Blackstone is committed to protecting and respecting your privacy. Blackstone is a global financial services firm with offices, operations and entities
globally, including as described at this link: https://www.blackstone.com/privacy#appendixA.
When you provide us with your Personal Data, each Fund Party that decides how and why Personal Data is processed acts as a data controller.
In simple terms, this means that the Fund Party makes certain decisions on how to use and protect your Personal Data but only to the extent that we have informed you about the use or are otherwise permitted by law.
Where your Personal Data is processed by an entity controlled by, or under common control with, the Blackstone entity/ies managing a Fund for its own
purposes, this entity will also be a data controller.
The types of Personal Data that we collect and share depends on the product or service you have with us and the nature of your investment.
The Personal Data collected about you will help us to provide you with a better service and facilitate our business relationship.
We may combine Personal Data that you provide to us with Personal Data that we collect from you, or about you from other sources, in some circumstances. This
will include Personal Data collected in an online or offline context.
As a result of our relationship with you as an investor, in the past 12 months we may have collected Personal
Data concerning you in the following categories:
We collect, and have collected, Personal Data about you from a number of sources, including from you directly:
We monitor communications where the law requires us to do so. We will also monitor where we are required to do so to comply with our regulatory rules and
practices and, where we are permitted to do so, to protect our business and the security of our systems.
For California residents, in the preceding 12 months, we may have disclosed Personal Data listed in any of the categories in section 3 above for a business
purpose (in particular, as described in this section).
We have not sold Personal Data in the 12 months preceding the date of this Data Privacy Notice.
Unless otherwise indicated, you should assume that we require the Personal Data for business and/or compliance purposes.
Some of the Personal Data that we request is necessary for us to perform our contract with you and if you do not wish to provide us with this Personal Data,
it will affect our ability to provide our services to you and manage your investment.
We will transfer your Personal Data between different countries to our affiliates and group members, members of the Funds partnership, transaction
counterparties, and third party service providers. These countries may not have similarly strict data protection and privacy laws, and will include those countries in which our affiliates and service providers operate (and may include, for example,
transfers from the UK/EEA, Cayman Islands, Australia, Hong Kong, Japan or Singapore to a jurisdiction outside of such territory).
Where we transfer
Personal Data to other members of our group, our service providers or another third party recipient from one country to another, we will ensure that our arrangements with them are governed by data transfer agreements or appropriate safeguards,
designed to ensure that your Personal Data is protected as required
under applicable data protection law (including, where appropriate, under an agreement on terms approved for this purpose by the European Commission or by obtaining your consent).
Except as may otherwise be required by local law, we do not generally rely on obtaining your consent to process your Personal Data. In particular, we do not
generally rely on obtaining your consent where our processing of your personal data is subject only to the data protection laws of the UK/EEA (in these circumstances we will usually rely on another legal basis more appropriate in the circumstances,
including those set out in section 5 above). If we do rely on consent for processing of your Personal Data, you have the right to withdraw this consent at any time. Please contact us or send us an email at
PrivacyQueries@Blackstone.comat any time if you wish to do so.
Where required by applicable law, we will obtain your consent for the processing of
your Personal Data for direct marketing purposes. If you do receive direct marketing communications from us (for example, by post, email, fax or telephone), you may opt-out by clicking the link in the relevant communication, completing the forms
provided to you (where relevant), or by contacting us (see paragraph 13 below).
We keep your Personal Data for as long as it is required by us for our legitimate business purposes, to perform our contractual obligations or, where longer,
such longer period as is required or permitted by law or regulatory obligations which apply to us.
As a general principle, we do not retain your Personal Data for longer than we need it.
We will usually delete your Personal Data (at the latest) after you cease to be an investor in any fund and there is no longer any legal/regulatory
requirement, or business purpose, for retaining your Personal Data.
You may, subject to certain limitations, have data protection rights depending on the data protection laws that apply to our processing of your Personal Data,
including the right to:
You also have the right in some circumstances to request us to port your Personal Data in a portable,
re-usable format to other organisations (where this is possible).
California residents may also request certain
information about our disclosure of Personal Data during the prior year, including category information (as defined above).
We review and verify requests
to protect your Personal Data, and will action data protection requests fairly and in accordance with applicable data protection laws and principles.
If
you wish to exercise any of these rights, please contact us (details below).
We take your concerns very seriously. We encourage you to bring it to our attention if you have any concerns about our processing of your Personal Data. This
Data Privacy Notice was drafted with simplicity and clarity in mind. We are, of course, happy to provide any further information or explanation needed. Our contact details are below.
Please also contact us via any of the below contact methods if you have a disability and require an alternative format of this Data Privacy Notice
If you want to make a complaint, you can also contact the body regulating data protection in your country, where you live or work, or the location where the
data protection issue arose. In particular:
Please contact us if you have any questions about this Data Privacy Notice or the Personal Data we hold about you.
A list of country-specific addresses and contacts for locations where we operate is available at
https://www.blackstone.com/privacy#appendixA.
We keep this Data Privacy Notice under regular review. Please check regularly for any updates at our investor portal (www.bxaccess.com).
The Funds common shares of beneficial interest (Common Shares) are listed on the New York Stock Exchange (the
Exchange) and trade under the ticker symbol BGX. The net asset value (NAV) of the Common Shares at the close of business
on , 2021 was $ per share, and the last sale price per share of the Common Shares
on the Exchange on that date was $ . Shares of closed-end funds often trade at a discount from NAV.
You should read this Prospectus Supplement and the accompanying Prospectus (which includes a Statement of Additional Information,
dated , 2021, containing additional information about the Fund, which has been filed with the Securities and Exchange Commission (the SEC)
and, as amended from time to time, is incorporated by reference in its entirety into this Prospectus. You may request a free copy of the Statement of Additional Information, annual and semi-annual reports to shareholders (when available), and
additional information about the Fund and make shareholder inquiries by calling toll-free (800) 522-6645, by writing to the Fund or visiting the Funds website (http://www.blackstone.com/bgx/). You can
access the same documents, including any materials incorporated by reference, free from the SECs website (http://www.sec.gov). You may also e-mail requests for these documents to publicinfo@sec.gov.
[We have granted the underwriters an option to purchase up to an additional Common Shares at the public
offering price, less the underwriting discount, to cover over-allotments, if any, within days from the date of this Prospectus Supplement. If the underwriters exercise the option in full, the total underwriting discount will be
$ , and the proceeds, before expenses, to us will be $ .]
The Funds securities do not represent a deposit or obligation of, and are not guaranteed or endorsed by, any bank or other insured
depository institution, and are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency.
Capitalized terms used herein that are not otherwise defined shall have the meanings assigned to them in the accompanying Prospectus.
This Prospectus Supplement, the accompanying Prospectus and the SAI
contain forward-looking statements. All statements other than statements of historical facts included in this Prospectus Supplement and the accompanying Prospectus that address activities, events or developments that we expect, believe or anticipate
will or may occur in the future are forward-looking statements including, in particular, the statements about our plans, objectives, strategies and prospects regarding, among other things, our financial condition, results of operations and business.
We have identified some of these forward-looking statements with words like believe, may, could, might, forecast, possible, potential, project,
will, should, expect, intend, plan, predict, anticipate, estimate, approximate or continue and other words and terms of similar
meaning and the negative of such terms. Such forward-looking statements may be contained in this Prospectus Supplement as well as in the accompanying Prospectus and the SAI. These forward-looking statements are based on current expectations about
future events affecting us and are subject to uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Many factors mentioned in our discussion in
this Prospectus Supplement and the accompanying Prospectus, including the risks outlined under Risks in the accompanying Prospectus, will be important in determining future results.
Although we believe that the expectations reflected in our forward-looking statements are reasonable, we do not know whether our expectations
will prove correct. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. The factors identified above are believed to be important factors, but not necessarily all of the important factors,
that could cause our actual results to differ materially from those expressed in any forward-looking statement. Unpredictable or unknown factors could also have material adverse effects on us. Since our actual results, performance or achievements
could differ materially from those expressed in, or implied by, these forward-looking statements, we cannot give any assurance that any of the events anticipated by the forward-looking statements will occur or, if any of them do, what impact they
will have on our results of operations and financial condition. All forward-looking statements included in this Prospectus Supplement, the accompanying Prospectus or the SAI are expressly qualified in their entirety by the foregoing cautionary
statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of such documents. We do not undertake any obligation to update, amend or clarify these forward-looking statements or the
risk factors contained therein, whether as a result of new information, future events or otherwise, except as may be required under the federal securities laws. The forward-looking statements in this Prospectus Supplement, the accompanying
Prospectus and the SAI are excluded from the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended.
The purpose of the following table and example is to help you understand all fees and expenses holders of Common Shares of the Fund
(common shareholders) would bear directly or indirectly. The table below is based on the capital structure of the Fund as of (except as noted below).
As required by the relevant SEC regulations, the following example illustrates the expenses that you would pay on a $1,000 investment in the
Funds Common Shares assuming (i) total annual expenses of % of net assets attributable to the Funds Common Shares, (ii) a 5% annual return and (iii) reinvestment of all dividends and distributions at
NAV:
Unless otherwise specified in a Prospectus Supplement, the Fund intends to invest the net proceeds of any offering of its securities in
accordance with its investment objectives and policies as stated herein. It is currently anticipated that the Fund will be able to invest substantially all of the net proceeds in accordance with its investment objectives and policies within thirty
days after the completion of any offering. Pending such investment, it is anticipated that the proceeds will be primarily invested in high yield securities or high-grade, short-term securities.
CAPITALIZATION
The following table sets forth our capitalization (i) as
of , and (ii) as adjusted to give effect to the
issuance of the Common Shares offered hereby. As indicated below, common shareholders will bear the offering costs associated with this offering.
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Actual
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As Adjusted
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(Unaudited)
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Cash
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Total Debt:
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Senior Secured Notes
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Loan Payable
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Net Assets:
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Common Shares ($0.001 par value,
shares authorized, shares issued and outstanding (actual),
shares issued and outstanding (as adjusted) and issued
and outstanding (as further adjusted))
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Paid-in capital in excess of par value
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Accumulated net investment loss, net of income taxes
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Accumulated net realized gain on investments, net of income taxes
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Net unrealized gains on investments, net of income taxes
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Total Net Assets
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S-5
DISTRIBUTIONS
The Fund makes regular monthly cash distributions of all or a portion of its net investment income to common shareholders. The Fund pays
common shareholders at least annually all or substantially all of its net investment income after the payment of interest, fees or dividends, if any, owed with respect to any forms of leverage utilized by the Fund. The Fund pays any capital gains
distributions at least annually. The Fund utilizes a dynamic distribution strategy that is based on the net income earned by the Fund. The Fund declares a set of monthly distributions each quarter in amounts closely tied to the
Funds recent average monthly net income. As a result, the monthly distribution amounts for the Fund typically vary quarter-to-quarter. The following table sets
forth information about distributions we paid to our common shareholders during the past three fiscal years, percentage participation by common shareholders in our DRIP, and reinvestments and related issuances of additional Common Shares as a result
of such participation (the information in the table is unaudited):
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Distribution Payable Date
to Common Shareholders
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Amount of
Distribution
Per Share
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Percentage of Common
Shareholders Electing
to Participate in DRIP
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Amount of
Corresponding
Reinvestment
through DRIP
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Additional Common Shares
Issued through DRIP
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$
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%
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$
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The U.S. federal income tax treatment and characterization of the Funds distributions may vary
significantly from time to time because of the varied nature of the Funds investments. In light of the Funds investment policies, the 1940 Act requires the Fund to accompany each monthly distribution with a statement setting forth the
estimated source (as between net income, capital gains and return of capital) of the distribution made. The Fund will indicate the proportion of its capital gains distributions that constitute long-term and short-term gains annually. The ultimate
U.S. federal income tax characterization of the Funds distributions made in a calendar or fiscal year cannot finally be determined until after the end of that taxable year. As a result, there is a possibility that the Fund may make total
distributions during a calendar or taxable year in an amount that exceeds the Funds net investment company taxable income and net capital gains for the relevant taxable year. In such situations, if a distribution exceeds the Funds
current and accumulated earnings and profits (as determined for U.S. federal income tax purposes), such distribution would generally be treated as a tax-free return of capital reducing the amount of a
shareholders tax basis in such shareholders shares. When you sell your Common Shares in the Fund, the amount, if any, by which your sales price exceeds your basis in the Funds Common Shares is gain subject to tax. Because a return
of capital reduces your basis in the shares, it will increase the amount of your gain or decrease the amount of your loss when you sell the shares, all other things being equal. To the extent that the amount of any return of capital distribution
exceeds the shareholders basis in such shareholders shares, the excess will be treated as gain from a sale or exchange of the shares. See Tax Matters.
Various factors affect the level of the Funds income, including the asset mix, the average maturity of the Funds portfolio, the
amount of leverage utilized by the Fund and the Funds use of hedging. To permit the Fund to maintain a more stable monthly distribution, the Fund may from time to time distribute less than the entire amount of income earned in a particular
period. The undistributed income would be available to supplement future distributions. As a result, the distributions paid by the Fund for any particular monthly period may be more or less than the amount of income actually earned by the Fund
during that period. Undistributed income will add to the Funds NAV (and indirectly benefit the Adviser and ALPS by increasing their fees) and, correspondingly, distributions from undistributed income will reduce the Funds NAV.
Section 19(b) of the 1940 Act and Rule 19b-1 thereunder generally limit the Fund to one long-term
capital gain distribution per year, subject to certain exceptions.
S-6
MARKET AND NET ASSET VALUE INFORMATION
The Funds Common Shares are listed on the Exchange and trade under the ticker symbol BGX. Our Common Shares commenced
trading on the Exchange on January 27, 2011.
Our Common Shares have traded both at a premium and at a discount in relation to the
Funds NAV per share. We cannot predict whether our Common Shares will trade at a premium or discount to NAV in the future. Our issuance of additional Common Shares may have an adverse effect on prices in the secondary market for our Common
Shares by increasing the number of Common Shares available, which may create downward pressure on the market price for our Common Shares. Shares of closed-end investment companies frequently trade at a
discount to NAV. See RisksMarket Discount Risk.
The following table sets forth for each of the periods indicated the
range of high and low closing sale price of our Common Shares and the quarter-end sale price, each as reported on the Exchange, the NAV per share of Common Shares and the premium or discount to NAV per share
at which our Common Shares were trading. NAV is generally determined on each business day that the Exchange is open for business. See Net Asset Value for information as to the determination of our NAV.
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Quarterly Closing
Sale Price
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Quarter-End Closing
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High
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Low
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Sale Price
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Net Asset
Value Per
Share of
Common
Stock(1)
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Premium/
(Discount) of
Quarter-End
Sale Price
to Net Asset
Value(2)
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Fiscal Year 20[ ]
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Source of
market prices: Bloomberg.
(1)
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NAV per share is determined as of close of business on the last day of the relevant quarter and therefore may
not reflect the NAV per share on the date of the high and low closing sales prices, which may or may not fall on the last day of the quarter. NAV per share is calculated as described in Net Asset Value.
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(2)
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Calculated as of the quarter-end by dividing quarter-end closing sales price by the quarter-end NAV, minus 1.
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In recognition of the possibility that Common Shares might trade at a discount to NAV, the Board of Trustees of the Fund (the
Board) may consider one or more actions that might be taken to seek to reduce or eliminate any material discount from NAV in respect of Common Shares, which may include the repurchase of such shares in the open market or in private
transactions, the making of a tender offer for such shares or the conversion of the Fund to an open-end investment company. The Board may decide not to take any of these actions in the future. In addition, there can be no assurance any of these
actions, or others, if undertaken, will reduce market discount. See Closed-End Fund Structure and Repurchase of Common Shares.
On , the last reported sale price of our Common
Shares on the Exchange was $ , which represented a [premium/discount] of approximately % to the NAV per share reported by us on that date.
As of , we had
approximately Common Shares outstanding and we had net assets attributable to common shareholders of approximately
$ .
S-7
UNDERWRITING/PLAN OF DISTRIBUTION
[TO BE FURNISHED AT TIME OF OFFERING]
S-8
LEGAL MATTERS
Simpson Thacher & Bartlett LLP is counsel to the Fund. Richards, Layton & Finger, P.A. has opined on certain matters of Delaware law
relating to the offering of the securities and the legality of the securities to be offered hereby. has opined on certain matters in connection with the securities offered
hereby for the underwriters.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the Exchange Act) and the
Investment Company Act of 1940, as amended, and are required to file reports (including our annual and semi-annual reports), proxy statements and other information with the SEC. Our most recent shareholder report filed with the SEC is for the period
ended . Such reports, proxy statements and other information, as well as the registration statement and the amendments, exhibits and schedules thereto,
can be obtained free of charge from the SECs website at www.sec.gov. You may also e-mail requests for these documents to publinfo@sec.gov.
This Prospectus Supplement and the accompanying Prospectus do not contain all of the information in our registration statement, including
amendments, exhibits, and schedules. Statements in this Prospectus Supplement and the accompanying Prospectus about the contents of any contract or other document are not necessarily complete and in each instance reference is made to the copy of the
contract or other document filed as an exhibit to the registration statement, each such statement being qualified in all respects by this reference. Additional information about us can be found in our Registration Statement (including amendments,
exhibits, and schedules) on Form N-2 filed with the SEC. The SEC maintains a web site (www.sec.gov) that contains our Registration Statement, other documents incorporated by reference, and other information we
have filed electronically with the SEC, including proxy statements and reports filed under the Exchange Act.
S-9
[●] Shares
BLACKSTONE Long-Short Credit Income Fund
Common Shares
$[●] per Share
PROSPECTUS
SUPPLEMENT
[●], 202[●]
[Underwriter(s)]
The information in this Statement of Additional Information is not complete and may be
changed. We may not sell these securities until the Registration Statement filed with the Securities and Exchange Commission is effective. This Statement of Additional Information is not an offer to sell these securities and is not soliciting an
offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject to Completion Dated July 26, 2021
BLACKSTONE
LONG-SHORT
CREDIT INCOME FUND
STATEMENT OF ADDITIONAL INFORMATION
Blackstone Long-Short Credit Income Fund (the Fund) is a diversified, closed-end
management investment company. This Statement of Additional Information relating to the common shares of beneficial interest (Common Shares) of the Fund does not constitute a prospectus, but should be read in conjunction with the
prospectus relating thereto dated [ ], 2021 (Prospectus). This Statement of Additional Information, which is not a prospectus, does not
include all information that a prospective investor should consider before purchasing Common Shares, and investors should obtain and read the Prospectus prior to purchasing such shares. A copy of the Prospectus may be obtained without charge by
calling toll-free (844) 702-1299. You may also obtain a copy of the Prospectus on the Securities and Exchange Commissions Web site (http://www.sec.gov). Capitalized terms used but not defined in
this Statement of Additional Information have the meanings ascribed to them in the Prospectus.
This Statement of Additional Information
is dated [ ], 2021.
TABLE OF CONTENTS FOR THE STATEMENT OF ADDITIONAL INFORMATION
i
INVESTMENT OBJECTIVES
The Funds primary investment objective is to provide current income, with a secondary objective of capital appreciation. There can be no
assurance that the Fund will achieve its investment objectives.
INVESTMENT RESTRICTIONS
Fundamental Restrictions
Except as described below, the Fund, as a fundamental policy, may not, without the approval of the holders of a majority of the outstanding
Common Shares and preferred Shares (Preferred Shares and collectively with Common Shares, the Shares), if any, voting together as a single class, and of the holders of a majority of the outstanding Shares, voting as a
separate class:
(1) invest 25% or more of the value of its total assets in any one industry, provided that securities
issued or guaranteed by the U.S. government or its agencies or instrumentalities (U.S. government securities) and tax-exempt securities of governments or their political subdivisions will not be
considered to represent an industry;
(2) issue senior securities or borrow money to purchase additional securities other
than as permitted by the Investment Company Act of 1940, as amended (the 1940 Act);
(3) make loans to other
persons, except as permitted by (i) the 1940 Act, or interpretations or modifications by the Securities and Exchange Commission (the SEC), the SEC staff or other authority with appropriate jurisdiction, or (ii) exemptive or
other relief or permission from the SEC, the SEC staff or other authority;
(4) underwrite the securities of other issuers,
except to the extent that, in connection with the disposition of portfolio securities or the sale of its own securities, the Fund may be deemed to be an underwriter;
(5) purchase or sell real estate, except that the Fund may invest in securities or other interests of companies that deal in
real estate or are engaged in the real estate business and instruments secured by real estate or interests therein, and the Fund may acquire, hold and sell real estate acquired through default, liquidation, or other distributions of an interest in
real estate as a result of the Funds ownership of such other assets; or
(6) purchase or sell physical commodities
unless acquired as a result of ownership of securities or other instruments (but this shall not prevent the Fund from purchasing or selling options, futures contracts or derivative instruments or from investing in securities or other instruments
backed by physical commodities).
For purposes of applying the limitation set forth in subparagraph (1) above, securities of the U.S.
government, its agencies or instrumentalities and securities backed by the credit of a U.S. governmental entity are not considered to represent industries. If the Fund were to concentrate its investments in a particular industry,
investors would be exposed to greater risks because the Funds performance would be largely dependent on that industrys performance.
With respect to the limitation regarding the issuance of senior securities set forth in subparagraph (2) above, senior
securities are defined as any bond, debenture, note, or similar obligation or instrument constituting a security and evidencing indebtedness, and any stock of a class having priority over any other class as to distribution of assets or payment
of dividends.
The ability of a closed-end fund to issue senior securities is severely
circumscribed by complex regulatory constraints under the 1940 Act that restrict, for instance, the amount, timing and form of senior securities that
1
may be issued. Certain portfolio management techniques, such as credit default swaps, the purchase of securities on margin, short sales or the writing of puts on portfolio securities, may be
considered senior securities unless appropriate steps are taken to segregate the Funds assets or otherwise cover its obligations. To the extent the Fund covers its commitment under these transactions, including by the segregation of liquid
assets, equal in value to the amount of the Funds commitment, such instrument will not be considered a senior security by the Fund and therefore will not be subject to the 300% asset coverage requirement otherwise applicable to
borrowings by the Fund.
Under the Investment Company Act, a senior security does not include 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.
Section 18(a) of the 1940 Act requires certain actions by the Fund if its asset coverage
falls below certain levels. Under the 1940 Act, the Fund is not permitted to issue Preferred Shares unless immediately after such issuance the value of the Funds total assets, less all liabilities and indebtedness of the Fund other than senior
securities, is at least 200% of the liquidation value of the outstanding Preferred Shares (i.e., the liquidation value may not exceed 50% of the Funds total assets, less all liabilities and indebtedness of the Fund other than senior
securities). In addition, the Fund is not permitted to declare any cash dividend or other distribution on its Common Shares unless, at the time of such declaration, the value of the Funds total assets is at least 200% of the liquidation value
of its outstanding Preferred Shares plus its outstanding liabilities and indebtedness. If Preferred Shares are issued, the Fund may purchase or redeem Preferred Shares from time to time to the extent necessary in order to maintain assets coverage of
any Preferred Shares of at least 200%.
The 1940 Act requires the Fund to maintain at all times an asset coverage of at least 300% of the
amount of its borrowings. For the purpose of borrowing money, asset coverage means the ratio that the value of the Funds total assets, minus liabilities other than borrowings, bears to the aggregate amount of all borrowings.
Certain trading practices and investments may be considered to be borrowings and thus subject to the 1940 Act restrictions. On the other hand, certain practices and investments may involve leverage but are not considered to be borrowings under the
1940 Act.
With respect to the limitation regarding making loans to other persons set forth in subparagraph (3) above, the 1940 Act
does not prohibit a fund from making loans; however, SEC staff interpretations currently prohibit funds from lending more than one third of their total assets, except through the purchase of debt obligations or the use of repurchase agreements. A
repurchase agreement is an agreement to purchase a security, coupled with an agreement to sell that security back to the original seller on an agreed-upon date at a price that reflects current interest rates. The SEC frequently treats repurchase
agreements as loans.
With respect to the limitation regarding underwriting the securities of other issuers set forth in
subparagraph (4) above, a technical provision of the Securities Act of 1933, as amended (the Securities Act) deems certain persons to be underwriters if they purchase a security from an issuer and later sell it to the
public. Although it is not believed that the application of this Securities Act provision would cause a fund to be engaged in the business of underwriting, the policy set forth in subparagraph (4) will be interpreted not to prevent the Fund
from engaging in transactions involving the acquisition or disposition of portfolio securities, regardless of whether the Fund may be considered to be an underwriter under the Securities Act. Under the Securities Act, an underwriter may be liable
for material omissions or misstatements in an issuers registration statement or prospectus.
When used with respect to particular
Shares of the Fund, majority of the outstanding voting securities means (i) 67% or more of the Shares present at a meeting of shareholders, if the holders of more than 50% of the Shares are present or represented by proxy or
(ii) more than 50% of the Shares, whichever is less. Except for the fundamental policies disclosed above, all other policies of the Fund disclosed herein and in the Prospectus are non-fundamental policies which may be changed by the Board of
Trustees of the Fund (the Board) without shareholder approval.
2
Non-Fundamental Restrictions
The Funds (1) investment objectives and (2) policy to invest at least 80% of its net assets, plus the amount of any borrowings
for investment purposes, in credit investments, including, but not limited to, loans and fixed income instruments, are not fundamental and may be changed by the Board without the approval of the holders of a majority of the outstanding Shares. The
Fund will provide shareholders with at least 60 days written notice prior to changing the non-fundamental policy in (2) above.
In addition, to comply with U.S. federal income tax requirements for qualification as a regulated investment company, the Funds
investments will be limited in a manner such that at the close of each quarter of each taxable year, (a) no more than 25% of the value of the Funds total assets are invested (i) in the securities (other than U.S. government
securities or securities of other regulated investment companies) of a single issuer or two or more issuers controlled (by owning 20% or more of their voting power) by the Fund and determined to be engaged in the same, similar or related trades or
businesses or (ii) in the securities of one or more qualified publicly traded partnerships (as defined under Section 851(h) of the Internal Revenue Code of 1986, as amended (the Code)) and (b) with regard to at
least 50% of the value of the Funds total assets, no more than 5% of the value of its total assets are invested in the securities (other than U.S. government securities or securities of other regulated investment companies) of a single issuer
and no investment in any such securities represents more than 10% of the outstanding voting securities of such issuer. These tax-related limitations may be changed by the Board only to the extent appropriate
in light of changes to applicable tax requirements.
The percentage limitations applicable to the Funds portfolio described in the
Prospectus and this Statement of Additional Information apply only at the time of investment and the Fund will not be required to sell securities due to subsequent changes in the value of securities it owns.
INVESTMENT POLICIES AND TECHNIQUES
The following information supplements the discussion of the Funds investment policies and techniques in the Prospectus.
Portfolio Contents
Secured Loans
A Secured Loan is typically originated, negotiated and structured by a U.S. or foreign commercial bank, insurance company, finance
company or other financial institution (the Agent) for a group of loan investors (Loan Investors). The Agent typically administers and enforces the Secured Loan on behalf of the other Loan Investors in the syndicate. In
addition, an institution, typically but not always the Agent, holds any collateral on behalf of the Loan Investors.
Secured Loans
primarily include senior floating rate loans to corporations and secondarily institutionally traded senior floating rate debt obligations issued by an asset-backed pool and interests therein. Loan interests primarily take the form of assignments
purchased in the primary or secondary market. Loan interests may also take the form of participation interests in a Secured Loan. Such loan interests may be acquired from U.S. or foreign commercial banks, insurance companies, finance companies or
other financial institutions who have made loans or are Loan Investors or from other investors in loan interests.
The Fund may purchase
Assignments from the Agent or other Loan Investors. The purchaser of an Assignment typically succeeds to all the rights and obligations under the Loan Agreement (as defined herein) of the assigning Loan Investor and becomes a Loan
Investor under the Loan Agreement with the same rights and obligations as the assigning Loan Investor. Assignments may, however, be arranged through private negotiations between potential assignees and potential assignors, and the rights and
obligations acquired by the purchaser of an Assignment may differ from, and be more limited than, those held by the assigning Loan Investor.
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The Fund also may invest in Participations. Participations by the Fund in a Loan
Investors portion of a Secured Loan typically will result in the Fund having a contractual relationship only with such Loan Investor, not with the Borrower. As a result, the Fund may have the right to receive payments of principal, interest
and any fees to which it is entitled only from the Loan Investor selling the Participation and only upon receipt by such Loan Investor of such payments from the Borrower. In connection with purchasing Participations, the Fund generally has no right
to enforce compliance by the Borrower with the terms of the loan agreement, nor any rights with respect to any funds acquired by other Loan Investors through set-off against the Borrower and the Fund may not
directly benefit from the collateral supporting the Secured Loan in which it has purchased the Participation. As a result, the Fund will assume the credit risk of both the Borrower and the Loan Investor selling the Participation. In the event of the
insolvency of the Loan Investor selling a Participation, the Fund may be treated as a general creditor of such Loan Investor. The selling Loan Investors and other persons interpositioned between such Loan Investors and the Fund with respect to such
Participations will likely conduct their principal business activities in the banking, finance and financial services industries. Persons engaged in such industries may be more susceptible to, among other things, fluctuations in interest rates,
changes in the Federal Open Market Committees monetary policy, governmental regulations concerning such industries and concerning capital raising activities generally and fluctuations in the financial markets generally.
The Fund will only acquire Participations if the Loan Investor selling the Participation, and any other persons interpositioned between the
Fund and the Loan Investor, at the time of investment has outstanding debt or deposit obligations rated investment grade (Baa3 or higher by Moodys or BBB- or higher by S&P or Fitch, or comparably
rated by another nationally recognized rating agency) or determined by the Adviser to be of comparable quality. The effect of industry characteristics and market compositions may be more pronounced. Indebtedness of companies whose creditworthiness
is poor involves substantially greater risks, and may be highly speculative. Some companies may never pay off their indebtedness, or may pay only a small fraction of the amount owed. Consequently, when investing in indebtedness of companies with
poor credit, the Fund bears a substantial risk of losing the entire amount invested.
In order to borrow money pursuant to a Secured Loan,
a Borrower will for the term of the Secured Loan, pledge collateral, including but not limited to, (i) working capital assets, such as accounts receivable and inventory; (ii) tangible fixed assets, such as real property, buildings and
equipment; (iii) intangible assets, such as trademarks and patent rights (but excluding goodwill); and (iv) security interests in shares of stock of subsidiaries or affiliates. In the case of Secured Loans made to non-public companies, the companys shareholders or owners may provide collateral in the form of secured guarantees and/or security interests in assets that they own. In many instances, a Secured Loan may be
secured only by stock in the Borrower or its subsidiaries. Collateral may consist of assets that may not be readily liquidated, and there is no assurance that the liquidation of such assets would satisfy fully a Borrowers obligations under a
Secured Loan.
In the process of buying, selling and holding Secured Loans, the Fund may receive and/or pay certain fees. These fees are
in addition to interest payments received and may include facility fees, commitment fees, amendment fees, commissions and prepayment penalty fees. When the Fund buys a Secured Loan it may receive a facility fee and when it sells a Secured Loan it
may pay a facility fee. On an ongoing basis, the Fund may receive a commitment fee based on the undrawn portion of the underlying line of credit portion of a Secured Loan. In certain circumstances, the Fund may receive a prepayment penalty fee upon
the prepayment of a Secured Loan by a Borrower. Other fees received by the Fund may include covenant waiver fees, covenant modification fees or other amendment fees.
A Borrower must comply with various restrictive covenants contained in a loan agreement or note purchase agreement between the Borrower and
the holders of the Secured Loan (the Loan Agreement). Such covenants, in addition to requiring the scheduled payment of interest and principal, may include restrictions on dividend payments and other distributions to shareholders,
provisions requiring the Borrower to maintain specific minimum financial ratios and limits on total debt. In addition, the Loan Agreement may contain a covenant requiring the Borrower to prepay the Loan with any free cash flow. Free cash flow is
generally defined as net
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cash flow after scheduled debt service payments and permitted capital expenditures, and includes the proceeds from asset dispositions or sales of securities. A breach of a covenant which is not
waived by the Agent, or by the Loan Investors directly, as the case may be, is normally an event of acceleration; i.e., the Agent, or the Loan Investors directly, as the case may be, has the right to call the outstanding Secured Loan. The
typical practice of an Agent or a Loan Investor in relying exclusively or primarily on reports from the Borrower to monitor the Borrowers compliance with covenants may involve a risk of fraud by the Borrower. In the case of a Secured Loan in
the form of a Participation, the agreement between the buyer and seller may limit the rights of the holder to vote on certain changes which may be made to the Loan Agreement, such as waiving a breach of a covenant. However, the holder of the
Participation will, in almost all cases, have the right to vote on certain fundamental issues such as changes in principal amount, payment dates and interest rate.
In a typical Secured Loan the Agent administers the terms of the Loan Agreement. In such cases, the Agent is normally responsible for the
collection of principal and interest payments from the Borrower and the apportionment of these payments to the credit of all institutions which are parties to the Loan Agreement. The Fund will generally rely upon the Agent or an intermediate
participant to receive and forward to the Fund its portion of the principal and interest payments on the Secured Loan. Furthermore, unless under the terms of a Participation Agreement the Fund has direct recourse against the Borrower, the Fund will
rely on the Agent and the other Loan Investors to use appropriate credit remedies against the Borrower. The Agent is typically responsible for monitoring compliance with covenants contained in the Loan Agreement based upon reports prepared by the
Borrower. The seller of the Secured Loan usually does, but is often not obligated to, notify holders of Secured Loans of any failures of compliance. The Agent may monitor the value of the collateral and, if the value of the collateral declines, may
accelerate the Secured Loan, may give the Borrower an opportunity to provide additional collateral or may seek other protection for the benefit of the participants in the Secured Loan. The Agent is compensated by the Borrower for providing these
services under a Loan Agreement, and such compensation may include special fees paid upon structuring and funding the Secured Loan and other fees paid on a continuing basis. With respect to Secured Loans for which the Agent does not perform such
administrative and enforcement functions, the Fund will perform such tasks on its own behalf, although a collateral bank will typically hold any collateral on behalf of the Fund and the other Loan Investors pursuant to the applicable Loan Agreement.
A financial institutions appointment as Agent may usually be terminated in the event that it fails to observe the requisite
standard of care or becomes insolvent, enters Federal Deposit Insurance Corporation (FDIC) receivership, or, if not FDIC insured, enters into bankruptcy proceedings. A successor Agent would generally be appointed to replace the
terminated Agent, and assets held by the Agent under the Loan Agreement should remain available to holders of Secured Loans. However, if assets held by the Agent for the benefit of the Fund were determined to be subject to the claims of the
Agents general creditors, the Fund might incur certain costs and delays in realizing payment on a Secured Loan, or suffer a loss of principal and/or interest. In situations involving intermediate participants, similar risks may arise.
Secured Loans will usually require, in addition to scheduled payments of interest and principal, the prepayment of the Secured Loan from free
cash flow, as described above. The degree to which Borrowers prepay Secured Loans, whether as a contractual requirement or at their election, may be affected by general business conditions, the financial condition of the Borrower and competitive
conditions among Loan Investors, among others. As such, prepayments cannot be predicted with accuracy. Recent market conditions, including falling default rates among others, have led to increased prepayment frequency and loan renegotiations. These
renegotiations are often on terms more favorable to borrowers. Upon a prepayment, either in part or in full, the actual outstanding debt on which the Fund derives interest income will be reduced. However, the Fund may receive both a prepayment
penalty fee from the prepaying Borrower and a facility fee upon the purchase of a new Secured Loan with the proceeds from the prepayment of the former.
From time to time, Blackstone and its affiliates may borrow money from various banks in connection with their business activities. Such banks
may also sell interests in Secured Loans to, or acquire them from, the Fund
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or may be intermediate participants with respect to Secured Loans in which the Fund owns interests. Such banks may also act as Agents for Secured Loans held by the Fund.
The Fund may acquire interests in Secured Loans which 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. The Fund may also invest in Secured Loans of Borrowers that have obtained bridge loans from other parties. A Borrowers 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 Borrowers perceived creditworthiness.
The Fund will be subject to the risk that collateral securing a loan will decline in value or have no value. Such a decline, whether as a
result of bankruptcy proceedings or otherwise, could cause the Secured Loan to be undercollateralized or unsecured. In most credit agreements there is no formal requirement to pledge additional collateral. In addition, the Fund may invest in Secured
Loans guaranteed by, or secured by assets of, shareholders or owners, even if the Secured Loans are not otherwise collateralized by assets of the Borrower; provided, however, that such guarantees are fully secured. There may be temporary periods
when the principal asset held by a Borrower is the stock of a related company, which may not legally be pledged to secure a Secured Loan. On occasions when such stock cannot be pledged, the Secured Loan will be temporarily unsecured until the stock
can be pledged or is exchanged for or replaced by other assets, which will be pledged as security for the Secured Loan. However, the Borrowers ability to dispose of such securities, other than in connection with such pledge or replacement,
will be strictly limited for the protection of the holders of Secured Loans and, indirectly, Secured Loans themselves.
If a Borrower
becomes involved in bankruptcy proceedings, a court may invalidate the Funds security interest in the loan collateral or subordinate the Funds rights under the Secured Loan to the interests of the Borrowers unsecured creditors or
cause interest previously paid to be refunded to the Borrower. If a court required interest to be refunded, it could negatively affect the Funds performance. Such action by a court could be based, for example, on a fraudulent
conveyance claim to the effect that the Borrower did not receive fair consideration for granting the security interest in the loan collateral to the Fund. For Secured Loans made in connection with a highly leveraged transaction, consideration
for granting a security interest may be deemed inadequate if the proceeds of the Loan were not received or retained by the Borrower, but were instead paid to other persons (such as shareholders of the Borrower) in an amount which left the Borrower
insolvent or without sufficient working capital. There are also other events, such as the failure to perfect a security interest due to faulty documentation or faulty official filings, which could lead to the invalidation of the Funds security
interest in loan collateral. If the Funds security interest in loan collateral is invalidated or the Secured Loan is subordinated to other debt of a Borrower in bankruptcy or other proceedings, the Fund would have substantially lower recovery,
and perhaps no recovery, on the full amount of the principal and interest due on the Secured Loan.
The Fund may acquire warrants and
other equity securities as part of a unit combining a Secured Loan and equity securities of a Borrower or its affiliates. The acquisition of such equity securities will only be incidental to the Funds purchase of a Secured Loan. The Fund may
also acquire equity securities or credit securities (including non-dollar denominated equity or credit securities) issued in exchange for a Secured Loan or issued in connection with the debt restructuring or
reorganization of a Borrower, or if such acquisition, in the judgment of Blackstone Liquid Credit Strategies LLC (the Adviser) may enhance the value of a Secured Loan or would otherwise be consistent with the Funds investment
policies. Such warrants and equity securities will typically have limited value and there is no assurance that such securities will ever obtain value.
