... YOUR LINK TO THE LATEST, MOST UP-TO-DATE INFORMATION ABOUT
THE GUGGENHEIM TAXABLE MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST
The shareholder report you are reading right now is just the beginning
of the story. Online at guggenheiminvestments.com/gbab, you will find:
• Daily, weekly and monthly data on share prices, net asset
values, distributions and more
Guggenheim Partners Investment Management, LLC and Guggenheim Funds
Investment Advisors, LLC are continually updating and expanding shareholder information services on the Trust’s website in an ongoing
effort to provide you with the most current information about how your Trust’s assets are managed and the results of our efforts.
It is just one more small way we are working to keep you better informed about your investment in the Trust.
We thank you for your investment in the Guggenheim Taxable Municipal
Bond & Investment Grade Debt Trust (the “Trust”). This report covers the Trust’s performance for the 12-month period
ended May 31, 2022 (the “Reporting Period”).
The COVID-19 pandemic and the recovery response has caused and continues
to cause at times reduced consumer demand and economic output, supply chain disruptions, and market closures, travel restrictions, quarantines,
and disparate global vaccine distributions. As with other serious economic disruptions, governmental authorities and regulators have responded
in recent years to this situation with significant fiscal and monetary policy changes. These included providing direct capital infusions
into companies, introducing new monetary programs, and lowering interest rates. In some cases, these responses resulted in high inflation,
low interest rates, and negative interest rates (which have since risen). Recently, the United States and other governments have also
made investments and engaged in infrastructure modernization projects that have also increased public debt and spending. These actions,
including their reversal or potential ineffectiveness, could further increase volatility in securities and other financial markets, reduce
market liquidity, continue to cause higher inflation, heighten investor uncertainty, and adversely affect the value of the Trust’s
investments and the performance of the Trust. These actions also contribute to a risk that asset prices have a high degree of correlation
across markets and asset classes. The duration and extent of COVID-19 over the long term cannot be reasonably estimated at this time.
The ultimate impact of COVID-19 and the extent to which COVID-19 impacts the Trust will depend on future developments, which are highly
uncertain and difficult to predict.
The value of, or income generated by, the investments held by the
Trust are subject to the possibility of rapid and unpredictable fluctuation, and loss. These movements may result from factors affecting
individual companies, or from broader influences, including real or perceived changes in prevailing interest rates (which have risen recently
and may continue to rise), changes in inflation rates or expectations about inflation rates (which are currently elevated relative to
normal conditions), adverse investor confidence or sentiment, changing economic, political (including geopolitical), social or financial
market conditions, increased instability or general uncertainty, environmental disasters, governmental actions, public health emergencies
(such as the spread of infectious diseases, pandemics and epidemics), debt crises, actual or threatened wars or other armed conflicts
(such as the current Russia-Ukraine conflict and its risk of expansion or collateral economic and other effects) or ratings downgrades,
and other similar events, each of which may be temporary or last for extended periods. Moreover, changing economic, political, geopolitical,
social, or, financial market or other conditions in one country or geographic region could adversely affect the value, yield and return
of the investments held by the Trust in a different country or geographic region and economies, markets and issuers generally because
of the increasingly interconnected global economies and financial markets.
The Trust’s primary investment objective is to provide current
income with a secondary objective of long-term capital appreciation. To learn more about the Trust’s performance and investment
strategy, we encourage you to read the Economic and Market Overview and the Management’s Discussion of Trust Performance sections
of this report, which begin on page 5. There, you will find information on Guggenheim’s investment philosophy, views on the economy
and market environment, and detailed information about the factors that impacted the Trust’s performance.
All Trust returns cited—whether based on net asset value (“NAV”)
or market price—assume the reinvestment of all distributions. For the Reporting Period, the Trust provided a total return based
on market price of -13.96% and a total return based on NAV of -13.81%. As of May 31, 2022, the Trust’s market price of $19.45 per
share represented a premium of 5.99% to its NAV of $18.35 per share.
Past performance is not a guarantee of future results. All NAV returns
include the deduction of management fees, operating expenses, and all other Trust expenses. The market price of the Trust’s shares
fluctuates from time to time, and may be higher or lower than the Trust’s NAV.
During the Reporting Period, the Trust paid a monthly distribution
of $0.12573 per share. The most recent distribution represents an annualized distribution rate of 7.76% based on the Trust’s closing
market price of $19.45 per share on May 31, 2022. The Trust’s distribution rate is not constant and the amount of distributions,
when declared by the Trust’s Board of Trustees, is subject to change. There is no guarantee of any future distribution or that the
current returns and distribution rate will be maintained. Please see the Distributions to Shareholders & Annualized Distribution Rate
on page 14, and Note 2(g) on page 47 for more information on distributions for the period.
We encourage shareholders to consider the opportunity to reinvest
their distributions from the Trust through the Dividend Reinvestment Plan (“DRIP”), which is described in detail on page 83
of this report. When shares trade at a discount to NAV, the DRIP takes advantage of the discount by reinvesting the monthly distribution
in common shares of the Trust purchased in the market at a price less than NAV. Conversely, when the market price of the Trust’s
common shares is at a premium above NAV, the DRIP reinvests participants’ distributions in newly-issued common shares at the greater
of NAV per share or 95% of the market price per share. The DRIP provides a cost-effective means to accumulate additional shares and enjoy
the benefits of compounding returns over time. The DRIP effectively provides an income averaging technique, which causes shareholders
to accumulate a larger number of Trust shares when the share price is lower than when the price is higher.
We appreciate your investment and look forward to serving your investment
needs in the future. For the most up-to-date information on your investment, please visit the Trust’s website at guggenheiminvestments.com/gbab.
In the 12 months ended May 31, 2022, the yield on the two-year Treasury
rose 242 basis points to 2.56% from 0.14%, and the 10-year Treasury increased by 125 basis points to 2.84% from 1.59% as the Federal Reserve
(the “Fed”) began raising rates in March 2022 to battle inflation. The spread between the two-year Treasury and 10-year Treasury
narrowed to 29 basis points from 145 basis points. One basis point is equal to one-hundredth of one percent, or 0.01%.
The first half of 2022 was extremely challenging for investors,
with interest rates rising sharply even as downside risks to the economic outlook accumulated, pushing stock and bond returns deep into
negative territory.
With the labor market overheated and inflation considerably above
the Fed’s target, we have entered an uncomfortable regime where “good news is bad news,” and the “Fed put”
is deeply out of the money. For the first time in many years, the Fed is aggressively tightening financial conditions in an effort to
slow down the economy, keep inflation expectations in check, and bring inflation down to the 2% target. The Fed’s crusade to crush
inflation is reverberating around the world, as the strengthening dollar is boosting inflation and inflation expectations in other countries,
forcing central banks to tighten policy to avoid an erosion of their own inflation credibility.
The tightening of global financial conditions may further restrain
growth, which has already slowed meaningfully in the United States in the first half of 2022 after a robust 2021. Growth this year has
been hampered by supply-side constraints as the unemployment rate has fallen to 3.6%, commodity markets have been roiled by Russia’s
war in Ukraine and the Chinese economy has been hobbled by renewed COVID-19 lockdowns.
Slower demand growth and limited slack have already served to moderate
the pace of improvement in the labor market, with aggregate payroll growth and the pace of the decline in the unemployment rate slowing
markedly since last fall. This indicates that the labor market has already started to cool even before the tightening of financial conditions
has really been felt. High-frequency indicators and news reports point to a further slowdown in the job market in coming months.
Inflation is a lagging indicator and continues to run far above
the Fed’s target. While some measures of inflation have cooled in recent months, the all-important headline consumer price index
sits at a cycle high of 8.6% as of May 2022. Our analysis indicates that a recession will be required to bring inflation down to target,
and we believe a recession could begin by 2023.
With a recession coming closer into view and the bond market already
pricing in wider credit spreads and substantial further Fed tightening, we believe now is an opportune time to add high-quality, longer-duration
fixed income ahead of the Fed easing cycle that we forecast to begin next year. We expect fixed income to once again provide a ballast
in multi-asset portfolios as growth slows and inflation begins to recede.
Performance data quoted represents past performance, which is no
guarantee of future results and current performance may be lower or higher than the figures shown. All NAV returns include the deduction
of management fees, operating expenses and all other Trust expenses. The deduction of taxes that a shareholder would pay on Trust distributions
or the sale of Trust shares is not reflected in the total returns. For the most recent month-end performance figures, please visit guggenheiminvestments.com/gbab.
The investment return and principal value of an investment will fluctuate with changes in market conditions and other factors so that
an investor’s shares, when sold, may be worth more or less than their original cost.
The referenced index is an unmanaged index and not available for
direct investment. Index performance does not reflect transaction costs, fees or expenses.
“Ten Largest Holdings” excludes any temporary cash or
derivative investments.
Portfolio breakdown and holdings are subject to change daily. For
more information, please visit guggenheiminvestments.com/gbab. The above summaries are provided for informational purposes only and should
not be viewed as recommendations. Past performance does not guarantee future results.
See Sector Classification in Other Information section.
The following table summarizes the inputs used to value the Trust’s
investments at May 31, 2022 (See Note 6 in the Notes to Financial Statements):
* Security has a market value of $0.
** This derivative is reported as unrealized appreciation/depreciation
at period end.
Please refer to the detailed Schedule of Investments for a breakdown
of investment type by industry category.
The Trust may hold assets and/or liabilities in which the fair value
approximates the carrying amount for financial statement purposes. As of the period end, reverse repurchase agreements of $167,775,690
are categorized as Level 2 within the disclosure hierarchy —See Note 7.
The following is a summary of significant unobservable inputs used
in the fair valuation of assets and liabilities categorized within Level 3 of the fair value hierarchy:
Trustees
The Trustees of the Guggenheim Taxable Municipal Bond & Investment
Grade Debt Trust and their principal business occupations during the past five years:
| |
|
|
|
|
|
| |
|
Number
of |
|
|
|
| |
Position(s) |
Term
of Office |
Portfolios
in |
|
|
| Name,
Address* |
Held
with |
and
Length of |
Fund
Complex |
Other
Directorships |
|
| and
Year of Birth |
Trust |
Time
Served** |
Principal
Occupation(s) During Past Five Years |
Overseen |
Held
by Trustees*** |
| Independent
Trustees: |
|
|
|
|
| Randall
C. Barnes |
Trustee
and |
Since
2010 |
Current:
Private Investor (2001-present). |
155 |
Current:
Advent Convertible and Income |
| (1951) |
Chair
of the |
(Trustee) |
|
|
Fund
(2005-present); Purpose |
| |
Valuation |
|
Former:
Senior Vice President and Treasurer, PepsiCo, Inc. (1993-1997); |
|
Investments
Funds (2013-present). |
| |
Oversight |
Since
2020 |
President,
Pizza Hut International (1991-1993); Senior Vice President, |
|
|
| |
Committee |
(Chair
of the |
Strategic
Planning and New Business Development, PepsiCo, Inc. (1987-1990). |
|
Former:
Fiduciary/Claymore Energy |
| |
|
Valuation |
|
|
Infrastructure
Fund (2004-March 2022); |
| |
|
Oversight |
|
|
Guggenheim
Enhanced Equity Income |
| |
|
Committee) |
|
|
Fund
(2005-2021); Guggenheim Credit |
| |
|
|
|
|
Allocation
Fund (2013-2021). |
| Angela
Brock-Kyle |
Trustee |
Since
