled issuers of securities held by the Fund. Such
participation may incur additional expenses such as legal fees and may make the Fund an “insider” of the issuer for purposes of the federal securities laws, which may restrict such Fund’s ability to trade in or acquire additional positions in a particular security when
it might otherwise desire to do so. Participation on such committees may also expose the Fund to potential liabilities under the federal bankruptcy
laws or other laws governing the rights of creditors and debtors.
Short-Term Municipal Obligations: Short-term municipal securities include tax anticipation notes, revenue anticipation
notes, bond anticipation notes, construction loan notes and short-term discount notes. Tax anticipation notes
are used to finance working capital needs of municipalities and are issued in anticipation of various seasonal tax revenues, to be payable from
these specific future taxes. They are usually general obligations of the issuer, secured by the taxing power of the municipality for the
payment of principal and interest when due. Revenue anticipation notes are generally issued in expectation of receipt of other kinds of
revenue, such as the revenues expected to be generated from a particular project. Bond anticipation notes normally are issued to provide
interim financing until long-term financing can be arranged. The long-term bonds then provide the money for the repayment of the notes. Construction
loan notes are sold to provide construction financing for specific projects. After successful completion and acceptance, many
such projects may receive permanent financing through another source. Short-term Discount notes (tax-exempt commercial paper) are short-term
(365 days or less) promissory notes issued by municipalities to supplement their cash flow. Revenue anticipation notes, construction
loan notes, and short-term discount notes may, but will not necessarily, be general obligations of the issuer.
Senior and Other Bank Loans: Investments in variable or floating rate loans or notes (“Senior Loans”) are typically made by purchasing an assignment of a portion of a Senior Loan from a third party, either in connection
with the original loan transaction (i.e., the primary market) or after the initial loan transaction (i.e., in the secondary market). The Fund may also make its investments in Senior Loans
through the use of derivative instruments as long as the reference obligation for
such instrument is a Senior Loan. In addition, the Fund has the ability to act as an agent in originating and administering a loan on behalf
of all lenders or as one of a group of co-agents in originating loans.
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Investment Quality and Credit Analysis: The Senior Loans in which the Fund may invest generally are rated below investment
grade credit quality or are unrated. In acquiring a loan, the manager will consider some or all
of the following factors concerning the borrower: ability to service debt from internally generated funds; adequacy of liquidity and working
capital; appropriateness of capital structure; leverage consistent with industry norms; historical experience of achieving business and financial
projections; the quality and experience of management; and adequacy of collateral coverage. The manager performs its own independent credit
analysis of each borrower. In so doing, the manager may utilize information and credit analyses from agents that originate or administer
loans, other lenders investing in a loan, and other sources. The manager also may communicate directly with management of the borrowers.
These analyses continue on a periodic basis for any Senior Loan held by the Fund.
Senior Loan Characteristics: Senior Loans are loans that are typically made to business borrowers to finance
leveraged buy-outs, recapitalizations, mergers, stock repurchases, and internal growth. Senior Loans generally hold the most
senior position in the capital structure of a borrower and are usually secured by liens on the assets of the borrowers; including tangible
assets such as cash, accounts receivable, inventory, property, plant and equipment, common and/or preferred stocks of subsidiaries; and
intangible assets including trademarks, copyrights, patent rights, and franchise value. They may also provide guarantees as a form of
collateral. Senior Loans are typically structured to include two or more types of loans within a single credit agreement. The most common
structure is to have a revolving loan and a term loan. A revolving loan is a loan that can be drawn upon, repaid fully or partially,
and then the repaid portions can be drawn upon again. A term loan is a loan that is fully drawn upon immediately and once repaid it cannot
be drawn upon again.
Sometimes there may be two or more term loans and they may be secured by different
collateral, have different repayment schedules and maturity dates. In addition to revolving loans and term loans, Senior Loan structures
can also contain facilities for the issuance of letters of credit and may contain mechanisms for lenders to pre-fund letters of credit
through credit-linked deposits.
By virtue of their senior position and collateral, Senior Loans typically provide
lenders with the first right to cash flows or proceeds from the sale of a borrower’s collateral if the borrower becomes insolvent (subject to the limitations of bankruptcy law, which may provide higher priority to certain claims such as employee salaries, employee pensions, and
taxes). This means Senior Loans are generally repaid before unsecured bank loans, corporate bonds, subordinated debt, trade creditors,
and preferred or common stockholders.
Senior Loans typically pay interest, at least quarterly, at rates which equal a fixed
percentage spread over a base rate such as SOFR. For example, if SOFR were 3% and the borrower was paying a fixed spread of 2.50%, the
total interest rate paid by the borrower would be 5.50%. Base rates, and therefore the total rates paid on Senior Loans, float, i.e., they change as market rates of interest change.
Although a base rate such as SOFR can change every day, loan agreements for Senior
Loans typically allow the borrower the ability to choose how often the base rate for its loan will change. A single loan may have multiple
reset periods at the same time, with each reset period applicable to a designated portion of the loan. Such periods can range from
one day to one year, with most borrowers choosing monthly or quarterly reset periods. During periods of rising interest rates, borrowers
will tend to choose longer reset periods, and during periods of declining interest rates, borrowers will tend to choose shorter reset periods.
The fixed spread over the base rate on a Senior Loan typically does not change.
Agents: Senior Loans generally are arranged through private negotiations between a borrower
and several financial institutions represented by an agent who is usually one of the originating lenders. In larger transactions,
it is common to have several agents; however, generally only one such agent has primary responsibility for ongoing administration of a Senior
Loan. Agents are typically paid fees by the borrower for their services.
The agent is primarily responsible for negotiating the loan agreement which establishes
the terms and conditions of the Senior Loan and the rights of the borrower and the lenders. An agent for a loan is required to administer
and manage the loan and to service or monitor the collateral. The agent is also responsible for the collection of principal, interest,
and fee payments from the borrower and the apportionment of these payments to the credit of all lenders which are parties to the loan agreement.
The agent is charged with the responsibility of monitoring compliance by the borrower with the restrictive covenants in the loan agreement
and of notifying the lenders of any adverse change in the borrower’s financial condition. In addition, the agent generally is responsible for determining that the lenders have obtained a perfected security interest in the collateral securing the loan.
Loan agreements may provide for the termination of the agent’s agency status in the event that it fails to act as required under the relevant loan agreement, becomes insolvent, enters FDIC receivership or, if not FDIC
insured, enters into bankruptcy. Should such an agent, lender or assignor with respect to an assignment inter-positioned between the
Fund and the borrower become insolvent or enter FDIC receivership or bankruptcy, any interest in the Senior Loan of such person and
any loan payment held by such person for the benefit of the fund should not be included in such person’s or entity’s bankruptcy estate. If, however, any such amount were included in such person’s or entity’s bankruptcy estate, the Fund would incur certain costs and delays in realizing payment or could suffer a loss of principal or interest. In this event, the Fund could experience a decrease in the NAV.
Typically, under loan agreements, the agent is given broad discretion in enforcing
the loan agreement and is obligated to use the same care it would use in the management of its own property. The borrower compensates
the agent for these services. Such compensation may include special fees paid on structuring and funding the loan and other fees on
a continuing basis. The precise duties and rights of an agent are defined in the loan agreement.
When the Fund is an agent it has, as a party to the loan agreement, a direct contractual
relationship with the borrower and, prior to allocating portions of the loan to the lenders if any, assumes all risks associated
with the loan. The agent may enforce compliance by the borrower with the terms of the loan agreement. Agents also have voting and consent
rights under the applicable loan agreement. Action subject to agent vote or consent generally requires the vote or consent of
the holders of some specified percentage of the outstanding
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principal amount of the loan, which percentage varies depending on the relative loan
agreement. Certain decisions, such as reducing the amount or increasing the time for payment of interest on or repayment of principal
of a loan, or relating collateral therefor, frequently require the unanimous vote or consent of all lenders affected.
Pursuant to the terms of a loan agreement, the agent typically has sole responsibility
for servicing and administering a loan on behalf of the other lenders. Each lender in a loan is generally responsible for performing its
own credit analysis and its own investigation of the financial condition of the borrower. Generally, loan agreements will hold the agent
liable for any action taken or omitted that amounts to gross negligence or willful misconduct. In the event of a borrower’s default on a loan, the loan agreements provide that the lenders do not have recourse against the Fund for its activities as agent. Instead, lenders will
be required to look to the borrower for recourse.
At times the Fund may also negotiate with the agent regarding the agent’s exercise of credit remedies under a Senior Loan.
Additional Costs: When the Fund purchases a Senior Loan in the primary market, it may share in a fee
paid to the original lender. When the Fund purchases a Senior Loan in the secondary market, it may pay a fee to, or
forego a portion of the interest payments from, the lending making the assignment.
The Fund may be required to pay and receive various fees and commissions in the process
of purchasing, selling, and holding loans. The fee component may include any, or a combination of, the following elements: arrangement
fees, non-use fees, facility fees, letter of credit fees, and ticking fees. Arrangement fees are paid at the commencement of a loan as
compensation for the initiation of the transaction. A non-use fee is paid based upon the amount committed but not used under the loan.
Facility fees are on-going annual fees paid in connection with a loan. Letter of credit fees are paid if a loan involves a letter
of credit. Ticking fees are paid from the initial commitment indication until loan closing or for an extended period. The amount of fees is negotiated
at the time of closing.
Loan Participation and Assignments: The Fund’s investment in loan participations typically will result in the fund having a contractual relationship only with the lender and not with 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. In connection with purchasing participation, the Fund generally will have
no right to enforce compliance by the borrower with the terms of the loan agreement relating to the loan, nor any right of set-off against
the borrower, and the Fund may not directly benefit from any collateral supporting the loan in which it has purchased the participation.
As a result, the Fund may be subject to the credit risk of both the borrower and the lender that is selling the participation. In the event
of the insolvency of the lender selling the participation, the Fund may be treated as a general creditor of the lender and may not benefit from
any set-off between the lender and the borrower.
When the Fund is a purchaser of an assignment, it succeeds to all the rights and obligations
under the loan agreement of the assigning lender and becomes a lender under the loan agreement with the same rights and obligations
as the assigning lender. These rights include the ability to vote along with the other lenders on such matters as enforcing the
terms of the loan agreement (e.g., declaring defaults, initiating collection action, etc.). Taking such actions typically requires at least
a vote of the lenders holding a majority of the investment in the loan and may require a vote by lenders holding two-thirds or more of the investment
in the loan. Because the Fund usually does not hold a majority of the investment in any loan, it will not be able by itself to
control decisions that require a vote by the lenders.
Because assignments are arranged through private negotiations between potential assignees
and potential assignors, the rights and obligations acquired by the Fund as the purchaser of an assignment may differ from,
and be more limited than, those held by the assigning lender. Because there is no liquid market for such assets, the Fund anticipates that
such assets could be sold only to a limited number of institutional investors. The lack of a liquid secondary market may have an adverse impact on the value of such assets and the Fund’s ability to dispose of particular assignments or participations when necessary to meet redemption of fund shares, to meet the Fund’s liquidity needs or, in response to a specific economic event such as deterioration
in the creditworthiness of the borrower. The lack of a liquid secondary market for assignments and participations also may make it more difficult
for the Fund to value these assets for purposes of calculating its NAV.
Additional Information on Loans: The loans in which the Fund may invest usually include restrictive covenants which
must be maintained by the borrower. Such covenants, in addition to the timely payment of interest and
principal, may include mandatory prepayment provisions arising from free cash flow and restrictions on dividend payments, and usually state
that a borrower must maintain specific minimum financial ratios as well as establishing limits on total debt. A breach of covenant,
that is not waived by the agent, is normally an event of acceleration, i.e., the agent has the right to call the loan. In addition, loan covenants may include
mandatory prepayment provisions stemming from free cash flow. Free cash flow is cash that is in excess of capital
expenditures plus debt service requirements of principal and interest. The free cash flow shall be applied to prepay the loan in an order of
maturity described in the loan documents. Under certain interests in loans, the Fund may have an obligation to make additional loans upon
demand by the borrower. The Fund generally ensures its ability to satisfy such demands by segregating sufficient assets in high quality
short-term liquid investments or borrowing to cover such obligations.
A principal risk associated with acquiring loans from another lender is the credit
risk associated with the borrower of the underlying loan. Additional credit risk may occur when the Fund acquires a participation in a loan
from another lender because the fund must assume the risk of insolvency or bankruptcy of the other lender from which the loan was acquired.
Loans, unlike certain bonds, usually do not have call protection. This means that
investments, while having a stated one to ten year term, may be prepaid, often without penalty. The Fund generally holds loans to maturity
unless it becomes necessary to sell them to satisfy any shareholder repurchase offers or to adjust the fund’s portfolio in accordance with the manager’s view of current or expected economics or specific industry or borrower conditions.
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Loans frequently require full or partial prepayment of a loan when there are asset
sales or a securities issuance. Prepayments on loans may also be made by the borrower at its election. The rate of such prepayments may
be affected by, among other things, general business and economic conditions, as well as the financial status of the borrower. Prepayment
would cause the actual duration of a loan to be shorter than its stated maturity. Prepayment may be deferred by the Fund. Prepayment
should, however, allow the Fund to reinvest in a new loan and would require the Fund to recognize as income any unamortized loan fees.
In many cases reinvestment in a new loan will result in a new facility fee payable to the Fund.
Because interest rates paid on these loans fluctuate periodically with the market,
it is expected that the prepayment and a subsequent purchase of a new loan by the Fund will not have a material adverse impact on the
yield of the portfolio.
Bridge Loans: The Fund may acquire interests in loans that are designed to provide temporary or
“bridge” financing to a borrower pending the sale of identified assets or the arrangement of longer-term loans or the issuance
and sale of debt obligations. Bridge loans often are unrated. The Fund may also invest in loans of borrowers that have obtained bridge loans from other parties. A borrower’s use of bridge loans involves a risk that the borrower may be unable to locate permanent financing
to replace the bridge loan, which may impair the borrower’s perceived creditworthiness.
Covenant-Lite Loans: Loans in which the Fund may invest or to which the Fund may gain exposure indirectly
through its investments in CDOs, CLOs or other types of structured securities may be considered “covenant-lite” loans. Covenant-lite refers to loans which do not incorporate traditional performance-based financial maintenance covenants. Covenant-lite does not refer to a loan’s seniority in the borrower’s capital structure nor to a lack of the benefit from a legal pledge of the borrower’s assets, and it also does not necessarily correlate to the overall credit quality of the borrower. Covenant-lite loans generally do not include
terms which allow the lender to take action based on the borrower’s performance relative to its covenants. Such actions may include the ability to renegotiate and/or re-set the credit spread on the loan with the borrower, and even to declare a default or force a borrower
into bankruptcy restructuring if certain criteria are breached. Covenant-lite loans typically still provide lenders with other covenants
that restrict a company from incurring additional debt or engaging in certain actions. Such covenants can only be breached by an affirmative
action of the borrower, rather than by a deterioration in the borrower’s financial condition. Accordingly, the Fund may have fewer rights against a borrower when it invests in or has exposure to covenant-lite loans and, accordingly, may have a greater risk of loss on such investments
as compared to investments in or exposure to loans with additional or more conventional covenants.
U.S. Government Securities and Obligations: Some U.S. government securities, such as Treasury bills, notes, and bonds and mortgage-backed
securities guaranteed by GNMA, are supported by the full faith and credit of the United
States; others are supported by the right of the issuer to borrow from the U.S. Treasury; others are supported by the discretionary
authority of the U.S. government to purchase the agency’s obligations; still others are supported only by the credit of the issuing agency, instrumentality, or enterprise. Although U.S. government-sponsored enterprises may be chartered or sponsored by Congress, they are
not funded by Congressional appropriations, and their securities are not issued by the U.S. Treasury, their obligations are not
supported by the full faith and credit of the U.S. government, and so investments in their securities or obligations issued by them involve greater
risk than investments in other types of U.S. government securities. In addition, certain governmental entities have been subject to regulatory
scrutiny regarding their accounting policies and practices and other concerns that may result in legislation, changes in regulatory
oversight and/or other consequences that could adversely affect the credit quality, availability or investment character of securities issued
or guaranteed by these entities.
The events surrounding the U.S. federal government debt ceiling and any resulting
agreement could adversely affect the Fund. On August 5, 2011, S&P lowered its long-term sovereign credit rating on the United States. More
recently, Fitch Ratings downgraded the U.S. long-term credit rating on August 1, 2023. The downgrade by S&P and other future downgrades
could increase volatility in both stock and bond markets, result in higher interest rates and lower Treasury prices and increase the
costs of all kinds of debt. These events and similar events in other areas of the world could have significant adverse effects on the economy
generally and could result in significant adverse impacts on the Fund or issuers of securities held by the Fund. The Investment Adviser
and Sub-Adviser cannot predict the effects of these or similar events in the future on the U.S. economy and securities markets or on the Fund’s portfolio. The Investment Adviser and Sub-Adviser may not timely anticipate or manage existing, new or additional risks, contingencies
or developments.
Government Trust Certificates: Government trust certificates represent an interest in a government trust, the property
of which consists of: (i) a promissory note of a foreign government, no less than 90% of which is backed
by the full faith and credit guarantee issued by the federal government of the United States pursuant to Title III of the Foreign Operations,
Export, Financing and Related Borrowers Programs Appropriations Act of 1998; and (ii) a security interest in obligations of the U.S.
Treasury backed by the full faith and credit of the United States sufficient to support the remaining balance (no more than 10%) of all payments
of principal and interest on such promissory note; provided that such obligations shall not be rated less than AAA by S&P or less than Aaa by Moody’s or have received a comparable rating by another NRSRO.
Zero-Coupon, Deferred Interest and Pay-in-Kind Bonds: Zero-coupon and deferred interest bonds are debt instruments that do not entitle
the holder to any periodic payment of interest prior to maturity or a specified date
when the securities begin paying current interest and therefore are issued and traded at a discount from their face amounts or par values.
The values of zero-coupon and pay-in-kind bonds are more volatile in response to interest rate changes than debt instruments of comparable
maturities that make regular distributions of interest. Pay-in-kind bonds allow the issuer, at its option, to make current interest
payments on the bonds either in cash or in additional bonds.
Zero-coupon bonds either may be issued at a discount by a corporation or government
entity or may be created by a brokerage firm when it strips the coupons from a bond or note and then sells the bond or note and the
coupon separately. This technique is used frequently with U.S. Treasury bonds. Zero-coupon bonds also are issued by municipalities.
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Interest income from these types of securities accrues prior to the receipt of cash
payments and must be distributed to shareholders when it accrues, potentially requiring the liquidation of other investments, including
at times when such liquidation may not be advantageous, in order to comply with the distribution requirements applicable to RICs under the
Code.
FOREIGN INVESTMENTS
Investments in non-U.S. issuers (including depositary receipts) entail risks not typically
associated with investing in U.S. issuers. Similar risks may apply to instruments traded on a U.S. exchange that are issued by issuers
with significant exposure to non-U.S. countries. The less developed a country’s securities market is, the greater the level of risk. In certain countries, legal remedies available to investors may be more limited than those available with regard to U.S. investments. Because
non-U.S. instruments are normally denominated and traded in currencies other than the U.S. dollar, the value of the assets may be affected
favorably or unfavorably by currency exchange rates, exchange control regulations, and restrictions or prohibitions on the repatriation
of non-U.S. currencies. Income and gains with respect to investments in certain countries may be subject to withholding and other
taxes. There may be less information publicly available about a non-U.S. issuer than about a U.S. issuer, and many non-U.S. issuers are not
subject to accounting, auditing, and financial reporting standards, regulatory framework and practices comparable to those in the United States.
The securities of some non-U.S. issuers are less liquid and at times more volatile than securities of comparable U.S. issuers.
Foreign (non-U.S.) security trading, settlement, and custodial practices (including those involving securities settlement where the assets
may be released prior to receipt of payment) are often less well developed than those in U.S. markets, and may result in increased
risk of substantial delays in the event of a failed trade or in insolvency of, or breach of obligation by, a foreign broker-dealer, securities
depository, or foreign sub-custodian. Non-U.S. transaction costs, such as brokerage commissions and custody costs, may be higher than in the
United States. In addition, there may be a possibility of nationalization or expropriation of assets, imposition of currency exchange controls,
imposition of tariffs or other economic and trade sanctions, entering or exiting trade or other intergovernmental agreements, confiscatory
taxation, political of financial instability, and diplomatic developments that could adversely affect the values of the investments
in certain non-U.S. countries. In certain foreign markets an issuer’s securities are blocked from trading at the custodian or sub-custodian level for a specified number of days before and, in certain instances, after a shareholder meeting where such shares are voted. This is
referred to as “share blocking.” The blocking period can last up to several weeks. Share blocking may prevent buying or selling securities
during this period, because during the time shares are blocked, trades in such securities will not settle. It may be difficult or impossible
to lift blocking restrictions, with the particular requirements varying widely by country. Economic or other sanctions imposed on a foreign country
or issuer by the U.S., or on the U.S. by a foreign country, could impair the Fund’s ability to buy, sell, hold, receive, deliver, or otherwise transact in certain securities. Sanctions could also affect the value and/or liquidity of a foreign (non-U.S.) security. The Public Company
Accounting Oversight Board, which regulates auditors of U.S. public companies, is unable to inspect audit work papers in certain foreign
countries. Investors in foreign countries often have limited rights and few practical remedies to pursue shareholder claims, including
class actions or fraud claims, and the ability of the SEC, the U.S. Department of Justice and other authorities to bring and enforce actions
against foreign issuers or foreign persons is limited.
Depositary Receipts: Depositary receipts are typically trust receipts issued by a U.S. bank or trust company
that evince an indirect interest in underlying securities issued by a foreign entity, and are in the form of sponsored
or unsponsored American Depositary Receipts (“ADRs”), European Depositary Receipts (“EDRs”) and Global Depositary Receipts (“GDRs”).
Generally, ADRs are publicly traded on a U.S. stock exchange or in the OTC market,
and are denominated in U.S. dollars, and the depositaries are usually a U.S. financial institution, such as a bank or trust company, but the
underlying securities are issued by a foreign issuer.
GDRs may be traded in any public or private securities markets in U.S dollars or other
currencies and generally represent securities held by institutions located anywhere in the world. For GDRs, the depositary may be a foreign
or a U.S. entity, and the underlying securities may have a foreign or a U.S issuer.
EDRs are generally issued by a European bank and traded on local exchanges.
Depositary receipts may be sponsored or unsponsored. Although the two types of depositary
receipt facilities are similar, there are differences regarding a holder’s rights and obligations and the practices of market participants. With sponsored facilities, the underlying issuer typically bears some of the costs of the depositary receipts (such as dividend payment fees
of the depositary), although most sponsored depositary receipt holders may bear costs such as deposit and withdrawal fees. Depositaries of
most sponsored depositary receipts agree to distribute notices of shareholder meetings, voting instructions, and other shareholder communications
and financial information to the depositary receipt holders at the underlying issuer’s request. Holders of unsponsored depositary receipts, which are created independently of the issuer of the underlying security, generally bear all the costs of the facility. The
depositary usually charges fees upon the deposit and withdrawal of the underlying securities, the conversion of dividends into U.S. dollars
or other currency, the disposition of non-cash distributions, and the performance of other services. The depositary of an unsponsored facility frequently
is under no obligation to distribute shareholder communications received from the underlying issuer or to pass through voting rights
with respect to the underlying securities to depositary receipt holders. As a result, available information concerning the issuer of an unsponsored
depositary receipt may not be as current as for sponsored depositary receipts, and the prices of unsponsored depositary receipts
may be more volatile than if such instruments were sponsored by the issuer.
In addition, a depositary or issuer may unwind its depositary receipt program, or
the relevant exchange may require depositary receipts to be delisted, which could require the Fund to sell its depositary receipts (potentially
at disadvantageous prices) or to convert them into shares of the underlying non-U.S. security (which could adversely affect their value
or liquidity). Depositary receipts also may be subject to illiquidity risk, and trading in depositary receipts may be suspended by the relevant
exchange.
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ADRs, GDRs and EDRs are subject to many of the same risks associated with investing
directly in foreign issuers. Investments in depositary receipts may be less liquid and more volatile than the underlying securities in their
primary trading market. If a depositary receipt is denominated in a different currency than its underlying securities it will be subject
to the currency risk of both the investment in the depositary receipt and the underlying securities. The value of depositary receipts
may have limited or no rights to take action with respect to the underlying securities or to compel the issuer of the receipts to take action.
Emerging Markets Investments: Investments in emerging markets are generally subject to a greater risk of loss than
investments in developed markets. This may be due to, among other things, the possibility of greater market
volatility, lower trading volume and liquidity, greater risk of expropriation, nationalization, and social, political and economic instability,
greater reliance on a few industries, international trade or revenue from particular commodities, less developed accounting, legal and regulatory
systems, higher levels of inflation, deflation or currency devaluation, greater risk of market shut down, and more significant governmental
limitations on investment activity as compared to those typically found in a developed market. In addition, issuers (including governments)
in emerging market countries may have less financial stability than in other countries. As a result, there will tend to be an
increased risk of price volatility in investments in emerging market countries, which may be magnified by currency fluctuations relative to a base
currency. Settlement and asset custody practices for transactions in emerging markets may differ from those in developed markets. Such
differences may include possible delays in settlement and certain settlement practices, such as delivery of securities prior to receipt
of payment, which increases the likelihood of a “failed settlement.” Failed settlements can result in losses. For these and other reasons, investments
in emerging markets are often considered speculative.
Investing through Stock Connect: The Fund may, directly or indirectly (through, for example, participation notes
or other types of equity-linked notes), purchase shares in mainland China-based companies that trade on Chinese stock
exchanges such as the Shanghai Stock Exchange and the Shenzhen Stock Exchange (“China A-Shares”) through the Shanghai-Hong Kong Stock Connect (“Stock Connect”), a mutual market access program designed to, among other things, enable foreign investment in the People’s Republic of China (“PRC”) via brokers in Hong Kong. There are significant risks inherent in investing in China A-Shares through Stock Connect. The underdeveloped state of PRC’s investment and banking systems subjects the settlement, clearing, and registration
of China A-Shares transactions to heightened risks. Stock Connect can only operate when both PRC and Hong Kong markets are open for trading
and when banking services are available in both markets on the corresponding settlement days. As such, if either or both markets
are closed on a U.S. trading day, the Fund may not be able to dispose of its China A-Shares in a timely manner, which could adversely affect the Fund’s performance. PRC regulations require that the Fund that wishes to sell its China A-Shares pre-deliver the China
A-Shares to a broker. If the China A-Shares are not in the broker’s possession before the market opens on the day of sale, the sell order will be rejected. This requirement could also limit the Fund’s ability to dispose of its China A-Shares purchased through Stock Connect in a timely manner. Additionally, Stock Connect is subject to daily quota limitations on purchases of China A Shares. Once the daily quota is
reached, orders to purchase additional China A-Shares through Stock Connect will be rejected. The Fund’s investment in China A-Shares may only be traded through Stock Connect and is not otherwise transferable. Stock Connect utilizes an omnibus clearing structure, and the Fund’s shares will be registered in its custodian’s name on the Central Clearing and Settlement System. This may limit the ability of
the Investment Adviser or Sub-Adviser to effectively manage the Fund, and may expose the Fund to the credit risk of its custodian or to
greater risk of expropriation. Investment in China A-Shares through Stock Connect may be available only through a single broker that is an affiliate of the Fund’s custodian, which may affect the quality of execution provided by such broker. Stock Connect restrictions
could also limit the ability of the Fund to sell its China A-Shares in a timely manner, or to sell them at all. Further, different fees, costs
and taxes are imposed on foreign investors acquiring China A-Shares acquired through Stock Connect, and these fees, costs and taxes may
be higher than comparable fees, costs and taxes imposed on owners of other securities providing similar investment exposure. Stock
Connect trades are settled in Renminbi (“RMB”), the official currency of PRC, and investors must have timely access to a reliable supply
of RMB in Hong Kong, which cannot be guaranteed.
Europe: European financial markets are vulnerable to volatility and losses arising from concerns
about the potential exit of member countries from the EU and/or the Economic and Monetary Union of the European Union (the “EMU”) and, in the latter case, the reversion of those countries to their national currencies. Defaults by EMU member countries on sovereign
debt, as well as any future discussions about exits from the EMU, may negatively affect the Fund’s investments in the defaulting or exiting country, in issuers, both private and governmental, with direct exposure to that country, and in European issuers generally. The UK left
the EU on January 31, 2020 (commonly known as “Brexit”) and entered into an 11-month transition period during which the UK remained part
of the EU single market and customs union. The transition period concluded on December 31, 2020, and the UK left the EU single market and customs union under the terms of a new Trade and Cooperation Agreement. This agreement does not provide the UK with the same level of rights or access to
all goods and services in the EU as before, including in relation to financial services. Consequently, uncertainty remains in certain areas regarding the future UK-EU relationship.
From January 1, 2021, EU laws ceased to apply in the UK, with many being assimilated
into UK law until repealed, replaced, or amended. The UK government has enacted legislation to make substantial amendments to these
laws, creating unpredictable consequences for financial markets and investments. Brexit could significantly impact the UK, European,
and global macroeconomic conditions, leading to prolonged political, legal, regulatory, tax, and economic uncertainty. This uncertainty
may affect opportunities, pricing, availability, and cost of financing, regulation, values, or exit opportunities of companies or assets
based in, doing business with, or having significant relationships in the UK or EU.
Eurodollar and Yankee Dollar Instruments: Eurodollar instruments are bonds that pay interest and principal in U.S. dollars
held in banks outside the United States, primarily in Europe. Eurodollar instruments are usually
issued on behalf of multinational companies and foreign governments by large underwriting groups composed of banks and issuing houses from
many countries. The Eurodollar market is relatively free of regulations resulting in deposits that may pay somewhat higher interest than
onshore markets. Their offshore locations make
22
them subject to political and economic risk in the country of their domicile. Yankee
dollar instruments are U.S. dollar-denominated bonds issued in the United States by foreign banks and corporations. These investments involve
risks that are different from investments in securities issued by U.S. issuers and may carry the same risks as investing in foreign
(non-U.S.) securities.
Foreign Currencies: Investments in issuers in different countries are often denominated in foreign currencies.
Changes in the values of those currencies relative to the U.S. dollar may have a positive or negative effect
on the values of investments denominated in those currencies. Investments may be made in currency exchange contracts or other currency-related
transactions (including derivatives transactions) to manage exposure to different currencies. Also, these contracts may reduce or eliminate
some or all of the benefits of favorable currency fluctuations. The values of foreign currencies may fluctuate in response to, among
other factors, interest rate changes, intervention (or failure to intervene) by national governments, central banks, or supranational entities
such as the International Monetary Fund, the imposition of currency controls, and other political or regulatory developments. Currency values
can decrease significantly both in the short term and over the long term in response to these and other developments. Continuing uncertainty
as to the status of the Euro and the EMU has created significant volatility in currency and financial markets generally. Any
partial or complete dissolution of the EMU, or any continued uncertainty as to its status, could have significant adverse effects on currency and
financial markets, and on the values of portfolio investments. Some foreign countries have managed currencies, which do not float freely
against the U.S. dollar.
Sovereign Debt: Investments in debt instruments issued by governments or by government agencies and
instrumentalities (so called sovereign debt) involve the risk that the governmental entities responsible for repayment may
be unable or unwilling to pay interest and repay principal when due. A governmental entity’s willingness or ability to pay interest and repay principal in a timely manner may be affected by a variety of factors, including its cash flow, the size of its reserves, its access to foreign
exchange, the relative size of its debt service burden to its economy as a whole, and political constraints. A governmental entity may default
on its obligations or may require renegotiation or rescheduling of debt payment. Any restructuring of a sovereign debt obligation will
likely have a significant adverse effect on the value of the obligation. In the event of default of sovereign debt, legal action against the
sovereign issuer, or realization on collateral securing the debt, may not be possible. The sovereign debt of many non-U.S. governments, including
their sub-divisions and instrumentalities, is rated below investment grade. Sovereign debt risk may be greater for debt instruments issued
or guaranteed by emerging and/or frontier countries.
Sovereign debt includes Brady bonds, U.S. dollar-denominated bonds issued by an emerging
market and collateralized by U.S. Treasury zero-coupon bonds. Brady bonds arose from an effort in the 1980s to reduce the debt
held by less-developed countries that frequently defaulted on loans. The bonds are named for Treasury Secretary Nicholas Brady, who
helped international monetary organizations institute the program of debt-restructuring. Defaulted loans were converted into bonds with
U.S. Treasury zero-coupon bonds as collateral. Because the Brady bonds were backed by zero-coupon bonds, repayment of principal was insured.
The Brady bonds themselves are coupon-bearing bonds with a variety of rate options (fixed, variable, step, etc.) with maturities
of between 10 and 30 years. Issued at par or at a discount, Brady bonds often include warrants for raw material available in the country of origin
or other options.
Supranational Entities: Obligations of supranational entities include securities designated or supported
by governmental entities to promote economic reconstruction or development of international banking institutions and related
government agencies. Examples include the International Bank for Reconstruction and Development (the “World Bank”), the European Coal and Steel Community, the Asian Development Bank and the Inter-American Development Bank. There is no assurance that participating
governments will be able or willing to honor any commitments they may have made to make capital contributions to a supranational entity,
or that a supranational entity will otherwise have resources sufficient to meet its commitments.
DERIVATIVE INSTRUMENTS
Derivatives are financial contracts whose values change based on changes in the values
of one or more underlying assets or the difference between underlying assets. Underlying assets may include a security or other financial
instrument, asset, currency, interest rate, credit rating, commodity, volatility measure, or index. Examples of derivative instruments
include swap agreements, forward commitments, futures contracts, and options. Derivatives may be traded on contract markets or exchanges,
or may take the form of contractual arrangements between private counterparties. Investing in derivatives involves counterparty risk,
particularly with respect to contractual arrangements between private counterparties. Derivatives can be highly volatile and involve risks
in addition to, and potentially greater than, the risks of the underlying asset(s). Gains or losses from derivatives can be substantially greater than the derivatives’ original cost and can sometimes be unlimited. Derivatives typically involve leverage. Derivatives can be complex instruments
and can involve analysis and processing that differs from that required for other investment types. If the value of a derivative
does not correlate well with the particular market or other asset class the derivative is intended to provide exposure to, the derivative may
not have the effect intended. Derivatives can also reduce the opportunity for gains or result in losses by offsetting positive returns in other
investments. Derivatives can be less liquid than other types of investments. Legislation and regulation of derivatives in the United States
and other countries, including margin, clearing, trading, reporting, and position limits, may make derivatives more costly and/or less liquid,
limit the availability of certain types of derivatives, cause changes in the use of derivatives, or otherwise adversely affect the use of
derivatives.
Certain derivative transactions require margin or collateral to be posted to and/or
exchanged with a broker, prime broker, futures commission merchant, exchange, clearing house, or other third party, whether directly or through
a segregated custodial account. If an entity holding the margin or collateral becomes bankrupt or insolvent or otherwise fails to perform
its obligations due to financial difficulties, there could be delays and/or losses in liquidating open positions purchased or sold through
such entity and/or recovering amounts owed, including a loss of all or part of its collateral or margin deposits with such entity.
Some derivatives may be used for “hedging,” meaning that they may be used when the manager seeks to protect investments from
a decline in value, which could result from changes in interest rates, market prices,
currency fluctuations, and other market factors. Derivatives may also be used when the manager seeks to increase liquidity; implement a cash management
strategy; invest in a particular stock,
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bond, or segment of the market in a more efficient or less expensive way; modify the
characteristics of portfolio investments; and/or to enhance return. However, when derivatives are used, their successful use is not assured and will depend upon the manager’s ability to predict and understand relevant market movements.
Derivatives Regulation: The U.S. Congress, various exchanges and regulatory and self-regulatory authorities
have undertaken reviews of derivatives trading in recent periods. Among the actions that have been taken or proposed
to be taken are new position limits and reporting requirements, and new or more stringent daily price fluctuation limits for futures
and options transactions. In response to market events, the SEC and regulatory authorities in other jurisdictions may adopt (and in certain
cases, have adopted) bans on, and/or reporting requirements for, short positions on securities acquired through derivative transactions. Additional
measures are under active consideration and as a result there may be further actions that adversely affect the regulation of instruments
in which the Fund may invest. It is possible that these or similar measures could limit or completely restrict the ability of the Fund
to use these instruments as a part of its investment strategy. Limits or restrictions applicable to the counterparties with which the Fund
may engage in derivative transactions could also prevent the Fund from using these instruments.
The U.S. government has enacted legislation that provides for regulation of the derivatives
market, including clearing, margin, reporting, and registration requirements. The EU, the UK, and some other jurisdictions have implemented
or are in the process of implementing similar requirements, which will affect derivatives transactions with a counterparty organized in, or otherwise subject to, the EU’s or other jurisdiction’s derivatives regulations. Clearing rules and other new rules and regulations could, among other things, restrict a registered investment company's ability to engage in, or increase the cost of, derivatives transactions,
for example, by eliminating the availability of some types of derivatives, increasing margin or capital requirements, or otherwise
limiting liquidity or increasing transaction costs. While these rules and regulations and central clearing of some derivatives transactions
are designed to reduce systemic risk (i.e., the risk that the interdependence of large derivatives dealers could cause them to suffer liquidity,
solvency, or other challenges simultaneously), there is no assurance that they will achieve that result, and in the meantime, central clearing
and related requirements may expose investors to different kinds of costs and risks. For example, in the event of a counterparty's
(or its affiliate's) insolvency, the Fund's ability to exercise remedies (such as the termination of transactions, netting of obligations
and realization on collateral) could be stayed or eliminated under new special resolution regimes adopted in the United States, the EU, the UK
and various other jurisdictions. Such regimes provide government authorities with broad authority to intervene when a financial institution
is experiencing financial difficulty. In particular, the liabilities of counterparties who are subject to such proceedings in the EU and the
UK could be reduced, eliminated, or converted to equity in such counterparties (sometimes referred to as a “bail in”).
Additionally, U.S. regulators, the EU, the UK, and certain other jurisdictions have
adopted minimum margin and capital requirements for uncleared derivatives transactions. It is expected that these regulations will have
a material impact on the use of uncleared derivatives. These rules impose minimum margin requirements on derivatives transactions between
a registered investment company and its counterparties and may increase the amount of margin required. They impose regulatory requirements
on the timing of transferring margin and the types of collateral that parties are permitted to exchange.
The SEC adopted Rule 18f-4 under the 1940 Act (“Rule 18f-4”), related to the use of derivatives, reverse repurchase agreements, and certain other transactions by registered investment companies. In connection with
the adoption of Rule 18f-4, the SEC withdrew prior guidance requiring compliance with an asset segregation framework for covering certain
derivative instruments and related transactions. Rule 18f-4, like the prior guidance, provides a mechanism by which the Fund is able
to engage in derivatives transactions, even if the derivatives are considered to be “senior securities” for purposes of Section 18 of the 1940 Act, and it is expected that the Fund will
continue to rely on that exemption, to the extent applicable. Rule 18f-4, among other
things, requires a fund to apply value-at-risk (“VaR”) leverage limits to its investments in derivatives transactions and certain other transactions
that create future payment and delivery obligations as well as implement a derivatives risk management program. Generally, these requirements
apply unless a fund satisfies Rule 18f-4's “limited derivatives users” exception. When a fund invests in reverse repurchase agreements or similar financing
transactions, including certain tender option bonds, Rule 18f-4 requires the fund to either aggregate the
amount of indebtedness associated with the reverse repurchase agreements or similar financing transactions with the aggregate amount
of any other senior securities representing indebtedness when calculating the fund’s asset coverage ratio or treat all such transactions as derivatives transactions.
Exclusions of the Investment Adviser from commodity pool operator definition: With respect to the Fund, the Investment Adviser has claimed an exclusion from the definition of “commodity pool operator” (“CPO”) under the Commodity Exchange Act (the “CEA”) and the rules thereunder and, therefore, is not subject to CFTC registration or regulation as a
CPO. In addition, with respect to the Fund, the Investment Adviser is relying upon a related exclusion from the definition of “commodity trading advisor” under the CEA and the rules of the CFTC.
The terms of the CPO exclusion require the Fund, among other things, to adhere to
certain limits on its investments in “commodity interests.” Commodity interests include commodity futures, commodity options, and swaps, which,
in turn, include non-deliverable forward currency contracts, as further described below. Compliance with the terms of the CPO exclusion
may limit the ability of the Investment Adviser to manage the investment program of the Fund in the same manner as it would in the absence
of the exclusion. The Fund is not intended as a vehicle for trading in the commodity futures, commodity options, or swaps markets.
The CFTC has neither reviewed nor approved the Investment Adviser’s reliance on the exclusion, or the Fund, its investment strategies, or this SAI.
Forward Commitments: Forward commitments are contracts to purchase securities for a fixed price at a future
date beyond customary settlement time. A forward commitment may be disposed of prior to settlement. Such
a disposition would result in the realization of short-term profits or losses.
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Payment for the securities pursuant to one of these transactions is not required until
the delivery date. However, the purchaser assumes the risks of ownership (including the risks of price and yield fluctuations) and the
risk that the security will not be issued or delivered as anticipated. If the Fund makes additional investments while a delayed delivery purchase
is outstanding, this may result in a form of leverage. Forward commitments involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date, or if the other party fails to complete the transaction.
Forward Currency Contracts: A forward currency contract is an obligation to purchase or sell a specified currency
against another currency at a future date and price as agreed upon by the parties. Forward contracts usually
are entered into with banks and broker-dealers and usually are for less than one year, but may be renewed. Forward contracts may be held
to maturity and make the contemplated payment and delivery, or, prior to maturity, enter into a closing transaction involving the
purchase or sale of an offsetting contract. Secondary markets generally do not exist for forward currency contracts, with the result that
closing transactions generally can be made for forward currency contracts only by negotiating directly with the counterparty. Thus, there
can be no assurance that the Fund would be able to close out a forward currency contract at a favorable price or time prior to maturity.
Forward currency transactions may be used for hedging purposes. For example, the Fund
might sell a particular currency forward if it holds bonds denominated in that currency but the Investment Adviser (or Sub-Adviser,
if applicable) anticipates, and seeks to protect the Fund against, a decline in the currency against the U.S. dollar. Similarly, the Fund
might purchase a currency forward to “lock in” the dollar price of securities denominated in that currency which the Investment Adviser (or
Sub-Adviser, if applicable) anticipates purchasing for the Fund.
Hedging against a decline in the value of a currency does not limit fluctuations in
the prices of portfolio securities or prevent losses to the extent they arise from factors other than changes in currency exchange rates.
In addition, hedging transactions may limit opportunities for gain if the value of the hedged currency should rise. Moreover, it may not be
possible to hedge against a devaluation that is so generally anticipated that no contracts are available to sell the currency at a price above
the devaluation level it anticipates. The cost of engaging in currency exchange transactions varies with such factors as the currency involved,
the length of the contract period, and prevailing market conditions. Because currency exchange transactions are usually conducted on
a principal basis, no fees or commissions are involved.
Futures Contracts: A futures contract is an agreement between two parties to buy or sell in the future
a specific quantity of an underlying asset at a specific price and time agreed upon when the contract is made. Futures
contracts are traded in the U.S. only on commodity exchanges or boards of trade - known as “contract markets” - approved for such trading by the CFTC, and must be executed through a futures commission merchant (also referred to herein as a “broker”) which is a member of the relevant contract market. Futures are subject to the creditworthiness of the futures commission merchant(s) and clearing
organizations involved in the transaction.
Certain futures contracts are physically settled (i.e., involve the making and taking of delivery of a specified amount of an underlying
asset). For instance, the sale of physically settled futures contracts on foreign
currencies or financial instruments creates an obligation of the seller to deliver a specified quantity of an underlying foreign currency or
financial instrument called for in the contract for a stated price at a specified time. Conversely, the purchase of such futures contracts creates
an obligation of the purchaser to pay for and take delivery of the underlying asset called for in the contract for a stated price at
a specified time. In some cases, the specific instruments delivered or taken, respectively, on the settlement date are not determined until
on or near that date. That determination is made in accordance with the rules of the exchange on which the sale or purchase was made.
Some futures contracts are cash settled (rather than physically settled), which means
that the purchase price is subtracted from the current market value of the instrument and the net amount, if positive, is paid to
the purchaser by the seller of the futures contract and, if negative, is paid by the purchaser to the seller of the futures contract. See,
for example, “Index Futures Contracts” below.