Fixed-Income Instruments
The Fund
may invest in fixed-income instruments, such as high-yield corporate debt securities, or bonds, or U.S. government securities. Corporate bonds and other fixed-income instruments are typically originated,
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negotiated and structured by a U.S. or foreign commercial bank, insurance company, finance company or other financial institution (the Underwriter) for a group of investors
(Bond Investors). The Underwriter typically administers and enforces the fixed-income instrument on behalf of the other Bond Investors. In addition, in secured fixed-income instrument offerings, an institution, typically but not always
the Agent, holds any collateral on behalf of the Bond Investors. The Fund may purchase assignments of fixed-income instruments either directly from the Underwriter of from a Bond Investor.
An issuer of fixed-income instruments must typically comply with the terms contained in an or note purchase agreement between the issuer and
the holders of the instruments (the Bond Agreement). These Bond Agreements generally detail the schedule of payments and also place certain restrictive financial and other covenants on the issuer, similar to those in Loan Agreements. The
Underwriter typically administers the terms of the Bond Agreement on behalf of all holders of the instruments.
Fixed-income securities
are generally subject to many of the same risks that affect Secured Loans and unsecured loans. However, holders of fixed-income bonds are generally subordinate to any existing lenders in the issuers capital structure and thus have a lower
priority in payment than lenders.
Unsecured Loans
The Fund may invest in unsecured loans, which have the same characteristics as Secured Loans except that such loans are not secured by
collateral. Accordingly, the risks associated with unsecured loans are higher than the risk of loans with first priority over the collateral. In the event of default on a unsecured loan, the first priority lien holder has first claim to the
underlying collateral of the loan. It is possible that no value would remain for the unsecured holder and therefore result in a loss of investment to the Fund.
Unsecured loans generally are subject to similar risks as those associated with investments in Secured Loans. Because unsecured loans are
unsecured and thus lower in priority of payment to Secured Loans, they are subject to the additional risk that the cash flow of the borrower may be insufficient to meet scheduled payments after giving effect to the secured obligations of the
borrower. Unsecured loans generally have greater price volatility than Secured Loans and may be less liquid. There is also a possibility that originators will not be able to sell participations in unsecured loans, which would create greater credit
risk exposure for the holders of such loans. Unsecured loans share the same risks as other below investment grade instruments.
Restricted and
Illiquid Securities
The Fund may not be able to readily dispose of illiquid securities at prices that approximate those at which
the Fund could sell such securities if they were more widely traded and, as a result of such illiquidity, the Fund may have to sell other investments or engage in borrowing transactions if necessary to raise cash to meet its obligations.
The Fund may purchase certain securities eligible for resale to qualified institutional buyers as contemplated by Rule 144A under the
Securities Act (Rule 144A Securities). Rule 144A provides an exemption from the registration requirements of the Securities Act for the resale of certain restricted securities to certain qualified institutional buyers. One effect of Rule
144A is that certain restricted securities may be considered liquid, though no assurance can be given that a liquid market for Rule 144A Securities will develop or be maintained. However, where a substantial market of qualified institutional buyers
has developed for certain unregistered securities purchased by the Fund pursuant to Rule 144A under the Securities Act, the Fund treats such securities as liquid securities in accordance with procedures approved by the Board. Because it is not
possible to predict with assurance how the market for Rule 144A Securities will develop, the Board has directed the Adviser to monitor carefully the Funds investments in such securities with particular regard to trading activity, availability
of reliable price information and other relevant information. To the extent that, for a period of time, qualified institutional buyers cease purchasing restricted securities pursuant to Rule 144A, the Funds investing in such securities may
have the effect of increasing the level of illiquidity in its investment portfolio during such period.
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Rights Offerings and Warrants to Purchase
The Fund may participate in rights offerings and may purchase warrants, which are privileges issued by corporations enabling the owners to
subscribe to and purchase a specified number of shares of the corporation at a specified price during a specified period of time. Subscription rights normally have a short life span to expiration. The purchase of rights or warrants involves the risk
that the Fund could lose the purchase value of a right or warrant if the right to subscribe to additional shares is not exercised prior to the rights and warrants expiration. Also, the purchase of rights and/or warrants involves the risk
that the effective price paid for the right and/or warrant added to the subscription price of the related security may exceed the value of the subscribed securitys market price such as when there is no movement in the level of the underlying
security.
Foreign Investments
The Fund may
invest in U.S. dollar denominated securities of non-U.S. issuers, including securities of emerging markets issuers. The Fund may also invest in securities denominated in currencies other than U.S. dollars.
Because foreign companies are not subject to uniform accounting, auditing and financial reporting standards, practices and requirements comparable to those applicable to U.S. companies, there may be less publicly available information about a
foreign company than about a domestic company. Volume and liquidity in most foreign debt markets is less than in the United States and securities of some foreign companies are less liquid and more volatile than securities of comparable U.S.
companies. There is generally less government supervision and regulation of securities exchanges, broker-dealers and listed companies than in the United States. Mail service between the United States and foreign countries may be slower or less
reliable than within the United States, thus increasing the risk of delayed settlements of portfolio transactions or loss of certificates for portfolio securities. Payment for securities before delivery may be required. In addition, with respect to
certain foreign countries, there is the possibility of expropriation or confiscatory taxation, political or social instability, or diplomatic developments that could affect investments in those countries. Moreover, individual foreign economies may
differ favorably or unfavorably from the U.S. economy in such respects as growth of gross national product, rate of inflation, capital reinvestment, resource self-sufficiency and balance of payments position. Foreign securities markets, while
growing in volume and sophistication, are generally not as developed as those in the United States, and securities of some foreign issuers (particularly those located in developing countries) may be less liquid and more volatile than securities of
comparable U.S. companies.
In addition, one or more countries may abandon the euro and/or withdraw from the EU. The impact of these actions, especially
if they occur in a disorderly fashion, could be significant and far-reaching. In June 2016, the United Kingdom (the UK) approved a referendum to leave the EU, commonly referred to as
Brexit, which sparked depreciation in the value of the British pound, short-term declines in global stock markets, and heightened risk of continued worldwide economic volatility. The UK exited the EU on January 31, 2020. As a result
of Brexit, there was and remains considerable uncertainty as to the arrangements that will apply to the UKs relationship with the EU and other countries leading up to, and following, its withdrawal. This long-term uncertainty may affect other
countries in the EU and elsewhere. Further, the UKs departure from the EU may cause volatility within the EU, triggering prolonged economic downturns in certain European countries or sparking additional member states to contemplate departing
the EU. In addition, Brexit creates the perception of additional economic stresses for the UK, including the view that there may be potential decreased trade, capital outflows, devaluation of the British pound, wider corporate bond spreads due to
uncertainty, and possible declines in business and consumer spending as well as foreign direct investment.
American Depositary Receipts
(ADRs), European Depositary Receipts (EDRs) and Global Depositary Receipts (GDRs) may be purchased. ADRs, EDRs and GDRs are certificates evidencing ownership of shares of a foreign issuer and are alternatives to
purchasing directly the underlying foreign securities in their national markets and currencies. However, they continue to be subject to many of the risks associated with investing directly in foreign securities. These risks include foreign exchange
risk as well as the political and economic risks of the underlying issuers country. ADRs, EDRs and GDRs may be sponsored or unsponsored. Unsponsored
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receipts are established without the participation of the issuer. Unsponsored receipts may involve higher expenses, they may not pass through voting or other shareholder rights, and they may be
less liquid.
Equity Securities
In addition to common stocks, the Fund may invest in equity securities, including preferred stocks, convertible securities, warrants and
depository receipts.
Preferred Stock. Preferred stock has a preference over common stock in liquidation (and generally
dividends as well) but is subordinated to the liabilities of the issuer in all respects. As a general rule, the market value of preferred stock with a fixed dividend rate and no conversion element varies inversely with interest rates and perceived
credit risk, while the market price of convertible preferred stock generally also reflects some element of conversion value. Because preferred stock is junior to credit securities and other obligations of the issuer, deterioration in the credit
quality of the issuer will cause greater changes in the value of a preferred stock than in a more senior credit security with similar stated yield characteristics. Unlike interest payments on credit securities, preferred stock dividends are payable
only if declared by the issuers board of trustees. Preferred stock also may be subject to optional or mandatory redemption provisions.
Convertible Securities. The Fund may invest in convertible securities. A convertible security is a bond, debenture, note,
preferred security, or other security that entitles the holder to acquire common stock or other equity securities of the same or a different issuer. A convertible security entitles the holder to receive interest paid or accrued or the dividend paid
on such security until the convertible security matures or is redeemed, converted or exchanged. Before conversion, convertible securities have characteristics similar to nonconvertible income securities in that they ordinarily provide a stable
stream of income with generally higher yields than those of common stocks of the same or similar issuers, but lower yields than comparable nonconvertible securities. The value of a convertible security is influenced by changes in interest rates,
with investment value declining as interest rates increase and increasing as interest rates decline. The credit standing of the issuer and other factors also may have an effect on the convertible securitys investment value. A convertible
security ranks senior to common stock in a corporations capital structure but is usually subordinated to comparable nonconvertible securities. Convertible securities may be purchased for their appreciation potential when they yield more than
the underlying securities at the time of purchase or when they are considered to present less risk of principal loss than the underlying securities. Generally speaking, the interest or dividend yield of a convertible security is somewhat less than
that of a non-convertible security of similar quality issued by the same company. A convertible security may be subject to redemption at the option of the issuer at a price established in the convertible
securitys governing instrument.
Holders of convertible securities generally have a claim on the assets of the issuer
prior to the common stockholders but may be subordinated to other debt securities of the same issuer. Certain convertible debt securities may provide a put option to the holder, which entitles the holder to cause the securities to be redeemed by the
issuer at a premium over the stated principal amount of the debt securities under certain circumstances. Certain convertible securities may include loss absorption characteristics that make the securities more equity-like. This is particularly true
of convertible securities issued by companies in the financial services sector.
Synthetic convertible securities may include either
cash-settled convertibles or manufactured convertibles. Cash-settled convertibles are instruments that are created by the issuer and have the economic characteristics of traditional convertible securities but may not actually permit conversion into
the underlying equity securities in all circumstances. As an example, a private company may issue a cash-settled convertible that is convertible into common stock only if the company successfully completes a public offering of its common stock prior
to maturity and otherwise pays a cash amount to reflect any equity appreciation. Manufactured convertibles are created by the investment adviser or another party by combining separate securities that possess one of the two principal characteristics
of a convertible security, i.e., fixed-income (fixed-income component) or a right to acquire equity securities (convertibility component). The fixed-income component is achieved by investing in
9
nonconvertible fixed-income securities, such as nonconvertible bonds, preferred securities and money market instruments. The convertibility component is achieved by investing in call options,
warrants, or other securities with equity conversion features (equity features) granting the holder the right to purchase a specified quantity of the underlying stocks within a specified period of time at a specified price or, in the
case of a stock index option, the right to receive a cash payment based on the value of the underlying stock index. A manufactured convertible differs from traditional convertible securities in several respects. Unlike a traditional convertible
security, which is a single security that has a unitary market value, a manufactured convertible is comprised of two or more separate securities, each with its own market value. Therefore, the total market value of such a manufactured
convertible is the sum of the values of its fixed-income component and its convertibility component. More flexibility is possible in the creation of a manufactured convertible than in the purchase of a traditional convertible security. Because many
corporations have not issued convertible securities, the investment adviser may combine a fixed-income instrument and an equity feature with respect to the stock of the issuer of the fixed-income instrument to create a synthetic convertible security
otherwise unavailable in the market. The investment adviser may also combine a fixed-income instrument of an issuer with an equity feature with respect to the stock of a different issuer when the investment adviser believes such a manufactured
convertible would better promote the Funds objective than alternative investments. For example, the investment adviser may combine an equity feature with respect to an issuers stock with a fixed-income security of a different issuer in
the same industry to diversify the Funds credit exposure, or with a U.S. Treasury instrument to create a manufactured convertible with a higher credit profile than a traditional convertible security issued by that issuer. A manufactured
convertible also is a more flexible investment in that its two components may be purchased separately and, upon purchasing the separate securities, combined to create a manufactured convertible. For example, the Fund may purchase a
warrant for eventual inclusion in a manufactured convertible while postponing the purchase of a suitable bond to pair with the warrant pending development of more favorable market conditions. The value of a manufactured convertible may respond to
certain market fluctuations differently from a traditional convertible security with similar characteristics. For example, in the event the Fund created a manufactured convertible by combining a short-term U.S. Treasury instrument and a call option
on a stock, the manufactured convertible would be expected to outperform a traditional convertible of similar maturity that is convertible into that stock during periods when Treasury instruments outperform corporate fixed-income securities and
underperform during periods when corporate fixed-income securities outperform Treasury instruments.
Rights Offerings and Warrants
to Purchase. The Fund may participate in rights offerings and may purchase warrants, which are privileges issued by corporations enabling the owners to subscribe to and purchase a specified number of shares of the corporation at a specified
price during a specified period of time. Subscription rights normally have a short life span to expiration. The purchase of rights or warrants involves the risk that the Fund could lose the purchase value of a right or warrant if the right to
subscribe to additional shares is not exercised prior to the rights and warrants expiration. Also, the purchase of rights and/or warrants involves the risk that the effective price paid for the right and/or warrant added to the
subscription price of the related security may exceed the value of the subscribed securitys market price such as when there is no movement in the level of the underlying security.
Cash Equivalents and Short-Term Debt Securities
For temporary defensive purposes, the Fund may invest up to 100% of its Managed Assets in cash equivalents and short-term debt securities. To
the extent current market quotations are readily available, short-term debt investments having a remaining maturity of 60 days or less when purchased will be valued at cost adjusted for amortization of premiums and accretion of discounts. Short-term
debt securities are defined to include, without limitation, the following:
(1) U.S. government securities, including
bills, notes and bonds differing as to maturity and rates of interest that are either issued or guaranteed by the U.S. Treasury or by U.S. government agencies or instrumentalities. U.S. government securities include securities issued by (a) the
Federal Housing
10
Administration, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration and Government National Mortgage Association, whose securities are supported by
the full faith and credit of the United States; (b) the Federal Home Loan Banks, Federal Intermediate Credit Banks and Tennessee Valley Authority, whose securities are supported by the right of the agency to borrow from the U.S. Treasury;
(c) the Federal National Mortgage Association, whose securities are supported by the discretionary authority of the U.S. government to purchase certain obligations of the agency or instrumentality; and (d) the Student Loan Marketing
Association, whose securities are supported only by its credit. While the U.S. government provides financial support to such U.S. government-sponsored agencies or instrumentalities, no assurance can be given that it always will do so since it is not
so obligated by law. The U.S. government, its agencies and instrumentalities do not guarantee the market value of their securities. Consequently, the value of such securities may fluctuate. The recent economic crisis in the United States has
negatively impacted government-sponsored entities, which include Federal Home Loan Banks, the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). As the real estate
market has deteriorated through declining home prices and increasing foreclosure, government-sponsored entities, which back the majority of U.S mortgages have experienced extreme volatility, and in some cases a lack of liquidity. In September 2008,
Fannie Mae and Freddie Mac were placed under a conservatorship of the U.S. federal government. Any Fund investments for temporary defensive purposes in securities issued by Federal Home Loan Banks and Fannie Mae may ultimately lose value. The
Adviser will monitor developments and seek to manage the Funds portfolio in a manner consistent with achieving the Funds investment objectives, but there can be no assurance that it will be successful in doing so.
(2) Certificates of deposit issued against funds deposited in a bank or a savings and loan association. Such certificates are
for a definite period of time, earn a specified rate of return and are normally negotiable. The issuer of a certificate of deposit agrees to pay the amount deposited plus interest to the bearer of the certificate on the date specified thereon.
Certificates of deposit purchased by the Fund may not be fully insured by the FDIC.
(3) Repurchase agreements, which
involve purchases of securities. At the time the Fund purchases securities pursuant to a repurchase agreement, it simultaneously agrees to resell and redeliver such securities to the seller, who also simultaneously agrees to buy back the securities
at a fixed price and time. This assures a predetermined yield for the Fund during its holding period, since the resale price is always greater than the purchase price and reflects an agreed-upon market rate. Such actions afford an opportunity for
the Fund to invest temporarily available cash. The Fund may enter into repurchase agreements only with respect to obligations of the U.S. government, its agencies or instrumentalities, certificates of deposit or bankers acceptances in which
the Fund may invest. Repurchase agreements may be considered loans to the seller, collateralized by the underlying securities. The risk to the Fund is limited to the ability of the seller to pay the agreed-upon sum on the repurchase date; in the
event of default, the repurchase agreement provides that the Fund is entitled to sell the underlying collateral. If the value of the collateral declines after the agreement is entered into, and if the seller defaults under a repurchase agreement
when the value of the underlying collateral is less than the repurchase price, the Fund could incur a loss of both principal and interest. The Adviser monitors the value of the collateral at the time the action is entered into and at all times
during the term of the repurchase agreement. The Adviser does so in an effort to determine that the value of the collateral always equals or exceeds the agreed-upon repurchase price to be paid to the Fund. If the seller were to be subject to a
federal bankruptcy proceeding, the ability of the Fund to liquidate the collateral could be delayed or impaired because of certain provisions of the bankruptcy laws.
(4) Commercial paper, which consists of short-term unsecured promissory notes, including variable rate master demand notes
issued by corporations to finance their current operations. Master demand notes are direct lending arrangements between the Fund and a corporation. There is no secondary market for such notes. However, they are redeemable by the Fund at any time.
The Adviser will consider the financial condition of the corporation (e.g., earning power, cash flow and other liquidity ratios) and will continuously monitor the corporations ability to meet all of its financial obligations, because
the Funds liquidity might be impaired if the corporation were unable to pay principal and interest on demand. Investments in
11
commercial paper will be limited to commercial paper rated in the highest categories by a major rating agency and which mature within one year of the date of purchase or carry a variable or
floating rate of interest.
Other Portfolio Contents
Short Sales
The Fund will engage
in short sales of securities, particularly of corporate bonds and other fixed-income instruments. A short sale is a transaction in which the Fund sells a security it does not own in anticipation that the market price of that security will decline.
The Fund may engage in short sales for financing, for risk management, in order to maintain portfolio flexibility or to enhance income or gain.
When the Fund engages in a short sale, it must borrow the security sold short and deliver it to the broker-dealer through which it made the
short sale as collateral for its obligation to deliver the security upon conclusion of the sale. The Fund may have to pay a fee to borrow particular securities and is often obligated to pay over any payments received on such borrowed securities.
The Funds obligation to replace the borrowed security may be secured by collateral deposited with the broker-dealer, usually cash,
U.S. government securities or other liquid securities. The Fund may also be required to designate on its books and records similar collateral with its custodian to the extent, if any, necessary so that the aggregate collateral value is at all times
at least equal to the current market value of the security sold short. Depending on arrangements made with the broker-dealer from which it borrowed the security regarding payment over of any payments received by the Fund on such security, the Fund
may not receive any payments (including interest) on its collateral deposited with such broker-dealer.
If the price of the security sold
short increases between the time of the short sale and the time the Fund replaces the borrowed security, the Fund will incur a loss; conversely, if the price declines, the Fund will realize a gain. Any gain will be decreased, and any loss increased,
by the transaction costs described above. Although the Funds gain is limited to the price at which it sold the security short, its potential loss is theoretically unlimited. However, the Adviser expects that most of its short investments will
be in U.S. Treasuries and investment grade bonds. Because these securities have historically low upward volatility, this may serve to reduce the Funds risk of loss from short sales.
Derivatives
General Limitations on Futures and Options Transactions. The Adviser, with respect to the Fund, has filed a notice of eligibility
for exclusion from the definition of the term commodity pool operator with the U.S. Commodities Futures Trading Commission (the CFTC) and the National Futures Association, which regulate trading in the futures markets.
Pursuant to Rule 4.5 of the regulations under the Commodity Exchange Act (the CEA), the Fund is not subject to regulation as a commodity pool under the CEA.
Various exchanges and regulatory authorities have undertaken reviews of options and Futures trading in light of market volatility. Among the
possible actions that have been presented are proposals to adopt new or more stringent daily price fluctuation limits for Futures and options transactions and proposals to increase the margin requirements for various types of futures transactions.
Asset Coverage for Futures and Options Positions. The Fund will comply with the regulatory requirements of the SEC and the
CFTC with respect to coverage of options and Futures positions by registered investment companies and, if the guidelines so require, will segregate cash, U.S. government securities, high-grade liquid debt securities and/or other liquid assets
permitted by the SEC and CFTC on the Funds records in the amount prescribed. Securities segregated on the Funds records cannot be sold while the Futures or options position is outstanding, unless replaced with other permissible assets,
and will be marked-to-market daily.
12
Options. The Fund may purchase put and call options on currencies or securities. A
put option embodies the right of its purchaser to compel the writer of the option to purchase from the option holder an underlying currency or security or its equivalent at a specified price. In contrast, a call option gives the purchaser the right
to buy the underlying currency or security covered by the option or its equivalent from the writer of the option at the stated exercise price.
As a holder of a put option, the Fund will have the right to sell the securities underlying the option and as the holder of a call option, the
Fund will have the right to purchase the currencies or securities underlying the option, in each case at their exercise price. An American style put or call option may be exercised at any time during the option exercise period while a European style
put or call option may be exercised only upon expiration. A Bermudan style put or call option may be exercised at any time on fixed dates occurring during the term of the option. The Fund may seek to terminate its option positions prior to their
expiration by entering into closing transactions. The ability of the Fund to enter into a closing sale transaction depends on the existence of a liquid secondary market. There can be no assurance that a closing purchase or sale transaction can be
effected when the Fund so desires.
Certain Considerations Regarding Options. The hours of trading for options may not
conform to the hours during which the underlying securities are traded. To the extent that the options markets close before the markets for the underlying securities, significant price and rate movements can take place in the underlying markets that
cannot be reflected in the options markets. The purchase of options is a highly specialized activity which involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. The purchase of
options involves the risk that the premium and transaction costs paid by the Fund in purchasing an option will be lost as a result of unanticipated movements in prices of the securities on which the option is based. Imperfect correlation between the
options and securities markets may detract from the effectiveness of attempted hedging. Options transactions may result in significantly higher transaction costs and portfolio turnover for the Fund.
Some, but not all, of the derivative instruments may be traded and listed on an exchange. There is no assurance that a liquid secondary market
on an options exchange will exist for any particular option at any particular time, and for some options, no secondary market on an exchange or elsewhere may exist. If the Fund is unable to effect a closing sale transaction with respect to options
on securities that it has purchased, it would have to exercise the option in order to realize any profit and would incur transaction costs upon the purchase and sale of the underlying securities.
Futures Contracts. The Fund may enter into securities-related futures contracts, including security futures contracts as an
anticipatory hedge. The Fund may sell futures as an offset against the effect of expected declines in securities prices and purchase futures as an offset against the effect of expected increases in securities prices. The Fund will not enter into
futures contracts which are prohibited under the CEA and will, to the extent required by regulatory authorities, enter only into futures contracts that are traded on exchanges and are standardized as to maturity date and underlying financial
instrument. A security futures contract is a legally binding agreement between two parties to purchase or sell in the future a specific quantity of a security or of the component securities of a narrow-based security index, at a certain price. A
person who buys a security futures contract enters into a contract to purchase an underlying security and is said to be long under the contract. A person who sells a security futures contact enters into a contract to sell the underlying
security and is said to be short under the contract. The price at which the contract trades (the contract price) is determined by relative buying and selling interest on a regulated exchange.
Transaction costs are incurred when a futures contract is bought or sold and margin deposits must be maintained. In order to enter into a
security futures contract, the Fund must deposit funds with its custodian in the name of the futures commodities merchant equal to a specified percentage of the current market value of the contract as a performance bond. Moreover, all security
futures contracts are marked-to-market at least daily, usually after the close of trading. At that time, the account of each buyer and seller reflects the amount of any
13
gain or loss on the security futures contract based on the contract price established at the end of the day for settlement purposes.
An open position, either a long or short position, is closed or liquidated by entering into an offsetting transaction (i.e., an equal
and opposite transaction to the one that opened the position) prior to the contract expiration. Traditionally, most futures contracts are liquidated prior to expiration through an offsetting transaction and, thus, holders do not incur a settlement
obligation. If the offsetting purchase price is less than the original sale price, a gain will be realized. Conversely, if the offsetting sale price is more than the original purchase price, a gain will be realized; if it is less, a loss will be
realized. The transaction costs must also be included in these calculations. There can be no assurance, however, that the Fund will be able to enter into an offsetting transaction with respect to a particular futures contract at a particular time.
If the Fund is not able to enter into an offsetting transaction, the Fund will continue to be required to maintain the margin deposits on the futures contract and the Fund may not be able to realize a gain in the value of its future position or
prevent losses from mounting. This inability to liquidate could occur, for example, if trading is halted due to unusual trading activity in either the security futures contract or the underlying security; if trading is halted due to recent news
events involving the issuer of the underlying security; if systems failures occur on an exchange or at the firm carrying the position; or, if the position is on an illiquid market. Even if the Fund can liquidate its position, it may be forced to do
so at a price that involves a large loss.
Under certain market conditions, it may also be difficult or impossible to manage the risk from
open security futures positions by entering into an equivalent but opposite position in another contract month, on another market, or in the underlying security. This inability to take positions to limit the risk could occur, for example, if trading
is halted across markets due to unusual trading activity in the security futures contract or the underlying security or due to recent news events involving the issuer of the underlying security.
There can be no assurance that a liquid market will exist at a time when the Fund seeks to close out a futures contract position. The Fund
would continue to be required to meet margin requirements until the position is closed, possibly resulting in a decline in the Funds net asset value (NAV). In addition, many of the contracts discussed above are relatively new
instruments without a significant trading history. As a result, there can be no assurance that an active secondary market will develop or continue to exist.
Security futures contracts that are not liquidated prior to expiration must be settled in accordance with the terms of the contract. Some
security futures contracts are settled by physical delivery of the underlying security. At the expiration of a security futures contract that is settled through physical delivery, a person who is long under the contract must pay the
final settlement price set by the regulated exchange or the clearing organization and take delivery of the underlying securities. Conversely, a person who is short under the contract must make delivery of the underlying securities in
exchange for the final settlement price. Settlement with physical delivery may involve additional costs.
Other security futures contracts
are settled through cash settlement. In this case, the underlying securities are not delivered. Instead, any positions in such security futures contracts that are open at the end of the last trading day are settled through a final cash payment based
on a final settlement price determined by the exchange or clearing organization. Once this payment is made, neither party has any further obligations on the contract.
As noted above, margin is the amount of funds that must be deposited by the Fund in order to initiate futures trading and to maintain the
Funds open positions in futures contracts. A margin deposit is intended to ensure the Funds performance of the futures contract. The margin required for a particular futures contract is set by the exchange on which the futures contract
is traded and may be significantly modified from time to time by the exchange during the term of the futures contract.
If the price of an
open futures contract changes (by increase in the case of a sale or by decrease in the case of a purchase) so that the loss on the futures contract reaches a point at which the margin on deposit does not
14
satisfy margin requirements, the broker will require an increase in the margin. However, if the value of a position increases because of favorable price changes in the futures contract so that
the margin deposit exceeds the required margin, the broker will pay the excess to the Fund. In computing daily NAV, the Fund will mark to market the current value of its open futures contracts. The Fund expects to earn interest income on its margin
deposits.
Because of the low margin deposits required, futures contracts trading involves an extremely high degree of leverage. As a
result, a relatively small price movement in a futures contract may result in an immediate and substantial loss or gain to the investor. For example, if at the time of purchase 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a total loss of the margin deposit, before any deduction for the transaction costs, if the account were then closed out. A 15% decrease would result in a loss equal to 150%
of the original margin deposit, before any deduction for the transaction costs, if the futures contracts were closed out. Thus, a purchase or sale of a futures contract may result in losses in excess of the amount initially invested in the futures
contract. However, the Fund would presumably have sustained comparable losses if, instead of the futures contract, it had invested in the underlying financial instrument and sold it after the decline.
In addition to the foregoing, imperfect correlation between the futures contracts and the underlying securities may prevent the Fund from
achieving the intended hedge or expose the Fund to risk of loss. Under certain market conditions, the prices of security futures contracts may not maintain their customary or anticipated relationships to the prices of the underlying security or
index. These pricing disparities could occur, for example, when the market for the security futures contract is illiquid, when the primary market for the underlying security is closed, or when the reporting of transactions in the underlying security
has been delayed.
In addition, the value of a position in security futures contracts could be affected if trading is halted in either the
security futures contract or the underlying security. In certain circumstances, regulated exchanges are required by law to halt trading in security futures contracts. For example, trading on a particular security futures contract must be halted if
trading is halted on the listed market for the underlying security as a result of pending news, regulatory concerns, or market volatility. Similarly, trading of a security futures contract on a narrow-based security index must be halted under
circumstances where trading is halted on securities accounting for at least 50% of the market capitalization of the index. In addition, regulated exchanges are required to halt trading in all security futures contracts for a specified period of time
when the Dow Jones Industrial Average experiences one-day declines of 10%, 20% and 30%. The regulated exchanges may also have discretion under their rules to halt trading in other circumstances, such as when
the exchange determines that the halt would be advisable in maintaining a fair and orderly market.
A trading halt, either by a regulated
exchange that trades security futures or an exchange trading the underlying security or instrument, could prevent the Fund from liquidating a position in security futures contracts in a timely manner, which could expose the Fund to a loss.
Each regulated exchange trading a security futures contract may also open and close for trading at different times than other regulated
exchanges trading security futures contracts or markets trading the underlying security or securities. Trading in security futures contracts prior to the opening or after the close of the primary market for the underlying security may be less liquid
than trading during regular market hours.
Swap Agreements. The Fund may enter into swap agreements. A swap is a financial
instrument that typically involves the exchange of cash flows between two parties on specified dates, where the cash flows are based on agreed-upon prices, rates, indices, etc. The nominal amount on which the cash flows are calculated is called the
notional amount. Swaps are individually negotiated and may be structured to include exposure to a variety of different types of investments or market factors, such as interest rates, commodity prices, non-U.S.
currency rates, mortgage securities, corporate borrowing rates, security prices, indexes or inflation rates.
15
Swap agreements may increase or decrease the overall volatility of the investments of the Fund
and its share price. The performance of swap agreements may be affected by a change in the specific interest rate, currency, or other factors that determine the amounts of payments due to and from the Fund. If a swap agreement calls for payments by
the Fund, the Fund must be prepared to make such payments when due. In addition, if the counterpartys creditworthiness declines, the value of a swap agreement would likely decline, potentially resulting in losses.
Generally, swap agreements have fixed maturity dates that are agreed upon by the parties to the swap. The agreement can be terminated before
the maturity date only under limited circumstances, such as default by or insolvency of one of the parties and can be transferred by a party only with the prior written consent of the other party unless otherwise agreed by the parties. The Fund may
be able to eliminate its exposure under a swap agreement either by assignment or other disposition, or by entering into an offsetting swap agreement with the same party or a similarly creditworthy party. If the counterparty is unable to meet its
obligations under the contract, declares bankruptcy, defaults or becomes insolvent, the Fund may not be able to recover the money it expected to receive under the contract.
A swap agreement can be a form of leverage, which can magnify the Funds gains or losses. In order to reduce the risk associated with
leveraging, the Fund will cover its current obligations under swap agreements according to guidelines established by the SEC. If the Fund enters into a swap agreement on a net basis, it will be required to segregate assets on the Funds records
with a daily value at least equal to the excess, if any, of the Funds accrued obligations under the swap agreement over the accrued amount the Fund is entitled to receive under the agreement. If the Fund enters into a swap agreement on other
than a net basis, it will be required to segregate assets on the Funds records with a value equal to the full amount of the Funds accrued obligations under the agreement.
The Fund will monitor any swaps with a view towards ensuring that the Fund remains in compliance with all applicable regulatory investment and
tax requirements.
Equity Swaps. In a typical equity swap, one party agrees to pay another party the return on a security,
security index or basket of securities in return for a specified interest rate. By entering into an equity index swap, the index receiver can gain exposure to securities making up the index of securities without actually purchasing those securities.
Equity index swaps involve not only the risk associated with investment in the securities represented in the index, but also the risk that the performance of such securities, including dividends, will not exceed the interest that the Fund will be
committed to pay under the swap.
When-Issued and Forward Commitment Securities
The Fund may purchase securities on a when-issued basis and may purchase or sell securities on a forward commitment
basis in order to acquire the security or to hedge against anticipated changes in interest rates and prices. When such transactions are negotiated, the price, which is generally expressed in yield terms, is fixed at the time the commitment is made,
but delivery and payment for the securities take place at a later date. When-issued securities and forward commitments may be sold prior to the settlement date, but the Fund will enter into when-issued and forward commitments only with the intention
of actually receiving or delivering the securities, as the case may be. If the Fund disposes of the right to acquire a when-issued security prior to its acquisition or disposes of its right to deliver or receive against a forward commitment, it
might incur a gain or loss. At the time the Fund enters into a transaction on a when-issued or forward commitment basis, it will designate on its books and records cash or liquid credit securities equal to at least the value of the when-issued or
forward commitment securities. The value of these assets will be monitored daily to ensure that their marked to market value will at all times equal or exceed the corresponding obligations of the Fund. There is always a risk that the securities may
not be delivered and that the Fund may incur a loss. Settlements in the ordinary course, which may take substantially more than five business days, are not treated by the Fund as when-issued or forward commitment transactions and accordingly are not
subject to the foregoing restrictions.
16
Securities purchased on a forward commitment or when-issued basis are subject to changes in value
(generally changing in the same way, i.e., appreciating when interest rates decline and depreciating when interest rates rise) based upon the publics perception of the creditworthiness of the issuer and changes, actual or anticipated,
in the level of interest rates. Securities purchased with a forward commitment or when-issued basis may expose the Fund to risks because they may experience such fluctuations prior to their actual delivery. Purchasing securities on a when-issued
basis can involve the additional risks that the yield available in the market when the delivery takes place actually may be higher than that obtained in the transaction itself. Purchasing securities on a forward commitment or when-issued basis when
the Fund is fully invested may result in greater potential fluctuation in the value of the Funds net assets and its NAV per share.
The risks and effect of settlements in the ordinary course on the Funds NAV are not the same as the risks and effect of when-issued and
forward commitment securities.
The purchase price of when-issued and forward commitment securities are expressed in yield terms, which
reference a floating rate of interest, and is therefore subject to fluctuations of the securitys value in the market from the date of the Funds commitment (the Commitment Date) to the date of the actual delivery and payment
for such securities (the Settlement Date). There is a risk that, on the Settlement Date, the Funds payment of the final purchase price, which is calculated on the yield negotiated on the Commitment Date, will be higher than the
markets valuation of the security on the Settlement Date. This same risk is also borne if the Fund disposes of its right to acquire a when-issued security, or its right to deliver or receive, a forward commitment security, and there is a
downward market movement in the value of the security from the Commitment Date to the Settlement Date. No income accrues to the Fund during the period from the Commitment Date to the Settlement Date. On the other hand, the Fund may incur a gain if
the Fund invests in when-issued and forward commitment securities and correctly anticipates the rise in interest rates and prices in the market.
The settlements of secondary market purchases of Secured Loans in the ordinary course, on a settlement date beyond the period expected by loan
market participants (i.e. T+7 for par loans and T+20 for distressed loans, in other words more than seven or twenty business days beyond the trade date, respectively) are subject to the delayed compensation mechanics prescribed by the Loan
Syndications and Trading Association (LSTA). For par loans, income accrues to the buyer of the Secured Loan (the Buyer) during the period beginning on the last date by which the Secured Loan purchase should have settled (T+7)
to and including the actual settlement date. Should settlement of a par Secured Loan purchase in the secondary market be delayed beyond the T+7 period prescribed by the LSTA, the Buyer is typically compensated for such delay through a payment from
the seller of the Secured Loan (this payment may be netted from the wire released on settlement date for the purchase price of the Secured Loan paid by the Buyer). In brief, the adjustment is typically calculated by multiplying the notional amount
of the trade by the applicable margin in the Loan Agreement pro rated for the number of business days (calculated using a year of 360 days) beyond the settlement period prescribed by the LSTA, plus any amendment or consent fees that the Buyer should
have received. Furthermore, the purchase of a Secured Loan in the secondary market is typically negotiated and finalized pursuant to a binding trade confirmation, and therefore, the risk of non-delivery of the
security to the Fund is reduced or eliminated when compared with such risk when investing in when-issued or forward commitment securities.
Reverse
Repurchase Agreements
The Fund may enter into reverse repurchase agreements with respect to its portfolio investments subject to
the investment restrictions set forth herein. Reverse repurchase agreements involve the sale of securities held by the Fund with an agreement by the Fund to repurchase the securities at an agreed upon price, date and interest payment. At the time
the Fund enters into a reverse repurchase agreement, it may designate on its books and records liquid instruments having a value not less than the repurchase price (including accrued interest). If the Fund establishes and maintains such a segregated
account, a reverse repurchase agreement will not be considered a borrowing by the Fund; however, under certain circumstances in which the Fund does not establish and maintain such a segregated account, such reverse repurchase agreement will be
considered a borrowing for the
17
purpose of the Funds limitation on borrowings. The use by the Fund of reverse repurchase agreements involves many of the same risks of leverage since the proceeds derived from such reverse
repurchase agreements may be invested in additional securities. Reverse repurchase agreements involve the risk that the market value of the securities acquired in connection with the reverse repurchase agreement may decline below the price of the
securities the Fund has sold but is nevertheless still obligated to repurchase. Also, reverse repurchase agreements involve the risk that the market value of the securities retained in lieu of sale by the Fund in connection with the reverse
repurchase agreement may decline in price.
If the buyer of securities under a reverse repurchase agreement files for bankruptcy or
becomes insolvent, such buyer or its trustee or receiver may receive an extension of time to determine whether to enforce the Funds obligation to repurchase the securities, and the Funds use of the proceeds of the reverse repurchase
agreement may effectively be restricted pending such decision. Also, the Fund would bear the risk of loss to the extent that the proceeds of the reverse repurchase agreement are less than the value of the securities subject to such agreement.