2019 |
Current:
Founder and Chief Executive Officer, B.O.A.R.D.S. (2013-present). |
154 |
Current:
Bowhead Insurance GP, LLP |
| (1959) |
|
|
|
|
(2020-present);
Hunt Companies, Inc. |
| |
|
|
Former:
Senior Leader, TIAA (1987-2012). |
|
(2019-present). |
| |
| |
|
|
|
|
Former:
Fiduciary/Claymore Energy |
| |
|
|
|
|
Infrastructure
Fund (2019-March 2022); |
| |
|
|
|
|
Guggenheim
Enhanced Equity Income |
| |
|
|
|
|
Fund
(2019-2021); Guggenheim Credit |
| |
|
|
|
|
Allocation
Fund (2019-2021); Infinity |
| |
|
|
|
|
Property
& Casualty Corp. (2014-2018). |
| Thomas
F. Lydon, Jr. |
Trustee
and |
Since
2019 |
Current:
President, Global Trends Investments (1996-present); Chief Executive |
154 |
Current:
US Global Investors, Inc. |
| (1960) |
Chair
of the |
(Trustee) |
Officer,
ETF Flows, LLC (2019-present); Chief Executive Officer, Lydon Media |
|
(GROW)
(1995-present). |
| |
Contracts |
|
(2016-present);
Director, GDX Index Partners, LLC (2021-present); Vice Chairman, |
|
| |
Review |
Since
2020 |
VettaFi
(2022-present). |
|
Former:
Fiduciary/Claymore Energy |
| |
Committee |
(Chair
of the |
|
|
Infrastructure
Fund (2019-March 2022); |
| |
|
Contracts
Review |
|
|
Guggenheim
Enhanced Equity Income |
| |
|
Committee) |
|
|
Fund
(2019-2021); Guggenheim Credit |
| |
|
|
|
|
Allocation
Fund (2019-2021); Harvest |
| |
|
|
|
|
Volatility
Edge Trust (3) (2017-2019). |
GBAB
l GUGGENHEIM TAXABLE MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST ANNUAL REPORT l 69
| |
|
| OTHER
INFORMATION (Unaudited) continued |
May
31, 2022 |
| |
|
|
|
|
|
| |
|
|
|
Number
of |
|
| |
Position(s) |
Term
of Office |
|
Portfolios
in |
|
| Name,
Address* |
Held
with |
and
Length of |
|
Fund
Complex |
Other
Directorships |
| and
Year of Birth |
Trust |
Time
Served** |
Principal
Occupation(s) During Past Five Years |
Overseen |
Held
by Trustees*** |
| Independent
Trustees continued: |
|
|
|
|
| Ronald
A. Nyberg |
Trustee
and |
Since
2010 |
Current:
Of Counsel, Momkus LLP (2016-present). |
155 |
Current:
Advent Convertible and Income |
| (1953) |
Chair
of the |
|
|
|
Fund
(2005-present); PPM Funds (2) |
| |
Nominating
and |
|
Former:
Partner, Nyberg & Cassioppi, LLC (2000-2016); Executive Vice President, |
|
(2018-present);
NorthShore-Edward- |
| |
Governance |
|
General
Counsel, and Corporate Secretary, Van Kampen Investments (1982-1999). |
Elmhurst
Healthcare System |
| |
Committee |
|
|
|
(2012-present). |
| |
| |
|
|
|
|
Former:
Fiduciary/Claymore Energy |
| |
|
|
|
|
Infrastructure
Fund (2004-March 2022); |
| |
|
|
|
|
Guggenheim
Enhanced Equity Income |
| |
|
|
|
|
Fund
(2005-2021); Guggenheim Credit |
| |
|
|
|
|
Allocation
Fund (2013-2021); Western |
| |
|
|
|
|
Asset
Inflation-Linked Opportunities & |
| |
|
|
|
|
Income
Fund (2004-2020); Western Asset |
| |
|
|
|
|
Inflation-Linked
Income Fund (2003- |
| |
|
|
|
|
2020). |
| Sandra
G. Sponem |
Trustee
and |
Since
2019 |
Current:
Retired. |
154 |
Current:
SPDR Series Trust (81) |
| (1958) |
Chair
of |
(Trustee) |
|
|
(2018-present);
SPDR Index Shares |
| |
the
Audit |
|
Former:
Senior Vice President and Chief Financial Officer, M.A. Mortenson- |
|
Funds
(30) (2018-present); SSGA Active |
| |
Committee |
Since
2020 |
Companies,
Inc. (2007-2017). |
|
Trust
(14) (2018-present). |
| |
|
(Chair
of the |
|
|
|
| |
|
Audit
Committee) |
|
|
Former:
Fiduciary/Claymore Energy |
| |
|
|
|
|
Infrastructure
Fund (2019-March 2022); |
| |
|
|
|
|
Guggenheim
Enhanced Equity Income |
| |
|
|
|
|
Fund
(2019-2021); Guggenheim Credit |
| |
|
|
|
|
Allocation
Fund (2019-2021); SSGA |
| |
|
|
|
|
Master
Trust (1) (2018-2020). |
70 l GBAB l GUGGENHEIM TAXABLE
MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST ANNUAL REPORT
| |
|
| OTHER
INFORMATION (Unaudited) continued |
May
31, 2022 |
| |
|
|
|
|
|
| |
|
|
|
Number
of |
|
| |
Position(s) |
Term
of Office |
|
Portfolios
in |
|
| Name,
Address* |
Held
with |
and
Length of |
|
Fund
Complex |
Other
Directorships |
| and
Year of Birth |
Trust |
Time
Served** |
Principal
Occupation(s) During Past Five Years |
Overseen |
Held
by Trustees*** |
| Independent
Trustees continued: |
|
|
|
|
| Ronald
E. Toupin, Jr. |
Trustee,
Chair |
Since
2010 |
Current:
Portfolio Consultant (2010-present); Member, Governing Council, |
154 |
Former:
Fiduciary/Claymore Energy |
| (1958) |
of
the Board |
|
Independent
Directors Council (2013-present); Governor, Board of Governors, |
|
Infrastructure
Fund (2004-March 2022); |
| |
and
Chair of |
|
Investment
Company Institute (2018-present). |
|
Guggenheim
Enhanced Equity Income |
| |
the
Executive |
|
|
|
Fund
(2005-2021); Guggenheim Credit |
| |
Committee |
|
Former:
Member, Executive Committee, Independent Directors Council (2016-2018); |
Allocation
Fund (2013-2021); Western |
| |
|
|
Vice
President, Manager and Portfolio Manager, Nuveen Asset Management |
|
Asset
Inflation-Linked Opportunities |
| |
|
|
(1998-1999);
Vice President, Nuveen Investment Advisory Corp. (1992-1999); Vice |
|
&
Income Fund (2004-2020); Western |
| |
|
|
President
and Manager, Nuveen Unit Investment Trusts (1991-1999); and Assistant |
Asset
Inflation-Linked Income Fund |
| |
|
|
Vice
President and Portfolio Manager, Nuveen Unit Investment Trusts (1988-1999), |
(2003-2020). |
| |
|
|
each
of John Nuveen & Co., Inc. (1982-1999). |
|
|
GBAB l GUGGENHEIM TAXABLE
MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST ANNUAL REPORT l 71
| |
|
| OTHER
INFORMATION (Unaudited) continued |
May
31, 2022 |
| |
|
|
|
Number
of |
|
| |
Position(s) |
Term
of Office |
|
Portfolios
in |
|
| Name,
Address* |
Held
with |
and
Length of |
|
Fund
Complex |
Other
Directorships |
| and
Year of Birth |
Trust |
Time
Served** |
Principal
Occupation(s) During Past Five Years |
Overseen |
Held
by Trustees*** |
| Interested
Trustee: |
|
|
|
|
|
| Amy
J. Lee**** |
Trustee, |
Since
2018 |
Current:
Interested Trustee, certain other funds in the Fund Complex |
154 |
Former:
Fiduciary/Claymore Energy |
| (1961) |
Vice
President |
(Trustee) |
(2018-present);
Chief Legal Officer, certain other funds in the Fund Complex |
|
Infrastructure
Fund (2018-March 2022); |
| |
and
Chief |
|
(2014-present);
Vice President, certain other funds in the Fund Complex |
|
Guggenheim
Enhanced Equity Income |
| |
Legal
Officer |
Since
2014 |
(2007-present);
Senior Managing Director, Guggenheim Investments |
|
Fund
(2018-2021); Guggenheim Credit |
| |
|
(Chief
Legal |
(2012-present). |
|
Allocation
Fund (2018-2021). |
| |
|
Officer) |
|
|
|
| |
|
|
Former:
President and Chief Executive Officer, certain other funds in the |
|
|
| |
|
Since
2012 |
Fund
Complex (2017-2019); Vice President, Associate General Counsel and |
|
|
| |
|
(Vice
President) |
Assistant
Secretary, Security Benefit Life Insurance Company and Security |
|
|
| |
|
|
Benefit
Corporation (2004-2012). |
|
|
| * |
|
The business address of each Trustee is c/o Guggenheim Investments, 227 West Monroe Street, Chicago, Illinois
60606. |
| ** |
|
Each Trustee elected shall hold office until his or her successor shall have been elected and shall have qualified.
After a Trustee’s initial term, each Trustee is expected to serve a three year term concurrent with the class of Trustees for which
he or she serves. |
-Mr. Barnes and Ms. Brock-Kyle are Class I Trustees. Class
I Trustees are expected to stand for re-election at the Trust’s annual meeting of shareholders for the fiscal year ended May 31,
2023.
-Messrs. Lydon, Jr. and Nyberg are Class II Trustees. Class
II Trustees are expected to stand for re-election at the Trust’s annual meeting of shareholders for the fiscal year ended May 31,
2024.
-Mr. Toupin, Jr. and Mses. Lee and Sponem are Class III Trustees.
Class III Trustees are expected to stand for re-election at the Trust’s annual meeting of shareholders for the fiscal year ended
May 31, 2025.
| *** |
|
Each Trustee also serves on the Boards of Trustees of Guggenheim Funds Trust, Guggenheim Variable Funds Trust,
Guggenheim Strategy Funds Trust, Guggen -heim Strategic Opportunities Fund, Guggenheim Energy & Income Fund, Guggenheim Active Allocation
Fund, Rydex Series Funds, Rydex Dynamic Funds, Rydex Variable Trust and Transparent Value Trust. Messrs. Barnes and Nyberg also serve
on the Board of Trustees of Advent Convertible & Income Fund. |
| **** |
|
This Trustee is deemed to be an “interested person” of the Trust under the 1940 Act by reason
of her position with the Trust’s Investment Adviser and/or the parent of the Investment Adviser. |
72 l GBAB l GUGGENHEIM TAXABLE
MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST ANNUAL REPORT
| |
|
| OTHER
INFORMATION (Unaudited) continued |
May
31, 2022 |
Officers
The Officers of the Guggenheim Taxable Municipal Bond & Investment
Grade Debt Trust, who are not Trustees, and their principal occupations during the past five years:
| |
|
|
|
| |
Position(s) |
Term
of Office |
|
| Name,
Address* |
Held
with |
and
Length of |
Principal
Occupation(s) |
| and
Year of Birth |
the
Trust |
Time
Served** |
During
Past Five Years |
| Officers: |
|
|
|
| Brian
E. Binder |
President |
Since
2018 |
Current:
President and Chief Executive Officer, certain other funds in the Fund Complex (2018-present); President, Chief Executive Officer and |
| (1972) |
and
Chief |
|
Chairman
of the Board of Managers, Guggenheim Funds Investment Advisors, LLC (2018-present); President and Chief Executive Officer, |
| |
Executive |
|
Security
Investors, LLC (2018-present); Board Member of Guggenheim Partners Fund Management (Europe) Limited (2018-present); Senior |
| |
Officer |
|
Managing
Director and Chief Administrative Officer, Guggenheim Investments (2018-present). |
| |
| |
|
|
Former:
Managing Director and President, Deutsche Funds, and Head of US Product, Trading and Fund Administration, Deutsche Asset |
| |
|
|
Management
(2013-2018); Managing Director, Head of Business Management and Consulting, Invesco Ltd. (2010-2012). |
| Joanna
M. Catalucci |
Chief |
Since
2012 |
Current:
Chief Compliance Officer, certain other funds in the Fund Complex (2012-present); Senior Managing Director, Guggenheim Investments |
| (1966) |
Compliance |
|
(2014-present). |
| |
Officer |
|
|
| |
|
|
Former:
AML Officer, certain other funds in the Fund Complex (2016-2017); Chief Compliance Officer and Secretary certain other funds in the |
| |
|
|
Fund
Complex (2008-2012); Senior Vice President and Chief Compliance Officer, Security Investors, LLC and certain affiliates (2010-2012); Chief |
| |
|
|
Compliance
Officer and Senior Vice President, Rydex Advisors, LLC and certain affiliates (2010-2011). |
| James
M. Howley |
Assistant |
Since
2006 |
Current:
Managing Director, Guggenheim Investments (2004-present); Assistant Treasurer, certain other funds in the Fund Complex |
| (1972) |
Treasurer |
|
(2006-present). |
| |
| |
|
|
Former:
Manager, Mutual Fund Administration of Van Kampen Investments, Inc. (1996-2004). |
| Mark
E. Mathiasen |
Secretary |
Since
2008 |
Current:
Secretary, certain other funds in the Fund Complex (2007-present); Managing Director, Guggenheim Investments (2007-present). |
| (1978) |
|
|
|
| Glenn
McWhinnie |
Assistant |
Since
2016 |
Current:
Vice President, Guggenheim Investments (2009-present); Assistant Treasurer, certain other funds in the Fund Complex (2016-present). |
| (1969) |
Treasurer |
|
|
| Michael
P. Megaris |
Assistant |
Since
2014 |
Current:
Assistant Secretary, certain other funds in the Fund Complex (2014-present); Director, Guggenheim Investments (2012-present). |
| (1984) |
Secretary |
|
|
| Kimberly
J. Scott |
Assistant |
Since
2012 |
Current:
Director, Guggenheim Investments (2012-present); Assistant Treasurer, certain other funds in the Fund Complex (2012-present). |
| (1974) |
Treasurer |
|
|
| |
|
|
Former:
Financial Reporting Manager, Invesco, Ltd. (2010-2011); Vice President/Assistant Treasurer, Mutual Fund Administration for Van Kampen |
| |
|
|
Investments,
Inc./Morgan Stanley Investment Management (2009-2010); Manager of Mutual Fund Administration, Van Kampen Investments, |
| |
|
|
Inc./Morgan
Stanley Investment Management (2005-2009). |
GBAB l GUGGENHEIM TAXABLE
MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST ANNUAL REPORT l 73
| |
|
| OTHER
INFORMATION (Unaudited) continued |
May
31, 2022 |
| |
|
|
|
| |
Position(s) |
Term
of Office |
|
| Name,
Address* |
Held
with |
and
Length of |
Principal
Occupation(s) |
| and
Year of Birth |
the
Trust |
Time
Served** |
During
Past Five Years |
| Officers
continued: |
|
|
|
| Bryan
Stone |
Vice |
Since
2014 |
Current:
Vice President, certain other funds in the Fund Complex (2014-present); Managing Director, Guggenheim Investments (2013-present). |
| (1979) |
President |
|
|
| |
|
|
Former:
Senior Vice President, Neuberger Berman Group LLC (2009-2013); Vice President, Morgan Stanley (2002-2009). |
| John
L. Sullivan |
Chief |
Since
2010 |
Current:
Chief Financial Officer, Chief Accounting Officer and Treasurer, certain other funds in the Fund Complex (2010-present); Senior |
| (1955) |
Financial |
|
Managing
Director, Guggenheim Investments (2010-present). |
| |
Officer,
Chief |
|
|
| |
Accounting |
|
Former:
Managing Director and Chief Compliance Officer, each of the funds in the Van Kampen Investments fund complex (2004-2010); |
| |
Officer
and |
|
Managing
Director and Head of Fund Accounting and Administration, Morgan Stanley Investment Management (2002-2004); Chief Financial |
| |
Treasurer |
|
Officer
and Treasurer, Van Kampen Funds (1996-2004). |
| Jon
Szafran |
Assistant |
Since
2017 |
Current:
Director, Guggenheim Investments (2017-present); Assistant Treasurer, certain other funds in the Fund Complex (2017-present). |
| (1989) |
Treasurer |
|
|
| |
|
|
Former:
Assistant Treasurer of Henderson Global Funds and Manager of US Fund Administration, Henderson Global Investors (North America) |
| |
|
|
Inc.