The value of a futures contract typically fluctuates in correlation with the increase
or decrease in the value of the underlying asset. The buyer of a futures contract enters into an agreement to purchase the underlying asset
on the settlement date and is said to be “long” the contract. The seller of a futures contract enters into an agreement to sell the
underlying asset on the settlement date and is said to be “short” the contract.
The purchaser or seller of a futures contract is not required to deliver or pay for
the underlying asset unless the contract is held until the settlement date. The purchaser or seller of a futures contract is required to deposit
“initial margin” with a futures commission merchant when the futures contract is entered into. Initial margin is typically calculated
as a percentage of the contract's notional amount. A futures contract is valued daily at the official settlement price of the exchange on which
it is traded. Each day cash is paid or received, called “variation margin,” equal to the daily change in value of the futures contract. The minimum margin required
for a futures contract is set by the exchange on which the contract is traded and may be modified during the term
of the contract. Additional margin may be required by the futures commission merchant.
The risk of loss in trading futures contracts can be substantial, because of the low
margin required, the extremely high degree of leverage involved in futures pricing, and the potential high volatility of the futures markets.
As a result, a relatively small price movement in a futures position may result in immediate and substantial loss (or gain) to the investor.
Thus, a purchase or sale of a futures contract may result in unlimited losses. In the event of adverse price movements, an investor would
continue to be required to make daily cash payments to maintain its required margin. In addition, on the settlement date, an investor
may be required to make delivery of the assets underlying the futures positions it holds.
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Futures can be held until their settlement dates, or can be closed out by offsetting
purchases or sales of futures contracts before then if a liquid market is available. It may not be possible to liquidate or close out
a futures contract at any particular time or at an acceptable price and an investor would remain obligated to meet margin requirements until the
position is closed. Moreover, most futures exchanges limit the amount of fluctuation permitted in futures contract prices during a single
trading day. The daily limit establishes the maximum amount that the price of a futures contract may vary either up or down from the previous
day's settlement price at the end of a trading session. Once the daily limit has been reached in a particular type of contract, no
trades may be made on that day at a price beyond that limit. The daily limit governs only price movement during a particular trading day
and therefore does not limit potential losses, because the limit may prevent the liquidation of unfavorable positions. Futures contract prices
have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation
of futures positions and potentially resulting in substantial losses. The inability to close futures positions could require maintaining
a futures positions under circumstances where the manager would not otherwise have done so, resulting in losses.
If the Fund buys or sells a futures contract as a hedge to protect against a decline
in the value of a portfolio investment, changes in the value of the futures position may not correlate as expected with changes in the value
of the portfolio investment. As a result, it is possible that the futures position will not provide the desired hedging protection, or that
money will be lost on both the futures position and the portfolio investment.
Margin Payments: If the Fund purchases or sells a futures contract, it is required to deposit with
a futures commission merchant an amount of cash, U.S. Treasury bills, or other permissible collateral equal to a percentage
of the amount of the futures contract. This amount is known as “initial margin.” The nature of initial margin is different from that of margin in security transactions
in that it does not involve borrowing money to finance transactions. Rather, initial margin is similar
to a performance bond or good faith deposit that is returned to the Fund upon termination of the contract, assuming the Fund satisfies
its contractual obligations.
Subsequent payments to and from the broker occur on a daily basis in a process known
as “marking to market.” These payments are called “variation margin” and are made as the value of the underlying futures contract fluctuates. For example,
when the Fund sells a futures contract and the price of the underlying asset rises above the contract price, the Fund’s position declines in value. The Fund then pays the broker a variation margin payment generally equal to the difference between
the contract price of the futures contract and the market price of the underlying asset. Conversely, if the price of the underlying asset
falls below the contract price of the contract, the Fund’s futures position increases in value. The broker then must make a variation margin payment generally equal to the difference between the contract price of the futures contract and the market price of the underlying
asset. If an exchange raises margin rates, the Fund would have to provide additional capital to cover the higher margin rates which
could require closing out other positions earlier than anticipated.
If the Fund terminates a position in a futures contract, a final determination of
variation margin would be made, additional cash would be paid by or to the Fund, and the Fund would realize a loss or a gain. Such closing
transactions involve additional commission costs.
Index Futures Contracts: An index futures contract is a contract to buy or sell specified units of an index
at a specified future date at a price agreed upon when the contract is made. The value of a unit is based on the current
value of the index. Under such contracts no delivery of the actual securities or other assets making up the index takes place.
Rather, upon expiration of the contract, settlement is made by exchanging cash in an amount equal to the difference between the contract
price and the closing price of the index at expiration, net of variation margin previously paid.
Interest Rate Futures Contracts: An interest rate futures contract is an agreement to take or make delivery of either:
(i) an amount of cash equal to the difference between the value of a particular interest rate index,
debt instrument, or index of debt instruments at the beginning and at the end of the contract period; or (ii) a specified amount of a particular
debt instrument at a future date at a price set at the time of the contract. Interest rate futures contracts may be bought or sold
in an attempt to protect against the effects of interest rate changes on current or intended investments in debt instruments or generally to
adjust the duration and interest rate sensitivity of an investment portfolio. For example, if the Fund owned long-term bonds and interest
rates were expected to increase, the Fund might enter into interest rate futures contracts for the sale of debt instruments. Such
a sale would have much the same effect as selling some of the long-term bonds in the Fund’s portfolio. If interest rates did increase, the value of the debt instruments in the portfolio would decline, but the value of the interest rate futures contracts would be expected to
increase, subject to the correlation risks described below, thereby keeping the NAV of the Fund from declining as much as it otherwise
would have.
Similarly, if interest rates were expected to decline, interest rate futures contracts
may be purchased to hedge in anticipation of subsequent purchases of long-term bonds at higher prices. Since the fluctuations in the value
of the interest rate futures contracts should be similar to that of long-term bonds, an interest rate futures contract may protect against
the effects of the anticipated rise in the value of long-term bonds until the necessary cash becomes available or the market stabilizes. At that
time, the interest rate futures contracts could be liquidated and cash could then be used to buy long-term bonds on the cash market.
Similar results could be achieved by selling bonds with long maturities and investing in bonds with short maturities when interest rates
are expected to increase. However, the futures market may be more liquid than the cash market in certain cases or at certain times.
Foreign Currency Futures: Currency futures contracts are similar to currency forward contracts (described
above), except that they are traded on exchanges (and always have margin requirements) and are standardized as
to contract size and settlement date. Most currency futures call for payment in U.S. dollars. A foreign currency futures contract is a
standardized exchange-traded contract for the future sale of a specified amount of a foreign currency at a price set at the time of the contract.
Foreign currency futures contracts traded in the U.S. are designed by and traded on exchanges regulated by the CFTC, such as the Chicago
Mercantile Exchange, and have margin requirements.
26
At the maturity of a deliverable currency futures contract, the Fund either may accept
or make delivery of the currency specified in the contract, or at or prior to maturity enter into a closing transaction involving the
purchase or sale of an offsetting contract. Closing transactions with respect to futures contracts may be effected only on a commodities exchange or
board of trade which provides a market in such contracts. There is no assurance that a liquid market on an exchange or board of trade
will exist for any particular contract or at any particular time. In such event, it may not be possible to close a futures position
and, in the event of adverse price movements, the Fund would continue to be required to make daily cash payments of variation margin.
Options on Futures Contracts: Options on futures contracts generally operate in the same manner as options purchased
or written directly on the underlying assets. A futures option gives the holder, in return for the premium
paid, the right, but not the obligation, to assume a position in a futures contract (a long position if the option is a call and a short
position if the option is a put) at a specified exercise price at any time during the period of the option (or on a specified date, depending on its terms). Upon exercise of the option, the delivery of the futures position by the writer of the option to the holder of the option will
be accompanied by delivery of the accumulated balance in the writer’s futures margin account which represents the amount by which the market price of the futures contract, at exercise, exceeds (in the case of a call) or is less than (in the case of a put) the exercise price
of the option on the futures. If an option is exercised on the last trading day prior to its expiration date, the settlement will be made entirely
in cash. Purchasers of options who fail to exercise their options prior to the expiration date suffer a loss of the premium paid.
Like the buyer or seller of a futures contract, the holder or writer of an option
has the right to terminate its position prior to the scheduled expiration of the option by selling or purchasing an option of the same series, at
which time the person entering into the closing purchase transaction will realize a gain or loss. There is no guarantee that such closing purchase
transactions can be effected.
The Fund would be required to deposit initial margin and maintenance margin with respect
to put and call options on futures contracts written by it pursuant to brokers’ requirements similar to those described above in connection with the discussion on futures contracts. See “Margin Payments” above.
Risks of transactions in futures contracts and related options: Successful use of futures contracts is subject to the ability of the Investment
Adviser (or Sub-Adviser, if applicable) to predict movements in various factors affecting
financial markets. Compared to the purchase or sale of futures contracts, the purchase of call or put options on futures contracts
involves less potential risk to the Fund because the maximum amount at risk is the premium paid for the options (plus transaction costs).
However, there may be circumstances when the purchase of a call or put option on a futures contract would result in a loss when
the purchase or sale of a futures contract would not result in a loss, such as when there is no movement in the prices of the underlying
futures contracts. The writing of an option on a futures contract involves risks similar to those risks relating to the sale of futures contracts.
The use of futures and related options involves the risk of imperfect correlation
among movements in the prices of the assets underlying the futures and options, of the options and futures contracts themselves, and, in
the case of hedging transactions, of the underlying assets which are the subject of a hedge. The successful use of these strategies further
depends on the ability of the Investment Adviser (or Sub-Adviser, if applicable) to forecast market movements such as movements in
interest rates correctly. It is possible that, where the Fund has purchased puts on futures contracts to hedge its portfolio against a decline
in the market, the securities or index on which the puts are purchased may increase in value and the value of securities held in the portfolio
may decline. If this occurred, the Fund would lose money on the puts and also experience a decline in value in its portfolio securities.
In addition, the prices of futures, for a number of reasons, may not correlate perfectly with movements in the underlying asset due
to certain market distortions. For example, all participants in the futures market are subject to margin deposit requirements. Such requirements
may cause investors to close futures contracts through offsetting transactions, which could distort the normal relationship between
the underlying asset and futures markets. The margin requirements in the futures markets are less onerous than margin requirements in the
securities markets in general, and as a result the futures markets may attract more speculators than the securities markets do. Increased
participation by speculators in the futures markets may also cause temporary price distortions.
There is no assurance that higher than anticipated trading activity or other unforeseen
events might not, at times, render certain market clearing facilities inadequate, and thereby result in the institution by exchanges
of special procedures which may interfere with the timely execution of customer orders.
The ability to establish and close out positions will be subject to the development
and maintenance of a liquid market. It is not certain that this market will develop or continue to exist for a particular futures contract or option. The Fund’s futures commission merchant may limit the Fund’s ability to invest in certain futures contracts. Such restrictions may adversely affect the Fund’s performance and its ability to achieve its investment objective.
The CFTC, certain non-U.S. regulators, and many futures exchanges have established (and continue to evaluate and monitor) speculative
position limits, referred to as “position limits,” on the maximum net long or net short positions which any person may hold or control
in particular options and futures contracts. In addition, U.S. federal position limits apply to swaps that are economically equivalent to futures
contracts on certain agricultural, energy, and metals commodities. All positions owned or controlled by the same person or entity, even if in different accounts, must be aggregated for purposes of complying with these
speculative limits, unless an exemption applies. Thus, even if the Fund’s holding does not exceed applicable position limits, it is possible that some or all of the positions in client accounts managed by the Investment Adviser (or Sub-Adviser, if applicable) and its affiliates
may be aggregated for this purpose. It is possible that the trading decisions of the Investment Adviser (or Sub-Adviser, if applicable) may
be affected by the sizes of such aggregate positions.
27
The modification of investment decisions or the elimination of open positions, if
it occurs, may adversely affect the performance of the Fund. A violation of position limits could also lead to regulatory action materially adverse to the Fund’s investment strategy. The Fund may also be affected by other regimes, including those of the EU and UK, and trading
venues that impose position limits on commodity derivative contracts.
Hybrid Instruments: A hybrid instrument may be a debt instrument, preferred stock, depositary share,
trust certificate, warrant, convertible security, certificate of deposit or other evidence of indebtedness on which a portion
of or all interest payments, and/or the principal or stated amount payable at maturity, redemption or retirement, is determined by reference
to prices, changes in prices, or differences between prices, of securities, currencies, intangibles, goods, commodities, indexes,
economic factors or other measures, including interest rates, currency exchange rates, or commodities or securities indices, or other indicators.
Thus, hybrid instruments may take a variety of forms, including, but not limited to, debt instruments with interest or principal
payments or redemption terms determined by reference to the value of a currency or commodity or securities index at a future point in time,
preferred stocks with dividend rates determined by reference to the value of a currency, or convertible securities with the conversion
terms related to a particular commodity.
Hybrid instruments can be an efficient means of creating exposure to a particular
market, or segment of a market, with the objective of enhancing total return. For example, the Fund may wish to take advantage of expected
declines in interest rates in several European countries, but avoid the transaction costs associated with buying and currency-hedging
the foreign bond positions. One solution would be to purchase a U.S. dollar-denominated hybrid instrument whose redemption price
is linked to the average three-year interest rate in a designated group of countries. The redemption price formula would provide for payoffs
of greater than par if the average interest rate was lower than a specified level and payoffs of less than par if rates were above the
specified level. Furthermore, the Fund could limit the downside risk of the security by establishing a minimum redemption price so that the
principal paid at maturity could not be below a predetermined minimum level if interest rates were to rise significantly. The purpose
of this arrangement, known as a structured security with an embedded put option, would be to give the Fund the desired European bond exposure
while avoiding currency risk, limiting downside market risk, and lowering transactions costs. Of course, there is no guarantee that
the strategy would be successful, and the Fund could lose money if, for example, interest rates do not move as anticipated or credit problems
develop with the issuer of the hybrid instrument.
Risks of Investing in Hybrid Instruments: The risks of investing in hybrid instruments reflect a combination of the risks
of investing in securities, swaps, options, futures and currencies. An investment in a hybrid instrument
may entail significant risks that are not associated with a similar investment in a traditional debt instrument. The risks of a particular
hybrid instrument will depend upon the terms of the instrument, but may include the possibility of significant changes in the benchmark(s)
or the prices of the underlying assets to which the instrument is linked. Such risks generally depend upon factors unrelated to the operations
or credit quality of the issuer of the hybrid instrument, which may not be foreseen by the purchaser, such as economic and political
events, the supply and demand profiles of the underlying assets and interest rate movements. Hybrid instruments may be highly volatile.
The return on a hybrid instrument will be reduced by the costs of the swaps, options,
or other instruments embedded in the instrument.
Hybrid instruments are potentially more volatile and carry greater market risks than
traditional debt instruments. Depending on the structure of the particular hybrid instrument, changes in an underlying asset may be magnified
by the terms of the hybrid instrument and have an even more dramatic and substantial effect upon the value of the hybrid instrument.
Also, the prices of the hybrid instrument and the underlying asset may not move in the same direction or at the same time.
Hybrid instruments may bear interest or pay preferred dividends at below market (or
even nominal) rates. Alternatively, hybrid instruments may bear interest at above market rates but bear an increased risk of principal loss
(or gain). Leverage risk occurs when the hybrid instrument is structured so that a given change in an underlying asset is multiplied to produce
a greater value change in the hybrid instrument, thereby magnifying the risk of loss as well as the potential for gain.
If a hybrid instrument is used as a hedge against, or as a substitute for, a portfolio
investment, the hybrid instrument may not correlate as expected with the portfolio investment, resulting in losses. While hedging strategies
involving hybrid instruments can reduce the risk of loss, they can also reduce the opportunity for gain or even result in losses by
offsetting favorable price movements in other investments.
Hybrid instruments may also carry liquidity risk since the instruments are often “customized” to meet the portfolio needs of a particular investor. The Fund may be prohibited from transferring a hybrid instrument, or the
number of possible purchasers may be limited by applicable law or because few investors have an interest in purchasing such a customized product.
Because hybrid instruments are typically privately negotiated contracts between two parties, the value of a hybrid instrument will depend
on the willingness and ability of the issuer of the instrument to meet its obligations. Hybrid instruments also may not be subject to
regulation by the CFTC, which generally regulates the trading of futures, options on futures, and certain swaps.
Synthetic Convertible Securities: Synthetic convertible securities are derivative positions composed of two or more
different securities whose investment characteristics, taken together, resemble those of convertible securities.
For example, the Fund may purchase a non-convertible debt instrument and a warrant or option, which enables the Fund to have a convertible-like
position with respect to a company, group of companies, or stock index. Synthetic convertible securities are typically offered
by financial institutions and investment banks in private placement transactions. Upon conversion, the Fund generally receives an amount in
cash equal to the difference between the conversion price and the then-current value of the underlying security. Unlike a true convertible
security, a synthetic convertible security comprises two or more separate securities, each with its own market value. Therefore, the market
value of a synthetic convertible security is the sum of the values of its debt component and its convertible component. For this reason,
the value of a synthetic convertible security and a true convertible security may respond differently to market fluctuations.
28
Options: An option gives the holder the right, but not the obligation, to purchase (in the
case of a call option) or sell (in the case of a put option) a specific amount or value of a particular underlying asset at a specific
price (called the “exercise” or “strike” price) at one or more specific times before the option expires. The underlying asset of an option contract
can be a security, currency, index, future, swap, commodity, or other type of financial instrument. The seller of an option is called
an option writer. The purchase price of an option is called the premium. The potential loss to an option purchaser is limited to the amount of
the premium plus transaction costs. This will be the case, for example, if the option is held and not exercised prior to its expiration
date.
Options can be traded either through established exchanges (“exchange-traded options”) or privately negotiated transactions OTC options. Exchange-traded options are standardized with respect to, among other things, the
underlying asset, expiration date, contract size and strike price. The terms of OTC options are generally negotiated by the parties to
the option contract which allows the parties greater flexibility in customizing the agreement, but OTC options are generally less liquid
than exchange-traded options.
All option contracts involve credit risk if the counterparty to the option contract
(e.g., the clearing house or OTC counterparty) or the third party effecting the transaction in the case of cleared options (e.g., futures commission merchant or broker/dealer) fails to perform. The value of an OTC option that is not cleared is dependent on the credit worthiness of
the individual counterparty to the contract and may be greater than the credit risk associated with cleared options.
The purchaser of a put option obtains the right (but not the obligation) to sell a
specific amount or value of a particular asset to the option writer at a fixed strike price. In return for this right, the purchaser pays the option
premium. The purchaser of a typical put option can expect to realize a gain if the price of the underlying asset falls. However, if the underlying asset’s price does not fall enough to offset the cost of purchasing the option, the purchaser of a put option can expect to suffer
a loss (limited to the amount of the premium, plus related transaction costs).
The purchaser of a call option obtains the right (but not the obligation) to purchase
a specified amount or value of an underlying asset from the option writer at a fixed strike price. In return for this right, the purchaser
pays the option premium. The purchaser of a typical call option can expect to realize a gain if the price of the underlying asset rises. However, if the underlying asset’s price does not rise enough to offset the cost of purchasing the option, the buyer of a call option can
expect to suffer a loss (limited to the amount of the premium, plus related transaction costs).
The purchaser of a call or put option may terminate its position by allowing the option
to expire, exercising the option or closing out its position by entering into an offsetting option transaction if a liquid market is available.
If the option is allowed to expire, the purchaser will lose the entire premium. If the option is exercised, the purchaser would complete
the purchase or sale, as applicable, of the underlying asset to the option writer at the strike price.
The writer of a put or call option takes the opposite side of the transaction from the option’s purchaser. In return for receipt of the premium, the writer assumes the obligation to buy or sell (depending on whether the option
is a put or a call) a specified amount or value of a particular asset at the strike price if the purchaser of the option chooses to exercise
it. A call option written on a security or other instrument held by the Fund (commonly known as “writing a covered call option”) limits the opportunity to profit from an increase in the market price of the underlying asset above the exercise price of the option. A call option written
on securities that are not currently held by the Fund is commonly known as “writing a naked call option.” During periods of declining securities prices or when prices are stable, writing
these types of call options can be a profitable strategy to increase income with minimal
capital risk. However, when securities prices increase, the Fund would be exposed to an increased risk of loss, because if the price of the underlying asset or instrument exceeds the option’s exercise price, the Fund would suffer a loss equal to the amount by which the market
price exceeds the exercise price at the time the call option is exercised, minus the premium received. Calls written on securities
that the Fund does not own are riskier than calls written on securities owned by the Fund because there is no underlying asset held by the Fund
that can act as a partial hedge. When such a call is exercised, the Fund must purchase the underlying asset to meet its call obligation
or make a payment equal to the value of its obligation in order to close out the option. Calls written on securities that the Fund does not
own have speculative characteristics and the potential for loss is theoretically unlimited. There is also a risk, especially with less liquid
preferred and debt instruments, that the asset may not be available for purchase.
Generally, an option writer sells options with the goal of obtaining the premium paid
by the option purchaser. If an option sold by an option writer expires without being exercised, the writer retains the full amount of the premium. The option writer’s potential loss is equal to the amount the option is “in-the-money” when the option is exercised offset by the premium received when the option was written.
A call option is in-the-money if the value of the underlying asset exceeds the strike price of the option, and so the call option writer’s loss is theoretically unlimited. A put option is in-the-money if the strike price of the option
exceeds the value of the underlying asset, and so the put option writer’s loss is limited to the strike price. Generally, any profit realized by an option purchaser represents a loss for the option writer. The writer of an option may seek to terminate a position in the option before
exercise by closing out its position by entering into an offsetting option transaction if a liquid market is available. If the market is
not liquid for an offsetting option, however, the writer must continue to be prepared to sell or purchase the underlying asset at the strike price
while the option is outstanding, regardless of price changes.
If the Fund is the writer of a cleared option, the Fund is required to deposit initial
margin. Additional variation margin may also be required. If the Fund is the writer of an uncleared option, the Fund may be required to deposit
initial margin and additional variation margin.
A physical delivery option gives its owner the right to receive physical delivery
(if it is a call), or to make physical delivery (if it is a put) of the underlying asset when the option is exercised. A cash-settled option gives its
owner the right to receive a cash payment based on the difference between a determined value of the underlying asset at the time the
option is exercised and the fixed exercise price of the option. In the case of physically settled options, it may not be possible to terminate
the position at any particular time or at an acceptable
29
price. A cash-settled call conveys the right to receive a cash payment if the determined
value of the underlying asset at exercise exceeds the exercise price of the option, and a cash-settled put conveys the right to receive
a cash payment if the determined value of the underlying asset at exercise is less than the exercise price of the option.
Combination option positions are positions in more than one option at the same time.
A spread involves being both the buyer and writer of the same type of option on the same underlying asset but different exercise prices
and/or expiration dates. A straddle consists of purchasing or writing both a put and a call on the same underlying asset with the
same exercise price and expiration date.
The principal factors affecting the market value of a put or call option include supply
and demand, interest rates, the current market price of the underlying asset in relation to the exercise price of the option, the volatility
of the underlying asset and the remaining period to the expiration date.
If a trading market in particular options were illiquid, investors in those options
would be unable to close out their positions until trading resumes, and option writers may be faced with substantial losses if the value of the
underlying asset moves adversely during that time. There can be no assurance that a liquid market will exist for any particular options
product at any specific time. Lack of investor interest, changes in volatility, or other factors or conditions might adversely affect the liquidity,
efficiency, continuity, or even the orderliness of the market for particular options. Exchanges or other facilities on which options are
traded may establish limitations on options trading, may order the liquidation of positions in excess of these limitations, or may impose other
sanctions that could adversely affect parties to an options transaction.
Many options, in particular OTC options, are complex and often valued based on subjective
factors. Improper valuations can result in increased cash payment requirements to counterparties or a loss of value to the Fund.
Foreign Currency Options: Put and call options on foreign currencies may be bought or sold either on exchanges
or in the OTC market. A put option on a foreign currency gives the purchaser of the option the right to sell
a foreign currency at the exercise price until the option expires. A call option on a foreign currency gives the purchaser of the option the
right to purchase the currency at the exercise price until the option expires. Currency options traded on U.S. or other exchanges may be subject
to position limits which may limit the ability of the Fund to reduce foreign currency risk using such options.
Index Options: An index option is a put or call option on a securities index or other (typically
securities-related) index. In contrast to an option on a security, the holder of an index option has the right to receive a cash
settlement amount upon exercise of the option. This settlement amount is equal to: (i) the amount, if any, by which the fixed exercise
price of the option exceeds (in the case of a call) or is below (in the case of a put) the closing value of the underlying index on the date
of exercise, multiplied; by (ii) a fixed “index multiplier.” The index underlying an index option may be a “broad-based” index, such as the S&P 500® Index or the NYSE Composite Index, the changes in value of which ordinarily will reflect movements in the stock market in
general. In contrast, certain options may be based on narrower market indices, such as the S&P 100 Index, or on indices of securities of
particular industry groups, such as those of oil and gas or technology issuers. A stock index assigns relative values to the stocks included
in the index, and the index fluctuates with changes in the market values of the stocks so included. The composition of the index is changed
periodically. The risks of purchasing and selling index options are generally similar to the risks of purchasing and selling options
on securities.
Rights and Warrants: Warrants and rights are types of securities that give a holder a right to purchase
shares of common stock. Warrants usually are issued in conjunction with a bond or preferred stock and entitle a holder
to purchase a specified amount of common stock at a specified price typically for a period of years. Rights are instruments, frequently distributed to an issuer’s shareholders as a dividend, that usually entitle the holder to purchase a specified amount of common stock at
a specified price on a specific date or during a specific period of time (typically for a period of only weeks). The exercise price on a right
is normally at a discount from the market value of the common stock at the time of distribution.
Warrants may be used to enhance the marketability of a bond or preferred stock. Rights
are frequently used outside of the United States as a means of raising additional capital from an issuer’s current shareholders.
Warrants and rights do not carry with them the right to dividends or to vote, do not
represent any rights in the assets of the issuer and may or may not be transferable. Investments in warrants and rights may be considered
more speculative than certain other types of investments. In addition, the value of a warrant or right does not necessarily change
with the value of the underlying securities, and expires worthless if it is not exercised on or prior to its expiration date, if any.
Bonds issued with warrants attached to purchase equity securities have many characteristics
of convertible bonds and their prices may, to some degree, reflect the performance of the underlying stock. Bonds also may be
issued with warrants attached to purchase additional debt instruments.
Equity-linked warrants are purchased from a broker, who in turn is expected to purchase
shares in the local market. If the Fund exercises its warrant, the shares are expected to be sold and the warrant redeemed with the
proceeds. Typically, each warrant represents one share of the underlying stock. Therefore, the price and performance of the warrant
are directly linked to the underlying stock, less transaction costs. In addition to the market risk related to the underlying holdings, the Fund
bears counterparty risk with respect to the issuing broker. There is currently no active trading market for equity-linked warrants, and they may
be highly illiquid.
Index-linked warrants are put and call warrants where the value varies depending on
the change in the value of one or more specified securities indices. Index-linked warrants are generally issued by banks or other financial
institutions and give the holder the right, at any time during the term of the warrant, to receive upon exercise of the warrant a cash
payment from the issuer based on the value of the underlying index at the time of exercise. In general, if the value of the underlying
index rises above the exercise price of the index-linked
30
warrant, the holder of a call warrant will be entitled to receive a cash payment from
the issuer upon exercise based on the difference between the value of the index and the exercise price of the warrant; if the value
of the underlying index falls, the holder of a put warrant will be entitled to receive a cash payment from the issuer upon exercise based on
the difference between the exercise price of the warrant and the value of the index. The holder of a warrant would not be entitled to any payments
from the issuer at any time when, in the case of a call warrant, the exercise price is greater than the value of the underlying
index, or, in the case of a put warrant, the exercise price is less than the value of the underlying index. If the Fund were not to exercise an
index-linked warrant prior to its expiration, then the Fund would lose the amount of the purchase price paid by it for the warrant.
Index-linked warrants are normally used in a manner similar to its use of options
on securities indices. The risks of index-linked warrants are generally similar to those relating to its use of index options. Unlike most index
options, however, index-linked warrants are issued in limited amounts and are not obligations of a regulated clearing agency, but are
backed only by the credit of the bank or other institution that issues the warrant. Also, index-linked warrants may have longer terms than index
options. Index-linked warrants are not likely to be as liquid as certain index options backed by a recognized clearing agency. In addition,
the terms of index-linked warrants may limit the Fund’s ability to exercise the warrants at such time, or in such quantities, as the Fund would otherwise wish to do.
Indirect investment in foreign equity securities may be made through international
warrants, local access products, participation notes, or low exercise price warrants. International warrants are financial instruments issued
by banks or other financial institutions, which may or may not be traded on a foreign exchange. International warrants are a form of derivative
security that may give holders the right to buy or sell an underlying security or a basket of securities from or to the issuer for
a particular price or may entitle holders to receive a cash payment relating to the value of the underlying security or basket of securities.
International warrants are similar to options in that they are exercisable by the holder for an underlying security or the value of that security,
but are generally exercisable over a longer term than typical options. These types of instruments may be American style exercise, which
means that they can be exercised at any time on or before the expiration date of the international warrant, or European style exercise,
which means that they may be exercised only on the expiration date. International warrants have an exercise price, which is typically
fixed when the warrants are issued.
Low exercise price warrants are warrants with an exercise price that is very low relative
to the market price of the underlying instrument at the time of issue (e.g., one cent or less). The buyer of a low exercise price warrant effectively pays the
full value of the underlying common stock at the outset. In the case of any exercise of warrants, there may be
a time delay between the time a holder of warrants gives instructions to exercise and the time the price of the common stock relating
to exercise or the settlement date is determined, during which time the price of the underlying security could change significantly. These
warrants entail substantial credit risk, since the issuer of the warrant holds the purchase price of the warrant (approximately equal to the
value of the underlying investment at the time of the warrant’s issue) for the life of the warrant.
The exercise or settlement date of the warrants and other instruments described above
may be affected by certain market disruption events, such as difficulties relating to the exchange of a local currency into U.S.
dollars, the imposition of capital controls by a local jurisdiction or changes in the laws relating to foreign investments. These events
could lead to a change in the exercise date or settlement currency of the instruments, or postponement of the settlement date. In some cases,
if the market disruption events continue for a certain period of time, the warrants may become worthless, resulting in a total loss
of the purchase price of the warrants.
Investments in these instruments involve the risk that the issuer of the instrument
may default on its obligation to deliver the underlying security or cash in lieu thereof. These instruments may also be subject to liquidity
risk because there may be a limited secondary market for trading the warrants. They are also subject, like other investments in foreign
(non-U.S.) securities, to foreign risk and currency risk.
Swap Transactions and Options on Swap Transactions: Swap agreements are two-party contracts entered into primarily by institutional
investors for periods ranging from a few weeks to more than one year. In a standard
“swap” transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular
predetermined underlying assets, which may be adjusted for an interest factor. The gross returns to be exchanged or “swapped” between the parties are generally calculated with respect to a “notional amount,” (i.e., the return on or increase in value of a particular dollar amount invested at a
particular interest rate or in a “basket” of securities representing a particular index). When the Fund enters into an interest
rate swap, it typically agrees to make payments to its counterparty based on a specified long- or short-term interest rate, and will
receive payments from its counterparty based on another interest rate. Other forms of swap agreements include interest rate caps, under which,
in return for a specified payment stream, one party agrees to make payments to the other to the extent that interest rates exceed
a specified rate, or “cap”; interest rate floors, under which, in return for a specified payment stream, one party agrees to make payments
to the other to the extent that interest rates fall below a specified rate, or “floor”; and interest rate collars, under which a party sells a cap and purchases a floor
or vice versa in an attempt to protect itself against interest rate movements exceeding given minimum
or maximum levels. The Fund may enter into an interest rate swap in order, for example, to hedge against the effect of interest rate changes
on the value of specific securities in its portfolio, or to adjust the interest rate sensitivity (duration) or the credit exposure of its portfolio
overall, or otherwise as a substitute for a direct investment in debt instruments.
In a total return swap, one party typically agrees to pay to the other a short-term
interest rate in return for a payment at one or more times in the future based on the increase in the value of an underlying asset; if
the underlying asset declines in value, the party that pays the short-term interest rate must also pay to its counterparty a payment based on
the amount of the decline. A swap may create a long or short position in the underlying asset. A total return swap may be used to hedge
against an exposure in an investment portfolio (including to adjust the duration or credit quality of a bond portfolio) or generally to put
cash to work efficiently in the markets in anticipation of, or as a replacement for, cash investments. A total return swap may also be used to gain
exposure to securities or markets which may not be accessed directly (in so-called market access transactions).
31
In a credit default swap, one party provides what is in effect insurance against a
default or other adverse credit event affecting an issuer of debt instruments (typically referred to as a “reference entity”). In general, the protection “buyer” in a credit default swap is obligated to pay the protection “seller” an upfront amount or a periodic stream of payments over the term of the swap. If
a “credit event” occurs, the buyer has the right to deliver to the seller bonds or other obligations of the
reference entity (with a value up to the full notional value of the swap), and to receive a payment equal to the par value of the bonds or other
obligations. Rather than exchange the bonds for the par value, a single cash payment may be due from the seller representing the difference
between the par value of the bonds and the current market value of the bonds (which may be determined through an auction). Credit
events that would trigger a request that the seller make payment are specific to each credit default swap agreement, but generally include
bankruptcy, failure to pay, restructuring, obligation acceleration, obligation default, or repudiation/moratorium. If the Fund buys protection,
it may or may not own securities of the reference entity. If it does own securities of the reference entity, the swap serves as a hedge
against a decline in the value of the securities due to the occurrence of a credit event involving the issuer of the securities. If the
Fund does not own securities of the reference entity, the credit default swap may be seen to create a short position in the reference entity.
If the Fund is a buyer and no credit event occurs, the Fund will typically recover nothing under the swap, but will have had to pay the required
upfront payment or stream of continuing payments under the swap. If the Fund sells protection under a credit default swap, the position
may have the effect of creating leverage in the Fund’s portfolio through the Fund’s indirect long exposure to the issuer or securities on which the swap is written. If the Fund sells protection, it may do so either to earn additional income or to create such a “synthetic” long position. Credit default swaps involve general market risks, illiquidity risk, counterparty risk, and credit risk.
A cross-currency swap is a contract between two counterparties to exchange interest
and principal payments in different currencies. A cross-currency swap normally has an exchange of principal at maturity (the final exchange);
an exchange of principal at the start of the swap (the initial exchange) is optional. An initial exchange of notional principal
amounts at the spot exchange rate serves the same function as a spot transaction in the foreign exchange market (for an immediate exchange of
foreign exchange risk). An exchange at maturity of notional principal amounts at the spot exchange rate serves the same function as a
forward transaction in the foreign exchange market (for a future transfer of foreign exchange risk). The currency swap market convention
is to use the spot rate rather than the forward rate for the exchange at maturity. The economic difference is realized through the coupon
exchanges over the life of the swap. In contrast to single currency interest rate swaps, cross-currency swaps involve both interest rate
risk and foreign exchange risk.
The Fund may enter into swap transactions for any legal purpose consistent with its investment
objective and policies, such as for the purpose of attempting to obtain or preserve a particular return or spread at a lower
cost than obtaining a return or spread through purchases and/or sales of instruments in other markets, to protect against currency fluctuations,
as a duration management technique, to protect against any increase in the price of securities the Fund anticipates purchasing at a later date, or to gain exposure to certain markets in
a more economical way.
An interest rate cap is a right to receive periodic cash payments over the life of
the cap equal to the difference between any higher actual level of interest rates in the future and a specified strike (or “cap”) level. The cap buyer purchases protection for a floating rate move above the strike. An interest rate floor is the right to receive periodic cash payments
over the life of the floor equal to the difference between any lower actual level of interest rates in the future and a specified strike
(or “floor”) level. The floor buyer purchases protection for a floating rate move below the strike. The strikes are based on a reference rate
chosen by the parties and are typically measured quarterly. Rights arising pursuant to both caps and floors are typically exercised
automatically if the strike is in the money. Caps and floors can eliminate the risk that the buyer fails to exercise an in-the-money option.
The swap market has grown over the years, with a large number of banks and investment
banking firms acting both as principals and agents utilizing standard swap documentation, which has contributed to greater liquidity
in certain areas of the swap market under normal market conditions.
An option on swap agreement (“swaption”) is a contract that gives a counterparty the right (but not the obligation) to enter
into a new swap agreement or to shorten, extend, cancel, or otherwise modify an existing swap
agreement, at some designated future time on specified terms. Depending on the terms of the particular swaption, generally a greater
degree of risk is incurred when writing a swaption than when purchasing a swaption. If the Fund purchases a swaption, it risks losing
only the amount of the premium it has paid should it decide to let the option expire unexercised. However, if the Fund writes a swaption,
upon exercise of the option the Fund will become obligated according to the terms of the underlying agreement.
The successful use of swap agreements or swaptions depends on the manager’s ability to predict correctly whether certain types of investments are likely to produce greater returns than other investments. Moreover,
the Fund bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of
a swap agreement counterparty.
Swaps are highly specialized instruments that require investment techniques and risk
analyses different from those associated with traditional investments. The use of a swap requires an understanding not only of the referenced
asset, reference rate, or index but also of the swap itself, without the benefit of observing the performance of the swap under all possible
market conditions. Because they are two-party contracts that may be subject to contractual restrictions on transferability and termination
and because they may have terms of greater than seven days, swap agreements may be considered to be illiquid. To the extent that
a swap is not liquid, it may not be possible to initiate a transaction or liquidate a position at an advantageous time or price, which
may result in significant losses.
Like most other investments, swap agreements are subject to the risk that the market
value of the instrument will change in a way detrimental to the Fund’s interest. The Fund bears the risk that its manager will not accurately forecast future market trends or the values of assets, reference rates, indices, or other economic factors in establishing swap positions
for the Fund. If the manager attempts to use a swap as a hedge against, or as a substitute for, a portfolio investment, the Fund would
be exposed to the risk that the swap will have or will
32
develop imperfect or no correlation with the portfolio investment. This could cause
substantial losses for the Fund. While hedging strategies involving swap instruments can reduce the risk of loss, they can also reduce the opportunity
for gain or even result in losses by offsetting favorable price movements in other Fund investments. Many swaps are complex and often
valued subjectively.
Counterparty risk with respect to derivatives has been and may continue to be affected
by rules and regulations concerning the derivatives market. Some interest rate swaps and credit default index swaps are required to be
centrally cleared, and a party to a cleared derivatives transaction is subject to the credit risk of the clearing house and the clearing member
through which it holds the position. Credit risk of market participants with respect to derivatives that are centrally cleared is concentrated
in a few clearing houses and clearing members, and it is not clear how an insolvency proceeding of a clearing house or clearing member
would be conducted, what effect the insolvency proceeding would have on any recovery by the Fund, and what impact an insolvency of
a clearing house or clearing member would have on the financial system more generally. In some ways, cleared derivative arrangements
are less favorable to the Fund than bilateral arrangements, for example, by requiring that the Fund provide more margin for its cleared derivatives
positions. Also, as a general matter, in contrast to a bilateral derivatives position, following a period of notice to the Fund, the clearing
house or the clearing member through which it holds its position at any time can require termination of an existing cleared derivatives
position or an increase in the margin required at the outset of a transaction. Any increase in margin requirements or termination of existing
cleared derivatives positions by the clearing member or the clearing house could interfere with the ability of the Fund to pursue its investment
strategy.
Also, in the event of a counterparty's (or its affiliate's) insolvency, the possibility
exists that the Fund's ability to exercise remedies, such as the termination of transactions, netting of obligations and realization on collateral,
could be stayed or eliminated under special resolution regimes adopted in the U.S., the EU, the UK, and various other jurisdictions. Such
regimes provide government authorities with broad authority to intervene when a financial institution is experiencing financial difficulty.
In particular, the regulatory authorities could reduce, eliminate, or convert to equity the liabilities to the Fund of a counterparty who
is subject to such proceedings in the EU and the UK (sometimes referred to as a “bail in”).
The U.S. government, the EU, and the UK have also adopted mandatory minimum margin
requirements for bilateral derivatives. Such requirements could increase the amount of margin required to be provided by the Fund
in connection with its derivatives transactions and, therefore, make derivatives transactions more expensive.
Foreign Currency Warrants: Foreign currency warrants such as Currency Exchange WarrantsSM (“CEWsSM”) are warrants that entitle the holder to receive from their issuer an amount of cash (generally, for warrants issued
in the U.S., in U.S. dollars) which is calculated pursuant to a predetermined formula and based on the exchange rate between a specified
foreign currency and the U.S. dollar as of the exercise date of the warrant. Foreign currency warrants generally are exercisable
upon their issuance and expire as of a specified date and time. The formula used to determine the amount payable upon exercise of a foreign
currency warrant may make the warrant worthless unless the applicable foreign currency exchange rate moves in a particular direction
(e.g., unless the U.S. dollar appreciates or depreciates against the particular foreign currency to which the warrant is linked or indexed).
OTHER INVESTMENT TECHNIQUES
Borrowing: Borrowing may result in leveraging of the Fund’s assets. This borrowing may be secured or unsecured. Borrowing, like other forms of leverage, will tend to exaggerate the effect on NAV of any increase or decrease in the market value of the Fund’s portfolio. Money borrowed will be subject to interest costs which may or may not be recovered by appreciation
of the securities purchased, if any. The Fund also may be required to maintain minimum average balances in connection with
such borrowing or to pay a commitment or other fee to maintain a line of credit; either of these requirements would increase the
cost of borrowing over the stated interest rate. Provisions of the 1940 Act require the Fund to maintain continuous asset coverage (that is, total
assets including borrowings, less liabilities exclusive of borrowings) of 300% of the amount borrowed, with an exception for borrowings not in excess of 5% of the Fund’s total assets made for temporary administrative purposes. Any borrowings for temporary administrative
purposes in excess of 5% of total assets must maintain continuous asset coverage. If the 300% asset coverage should decline as a result of
market fluctuations or other reasons, the Fund may be required to sell some of its portfolio holdings within three days to reduce the
debt and restore the 300% asset coverage, even though it may be disadvantageous from an investment standpoint to sell holdings at that time.
From time to time, the Fund may enter into, and make borrowings for temporary purposes
related to the redemption of shares under, a credit agreement with third-party lenders. Borrowings made under such credit agreements
will be allocated pursuant to guidelines approved by the Board.
The Fund may engage in other transactions that may have the effect of creating leverage in the Fund’s portfolio, including, by way of example, reverse repurchase agreements, dollar rolls, and derivatives transactions.
The Fund will generally not treat such transactions as borrowings of money.
Illiquid Securities: Illiquid investment means any investment that the Fund reasonably expects cannot
be sold or disposed of in current market conditions in seven calendar days or less without the sale or disposition significantly
changing the market value of the investment.
Participation on Creditors’ Committees: The Fund may from time to time participate on committees formed by creditors to negotiate
with the management of financially troubled issuers of securities held by the Fund. Such
participation may incur additional expenses such as legal fees and may make the Fund an “insider” of the issuer for purposes of the federal securities laws, which may restrict such Fund’s ability to trade in or acquire additional positions in a particular security when
it might otherwise desire to do so. Participation on such committees may also expose the Fund to potential liabilities under the federal bankruptcy
laws or other laws governing the rights of creditors and debtors.
33
Repurchase Agreements: A repurchase agreement is a contract under which the Fund acquires a security for
a relatively short period (usually not more than one week) subject to the obligation of the seller to repurchase
and the Fund to resell such security at a fixed time and price. Repurchase agreements may be viewed as loans which are collateralized by
the securities subject to repurchase. The value of the underlying securities in such transactions will be at least equal at all times
to the total amount of the repurchase obligation, including the interest factor. If the seller defaults, the Fund could realize a loss on the
sale of the underlying security to the extent that the proceeds of sale including accrued interest are less than the resale price provided in the
agreement including interest. In addition, if the seller should be involved in bankruptcy or insolvency proceedings, the Fund may incur delay
and costs in selling the underlying security or may suffer a loss of principal and interest if the Fund is treated as an unsecured creditor
and required to return the underlying collateral to the seller’s estate. To the extent that the Fund has invested a substantial portion of its assets in repurchase agreements, the investment return on such assets, and potentially the ability to achieve the investment objectives, will depend on the counterparties’ willingness and ability to perform their obligations under the repurchase agreements. The SEC has finalized new rules requiring the central clearing of certain repurchase transactions involving U.S. Treasuries. The mandatory clearing
of such repurchase transactions could increase the cost of repurchase transactions and impose added operational complexity which could
make it more difficult for the Fund to execute certain investment strategies.