Repurchase Agreements
The Fund
may invest in repurchase agreements. A repurchase agreement is a contractual agreement whereby the seller of securities agrees to repurchase the same security at a specified price on a future date agreed upon by the parties. The agreed-upon
repurchase price determines the yield during the Funds holding period. Repurchase agreements are considered to be loans collateralized by the underlying security that is the subject of the repurchase contract. The Fund will only enter into
repurchase agreements with registered securities dealers or domestic banks that, in the opinion of the Adviser, presents minimal credit risk. The risk to the Fund is limited to the ability of the issuer to pay the agreed-upon repurchase price on the
delivery date; however, although the value of the underlying collateral at the time the transaction is entered into always equals or exceeds the agreed-upon repurchase price, if the value of the collateral declines there is a risk of loss of both
principal and interest. In the event of default, the collateral may be sold but the Fund might incur a loss if the value of the collateral declines, and might incur disposition costs or experience delays in connection with liquidating the
collateral. In addition, if bankruptcy proceedings are commenced with respect to the seller of the security, realization upon the collateral by the Fund may be delayed or limited. The Adviser will monitor the value of the collateral at the time the
transaction is entered into and at all times subsequent during the term of the repurchase agreement in an effort to determine that such value always equals or exceeds the agreed-upon repurchase price. In the event the value of the collateral
declines below the repurchase price, the Adviser will demand additional collateral from the issuer to increase the value of the collateral to at least that of the repurchase price, including interest.
18
MANAGEMENT OF THE FUND
Board of Trustees
The
overall management of the business and affairs of the Fund, including oversight of the Adviser, is vested in the Board. The Board is classified into three classesClass I, Class II and Class IIIas nearly equal in number as
reasonably possible, with the Trustees in each class to hold office until their successors are elected and qualified. At each succeeding annual meeting of shareholders, the successors to the class of Trustees whose terms expire at that meeting shall
be elected to hold office for terms expiring at the later of the annual meeting of shareholders held in the third year following the year of their election or the election and qualification of their successors. Under the terms of the Funds
charter, the holders of Preferred Shares of the Fund are entitled as a class, to the exclusion of common shareholders, to elect two trustees of the Fund (the Preferred Trustees). Currently, Thomas W. Jasper and Michael F. Holland are
serving as the Preferred Trustees.
Below is a list of the Trustees and officers of the Fund and their present positions and principal
occupations during the past five years. The business address of the Fund, the Adviser and their board members and officers is 345 Park Avenue, 31st Floor, New York, NY 10154, unless specified otherwise below.
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Name and
Year of Birth
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Position(s)
Held With
Registrant
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Term of Office
and Length of
Time Served
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Principal Occupation(s)
During Past Five Years
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Number of
Portfolios
in Fund
Complex(1)
Overseen
by the
Trustee
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Other
Directorships
Held by the
Trustee
During
Past Five Years
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NON-INTERESTED TRUSTEES:
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Edward H. DAlelio
Birth Year: 1952
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Lead Independent Trustee
and member of Audit
and Nominating and Governance Committees
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November 2010
Class II
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Mr. DAlelio was formerly a Managing Director and CIO for Fixed Income at Putnam Investments, Boston where he retired in 2002. He currently is an Executive in Residence with the School of Management, Univ. of Mass Boston.
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7
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Owl Rock Capital Corp. business development companies (5 portfolios overseen in Fund Complex)
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Michael F. Holland(2)
Birth Year: 1944
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Trustee and member of Audit and Nominating and Governance Committees
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Since November 2010
Class I
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Mr. Holland is the Chairman of Holland & Company, a private investment firm he founded in 1995.
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7
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State Street Master Funds; Reaves Utility Income Fund; The China Fund, Inc. (until 2019); The Taiwan Fund (until 2017)
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Thomas W. Jasper(2)
Birth Year: 1948
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Trustee, Chairman of Audit Committee and member of Nominating and Governance Committee
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Since November 2010
Class III
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Mr. Jasper is the Managing Partner of Manursing Partners LLC, a consulting firm.
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7
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Ciner Resources LP (master limited partnership)
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19
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Name and
Year of Birth
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Position(s)
Held With
Registrant
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Term of Office
and Length of
Time Served
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Principal Occupation(s)
During Past Five Years
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Number of
Portfolios
in Fund
Complex(1)
Overseen
by the
Trustee
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Other
Directorships
Held by the
Trustee
During
Past Five Years
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Gary S. Schpero
Birth Year: 1953
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Trustee, Chairman of Nominating and Governance Committee and member of Audit Committee
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Since May 2012
Class III
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Mr. Schpero is retired. Prior to January 2000, he was a partner at the law firm of Simpson Thacher & Bartlett LLP where he served as managing partner of the Investment Management and Investment Company Practice
Group.
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4
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EQ Premier VIP Trust; EQ Advisors Trust; 1290 Funds
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INTERESTED TRUSTEE(3):
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|
|
|
|
|
Daniel H. Smith, Jr.
Birth Year: 1963
|
|
Chairman of the Board, President, Chief Executive Officer, Trustee
|
|
Since Inception
Class I
|
|
Mr. Smith is a Senior Managing Director of Blackstone Credit and is Head of Blackstone Liquid Credit Strategies LLC. He joined Blackstone Credit from the Royal Bank of Canada in July 2005 where he was a Managing Partner and Co-head of RBC Capital Markets Alternative Investments Unit.
|
|
6
|
|
None
|
(1)
|
The Fund Complex consists of the Blackstone Credit
Closed-End Funds, Blackstone Secured Lending Fund, Blackstone Private Credit Fund, the Blackstone Real Estate Funds (Blackstone Real Estate Income Fund, Blackstone Real Estate Income Fund II and
Blackstone Real Estate Income Master Fund) and Blackstone Alternative Multi-Strategy Fund. BDCs are included in the list of funds in the Fund Complex.
|
(2)
|
Messrs. Holland and Jasper are elected by the holders of the Preferred Shares, voting as a separate class.
|
(3)
|
Interested person of the Fund as defined in Section 2(a)(19) of the 1940 Act. Mr. Smith is
an interested person due to his employment with the Adviser.
|
Experience of Trustees
The Trustees were selected to join the Board based upon the following as to each Trustee: his character and integrity; his service as a member
of other boards of his willingness to serve and willingness and ability to commit the time necessary to perform the duties of a Trustee; as to each Trustee other than Mr. Smith, his status as not being an interested person as
defined in the 1940 Act; and, as to Mr. Smith, his role with Blackstone Credit and The Blackstone Group Inc. No factor, by itself, was controlling. In addition to the information provided in the table included below, each Trustee possesses the
following attributes: Mr. DAlelio, experience as an investment professional; Mr. Holland, experience as an investment professional and service as a board member of other registered management investment companies; Mr. Jasper,
experience as an investment professional in the structured products market and experience concerning risk management; Mr. Schpero, experience as a legal professional specializing in asset management and service as a board member of other
registered management investment companies; and Mr. Smith, experience as an executive and portfolio manager and leadership roles with Blackstone Credit and The Blackstone Group Inc. References to the qualifications, attributes and skills of the
Trustees are pursuant to requirements of the SEC, do not constitute holding out the
20
Board or any Trustees as having any special expertise or experience, and shall not impose any greater responsibility or liability on any such person or on the Board by reason thereof.
Share Ownership
Set forth
in the table below is the dollar range of equity securities held in the Fund and on an aggregate basis for the entire Family of Investment Companies overseen by each Trustee as of December 31, 2020. Investment companies are considered to be in
the same family if they share the same investment adviser or principal underwriter and hold themselves out to investors as related companies for purposes of investment and investor services.
|
|
|
|
|
|
|
|
|
Name of Trustee
|
|
Dollar Range(1) of
Equity Securities in
the Fund
|
|
|
Aggregate Dollar
Range of Equity
Securities Overseen
by Trustee in the
Family of
Investment
Companies(2)
|
|
NON-INTERESTED TRUSTEES:
|
|
|
|
|
|
|
|
|
Edward H. DAlelio
|
|
|
None
|
|
|
|
None
|
|
Michael F. Holland
|
|
|
$10,001-$50,000
|
|
|
|
$10,001-$50,000
|
|
Thomas W. Jasper
|
|
|
None
|
|
|
|
$50,001-$100,000
|
|
Gary S. Schpero
|
|
|
$1-10,000
|
|
|
|
$10,001-$50,000
|
|
|
|
|
INTERESTED TRUSTEES:
|
|
|
|
|
|
|
|
|
Daniel H. Smith, Jr.
|
|
|
Over $100,000
|
|
|
|
Over $100,000
|
|
(1)
|
Beneficial Ownership is determined in accordance with
Section 16a-1(a)(2) under the Securities Exchange Act of 1934, as amended (the Exchange Act).
|
(2)
|
The term Family of Investment Companies means any two registered investment companies that:
|
|
(i)
|
share the same investment adviser or principal underwriter; and
|
|
(ii)
|
hold themselves out to investors as related companies for purposes of investment and investor services.
|
Trustee Transactions with Fund Affiliates
As of December 31, 2020, none of the independent trustees, meaning those Trustees who are not interested persons as defined in
Section 2(a)(19) of the 1940 Act (each an Independent Trustee and collectively the Independent Trustees), nor members of their immediate families owned securities, beneficially or of record, in Blackstone Liquid Credit
Strategies LLC (the Adviser), or an affiliate or person directly or indirectly controlling, controlled by, or under common control with the Adviser, other than investments in the Fund and investments in affiliated investment vehicles
that, pursuant to guidance from the SEC Staff, do not affect such Trustees independence. Furthermore, during the two most recently completed calendar years, neither the Independent Trustees nor members of their immediate families have had any
direct or indirect interest, the value of which exceeds $120,000, in the Adviser or any of its affiliates. In addition, since the beginning of the last two calendar years, neither the Independent Trustees nor members of their immediate families have
conducted any transactions (or series of transactions) or maintained any direct or indirect relationship in which the amount involved exceeds $120,000 and to which the Adviser or any affiliate of the Adviser was a party.
21
Compensation of Trustees
The fees and expenses of the Trustees of the Fund are paid by the Fund. The Trustee who is a member of the Blackstone organization receives no
compensation from the Fund. The following table sets forth compensation received by the Independent Trustees for the fiscal year ended December 31, 2020.
|
|
|
|
|
|
|
|
|
Name of Trustee
|
|
Aggregate
Compensation from
the Fund
|
|
|
Total Compensation
from the Fund
and
Fund Complex Paid
to Trustees(1)
|
|
NON-INTERESTED TRUSTEES:
|
|
|
|
|
|
|
|
|
Edward H. DAlelio
|
|
$
|
21,680
|
|
|
$
|
248,500
|
|
Michael F. Holland
|
|
$
|
19,525
|
|
|
$
|
232,500
|
|
Thomas W. Jasper
|
|
$
|
21,141
|
|
|
$
|
244,500
|
|
Gary S. Schpero
|
|
$
|
21,141
|
|
|
$
|
157,000
|
|
|
|
|
INTERESTED TRUSTEES:
|
|
|
|
|
|
|
|
|
Daniel H. Smith, Jr.
|
|
$
|
|
|
|
$
|
|
|
(1)
|
Total compensation paid from the Fund Complex includes compensation paid by the Funds, $87,500 of compensation
paid to each of Messrs. DAlelio, Holland and Jasper by the Blackstone Real Estate Income Funds, and $39,722, $35,774, $38,735, and $38,735 of compensation paid to Messrs. DAlelio, Holland, Jasper, and Schpero respectively by BGFLX. BGSL,
the Blackstone Alternative Alpha Funds and Blackstone Alternative Multi-Strategy Fund do not pay compensation to Trustees of the Fund.
|
The Fund, together with Blackstone Senior Floating Rate Term Fund, Blackstone Strategic Credit Fund and Blackstone Floating Rate Enhanced
Income Fund (the Blackstone Credit Closed-End Funds), pay every Trustee who is not a director, officer, employee, or affiliate of Blackstone Credit or ALPS Fund Services, Inc. (ALPS),
the Funds administrator, a retainer fee of $145,000 per annum. The Chairman of the Audit Committee and the Chairman of the Nominating and Governance Committee also receive a retainer fee of $12,000 per annum from the Blackstone Credit Closed-End Funds. The Lead Independent Trustee receives a retainer fee of $16,000 per annum from the Blackstone Credit Closed-End Funds.
Board Committees
The
Board currently has two committees: an Audit Committee and a Nominating and Governance Committee.
The Audit Committee consists of Edward
H. DAlelio, Michael F. Holland, Thomas W. Jasper and Gary S. Schpero. The Audit Committee acts according to the Audit Committee charter (the Audit Committee Charter). Thomas W. Jasper has been appointed as Chair of the Audit
Committee of the Board. The Audit Committee is responsible for assisting the Board in fulfilling its oversight responsibilities relating to accounting and financial reporting policies and practices of the Fund, including, but not limited to, the
adequacy of the Funds accounting and financial reporting processes, policies and practices; the integrity of the Funds financial statements; the adequacy of the Funds overall system of internal controls; the Funds compliance
with legal and regulatory requirements; the qualification and independence of the Funds independent registered public accounting firm; and the performance of the Funds internal audit function provided by the Adviser and the Funds
other service providers. The independent accountant is ultimately accountable to the Board and Audit Committee, as representatives of the common shareholders. The independent accountant for the Fund reports directly to the Audit Committee. The Board
adopted an Audit Committee Charter at its organizational meeting. The Audit Committee held six meetings during the fiscal year ended December 31, 2020.
The Nominating and Governance Committee consists of Edward H. DAlelio, Michael F. Holland, Thomas W. Jasper and Gary S. Schpero.
The Nominating and Governance Committee is responsible for selecting
22
and nominating candidates for election as Trustees to the Board. Gary S. Schpero has been appointed as Chairman of the Nominating and Governance Committee. When vacancies or creations occur, the
Nominating and Governance Committee will consider Trustee candidates recommended by a variety of sources to nominate for election by the common shareholders. The Nominating and Governance Committee may accept nominees recommended by a common
shareholder as it deems appropriate. Common shareholders who wish to recommend a nominee for the Board should send recommendations to the Funds Secretary at 345 Park Avenue, 31st Floor, New York, New York 10154 and include all information
relating to such person that is required to be disclosed in solicitations of proxies for the election of Trustees. A recommendation must be accompanied by a written consent of the individual to stand for election if nominated by the Board and to
serve if elected by the common shareholders. In considering Trustee candidates, the Nominating and Governance Committee will take into consideration the interest of common shareholders, the needs of the Board and the Trustee candidates
qualifications, which include but are not limited to, the quality and diversity of the individuals professional experience, education, individual qualification or skills. The Board adopted a Nominating and Governance Committee Charter at its
organizational meeting. The Nominating and Governance Committee held three meetings during the fiscal year ended December 31, 2020.
Risk Oversight
The
Boards role in risk oversight of the Fund reflects its responsibility under applicable state law to oversee generally, rather than to manage, the operations of the Fund. In line with its oversight responsibility, the Board receives reports and
makes inquiries at its regular meetings and as needed regarding the nature and extent of significant Fund risks (including investment, compliance and valuation risks) that potentially could have a materially adverse impact on the business
operations, investment performance or reputation of the Fund, but relies upon the Funds management (including the Funds portfolio managers) and Chief Compliance Officer, who reports directly to the Board, and the Adviser to assist it in
identifying and understanding the nature and extent of such risks and determining whether, and to what extent, such risks may be eliminated or mitigated. In addition to reports and other information received from Fund management and the Adviser
regarding the Funds investment program and activities, the Board as part of its risk oversight efforts expects to meet at its regular meetings and as needed with the Funds Chief Compliance Officer to discuss, among other things, risk
issues and issues regarding the policies, procedures and controls of the Fund. The Board may be assisted in performing aspects of its role in risk oversight by the Audit Committee and such other standing or special committees as may be established
from time to time by the Board. For example, the Audit Committee of the Board will meet regularly with the Funds independent public accounting firm to review, among other things, reports on the Funds internal controls for financial
reporting.
The Board believes that not all risks that may affect the Funds can be identified, that it may not be practical or
cost-effective to eliminate or mitigate certain risks, that it may be necessary to bear certain risks (such as investment-related risks) to achieve the Funds goals, and that the processes, procedures and controls employed to address certain
risks may be limited in their effectiveness. Moreover, reports received by the Trustees as to risk management matters may be summaries of relevant information and may be inaccurate or incomplete. As a result of the foregoing and other factors, the
Boards risk management oversight is expected to be subject to substantial limitations.
23
Officers of the Fund
The Funds executive officers will be chosen each year at a regular meeting of the Board to hold office until their respective successors
are duly elected and qualified. The executive officers of the Fund currently are:
|
|
|
|
|
|
|
|
|
Name and Year of Birth
|
|
Position(s) Held
with Registrant
|
|
Length of
Time Served
|
|
Principal Occupation
During the Past Five Years
|
|
Number
of
Registered
Investment
Companies in
Fund Complex
Overseen
|
Daniel H. Smith, Jr.
Birth Year: 1963
|
|
Trustee, Chairman of the Board, President, Chief Executive Officer
|
|
Since Inception
|
|
Mr. Smith is a Senior Managing Director of Blackstone Credit and is Head of Blackstone Liquid Credit Strategies LLC. Mr. Smith joined Blackstone Credit in 2005 from the Royal Bank of Canada where he was a Managing Partner
and Co-head of RBC Capital Markets Alternative Investments Unit.
|
|
5
|
|
|
|
|
|
Robert W. Busch
Birth Year: 1982
|
|
Chief Financial Officer and Treasurer
|
|
Since March 2019
|
|
Mr. Busch is a Senior Vice President of Blackstone Credit and part of Blackstone Credits Finance team. Before joining Blackstone Credit in 2018, Mr. Busch worked previously at Fifth Street Asset Management, where he
was Senior Vice President of Finance and served as Controller of the firms two publicly traded business development companies and publicly traded alternative asset manager. Prior to that, Mr. Busch worked at Deloitte & Touche
LLP, a global public accounting firm.
|
|
5
|
|
|
|
|
|
Robert Zable
Birth Year: 1972
|
|
Executive Vice President and Assistant Secretary
|
|
Since September 2015
|
|
Mr. Zable is a Senior Managing Director of Blackstone Credit and Senior Portfolio Manager if the U.S. CLOs and closed-end funds within Blackstone Credits Liquid Credit Strategies business. Before joining Blackstone Credit
in 2007, Mr. Zable was a Vice President at FriedbergMilstein LLC, where he was responsible for credit opportunity investments and junior capital origination and execution. Prior to that, Mr. Zable was a Principal with Abacus Advisors
Group, a restructuring and distressed investment firm. Mr. Zable began his career at JP Morgan Securities Inc., where he focused on leveraged finance in New York and London.
|
|
4
|
24
|
|
|
|
|
|
|
|
|
Name and Year of Birth
|
|
Position(s) Held
with Registrant
|
|
Length of
Time Served
|
|
Principal Occupation
During the Past Five Years
|
|
Number
of
Registered
Investment
Companies in
Fund Complex
Overseen
|
Marisa Beeney
Birth Year: 1970
|
|
Chief Compliance Officer, Chief Legal Counsel and Secretary
|
|
Since Inception
|
|
Ms. Beeney is a Senior Managing Director of Blackstone Credit and General Counsel of Blackstone Credit. Before joining Blackstone Credit in 2007, she was with the finance group of DLA Piper. Ms. Beeney began her career at
Latham & Watkins LLP working primarily on project finance and development transactions, as well as other structured credit products.
|
|
5
|
|
|
|
|
|
Valerie Naratil
Birth Year: 1988
|
|
Public Relations Officer
|
|
Since February 2021
|
|
Ms. Naratil is a Principal of Blackstone Credit and part of the Investor Relations and Client Service team for Blackstone Credits Liquid Credit Strategies business. Before joining Blackstone Credit in 2014, Ms. Naratil
worked at UBS Investment Bank, advising corporate clients across the Healthcare industry.
|
|
5
|
The Funds officers do not receive compensation from the Fund, but are reimbursed for all out-of-pocket expenses relating to attendance at meetings of the Board.
The Adviser
Blackstone
Liquid Credit Strategies LLC acts as the Funds investment adviser and also provides administrative and compliance oversight services to the Fund. The Adviser, a wholly-owned subsidiary of Blackstone Alternative Credit Advisors LP (collectively
with its affiliates, Blackstone Credit), is a registered investment adviser. Blackstone Credit is part of the credit platform of The Blackstone Group Inc. (collectively with its affiliates, Blackstone), which is one of the
worlds leading investment firms with total assets under management of $538 billion. Blackstones asset management businesses include investment vehicles focused on real estate, private equity, public debt and equity, growth equity,
opportunistic, non-investment grade credit, real assets and secondary funds, all on a global basis. As of March 31, 2021, Blackstone Credits asset management operation had aggregate assets under
management of $149 billion across multiple strategies within the leveraged finance marketplace, including loans, high yield bonds, distressed and mezzanine debt and private equity, including hedge funds. In addition, as of December 31,
2020, the Adviser had total assets under management of approximately $43 billion. The Adviser is part of the Liquid Credit Strategies (LCS) business unit of Blackstone Credit and is responsible for managing long-only credit
strategies, including investments in U.S. and European senior secured loans, high yield bonds, and structured credit investments, in vehicles, including CLOs, separately managed accounts, commingled funds, three other
closed-end funds and a sub-advised ETF.
Pursuant to the
investment advisory agreement, the Adviser manages the Funds investment portfolio, directs purchases and sales of portfolio securities and reports thereon to the Funds officers and Trustees regularly. The Adviser or its parent also
provides the office space, facilities, equipment and personnel necessary to perform the following services for the Fund: SEC compliance, including record keeping, reporting requirements and registration statements and proxies; supervision of Fund
operations, including coordination of
25
functions of the transfer agent, custodian, accountants, counsel and other parties performing services or operational functions for the Fund; and certain administrative and clerical services,
including certain accounting services and maintenance of certain books and records.
The 1940 Act requires that the Board, including a
majority of its members who are not considered to be interested persons under the 1940 Act (the Independent Trustees) voting separately, approve on an annual basis the continuation of the Funds investment advisory
agreement with the Adviser. On May 28, 2020, the Board, including the Independent Trustees, considered and approved the continuation of the Agreement for an additional one-year term.
The investment advisory agreement provides for the Fund to pay a management fee at an annual rate equal to 1.20% of the average daily value of
the Funds net assets. The term net assets means total assets of the Fund minus liabilities (including accrued expenses or dividends). During the fiscal year ended December 31, 2020, December 31, 2019 and December 31,
2018, the Fund paid the Adviser $2,165,107, $2,430,110 and $2,615,838, respectively, under the investment advisory agreement.
The
investment advisory agreement had an initial term of two years and continues in effect for successive periods of 12 months thereafter, provided that each continuance is specifically approved at least annually by both (1) the vote of a majority
of the Board or the vote of a majority of the outstanding securities entitled to vote (as such term is defined in the 1940 Act) and (2) by the vote of a majority of the Independent Trustees, cast in person at a meeting called for the purpose of
voting on such approval. The agreement may be terminated at any time, without the payment of any penalty, by the Fund (upon the vote of a majority of the Board or a majority of the outstanding securities entitled to vote) or by the Adviser, upon not
more than 60 nor less than 30 days written notice by either party to the other which can be waived by the non-terminating party. The agreement will terminate automatically in the event of its assignment
(as such term is defined in the 1940 Act and the rules thereunder).
The investment advisory agreement provides that in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations thereunder, the Adviser is not liable to the Fund or any of the common shareholders for any act or omission by the Adviser in the supervision or management of
its respective investment activities or for any loss sustained by the Fund or the common shareholders and provides for indemnification by the Fund of the Adviser, its Trustees, officers, employees, agents and control persons for liabilities incurred
by them in connection with their services to the Fund, subject to certain limitations and conditions.
Although the professional staff of
the Adviser will devote as much time to the management of the Fund as the Adviser deems appropriate to perform its duties in accordance with the investment advisory agreement and in accordance with reasonable commercial standards, the professional
staff of the Adviser may have conflicts in allocating its time and services among the Fund and the Advisers other investment vehicles and accounts. The Adviser has informed the Board that the services of the Adviser are not exclusive, and the
Adviser provides similar services to other investment companies and other clients and may engage in other activities. A discussion regarding the basis for the approval of the investment advisory agreement by the Board is available in the Funds
Annual Report.
Administrator
ALPS Fund Services, Inc., located at 1290 Broadway, Suite 1000, Denver, Colorado 80203, serves as administrator to the Fund. Under the
Administration, Bookkeeping and Pricing Services Agreement (the Administration Agreement), ALPS maintains the Funds general ledger and is responsible for calculating the NAV of the Common Shares, and generally managing the
administrative affairs of the Fund. ALPS is entitled to receive a monthly fee based on the Funds average daily net assets plus out-of-pocket expenses. For the
fiscal year ended December 31, 2020, the Fund paid ALPS $276,881 under the Administration Agreement.
26
Portfolio Managers
Unless otherwise indicated, the information below is provided as of the date of this Statement of Additional Information.
The table below identifies the number of accounts (other than the Fund) for which the Funds portfolio managers have day-to-day management responsibilities and the total assets in such accounts, within each of the following categories: registered investment companies, other pooled investment
vehicles and other accounts. For each category, the number of accounts and total assets in the accounts where fees are based on performance is also indicated as of December 31, 2020.
As of December 31, 2020, Robert Zable managed, or was a member of the management team for, the following client accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Accounts
|
|
Assets of
Accounts
|
|
|
Number of
Accounts
Subject to a
Performance Fee
|
|
|
Assets
Subject to a
Performance Fee
|
|
Registered Investment Companies
|
|
4
|
|
$
|
2.053 billion
|
|
|
|
|
|
|
$
|
|
|
Pooled Investment Vehicles Other Than Registered Investment Companies
|
|
40
|
|
$
|
22.213 billion
|
|
|
|
40
|
|
|
$
|
22.213 billion
|
|
Other Accounts
|
|
1
|
|
$
|
0.251 billion
|
|
|
|
|
|
|
$
|
|
|
As of December 31, 2020, Gordon McKemie managed, or was a member of the management team for, the
following client accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Accounts
|
|
Assets of
Accounts
|
|
|
Number of
Accounts
Subject to a
Performance Fee
|
|
|
Assets
Subject to a
Performance Fee
|
|
Registered Investment Companies
|
|
5
|
|
$
|
4.276 billion
|
|
|
|
|
|
|
$
|
|
|
Pooled Investment Vehicles Other Than Registered Investment Companies
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
Other Accounts
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
As of December 31, 2020, Robert Post managed, or was a member of the management team for, the following
client accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Accounts
|
|
|
Assets of
Accounts
|
|
|
Number of
Accounts
Subject to a
Performance Fee
|
|
|
Assets
Subject to a
Performance Fee
|
|
Registered Investment Companies
|
|
|
4
|
|
|
$
|
2.053 billion
|
|
|
|
|
|
|
$
|
|
|
Pooled Investment Vehicles Other Than Registered Investment Companies
|
|
|
40
|
|
|
$
|
22.213 billion
|
|
|
|
40
|
|
|
$
|
22.213 billion
|
|
Other Accounts
|
|
|
1
|
|
|
$
|
0.251 billion
|
|
|
|
|
|
|
$
|
|
|
Portfolio Manager Compensation
The Advisers financial arrangements with its portfolio managers, its competitive compensation and its career path emphasis at all levels
reflect the value senior management places on key resources. Compensation may include a variety of components and may vary from year to year based on a number of factors. The principal components of compensation include a base salary and a
discretionary bonus.
Base Compensation. Generally, portfolio managers receive base compensation and employee benefits based
on their individual seniority and/or their position with the firm.
27
Discretionary Compensation. In addition to base compensation, portfolio managers
may receive discretionary compensation. Discretionary compensation is based on individual seniority, contributions to the Adviser and performance of the client assets that the portfolio manager has primary responsibility for. The discretionary
compensation is not based on a precise formula, benchmark or other metric. These compensation guidelines are structured to closely align the interests of employees with those of the Adviser and its clients.
Securities Ownership of Portfolio Managers
The following table shows the dollar range of equity securities owned by the portfolio managers in the Fund as of December 31, 2020.
|
|
|
|
|
Name of Portfolio Manager
|
|
Dollar Range of
Equity Securities in
the Fund
|
|
Robert Zable
|
|
|
None
|
|
Gordon McKemie
|
|
$
|
10,001 - $50,000
|
|
Robert Post
|
|
|
None
|
|
28
Potential Conflicts of Interest
The purchase of Common Shares in the Fund involves a number of significant risks that should be considered before making any investment. The
Fund and common shareholders will be subject to a number of actual and potential conflicts of interest involving the Firm. In addition, as a consequence of Blackstone holding a controlling interest in Blackstone Credit and Blackstones status
as a public company, the officers, directors, members, managers and employees of Blackstone Credit will take into account certain additional considerations and other factors in connection with the management of the business and affairs of the Fund
that would not necessarily be taken into account if Blackstone were not a public company. The following discussion enumerates certain, but not all, potential conflicts of interest that should be carefully evaluated before making an investment in the
Fund, but is not intended to be an exclusive list of all such conflicts. The Firm and its personnel may in the future engage in further activities that may result in additional conflicts of interest not addressed below. Any references to the Firm,
Blackstone Credit, Blackstone or the Adviser in this section will be deemed to include their respective affiliates, partners, members, shareholders, officers, directors and employees, except that portfolio companies of managed clients shall only be
included to the extent the context shall require and references to Blackstone Credit affiliates shall only be to affiliates operating as a part of Blackstones credit focused business group.
For purposes of this discussion and ease of reference, the following terms shall have the meanings as set forth below:
Other Blackstone Credit Clients means, collectively, the investment funds, client accounts (including managed accounts) and
proprietary accounts and/or other similar arrangements (including such arrangements in which the Fund or one or more Other Blackstone Credit Clients own interests) that Blackstone Credit may establish, advise or
sub-advise from time to time and to which Blackstone Credit provides investment management or sub-advisory services (other than the Fund and any such funds and accounts
in which the Fund has an interest), in each case including any alternative investment vehicles and additional capital vehicles relating thereto and any vehicles established by Blackstone Credit to exercise its side-by-side or other general partner investment rights as set forth in their respective governing documents; provided, that for the avoidance of doubt, Other Blackstone Credit Clients shall not
include Blackstone Credit in its role as principal of any account, including any accounts for which Blackstone Credit or an affiliate thereof acts as an advisor.
Blackstone Clients means, collectively, the investment funds, client accounts (including managed accounts) and proprietary
accounts and/or other similar arrangements (including such arrangements in which the Fund or one or more Blackstone Clients own interests) that Blackstone may establish, advise or sub-advise from time to time
and to which Blackstone provides investment management or sub-advisory services (other than the Fund, any such funds and accounts in which the Fund has an interest and Other Blackstone Credit Clients), in each
case including any alternative investment vehicles and additional capital vehicles relating thereto and any vehicles established by Blackstone to exercise its
side-by-side or other general partner investment rights as set forth in their respective governing documents; provided that, for the avoidance of doubt, Blackstone
Clients shall not include Blackstone in its role as principal of any account, including any accounts for which Blackstone or an affiliate thereof acts as an advisor.
Other Clients means, collectively, Other Blackstone Credit Clients and Blackstone Clients.
The Firms Policies and Procedures. Because the Firm has many different asset
management and advisory businesses, it is subject to a number of actual and potential conflicts of interest, greater regulatory oversight and more legal and contractual restrictions than that to which it would be subject if it had just one line of
business. Certain policies and procedures implemented by the Firm to mitigate potential conflicts of interest and address certain regulatory requirements and contractual restrictions, such as the Firms information wall policy, will from time
to time reduce the synergies and collaboration across the Firms various businesses that the Fund expects to draw on for purposes of identifying, pursuing and managing attractive investment opportunities. For example, the
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Firm will come into possession of material non-public information with respect to companies, including companies in which the Fund has investments or is
considering making investments. The information, which could be of benefit to the Fund, is likely to be restricted to those other businesses and otherwise be unavailable to the Fund. It is also possible that the Fund could be restricted from trading
despite the fact that the Fund did not receive such information. Additionally, the Firm may restrict or otherwise limit the Fund and/or its obligors from entering into agreements with, or related to, companies that either are advisory clients of the
Firm or in which any fund managed by the Firm has invested or has considered making an investment. The Firm will from time to time restrict or otherwise limit the ability of the Fund and/or its obligors to make investments in or otherwise engage in
businesses or activities competitive with companies of other advisory clients of the Firm, either as a result of contractual restrictions or otherwise. Furthermore, there will be circumstances in which affiliates of the Firm (including Other
Clients) may refrain from taking certain confidential information in order to avoid trading restrictions. Finally, the Firm has and will enter into one or more strategic relationships in certain regions or with respect to certain types of
investments that, although possibly intended to provide greater opportunities for the Fund, may require the Fund to share such opportunities or otherwise limit the amount of an opportunity the Fund can otherwise take. There can be no assurance that
additional restrictions will not be imposed that would further limit the ability of the Firm to share information internally.
Broad
and Wide-Ranging Activities. The Firm engages in a broad spectrum of activities. In the ordinary course of its business activities, the Firm will engage in activities where the interests of certain divisions of the Firm or the interests
of its clients will conflict with the interests of the common shareholders in the Fund. Other present and future activities of the Firm will give rise to additional conflicts of interest. In the event that a conflict of interest arises, the Adviser
will attempt to resolve such conflict in a fair and equitable manner, subject to the limitations of the 1940 Act and the Boards oversight. Common shareholders should be aware that conflicts will not necessarily be resolved in favor of the
Funds interests. Investors should be aware that conflicts will not necessarily be resolved in favor of the Funds interests. In addition, the Adviser may in certain situations choose to obtain the consent of the Board with respect to any
specific conflict of interest, including with respect to the approvals required under the 1940 Act and the Advisers Act. The Fund may enter into joint transactions or cross-trades with clients or affiliates of the Adviser to the extent permitted by
the 1940 Act, the Advisers Act and any applicable co-investment order from the SEC. Subject to the limitations of the 1940 Act, the Fund may invest in loans or other securities, the proceeds of which may
refinance or otherwise repay debt or securities of companies whose debt is owned by other funds managed by Blackstone Credit.
Allocation of Personnel. The Adviser and its members, officers and employees will devote as much of their time to the
activities of the Fund as they deem necessary to conduct its business affairs in an appropriate manner. By the terms of the investment advisory agreement, the Firm is not restricted from forming additional investment funds, from entering into other
investment advisory relationships or from engaging in other business activities, even though such activities may be in competition with the Fund and/or may involve substantial time and resources of the Adviser. Firm personnel, including members of
the investment committee, will work on other projects, serve on other committees and source potential investments for and otherwise assist the investment programs of Other Clients and their portfolio companies, including other investment programs to
be developed in the future. These activities could be viewed as creating a conflict of interest in that the time and effort of the members of the Adviser and its officers and employees will not be devoted exclusively to the business of the Fund, but
will be allocated between the business of the Fund and the management of the monies of such Other Clients of the Adviser. Time spent on these other initiatives diverts attention from the activities of the Fund, which could negatively impact the
common shareholders. Furthermore, Blackstone Credit and Blackstone Credit personnel derive financial benefit from these other activities, including fees and performance-based compensation. Firm personnel outside of Blackstone Credit may share in the
fees and performance-based compensation from the Fund; similarly, Blackstone Credit personnel may share in the fees and performance-based compensation generated by Other Clients. These and other factors create conflicts of interest in the allocation
of time by Firm personnel. Blackstone Credits determination of the amount of time necessary to conduct the Funds activities will be conclusive.
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Outside Activities of Principals and Other Personnel and their Related
Parties. Certain of the principals and employees of the Adviser may be subject to a variety of conflicts of interest relating to their responsibilities to the Fund, Other Clients and their respective portfolio companies, and their
outside business activities as members of investment or advisory committees or boards of directors of or advisors to investment funds, corporations, foundations or other organizations. Such positions create a conflict if such other entities have
interests that are adverse to those of the Fund, including if such other entities compete with the Fund for investment opportunities or other resources. The other managed accounts and/or investment funds in which such individuals may become involved
may have investment objectives that overlap with the Fund. Although such principals and employees will seek to limit any such conflicts in a manner that is in accordance with their fiduciary duties to the Fund, there can be no assurance that
conflicts of interest between the interests of the Fund and Other Clients will be resolved favorably for the Fund. Furthermore, certain principals and employees of the Adviser may have a greater financial interest in the performance of such other
funds or accounts than the performance of the Fund. Such involvement may create conflicts of interest in making investments on behalf of the Fund and such other funds and accounts. Also, Blackstone personnel, Firm employees, including employees of
the Adviser, are generally permitted to invest in alternative investment funds, private equity funds, real estate funds, hedge funds or other investment vehicles, including potential competitors of the Fund. Common shareholders will not receive any
benefit from any such investments, and the financial incentives of such Firm employees in such other investments could be greater than their financial incentives in relation to the Fund.
Additionally, certain employees and other professionals of the Firm may have family members or relatives employed by advisers and service
providers (or their affiliates) or otherwise actively involved in industries and sectors in which the Fund invests, or have business, financial, personal or other relationships with companies in such industries and sectors (including the advisors
and service providers described above) or other industries, which gives rise to potential or actual conflicts of interest. For example, such family members or relatives might be employees, officers, directors or owners of companies or assets that
are actual or potential investments of the Fund or other counterparties of the Fund and its obligors and/or assets, or service providers of the Fund. Moreover, in certain instances, the Fund or its obligors may issue loans to or acquire securities
from, or otherwise transact with, companies that are owned by such family members or relatives or in respect of which such family members or relatives have other involvement. These relationships also may influence Blackstone, the Adviser and/or
Blackstone Credit in deciding whether to select or recommend certain service providers to perform services for the Fund or obligors (the cost of which will generally be borne directly or indirectly by the Fund or such obligors, as applicable).
Notwithstanding the foregoing, investment transactions relating to the Fund that require the use of a service provider will generally be allocated to service providers on the basis of best execution, the evaluation of which includes, among other
considerations, such service providers provision of certain investment-related services and research that the Adviser believes to be of benefit to the Fund. To the extent that the Firm determines appropriate, conflict mitigation strategies may
be put in place with respect to a particular circumstance, such as internal information barriers or recusal, disclosure or other steps determined appropriate by the Firm.
Secondments and Internships. Certain personnel of the Firm and its affiliates, including consultants, will, in
certain circumstances, be seconded to one or more portfolio companies, vendors, service providers and vendors or common shareholders or other investors of the Fund and Other Clients to provide services, including the sourcing of investments for the
Fund or other parties. The salaries, benefits, overhead and other similar expenses for such personnel during the secondment could be borne by the Firm and its affiliates or the organization for which the personnel are working or both. In addition,
personnel of portfolio companies, vendors and service providers (including law firms and accounting firms) and common shareholders or other investors of the Fund and Other Clients will, in certain circumstances, be seconded to, serve internships at
or otherwise provide consulting services to, the Firm, the Fund and its obligors, and Other Clients and its portfolio companies. While often the Fund, Other Clients and their obligors or portfolio companies (as applicable) are the beneficiaries of
these types of arrangements, the Firm is from time to time a beneficiary of these arrangements as well, including in circumstances where the vendor or service provider also provides services to the Fund, Other Clients, their obligors or portfolio
companies (as applicable) or the Firm in the ordinary course. The Firm, the
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Fund, Other Clients or their obligors or portfolio companies (as applicable) could receive benefits from these arrangements at no cost, or alternatively could pay all or a portion of the fees,
compensation or other expenses in respect of these arrangements. The management fee will not be reduced as a result of these arrangements or any fees, expense reimbursements or other costs related thereto and the Fund may not receive any benefit as
a result of these arrangements. The personnel described above may provide services in respect of multiple matters, including in respect of matters related to the Firm, the Fund, Other Clients, portfolio companies, each of their respective affiliates
and related parties, and the Firm will endeavor in good faith to allocate the costs of these arrangements, if any, to the Firm, the Fund, Other Clients, portfolio companies and other parties based on time spent by the personnel or another
methodology the Firm deems appropriate in a particular circumstance.