(“HGINA”), (2017); Senior Analyst of US Fund Administration, HGINA (2014–2017); Senior Associate of Fund Administration,
Cortland |
| |
|
|
Capital
Market Services, LLC (2013-2014); Experienced Associate, PricewaterhouseCoopers LLP (2012-2013). |
| * |
|
The business address of each officer is c/o Guggenheim Investments, 227 West Monroe Street, Chicago, Illinois
60606. |
| ** |
|
Each officer serves an indefinite term, until his or her successor is duly elected and qualified. |
74 l GBAB l GUGGENHEIM TAXABLE
MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST ANNUAL REPORT
| APPROVAL
OF ADVISORY AGREEMENTS – GUGGENHEIM TAXABLE |
|
| MUNICIPAL
BOND & INVESTMENT GRADE DEBT TRUST (GBAB) (Unaudited) |
May
31, 2022 |
Guggenheim Taxable Municipal Bond & Investment Grade Debt Trust
(the “Fund”) is a Delaware statutory trust that is registered as a diversified, closed-end management investment company under
the Investment Company Act of 1940, as amended (the “1940 Act”). Guggenheim Funds Investment Advisors, LLC (“GFIA”
or the “Adviser”), an indirect subsidiary of Guggenheim Partners, LLC, a privately-held, global investment and advisory firm
(“Guggenheim Partners”), serves as the Fund’s investment adviser and provides certain administrative and other services
pursuant to an investment advisory agreement between the Fund and GFIA (the “Investment Advisory Agreement”). (Guggenheim
Partners, GFIA, Guggenheim Partners Investment Management, LLC (“GPIM” or a “Sub-Adviser”) and their affiliates
may be referred to herein collectively as “Guggenheim.” “Guggenheim Investments” refers to the global asset management
and investment advisory division of Guggenheim Partners and includes GFIA, GPIM, Security Investors, LLC and other affiliated investment
management businesses of Guggenheim Partners.) Under the terms of the Investment Advisory Agreement, GFIA is responsible for overseeing
the activities of GPIM, which performs portfolio management and related services for the Fund pursuant to an investment sub-advisory agreement
by and among the Fund, the Adviser and GPIM (the “GPIM Sub-Advisory Agreement” and together with the Investment Advisory Agreement,
the “Current Advisory Agreements”). Under the supervision and oversight of GFIA and the Board of Trustees of the Fund (the
“Board,” with the members of the Board referred to individually as the “Trustees”), GPIM provides a continuous
investment program for the Fund’s portfolio, provides investment research, manages the Fund’s financial leverage (borrowing)
strategy and makes and executes recommendations for the purchase and sale of securities for the Fund.
Each of the Current Advisory Agreements continues in effect from
year to year provided that such continuance is specifically approved at least annually by (i) the Board or a majority of the outstanding
voting securities (as defined in the 1940 Act) of the Fund, and, in either event, (ii) the vote of a majority of the Trustees who are
not “interested person[s],” as defined by the 1940 Act, of the Fund (the “Independent Trustees”) casting votes
in person at a meeting called for such purpose. At meetings held in person on April 19, 2022 (the “April Meeting”) and on
May 24-25, 2022 (the “May Meeting”), the Contracts Review Committee of the Board (the “Committee”), consisting
solely of the Independent Trustees, met separately from Guggenheim to consider the proposed renewal of the Current Advisory Agreements
in connection with the Committee’s annual contract review schedule.
At a meeting held by videoconference on April 29, 2022 (the “Special
Meeting”), the Board met to consider a new sub-advisory agreement with Guggenheim Partners Advisors, LLC (“GPA” or a
“Sub-Adviser”) for the Fund (the “GPA Sub-Advisory Agreement”).1 Under the GPA Sub-Advisory Agreement,
GPA assists GFIA and GPIM in the direction and supervision of the investment strategy of the Fund. At the Special Meeting, the Board approved
the GPA Sub-Advisory Agreement for an annual term. At the May Meeting, the Committee also considered a renewal of the GPA Sub-Advisory
Agreement so that it would have a consistent term with the Current Advisory Agreements. (The GPA
1 On March 13, 2020, the Securities and Exchange Commission
issued an exemptive order providing relief to registered management investment companies from certain provisions of the 1940 Act in light
of the outbreak of coronavirus disease 2019 (COVID-19), including the in-person voting requirements under Section 15(c) of the 1940 Act
with respect to approving or renewing an investment advisory agreement, subject to certain conditions. The relief, initially provided
for a limited period of time, has been extended multiple times and was in effect as of April 29, 2022. The Board, including the Independent
Trustees, relied on this relief in voting to approve the GPA Sub-Advisory Agreement at the Special Meeting.
GBAB l GUGGENHEIM TAXABLE
MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST ANNUAL REPORT l 75
| |
|
| APPROVAL
OF ADVISORY AGREEMENTS – GUGGENHEIM TAXABLE |
|
| MUNICIPAL
BOND & INVESTMENT GRADE DEBT TRUST (GBAB) |
|
| (Unaudited)
continued |
May
31, 2022 |
Sub-Advisory Agreement along with the GPIM Sub-Advisory Agreement
are referred to hereafter as the “Sub-Advisory Agreements” and the Current Advisory Agreements along with the GPA Sub-Advisory
Agreement are referred to hereafter as the “Advisory Agreements.”)
As part of its process of reviewing the Advisory Agreements, the
Committee was represented by independent legal counsel to the Independent Trustees (“Independent Legal Counsel”), from whom
the Independent Trustees received separate legal advice and with whom they met separately. Independent Legal Counsel reviewed and discussed
with the Committee various key aspects of the Trustees’ legal responsibilities relating to the proposed approval or renewal of the
Advisory Agreements and other principal contracts. The Committee took into account various materials received from Guggenheim and Independent
Legal Counsel. The Committee also considered the variety of written materials, reports and oral presentations the Board received throughout
the year regarding performance and operating results of the Fund, and other information relevant to its evaluation of the Advisory Agreements.
In connection with the contract review process, FUSE Research Network
LLC, an independent, third-party research provider, was engaged to prepare advisory contract renewal reports designed specifically to
help the Board fulfill its advisory contract renewal responsibilities. The objective of the reports is to present the subject funds’
relative position regarding fees, expenses and total return performance, with comparisons to a peer group of funds identified by Guggenheim,
based on a methodology reviewed by the Board. In addition, Guggenheim provided materials and data in response to formal requests for information
sent by Independent Legal Counsel on behalf of the Independent Trustees. Guggenheim also made presentations at the April Meeting, the
May Meeting and the Special Meeting. Throughout the process, the Committee asked questions of management and requested certain additional
information, which Guggenheim provided (collectively with the foregoing reports and materials, the “Contract Review Materials”).
The Committee considered the Contract Review Materials in the context of its accumulated experience in governing the Fund and other Guggenheim
funds and weighed the factors and standards discussed with Independent Legal Counsel.
Following an analysis and discussion of relevant factors, including
those identified below, and in the exercise of its business judgment, the Committee concluded that it was in the best interest of the
Fund to recommend that the Board approve the GPA Sub-Advisory Agreement and the renewal of each of the Advisory Agreements for an additional
annual term.
Investment Advisory Agreement
Nature, Extent and Quality of Services Provided by the Adviser:
With respect to the nature, extent and quality of services currently provided by the Adviser, the Committee noted that, although the
Adviser has delegated certain portfolio management responsibilities to the Sub-Advisers, as affiliated companies, the Adviser and Sub-Advisers
are part of the Guggenheim organization. Further, the Committee took into account Guggenheim’s explanation that investment advisory-related
services are provided by many Guggenheim employees under different related legal entities and thus, the services provided by the Adviser
on the one hand and a Sub-Adviser on the other, as well as the risks assumed by each party, cannot be ascribed to distinct legal entities.
For example, the Committee noted as of March 31, 2022, both GFIA and GPIM had entered into a Macroeconomic Services Agreement, at no fee,
with GPA which, as noted above, is a Guggenheim affiliate, to receive
76 l GBAB l GUGGENHEIM TAXABLE
MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST ANNUAL REPORT
| |
|
| APPROVAL
OF ADVISORY AGREEMENTS – GUGGENHEIM TAXABLE |
|
| MUNICIPAL
BOND & INVESTMENT GRADE DEBT TRUST (GBAB) |
|
| (Unaudited)
continued |
May
31, 2022 |
certain global and sector macroeconomic analysis and insight along
with other guidance.2 As a result, in evaluating the services provided to the Fund the Committee did not separately consider
the contributions under the Investment Advisory Agreement and Sub-Advisory Agreements.
The Committee also considered the secondary market support services
provided by Guggenheim to the Fund and noted the materials describing the activities of Guggenheim’s dedicated Closed-End Fund Team,
including with respect to communication with financial advisors, data dissemination and relationship management. In addition, the Committee
considered the qualifications, experience and skills of key personnel performing services for the Fund, including those personnel providing
compliance and risk oversight, as well as the supervisors and reporting lines for such personnel. The Committee also considered other
information, including Guggenheim’s resources and related efforts to retain, attract and motivate capable personnel to serve the
Fund. In evaluating Guggenheim’s resources and capabilities, the Committee considered Guggenheim’s commitment to focusing
on, and investing resources in support of, funds in the Guggenheim fund complex, including the Fund.
The Committee’s review of the services provided by Guggenheim
to the Fund included consideration of Guggenheim’s investment processes and resulting performance, portfolio oversight and risk
management, and the related regular quarterly reports and presentations received by the Board. The Committee took into account the risks
borne by Guggenheim in sponsoring and providing services to the Fund, including regulatory, operational, legal and entrepreneurial risks.
The Committee considered the resources dedicated by Guggenheim to compliance functions and the reporting made to the Board by Guggenheim
compliance personnel regarding Guggenheim’s adherence to regulatory requirements. The Committee also considered the regular reports
the Board receives from the Fund’s Chief Compliance Officer regarding compliance policies and procedures established pursuant to
Rule 38a-1 under the 1940 Act.
In connection with the Committee’s evaluation of the overall
package of services provided by Guggenheim, the Committee considered Guggenheim’s administrative services, including its role in
supervising, monitoring, coordinating and evaluating the various services provided by the fund administrator, custodian and other service
providers to the Fund. The Committee evaluated the Office of Chief Financial Officer (the “OCFO”), established to oversee
the fund administration, accounting and transfer agency services provided to funds in the Guggenheim fund complex, including the OCFO’s
resources, personnel and services provided.
With respect to Guggenheim’s resources and the ability of
the Adviser to carry out its responsibilities under the Investment Advisory Agreement, the Chief Financial Officer of Guggenheim Investments
reviewed with the Committee financial information concerning the holding company for Guggenheim Investments, Guggenheim Partners Investment
Management Holdings, LLC (“GPIMH”), and the various entities comprising Guggenheim Investments, and provided the audited consolidated
financial statements of GPIMH. (Thereafter, the Committee received the audited consolidated financial statements of GPIM.)
The Committee also considered the acceptability of the terms of
the Investment Advisory Agreement, including the scope of services required to be performed by the Adviser.
2 Consequently, except where the context indicates otherwise,
references to “Adviser” or “Sub-Adviser” should be understood as referring to Guggenheim Investments generally
and the services it provides under the Advisory Agreements.
GBAB l GUGGENHEIM TAXABLE
MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST ANNUAL REPORT l 77
| |
|
| APPROVAL
OF ADVISORY AGREEMENTS – GUGGENHEIM TAXABLE |
|
| MUNICIPAL
BOND & INVESTMENT GRADE DEBT TRUST (GBAB) |
|
| (Unaudited)
continued |
May
31, 2022 |
Based on the foregoing, and based on other information received
(both oral and written) at the April Meeting, the May Meeting and the Special Meeting, as well as other considerations, including the
Committee’s knowledge of how the Adviser performs its duties obtained through Board meetings, discussions and reports throughout
the year, the Committee concluded that the Adviser and its personnel were qualified to serve the Fund in such capacity and may reasonably
be expected to continue to provide a high quality of services under the Investment Advisory Agreement with respect to the Fund.
Investment Performance: The Fund commenced investment operations
on October 27, 2010 and its investment objective is to provide current income with a secondary objective of long-term capital appreciation.
The Committee received data showing, among other things, the Fund’s total return on a net asset value (“NAV”) and market
price basis for the ten-year, five-year, three-year, one-year and three-month periods ended December 31, 2021, as well as total return
based on NAV since inception. The Committee also received certain updated performance information as of March 31, 2022 and April 30, 2022.
The Committee compared the Fund’s performance to a peer group
of closed-end funds identified by Guggenheim (the “peer group of funds”) and, for NAV returns, performance versus the Fund’s
benchmark for the same time periods. The Committee noted that the Adviser’s peer group selection methodology for the Fund starts
with the entire U.S.-listed taxable closed-end fund universe, and excludes funds that: (i) generally invest less than 50% in taxable municipals,
including “Build America Bonds”; and (ii) generally employ less than 20% financial leverage. The Committee considered that
the peer group of funds, with three constituent funds, including the Fund, is consistent with the peer group used for purposes of the
Fund’s quarterly performance reporting, but that the small size of the group limited the usefulness of the comparisons.
In addition, the Committee took into account Guggenheim’s
belief that there is no single optimal performance metric, nor is there a single optimal time period over which to evaluate performance
and that a thorough understanding of performance comes from analyzing measures of returns, risk and risk-adjusted returns, as well as
evaluating strategies both relative to their market benchmarks and to peer groups of competing strategies. Thus, the Committee also reviewed
and considered the additional performance and risk metrics provided by Guggenheim, including the Fund’s standard deviation, tracking
error, beta, Sharpe ratio, information ratio and alpha compared to the benchmark, with the Fund’s risk metrics ranked against its
peer group. In assessing the foregoing, the Committee considered Guggenheim’s statement that, as of January 31, 2022, the Fund’s
absolute returns have exceeded the benchmark over all relevant time periods. The Committee also noted Guggenheim’s statement that,
as of January 31, 2022, the Fund’s risk metrics have consistently been superior to peers, reflecting the Fund’s lower duration
and the diversification provided by the non-municipal bond portion of the Fund’s portfolio.