Restricted Securities: Securities that are legally restricted as to resale (such as those issued in private placements), including securities governed by Rule 144A and Regulation S, and securities that are offered in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended, are referred to as “restricted securities.” Restricted securities may be sold in private placement transactions between issuers
and their purchasers and may be neither listed on an exchange nor traded in other
established markets. Due to the absence of a public trading market, restricted securities may be more volatile, less liquid, and more difficult to value than publicly- traded securities. The price realized from the sale of these securities could be less than the amount originally
paid or less than their fair value if they are resold in privately negotiated transactions. In addition, these securities may not be subject to disclosure and other investment
protection requirements that are afforded to publicly-traded securities. Certain restricted securities represent
investments in smaller, less seasoned issuers, which may involve greater risk. The Fund may incur additional expenses when disposing of restricted securities, including
costs to register the sale of the securities. The Board has delegated to Fund management the responsibility
for monitoring and determining the liquidity of restricted securities, subject to the Board’s oversight.
Reverse Repurchase Agreements and Dollar Roll Transactions: Reverse repurchase agreements involve sales of portfolio securities to another party and an agreement by the Fund to repurchase the same securities at a
later date at a fixed price. During the reverse repurchase agreement period, the Fund continues to receive principal and interest payments on
the securities and also has the opportunity to earn a return on the collateral furnished by the counterparty to secure its obligation
to redeliver the securities.
Dollar rolls involve selling securities (e.g., mortgage-backed securities or U.S. Treasury securities) and simultaneously entering
into a commitment to purchase those or similar securities on a specified future date and
price from the same party. Mortgage-dollar rolls and U.S. Treasury rolls are types of dollar rolls. During the roll period, principal and
interest paid on the securities is not received but proceeds from the sale can be invested.
Reverse repurchase agreement and dollar rolls involve the risk that the market value
of the securities to be repurchased under the agreement may decline below the repurchase price. If the buyer of securities under a reverse
repurchase agreement or dollar rolls files for bankruptcy or becomes insolvent, such a buyer or its trustee or receiver may receive an extension
of time to determine whether to enforce the obligation to repurchase the securities and use of the proceeds of the reverse repurchase agreement
may effectively be restricted pending such decision. Additionally, reverse repurchase agreements entail many of the same risks
as OTC derivatives. These include the risk that the counterparty to the reverse repurchase agreement may not be able to fulfill its obligations,
that the parties may disagree as to the meaning or application of contractual terms, or that the instrument may not perform as expected. The SEC has finalized new rules requiring the central clearing of certain reverse repurchase transactions involving U.S. Treasuries.
The mandatory clearing of such transactions could increase the cost of such transactions and impose added operational complexity which
could make it more difficult for the Fund to execute certain investment strategies.
Securities Lending: Securities lending involves lending of portfolio securities to qualified broker/dealers,
banks or other financial institutions who may need to borrow securities in order to complete certain transactions, such
as covering short sales, avoiding failure to deliver securities, or completing arbitrage operations. Securities are loaned pursuant to
a securities lending agreement approved by the Board and under the terms, structure and the aggregate amount of such loans consistent with
the 1940 Act. Lending portfolio securities increases the lender’s income by receiving a fixed fee or a percentage of the collateral, in addition to receiving the interest or dividend on the securities loaned. As collateral for the loaned securities, the borrower gives the
lender collateral equal to at least 100% of the value of the loaned securities. The collateral may consist of cash (including U.S. dollars
and foreign currency), securities issued by the U.S. Government or its agencies or instrumentalities, or such other collateral as may be approved
by the Board. The borrower must also agree to increase the collateral if the value of the loaned securities increases but may request some
of the collateral be returned if the market value of the loaned securities goes down.
During the existence of the loan, the lender will receive from the borrower amounts
equivalent to any dividends, interest or other distributions on the loaned securities, as well as interest on such amounts. Loans are subject to
termination by the lender or a borrower at any time. The Fund may choose to terminate a loan in order to vote in a proxy solicitation.
During the time a security is on loan and the issuer of the security makes an interest
or dividend payment, the borrower pays the lender a substitute payment equal to any interest or dividends the lender would have received
directly from the issuer of the security if the lender had not loaned the security. When a lender receives dividends directly from domestic
or certain foreign corporations, a portion of the dividends paid by the lender itself to its shareholders and attributable to those
dividends (but not the portion attributable to substitute
34
payments) may be eligible for (i) treatment as “qualified dividend income” in the hands of individuals or (ii) the U.S. federal dividends received deduction in the hands of corporate shareholders. The Investment Adviser
expects generally to follow the practice of causing the Fund to terminate a securities loan – and forego any income on the loan after the termination – in anticipation of a dividend payment. By doing so, a lender would receive the dividend directly from the issuer of the securities,
rather than a substitute payment from the borrower of the securities, and thereby preserve the possibility of those tax benefits for certain shareholders. A lender’s shares may be held by affiliates of the Investment Adviser, and the Investment Adviser’s termination of securities loans under these circumstances (resulting in the lender’s foregoing income from the loans after the termination) may provide an economic benefit to those affiliates.
Securities lending involves counterparty risk, including the risk that a borrower
may not provide additional collateral when required or return the loaned securities in a timely manner. Counterparty risk also includes a
potential loss of rights in the collateral if the borrower or the Lending Agent defaults or fails financially. This risk is increased if loans
are concentrated with a single borrower or limited number of borrowers. There are no limits on the number of borrowers that may be used and
securities may be loaned to only one or a small group of borrowers. Participation in securities lending also incurs the risk of loss in
connection with investments of cash collateral received from the borrowers. Cash collateral is invested in accordance with investment guidelines
contained in the Securities Lending Agreement and approved by the Board. Some or all of the cash collateral received in connection with
the securities lending program may be invested in one or more pooled investment vehicles, including, among other vehicles, money market
funds managed by the Lending Agent (or its affiliates). The Lending Agent shares in any income resulting from the investment
of such cash collateral, and an affiliate of the Lending Agent may receive asset-based fees for the management of such pooled investment vehicles,
which may create a conflict of interest between the Lending Agent (or its affiliates) and the Fund with respect to the management
of such cash collateral. To the extent that the value or return on investments of the cash collateral declines below the amount owed
to a borrower, the Fund may incur losses that exceed the amount it earned on lending the security. The Lending Agent will indemnify the Fund from losses resulting from a borrower’s failure to return a loaned security when due, but such indemnification does not extend
to losses associated with declines in the value of cash collateral investments. The Investment Adviser is not responsible for any loss
incurred by the Fund in connection with the securities lending program.
Short Sales: Short sales can be made “against the box” or not “against the box.” A short sale that is not made “against the box” is a transaction in which a party sells a security it does not own, in anticipation of
a decline in the market value of that security. To complete such a transaction, the seller must borrow the security to make delivery to the buyer.
To borrow the security, the seller also may be required to pay a premium, which would increase the cost of the security sold. The
seller then is obligated to replace the security borrowed by purchasing it at the market price at the time of replacement. It may not be possible
to liquidate or close out the short sale at any particular time or at an acceptable price. The price at such a time may be more or
less than the price at which the security was sold by the seller. The seller will incur a loss if the price of the security increases between
the date of the short sale and the date on which the seller replaced the borrowed security. Such loss may be unlimited. The seller will
realize a gain if the security declines in price between those dates. The amount of any gain will decrease, and the amount of a loss will increase,
by the amount of the premium, dividends or interest the seller may be required to pay in connection with a short sale. The proceeds
of the short sale will be retained by the broker, to the extent necessary to meet the margin requirements, until the short position
is closed out.
The seller may also make short sales “against the box.” A short sale “against the box” is a transaction in which a security identical to one owned by the seller is borrowed and sold short. If the seller enters into a short
sale against the box, it is required to hold securities equivalent in-kind and in amount to the securities sold short (or securities convertible
or exchangeable into such securities) while the short sale is outstanding. The seller will incur transaction costs, including interest,
in connection with opening, maintaining, and closing short sales against the box and will forgo an opportunity for capital appreciation
in the security.
Selling short “against the box” typically limits the amount of effective leverage. Short sales “against the box” may be used to hedge against market risks when the manager believes that the price of a security may decline,
causing a decline in the value of a security or a security convertible into or exchangeable for such security. In such case, any future
losses in the long position would be reduced by a gain in the short position. The extent to which such gains or losses in the long position
are reduced will depend upon the amount of securities sold short relative to the amount of the securities owned, either directly
or indirectly, and, in the case of convertible securities, changes in the investment values or conversion premiums of such securities.
In response to market events, the SEC and regulatory authorities in other jurisdictions
may adopt (and in certain cases, have adopted) bans on, and/or reporting requirements for, short sales of certain securities. See “Derivatives Regulation” for more information.
To Be Announced Sale Commitments: To be announced commitments represent an agreement to purchase or sell securities
on a delayed delivery or forward commitment basis through the “to-be announced” (“TBA”) market. With TBA transactions, a commitment is made to either purchase or sell securities for a fixed price, without payment, and delivery
at a scheduled future dated beyond the customary settlement period for securities. In addition, with TBA transactions, the particular
securities to be delivered or received are not identified at the trade date; however, securities delivered to a purchaser must meet specified
criteria (such as yield, duration, and credit quality) and contain similar characteristics. TBA securities may be sold to hedge positions
or to dispose of securities under delayed delivery arrangements.
Although the particular TBA securities must meet industry-accepted “good delivery” standards, there can be no assurance that a security purchased on a forward commitment basis will ultimately be issued or delivered by
the counterparty. During the settlement period, the purchaser will still bear the risk of any decline in the value of the security to
be delivered. Because these transactions do not require the purchase and sale of identical securities, the characteristics of the security delivered
to the purchaser may be less favorable than the security delivered to the dealer. The purchaser of TBA securities generally is subject
to increased market risk and interest rate risk because the delivered securities may be less favorable than anticipated by the purchaser.
TBA securities have the effect of creating leverage.
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Recently effective FINRA rules include mandatory margin requirements for the TBA market with
limited exceptions. TBAs historically have not been required to be collateralized. The collateralization of TBA trades is intended
to mitigate counterparty credit risk between trade and settlement, but could increase the cost of TBA transactions and impose added operational
complexity.
When-Issued Securities and Delayed Delivery Transactions: When-issued securities and delayed delivery transactions involve the purchase or sale of securities at a predetermined price or yield with payment and delivery
taking place in the future after the customary settlement period for that type of security. Upon the purchase of the securities, liquid assets
with an amount equal to or greater than the purchase price of the security will be set aside to cover the purchase of that security. The
value of these securities is reflected in the net assets value as of the purchase date; however, no income accrues from the securities prior
to their delivery.
There can be no assurance that a security purchased on a when-issued basis will be
issued or that a security purchased or sold on a delayed delivery basis will be delivered. When the Fund engages in when-issued or
delayed delivery transactions, it relies on the other party to consummate the trade. Failure of such party to do so may result in the Fund’s incurring a loss or missing an opportunity to obtain a price considered to be advantageous.
The purchase of securities in this type of transaction increases an overall investment
exposure and involves a risk of loss if the value of the securities declines prior to settlement. If deemed advisable as a matter of investment
strategy, the securities may be disposed of or the transaction renegotiated after it has been entered into, and the securities sold
before those securities are delivered on the settlement date.
OTHER RISKS AND CONSIDERATIONS
Cyber Security Issues: Cyber security incidents and cyber-attacks (referred to collectively herein as “cyber-attacks”) have been occurring globally at a more frequent and severe level and will likely continue to increase
in frequency in the future. The Voya family of funds, and their service providers, may be prone to operational and information security risks resulting from cyber-attacks. Furthermore, as the Fund’s assets grow, it may become a more appealing target for cybersecurity threats such
as hackers and malware. Cyber-attacks include, among other behaviors, stealing or corrupting data maintained online or digitally, denial
of service attacks on websites, ransomware attacks, social engineering attempts (such as business email compromise attacks), the unauthorized
release of confidential information or various other forms of cyber security breaches. Cyber-attacks affecting the Fund or its service
providers may adversely impact the Fund. For instance, cyber-attacks may interfere with the processing of shareholder transactions, impact the Fund’s ability to calculate its NAV, cause the release of private shareholder information or confidential business information, impede
trading, subject the Fund to regulatory fines or financial losses and/or cause reputational damage. The Fund may also incur additional
costs for cyber security risk management purposes. In addition, substantial costs may be incurred in order to prevent any cyber-attacks
in the future. Similar types of cyber security risks are also present for issuers of securities in which the Fund may invest, which could result
in material adverse consequences for such issuers and may cause the Fund’s investment in such companies to lose value. In addition, cyber-attacks involving the Fund’s counterparty could affect such counterparty's ability to meet its obligations to the Fund, which may
result in losses to the Fund and its shareholders. Furthermore, as a result of cyber-attacks, disruptions or failures, an exchange or market may close
or issue trading halts on specific securities or the entire market, which may result in the Fund being, among other things, unable to buy
or sell certain securities or unable to accurately price its investments. While the Fund has established a business continuity plan in
the event of, and risk management systems to prevent, such cyber-attacks, there are inherent limitations in such plans and systems including
the possibility that certain risks have not been identified. Furthermore, the Fund cannot control the cyber security plans and systems
put in place by service providers to the Fund, and such third-party service providers may have limited indemnification obligations to
the Investment Adviser or the Fund, each of whom could be negatively impacted as a result. The Fund and its shareholders could be negatively
impacted as a result. Any problems relating to the performance and effectiveness of security procedures used by the Fund or third-party service providers to protect the Fund’s assets, such as algorithms, codes, passwords, multiple signature systems, encryption and telephone
call-backs, may have an adverse impact on an investment in the Fund. There may be an increased risk of cyber-attacks during
periods of geo-political or military conflict and new ways to carry out cyber-attacks are always developing. In addition, the rapid development and increasingly widespread use of artificial intelligence, including machine learning technology and generative artificial intelligence
such as ChatGPT, could exacerbate these risks. Therefore, there is a chance that some risks have not been identified or prepared
for, or that an attack may not be detected, which puts limitations on the Fund’s ability to plan for or respond to a cyber-attack.
Qualified Financial Contracts: The Fund’s investments may involve qualified financial contracts (“QFCs”). QFCs include, but are not limited to, securities contracts, commodities contracts, forward contracts, repurchase agreements,
securities lending agreements and swaps agreements, as well as related master agreements, security agreements, credit enhancements,
and reimbursement obligations. Under regulations adopted by federal banking regulators pursuant to the Dodd-Frank Wall
Street Reform and Consumer Protection Act, certain QFCs with counterparties that are part of U.S. or foreign global systemically important
banking organizations are required to include contractual restrictions on close-out and cross-default rights. If a covered counterparty of the
Fund or certain of the covered counterparty's affiliates were to become subject to certain insolvency proceedings, the Fund may be temporarily,
or in some cases permanently, unable to exercise certain default rights, and the QFC may be transferred to another entity. These requirements may impact the Fund’s credit and counterparty risks.
Redemption Risk: The Fund may experience periods of heavy redemptions that could cause the Fund to
liquidate its assets at inopportune times or at a loss or depressed value, particularly during periods of declining or
illiquid markets. A number of circumstances may cause the Fund to experience heavy redemptions, including, but not limited to, the occurrence
of significant events affecting investor demand for securities or asset classes in which the Fund invests; changes in the eligibility
criteria for the Fund or share class of the Fund; other announced Fund events; or changes in investment objectives, strategies, policies,
risks or investment personnel. Redemption risk is greater to the extent that the Fund has investors with large shareholdings, short
investment horizons, or unpredictable cash flow needs.
36
In addition, redemption risk is heightened during periods of overall market turmoil.
The redemption by one or more large shareholders of their holdings in the Fund could hurt performance and/or cause the remaining shareholders
in the Fund to lose money. Heavy redemptions may result in taxable income and/or gains for the Fund, which may increase taxable
distributions to shareholders, and may also increase transaction costs. The effects of taxable income and/or gains resulting from heavy
redemptions would particularly impact non-redeeming shareholders who do not hold their Fund shares in an IRA, 401(k) plan or other tax-advantaged
arrangement. To the extent that such redemptions result in short-term capital gains, such gains when distributed by the
Fund will generally be taxed at the ordinary U.S. federal income tax rate for individual shareholders who hold Fund shares in a taxable account. The Fund’s redemption risk is increased if one decision maker has control of fund shares owned by separate fund shareholders, including
clients or affiliates of the Investment Adviser. If the Fund is forced to liquidate its assets under unfavorable conditions or at inopportune
times, the value of your investment could decline.
TEMPORARY DEFENSIVE STRATEGIES
When the Investment Adviser or the Sub-Adviser to the Fund anticipates unusual market,
economic, political, or other conditions, the Fund may temporarily depart from its principal investment strategies as a defensive measure.
In such circumstances, the Fund may invest in securities believed to present less risk, such as cash, cash equivalents, money market
fund shares and other money market instruments, debt instruments that are high quality or higher quality than normal, more liquid
securities, or others. While the Fund invests defensively, it may not achieve its investment objective. The Fund's defensive investment position
may not be effective in protecting its value. It is impossible to predict accurately how long such alternative strategies may be utilized.
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PORTFOLIO TURNOVER
A change in securities held in the Fund’s portfolio is known as portfolio turnover and may involve the payment by the Fund of dealer mark-ups or brokerage or underwriting commissions and other transaction costs associated
with the purchase or sale of securities.
The Fund may sell a portfolio investment soon after its acquisition if the Investment
Adviser or Sub-Adviser believes that such a disposition is consistent with the Fund’s investment objective. Portfolio investments may be sold for a variety of reasons, such as a more favorable investment opportunity or other circumstances bearing on the desirability of continuing
to hold such investments. Portfolio turnover rate for a fiscal year is the percentage determined by dividing (i) the lesser of the cost
of purchases or sales of portfolio securities by (ii) the monthly average of the value of portfolio securities owned by the Fund during the
fiscal year. Securities with maturities at acquisition of one year or less are excluded from this calculation. The Fund cannot accurately predict
its turnover rate; however, the rate will be higher when the Fund finds it necessary or desirable to significantly change its portfolio
to adopt a temporary defensive position or respond to economic or market events.
A portfolio turnover rate of 100% or more is considered high, although the rate of
portfolio turnover will not be a limiting factor in making portfolio decisions. A high rate of portfolio turnover involves correspondingly greater
brokerage commission expenses and transaction costs which are ultimately borne by the Fund’s shareholders. High portfolio turnover may result in the realization of substantial capital gains.
FUNDAMENTAL AND NON-FUNDAMENTAL INVESTMENT RESTRICTIONS
Unless otherwise indicated or as required by applicable law or regulation, whenever an investment policy or limitation states a maximum percentage of the Fund’s assets that may be invested in any security or other asset, or sets forth a policy regarding quality standards, such percentage limitation or standard will be determined immediately after and as a result of the Fund’s acquisition of such security or other asset, except in the case of borrowing (or other activities that may be deemed
to result in the issuance of a “senior security” under the 1940 Act). Accordingly, any subsequent change in value, net assets or other circumstances
will not be considered when determining whether the investment complies with the Fund’s investment policies and limitations.
There is no limitation on the percentage of the Fund’s total assets that may be invested in instruments which are not readily marketable or subject to restrictions on resale and to the extent the Fund invests in such instruments, the Fund’s portfolio should be considered illiquid. The extent to which the Fund invests in such instruments may affect its
ability to realize the NAV of the Fund in the event of the voluntary or involuntary liquidation of its assets.
FUNDAMENTAL INVESTMENT RESTRICTIONS
The Fund has adopted the following investment restrictions as fundamental policies,
which means they cannot be changed without the approval of the holders of a “majority” of the Fund’s outstanding voting securities, as that term is defined in the 1940 Act. The term “majority” is defined in the 1940 Act as the lesser of: (i) 67% or more of the Fund’s voting securities present at a meeting of shareholders at which the holders of more than 50% of the outstanding voting securities of the
Fund are present in person or represented by proxy; or (ii) more than 50% of the Fund’s outstanding voting securities.
As a matter of fundamental policy, the Fund:
1.
may not invest 25% or more of its total assets in the same industry (other than securities
issued or guaranteed by the U.S. government or its agencies or instrumentalities);
2.
may borrow money to the extent permitted by applicable law;
3.
may make loans to the extent permitted by applicable law;
4.
may underwrite securities to the extent permitted by applicable law;
5.
may purchase, sell or hold real estate to the extent permitted by applicable law;
6.
may issue senior securities to the extent permitted by applicable law; and
7.
may purchase and sell commodities to the extent permitted by applicable law.
Other Information Regarding Investment Restrictions
Fundamental Investment Restrictions Nos. (2) through (7), as numbered above, limit
the Fund's ability to engage in certain investment practices and purchase securities or other instruments to the extent limited by applicable
law, as that law changes from time to time. Applicable law includes the 1940 Act, the rules or regulations thereunder and applicable
orders of the SEC as are currently in place. In addition, interpretations and guidance provided by the SEC staff may be taken into
account, where deemed appropriate by the Fund, to determine if an investment practice or the purchase of securities or other instruments
is permitted by applicable law. As such, the effects of these limitations will change as the statute, rules, regulations or orders (or,
if applicable, interpretations) change. The additional information set forth below regarding the Fund’s investment restrictions are not deemed to be part of the Fund’s investment restrictions and are not fundamental policies of the Fund. No shareholder vote will be required or sought if
the information below is changed or when changes in statute, rules, regulations or orders (or if applicable, interpretations) change and
such changes permit or require a resulting change in practice.
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For the purposes of applying Fundamental Investment Restriction No. 1, (i) asset-backed
and mortgage-backed securities that are issued or guaranteed by the U.S. Government, its agencies or instrumentalities, do not represent
interests in any particular industry, and (ii) the Fund will associate, to the extent practicable, each privately issued asset-backed
security and mortgage-backed security held by the Fund with a particular industry associated with the type(s) of assets that collateralize
the asset-backed security or mortgage-backed security, as determined by the Investment Adviser.
With respect to Fundamental Investment Restriction No. 2, the Fund may borrow money
in an amount not exceeding 33 1∕3% of its total assets (including the amount borrowed) less liabilities (other than borrowings) or
in connection with engaging in transactions considered by the Commission to constitute a form of borrowing under the 1940 Act (e.g., reverse repurchase agreements) to the extent permitted by the Fund’s investment objectives and policies.
With respect to Fundamental Investment Restriction No. 3, under the 1940 Act, the
Fund may make loans if permitted to do so by its investment policies. As set forth in the Fund’s Principal Investment Strategies, the Fund is permitted to make loans. Under the 1940 Act, the Fund may not make loans to persons who control or are under common control with
the Fund.
With respect to Fundamental Investment Restriction No. 4, this restriction would permit
the underwriting of securities to the extent permitted under the 1940 Act.
With respect to Fundamental Investment Restriction No. 5, this restriction would permit
the purchase, sale, or holding of real estate to the extent permitted under the 1940 Act. Real estate-related instruments include REITs, commercial and residential mortgage-backed securities, and real estate financings.
With respect to Fundamental Investment Restriction No. 6, the ability of a closed-end
fund to issue senior securities is circumscribed by complex regulatory constraints under the 1940 Act that restrict, for instance, the
amount, timing, and form of senior securities that may be issued. Under the 1940 Act, a “senior security” does not include (i) any promissory note or other evidence of indebtedness issued
in consideration of any loan, extension, or renewal thereof, made by a bank or other
person and privately arranged, and not intended to be publicly distributed or (ii) any promissory note or evidence of indebtedness where
such loan is for temporary purposes only and in an amount not exceeding 5% of the value of the total assets of the issuer at the time
the loan is made. A loan is presumed to be for temporary purposes if it is repaid within sixty days and is not extended or renewed.
With respect to Fundamental Investment Restriction No. 7, this restriction would permit
investment in commodities to the extent permitted under the 1940 Act. Commodities may be deemed to include any commodities contracts
(including those with underlying bulk goods, such as grains, metals and foodstuffs), futures contracts and related options, options,
and forward contracts. The 1940 Act does not directly limit the Fund’s ability to invest directly in physical commodities. However, the Fund’s direct and indirect investments in physical commodities may be limited by the Fund’s intention to qualify as a RIC, the Fund’s investment strategy, and other regulatory requirements. While the Fund does not intend to invest in commodities, the Fund may invest in certain
derivatives that are regulated by the CFTC for the purpose of hedging currency or interest rate risk.
REPURCHASE OFFER FUNDAMENTAL POLICY
The Fund will make quarterly repurchase offers pursuant to Rule 23c-3 under the 1940
Act, as it may be amended from time to time, subject to any regulatory guidance or interpretations of, or any exemptive order or
other relief issued by the SEC or any successor organization of their staff under, such rule.
The Fund will repurchase shares that are tendered by a specific date (the “Repurchase Request Deadline”), which will be established by the Board in accordance with Rule 23c-3, as amended from time to time, subject to
any regulatory guidance or interpretations of, or any exemptive order or other relief issued by the SEC or any successor organization of
their staff under, such rule. Rule 23c-3 requires the Repurchase Request Deadline to be no less than 21 and no more than 42 days after the
Fund sends notification to shareholders of the repurchase offer.
There will be a maximum fourteen (14) calendar day period (or the next business day
if the 14th calendar day is not a business day) between the Repurchase Request Deadline and the date on which the Fund’s net asset value (“NAV”) applicable to the repurchase offer is determined (the “Repurchase Pricing Date”).
The Repurchase Offer fundamental policy may be changed only with approval of a majority of the Fund’s outstanding voting securities.
QUARTERLY DISCLOSURE OF the Fund’s PORTFOLIO SECURITIES
The Fund files its complete schedule of portfolio holdings with the SEC for the first and third
quarters of each fiscal year on Form NPORT-P. The Fund’s Form NPORT-P is available on the SEC’s website at https://www.sec.gov/. The Fund’s complete schedule of portfolio holdings is available at https://individuals.voya.com/product/mutual-fund/prospectuses-reports and without charge upon request from the Fund by calling shareholder services toll-free at 1-800-992-0180.
39
MANAGEMENT OF the Trust
The business and affairs of the Trust are managed under the direction of the Trust’s Board according to the applicable laws of the State of Delaware.
The Board governs the Fund and is responsible for protecting the interests of shareholders. The Trustees are experienced executives who oversee the Fund’s activities, review contractual arrangements with companies that provide services to the Fund, and review the Fund’s performance.
Set forth in the table below is information about each Trustee of the Fund.
|
Name, Address and
Year of Birth
|
Position(s)
Held
with the Trust
|
Term of Office
and Length
of Time
Served1
|
Principal Occupation(s)
During the Past 5 Years
|
Number
of Funds
in the
Fund Complex
Overseen by
Trustees2
|
Other Board
Positions Held
by Trustees
|
|
Independent Trustees
|
|||||
|
Colleen D. Baldwin
(1960) 7337 East Doubletree Ranch
Road, Suite 100
Scottsdale, Arizona
85258-2034
|
Trustee
|
September
2023-Present
|
President, Glantuam Partners,
LLC, a business consulting firm
(January 2009 – Present).
|
128
|
Stanley Global Engineering (2020
– Present).
|
|
John V. Boyer
(1953) 7337 East Doubletree Ranch
Road, Suite 100
Scottsdale, Arizona
85258-2034
|
Trustee
|
September 2023 –
Present
|
Retired.
|
128
|
None.
|
|
Martin J. Gavin
(1950) 7337 East Doubletree Ranch
Road, Suite 100
Scottsdale, Arizona
85258-2034
|
Trustee
|
September 2023 –
Present
|
Retired.
|
128
|
None.
|
|
Joseph E. Obermeyer
(1957) 7337 East Doubletree Ranch
Road, Suite 100
Scottsdale, Arizona
85258-2034
|
Chairperson
Trustee
|
January 1, 2025 –
Present
September 2023 –
Present
|
President, Obermeyer &
Associates, Inc., a provider of
financial and economic
consulting services (November
1999 – December 2024).
|
128
|
None.
|
40
|
Name, Address and
Year of Birth
|
Position(s)
Held
with the Trust
|
Term of Office
and Length
of Time
Served1
|
Principal Occupation(s)
During the Past 5 Years
|
Number
of Funds
in the
Fund Complex
Overseen by
Trustees2
|
Other Board
Positions Held
by Trustees
|
|
Sheryl K. Pressler
(1950) 7337 East Doubletree Ranch
Road, Suite 100
Scottsdale, Arizona
85258-2034
|
Trustee
|
September 2023 –
Present
|
Consultant (May 2001 –
Present).
|
128
|
Centerra Gold Inc. (May 2008 –
Present).
|
|
Christopher P.
Sullivan
(1954) 7337 East Doubletree Ranch
Road, Suite 100
Scottsdale, Arizona
85258-2034
|
Trustee
|
September 2023 –
Present
|
Retired.
|
128
|
None.
|
1
Trustees serve until their successors are duly elected and qualified. The tenure of
each Trustee who is not an “interested person” as defined in the 1940 Act, of the Fund (as defined below, “Independent Trustee”) is subject to the Board’s retirement policy, which states that each duly elected or appointed Independent Trustee
shall retire from and cease to be a member of the Board of Trustees at the close of
business on December 31 of the calendar year in which the Independent Trustee attains the age of 75. A majority vote of the Board’s other Independent Trustees may extend the retirement date of an Independent Trustee if the retirement would trigger a requirement to hold a meeting of shareholders of the Trust under applicable law, whether for the purposes of appointing a successor to the Independent
Trustee or otherwise complying under applicable law, in which case the extension would
apply until such time as the shareholder meeting can be held or is no longer required (as determined by a vote of a majority of the other Independent
Trustees).
2
For the purposes of this table, “Fund Complex” includes the following investment companies: Voya Asia Pacific High Dividend Equity
Income Fund; Voya Credit Income Fund; Voya Emerging Markets High Dividend Equity Fund; Voya Enhanced
Securitized Income Fund; Voya Equity Trust; Voya Funds Trust; Voya Global Advantage and Premium Opportunity
Fund; Voya Global Equity Dividend and Premium Opportunity Fund; Voya Government Money
Market Portfolio; Voya Infrastructure, Industrials and Materials Fund; Voya Intermediate Bond Portfolio; Voya Investors Trust;
Voya Mutual Funds; Voya Partners, Inc.; Voya Separate Portfolios Trust; Voya Variable Funds; Voya Variable Insurance Trust; Voya Variable Portfolios, Inc.; and Voya Variable Products Trust. The number of funds in the Fund Complex is as of
January 31, 2025.
Information Regarding Officers of the Trust
Set forth in the table below is information for each Officer of the Trust.
|
Name, Address and Year of Birth
|
Position(s) Held with the Trust
|
Term of Office and Length of Time Served1
|
Principal Occupation(s) During the Past 5
Years
|
|
Christian G. Wilson
(1968) 5780 Powers Ferry Road NW Atlanta, Georgia 30327
|
President and Chief/ Principal Executive
Officer
|
September 2024 – Present
|
Director, President, and Chief Executive
Officer, Voya Funds Services, LLC, Voya
Capital, LLC, and Voya Investments, LLC
(September 2024 – Present); Head of
Product and Strategy, Voya Investment
Management (June 2024 – Present).
Formerly, Head of Global Client Portfolio
Management, Voya Investment Management
(March 2023 – June 2024); Head of Fixed
Income Client Portfolio Management, Voya
Investment Management (July 2017 – March
2023).
|
41
|
Name, Address and Year of Birth
|
Position(s) Held with the Trust
|
Term of Office and Length of Time Served1
|
Principal Occupation(s) During the Past 5
Years
|
|
Jonathan Nash
(1967) 230 Park Avenue New York, New York 10169
|
Executive Vice President
Chief Investment Risk Officer
|
September 2023 - Present
|
Head of Investment Risk for Equity and
Funds, Voya Investment Management (April
2024 – Present); Executive Vice President
and Chief Investment Risk Officer, Voya
Investments, LLC (March 2020 – Present);
Formerly, Senior Vice President, Investment
Risk Management, Voya Investment
Management (March 2017 – March 2024);
Vice President, Voya Investments, LLC
(September 2018 – March 2020).
|
|
Steven Hartstein
(1963) 230 Park Avenue New York, New York 10169
|
Chief Compliance Officer
|
September 2023 – Present
|
Senior Vice President, Voya Investment
Management (December 2022 – Present).
Formerly, Head of Funds Compliance,
Brighthouse Financial, Inc.; and Chief
Compliance Officer, Brighthouse Funds and
Brighthouse Investment Advisers, LLC
(March 2017 – December 2022).
|
|
Todd Modic
(1967) 7337 East Doubletree Ranch Road, Suite 100
Scottsdale, Arizona
85258-2034
|
Senior Vice President, Chief/Principal
Financial Officer and Assistant Secretary
|
September 2023 - Present
|
Director and Senior Vice President, Voya
Capital, LLC and Voya Funds Services, LLC
(September 2022 – Present); Director, Voya
Investments, LLC (September 2022 –
Present); Senior Vice President, Voya
Investments, LLC (April 2005 – Present).
Formerly, President, Voya Funds Services,
LLC (March 2018 – September 2022).
|
|
Kimberly A. Anderson
(1964) 7337 East Doubletree Ranch Road, Suite 100
Scottsdale, Arizona
85258-2034
|
Senior Vice President
|
September 2023 - Present
|
Senior Vice President, Voya Investments,
LLC (September 2003 – Present).
|
|
Sara M. Donaldson
(1959) 7337 East Doubletree Ranch Road, Suite 100
Scottsdale, Arizona
85258-2034
|
Senior Vice President
|
September 2023 - Present
|
Senior Vice President, Voya Investments,
LLC (February 2022 – Present); Senior Vice
President, Head of Active Ownership, Voya
Investment Management (September 2021
– Present). Formerly, Vice President, Voya
Investments, LLC (October 2015 – February
2022); Vice President, Head of Proxy Voting,
Voya Investment Management (October
2015 – August 2021).
|
42
|
Name, Address and Year of Birth
|
Position(s) Held with the Trust
|
Term of Office and Length of Time Served1
|
Principal Occupation(s) During the Past 5
Years
|
|
Jason Kadavy
(1976) 7337 East Doubletree Ranch Road, Suite 100
Scottsdale, Arizona
85258-2034
|
Senior Vice President
|
September 2023 - Present
|
Senior Vice President, Voya Investments,
LLC and Voya Funds Services, LLC
(September 2023 – Present). Formerly, Vice
President, Voya Investments, LLC (October
2015 – September 2023); Vice President,
Voya Funds Services, LLC (July 2007 –
September 2023).
|
|
Joanne F. Osberg
(1982) 7337 East Doubletree Ranch Road, Suite 100
Scottsdale, Arizona
85258-2034
|
Senior Vice President
Secretary
|
September 2023 – Present
|
Senior Vice President and Chief Counsel,
Voya Investment Management – Mutual
Fund Legal Department, and Senior Vice
President and Secretary, Voya Investments,
LLC, Voya Capital, LLC, and Voya Funds
Services, LLC (March 2023-Present).
Formerly, Secretary, Voya Capital, LLC
(August 2022 – March 2023); Vice
President and Secretary, Voya Investments,
LLC and Voya Funds Services, LLC and Vice
President and Senior Counsel, Voya
Investment Management – Mutual Fund
Legal Department (September 2020 –
March 2023); Vice President and Counsel,
Voya Investment Management – Mutual
Fund Legal Department (January 2013 –
September 2020).
|
|
Andrew K. Schlueter
(1976) 7337 East Doubletree Ranch Road, Suite 100
Scottsdale, Arizona
85258-2034
|
Senior Vice President
|
September 2023 - Present
|
Senior Vice President, Head of Investment
Operations Support, Voya Investment
Management (April 2023 - Present); Vice
President, Voya Investments Distributor, LLC
(April 2018 - Present); Vice President, Voya
Investments, LLC and Voya Funds Services,
LLC (March 2018 - Present). Formerly,
Senior Vice President, Head of Mutual Fund
Operations, Voya Investment Management
(March 2022 - March 2023); Vice President,
Head of Mutual Fund Operations, Voya
Investment Management (February 2018 -
February 2022).
|
|
Robert Terris
(1970) 5780 Powers Ferry Road NW Atlanta, Georgia 30327
|
Senior Vice President
|
September 2023 - Present
|
Senior Vice President, Head of Future State
Operating Model Design, Voya Investment
Management (April 2023 – Present); Senior
Vice President, Voya Investments, LLC and
Voya Investments Distributor, LLC (April
2018 – Present); Senior Vice President,
Voya Funds Services, LLC (March 2006 –
Present).
|
43
|
Name, Address and Year of Birth
|
Position(s) Held with the Trust
|
Term of Office and Length of Time Served1
|
Principal Occupation(s) During the Past 5
Years
|
|
Fred Bedoya
(1973) 7337 East Doubletree Ranch Road, Suite 100
Scottsdale, Arizona
85258-2034
|
Vice President and Principal Accounting
Officer
Treasurer
|
September 2023 – Present
|
Vice President, Voya Investments, LLC
(October 2015 – Present); Vice President,
Voya Funds Services, LLC (July 2012 –
Present).
|
|
Robyn L. Ichilov
(1967) 7337 East Doubletree Ranch Road, Suite 100
Scottsdale, Arizona
85258-2034
|
Vice President
|
September 2023 - Present
|
Vice President Voya Investments, LLC
(August 1997 – Present); Vice President,
Voya Funds Services, LLC (November 1995
– Present).
|
|
Erica McKenna
(1972) 7337 East Doubletree Ranch Road, Suite 100
Scottsdale, Arizona
85258-2034
|
Vice President
|
September 2023 - Present
|
Vice President, Head of Mutual Fund
Compliance and Chief Compliance Officer,
Voya Investments, LLC (May 2022 –
Present). Formerly, Vice President, Fund
Compliance Manager, Voya Investments,
LLC (March 2021 – May 2022); Assistant
Vice President, Fund Compliance Manager,
Voya Investments, LLC (December 2016 –
March 2021).
|
|
Craig Wheeler
(1969) 7337 East Doubletree Ranch Road, Suite 100
Scottsdale, Arizona
85258-2034
|
Vice President
|
September 2023 - Present
|
Vice President – Director of Tax, Voya
Investments, LLC (October 2015 – Present).
|
|
Gizachew Wubishet
(1976) 7337 East Doubletree Ranch Road, Suite 100
Scottsdale, Arizona
85258-2034
|
Vice President and Assistant Secretary
|
September 2023 - Present
|
Vice President and Counsel, Voya
Investment Management – Mutual Fund
Legal Department (March 2024 – Present).
Formerly, Assistant Vice President and
Counsel, Voya Investment Management –
Mutual Fund Legal Department (May 2019 –
February 2024).
|
|
Nicholas C.D. Ward
(1993) 7337 East Doubletree Ranch Road, Suite 100
Scottsdale, Arizona
85258-2034
|
Assistant Vice President and Assistant
Secretary
|
September 2023 - Present
|
Assistant Vice President and Counsel, Voya
Investment Management – Mutual Fund
Legal Department (March 2024 – Present);
Formerly, Counsel, Voya Investment
Management – Mutual Fund Legal
Department (November 2021 – February
2024); Associate, Dechert LLP (October
2018 – November 2021).
|
44
|
Name, Address and Year of Birth
|
Position(s) Held with the Trust
|
Term of Office and Length of Time Served1
|
Principal Occupation(s) During the Past 5
Years
|
|
Monia Piacenti
(1976) One Orange Way Windsor, Connecticut 06095
|
Anti-Money Laundering Officer
|
September 2023 - Present
|
Compliance Manager, Voya Financial, Inc.
(March 2023 – Present); Anti-Money
Laundering Officer, Voya Investments
Distributor, LLC, Voya Investment
Management, and Voya Investment
Management Trust Co. (June 2018 –
Present); Formerly, Compliance Consultant
Voya Financial, Inc. (January 2019 –
February 2023).
|
1
The Officers hold office until the next annual meeting of the Board of Trustees and
until their successors shall have been elected and qualified.
45
The Board of Trustees
The Trust and the Fund are governed by the Board, which oversees the Trust’s business and affairs. The Board delegates the day-to-day management of the Trust and the Fund to the Trust’s Officers and to various service providers that have been contractually retained to provide such day-to-day services. The Voya entities that render services to the Trust
and the Fund do so pursuant to contracts that have been approved by the Board. The Trustees are experienced executives who, among other duties, oversee the Trust’s activities, review contractual arrangements with companies that provide services to the Fund, and review the Fund’s investment performance.
The Board Leadership Structure and Related Matters
The Board is comprised of six (6) members, all of whom are independent or disinterested
persons, which means that they are not “interested persons” of the Fund as defined in Section 2(a)(19) of the 1940 Act (the “Independent Trustees”).
The Trust is one of 19 registered investment companies (with a total of approximately 128 separate series) in the Voya family of funds and all of the Trustees serve as members of, as applicable, each investment company’s Board of Directors or Board of Trustees. The Board employs substantially the same leadership structure with respect to each of
these investment companies.
One of the Independent Trustees, currently Joseph E. Obermeyer, serves as the Chairperson of the Board of the Trust. The responsibilities of the Chairperson of the Board include: coordinating with management in the preparation
of agendas for Board meetings; presiding at Board meetings; between Board meetings, serving as a primary liaison with other Trustees,
officers of the Trust, management personnel, and legal counsel to the Independent Trustees; and such other duties as the Board
periodically may determine. Mr. Obermeyer does not hold a position with any firm that is a sponsor of the Trust. The designation of an
individual as the Chairperson does not impose on such Independent Trustee any duties, obligations or liabilities greater than the duties,
obligations or liabilities imposed on such person as a member of the Board, generally.
The Board performs many of its oversight and other activities through the committee
structure described below in the “Board Committees” section. Each Committee operates pursuant to a written charter approved by the Board.
The Board currently conducts regular meetings eight (8) times a year. All of these regular meetings consist of sessions held over
a two- or three-day period. In addition, during the course of a year, the Board and many of its Committees typically hold special meetings by
telephone or video conference or in person to discuss specific matters that require action prior to the next regular meeting. The Independent
Trustees have engaged independent legal counsel to assist them in performing their oversight responsibilities.
The Board believes that its committee structure is an effective means of empowering
the Trustees to perform their fiduciary and other duties. For example, the Board’s committee structure facilitates, as appropriate, the ability of individual Board members to receive detailed presentations on topics under their review and to develop increased familiarity with
respect to such topics and with key personnel at relevant service providers. At least annually, with guidance from its Nominating and
Governance Committee, the Board analyzes whether there are potential means to enhance the efficiency and effectiveness of the Board’s operations.
Board Committees
Audit Committee. The Board has established an Audit Committee whose functions include, among other
things: (i) meeting with the independent registered public accounting firm of the Trust to review the scope of the Trust’s audit, the Trust’s financial statements and accounting controls; (ii) meeting with management concerning these matters, internal audit activities, reports under the Trust’s whistleblower procedures, the services rendered by various service providers, and other matters; and (iii) overseeing the implementation of the Voya funds’ valuation procedures and the fair value determinations made with respect to securities held
by the Voya funds for which market value quotations are not readily available. The Audit Committee currently consists of three (3) Independent
Trustees. The following Trustees currently serve as members of the Audit Committee: Ms. Baldwin and Messrs. Gavin and Sullivan. Mr.
Gavin currently serves as the Chairperson of the Audit Committee. All Committee members have been designated as Audit Committee Financial
Experts under the Sarbanes-Oxley Act of 2002. The Audit Committee typically meets five (5) times per year, and may hold special
meetings by telephone or in person to discuss
specific matters that may require action prior to the next regular meeting. The Audit Committee held five (5) meetings during the fiscal year ended February 28, 2025.Compliance Committee. The Board has established a Compliance Committee for the purpose of, among other
things: (i) providing oversight with respect to compliance by the funds in the Voya family of funds and their service
providers with applicable laws, regulations, and internal policies and procedures affecting the operations of the funds; (ii) receiving
reports of evidence of possible material violations of applicable U.S. federal or state securities laws and breaches of fiduciary duty arising
under U.S. federal or state laws; (iii) coordinating activities between the Board and the Chief Compliance Officer (“CCO”) of the funds; (iv) facilitating information flow among Board members and the CCO between Board meetings; (v) working with the CCO and management to identify
the types of reports to be submitted by the CCO to the Compliance Committee and the Board; (vi) making recommendations regarding
the role, performance, compensation, and oversight of the CCO; (vii) overseeing the cybersecurity practices of the funds and their key service providers; (viii) overseeing management’s administration of proxy voting; (ix) overseeing the effectiveness of brokerage usage by the Trust’s advisers or sub-advisers, as applicable, and compliance with regulations regarding the allocation of brokerage for services; and (x) overseeing the implementation of the funds’ liquidity risk management program.
The Compliance Committee currently consists of three (3) Independent Trustees: Ms.