Other Benefits. Blackstone Credit and its
personnel will receive certain intangible and/or other benefits, rebates and/or discounts and/or perquisites arising or resulting from their activities on behalf of the Fund, which will not reduce the management fee or incentive fees or otherwise be
shared with the Fund, investors and/or portfolio companies. For example, airline travel or hotel stays incurred as Fund expenses, as set forth in the investment advisory agreement (Fund Expenses), may result in miles or
points or credit in loyalty/status programs, and such benefits and/or amounts will, whether or not de minimis or difficult to value, inure exclusively to Blackstone Credit and/or such personnel (and not the Fund and/or portfolio
companies) even though the cost of the underlying service is borne by the Fund and/or portfolio companies. Blackstone Credit, its personnel, and other related persons also receive discounts on products and services provided by portfolio companies
and/or customers or suppliers of such portfolio companies. Such other benefits or fees may give rise to conflicts of interest in connection with the Funds investment activities, and while the Adviser and Blackstone Credit will seek to resolve
any such conflicts in a fair and equitable manner, there is no assurance that any such conflicts will be resolved in favor of the Fund. (See also Obligor/Portfolio Company Service Providers and Vendors and
Obligor/Portfolio Company Relationships Generally below.)
Senior Advisors, Industry Experts and Operating
Partners. Blackstone Credit may engage and retain strategic advisers, consultants, senior advisors, executive advisers, industry experts, operating partners, deal sourcers, consultants and other similar professionals (which may include
former employees of Blackstone and/or Blackstone Credit, as well as current employees of Blackstones and/or Blackstone Credits portfolio companies) (Senior and Other Advisors) who are not employees or affiliates of Blackstone
Credit and who will, from time to time, receive payments from, or allocations of a profits interest with respect to, portfolio companies (as well as from Blackstone Credit or the Fund). In particular, in some cases, consultants, including those with
a Senior Advisor title, have been and will be engaged with the responsibility to source and recommend transactions to Blackstone Credit or to undertake a build-up strategy to acquire and develop assets and businesses in a particular
sector or involving a particular strategy, potentially on a full-time and/or exclusive basis and notwithstanding any overlap with the responsibilities of Blackstone Credit under the investment advisory agreement, the compensation to such consultants
may be borne fully by the Fund and/or portfolio companies (with no reduction to the management fee payable by the Fund) and not Blackstone Credit. In such circumstances, such payments from, or allocations of a profits interest with respect to,
portfolio companies and/or the Fund may, subject to applicable law, be treated as Fund Expenses and will not, even if they have the effect of reducing any retainers or minimum amounts otherwise payable by Blackstone Credit, be deemed paid to or
received by Blackstone Credit, and such amounts will not reduce the management fees or incentive fees payable.
To the extent permitted by
applicable law and/or any applicable SEC-granted exemptive or no-action relief, these Senior and Other Advisors often have the right or may be offered the ability to (i) co-invest alongside the Fund, including in the specific investments in which
they are involved (and for which they may be entitled to receive performance-related incentive fees, which will reduce the Funds returns), (ii) otherwise participate in equity plans for management of any such portfolio company or (iii) invest
directly in the Fund or in a vehicle controlled by the Fund subject to reduced or waived management fees and/or incentive fees, including after the termination of their engagement by or other status with the Firm. Such co-investment and/or
participation generally will result in the Fund being allocated a smaller share of the applicable investment. Such co-investment and/or participation may vary by transaction and such participation may, depending on its structure, reduce the
32
Funds returns. Additionally, and notwithstanding the foregoing, these Senior and Other Advisors, as well as other Blackstone Clients, may be (or have the preferred right to be) investors in
Blackstone Credits portfolio companies (which, in some cases, may involve agreements to pay performance fees or allocate profits interests to such persons in connection with the Funds investment therein, which will reduce the Funds
returns) and/or Other Clients. Such Senior and Other Advisors, as well as other Blackstone Clients, may also, subject to applicable law, have rights to co-invest with the Fund on a side-by-side basis, which rights are generally offered on a
no-fee/no-carried interest basis and generally result in the Fund being allocated a smaller share of an investment than would otherwise be the case in the absence of such side-by-side participation.
The time, dedication and scope of work of, and the nature of the relationship with each of the Senior and Other Advisors vary considerably. In
certain cases, they may provide the Adviser and/or Blackstone Credit with industry-specific insights and feedback on investment themes, assist in transaction due diligence or make introductions to and provide reference checks on management teams. In
other cases, they take on more extensive roles (and may be exclusive service providers to Blackstone Credit) and serve as executives or directors on the boards of portfolio companies or contribute to the identification and origination of new
investment opportunities. The Fund may rely on these Senior and Other Advisors to recommend Blackstone Credit as a preferred investment partner, identify investments, source opportunities, and otherwise carry out its investment program, but there is
no assurance that these advisers will continue to be involved with the Fund for any length of time. In certain instances, Blackstone Credit has formal arrangements with these Senior and Other Advisors (which may or may not be terminable upon notice
by any party), and in other cases the relationships are more informal. They are either compensated (including pursuant to retainers and expense reimbursement, and, in any event, pursuant to negotiated arrangements) by Blackstone Credit, the Fund,
and/or portfolio companies or otherwise uncompensated unless and until an engagement with a portfolio company develops. In certain cases, they have certain attributes of Blackstone Credit employees (e.g., they may have dedicated
offices at Blackstone Credit, receive administrative support from Blackstone Credit personnel, participate in general meetings and events for Blackstone Credit personnel, work on Blackstone Credit matters as their primary or sole business activity,
service Blackstone Credit exclusively, have Blackstone Credit-related e-mail addresses and/or business cards and participate in certain benefit arrangements typically reserved for Blackstone Credit employees, etc.) even though they are not
considered Blackstone Credit employees, affiliates or personnel for purposes of the investment advisory agreement between the Fund and Blackstone Credit. Some Senior and Other Advisors may provide services only for the Fund and its obligors, while
others may have other clients. Senior and Other Advisors could have conflicts of interest between their services for the Fund and its obligors, on the one hand, and themselves or other clients, on the other hand, and Blackstone Credit is limited in
its ability to monitor and mitigate these conflicts. Blackstone Credit expects, where applicable, to allocate the costs of such Senior and Other Advisors to the Fund and/or applicable portfolio companies, and to the extent any such costs are
allocated to the Fund, they would be treated as Fund Expenses. Payments or allocations to Senior and Other Advisors will not be reduced by the management fee, and can be expected to increase the overall costs and expenses borne indirectly by
investors in the Fund. There can be no assurance that any of the Senior and Other Advisors, to the extent engaged, will continue to serve in such roles and/or continue their arrangements with Blackstone Credit, the Fund and/or any portfolio
companies for the duration of the relevant investments.
As an example of the foregoing, in certain investments through joint ventures,
investment platforms, other entities or similar arrangements, the Fund will from time to time enter into an arrangement with one or more individuals (who may be former personnel of the Firm or current or former personnel of portfolio companies of
the Fund or Other Clients, may have experience or capability in sourcing or managing investments, and may form a management team) to undertake a build-up strategy to acquire and develop assets and businesses in a particular sector or involving a
particular strategy. The services provided by such individuals or relevant portfolio company, as the case may be, could include the following with respect to investments: origination or sourcing, due diligence, evaluation, negotiation, servicing,
development, management (including turnaround) and disposition. The individuals or relevant portfolio company could be compensated with a salary and equity incentive plan, including a portion of profits derived from the Fund or a portfolio company
or asset of the Fund, or other long-term incentive plans. Compensation could also be based on assets under management, a waterfall
33
similar to a carried interest, respectively, or other similar metric. The Fund could initially bear the cost of overhead (including rent, utilities, benefits, salary or retainers for the
individuals or their affiliated entities) and the sourcing, diligence and analysis of investments, as well as the compensation for the individuals and entity undertaking the build-up strategy. Such expenses could be borne directly by the Fund as
Fund Expenses (or broken deal expenses, if applicable) or indirectly through expenditures by a portfolio company. None of the fees, costs or expenses described above will reduce the management fee.
In addition, the Adviser may engage third parties as Senior and Other Advisors (or in another similar capacity) in order to advise it with
respect to existing investments, specific investment opportunities, and economic and industry trends. Such Senior and Other Advisors may receive reimbursement of reasonable related expenses by portfolio companies or the Fund and may have the
opportunity to invest in a portion of the equity and/or debt available to the Fund for investment that would otherwise be taken by the Adviser and its affiliates. If such Senior and Other Advisors generate investment opportunities on the Funds
behalf, such Senior and Other Advisors may receive special additional fees or allocations comparable to those received by a third party in an arms length transaction and such additional fees or allocations would be borne fully by the Fund
and/or portfolio companies (with no reduction to the management fee payable by the Fund) and not Blackstone Credit.
Multiple Firm
Business Lines. The Firm has multiple business lines, including the Blackstone Capital Markets Group, which, subject to applicable law, Blackstone, Blackstone Credit, the Fund, Other Clients, portfolio companies of the Fund and Other
Clients and third parties may engage for debt and equity financings and to provide other investment banking, brokerage, investment advisory or other services. As a result of these activities, the Firm is subject to a number of actual and potential
conflicts of interest, greater regulatory oversight and more legal and contractual restrictions than if it had one line of business. For example, the Firm may come into possession of information that limits the Funds ability to engage in
potential transactions. Similarly, other Firm businesses and their personnel may be prohibited by law or contract from sharing information with Blackstone Credit that would be relevant to monitoring the Funds investments and other activities.
Additionally, Blackstone, Blackstone Credit or Other Clients can be expected to enter into covenants that restrict or otherwise limit the ability of the Fund or its obligors and their affiliates to make investments in, or otherwise engage in,
certain businesses or activities. For example, Other Clients could have granted exclusivity to a joint venture partner that limits the Fund and Other Clients from owning assets within a certain distance of any of the joint ventures assets, or
Blackstone, Blackstone Credit or an Other Client could have entered into a non-compete in connection with a sale or other transaction. These types of restrictions may negatively impact the ability of the Fund
to implement its investment program. (See also Other Blackstone and Blackstone Credit Clients; Allocation of Investment Opportunities). Finally, Blackstone and Blackstone Credit personnel who are members of the investment team or
investment committee may be excluded from participating in certain investment decisions due to conflicts involving other Firm businesses or for other reasons, in which case the Fund will not benefit from their experience. The common shareholders
will not receive a benefit from any fees earned by the Firm or their personnel from these other businesses.
Blackstone is under no
obligation to decline any engagements or investments in order to make an investment opportunity available to the Fund. The Firm has long-term relationships with a significant number of corporations and their senior management. In determining whether
to invest in a particular transaction on behalf of the Fund, the Adviser will consider those relationships and may decline to participate in a transaction as a result of one or more of such relationships (e.g., investments in a competitor of
a client or other person with whom Blackstone has a relationship). The Fund may be forced to sell or hold existing investments as a result of investment banking relationships or other relationships that the Firm may have or transactions or
investments the Firm may make or have made. (See Other Blackstone and Blackstone Credit Clients; Allocation of Investment Opportunities and Obligor/Portfolio Company Relationships Generally.) Subject to the 1940
Act and any applicable co-investment order issued by the SEC, the Fund may also co-invest with clients of the Firm in particular investment opportunities, and the
relationship with such clients could influence the decisions made by the Adviser with respect to such investments. There can be no assurance that all potentially suitable investment opportunities that come to the attention of the Firm will be made
available to the Fund.
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Finally, Blackstone and other Blackstone Clients could acquire shares in the Fund in the
secondary market. Blackstone and other Blackstone Clients would generally have greater information than counterparties in such transactions, and the existence of such business could produce conflicts, including in the valuation of the Funds
Investments.
Minority Investments in Asset Management Firms. Blackstone and other Blackstone Clients, including
Blackstone Strategic Capital Holdings (BSCH) and its related parties, regularly make minority investments in alternative asset management firms that are not affiliated with Blackstone, the Fund, other Blackstone Clients and their
respective portfolio companies, and which may from time to time engage in similar investment transactions, including with respect to purchase and sale of investments, with these asset management firms and their sponsored funds and portfolio
companies. Typically, the Blackstone related party with an interest in the asset management firm would be entitled to receive a share of carried interest/performance based incentive compensation and net fee income or revenue share generated by the
various products, vehicles, funds and accounts managed by that third party asset management firm that are included in the transaction or activities of the third party asset management firm, or a subset of such activities such as transactions with a
Blackstone related party. In addition, while such minority investments are generally structured so that Blackstone does not control such third party asset management firms, Blackstone may nonetheless be afforded certain governance rights
in relation to such investments (typically in the nature of protective rights, negative control rights or anti-dilution arrangements, as well as certain reporting and consultation rights) that afford Blackstone the ability to influence
the firm. Although Blackstone and other Blackstone Clients, including BSCH, do not intend to control such third party asset management firms, there can be no assurance that all third parties will similarly conclude that such investments are non-control investments or that, due to the provisions of the governing documents of such third party asset management firms or the interpretation of applicable law or regulations, investments by Blackstone and
other Blackstone Clients, including BSCH, will not be deemed to have control elements for certain contractual, regulatory or other purposes. While such third party asset managers may not be affiliated with the Fund within the meaning of the 1940
Act, Blackstone may, under certain circumstances, be in a position to influence the management and operations of such asset managers and the existence of its economic/revenue sharing interest therein may give rise to conflicts of interest.
Participation rights in a third party asset management firm (or other similar business), negotiated governance arrangements and/or the interpretation of applicable law or regulations could expose the investments of the Fund to claims by third
parties in connection with such investments (as indirect owners of such asset management firms or similar businesses) that may have an adverse financial or reputational impact on the performance of the Fund. The Fund, its affiliates and their
respective obligors and portfolio companies may from time to time engage in transactions with, and buy and sell investments from, any such third party asset managers and their sponsored funds, and such transactions and other commercial arrangements
between such third party asset managers and the Fund and its obligors are not subject to approval by the Board. There can be no assurance that the terms of these transactions between parties related to Blackstone, on the one hand, and the Fund and
its obligors, on the other hand, will be at arms length or that Blackstone will not receive a benefit from such transactions, which can be expected to incentivize Blackstone to cause these transactions to occur. These conflicts related to
investments in and arrangements with other asset management firms, will not necessarily be resolved in favor of the Fund.
Data. The Firm receives or obtains various kinds of data and information from the Fund, Other Clients and their obligors or
portfolio companies (as applicable), including data and information relating to business operations, trends, budgets, customers and other metrics, some of which is sometimes referred to as big data. The Firm can be expected to be better
able to anticipate macroeconomic and other trends, and otherwise develop investment themes, as a result of its access to (and rights regarding) this data and information from the Fund, Other Clients and their obligors or portfolio companies (as
applicable). The Firm has entered and will continue to enter into information sharing and use arrangements with the Fund, Other Clients and their obligors or portfolio companies (as applicable), related parties and service providers, which may give
the Firm access to (and rights regarding) data that it would not otherwise obtain in the ordinary course. Although the Firm believes that these activities improve the Firms investment management activities on behalf of the Fund and Other
Clients, information obtained from the Fund and its obligors also provides material benefits to Blackstone, Blackstone
35
Credit or Other Clients without compensation or other benefit accruing to the Fund or common shareholders. For example, information from a portfolio company in which the Fund holds an interest
can be expected to enable the Firm to better understand a particular industry and execute trading and investment strategies in reliance on that understanding for Blackstone, Blackstone Credit and Other Clients that do not own an interest in the
portfolio company, without compensation or benefit to the Fund or its obligors.
Furthermore, except for contractual obligations to third
parties to maintain confidentiality of certain information, and regulatory limitations on the use of material nonpublic information, the Firm is generally free to use data and information from the Funds activities to assist in the pursuit of
the Firms various other activities, including to trade for the benefit of the Firm and/or an Other Client. Any confidentiality obligations in the operative documents do not limit the Firms ability to do so. For example, the Firms
ability to trade in securities of an issuer relating to a specific industry may, subject to applicable law, be enhanced by information of a portfolio company in the same or related industry. Such trading can be expected to provide a material benefit
to the Firm without compensation or other benefit to the Fund or common shareholders.
The sharing and use of big data and
other information presents potential conflicts of interest and the common shareholders acknowledge and agree that any benefits received by the Firm or its personnel (including fees, costs and expenses) will not reduce the management fees or
incentive fees payable to the Adviser or otherwise be shared with the Fund or common shareholders. As a result, the Adviser has an incentive to pursue investments that have data and information that can be utilized in a manner that benefits the Firm
or Other Clients.
Data Management Services. Blackstone or an affiliate of Blackstone formed in the future may provide
data management services to portfolio companies and may also provide such services directly to the Fund and Other Clients (collectively, Data Holders). Such services may include assistance with obtaining, analyzing, curating, processing,
packaging, organizing, mapping, holding, transforming, enhancing, marketing and selling such data (among other related data management and consulting services) for monetization through licensing or sale arrangements with third parties and, subject
to applicable law and the limitations in the investment advisory agreement and any other applicable contractual limitations, with the Fund, Other Clients, portfolio companies and other Blackstone affiliates and associated entities (including funds
in which Blackstone and Other Clients make investments, and portfolio companies thereof). Where Blackstone believes appropriate, data from one Data Holder may be pooled with data from other Data Holders. Any revenues arising from such pooled data
sets would be allocated between applicable Data Holders on a fair and reasonable basis as determined by Blackstone Credit in its sole discretion, with Blackstone Credit able to make corrective allocations should it determine subsequently that such
corrections were necessary or advisable. Blackstone is expected to receive compensation for such data management services, which may include a percentage of the revenues generated through any licensing or sale arrangements with respect to the
relevant data, and which compensation may also include fees, royalties and cost and expense reimbursement (including start-up costs and allocable overhead associated with personnel working on relevant matters
(including salaries, benefits and other similar expenses)), provided that any compensation amounts will not exceed market rates for such services as determined by Blackstone Credit to be appropriate under the circumstances. Additionally, Blackstone
may determine to share the products from such Data Management Services within Blackstone or its affiliates (including Other Clients or their portfolio companies) at no charge and, in such cases, the Data Holders would not receive any financial or
other benefit from having provided such data to Blackstone. The potential receipt of such compensation by Blackstone could create incentives for the Firm to cause the Fund to invest in portfolio companies with a significant amount of data that it
might not otherwise have invested in or on terms less favorable than it otherwise would have sought to obtain.
Blackstone and
Blackstone Credit Strategic Relationships. Blackstone and Blackstone Credit have entered, and it can be expected that Blackstone and Blackstone Credit in the future will enter, into strategic relationships with investors (and/or one or
more of their affiliates) that involve an overall relationship with Blackstone or Blackstone Credit that could incorporate one or more strategies in addition to the Funds strategy (Strategic
36
Relationships), with terms and conditions applicable solely to such investor and its investment in multiple Blackstone or Blackstone Credit strategies that would not apply to any other
investors investment in the Fund. A Strategic Relationship often involves an investor agreeing to make a capital commitment to multiple Blackstone or Blackstone Credit funds, one of which may include the Fund. Common shareholders will not
receive a copy of any agreement memorializing such a Strategic Relationship program (even if in the form of a side letter) and will be unable to elect in the most-favored-nations election process any rights or benefits afforded through a
Strategic Relationship. Specific examples of such additional rights and benefits include, among others, specialized reporting, discounts or reductions on and/or reimbursements or rebates of management fees or carried interest, secondment of
personnel from the investor to Blackstone or Blackstone Credit (or vice versa), rights to participate in the investment review and evaluation process, as well as priority rights or targeted amounts for
co-investments alongside Blackstone Credit or Blackstone funds (including, without limitation, preferential or favorable allocation of co-investment and preferential
terms and conditions related to co-investment or other participation in Blackstone or Blackstone Credit funds (including in respect of any carried interest and/or management fees to be charged with respect
thereto, as well as any additional discounts or rebates with respect thereto or other penalties that may result if certain target co-investment allocations or other conditions under such arrangements are not
achieved)). The co-investment that is part of a Strategic Relationship may include co-investment in investments made by the Fund. Blackstone, including its personnel
(including Blackstone Credit personnel), may receive compensation from Strategic Relationships and be incentivized to allocate investment opportunities away from the Fund to or source investment opportunities for Strategic Relationships. Strategic
Relationships may therefore result in fewer co-investment opportunities (or reduced or no allocations) being made available to common shareholders, subject to the 1940 Act.
Portfolio Operations Group. Members of Blackstones Portfolio Operations group, who are Blackstone employees, are
permitted to provide services to the Funds obligors, and any payments made by such obligors to Blackstone for reimbursement of the internal compensation costs for time spent on such obligors will not reduce the management fee payable by the
Fund. As a result, Blackstone may be incentivized to cause members of the Portfolio Operations group to spend more time on the Funds obligors as compared to portfolio companies of Other Clients that do reduce the management fee offset. There
can be no assurance that members of the Portfolio Operations group will be able to provide their services to portfolio companies and/or that any individuals within the Portfolio Operations group will remain employed by Blackstone.
Buying and Selling Investments or Assets from Certain Related Parties. The Fund and its obligors may purchase investments
or assets from or sell investments or assets to common shareholders, other obligors of the Fund, portfolio companies of Other Clients or their respective related parties. Purchases and sales of investments or assets between the Fund or its obligors,
on the one hand, and common shareholders, other obligors of the Fund, portfolio companies of Other Clients or their respective related parties, on the other hand, are not, unless required by applicable law, subject to the approval of the Board or
any common shareholder. These transactions involve conflicts of interest, as the Firm may receive fees and other benefits, directly or indirectly, from or otherwise have interests in both parties to the transaction, including different financial
incentives Blackstone may have with respect to the parties to the transaction. For example, there can be no assurance that any investment or asset sold by the Fund to a common shareholder, other obligors of the Fund, portfolio company of Other
Clients or any of their respective related parties will not be valued or allocated a sale price that is lower than might otherwise have been the case if such asset were sold to a third party rather than to a common shareholder, portfolio company of
Other Clients or any of their respective related parties. The Firm will not be required to solicit third party bids or obtain a third party valuation prior to causing the Fund or any of its obligors to purchase or sell any asset or investment from
or to a common shareholder, other obligors of the Fund, portfolio company of Other Clients or any of their respective related parties as provided above.
Other Firm Businesses, Activities and Relationships. As part of its regular business, Blackstone provides a broad
range of investment banking, advisory and other services. In addition, from time to time, the Firm will provide services in the future beyond those currently provided. Common shareholders will not receive any benefit from any fees relating to such
services.
37
In the regular course of its capital markets, investment banking, real estate advisory and other
businesses, Blackstone represents potential purchasers, sellers and other involved parties, including corporations, financial buyers, management, shareholders and institutions, with respect to transactions that could give rise to other transactions
that are suitable for the Fund. In such a case, a Blackstone advisory client would typically require Blackstone to act exclusively on its behalf. Such advisory client requests may preclude all Blackstone-affiliated clients, including the Fund, from
participating in related transactions that would otherwise be suitable. Blackstone will be under no obligation to decline any such engagements in order to make an investment opportunity available to the Fund. In connection with its capital markets,
investment banking, advisory, real estate and other businesses, Blackstone comes into possession of information that limits its ability to engage in potential transactions. The Funds activities are expected to be constrained as a result of the
inability of Blackstone personnel to use such information. For example, employees of Blackstone from time to time are prohibited by law or contract from sharing information with members of the Funds investment team. Additionally, there are
expected to be circumstances in which one or more individuals associated with Blackstone affiliates (including clients) will be precluded from providing services related to the Funds activities because of certain confidential information
available to those individuals or to other parts of Blackstone (e.g., trading may be restricted). Where Blackstone affiliates are engaged to find buyers or financing sources for potential sellers of assets, the seller may permit the Fund to
act as a participant in such transactions (as a buyer or financing partner), which would raise certain conflicts of interest inherent in such a situation (including as to the negotiation of the purchase price).
The Fund may invest in securities of the same issuers as Other Clients, other investment vehicles, accounts and clients of the Firm and the
Adviser. To the extent that the Fund holds interests that are different (or more senior or junior) than those held by such Other Clients, Blackstone Credit may be presented with decisions involving circumstances where the interests of such Other
Clients are in conflict with those of the Fund. Furthermore, it is possible the Funds interest may be subordinated or otherwise adversely affected by virtue of such Other Clients involvement and actions relating to its investment.
In addition, the 1940 Act may limit the Funds ability to undertake certain transactions with its affiliates that are registered under
the 1940 Act or regulated as business development companies under the 1940 Act. As a result of these restrictions, the Fund may be prohibited from executing joint transactions with such affiliates, which could include investments in the
same portfolio company (whether at the same or different times). These limitations may limit the scope of investment opportunities that would otherwise be available to the Fund.
Blackstone Credit has received an exemptive order that permits certain funds, among other things, to
co-invest with certain other persons, including certain affiliates of Blackstone Credit, and certain funds managed and controlled by Blackstone Credit and its affiliates subject to certain terms and
conditions. In addition, other present and future activities of the Firm and its affiliates (including Blackstone Credit and the Adviser) will from time to time give rise to additional conflicts of interest relating to the Firm and its investment
activities. In the event that any such conflict of interest arises, the Adviser will attempt to resolve such conflicts in a fair and equitable manner. Investors should be aware that, subject to applicable law, conflicts will not necessarily be
resolved in favor of the Funds interests.
Transactions with Clients of Blackstone Insurance
Solutions. Blackstone Insurance Solutions (BIS) is a business unit of Blackstone that is comprised of two affiliated registered investment advisers. BIS provides investment advisory services to insurers (including insurance
companies that are owned, directly or indirectly, by Blackstone or Other Clients, in whole or in part). Actual or potential conflicts of interest may arise with respect to the relationship of the Fund and its obligors with the funds, vehicles or
accounts BIS advises or sub-advises, including accounts where an insurer participates in investments directly and there is no separate vehicle controlled by Blackstone (collectively, BIS Clients).
BIS Clients have invested and are expected to continue investing in Other Clients and the Fund. BIS Clients may have investment objectives that overlap with those of the Fund or its obligors, and such BIS Clients may invest, as permitted by
applicable law and the Funds exemptive relief, alongside the Fund or such obligors in certain investments, which will reduce the investment opportunities otherwise available to the Fund or such obligors. BIS Clients will also participate in
transactions
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related to the Fund and/or its obligors (e.g., as originators, co-originators, counterparties or otherwise). Other transactions in which BIS Clients
will participate include, without limitation, investments in debt or other securities issued by portfolio companies or other forms of financing to portfolio companies (including special purpose vehicles established by the Fund or such portfolio
companies). When investing alongside the Fund or its obligors or in other transactions related to the Fund or its obligors, BIS Clients may or may not invest or divest at the same time or on the same terms as the Fund or the applicable obligors. BIS
Clients may also from time to time acquire investments and obligors directly or indirectly from the Fund, as permitted by applicable law and the Funds exemptive relief. In circumstances where Blackstone Credit determines in good faith that the
conflict of interest is mitigated in whole or in part through various measures that Blackstone, Blackstone Credit or the Adviser implements, the Adviser may determine to proceed with the applicable transaction (subject to oversight by the Board and
the applicable law to which the Fund is subject). In order to seek to mitigate any potential conflicts of interest with respect to such transactions (or other transactions involving BIS Clients), Blackstone may, in its discretion, involve
independent members of the board of a portfolio company or a third party stakeholder in the transaction to negotiate price and terms on behalf of the BIS Clients or otherwise cause the BIS Clients to follow the vote thereof, and/or cause
an independent client representative or other third party to approve the investment or otherwise represent the interests of one or more of the parties to the transaction. In addition, Blackstone or the Adviser may limit the percentage interest of
the BIS Clients participating in such transaction, or obtain appropriate price quotes or other benchmarks, or, alternatively, a third-party price opinion or other document to support the reasonableness of the price and terms of the transaction. BIS
will also from time to time require the applicable BIS Clients participating in a transaction to consent thereto (including in circumstances where the Adviser does not seek the consent of the Board). There can be no assurance that any such measures
or other measures that may be implemented by Blackstone will be effective at mitigating any actual or potential conflicts of interest.
Allocation of Portfolios. The Firm may have an opportunity to acquire a portfolio or pool of assets, securities and
instruments that it determines should be divided and allocated among the Fund and Other Clients. Such allocations generally would be based on the Firms assessment of the expected returns and risk profile of each of the assets. For example,
some of the assets in a pool may have a return profile appropriate for the Fund, while others may have a return profile not appropriate for the Fund but appropriate for Other Clients. Also, a pool may contain both debt and equity instruments that
the Firm determines should be allocated to different funds. In all of these situations, the combined purchase price paid to a seller would be allocated among the multiple assets, securities and instruments in the pool and therefore, subject to
applicable law and the conditions of the Funds co-investment relief, among the Fund and Other Clients acquiring any of the assets, securities and instruments. Similarly, there will likely be
circumstances in which the Fund and Other Clients will sell assets in a single or related transactions to a buyer. In some cases a counterparty will require an allocation of value in the purchase or sale contract, though the Firm could determine
such allocation of value is not accurate and should not be relied upon. The Firm will generally rely upon internal analysis to determine the ultimate allocation of value, though it could also obtain third party valuation reports. Regardless of the
methodology for allocating value, the Firm will have conflicting duties to the Fund and Other Clients when they buy or sell assets together in a portfolio, including as a result of different financial incentives the Firm has with respect to
different vehicles, most clearly when the fees and compensation, including performance-based compensation, earned from the different vehicles differ. There can be no assurance that an investment will not be valued or allocated a purchase price that
is higher or lower than it might otherwise have been allocated if such investment were acquired or sold independently rather than as a component of a portfolio shared with Other Clients.
Other Affiliate Transactions and Investments in Different Levels of Capital Structure. From time to time, the Fund and
the Other Clients may make investments at different levels of an issuers capital structure or otherwise in different classes of an issuers securities or loans, subject to the limitations of the 1940 Act. Such investments may inherently
give rise to conflicts of interest or perceived conflicts of interest between or among the various classes of securities or loans that may be held by such entities. To the extent the Fund holds securities or loans that are different (including with
respect to their relative seniority) than those held by an Other Client, the Adviser and its affiliates may be presented with decisions when the interests of the funds are in conflict. For
39
example, conflicts could arise where the Fund lends funds to a portfolio company while an Other Client invests in equity securities of such portfolio company. In this circumstance, for example,
if such portfolio company were to go into bankruptcy, become insolvent or otherwise be unable to meet its payment obligations or comply with its debt covenants, conflicts of interest could arise between the holders of different types of securities
or loans as to what actions the portfolio company should take. In addition, purchases or sales of securities or loans for the account of the Fund (particularly marketable securities) will be bunched or aggregated with orders for Other Clients,
including other funds. It is frequently not possible to receive the same price or execution on the entire volume of securities sold, and the various prices may be averaged, which may be disadvantageous to the Fund. Further conflicts could arise
after the Fund and Other Clients have made their respective initial investments. For example, if additional financing is necessary as a result of financial or other difficulties, it may not be in the best interests of the Fund to provide such
additional financing. If the Other Clients were to lose their respective investments as a result of such difficulties, the ability of the Adviser to recommend actions in the best interests of the Fund might be impaired. Any applicable co-investment order issued by the SEC may restrict the Funds ability to participate in follow-on financings. Blackstone Credit may in its discretion take steps to reduce
the potential for adversity between the Fund and the Other Clients, including causing the Fund and/or such Other Clients to take certain actions that, in the absence of such conflict, it would not take. Such conflicts will be more difficult if the
Fund and Other Clients hold significant or controlling interests in competing or different tranches of a portfolio companys capital structure. In addition, there may be circumstances where Blackstone Credit agrees to implement certain
procedures to ameliorate conflicts of interest that may involve a forbearance of rights relating to the Fund or Other Clients, such as where Blackstone Credit may cause the Fund or Other Clients to decline to exercise certain control- and/or
foreclosure-related rights with respect to a portfolio company.
Further, the Fund is prohibited under the 1940 Act from participating in
certain transactions with certain of its affiliates (including portfolio companies of Other Clients) without the prior approval of a majority of the independent members of the Board and, in some cases, the SEC. Any person that owns, directly or
indirectly, 5% or more of the outstanding voting securities of the Fund will be an affiliate of the Fund for purposes of the 1940 Act and generally the Fund will be prohibited from buying or selling any securities from or to such affiliate,
absent the prior approval of the Board. However, the Fund may under certain circumstances purchase any such affiliates loans or securities in the secondary market, which could create a conflict for the Adviser between the Funds interests
and the interests of such affiliate, in that the ability of the Adviser to recommend actions in the Funds best interest may be limited. The 1940 Act also prohibits certain joint transactions with certain affiliates, which could
include investments in the same portfolio company (whether at the same or closely related times), without prior approval of the Board and, in some cases, the SEC.
In addition, conflicts may arise in determining the amount of an investment, if any, to be allocated among potential investors and the
respective terms thereof. There can be no assurance that any conflict will be resolved in favor of the Fund, and, subject to applicable law, a decision by Blackstone Credit to take any particular action could have the effect of benefiting an Other
Client (and, incidentally, may also have the effect of benefiting Blackstone Credit) and therefore may not have been in the best interests of, and may be adverse to, the Fund. There can be no assurance that the return on the Funds investment
will be equivalent to or better than the returns obtained by the Other Clients participating in the transaction. The common shareholders will not receive any benefit from fees paid to any affiliate of the Adviser from a portfolio company in which an
Other Client also has an interest to the extent permitted by the 1940 Act.
Related Financing Counterparties. The Fund
may invest in companies or other entities in which Other Clients make an investment in a different part of the capital structure (and vice versa) subject to the requirements of the 1940 Act and the Funds
co-investment order. The Adviser requests in the ordinary course proposals from lenders and other sources to provide financing to the Fund and its obligors. Blackstone Credit takes into account various facts
and circumstances it deems relevant in selecting financing sources, including whether a potential lender has expressed an interest in evaluating debt financing opportunities, whether a potential lender has a history of participating in debt
financing opportunities generally and with the Firm in particular, the size of the potential lenders loan amount, the timing of the relevant cash requirement, the availability of other sources of
40
financing, the creditworthiness of the lender, whether the potential lender has demonstrated a long-term or continuing commitment to the success of Blackstone, Blackstone Credit and their funds,
and such other factors that Blackstone and Blackstone Credit deem relevant under the circumstances. The cost of debt alone is not determinative.
The Firm could have incentives to cause the Fund and its obligors to accept less favorable financing terms from a common shareholder, Other
Clients, their portfolio companies, Blackstone, and other parties with material relationships with the Firm than it would from a third party. If the Fund or a portfolio company occupies a more senior position in the capital structure than a common
shareholder, Other Client, their portfolio companies and other parties with material relationships with Blackstone, Blackstone could have an incentive to cause the Fund or portfolio company to offer more favorable financing terms to such parties. In
the case of a related party financing between the Fund or its obligors, on the one hand, and Blackstone or Other Clients portfolio companies, on the other hand, to the extent permitted by the 1940 Act, the Adviser could, but is not obligated
to, rely on a third party agent to confirm the terms offered by the counterparty are consistent with market terms, or the Adviser could instead rely on its own internal analysis, which the Adviser believes is often superior to third party analysis
given the Firms scale in the market. If however any of the Firm, the Fund, an Other Client or any of their obligors or portfolio companies (as applicable) delegates to a third party, such as another member of a financing syndicate or a joint
venture partner, the negotiation of the terms of the financing, the transaction will be assumed to be conducted on an arms-length basis, even though the participation of the Firm related vehicle impacts the market terms. For example, in the case of
a loan extended to the Fund or a portfolio company by a financing syndicate in which an Other Client has agreed to participate on terms negotiated by a third party participant in the syndicate, it may have been necessary to offer better terms to the
financing provider to fully subscribe the syndicate if the Other Client had not participated. It is also possible that the frequent participation of Other Clients in such syndicates could dampen interest among other potential financing providers,
thereby lowering demand to participate in the syndicate and increasing the financing costs to the Fund. The Adviser does not believe either of these effects is significant, but no assurance can be given to common shareholders that these effects will
not be significant in any circumstance. Unless required by applicable law, the Adviser will not seek any consent or approvals from common shareholders or the Board in the case of any of these conflicts.
The Firm could cause actions adverse to the Fund to be taken for the benefit of Other Clients that have made an investment more senior in the
capital structure of a portfolio company than the Fund (e.g., provide financing to a portfolio company, the equity of which is owned by the Fund) and, vice versa, actions may be taken for the benefit of the Fund and its obligors that are
adverse to Other Clients. The Firm could seek to implement procedures to mitigate conflicts of interest in these situations such as (i) a forbearance of rights, including some or all non-economic rights,
by the Fund or relevant Other Client (or their respective obligors or portfolio companies, as the case may be) by, for example, agreeing to follow the vote of a third party in the same tranche of the capital structure, or otherwise deciding to
recuse itself with respect to decisions on defaults, foreclosures, workouts, restructurings and other similar matters, (ii) causing the Fund or relevant Other Client (or their respective obligors or portfolio companies, as the case may be) to
hold only a non-controlling interest in any such portfolio company, (iii) retaining a third party loan servicer, administrative agent or other agent to make decisions on behalf of the Fund or relevant
Other Client (or their respective obligors or portfolio companies, as the case may be), or (iv) create groups of personnel within the Firm separated by information barriers (which may be temporary and limited purpose in nature), each of which
would advise one of the clients that has a conflicting position with other clients. As an example, to the extent an Other Client holds an interest in a loan or security that is different (including with respect to relative seniority) than those held
by the Fund or its obligors, the Firm may decline to exercise, or delegate to a third party, certain control, foreclosure and other similar governance rights of the Other Client. In these cases, the Firm would generally act on behalf of one of its
clients, though the other client would generally retain certain control rights, such as the right to consent to certain actions taken by the trustee or administrative or other agent of the investment, including a release, waiver, forgiveness or
reduction of any claim for principal or interest; extension of maturity date or due date of any payment of any principal or interest; release or substitution of any material collateral; release, waiver, termination or
41
modification of any material provision of any guaranty or indemnity; subordination of any lien; and release, waiver or permission with respect to any covenants.