The Committee also considered the Fund’s structure and form
of leverage, and, among other information related to leverage, the cost of the leverage and the aggregate leverage outstanding as of December
31, 2021, as well as net yield on leverage assets and net impact on common assets due to leverage for the one-year period ended December
31, 2021 and annualized for the three-year and since-inception periods ended December 31, 2021.
Based on the foregoing, and based on other information received
(both oral and written) at the April Meeting, the May Meeting and the Special Meeting, as well as other considerations, the Committee
concluded that the Fund’s performance was acceptable.
78 l GBAB l GUGGENHEIM TAXABLE
MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST ANNUAL REPORT
| |
|
| APPROVAL
OF ADVISORY AGREEMENTS – GUGGENHEIM TAXABLE |
|
| MUNICIPAL
BOND & INVESTMENT GRADE DEBT TRUST (GBAB) |
|
| (Unaudited)
continued |
May
31, 2022 |
Comparative Fees, Costs of Services Provided and the Benefits
Realized by the Adviser from Its Relationship with the Fund: The Committee compared the Fund’s contractual advisory fee (which
includes the sub-advisory fees paid to the Sub-Advisers) calculated at average managed assets for the latest fiscal year,3 and
the Fund’s net effective management fee4 and total net expense ratio, in each case as a percentage of average net assets
for the latest fiscal year, to the peer group of funds and noted the Fund’s percentile rankings in this regard. The Committee also
reviewed the average and median advisory fees (based on average net assets) and expense ratios, including expense ratio components (e.g.,
transfer agency fees, administration fees and other operating expenses), of the peer group of funds. In addition, the Committee considered
information regarding Guggenheim’s process for evaluating the competitiveness of the Fund’s fees and expenses, noting Guggenheim’s
statement that evaluations seek to incorporate a variety of factors with a general focus on ensuring fees and expenses: (i) are competitive;
(ii) give consideration to resource support requirements; and (iii) ensure the Fund is able to deliver on shareholder return expectations.
The Committee observed that, although the Fund’s total net
expense ratio (excluding interest expense) and contractual advisory fee based on average managed assets were the highest of its peer group
of funds, its net effective management fee on average net assets was the lowest of its peer group of funds. The Committee also noted that
the peer group of funds consists of only three funds, including the Fund and two peers from two large fund families, which limits its
usefulness for comparison. In this connection, the Committee noted the contractual advisory fee range of the peer group and considered
Guggenheim’s statement that the Fund’s contractual advisory fee of 0.60% is within 0.05% of the lowest contractual advisory
fee of the peer group.
As part of its evaluation of the Fund’s advisory fee, the
Committee considered how such fee compared to the advisory fee charged by Guggenheim to one or more other clients that it manages pursuant
to similar investment strategies, noting that, in certain instances, Guggenheim charges a lower advisory fee to such other clients. In
this connection, the Committee considered, among other things, Guggenheim’s representations about the significant differences between
managing registered funds as compared to other types of accounts and differences between managing a closed-end fund as compared to an
open-end fund. The Committee also considered Guggenheim’s explanation that lower fees are charged in certain instances due to various
other factors, including the scope of contract, type of investors, differences in fee structure, applicable legal, governance and capital
structures, tax status and historical pricing reasons. In addition, the Committee took into account Guggenheim’s discussion of the
regulatory, operational, legal and entrepreneurial risks involved with the Fund as compared to other types of accounts. The Committee
concluded that the information it received demonstrated that the aggregate services provided to, and the specific circumstances of, the
Fund were sufficiently different from the services provided to, or the specific circumstances of, other clients, respectively, with similar
investment strategies and/or the risks borne by Guggenheim were sufficiently greater than those associated with managing other clients
with similar investment strategies to support the difference in fees.
3 Contractual advisory fee rankings represent the percentile
ranking of the Fund’s contractual advisory fee relative to peers assuming that the contractual advisory fee for each fund in the
peer group is calculated on the basis of the Fund’s average managed assets.
4 The “net effective management fee” for
the Fund represents the combined effective advisory fee and administration fee as a percentage of average net assets for the latest fiscal
year, after any waivers and/or reimbursements.
GBAB l GUGGENHEIM TAXABLE
MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST ANNUAL REPORT l 79
| |
|
| APPROVAL
OF ADVISORY AGREEMENTS – GUGGENHEIM TAXABLE |
|
| MUNICIPAL
BOND & INVESTMENT GRADE DEBT TRUST (GBAB) |
|
| (Unaudited)
continued |
May
31, 2022 |
With respect to the costs of services provided and benefits realized
by Guggenheim Investments from its relationship with the Fund, the Committee reviewed a profitability analysis and data from management
setting forth the average assets under management for the twelve months ended December 31, 2021, gross revenues received by Guggenheim
Investments, expenses allocated to the Fund, earnings and the operating margin/profitability rate, including variance information relative
to the foregoing amounts as of December 31, 2020. In addition, the Chief Financial Officer of Guggenheim Investments reviewed with, and
addressed questions from, the Committee concerning the expense allocation methodology employed in producing the profitability analysis.
In the course of its review of Guggenheim Investments’ profitability,
the Committee took into account the methods used by Guggenheim Investments to determine expenses and profit. The Committee considered
all of the foregoing, among other things, in evaluating the costs of services provided, the profitability to Guggenheim Investments and
the profitability rates presented.
The Committee also considered other benefits available to the Adviser
because of its relationship with the Fund and noted Guggenheim’s statement that it does not believe the Adviser derives any such
“fall-out” benefits. In this regard, the Committee took into account Guggenheim’s representation that, although it does
not consider such benefits to be fall-out benefits, the Adviser may benefit from certain economies of scale and synergies, such as enhanced
visibility of the Adviser, enhanced leverage in fee negotiations and other synergies arising from offering a broad spectrum of products,
including the Fund.
Based on the foregoing, and based on other information received
(both oral and written) at the April Meeting, the May Meeting and the Special Meeting, as well as other considerations, the Committee
concluded that the comparative fees and the benefits realized by the Adviser from its relationship with the Fund were appropriate and
that the Adviser’s profitability from its relationship with the Fund was not unreasonable.
Economies of Scale: The Committee received and considered
information regarding whether there have been economies of scale with respect to the management of the Fund as the Fund’s assets
grow, whether the Fund has appropriately benefited from any economies of scale, and whether there is potential for realization of any
further economies of scale. The Committee considered whether economies of scale in the provision of services to the Fund were being passed
along to and shared with the shareholders. The Committee considered that advisory fee breakpoints generally are not relevant given the
structural nature of closed-end funds, which, though able to conduct additional share offerings periodically, do not continuously offer
new shares and thus, do not experience daily inflows and outflows of capital. In addition, the Committee took into account Guggenheim’s
belief that given the relative size of the Fund, breakpoints are not appropriate at this time. The Committee also noted the additional
shares offered by the Fund through secondary offerings in the past and considered that to the extent the Fund’s assets increase
over time (whether through additional periodic offerings or internal growth from asset appreciation), the Fund and its shareholders should
realize economies of scale as certain expenses, such as fixed fund fees, become a smaller percentage of overall assets.
Based on the foregoing, and based on other information received
(both oral and written) at the April Meeting, the May Meeting and the Special Meeting, as well as other considerations, the Committee
concluded that the Fund’s advisory fee was reasonable.
80 l GBAB l GUGGENHEIM TAXABLE
MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST ANNUAL REPORT
| |
|
| APPROVAL
OF ADVISORY AGREEMENTS – GUGGENHEIM TAXABLE |
|
| MUNICIPAL
BOND & INVESTMENT GRADE DEBT TRUST (GBAB) |
|
| (Unaudited)
continued |
May
31, 2022 |
Sub-Advisory Agreements
Nature, Extent and Quality of Services Provided by the Sub-Advisers:
As noted above, because both the Adviser (GFIA) and Sub-Advisers (GPIM and GPA) for the Fund are part of Guggenheim Investments and
the services provided by the Adviser on the one hand and the Sub-Advisers on the other cannot be ascribed to distinct legal entities,
the Committee did not separately evaluate the services provided under the Investment Advisory Agreement and Sub-Advisory Agreements. Therefore,
the Committee considered the qualifications, experience and skills of the Fund’s portfolio management team in connection with the
Committee’s evaluation of Guggenheim’s investment professionals under the Investment Advisory Agreement.
With respect to Guggenheim’s resources and the Sub-Advisers’
abilities to carry out their responsibilities under their respective Sub-Advisory Agreements, as noted above, the Committee considered
the financial condition of GPIMH and the various entities comprising Guggenheim Investments.
The Committee also considered the acceptability of the terms of
the Sub-Advisory Agreements, including the scope of services required to be performed by each Sub-Adviser.
Investment Performance: The Committee considered the returns
of the Fund under its evaluation of the Investment Advisory Agreement.
Comparative Fees, Costs of Services Provided and the Benefits
Realized by the SubAdvisers from Their Relationships with the Fund: The Committee considered that the Sub-Advisory Agreements are
with affiliates of the Adviser, that the Adviser compensates each Sub-Adviser from its own fees so that the sub-advisory fee rate with
respect to the Fund does not impact the fees paid by the Fund and that GPIM’s revenues were included in the calculation of Guggenheim
Investments’ profitability. Because GPA is a new Sub-Adviser, the amounts that will be paid to it by GFIA were previously included
in the calculation of Guggenheim Investments’ profitability as part of GFIA’s revenue and in the future will continue to be
included in the calculation of Guggenheim Investments’ profitability as a part of GPA’s revenue. Given its conclusion of the
reasonableness of the advisory fee, the Committee concluded that the GPIM and GPA sub-advisory fee rates for the Fund were reasonable.
Economies of Scale: The Committee recognized that, because
the Sub-Advisers’ fees are paid by the Adviser and not the Fund, the analysis of economies of scale was more appropriate in the
context of the Committee’s consideration of the Investment Advisory Agreement, which was separately considered. (See “Investment
Advisory Agreement – Economies of Scale” above.)
Overall Conclusions
The Committee concluded that the investment advisory fees are fair
and reasonable in light of the extent and quality of the services provided and other benefits received and that the initial approval of
the GPA Sub-Advisory Agreement and the continuation of each Advisory Agreement is in the best interest of the Fund. In reaching this conclusion,
no single factor was determinative or conclusive and each Committee member, in the exercise of his or her informed business judgment,
may afford different weights to different factors. At the Special Meeting, the Board, including all of the Independent Trustees approved
the GPA Sub-Advisory Agreement for an initial annual term and at the May Meeting, the Committee, constituting all of the Independent Trustees,
recommended the renewal of each Advisory Agreement for an additional annual term.
GBAB l GUGGENHEIM TAXABLE
MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST ANNUAL REPORT l 81
| |
|
| DIVIDEND
REINVESTMENT PLAN (Unaudited) |
May
31, 2022 |
Unless the registered owner of common shares elects to receive cash
by contacting Computershare Trust Company, N.A. (the “Plan Administrator”), all dividends declared on common shares of the
Trust will be automatically reinvested by the Plan Administrator for shareholders in the Trust’s Dividend Reinvestment Plan (the
“Plan”), in additional common shares of the Trust. Participation in the Plan is completely voluntary and may be terminated
or resumed at any time without penalty by notice if received and processed by the Plan Administrator prior to the dividend record date;
otherwise such termination or resumption will be effective with respect to any subsequently declared dividend or other distribution. Some
brokers may automatically elect to receive cash on your behalf and may re-invest that cash in additional common shares of the Trust for
you. If you wish for all dividends declared on your common shares of the Trust to be automatically reinvested pursuant to the Plan, please
contact your broker.
The Plan Administrator will open an account for each common shareholder
under the Plan in the same name in which such common shareholder’s common shares are registered. Whenever the Trust declares a dividend
or other distribution (together, a “Dividend”) payable in cash, nonparticipants in the Plan will receive cash and participants
in the Plan will receive the equivalent in common shares. The common shares will be acquired by the Plan Administrator for the participants’
accounts, depending upon the circumstances described below, either (i) through receipt of additional unissued but authorized common shares
from the Trust (“Newly Issued Common Shares”) or (ii) by purchase of outstanding common shares on the open market (“Open-Market
Purchases”) on the New York Stock Exchange or elsewhere. If, on the payment date for any Dividend, the closing market price plus
estimated brokerage commission per common share is equal to or greater than the net asset value per common share, the Plan Administrator
will invest the Dividend amount in Newly Issued Common Shares on behalf of the participants. The number of Newly Issued Common Shares
to be credited to each participant’s account will be determined by dividing the dollar amount of the Dividend by the net asset value
per common share on the payment date; provided that, if the net asset value is less than or equal to 95% of the closing market value on
the payment date, the dollar amount of the Dividend will be divided by 95% of the closing market price per common share on the payment
date. If, on the payment date for any Dividend, the net asset value per common share is greater than the closing market value plus estimated
brokerage commission, the Plan Administrator will invest the Dividend amount in common shares acquired on behalf of the participants in
Open-Market Purchases.
For federal income tax purposes, the Trust generally would be able
to claim a deduction for distributions to shareholders with respect to the common shares issued at up to a 5-percent discount from the
closing market value pursuant to the Plan.
If, before the Plan Administrator has completed its Open-Market
Purchases, the market price per common share exceeds the net asset value per common share, the average per common share purchase price
paid by the Plan Administrator may exceed the net asset value of the common shares, resulting in the acquisition of fewer common shares
than if the Dividend had been paid in Newly Issued Common Shares on the Dividend payment date. Because of the foregoing difficulty with
respect to Open-Market Purchases, the Plan provides that if the Plan Administrator is unable to invest the full Dividend amount in Open-Market
Purchases during the purchase period or if the market discount shifts to a market premium during the purchase period, the Plan Administrator
may cease making Open-Market Purchases and may invest the uninvested portion of the Dividend
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amount in Newly Issued Common Shares at net asset value per common
share at the close of business on the Last Purchase Date provided that, if the net asset value is less than or equal to 95% of the then
current market price per common share; the dollar amount of the Dividend will be divided by 95% of the market price on the payment date.