Pressler and Messrs. Boyer and Obermeyer. Mr. Boyer currently serves as the Chairperson of the Compliance Committee. The Compliance
Committee typically meets four (4) times per year, and may hold special meetings by telephone or in person to discuss specific
matters that may require action prior to the next regular
meeting. The Compliance Committee held five (5) meetings during the fiscal year ended February
28, 2025.46
The Audit Committee and Compliance Committee sometimes meet jointly to consider matters
that are reviewed by both Committees. The Committees held one (1) such additional joint meeting during the fiscal year ended
February 28, 2025.
Contracts Committee. The Board has established a Contracts Committee for the purpose of overseeing the
annual renewal process relating to investment advisory and sub-advisory agreements, distribution agreements, and Rule
12b-1 Plans and, at the discretion of the Board, other service agreements or plans involving the Voya funds (including the Fund). The
responsibilities of the Contracts Committee include, among other things: (i) identifying the scope and format of information to be provided
by service providers in connection with applicable contract approvals or renewals; (ii) providing guidance to independent legal counsel
regarding specific information requests to be made by such counsel on behalf of the Trustees; (iii) evaluating regulatory and other developments
that might have an impact on applicable approval and renewal processes; (iv) reporting to the Trustees its recommendations
and decisions regarding the foregoing matters; (v) assisting in the preparation of a written record of the factors considered by Trustees
relating to the approval and renewal of advisory and sub-advisory agreements; (vi) recommending to the Board specific steps to be taken
by it regarding the contracts approval and renewal process, including, for example, proposed schedules of certain actions to be taken;
and (vii) otherwise providing assistance in connection with Board decisions to renew, reject, or modify agreements or plans.
The Contracts Committee currently consists of all six (6) of the Independent Trustees
of the Board. Ms. Pressler currently serves as the Chairperson of the Contracts Committee. The Contracts Committee typically meets five
(5) times per year and may hold special meetings
by telephone or in person to discuss specific matters that may require action prior
to the next regular meeting. The Contracts Committee held five (5) meetings during the fiscal year ended February 28, 2025.Investment Review Committees. The Board has established, for all of the funds under its direction, the following
two Investment Review Committees (each an “IRC” and together, the “IRCs”): (i) the Investment Review Committee E (“IRC E”); and (ii) the Investment Review Committee F (“IRC F”). The funds are allocated among IRCs periodically by the Board as the Board deems
appropriate to balance the workloads of the IRCs and to have similar types of funds or funds with the same investment
sub-adviser or the same portfolio management team assigned to the same IRC. Each IRC performs the following functions, among other
things: (i) monitoring the investment performance of the funds in the Voya family of funds that are assigned to that Committee; (ii)
making recommendations to the Board with respect to investment management activities performed by the investment advisers and/or sub-advisers
on behalf of such Voya funds, and reviewing and making recommendations regarding proposals by management to retain new or additional
sub-advisers for these Voya funds; and (iii) making recommendations to the Board regarding the role, performance, compensation,
and oversight of the Chief Investment Risk Officer. The Fund is monitored by the IRCs, as indicated below. Each committee is described
below.
|
Fund
|
IRC E
|
IRC F
|
|
Voya Enhanced Securitized Income Fund
|
|
X
|
The IRC E currently consists of three (3) Independent Trustees. The following Trustees
serve as members of the IRC E: Ms. Baldwin and Messrs. Gavin and Obermeyer. Ms. Baldwin currently serves as the Chairperson of the IRC E. The IRC E typically meets five
(5) times per
year and on an as-needed basis. The IRC E held five (5) meetings during the fiscal year ended February 28, 2025.The IRC F currently consists of three (3) Independent Trustees. The following Trustees
serve as members of the IRC F: Ms. Pressler and Messrs. Boyer and Sullivan. Mr. Sullivan currently serves as the Chairperson of the
IRC F. The IRC F typically meets five (5) times per year
and on an as-needed basis. The IRC F held five (5) meetings during the fiscal year ended February 28, 2025. The IRC E and IRC F sometimes meet jointly to consider matters that are reviewed by
both Committees. The Committees held four (4) such additional joint meetings during the fiscal year ended February 28, 2025.
Nominating and Governance Committee. The Board has established a Nominating and Governance Committee for the purpose
of, among other things: (i) identifying and recommending to the Board candidates it proposes
for nomination to fill Independent Trustee vacancies on the Board; (ii) reviewing workload and capabilities of Independent Trustees and
recommending changes to the size or composition of the Board, as necessary; (iii) monitoring regulatory developments and recommending modifications to the Committee’s responsibilities; (iv) considering and, if appropriate, recommending the creation of additional committees
or changes to Trustee policies and procedures based on rule changes and “best practices” in corporate governance; (v) conducting an annual review of the membership and chairpersons
of all Board committees and of practices relating to such membership and chairpersons;
(vi) undertaking a periodic study of compensation paid to independent board members of investment companies and making recommendations
for any compensation changes for the Independent Trustees; (vii) overseeing the Board’s annual self-evaluation process; (viii) developing (with assistance from management) an annual meeting calendar for the Board and its committees; (ix) overseeing actions to facilitate attendance
by Independent Trustees at relevant educational seminars and similar programs; and (x) overseeing insurance arrangements for the funds.
In evaluating potential candidates to fill Independent Trustee vacancies on the Board,
the Nominating and Governance Committee will consider a variety of factors. Specific qualifications of candidates for Board membership
will be based on the needs of the Board at the time of nomination. The Nominating and Governance Committee will consider nominations
received from shareholders and shall assess shareholder nominees in the same manner as it reviews nominees that it identifies
as potential candidates. A shareholder nominee for Trustee should be submitted in writing to the Trust’s Secretary at 7337 East Doubletree Ranch Road, Suite 100, Scottsdale, Arizona 85258-2034. Any such shareholder nomination should include at least the following
information as to each individual proposed for nomination as Trustee: such person’s written consent to be named in a proxy statement as a nominee (if nominated) and to serve as a Trustee (if elected), and all information relating to such individual that is required to be disclosed
in the solicitation of proxies for election of Trustees, or is otherwise required, in each case under applicable federal securities laws, rules,
and regulations, including such information as the Board may reasonably deem necessary to satisfy its oversight and due diligence duties.
47
The Secretary shall submit all nominations received in a timely manner to the Nominating
and Governance Committee. To be timely in connection with a shareholder meeting to elect Trustees, any such submission must be delivered to the Trust’s Secretary not earlier than the 90th day prior to such meeting and not later than the close of business on the
later of the 60th day prior to such meeting or the 10th day following the day on which public announcement of the date of the meeting is first
made, by either the disclosure in a press release or in a document publicly filed by the Trust with the SEC.
The Nominating and Governance Committee currently consists of all six (6) of the Independent
Trustees of the Board. Mr. Gavin currently serves as the Chairperson of the Nominating and Governance Committee. The Nominating
and Governance Committee conducts meetings
as needed or appropriate.The Nominating and Governance Committee held three (3) meetings during the fiscal
year ended February 28, 2025.The Board’s Risk Oversight Role
The day-to-day management of various risks relating to the administration and operation
of the Trust is the responsibility of management and other service providers retained by the Board or by management, most of whom employ
professional personnel who have risk management responsibilities. The Board oversees this risk management function consistent with
and as part of its oversight duties. The Board performs this risk management oversight function directly and, with respect to various matters,
through its committees. The following description provides an overview of many, but not all, aspects of the Board’s oversight of risk management for the Fund. In this connection, the Board has been advised that it is not practicable to identify all of the risks that may
impact the Fund or to develop procedures or controls that are designed to eliminate all such risk exposures, and that applicable securities
law regulations do not contemplate that all such risks be identified and addressed.
The Board, working with management personnel and other service providers, has endeavored
to identify the primary risks that confront the Fund. In general, these risks include, among others: (i) investment risks; (ii)
credit risks; (iii) liquidity risks; (iv) valuation risks; (v) operational risks; (vi) reputational risks; (vii) regulatory risks; (viii) risks related
to potential legislative changes; (ix) the risk of conflicts of interest affecting Voya affiliates in managing the Fund; and (x) cybersecurity
risks. The Board has adopted and periodically reviews various policies and procedures that are designed to address these and other risks
confronting the Fund. In addition, many service providers to the Fund have adopted their own policies, procedures, and controls designed to
address particular risks to the Fund. The Board and persons retained to render advice and service to the Board periodically review and/or
monitor changes to, and developments relating to, the effectiveness of these policies and procedures.
The Board oversees risk management activities in part through receipt and review by
the Board or its committees of regular and special reports, presentations and other information from Officers of the Trust, including
the CCOs for the Trust and the Investment Adviser and the Trust’s Chief Investment Risk Officer (“CIRO”), and from other service providers. For example, management personnel and the other
persons make regular reports and presentations to: (i) the Compliance Committee regarding
compliance with regulatory requirements and oversight of cybersecurity practices by the Fund and key service providers; (ii)
the IRCs regarding investment activities and strategies that may pose particular risks; (iii) the Audit Committee with respect to financial
reporting controls and internal audit activities; (iv) the Nominating and Governance Committee regarding corporate governance and best practice
developments; and (v) the Contracts Committee regarding regulatory and related developments that might impact the retention of service
providers to the Trust. The CIRO oversees an Investment Risk Department (“IRD”) that provides an additional source of analysis and research for Board members in
connection with their oversight of the investment process and performance of portfolio managers. Among
its other duties, the IRD seeks to identify and, where practicable, measure the investment risks being taken by the Fund’s portfolio managers. Although the IRD works closely with management of the Trust in performing its duties, the CIRO is directly accountable to, and maintains
an ongoing dialogue with, the Independent Trustees.
Qualifications of the Trustees
The Board believes that each of its Trustees is qualified to serve as a Trustee of
the Trust based on its review of the experience, qualifications, attributes, and skills of each Trustee. The Board bases this conclusion on its consideration
of various criteria, no one of which is controlling. Among others, the Board has considered the following factors with respect to each
Trustee: strong character and high integrity; an ability to review, evaluate, analyze, and discuss information provided; the ability to exercise
effective business judgment in protecting shareholder interests while taking into account different points of views; a background in financial,
investment, accounting, business, regulatory, or other skills that would be relevant to the performance of a Trustee's duties; the
ability and willingness to commit the time necessary to perform his or her duties; and the ability to work in a collegial manner with other
Board members. Each Trustee's ability to perform his or her duties effectively is evidenced by his or her: experience in the investment
management business; related consulting experience; other professional experience; experience serving on the boards of directors/trustees
of other public companies; educational background and professional training; prior experience serving on the Board, as well as the boards
of other investment companies in the Voya family of funds and/or of other investment companies; and experience as attendees or participants
in conferences and seminars that are focused on investment company matters and/or duties that are specific to board members of
registered investment companies.
Information indicating certain of the specific experience and qualifications of each Trustee relevant to the Board’s belief that the Trustee should serve in this capacity is provided in the table above that provides information
about each Trustee. That table includes, for each Trustee, positions held with the Trust, the length of such service, principal occupations
during the past five (5) years, the number of series within the Voya family of funds for which the Trustee serves as a Board member,
and certain directorships held during the past five (5) years. Set forth below are certain additional specific experiences, qualifications,
attributes, or skills that the Board believes support a conclusion that each Trustee should serve as a Board member in light of the Trust’s business and structure.
Independent Trustees
48
Colleen D. Baldwin has been a Trustee of the Trust since September 2023 and a board member of other
investment companies in the Voya family of funds since 2007. She currently serves as the Chairperson of the Trust’s IRC E since January 1, 2025, and prior to that, she served as the Chairperson of the Board of Trustees September 2023 to 2024. Ms. Baldwin has been a Board member of Stanley Global Engineering since 2020 and President of Glantuam Partners, LLC, a business
consulting firm, since 2009. Prior to that, she served in senior positions at the following financial services firms: Chief Operating Officer
for Ivy Asset Management, Inc. (2002-2004), a hedge fund manager; Chief Operating Officer and Head of Global Business and Product Development
for AIG Global Investment Group (1995-2002), a global investment management firm; Senior Vice President at Bankers Trust Company
(1994-1995); and Senior Managing Director at J.P. Morgan & Company (1987-1994). Ms. Baldwin began her career in 1981 at AT&T/Bell
Labs as a systems analyst. Ms. Baldwin holds a B.S. from Fordham University and an M.B.A. from Pace University.
John V. Boyer has been a Trustee of the Trust since September 2023 and a board member of other
investment companies in the Voya family of funds since 1997. He also has served as the Chairperson of the Trust’s Compliance Committee since September 2023. Prior to that, he served as the Chairperson of the Trust’s IRC F since September 2023 and as the Chairperson of the Compliance Committee
for other funds in the Voya family of funds. Mr. Boyer was the President and CEO of the Bechtler Arts Foundation from 2008 until
2019 for which, among his other duties, Mr. Boyer oversaw all fiduciary aspects of the Foundation and assisted in the oversight of the Foundation’s endowment fund. Previously, he served as President and Chief Executive Officer of
the Franklin and Eleanor Roosevelt Institute (2006-2007) and as Executive Director of The Mark Twain House & Museum (1989-2006) where he was
responsible for overseeing business operations, including endowment funds. He also served as a board member of certain predecessor
mutual funds of the Voya family of funds (1997-2005). Mr. Boyer holds a B.A. from the University of California, Santa Barbara and an M.F.A.
from Princeton University.Martin J. Gavin has been a Trustee of the Trust since September 2023 and as a board member of other
investment companies in the Voya family of funds from 2009 until 2010, from 2011 until 2013, and from 2015 to
present. He also has served as the Chairperson of the Trust's Nominating and Governance Committee since January 1, 2024 and as the Chairperson
of the Trust's Audit Committee since
September 2023.Mr. Gavin was the President and Chief Executive Officer of the Connecticut Children’s Medical Center from 2006 to 2015. Prior to his position at Connecticut Children’s Medical Center, Mr. Gavin worked in the insurance and investment industries for more than 27 years. Mr. Gavin served in several senior executive positions with The
Phoenix Companies during a 16 year period, including as President of Phoenix Trust Operations, Executive Vice President and Chief Financial
Officer of Phoenix Duff & Phelps, a publicly-traded investment management company, and Senior Vice President of Investment Operations
at Phoenix Home Life. Mr. Gavin holds a B.A. from the University of Connecticut.Joseph E. Obermeyer has been a Trustee of the Trust since September 2023, and a board member of other
investment companies in the Voya family of funds since 2003. He currently serves as the Chairperson of the Board of the Trust, since January 1, 2025,
and prior to that, he served as the Chairperson of the the Trust’s IRC E January 2024 to December 2024 and, prior to that, as the Chairperson of
the Trust’s Nominating and Governance Committee from September 2023 to December 2023. Mr. Obermeyer was the founder and President of Obermeyer & Associates, Inc., a provider of financial and economic consulting services, for which he served as President from 1999 through 2024. Prior to founding Obermeyer & Associates, Mr. Obermeyer had more than 15 years of
experience in accounting, including serving as a Senior Manager at Arthur Andersen LLP from 1995 until 1999. Previously,
Mr. Obermeyer served as a Senior Manager at Coopers & Lybrand LLP from 1993 until 1995, as a Manager at Price Waterhouse from
1988 until 1993, Second Vice President from 1985 until 1988 at Smith Barney, and as a consultant with Arthur Andersen & Co. from
1984 until 1985. Mr. Obermeyer holds a B.A. in Business Administration from the University of Cincinnati, an M.B.A. from Indiana
University, and post graduate certificates from the University of Tilburg and INSEAD.Sheryl K. Pressler has been a Trustee of the Trust since September 2023 and a board member of other
investment companies in the
Voya family of funds since 2006. She also has served as the Chairperson of the Trust’s Contracts Committee since September 2023. Ms. Pressler has served on the Board of Centerra Gold since May 2008. Ms. Pressler
has served as a consultant on financial matters since 2001. Previously, she held various senior positions involving financial services,
including as Chief Executive Officer (2000-2001) of Lend Lease Real Estate Investments, Inc. (real estate investment management and
mortgage servicing firm), Chief Investment Officer (1994-2000) of California Public Employees’ Retirement System (state pension fund), Director of Stillwater Mining Company (May 2002-May 2013), and Director of Retirement Funds Management (1981-1994) of McDonnell Douglas
Corporation (aircraft manufacturer). Ms. Pressler holds a B.A. from Webster University and an M.B.A. from Washington University.Christopher P. Sullivan has been a Trustee of the Trust since September 2023. He also has served as the Chairperson of the Trust’s IRC F since September 2023. He retired from Fidelity Management & Research in October
2012, following three years as first the President of the Bond Group and then the Head of Institutional Fixed Income. Previously, Mr.
Sullivan served as Managing Director and Co-Head of U.S. Fixed Income at Goldman Sachs Asset Management (2001-2009) and prior to that,
Senior Vice President at PIMCO (1997-2001). He currently serves as a Director of Rimrock Funds (since 2013), a fixed-income hedge
fund. He is also a Senior Advisor to Asset Grade (since 2013), a private wealth management firm, and serves as a Trustee of the Overlook
Foundation, a foundation that supports Overlook Hospital in Summit, New Jersey. In addition to his undergraduate degree from the University
of Chicago, Mr. Sullivan holds an M.A. degree from the University of California at Los Angeles and is a Chartered Financial Analyst.
Trustee Ownership of Securities
In order to further align the interests of the Independent Trustees with shareholders,
it is the policy of the Board for Independent Trustees to own, beneficially, shares of one or more funds in the Voya family of funds at all
times (the “Ownership Policy”). For this purpose, beneficial ownership of shares of a Voya fund includes, in addition to direct ownership of Voya
fund shares, ownership of a variable contract whose
49
proceeds are invested in a Voya fund within the Voya family of funds, as well as deferred compensation payments under the Board’s deferred compensation arrangements pursuant to which the future value of such payments
is based on the notional value of designated funds within the Voya family of funds.
The Ownership Policy requires the initial value of investments in the Voya family
of funds that are directly or indirectly owned by the Trustees to equal or exceed the annual retainer fee for Board services (excluding any annual
retainers for service as chairpersons of the Board or its committees or as members of committees), as such retainer shall be adjusted from
time to time.
The Ownership Policy provides that existing Trustees shall have a reasonable amount
of time from the date of any recent or future increase in the minimum ownership requirements in order to satisfy the minimum share ownership
requirements. In addition, the Ownership Policy provides that a new Trustee shall satisfy the minimum share ownership requirements
within a reasonable amount of time of becoming a Trustee. For purposes of the Ownership Policy, a reasonable period of time will be
deemed to be, as applicable, no more than three years after a Trustee has assumed that position with the Voya family of funds or no more
than one year after an increase in the minimum share ownership requirement due to changes in annual Board retainer fees. A decline in value
of any fund investments will not cause a Trustee to have to make any additional investments under the Ownership Policy.
Investment in mutual funds of the Voya family of funds by the Trustees pursuant to
the Ownership Policy is subject to: (i) policies, applied by the mutual funds of the Voya family of funds to other similar investors, that are
designed to prevent inappropriate market timing trading practices; and (ii) any provisions of the Code of Ethics for the Voya family of funds
that otherwise apply to the Trustees.
Trustees' Fund Equity Ownership Positions
The following table sets forth information regarding each Trustee's beneficial ownership
of equity securities of the Fund and the aggregate holdings of shares of equity securities of all the funds in the Voya family of funds
for the calendar year ended December 31, 2024.
|
Fund
|
Dollar Range of Equity Securities in the Fund as of December 31, 2024
|
||
|
Colleen D. Baldwin
|
John V. Boyer
|
Martin J. Gavin
|
|
|
Voya Enhanced Securitized
Income Fund
|
None
|
None
|
None
|
|
Aggregate Dollar Range of
Equity Securities in All
Registered Investment
Companies Overseen by
Trustee in the Voya family of
funds
|
Over $100,0001
|
Over $100,000
|
Over $100,0001
|
|
Fund
|
Dollar Range of Equity Securities in the Fund as of December 31, 2024
|
||
|
Joseph E. Obermeyer
|
Sheryl K. Pressler
|
Christopher P. Sullivan
|
|
|
Voya Enhanced Securitized
Income Fund
|
None
|
None
|
None
|
|
Aggregate Dollar Range of
Equity Securities in All
Registered Investment
Companies Overseen by
Trustee in the Voya family of
funds
|
Over $100,0001
|
Over $100,0001
|
Over $100,000
|
1
Includes the value of shares in which a Trustee has an indirect interest through a
deferred compensation plan and/or a 401(k) plan.
50
Independent Trustee Ownership of Securities of the Investment Adviser, Principal Underwriter,
and their Affiliates
The following table sets forth information regarding each Independent Trustee's (and
his/her immediate family members) share ownership, beneficially or of record, in securities of the Investment Adviser or Principal Underwriter,
and the ownership of securities in an entity controlling, controlled by, or under common control with the Investment Adviser or
Principal Underwriter of the Fund (not including registered investment companies) as of December 31, 2024.
|
Name of Trustee
|
Name of Owners
and Relationship
to Trustee
|
Company
|
Title of
Class
|
Value of
Securities
|
Percent of
Class
|
|
Colleen D. Baldwin
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
|
John V. Boyer
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
|
Martin J. Gavin
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
|
Joseph E. Obermeyer
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
|
Sheryl K. Pressler
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
|
Christopher P. Sullivan
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
Trustee Compensation
Each Trustee is reimbursed for reasonable expenses incurred in connection with each
meeting of the Board or any of its Committee meetings attended. Each Independent Trustee is compensated for his or her services,
on a quarterly basis, according to a fee schedule adopted by the Board. The Board may from time to time designate other meetings as
subject to compensation.
The Fund pays each Trustee who is not an interested person of the Fund his or her
pro rata share, as described below, of: (i) an annual retainer of $270,000; (ii) Mr. Obermeyer, as the Chairperson of the Board, receives an additional annual retainer of $100,000;
(iii) Mses. Baldwin and Pressler and Messrs. Boyer, Gavin, and Sullivan, as the Chairpersons of Committees of the Board, each receives an additional
annual retainer of $30,000, $65,000, $30,000, $60,000 and $30,000, respectively; (iv) $10,000 per attendance at any of the regularly scheduled meetings (four (4) quarterly meetings, two (2) auxiliary meetings, and two
(2) annual contract review meetings); and (v) out-of-pocket expenses. The Board at its discretion may from time to time designate other special
meetings as subject to compensation in such amounts as the Board may reasonably determine on a case-by-case basis.
The pro rata share paid by the Fund is based on the Fund’s average net assets as a percentage of the average net assets of all the funds managed by the Investment Adviser or its affiliate for which the Trustees serve in
common as Trustees.
Future Compensation Payment
Certain future payment arrangements apply to certain Trustees. More particularly,
each non-interested Trustee who will have served as a non-interested Trustee for five or more years for one or more funds in the Voya
family of funds is entitled to a future payment (“Future Payment”), if such Trustee: (i) retires in accordance with the Board’s retirement policy; (ii) dies; or (iii) becomes disabled. The Future Payment shall be made promptly to, as applicable, the Trustee or the Trustee’s estate, in an amount equal to two (2) times the annual compensation payable to such Trustee, as in effect at the time of his or her retirement,
death or disability if the Trustee had served as Trustee for at least five years as of May 9, 2007, or in a lesser amount calculated
based on the proportion of time served by such Trustee (as compared to five years) as of May 9, 2007. The annual compensation determination
shall be based upon the annual Board membership retainer fee in effect at the time of that Trustee’s retirement, death or disability (but not any separate annual retainer fees for chairpersons of committees and of the Board), provided that the annual compensation used for this
purpose shall not exceed the annual retainer fees as of May 9, 2007. This amount shall be paid by the Voya fund or Voya funds on whose
Board the Trustee was serving at the time of his or her retirement, death, or disability. Each applicable Trustee may elect to receive
payment of his or her benefit in a lump sum or in three substantially equal payments.
Compensation Table
The following table sets forth information provided by the Investment Adviser regarding
compensation of Trustees by the Fund and other funds managed by the Investment Adviser and its affiliates for the fiscal year ended
February 28, 2025. Officers of the Trust and Trustees who are interested persons of the Trust do not receive any compensation from the Trust
or any other funds managed by the Investment Adviser or its affiliates.
|
Fund
|
Aggregate Compensation
|
||
|
Colleen D. Baldwin
|
John V. Boyer
|
Martin J. Gavin
|
|
|
Voya Enhanced Securitized
Income Fund
|
[$]
|
[$]
|
[$]
|
|
Pension or Retirement
Benefits Accrued as Part of
Fund Expenses1
|
N/A
|
$0
|
N/A
|
|
Estimated Annual Benefits
Upon Retirement2
|
N/A
|
$400,000
|
N/A
|
51
|
Fund
|
Aggregate Compensation
|
||
|
Colleen D. Baldwin
|
John V. Boyer
|
Martin J. Gavin
|
|
|
Total Compensation from the
Fund and the Voya family of
funds Paid to Trustees
|
[$]
|
[$]
|
[$]
|
|
Fund
|
Aggregate Compensation
|
||
|
Joseph E. Obermeyer
|
Sheryl K. Pressler
|
Christopher P. Sullivan
|
|
|
Voya Enhanced Securitized
Income Fund
|
[$]
|
[$]
|
[$]
|
|
Pension or Retirement
Benefits Accrued as Part of
Fund Expenses1
|
$0
|
N/A
|
N/A
|
|
Estimated Annual Benefits
Upon Retirement2
|
N/A
|
$113,333
|
N/A
|
|
Total Compensation from the
Fund and the Voya family of
funds Paid to Trustees
|
[$]3
|
[$]
|
[$]
|
1
Future Compensation Payment amounts are accrued pro rata to all Voya funds in the same year that the Trustee retires.
2
As discussed in the section entitled “Future Compensation Payment” above, this is not an annual benefit. Rather each applicable Trustee may elect to
receive payment of his or her benefit in a lump sum or in three substantially equal payments. Future Compensation Payments
included in this table represent the total payment allocated pro rata to all Voya funds.
3
During the fiscal year ended February 28, 2025, Mr. Obermeyer deferred [$38,500] respectively, of his compensation from the Voya family of funds.
CODE OF ETHICS
The Fund, the Investment Adviser, the Sub-Adviser, and the Distributor have adopted
a code of ethics (the “Code of Ethics”) pursuant to Rule 17j-1 under the 1940 Act governing personal trading activities of all Trustees,
Officers of the Trust, and persons who, in connection with their regular functions, play a role in the recommendation of or obtain information
pertaining to any purchase or sale of a security by the Fund. The Code of Ethics is intended to prohibit fraud against the Fund that
may arise from the personal trading of securities that may be purchased or held by that Fund or of the Fund’s shares. The Code of Ethics prohibits short-term trading of the Fund’s shares by persons subject to the Code of Ethics. Personal trading is permitted by such persons
subject to certain restrictions; however, such persons are generally required to pre-clear security transactions with the Investment Adviser
or its affiliates and to report all transactions on a regular basis.
The Code of Ethics can be reviewed and copied at the SEC’s Public Reference Room located at 100 F Street, NE, Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling
the SEC at (202) 551-8090. The Code of Ethics is available on the EDGAR Database on the SEC’s website at www.sec.gov and copies may also be obtained at prescribed rates by electronic request at [email protected], or by writing the SEC’s Public Reference Section at the address listed above.
PROXY VOTING POLICY
The Board has approved the Investment Adviser’s Proxy Voting Policy (the “Proxy Voting Policy”) for voting proxies on behalf of the Voya
funds. The Proxy Voting Policy requires the Investment Adviser to vote the Fund’s portfolio securities that have voting rights in accordance with the Proxy Voting Policy and provides a method for responding to potential conflicts
of interest. An independent proxy voting service has been retained to assist in the voting of Fund proxies through the provision of
vote analysis, implementation, recordkeeping, and disclosure services. The Compliance Committee oversees the implementation of the Fund’s Proxy Voting Policy, as applicable. A copy of the Proxy Voting Policy is attached hereto as Appendix A. If applicable, no later than August 31st of each year, information regarding how
the Fund voted proxies relating to portfolio securities for the twelve-month period
ending June 30th is available online, without charge, at https://individuals.voya.com/product/mutual-fund/prospectuses-reports or by accessing the SEC’s EDGAR database at https://sec.gov.
PRINCIPAL SHAREHOLDERS AND CONTROL PERSONS
Control is defined by the 1940 Act as the beneficial ownership, either directly or
through one or more controlled companies, of more than 25% of the voting securities of a company. A control person may have a significant
impact on matters submitted to a shareholder vote.
Trustee and Officer Holdings
As of [May 28, 2025], the Trustees and officers of the Trust as a group owned less than 1% of any class of the Fund’s outstanding Shares.
Principal Shareholders
As of [May 28, 2025], to the best knowledge of management, no person owned beneficially or of-record 5% or more of the outstanding shares of any class of the Fund or 5% or more of the outstanding shares of the Fund addressed herein, except as set forth in the table below. The Trust has no knowledge as to whether all or any portion of shares owned of-record
are also owned beneficially.
|
Name of Fund
|
Class
|
Name and Address
|
Percentage
of Class
|
Percent
of Fund
|
52
INVESTMENT ADVISER
Voya Investments, an Arizona limited liability company, is registered with the SEC
as an investment adviser. Voya Investments serves as the investment adviser to, and has overall responsibility for the management of, the
Fund. Voya Investments oversees all investment advisory and portfolio management services and assists in managing and supervising
all aspects of the general day-to-day business activities and operations of the Fund, including, but not limited to, the following:
custodial, transfer agency, dividend disbursing, accounting, auditing, compliance, and related services.
Voya Investments began business as an investment adviser in 1994 and currently serves
as investment adviser to certain registered investment companies, consisting of open- and closed-end registered investment companies
and collateralized loan obligations. Voya Investments is an indirect subsidiary of Voya Financial, Inc. Voya Financial, Inc.
is a U.S.-based financial institution whose subsidiaries operate in the retirement, investment, and insurance industries.
Investment Management Agreement
The Investment Adviser serves pursuant to an Investment Management Agreement between
the Investment Adviser and the Trust on
behalf of the Fund. Under the Investment Management Agreement, the Investment Adviser oversees, subject
to the authority of the Board, the provision of all investment advisory and portfolio management services for the
Fund. In addition, the Investment Adviser provides administrative services reasonably necessary for the ordinary operation of the Fund. The Investment Adviser has delegated certain management responsibilities to one or more Sub-Advisers.Investment Management Services
Among other things, the Investment Adviser: (i) provides general investment advice and guidance with respect to the Fund and
provides advice and guidance to the Fund’s Board; (ii) provides the Board with any periodic or special reviews or reporting it requests, including any reports regarding the Sub-Adviser and its investment performance; (iii) oversees management of the Fund’s investments and portfolio composition including supervising the Sub-Adviser with respect to the services the
Sub-Adviser provides; (iv) makes available its officers and employees to the Board and officers of the Trust; (v) designates and compensates
from its own resources such personnel as the Investment Adviser may consider necessary or appropriate to the performance of its
services hereunder; (vi) periodically monitors and evaluates the performance of the Sub-Adviser with respect to the investment objectives
and policies of the Fund and performs periodic detailed analysis and review of the Sub-Adviser’s investment performance; (vii) reviews, considers and reports on any changes in the personnel of the Sub-Adviser responsible for performing the Sub-Adviser’s obligations or any changes in the ownership or senior management of the Sub-Adviser; (viii) performs periodic in-person or telephonic diligence meetings
with the Sub-Adviser; (ix) assists the Board and management of the Fund in developing and reviewing information with respect to the
initial and subsequent annual approval of the Sub-Advisory Agreement(s); (x) monitors the Sub-Adviser for compliance with the investment objective(s),
policies and restrictions of the Fund, the 1940 Act, Subchapter M of the Code, and, if applicable, regulations under these provisions,
and other applicable law; (xi) if appropriate, analyzes and recommends for consideration by the Board termination of a contract with
the Sub-Adviser; (xii) identifies potential successors to or replacements of the Sub-Adviser or potential additional sub-adviser(s), performs
appropriate due diligence, and develops and presents recommendations to the Board; and (xiii) is authorized to exercise full investment
discretion and make all determinations with respect to the day-to-day investment of the Fund’s assets and the purchase and sale of portfolio securities for the Fund in the event that at any time no sub-adviser is engaged to manage the assets of the Fund.
In addition, the Investment Adviser assists in managing and supervising all aspects
of the general day-to-day business activities and operations of the Fund, including custodial, transfer agency, dividend disbursing,
accounting, auditing, compliance, and related services. The Investment Adviser also reviews the Fund for compliance with applicable legal
requirements and monitors the Sub-Adviser for compliance with requirements under applicable law and with the investment policies and restrictions
of the Fund.
Limitation of Liability
The Investment Adviser is not subject to liability to the Fund for any act or omission
in the course of, or in connection with, rendering services under the Investment Management Agreement, except by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of its obligations and duties under the Investment Management Agreement.
Continuation and Termination of the Investment Management Agreement
After an initial term of two years, the Investment Management Agreement continues
in effect from year to year with respect to the Fund so long as such continuance is specifically approved at least annually by: (i) the
Board of Trustees; or (ii) the vote of a “majority” of the Fund’s outstanding voting securities (as defined in Section 2(a)(42) of the 1940 Act); and provided that such continuance is also approved by a vote of at least a majority of the Independent Trustees who are not parties to
the agreement by a vote cast either in person at a meeting called for the purpose of voting on such approval, or in reliance on exemptive
relief from the SEC that has permitted such approval at virtual meetings held by video or telephone conference since the commencement of
the COVID-19 pandemic.
The Investment Management Agreement may be terminated as to the Fund at any time without
penalty by: (i) the vote of the Board; (ii) the vote of a majority of the Fund’s outstanding voting securities (as defined in Section 2(a)(42) of the 1940 Act); or (iii) the Investment Adviser, on sixty (60) days’ prior written notice to the other party. The notice provided for herein may be waived by either party, as a single class, or upon notice given by the Investment Adviser. The Investment Management Agreement
will terminate automatically in the event of its “assignment” (as defined in Section 2(a)(4) of the 1940 Act).
Management Fees
53
The Investment Adviser pays all of its expenses arising from the performance of its
obligations under the Investment Management Agreement, including executive salaries and expenses of the Trustees and officers of the Trust
who are employees of the Investment Adviser or its affiliates, except the CCO. The Investment Adviser pays the fees of the Sub-Adviser.
The Investment Adviser receives an annual management fee, payable monthly, in an amount equal to 1.15% of the Fund’s “total managed assets.” Total managed assets means the total assets of the Fund (including assets attributable
to any reverse repurchase agreements and borrowings) minus the Fund’s accrued liabilities (other than liabilities for reverse repurchase agreements and the principal amount of any borrowings incurred) (“Managed Assets”).
Total Investment Management Fees Paid by the Fund
During the past three fiscal years, the Fund paid the following investment management fees to the Investment Adviser or its affiliates. The amount shown for the Fund reflects the period from May 1, 2024 through the end of the relevant fiscal period. “N/A” in the table indicates that, as the Fund was not in operation during the relevant fiscal year,
no information is shown.
|
|
2025
|
2024
|
2023
|
|
Voya Enhanced Securitized Income Fund
|
|
|
|
|
Management Fee
|
|
N/A
|
N/A
|
EXPENSES
The Fund’s assets may decrease or increase during its fiscal year and the Fund’s operating expense ratios may correspondingly increase or decrease.
In addition to the management fee and other fees described previously, the Fund pays
other expenses, such as legal, audit, transfer agency and custodian out-of-pocket fees, proxy solicitation costs, and the compensation
of Trustees who are not affiliated with the Investment Adviser.
Certain expenses of the Fund are generally allocated to the Fund, and each class of
the Fund, in proportion to its pro rata average net assets, provided that expenses that are specific to a class of the Fund may be charged
directly to that class in accordance with the Trust’s Multiple Class Plan(s) pursuant to Rule 18f-3. However, any Rule 12b-1 Plan fees for each class of shares are charged proportionately only to the outstanding shares of that class.
EXPENSE LIMITATIONS
As described in the Prospectus, the Investment Adviser, Distributor, and/or Sub-Adviser
may have entered into one or more expense limitation agreements with the Fund pursuant to which they have agreed to waive or
limit their fees. In connection with such an agreement, the Investment Adviser, Distributor, or Sub-Adviser, as applicable, will assume expenses,
including offering and organizational expenses (excluding certain expenses as discussed below), so that the total annual ordinary
operating expenses of the Fund do not exceed the amount specified in the Fund’s Prospectus.
Exclusions
Expense limitations do not extend to interest, taxes, other investment-related costs,
leverage expenses (as defined below), extraordinary expenses such as litigation and expenses of the CCO and CIRO, other expenses not incurred in the ordinary course of the Fund’s business, and expenses of any counsel or other persons or services retained by the Independent
Trustees. Leverage expenses shall mean fees, costs, and expenses incurred in connection with the Fund’s use of leverage (including, without limitation, expenses incurred by the Fund
in creating, establishing, and maintaining leverage through borrowings or reverse
repurchase agreements). Acquired Fund Fees and Expenses are not covered by any expense limitation agreement.If an expense limitation is subject to recoupment (as indicated in the Prospectus),
the Investment Adviser, Distributor, or Sub-Adviser, as applicable, may recoup any expenses reimbursed within 36 months of the waiver or reimbursement
and the amount of the recoupment is limited to the lesser of the amounts that would be recoupable under: (i) the expense
limitation in effect at the time of the waiver or reimbursement; or (ii) the expense limitation in effect at the time of recoupment.
Reimbursement for fees waived or expenses assumed will only apply to amounts waived or expenses assumed after the effective date of
the expense limitation.
NET FUND FEES WAIVED, REIMBURSED, OR RECOUPED
The table below shows the net fund expenses reimbursed, waived, and any recoupment, if applicable, by the Investment Adviser and
Distributor for the last three fiscal years. The amount shown for the Fund reflects the period from May 1, 2024 through the end
of the relevant fiscal period. “N/A” in the table indicates that, because the Fund was not in operation during the relevant
fiscal period, no information is shown.|
|
2025
|
2024
|
2023
|
|
Voya Enhanced Securitized Income Fund
|
|
N/A
|
N/A
|
54
Sub-Adviser
The Investment Adviser has engaged the services of the Sub-Adviser to provide sub-advisory
services to the Fund and, pursuant to a Sub-Advisory Agreement, has delegated certain management responsibilities to the Sub-Adviser.
The Investment Adviser monitors and evaluates the performance of the Sub-Adviser.
The Sub-Adviser provides, subject to the supervision of the Board and the Investment
Adviser, a continuous investment program for the Fund and determines the composition of the assets of the Fund, including determination
of the purchase, retention, or sale of the securities, cash and other investments for the Fund, in accordance with the Fund’s investment objectives, policies and restrictions and applicable laws and regulations.
Limitation of Liability
The Sub-Adviser is not subject to liability to the Fund for any act or omission in
the course of, or in connection with, rendering services under the Sub-Advisory Agreement, except by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of its obligations and duties under the Sub-Advisory Agreement.
Continuation and Termination of the Sub-Advisory Agreement
After an initial term of two years, the Sub-Advisory Agreement continues in effect
from year-to-year so long as such continuance is specifically approved at least annually by: (i) the Board; or (ii) the vote of a majority of the Fund’s outstanding voting securities (as defined in Section 2(a)(42) of the 1940 Act); provided, that the continuance is also approved by a majority
of the Independent Trustees who are not parties to the agreement by a vote cast in person at a meeting called for the purpose of voting
on such approval.
The Sub-Advisory Agreement may be terminated as to the Fund without penalty upon sixty (60) days’ written notice by: (i) the Board; (ii) the majority vote of the outstanding voting securities of the Fund; (iii) the Investment Adviser; or (iv) the Sub-Adviser upon 60-90 days’ written notice, depending on the terms of the Sub-Advisory Agreement. The Sub-Advisory
Agreement terminates automatically in the event of its assignment or in the event of the termination of the Investment Management
Agreement.
Sub-Advisory Fees
The Sub-Adviser receives compensation from the Investment Adviser at the annual rate of a specified percentage of the Fund’s average daily Managed Assets, as indicated below. The fee is accrued daily and paid monthly.
The Sub-Adviser pays all of its expenses arising from the performance of its obligations under the Sub-Advisory Agreement.
|
Sub-Adviser
|
Annual Sub-Advisory Fee
|
|
Voya IM
|
0.52%
|
Total Sub-Advisory Fees Paid
The following table sets forth the sub-advisory fees paid by the Investment Adviser for the last three fiscal years.The amount shown for the Fund reflects the period from May 1, 2024 through the end of the relevant fiscal
period. “N/A” in the table indicates that, because the Fund was not in operation during the relevant fiscal period, no information is
shown.
|
|
2025
|
2024
|
2023
|
|
Voya Enhanced Securitized Income Fund
|
|
N/A
|
N/A
|
Portfolio Management
Other Accounts Managed
The following table sets forth the number of accounts and total assets in the accounts
managed by each portfolio manager as of February 28, 2025:
|
Portfolio Manager
|
Fund(s)
|
Registered Investment
Companies
|
Other Pooled Investment
Vehicles
|
Other Accounts
|
|||
|
Number of
Accounts
|
Total
Assets
|
Number of
Accounts
|
Total
Assets
|
Number of
Accounts
|
Total
Assets
|
||
|
Colin Dugas
|
Voya Enhanced Securitized
Income Fund
|
1
|
$26,650
|
0
|
$0
|
0
|
$0
|
|
David Goodson
|
Voya Enhanced Securitized
Income Fund
|
7
|
$12,118,665,318
|
80
|
$3,137,771,372
|
113
|
$23,314,390,744
|
Potential Material Conflicts of Interest
55
A portfolio manager may be subject to potential conflicts of interest because the
portfolio manager is responsible for other accounts in addition to the Fund. These other accounts may include, among others, other mutual
funds, separately managed advisory accounts, commingled trust accounts, insurance separate accounts, wrap fee programs, and hedge funds. Potential
conflicts may arise out of the implementation of differing investment strategies for the portfolio manager’s various accounts, the allocation of investment opportunities among those accounts or differences in the advisory fees paid by the portfolio manager’s accounts.
A potential conflict of interest may arise as a result of the portfolio manager’s responsibility for multiple accounts with similar investment guidelines. Under these circumstances, a potential investment may be suitable for more than one of the portfolio manager’s accounts, but the quantity of the investment available for purchase is less than the aggregate
amount the accounts would ideally devote to the opportunity. Similar conflicts may arise when multiple accounts seek to dispose of
the same investment.
A portfolio manager may also manage accounts whose objectives and policies differ
from those of the Fund. These differences may be such that under certain circumstances, trading activity appropriate for one account
managed by the portfolio manager may have adverse consequences for another account managed by the portfolio manager. For example, if
an account were to sell a significant position in a security, which could cause the market price of that security to decrease, while the
Fund maintained its position in that security.
A potential conflict may arise when a portfolio manager is responsible for accounts that have different advisory fees – the difference in the fees may create an incentive for the portfolio manager to favor one account over
another, for example, in terms of access to particularly appealing investment opportunities. This conflict may be heightened where an account
is subject to a performance-based fee.
As part of its compliance program, Voya IM has adopted policies and procedures reasonably
designed to address the potential conflicts of interest described above.
Finally, a potential conflict of interest may arise because the investment mandates
for certain other accounts, such as hedge funds, may allow extensive use of short sales which, in theory, could allow them to enter into
short positions in securities where other accounts hold long positions. Voya IM has policies and procedures reasonably designed to limit and
monitor short sales by the other accounts to avoid harm to the Fund.
Compensation
Compensation consists of: (i) a fixed base salary; (ii) a bonus, which is based on
Voya IM performance, one-, three-, and five-year pre-tax performance of the accounts the portfolio managers are primarily and jointly responsible
for relative to account benchmarks, peer universe performance, and revenue growth and net cash flow growth (changes in the accounts’ net assets not attributable to changes in the value of the accounts’ investments) of the accounts they are responsible for; and (iii) long-term equity awards tied to the performance of our parent company, Voya Financial, Inc. and/or a notional investment in a pre-defined
set of Voya IM sub-advised funds.
Portfolio managers are also eligible to receive an annual cash incentive award delivered
in some combination of cash and a deferred award in the form of Voya stock. The overall design of the annual incentive plan was
developed to tie pay to both performance and cash flows, structured in such a way as to drive performance and promote retention of top
talent. As with base salary compensation, individual target awards are determined and set based on external market data and internal comparators.
Investment performance is measured on both relative and absolute performance in all areas.