In connection with negotiating loans and bank financings in respect of Blackstone Credit-sponsored
transactions, Blackstone Credit will generally obtain the right to participate (for its own account or an Other Client) in a portion of the financings with respect to such Blackstone Credit-sponsored
transactions on the same terms negotiated by third parties with the Firm or other terms the Adviser determines to be consistent with the market. Although the Firm could rely on third parties to verify market terms, the Firm may nonetheless have
influence on such third parties. No assurance can be given that negotiating with a third party, or verification of market terms by a third party, will ensure that the Fund and its obligors receive market terms.
In addition, it is anticipated that in a bankruptcy proceeding the Funds interests will likely be subordinated or otherwise adverse to the interests of
Other Clients with ownership positions that are more senior to those of the Fund. For example, an Other Client that has provided debt financing to an investment of the Fund may take actions for its benefit, particularly if the Funds Investment
is in financial distress, which adversely impact the value of the Funds subordinated interests.
Although Other Clients can be
expected to provide financing to the Fund and its obligors subject to the requirements of the 1940 Act, there can be no assurance that any Other Client will indeed provide any such financing with respect to any particular Investment. Participation
by Other Clients in some but not all financings of the Fund and its obligors may adversely impact the ability of the Fund and its obligors to obtain financing from third parties when Other Clients do not participate, as it may serve as a negative
signal to market participants.
Any financing provided by a common shareholder or an affiliate to the Fund or a portfolio company is not a
capital contribution to the Fund and does not reduce the unused capital commitment of such common shareholder.
Conflicting
Fiduciary Duties to Debt Funds. Other Clients include funds and accounts that make investments in senior secured loans, distressed debt, subordinated debt, high-yield securities, commercial mortgage-backed securities and other debt
instruments. As discussed above, it is expected that these Other Clients or investors therein will be offered the opportunity, subject to applicable law, to provide financing with respect to investments made by the Fund and its obligors. The Firm
owes a fiduciary duty to these Other Clients as well as to the Fund and will encounter conflicts in the exercise of these duties. For example, if an Other Client purchases high-yield securities or other debt instruments of a portfolio company of the
Fund, or otherwise occupies a senior (or other different) position in the capital structure of an investment relative to the Fund, the Firm will encounter conflicts in providing advice to the Fund and to these Other Clients with regard to
appropriate terms of such high-yield securities or other instruments, the enforcement of covenants, the terms of recapitalizations and the resolution of workouts or bankruptcies, among other matters. More commonly, the Fund could hold an investment
that is senior in the capital structure, such as a debt instrument, to an Other Client. Although measures described above in Related Financing Counterparties above can mitigate these conflicts, they cannot completely eliminate them.
Similarly, certain Other Clients may invest in securities of publicly traded companies that are actual or potential investments of the Fund or
its obligors. The trading activities of those vehicles may differ from or be inconsistent with activities that are undertaken for the account of the Fund or its obligors in any such securities or related securities. In addition, the Fund may not
pursue an investment in a portfolio company otherwise within the investment strategy of the Fund as a result of such trading activities by Other Clients.
Other Blackstone and Blackstone Credit Clients; Allocation of Investment Opportunities. Certain inherent conflicts
of interest arise from the fact that the Adviser, Blackstone Credit and Blackstone provide investment management, advisory and sub-advisory services to the Fund and Other Clients.
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The respective investment programs of the Fund and the Other Clients may or may not be
substantially similar. Blackstone Credit and/or Blackstone may give advice to, and recommend securities for, Other Clients that may differ from advice given to, or securities recommended or bought for, the Fund, even though their investment
objectives may be the same as or similar to those of the Fund. While Blackstone Credit will seek to manage potential conflicts of interest in a fair and equitable manner, the portfolio strategies employed by Blackstone Credit and Blackstone in
managing their respective Other Clients are likely to conflict from time to time with the transactions and strategies employed by the Adviser in managing the Fund and may affect the prices and availability of the securities and instruments in which
the Fund invests. Conversely, participation in specific investment opportunities may be appropriate, at times, for both the Fund and Other Clients. In any event, it is the policy of Blackstone Credit to allocate investment opportunities and sale
opportunities on a basis deemed by Blackstone Credit, in its sole discretion, to be fair and equitable over time.
Allocation
Methodology Considerations
Blackstone Credit will share any investment and sale opportunities with such Other Clients and the
Fund in accordance with the Advisers Act, and Firm-wide allocation policies, which generally provide for sharing pro rata based on targeted acquisition size or targeted sale size.
Notwithstanding the foregoing, Blackstone Credit may also consider the following factors in making any allocation determinations, and such
factors may result in a different allocation of investment and/or sale opportunities: (i) the risk-return and target return profile of the proposed investment relative to the Funds and the Other Clients current risk profiles;
(ii) the Funds and/or the Other Clients investment guidelines, restrictions, terms and objectives, including whether such objectives are considered solely in light of the specific investment under consideration or in the context of
the respective portfolios overall holdings; (iii) the need to re-size risk in the Funds or the Other Clients portfolios (including the potential for the proposed investment to create an
industry, sector or issuer imbalance in the Funds and Other Clients portfolios, as applicable) and taking into account any existing non-pro rata investment positions in the portfolio of the Fund
and Other Clients; (iv) liquidity considerations of the Fund and the Other Clients, including during a ramp-up or wind-down of one or more of the Fund or such Other Clients, proximity to the end of the
Funds or Other Clients specified term or investment period, any redemption/withdrawal requests, anticipated future contributions and available cash; (v) legal, tax, accounting, political, national security and other consequences;
(vi) regulatory or contractual restrictions or consequences (including, without limitation, requirements under the 1940 Act and any related rules, orders, guidance or other authority applicable to the Fund or Other Blackstone Credit Clients);
(vii) avoiding a de minimis or odd lot allocation; (viii) availability and degree of leverage and any requirements or other terms of any existing leverage facilities; (ix) the Funds or Other Clients investment focus on a
classification attributable to an investment or issuer of an investment, including, without limitation, investment strategy, geography, industry or business sector; (x) the nature and extent of involvement in the transaction on the part of the
respective teams of investment professionals dedicated to the Fund or such Other Clients; (xi) the management of any actual or potential conflict of interest; (xii) with respect to investments that are made available to Blackstone Credit
by counterparties pursuant to negotiated trading platforms (e.g., ISDA contracts), the absence of such relationships which may not be available to the Fund and all Other Clients; (xiii) available capital of the Fund and the Other
Clients, (xiv) primary and permitted investment strategies and objectives of the Fund and the Other Clients, including, without limitation, with respect to Other Clients that expect to invest in or alongside other funds or across asset classes
based on expected return (such as certain managed accounts with similar investment strategies and objectives), (xv) sourcing of the investment, (xvi) the specific nature (including size, type, amount, liquidity, holding period, anticipated
maturity and minimum investment criteria) of the investment, (xvii) expected investment return, (xviii) expected cash characteristics (such as cash-on-cash
yield, distribution rates or volatility of cash flows), (xix) capital expenditure required as part of the investment, (xx) portfolio diversification concerns (including, but not limited to, whether a particular fund already has its desired
exposure to the investment, sector, industry, geographic region or markets in question), (xxi) relation to existing investments in a fund, if applicable (e.g., follow on to existing investment, joint venture or other
43
partner to existing investment, or same security as existing investment), and (xxii) any other considerations deemed relevant by Blackstone Credit in good faith.
Blackstone Credit shall not have any obligation to present any investment opportunity (or portion of any investment opportunity) to the Fund
if Blackstone Credit determines in good faith that such opportunity (or portion thereof) should not be presented to the Fund for any one or a combination of the reasons specified above, or if Blackstone Credit is otherwise restricted from presenting
such investment opportunity to the Fund.
In addition, Blackstone Credit has received an exemptive order from the SEC that permits certain
existing and future funds regulated under the 1940 Act (each, a Regulated Fund), among other things, to co-invest with certain other persons, including certain affiliates of Blackstone Credit, and
certain funds managed and controlled by Blackstone Credit and its affiliates, including the Fund, subject to certain terms and conditions. For so long as any privately negotiated investment opportunity falls within the investment criteria of one or
more Regulated Funds, such investment opportunity shall also be offered to such Regulated Fund(s). In the event that the aggregate targeted investment sizes of the Fund and such Regulated Fund(s) exceed the amount of such investment opportunity,
allocation of such investment opportunity to each of the Fund and such Regulated Fund(s) will be reduced proportionately based on their respective available capital as defined in the exemptive order, which may result in allocation to the
Fund in an amount less than what it would otherwise have been if such Regulated Fund(s) did not participate in such investment opportunity. The exemptive order also restricts the ability of the Fund (or any other Blackstone Credit fund) from
investing in any privately negotiated investment opportunity alongside a Regulated Fund except at the same time and on same terms. As a result, the Fund may be unable to make investments in different parts of the capital structure of the same issuer
in which a Regulated Fund has invested or seeks to invest. The rules promulgated by the SEC under the 1940 Act, as well as any related guidance from the SEC and/or the terms of the exemptive order itself, are subject to change, and Blackstone Credit
could undertake to amend the exemptive order (subject to SEC approval), obtain additional exemptive relief, or otherwise be subject to other requirements in respect of co-investments involving the Fund and any
Regulated Funds, any of which may impact the amount of any allocation made available to Regulated Funds and thereby affect (and potentially decrease) the allocation made to the Fund.
Moreover, with respect to Blackstone Credits ability to allocate investment opportunities, including where such opportunities are within
the common objectives and guidelines of the Fund and one or more Other Clients (which allocations are to be made on a basis that Blackstone Credit believes in good faith to be fair and reasonable), Blackstone Credit and Blackstone have established
general guidelines and policies, which it may update from time to time, for determining how such allocations are to be made, which, among other things, set forth principles regarding what constitutes debt or debt-like
investments, criteria for defining control-oriented equity or infrastructure investments, guidance regarding allocation for certain types of investments (e.g., distressed energy) and other matters. In addition, certain
Other Clients may receive certain priority or other allocation rights with respect to certain investments, subject to various conditions set forth in such Other Clients respective governing agreements. The application of those guidelines and
conditions may result in the Fund or Other Clients not participating (and/or not participating to the same extent) in certain investment opportunities in which they would have otherwise participated had the related allocations been determined
without regard to such guidelines and conditions and based only on the circumstances of those particular investments. Additionally, investment opportunities sourced by Blackstone Credit will be allocated in accordance with Blackstones and
Blackstone Credits allocation policies, which may provide that investment opportunities will be allocated in whole or in part to other business units of the Firm on a basis that Blackstone and Blackstone Credit believe in good faith to be fair
and reasonable, based on various factors, including the involvement of the respective teams from Blackstone Credit and such other business units. It should also be noted that investment opportunities sourced by business units of the Firm other than
Blackstone Credit will be allocated in accordance with such business units allocation policies, which will result in such investment opportunities being allocated, in whole or in part, away from Blackstone Credit, the Fund and Other Blackstone
Credit Clients.
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When Blackstone Credit determines not to pursue some or all of an investment opportunity for the
Fund that would otherwise be within the Funds objectives and strategies, and Blackstone or Blackstone Credit provides the opportunity or offers the opportunity to Other Clients, Blackstone or Blackstone Credit, including their personnel
(including Blackstone Credit personnel), may receive compensation from the Other Clients, whether or not in respect of a particular investment, including an allocation of carried interest or referral fees, and any such compensation could be greater
than amounts paid by the Fund to Blackstone Credit. As a result, Blackstone Credit (including Blackstone Credit personnel who receive such compensation) could be incentivized to allocate investment opportunities away from the Fund to or source
investment opportunities for Other Clients. In addition, in some cases Blackstone or Blackstone Credit may earn greater fees when Other Clients participate alongside or instead of the Fund in an Investment.
Blackstone Credit makes good faith determinations for allocation decisions based on expectations that may prove inaccurate. Information
unavailable to Blackstone Credit, or circumstances not foreseen by Blackstone Credit at the time of allocation, may cause an investment opportunity to yield a different return than expected. Conversely, an investment that Blackstone Credit expects
to be consistent with the Funds objectives may fail to achieve them.
The Adviser may, but will be under no obligation to, provide co-investment opportunities relating to investments made by the Fund to common shareholders, Other Clients, and investors of such Other Clients, subject to the Funds exemptive relief and the 1940 Act. Such co-investment opportunities may be offered to such parties in the Advisers discretion, subject to the Funds exemptive relief. From time to time, Blackstone Credit may form one or more funds or accounts
to co-invest in transactions with the Fund (or transactions alongside any of the Fund and one or more Other Clients). Furthermore, for the avoidance of doubt, to the extent that the Fund has received its
target amount in respect of an investment opportunity, any remaining portion of such investment opportunity initially allocated to the Fund may be allocated to Other Clients or to co-investors in Blackstone
Credits discretion pursuant to the Funds exemptive relief.
Orders may be combined for the Fund and all other participating
Other Clients, and if any order is not filled at the same price, they may be allocated on an average price basis. Similarly, if an order on behalf of more than one account cannot be fully executed under prevailing market conditions, securities may
be allocated among the different accounts on a basis that Blackstone Credit or its affiliates consider equitable.
Additionally, it can be
expected that the Firm will, from time to time, enter into arrangements or strategic relationships with third parties, including other asset managers, financial firms or other businesses or companies, that, among other things, provide for referral,
sourcing or sharing of investment opportunities. Blackstone or Blackstone Credit may pay management fees and performance-based compensation in connection with such arrangements. Blackstone or Blackstone Credit may also provide for or receive
reimbursement of certain expenses incurred or received in connection with these arrangements, including diligence expenses and general overhead, administrative, deal sourcing and related corporate expenses. The amount of these rebates may relate to
allocations of co-investment opportunities and increase if certain co-investment allocations are not made. While it is possible that the Fund will, along with the Firm
itself, benefit from the existence of those arrangements and/or relationships, it is also possible that investment opportunities that would otherwise be presented to or made by the Fund would instead be referred (in whole or in part) to such third
party, or, as indicated above, to other third parties, either as a contractual obligation or otherwise, resulting in fewer opportunities (or reduced allocations) being made available to the Fund and/or common shareholders. This means that co-investment opportunities that are sourced by the Fund may be allocated to investors that are not common shareholders. For example, a firm with which the Firm has entered into a strategic relationship may be
afforded with first-call rights on a particular category of investment opportunities, although there is not expected to be substantial overlap in the investment strategies and/or objectives between the Fund and any such firm.
45
Certain Investments Inside the Funds Strategy that are not Pursued by
the Fund. Under certain circumstances, Blackstone or Blackstone Credit may determine not to pursue some or all of an investment opportunity within the Funds strategy, including without limitation, as a result of business,
reputational or other reasons applicable to the Fund, Other Clients, their respective obligors or portfolio companies or Blackstone. In addition, Blackstone Credit may determine that the Fund should not pursue some or all of an investment
opportunity, including, by way of example and without limitation, because the Fund has already invested sufficient capital in the investment, sector, industry, geographic region or markets in question, as determined by Blackstone Credit in its sole
discretion, or the investment is not appropriate for the Fund for other reasons as determined by Blackstone Credit in its sole discretion. In any such case Blackstone or Blackstone Credit could, thereafter, offer such opportunity to other parties,
including Other Clients or portfolio companies or limited partners or common shareholders of the Fund or Other Clients, joint venture partners, related parties or third parties. Any such Other Clients may be advised by a different Blackstone or
Blackstone Credit business group with a different investment committee, which could determine an investment opportunity to be more attractive than Blackstone Credit believes to be the case. In any event, there can be no assurance that Blackstone
Credits assessment will prove correct or that the performance of any investments actually pursued by the Fund will be comparable to any investment opportunities that are not pursued by the Fund. Blackstone and Blackstone Credit, including
their personnel, may receive compensation from any such party that makes the investment, including an allocation of carried interest or referral fees, and any such compensation could be greater than amounts paid by the Fund to Blackstone Credit. In
some cases, Blackstone or Blackstone Credit earns greater fees when Other Clients participate alongside or instead of the Fund in an Investment.
Cross Transactions. Situations may arise where certain assets held by the Fund may be transferred to Other Clients
and vice versa. Such transactions will be conducted in accordance with, and subject to, the Advisers contractual obligations to the Fund and applicable law, including the 1940 Act.
Fund Co-Investment Opportunities. As a registered investment company under the 1940
Act, the Fund is subject to certain limitations relating to co-investments and joint transactions with affiliates, which likely will in certain circumstances limit the Funds ability to make investments
or enter into other transactions alongside the Other Clients. There can be no assurance that such regulatory restrictions will not adversely affect the Funds ability to capitalize on attractive investment opportunities. However, subject to the
1940 Act and any applicable co-investment order issued by the SEC, the Fund may co-invest with Other Clients (including
co-investment or other vehicles in which the Firm or its personnel invest and that co-invest with such Other Clients) in investments that are suitable for the Fund and
one or more of such Other Clients. Even if the Fund and any such Other Clients and/or co-investment or other vehicles invest in the same securities, conflicts of interest may still arise.
The Fund has received an exemptive order from the SEC that permits it, among other things, to
co-invest with certain other persons, including certain affiliates of the Adviser and certain funds managed and controlled by the Adviser and its affiliates, subject to certain terms and conditions. Such order
may restrict the Funds ability to enter into follow-on investments or other transactions. Pursuant to such order, the Fund may co-invest in a negotiated deal with
certain affiliates of the Adviser or certain funds managed and controlled by the Adviser and its affiliates, subject to certain terms and conditions. The Fund may also receive an allocation in such a deal alongside affiliates pursuant to other
mechanisms to the extent permitted by the 1940 Act.
Investments in Portfolio Companies Alongside Other
Clients. From time to time, the Fund will co-invest with Other Clients (including co-investment or other vehicles in which the Firm or its personnel
invest and that co-invest with such Other Clients) in investments that are suitable for both the Fund and such Other Clients, as permitted by applicable law and/or any applicable
SEC-granted order. Even if the Fund and any such Other Clients invest in the same securities or loans, conflicts of interest may still arise. For example, it is possible that as a result of legal, tax,
regulatory, accounting, political, national security or other considerations, the terms of such investment (and divestment thereof) (including with respect to price and timing) for the Fund and such other funds and vehicles may not be the same.
Additionally, the Fund and such Other Clients and/or vehicles will generally have different investment periods and/or investment objectives (including return profiles) and
46
Blackstone Credit, as a result, may have conflicting goals with respect to the price and timing of disposition opportunities. As such, subject to applicable law and any applicable order issued by
the SEC, the Fund and/or such Other Clients may dispose of any such shared investment at different times and on different terms.
Firm Involvement in Financing of Third Party Dispositions by the Fund. The Fund may from time to time dispose of all or a
portion of an investment by way of accepting a third-party purchasers bid where the Firm or one or more Other Clients is providing financing as part of such bid or acquisition of the investment or underlying assets thereof. This generally
would include the circumstance where the Firm or one or more Other Clients is making commitments to provide financing at or prior to the time such third-party purchaser commits to purchase such investments or assets from the Fund. Such involvement
of the Firm or one or more Other Clients as such a provider of debt financing in connection with the potential acquisition of portfolio investments by third parties from the Fund may give rise to potential or actual conflicts of interest.
Material, Non-Public Information. Blackstone Credit will come into possession of
confidential information with respect to an Issuer. Blackstone Credit may be restricted from buying, originating or selling securities, loans of, or derivatives with respect to, the issuer on behalf of the Fund until such time as the information
becomes public or is no longer deemed material such that it would preclude the Fund from participating in an investment. Disclosure of such information to the Advisers personnel responsible for the affairs of the Fund will be on a need-to-know basis only, and the Fund may not be free to act for the Fund upon any such information. Therefore, the Fund may not have access to confidential information in the
possession of Blackstone Credit that might be relevant to an investment decision to be made for the Fund. In addition, Blackstone Credit, in an effort to avoid buying or selling restrictions on behalf of the Fund or Other Blackstone Credit Clients,
may choose to forego an opportunity to receive (or elect not to receive) information that other market participants or counterparties, including those with the same positions in the issuer as the Fund, are eligible to receive or have received, even
if possession of such information would otherwise be advantageous to the Fund.
In addition, affiliates of Blackstone Credit within
Blackstone may come into possession of confidential information with respect to an issuer. Blackstone Credit may be restricted from buying, originating or selling securities, loans of, or derivatives with respect to, the issuer on behalf of the Fund
if the Firm deemed such restriction appropriate. Disclosure of such information to the Advisers personnel responsible for the affairs of the Fund will be on a
need-to-know basis only, and the Fund may not be free to act upon any such information. Therefore, the Fund may not have access to confidential information in the
possession of the Firm that might be relevant to an investment decision to be made by the Fund. Accordingly, the Fund may not be able to initiate a transaction that it otherwise might have initiated and may not be able to sell an investment that it
otherwise might have sold.
Break-up and other Similar Fees. Break-up or topping fees with respect to the Funds investments can be paid to Blackstone Credit. Alternatively, the Fund could receive the break-up or topping fees
directly. Break-up or topping fees paid to Blackstone Credit or the Fund in connection with a transaction could be allocated, or not, to Other Clients or co-investment
vehicles that invest (or are expected to invest) alongside the Fund, as determined by Blackstone Credit to be appropriate in the circumstances. Generally, Blackstone Credit would not allocate break-up or
topping fees with respect to a potential investment to the Fund, an Other Client or co-investment vehicle unless such person would also share in broken deal expenses related to the potential investment. In the
case of fees for services as a director of a portfolio company, the management fee will not be reduced to the extent any Firm personnel continues to serve as a director after the Fund has exited (or is in the process of exiting) the applicable
portfolio company and/or following the termination of such employees employment with the Firm. For the avoidance of doubt, although the financial advisory and restructuring business of Blackstone has been spun out, to the extent any investment
banking fees, consulting (including management consulting) fees, syndication fees, capital markets syndication and advisory fees (including underwriting fees), origination fees, servicing fees, healthcare consulting / brokerage fees, fees relating
to group purchasing, financial advisory fees and similar fees for arranging acquisitions and other major financial restructurings, loan servicing and/or other types of insurance fees, operations fees, financing fees, fees for asset
47
services, title insurance fees, and other similar fees and annual retainers (whether in cash or in kind) are received by Blackstone, such fees will not be required to be shared with the Fund or
the common shareholders and will not reduce the management fee payable by the Fund.
Broken Deal Expenses. Any
expenses that may be incurred by the Fund for actual investments as described herein may also be incurred by the Fund with respect to broken deals (i.e., investments that are not consummated). Blackstone Credit is not required to and in most
circumstances will not seek reimbursement of broken deal expenses (i.e., expenses incurred in pursuit of an investment that is not consummated) from third parties, including counterparties to the potential transaction or potential co-investors. Examples of such broken deal expenses include, but are not limited to, reverse termination fees, extraordinary expenses such as litigation costs and judgments, travel and entertainment expenses
incurred, costs of negotiating co-investment documentation, and legal, accounting, tax and other due diligence and pursuit costs and expenses. Any such broken deal expenses could, in the sole discretion of
Blackstone Credit, be allocated solely to the Fund and not to Other Clients or co-investment vehicles that could have made the investment, even when the Other Client or
co-investment vehicle commonly invests alongside the Fund in its investments or the Firm or Other Clients in their investments. In such cases, the Funds shares of expenses would increase. In the event
broken deal expenses are allocated to an Other Client or a co-investment vehicle, Blackstone Credit may advance such fees and expenses without charging interest until paid by the Other Client or co-investment vehicle, as applicable.
Other Firm Business Activities. The Firm,
Other Clients, their obligors/portfolio companies, and personnel and related parties of the foregoing will receive fees and compensation, including performance-based and other incentive fees, for products and services provided to the Fund and its
obligors, such as fees for asset and property management; investment management, underwriting, syndication or refinancing of a loan or investment; loan servicing; special servicing; administrative services; advisory services on purchase or sale of
an asset or company; investment banking and capital markets services; placement agent services; fund administration; internal legal and tax planning services; information technology products and services; insurance procurement; brokerage; solutions
and risk management services; data extraction and management products and services; and other products and services. Such parties will also provide products and services for fees to the Firm, Other Clients and their obligors/portfolio companies, and
their personnel and related parties, as well as third parties. Through its Innovations group, Blackstone incubates businesses that can be expected to provide goods and services to the Fund (subject to the requirements of the 1940 Act and applicable
guidance) and Other Clients and their obligors/portfolio companies, as well as other Firm-related parties and third parties. By contracting for a product or service from a business related to the Firm, the Fund and its obligors would provide not
only current income to the business and its stakeholders, but could also create significant enterprise value in them, which would not be shared with the Fund or common shareholders and could benefit the Firm directly and indirectly. Also, the Firm,
Other Clients and their obligors/portfolio companies, and their personnel and related parties may receive compensation or other benefits, such as through additional ownership interests or otherwise, directly related to the consumption of products
and services by the Fund and its obligors. The Fund and its obligors will incur expense in negotiating for any such fees and services, which will be treated as Fund Expenses. In addition, the Firm may receive fees associated with capital invested by
co-investors relating to investments in which the Fund participates or otherwise, in connection with a joint venture in which the Fund participates (subject to the 1940 Act) or otherwise with respect to assets
or other interests retained by a seller or other commercial counterparty with respect to which the Firm performs services. Finally, the Firm and its personnel and related parties may also receive compensation in connection with referrals and related
activities of such business incubated by the Blackstone Innovations group.
Blackstone Credit, Other Clients and their portfolio
companies, and their affiliates, personnel and related parties could continue to receive fees, including performance-based or incentive fees, for the services described in the preceding paragraphs with respect to investments sold by the Fund or a
portfolio company to a third party buyer after the sale is consummated. Such post-disposition involvement will give rise to potential or actual conflicts of interest, particularly in the sale process. Moreover, Blackstone Credit, Other Clients and
their
48
portfolio companies, and their affiliates, personnel and related parties may acquire a stake in the relevant asset as part of the overall service relationship, at the time of the sale or
thereafter.
Blackstone Credit does not have any obligation to ensure that fees for products and services contracted by the Fund or its
obligors are at market rates unless the counterparty is considered an affiliate of the Firm and given the breadth of the Firms investments and activities Blackstone Credit may not be aware of every commercial arrangement between the Fund and
its obligors, on the one hand, and the Firm, Other Clients and their obligors/portfolio companies, and personnel and related parties of the foregoing, on the other hand.
Except as set forth above, the Fund and common shareholders will not receive the benefit (e.g., through a reduction to the management
fee or otherwise) of any fees or other compensation or benefit received by Blackstone Credit, its affiliates or their personnel and related parties. (See also Service Providers, Vendors and Other Counterparties Generally and
Other Firm Business Activities.)
Securities and Lending Activities. Blackstone, its affiliates and
their related parties and personnel will from time to time participate in underwriting or lending syndicates with respect to current or potential portfolio companies, or may otherwise act as arrangers of financing, including with respect to the
public offering and/or private placement of debt or equity securities issued by, or loan proceeds borrowed by the Fund and its obligors, or otherwise in arranging financing (including loans) for such obligors or advise on such transactions. Such
underwritings or engagements may be on a firm commitment basis or may be on an uncommitted best efforts basis, and the underwriting or financing parties are under no duty to provide any commitment unless specifically set forth in the
relevant contract. Blackstone may also provide placement or other similar services to purchasers or sellers of securities, including loans or instruments issued by portfolio companies. There may also be circumstances in which the Fund commits to
purchase any portion of such issuance from the portfolio company that a Blackstone broker-dealer intends to syndicate to third parties. As a result thereof, subject to the limitations of the 1940 Act, Blackstone may receive commissions or other
compensation, thereby creating a potential conflict of interest. This could include, by way of example, fees and/or commissions for equity syndications to co-investment vehicles. In certain cases, subject to
the limitations of the 1940 Act, a Blackstone broker-dealer will from time to time act as the managing underwriter or a member of the underwriting syndicate or broker for the Fund or its obligors, or as dealer, broker or advisor to a counterparty to
the Fund or a portfolio company and purchase securities from or sell securities to the Fund, Other Clients or obligors/portfolio companies of the Fund or Other Clients or advise on such transactions. Blackstone will also from time to time, on behalf
of the Fund or other parties to a transaction involving the Fund or its obligors, effect transactions, including transactions in the secondary markets that result in commissions or other compensation paid to Blackstone by the Fund or its obligors or
the counterparty to the transaction, thereby creating a potential conflict of interest. This could include, by way of example, fees and/or commissions for equity syndications to co-investment vehicles. Subject
to applicable law, Blackstone will from time to time receive underwriting fees, discounts, placement commissions, loan modification or restructuring fees, servicing fees, capital markets advisory fees, lending arrangement fees, asset/property
management fees, insurance (including title insurance) fees and consulting fees, monitoring fees, commitment fees, syndication fees, origination fees, organizational fees, operational fees, loan servicing fees, and financing and divestment fees (or,
in each case, rebates in lieu of any such fees, whether in the form of purchase price discounts or otherwise, even in cases where Blackstone, an Other Client or its portfolio companies are purchasing debt) or other compensation with respect to the
foregoing activities, which are not required to be shared with the Fund. In addition, the management fee with respect to the Fund generally will not be reduced by such amounts. Therefore, Blackstone will from time to time have a potential conflict
of interest regarding the Fund and the other parties to those transactions to the extent it receives commissions, discounts or other compensation from such other parties. The Board, in its sole discretion, will approve any transactions, subject to
the limitations of the 1940 Act, in which a Blackstone broker-dealer acts as an underwriter, as broker for the Fund, or as dealer, broker or advisor, on the other side of a transaction with the Fund only where the Board believes that such
transactions are appropriate for the Fund and, by investing in Common Shares, a common shareholder consents to all such transactions, along with the other transactions involving conflicts of interest described herein, to the fullest extent permitted
by law.
49
When Blackstone serves as underwriter with respect to securities of the Fund or its obligors, the
Fund and such obligors could from time to time be subject to a lock-up period following the offering under applicable regulations during which time the Fund or portfolio company would be unable to
sell any securities subject to the lock-up. This may prejudice the ability of the Fund and its obligors to dispose of such securities at an opportune time. In addition, Blackstone Capital Markets
may serve as underwriter in connection with the sale of securities by the Fund or its obligors. Conflicts may arise because such engagement would result in Blackstone Capital Markets receiving selling commissions or other compensation in connection
with such sale. (See also Obligor/Portfolio Company Relationships Generally below.)
PJT Partners
Inc. On October 1, 2015, Blackstone spun off its financial and strategic advisory services, restructuring and reorganization advisory services, and its Park Hill fund placement businesses and combined these businesses with PJT
Partners Inc. (PJT), an independent financial advisory firm founded by Paul J. Taubman. While the combined business operates independently from Blackstone and is not an affiliate thereof, it is expected that there will be substantial
overlapping ownership between Blackstone and PJT for a considerable period of time going forward. Therefore, conflicts of interest will arise in connection with transactions between or involving the Fund and its obligors, on the one hand, and PJT,
on the other. The pre-existing relationship between Blackstone and its former personnel involved in financial and strategic advisory services at PJT, the overlapping ownership and co-investment and other continuing arrangements between PJT and Blackstone may influence Blackstone Credit to select or recommend PJT to perform services for the Fund or its obligors, the cost of which will
generally be borne directly or indirectly by the Fund. Given that PJT is no longer an affiliate of Blackstone, Blackstone Credit and its affiliates will be free to cause the Fund and portfolio companies to transact with PJT generally without
restriction under the applicable governing documents, notwithstanding the relationship between Blackstone and PJT.
Obligor/Portfolio Company Relationships Generally. The Funds obligors are expected to be counterparties to or
participants in agreements, transactions or other arrangements with portfolio companies of Other Clients for the provision of goods and services, purchase and sale of assets and other matters. Although the Firm may determine that such agreements,
transactions or other arrangements are consistent with the requirements of such Other Clients offering and/or governing agreements, such agreements, transactions or other arrangements may not have otherwise been entered into but for the
affiliation with Blackstone Credit and/or Blackstone. These agreements, transactions or other agreements involve fees, commissions, servicing payments and/or discounts to Blackstone Credit, any Blackstone affiliate (including personnel) or a
portfolio company, none of which reduce the management fee payable by the Fund). For example, the Firm may cause, or offer the opportunity to, portfolio companies to enter into agreements regarding group procurement (such as the group purchasing
organization), benefits management, purchase of title and/or other insurance policies (which may be pooled across portfolio companies and discounted due to scale) and other operational, administrative or management related matters from a third party
or a Firm affiliate, and other similar operational initiatives that may result in commissions or similar payments, including related to a portion of the savings achieved by the portfolio company. Such agreements, transactions or other arrangements
may be entered into without the consent or direct involvement of the Fund and/or such Other Client or the consent of the Board and/or the common shareholders of the Fund or such Other Client (including, without limitation, in the case of minority
and/or non-controlling investments by the Fund in such portfolio companies or the sale of assets from one portfolio company to another) and/or such Other Client. In any such case, the Fund may not be involved
in the negotiation process, and there can be no assurance that the terms of any such agreement, transaction or other arrangement will be as favorable to the Fund as otherwise would be the case if the counterparty were not related to the Firm.
In addition, it is possible that certain portfolio companies of Other Clients or companies in which Other Clients have an interest will
compete with the Fund for one or more investment opportunities and/or engage in activities that may have adverse consequences on the Fund and/or its obligors. As an example of the latter, the laws and regulations of certain jurisdictions
(e.g., bankruptcy, environmental, consumer protection and/or labor laws) may not recognize the segregation of assets and liabilities as between separate entities and may permit recourse against the assets of not just the entity that has
incurred the liabilities, but also the other entities that are
50
under common control with, or part of the same economic group as, such entity. In such circumstances, the assets of the Fund and/or its obligors may be used to satisfy the obligations or
liabilities of one or more Other Clients, their portfolio companies and/or affiliates.
Certain portfolio companies may have established
or invested in, or may in the future establish or invest in, vehicles that are managed exclusively by the portfolio company (and not the Fund or the Firm or any of its affiliates) and that invest in asset classes or industry sectors (such as cyber
security) that fall within the Funds investment strategy. Such vehicles, which may not be considered affiliates of the Firm and would not be subject to the Firms policies and procedures, may compete with the Fund for investment
opportunities. Portfolio companies and affiliates of the Firm may also establish other investment products, vehicles and platforms focusing on specific asset classes or industry sectors (such as reinsurance) that may compete with the Fund for
investment opportunities (it being understood that such arrangements may give rise to conflicts of interest that may not necessarily be resolved in favor of the Fund). Portfolio companies and affiliates of the Firm may also establish other
investment products, vehicles and platforms focusing on specific asset classes or industry sectors (such as reinsurance) that may compete with the Fund for investment opportunities (it being understood that such arrangements may give rise to
conflicts of interest that may not necessarily be resolved in favor of the Fund). In addition, the Fund may hold non-controlling interests in certain portfolio companies and, as a result, such portfolio
companies could engage in activities outside of the Funds control that may have adverse consequences on the Fund and/or its other obligors.
In addition, the Firm has also entered into an investment management arrangement whereby it provides investment management services to
Fidelity & Guaranty Life Insurance Company (a portfolio company of certain Other Clients), which will involve investments across a variety of asset classes (including investments that may otherwise be appropriate for the Fund), and in the
future the Firm may enter into similar arrangements with other portfolio companies. Such arrangements may reduce the allocations of investments to the Fund, and the Firm may be incentivized to allocate investments away from the Fund to the
counterparties to such investment management arrangements or other vehicles/accounts to the extent the economic arrangements related thereto are more favorable to the Firm relative to the terms of the Fund.
Further, obligors with respect to which the Fund may elect members of the board of directors may, as a result, subject the Fund and/or such
directors to fiduciary obligations to make decisions that they believe to be in the best interests of any such portfolio company. Although in most cases the interests of the Fund and any such portfolio company will be aligned, this may not always be
the case. This may create conflicts of interest between the relevant directors obligations to any such portfolio company and its stakeholders, on the one hand, and the interests of the Fund, on the other hand. Although Blackstone Credit will
generally seek to minimize the impact of any such conflicts, there can be no assurance they will be resolved favorably for the Fund.
Obligor/Portfolio Company Service Providers and Vendors. Subject to applicable law, the Fund, Other Clients,
obligors/portfolio companies of each of the foregoing and Blackstone Credit can be expected to engage obligors/portfolio companies of the Fund and Other Clients to provide some or all of the following services: (a) corporate support services
(including, without limitation, accounts payable, accounting/audit (including valuation support services), account management, insurance, procurement, placement, brokerage, consulting, cash management, corporate secretarial services, domiciliation,
data management, directorship services, finance/budget, human resources, information technology/systems support, internal compliance/KYC, judicial processes, legal, operational coordination (i.e., coordination with JV partners, property
managers), risk management, reporting, tax, tax analysis and compliance (e.g., CIT and VAT compliance), transfer pricing and internal risk control, treasury and valuation services); (b) loan services (including, without limitation,
monitoring, restructuring and work-out of performing, sub-performing and nonperforming loans, administrative services, and cash management); (c) management services
(i.e., management by a portfolio company, Blackstone affiliate or third party (e.g., a third-party manager) of operational services); (d) operational services (i.e., general management of day to day operations); (e) risk
management (tax and treasury); (f) insurance procurement, placement, brokerage and consulting services; and (g) other services. Similarly, Blackstone Credit, Other Clients
51
and their portfolio companies can be expected to engage obligors of the Fund to provide some or all of these services. Some of the services performed by portfolio company service providers could
also be performed by Blackstone Credit from time to time and vice versa. Fees paid by the Fund or its obligors to the other portfolio company service providers do not reduce the management fee payable by the Fund and are not otherwise shared with
the Fund.
Obligors/portfolio companies of the Fund and Other Clients that can be expected to provide services to the Fund and its
obligors include, without limitation, the following, and may include additional obligors that may be formed or acquired in the future:
BTIG. BTIG, LLC (BTIG) is a global financial services firm in which certain Blackstone entities own a strategic
minority investment. BTIG provides institutional trading, investment banking, research and related brokerage services and may provide goods and services for the Fund or its obligors.
Optiv. Optiv Security, Inc. is a portfolio company held by certain Blackstone private equity funds that provides a full slate of
information security services and solutions and may provide goods and services for the Fund and its obligors.
PSAV. PSAV,
Inc. is a portfolio company held by certain Blackstone private equity funds that provides outsourced audiovisual services and event production and may provide goods and services for the Fund and its obligors.
Kryalos. Blackstone through one or more of its funds has committed to a minority investment in Kryalos, an operating partner in
certain investments made by Other Clients, and expects that Kryalos will perform services after the investment has closed for the Fund and Other Clients and receive compensation as described below.