The Plan Administrator maintains all shareholders’ accounts
in the Plan and furnishes written confirmation of all transactions in the accounts, including information needed by shareholders for tax
records. Common shares in the account of each Plan participant will be held by the Plan Administrator on behalf of the Plan participant,
and each shareholder proxy will include those shares purchased or received pursuant to the Plan. The Plan Administrator will forward all
proxy solicitation materials to participants and vote proxies for shares held under the Plan in accordance with the instruction of the
participants.
There will be no brokerage charges with respect to common shares
issued directly by the Trust. However, each participant will pay a pro rata share of brokerage commission incurred in connection with
Open-Market Purchases. The automatic reinvestment of Dividends will not relieve participants of any Federal, state or local income tax
that may be payable (or required to be withheld) on such Dividends.
The Trust reserves the right to amend or terminate the Plan. There
is no direct service charge to participants with regard to purchases in the Plan; however, the Trust reserves the right to amend the Plan
to include a service charge payable by the participants.
All correspondence or questions concerning the Plan should be directed
to the Plan Administrator, Computershare Trust Company, N.A., P.O. Box 30170 College Station, TX 77842-3170: Attention: Shareholder Services
Department, Phone Number: (866) 488-3559 or online at www.computershare.com/investor.
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CHANGES OCCURRING DURING THE PRIOR FISCAL YEAR ENDED MAY 31,
2022
The following information in this annual report is a summary
of certain changes during the most recent fiscal year. This information may not reflect all of the changes that have occurred since you
purchased shares of the Trust.
Appointment of Additional Sub-Adviser
Guggenheim Funds Investment Advisors, LLC (“GFIA” or
the “Adviser”) engaged Guggenheim Partners Advisors, LLC (“GPA”) to provide investment sub-advisory services to
the Trust. GPA assists the Trust’s other sub-adviser, Guggenheim Partners Investment Management, LLC (“GPIM”), in the
supervision and direction of the investment strategy of the Trust in accordance with the Trust’s investment policies and pursuant
to the sub-advisory agreement among the Trust, the Adviser and GPA. These services are subject to the supervision of the Board and the
Adviser. GPA does not have discretion and is not authorized to (or direct others to) arrange for the purchase and sale of securities and
other assets held in the Trust or place orders and negotiate the commissions (if any) for the execution of transactions in securities
or other assets.
CHANGE TO THE TRUST’S PRINCIPAL RISKS
The following is an updated Recent Markets Developments Risk:
Recent Market Developments Risk
Periods of market volatility remain, and may continue to occur in
the future, in response to various political, social, geopolitical, economic and public health events both within and outside of the United
States. These conditions have resulted in, and in many cases continue to result in, greater price volatility, less liquidity, widening
credit spreads and a lack of price transparency, with certain securities remaining illiquid and of uncertain value. Such market conditions
may adversely affect the Trust, including by making valuation of some of the Trust’s securities uncertain and/or result in sudden
and significant valuation increases or declines in the Trust’s holdings. If there is a significant decline in the value of the Trust’s
portfolio, this may impact the asset coverage levels for the Trust’s outstanding leverage.
Risks resulting from any future debt or other economic or public
health situation could also have a detrimental impact on the global economic recovery, the financial condition of financial institutions,
operations of businesses and the Trust’s business, financial condition and results of operation. Market and economic disruptions
have affected, and may in the future affect, consumer confidence levels and spending, personal bankruptcy rates, levels of incurrence
and default on consumer and other debt and home prices, among other factors. To the extent uncertainty regarding the U.S. or global economy
negatively impacts consumer confidence and consumer credit factors, the Trust’s business, financial condition and results of operations
could be significantly and adversely affected. Downgrades to the credit ratings of major banks could result in increased borrowing costs
for such banks and negatively affect the broader economy. Moreover, Federal Reserve policy, including with respect to certain interest
rates, may also adversely affect the value, volatility and liquidity of various investments, notably dividend- and interest-paying securities.
Market volatility, rising interest rates and/or unfavorable economic conditions could impair the Trust’s ability to achieve its
investment objectives.
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The COVID-19 pandemic and the recovery response has caused and continues
to cause at times reduced consumer demand and economic output, supply chain disruptions, and market closures, travel restrictions, quarantines,
and disparate global vaccine distributions. As with other serious economic disruptions, governmental authorities and regulators have responded
in recent years to this situation with significant fiscal and monetary policy changes. These included providing direct capital infusions
into companies, introducing new monetary programs, and lowering interest rates. In some cases, these responses resulted in high inflation,
low interest rates, and negative interest rates (which have since risen). Recently, the United States and other governments have also
made investments and engaged in infrastructure modernization projects that have also increased public debt and spending. These actions,
including their reversal or potential ineffectiveness, could further increase volatility in securities and other financial markets, reduce
market liquidity, continue to cause higher inflation, heighten investor uncertainty, and adversely affect the value of the Trust’s
investments and the performance of the Trust. These actions also contribute to a risk that asset prices have a high degree of correlation
across markets and asset classes. The duration and extent of COVID-19 over the long term cannot be reasonably estimated at this time.
The ultimate impact of COVID-19 and the extent to which COVID-19 impacts the Trust will depend on future developments, which are highly
uncertain and difficult to predict.
The value of, or income generated by, the investments held by the
Trust are subject to the possibility of rapid and unpredictable fluctuation, and loss. These movements may result from factors affecting
individual companies, or from broader influences, including real or perceived changes in prevailing interest rates (which have risen recently
and may continue to rise), changes in inflation rates or expectations about inflation rates (which are currently elevated relative to
normal conditions), adverse investor confidence or sentiment, changing economic, political (including geopolitical), social or financial
market conditions, increased instability or general uncertainty, environmental disasters, governmental actions, public health emergencies
(such as the spread of infectious diseases, pandemics and epidemics), debt crises, actual or threatened wars or other armed conflicts
(such as the current Russia-Ukraine conflict and its risk of expansion or collateral economic and other effects) or ratings downgrades,
and other similar events, each of which may be temporary or last for extended periods. Moreover, changing economic, political, geopolitical,
social, financial market or other conditions in one country or geographic region could adversely affect the value, yield and return of
the investments held by the Trust in a different country or geographic region and economies, markets and issuers generally because of
the increasingly interconnected global economies and financial markets.
INVESTMENT
OBJECTIVE
The Trust’s investment objective is to provide current income
with a secondary objective of long-term capital appreciation. The Trust cannot assure investors that it will achieve its investment objectives.
The Trust’s investment objectives are considered fundamental and may not be changed without the approval of the holders of the Common
Shares (the “Common Shareholders”).
PRINCIPAL INVESTMENT STRATEGIES
The Trust seeks to achieve its investment objectives by investing
primarily in a diversified portfolio of taxable municipal securities, including Build America Bonds (“BABs”), and other investment
grade, income generating debt securities, including debt instruments issued by non-profit entities (such as
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entities related to healthcare, higher education and housing), municipal
conduits, project finance corporations, and tax-exempt municipal securities.
PORTFOLIO COMPOSITION
Under normal market conditions:
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The Trust invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes,
in taxable municipal securities, including BABs, and other investment grade, income generating debt securities, including debt instruments
issued by non-profit entities (such as entities related to healthcare, higher education and housing), municipal conduits, project finance
corporations, and tax-exempt municipal securities. |
| • |
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The Trust will not invest more than 25% of its Managed Assets in municipal securities of any one state of
origin. |
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The Trust will invest at least 50% of its Managed Assets in taxable municipal securities. |
Credit Quality
Under normal market conditions, the Trust invests at least 80% of
its Managed Assets in securities that, at the time of investment, are investment grade quality. A security is considered investment grade
quality if, at the time of investment, it is rated within the four highest letter grades by at least one of the nationally recognized
statistical rating organizations (“NRSROs”) (that is Baa3 or better by Moody’s Investors Service, Inc. (“Moody’s”)
or BBB- or better by Standard & Poor’s Ratings Services (“S&P”) or Fitch Ratings (“Fitch”)) that
rate such security, even if it is rated lower by another, or if it is unrated by any NRSRO but judged to be of comparable quality by the
Adviser.
Under normal market conditions, the Trust may invest up to 20% of
its Managed Assets in securities that, at the time of investment, are rated below investment grade (that is below Baa3 by Moody’s
or below BBB- by S&P or Fitch) or are unrated by any NRSRO but judged to be of comparable quality by the Adviser. If NRSROs assign
different ratings to the same security, the Trust will use the highest rating for purposes of determining the security’s credit
quality. Securities of below investment grade quality are regarded as having predominately speculative characteristics with respect to
capacity to pay interest and repay principal, and are commonly referred to as “junk bonds.”
Duration Management Strategy
“Duration” is a measure of the price volatility of a
security as a result of changes in market rates of interest, based on the weighted average timing of a security’s expected principal
and interest payments. There is no limit on the remaining maturity or duration of any individual security in which the Trust may invest,
nor will the Trust’s portfolio be managed to any duration benchmark prior to taking into account the duration management strategy
discussed herein.
The Trust intends to employ investment and trading strategies to
seek to maintain the leverage-adjusted portfolio duration to generally less than 15 years. The Adviser may seek to manage the duration
of the Trust’s portfolio through the use of derivative instruments, including U.S. treasury swaps, credit default swaps, total return
swaps and futures contracts to reduce the overall volatility of the Trust’s portfolio to changes in market interest rates. For example,
the Adviser may seek to manage the overall duration through the combination of the sale of interest-rate swaps on the long
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end of the yield curve (for example a transaction in which the Trust
would pay a fixed interest rate on a 30 year swap transaction) with the purchase of an interest-rate swap on the intermediate portion
of the yield curve (for example a transaction in which the Trust would receive a fixed interest rate on a ten year swap transaction).
In addition, the Trust may invest in short-duration fixed-income securities, which may help to decrease the overall duration of the Trust’s
portfolio while also potentially adding incremental yield. The Adviser may seek to manage the Trust’s duration in a flexible and
opportunistic manner based primarily on then current market conditions and interest rate levels. The Trust may incur costs in implementing
the duration management strategy, but such strategy will seek to reduce the volatility of the Trust’s portfolio. There can be no
assurance that the Adviser’s duration management strategy will be successful at any given time in managing the duration of the Trust’s
portfolio or helping the Trust to achieve its investment objectives.
Investment Funds
As an alternative to holding investments directly, the Trust may
also obtain investment exposure to securities in which it may invest directly by investing up to 20% of its Managed Assets in other investment
companies, including U.S. registered investment companies and/or other U.S. or foreign pooled investment vehicles (collectively, “Investment
Funds”). Investment Funds do not include structured finance investments, such as asset-backed securities (“ABS”). To
the extent that the Trust invests in Investment Funds that invest at least 80% of their total assets in taxable municipal securities and
other investment grade, income generating debt securities, including debt instruments issued by non-profit entities (such as entities
related to healthcare, higher education and housing), municipal conduits, project finance corporations, and tax-exempt municipal securities,
such investment will be counted for purposes of the Trust’s policy of investing at least 80% of its Managed Assets in taxable municipal
securities and other investment grade, income generating debt securities. Investments in other Investment Funds involve operating expenses
and fees at the Investment Funds level that are in addition to the expenses and fees borne by the Trust and are borne indirectly by Common
Shareholders.
Synthetic Investments
As an alternative to holding investments directly, the Trust may
also obtain investment exposure to investments in which the Trust may invest directly through the use of derivative instruments (including
swaps, options, forwards, notional principal contracts or customized derivative or financial instruments) to replicate, modify or replace
the economic attributes associated with an investment in which the Trust may invest directly. The Trust may be exposed to certain additional
risks should the Adviser use derivatives as a means to synthetically implement the Trust’s investment strategies, including counterparty
risk, lack of liquidity in such derivative instruments and additional expenses associated with using such derivative instruments. To the
extent that the Trust obtains indirect investment exposure to taxable municipal securities and other investment grade, income generating
debt securities, including debt instruments issued by non-profit entities (such as entities related to healthcare, higher education and
housing), municipal conduits, project finance corporations, and tax-exempt municipal securities through the use of the foregoing derivative
instruments with economic characteristics similar to taxable municipal securities, such investments will be counted for purposes of the
Trust’s 80% investment policy. The Trust has not adopted any percentage limitation with respect to the overall percentage of investment
exposure to taxable municipal securities and other investment grade, income generating debt securities, including debt
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instruments issued by non-profit entities (such as entities related
to healthcare, higher education and housing), municipal conduits, project finance corporations, and tax-exempt municipal securities that
the Trust may obtain through the use of derivative instruments.
Strategic Transactions
In addition to those derivatives transactions utilized in connection
with the Trust’s duration management strategy, the Trust may, but is not required to, use various portfolio strategies, including
derivatives transactions involving interest rate and foreign currency transactions, swaps, options and futures (“Strategic Transactions”),
to earn income, facilitate portfolio management and mitigate risks. In the course of pursuing Strategic Transactions, the Trust may purchase
and sell exchange-listed and over-the-counter put and call options on securities, instruments or equity and fixed-income indices, purchase
and sell futures contracts and options thereon, and enter into swap, cap, floor or collar transactions. In addition, Strategic Transactions
may also include new techniques, instruments or strategies that are developed or permitted as regulatory changes occur. Successful use
of Strategic Transactions depends on the Adviser’s ability to predict correctly market movements, which cannot be assured. Losses
on Strategic Transactions may reduce the Trust’s net asset value and its ability to pay distributions if they are not offset by
gains on portfolio positions being hedged.
Structured Finance Investments
The Trust may invest in structured finance investments, which are
fixed income and other debt securities (“Income Securities”) typically issued by special purpose vehicles that hold income-producing
securities (e.g., mortgage loans, consumer debt payment obligations and other receivables) and other financial assets. Structured finance
investments are tailored, or packaged, to meet certain financial goals of investors. Typically, these investments provide investors with
capital protection, income generation and/or the opportunity to generate capital growth. GPIM believes that structured finance investments
provide attractive risk-adjusted returns, frequent sector rotation opportunities and prospects for adding value through security selection.