The measures for the team are outlined on a “scorecard” that is reviewed on an annual basis. These scorecards measure investment performance versus benchmark and peer groups over one-, three-, and five-year periods;
and year-to-date net cash flow (changes in the accounts’ net assets not attributable to changes in the value of the accounts’ investments) for all accounts managed by the team. The results for overall Voya IM scorecards are typically calculated on an asset weighted
performance basis of the individual team scorecards.
Investment professionals’ performance measures for bonus determinations are weighted by 25% being attributable to the overall Voya IM performance and 75% attributable to their specific team results (65% investment
performance, 5% net cash flow, and 5% revenue growth).
Voya IM's long-term incentive plan is designed to provide ownership-like incentives
to reward continued employment and to link long-term compensation to the financial performance of the business. Based on job function,
internal comparators and external market data, employees may be granted long-term awards. All senior investment professionals participate in
the long-term compensation plan. Participants receive annual awards determined by the management committee based largely on investment performance
and contribution to firm performance. Plan awards are based on the current year’s performance as defined by the Voya IM component of the annual incentive plan. Awards typically include a combination of performance shares, which vest ratably over a three-year
period, and Voya restricted stock and/or a notional investment in a predefined set of Voya IM sub-advised funds, each subject
to a three-year cliff-vesting schedule.
If a portfolio manager’s base salary compensation exceeds a particular threshold, he or she may participate in Voya’s deferred compensation plan. The plan provides an opportunity to invest deferred amounts of compensation
in mutual funds, Voya stock or at an annual fixed interest rate. Deferral elections are done on an annual basis and the amount of compensation
deferred is irrevocable.
For the Fund, Voya IM has defined ICE BofA U.S. Dollar 3-Month Deposit Offered Rate
Constant Maturity Index as the benchmark index for the investment team.
Ownership of Securities
The following table shows the dollar range of Fund shares beneficially owned by each portfolio manager (including investments by his/her immediate family members) and amounts invested through retirement and deferred compensation plans as of February 28, 2025.
56
|
Portfolio
Manager
|
Investment Adviser or
Sub-Adviser
|
Fund(s) Managed by the
Portfolio Manager
|
Dollar Range of Fund
Shares Owned
|
|
Colin Dugas
|
Voya IM
|
Voya Enhanced Securitized Income Fund
|
[None]
|
|
David Goodson
|
Voya IM
|
Voya Enhanced Securitized Income Fund
|
[None]
|
PRINCIPAL UNDERWRITER
The Distributor, a Delaware limited liability company, is the principal underwriter
and distributor of the Fund. The Distributor is an indirect subsidiary of Voya Financial, Inc. and is an affiliate of the Investment Adviser. The Distributor’s principal business address is 7337 East
Doubletree Ranch Road, Suite 100, Scottsdale, Arizona 85258. Shares of the Fund are offered on a continuous basis. As principal underwriter, the Distributor has agreed to use reasonable efforts to distribute the Shares, although
it is not obligated to sell any particular amount of shares.The Distributor is responsible for all of its expenses in providing services pursuant
to the Distribution Agreement, including the payment of any commissions.
The Distribution Agreement may be continued from year to year if approved annually
by the Trustees or by a vote of a majority of the outstanding voting securities of the Fund and by a vote of a majority of the Trustees
who are not “interested persons” of the Distributor, or the Trust or parties to the Distribution Agreement, appearing in person at a meeting
called for the purpose of approving such Agreement.
The Distribution Agreement terminates automatically upon assignment, and may be terminated at any time on sixty (60) days’ written notice by the Trustees or the Distributor or by vote of a majority of the outstanding
voting securities of the Fund without the payment of any penalty.
In addition to paying fees under the Distribution Agreement, the Fund may pay service
fees to intermediaries such as brokers-dealers, financial advisors, or other financial institutions, including affiliates of Voya
Investments (such as Voya Funds Services, LLC) for administration, sub-transfer agency, and other shareholder services associated with investors whose
shares are held of record in omnibus accounts. These additional fees paid by the Fund to intermediaries are a fixed dollar amount
payment per each underlying shareholder account. These may include payments for 401k sub-accounting services, networking fees, and
omnibus account servicing fees.
For the fiscal years ended February 29, 2024 and February 28, 2023, the Distributor paid no service fees as the Fund was not in operation during those years. For the fiscal year ended February 28, 2025, the Distributor was paid [$], respectively,
for services rendered to the Fund.
Commissions and Compensation Received by the Principal Underwriter
The following table shows all commissions and other compensation received by the Principal Underwriter, who is an affiliated person of the Fund or an affiliated person of that affiliated person, directly or indirectly,
from the Fund during the most recent fiscal year.
|
Fund
|
Name of Principal
Underwriter
|
Net Underwriting
Discounts and
Commissions
|
Compensation on
Redemptions and
Repurchases
|
Brokerage
Commissions
|
Other
Compensation
|
|
Voya
Enhanced Securitized Income
Fund
|
Voya Investments
Distributor, LLC
|
[$]
|
[$]
|
[$]
|
N/A
|
Additional Cash Compensation for Sales by “Focus Firms”
The Distributor may, at its discretion, pay additional cash compensation to its employee
sales staff for sales by certain broker-dealers or “focus firms.” The Distributor may pay up to an additional 0.10% to its employee sales staff for
sales that are made by registered representatives of these focus firms. As of the date of this SAI, the focus firms are: Ameriprise
Financial Services, LLC; Broadridge Business Process Outsourcing, LLC; Cetera Financial Holdings, Inc.; Charles Schwab & Co. Inc.; Directed
Services LLC; Empower Financial Services, Inc.; Fidelity Brokerage Services, LLC; J.P. Morgan Securities, LLC; LPL Financial, LLC; Merrill Lynch, Pierce, Fenner &
Smith Inc.; Mid Atlantic Clearing & Settlement Corporation, Inc; Morgan Stanley; New York Life Insurance & Annuity Corp; Osaic, Inc; Pershing, LLC; Raymond James & Associates, Inc.; RBC Capital Markets, LLC; Reliance Trust Company; ReliaStar
Life Insurance Company of New York; Standard Insurance Company; UBS Financial Services, Inc; Vanguard Marketing Corporation; Voya Financial Advisers, Inc.; Voya Retirement Insurance and Annuity Company; and Wells Fargo Clearing Services, LLC.
Other Incentives
The Distributor may, from time to time, pay additional cash and non-cash compensation
from its own resources to its employee sales staff for sales of certain Voya funds that are made by registered representatives
of broker-dealers to the extent such compensation is not prohibited by law or the rules of any self-regulatory agency, such as FINRA.
OTHER SERVICE PROVIDERS
Custodian
The Bank of New York Mellon, 240 Greenwich Street, New York, New York 10286 serves
as custodian for the Fund.
57
The custodian’s responsibilities include safekeeping and controlling the Fund’s cash and securities, handling the receipt and delivery of securities, and collecting interest and dividends on the Fund’s investments. The custodian does not participate in determining the investment policies of the Fund, in deciding which securities are purchased or sold by the Fund,
or in the declaration of dividends and distributions. The Fund may, however, invest in obligations of the custodian and may purchase or
sell securities from or to the custodian.
For portfolio securities that are purchased and held outside the United States, the
custodian has entered into sub-custodian arrangements with certain foreign banks and clearing agencies which are designed to comply with
Rule 17f-5 under the 1940 Act.
Independent Registered Public Accounting Firm
[ ] serves as an independent registered public accounting firm for the Fund. [ ] provides audit services and tax return preparation services. [ ] is located at [ ].
Legal Counsel
Legal matters for the Trust are passed upon by Ropes & Gray LLP, Prudential Tower,
800 Boylston Street, Boston, Massachusetts 02199-3600.
Transfer Agent, Dividend Disbursing Agent, and Registrar
BNY Mellon Investment Servicing (US) Inc. (“Transfer Agent”) serves as the transfer agent, dividend disbursing agent, and registrar for the Shares of the Fund. Its principal office is located at 301 Bellevue Parkway, Wilmington,
Delaware 19809. As transfer agent, dividend disbursing agent and registrar, BNY Mellon Investment Servicing (US) Inc. is responsible
for maintaining account records, detailing the ownership of Fund shares and for crediting income, capital gains and other changes
in share ownership to shareholder accounts.
Securities Lending Agent
The Bank of New York Mellon serves as the securities lending agent. The services provided
by The Bank of New York Mellon, as the securities lending agent, for the most recent fiscal year primarily included the following:
(1) selecting borrowers from an approved list of borrowers and executing a securities
lending agreement as agent on behalf of the Fund with each such borrower;
(2) negotiating the terms of securities loans, including the amount of fees;
(3) directing the delivery of loaned securities;
(4) monitoring the daily value of the loaned securities and directing the payment
of additional collateral or the return of excess collateral, as necessary;
(5) investing cash collateral received in connection with any loaned securities in
accordance with specific guidelines and instructions provided by the Investment Adviser;
(6) monitoring distributions on loaned securities (for example, interest and dividend
activity);
(7) in the event of default by a borrower with respect to any securities loan, using
the collateral or the proceeds of the liquidation of collateral to purchase replacement securities of the same issue, type, class and series
as that of the loaned securities; and
(8) terminating securities loans and arranging for the return of loaned securities
to the Fund at loan termination.
The following table provides the dollar amounts of income and fees/compensation related to the securities lending activities
of the Fund for its most recent fiscal year. There are no fees paid to the securities lending agent for cash collateral management
services, administrative fees, indemnification fees, or other fees.
|
Fund
|
Gross
securities
lending
income
|
Fees
paid
to
securities
lending
agent
from
revenue
split
|
Positive
Rebate
|
Negative
Rebate
|
Net
Rebate
|
Securities
Lending
losses/
gains
|
Total
Aggregate
fees/
compensation
paid
to
securities
lending
agent
or
broker
|
Net
Securities
Income
|
|
Voya Enhanced Securitized Income Fund
|
[$]
|
[$]
|
[$]
|
[$]
|
[$]
|
None
|
[$]
|
[$]
|
PORTFOLIO TRANSACTIONS
The Fund will generally have at least 80% of its net assets (plus borrowings for investment
purposes) invested in securitized credit instruments. The Fund will acquire investments from and sell investments to banks, insurance companies,
finance companies, and other investment companies and private investment funds. The Fund may also purchase investments from
and sell investments to U.S. branches of foreign banks which are regulated by the Federal Reserve System or appropriate state regulatory authorities. The Fund’s interest in a particular
58
investment will terminate when the Fund receives full payment on the investment or
sells an investment in the secondary market. Costs associated with purchasing or selling investments in the secondary market include
commissions paid to brokers and processing fees paid to agents. These costs are allocated between the purchaser and seller as agreed
between the parties.
The Investment Adviser or the Sub-Adviser for the Fund places orders for the purchase
and sale of investment securities for the Fund, pursuant to authority granted in the relevant Investment Management Agreement or Sub-Advisory
Agreement.
Subject to policies and procedures approved by the Board, the Investment Adviser and/or
Sub-Adviser have discretion to make decisions relating to placing these orders including, where applicable, selecting the brokers
or dealers that will execute the purchase and sale of investment securities, negotiating the commission or other compensation paid to the
broker or dealer executing the trade, or using an electronic communications network (“ECN”) or alternative trading system (“ATS”).
In situations where the Sub-Adviser resigns or the Investment Adviser otherwise assumes
day-to-day management of the Fund pursuant to its Investment Management Agreement with such Fund, the Investment Adviser will
perform the services described herein as being performed by the Sub-Adviser.
How Securities Transactions are Effected
Purchases and sales of securities on a securities exchange (which include most equity
securities) are effected through brokers who charge a commission for their services. In transactions on securities exchanges in the U.S.,
these commissions are negotiated, while on many foreign (non-U.S.) securities exchanges commissions are fixed. Securities traded in
the OTC markets (such as debt instruments and some equity securities) are generally traded on a “net” basis with market makers acting as dealers; in these transactions, the dealers act
as principal for their own accounts without a stated commission, although the price of
the security usually includes a profit to the dealer. Transactions in certain OTC securities also may be effected on an agency basis when, in the Investment Adviser’s or the Sub-Adviser’s opinion, the total price paid (including commission) is equal to or better than the
best total price available from a market maker. In underwritten offerings, securities are usually purchased at a fixed price, which includes an amount
of compensation to the underwriter, generally referred to as the underwriter’s concession or discount. On occasion, certain money market instruments may be purchased directly from an issuer, in which case no commissions or discounts are paid. The Investment Adviser or the
Sub-Adviser may also place trades using an ECN or ATS.
How the Investment Adviser or the Sub Adviser Selects Broker-Dealers
The Investment Adviser and the Sub-Adviser(s) have a duty to seek to obtain best execution of the Fund’s orders, taking into consideration a full range of factors designed to produce the most favorable overall terms reasonably
available under the circumstances. In selecting brokers and dealers to execute trades, the Investment Adviser or the Sub-Adviser may
consider both the characteristics of the trade and the full range and quality of the brokerage services available from eligible broker-dealers.
This consideration often involves qualitative as well as quantitative judgments. Factors relevant to the nature of the trade may include,
among others, price (including the applicable brokerage commission or dollar spread), the size of the order, the nature and characteristics
(including liquidity) of the market for the security, the difficulty of execution, the timing of the order, potential market impact,
and the need for confidentiality, speed, and certainty of execution. Factors relevant to the range and quality of brokerage services available
from eligible brokers and dealers may include, among others, each firm’s execution, clearance, settlement, and other operational facilities; willingness and ability to commit capital or take risk in positioning a block of securities, where necessary; special expertise
in particular securities or markets; ability to provide liquidity, speed and anonymity; the nature and quality of other brokerage and research
services provided to the Investment Adviser or the Sub-Adviser (consistent with the “safe harbor” described below and subject to the restrictions of the EU’s updated Markets in Financial Instruments Directive (“MiFID II”)); and each firm’s general reputation, financial condition and responsiveness to the Investment Adviser or the Sub-Adviser, as demonstrated in the particular transaction or other transactions.
Subject to its duty to seek best execution of the Fund’s orders, the Investment Adviser or the Sub-Adviser may select broker-dealers that participate in commission recapture programs that have been established for the benefit of the Fund. Under these programs, the
participating broker-dealers will return to the Fund (in the form of a credit to the Fund) a portion of the brokerage commissions paid to the
broker-dealers by the Fund. These credits are used to pay certain expenses of the Fund. These commission recapture payments benefit the
Fund, and not the Investment Adviser or the Sub-Adviser.
59
The Safe Harbor for Soft Dollar Practices
In selecting broker-dealers to execute a trade for the Fund, the Investment Adviser
or the Sub-Adviser may consider the nature and quality of brokerage and research services provided to the Investment Adviser or the Sub-Adviser
as a factor in evaluating the most favorable overall terms reasonably available under the circumstances. As permitted by Section
28(e) of the 1934 Act, the Investment Adviser or the Sub-Adviser may cause the Fund to pay a broker-dealer a commission for effecting
a securities transaction for the Fund that is in excess of the commission which another broker-dealer would have charged for effecting
the transaction, as long as the services provided to the Investment Adviser or Sub-Adviser by the broker-dealer: (i) are limited to
“research” or “brokerage” services; (ii) constitute lawful and appropriate assistance to the Investment Adviser or Sub-Adviser in the performance
of its investment decision-making responsibilities; and (iii) the Investment Adviser or the Sub-Adviser makes a good faith determination that the broker’s commission paid by the Fund is reasonable in relation to the value of the brokerage and research services provided
by the broker-dealer, viewed in terms of either the particular transaction or the Investment Adviser’s or the Sub-Adviser’s overall responsibilities to the Fund and its other investment advisory clients. In making such a determination, the Investment Adviser or Sub-Adviser might
consider, in addition to the commission rate, the range and quality of a broker’s services, including the value of the research provided, execution capability, financial responsibility and responsiveness. The practice of using a portion of the Fund’s commission dollars to pay for brokerage and research services provided to the Investment Adviser or the Sub-Adviser is sometimes referred to as “soft dollars.” Section 28(e) of the 1934 Act is sometimes referred to as a “safe harbor,” because it permits this practice, subject to a number of restrictions, including
the Investment Adviser or the Sub-Adviser’s compliance with certain procedural requirements and limitations on the type of brokerage and research services that qualify for the safe harbor. The provisions of MiFID II may limit the ability of the
Sub-Adviser to pay for research services using soft dollars in various circumstances.
Brokerage and Research Products and Services Under the Safe Harbor – Research products and services may include, but are not limited to, general economic, political, business and market information and reviews, industry
and company information and reviews, evaluations of securities and recommendations as to the purchase and sale of securities, financial
data on a company or companies, performance and risk measuring services and analysis, stock price quotation services, computerized
historical financial databases and related software, credit rating services, analysis of corporate responsibility issues, brokerage analysts’ earnings estimates, computerized links to current market data, software dedicated to research, and portfolio modeling. Research services
may be provided in the form of reports, computer-generated data feeds and other services, telephone contacts, and personal meetings with securities
analysts, as well as in the form of meetings arranged with corporate officers and industry spokespersons, economists, academics,
and governmental representatives. Brokerage products and services assist in the execution, clearance and settlement of securities transactions,
as well as functions incidental thereto including, but not limited to, related communication and connectivity services and equipment,
software related to order routing, market access, algorithmic trading, and other trading activities. On occasion, a broker-dealer may
furnish the Investment Adviser or the Sub-Adviser with a service that has a mixed use (that is, the service is used both for brokerage and
research activities that are within the safe harbor and for other activities). In this case, the Investment Adviser or the Sub-Adviser is
required to reasonably allocate the cost of the service, so that any portion of the service that does not qualify for the safe harbor is paid
for by the Investment Adviser or the Sub-Adviser from its own funds, and not by portfolio commissions paid by the Fund.
Benefits to the Investment Adviser or the Sub-Adviser – Research products and services provided to the Investment Adviser or the Sub-Adviser by broker-dealers that effect securities transactions for the Fund may be used by
the Investment Adviser or the Sub-Adviser in servicing all of its accounts. Accordingly, not all of these services may be used by the Investment
Adviser or the Sub-Adviser in connection with the Fund. Some of these products and services are also available to the Investment Adviser
or the Sub-Adviser for cash, and some do not have an explicit cost or determinable value. The research received does not reduce
the management fees payable to the Investment Adviser or the sub-advisory fees payable to the Sub-Adviser for services provided to the Fund. The Investment Adviser’s or the Sub-Adviser’s expenses would likely increase if the Investment Adviser or the Sub-Adviser had to
generate these research products and services through its own efforts, or if it paid for these products or services itself. It is possible
that the Sub-Adviser subject to MiFID II will cause the Fund to pay for research services with soft dollars in circumstances where it is prohibited
from doing so with respect to other client accounts, although those other client accounts might nonetheless benefit from those research
services.
Broker-Dealers that are Affiliated with the Investment Adviser or the Sub-Adviser
Portfolio transactions may be executed by brokers affiliated with Voya Financial,
Inc., the Investment Adviser, or the Sub-Adviser, so long as the commission paid to the affiliated broker is reasonable and fair compared to
the commission that would be charged by an unaffiliated broker in a comparable transaction.
Prohibition on Use of Brokerage Commissions for Sales or Promotional Activities
The placement of portfolio brokerage with broker-dealers who have sold shares of the
Fund is subject to rules adopted by the SEC and FINRA. Under these rules, the Investment Adviser or the Sub-Adviser may not consider a broker’s promotional or sales efforts on behalf of the Fund when selecting a broker-dealer for portfolio transactions, and neither
the Fund nor the Investment Adviser or Sub-Adviser may enter into an agreement under which the Fund directs brokerage transactions (or revenue
generated from such transactions) to a broker-dealer to pay for distribution of Fund shares. The Fund has adopted policies and procedures,
approved by the Board, that are designed to attain compliance with these prohibitions.
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Principal Trades and Research
Purchases of securities for the Fund also may be made directly from issuers or from
underwriters. Purchase and sale transactions may be effected through dealers which specialize in the types of securities which the
Fund will be holding. Dealers and underwriters usually act as principals for their own account. Purchases from underwriters will include
a concession paid by the issuer to the underwriter and purchases from dealers will include the spread between the bid and the asked price.
If the execution and price offered by more than one dealer or underwriter are comparable, the order may be allocated to a dealer or underwriter
which has provided such research or other services as mentioned above.
More Information about Trading in Debt Instruments
Purchases and sales of debt instruments will usually be principal transactions. Such
instruments often will be purchased from or sold to dealers serving as market makers for the instruments at a net price. The Fund may
also purchase such instruments in underwritten offerings and will, on occasion, purchase instruments directly from the issuer. Generally,
debt instruments are traded on a net basis and do not involve brokerage commissions. The cost of executing debt instruments transactions
consists primarily of dealer spreads and underwriting commissions.
In purchasing and selling debt instruments, it is the policy of the Fund to obtain the best results, while taking into account the dealer’s general execution and operational facilities, the type of transaction involved and other factors, such as the dealer’s risk in positioning the instruments involved. While the Investment Adviser or the Sub-Adviser generally seeks
reasonably competitive spreads or commissions, the Fund will not necessarily pay the lowest spread or commission available.
Transition Management
Changes in sub-advisers, investment personnel, and reorganizations of the Fund may
result in the sale of a significant portion or even all of the Fund’s portfolio securities. This type of change generally will increase trading costs and the portfolio turnover for the affected Fund. The Fund, the Investment Adviser, or the Sub-Adviser may engage a broker-dealer to
provide transition management services in connection with a change in sub-advisers, reorganization, or other changes.
Allocation of Trades
Some securities considered for investment by the Fund may also be appropriate for
other clients served by the Investment Adviser or Sub-Adviser. If the purchase or sale of securities consistent with the investment
policies of the Fund and one or more of these other clients is considered at, or about the same time, transactions in such securities
will be placed on an aggregate basis and allocated among the other funds and such other clients in a manner deemed fair and equitable,
over time, by the Investment Adviser or Sub-Adviser and consistent with the Investment Adviser’s or Sub-Adviser’s written policies and procedures. The Investment Adviser and Sub-Adviser may use different methods of trade allocation. The Investment Adviser’s and Sub-Adviser’s relevant policies and procedures and the results of aggregated trades in which the Fund participated are subject to periodic
review by the Board. To the extent the Fund seeks to acquire (or dispose of) the same security at the same time as other funds, such Fund
may not be able to acquire (or dispose of) as large a position in such security as it desires, or it may have to pay a higher (or receive
a lower) price for such security. It is recognized that in some cases, this system could have a detrimental effect on the price or value of the
security insofar as the Fund is concerned. However, over time, the Fund’s ability to participate in aggregate trades is expected to provide better execution for the Fund.
Cross-Transactions
The Board has adopted a policy allowing trades to be made between affiliated registered
investment companies or series thereof, provided they meet the conditions of Rule 17a-7 under the 1940 Act and conditions of the policy.
Brokerage Commissions Paid
The following table sets forth brokerage commissions paid by the Fund for the last three fiscal years. An increase or decrease in commissions
is due to a corresponding increase or decrease in the Fund’s trading activity. The amount shown for the Fund reflects the period from May 1, 2024 through the end of the relevant fiscal period. “N/A” in the table indicates that, because the Fund was not in operation during the relevant fiscal period, no information is shown.|
|
2025
|
2024
|
2023
|
|
Voya Enhanced Securitized Income Fund
|
|
N/A
|
N/A
|
Affiliated Brokerage Commissions
The Fund commenced operations on May 1, 2024. For the fiscal year ended February 28, 2025, the Fund did not use affiliated brokers to execute portfolio transactions.
Securities of Regular Broker-Dealers
During the most recent fiscal year, the Fund acquired no securities of its regular broker-dealers (as defined in Rule
10b-1 under the 1940 Act) or their parent companies.
ADDITIONAL PURCHASE INFORMATION
Orders Placed with Intermediaries
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If you invest in the Fund through a financial intermediary, you may be charged a commission
or transaction fee by the financial intermediary for the purchase and sale of Fund shares.
Special Purchases at Net Asset Value- Class A Shares
Class A Shares of the Fund may be purchased at NAV, without a sales charge, by persons
who have offered for repurchase their Class A Shares of the Fund or redeemed their Class A Shares of another Voya fund within the
previous 90 days. The amount that may be so reinvested in the Fund is limited to an amount up to, but not exceeding, the repurchase
or redemption proceeds (or to the nearest full share if fractional shares are not purchased). In order to exercise this privilege,
a written order for the purchase of shares must be received by the Transfer Agent, or be postmarked, within 90 days after the date of redemption.
This privilege may only be used once per calendar year. Payment must accompany the request and the purchase will be made at the then
current NAV of the Fund. Such purchases may also be handled by a securities dealer who may charge a shareholder for this service.
If the shareholder has realized a gain on the repurchase or redemption, the transaction is taxable and any reinvestment will not alter any
applicable U.S. federal capital gains tax. If there has been a loss on the repurchase or redemption and a subsequent reinvestment pursuant
to this privilege, some or all of the loss may not be allowed as a tax deduction depending upon the amount reinvested, although such
disallowance is added to the tax basis of the shares acquired upon the reinvestment.
Class A Shares of the Fund may also be purchased at NAV by any charitable organization
or any state, county, or city, or any instrumentality, department, authority or agency thereof that has determined that the Fund is a legally
permissible investment and that is prohibited by applicable investment law from paying a sales charge or commission in connection with
the purchase of shares of any registered management investment company (an “eligible governmental authority”). If an investment by an eligible governmental authority at NAV is made through a dealer who has executed a selling group agreement with respect to the Fund (or an
open-end Voya fund), the Distributor may pay the selling firm 0.25% of the offering price.
The Fund’s Officers and Trustees (including retired officers and retired Board members), bona fide full-time employees of the Fund (including retired Fund employees) and the officers, directors, and full-time employees of their
investment adviser, sub-adviser, principal underwriter, or any service provider to the Fund or affiliated corporation thereof (including retired
officers and employees of the investment adviser, principal underwriter, Voya-affiliated service providers and affiliated corporations
thereof) or any trust, pension, profit-sharing, or other benefit plan for such persons, broker-dealers, for their own accounts or for members
of their families (defined as current spouse, children, parents, grandparents, uncles, aunts, siblings, nephews, nieces, step-relations, relations
at-law, and cousins) employees of such broker-dealers (including their immediate families) and discretionary advisory accounts of Voya Investments
or any Sub-Adviser, may purchase Class A Shares of the Fund at NAV without a sales charge. Such purchaser may be required to
sign a letter stating that the purchase is for his own investment purposes only and that the securities will not be resold except to
the Fund. The Fund may, under certain circumstances, allow registered advisers to make investments on behalf of their clients at NAV without
any commission or concession. The Fund may terminate or amend the terms of this sales charge waiver at any time.
Class A Shares may also be purchased at NAV by certain fee based registered investment
advisers, trust companies and bank trust departments under certain circumstances making investments on behalf of their clients
and by shareholders who have authorized the automatic transfer of dividends from the same class of an open-end fund managed by
the Investment Adviser.
Class A Shares may also be purchased without a sales charge by: (i) shareholders who
have authorized the automatic transfer of dividends from the same class of another Voya fund distributed by the Distributor; (ii) registered
investment advisors, trust companies and bank trust departments investing in Class A Shares on their own behalf or on behalf of
their clients, provided that the aggregate amount invested in any one or more Voya funds, during the 13-month period starting with the first
investment, equals at least $1,000,000; (iii) broker-dealers, who have signed selling group agreements with the Distributor, and registered representatives
and employees of such broker-dealers, for their own accounts or for members of their families (defined as current spouse, children,
parents, grandparents, uncles, aunts, siblings, nephews, nieces, step relations, relations-at-law and cousins); (iv) broker-dealers
using third-party administrators for qualified retirement plans who have entered into an agreement with the Fund or an affiliate, subject to
certain operational and minimum size requirements specified from time-to-time by the Fund; (v) accounts as to which a banker or broker-dealer
charges an account management fee (“wrap accounts”); (vi) any registered investment company for which the Investment Adviser serves
as adviser; (vii) investors who purchase Fund shares with redemption proceeds received in connection with a distribution from a
retirement plan investing either: (1) directly in the Fund or through an unregistered separate account sponsored by VRIAC or any successor thereto
or affiliate thereof; or (2) in a registered separate account sponsored by VRIAC or any successor thereto or affiliate thereof,
but only if no deferred sales charge is paid in connection with such distribution and the investor receives the distribution in connection with
a separation from service, retirement, death, or disability; and (viii) insurance companies (including separate accounts).
The Fund may terminate or amend the terms of these sales charge waivers at any time.
Letters of Intent and Rights of Accumulation- Class A Shares
An investor may immediately qualify for a reduced sales charge on a purchase of Class
A Shares of the Fund by completing the Letter of Intent section of the Shareholder Application (“Letter of Intent” or “Letter”). By completing the Letter, the investor expresses an intention to invest during the next 13 months a specified amount which, if made at one time,
would qualify for the reduced sales charge. At any time within 90 days after the first investment which the investor wants to qualify
for the reduced sales charge, a signed Shareholder Application, with the Letter of Intent section completed, may be filed with the Fund.
Those holdings will be counted towards completion of the Letter of Intent but will not be entitled to a retroactive downward adjustment
of sales charge until the Letter of Intent is fulfilled. After the Letter of Intent is filed, each additional investment made will be entitled
to the sales charge applicable to the level of investment indicated on the Letter of Intent as described above. Sales charge reductions based
upon purchases in more than one Voya fund will be
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effective only after notification to the Distributor that the investment qualifies
for a discount. Any shares of the shareholder repurchased by the Fund during the 13-month period will be subtracted from the amount of the purchases
for purposes of determining whether the terms of the Letter of Intent have been completed. If the Letter of Intent is not
completed within the 13-month period, there will be an upward adjustment of the sales charge as specified below, depending upon the amount
actually purchased (less amounts repurchased by the Fund) during the period.
An investor acknowledges and agrees to the following provisions by completing the
Letter of Intent section of the Shareholder Application in the Prospectus. A minimum initial investment equal to 25% of the intended total
investment is required. An amount equal to the maximum sales charge, as stated in the Prospectus, will be held in escrow at Voya funds, in the form of shares, in the investor’s name to assure that the full applicable sales charge will be paid if the intended purchase is not
completed. The shares in escrow will be included in the total shares owned as reflected on the purchaser’s monthly statement; income and capital gain distributions on the escrowed shares will be paid directly to the investor. The escrowed shares will not be available for repurchase
by the Fund until the Letter of Intent has been completed, or the higher sales charge paid. When the total purchases, less repurchases
by the Fund, equal the amount specified under the Letter of Intent, the shares in escrow will be released. If the total purchases,
less repurchases by the Fund, exceed the amount specified under the Letter of Intent and is an amount which would qualify for a further
quantity discount, a retroactive price adjustment will be made by the Distributor and the dealer with whom purchases were made pursuant
to the Letter of Intent (to reflect such further quantity discount) on purchases made within 90 days before, and on those made after
filing the Letter of Intent. The resulting difference in offering price will be applied to the purchase of additional shares at the applicable
offering price. If the total purchases, less repurchases by the Fund, are less than the amount specified under the Letter of Intent, the investor
will remit to the Distributor an amount equal to the difference in dollar amount of sales charge actually paid and the amount of sales
charge which would have applied to the aggregate purchases if the total of such purchases had been made at a single account in the name of the investor or to the investor’s order. If within 10 days after written request such difference in sales charge is not paid,
an appropriate number of shares in escrow will be repurchased by the Fund at the next monthly repurchase to realize such difference. If the proceeds
from a total repurchase of the escrowed shares are inadequate, the investor will be liable to the Distributor for the difference.
In the event of a total repurchase of the account prior to fulfillment of the Letter of Intent, the additional sales charge due will be deducted
from the proceeds of the repurchase and the balance will be forwarded to the Investor. By completing the Letter of Intent section of the
Shareholder Application, an investor grants to the Distributor a security interest in the shares in escrow and agrees to irrevocably
appoint the Distributor as his or her attorney-in-fact with full power of substitution to surrender for repurchase any or all escrowed shares
for the purpose of paying any additional sales charge due and authorizes the Transfer Agent or Sub-Transfer Agent to receive and liquidate
shares and pay the proceeds as directed by the Distributor. The investor or the securities dealer must inform the Transfer Agent
or the Distributor that the Letter of Intent is in effect each time a purchase is made.
If at any time prior to or after completion of the Letter of Intent the investor wishes
to cancel the Letter of Intent, the investor must notify the Distributor in writing. If, prior to the completion of the Letter of Intent, the
investor requests the Distributor to liquidate all shares held by the investor, the Letter of Intent will be terminated automatically. Under either
of these situations, the total purchased may be less than the amount specified in the Letter of Intent. If so, the Distributor will redeem
at NAV to remit to the Distributor and the appropriate authorized dealer an amount equal to the difference between the dollar amount of the
sales charge actually paid and the amount of the sales charge that would have been paid on the total purchases if made at one time.
The value of shares of the Fund plus shares of open-end funds distributed by the Distributor
can be combined with a current purchase of shares of the Fund to determine the reduced sales charge and applicable offering price
of the current purchase. The reduced sales charge applies to quantity purchases made at one time or on a cumulative basis over any period of time by: (i) an investor; (ii) the investor’s spouse and children under the age of majority; (iii) the investor’s custodian accounts for the benefit of a child under the Uniform Gift to Minors Act; and (iv) a trustee or other fiduciary of a single trust estate or a single
fiduciary account (including a pension, profit-sharing and/or other employee benefit plan qualified under Section 401 of the Code), by trust companies’ registered investment advisors, banks and bank trust departments for accounts over which they exercise exclusive investment
discretionary authority and which are held in a fiduciary, agency, advisory, custodial or similar capacity.
The reduced sales charge also applies on a non-cumulative basis to purchases made
at one time by the customers of a single dealer in excess of $1 million. The Letter of Intent option may be modified or discontinued
at any time.
Shares of the Fund and open-end Voya funds purchased and owned of record or beneficially
by a corporation, including employees of a single employer (or affiliates thereof) including shares held by its employees, under
one or more retirement plans, can be combined with a current purchase to determine the reduced sales charge and applicable offering price
of the current purchase, provided such transactions are not prohibited by one or more provisions of the Employee Retirement Income Security
Act or the Code. Individuals and employees should consult with their tax advisors concerning the tax rules applicable to retirement
plans before investing.
For the purposes of Rights of Accumulation and the Letter of Intent privilege, shares
held by investors in the Voya family of funds which impose an EWC or CDSC may be combined with Class A Shares for a reduced sales charge
but will not affect any EWC or CDSC which may be imposed upon the redemption of shares of the Fund which imposes an EWC or CDSC.
Liquidity Requirements
From the time that the Fund sends a notification to shareholders until the Repurchase Payment Deadline (as defined in the Fund’s repurchase offer documents), the Fund will maintain a percentage of the Fund’s assets equal to at least 100% of the Repurchase Offer Amount (as defined in the Fund’s repurchase offer documents) in assets: (a) that can be sold or disposed of in the ordinary course of business at approximately the price at which the Fund has valued the asset within the time period
between the Repurchase Request Deadline and
63
the next Repurchase Payment Deadline (as defined in the Fund’s repurchase offer documents); or (b) that mature by the next Repurchase Payment Deadline. In the event that the Fund’s assets fail to comply with this requirement, the Board will cause the Fund to take such action as the Board deems appropriate to ensure compliance.
TAX CONSIDERATIONS
The following tax information supplements and should be read in conjunction with the tax information contained in the Fund’s Prospectus. The Prospectus generally describes the U.S. federal income tax treatment of the Fund
and its shareholders. This section of the SAI provides additional information concerning U.S. federal income taxes. It is based on the Code,
applicable U.S. Treasury regulations, judicial authority, and administrative rulings and practice, all as in effect as of the date of this SAI
and all of which are subject to change, including with retroactive effect. The following discussion is only a summary of some of the important
U.S. federal tax considerations generally applicable to investments in the Fund. There may be other tax considerations applicable to particular
shareholders. The Investment Adviser is not obligated to consider the tax consequences related to its management of the Fund's
investments or other activities. It is possible that the actions taken by the Fund or the Investment Adviser on the Fund’s behalf could be disadvantageous to shareholders that hold shares through a taxable account. However, such actions likely will have no tax effect to
shareholders that invest through a tax-advantaged account. Shareholders should consult their own tax advisers regarding their particular situation
and the possible application of non-U.S., state and local tax laws.
Special tax rules apply to investments through defined contribution plans and other
tax-qualified plans or tax-advantaged arrangements. Shareholders should consult their tax advisers to determine the suitability of Fund
shares as an investment through such plans and arrangements and the precise effect of an investment on their particular tax situation.
Qualification as a Regulated Investment Company
The Fund intends to elect to be treated as a RIC under Subchapter M of the Code and
intends each year to qualify and to be eligible to be treated as such. In order to qualify for the special tax treatment accorded RICs
and their shareholders, the Fund must, among other things: (a) derive at least 90% of its gross income for each taxable year from: (i)
dividends, interest, payments with respect to certain securities loans, and gains from the sale or other disposition of stock, securities
or foreign currencies, or other income (including but not limited to gains from options, futures, or forward contracts) derived with respect
to its business of investing in such stock, securities, or currencies; and (ii) net income derived from interests in “qualified publicly traded partnerships” (as defined below); (b) diversify its holdings so that, at the end of each quarter of the Fund’s taxable year: (i) at least 50% of the fair market value of its total assets consists of: (A) cash and cash items (including receivables), U.S. government securities and securities
of other RICs; and (B) other securities (other than those described in clause (A)) limited in respect of any one issuer to a value that does not exceed 5% of the value of the Fund’s total assets and 10% of the outstanding voting securities of such issuer; and (ii) not more than 25% of the value of the Fund’s total assets is invested, including through corporations in which the Fund owns a 20% or more voting
stock interest, in the securities of any one issuer (other than those described in clause (i)(A)), the securities (other than securities
of other RICs) of two or more issuers the Fund controls and which are engaged in the same, similar, or related trades or businesses, or the
securities of one or more qualified publicly traded partnerships; and (c) distribute with respect to each taxable year at least 90% of
the sum of its investment company taxable income (as that term is defined in the Code without regard to the deduction for dividends paid—generally taxable ordinary income and the excess, if any, of net short-term capital gains over net long-term capital losses, taking
into account any capital loss carryforwards) and its net tax-exempt income, for such year.
In general, for purposes of the 90% gross income requirement described in (a) above,
income derived from a partnership will be treated as qualifying income only to the extent such income is attributable to items of income
of the partnership which would be qualifying income if realized directly by the RIC. However, 100% of the net income derived from an interest
in a “qualified publicly traded partnership” (generally defined as a partnership (x) the interests in which are traded on an established securities
market or are readily tradable on a secondary market or the substantial equivalent thereof, and (y) that derives less than 90% of
its income from the qualifying income described in paragraph (a)(i) above) will be treated as qualifying income. In general, such entities
will be treated as partnerships for U.S. federal income tax purposes because they meet the passive income requirement under Code Section 7704(c)(2).
In addition, although in general the passive loss rules of the Code do not apply to RICs, such rules do apply to a RIC
with respect to items attributable to an interest in a qualified publicly traded partnership. Certain of the Fund’s investments in ETFs, if any, may qualify as interests in qualified publicly traded partnerships.
For purposes of the diversification test in (b) above, the term “outstanding voting securities of such issuer” will include the equity securities of a qualified publicly traded partnership and in the case of the Fund’s investments in loan participations, the Fund shall treat both the financial intermediary and the issuer of the underlying loan as an issuer. Also, for
purposes of the diversification test in (b) above, the identification of the issuer (or, in some cases, issuers) of a particular Fund investment
can depend on the terms and conditions of that investment. In some cases, the identification of the issuer (or issuers) is uncertain
under current law, and an adverse determination or future guidance by the IRS with respect to issuer identification for a particular type of investment may adversely affect the Fund’s ability to meet the diversification test in (b) above. The qualifying income and diversification
requirements described above may limit the extent to which the Fund can engage in certain derivative transactions, as well as the extent
to which it can invest in certain commodity-linked ETFs.
If the Fund qualifies as a RIC that is accorded special tax treatment, the Fund will
not be subject to U.S. federal income tax on investment company taxable income and net capital gain (i.e., the excess of net long-term capital gain over net short-term capital loss, determined
with reference to any capital loss carryforwards) distributed in a timely manner to
its shareholders in the form of dividends (including Capital Gain Dividends, as defined below).
64
If the Fund were to fail to meet the income, diversification or distribution test
described above, the Fund could in some cases cure such failure, including by paying a Fund-level tax, paying interest, making additional
distributions, or disposing of certain assets. If the Fund were ineligible to or otherwise did not cure such failure for any year, or if the
Fund were otherwise to fail to qualify as a RIC accorded special tax treatment for such year, the Fund would be subject to tax on its taxable
income at corporate rates, and all distributions from earnings and profits, including any distributions of net tax-exempt income and net
long-term capital gains, would be taxable to shareholders as ordinary income. Some portions of such distributions may be eligible for the dividends-received
deduction in the case of corporate shareholders and may be eligible to be treated as “qualified dividend income” in the case of shareholders taxed as individuals, provided, in both cases, the shareholder meets certain holding period and other requirements
in respect of the Fund's shares (as described below). In addition, the Fund could be required to recognize unrealized gains, pay substantial
taxes and interest and make substantial distributions before re-qualifying as a RIC that is accorded special tax treatment.
The Fund intends to distribute at least annually to its shareholders all or substantially
all of its investment company taxable income (computed without regard to the dividends-paid deduction), its net tax-exempt income (if any),
and its net capital gain (that is, the excess of net long-term capital gain over net short-term capital loss, in each case determined with
reference to any loss carryforwards). However, no assurance can be given that the Fund will not be subject to U.S. federal income taxation.
Any taxable income, including any net capital gain retained by the Fund, will be subject to tax at the Fund level at regular corporate
rates.
In the case of net capital gain, the Fund is permitted to designate the retained amount
as undistributed capital gain in a timely notice to its shareholders who would then, in turn, be: (i) required to include in income for
U.S. federal income tax purposes, as long-term capital gain, their shares of such undistributed amount; and (ii) entitled to credit their
proportionate shares of the tax paid by the Fund on such undistributed amount against their U.S. federal income tax liabilities, if any, and
to claim refunds on a properly-filed U.S. tax return to the extent the credit exceeds such liabilities. If the Fund makes this designation, for
U.S. federal income tax purposes, the tax basis of shares owned by a shareholder of the Fund would be increased by an amount equal to the difference
between the amount of undistributed capital gains included in the shareholder’s gross income under clause (i) of the preceding sentence and the tax deemed paid by the shareholder under clause (ii) of the preceding sentence. The Fund is not required to, and there
can be no assurance the Fund will, make this designation if it retains all or a portion of its net capital gain in a taxable year.
In determining its net capital gain, including in connection with determining the
amount available to support a capital gain dividend, its taxable income, and its earnings and profits, a RIC generally may elect to treat part
or all of any post-October capital loss (defined as any net capital loss attributable to the portion of the taxable year after October 31
or, if there is no such loss, the net long-term capital loss or net short-term capital loss attributable to any such portion of the taxable year)
or late-year ordinary loss (generally, the sum of its: (i) net ordinary loss from the sale, exchange or other taxable disposition of property,
attributable to the portion of the taxable year after October 31, and (ii) other net ordinary loss attributable to the portion, if any,
of the taxable year after December 31) as if incurred in the succeeding taxable year.
In order to comply with the distribution requirements described above applicable to
RICs, the Fund generally must make the distributions in the same taxable year that it realizes the income and gain, although in certain
circumstances, the Fund may make the distributions in the following taxable year in respect of income and gains from the prior taxable year.
If the Fund declares a distribution to shareholders of record in October, November,
or December of one calendar year and pays the distribution in January of the following calendar year, the Fund and its shareholders will be treated
as if the Fund paid the distribution on December 31 of the earlier year.
Excise Tax
If the Fund were to fail to distribute in a calendar year at least an amount equal
to the sum of 98% of its ordinary income for such year and 98.2% of its capital gain net income for the one-year period ending October 31
of such year (or December 31 of that year if the Fund is permitted to elect and so elects), plus any such amounts retained from the prior
year, the Fund would be subject to a nondeductible 4% excise tax on the undistributed amounts.
The Fund intends generally to make distributions sufficient to avoid the imposition
of the 4% excise tax. However, no assurance can be given that the Fund will not be subject to the excise tax.
For purposes of the required excise tax distribution, a RIC’s ordinary gains and losses from the sale, exchange, or other taxable disposition of property that would otherwise be taken into account after October 31 of a calendar
year generally are treated as arising on January 1 of the following calendar year. Also, for these purposes, the Fund will be treated
as having distributed any amount on which it is subject to U.S. federal corporate income tax in the taxable year ending within the calendar year.