The Fund and its obligors will compensate one or more of these service providers and vendors owned by the Fund or Other Clients, including
through incentive based compensation payable to their management teams and other related parties. The incentive based compensation paid with respect to a portfolio company or asset of the Fund or Other Clients will vary from the incentive based
compensation paid with respect to other portfolio companies and assets of the Fund and Other Clients; as a result the management team or other related parties can be expected to have greater incentives with respect to certain assets and portfolio
companies relative to others, and the performance of certain assets and portfolio companies may provide incentives to retain management that also service other assets and portfolio companies. Some of these service providers and vendors owned or
controlled by the Fund or Other Clients will charge the Fund and its obligors for goods and services at rates generally consistent with those available in the market for similar goods and services. The discussion regarding the determination of
market rates under Firm Affiliated Service Providers herein applies equally in respect of the fees and expenses of the portfolio company service providers, if charged at rates generally consistent with those available in the market.
Other service providers and vendors owned and/or controlled by the Fund or Other Clients pass through expenses on a cost reimbursement, no-profit or break-even basis, in which case the service provider
allocates costs and expenses directly associated with work performed for the benefit of the Fund and its obligors to them, along with any related tax costs and an allocation of the service providers overhead, including any of the following:
salaries, wages, benefits and travel expenses; marketing and advertising fees and expenses; legal, accounting and other professional fees and disbursements; office space and equipment; insurance premiums; technology expenditures, including hardware
and software costs; costs to engage recruitment firms to hire employees; diligence expenses; one-time costs, including costs related to building-out and winding-down a
portfolio company; taxes; and other operating and capital expenditures. Any of the foregoing costs, although allocated in a particular period, will, in certain circumstances, relate to activities occurring outside the period, and therefore the Fund
could pay more than its pro rata portion of fees for services. The allocation of overhead among the entities and assets to which services are provided can be expected to be based on any of a number of different methodologies, including, without
limitation, cost basis as described above, time-allocation basis, per unit basis, per square footage basis or fixed percentage basis. There can be no assurance that a
52
different manner of allocation would result in the Fund and its obligors bearing less or more costs and expenses. Blackstone Credit will not always perform or obtain benchmarking analysis or
third-party verification of expenses with respect to services provided on a cost reimbursement, no profit or break even basis. There can be no assurances that amounts charged by portfolio company service providers that are not controlled by the Fund
or Other Clients will be consistent with market rates or that any benchmarking, verification or other analysis will be performed with respect to such charges. If benchmarking is performed, the related expenses will be borne by the Fund, Other
Clients and their respective obligors/portfolio companies and will not reduce the management fee. A portfolio company service provider will, in certain circumstances, subcontract certain of its responsibilities to other portfolio companies. In such
circumstances, the relevant subcontractor could invoice the portfolio company for fees (or in the case of a cost reimbursement arrangement, for allocable costs and expenses) in respect of the services provided by the subcontractor. The portfolio
company, if charging on a cost reimbursement, no-profit or break-even basis, would in turn allocate those costs and expenses as it allocates other fees and expenses as described above. Similarly, Other
Clients, their portfolio companies and Blackstone Credit can be expected to engage portfolio companies of the Fund to provide services, and these portfolio companies will generally charge for services in the same manner described above, but the Fund
and its obligors generally will not be reimbursed for any costs (such as start-up costs) relating to such portfolio companies incurred prior to such engagement. Some of the services performed by these service
providers could also be performed by Blackstone Credit from time to time and vice versa. Fees paid by the Fund or its obligors to these service providers do not the offset or reduce the management fee payable to the Adviser.
Service Providers, Vendors and Other Counterparties Generally. Certain third party advisors and other service
providers and vendors to the Fund and its obligors (including accountants, administrators, lenders, bankers, brokers, attorneys, consultants, title agents and investment or commercial banking firms) are owned by the Firm, the Fund or Other Clients
or provide goods or services to, or have other business, personal, financial or other relationships with, the Firm, the Other Clients and their respective portfolio companies and affiliates and personnel. Such advisors and service providers referred
to above may be investors in the Fund, affiliates of the Adviser, sources of financing and investment opportunities or co-investors or commercial counterparties or entities in which the Firm and/or Other
Clients have an investment, and payments by the Fund and/or such entities may indirectly benefit the Firm, the Other Clients and their respective portfolio companies or any affiliates or personnel. Also, advisors, lenders, investors, commercial
counterparties, vendors and service providers (including any of their affiliates or personnel) to the Fund and its obligors could have other commercial or personal relationships with the Firm, Other Clients and their respective portfolio companies,
or any affiliates, personnel or family members of personnel of the foregoing. Although the Firm selects service providers and vendors it believes are most appropriate in the circumstances based on its knowledge of such service providers and vendors
(which knowledge is generally greater in the case of service providers and vendors that have other relationships to the Firm), the relationship of service providers and vendors to the Firm as described above will influence the Firm in deciding
whether to select, recommend or form such an advisor or service provider to perform services for the Fund, subject to applicable law, or a portfolio company, the cost of which will generally be borne directly or indirectly by the Fund and can be
expected to incentivize the Firm to engage such service provider over a third party, utilize the services of such service providers and vendors more frequently than would be the case absent the conflict, or to pay such service providers and vendors
higher fees or commissions than would be the case absent the conflict. The incentive could be created by current income and/or the generation of enterprise value in a service provider or vendor; the Firm can be expected to also have an incentive to
invest in or create service providers and vendors to realize on these opportunities.
The Firm has a practice of not entering into any
arrangements with advisors, vendors or service providers that provide lower rates or discounts to the Firm itself compared to those it enters into on behalf of the Fund and its obligors for the same services. However, legal fees for unconsummated
transactions are often charged at a discount rate, such that if the Fund and its obligors consummate a higher percentage of transactions with a particular law firm than the Firm, the Fund, Other Clients and their obligors/portfolio companies, the
shareholders could indirectly pay a higher net effective rate for the services of that law firm than the Firm, the Fund or Other Clients or their obligors/portfolio companies. Also, advisors, vendors and service providers often
53
charge different rates or have different arrangements for different types of services. For example, advisors, vendors and service providers often charge fees based on the complexity of the matter
as well as the expertise and time required to handle it. Therefore, to the extent the types of services used by the Fund and its obligors are different from those used by the Firm, Other Clients and their portfolio companies, and their affiliates
and personnel, the Fund and its obligors can be expected to pay different amounts or rates than those paid by such other persons. Similarly, the Firm, the Fund, the Other Clients and their obligors/portfolio companies and affiliates can be expected
to enter into agreements or other arrangements with vendors and other similar counterparties (whether such counterparties are affiliated or unaffiliated with the Firm) from time to time whereby such counterparty will, in certain circumstances,
charge lower rates (or no fee) or provide discounts or rebates for such counterpartys products or services depending on the volume of transactions in the aggregate or other factors.
Subject to applicable law, the Fund, Other Clients and their obligors/portfolio companies are expected to enter into joint ventures with third
parties to which the service providers and vendors described above will provide services. In some of these cases, the third party joint venture partner may negotiate to not pay its pro rata share of fees, costs and expenses to be allocated as
described above, in which case the Fund, Other Clients and their obligors/portfolio companies that also use the services of the portfolio company service provider will, directly or indirectly, pay the difference, or the portfolio company service
provider will bear a loss equal to the difference.
The Firm may, from time to time, encourage service providers to funds and investments
to use, at market rates and/or on arms length terms, the Firm-affiliated service providers in connection with the business of the Fund, obligors/portfolio companies, and unaffiliated entities. This practice provides an indirect benefit to the
Firm in the form of added business for the Firm-affiliated service providers.
Certain obligors/portfolio companies that provide services
to the Fund, Other Clients and/or obligors/portfolio companies or assets of the Fund and/or Other Clients may be transferred between and among the Fund and/or Other Clients (where the Fund may be a seller or a buyer in any such transfer) for minimal
or no consideration (based on a third party valuation confirming the same). Such transfers may give rise to actual or potential conflicts of interest for Blackstone Credit.
Firm Affiliated Service Providers. Certain of the Funds, the Firms and/or obligor/portfolio companies
advisers and other service providers, or their affiliates (including accountants, administrators, lenders, bankers, brokers, attorneys, consultants, and investment or commercial banking firms) also provide goods or services to, or have business,
personal, financial or other relationships with, the Firm, its affiliates and portfolio companies. Such advisers and service providers (or their affiliates) may be investors in the Fund, affiliates of the Firm, sources of investment opportunities, co-investors, commercial counterparties and/or portfolio companies in which the Firm and/or the Fund has an investment. Accordingly, payments to such entities may indirectly benefit the Fund and/or its affiliates,
including the Firm and Other Clients. No fees charged by these service providers and vendors will reduce the management fees payable to the Adviser. Furthermore, the Firm, the Other Clients and their portfolio companies and their affiliates and
related parties will use the services of these Firm affiliates, including at different rates. Although the Firm believes the services provided by its affiliates are equal or better than those of third parties, the Firm directly benefits from the
engagement of these affiliates, and there is therefore an inherent conflict of interest such as those described above.
Because the Firm
has many different businesses, including the Blackstone Capital Markets Group, which Blackstone investment teams and portfolio companies may engage to provide underwriting and capital market advisory services, it is subject to a number of actual and
potential conflicts of interest, greater regulatory oversight and more legal and contractual restrictions than that to which it would be subject if it had just one line of business. To the extent Blackstone determines appropriate, conflict
mitigation strategies may be put in place with respect to a particular circumstance, such as internal information barriers or recusal, disclosure or other steps determined appropriate by the Adviser. Service providers affiliated with the Firm, which
are generally
54
expected to receive competitive market rate fees (as determined by the Adviser or its affiliates) with respect to certain Investments, include:
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BPM. Blackstone Property Management is a Blackstone affiliate that may provide property management,
leasing oversight, corporate services (including accounting and reporting), development and construction management, and transaction support services to any of the Funds investment properties primarily located in the United Kingdom and
continental Europe.
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Equity Healthcare. Equity Healthcare LLC (Equity Healthcare) is a Blackstone affiliate that
negotiates with providers of standard administrative services for health benefit plans and other related services for cost discounts, quality of service monitoring, data services and clinical consulting. Because of the combined purchasing power of
its client participants, which include unaffiliated third parties, Equity Healthcare is able to negotiate pricing terms that are believed to be more favorable than those that the portfolio companies could obtain on an individual basis. The fees
received by Equity Healthcare in connection with services provided to investments will not reduce the management fee payable by the Fund.
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LNLS. Blackstone wholly owns a leading national title agency, Lexington National Land Services
(LNLS), a title agent company. LNLS may act as an agent for one or more underwriters in issuing title policies and/or providing support services in connection with investments by the Fund, Other Clients and third parties. LNLS focuses on
transactions in rate-regulated U.S. states where the cost of title insurance is non-negotiable. LNLS will not perform services in nonregulated U.S. states for the Fund and Other Clients unless (i) in the
context of a portfolio transaction that includes assets in rate-regulated U.S. states, (ii) as part of a syndicate of title insurance companies where the rate is negotiated by other insurers or their agents, (iii) when a third party is
paying all or a material portion of the premium or (iv) when providing only support services to the underwriter and not negotiating the title policy or issuing it to the insured. LNLS earns fees, which would have otherwise been paid to third
parties, by providing title agency services and facilitating the placement of title insurance with underwriters. Blackstone receives distributions from LNLS in connection with investments by the Fund based on its equity interest in LNLS. In each
case, there will be no related reduction in management fees. As a result, while Blackstone believes that venture will provide services at or better than those provided by third parties (even in jurisdictions where insurance rates are regulated),
there is an inherent conflict of interest that would incentivize Blackstone to engage LNLS over a third party.
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Certain
Blackstone-affiliated service providers and their respective personnel will receive a management promote, an incentive fee and other performance-based compensation in respect of investments, sales or other transaction volume. Furthermore,
Blackstone-affiliated service providers may charge costs and expenses based on allocable overhead associated with personnel working on relevant matters (including salaries, benefits and other similar expenses).
In connection with such relationships, Blackstone Credit and, if required by applicable law, the Board, will make determinations of
competitive market rates based on its consideration of a number of factors, which are generally expected to include Blackstone Credits experience with non-affiliated service providers, benchmarking data
and other methodologies determined by Blackstone Credit to be appropriate under the circumstances (i.e., rates that fall within a range that Blackstone Credit has determined is reflective of rates in the applicable market and certain similar
markets, though not necessarily equal to or lower than the median rate of comparable firms). In respect of benchmarking, while Blackstone Credit often obtains benchmarking data regarding the rates charged or quoted by third parties for services
similar to those provided by Blackstone Credit affiliates in the applicable market or certain similar markets, relevant comparisons may not be available for a number of reasons, including, without limitation, as a result of a lack of a substantial
market of providers or users of such services or the confidential or bespoke nature of such services (e.g., different assets may receive different services). In addition, benchmarking data is based on general market and broad industry
overviews, rather than determined on an asset by asset basis. As a result, benchmarking data does not take into account specific
55
characteristics of individual assets then invested in by the Fund (such as location or size), or the particular characteristics of services provided. For these reasons, such market comparisons
may not result in precise market terms for comparable services. Expenses to obtain benchmarking data will be borne by the Fund, Other Clients and their respective obligors/portfolio companies and will not reduce the management fee. Finally, in
certain circumstances Blackstone Credit may determine that third party benchmarking is unnecessary, either because the price for a particular good or service is mandated by law (e.g., title insurance in rate regulated states) or because
Blackstone Credit has access to adequate market data to make the determination without reference to third party benchmarking. For example, certain portfolio companies may enter into an employer health program arrangement or similar arrangements with
Equity Healthcare, a Blackstone affiliate that negotiates with providers of standard administrative services and insurance carriers for health benefit plans and other related services for cost discounts, quality of service monitoring, data services
and clinical consulting. Because of the combined purchasing power of its client participants, Equity Healthcare is able to negotiate pricing terms from providers that are believed to be more favorable than the companies could obtain for themselves
on an individual basis. The payments made to Blackstone in connection with Equity Healthcare, group purchasing, insurance and benefits management will not reduce the management fee payable to the Adviser.
Advisers and service providers, or their affiliates, often charge different rates, including below-market or no fee, or have different
arrangements for different types of services. With respect to service providers, for example, the fee for a given type of work may vary depending on the complexity of the matter as well as the expertise required and demands placed on the service
provider. Therefore, to the extent the types of services used by the Fund and/or portfolio companies differ from those used by the Firm and its affiliates (including personnel), Blackstone Credit and/or Blackstone or their respective affiliates
(including personnel) may pay different amounts or rates than those paid by the Fund and/or portfolio companies. However, Blackstone Credit and its affiliates have a longstanding practice of not entering into any arrangements with advisers or
service providers that could provide for lower rates or discounts than those available to the Fund, Other Clients and/or portfolio companies for the same services. Furthermore, advisers and service providers may provide services exclusively to the
Firm and its affiliates, including the Fund, Other Clients and their obligors/portfolio companies, although such advisers and service providers would not be considered employees of Blackstone or Blackstone Credit. Similarly, Blackstone, Blackstone
Credit, each of their respective affiliates, the Fund, the Other Clients and/or their obligors/portfolio companies, may enter into agreements or other arrangements with vendors and other similar counterparties (whether such counterparties are
affiliated or unaffiliated with the Firm) from time to time whereby such counterparty may charge lower rates (or no fee) and/or provide discounts or rebates for such counterpartys products and/or services depending on certain factors,
including volume of transactions entered into with such counterparty by the Firm, its affiliates, the Fund, the Other Clients and their obligors/portfolio companies in the aggregate.
In addition, investment banks or other financial institutions, as well as Blackstone employees, may also be investors in the Fund. These
institutions and employees are a potential source of information and ideas that could benefit the Fund. Blackstone has procedures in place reasonably designed to prevent the inappropriate use of such information by the Fund.
Transactions with Portfolio Companies. The Firm and obligors/portfolio companies of the Fund and Other Clients provide
products and services to or otherwise contract with the Fund and its obligors, among others. In the alternative, the Firm may form a joint venture with such a company to implement such referral arrangement. For example, such arrangements may include
the establishment of a joint venture or other business arrangement between the Firm, on the one hand, and a portfolio company of the Fund, portfolio company of an Other Client or third party, on the other hand, pursuant to which the joint venture or
business provides services (including, without limitation, corporate support services, loan management services, management services, operational services, risk management services, data management services, consulting services, brokerage services,
insurance procurement, placement, brokerage and consulting services, and other services) to obligors of the Fund (and portfolio companies of Other Clients) that are referred to the joint venture or business by the Firm. The Firm, the Fund and Other
Clients and their respective obligors/portfolio companies and personnel and related parties of the
56
foregoing may make referrals or introductions to obligors/portfolio companies of the Fund or Other Clients in an effort, in part, to increase the customer base of such companies or businesses
(and therefore the value of the investment held by the Fund or Other Client, which would also benefit the Firm financially through its participation in such joint venture or business) or because such referrals or introductions may result in
financial benefits, such as additional equity ownership and/or milestones benefitting the referring or introducing party that are tied or related to participation by the obligors/portfolio companies of the Fund and/or of Other Clients, accruing to
the party making the introduction. The Fund and the common shareholders will not share in any fees, economics, equity or other benefits accruing to the Firm, Other Clients and their portfolio companies as a result of the introduction of the Fund and
its obligors. Moreover, payments made to the Firm in connection with such arrangements will not reduce the management fee payable to the Adviser. There may, however, be instances in which the applicable arrangements provide that the Fund or its
obligors share in some or all of any resulting financial incentives (including, in some cases, equity ownership) based on structures and allocation methodologies determined in the sole discretion of the Firm. Conversely, where the Fund or one of its
obligors is the referring or introducing party, rather than receiving all of the financial incentives (including, in some cases, additional equity ownership) for similar types of referrals and/or introductions, such financial incentives (including,
in some cases, equity ownership) may be similarly shared with the participating Other Clients or their respective portfolio companies.
The Firm may also enter into commercial relationships with third party companies, including those in which the Fund considered making an
investment (but ultimately chose not to pursue). For example, the Firm may enter into an introducer engagement with such company, pursuant to which the Firm introduces the company to unaffiliated third parties (which may include current and former
portfolio companies and portfolio companies of Other Clients and/or their respective employees) in exchange for a fee from, or equity interest in, such company. Even though the Firm may benefit financially from this commercial relationship, the Firm
will be under no obligation to reimburse the Fund for Broken Deal Expenses incurred in connection with its consideration of the prospective investment and such arrangements will not be subject to the management fee payable to the Adviser and
otherwise described herein.
Additionally, the Firm or an affiliate thereof will from time to time hold equity or other investments in
companies or businesses that provide services to or otherwise contract with portfolio companies. Blackstone and Blackstone Credit have in the past entered (and can be expected in the future to enter) into relationships with companies in the
information technology, corporate services and related industries whereby Blackstone acquires an equity or similar interest in such company. In connection with such relationships, Blackstone and/or Blackstone Credit may also make referrals and/or
introductions to portfolio companies (which may result in financial incentives (including additional equity ownership) and/or milestones benefitting Blackstone and/or Blackstone Credit that are tied or related to participation by portfolio
companies). Such joint venture or business could use data obtained from obligors of the Fund and/or portfolio companies of Other Clients. (See Data.) These arrangements may be entered into without the consent or direct involvement
of the Fund. The Fund and the common shareholders will not share in any fees or economics accruing to Blackstone and/or Blackstone Credit as a result of these relationships and/or participation by portfolio companies.
With respect to transactions or agreements with portfolio companies (including, for the avoidance of doubt, long-term incentive plans), at
times if officers unrelated to the Firm have not yet been appointed to represent a portfolio company, the Firm may negotiate and execute agreements between the Firm and/or the Fund on the one hand, and the portfolio company or its affiliates, on the
other hand, without arms length representation of the portfolio company, which could entail a conflict of interest in relation to efforts to enter into terms that are arms length. Among the measures the Firm may use to mitigate such
conflicts are to involve outside counsel to review and advise on such agreements and provide insights into commercially reasonable terms, or establish separate groups with information barriers within the Firm to advise on each side of the
negotiation.
Related Party Leasing. Subject to applicable law, the Fund and its obligors may lease property to or
from Blackstone, Other Clients and their portfolio companies and affiliates and other related parties. The leases are
57
generally expected to be at market rates. Blackstone may confirm market rates by reference to other leases it is aware of in the market, which Blackstone expects to be generally indicative of
market given the scale of Blackstones real estate business. Blackstone will nonetheless have conflicts of interest in making these determinations. There can be no assurance that the Fund and its obligors will lease to or from any such related
parties on terms as favorable to the Fund and its obligors as would apply if the counterparties were unrelated.
Cross-Guarantees
and Cross-Collateralization. While Blackstone Credit generally seeks to use reasonable efforts to avoid cross-guarantees and other similar arrangements, a counterparty, lender or other participant in any transaction to be pursued by
the Fund (other than alternative investment vehicles) and/or the Other Clients may require or prefer facing only one fund entity or group of entities, which may result in any of the Fund, such Other Clients, the portfolio companies, such Other
Clients portfolio companies and/or other vehicles being jointly and severally liable for such applicable obligation (subject to any limitations set forth in the applicable partnership agreements or other governing documents thereof), which in
each case may result in the Fund, such Other Clients, such portfolio companies, and/or vehicles entering into a back-to-back or other similar reimbursement agreement,
subject to applicable law. In such situation, better financing terms may be available through a cross-collateralized arrangement, but it is not expected that any of the Fund or such Other Clients or vehicles would be compensated (or provide
compensation to the other) for being primarily liable vis-à-vis such third party counterparty. Also, it is expected that cross-collateralization will generally
occur at portfolio companies rather than the Fund for obligations that are not recourse to the Fund except in limited circumstances such as bad boy events. Any cross-collateralization arrangements with Other Clients could result in the
Fund losing its interests in otherwise performing investments due to poorly performing or non-performing investments of Other Clients in the collateral pool.
Similarly, a lender could require that it face only one portfolio company of the Fund and Other Clients, even though multiple obligors of the
Fund and Other Clients benefit from the lending, which will typically result in (i) the portfolio company facing the lender being solely liable with respect to the entire obligation, and therefore being required to contribute amounts in respect
of the shortfall attributable to other portfolio companies, and (ii) obligors of the Fund and Other Clients being jointly and severally liable for the full amount of the obligation, liable on a cross-collateralized basis or liable for an equity
cushion (which cushion amount may vary depending upon the type of financing or refinancing (e.g., cushions for refinancings may be smaller)). The obligor/portfolio companies of the Fund and Other Clients benefiting from a financing may enter
into a back-to-back or other similar reimbursement agreements to ensure no obligor/portfolio company bears more than its pro rata portion of the debt and related
obligations. It is not expected that the obligors/portfolio companies would be compensated (or provide compensation to other portfolio companies) for being primarily liable, or jointly liable, for other portfolio companies pro rata share of any
financing.
Joint Venture Partners. The Fund will from time to time enter into one or more joint venture arrangements
with third party joint venture partners. Investments made with joint venture partners will often involve performance-based compensation and other fees payable to such joint venture partners, as determined by the Adviser in its sole discretion. The
joint venture partners could provide services similar to those provided by the Adviser to the Fund. Yet, no compensation or fees paid to the joint venture partners would reduce the management fees payable by the Fund. Additional conflicts would
arise if a joint venture partner is related to the Firm in any way, such as a limited partner investor in, lender to, a shareholder of, or a service provider to the Firm, the Fund, Other Clients, or their respective obligors/portfolio companies, or
any affiliate, personnel, officer or agent of any of the foregoing.
Group Procurement; Discounts. The Fund (subject
to applicable law) and certain portfolio companies will enter into agreements regarding group procurement (such as CoreTrust, an independent group purchasing organization), benefits management, purchase of title and/or other insurance policies
(which may include brokerage and/or placement thereof, and will from time to time be pooled across portfolio companies and discounted due to scale, including through sharing of deductibles and other forms of shared risk retention) from a third party
or an affiliate of Blackstone Credit and/or Blackstone, and other operational, administrative or
58
management related initiatives. The Firm will allocate the cost of these various services and products purchased on a group basis among the Fund, Other Clients and their obligors/portfolio
companies. Some of these arrangements result in commissions, discounts, rebates or similar payments to Blackstone Credit and/or Blackstone or their affiliates (including personnel), or Other Clients and their portfolio companies, including as a
result of transactions entered into by the Fund and its obligors and/or related to a portion of the savings achieved by the obligors. Such commissions or payment will not reduce the management fee. The Firm may also receive consulting or other fees
from the parties to these group procurement arrangements. To the extent that a portfolio company of an Other Client is providing such a service, such portfolio company and such Other Client will benefit. Further, the benefits received by a
particular portfolio company providing the service may be greater than those received by the Fund and its obligors receiving the service. Conflicts exist in the allocation of the costs and benefits of these arrangements, and common shareholders rely
on the Adviser to handle them in its sole discretion.
Diverse Shareholder Group. The common shareholders are expected
to be based in a wide variety of jurisdictions and take a wide variety of forms. The common shareholders may have conflicting investment, tax and other interests with respect to their investments in the Fund and with respect to the interests of
investors in other investment vehicles managed or advised by the Adviser and Blackstone Credit that may participate in the same investments as the Fund. The conflicting interests of individual common shareholders with respect to other common
shareholders and relative to investors in other investment vehicles would generally relate to or arise from, among other things, the nature of investments made by the Fund and such other partnerships, the structuring or the acquisition of
investments and the timing of disposition of investments. As a consequence, conflicts of interest may arise in connection with the decisions made by the Adviser or Blackstone Credit, including with respect to the nature or structuring of investments
that may be more beneficial for one investor than for another investor, especially with respect to investors individual tax situations. In addition, the Fund may make investments that may have a negative impact on related investments made by
the common shareholders in separate transactions. In selecting and structuring investments appropriate for the Fund, the Adviser or Blackstone Credit will consider the investment and tax objectives of the Fund and the common shareholders (and
those of investors in other investment vehicles managed or advised by the Adviser or Blackstone Credit) as a whole, not the investment, tax or other objectives of any common shareholder individually.
In addition, certain common shareholders also may be investors in Other Clients, including supplemental capital vehicles and co-investment vehicles that may invest alongside the Fund in one or more investments, consistent with applicable law and/or any applicable SEC-granted order. common
shareholders also may include affiliates of the Firm, such as Other Clients, affiliates of obligors/portfolio companies of the Fund or Other Clients, charities, foundations or other entities or programs associated with Firm personnel and/or current
or former Firm employees, the Firms senior advisors and/or operating partners and any affiliates, funds or persons may also invest in the Fund through the vehicles established in connection with the Firms
side-by-side co-investment rights, subject to applicable law, in each case, without being subject to management fees, and common
shareholders will not be afforded the benefits of such arrangements. Some of the foregoing Firm related parties are sponsors of feeder vehicles that could invest in the Fund as common shareholders. The Firm related sponsors of feeder vehicles
generally charge their investors additional fees, including performance based fees, which could provide the Firm current income and increase the value of its ownership position in them. The Firm will therefore have incentives to refer potential
investors to these feeder vehicles. All of these Firm related shareholders will have equivalent rights to vote and withhold consents as nonrelated shareholders. Nonetheless, the Firm may have the ability to influence, directly or indirectly, these
Firm related shareholders.
It is also possible that the Fund or its obligors will be a counterparty (such counterparties dealt with on an
arms-length basis) or participant in agreements, transactions or other arrangements with a common shareholder or an affiliate of a common shareholder. Such transactions may include agreements to pay
performance fees to operating partners, a management team and other related persons in connection with the Funds investment therein, which will reduce the Funds returns. Such common shareholders described in the previous sentences may
therefore have different information about the Firm and the Fund than common shareholders not similarly
59
positioned. In addition, conflicts of interest may arise in dealing with any such common shareholders, and the Adviser and its affiliates may not be motivated to act solely in accordance with its
interests relating to the Fund. Similar information disparity may occur as a result of common shareholders monitoring their investments in vehicles such as the Fund differently. For example, certain common shareholders may periodically request from
the Adviser information regarding the Fund, its investments and/or obligors that is not otherwise set forth in (or has yet to be set forth) in the reporting and other information required to be delivered to all common shareholders. In such
circumstances, the Adviser may provide such information to such common shareholders, subject to applicable law and regulations. Unless required by applicable law, the Adviser will not be obligated to affirmatively provide such information to all
common shareholders (although the Adviser will generally provide the same information upon request and treat common shareholders equally in that regard). As a result, certain common shareholders may have more information about the Fund than other
common shareholders, and, unless required by applicable law, the Adviser will have no duty to ensure all common shareholders seek, obtain or process the same information regarding the Fund, its investments and/or obligors. Therefore, certain common
shareholders may be able to take actions on the basis of such information which, in the absence of such information, other common shareholders do not take. Furthermore, at certain times the Firm may be restricted from disclosing to the common
shareholders material non-public information regarding any assets in which the Fund invests, particularly those investments in which an Other Client or portfolio company that is publicly registered co-invests with the Fund. In addition, investment banks or other financial institutions, as well as Firm personnel, may also be common shareholders. These institutions and personnel are a potential source of
information and ideas that could benefit the Fund, and may receive information about the Fund and its obligors in their capacity as a service provider or vendor to the Fund and its obligors.
Possible Future Activities. The Firm and its affiliates may expand the range of services that it provides over time.
Except as provided herein, the Firm and its affiliates will not be restricted in the scope of its business or in the performance of any such services (whether now offered or undertaken in the future) even if such activities could give rise to
conflicts of interest, and whether or not such conflicts are described herein. The Firm and its affiliates have, and will continue to develop, relationships with a significant number of companies, financial sponsors and their senior managers,
including relationships with clients who may hold or may have held investments similar to those intended to be made by the Fund. These clients may themselves represent appropriate investment opportunities for the Fund or may compete with the Fund
for investment opportunities.
Restrictions Arising under the Securities Laws. The Firms activities and
the activities of Other Clients (including the holding of securities positions or having one of its employees on the board of directors of a portfolio company) could result in securities law restrictions on transactions in securities held by the
Fund, affect the prices of such securities or the ability of such entities to purchase, retain or dispose of such investments, or otherwise create conflicts of interest, any of which could have an adverse impact on the performance of the Fund and
thus the return to the common shareholders.
The 1940 Act may limit the Funds ability to undertake certain transactions with or
alongside its affiliates that are registered under the 1940 Act. As a result of these restrictions, the Fund may be prohibited from executing joint transactions with the Funds 1940 Act registered affiliates, which could include
investments in the same portfolio company (whether at the same or different times) or buying investments from, or selling them to, Other Clients. These limitations may limit the scope of investment opportunities that would otherwise be available to
the Fund.
The Fund has received an exemptive order from the SEC that permits us, among other things, to
co-invest with certain other persons, including certain affiliates of the Adviser and certain funds managed and controlled by the Adviser and its affiliates, subject to certain terms and conditions.
Shareholders Outside Activities. A common shareholder shall be entitled to and may have business interests and
engage in activities in addition to those relating to the Fund, including business interests and activities in direct competition with the Fund and its obligors, and may engage in transactions with, and provide services to, the Fund or its obligors
(which may include providing leverage or other financing to the Fund or its obligors as determined by
60
the Adviser in its sole discretion). None of the Fund, any common shareholder or any other person shall have any rights by virtue of the Funds operative documents in any business ventures
of any common shareholder. The common shareholder, and in certain cases the Adviser, will have conflicting loyalties in these situations.
Insurance. The Fund will purchase, and/or bear premiums, fees, costs and expenses (including any expenses or fees of
insurance brokers) for insurance to insure the Fund and the Board against liability in connection with the activities of the Fund. This includes a portion of any premiums, fees, costs and expenses for one or more umbrella, group or other
insurance policies maintained by the Firm that cover the Fund and one or more of the Other Clients, the Adviser, Blackstone Credit and/or Blackstone (including their respective directors, officers, employees, agents, representatives, independent
client representative (if any) and other indemnified parties). The Adviser will make judgments about the allocation of premiums, fees, costs and expenses for such umbrella, group or other insurance policies among the Fund, one or more
Other Clients, the Adviser, Blackstone Credit and/or Blackstone on a fair and reasonable basis, subject to approval by the Board.
Additional Potential Conflicts of Interest. The officers, directors, members, managers, employees and personnel of
the Adviser may trade in securities for their own accounts, subject to restrictions and reporting requirements as may be required by law or the Firms policies, or otherwise determined from time to time by the Adviser. In addition, certain
Other Clients may be subject to the 1940 Act or other regulations that, due to the role of the Firm, could restrict the ability of the Fund to buy investments from, to sell investments to or to invest in the same securities as, such Other Clients.
Such regulations may have the effect of limiting the investment opportunities available to the Fund. In addition, as a consequence of Blackstones status as a public company, the officers, directors, members, managers and personnel of the
Adviser may take into account certain considerations and other factors in connection with the management of the business and affairs of the Fund and its affiliates that would not necessarily be taken into account if Blackstone were not a public
company. The directors of Blackstone have fiduciary duties to shareholders of the public company that may conflict with their duties to the Fund. Finally, although the Firm believes its positive reputation in the marketplace provides benefit to the
Fund and Other Clients, the Adviser could decline to undertake investment activity or transact with a counterparty on behalf of the Fund for reputational reasons, and this decision could result in the Fund foregoing a profit or suffering a loss.
Proxy Voting Policies
The Board has delegated the voting of proxies for Fund securities to the Adviser pursuant to the Advisers proxy voting guidelines. Under
these guidelines, the Adviser will vote proxies related to Fund securities in the best interests of the Fund and its shareholders. A copy of the Advisers proxy voting policy is attached as Appendix B to this Statement of Additional
Information.
Information on how the Fund voted proxies (if any) relating to portfolio securities during the most recent 12-month period ended June 30 will be available without charge by calling toll-free (877) 876-1121, or on the SECs website at http://www.sec.gov.
Codes of Ethics
The Fund
and the Adviser have adopted codes of ethics pursuant to Rule 17j-1 under the 1940 Act. These codes govern personal trading by Fund and Adviser personnel. Among other requirements, the codes require certain
persons to report certain of their personal securities transactions and holdings (in reportable securities) to the Adviser or Fund, and the Adviser and Fund are required to review such reports. The Funds code permits the Funds personnel
to trade in securities, but prohibits insider trading and trades knowingly made within certain time frames of trades made by the Fund in the same securities. The Advisers code permits the Advisers personnel to trade in securities, but
not to trade in securities in which the Fund invests. These codes of ethics are available on the EDGAR Database on the SECs Web site (http://www.sec.gov), and copies of these codes may be obtained, after paying a duplicating fee, by electronic
request at the following e-mail address: publicinfo@sec.gov.
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PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser is responsible for decisions to buy and sell securities for the Fund, the selection of brokers and dealers to effect the
transactions and the negotiation of prices and any brokerage commissions. With respect to Secured Loans and Subordinated Loans, the Fund generally will engage in privately negotiated transactions for purchase or sale in which the Adviser will
negotiate on behalf of the Fund, although a more developed market may exist or develop for certain Secured Loans and Subordinated Loans. Most of these transactions will be principal transactions at net prices for which the Fund will generally incur
little or no brokerage costs. The Fund may be required to pay fees, or forgo a portion of interest and any fees payable to the Fund, to a lender selling Assignment or Participations to the Fund. The Adviser will determine the lenders from whom the
Fund will purchase Assignments and Participations by considering their professional ability, level of service, relationship with the Borrower, financial condition, credit standards and quality of management. Affiliates of the Adviser may participate
in the primary and secondary market for Secured Loans and Subordinated Loans. Because of certain limitations imposed by the 1940 Act, this may restrict the Funds ability to acquire some Secured Loans and Subordinated Loans. The Adviser does
not believe that this will have a material effect on the Funds ability to acquire Secured Loans and Subordinated Loans consistent with its investment policies. Sales to dealers are effected at bid prices. The illiquidity of many Secured Loans
and Subordinated Loans may restrict the ability of the Adviser to locate in a timely manner persons willing to purchase the Funds interests in Secured Loans or Subordinated Loans at a fair price should the Fund desire to sell such interests.
With respect to fixed-income instruments and other types of securities, the Fund may (i) purchase certain money market instruments
directly from an issuer, in which case no commissions or discounts are paid, (ii) purchase securities in the over-the-counter market from an underwriter or dealer
serving as market maker for the securities, in which case the price includes a fixed amount of compensation to the underwriter or dealer, and (iii) purchase and sell listed securities on an exchange, which are effected through brokers who
charge a commission for their services.
Payments of commissions to brokers who are affiliated persons of the Fund (or affiliated persons
of such persons) will be made in accordance with Rule 17e-1 under the 1940 Act.
Commissions paid
on such transactions would be commensurate with the rate of commissions paid on similar transactions to brokers that are not so affiliated.
During the fiscal year ended December 31, 2020, December 31, 2019 and December 31, 2018, the Fund paid $0, $0 and $69, respectively,
in brokerage commissions. During the same period, the Fund did not pay any brokerage commissions to any broker that is an affiliated person of the Fund, is an affiliated person of an affiliated person of the Fund, or has an affiliated person that is
an affiliated person of the Fund or the Adviser. During the same period, the Fund did not acquire securities of its regular brokers or dealers (as defined in Rule 10b-1 under the 1940 Act) or their parent
companies.
The Adviser is responsible for placing portfolio transactions and will do so in a manner deemed fair and reasonable to the
Fund and not according to any formula. The primary consideration in all portfolio transactions is prompt execution of orders in an effective manner at the most favorable price. In selecting broker-dealers and in negotiating prices and any brokerage
commissions on such transactions, the Adviser considers the firms reliability, integrity and financial condition and the firms execution capability, the size and breadth of the market for the security, the size of and difficulty in
executing the order, and the best net price. There may be instances when, in the judgment of the Adviser, more than one firm can offer comparable execution services.
A commission paid to such brokers may be higher than that which another qualified broker would have charged for effecting the same
transaction, provided that the Adviser determine in good faith that such commission is reasonable in terms either of the transaction or the overall responsibility of the Adviser to the Fund and its other clients and that the total commissions paid
by the Fund will be reasonable in relation to the
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benefits to the Fund over the long-term. The advisory fees that the Fund pays to the Adviser will not be reduced as a consequence of the Advisers receipt of brokerage and research services.
To the extent that portfolio transactions are used to obtain such services, the brokerage commissions paid by the Fund will exceed those that might otherwise be paid by an amount that cannot be presently determined. Such services generally would be
useful and of value to the Adviser in serving one or more of their other clients and, conversely, such services obtained by the placement of brokerage business of other clients generally would be useful to the Adviser in carrying out their
obligations to the Fund. While such services are not expected to reduce the expenses of the Adviser, the Adviser would, through use of the services, avoid the additional expenses that would be incurred if they should attempt to develop comparable
information through their own staffs. Commission rates for brokerage transactions on foreign stock exchanges are generally fixed.