Structured finance investments include:
Mortgage-Related
Securities. Mortgage-related securities are collateralized by pools of commercial or residential mortgages. Pools of mortgage
loans are assembled as securities for sale to investors by various governmental, government-related and private organizations. These securities
may include complex instruments such as collateralized mortgage obligations (“CMOs”), real estate investment trusts (“REITs”)
(including debt and preferred stock issued by REITs), and other real estate-related securities. The mortgage-related securities in which
the Trust may invest include those with fixed, floating or variable interest rates, those with interest rates that change based on multiples
of changes in a specified index of interest rates, and those with interest rates that change inversely to changes in interest rates, as
well as those that do not bear interest. The Trust may invest in residential and commercial mortgage-related securities issued by governmental
entities and private issuers, including subordinated mortgage-related securities. The underlying assets of certain mortgage-related securities
may be subject to prepayments, which shorten the weighted average maturity and may lower the return of such securities.
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ABS are a form of structured debt obligation. ABS are payment claims that are securitized
in the form of negotiable paper that is issued by a financing company (generally called a special purpose vehicle). Collateral assets
are brought into a pool according to specific diversification rules. A special purpose vehicle is founded for the purpose of securitizing
these payment claims and the assets of the special purpose vehicle are the diversified pool of collateral assets. The special purpose
vehicle issues marketable securities which are intended to represent a lower level of risk than an underlying collateral asset individually,
due to the diversification in the pool. The redemption of the securities issued by the special purpose vehicle takes place out of the
cash flow generated by the collected assets. A special purpose vehicle may issue multiple securities with different priorities to the
cash flows generated and the collateral assets. The collateral for ABS may include, among other things, home equity loans, automobile
and credit card receivables, boat loans, computer leases, airplane leases, mobile home loans, recreational vehicle loans and hospital
account receivables. The Trust may invest in these and other types of ABS that may be developed in the future. There is the possibility
that recoveries on the underlying collateral may not, in some cases, be available or may be insufficient to support payments on these
securities.
Collateralized Debt
Obligations. A collateralized debt obligation (“CDO”) is an asset-backed security whose underlying collateral is
typically a portfolio of bonds, bank loans, other structured finance securities and/or synthetic instruments. Where the underlying collateral
is a portfolio of bonds, a CDO is referred to as a collateralized bond obligation (“CBO”). Where the underlying collateral
is a portfolio of bank loans, a CDO is referred to as a collateralized loan obligation (“CLO”). Investors in CBOs and CLOs
bear the credit risk of the underlying collateral.
Multiple tranches of securities are issued by the CLO, offering
investors various maturity and credit risk characteristics. Tranches are categorized as senior, mezzanine, and subordinated/equity, according
to their degree of risk. If there are defaults or the CLO’s collateral otherwise underperforms, scheduled payments to senior tranches
take precedence over those of mezzanine tranches, and scheduled payments to mezzanine tranches take precedence over those to subordinated/equity
tranches. This prioritization of the cash flows from a pool of securities among the several tranches of the CLO is a key feature of the
CLO structure. If there are funds remaining after each tranche of debt receives its contractual interest rate and the CLO meets or exceeds
required collateral coverage levels (or other similar covenants), the remaining funds may be paid to the subordinated (or residual) tranche
(often referred to as the “equity” tranche). CLOs are subject to the same risk of prepayment and extension described with
respect to certain mortgage-related and asset-backed securities.
The Trust may invest in senior, rated tranches as well as mezzanine
and subordinated tranches of CLOs. Investment in the subordinated tranche is subject to special risks. The subordinated tranche does not
receive ratings and is considered the riskiest portion of the capital structure of a CLO because it bears the bulk of defaults from the
loans in the CLO and serves to protect the other, more senior tranches from default in all but the most severe circumstances.
Risk-Linked
Securities. Risk-linked securities (“RLS”) are a form of derivative issued by insurance companies and insurance-related
special purpose vehicles that apply securitization techniques to catastrophic property and casualty damages. RLS are typically debt obligations
for which the return of principal and the payment of interest are contingent on the non-occurrence of a pre-defined
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“trigger event.” Depending on the specific terms and
structure of the RLS, this trigger could be the result of a hurricane, earthquake or some other catastrophic event.
Other Investment Practices
The Trust may engage in certain investment transactions described
herein. The Trust may enter into forward commitments for the purchase or sale of securities. The Trust may enter into transactions on
a “when issued” or “delayed delivery” basis, in excess of customary settlement periods for the type of security
involved. The Trust may lend portfolio securities to securities broker-dealers or financial institutions and enter into short sales and
repurchase agreements. The Trust may, without limitation, seek to obtain market exposure to the securities in which it primarily invests
by entering into a series of purchase and sale contracts or by using similar investment techniques (such as buy backs or dollar rolls).
These policies may be changed by the Board of Trustees of the Trust
(the “Board of Trustees”). If the Trust’s policy with respect to investing at least 80% of its Managed Assets in taxable
municipal securities and other investment grade, income generating debt securities, including debt instruments issued by non-profit entities
(such as entities related to healthcare, higher education and housing), municipal conduits, project finance corporations, and tax-exempt
municipal securities changes, the Trust will provide shareholders at least 60 days’ prior notice before implementation of the change.
USE OF LEVERAGE
The Trust may employ leverage through (i) the issuance of senior
securities representing indebtedness, including through borrowing from financial institutions or issuance of debt securities, including
notes or commercial paper (collectively, “Indebtedness”), (ii) engaging in reverse repurchase agreements, dollar rolls and
economically similar transactions, (iii) investments in inverse floating rate securities, which have the economic effect of leverage,
and (iv) the issuance of preferred shares (“Preferred Shares”) (collectively “Financial Leverage”).
The Trust may utilize leverage up to the limits imposed by the Investment
Company Act of 1940 (the “1940 Act”). Under the 1940 Act the Trust may not incur Indebtedness if, immediately after incurring
such Indebtedness, the Trust would have asset coverage (as defined in the 1940 Act) of less than 300% (i.e., for every dollar of Indebtedness
outstanding, the Trust is required to have at least three dollars of assets). Under the 1940 Act, the Trust may not issue Preferred Shares
if, immediately after issuance, the Trust would have asset coverage (as defined in the 1940 Act) of less than 200% (i.e., for every dollar
of Preferred Shares outstanding, the Trust is required to have at least two dollars of assets). However, under current market conditions,
the Trust currently expects to utilize Financial Leverage through Indebtedness and/or reverse repurchase agreements, such that the aggregate
amount of Financial Leverage is not expected to exceed 331/3% of the Trust’s Managed Assets (including the proceeds of such Financial
Leverage) (or 50% of net assets). The Trust has entered a committed facility agreement with Société Générale S.A.,
pursuant to which the Trust may borrow up to $100 million. As of May 31, 2022, there was approximately $0 in borrowings outstanding under
the committed facility agreement, representing approximately 0% of the Trust’s Managed Assets as of such date, and there was approximately
$167,775,690 in reverse repurchase agreements outstanding, representing approximately 29.5% of the Trust’s Managed Assets as of
such date.
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Although the use of Financial Leverage by the Trust may create an
opportunity for increased total return for the Common Shares, it also results in additional risks and can magnify the effect of any losses.
Financial Leverage involves risks and special considerations for shareholders, including the likelihood of greater volatility of net asset
value and market price of and dividends on the Common Share. To the extent the Trust increases its amount of Financial Leverage outstanding,
it will be more exposed to these risks. The cost of Financial Leverage, including the portion of the investment advisory fee attributable
to the assets purchased with the proceeds of Financial Leverage, is borne by Common Shareholders. To the extent the Trust increases its
amount of Financial Leverage outstanding, the Trust’s annual expenses as a percentage of net assets attributable to Common Shares
will increase.
With respect to leverage incurred through investments in reverse
repurchase agreements, dollar rolls and economically similar transactions, the Trust currently intends to earmark or segregate cash or
liquid securities in accordance with applicable interpretations of the staff of the Securities and Exchange Commission (the “SEC”).
As a result of such segregation, the Trust’s obligations under such transactions will not be considered indebtedness for purposes
of the 1940 Act and the Trust’s use of leverage through reverse repurchase agreements, dollar rolls and economically similar transactions
will not be limited by the 1940 Act. However, the Trust’s use of leverage through reverse repurchase agreements, dollar rolls and
economically similar transactions will be included when calculating the Trust’s Financial Leverage and therefore will be limited
by the Trust’s maximum overall Financial Leverage levels approved by the Board of Trustees and may be further limited by the availability
of cash or liquid securities to earmark or segregate in connection with such transactions.
In addition, the Trust may engage in certain derivatives transactions
that have economic characteristics similar to leverage. To the extent the terms of such transactions obligate the Trust to make payments,
the Trust currently intends to earmark or segregate cash or liquid securities in an amount at least equal to the current value of the
amount then payable by the Trust under the terms of such transactions or otherwise cover such transactions in accordance with applicable
interpretations of the staff of the SEC. The Trust’s obligations under such transactions will not be considered indebtedness for
purposes of the 1940 Act and will not be included in calculating the aggregate amount of the Trust’s Financial Leverage.
The Adviser anticipates that the use of Financial Leverage may result
in higher total return to the Common Shareholders over time; however, there can be no assurance that the Adviser’s expectations
will be realized or that a leveraging strategy will be successful in any particular time period. Use of Financial Leverage creates an
opportunity for increased income and capital appreciation but, at the same time, creates special risks. The costs associated with the
issuance of Financial Leverage will be borne by Common Shareholders, which will result in a reduction of net asset value of the Common
Shares. The fee paid to the Adviser will be calculated on the basis of the Trust’s Managed Assets, including proceeds from Financial
Leverage, so the fees paid to the Adviser will be higher when Financial Leverage is utilized.
Common Shareholders bear the portion of the investment advisory
fee attributable to the assets purchased with the proceeds of Financial Leverage, which means that Common Shareholders effectively bear
the entire advisory fee. The maximum level of and types of Financial Leverage used by the Trust will be approved by the Board of Trustees.
There can be no assurance that a leveraging strategy will be utilized or, if utilized, will be successful.
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In October 2020, the SEC adopted a final rule related to the use
of derivatives, reverse repurchase agreements and certain other transactions by registered investment companies that will rescind and
withdraw the guidance of the SEC and its staff regarding asset segregation and cover transactions reflected in the Trust’s asset
segregation and cover practices discussed herein. The final rule requires the Trust to trade derivatives and other transactions that create
future payment or delivery obligations (except reverse repurchase agreements and similar financing transactions) subject to value-at-risk
(“VaR”) leverage limits and derivatives risk management program and reporting requirements. Generally, these requirements
apply unless a fund satisfies a “limited derivatives users” exception that is included in the final rule. Under the final
rule, when the Trust trades reverse repurchase agreements or similar financing transactions, including certain tender option bonds, it
needs to aggregate the amount of indebtedness associated with the reverse repurchase agreements or similar financing transactions with
the aggregate amount of any other senior securities representing indebtedness when calculating the fund’s asset coverage ratio as
discussed above or treat all such transactions as derivatives transactions. Reverse repurchase agreements or similar financing transactions
aggregated with other indebtedness do not need to be included in the calculation of whether a fund satisfies the limited derivatives users
exception, but for funds subject to the VaR testing requirement, reverse repurchase agreements and similar financing transactions must
be included for purposes of such testing whether treated as derivatives transactions or not. The SEC also provided guidance in connection
with the new rule regarding the use of securities lending collateral that may limit the Trust’s securities lending activities. The
scheduled compliance date for the rule is August 19, 2022. Following the compliance date, these requirements may limit the ability of
the Trust to use derivatives and reverse repurchase agreements and similar financing transactions as part of its investment strategies.
These requirements may increase the cost of the Trust’s investments and cost of doing business, which could adversely affect investors.
TEMPORARY DEFENSIVE INVESTMENTS
During periods in which the Adviser believes that changes in economic,
financial or political conditions make it advisable to maintain a temporary defensive posture (an Investments “temporary defensive
period”), or in order to keep the Trust’s cash fully invested, including the period during which the net proceeds of the offering
of Common Shares are being invested, the Trust may, without limitation, hold cash or invest its assets in money market instruments and
repurchase agreements in respect of those instruments. The Trust may not achieve its investment objectives during a temporary defensive
period or be able to sustain its historical distribution levels.
PRINCIPAL
RISKS OF THE TRUST
Investment in the Trust involves special risk considerations, which
are summarized below. The Trust is designed as a long-term investment and not as a trading vehicle. The Trust is not intended to be a
complete investment program. The Trust’s performance and the value of its investments will vary in response to changes in interest
rates, inflation and other market and economic factors.
The fact that a particular risk below is not specifically identified
as being heightened under current conditions does not mean that the risk is not greater than under normal conditions.
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Not a Complete
Investment Program
An investment in the Common Shares of the Trust should not be considered
a complete investment program. The Trust is intended for long-term investors seeking current income and capital appreciation. An investment
in the Trust is not meant to provide a vehicle for those who wish to play short-term swings in the stock market. Each Common Shareholder
should take into account the Trust’s investment objectives as well as the Common Shareholder’s other investments when considering
an investment in the Trust. Before making an investment decision, a prospective investor should consider (i) the suitability of this investment
with respect to his or her investment objectives and personal situation and (ii) factors such as his or her personal net worth, income,
age, risk tolerance and liquidity needs.
Investment and Market Risk
An investment in the Common Shares of the Trust is subject to investment
risk, particularly under current economic, financial, geopolitical, labor and public health conditions, including the possible loss of
the entire principal amount that you invest.
The COVID-19 pandemic and the recovery response has caused and continues
to cause at times reduced consumer demand and economic output, supply chain disruptions, and market closures, travel restrictions, quarantines,
and disparate global vaccine distributions. Investors should be aware that, particularly in light of the current uncertainty, volatility
and distress in economies and financial markets, and geopolitical, labor and public health conditions around the world, the Trust’s
investments and a shareholder’s investment in the Trust are subject to sudden and substantial losses, increased volatility and other
adverse events. Firms through which investors invest with the Trust, its service providers, the markets in which it invests and market
intermediaries and exchanges are also impacted by quarantines and similar measures intended to respond to and contain the ongoing pandemic,
which can obstruct their functioning and subject them to heightened operational and other risks. The ultimate impact of COVID-19 and the
extent to which COVID-19 impacts the Trust still depends on future developments, which are highly uncertain and difficult to predict.