Use of Tax Equalization
The Fund distributes its net investment income and capital gains to shareholders at
least annually to the extent required to qualify as a RIC under the Code and generally to avoid U.S. federal income or excise tax. Under
current law, the Fund is permitted to treat the portion of redemption proceeds paid to redeeming shareholders that represents the redeeming shareholders’ pro-rata share of the Fund's accumulated earnings and profits as a dividend on the Fund’s tax return. This practice, which involves the use of tax equalization, will reduce the amount of income and gains that the Fund is required to distribute as dividends to
shareholders in order for the Fund to avoid U.S. federal income tax and excise tax, which may include reducing the amount of distributions
that otherwise would be required to be paid to non-redeeming shareholders. The Fund’s NAV generally will not be reduced by the amount of any undistributed income or gains allocated to redeeming shareholders under this practice and thus the total return on a shareholder’s investment generally will not be reduced as a result of this practice.
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Capital Loss Carryforwards
Capital losses in excess of capital gains (“net capital losses”) are not permitted to be deducted against the Fund’s net investment income. Instead, potentially subject to certain limitations, the Fund is able to carry forward
a net capital loss from any taxable year to offset its capital gains, if any, realized during a subsequent taxable year. Distributions from
capital gains are generally made after applying any available capital loss carryforwards. Capital loss carryforwards are reduced to the
extent they offset current-year net realized capital gains, whether the Fund retains or distributes such gains.
If the Fund incurs or has incurred net capital losses, those losses will be carried
forward to one or more subsequent taxable years without expiration; any such carryover losses will retain their character as short-term or
long-term.
See the Fund’s most recent annual shareholder report filing for the Fund’s available capital loss carryforwards, if any, as of the end of its most recently ended fiscal year.
Fund Distributions
For U.S. federal income tax purposes, distributions of investment income generally
are taxable to shareholders as ordinary income. Taxes on distributions of capital gains are determined by how long the Fund owned (or is
deemed to have owned) the investments that generated them, rather than how long a shareholder has owned his or her shares. In general,
the Fund will recognize long-term capital gain or loss on investments it has owned for more than one year, and short-term capital gain or
loss on investments it has owned for one year or less. Tax rules can alter the Fund’s holding period in investments and thereby affect the tax treatment of gain or loss on such investments. Distributions of net capital gain that are properly reported by the Fund as capital
gain dividends (“Capital Gain Dividends”) will be taxable to shareholders as long-term capital gains and taxed to individuals at reduced rates
relative to ordinary income. Distributions from capital gains generally are made after applying any available capital loss carryforwards.
The IRS and the U.S. Department of the Treasury have issued regulations that impose special rules in respect of Capital Gain Dividends
received through partnership interests constituting “applicable partnership interests” under Section 1061 of the Code. Distributions of net short-term capital gain (as
reduced by any net long-term capital loss for the taxable year) will be taxable to shareholders as ordinary
income. Distributions of investment income reported by the Fund as derived from “qualified dividend income” will be taxed in the hands of individuals at the rates applicable to net capital
gain, provided holding period and other requirements are met at both the shareholder
and Fund level.
The Code generally imposes a 3.8% Medicare contribution tax on the net investment
income of certain individuals, trusts and estates to the extent their income exceeds certain threshold amounts. For these purposes, “net investment income” generally includes, among other things: (i) distributions paid by the Fund of net investment income and capital
gains as described above; and (ii) any net gain from the sale, exchange or other taxable disposition of Fund shares. Shareholders are advised
to consult their tax advisers regarding the possible implications of this additional tax on their investment in the Fund.
As required by U.S. federal tax law, detailed U.S. federal tax information with respect to each calendar year will
be furnished to each shareholder early in the succeeding year.
If, in and with respect to any taxable year, the Fund makes a distribution to a shareholder in excess of the Fund’s current and accumulated earnings and profits, the excess distribution will be treated as a return of capital to the extent of such shareholder’s tax basis in its shares, and thereafter as capital gain. A return of capital is not taxable, but it reduces a shareholder’s tax basis in its shares, thus reducing any loss or increasing any gain on a subsequent taxable disposition by the
shareholder of its shares. To the extent the Fund makes distributions of capital gains in excess of the Fund’s net capital gain for the taxable year (as reduced by any available capital loss carryforwards from prior taxable years), there is a possibility that the distributions
will be taxable as ordinary dividend distributions, even though distributed excess amounts would not have been subject to tax if retained by
the Fund.
Distributions are taxable as described herein whether shareholders receive them in
cash or reinvest them in additional shares.
A dividend paid to shareholders in January generally is deemed to have been paid by
the Fund on December 31 of the preceding year if the dividend was declared and payable to shareholders of record on a date in October,
November or December of that preceding year.
Distributions on the Fund’s shares generally are subject to U.S. federal income tax as described herein to the extent they do not exceed the Fund’s realized income and gains, even though such distributions may economically represent a return of a particular shareholder’s investment. Such distributions are likely to occur in respect of shares purchased at a time when the Fund’s NAV reflects either unrealized gains, or realized but undistributed income or gains, that were therefore included
in the price the shareholder paid. Such distributions may reduce the fair market value of the Fund’s shares below the shareholder’s cost basis in those shares. As described above, the Fund is required to distribute realized income and gains regardless of whether the Fund’s NAV also reflects unrealized losses.
If the Fund holds, directly or indirectly, one or more “tax credit bonds” on one or more applicable dates during a taxable year, it is possible that the Fund will elect to permit its shareholders to claim a tax credit on their
U.S. federal income tax returns equal to each shareholder's proportionate share of tax credits from the applicable bonds that otherwise would
be allowed to the Fund. In such a case, a shareholder will be deemed to receive a distribution of money with respect to its Fund shares equal to the shareholder’s proportionate share of the amount of such credits and be allowed a credit against the shareholder's U.S. federal
income tax liability equal to the amount of such deemed distribution, subject to certain limitations imposed by the Code on the credits
involved. Even if the Fund is eligible to pass through tax credits to shareholders, the Fund may choose not to do so.
In order for some portion of the dividends received by the Fund shareholder to be
“qualified dividend income” that is eligible for taxation at long-term capital gain rates, the Fund must meet holding period and other requirements
with respect to some portion of the dividend-paying stocks in its portfolio and the shareholder must meet holding period and other requirements with respect to the Fund’s shares. In general,
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a dividend is not treated as qualified dividend income (at either the Fund or shareholder
level): (1) if the dividend is received with respect to any share of stock held for fewer than 61 days during the 121-day period beginning
on the date which is 60 days before the date on which such share becomes ex-dividend with respect to such dividend (or, in the case
of certain preferred stock, 91 days during the 181-day period beginning 90 days before such date); (2) to the extent that the recipient is
under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially
similar or related property; (3) if the recipient elects to have the dividend income treated as investment income for purposes of the limitation
on deductibility of investment interest; or (4) if the dividend is received from a foreign corporation that is: (a) not eligible for the
benefits of a comprehensive income tax treaty with the United States (with the exception of dividends paid on stock of such a foreign corporation
readily tradable on an established securities market in the United States); or (b) treated as a passive foreign investment company.
In general, distributions of investment income reported by the Fund as derived from
qualified dividend income are treated as qualified dividend income in the hands of a shareholder taxed as an individual, provided the
shareholder meets the holding period and other requirements described above with respect to the Fund’s shares.
If the aggregate qualified dividends received by the Fund during a taxable year are
95% or more of its gross income (excluding net long-term capital gain over net short-term capital loss), then 100% of the Fund’s dividends (other than dividends properly reported as Capital Gain Dividends) are eligible to be treated as qualified dividend income.
In general, dividends of net investment income received by corporate shareholders
of the Fund qualify for the dividends-received deduction generally available to corporations to the extent of the amount of eligible dividends
received by the Fund from domestic corporations for the taxable year. A dividend received by the Fund will not be treated as a dividend
eligible for the dividends-received deduction: (1) if it has been received with respect to any share of stock that the Fund has held for less
than 46 days (91 days in the case of certain preferred stock) during the 91-day period beginning on the date which is 45 days before the
date on which such share becomes ex-dividend with respect to such dividend (during the 181-day period beginning 90 days before such
date in the case of certain preferred stock); or (2) to the extent that the Fund is under an obligation (pursuant to a short sale or otherwise)
to make related payments with respect to positions in substantially similar or related property. Moreover, the dividends received deduction
may otherwise be disallowed or reduced: (1) if the corporate shareholder fails to satisfy the foregoing requirements with respect to
its shares of the Fund; or (2) by application of various provisions of the Code (for instance, the dividends-received deduction is reduced
in the case of a dividend received on debt-financed portfolio stock (generally, stock acquired with borrowed funds)).
Any distribution of income that is attributable to: (i) income received by the Fund
in lieu of dividends with respect to securities on loan pursuant to a securities lending transaction; or (ii) dividend income received by
the Fund on securities it temporarily purchased from a counterparty pursuant to a repurchase agreement that is treated for U.S. federal income
tax purposes as a loan by the Fund, will not constitute qualified dividend income to individual shareholders and will not be eligible
for the dividends-received deduction for corporate shareholders.
Distributions by the Fund to its shareholders that the Fund properly reports as “Section 199A dividends,” as defined and subject to certain conditions described below, are treated as qualified REIT dividends in the hands of
non-corporate shareholders. Non-corporate shareholders are permitted a U.S. federal income tax deduction equal to 20% of qualified REIT dividends
received by them, subject to certain limitations. Currently, eligible non-corporate shareholders can claim the deduction for tax years
beginning after December 31, 2017, and ending on or before December 31, 2025. Very generally, a Section 199A dividend is any dividend or portion thereof that is attributable to certain
dividends received by the Fund from REITs, to the extent such dividends are properly
reported as such by the RIC in a written notice to its shareholders. A Section 199A dividend is treated as a qualified REIT dividend only if the shareholder receiving
such dividend holds the dividend-paying RIC shares for at least 46 days of the 91-day period beginning
45 days before the shares become ex-dividend, and is not under an obligation to make related payments with respect to a position in
substantially similar or related property. The Fund is permitted to report such part of its dividends as Section 199A dividends as are eligible, but is not required to do so.
Tax Implications of Certain Fund Investments
Certain Loan and Debt Instrument Investments. Some of the income and gain that the
Fund may recognize, such as income and gain from real estate assets received upon foreclosure of a loan held by the Fund, generally
does not constitute qualifying income. The Fund's investments therefore may be limited by the Fund's intention to qualify as a RIC and
may bear on the Fund's ability to so qualify.
Special Rules for Debt Obligations. Some debt obligations with a fixed maturity date of more than one year from the date
of issuance (and zero-coupon debt obligations with a fixed maturity date of more than one year
from the date of issuance) will be treated as debt obligations that are issued originally at a discount. Generally, the original issue
discount (“OID”) is treated as interest income and is included in the Fund’s income and required to be distributed by the Fund over the term of the debt instrument, even though payment of that amount is not received until a later time, upon partial or full repayment or
disposition of the debt instrument. In addition, payment-in-kind securities will give rise to income, which is required to be distributed and is taxable
even though the Fund holding the security receives no interest payment in cash on the security during the year.
Some debt obligations with a fixed maturity date of more than one year from the date
of issuance that are acquired by the Fund in the secondary market may be treated as having “market discount.” Very generally, market discount is the excess of the stated redemption price of a debt obligation (or in the case of an obligation issued with OID, its “revised issue price”) over the purchase price of such obligation. Generally, any gain recognized on the disposition of, and any partial
payment of principal on, a debt instrument having market discount is treated as ordinary income to the extent the gain, or principal payment,
does not exceed the “accrued market discount” on such debt instrument. Alternatively, the Fund may elect to accrue market discount
currently, in which case the Fund will be required to
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include the accrued market discount in the Fund's income (as ordinary income) and
thus distribute it over the term of the debt instrument, even though payment of that amount is not received until a later time, upon partial
or full repayment or disposition of the debt instrument. The rate at which the market discount accrues, and thus is included in the Fund's
income, will depend upon which of the permitted accrual methods the Fund elects.
Some debt obligations with a fixed maturity date of one year or less from the date
of issuance may be treated as having OID or, in certain cases, “acquisition discount” (very generally, the excess of the stated redemption price over the purchase price).
The Fund will be required to include the OID or acquisition discount in income (as ordinary income) and thus
distribute it over the term of the debt instrument, even though payment of that amount is not received until a later time, upon partial or
full repayment or disposition of the debt instrument. The rate at which OID or acquisition discount accrues, and thus is included in the Fund's
income, will depend upon which of the permitted accrual methods the Fund elects.
If the Fund holds the foregoing kinds of obligations, or other obligations subject
to special rules under the Code, it may be required to pay out as an income distribution each year an amount which is greater than the total
amount of cash interest the Fund actually received. Such distributions may be made from the cash assets of the Fund or, if necessary,
by disposition of portfolio securities including at a time when it may not be advantageous to do so. These dispositions may cause the Fund
to realize higher amounts of short-term capital gains (generally taxed to shareholders at ordinary income tax rates) and, in the event
the Fund realizes net capital gains from such transactions, its shareholders may receive a larger Capital Gain Dividend than if the Fund had not
held such obligations.
Securities Purchased at a Premium. Very generally, where the Fund purchases a bond at a price that exceeds the redemption
price at maturity – that is, at a premium – the premium is amortizable over the remaining term of the bond. In the case of a taxable bond, if the Fund makes an election applicable to all such bonds it purchases, which election is
irrevocable without consent of the IRS, the Fund would reduce the current taxable income from the bond by the amortized premium and
reduce its tax basis in the bond by the amount of such offset; upon the disposition or maturity of such bonds acquired on or after January
4, 2013, the Fund is permitted to deduct any remaining premium allocable to a prior period. In the case of a tax-exempt bond, tax
rules require the Fund to reduce its tax basis by the amount of amortized premium.
A portion of the OID accrued on certain high yield discount obligations may not be
deductible to the issuer and will instead be treated as a dividend paid by the issuer for purposes of the dividends received deduction. In
such cases, if the issuer of the high-yield discount obligations is a domestic corporation, dividend payments by the Fund may be eligible
for the dividends received deduction to the extent attributable to the deemed dividend portion of such OID.
At-risk or Defaulted Securities. Investments in debt obligations that are at risk of or in default present special
tax issues for the Fund. Tax rules are not entirely clear about issues such as whether or to what extent the
Fund should recognize market discount on a debt obligation, when the Fund may cease to accrue interest, OID or market discount, when
and to what extent the Fund may take deductions for bad debts or worthless securities and how the Fund should allocate payments received
on obligations in default between principal and income. These and other related issues will be addressed by the Fund when, as
and if it invests in such securities, in order to seek to ensure that it distributes sufficient income to preserve its status as a RIC and
does not become subject to U.S. federal income or excise tax.
Certain Investments in REITs. Any investment by the Fund in equity securities of REITs qualifying as such under
Subchapter M of the Code may result in the Fund’s receipt of cash in excess of the REIT’s earnings; if the Fund distributes these amounts, these distributions could constitute a return of capital to Fund shareholders for U.S. federal income tax purposes.
Dividends received by the Fund from a REIT will not qualify for the corporate dividends-received deduction and generally will not
constitute qualified dividend income.
Certain distributions made by the Fund attributable to dividends received by the Fund
from REITs may qualify as “qualified REIT dividends” in the hands of non-corporate shareholders, as discussed above.
Mortgage-Related Securities. The Fund may invest directly or indirectly in REMICs (including by investing in residual
interests in collateralized mortgage obligations (“CMOs”) with respect to which an election to be treated as a REMIC is in effect) or equity
interests in taxable mortgage pools (“TMPs”). Under a notice issued by the IRS in October 2006 and U.S. Treasury regulations
that have yet to be issued but may apply retroactively, a portion of the Fund’s income (including income allocated to the Fund from a REIT or other pass-through entity) that is attributable to a residual interest in a REMIC or an equity interest
in a TMP (referred to in the Code as an “excess inclusion”) will be subject to U.S. federal income tax in all events. This notice also provides,
and the regulations are expected to provide, that excess inclusion income of a RIC will be allocated to shareholders of the RIC in proportion
to the dividends received by such shareholders, with the same consequences as if the shareholders held the related interest directly. As
a result, the Fund investing in such interests may not be a suitable investment for charitable remainder trusts, as noted below.
In general, excess inclusion income allocated to shareholders: (i) cannot be offset
by net operating losses (subject to a limited exception for certain thrift institutions); (ii) will constitute unrelated business taxable
income (“UBTI”) to entities (including a qualified pension plan, an IRA, a 401(k) plan, a Keogh plan or other tax-exempt entity) subject to tax on
UBTI, thereby potentially requiring such an entity that is allocated excess inclusion income, and otherwise might not be required to file a tax
return, to file a tax return and pay tax on such income; and (iii) in the case of a non-U.S. shareholder, will not qualify for any reduction
in U.S. federal withholding tax. A shareholder will be subject to U.S. federal income tax on such inclusions notwithstanding any exemption from such
income tax otherwise available under the Code.
Foreign Currency Transactions. Any transaction by the Fund in foreign currencies, foreign currency-denominated debt
obligations or certain foreign currency options, futures contracts or forward contracts (or similar instruments)
may give rise to ordinary income or loss to the extent such income or loss results from fluctuations in the value of the foreign currency
concerned. Any such net gains could require a
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larger dividend toward the end of the calendar year. Any such net losses generally
will reduce and potentially require the recharacterization of prior ordinary income distributions. Such ordinary income treatment may accelerate
Fund distributions to shareholders and increase the distributions taxed to shareholders as ordinary income. Any net ordinary losses
so created cannot be carried forward by the Fund to offset income or gains earned in subsequent taxable years.
Foreign currency gains generally are treated as qualifying income for purposes of
the 90% gross income test described above. There is a remote possibility that the Secretary of the Treasury will issue contrary tax regulations
with respect to foreign currency gains that are not directly related to a RIC’s principal business of investing in stocks or securities (or options or futures with respect to stocks or securities), and such regulations could apply retroactively.
Passive Foreign Investment Companies. Equity investments by the Fund in certain “passive foreign investment companies” (“PFICs”) could potentially subject the Fund to a U.S. federal income tax (including interest
charges) on distributions received from the company or on proceeds received from the disposition of shares in the company. This tax cannot
be eliminated by making distributions to Fund shareholders. However, the Fund may elect to avoid the imposition of that tax. For example, the
Fund may elect to treat a PFIC as a “qualified electing fund” (i.e., make a “QEF election”), in which case the Fund will be required to include its share of the PFIC’s income and net capital gains annually, regardless of whether it receives any distribution from the PFIC. The Fund
also may make an election to mark the gains (and to a limited extent losses) in such holdings “to the market” as though it had sold (and, solely for purposes of this mark-to-market election,
repurchased) its holdings in those PFICs on the last day of the Fund’s taxable year. Such gains and losses are treated as ordinary income and loss. The QEF and mark-to-market elections may accelerate the recognition of income
(without the receipt of cash) and increase the amount required to be distributed by the Fund to avoid taxation. Making either of
these elections therefore may require the Fund to liquidate other investments (including when it is not advantageous to do so) to meet its distribution
requirement, which also may accelerate the recognition of gain and affect the Fund’s total return. Dividends paid by PFICs will not be eligible to be treated as “qualified dividend income.” A foreign issuer in which the Fund invests will not be treated as a PFIC with respect
to the Fund if such issuer is a controlled foreign corporation (“CFC”) for U.S. federal income tax purposes and the Fund holds (directly, indirectly, or
constructively) 10% or more of the voting interests in or total value of such issuer. In such a case, the Fund
generally would be required to include in gross income each year, as ordinary income, its share of certain amounts of a CFC's income, whether
or not the CFC distributes such amounts to the Fund.
Because it is not always possible to identify a foreign corporation as a PFIC, the
Fund may incur the tax and interest charges described above in some instances.
Options and Futures
In general, option premiums received by the Fund are not immediately included in the
income of the Fund. Instead, the premiums are recognized when the option contract expires, the option is exercised by the holder,
or the Fund transfers or otherwise terminates the option (e.g., through a closing transaction). If a call option written by the Fund is exercised
and the Fund sells or delivers the underlying stock, the Fund generally will recognize capital gain or loss equal to (a) sum of
the strike price and the option premium received by the Fund minus (b) the Fund’s basis in the stock. Such gain or loss generally will be short-term or long-term depending upon the holding period of the underlying stock. If securities are purchased by the Fund pursuant to
the exercise of a put option written by it, the Fund generally will subtract the premium received for purposes of computing its cost basis
in the securities purchased. Gain or loss arising in respect of a termination of the Fund’s obligation under an option other than through the exercise of the option will be short-term gain or loss depending on whether the premium income received by the Fund is greater or less
than the amount paid by the Fund (if any) in terminating the transaction. Thus, for example, if an option written by the Fund expires
unexercised, the Fund generally will recognize short-term gain equal to the premium received.
The Fund’s options activities may include transactions constituting straddles for U.S. federal income tax purposes, that is, that trigger the U.S. federal income tax straddle rules contained primarily in Section 1092 of
the Code. Such straddles include, for example, positions in a particular security, or an index of securities, and one or more options that
offset the former position, including options that are “covered” by the Fund’s long position in the subject security. Very generally, where applicable, Section 1092 requires: (i) that losses be deferred on positions deemed to be offsetting positions with respect to “substantially similar or related property,” to the extent of unrealized gain in the latter; and (ii) that the holding period of such a straddle position that
has not already been held for the long-term holding period be terminated and begin anew once the position is no longer part of a straddle. Options
on single stocks that are not “deep in the money” may constitute qualified covered calls, which generally are not subject to the straddle
rules; the holding period on stock underlying qualified covered calls that are “in the money” although not “deep in the money” will be suspended during the period that such calls are outstanding. These straddle rules and the rules governing qualified covered calls could cause gains
that would otherwise constitute long-term capital gains to be treated as short-term capital gains, and distributions that would otherwise
constitute “qualified dividend income” or qualify for the dividends-received deduction to fail to satisfy the holding period requirements
and therefore to be taxed as ordinary income or to fail to qualify for the dividends-received deduction, as the case may be.
The tax treatment of certain positions entered into by the Fund (including regulated
futures contracts, certain foreign currency positions and certain listed non-equity options) will be governed by Section 1256 of the Code
(“Section 1256 contracts”). Gains or losses on Section 1256 contracts generally are considered 60% long-term and 40% short-term capital gains
or losses (“60/40”), although certain foreign currency gains and losses from such contracts may be treated as ordinary in character.
Also, Section 1256 contracts held by the Fund at the end of each taxable year (and, for purposes of the 4% excise tax, on certain
other dates as prescribed under the Code) are “marked to market” with the result that unrealized gains or losses are treated as though they were realized
and the resulting gain or loss is treated as ordinary or 60/40 gain or loss, as applicable.
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Other Derivatives, Hedging, and Related Transactions. In addition to the special rules described above in respect of futures and options
transactions, the Fund’s transactions in other derivative instruments (e.g., forward contracts and swap agreements), as well as any of its hedging, short sale, securities loan or similar transactions, may be subject to
one or more special tax rules (e.g., notional principal contract, straddle, constructive sale, wash sale and short sale rules). These rules
may affect whether gains and losses recognized by the Fund are treated as ordinary or capital, accelerate the recognition of income
or gains to the Fund, defer losses to the Fund, and cause adjustments in the holding periods of the Fund’s securities, thereby affecting, among other things, whether capital gains and losses are treated as short-term or long-term. These rules could therefore affect the amount,
timing and/or character of distributions to shareholders.
Because these and other tax rules applicable to these types of transactions are in
some cases uncertain under current law, an adverse determination or future guidance by the IRS with respect to these rules (which determination
or guidance could be retroactive) may affect whether the Fund has made sufficient distributions, and otherwise satisfied the relevant
requirements, to maintain its qualification as a RIC and avoid a Fund-level tax.
Commodity-Linked Instruments. The Fund’s investments in commodity-linked instruments can be limited by the Fund’s intention to qualify as a RIC, and can bear on the Fund’s ability to so qualify. Income and gains from certain commodity-linked instruments do not constitute qualifying income to a RIC for purposes of the 90% gross income test described above.
The tax treatment of some other commodity-linked instruments in which the Fund might invest is not certain, in particular with respect
to whether income or gains from such instruments constitute qualifying income to a RIC. If the Fund were to treat income or gain from
a particular instrument as qualifying income and the income or gain were later determined not to constitute qualifying income and, together
with any other nonqualifying income, caused the Fund’s nonqualifying income to exceed 10% of its gross income in any taxable year, the Fund would fail to qualify as a RIC unless it is eligible to and does pay a tax at the Fund level.
Exchange-Traded Notes, Structured Notes. The tax rules are uncertain with respect to the treatment of income or gains arising
in respect of commodity-linked exchange-traded notes (“ETNs”) and certain commodity-linked structured notes; also, the timing and character of
income or gains arising from ETNs can be uncertain. An adverse determination or future
guidance by the IRS (which determination or guidance could be retroactive) may affect the Fund’s ability to qualify for treatment as a RIC and to avoid a Fund-level tax.
Book-Tax Differences. Certain of the Fund’s investments in derivative instruments and foreign currency-denominated instruments, and any of the Fund's transactions in foreign currencies and hedging activities, are likely
to produce a difference between its book income and the sum of its taxable income and net tax-exempt income (if any). If such a difference arises, and the Fund’s book income is less than the sum of its taxable income and net tax-exempt income, the Fund could be required
to make distributions exceeding book income to qualify as a RIC that is accorded special tax treatment and to avoid an entity-level tax. In the alternative, if the Fund’s book income exceeds the sum of its taxable income (including realized capital gains) and net tax-exempt
income, the distribution (if any) of such excess generally will be treated as: (i) a dividend to the extent of the Fund’s remaining earnings and profits (including earnings and profits arising from tax-exempt income); (ii) thereafter, as a return of capital to the extent of the recipient’s basis in its shares; and (iii) thereafter as gain from the sale or exchange of a capital asset.
Investments in Other RICs. The Fund’s investments in shares of another mutual fund, an ETF or another company that qualifies as a RIC (each, an “investment company”) can cause the Fund to be required to distribute greater amounts of net investment
income or net capital gain than the Fund would have distributed had it invested directly in the securities
held by the investment company, rather than in shares of the investment company. Further, the amount or timing of distributions from the
Fund qualifying for treatment as a particular character (e.g., long-term capital gain, exempt interest, eligibility for dividends-received deduction,
etc.) will not necessarily be the same as it would have been had the Fund invested directly in the securities held by the investment
company. If the Fund receives dividends from an investment company and the investment company reports such dividends as qualified dividend income,
then the Fund is permitted in turn to report a portion of its distributions as qualified dividend income, provided the Fund meets
holding period and other requirements with respect to shares of the investment company.
If the Fund receives dividends from an investment company and the investment company
reports such dividends as eligible for the dividends-received deduction, then the Fund is permitted in turn to report its distributions derived
from those dividends as eligible for the dividends-received deduction as well, provided the Fund meets holding period and other requirements with
respect to shares of the investment company.
Tax-Exempt Shareholders
Income of a RIC that would be UBTI if earned directly by a tax-exempt entity generally
will not constitute UBTI when distributed to a tax-exempt shareholder of the RIC. Notwithstanding this “blocking” effect, a tax-exempt shareholder could realize UBTI by virtue of its investment in
the Fund if shares in the Fund constitute debt-financed property in the hands of the
tax-exempt shareholder within the meaning of Code Section 514(b).
A tax-exempt shareholder may also recognize UBTI if the Fund recognizes “excess inclusion income” derived from direct or indirect investments in residual interests in REMICs or equity interests in TMPs as described above, if
the amount of such income recognized by the Fund exceeds the Fund’s investment company taxable income (after taking into account deductions for dividends paid by the Fund).
In addition, special tax consequences apply to charitable remainder trusts (“CRTs”) that invest in RICs that invest directly or indirectly in residual interests in REMICs or equity interests in TMPs. Under legislation enacted
in December 2006, a CRT (as defined in Section 664 of the Code) that realizes any UBTI for a taxable year must pay an excise tax annually
of an amount equal to such UBTI. Under IRS guidance issued in October 2006, a CRT will not recognize UBTI as a result of investing in
the Fund that recognizes “excess inclusion income.” Rather, if at any time during any taxable year a CRT (or one of certain other tax-exempt
shareholders, such as the United States, a state or political subdivision, or an agency or instrumentality thereof, and certain energy
cooperatives) is a record holder of a share in the Fund
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that recognizes “excess inclusion income,” then the Fund will be subject to a tax on that portion of its “excess inclusion income” for the taxable year that is allocable to such shareholders at the highest U.S. federal corporate
income tax rate. The extent to which this IRS guidance remains applicable in light of the December 2006 legislation is unclear.
To the extent permitted under the 1940 Act, the Fund may elect to specially allocate any such tax to the applicable CRT, or other shareholder, and thus reduce such shareholder’s distributions for the year by the amount of the tax that relates to such shareholder’s interest in the Fund.
CRTs and other tax-exempt investors are urged to consult their tax advisers concerning
the consequences of investing in the Fund.
Sale, Exchange or Redemption of Shares
The sale, exchange or redemption of Fund shares may give rise to a gain or loss.
In general, any gain or loss realized upon a taxable disposition of shares will be
treated as long-term capital gain or loss if the shares have been held for more than 12 months. Otherwise, the gain or loss on the taxable
disposition of Fund shares will be treated as short-term capital gain or loss. However, any loss realized upon a taxable disposition of Fund
shares held by a shareholder for six months or less will be treated as long-term, rather than short-term, to the extent of any Capital
Gain Dividends received (or deemed received) by the shareholder with respect to the shares.
Further, all or a portion of any loss realized upon a taxable disposition of Fund shares will be disallowed under the Code’s “wash-sale” rule if other substantially identical shares are purchased, including by means of
dividend reinvestment, within 30 days before or after the disposition. In such a case, the basis of the newly purchased shares will be adjusted
to reflect the disallowed loss.
Shareholders who tender all shares held, or considered to be held, by them will be
treated as having sold their shares and generally will realize a capital gain or loss. If a shareholder tenders fewer than all of its shares,
such shareholder may be treated as having received a distribution under Section 301 of the Code (“Section 301 distribution”) unless the redemption is treated as being either: (i) “substantially disproportionate” with respect to such shareholder; or (ii) otherwise “not essentially equivalent to a dividend” under the relevant rules of the Code. A Section 301 distribution is not treated as a sale or exchange giving
rise to a capital gain or loss, but rather is treated as a dividend to the extent supported by the Fund’s current and accumulated earnings and profits, with the excess treated as a return of capital reducing the shareholder’s tax basis in Fund shares (but not below zero), and thereafter as capital gain. Where a redeeming shareholder is treated as receiving a dividend, there is a risk that non-tendering shareholders
whose interests in the Fund increase as a result of such tender will be treated as having received a taxable distribution from the Fund. The
extent of such risk will vary depending upon the particular circumstances of the tender offer.
To the extent that the Fund recognizes net gains on the liquidation of portfolio securities
to meet such tenders or other repurchases of Fund shares, the Fund will be required to make additional distributions to its common
shareholders.
Tax Shelter Reporting Regulations
Under U.S. Treasury regulations, if a shareholder recognizes a loss of at least $2
million in any single taxable year or $4 million in any combination of taxable years for an individual shareholder or at least $10 million
in any single taxable year or $20 million in any combination of taxable years for a corporate shareholder, the shareholder must file with the IRS
a disclosure statement on IRS Form 8886. Direct shareholders of portfolio securities are in many cases excepted from this reporting
requirement, but under current guidance, shareholders of a RIC are not excepted. Future guidance may extend the current exception from this
reporting requirement to shareholders of most or all RICs. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer’s treatment of the loss is proper. Shareholders should consult with their tax advisers
to determine the applicability of these regulations in light of their individual circumstances.
Foreign Taxation
Income, proceeds and gains received by the Fund (or RICs in which the Fund has invested)
from sources within non-U.S. countries may be subject to withholding and other taxes imposed by such countries. This will decrease the Fund’s yield on securities subject to such taxes. Tax treaties between certain countries and the United States may reduce or eliminate
such taxes. If more than 50% of the Fund’s assets at taxable year end consists of securities of non-U.S. corporations, the Fund may elect to permit shareholders to
claim a credit or deduction on their U.S. federal income tax returns for their pro rata portions of qualified taxes paid by the Fund to non-U.S. countries in respect of foreign (non-U.S.) securities that the Fund has held for at least the minimum
period specified in the Code. In such a case, shareholders will include in gross income from foreign sources their pro rata shares of such taxes paid by the Fund. A shareholder’s ability to claim an offsetting foreign tax credit or deduction in respect of foreign
taxes paid by the Fund is subject to certain limitations imposed by the Code, which may result in the shareholder’s not receiving a full credit or deduction (if any) for the amount of such taxes. Shareholders who do not itemize on their U.S. federal income tax returns may claim
a credit (but not a deduction) for such foreign taxes.
Even if the Fund were eligible to make such an election for a given year, it may determine
not to do so. Shareholders that are not subject to U.S. federal income tax, and those who invest in the Fund through tax-advantaged
accounts (including those who invest through IRAs or other tax-advantaged retirement plans), generally will receive no benefit from
any tax credit or deduction passed through by the Fund.
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Foreign Shareholders
Distributions by the Fund to shareholders that are not “U.S. persons” within the meaning of the Code (“foreign shareholders”) properly reported by the Fund as: (1) Capital Gain Dividends; (2) short-term capital gain dividends;
and (3) interest-related dividends, each as defined below and subject to certain conditions described below, generally are not
subject to withholding of U.S. federal income tax.
In general, the Code defines (1) “short-term capital gain dividends” as distributions of net short-term capital gains in excess of net long-term capital losses and (2) “interest-related dividends” as distributions from U.S. source interest income of types similar to those not subject
to U.S. federal income tax if earned directly by an individual foreign shareholder,
in each case to the extent such distributions are properly reported as such by the Fund in a written notice to shareholders. The exceptions to
withholding for Capital Gain Dividends and short-term capital gain dividends do not apply to (A) distributions to an individual foreign
shareholder who is present in the United States for a period or periods aggregating 183 days or more during the year of the distribution and (B)
distributions attributable to gain that is treated as effectively connected with the conduct by the foreign shareholder of a trade or business
within the United States under special rules regarding the disposition of U.S. real property interests as described below. The
exception to withholding for interest-related dividends does not apply to distributions to a foreign shareholder (A) that has not provided
a satisfactory statement that the beneficial owner is not a U.S. person, (B) to the extent that the dividend is attributable to certain interest
on an obligation if the foreign shareholder is the issuer or is a 10% shareholder of the issuer, (C) that is within certain foreign countries
that have inadequate information exchange with the United States, or (D) to the extent the dividend is attributable to interest paid
by a person that is a related person of the foreign shareholder and the foreign shareholder is a controlled foreign corporation. If the Fund invests
in a RIC that pays such distributions to the Fund, such distributions retain their character as not subject to withholding if properly reported
when paid by the Fund to foreign shareholders. The Fund may report such part of its dividends as interest-related and/or short-term capital
gain dividends as are eligible, but is not required to do so. In the case of shares held through an intermediary, the intermediary may
withhold even if the Fund reports all or a portion of a payment as an interest-related or short-term capital gain dividend to shareholders.
Foreign shareholders should contact their intermediaries regarding the application
of these rules to their accounts.
Distributions by the Fund to foreign shareholders other than Capital Gain Dividends,
short-term capital gain dividends and interest-related dividends (e.g., dividends attributable to dividend and foreign-source interest income or to short-term
capital gains or U.S. source interest income to which the exception from withholding described above does not apply) are
generally subject to withholding of U.S. federal income tax at a rate of 30% (or lower applicable treaty rate).
A foreign shareholder is not, in general, subject to U.S. federal income tax on gains
(and is not allowed a deduction for losses) realized on the sale of shares of the Fund unless: (i) such gain is effectively connected with
the conduct by the foreign shareholder of a trade or business within the United States; (ii) in the case of a foreign shareholder that
is an individual, the shareholder is present in the United States for a period or periods aggregating 183 days or more during the year of the
sale and certain other conditions are met; or (iii) the special rules relating to gain attributable to the sale or exchange of “U.S. real property interests” (“USRPIs”) apply to the foreign shareholder's sale of shares of the Fund (as described below).
Subject to certain exceptions (e.g., for the Fund that is a “U.S. real property holding corporation” as described below), the Fund is generally not required (and does not expect) to withhold on the amount of a non-dividend distribution
(i.e., a distribution that is not paid out of the Fund’s current earnings and profits for the applicable taxable year or accumulated earnings and profits) when paid to its foreign shareholders.
Special rules would apply if the Fund were a qualified investment entity (“QIE”) because it is either a “U.S. real property holding corporation” (“USRPHC”) or would be a USRPHC but for the operation of certain exceptions to the definition
of USRPIs described below. Very generally, a USRPHC is a domestic corporation that holds USRPIs the fair market value of which
equals or exceeds 50% of the sum of the fair market values of the corporation’s USRPIs, interests in real property located outside the United States, and other trade or business assets. USRPIs generally are defined as any interest in U.S. real property and any interest
(other than solely as a creditor) in a USRPHC or, very generally, an entity that has been a USRPHC in the last five years. A fund that holds,
directly or indirectly, significant interests in REITs may be a USRPHC. Interests in domestically controlled QIEs, including REITs and RICs
that are QIEs, not-greater-than-10% interests in publicly traded classes of stock in REITs and not-greater-than-5% interests in publicly
traded classes of stock in RICs generally are not USRPIs, but these exceptions do not apply for purposes of determining whether the
Fund is a QIE.
If an interest in the Fund were a USRPI, the Fund would be required to withhold U.S. tax on the proceeds
of a share redemption by a greater-than-5% foreign shareholder or any foreign shareholders if shares of the Fund
are not considered regularly traded on an established securities market, in which case such foreign shareholder generally would also be
required to file U.S. tax returns and pay any additional taxes due in connection with the redemption.
Moreover, if the Fund were a USRPHC or, very generally, had been one in the last five
years, it would be required to withhold on amounts distributed to a greater-than-5% foreign shareholder to the extent such amounts would
not be treated as a dividend, i.e., are in excess of the Fund’s current and accumulated “earnings and profits” for the applicable taxable year. Such withholding generally is not required if the Fund is a domestically controlled QIE.
If the Fund were a QIE, under a special “look-through” rule, any distributions by the Fund to a foreign shareholder (including, in certain
cases, distributions made by the Fund in redemption of its shares) attributable directly
or indirectly to: (i) distributions received by the Fund from a lower-tier RIC or REIT that the Fund is required to treat as USRPI gain
in its hands; and (ii) gains realized on the disposition of USRPIs by the Fund would retain their character as gains realized from USRPIs in the hands of the Fund’s foreign shareholders and would be subject to U.S. tax withholding. In addition, such distributions could result
in the foreign shareholder being required to file a
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U.S. tax return and pay tax on the distributions at regular U.S. federal income tax
rates. The consequences to a foreign shareholder, including the rate of such withholding and character of such distributions (e.g., as ordinary income or USRPI gain), would vary depending upon the extent of the foreign shareholder’s current and past ownership of the Fund.
Foreign shareholders of the Fund also may be subject to “wash sale” rules to prevent the avoidance of the tax-filing and -payment obligations discussed above through the sale and repurchase of Fund shares.
Foreign shareholders should consult their tax advisers and, if holding shares through
intermediaries, their intermediaries, concerning the application of these rules to their investment in the Fund.
Foreign shareholders with respect to whom income from the Fund is effectively connected
with a trade or business conducted by the foreign shareholder within the United States will in general be subject to U.S. federal
income tax on the income derived from the Fund at the graduated rates applicable to U.S. citizens, residents or domestic corporations,
whether such income is received in cash or reinvested in shares of the Fund and, in the case of a foreign corporation, may also be subject
to a branch profits tax. If a foreign shareholder is eligible for the benefits of a tax treaty, any effectively connected income or gain
will generally be subject to U.S. federal income tax on a net basis only if it is also attributable to a permanent establishment maintained
by the shareholder in the United States. More generally, foreign shareholders who are residents in a country with an income tax treaty with
the United States may obtain different tax results than those described herein, and are urged to consult their tax advisers.
In order to qualify for any exemptions from withholding described above or for lower
withholding tax rates under income tax treaties, or to establish an exemption from backup withholding, a foreign shareholder must comply
with special certification and filing requirements relating to its non-U.S. status (including, in general, furnishing an IRS Form W-8BEN,
W-8BEN-E or substitute form). Foreign shareholders should consult their tax advisers in this regard.
Special rules (including withholding and reporting requirements) apply to foreign
partnerships and those holding Fund shares through foreign partnerships. Additional considerations may apply to foreign trusts and estates.
Investors holding Fund shares through foreign entities should consult their tax advisers about their particular situation.
A foreign shareholder may be subject to state and local tax and to the U.S. federal
estate tax in addition to the U.S. federal income tax referred to above.
Backup Withholding
The Fund generally is required to withhold and remit to the U.S. Treasury a percentage
of the taxable distributions and redemption proceeds paid to any individual shareholder who fails to properly furnish the Fund with a correct
taxpayer identification number, who has under-reported dividend or interest income, or who fails to certify to the Fund that he or she is
not subject to such withholding.
Backup withholding is not an additional tax. Any amounts withheld may be credited against the shareholder’s U.S. federal income tax liability, provided the appropriate information is timely furnished to the IRS.
Shareholder Reporting Obligations With Respect to Foreign Bank and Financial Accounts
Shareholders that are U.S. persons and own, directly or indirectly, more than 50%
of the Fund could be required to report annually their “financial interest” in the Fund’s “foreign financial accounts,” if any, on FinCEN Form 114, Report of Foreign Bank and Financial Accounts (“FBAR”). Shareholders should consult a tax adviser, and persons investing in the Fund through
an intermediary should contact their intermediary, regarding the applicability to them of this reporting requirement.
Other Reporting and Withholding Requirements
Sections 1471-1474 of the Code and the U.S. Treasury regulations and IRS guidance
issued thereunder (collectively, “FATCA”) generally require the Fund to obtain information sufficient to identify the status of each of
its shareholders under FATCA or under an applicable intergovernmental agreement (an “IGA”) between the United States and a foreign government. If a shareholder fails to provide
the requested information or otherwise fails to comply with FATCA or an IGA, the Fund may be required
to withhold under FATCA at a rate of 30% with respect to that shareholder on ordinary dividends it pays. The IRS and the U.S. Department
of the Treasury have issued proposed regulations providing that these withholding rules will not apply to the gross proceeds of share
redemptions or Capital Gain Dividends the Fund pays. If a payment by the Fund is subject to FATCA withholding, the Fund is required to
withhold even if such payment would otherwise be exempt from withholding under the rules applicable to foreign shareholders described
above (e.g., interest-related dividends and short-term capital gain dividends).
Each prospective investor is urged to consult its tax adviser regarding the applicability
of FATCA and any other reporting requirements with respect to the prospective investor’s own situation, including investments through an intermediary.
General Considerations
The U.S. federal income tax discussion set forth above is for general information
only. Prospective investors should consult their tax advisers regarding the specific U.S. federal tax consequences of purchasing, holding,
and disposing of shares of the Fund, as well as the effects of state, local, non-U.S., and other tax laws and any proposed tax law changes.
FINANCIAL STATEMENTS
The audited financial statements, and the independent registered public accounting firm’s report thereon, are included in the Fund’s annual report to shareholders filing for the fiscal year ended February 28, 2025 and are incorporated herein by reference.
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An annual shareholder report containing financial statements audited by the Trust’s independent registered public accounting firm and an unaudited semi-annual report will be sent to shareholders each year.
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Introduction
This document sets forth the proxy voting procedures (“Procedures”) and guidelines (“Guidelines”), collectively the “Proxy Voting Policy”, that Voya Investments, LLC (“Adviser”) shall follow when voting proxies on behalf of the Voya funds for which it serves
as investment adviser (each a “Fund” and collectively, the “Funds”). The Funds’ Boards of Directors/Trustees (“Board”) have approved the Proxy Voting Policy.
The Board may determine to delegate proxy voting to a sub-adviser of one or more Funds
(rather than to the Adviser) in which case the sub-adviser’s proxy policies and procedures for implementation on behalf of such Fund (a “Sub-Adviser-Voted Fund”) shall be subject to Board approval. Sub-Adviser-Voted Funds are not covered under the Proxy
Voting Policy except as described in the Reporting and Record Retention section below relating to vote reporting requirements. Sub-Adviser-Voted
Funds are governed by the applicable sub-adviser’s respective proxy policies provided that the Board has approved such policies.