One or
more of the other accounts that the Adviser manages may own from time to time some of the same investments as the Fund. Investment decisions for the Fund are made independently from those of such other investment companies or accounts; however, from
time to time, the same investment decision may be made for more than one company or account. When two or more companies or accounts seek to purchase or sell the same securities, the securities actually purchased or sold will be allocated among the
companies and accounts on a good faith equitable basis, usually on a pro rata basis, by the Adviser in its discretion in accordance with the accounts various investment objectives. Such allocations are based upon the written procedures of the
Adviser, which have been reviewed and approved by the Board. In some cases, this system may adversely affect the price or size of the position obtainable for the Fund. In other cases, however, the ability of the Fund to participate in volume
transactions may produce better execution for the Fund. It is the opinion of the Board that this advantage, when combined with the other benefits available due to the Advisers organization, outweighs any disadvantages that may be said to exist
from exposure to simultaneous transactions.
While the Funds annual portfolio turnover rate is not expected to exceed 100% under
normal circumstances, it has exceeded that amount in the past and may again in the future. Portfolio turnover rate is not considered a limiting factor in the execution of investment decisions for the Fund. Because it is difficult to predict
accurately portfolio turnover rates, actual turnover may be higher or lower than expected. Higher portfolio turnover results in increased Fund costs, including brokerage commissions, dealer mark-ups and other
transaction costs on the sale of securities and on the reinvestment in other securities.
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DESCRIPTION OF SHARES
Common Shares
The Fund
holds annual meetings of shareholders and intends to do so for as long as the Common Shares are listed on a national securities exchange and such meetings are required as a condition to such listing. All Common Shares are equal as to dividends,
assets and voting privileges and have no conversion, preemptive or other subscription rights. The Fund sends annual and semi-annual reports, including financial statements, to all holders of its Shares. The Prospectus contains a detailed discussion
of the Common Shares.
Preferred Shares
The Funds Amended and Restated Agreement and Declaration of Trust (the Declaration of Trust) provides that the Board may
authorize and issue Preferred Shares with rights as determined by the Board, by action of the Board without the approval of the common shareholders. Common shareholders have no preemptive right to purchase any Preferred Shares that might be issued.
Whenever Preferred Shares are outstanding, common shareholders will not be entitled to receive any distributions from the Fund unless all accrued dividends on Preferred Shares have been paid, unless asset coverage (as defined in the 1940 Act) with
respect to Preferred Shares would be at least 200% after giving effect to the distributions and unless certain other requirements imposed by any rating agencies rating the Preferred Shares have been met.
Rating Agency Guidelines. The Fund has issued Series A mandatory redeemable preferred shares (MRPS), which are currently
rated by one nationally recognized statistical rating organization (NRSRO). Currently, the Funds supplement to the Declaration of Trust (the Articles Supplementary) requires the Fund to use its reasonable best efforts
to cause at least one NRSRO to maintain a current rating on the MRPS. The Fund may be subject to certain guidelines by an NRSRO in connection with the ratings of the MRPS. These guidelines generally include asset coverage requirements, portfolio
characteristics such as portfolio diversification and credit rating criteria, and qualitative views on the Fund and Fund management. While these guidelines may impose different requirements than those under the 1940 Act, it is not anticipated that
these guidelines will impede the management of the Funds portfolio in accordance with the Funds investment objectives and policies.
Other Shares
The Board
(subject to applicable law and the terms of the Declaration of Trust) may authorize an offering, without the approval of the holders of either Common Shares or Preferred Shares, of other classes of shares, or other classes or series of shares, as
they determine to be necessary, desirable or appropriate, having such terms, rights, preferences, privileges, limitations and restrictions as the Board see fit. The Fund currently does not expect to issue any other classes of shares, or series of
shares, except for the Shares.
REPURCHASE OF COMMON SHARES
The Fund is a closed-end management investment company and as such its shareholders will not have the
right to cause the Fund to redeem their shares. Instead, the Funds Common Shares will trade in the open market at a price that will be a function of several factors, including dividend levels (which are in turn affected by expenses), NAV,
dividend stability, relative demand for and supply of such shares in the market, general market and economic conditions and other factors. Because shares of a closed-end investment company may frequently trade
at prices lower than NAV, the Board may consider action that might be taken to reduce or eliminate any material discount from NAV in respect of Common Shares, which may include the repurchase of such shares in the open market or in private
transactions, the making of a tender offer for such shares, or the conversion of the Fund to an open-end investment company. The Board may decide not to take any of these actions. In addition, there can be no
assurance that share repurchases or tender offers, if undertaken, will reduce market discount.
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Notwithstanding the foregoing, at any time when the Funds Preferred Shares are outstanding,
the Fund may not purchase, redeem or otherwise acquire any of its Common Shares unless (1) all accrued Preferred Shares dividends have been paid and (2) at the time of such purchase, redemption or acquisition, the NAV of the Funds
portfolio (determined after deducting the acquisition price of the Common Shares) is at least 200% of the liquidation value of the outstanding Preferred Shares (expected to equal the original purchase price per share plus any accrued and unpaid
dividends thereon). Any service fees incurred in connection with any tender offer made by the Fund will be borne by the Fund and will not reduce the stated consideration to be paid to tendering shareholders.
Subject to its investment restrictions, the Fund may borrow to finance the repurchase of shares or to make a tender offer. Interest on any
borrowings to finance share repurchase transactions or the accumulation of cash by the Fund in anticipation of share repurchases or tenders will reduce the Funds net income. Any share repurchase, tender offer or borrowing that might be
approved by the Board would have to comply with the Exchange Act, the 1940 Act and the rules and regulations thereunder.
Although the
decision to take action in response to a discount from NAV will be made by the Board at the time it considers such issue, it is the Boards present policy, which may be changed by the Board, not to authorize repurchases of Common Shares or a
tender offer for such shares if: (1) such transactions, if consummated, would (a) result in the delisting of the Common Shares from the New York Stock Exchange, or (b) impair the Funds status as a regulated investment company
under the Code (which would make the Fund a taxable entity, causing the Funds income to be taxed at the corporate level in addition to the taxation of shareholders who receive dividends from the Fund), or as a registered closed-end investment company under the 1940 Act; (2) the Fund would not be able to liquidate portfolio securities in an orderly manner and consistent with the Funds investment objectives and policies in
order to repurchase shares; or (3) there is, in the boards judgment, any (a) material legal action or proceeding instituted or threatened challenging such transactions or otherwise materially adversely affecting the Fund,
(b) general suspension of or limitation on prices for trading securities on the New York Stock Exchange, (c) declaration of a banking moratorium by Federal or state authorities or any suspension of payment by United States or New York
banks, (d) material limitation affecting the Fund or the issuers of its portfolio securities by Federal or state authorities on the extension of credit by lending institutions or on the exchange of foreign currency, (e) commencement of
war, armed hostilities or other international or national calamity directly or indirectly involving the United States, excluding the current hostilities in Iraq, Afghanistan and Pakistan, to the extent these hostilities do not materially escalate,
or (f) other event or condition which would have a material adverse effect (including any adverse tax effect) on the Fund or its shareholders if shares were repurchased. The Board may in the future modify these conditions in light of
experience.
The repurchase by the Fund of its shares at prices below NAV will result in an increase in the NAV of those shares that
remain outstanding. However, there can be no assurance that share repurchases or tender offers at or below NAV will result in the Funds shares trading at a price equal to their NAV. Nevertheless, the fact that the Funds shares may be the
subject of repurchase or tender offers from time to time, or that the Fund may be converted to an open-end investment company, may reduce any spread between market price and NAV that might otherwise exist.
In addition, a purchase by the Fund of its Common Shares will decrease the Funds total assets which would likely have the effect of
increasing the Funds expense ratio. Any purchase by the Fund of its Common Shares at a time when Preferred Shares are outstanding will increase the leverage applicable to the outstanding Common Shares then remaining.
Before deciding whether to take any action if the Common Shares trade below NAV, the Board will consider all relevant factors, including the
extent and duration of the discount, the liquidity of the Funds portfolio, the impact of any action that might be taken on the Fund or its shareholders and market considerations. Based on these considerations, even if the Funds shares
should trade at a discount, the Board may determine that, in the interest of the Fund and its shareholders, no action should be taken.
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TAX MATTERS
Set forth below is a discussion of the material U.S. federal income tax aspects concerning the Fund and the purchase, ownership and
disposition of Common Shares. This discussion does not purport to be complete or to deal with all aspects of U.S. federal income taxation that may be relevant to common shareholders in light of their particular circumstances. Unless otherwise noted,
this discussion applies only to U.S. shareholders that hold Common Shares as capital assets. A U.S. shareholder is an individual who is a citizen or resident of the United States, a U.S. corporation, a trust if it (a) is subject to the primary
supervision of a court in the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust or (b) has made a valid election to be treated as a U.S. person, or any estate the income of which is
subject to U.S. federal income tax regardless of its source. This discussion is based upon present provisions of the Code, the regulations promulgated thereunder, and judicial and administrative ruling authorities, all of which are subject to
change, or differing interpretations (possibly with retroactive effect). This discussion does not represent a detailed description of the U.S. federal income tax consequences relevant to special classes of taxpayers including, without limitation,
financial institutions, insurance companies, investors in pass-through entities, U.S. shareholders whose functional currency is not the U.S. dollar, tax-exempt organizations, dealers in securities
or currencies, traders in securities or commodities that elect mark to market treatment, or persons that will hold Common Shares as a position in a straddle, hedge or as part of a constructive sale for U.S.
federal income tax purposes. In addition, this discussion does not address the application of the Medicare tax on net investment income or the U.S. federal alternative minimum tax. Prospective investors should consult their tax advisors with regard
to the U.S. federal tax consequences of the purchase, ownership, or disposition of Common Shares, as well as the tax consequences arising under the laws of any state, foreign country or other taxing jurisdiction.
Taxation of the Fund
The Fund has
elected to be treated, and intends to continue to qualify annually, as a regulated investment company (a RIC) under Subchapter M of the Code.
To qualify for the favorable U.S. federal income tax treatment generally accorded to RICs, the Fund must, among other things: (i) derive
in each taxable year at least 90% of its gross income from (a) dividends, interest, payments with respect to securities loans and gains from the sale or other disposition of stock, securities or foreign currencies or other income (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 (b) net income derived from interests in certain publicly traded partnerships that
are treated as partnerships for U.S. federal income tax purposes and that derive less than 90% of their gross income from the items described in (a) above (each a Qualified Publicly Traded Partnership); and (ii) diversify its
holdings so that, at the end of each quarter of the taxable year, (a) at least 50% of the value of the Funds assets is represented by cash and cash items (including receivables), U.S. government securities, the securities of other RICs
and other securities, with such other securities limited, with respect to any one issuer, to an amount not greater than 5% of the value of the Funds total assets and not greater than 10% of the outstanding voting securities of such issuer, and
(b) not more than 25% of the value of its total assets is represented by the securities (other than U.S. government securities or the securities of other RICs) of (I) any one issuer, (II) any two or more issuers that the Fund controls
and that are engaged in the same, similar or related trades or businesses, or (III) any one or more Qualified Publicly Traded Partnerships.
As a RIC, the Fund generally will not be subject to U.S. federal income tax on its investment company taxable income (as that term is defined
in the Code, but determined without regard to the deduction for dividends paid) and net capital gain (the excess of net long-term capital gain over net short-term capital loss), if any, that it distributes in each taxable year to its shareholders,
provided that it distributes at least 90% of the sum of its investment company taxable income and its net tax-exempt income for such taxable year. The Fund distributes to its shareholders, at least annually,
substantially all of its investment company taxable income and net capital gain.
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Amounts not distributed on a timely basis in accordance with a calendar year distribution
requirement are subject to a nondeductible 4% U.S. federal excise tax. To prevent imposition of the excise tax, the Fund must distribute during each calendar year an amount at least equal to the sum of (i) 98% of its ordinary income (not taking into
account any capital gains or losses) for the calendar year, (ii) 98.2% of its capital gains in excess of its capital losses (adjusted for certain ordinary losses) for the one-year period ending October 31
of the calendar year, and (iii) any ordinary income and capital gains for previous years that were not distributed during those years. For these purposes, the Fund will be deemed to have distributed any income or gains on which it paid U.S.
federal income tax.
A distribution will be treated as paid on December 31 of any calendar year if it is declared by the Fund in
October, November or December with a record date in such a month and paid by the Fund during January of the following calendar year. Such distributions will be taxable to common shareholders in the calendar year in which the distributions are
declared, rather than the calendar year in which the distributions are received.
If the Fund failed to qualify as a RIC or failed to
satisfy the 90% distribution requirement in any taxable year, the Fund would be subject to U.S. federal income tax at regular corporate rates on its taxable income (including its net capital gain), even if such income were distributed to common
shareholders, and all distributions out of earnings and profits would be taxed to common shareholders as ordinary dividend income. Such distributions generally would be eligible (i) to be treated as qualified dividend income in the
case of individual and other noncorporate common shareholders and (ii) for the dividends received deduction in the case of corporate common shareholders. In addition, the Fund could be required to recognize unrealized gains, pay taxes and make
distributions (which could be subject to interest charges) before requalifying for taxation as a RIC.
Distributions
Distributions to common shareholders of ordinary income (including market discount realized by the Fund on the sale of debt
securities), and of net short-term capital gains, if any, realized by the Fund will generally be taxable to common shareholders as ordinary income to the extent that such distributions are paid out of the Funds current or accumulated earnings
and profits. Distributions, if any, of net capital gains properly reported as capital gain dividends will be taxable as long-term capital gains, regardless of the length of time the common shareholder has owned Common Shares. A
distribution of an amount in excess of the Funds current and accumulated earnings and profits (as determined for U.S. federal income tax purposes) will be treated by a common shareholder as a return of capital which will be applied against and
reduce the common shareholders basis in his or her Common Shares. To the extent that the amount of any such distribution exceeds the common shareholders basis in his or her Common Shares, the excess will be treated by the common
shareholder as gain from a sale or exchange of the Common Shares. Distributions paid by the Fund generally will not be eligible for the dividends received deduction allowed to corporations or for the reduced rates applicable to certain qualified
dividend income received by non-corporate common shareholders.
Distributions will be treated in
the manner described above regardless of whether such distributions are paid in cash or invested in additional Common Shares pursuant to the DRIP. Common shareholders receiving distributions in the form of additional Common Shares will be treated as
receiving a distribution in the amount of cash that they would have received if they had elected to receive the distribution in cash, unless the Fund issues additional Common Shares with a fair market value equal to or greater than NAV, in which
case, common shareholders will be treated as receiving a distribution in the amount of the fair market value of the distributed Common Shares. The additional Common Shares received by a common shareholder pursuant to the DRIP will have a new holding
period commencing on the day following the day on which the Common Shares were credited to the common shareholders account.
The
Fund may elect to retain its net capital gain or a portion thereof for investment and be taxed at corporate rates on the amount retained. In such case, it may designate the retained amount as undistributed capital gains in
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a notice to common shareholders, who will be treated as if each received a distribution of his pro rata share of such gain, with the result that each common shareholder will (i) be required
to report its pro rata share of such gain on its tax return as long-term capital gain, (ii) receive a refundable tax credit for its pro rata share of tax paid by the Fund on the gain and (iii) increase the tax basis for its Common Shares
by an amount equal to the deemed distribution less the tax credit.
The Internal Revenue Service currently requires that a RIC that has
two or more classes of stock allocate to each such class proportionate amounts of each type of its income (such as ordinary income and capital gains) based upon the percentage of total dividends paid to each class for the tax year. Accordingly the
Fund allocates capital gain dividends, if any, between its Common Shares and Preferred Shares in proportion to the total dividends paid to each class with respect to such tax year. Common shareholders will be notified annually as to the U.S. federal
tax status of distributions.
Sale or Exchange of Common Shares
Upon the sale or other disposition of Common Shares, a common shareholder will generally realize a capital gain or loss in an amount equal to
the difference between the amount realized and the common shareholders adjusted tax basis in the Common Shares sold. Such gain or loss will be long-term or short-term, depending upon the common shareholders holding period for the Common
Shares. Generally, a common shareholders gain or loss will be a long-term gain or loss if the Common Shares have been held for more than one year. For non-corporate taxpayers, long-term capital gains are
currently eligible for reduced rates of taxation.
No loss will be allowed on the sale or other disposition of Common Shares if the owner
acquires (including pursuant to the DRIP) or enters into a contract or option to acquire securities that are substantially identical to such Common Shares within 30 days before or after the disposition. In such a case, the basis of the securities
acquired will be adjusted to reflect the disallowed loss. Losses realized by a common shareholder on the sale or exchange of Common Shares held for six months or less are treated as long-term capital losses to the extent of any distribution of
long-term capital gain received (or amounts designated as undistributed capital gains) with respect to such Common Shares.
Under U.S.
Treasury regulations, if a common shareholder recognizes a loss with respect to Common Shares of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder, the shareholder must file with the
Internal Revenue Service a disclosure statement on Internal Revenue Service 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
taxpayers treatment of the loss is proper. Common shareholders should consult their tax advisors to determine the applicability of these regulations in light of their individual circumstances.
Nature of Funds Investments
Certain of the Funds hedging and derivatives transactions are subject to special and complex U.S. federal income tax provisions that may,
among other things, (i) disallow, suspend or otherwise limit the allowance of certain losses or deductions, (ii) convert lower-taxed long-term capital gain into higher-taxed short-term capital gain or ordinary income, (iii) convert an
ordinary loss or a deduction into a capital loss (the deductibility of which is more limited), (iv) cause the Fund to recognize income or gain without a corresponding receipt of cash, (v) adversely affect the time as to when a purchase or sale
of stock or securities is deemed to occur, (vi) adversely alter the intended characterization of certain complex financial transactions and (vii) produce income that will not be treated as qualifying income for purposes of the 90% gross
income test described above.
These rules could therefore affect the character, amount and timing of distributions to common shareholders
and the Funds status as a RIC. The Fund will monitor its transactions and may make certain tax elections in order to mitigate the effect of these provisions.
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Impact of Short Sales
As part of its strategy, the Fund may engage in short sales. Short sales by the Fund may affect the Funds holding period in the
Funds investments that are related to the short sales. By affecting the holding period, the short sales may reduce the amounts of long-term capital gains realized by the Fund. This may result in a higher overall tax rate applicable to common
shareholders with respect to their income from the Fund. The short sales may, in certain circumstances, also result in deemed sales by the Fund, causing the Fund to have income without cash flow. The recognition of income without cash flow may
require the Fund to sell securities to generate cash to distribute to its shareholders in order to continue to qualify for the favorable tax treatment available to a RIC.
Below Investment Grade Instruments
The
Fund expects to invest a substantial portion of its Managed Assets in below investment grade (high yield) instruments, commonly known as high yield or junk instruments. Investments in these types of instruments may present
special tax issues for the Fund. U.S. federal income tax rules are not entirely clear about issues such as when the Fund may cease to accrue interest, original issue discount or market discount, when and to what extent deductions may be taken for
bad debts or worthless instruments, how payments received on obligations in default should be allocated between principal and income and whether exchanges of debt obligations in a bankruptcy or workout context are taxable. These and other issues
will be addressed by the Fund, to the extent necessary, to preserve its status as a RIC and to distribute sufficient income to not become subject to U.S. federal income tax.
Original Issue Discount
Investments by
the Fund in debt obligations that are treated under applicable tax rules as having original issue discount (such as zero coupon securities, debt instruments with PIK interest, step-up bonds or other discount
securities) will result in income to the Fund equal to the accrued original issue discount each year during which the Fund holds the securities, even if the Fund receives no corresponding cash interest payments. If the Fund purchases debt
instruments as part of a package of investments where the Fund also invests in common stock, other equity securities or warrants, the Fund might be required to accrue original issue discount in an amount equal to the value of such common stock,
other equity securities or warrants (even if the face amount of such debt instruments does not exceed the Funds purchase price for such package of investments). Original issue discount is included in determining the amount of income which the
Fund must distribute to maintain its qualification for the favorable U.S. federal income tax treatment generally accorded to RICs and to avoid the payment of U.S. federal income tax and the nondeductible 4% U.S. federal excise tax. Because such
income may not be matched by a corresponding cash distribution to the Fund, the Fund may be required to borrow money or dispose of other securities to be able to make distributions to common shareholders.
Market Discount Securities
In general,
the Fund will be treated as having acquired a security with market discount if its stated redemption price at maturity (or, in the case of a security issued with original issue discount, its revised issue price) exceeds the Funds initial tax
basis in the security by more than a statutory de minimis amount. The Fund will be required to treat any principal payments on, or any gain derived from the disposition of, any securities acquired with market discount as ordinary income to the
extent of the accrued market discount, unless the Fund makes an election to accrue market discount on a current basis. If this election is not made, all or a portion of any deduction for interest expense incurred to purchase or carry a market
discount security may be deferred until the Fund sells or otherwise disposes of such security.
Currency Fluctuations
Under Section 988 of the Code, gains or losses attributable to fluctuations in exchange rates between the time the Fund accrues income or
receivables or expenses or other liabilities denominated in a foreign currency
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and the time the Fund actually collects such income or receivables or pays such liabilities are generally treated as ordinary income or loss. Similarly, gains or losses on foreign currency,
foreign currency forward contracts, certain foreign currency options or futures contracts and the disposition of debt securities denominated in foreign currency, to the extent attributable to fluctuations in exchange rates between the acquisition
and disposition dates, are also treated as ordinary income or loss.
Foreign Taxes
The Funds investment in Non-U.S. Securities may be subject to
non-U.S. withholding taxes. In that case, the Funds yield on those securities would be decreased. Common shareholders will generally not be entitled to claim a credit or deduction with respect to foreign
taxes paid by the Fund.
Preferred Shares or Borrowings
If the Fund utilizes leverage through the issuance of Preferred Shares or Borrowings, it may be restricted by certain covenants with respect to
the declaration of, and payment of, dividends on Common Shares in certain circumstances. Limits on the Funds payments of dividends on Common Shares may prevent the Fund from meeting the distribution requirements described above, and may,
therefore, jeopardize the Funds qualification for taxation as a RIC and possibly subject the Fund to the 4% excise tax. The Fund will endeavor to avoid restrictions on its ability to make dividend payments.
Backup Withholding
The Fund may be
required to withhold from all distributions and redemption proceeds payable to U.S. shareholders who fail to provide the Fund with their correct taxpayer identification numbers or to make required certifications, or who have been notified by the
Internal Revenue Service that they are subject to backup withholding. Certain shareholders specified in the Code generally are exempt from such backup withholding. This backup withholding is not an additional tax. Any amounts withheld may be
refunded or credited against the common shareholders U.S. federal income tax liability, provided the required information is timely furnished to the Internal Revenue Service.
Foreign Shareholders
U.S. taxation of a
shareholder who is a nonresident alien individual, a foreign trust or estate or a foreign corporation, as defined for U.S. federal income tax purposes (a foreign shareholder), depends on whether the income from the Fund is
effectively connected with a U.S. trade or business carried on by the shareholder.
If the income from the Fund is not
effectively connected with a U.S. trade or business carried on by the foreign shareholder, distributions of investment company taxable income will be subject to a U.S. tax of 30% (or lower treaty rate), which tax is generally withheld
from such distributions. However, dividends paid by the Fund that are interest-related dividends or short-term capital gain dividends will generally be exempt from such withholding, in each case to the extent the Fund
properly reports such dividends to shareholders. For these purposes, interest-related dividends and short-term capital gain dividends generally represent distributions of interest or short-term capital gains that would not have been subject to U.S.
federal withholding tax at the source if received directly by a foreign shareholder, and that satisfy certain other requirements. A foreign shareholder whose income from the Fund is not effectively connected with a U.S. trade or business
would generally be exempt from U.S. federal income tax on capital gain dividends, any amounts retained by the Fund that are designated as undistributed capital gains and any gains realized upon the sale or exchange of Common Shares.
However, a foreign shareholder who is a nonresident alien individual and is physically present in the United States for more than 182
days during the taxable year and meets certain other requirements will nevertheless be subject to a U.S. tax of 30% on such capital gain dividends, undistributed capital gains and sale or exchange gains.
70
If the income from the Fund is effectively connected with a U.S. trade or business
carried on by a foreign shareholder, then distributions of investment company taxable income, any capital gain dividends, any amounts retained by the Fund that are designated as undistributed capital gains and any gains realized upon the sale or
exchange of Common Shares will be subject to U.S. federal income tax at the graduated rates applicable to U.S. citizens, residents or domestic corporations. Foreign corporate shareholders may also be subject to the branch profits tax imposed by the
Code.
The Fund may be required to withhold from distributions that are otherwise exempt from U.S. federal withholding tax (or taxable at
a reduced treaty rate) unless the foreign shareholder certifies his or her foreign status under penalties of perjury or otherwise establishes an exemption.
The tax consequences to a foreign shareholder entitled to claim the benefits of an applicable tax treaty may differ from those described
herein. Foreign shareholders are advised to consult their own tax advisors with respect to the particular tax consequences to them of an investment in the Fund.
Additional Withholding Requirements
Under Sections 1471 through 1474 of the Code (such Sections commonly referred to as FATCA), a 30% U.S. federal withholding tax may
apply to any ordinary dividends and other distributions that the Fund pays to (i) a foreign financial institution (as specifically defined in the Code), whether such foreign financial institution is the beneficial owner or an
intermediary, unless such foreign financial institution agrees to verify, report and disclose its United States account holders (as specifically defined in the Code) and meets certain other specified requirements or (ii) a non-financial foreign entity, whether such non-financial foreign entity is the beneficial owner or an intermediary, unless such entity provides a certification that the
beneficial owner of the payment does not have any substantial United States owners or provides the name, address and taxpayer identification number of each such substantial United States owner and certain other specified requirements are met. In
certain cases, the relevant foreign financial institution or non-financial foreign entity may qualify for an exemption from, or be deemed to be in compliance with, these rules. In addition, foreign financial
institutions located in jurisdictions that have an intergovernmental agreement with the United States governing FATCA may be subject to different rules. You should consult your own tax advisor regarding FATCA and whether it may be relevant to your
ownership and disposition of Common Shares.
Other Taxation
Common shareholders may be subject to state, local and foreign taxes on their Fund distributions. Common shareholders are advised to consult
their own tax advisors with respect to the particular tax consequences to them of an investment in the Fund.
71
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
A control person is any person who owns beneficially more than 25% of the voting securities of the Fund or who is otherwise deemed to
control the Fund. Such person may be able to determine or significantly influence the outcome of matters submitted to a vote of the common shareholders. As of June 30, 2021, the Fund did not know of any person or entity who
controlled the Fund.
A principal shareholder is any person who owns of record or is known by the Fund to own of record or
beneficially 5% or more of any class of the Funds outstanding equity securities. As of June 30, 2021, the following persons owned beneficially more than 5% of a class of the Funds outstanding equity securities:
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Class of Shares
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Name and Address
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Percentage
Ownership
of class
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Type of
Ownership
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First Trust Portfolios L.P.(a)
120 East Liberty Drive, Suite 400
Wheaton, Illinois
60187
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Common Shares
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First Trust Advisors L.P.(a)
120 East Liberty Drive, Suite 400
Wheaton, Illinois
60187
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19.20%
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Beneficial
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The Charger Corporation(a)
120 East Liberty Drive, Suite 400
Wheaton, Illinois
60187
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Common Shares
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Sit Investment Associates, Inc.
3300 IDS
Center
80 South Eighth Street
Minneapolis, MN 55402
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5.79%
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Beneficial
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|
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Preferred Shares
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|
Voya Financial
230 Park Avenue
New York, NY 10169
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50.00%
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Beneficial
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Preferred Shares
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Sun Life Financial Inc.
Sun Life Assurance
Company of Canada
1 York Street
Toronto, Ontario, Canada M5J
0B6
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50.00%
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Beneficial
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(a)
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First Trust Portfolios L.P., First Trust Advisors L.P. and The Charger Corporation filed their schedule 13G
jointly and did not differentiate holdings as to each entity.
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As of June 30, 2021, the Trustees and officers of the
Fund as a group owned less than 1% of each class of the Funds equity securities.
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
The financial statements and financial highlights dated December 31, 2020 incorporated by
reference in this Statement of Additional Information have been audited by Deloitte & Touche LLP (Deloitte), 1601 Wewatta Street, Suite 400, Denver, Colorado 80202, an independent registered public accounting firm, as stated in their
report appearing therein. Such financial statements are incorporated by reference in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
72
CUSTODIAN AND TRANSFER AGENT
The custodian of the assets of the Fund is The Bank of New York Mellon located at 240 Greenwich Street, New York, New York 10286.
Computershare Inc., located at 150 Royall Street, Canton, Massachusetts 02021, serves as the Funds transfer agent and dividend paying agent with respect to the Common Shares.
INCORPORATION BY REFERENCE
As noted above, this statement of additional information is part of a registration statement filed with the SEC. Pursuant to the final rule
and form amendments adopted by the SEC on April 8, 2020, the Fund is permitted to incorporate by reference certain information filed with the SEC, which means that the Fund can disclose important information to you by referring you to
those documents. The information incorporated by reference is considered to be part of this prospectus, and later information that the Fund files with the SEC will automatically update and supersede this information.
The documents listed below, and any reports and other documents subsequently filed with the SEC pursuant to Rule 30(b)(2) under the 1940 Act
and Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the termination of the offering will be incorporated by reference into this Prospectus and deemed to be part of this Prospectus from the date of the filing of such reports and
documents:
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the Funds Prospectus, dated [ ], 2021, filed with this statement of additional
information;
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the Funds Semi-Annual Report on Form
N-CSR, filed on September 4, 2020;
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the Funds Annual Report on Form
N-CSR, filed on March 5, 2021;
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the Funds Proxy Statement on Form
DEF 14A, filed on March 5, 2021; and
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the Funds description of Common Shares on Form
8-A, filed on January 14, 2011.
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You may obtain copies of any information incorporated by reference into this
prospectus, at no charge, by calling toll-free (888) 777-0102 or by writing to the Fund at 620 Eighth Avenue, 47th Floor, New York, NY 10018. The Funds periodic reports filed pursuant to Section 30(b)(2) of the 1940 Act and Sections 13 and
15(d) of the Exchange Act, as well as this Prospectus and the Statement of Additional Information, are available on the Funds website http://www.blackstone.com/bgx/. In addition, the SEC maintains a website at www.sec.gov, free of charge, that
contains these reports, the Funds proxy and information statements, and other information relating to the Fund.
ADDITIONAL INFORMATION
A Registration Statement on Form N-2, including amendments
thereto, relating to the Common Shares offered hereby, has been filed by the Fund with the SEC, Washington, D.C. The Prospectus and this Statement of Additional Information do not contain all of the information set forth in the Registration
Statement, such as the exhibits and schedules thereto. For further information with respect to the Fund and the Common Shares offered hereby, reference is made to the Registration Statement. Statements contained in the Prospectus and this Statement
of Additional Information as to the contents of any contract or other document referred to are not necessarily complete and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such reference. A copy of the Registration Statement may be inspected without charge at the SECs principal office in Washington, D.C., and copies of all or any part thereof may
be obtained from the SEC upon the payment of certain fees prescribed by the SEC.
73
FINANCIAL STATEMENTS
The audited financial statements and related report of Deloitte, independent registered public accounting firm, are herein incorporated by
reference from the Funds annual report for the year ended December 31, 2020 annual report for the year ended December 31, 2020 (the
Annual Report). The Annual Report is available upon request, without charge, by calling the Fund toll-free at (844) 702-1299.
74
APPENDIX A
DESCRIPTION OF S&P, MOODYS AND FITCH RATINGS1
S&P Global RatingsA brief description of the applicable S&P Global Ratings and its affiliates (collectively, S&P) rating
symbols and their meanings (as published by S&P) follows:
ISSUE CREDIT RATINGS
An S&P Global Ratings issue credit rating is a forward-looking opinion about the creditworthiness of an obligor with respect to a specific financial
obligation, a specific class of financial obligations, or a specific financial program (including ratings on medium-term note programs and commercial paper programs). It takes into consideration the creditworthiness of guarantors, insurers, or other
forms of credit enhancement on the obligation and takes into account the currency in which the obligation is denominated. The opinion reflects S&P Global Ratings view of the obligors capacity and willingness to meet its financial
commitments as they come due, and this opinion may assess terms, such as collateral security and subordination, which could affect ultimate payment in the event of default.
Issue credit ratings can be either long-term or short-term. Short-term issue credit ratings are generally assigned to those obligations considered short-term
in the relevant market, typically with an original maturity of no more than 365 days. Short-term issue credit ratings are also used to indicate the creditworthiness of an obligor with respect to put features on long-term obligations. S&P Global
Ratings would typically assign a long-term issue credit rating to an obligation with an original maturity of greater than 365 days. However, the ratings S&P Global Ratings assigns to certain instruments may diverge from these guidelines based on
market practices. Medium-term notes are assigned long-term ratings.
Long-Term Issue Credit Ratings*
Issue credit ratings are based, in varying degrees, on S&P Global Ratings analysis of the following considerations:
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The likelihood of paymentthe capacity and willingness of the obligor to meet its financial commitments on
an obligation in accordance with the terms of the obligation;
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The nature and provisions of the financial obligation, and the promise we impute; and
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The protection afforded by, and relative position of, the financial obligation in the event of a bankruptcy,
reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors rights.
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An issue ratings is
an assessment of default risk, but may incorporate an assessment of relative seniority or ultimate recovery in the event of default. Junior obligations are typically rated lower than senior obligations, to reflect lower priority in bankruptcy, as
noted above. (Such differentiation may apply when an entity has both senior and subordinated obligations, secured and unsecured obligations, or operating company and holding company obligations.)
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AAA
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An obligation rated AAA has the highest rating assigned by S&P Global Ratings. The obligors capacity to meet its financial commitments on the obligation is extremely
strong.
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1
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The ratings indicated herein are believed to be the most recent ratings available at the date of this Statement
of Additional Information for the securities listed. Ratings are generally given to securities at the time of issuance. While the rating agencies may from time to time revise such ratings, they undertake no obligation to do so, and the ratings
indicated do not necessarily represent ratings which would be given to these securities on the date of the Funds fiscal year end.
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A-1
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AA
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An obligation rated AA differs from the highest-rated obligations only to a small degree. The obligors capacity to meet its financial commitments on the obligation is very strong.
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A
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An obligation rated A is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligors capacity to meet its
financial commitments on the obligation is still strong.
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BBB
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An obligation rated BBB exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to weaken the obligors capacity to meet its financial commitments on
the obligation.
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BB, B, CCC, CC, and C
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Obligations rated BB, B, CCC, CC, and C are regarded as having significant speculative characteristics. BB indicates the least degree of speculation and
C the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposure to adverse conditions.
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BB
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An obligation rated BB is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions that could lead to
the obligors inadequate capacity to meet its financial commitments on the obligation.
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B
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An obligation rated B is more vulnerable to nonpayment than obligations rated BB, but the obligor currently has the capacity to meet its financial commitments on the obligation. Adverse business, financial,
or economic conditions will likely impair the obligors capacity or willingness to meet its financial commitments on the obligation.
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CCC
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An obligation rated CCC is currently vulnerable to nonpayment, and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitments on the obligation. In the
event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitments on the obligation.
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CC
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An obligation rated CC is currently highly vulnerable to nonpayment. The CC rating is used when a default has not yet occurred, but S&P Global Ratings expects default to be a virtual certainty, regardless
of the anticipated time to default.
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C
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An obligation rated C is currently highly vulnerable to nonpayment and the obligation is expected to have lower relative seniority or lower ultimate recovery compared with obligations that are rated
higher.
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A-2
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D
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An obligation rated D is in default or in breach of an imputed promise. For non-hybrid capital instruments, the D rating category is used when payments on an obligation
are not made on the date due, unless S&P Global Ratings believes that such payments will be made within five business days in the absence of a stated grace period or within the earlier of the stated grace period or 30 calendar days. The
D rating also will be used upon the filing of a bankruptcy petition or the taking of similar action and where default on an obligation is a virtual certainty, for example due to automatic stay provisions. A rating on an obligation is
lowered to D if it is subject to a distressed debt restructuring.
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*PLUS (+) OR MINUS (-)
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Ratings from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the rating categories.
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Short-Term Issue Credit Ratings
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A-1
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A short-term obligation rated A-1 is rated in the highest category by S&P Global Ratings. The obligors capacity to meet its financial commitments on the obligation is
strong. Within this category, certain obligations are designated with a plus sign (+). This indicates that the obligors capacity to meet its financial commitments on these obligations is extremely strong.
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A-2
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A short-term obligation rated A-2 is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rating
categories. However, the obligors capacity to meet its financial commitments on the obligation is satisfactory.
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A-3
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A short-term obligation rated A-3 exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to weaken an
obligors capacity to meet its financial commitments on the obligation.
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B
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A short-term obligation rated B is regarded as vulnerable and has significant speculative characteristics. The obligor currently has the capacity to meet its financial commitments; however, it faces major ongoing
uncertainties that could lead to the obligors inadequate capacity to meet its financial commitments.
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C
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A short-term obligation rated C is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitments on the
obligation.
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D
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A short-term obligation rated D is in default or in breach of an imputed promise. For non-hybrid capital instruments, the D rating category is used when payments on an
obligation are not made on the date due, unless S&P Global Ratings believes that such payments will be made within any stated grace period. However, any stated grace
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A-3
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period longer than five business days will be treated as five business days. The D rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action and where default on an obligation is
a virtual certainty, for example due to automatic stay provisions. A rating on an obligation is lowered to D if it is subject to a distressed debt restructuring.
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Active Qualifiers (Currently applied and/or outstanding)
S&P Global Ratings uses the following qualifiers that limit the scope of a rating.
The structure of the transaction can require the use of a qualifier such as a p qualifier, which indicates the rating addresses the principal portion of the obligation only. A qualifier appears as a suffix and is part of the rating.
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Federal deposit insurance limit:
L qualifier
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Ratings qualified with L apply only to amounts invested
up to federal deposit insurance limits.
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Principal: p qualifier
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This suffix is used for issues in which the credit factors, the terms, or both, that determine the likelihood of receipt of payment of principal are different from the credit factors, terms or both that determine the likelihood of
receipt of interest on the obligation. The p suffix indicates that the rating addresses the principal portion of the obligation only and that the interest is not rated.
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Preliminary Ratings:
prelim qualifier
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Preliminary ratings, with the prelim suffix, may be
assigned to obligors or obligations, including financial programs, in the circumstances described below. Assignment of a final rating is conditional on the receipt by S&P Global Ratings of appropriate documentation. S&P Global Ratings
reserves the right not to issue a final rating. Moreover, if a final rating is issued, it may differ from the preliminary rating.
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Preliminary ratings may be assigned to obligations, most commonly structured and
project finance issues, pending receipt of final documentation and legal opinions.