An investment in the Common Shares of the Trust represents an indirect
investment in the securities owned by the Trust. The value of, or income generated by, the investments held by the Trust are subject to
the possibility of rapid and unpredictable fluctuation, and loss. These fluctuations may occur frequently and in large amounts. These
movements may result from factors affecting individual companies, or from broader influences, including real or perceived changes in prevailing
interest rates, changes in inflation rates or expectations about inflation rates (which are currently elevated relative to normal conditions),
adverse investor confidence or sentiment, changing economic, political (including geopolitical), social or financial market conditions,
increased instability or general uncertainty, natural/environmental disasters, cyber attacks, terrorism, governmental or quasi-governmental
actions, public health emergencies (such as the spread of infectious diseases, pandemics and epidemics) debt crises, actual or threatened
wars or other armed conflicts (such as the current Russia-Ukraine conflict and its risk of expansion or collateral economic and other
effects) or ratings downgrades, and other similar events, each of which may be temporary or last for extended periods. For example, the
risks of a borrower’s default or bankruptcy or non¬payment of scheduled interest or principal payments from senior floating
rate interests held by the Trust are especially acute under these conditions. Furthermore, interest rates and bond yields may fall as
a result of types of events, including responses by governmental entities to such events,
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which would magnify the Trust’s fixed-income instruments’
susceptibility to interest rate risk and diminish their yield and performance. Moreover, the Trust’s investments in ABS are subject
to many of the same risks that are applicable to investments in securities generally, including interest rate risk, credit risk, foreign
currency risk, below investment grade securities risk, financial leverage risk, prepayment and extension risks and regulatory risk, which
would be elevated under the foregoing circumstances.
Moreover, changing economic, political, geopolitical, social, or
financial market or other conditions in one country or geographic region could adversely affect the value, yield and return of the investments
held by a fund in a different country or geographic region and economies, markets and issuers generally because of the increasingly interconnected
global economies and financial markets. As a result, there is an increased risk that geopolitical and other events will disrupt economies
and markets globally. For example, local or regional armed conflicts (notably the Russia-Ukraine conflict) have led to significant sanctions
by the United States, Europe and other countries against certain countries (as well as persons and companies connected with certain counties)
and led to indirect adverse regional and global market, economic and other effects. It is difficult to accurately predict or foresee when
events or conditions affecting the U.S. or global financial markets, economies, and issuers may occur, the effects of such events or conditions,
potential escalations or expansions of these events, possible retaliations in response to sanctions or similar actions and the duration
or ultimate impact of those events. There is an increased likelihood that these types of events or conditions can, sometimes rapidly and
unpredictably, result in a variety of adverse developments and circumstances, such as reduced liquidity, supply chain disruptions and
market volatility, as well as increased general uncertainty and broad ramifications for markets, economies, issuers, businesses in many
sectors and societies globally.
Different sectors, industries and security types may react differently
to such developments and, when the market performs well, there is no assurance that the Trust’s investments will increase in value
along with the broader markets. Periods of market stress and volatility of financial markets, including potentially extreme stress and
volatility caused by the events described above or similar circumstances, can expose the Trust to greater market risk than normal, possibly
resulting in greatly reduced liquidity and increased valuation risks, for certain asset classes, longer than usual trade settlement periods.
The fewer the number of issuers in which the Trust invests and/or the greater the use of leverage, the greater the potential volatility
in the Trust’s portfolio. GPIM potentially could be prevented from considering, managing and executing investment decisions at an
advantageous time or price or at all as a result of any domestic or global market or other disruptions, particularly disruptions causing
heightened market volatility and reduced market liquidity, such as the current conditions, which have also resulted in impediments to
the normal functioning of workforces, including personnel and systems of the Trust’s service providers and market intermediaries.
The value of the securities owned by the Trust may decline due to general market conditions that are not specifically related to a particular
issuer, such as real or perceived economic conditions, changes in interest or currency rates or changes in investor sentiment or market
outlook generally.
At any point in time, your Common Shares may be worth less than
your original investment, even after including the reinvestment of Trust dividends and distributions.
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Management Risk
The Trust is subject to management risk because it has an actively
managed portfolio. GPIM will apply investment techniques and risk analysis in making investment decisions for the Trust, but there can
be no guarantee that these will produce the desired results. The ability of the Trust to achieve its investment objective depends, in
part, on the ability of GPIM to allocate effectively the Trust’s assets among multiple investment strategies, Investment Funds and
investments and asset classes. There can be no assurance that the actual allocations will be effective in achieving the Trust’s
investment objective or that an investment strategy or Investment Fund or investment will achieve its particular investment objective.
Municipal Securities Risk
Municipal securities are subject to a variety of risks, including
credit, interest, prepayment, liquidity, and valuation risks. In addition, municipal securities can be adversely affected by (i) unfavorable
legislative, political or other developments or events, including natural disasters and public health conditions, and (ii) changes in
the economic and fiscal conditions or issuers of municipal securities or the federal government (in cases where it provides financial
support to such issuers). Municipal securities may be fully or partially backed by the taxing authority or revenue of a local government,
the credit of a private issuer, or the current or anticipated revenues from a specific project, which may be adversely affected as a result
of economic and public health conditions. To the extent the Trust invests a substantial portion of its assets in municipal securities
issued by issuers in a particular state, municipality or project, the Trust will be particularly sensitive to developments and events
adversely affecting such state or municipality or with respect to a particular project. Certain sectors of the municipal bond market have
special risks that can affect them more significantly than the market as a whole. Because many municipal instruments are issued to finance
similar projects (such as education, health care, transportation and utilities), conditions in these industries can significantly affect
the overall municipal market. Municipal securities that are insured may be adversely affected by developments relevant to that particular
insurer, or more general developments relevant to the market as a whole. The Trust’s vulnerability to potential losses associated
with such developments may be reduced through investment in municipal securities that feature credit enhancements (such as bond insurance).
Although insurance may reduce the credit risk of a municipal security, it does not protect against fluctuations in the value of the Trust’s
shares caused by market changes. It is important to note that, although insurance may increase the credit safety of investments held by
the Trust, it decreases the Trust’s yield as the Trust may pay for the insurance directly or indirectly. In addition, while the
obligation of a municipal bond insurance company to pay a claim extends over the life of an insured bond, there is no assurance that insurers
will meet their claims. A higher-than-anticipated default rate on municipal bonds (or other insurance the insurer provides) could strain
the insurer’s loss reserves and adversely affect its ability to pay claims to bondholders.
Municipal securities can be difficult to value and be less liquid
than other investments, which may affect performance. Additionally, the amount of public information available about municipal securities
is generally less than that for corporate equities or bonds, and the investment performance of the Trust’s municipal securities
investments may therefore be more dependent on the analytical abilities of the Adviser. Information related to municipal securities and
their risks may be provided by the municipality itself, which may not always be accurate. The secondary market for municipal
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securities, particularly below investment grade municipal securities,
also tends to be less well-developed or liquid than many other securities markets, which may adversely affect the Trust’s ability
to sell such securities at prices approximating those at which the Trust may currently value them.
Investments in municipal securities are subject to risks associated
with the financial health of the issuers of such securities or the revenue associated with underlying projects. For example, social, political,
economic, market or public health conditions, such as the current COVID-19 pandemic, can, and have at times, significantly stressed the
financial resources of many municipalities and other issuers of municipal securities, which may impair their ability to meet their financial
obligations and may harm the value or liquidity of the Trust’s investments in municipal securities. In recent periods, a number
of municipal issuers have defaulted on obligations, been downgraded or commenced insolvency proceedings. Financial difficulties of issuers
of municipal securities may continue and the financial condition of such issuers may decline quickly. The ability of municipal issuers
to make timely payments of interest and principal may be diminished during general economic downturns and as governmental cost burdens
are reallocated among federal, state and local governments. The taxing power of any governmental entity may be limited by provisions of
state constitutions or laws and an entity’s credit will depend on many factors, including the entity’s tax base, the extent
to which the entity relies on federal or state aid and other factors which are beyond the entity’s control. In addition, laws enacted
or that may be enacted in the future by governmental authorities could extend the time for payment of principal and/or interest, or impose
other constraints on enforcement of such obligations or on the ability of municipalities to levy taxes. Issuers of municipal securities
might seek protection under bankruptcy laws. In the event of bankruptcy of such an issuer, holders of municipal securities could experience
delays in collecting principal and interest and such holders may not be able to collect all principal and interest to which they are entitled.
Legislative developments may result in changes to the laws relating to municipal bankruptcies, which may adversely affect the Trust’s
investments in municipal securities.
When-Issued and Delayed Delivery Transactions Risk
Securities purchased on a when-issued or delayed delivery basis
may expose the Trust to counterparty risk of default as well as the risk that securities may experience fluctuations in value prior to
their actual delivery. The Trust generally will not accrue income with respect to a when-issued or delayed delivery security prior to
its stated delivery date. Purchasing securities on a when-issued or delayed delivery basis can involve the additional risk that the price
or yield available in the market when the delivery takes place may not be as favorable as that obtained in the transaction itself.
Debt Instruments Risk
The value of the Trust’s investments in debt instruments (including
bonds issued by non-profit entities, municipal conduits and project finance corporations) depends on the continuing ability of the debt
issuers to meet their obligations for the payment of interest and principal when due. The ability of debt issuers to make timely payments
of interest and principal can be affected by a variety of developments and changes in legal, political, economic and other conditions.
For example, litigation, legislation or other political events, local business or economic conditions or the bankruptcy of an issuer could
have a significant effect on the ability of the issuer to make timely payments of principal and/or interest.
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Investments in debt instruments present certain risks, including
credit, interest rate, liquidity and prepayment risks. Issuers that rely directly or indirectly on government funding mechanisms or non¬profit
statutes, may be negatively affected by actions of the government, including reductions in government spending, increases in tax rates,
and changes in fiscal policy.
The value of a debt instrument may decline for many reasons that
directly relate to the issuer, such as a change in the demand for the issuer’s goods or services, or a decline in the issuer’s
performance, earnings or assets. In addition, changes in the financial condition of an individual issuer can affect the overall market
for such instruments.
Municipal Conduit Bond Risk
Municipal conduit bonds, also referred to as private activity bonds
or industrial revenue bonds, are bonds issued by state and local governments or other entities for the purpose of financing the projects
of certain private enterprises. Unlike municipal bonds, municipal conduit bonds are not backed by the full faith, credit or general taxing
power of the issuing governmental entity. Rather, issuances of municipal conduit bonds are backed solely by revenues of the private enterprise
involved. Municipal conduit bonds are therefore subject to heightened credit risk, as the private enterprise involved can have a different
credit profile than the issuing governmental entity. Municipal conduit bonds may be negatively impacted by conditions affecting either
the general credit of the private enterprise or the project itself. Factors such as competitive pricing, construction delays, or lack
of demand for the project could cause project revenues to fall short of projections, and defaults could occur. Municipal conduit bonds
tend to have longer terms and thus are more susceptible to interest rate risk.
Corporate Bond Risk
Corporate bonds are debt obligations issued by corporations and
other business entities. Corporate bonds may be either secured or unsecured. Collateral used for secured debt includes real property,
machinery, equipment, accounts receivable, stocks, bonds or notes. If a bond is unsecured, it is known as a debenture. Bondholders, as
creditors, have a prior legal claim over common and preferred stockholders as to both income and assets of the corporation for the principal
and interest due them and may have a prior claim over other creditors if liens or mortgages are involved. Interest on corporate bonds
may be fixed or floating, or the bonds may be zero coupons. Interest on corporate bonds is typically paid semi-annually and is fully taxable
to the bondholder. Corporate bonds contain elements of both interest-rate risk and credit risk. The market value of a corporate bond generally
may be expected to rise and fall inversely with interest rates and may also be affected by the credit rating of the corporation, the corporation’s
performance and perceptions of the corporation in the marketplace. Corporate bonds usually yield more than government or agency bonds
due to the presence of credit risk. Depending on the nature of the seniority provisions, a senior corporate bond may be junior to other
credit securities of the issuer. The market value of a corporate bond may be affected by factors directly related to the issuer, such
as investors’ perceptions of the creditworthiness of the issuer, the issuer’s financial performance, perceptions of the issuer
in the market place, performance of management of the issuer, the issuer’s capital structure and use of financial leverage and demand
for the issuer’s goods and services. There is a risk that the issuers of corporate bonds may not be able to meet their obligations
on interest or principal payments at the time called for by an instrument or at all. Corporate bonds of below
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investment grade quality are often high risk and have speculative
characteristics and may be particularly susceptible to adverse issuer-specific developments and other developments.
Project Finance Risk
Project finance is a type of financing commonly used for infrastructure,
industry, and public service projects. In a project finance arrangement, the cash flow generated by the project is used to repay lenders
while the project’s assets, rights and interest are held as secondary collateral. Investors involved in project finance face heightened
technology risk, operational risk, and market risk because the cash flow generated by the project, rather than the revenues of the company
behind the project, will repay investors. In addition, because of the project-specific nature of such arrangements, the Trust face the
risk of loss of investment if the company behind the project determines not to complete it.
Risks of Investing in Debt Issued by Non-Profit Institutions
Investing in debt issued by non-profit institutions, including foundations,
museums, cultural institutions, colleges, universities, hospitals and healthcare systems, involves different risks than investing in municipal
bonds. Many non-profit entities are tax-exempt under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the “Code”)
and risk losing their tax-exempt status if they do not comply with the requirements of that section. There is a risk that Congress or
the IRS could pass new laws or regulations changing the requirements for tax-exempt status, which could result in a non-profit institution
losing such status. Additionally, non-profit institutions that receive federal and state appropriations face the risk of a decrease in
or loss of such appropriations.