The Proxy Voting Policy incorporates principles and guidance set forth in relevant
pronouncements of the
U.S. Securities and Exchange Commission (“SEC”) and its staff regarding the Adviser’s fiduciary duty to ensure that proxies are voted in a timely manner and that voting decisions are always in the Funds’ best interest.
Pursuant to the Policy, the Adviser’s Active Ownership team (“AO Team”) is delegated the responsibility to vote the Funds’ proxies in accordance with the Proxy Voting Policy on the Funds’ behalf.
The engagement of a Proxy Advisory Firm (as defined in the Proxy Advisory Firm section below) shall be subject to the Board’s initial approval and annual Board review and approval thereafter. The AO Team is responsible
for Proxy Advisory Firm oversight and shall direct the Proxy Advisory Firm to vote proxies in accordance with the Guidelines.
The Board’s Compliance Committee (“Compliance Committee”) shall review the Proxy Voting Policy not less than annually and these documents shall be updated as appropriate. No material changes to the Proxy
Voting Policy shall become effective without Board approval. The Compliance Committee may approve non-material amendments for immediate
implementation subject to full Board ratification at its next regularly scheduled meeting.
Adviser’s Roles and Responsibilities
Active Ownership Team
The AO Team shall direct the Proxy Advisory Firm to vote proxies on the Funds’ and Adviser’s behalf in connection with annual and special shareholder meetings (except those regarding bankruptcy matters and/or related
plans of reorganization).
The AO Team is responsible for overseeing the Proxy Advisory Firm and voting the Funds’ proxies in accordance with the Proxy Voting Policy on the Funds’ and the Adviser’s behalf.
The AO Team is authorized to direct the Proxy Advisory Firm to vote Fund proxies in
accordance with the Proxy Voting Policy. Responsibilities assigned to the AO Team or activities in support thereof may be performed by such
members of the Proxy Committee (as defined in the Proxy Committee section below) or employees of the Adviser’s affiliates as the Proxy Committee deems appropriate.
The AO Team is also responsible for identifying potential conflicts between the proxy
issuer and the Proxy Advisory Firm, the Adviser, the Funds’ principal underwriters, or an affiliated person of the Funds. The AO Team shall identify such potential conflicts of interest based on information the Proxy Advisory Firm periodically provides; analyses of Voya’s clients, distributors, broker-dealers, and vendors; and information derived from other sources including but not limited to public
filings.
Proxy Committee
The Proxy Committee shall ensure that the Funds vote proxies consistent with the Proxy
Voting Policy. The Proxy Committee accordingly reviews and evaluates this Policy, oversees the development and implementation thereof,
and resolves ad hoc issues that may arise from time to time. The Proxy Committee is comprised of senior leaders of Voya
Investment Management, including fundamental research, ESG research, active ownership, compliance, legal, finance, and operations
of the Adviser. The Proxy Committee membership may be amended at the Adviser’s discretion from time to time. The Board will be informed of any membership changes quarterly at the next regularly scheduled meeting.
Investment Professionals
The Funds’ sub-advisers and/or portfolio managers are each referred to herein as an “Investment Professional” and collectively, “Investment Professionals”. Investment Professionals are encouraged to submit recommendations to the AO Team
regarding any proxy voting-related proposals relating to the portfolio securities over which they
have daily portfolio management responsibility including proxy contests, proposals relating to issuers with dual class shares with
superior voting rights, and/or mergers and acquisitions.
Proxy Advisory Firm
The Proxy Advisory Firm is required to coordinate with the Funds’ custodians to ensure that those firms process all proxy materials they receive relating to portfolio securities in a timely manner. To the extent applicable
the Proxy Advisory Firm is required to provide research, analysis, and vote recommendations under its Proxy Voting guidelines. The
Proxy Advisory Firm is required to produce custom vote recommendations in accordance with the Guidelines and their vote recommendations.
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PROXY VOTING PROCEDURES
Vote Classification
Within-Guidelines Votes: Votes in Accordance with these Guidelines
A vote cast in accordance with these Guidelines is considered Within-Guidelines.
Out-of-Guidelines Votes: Votes Contrary to these Guidelines
A vote that is contrary to these Guidelines may be cast when the AO team and/or Proxy
Committee determine that application of these Guidelines is inappropriate under the circumstances. A vote is considered contrary
to these Guidelines when such vote contradicts the approach outlined in the Policy.
A vote would not be considered contrary to these Guidelines for cases in which these
Guidelines stipulate a Case-by-Case consideration, or an Investment Professional provides a written rationale for such vote.
Matters Requiring Case-by-Case Consideration
The Proxy Advisory Firm shall refer proxy proposals to the AO Team for consideration
when the Procedures and Guidelines indicate a “Case-by-Case” consideration. Additionally, the Proxy Advisory Firm shall refer a proxy proposal
under circumstances in which the application of the Procedures and Guidelines is uncertain, appears to involve
unusual or controversial issues, or is silent regarding the proposal.
Upon receipt of a referral from the Proxy Advisory Firm, the AO Team may solicit additional
research or clarification from the Proxy Advisory Firm, Investment Professional(s), or other sources.
The AO Team shall review matters requiring Case-by-Case consideration to determine
whether such proposals require an Investment Professional and/or Proxy Committee input and a vote determination.
Non-Votes: Votes in which No Action is Taken
The AO Team shall make reasonable efforts to secure and vote all Fund proxies. Nevertheless,
a Fund may refrain from voting under certain circumstances including, but not limited to:
•
The economic effect on shareholder interests or the value of the portfolio holding
is indeterminable or insignificant (e.g., proxies in connection with fractional shares), securities no longer held in a Fund,
or a proxy is being considered for a Fund no longer in existence.
•
The cost of voting a proxy outweighs the benefits (e.g., certain international proxies,
particularly in cases in which share-blocking practices may impose trading restrictions on the relevant portfolio security).
Conflicts of Interest
The Adviser shall act in the Funds’ best interests and strive to avoid conflicts of interest. Conflicts of interest may arise in situations in which, but not limited to:
•
The issuer is a vendor whose products or services are material to the Funds, the Adviser,
or their affiliates;
•
The issuer is an entity participating to a material extent in the Funds’ distribution;
•
The issuer is a significant executing broker-dealer for the Funds and/or the Adviser;
•
Any individual who participates in the voting process for the Funds, including:
•
Investment Professionals;
•
Members of the Proxy Committee;
•
Employees of the Adviser;
•
Board Directors/Trustees; and
•
Individuals who serve as a director or officer of the issuer.
•
The issuer is Voya Financial.
Investment Professionals, the Proxy Advisory Firm, the Proxy Committee, and the AO
Team shall disclose any potential conflicts of interest and/or confirm they do not have conflicts of interest relating to their participation
in the voting process for portfolio securities.
The AO Team shall call a meeting of the Proxy Committee if a potential conflict exists
and a member (or members) of the AO Team wishes to vote contrary to these Guidelines or an Investment Professional provides
input regarding a meeting and has confirmed a conflict exists with regard thereto. The Proxy Committee shall then consider the
matter and vote on a best course of action.
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The AO Team shall use best efforts to convene the Proxy Committee with respect to
all matters requiring its consideration. If the Proxy Committee cannot meet its quorum requirements by the voting deadline it shall
execute the vote in accordance with these Guidelines.
The Adviser shall maintain records regarding any determinations to vote contrary to
these Guidelines including those in which a potential Voya Investment Management Conflict exists. Such records shall include the
rationale for the contrary vote.
Potential Conflicts with a Proxy Issuer
The AO Team shall identify potential conflicts with proxy issuers. In addition to
obtaining potential conflict of interest information described in the Roles and Responsibilities section above, Proxy Committee members
shall disclose to the AO Team any potential conflicts of interests with an issuer prior to discussing the Proxy Advisory Firm’s recommendation.
Proxy Committee members shall advise the AO Team in the event they believe a potential
or perceived conflict of interest exists that may preclude them from making a vote determination in the Funds’ best interests. The Proxy Committee member may elect recusal from considering the relevant proxy. Proxy Committee members shall complete
a Conflict of Interest Report when they verbally disclose a potential conflict of interest.
Investment Professionals shall also confirm that they do not have any potential conflicts
of interest when submitting vote recommendations to the AO Team.
The AO Team gathers and analyzes the information provided by the:
•
Proxy Advisory Firm;
•
Adviser;
•
Funds’ principal underwriters;
•
Fund affiliates;
•
Proxy Committee members;
•
Investment Professionals; and
•
Fund Directors and Officers.
Assessment of the Proxy Advisory Firm
On the Board’s and Adviser’s behalf the AO Team shall assess whether the Proxy Advisory Firm:
•
Is independent from the Adviser;
•
Has resources that indicate it can competently provide analysis of proxy issues;
•
Can make recommendations in an impartial manner and in the best interests of the Funds
and their beneficial owners; and
•
Has adequate compliance policies and procedures to:
•
Ensure that its proxy voting recommendations are based on current and accurate information;
and
•
Identify and address conflicts of interest.
The AO Team shall utilize and the Proxy Advisory Firm shall comply with such methods
for completing the assessment as the AO Team may deem reasonably appropriate. The Proxy Advisory Firm shall also promptly
notify the AO Team in writing of any material changes to information it previously provided to the AO Team in connection with establishing the Proxy Advisory Firm’s independence, competence, or impartiality.
Voting Funds of Funds, Investing Funds and Feeder Funds
Funds that are funds-of-funds1 (each a “Fund-of-Funds” and collectively, “Funds-of-Funds”) shall “echo” vote their interests in underlying mutual funds, which may include mutual funds other than the Funds indicated on Voya’s website (www.voyainvestments.com). Meaning that if the Fund-of-Funds must vote on a proposal with respect to an underlying investment
issuer the Fund-of-Funds shall vote its interest in that underlying fund in the same proportion as all other shareholders
in the underlying investment company voted their interests.
However, if the underlying fund has no other shareholders, the Fund-of-Funds shall
vote as follows:
•
If the Fund-of-Funds and the underlying fund are solicited to vote on the same proposal
(e.g., the election of fund directors/trustees), the Fund-of-Funds shall vote the shares it holds in the underlying fund in the same
proportion as all votes received from the holders of the Fund-of-Funds’ shares with respect to that proposal.
•
If the Fund-of-Funds is solicited to vote on a proposal for an underlying fund (e.g.,
a new sub-adviser to the underlying fund), and there is no corresponding proposal at the Fund-of-Funds level, the Adviser shall
determine the most appropriate method of voting with respect to the underlying fund proposal.
1 Invest in underlying funds beyond 12d-1 limits.
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An Investing Fund2 (e.g., any Voya fund), while not a Fund-of-Funds shall have the foregoing Fund-of-
Funds procedure applied to any Investing Fund that invests in one or more underlying funds. Accordingly:
•
Each Investing Fund shall “echo” vote its interests in an underlying fund if the underlying fund has shareholders
other than the Investing Fund;
•
In the event an underlying fund has no other shareholders and the Investing Fund and
the underlying fund are solicited to vote on the same proposal, the Investing Fund shall vote its interests in the underlying
fund in the same proportion as all votes received from the holders of its own shares on that proposal; and
•
In the event an underlying fund has no other shareholders, and no corresponding proposal
exists at the Investing Fund level, the Board shall determine the most appropriate method of voting with respect to the
underlying fund proposal.
A fund that is a “Feeder Fund” in a master-feeder structure passes votes requested by the underlying master fund
to its shareholders. Meaning that, if the master fund solicits the Feeder Fund, the Feeder Fund shall request
instructions from its own shareholders as to how it should vote its interest in an underlying master fund either directly
or in the case of an insurance-dedicated Fund through an insurance product or retirement plan.
When a Fund is a feeder in a master-feeder structure, proxies for the master fund’s portfolio securities shall be voted pursuant to the master fund’s proxy voting policies and procedures. As such, Feeder Funds shall not be subject to the Procedures and Guidelines except as described in the Reporting and Record Retention section below.
Securities Lending
Many of the Funds participate in securities lending arrangements that generate additional
revenue for the Fund. Accordingly, the Fund is unable to vote securities that are on loan under these arrangements. However,
under certain circumstances, for voting issues that may have a significant impact on the investment, members of the Proxy
Committee or AO Team may request that the Fund’s securities lending agent recall securities on loan if they determine that the benefit of voting outweighs the costs and lost revenue to the Fund as well as the administrative burden of retrieving the securities.
Investment Professionals may also deem a vote to be “material” in the context of the portfolio(s) they manage. They may therefore request that the Proxy Committee review lending activity on behalf of their portfolio(s)
with respect to the relevant security and consider recalling and/or restricting the security. The Proxy Committee shall give
primary consideration to relevant Investment Professional input in its determination as to whether a given proxy vote is material and if the
associated security should accordingly be restricted from lending. The determination that a vote is material in the context of a Fund’s portfolio shall not mean that such vote is considered material across all Funds voting at that meeting. In order to recall or restrict shares
on a timely basis for material voting purposes the AO Team shall use best efforts to consider and, when appropriate, act upon such
requests on a timely basis. Any relevant Investment Professional may submit a request to review lending activity in connection
with a potentially material vote for the Proxy Committee’s consideration at any time.
Reporting and Record Retention
Reporting by the Funds
Annually, as required, each Fund and each Sub-Adviser-Voted Fund shall post on the Voya Funds’ website its proxy voting record or a link to the prior one-year period ended June 30. The proxy voting record for each
Fund and each Sub-Adviser-Voted Fund shall also be available on Form N-PX in the SEC’s EDGAR database on its website. For any Fund that is a feeder within a master-feeder structure, no proxy voting record related to the portfolio securities owned by the master fund shall be posted on the Funds’ website or included in the Fund’s Form N-PX; however, a cross-reference to the master fund’s proxy voting record as filed in the SEC’s EDGAR database shall be included in the Fund’s Form N-PX and posted on the Funds’ website. If an underlying master fund solicited any Feeder Fund for a vote during the reporting period, a record of the votes cast
by means of the pass-through process described above shall be included on the Voya funds’ website and in the Feeder Fund’s Form N-PX.
Reporting to the Compliance Committee
At each quarterly Compliance Committee meeting the AO Team shall provide to the Compliance
Committee a report outlining each proxy proposal, or a summary of such proposals, that was:
1.
Voted Out-of-Guidelines; and/or
2.
When the Proxy Committee did not agree with an Investment Professional’s recommendation, as assessed when the Investment Professional raises a potential conflict of interest.
The report shall include the name of the issuer, the substance of the proposal, a summary of the Investment Professional’s recommendation as applicable, and the reasons for voting or recommending an Out-of- Guidelines Vote
or in the case of (2) above a vote which differed from that recommended by the Investment Professional.
Reporting by the AO Team on behalf of the Adviser
The Adviser shall maintain the records required by Rule 204-2(c)(2), as may be amended
from time to time, including the following:
2 Invest in underlying funds but not beyond 12d-1 limits.
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•
A copy of each proxy statement received regarding a Fund’s portfolio securities. Such proxy statements the issuers send are available either in the SEC’s EDGAR database or upon request from the Proxy Advisory Firm;
•
A record of each vote cast on behalf of a Fund;
•
A copy of any Adviser-created document that was material to making a proxy vote decision
or that memorializes the basis for that decision;
•
A copy of written requests for Fund proxy voting information and any written response
thereto or to any oral request for information on how the Adviser voted proxies on behalf of a Fund;
•
A record of all recommendations from Investment Professionals to vote contrary to
these Guidelines;
•
All proxy questions/recommendations that have been referred to the Compliance Committee;
and
•
All applicable recommendations, analyses, research, Conflict Reports, and vote determinations.
All proxy voting materials and supporting documentation shall be retained for a minimum of six years.
Records Maintained by the Proxy Advisory Firm
The Proxy Advisory Firm shall retain a record of all proxy votes handled by the Proxy
Advisory Firm. Such record must reflect all the information required to be disclosed in a Fund’s Form N-PX pursuant to Rule 30b1-4 under the Investment Company Act of 1940. Additionally, the Proxy Advisory Firm shall be responsible for maintaining copies
of all proxy statements received by issuers and to promptly provide such materials to the Adviser upon request.
PROXY VOTING GUIDELINES
Introduction
Proxies shall be voted in the Funds’ best interests. These Guidelines summarize the Funds’ positions regarding certain matters of importance to shareholders and provide an indication as to how the Funds’ ballots shall be voted for certain types of proposals. These Guidelines are not exhaustive and do not provide guidance on all potential voting
matters. Proposals may be addressed on a CASE-BY-CASE basis rather than according to these Guidelines when assessing the merits of available
rationale and disclosure.
These Guidelines generally apply to securities of publicly traded operating issuers
and to those of privately held operating issuers if publicly available disclosure permits such application. The Funds will consider
matters relating to investment companies that are registered under the Investment Company Act of 1940 on a CASE-BY-CASE basis. Additionally,
all matters for which such disclosure is not available shall be considered on a CASE-BY-CASE basis.
Investment Professionals are encouraged to submit recommendations to the AO Team regarding
proxy voting matters relating to the portfolio securities over which they have daily portfolio management responsibility.
Investment Professionals may submit recommendations in connection with any proposal and they are likely to receive requests for recommendations
relating to proxies for private equity or fixed income securities and/or proposals relating to merger transactions/corporate
restructurings, proxy contests, or unusual or controversial issues.
Interpretation and application of these Guidelines is not intended to supersede any
law, regulation, binding agreement, or other legal requirement to which an issuer may be or become subject. No proposal shall be
supported where implementation would contravene such requirements.
General Policies
The Funds generally support the recommendation of an issuer’s management when the Proxy Advisory Firm’s recommendation also aligns with such recommendation and to vote in accordance with the Proxy Advisory Firm’s recommendation when management has made no recommendation. However, this policy shall not apply to CASE-BY-CASE proposals for which a contrary recommendation from the relevant Investment Professional(s) is utilized.
The rationale and vote recommendation from Investment Professionals shall receive
primary consideration with respect to CASE-BY-CASE proposals considered on the relevant Fund’s behalf.
The Fund’s policy is to not support proposals that would negatively impact the existing rights of the Funds’ beneficial owners. Shareholder proposals shall not be supported if they impose excessive costs and/or
are overly restrictive or prescriptive. Depending on the relevant market, appropriate opposition may be expressed as an ABSTAIN, AGAINST, or WITHHOLD vote.
In the event competing shareholder and board proposals appear on the same agenda at
uncontested proxies, the shareholder proposal shall not be supported, and the management proposal shall be supported when
the management proposal meets the factors for support under the relevant topic/policy (e.g., Allocation of Income and
Dividends); the competing proposals shall otherwise be considered on a CASE- BY-CASE basis.
International Policies
Companies incorporated outside the U.S. are subject to the following U.S. policies
if they are listed on a
U.S. exchange and treated as a U.S. domestic issuer by the SEC. Where applicable,
certain U.S. policies may also be applied to issuers incorporated outside the U.S. (e.g., issuers with a significant base of U.S.
operations and employees).
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However, given the differing regulatory and legal requirements, market practices,
and political and economic systems existing in various international markets, the Funds shall:
•
Vote AGAINST international proposals when the Proxy Advisory Firm recommends voting AGAINST such proposal due to inadequate relevant disclosure by the issuer or time provided for consideration of such disclosure;
•
Consider proposals that are associated with a firm AGAINST vote on a CASE-BY-CASE basis when the Proxy Advisory Firm recommends support when:
•
The issuer or market transitions to better practices (e.g., committing to new regulations
or governance codes);
•
The market standard is stricter than the Fund’s Guidelines; and/or
•
It is the more favorable choice when shareholders must choose between alternate proposals.
Proposal Specific Policies
As mentioned above, these Guidelines may be overridden in any case as provided for
in the Procedures. Similarly, the Procedures outline the proposals with Guidelines that prescribe a firm voting position that may
instead be considered on a CASE-BY-CASE basis when unusual or controversial circumstances so dictate, in such circumstances
the AO Team may deem it appropriate to seek input from the relevant Investment Professional(s).
Proxy Contests:
Votes in contested elections on shall be considered on a CASE-BY-CASE basis with primary consideration given to input from the relevant Investment Professional(s).
Uncontested Proxies:
1- The Board of Directors
Overview
The Funds may indicate disagreement with an issuer’s policies or practices by withholding support from the relevant proposal rather than from the director nominee(s) to which the Proxy Advisory Firm assigns
fault or assigns an association.
The Funds shall withhold support from director(s) deemed responsible in cases in which the Funds’ disagreement is assigned to the board of directors. Responsibility may be attributed to the entire board, a committee,
or an individual, and the Funds shall apply a vote accountability guideline (“Vote Accountability Guideline”) specific to the concerns under review.
The Funds shall withhold support from director(s) deemed responsible in cases in which the Funds’ disagreement is assigned to the board of directors. Responsibility may be attributed to the entire board, a committee,
or an individual, and the Funds shall apply a vote accountability guideline (“Vote Accountability Guideline”) specific to the concerns under review.
The Funds shall typically vote FOR a director in connection with issues the Proxy Advisory Firm raises if the director
did not serve on the board or relevant committee during the majority of the time period relevant
to the concerns the Proxy Advisory Firm cited.
The Funds shall vote with the Proxy Advisory Firm’s recommendation when more candidates are presented than available seats and no other provisions under these Guidelines apply.
The Funds shall vote with the Proxy Advisory Firm’s recommendation when more candidates are presented than available seats and no other provisions under these Guidelines apply.
Vote with the Proxy Advisory Firm’s recommendation to withhold support from the legal entity and vote on the individual when a director holds one seat as an individual plus an additional seat as a representative
of a legal entity.
Bundled Director Slates
The Funds shall WITHHOLD support from directors or slates of directors when they are presented in a manner
not aligned with market best practice and/or regulation, irrespective of complying with independence
requirements, such as:
•
Bundled slates of directors (e.g., Canada, France, Hong Kong, or Spain);
•
In markets with term lengths capped by regulation or market practice, directors whose
terms exceed the caps or are not disclosed; or
•
Directors whose names are not disclosed in advance of the meeting or far enough in
advance relative to voting deadlines to make an informed voting decision.
For issuers with multiple slates in Italy, the Funds shall follow the Proxy Advisory Firm’s standards for assessing which slate is best suited to represent shareholder interests.
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Independence
Director and Board/Committee Independence
The Funds expect boards and key committees to have an appropriate level of independence
and shall accordingly consider the Proxy Advisory Firm’s standards to determine that adequate level of independence. A director would be deemed non-independent if the individual had/has a relationship with the issuer that could potentially influence the individual’s objectivity causing the inability to satisfy fiduciary standards on behalf of shareholders. Audit, compensation/remuneration,
and nominating and/or governance committees are considered key committees and should be 100% independent. The Funds shall consider the Proxy Advisory Firm’s standards and generally accepted best practice (collectively “Independence Expectations”) with respect to determining director independence and Board/Committee independence levels. Note: Non-voting directors (e.g., director emeritus or advisory director) shall be excluded from calculations relating to board independence.
The Funds shall consider non-independent directors standing for election on a CASE-BY-CASE basis when the full board or committee does not meet Independence Expectations. Additionally, the Funds shall:
•
WITHHOLD support from the board chair, nominating committee chair, nominating committee member(s),
or an incumbent director(s) if the board chair is non-independent and the board does not have a lead
independent director;
•
WITHHOLD support from slates of directors if the board’s independence cannot be ascertained due to inadequate disclosure or when the board’s independence does not meet Independence Expectations;
•
WITHHOLD support from key committee slates if they contain non-independent directors; and/or
•
WITHHOLD support from non-independent nominating committee chair, board chair, and/or directors
if the full board serves or appears to serve as a key committee, the board has not established a key committee,
or the board and/or a key committee(s) does not meet Independence Expectations.
Self-Nominated/Shareholder-Nominated Director Candidates
The Funds shall consider self-nominated or shareholder-nominated director candidates
on a CASE-BY- CASE basis and shall WITHHOLD support from the candidate when:
•
Adequate disclosure has not been provided (e.g., rationale for candidacy and candidate’s qualifications relative to the issuer);
•
The candidate’s agenda is not in line with the long-term best interests of the issuer; or
•
Multiple self-nominated candidates are considered to constitute a proxy contest if
similar issues are raised (e.g., potential change in control).
Management Proposals Seeking Non-Board Member Service on Key Committees
The Funds shall vote AGAINST proposals that permit non-board members to serve on a key committee, provided that
bundled slates may be supported if no slate nominee serves on relevant committee(s) except
in cases in which best market practice otherwise dictates.
The Funds shall consider other concerns regarding committee members on a CASE-BY-CASE basis.
Board Member Roles and Responsibilities
Attendance
The Funds shall WITHHOLD support from a director who, during the prior year attended less than 75 percent
of the board and committee meetings with no valid reason for the absences, excluding directors who
have not completed a full year on the board.
The Funds shall WITHHOLD support from nominating committee members according to the Vote Accountability Guideline
if a director has two or more years of poor attendance without a valid reason for their absences.
The Funds shall apply a one-year attendance policy relating to statutory auditors
at Japanese issuer meetings.
Over-boarding
The Funds shall vote AGAINST directors who serve on:
•
More than two public issuer boards and are named executive officers at any public
issuer, and shall WITHHOLD support only at their outside board(s);
•
Five or more public issuer boards; or
•
Four or more public issuer boards and is Board Chair at two or more public issuers
and shall WITHHOLD support on boards for which such director does not serve as chair.
The Funds shall vote AGAINST shareholder proposals limiting the number of public issuer boards on which a director
may serve.
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Tenure
The Funds shall WITHHOLD support from the nominating committee chair and/or members of the nominating committee
when the average board tenure exceeds 15 years.
Combined Chair / CEO Role
The Funds shall vote FOR directors without regard to recommendations that the position of chair should be
separate from that of CEO or should otherwise require independence unless other concerns requiring CASE-BY-CASE consideration arise (e.g., a former CEO proposed as board chair).
The Funds shall consider shareholder proposals that require that the positions of
chair and CEO be held separately on a CASE-BY-CASE basis.
Cumulative/Net Voting Markets
When cumulative or net voting applies, the Funds shall follow the Proxy Advisory Firm’s recommendation to vote FOR nominees, such as when the issuer assesses that such nominees are independent, irrespective
of key committee membership, even if independence disclosure or criteria fall short of the Proxy Advisory Firm’s standards.
Board Accountability
Board Diversity
United States:
The Funds shall vote AGAINST incumbent directors according to the Vote Accountability Guideline if no women are on the issuer’s board. The Funds shall consider directors on a CASE-BY-CASE basis if gender diversity existed prior to the most recent annual meeting.
The Funds shall vote AGAINST incumbent directors according to the Vote Accountability Guideline when the board
has no apparent racially or ethnically diverse members. The Funds shall consider directors on a CASE-BY- CASE basis if racial and/or ethnic diversity existed prior to the most recent annual meeting.
Diversity (Shareholder Proposals):
The Funds shall generally vote FOR shareholder proposals that request the issuer to improve/promote gender and/or racial/ethnic
diversity and/or gender and/or racial/ethnic diversity-related disclosure.
International:
The Funds shall vote AGAINST directors according to the Vote Accountability Guideline when no women are on the issuer’s board or if its board’s gender diversity level does not meet a higher standard established by the relevant country’s corporate governance code and generally accepted best practice.
The Funds shall vote AGAINST directors according to the Vote Accountability Guideline when the relevant country’s corporate governance code contains a minimally acceptable threshold for racial/ethnic diversity and the
board does not appear to meet this expectation.
Return on Equity
The Funds shall vote FOR the most senior executive at an issuer in Japan if the only reason the Proxy Advisory Firm withholds its recommendation results from the issuer underperforming in terms of capital efficiency
or issuer performance (e.g., net losses or low return on equity (ROE)).
Compensation Practices
The Funds may WITHHOLD support from compensation committee members whose actions or disclosure do not appear
to support compensation practices aligned with the best interests of the issuer and its shareholders.
“Say on Pay” Responsiveness. The Funds shall consider compensation committee members on a CASE- BY-CASE basis for failure to sufficiently address compensation concerns prompting significant opposition to the most recent advisory vote on executive officers’ compensation, “Say on Pay”, or continuing to maintain problematic pay practices, considering such factors as
the level of shareholder opposition, subsequent actions taken by the compensation committee, and level of responsiveness
disclosure, among others.
“Say on Pay Frequency”. The Funds shall WITHHOLD support according to the Vote Accountability Guideline if the Proxy Advisory Firm opposes directors due to the issuer’s failure to include a “Say on Pay” proposal and/or a “Say on Pay Frequency” proposal when required pursuant to SEC or market regulatory provisions; or implemented a “Say on Pay Frequency” schedule that is less frequent than the frequency most recently preferred by not less than a plurality of
shareholders; or is an externally-managed issuer (EMI) or externally-managed REIT (EMR) and has failed to include a “Say on Pay” proposal or adequate disclosure of the compensation structure.
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Commitments. The Funds shall vote FOR compensation committee members receiving an adverse recommendation from the Proxy
Advisory Firm due to problematic pay practices or thresholds (e.g., burn rate) if
the issuer makes a public commitment (e.g., via a Form 8-K filing) to rectify the practice on a going-forward basis. However, the Funds
shall WITHHOLD support on compensation committee members according to the Vote Accountability Guideline if the issuer does not rectify the practice prior to the issuer’s next annual general meeting.
For markets in which the issuer has not followed market practice by submitting a resolution
on executive remuneration/compensation, the Funds shall WITHHOLD support on remuneration/compensation committee members.
Accounting Practices
The Funds shall WITHHOLD support on directors according to the Vote Accountability Guideline as well as the issuer’s CEO or CFO if nominated as directors, if poor accounting practice concerns are raised including
the issuer failed to remediate known ongoing material weaknesses in the issuer’s internal controls for more than one year.
The Funds shall consider directors according to the Vote Accountability Guideline, the issuer’s CEO or CFO if nominated as directors, or external auditors on a CASE-BY-CASE basis if:
•
Issuer has not yet had a full year to remediate the concerns since the time such issues
were identified; and/or
•
Issuer has taken adequate steps to remediate the concerns cited that would typically
include removing or replacing the responsible executives and the concerning issues do not recur.
The Funds shall vote FOR audit committee members, or the issuer’s CEO or CFO when nominated as directors, who did not serve on the committee or did not have responsibility over the relevant financial function
during the majority of the time period relevant to the concerns cited.
The Funds shall WITHHOLD support on audit committee members according to the Vote Accountability Guideline
if the issuer has failed to disclose audit fees and has not provided an auditor ratification or remuneration
proposal for shareholder vote.
Problematic Actions
The Funds shall WITHHOLD support on directors according to the Vote Accountability Guideline when the Proxy
Advisory Firm cites them for problematic actions including a lack of due diligence in relation to a major
transaction (e.g., a merger or an acquisition), material failures, inadequate oversight, scandals, malfeasance, or negligent internal
controls at the issuer or that of an affiliate, factoring in the merits of the director’s performance, rationale, and disclosure when:
•
Culpability can be attributed to the director (e.g., director manages or is responsible
for the relevant function); or
•
The director has been directly implicated resulting in arrest, criminal charge, or
regulatory sanction.
The Funds shall WITHHOLD support on members of the nominating committee, board chair, or lead independent
director when an issuer nominates a director who is subject to any of the above concerns to serve on
its board.
The Funds shall WITHHOLD support on audit committee members according to the Vote Accountability Guideline
due to share pledging concerns factoring in the pledged amount, unwinding time, and any historical concerns
raised. The Funds shall also WITHHOLD support on the pledgor, if a director, where the pledged amount and unwinding time
are deemed significant and therefore an unnecessary risk to the issuer.
The Funds shall WITHHOLD support from all incumbent directors if the issuer has implemented a multi-class
capital structure in which the classes have unequal voting rights and does not have a reasonable sunset
provision (e.g., fewer than seven (7) years).
The Funds shall WITHHOLD support from directors according to the Vote Accountability Guideline when the Proxy
Advisory Firm recommends withholding support due to the board (a) unilaterally adopting by-law amendments
that have a negative impact on existing shareholder rights or function as a diminution of shareholder rights or (b)
failing to remove or subject to a reasonable sunset provision in its by-laws.
Anti-Takeover Measures
The Funds shall WITHHOLD support from directors according to the Vote Accountability Guideline if the issuer
implements excessive anti-takeover measures.
The Funds shall WITHHOLD support from directors according to the Vote Accountability Guideline if the issuer
fails to remove restrictive “poison pill” features, ensure a “poison pill” expiration, or submits the “poison pill” in a timely manner to shareholders for vote unless an issuer has implemented a policy that should reasonably prevent abusive use
of its “poison pill”.
Board Responsiveness
The Funds shall vote FOR directors if the majority-supported shareholder proposal has been reasonably addressed.
•
Proposals seeking shareholder ratification of a “poison pill” provision may be deemed reasonably addressed if the issuer has implemented a policy that should reasonably prevent abusive use of the “poison pill”.
The Funds shall WITHHOLD support from directors according to the Vote Accountability Guideline if a shareholder
proposal received majority support and the board has not disclosed a credible rationale for not implementing
the proposal.
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The Funds shall WITHHOLD support on a director if the board has not acted upon the director who did not receive
shareholder support representing a majority of the votes cast at the previous annual meeting;
and shall consider such directors on a CASE-BY-CASE basis if the issuer has a controlling shareholder(s).
The Funds shall vote FOR directors in cases in which an issue relevant to the majority negative vote has been
adequately addressed or cured and which may include sufficient disclosure of the board’s rationale.
Board–Related Proposals
Classified/Declassified Board Structure
The Funds shall vote AGAINST proposals to classify the board unless the proposal represents an increased frequency of a director’s election in the staggered cycle (e.g., seeking to move from a three-year cycle to
a two-year cycle).
The Funds shall vote FOR proposals to repeal classified boards and to elect all directors annually. Board
Structure
The Funds shall vote FOR management proposals to adopt or amend board structures unless the resulting change(s)
would mean the board would not meet Independence Expectations.
For issuers in Japan, the Funds shall vote FOR proposals seeking a board structure that would provide greater independent oversight.
Board Size
The Funds shall vote FOR proposals seeking a board range if the range is reasonable in the context of market
practice and anti-takeover considerations; however, the Funds shall vote AGAINST a proposal if the issuer seeks to remove shareholder approval rights or the board fails to meet market independence requirements.
Director and Officer Indemnification and Liability Protection
The Funds shall consider proposals on director and officer indemnification and liability
protection on a CASE-BY-CASE basis using Delaware law as the standard.
The Funds shall vote AGAINST proposals to limit or eliminate entirely directors’ and officers’ liability in connection with monetary damages for violating their collective duty of care.
The Funds shall vote AGAINST indemnification proposals that would expand coverage beyond legal expenses to acts
that are more serious violations of fiduciary obligation such as negligence.
Director and Officer Indemnification and Liability Protection
The Funds shall vote in accordance with the Proxy Advisory Firm’s standards (e.g., overly broad provisions).
Discharge of Management/Supervisory Board Members
The Funds shall vote FOR management proposals seeking the discharge of management and supervisory board members
(including when the proposal is bundled) unless concerns surface relating to the past actions of the issuer’s auditors or directors, or legal or other shareholders take regulatory action against the board.
The Funds shall vote FOR such proposals in connection with remuneration practices otherwise supported under
these Guidelines or as a means of expressing disapproval of the issuer’s or its board’s broader practices.
Establish Board Committee
The Funds shall vote FOR shareholder proposals that seek creation of a key board committee.
The Funds shall vote AGAINST shareholder proposals requesting creation of additional board committees or offices
except as otherwise provided for herein.
Filling Board Vacancies / Removal of Directors
The Funds shall vote AGAINST proposals that allow removal of directors only for cause.
The Funds shall vote FOR proposals to restore shareholder ability to remove directors with or without cause.
The Funds shall vote AGAINST proposals that allow only continuing directors to elect replacement directors to
fill board vacancies.
The Funds shall vote FOR proposals that permit shareholders to elect directors to fill board vacancies.
Stock Ownership Requirements
The Funds shall vote AGAINST such shareholder stock ownership requirement proposals. Term Limits / Retirement
Age
The Funds shall vote FOR management proposals and AGAINST shareholder proposals limiting the tenure of outside directors or imposing a mandatory retirement age for outside directors unless the proposal seeks
to relax existing standards.
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2- Compensation
Frequency of Advisory Votes on Executive Compensation
The Funds shall vote FOR proposals seeking an annual “Say on Pay”, and AGAINST those seeking less frequent “Say on Pay”.
Proposals to Provide an Advisory Vote on Executive Compensation (Canada)
The Funds shall vote FOR if it is an ANNUAL vote unless the issuer already provides an annual shareholder vote.
Executive Pay Evaluation
Advisory Votes on Executive Compensation (Say on Pay) and Remuneration Reports or
Committee Members in Absence of Such Proposals
The Funds shall vote FOR management proposals seeking ratification of the issuer’s executive compensation structure unless the program includes practices or features not supported under these Guidelines and the
proposal receives a negative Proxy Advisory Firm recommendation.
The Funds shall vote AGAINST:
•
Provisions that permit or give the Board sole discretion for repricing, replacement,
buy back, exchange, or any other form of alternative options. (Note: cancellation of options would not be considered an exchange unless the cancelled
options were re-granted or expressly returned to the plan reserve for reissuance.);
•
Single Trigger Severance provisions that do not require an actual change in control
to be triggered in new or amended employment agreements;
•
Single Trigger Severance provisions that do not require an actual change in control
to be triggered and the Long-Term Incentive Plan’s performance period is less than three years;
•
Plans that allow named executive officers to have material input into setting their
own compensation;
•
Short-Term Incentive Plans in which treatment of payout factors has been inconsistent
(e.g., exclusion of losses but not gains);
•
Long-Term Incentive Plans in which performance measures hurdles/measures are set based
on a backward-looking performance period;
•
Company plans in international markets that provide for contract or notice periods
or severance/termination payments that exceed market practices (e.g., relative to multiple of annual compensation); and/or
•
Compensation structures at externally managed issuers (EMI) or externally managed
REITs (EMR) that lack adequate disclosure based on the Proxy Advisory Firm’s assessment.
The Funds shall consider on a CASE-BY-CASE basis if the Proxy Advisory Firm recommends opposing and none of the above factors
have been triggered.
Golden Parachutes
The Funds shall vote AGAINST proposals due to:
•
Single or modified-single trigger severance provisions;
•
Total Named Executive Officer (“NEO”) payout as a percentage of the total equity value;
•
Aggregate of all single-triggered components (cash and equity) as a percentage of
the total NEO payout;
•
Excessive payout; and/or
•
Recent material amendments or new agreements that incorporate problematic features.
Equity-Based and Other Incentive Plans Including OBRA
Equity Compensation
The Funds shall consider compensation and employee benefit plans, including those
in connection with OBRA3, or the issuance of shares in connection with such plans on a CASE-BY-CASE basis. The Funds shall vote the plan or issuance based on factors and related vote treatment under the Executive Pay Evaluation section above or based on
circumstances specific to such equity plans as follows:
The Funds shall vote FOR a plan, if:
•
Board independence is the only concern;
•
Amendment places a cap on annual grants;
3 OBRA is an employee-funded defined contribution plan for certain employees of publicly
held companies.
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•
Amendment adopts or changes administrative features to comply with Section 162(m)
of OBRA;
•
Amendment adds performance-based goals to comply with Section 162(m) of OBRA; and/or
•
Cash or cash-and-stock bonus components are approved for exemption from taxes under
Section 162(m) of OBRA.
•
The Funds shall give primary consideration to management’s assessment that such plan meets the requirements for exemption of performance-based compensation.
The Funds shall vote AGAINST a plan if it:
•
Exceeds recommended costs (U.S. or Canada);
•
Incorporates share allocation disclosure methods that prevent a cost or dilution assessment;
•
Exceeds recommended burn rates and/or dilution limits, including cases in which dilution
cannot be fully assessed (e.g., due to inadequate disclosure);
•
Permits deep or near-term discounts (or the equivalent, such as dividend equivalents
on unexercised options) to executives or directors;
•
Provides for retirement benefits or equity incentive awards to outside directors if
not in line with market practice;
•
Permits financial assistance to executives, directors, subsidiaries, affiliates, or
related parties that is not in line with market practice;
•
Permits plan administrators to benefit from the plan as potential recipients;
•
Permits for an overly liberal change in control definition. (This refers to plans
that would reward recipients even if the event does not result in an actual change in control or results in a change in control but
does not terminate the employment relationship.);
•
Permits for post-employment vesting or exercise of options if deemed inappropriate;
•
Permits plan administrators to make material amendments without shareholder approval;
and/or
•
Permits procedure amendments that do not preserve shareholder approval rights.
Amendment Procedures for Equity Compensation Plans and Employee Stock Purchase Plans
(Toronto Stock Exchange Issuers)
The Funds shall vote AGAINST if the amendment procedures do not preserve shareholder approval rights.
Stock Option Plans for Independent Internal Statutory Auditors (Japan)
The Funds shall vote AGAINST such proposals.
Matching Share Plans
The Funds shall vote AGAINST such proposals if the matching share plan does not meet recommended standards considering
holding period, discounts, dilution, participation, purchase price, or performance
criteria.
Employee Stock Purchase Plans or Capital Issuance in Support Thereof
Voting decisions are generally based on the Proxy Advisory Firm’s approach to evaluating such proposals.
Director Compensation
Non-Executive Director Compensation
The Funds shall vote FOR cash-based proposals.
The Funds shall vote AGAINST performance-based equity-based proposals and patterns of excessive pay.
Bonus Payments (Japan)
The Funds shall vote FOR if all bonus payments are for directors or auditors who have served as executives
of the issuer and AGAINST if any bonus payments are for outsiders.
Bonus Payments – Scandals
The Funds shall vote AGAINST bonus proposals for a retiring director or continuing director or auditor when culpability
for any malfeasance may be attributable to the nominee.
The Funds shall consider on a CASE-BY-CASE basis bundled bonus proposals for retiring directors or continuing directors or auditors
where culpability for malfeasance may not be attributable to all nominees.
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Severance Agreements
Vesting of Equity Awards upon Change in Control
The Funds shall vote FOR management proposals seeking a specific treatment (e.g., double-trigger or pro- rata) of equity that vests upon change in control unless evidence exists of abuse in historical compensation
practices.
The Funds shall vote AGAINST shareholder proposals regarding the treatment of equity if change(s) in control severance
provisions are double-triggered. The funds shall vote FOR the proposal if such provisions are not double-triggered.
Executive Severance or Termination Arrangements, including those Related to Executive
Recruitment or Retention
The Funds shall vote FOR such compensation arrangements if:
•
The primary concerns raised would not result in a negative vote under these Guidelines
on a management “Say on Pay” proposal or the relevant board or committee member(s);
•
The issuer has provided adequate rationale and/or disclosure; or
•
Support is recommended as a condition to a major transaction such as a merger. Treatment
of Severance Provisions
The Funds shall vote AGAINST new or materially amended plans, contracts, or payments that include a single trigger
change in control severance provisions or do not require an actual change in control in order
to be triggered.
The Funds shall vote FOR shareholder proposals seeking double triggers on change in control severance provisions.
Compensation-Related Shareholder Proposals
Executive and Director Compensation
The Funds shall consider on a CASE-BY-CASE basis shareholder proposals that seek to impose new compensation structures or policies.
Holding Periods
The Funds shall vote AGAINST shareholder proposals requiring mandatory issuer stock holding periods for officers
and directors.
Submit Severance and Termination Payments for Shareholder Ratification
The Funds shall vote FOR shareholder proposals to submit executive severance agreements for shareholder ratification
if such proposals specify change in control events, supplemental executive retirement plans,
or deferred executive compensation plans, or if the listing exchange requires ratification thereof.
3- Audit-Related
Auditor Ratification and/or Remuneration
The Funds shall vote FOR management proposals except in such cases as indicated below. The Funds shall consider
auditor ratification and/or remuneration on a CASE-BY-CASE basis if:
The Funds shall vote AGAINST auditor ratification and/or remuneration if:
•
The Proxy Advisory Firm raises questions of auditor independence or disclosure including
the auditor selection process;
•
Total fees for non-audit services exceed 50 percent of aggregated auditor fees (including
audit-related fees, and tax compliance and preparation fees as applicable); or
•
Evidence exists of excessive compensation relative to the size and nature of the issuer.
The Funds shall vote AGAINST an auditor ratification and/or remuneration proposal if the issuer has failed to
disclose audit fees.
The Funds shall vote FOR shareholder proposals that ask the issuer to present its auditor for ratification
annually.
Auditor Independence
The Funds shall consider shareholder proposals asking issuers to prohibit their auditors
from engaging in non-audit services (or capping the level of non-audit services) on a CASE-BY-CASE basis.