Preliminary ratings may be assigned to obligations that will likely be issued upon the
obligors emergence from bankruptcy or similar reorganization, based on late-stage reorganization plans, documentation and discussions with the obligor. Preliminary ratings may also be assigned to the obligors. These ratings consider the
anticipated general credit quality of the reorganized or post-bankruptcy issuer as well as attributes of the anticipated obligation(s).
Preliminary ratings may be assigned to entities that are being formed or that are in the process
of being independently established when, in S&P Global Ratings opinion, documentation is close to final. Preliminary ratings may also be assigned to the obligations of these entities.
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Preliminary ratings may be assigned when a previously unrated entity is
undergoing a well-formulated restructuring,
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A-4
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recapitalization, significant financing or other transformative event, generally at the point that investor or lender
commitments are invited. The preliminary rating may be assigned to the entity and to its proposed obligation(s). These preliminary ratings consider the anticipated general credit quality of the obligor, as well as attributes of the anticipated
obligation(s), assuming successful completion of the transformative event. Should the transformative event not occur, S&P Global Rating would likely withdraw these preliminary ratings.
A preliminary recovery rating
may be assigned to an obligation that has a preliminary issue credit rating.
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Termination Structures: t qualifier
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This symbol indicates termination structures that are designed to honor their contracts to full maturity or, should certain events occur, to terminate and cash settle all their contracts before their final maturity date.
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Counterparty Instrument Rating:
cir qualifier
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This symbol indicates a Counterparty Instrument Rating (CIR), which
is a forward-looking opinion about the creditworthiness of an issuer in a securitization structure with respect to a specific financial obligation to a counterparty (including interest rate swaps, currency swaps, and liquidity facilities). The CIR
is determined on an ultimate payment basis; these opinions do not take into account timeliness of payment.
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Inactive Qualifiers (No longer applied or outstanding)
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Contingent upon final documentation: * inactive qualifier
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This symbol indicated that the rating was contingent upon S&P
Global Ratings receipt of an executed copy of the escrow agreement or closing documentation confirming investments and cash flows. Discontinued use in August 1998.
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Termination of obligation to tender: c inactive qualifier
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This qualifier was used to provide additional information to
investors that the bank may terminate its obligation to purchase tendered bonds if the long-term credit rating of the issuer was lowered to below an investment-grade level and/or the issuers bonds were deemed taxable. Discontinued use in
January 2001.
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U.S. direct government securities: G inactive qualifier
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The letter G followed the rating symbol when a
funds portfolio consisted primarily of direct U.S. government securities.
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Public Information Ratings: pi qualifier
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This qualifier was used to indicate ratings that were based on an
analysis of an issuers published financial information, as well as additional information in the public domain. Such ratings did not, however, reflect in-depth meetings with an issuers management
and therefore could have been based on less comprehensive information than ratings without a pi suffix. Discontinued use as of December 2014 and as of August 2015 for Lloyds Syndicate
Assessments.
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A-5
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Provisional Ratings:
pr inactive qualifier
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The letters pr indicate that the rating was provisional.
A provisional rating assumed the successful completion of a project financed by the debt being rated and indicates that payment of debt service requirements was largely or entirely dependent upon the successful, timely completion of the project.
This rating, however, while addressing credit quality subsequent to completion of the project, made no comment on the likelihood of or the risk of default upon failure of such completion.
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Quantitative analysis of public information: q inactive qualifier
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A q subscript indicates that the rating is based solely
on quantitative analysis of publicly available information. Discontinued use in April 2001.
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Extraordinary risks:
r inactive qualifier
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The r modifier was assigned to securities containing
extraordinary risks, particularly market risks, that are not covered in the credit rating. The absence of an r modifier should not be taken as an indication that an obligation would not exhibit extraordinary non-credit related risks. S&P Global Ratings discontinued the use of the r modifier for most obligations in June 2000 and for the balance of obligations (mainly structured finance transactions) in
November 2002.
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Moodys Investors Service, Inc.A brief description of the applicable Moodys Investors Service, Inc.
(Moodys) rating symbols and their meanings (as published by Moodys) follows:
LONG-TERM OBLIGATIONS RATINGS
Ratings assigned on Moodys global long-term and short-term rating scales are forward-looking opinions of the relative credit risks of financial
obligations issued by non-financial corporates, financial institutions, structured finance vehicles, project finance vehicles, and public sector entities. Long-term ratings are assigned to issuers or
obligations with an original maturity of one year or more and reflect both on the likelihood of a default or impairment on contractual financial obligations and the expected financial loss suffered in the event of default or impairment.1 2
Moodys differentiates structured finance
ratings from fundamental ratings (i.e., ratings on nonfinancial corporate, financial institution, and public sector entities) on the global long-term scale by adding (sf) to all
1
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For certain preferred stock and hybrid securities in which payment default events are either not defined or do
not match investors expectations for timely payment, long-term and short-term ratings reflect the likelihood of impairment and financial loss in the event of impairment.
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2
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Debts held on the balance sheets of official sector institutions which include supranational
institutions, central banks and certain government-owned or controlled banks may not always be treated the same as debts held by private investors and lenders. When it is known that an obligation is held by official sector institutions as
well as other investors, a rating (short-term or long-term) assigned to that obligation reflects only the credit risks faced by non-official sector investors.
|
A-6
structured finance ratings.3 The addition of (sf) to structured finance ratings should eliminate any presumption that such ratings and
fundamental ratings at the same letter grade level will behave the same. The (sf) indicator for structured finance security ratings indicates that otherwise similarly rated structured finance and fundamental securities may have different risk
characteristics. Through its current methodologies, however, Moodys aspires to achieve broad expected equivalence in structured finance and fundamental rating performance when measured over a long period of time.
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Global Long-Term Rating Scale:
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Aaa
|
|
Obligations rated Aaa are judged to be of the highest quality, subject to the lowest level of credit risk.
|
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|
Aa
|
|
Obligations rated Aa are judged to be of high quality and are subject to very low credit risk.
|
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A
|
|
Obligations rated A are judged to be upper-medium grade and are subject to low credit risk.
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|
Baa
|
|
Obligations rated Baa are judged to be medium-grade and subject to moderate credit risk and as such may possess certain speculative characteristics.
|
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Ba
|
|
Obligations rated Ba are judged to be speculative and are subject to substantial credit risk.
|
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B
|
|
Obligations rated B are considered speculative and are subject to high credit risk.
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Caa
|
|
Obligations rated Caa are judged to be speculative of poor standing and are subject to very high credit risk.
|
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Ca
|
|
Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest.
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C
|
|
Obligations rated C are the lowest rated and are typically in default, with little prospect for recovery of principal or interest.
|
Note: Moodys appends numerical modifiers 1, 2, and 3 to each generic rating classification from Aa through
Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end
of that generic
3
|
Like other global scale ratings, (sf) ratings reflect both the likelihood of a default and the expected loss
suffered in the event of default. Ratings are assigned based on a rating committees assessment of a securitys expected loss rate (default probability multiplied by expected loss severity), and may be subject to the constraint that the
final expected loss rating assigned would not be more than a certain number of notches, typically three to five notches, above the rating that would be assigned based on an assessment of default probability alone. The magnitude of this constraint
may vary with the level of the rating, the seasoning of the transaction, and the uncertainty around the assessments of expected loss and probability of default.
|
A-7
rating category. Additionally, a (hyb) indicator is appended to all ratings of hybrid securities issued by banks, insurers, finance companies, and securities firms.*
*
|
By their terms, hybrid securities allow for the omission of scheduled dividends, interest, or principal
payments, which can potentially result in impairment if such an omission occurs. Hybrid securities may also be subject to contractually allowable write-downs of principal that could result in impairment. Together with the hybrid indicator, the
long-term obligation rating assigned to a hybrid security is an expression of the relative credit risk associated with that security.
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MEDIUM-TERM NOTE PROGRAM RATINGS
Moodys assigns provisional ratings to medium-term note (MTN) programs and definitive ratings to the individual debt securities issued from them
(referred to as drawdowns or notes).
MTN program ratings are intended to reflect the ratings likely to be assigned to drawdowns issued from the program
with the specified priority of claim (e.g. senior or subordinated). To capture the contingent nature of a program rating, Moodys assigns provisional ratings to MTN programs. A provisional rating is denoted by a (P) in front of the
rating.
The rating assigned to a drawdown from a rated MTN or bank/deposit note program is definitive in nature, and may differ from the program rating
if the drawdown is exposed to additional credit risks besides the issuers default, such as links to the defaults of other issuers, or has other structural features that warrant a different rating. In some circumstances, no rating may be
assigned to a drawdown.
Moodys encourages market participants to contact Moodys Ratings Desks or visit moodys.com directly if they have
questions regarding ratings for specific notes issued under a medium-term note program. Unrated notes issued under an MTN program may be assigned an NR (not rated) symbol.
Short-Term Rating Definitions:
Short-term
ratings are assigned for obligations with an original maturity of thirteen months or less and reflect both on the likelihood of a default or impairment on contractual financial obligations and the expected financial loss suffered in the event of
default or impairment.4 5
Moodys employs
the following designations to indicate the relative repayment ability of rated issuers:
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P-1
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Ratings of Prime-1 reflect a superior ability to repay short-term obligations.
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P-2
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|
Ratings of Prime-2 reflect a strong ability to repay short-term obligations.
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P-3
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Ratings of Prime-3 reflect an acceptable ability to repay short-term obligations.
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NP
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Issuers (or supporting institutions) rated Not Prime do not fall within any of the Prime rating categories.
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debts held by private investors and lenders. When it is known that an obligation is held by official sector institutions as well as other investors, a rating (short-term or long-term) assigned to that obligation
reflects only the credit risks faced by non-official sector investors.
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4
|
For certain preferred stock and hybrid securities in which payment default events are either not defined or do
not match investors expectations for timely payment, long-term and short-term ratings reflect the likelihood of impairment and financial loss in the event of impairment.
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5
|
Debts held on the balance sheets of official sector institutions which include supranational
institutions, central banks and certain government-owned or controlled banks may not always be treated the same as
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A-8
Fitch Ratings, Inc.A brief description of the applicable Fitch Ratings, Inc. (Fitch)
ratings symbols and meanings (as published by Fitch) follows:
INTERNATIONAL ISSUER AND CREDIT RATING SCALES
The Credit Rating Scales (those featuring the symbols AAA-D and F1-D) are used for debt and financial strength
ratings. The below section describes their use for issuers and obligations in corporate, public, structured and infrastructure and project finance debt markets.
Long-Term Ratings ScalesIssuer Credit Ratings Scales
Rated entities in a number of sectors, including financial and non-financial corporations, sovereigns, insurance
companies and certain sectors within public finance, are generally assigned Issuer Default Ratings (IDRs). IDRs are also assigned to certain entities or enterprises in global infrastructure, project finance and public finance. IDRs opine on an
entitys relative vulnerability to default (including by way of a distressed debt exchange) on financial obligations. The threshold default risk addressed by the IDR is generally that of the financial obligations whose non-payment would best reflect the uncured failure of that entity. As such, IDRs also address relative vulnerability to bankruptcy, administrative receivership or similar concepts.
In aggregate, IDRs provide an ordinal ranking of issuers based on the agencys view of their relative vulnerability to default, rather than a prediction
of a specific percentage likelihood of default.
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AAA
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Highest credit quality. AAA ratings denote the lowest expectation of default risk. They are assigned only in cases of exceptionally strong capacity for payment of financial commitments. This capacity is highly
unlikely to be adversely affected by foreseeable events.
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AA
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Very high credit quality. AA ratings denote expectations of very low default risk. They indicate very strong capacity for payment of financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
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A
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High credit quality. A ratings denote expectations of low default risk. The capacity for payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to adverse
business or economic conditions than is the case for higher ratings.
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BBB
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Good credit quality. BBB ratings indicate that expectations of default risk are currently low. The capacity for payment of financial commitments is considered adequate but adverse business or economic conditions
are more likely to impair this capacity.
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BB
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Speculative. BB ratings indicate an elevated vulnerability to default risk, particularly in the event of adverse changes in business or economic conditions over time; however, business or financial flexibility
exists that supports the servicing of financial commitments.
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B
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Highly speculative. B ratings indicate that material default risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is
vulnerable to deterioration in the business and economic environment.
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A-9
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CCC
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Substantial credit risk. Default is a real possibility.
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CC
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Very high levels of credit risk. Default of some kind appears probable.
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C
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Near default. A default or default-like process has begun, or the issuer is in standstill, or for a closed funding vehicle, payment capacity is irrevocably impaired. Conditions that are indicative of a C category
rating for an issuer include: a. the issuer has entered into a grace or cure period following non-payment of a material financial obligation; b. the issuer has entered into a temporary negotiated waiver or
standstill agreement following a payment default on a material financial obligation; c. the formal announcement by the issuer or their agent of a distressed debt exchange; d. a closed financing vehicle where payment capacity is irrevocably impaired
such that it is not expected to pay interest and/or principal in full during the life of the transaction, but where no payment default is imminent.
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RD
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Restricted default. RD ratings indicate an issuer that in Fitch Ratings opinion has experienced: a. an uncured payment default or distressed debt exchange on a bond, loan or other material financial
obligation, but b. has not entered into bankruptcy filings, administration, receivership, liquidation or other formal winding-up procedure, and c. has not otherwise ceased operating. This would include: i. the
selective payment default on a specific class or currency of debt; ii. the uncured expiry of any applicable grace period, cure period or default forbearance period following a payment default on a bank loan, capital markets security or other
material financial obligation; iii. the extension of multiple waivers or forbearance periods upon a payment default on one or more material financial obligations, either in series or in parallel; ordinary execution of a distressed debt exchange on
one or more material financial obligations.
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D
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Default. D ratings indicate an issuer that in Fitchs opinion has entered into bankruptcy filings, administration,
receivership, liquidation or other formal winding-up procedure or that has otherwise ceased business.
Default ratings are not assigned prospectively to entities or their obligations; within this context, non-payment on an
instrument that contains a deferral feature or grace period will generally not be considered a default until after the expiration of the deferral or grace period, unless a default is otherwise driven by bankruptcy or other similar circumstance, or
by a distressed debt exchange.
In all cases, the assignment of a default rating
reflects the agencys opinion as to the most appropriate rating category consistent with the rest of its universe of ratings, and may differ from the definition of default under the terms of an issuers financial obligations or local
commercial practice.
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A-10
Note: The modifiers + or - may be appended to a rating to denote relative
status within major rating categories. Such suffixes are not added to AAA ratings and ratings below the CCC category.
Limitations of the Issuer Credit Rating Scale:
Specific
limitations relevant to the issuer credit rating scale include:
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The ratings do not predict a specific percentage of default likelihood or failure likelihood over any given time
period.
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The ratings do not opine on the market value of an issuers securities or stock, or the likelihood that this
value may change.
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The ratings do not opine on the liquidity of an issuers securities or stock.
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|
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|
The ratings do not opine on the possible loss severity on an obligation should an issuer (or an obligation with
respect to structured finance transactions) default, except in the following cases:
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|
Ratings assigned to individual obligations of issuers in corporate finance, banks, non-bank financial
institutions, insurance and covered bonds.
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|
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In limited circumstances for U.S. public finance obligations where Chapter 9 of the Bankruptcy Code provides
reliably superior prospects for ultimate recovery to local government obligations that benefit from a statutory lien on revenues or during the pendency of a bankruptcy proceeding under the Code if there is sufficient visibility on potential recovery
prospects.
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The ratings do not opine on the suitability of an issuer as a counterparty to trade credit.
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The ratings do not opine on any quality related to an issuers business, operational or financial profile
other than the agencys opinion on its relative vulnerability to default.
|
Ratings assigned by Fitch Ratings articulate an opinion
on discrete and specific areas of risk. The above list is not exhaustive, and is provided for the readers convenience.
Short-Term
RatingsShort-Term Ratings Assigned to
Issuers and Obligations
A short-term issuer or obligation rating is based in all cases on the short-term vulnerability to default of the rated entity and relates to the capacity to
meet financial obligations in accordance with the documentation governing the relevant obligation. Short-term deposit ratings may be adjusted for loss severity. Short-Term Ratings are assigned to obligations whose initial maturity is viewed as
short term based on market convention. Typically, this means up to 13 months for corporate, sovereign, and structured obligations, and up to 36 months for obligations in U.S. public finance markets.
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F1
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Highest short-term credit quality. Indicates the strongest intrinsic capacity for timely payment of financial commitments; may have an added + to denote any exceptionally strong credit feature.
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F2
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Good short-term credit quality. Good intrinsic capacity for timely payment of financial commitments.
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F3
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Fair short-term credit quality. The intrinsic capacity for timely
payment of financial commitments is adequate.
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A-11
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B
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Speculative short-term credit quality. Minimal capacity for timely payment of financial commitments, plus heightened vulnerability to near term adverse changes in financial and economic conditions.
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C
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High short-term default risk. Default is a real possibility.
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RD
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Restricted default. Indicates an entity that has defaulted on one or more of its financial commitments, although it continues to meet other financial obligations. Typically applicable to entity ratings only.
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D
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|
Default. Indicates a broad-based default event for an entity, or the default of a short-term obligation.
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Limitations of the Short-Term Ratings Scale:
Specific limitations relevant to the Short-Term Ratings scale include:
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|
|
The ratings do not predict a specific percentage of default likelihood or failure likelihood over any given time
period.
|
|
|
|
The ratings do not opine on the market value of an issuers securities or stock, or the likelihood that this
value may change.
|
|
|
|
The ratings do not opine on the liquidity of an issuers securities or stock.
|
|
|
|
The ratings do not opine on the possible loss severity on an obligation should an issuer (or an obligation with
respect to structured finance transactions) default, except in the following cases:
|
|
|
|
Ratings assigned to individual obligations of issuers in corporate finance, banks, non-bank financial
institutions, insurance and covered bonds.
|
|
|
|
In limited circumstances for U.S. public finance obligations where Chapter 9 of the Bankruptcy Code provides
reliably superior prospects for ultimate recovery to local government obligations that benefit from a statutory lien on revenues or during the pendency of a bankruptcy proceeding under the Code if there is sufficient visibility on potential recovery
prospects.
|
|
|
|
The ratings do not opine on any quality related to an issuers business, operational or financial profile
other than the agencys opinion on its relative vulnerability to default.
|
Ratings assigned by Fitch articulate an opinion on
discrete and specific areas of risk. The above list is not exhaustive, and is provided for the readers convenience.
A-12
APPENDIX B
PROXY VOTING POLICIES AND PROCEDURES OF THE ADVISER
The Fund has delegated the voting of proxies for Fund securities to the Adviser pursuant to the Advisers proxy voting guidelines. Under
these guidelines, the Adviser will vote proxies related to Fund securities in the best interests of the Fund and common shareholders. Set forth below is a copy of the Advisers proxy voting policy.
Information on how the Fund voted proxies (if any) relating to portfolio securities during the most recent
12-month period ended June 30 will be reported on Form N-PX.
Adviser Proxy Voting Policies and Procedures
By virtue of Blackstone Credits relationship as general partner or investment manager of funds, collateralized loan obligation vehicles,
separately managed accounts, and registered funds (Clients), the Firm has proxy voting authority with respect to Client securities. When voting proxies on behalf of Clients, Blackstone Credits overall objective is to
vote proxies in the best interest of the Clients and, in so doing, to maximize the value of the investments made by the Clients taking into consideration the Clients investment horizons and other relevant factors.
This document sets forth Blackstone Credits policies and procedures that are designed to meet these overall objectives. As described
below, the Firms policies and procedures address the following areas:
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The personnel responsible for monitoring corporate actions, deciding how to vote proxies and confirming that
proxies are submitted in a timely manner;
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The basis on which decisions are made regarding whether and how to vote proxies depending on the nature of the
matter at issue;
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The approach to addressing material conflicts of interest that may arise between Blackstone Credit and the
Clients when voting proxies and how the Firm resolves those conflicts in the best interest of the Clients;
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The means by which the Clients and their investors may obtain information about proxy voting; and
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The books and records that Blackstone Credit retains in connection with proxy voting.
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While Blackstone Credit endeavors to follow these policies and procedures in all situations, special circumstances may arise from time to time
that warrant a deviation. In addition, Blackstone Credit will apply its proxy voting policies and procedures to votes cast with respect to publicly traded companies and, to the extent applicable, to analogous actions taken with respect to
investments made in private companies.
General Procedures
Monitoring Corporate Actions
The
Clients that Blackstone Credit manages generally make a limited number of investments in equity securities. When the Firm receives proxy voting materials (or similar voting/solicitation notices), they are initially transmitted by the companys
corporate secretary or transfer agent to the Employee who is designated to receive notices in the definitive documentation governing the relevant Clients investment, if any (the Proxy Recipient). The Proxy Recipient
must inform the Head of Middle Office and Operations (Head of MOOG) of such receipt and review the materials, determine which Client(s) hold the securities and confirm the number of securities with the Head Trader and the
Head of MOOG. The Proxy Recipient will also consult the relevant Portfolio Manager(s) of each Client that holds the securities that are the subject of the proxy vote. The Proxy Recipient will monitor the voting deadline to confirm that the deadline
for the response is met.
B-1
Determination of Voting Decisions
Decisions on how to vote a proxy generally are made by the relevant Portfolio Manager. The Portfolio Manager and the members of the investment
team covering the applicable security often have the most intimate knowledge of both a companys operations and the potential impact of a proxy votes outcome. Where appropriate, the Portfolio Manager or a member of the investment team may
consult with the Chief Compliance Officer or Chief Legal Officer and the members of the applicable Investment Committee regarding decisions and completion of the proxy material. Decisions are based on a number of factors that may vary depending on a
proxys subject matter, but are guided by the general policies described in this document. In addition, Blackstone Credit may determine not to vote a proxy after consideration of the votes expected benefit to Clients and the cost
of voting the proxy.1
Communication of Decision
After making a decision to vote a proxy and determining how to vote the proxy, the Portfolio Manager or a member of the investment team
covering the security will then submit the vote. The Portfolio Manager or such investment team member will send completed copies of the proxy materials to the Proxy Recipient and the Head of MOOG. The procedures for voting proxies may vary, and can
include electronic voting, forwarding voting instructions to the custodian or voting proxies forwarded by the custodian.
Providing Proxy Voting
Information to Clients
Blackstone Credit acknowledges that its investors have a right to information about how the Firm votes
Client proxies, and Blackstone Credit will make information available on request. The Firm also will make a copy of these policies and procedures available on request. When an investor makes a request about a particular vote, Blackstone Credit
usually will provide the following information: (1) the date of the vote; (2) a brief description of the matter voted on; (3) how (or whether) Blackstone Credit cast the vote on the matter; and (4) any other reasonable
information a limited partner might request. Proxy voting information and the procedure for obtaining such information is included in Blackstone Credits Form ADV, which is available to each investor.
Books and Records
Blackstone
Credit must maintain the following additional records relating to proxy voting, which must be maintained by MOOG, or other applicable individual or group, as indicated, in an easily accessible place for five years from the end of the fiscal year
during which the last entry was made on such record, the first two years of which in Blackstone Credits offices.
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A copy of these proxy voting policies and procedures (maintained by the Blackstone Credit Legal Compliance
Department);
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A copy of each proxy statement received by Blackstone Credit regarding Client securities;
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A record of each vote cast by Blackstone Credit on behalf of a Client;
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A copy of all memoranda or similar documents created by Blackstone Credit that were material to making a decision
on the voting of Client securities or that memorialize the basis for that decision (maintained by relevant deal team members); and
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A copy of each written request by an investor for information on how Blackstone Credit voted proxies on behalf of
a Client, and a copy of any written response by Blackstone Credit to any request (written or oral) by an investor for information on how Blackstone Credit voted proxies on behalf of the Client (maintained by the Investor Relations &
Business Development group, IRBD).
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1
|
In determining whether the cost of voting a proxy outweighs its expected benefit to Clients, the relevant
Portfolio Manager may consider factors such as (1) the subject matter of the vote; (2) the additional length of time that Blackstone Credit anticipates holding the investment; and (3) logistical issues associated with voting proxies
for foreign companies.
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B-2
Blackstone Credit may satisfy the requirement to maintain copies of proxy statements received and
a record of votes cast on behalf of the Clients by relying on third parties to make and retain, on behalf of Blackstone Credit, a copy of such proxy statements and voting records, provided that Blackstone Credit has obtained an undertaking from the
third party to provide a copy of the proxy statements and voting records promptly upon request. Blackstone Credit also may satisfy the requirement to maintain copies of proxy statements by relying on its ability to obtain a copy of a proxy statement
from the SECs EDGAR system (to the extent that such proxy statements are available through the EDGAR system).
Proxy Voting
Records
You may obtain information, without charge, regarding how we voted proxies with respect to our portfolio securities by making
a written request for proxy voting information to: Chief Compliance Officer, Blackstone Liquid Credit Strategies LLC, 345 Park Avenue, 31st Floor, New York, NY 10154.
B-3
PART C
OTHER INFORMATION
Item 25.
Financial Statements and Exhibits
|
Part A
|
Financial Highlights
|
|
Part B
|
The following financial statements of the Registrant are incorporated by reference in Part B of the
Registration Statement:
|
Portfolio of Investments as of December 31, 2020
Schedule of Investments at December 31, 2020
Statement of Assets and Liabilities as of December 31, 2020
Statement of Operations for the Year Ended December 31, 2020
Statement of Changes in Net Assets for the Year Ended December 31, 2020
Notes to Financial Statements for the Year Ended December 31, 2020
Report of Independent Registered Public Accounting Firm for the Year Ended December 31, 2020
C-1
(1)
|
Filed on October 26, 2010 with Registrants Registration Statement on
Form N-2 (File No. 333-170154 and 811-22488) and incorporated by reference herein.
|
(2)
|
Filed on January 14, 2011 with Registrants Registration Statement on
Form N-2 (File No. 333-170154 and 811-22488) and incorporated by reference herein.
|
(3)
|
Filed on March 1, 2017 with Registrants Annual Report on
Form NSAR-B (File No. 811-22488) and incorporated by reference herein.
|
(4)
|
Filed on March 18, 2020 with Registrants Registration Statement on Form N-2 (File
No. 811-22488) and incorporated by reference herein.
|
(5)
|
Filed on May 11, 2020 with Registrants Registration Statement on Form N-2 (File No. 811-22488) and
incorporated by reference herein.
|
(6)
|
Filed on June 2, 2021 with Registrants Registration Statement on Form N-2 (File No. 811-22488) and
incorporated by reference herein.
|
Item 26. Marketing Arrangements
The information
contained under the section entitled Plan of Distribution contained in Registrants Prospectus is incorporated by reference, and any information concerning any underwriters will be contained in the accompanying prospectus
supplement, if any.
Item 27. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses to be incurred in connection with the offering described in this Registration Statement:
|
|
|
|
|
SEC registration fees
|
|
$
|
12,980
|
|
NYSE listing fees
|
|
$
|
26,180
|
|
FINRA fees
|
|
$
|
|
|
Accounting fees and expenses
|
|
$
|
10,500
|
|
Legal fees and expenses
|
|
$
|
392,615
|
|
Printing and mailing expenses
|
|
$
|
72,904
|
|
|
|
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|
Total
|
|
$
|
515,179
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|
C-2
Item 28. Persons Controlled by or Under Common Control with Registrant
None.
Item 29. Number of Holders of
Securities
At March 31, 2021:
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|
|
|
|
Title of Class
|
|
Number of
Record Holders
|
|
Common Shares
|
|
|
4
|
|
Preferred Shares
|
|
|
10
|
|
Item 30. Indemnification
Article V of the Registrants Amended and Restated Agreement and Declaration of Trust, incorporated by reference as Exhibit (a)(2) to this
Registration Statement, provide that:
Section 5.1 No Personal Liability of Shareholders, Trustees, etc. No Shareholder of the Trust
shall be subject in such capacity to any personal liability whatsoever to any Person in connection with Trust Property or the acts, obligations or affairs of the Trust. Shareholders shall have the same limitation of personal liability as is extended
to stockholders of a private corporation for profit incorporated under the Delaware General Corporation Law. No Trustee or officer of the Trust shall be subject in such capacity to any personal liability whatsoever to any Person, save only liability
to the Trust or its Shareholders arising from bad faith, willful misconduct, gross negligence or reckless disregard for his duty to such Person; and, subject to the foregoing exception, all such Persons shall look solely to the Trust Property for
satisfaction of claims of any nature arising in connection with the affairs of the Trust. If any Shareholder, Trustee or officer, as such, of the Trust, is made a party to any suit or proceeding to enforce any such liability, subject to the
foregoing exception, he shall not, on account thereof, be held to any personal liability. Any repeal or modification of this Section 5.1 shall not adversely affect any right or protection of a Trustee or officer of the Trust existing at the
time of such repeal or modification with respect to acts or omissions occurring prior to such repeal or modification.
Section 5.2
Mandatory Indemnification. (a) The Trust hereby agrees to indemnify each person who at any time serves as a Trustee, officer or employee of the Trust (each such person being an indemnitee) against any liabilities and
expenses, including amounts paid in satisfaction of judgments, in compromise or as fines and penalties, and reasonable counsel fees reasonably incurred by such indemnitee in connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or administrative or investigative body in which he may be or may have been involved as a party or otherwise or with which he may be or may have been threatened, while acting in any capacity
set forth in this Article V by reason of his having acted in any such capacity, except with respect to any matter as to which he shall not have acted in good faith in the reasonable belief that his action was in the best interest of the Trust
or, in the case of any criminal proceeding, as to which he shall have had reasonable cause to believe that the conduct was unlawful, provided, however, that no indemnitee shall be indemnified hereunder against any liability to any person or any
expense of such indemnitee arising by reason of (i) willful misconduct, (ii) bad faith, (iii) gross negligence, or (iv) reckless disregard of the duties involved in the conduct of his position (the conduct referred to in such
clauses (i) through (iv) being sometimes referred to herein as disabling conduct). Notwithstanding the foregoing, with respect to any action, suit or other proceeding voluntarily prosecuted by any indemnitee as plaintiff,
indemnification shall be mandatory only if the prosecution of such action, suit or other proceeding by such indemnitee (1) was authorized by a majority of the Trustees or (2) was instituted by the indemnitee to enforce his or her rights to
indemnification hereunder in a case in which the indemnitee is found to be entitled to such indemnification. The rights to indemnification set forth in this Declaration shall continue as to a person who has ceased to be a Trustee or officer of the
Trust and shall inure to the benefit of his or her heirs, executors and personal and legal representatives. No amendment or restatement of this Declaration or repeal of any of its provisions shall limit or
C-3
eliminate any of the benefits provided to any person who at any time is or was a Trustee or officer of the Trust or otherwise entitled to indemnification hereunder in respect of any act or
omission that occurred prior to such amendment, restatement or repeal.
(b) Notwithstanding the foregoing, no indemnification shall be
made hereunder unless there has been a determination (i) by a final decision on the merits by a court or other body of competent jurisdiction before whom the issue of entitlement to indemnification hereunder was brought that such indemnitee is
entitled to indemnification hereunder or, (ii) in the absence of such a decision, by (1) a majority vote of a quorum of those Trustees who are neither Interested Persons of the Trust (as defined in Section 2(a)(19) of the 1940 Act)
nor parties to the proceeding (Disinterested Non-Party Trustees), that the indemnitee is entitled to indemnification hereunder, or (2) if such quorum is not obtainable or even if obtainable,
if such majority so directs, independent legal counsel in a written opinion concludes that the indemnitee should be entitled to indemnification hereunder. All determinations to make advance payments in connection with the expense of defending any
proceeding shall be authorized and made in accordance with the immediately succeeding paragraph (c) below.
(c) The Trust shall make
advance payments in connection with the expenses of defending any action with respect to which indemnification might be sought hereunder if the Trust receives a written affirmation by the indemnitee of the indemnitees good faith belief that
the standards of conduct necessary for indemnification have been met and a written undertaking to reimburse the Trust unless it is subsequently determined that the indemnitee is entitled to such indemnification and if a majority of the Trustees
determine that the applicable standards of conduct necessary for indemnification appear to have been met. In addition, at least one of the following conditions must be met: (i) the indemnitee shall provide adequate security for his undertaking,
(ii) the Trust shall be insured against losses arising by reason of any lawful advances, or (iii) a majority of a quorum of the Disinterested Non-Party Trustees, or if a majority vote of such quorum
so direct, independent legal counsel in a written opinion, shall conclude, based on a review of readily available facts (as opposed to a full trial-type inquiry), that there is substantial reason to believe that the indemnitee ultimately will be
found entitled to indemnification.
(d) The rights accruing to any indemnitee under these provisions shall not exclude any other right
which any person may have or hereafter acquire under this Declaration, the By-Laws of the Trust, any statute, agreement, vote of Shareholders or Trustees who are not Interested Persons or any other right to
which he or she may be lawfully entitled.
(e) Subject to any limitations provided by the 1940 Act and this Declaration, the Trust shall
have the power and authority to indemnify and provide for the advance payment of expenses to employees, agents and other Persons providing services to the Trust or serving in any capacity at the request of the Trust or provide for the advance
payment of expenses for such Persons, provided that such indemnification has been approved by a majority of the Trustees.
Section 5.3 No Bond Required of Trustees. No Trustee shall, as such, be obligated to give any bond or other security for
the performance of any of his duties hereunder.
Section 5.4 No Duty of Investigation; No Notice in Trust Instruments,
etc. No purchaser, lender, transfer agent or other person dealing with the Trustees or with any officer, employee or agent of the Trust shall be bound to make any inquiry concerning the validity of any transaction purporting to be made by the
Trustees or by said officer, employee or agent or be liable for the application of money or property paid, loaned, or delivered to or on the order of the Trustees or of said officer, employee or agent. Every obligation, contract, undertaking,
instrument, certificate, Share, other security of the Trust, and every other act or thing whatsoever executed in connection with the Trust shall be conclusively taken to have been executed or done by the executors thereof only in their capacity as
Trustees under this Declaration or in their capacity as officers, employees or agents of the Trust. The Trustees may maintain insurance for the protection of the Trust Property, the Shareholders,
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Trustees, officers, employees and agents in such amount as the Trustees shall deem adequate to cover possible tort liability, and such other insurance as the Trustees in their sole judgment shall
deem advisable or is required by the 1940 Act.
Section 5.5 Reliance on Experts, etc. Each Trustee and officer or employee of the Trust
shall, in the performance of its duties, be fully and completely justified and protected with regard to any act or any failure to act resulting from reliance in good faith upon the books of account or other records of the Trust, upon an opinion of
counsel, or upon reports made to the Trust by any of the Trusts officers or employees or by any advisor, administrator, manager, distributor, selected dealer, accountant, appraiser or other expert or consultant selected with reasonable care by
the Trustees, officers or employees of the Trust, regardless of whether such counsel or expert may also be a Trustee.
Reference is made
to Section 6 of the Form of Underwriting Agreement filed as Exhibit (h)(1) to this Registration Statement, which is incorporated herein by reference.
Insofar as indemnification for liability arising under the Securities Act of 1933, as amended (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 SEC, 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 by 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, 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 Securities Act and will be governed by the final
adjudication of such issue.
Item 31. Business and Other Connections of Adviser
The descriptions of the Adviser under the caption Management of the Fund in the prospectus and Statement of Additional Information
of this registration statement are incorporated by reference herein. Information as to the directors and officers of the 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 Adviser in the last two years, is included in its application for registration as an investment adviser on Form ADV (File No. 801-68243) filed under the
Investment Advisers Act of 1940, as amended, and is incorporated herein by reference. The Advisers principal business address is 345 Park Avenue, 31st Floor, New York, NY 10154.
Item 32. Location of Accounts and Records
The accounts and records of the Registrant are maintained at the office of the Registrant at ALPS Fund Services, Inc., 1290 Broadway,
Suite 1000, Denver, Colorado, 80203.
Item 33. Management Services
Not applicable.
Item 34. Undertakings
(1) Not applicable.
(2) Not applicable.
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(3) 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 Securities 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 SEC 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
Securities 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;
(c) to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold
at the termination of the offering;
(d) that, for the purpose of determining liability under the Securities Act to any purchaser:
(1) Not applicable;
(2) if the
Registrant is subject to Rule 430C [17 CFR 230.430C]: each prospectus filed pursuant to Rule 424(b) under the Securities Act as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or
prospectuses filed in reliance on Rule 430A under the Securities 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; and
(e) that for the purpose of determining liability of the Registrant under the Securities 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 Securities Act;
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(2) free writing prospectus relating to the offering prepared by or on behalf of the undersigned
Registrant or used or referred to by the undersigned Registrant;
(3) the portion of any other free writing prospectus or advertisement
pursuant to Rule 482 under the Securities Act [17 CFR 230.482] relating to the offering containing material information about the undersigned Registrant or its securities provided by or on behalf of the undersigned Registrant; and
(4) any other communication that is an offer in the offering made by the undersigned Registrant to the purchaser.
(4) The Registrant undertakes that:
(a) Not applicable;
(b) for the
purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of the
securities at that time shall be deemed to be the initial bona fide offering thereof.
(5) Not applicable.
(6) Insofar as indemnification for liabilities arising under the Securities 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 Securities 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 prospectus or Statement of Additional Information.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended (the 1933 Act) and the Investment Company Act of 1940, as
amended, the Registrant has duly caused this Amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York on the 26th day of July, 2021.
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BLACKSTONE LONG-SHORT CREDIT INCOME FUND
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By:
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/s/ Daniel H. Smith, Jr.
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Name: Daniel H. Smith, Jr.
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Title: Chairman, President, Chief Executive Officer and Trustee
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Pursuant to the requirements of the Securities Act, this post-effective amendment to the Registration
Statement has been signed by the following persons in the capacity and on the date indicated.
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Signature
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Title
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Date
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/s/ Daniel H. Smith, Jr.
Daniel H. Smith, Jr.
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Chairman, President, Chief Executive Officer and Trustee (Principal Executive Officer)
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July 26, 2021
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/s/ Robert W. Busch
Robert W. Busch
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Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer)
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July 26, 2021
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/s/ Edward H. DAlelio
Edward H. DAlelio*
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Trustee
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July 26, 2021
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/s/ Michael F. Holland
Michael F. Holland*
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Trustee
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July 26, 2021
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/s/ Thomas W. Jasper
Thomas W. Jasper*
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Trustee
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July 26, 2021
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/s/ Gary S. Schpero
Gary S. Schpero*
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Trustee
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July 26, 2021
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*By:
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/s/ Daniel H. Smith, Jr.
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Daniel H. Smith, Jr.
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As Agent or Attorney-in-Fact
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July 26, 2021
The original powers of attorney authorizing Daniel H. Smith, Jr., Robert W. Busch, Robert Zable, Marisa J. Beeney and Valerie Naratil to
execute the Registration Statement, and any amendments thereto, for the trustees of the Registrant on whose behalf this Amendment are filed with this Registration Statement.
Schedule of Exhibits to Form N-2
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