Audit Firm Rotation
The Funds shall vote AGAINST shareholder proposals asking for mandatory audit firm rotation.
Indemnification of Auditors
The Funds shall vote AGAINST auditor indemnification proposals.
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Independent Statutory Auditors (Japan)
The Funds shall vote AGAINST an independent statutory auditor proposal if the candidate is or was affiliated with
the issuer, its primary bank(s), or one of its top shareholders.
The Funds shall vote AGAINST incumbent directors implicated in scandals, malfeasance, or at issuers exhibiting
poor internal controls.
4- Shareholder Rights and Defenses
Advance Notice for Shareholder Proposals
The Funds shall vote FOR management proposals relating to advance notice period requirements provided that
the period requested is in accordance with applicable law and no material governance concerns have arisen
regarding the issuer.
Corporate Documents / Article and Bylaw Amendments or Related Director Actions
The Funds shall vote FOR such proposal if the change or policy is editorial in nature or if shareholder rights
are protected.
The Funds shall vote AGAINST such proposal if it seeks to impose a negative impact on shareholder rights or diminishes
accountability to shareholders including cases in which the issuer failed to opt out of a law that
affects shareholder rights (e.g., staggered board).
The Funds shall, with respect to article amendments for Japanese issuers:
•
Vote FOR management proposals to amend an issuer’s articles to expand its business lines in line with its current industry;
•
Vote FOR management proposals to amend an issuer’s articles to provide for an expansion or reduction in the size of the board unless the expansion/reduction is clearly disproportionate to the growth/decrease
in the scale of the business or raises anti-takeover concerns;
•
If anti-takeover concerns exist, the Funds shall vote AGAINST management proposals including bundled proposals to amend an issuer’s articles to authorize the Board to vary the annual meeting record date or to otherwise align them with provisions of a takeover defense; and/or
•
Follow the Proxy Advisory Firm’s guidelines relating to management proposals regarding amendments to authorize share repurchases at the board’s discretion, and vote AGAINST proposals unless there is little to no likelihood of a creeping takeover or constraints on liquidity (free float of shares is low) and in cases in which the
issuer trades at below book value or faces a real likelihood of substantial share sales, or in which this amendment is bundled
with other amendments that are clearly in shareholders’ interest.
Majority Voting Standard
The Funds shall vote FOR proposals that seek director election via an affirmative majority vote in connection
with a shareholder meeting provided such vote contains a plurality carve-out for contested elections
and provided such standard does not conflict with applicable law in the issuer’s country of incorporation.
The Funds shall vote FOR amendments to corporate documents or other actions promoting a majority standard.
Cumulative Voting
The Funds shall vote FOR shareholder proposals to restore or permit cumulative voting.
The Funds shall vote AGAINST management proposals to eliminate cumulative voting if the issuer:
•
Is controlled;
•
Maintains a classified board of directors; or
•
Maintains a dual class voting structure.
Proposals may be supported irrespective of classified board status if an issuer plans
to declassify its board or adopt a majority voting standard.
Confidential Voting
The Funds shall vote FOR management proposals to adopt confidential voting.
The Funds shall vote FOR shareholder proposals that request issuers to adopt confidential voting, use independent
tabulators, and use independent election inspectors so long as the proposals include clauses for
proxy contests as follows:
•
In the case of a contested election management should be permitted to request that
the dissident group honors its confidential voting policy;
•
If the dissidents agree the policy shall remain in place; and
•
If the dissidents do not agree the confidential voting policy shall be waived.
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Fair Price Provisions
The Funds shall consider proposals to adopt fair price provisions on a CASE-BY-CASE basis.
The Funds shall vote AGAINST fair price provisions containing shareholder vote requirements greater than a majority
of disinterested shares.
Poison Pills
The Funds shall vote AGAINST management proposals in connection with poison pills or anti-takeover activities
(e.g., disclosure requirements or issuances, transfers, or repurchases) that can be reasonably construed
as an anti-takeover measure based on the Proxy Advisory Firm’s approach to evaluating such proposals.
The Funds shall vote FOR shareholder proposals that ask an issuer to submit its poison pill for shareholder
ratification or to redeem that poison pill in lieu thereof, unless:
•
Shareholders have approved the plan’s adoption;
•
The issuer has already implemented a policy that should reasonably prevent abusive
use of the poison pill; or
•
The board had determined that it was in the best interest of shareholders to adopt
a poison pill without delay, provided that such plan shall be put to shareholder vote within twelve months of adoption or expire
and would immediately terminate if not approved by a majority of the votes cast.
The Funds shall consider shareholder proposals to redeem an issuer’s poison pill on a CASE-BY-CASE basis.
Proxy Access
The Funds shall vote FOR proposals to allow shareholders to nominate directors and list those nominees in the issuer’s proxy statement and on its proxy card, provided that criteria meet the Funds’ internal thresholds and that such standard does not conflict with applicable law in the country in which the issuer is incorporated. The Funds
shall consider shareholder and management proposals that appear on the same agenda on a CASE-BY-CASE basis.
The Funds shall vote FOR management proposals also supported by the Proxy Advisory Firm.
Quorum Requirements
The Funds shall consider on a CASE-BY-CASE basis proposals to lower quorum requirements for shareholder meetings below a majority of the shares outstanding.
Exclusive Forum
The Funds shall vote FOR management proposals to designate Delaware or New York as the exclusive forum for
certain legal actions as defined by the issuer (“Exclusive Forum”) if the issuer’s state of incorporation is the same as its proposed Exclusive Forum, otherwise they shall consider such proposals on a CASE-BY-CASE basis.
Reincorporation Proposals
The Funds shall consider proposals to change an issuer’s state of incorporation on a CASE-BY-CASE basis.
The Funds shall vote FOR management proposals not assessed as:
•
A potential takeover defense; or
•
A significant reduction of minority shareholder rights that outweigh the aggregate
positive impact, but if assessed as such the Funds shall consider management’s rationale for the change.
The Funds shall vote FOR management reincorporation proposals upon which another key proposal, such as a merger
transaction, is contingent if the other key proposal is also supported.
The Funds shall vote AGAINST shareholder reincorporation proposals not supported by the issuer.
Shareholder Advisory Committees
The Funds shall consider proposals to establish a shareholder advisory committee on
a CASE-BY-CASE
basis.
Right to Call Special Meetings
The Funds shall vote FOR management proposals to permit shareholders to call special meetings.
The Funds shall consider management proposals to adjust the thresholds applicable
to call a special meeting on a CASE-BY-CASE basis.
The Funds shall vote FOR shareholder proposals that provide shareholders with the ability to call special
meetings when any of the following apply:
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•
Company does not currently permit shareholders to do so;
•
Existing ownership threshold is greater than 25 percent; or
•
Sole concern relates to a net-long position requirement. Written Consent
The Funds shall vote AGAINST shareholder proposals seeking the right to act via written consent if the issuer:
•
Permits shareholders to call special meetings;
•
Does not impose supermajority vote requirements on business combinations/actions (e.g.,
a merger or acquisition) and on bylaw or charter amendments; and
•
Has otherwise demonstrated its accountability to shareholders (e.g., the issuer has
reasonably addressed majority-supported shareholder proposals).
The Funds shall vote FOR shareholder proposals seeking the right to act via written consent if the above conditions
are not present.
The Funds shall vote AGAINST management proposals to eliminate the right to act via written consent. State Takeover
Statutes
The Funds shall consider proposals to opt-in or out of state takeover statutes (including
control share acquisition statutes, control share cash-out statutes, freeze-out provisions, fair price provisions, stakeholder
laws, poison pill endorsements, severance pay and labor contract provisions, anti-greenmail provisions, and disgorgement provisions)
on a CASE-BY-CASE basis.
Supermajority Shareholder Vote Requirement
The Funds shall vote AGAINST proposals to require a supermajority shareholder vote and FOR proposals to lower supermajority shareholder vote requirements, except:
The Funds shall consider such proposals on a CASE-BY-CASE basis if the issuer has shareholder(s) holding significant ownership percentages and retaining existing supermajority requirements would protect minority
shareholder interests.
Time-Phased Voting
The Funds shall vote AGAINST proposals to implement and FOR proposals to eliminate time-phased or other forms of voting that do not promote a “one share, one vote” standard.
5- Capital and Restructuring
The Funds shall consider management proposals to make changes to the capital structure
not otherwise addressed under these Guidelines, on a CASE-BY-CASE basis, voting with the Proxy Advisory Firm’s recommendation unless they utilize a contrary recommendation from the relevant Investment Professional(s).
The Funds shall vote AGAINST proposals authorizing excessive board discretion.
Capital
Common Stock Authorization
The Funds shall consider proposals to increase the number of shares of common stock
authorized for issuance on a CASE-BY-CASE basis. The Proxy Advisory Firm’s proprietary approach of determining appropriate thresholds shall be utilized in evaluating such proposals. In cases in which such requests are above the allowable threshold the Funds
shall utilize an issuer-specific qualitative review (e.g., considering rationale and prudent historical usage).
The Funds shall vote FOR proposals within the Proxy Advisory Firm’s permissible thresholds or those in excess of but meeting Proxy Advisory Firm’s qualitative standards, to authorize capital increases, unless the issuer states that the additionally issued stock may be used as a takeover defense.
The Funds shall vote FOR proposals to authorize capital increases exceeding the Proxy Advisory Firm’s thresholds when an issuer’s shares are at risk of delisting.
Notwithstanding the above, the Funds shall vote AGAINST:
•
Proposals to increase the number of authorized shares of a class of stock if these
Guidelines do not support the issuance which the increase is intended to service (e.g., merger or acquisition proposals).
Dual Class Capital Structures
The Funds shall vote AGAINST:
•
Proposals to create or perpetuate dual class capital structures with unequal voting
rights (e.g., exchange offers, conversions, and recapitalizations) unless supported by the Proxy Advisory Firm (e.g., utilize
a “one share, one vote” standard, contain a sunset provision of seven or fewer years to avert bankruptcy or generate non-dilutive
financing, or are not designed to increase the voting power of an insider or significant shareholder).
•
Proposals to increase the number of authorized shares of the class of stock that has
superior voting rights in issuers that have dual-class capital structures.
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The Funds shall vote FOR proposals to eliminate dual-class capital structures.
General Share Issuances / Increases in Authorized Capital
The Funds shall consider specific issuance requests on a CASE-BY-CASE basis based on the proposed use and the issuer’s rationale.
The Proxy Advisory Firm’s assessment shall govern Fund voting decisions to determine support for requests for general issuances (with or without preemptive rights), authorized capital increases, convertible bonds
issuances, warrants issuances, or related requests to repurchase and reissue shares.
Preemptive Rights
The Funds shall consider shareholder proposals that seek preemptive rights or management
proposals that seek to eliminate them on a CASE-BY-CASE basis. In evaluating proposals on preemptive rights, the Funds shall consider an issuer’s size and shareholder base characteristics.
Adjustments to Par Value of Common Stock
The Funds shall vote FOR management proposals to reduce the par value of common stock unless doing so raises
other concerns not otherwise supported under these Guidelines.
Preferred Stock
Utilize the Proxy Advisory Firm's approach for evaluating issuances or authorizations
of preferred stock considering the Proxy Advisory Firm's support of special circumstances such as mergers or acquisitions in addition
to the following criteria:
The Funds shall consider on a CASE-BY-CASE basis proposals to increase the number of shares of “blank check” preferred shares or preferred stock authorized for issuance. This approach incorporates both qualitative
and quantitative measures including a review of:
•
Past performance (e.g., board governance, shareholder returns, and historical share usage); and
•
The current request (e.g., rationale, whether shares are “blank check” and “declawed”, and dilutive impact as determined through the Proxy Advisory Firm’s model for assessing appropriate thresholds).
The Funds shall vote AGAINST proposals authorizing issuance of preferred stock or creation of new classes of preferred
stock having unspecified voting, conversion, dividend distribution, and other rights (“blank check” preferred stock).
The Funds shall vote FOR proposals to issue or create “blank check” preferred stock in cases in which the issuer expressly states that the stock shall not be used as a takeover defense or not utilize a disparate
voting rights structure.
The Funds shall vote AGAINST in cases in which the issuer expressly states that, or fails to disclose whether,
the stock may be used as a takeover defense.
The Funds shall vote FOR proposals to authorize or issue preferred stock in cases in which the issuer specifies
the voting, dividend, conversion, and other rights of such stock and the terms of the preferred stock appear
reasonable.
Preferred Stock (International)
Fund voting decisions should generally be based on the Proxy Advisory Firm’s approach, and the Funds shall:
•
Vote FOR the creation of a new class of preferred stock or issuances of preferred stock up
to 50 percent of issued capital unless the terms of the preferred stock would adversely affect the rights of existing
shareholders;
•
Vote FOR the creation/issuance of convertible preferred stock so long as the maximum number
of common shares that could be issued upon conversion meets the Proxy Advisory Firm’s guidelines on equity issuance requests; and
•
Vote AGAINST the creation of:
(1)
A new class of preference shares that would carry superior voting rights to common
shares; or
(2)
“Blank check” preferred stock unless the board states that the authorization shall not be used
to thwart a takeover bid.
Shareholder Proposals Regarding Blank Check Preferred Stock
The Funds shall vote FOR shareholder proposals requesting shareholder ratification of “blank check” preferred stock placements other than those shares issued for the purpose of raising capital or making acquisitions
in the normal course of business.
Share Repurchase Programs
The Funds shall vote FOR management proposals to institute open-market share repurchase plans in which all
shareholders may participate on equal terms but vote AGAINST plans containing terms favoring selected parties.
The Funds shall vote FOR management proposals to cancel repurchased shares.
The Funds shall vote AGAINST proposals for share repurchase methods lacking adequate risk mitigation or exceeding
appropriate market volume or duration parameters.
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The Funds shall consider shareholder proposals seeking share repurchase programs on
a CASE-BY- CASE basis giving primary consideration to input from the relevant Investment Professional(s).
Stock Distributions: Splits and Dividends
The Funds shall vote FOR management proposals to increase common share authorization for a stock split provided
that the increase in authorized shares falls within the Proxy Advisory Firm’s allowable thresholds.
Reverse Stock Splits
The Funds shall consider management proposals to implement a reverse stock split on
a CASE-BY-CASE considering management’s rationale and/or disclosure if the split constitutes a capital increase that effectively exceeds the Proxy Advisory Firm’s permissible threshold due to the lack of a proportionate reduction in the number of shares authorized.
Allocation of Income and Dividends
With respect to Japanese and South Korean issuers, the Funds shall consider management proposals concerning income allocation
and the dividend distribution, including adjustments to reserves to make capital available
for such purposes, on a CASE-BY-CASE basis voting with the Proxy Advisory Firm’s recommendations to oppose such proposals for cases in which:
•
The dividend payout ratio has been consistently below 30 percent without adequate
explanation; or
•
The payout is excessive given the issuer’s financial position.
The Funds shall vote FOR such issuer management proposals in other markets.
The Funds shall vote AGAINST proposals in which issuers seek to establish or maintain disparate dividend distributions
between stockholders of the same share class (e.g., long-term stockholders receiving a higher dividend ratio (“Loyalty Dividends”)).
In any market, in the event multiple proposals regarding dividends are on the same agenda the Funds
shall vote FOR the management proposal if the proposal meets the support conditions described above and shall vote
AGAINST the shareholder proposal; otherwise, the Funds shall consider such proposals on a CASE-BY-CASE basis.
Stock (Scrip) Dividend Alternatives
The Funds shall vote FOR most stock (scrip) dividend proposals but vote AGAINST proposals that do not allow for a cash option unless management demonstrates that the cash option is harmful to shareholder value.
Tracking Stock
The Funds shall consider the creation of tracking stock on a CASE-BY-CASE basis giving primary consideration to the input from relevant Investment Professional(s).
Capitalization of Reserves
The Funds shall vote FOR proposals to capitalize the issuer’s reserves for bonus issues of shares or to increase the par value of shares unless the Proxy Advisory Firm raises concerns not otherwise supported under
these Guidelines.
Debt Instruments and Issuance Requests (International)
The Funds shall vote AGAINST proposals authorizing excessive board discretion to issue or set terms for debt instruments
(e.g., commercial paper).
The Funds shall vote FOR debt issuances for issuers when the gearing level (current debt-to-equity ratio)
does not exceed the Proxy Advisory Firm’s defined thresholds.
The Funds shall vote AGAINST proposals in which the debt issuance will result in an excessive gearing level as
set forth in the Proxy Advisory Firm’s defined thresholds, or for which inadequate disclosure precludes calculation of the gearing level, unless the Proxy Advisory Firm’s approach to evaluating such requests results in support of the proposal.
Acceptance of Deposits (India)
Fund voting decisions are based on the Proxy Advisory Firm’s approach to evaluating such proposals.
Debt Restructurings
The Funds shall consider proposals to increase common and/or preferred shares and
to issue shares as part of a debt restructuring plan on a CASE-BY-CASE basis.
Financing Plans
The Funds shall vote FOR the adoption of financing plans if they are in shareholders’ best economic interests.
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Investment of Company Reserves (International)
The Funds shall consider such proposals on a CASE-BY-CASE basis.
Restructuring
Mergers and Acquisitions, Special Purpose Acquisition Corporations (SPACs) and Corporate
Restructurings
The Funds shall vote FOR a proposal not typically supported under these Guidelines if a key proposal such
as a merger transaction is contingent upon its support and a vote FOR is recommended by the Proxy Advisory Firm or relevant Investment Professional(s).
The Funds shall consider such proposals on a CASE-BY-CASE basis based on the Proxy Advisory Firm’s evaluation approach if the relevant Investment Professional(s) do not provide input with regard thereto.
Waiver on Tender-Bid Requirement
The Funds shall consider proposals on a CASE-BY-CASE basis if seeking a waiver for a major shareholder or concert party from the requirement to make a buyout offer to minority shareholders, voting FOR when little concern of a creeping takeover exists, and the issuer has provided a reasonable rationale for the request.
Related Party Transactions
The Funds shall vote FOR approval of such transactions, unless the agreement requests a strategic move outside the issuer’s charter, contains unfavorable or high-risk terms (e.g., deposits without security
interest or guaranty), or is deemed likely to have a negative impact on director or related party independence.
6- Environmental and Social Issues
Environmental and Social Proposals
Institutional shareholders now routinely scrutinize shareholder proposals regarding
environmental and social matters. Accordingly, in addition to governance risks and opportunities, issuers should also assess their
environmental and social risks and opportunities as they pertain to stakeholders including their employees, shareholders, communities,
suppliers, and customers.
Issuers should adequately disclose how they evaluate and mitigate such material risks
in order to allow shareholders to assess how well the issuers mitigate and leverage their social and environmental risks and
opportunities. Issuers should adopt disclosure methodologies considering recommendations from the Sustainability Accounting Standards
Board (SASB), Task Force on Climate-related Financial Disclosures (TCFD), or Global Reporting Initiative (GRI) to foster uniform
disclosure and to allow shareholders to assess risks across issuers.
Accordingly, the Funds shall vote FOR proposals related to environmental, sustainability and corporate social responsibility
if the issuer’s disclosure and/or its management of the issue(s) appears inadequate relative to its peers and if the proposal:
•
applies to the issuer’s business,
•
enhances long-term shareholder value,
•
requests more transparency and commitment to improve the issuer’s environmental and/or social risks,
•
aims to benefit the issuer’s stakeholders,
•
is reasonable and not unduly onerous or costly, or
•
is not requesting data that is primarily duplicative to data the issuer already publicly
provides.
Environmental
The Funds shall vote FOR proposals relating to environmental impact that reasonably:
•
aim to reduce negative environmental impact, including the reduction of greenhouse
gas emissions and other contributing factors to global climate change; and/or
•
request disclosure relating to how the issuer addresses its climate impact.
Social
The Funds shall vote FOR proposals relating to corporate social responsibility that request disclosure of
how the issuer manages its:
•
employee and board diversity; and/or
•
human capital management, human rights, and supply chain risks.
Approval of Donations
The Funds shall vote FOR proposals if they are for single- or multi-year authorities and prior disclosure
of amounts is provided. The Funds shall otherwise vote AGAINST such proposals.
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7- Routine/Miscellaneous
Routine Management Proposals
The Funds shall consider proposals for which the Proxy Advisory Firm recommends voting
AGAINST on a
CASE-BY-CASE basis.
Authority to Call Shareholder Meetings on Less than 21 Days’ Notice
For issuers in the United Kingdom, the Funds shall consider such proposals on a CASE-BY-CASE basis assessing whether the issuer has provided clear disclosure of its compliance with any hurdle conditions for authority
imposed by applicable law and has historically limited its use of such authority to time-sensitive matters.
Approval of Financial Statements and Director and Auditor Reports
The Funds shall vote AGAINST such proposals if concerns exist regarding inadequate disclosure, remuneration arrangements
(including severance/termination payments exceeding local standards for multiples of annual compensation),
or consulting agreements with non-executive directors.
The Funds shall consider such proposals on a CASE-BY-CASE basis if other concerns exist regarding severance/termination payments.
The Funds shall vote AGAINST such proposals if concerns exist regarding the issuer’s financial accounts and reporting, including related party transactions.
The Funds shall vote AGAINST board-issued reports receiving a negative recommendation from the Proxy Advisory
Firm resulting from concerns regarding board independence or inclusion of non-independent directors
on the audit committee.
The Funds shall vote FOR such proposals if the only reason for a negative Proxy Advisory Firm recommendation
is to express disapproval of broader issuer or board practices.
Other Business
The Funds shall vote AGAINST proposals for Other Business.
Adjournment
The Funds shall vote FOR when presented with a primary proposal such as a merger or corporate restructuring
that is also supported.
The Funds shall vote AGAINST when not presented with a primary proposal, such as a merger, and a proposal on the
ballot is opposed.
The Funds shall consider other circumstances on a CASE-BY-CASE basis.
Changing Corporate Name
The Funds shall vote FOR management proposals requesting a corporate name change. Multiple Proposals
The Funds may vote FOR multiple proposals of a similar nature presented as options to the issuer management’s favored course of action, provided that:
•
Support for a single proposal is not operationally required;
•
No single proposal is deemed superior in the interest of the Fund(s); and
•
Each proposal would otherwise be supported under these Guidelines.
The Funds shall vote AGAINST any proposals that would otherwise be opposed under these Guidelines.
Bundled Proposals
The Funds shall vote FOR such proposals if all of the bundled items are supported under these Guidelines.
The Funds shall consider such proposals on a CASE-BY-CASE basis if one or more items are not supported under these Guidelines and/or the Proxy Advisory Firm deems the negative impact, on balance, to outweigh
any positive impact.
Moot Proposals
This instruction pertains to items for which support has become moot (e.g., a director
for whom support has become moot since the time the individual was nominated (e.g., due to death, disqualification, or determination
not to accept appointment)); the Funds shall WITHHOLD support if the Proxy Advisory Firm recommends that course of action.
8- Investment Companies Registered Under the Investment Company Act of 1940
Investment companies registered under the Investment Company Act of 1940 (Investment
Companies) generally have different matters requiring shareholder approval and are subject to different regulatory requirements
than operating issuers. Accordingly, the Funds shall consider matters related to Investment Companies on a CASE-BY-CASE basis.
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PART C
OTHER INFORMATION
Voya Enhanced Securitized Income Fund
ITEM 25. FINANCIAL STATEMENTS AND EXHIBITS
1.Financial Statements
Included in Part A: The year ended February 28, 2025.
Included in Part B: Financial Statements are incorporated in Part B by reference to Registrant’s February 28, 2025 [annual shareholder report] (audited) August 31, 2024 semi-annual shareholder report (unaudited).
2. Exhibits
(A)(1) Agreement and Declaration of Trust dated September 21, 2023 – Filed as an exhibit to the Registrant’s Registration Statement under the Investment Company Act of 1940, as amended (the "1940 Act") on Form N-2 (File No. 811-23903), filed on October 5, 2023 and incorporated herein by reference.
(2)Certificate of Trust of Voya Enhanced Securitized Income Fund dated September 26, 2023 – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed on October 5, 2023 and incorporated herein by reference.
(B)By-Laws of Voya Enhanced Securitized Income Fund, approved September 21, 2023 – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed on October 5, 2023 and incorporated herein by reference.
(C)Not Applicable.
(D)Not Applicable.
(E)Not Applicable.
(F)Not Applicable.
(2)Sub-Advisory Agreement, effective May 1, 2024, between Voya Investments, LLC and Voya Investment Management Co. LLC – Filed herein.
(H)(1) Underwriting Agreement dated May 1, 2024 – Filed herein.
(J)` (1) Custody Agreement, dated January 6, 2003, between the Registrant and The Bank of
New York Mellon – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed on March 19, 2024 and incorporated herein by reference.
(b)Amendment, dated January 19, 2019, to the Custody Agreement, dated January 6, 2003, between the Registrant and The Bank of New York Mellon – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed on March 19, 2024 and incorporated herein by reference.
(c)Amendment, effective November 21, 2022, to the Custody Agreement, dated
1
January 6, 2003, between the Registrant and The Bank of New York Mellon – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed on March 19, 2024 and incorporated herein by reference.
(d)Supplement to the Custody Agreement – Hong Kong – China Connect Service, dated April 29, 2016, between the Registrant and The Bank of New York Mellon – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed on March 19, 2024 and incorporated herein by reference.
(e)Amended Annex A, effective July 29, 2019, to the Supplement to the Custody Agreement – Hong Kong – China Connect Service, dated April 29, 2016, between the Registrant and The Bank of New York Mellon – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed on March 19, 2024 and incorporated herein by reference.
(f)Supplement to the Custody Agreement – Hong Kong – China Connect Service, dated June 2, 2016, between the Registrant and The Bank of New York Mellon – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed on March 19, 2024 and incorporated herein by reference.
(g)Supplement to the Custody Agreement – Hong Kong – China Connect Service, dated April 1, 2019, between the Registrant and The Bank of New York Mellon – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed on March 19, 2024 and incorporated herein by reference.
(h)Amended and Restated Annex A, effective July 1, 2019, to the Custody Agreement – Hong Kong – China Connect Service, dated April 1, 2019, between the Registrant and The Bank of New York Mellon – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed on March 19, 2024 and incorporated herein by reference.
(i)Amendment, dated October 16, 2019, to the Multi-Broker Supplement to the Custody Agreement – Hong Kong – China Connect Service dated January 31, 2017 – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed on March 19, 2024 and incorporated herein by reference.
(j)Supplement to the Custody Agreement – Hong Kong – China Stock Connect Service, dated November 19, 2018, between the Registrant and The Bank of New York Mellon – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed on March 19, 2024 and incorporated herein by reference.
(k)Amended and Restated Annex A, effective February 1, 2023, to the Supplement to the Custody Agreement – Hong Kong – China Stock Connect Service, dated November 19, 2018, between the Registrant and The Bank of New York Mellon – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed on March 19, 2024 and incorporated herein by reference.
(l)Amendment, dated February 1, 2023, to the Multi-Broker Supplement to the Custody Agreement – Hong Kong – China Connect Service dated January 31, 2017 – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed on March 19, 2024 and
2
incorporated herein by reference.
(2)Foreign Custody Manager Agreement with The Bank of New York Mellon, dated January 6, 2003 – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed on March 19, 2024 and incorporated herein by reference.
(b)Amendment, dated September 6, 2012, to the Foreign Custody Manager Agreement with The Bank of New York Mellon, dated January 6, 2003 – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed on March 19, 2024 and incorporated herein by reference.
(c)Amendment, dated July 13, 2021, to the Foreign Custody Manager Agreement with The Bank of New York Mellon, dated January 6, 2003 – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed on March 19, 2024 and incorporated herein by reference.
(d)Amendment, dated July 21, 2021, to the Foreign Custody Manager Agreement with The Bank of New York Mellon, dated January 6, 2003 – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed on March 19, 2024 and incorporated herein by reference.
(3)Securities Lending Agreement and Guaranty with The Bank of New York Mellon dated August 7, 2003 – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed on March 19, 2024 and incorporated herein by reference.
(a)Amended Schedule A, effective April 4, 2022, to the Securities Lending Agreement and Guaranty with The Bank of New York Mellon dated August 7, 2003 – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed on March 19, 2024 and incorporated herein by reference.
(b)Amendment, effective October 1, 2011, to the Securities Lending Agreement and Guaranty with The Bank of New York Mellon dated August 7, 2003 – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed on March 19, 2024 and incorporated herein by reference.
(c)Amendment, effective March 21, 2019, to the Securities Lending Agreement and Guaranty with The Bank of New York Mellon dated August 7, 2003 (Article IV) – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed on March 19, 2024 and incorporated herein by reference.
(d)Amendment, effective March 26, 2019, to the Securities Lending Agreement and Guaranty with The Bank of New York Mellon dated August 7, 2003 – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed on March 19, 2024 and incorporated herein by reference.
(e)Amendment, effective March 30, 2023, to the Securities Lending Agreement and Guaranty with The Bank of New York Mellon dated August 7, 2003 – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed on March 19, 2024 and
3
incorporated herein by reference.
(K)(1) Shareholder Service Plan for Class A shares effective May 1, 2024 – Filed herein.
(2)Service and Distribution Plan for Class C shares effective May 1, 2024 – Filed herein.
(3)Multiple Class Plan Pursuant to Rule 18f-3 for Voya Enhanced Securitized Income Fund, approved September 21, 2023 – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed on October 5, 2023 and incorporated herein by reference.
(5)Transfer Agency Services Agreement, dated February 25, 2009, between BNY Mellon Investment Servicing (US) Inc. (formerly, PNC Global Investment Servicing (U.S. Inc.) and the Registrant – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed on March 19, 2024 and incorporated herein by reference.
(a)Amendment, effective February 8, 2011, to the Transfer Agency Services Agreement, dated February 25, 2009, between BNY Mellon Investment Servicing (US) Inc. and the Registrant – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed on March 19, 2024 and incorporated herein by reference.
(b)Amendment, effective January 1, 2019, to the Transfer Agency Services Agreement, dated February 25, 2009, between BNY Mellon Investment Servicing (US) Inc. and the Registrant – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed on March 19, 2024 and incorporated herein by reference.
(c)Amendment, effective May 1, 2019, to the Transfer Agency Services Agreement, dated February 25, 2009, between BNY Mellon Investment Servicing (US) Inc. and the Registrant – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed on March 19, 2024 and incorporated herein by reference.
(d)Amendment, effective November 5, 2019, to the Transfer Agency Services Agreement, dated February 25, 2009, between BNY Mellon Investment Servicing (US) Inc. and the Registrant – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed on March 19, 2024 and incorporated herein by reference.
(e)Amendment, effective May 1, 2020, to the Transfer Agency Services Agreement, dated February 25, 2009, between BNY Mellon Investment Servicing (US) Inc. and the Registrant – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed on March 19, 2024 and incorporated herein by reference.
(f)Amendment, effective April 4, 2022, to the Transfer Agency Services Agreement, dated February 25, 2009, between BNY Mellon Investment Servicing (US) Inc. and the Registrant – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File
4
No. 811-23903), filed on March 19, 2024 and incorporated herein by reference.
(g)Amendment, effective October 21, 2022, to the Transfer Agency Services Agreement, dated February 25, 2009, between BNY Mellon Investment Servicing (US) Inc. and the Registrant – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed on March 19, 2024 and incorporated herein by reference.
(h)Amendment, effective November 18, 2022, to the Transfer Agency Services Agreement, dated February 25, 2009, between BNY Mellon Investment Servicing (US) Inc. and the Registrant – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed on March 19, 2024 and incorporated herein by reference.
(i)Amendment, effective November 21, 2022, to the Transfer Agency Services Agreement, dated February 25, 2009, between BNY Mellon Investment Servicing (US) Inc. and the Registrant – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed on March 19, 2024 and incorporated herein by reference.
(j)Amendment, effective February 9, 2023, to the Transfer Agency Services Agreement, dated February 25, 2009, between BNY Mellon Investment Servicing (US) Inc. and the Registrant – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed on March 19, 2024 and incorporated herein by reference.
(6)Fund Accounting Agreement with the Bank of New York Mellon, dated January 6, 2003 – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed on March 19, 2024 and incorporated herein by reference.
(b)Investment Company Reporting Modernization Services Amendment, dated February 1, 2018 to Fund Accounting Agreement with the Bank of New York Mellon, dated January 6, 2003 – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811- 23903), filed on March 19, 2024 and incorporated herein by reference.
(c)Amendment, dated January 1, 2019, to Fund Accounting Agreement with the Bank of New York Mellon, dated January 6, 2003 – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed on March 19, 2024 and incorporated herein by reference.
(d)Amendment, effective November 21, 2022, to the Fund Accounting Agreement with the Bank of New York Mellon, dated January 6, 2003 – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed on March 19, 2024 and incorporated herein by reference.
5
(7)Allocation Agreement – Directors & Officers Liability, dated May 24, 2002 – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed on March 19, 2024 and incorporated herein by reference.
(a)Amended Schedule A to the Allocation Agreement – Directors & Officers Liability, dated May 24, 2002 – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811- 23903), filed on March 19, 2024 and incorporated herein by reference.
(8)Allocation Agreement, dated May 24, 2002 (Fidelity Bond) – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No.
811-23903), filed on March 19, 2024 and incorporated herein by reference.
(a)Amended Schedule A, dated July 21, 2021, to the Allocation Agreement, dated May 24, 2002 (Fidelity Bond) – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811- 23903), filed on March 19, 2024 and incorporated herein by reference.
(9)Amended and Restated Proxy Agent Fee Allocation agreement, effective August 21, 20023, as amended and restated on January 1, 2008 between the Registrant, Voya Investments, LLC and Voya Investment Management Co. LLC – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed on March 19, 2024 and incorporated herein by reference.
(a)Amended Schedule A to the Amended and Restated Proxy Agent Fee Allocation agreement, effective August 21, 2023, as amended and restated on January 1, 2008 between the Registrant, Voya Investments, LLC and Voya Investment Management Co. LLC – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed on March 19, 2024 and incorporated herein by reference.
(10)Global Industry Classification Standards Services Fee Allocation Agreement, dated May 1, 2007, between the Registrant, ING Funds Services, LLC, ING Funds Distributor, LLC and Morgan Stanley Capital International, Inc. – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed on March 19, 2024 and incorporated herein by reference.
(a)Amended Schedule A to the Global Industry Classification Standards Services Fee Allocation Agreement, dated May 1, 2007, between the Registrant, ING Funds Services, LLC, ING Funds Distributor, LLC and Morgan Stanley Capital International, Inc. – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed on March 19, 2024 and incorporated herein by reference.
(11)Amended and Restated Investment Company Institute Fee Allocation Agreement, effective March 24, 2004, as amended and restated on January 1, 2007 – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed on March 19, 2024 and incorporated herein by reference.
(a)Amended Schedule A to the Amended and Restated Investment Company Institute Fee Allocation Agreement, effective March 24, 2004, as amended and restated on January 1, 2007 – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed on March 19, 2024 and incorporated herein by reference.
(12)FT Interactive Fee Allocation agreement, dated August 21, 2003, between the Registrant and Voya Investments, LLC – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed
6
on March 19, 2024 and incorporated herein by reference.
(a)Amended Schedule A to FT Interactive Fee Allocation agreement, dated August 21, 2003, between the Registrant and Voya Investments, LLC – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed on March 19, 2024 and incorporated herein by reference.
(13)Fund Administration Support Services Agreement between Voya Investments, LLC and The Bank of New York Mellon (Redacted) effective July 29, 2022, between Voya Investments, LLC and The Bank of New York Mellon – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811- 23903), filed on March 19, 2024 and incorporated herein by reference.
(L)(1) Opinion and Consent of Ropes & Gray LLP regarding Registration of Voya Enhanced Securitized Income Fund (Class A, Class C and Class I Shares) – Filed as an exhibit to the Registrant’s Registration Statement under the 1940 Act on Form N-2 (File No. 811-23903), filed on March 19, 2024 and incorporated herein by reference.
(M)Not Applicable
(N)(1) Consent of Ropes & Gray LLP – To be filed in subsequent post-effective amendment.
(2)Consent of Independent Registered Accounting Firm – To be filed in subsequent post- effective amendment.
(O)Not Applicable
(P)Not Applicable
(Q)Not Applicable
(R)Voya Funds and Advisers Code of Ethics Amended January 6, 2025 – Filed herein.
(S)Not Applicable.
ITEM 26. MARKETING ARRANGEMENTS
Not Applicable.
ITEM 27. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Not Applicable.
ITEM 28. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
Not Applicable.
ITEM 29. NUMBER OF HOLDERS OF SECURITIES
Set forth below is the number of record holders as of May 15, 2025 of each class of securities of the Registrant.
Title of Class |
Number of Record Holders |
|
Class A Shares |
[ |
] |
Class C Shares |
[ |
] |
Class I Shares |
[ |
] |
ITEM 30. INDEMNIFICATION
Section 8.2 of the Agreement and Declaration of Trust provides: The Trustees shall not be responsible or liable in any event for any neglect or wrong-doing of any officer, agent, employee, Manager or Principal
7
Underwriter of the Fund, nor shall any Trustee be responsible for the act or omission of any other Trustee, and the Fund out of its assets shall indemnify, defend and hold harmless each and every Trustee from and against any and all claims and demands whatsoever arising out of or related to each Trustee’s performance of his or her duties as a Trustee of the Fund; provided, however, that the Fund shall not indemnify a Trustee against liability caused by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office.
Every note, bond, contract, instrument, certificate or undertaking, and every other act or thing whatsoever issued, executed or done by or on behalf of the Fund or the Trustees or any of them, in connection with the Fund shall be conclusively deemed to have been issued, executed or done only in or with respect to their or his or her capacity as Trustees or a Trustee, and such Trustees or Trustee shall not be personally liable thereon.
Section 8.3 of the Agreement and Declaration of Trust provides: The exercise by the Trustees of their powers and discretion hereunder shall be binding upon everyone interested. A Trustee shall be liable to the Fund and to any Shareholder solely for his or her own willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of the office of Trustee, and shall not be liable for errors of judgment or mistakes of fact or law. In performing their duties, the Trustees may rely on any information, advice, opinion, report or statement (including without limiting the generality of the foregoing any financial statement or other financial data and any interpretation of the meaning and operation of the Fund’s governing documents), prepared or presented by an officer or employee of the Fund, or prepared or presented by a lawyer, certified public accountant or other person as a matter which a Trustee believes to be within the person’s professional or expert competence and the Trustees shall be under no liability for any act or omission in accordance with any such information advice, opinion, report or statement nor failing to rely on or follow such information, advice, opinion, report or statement. The Trustees shall not be required to give any bond as such, nor any surety if a bond is required.
Section 8.4 of the Agreement and Declaration of Trust provides: The Trustees shall be entitled and empowered to the fullest extent permitted by law to purchase with Fund assets insurance for liability and for all expenses reasonably incurred or paid or expected to be paid by a Trustee in connection with any claim, action, suit or proceeding in which he or she becomes involved by virtue of his or her capacity or former capacity with the Fund, whether or not the Fund would have the power to indemnify him or her against such liability under the provisions of this Article.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to Trustees, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment of the Registrant of expenses incurred or paid by a Trustee, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such Trustee, officer or controlling person in connection with the securities being registered, the Registrant will submit, unless in the opinion of its counsel the matter has been settled by controlling precedent, to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
ITEM 31. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT MANAGER
Information as to the Trustees and officers of the investment adviser, together with information as to any other business, profession, vocation or employment of a substantial nature engaged in by the directors and officers of the Investment Manager in the last two years, is included in its application for registration as
8
an investment adviser on Form ADV for Voya Investments, LLC (File No. 801-48282) filed under the Investment Advisers Act of 1940, as amended (“Advisers Act”), and is incorporated herein by reference thereto.
Information as to the directors and officers of the sub-adviser, together with information as to any other business, profession, vocation or employment of a substantial nature engaged in by the directors and officers of the sub-adviser in the last two years, is included in its application for registration as an investment adviser on Form ADV for Voya Investment Management Co. LLC (File No. 801-9046) filed under the Investment Advisers Act of 1940, as amended, and is incorporated by reference thereto.
ITEM 32. LOCATION OF ACCOUNTS AND RECORDS
The amounts and records of the Registrant will be maintained at its office at 7337 East Doubletree Ranch Road, Suite 100, Scottsdale, Arizona 85258 and at the office of its custodian, Bank of New York Mellon, 225 West Liberty Street, New York, New York 10286.
ITEM 33. MANAGEMENT SERVICES
Not Applicable.
ITEM 34. UNDERTAKINGS
1.Not Applicable.
2.Not Applicable.
3.The Registrant undertakes:
a.to file, during any period in which offers or sales are being made, a post-effective amendment to the registration statement:
1.To include any prospectus required by Section 10(a)(3) of the 1933 Act.
2.To reflect in the prospectus any facts or events after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.
3.To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.
b.That, for the purpose of determining any liability under the 1933 Act, each such post- effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of those securities at that time shall be deemed to be the initial bona fide offering thereof; and
c.To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
d.Each prospectus filed pursuant to Rule 424(b) under the 1933 Act as part of a registration statement relating to an offering, other than registration statements relying
9
on Rule 430B or other than prospectuses filed in reliance on Rule 430A under the 1933 Act, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
e.That for the purpose of determining liability of the Registrant under the 1933 Act to any purchaser in the initial distribution of securities:
The undersigned Registrant undertakes that in a primary offering of securities of the undersigned Registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned Registrant will be a seller to the purchaser and will be considered to offer or sell such securities to the purchaser:
1.any preliminary prospectus or prospectus of the undersigned Registrant relating to the offering required to be filed pursuant to Rule 424 under the 1933 Act;
2.the portion of any advertisement pursuant to Rule 482 under the 1933 Act relating to the offering containing material information about the undersigned Registrant or its securities provided by or on behalf of the undersigned Registrant; and
3.any other communication that is an offer in the offering made by the undersigned Registrant to the purchaser.
4.Not Applicable.
5.Not Applicable.
6.Insofar as indemnification for liabilities arising under the 1933 Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
7.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.
10
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended (the “1933 Act”), and/or the Investment Company Act of 1940, as amended, the Registrant has duly caused this Post-Effective Amendment No.
1 to its Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Scottsdale
and the state of Arizona on the 11th day of April, 2025.
VOYA ENHANCED SECURITIZED INCOME FUND
By: /s/ Gizachew Wubishet
Gizachew Wubishet
Assistant Secretary
Assistant Secretary
Pursuant to the requirements of the 1933 Act, this Registration Statement has been
signed below by the following persons in the capacities and on the date indicated.
|
SIGNATURE
|
TITLE
|
DATE
|
|
___________________
Christian G. Wilson*
|
President and Chief/Principal Executive Officer
|
April 11, 2025
|
|
___________________
Todd Modic*
|
Senior Vice President,
Chief/Principal Financial Officer and Assistant
Secretary
|
April 11, 2025
|
|
___________________
Fred Bedoya*
|
Vice President, Treasurer and Principal Accounting
Officer
|
April 11, 2025
|
|
___________________
Colleen D. Baldwin
|
Trustee
|
April 11, 2025
|
|
___________________
John V. Boyer*
|
Trustee
|
April 11, 2025
|
|
___________________
Martin J. Gavin*
|
Trustee
|
April 11, 2025
|
|
___________________
Joseph E. Obermeyer*
|
Trustee
|
April 11, 2025
|
|
___________________
Sheryl K. Pressler
|
Trustee
|
April 11, 2025
|
|
___________________
Christopher P. Sullivan*
|
Trustee
|
April 11, 2025
|
*By: /s/ Gizachew Wubishet
Gizachew Wubishet
Attorney-in-Fact**
Attorney-in-Fact**
**
Powers of Attorney for Todd Modic, Fred Bedoya, John V. Boyer, Martin J. Gavin, Joseph
E. Obermeyer and Christopher P. Sullivan were filed as attachments to the Registrant’s Registration Statement on October 5, 2023 and are incorporated herein by reference. Power of Attorney for Colleen D. Baldwin was filed as attachment to the Registrant’s Registration Statement on March 19, 2024 and is incorporated herein by reference. Power of attorney for Christian G. Wilson is attached hereto.
ATTACHMENTS / EXHIBITS
(I)(1) VOYA DEFERRED COMP PLAN
(J)(3)(F) 2024-09-25_VOYA FUNDS_SLA AMENDMENT
(K)(5)(K) VOYA-BNYM TA AGMT (UNIFIED) - AMENDMENT
XBRL TAXONOMY EXTENSION SCHEMA
XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
XBRL TAXONOMY EXTENSION LABEL LINKBASE
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