Hospitals and healthcare systems are highly regulated at the federal
and state levels and face burdensome state licensing requirements. There is a risk that a state could refuse to renew a hospital’s
license or that the passage of new laws or regulations, especially changes to Medicare or Medicaid reimbursement, could inhibit a hospital
from growing its revenues. Hospitals and healthcare systems also face risks related to increased competition from other health care providers;
increased costs of inpatient and outpatient care; and increased pressures from managed care organizations, insurers, and patients to cut
the costs of medical care.
There is a risk that non-profit institutions relying on philanthropy
and donations to maintain their operations will receive less funding during economic downturns, such as the economic situation initially
caused by the COVID-19 pandemic. The economic situation has placed unique pressures on hospitals and healthcare systems including decreased
revenues due to postponement or cancellation of elective surgeries, non-urgent admissions, clinic visits, and research visits; shortages
of staff, pharmaceuticals, medical equipment, beds, and blood; and increased levels of self-paying admissions and uncompensated care due
to reduced availability and affordability of health insurance. The economic situation has also resulted in decreased revenues in higher
education through decreased enrollment; lower revenues from student tuition, room and board; increased financial need for students; and
temporary closure of on-campus research programs. In addition, the economic situation has forced museums and cultural institutions to
close, resulting in loss of revenues from retail, concessions, parking operations and special events held at the facilities. The economic
situation has also led to layoffs and cost-cutting measures among non-profits and museums, some of which have been or may be forced out
of business as a result of the pandemic.
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Taxable Municipal
Securities Risk
While interest earned on municipal securities is generally not subject
to federal tax, any interest earned on taxable municipal securities is fully taxable at the federal level and may be subject to tax at
the state level. Additionally, litigation, legislation or other political events, local business or economic conditions or the bankruptcy
of the issuer could have a significant effect on the ability of an issuer of municipal securities to make payments of principal and/or
interest. Political changes and uncertainties in the municipal market related to taxation, legislative changes or the rights of municipal
security holders can significantly affect municipal securities. Because many securities are issued to finance similar projects, especially
those relating to education, health care, transportation and utilities, conditions in those sectors can affect the overall municipal market.
In addition, changes in the financial condition of an individual municipal issuer can affect the overall municipal market.
Build America Bonds Risk
BABs are a form of municipal financing. The BABs market is smaller
and less diverse than the broader municipal securities market. In addition, because the relevant provisions of the American Recovery and
Reinvestment Act of 2009 were not extended, bonds issued after December 31, 2010 cannot qualify as BABs. We do not currently know whether
Congress will renew the program to permit issuance of new BABs. As a result, the number of available BABs is limited, which may negatively
affect the value of the BABs. In addition, there can be no assurance that BABs will be actively traded. It is difficult to predict the
extent to which a market for such bonds will continue, meaning that BABs may experience greater illiquidity than other municipal obligations.
Because issuers of direct payment BABs held in the Trust’s portfolio receive reimbursement from the U.S. Treasury with respect to
interest payments on bonds, there is a risk that those municipal issuers will not receive timely payment from the U.S. Treasury and may
remain obligated to pay the full interest due on direct payment BABs held by the Trust. Under the sequestration process under the Budget
Control Act of 2011, automatic spending cuts that became effective on March 1, 2013 reduced the federal subsidy for BABs and other subsidized
taxable municipal bonds. In addition, pursuant to the requirements of the Balanced Budget and Emergency Deficit Control Act of 1985, as
amended, refund payments issued to and refund offset transactions for BABS are subject to sequestration. The subsidy payments were reduced
by 6.6% in 2018, 6.2% in 2019, 5.9% in 2020 and 5.7% between 2021 and 2030. Furthermore, it is possible that a municipal issuer may fail
to comply with the requirements to receive the direct pay subsidy or that a future Congress may further reduce or terminate the subsidy
altogether. In addition, the Code contains a general offset rule (the “IRS Offset Rule”) which allows for the possibility
that subsidy payments to be received by issuers of BABs may be subject to offset against amounts owed by them to the federal government.
Moreover, the Internal Revenue Service (the “IRS”) may audit the agencies issuing BABs and such audits may, among other things,
examine the price at which BABs are initially sold to investors. If the IRS concludes that a BAB was mispriced based on its audit, it
could disallow all or a portion of the interest subsidy received by the issuer of the BAB. The IRS Offset Rule and the disallowance of
any interest subsidy as a result of an IRS audit could potentially adversely affect a BABs issuer’s credit rating, and adversely
affect the issuer’s ability to repay or refinance BABs. This, in turn, could adversely affect the ratings and value of the BABs
held by the Trust and the Trust’s net asset value. The IRS has withheld subsidies from several states and municipalities.
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Income Risk
The income investors receive from the Trust is based in part on
the interest it earns from its investments in Income Securities, which can vary widely over the short- and long-term. If prevailing market
interest rates drop, investors’ income from the Trust could drop as well. The Trust’s income could also be affected adversely
when prevailing short-term interest rates increase and the Trust is utilizing leverage, although this risk is mitigated to the extent
the Trust invests in floating-rate obligations.
Income Securities Risk
In addition to the risks discussed above, Income Securities, including
high-yield bonds, are subject to certain risks, including:
Issuer Risk. The
value of Income Securities may decline for a number of reasons which directly relate to the issuer, such as management performance, the
issuer’s overall level of debt, reduced demand for the issuer’s goods and services, historical and projected earnings, and
the value of its assets.
Spread Risk. Spread
risk is the risk that the market price can change due to broad based movements in spreads. The difference (or “spread”) between
the yield of a security and the yield of a benchmark measures the additional interest paid. As the spread on a security widens (or increases),
the price (or value) of the security falls. Spread widening may occur, among other reasons, as a result of market concerns over the stability
of the market, excess supply, general credit concerns in other markets, security- or market-specific credit concerns, or general reductions
in risk tolerance.
Credit Risk. The
Trust could lose money if the issuer or guarantor of a debt instrument or a counterparty to a derivatives transaction or other transaction
(such as a repurchase agreement or a loan of portfolio securities or other instruments) is unable or unwilling, or perceived to be unable
or unwilling, to pay interest or repay principal on time or defaults. If an issuer fails to pay interest, the Trust’s income would
likely be reduced, and if an issuer fails to repay principal, the value of the instrument likely would fall and the Trust could lose money.
This risk is especially acute with respect to below investment grade debt instruments (commonly referred to as “high-yield”
or “junk” bonds) and unrated high risk debt instruments, whose issuers are particularly susceptible to fail to meet principal
or interest obligations. Also, the issuer, guarantor or counterparty may suffer adverse changes in its financial condition or be adversely
affected by economic, political or social conditions that could lower the credit quality (or the market’s perception of the credit
quality) of the issuer or instrument, leading to greater volatility in the price of the instrument and in shares of the Trust. Although
credit quality rating may not accurately reflect the true credit risk of an instrument, a change in the credit quality rating of an instrument
or an issuer can have a rapid, adverse effect on the instrument’s value and liquidity and make it more difficult for the Trust to
sell at an advantageous price or time. The risk of the occurrence of these types of events is heightened under adverse economic conditions.
The degree of credit risk depends on the particular instrument and
the financial condition of the issuer, guarantor or counterparty, which are often reflected in its credit quality. A credit quality rating
is a measure of the issuer’s expected ability to make all required interest and principal payments in a timely manner. An issuer
with the highest credit rating has a very strong capacity with respect to making all payments. An issuer with the second-highest credit
rating has a strong capacity to make all payments, but the degree of safety is somewhat less. An issuer with the lowest credit quality
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rating may be in default or have extremely poor prospects of making
timely payment of interest and principal. Credit ratings assigned by rating agencies are based on a number of factors and subjective judgments
and therefore do not necessarily represent an issuer’s actual financial condition or the volatility or liquidity of the security.
Although higher-rated securities generally present lower credit risk as compared to lower-rated or unrated securities, an issuer with
a high credit rating may in fact be exposed to heightened levels of credit or liquidity risk.
In addition, during recent conditions, many issuers have been unprofitable,
have had little cash on hand and/or unable to pay the interest owed on their debt obligations and the number of such issuers may increase
if demand for their goods and services falls, borrowing and other costs rise due to governmental action or inaction or for other reasons.
Also, the issuer, guarantor or counterparty may suffer adverse changes in its financial condition or reduced demand for its goods and
services or be adversely affected by economic, political, public health or social conditions that could lower the credit quality (or the
market’s perception of the credit quality) of the issuer or instrument, leading to greater volatility in the price of the instrument
and in shares of the Trust.
If an issuer, guarantor or counterparty declares bankruptcy or is
declared bankrupt, the Trust would likely be adversely affected in its ability to receive principal or interest owed or otherwise to enforce
the financial obligations of the other party. The Trust may be subject to increased costs associated with the bankruptcy process and experience
losses as a result of the deterioration of the financial condition of the issuer, guarantor or counterparty. The risks to the Trust related
to such bankruptcies are elevated given the current state of economic, market, labor and public health conditions and would likely be
elevated under similar circumstances in the future.
Interest Rate Risk.
Fixed-income and other debt instruments are subject to the possibility that interest rates could change (or are expected to
change). Changes in interest rates, including changes in reference rates used in fixed-income and other debt instruments (such as the
London Interbank Offer Rate), may adversely affect the Trust’s investments in these instruments, such as the value or liquidity
of, and income generated by, the investments. In addition, changes in interest rates, including rates that fall below zero, can have unpredictable
effects on markets and can adversely affect the Trust’s yield, income and performance. Generally, when interest rates increase,
the values of fixed-income and other debt instruments decline and when interest rates decrease, the values of fixed-income and other debt
instruments rise.
The value of a debt instrument with a longer duration will generally
be more sensitive to interest rate changes than a similar instrument with a shorter duration. Similarly, the longer the average duration
(whether positive or negative) of these instruments held by the Trust or to which the Trust is exposed (i.e., the longer the average portfolio
duration of the Trust), the more the Trust’s NAV will likely fluctuate in response to interest rate changes. Duration is a measure
used to determine the sensitivity of a security’s price to changes in interest rates that incorporates a security’s yield,
coupon, final maturity and call features, among other characteristics. For example, the NAV per share of a bond fund with an average duration
of eight years would be expected to fall approximately 8% if interest rates rose by one percentage point.
However, measures such as duration may not accurately reflect the
true interest rate sensitivity of instruments held by the Trust and, in turn, the Trust’s susceptibility to changes in interest
rates. Certain fixed-income and debt instruments are subject to the risk that the issuer may exercise its
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right to redeem (or call) the instrument earlier than anticipated.
Although an issuer may call an instrument for a variety of reasons, if an issuer does so during a time of declining interest rates, the
Trust might have to reinvest the proceeds in an investment offering a lower yield or other less favorable features, and therefore might
not benefit from any increase in value as a result of declining interest rates. Interest only or principal only securities and inverse
floaters are particularly sensitive to changes in interest rates, which may impact the income generated by the security and other features
of the security.
Instruments with variable or floating rate interest rates generally
are less sensitive to interest rate changes, but may decline in value if their interest rates do not rise as much or as fast as interest
rates in general. Conversely, in a decreasing interest rate environment, these instruments will generally not increase in value and the
Trust’s investment in instruments with floating interest rates may prevent the Trust from taking full advantage of decreasing interest
rates in a timely manner. In addition, the income received from such instruments will likely be adversely affected by a decrease in interest
rates.
Adjustable rate securities
also react to interest rate changes in a similar manner as fixed-rate securities but generally to a lesser degree depending on the characteristics
of the security, in particular its reset terms (i.e., the index chosen, frequency of reset and reset caps or floors). During periods of
rising interest rates, as is the case currently, because changes in interest rates on adjustable rate securities may lag behind changes
in market rates, the value of such securities may decline until their interest rates reset to market rates. These securities also may
be subject to limits on the maximum increase in interest rates. During periods of declining interest rates, because the interest rates
on adjustable rate securities generally reset downward, their market value is unlikely to rise to the same extent as the value of comparable
fixed rate securities. These securities may not be subject to limits on downward adjustments of interest rates.
During periods of rising interest rates, as is the case currently,
issuers of debt securities or asset-backed securities may pay principal later or more slowly than expected, which may reduce the value
of the Trust’s investment in such securities and may prevent the Trust from receiving higher interest rates on proceeds reinvested
in other instruments. During periods of falling interest rates, issuers of debt securities or asset-backed securities may pay off debts
more quickly or earlier than expected, which could cause the Trust to be unable to recoup the full amount of its initial investment and/or
cause the Trust to reinvest in lower-yielding securities, thereby reducing the Trust’s yield or otherwise adversely impacting the
Trust.
Certain debt instruments, such as instruments with a negative duration
or inverse instruments, are also subject to interest rate risk, although such instruments generally react differently to changes in interest
rates than instruments with positive durations. The Trust’s investments in these instruments also may be adversely affected by changes
in interest rates. For example, the value of instruments with negative durations, such as inverse floaters, generally decrease if interest
rates decline.
The Trust’s use of leverage will tend to increase common share
interest rate risk. The Trust may utilize certain strategies, including taking positions in futures or interest rate swaps, for the purpose
of reducing the interest rate sensitivity of credit securities held by the Trust or any leverage being employed by the Trust and decreasing
the Trust’s exposure to interest rate risk. The Trust is not required to hedge its exposure to interest rate risk and may choose
not to do so. In addition, there is
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no assurance that any attempts by the Trust to reduce interest rate
risk will be successful or that any hedges that the Trust may establish will perfectly correlate with movements in interest rates.
Current Fixed-Income
and Debt Market Conditions. Fixed-income and debt market conditions are highly unpredictable and some parts of the market are
subject to dislocations. In response to the situation initially caused by the outbreak of COVID-19, as with other serious economic disruptions,
governmental authorities and regulators have enacted or are enacting significant fiscal and monetary policy changes, including providing
direct capital infusions into companies, creating new monetary programs and lowering interest rates considerably for extended periods.
These changes are also the result of investment and programs (such as infrastructure modernization projects) made by the U.S. and other
governments. These actions present heightened risks to fixed-income and debt instruments, and such risks could be even further heightened
if these actions are unexpectedly or suddenly discontinued, disrupted, reversed or are ineffective in achieving their desired outcomes.
These actions are also contributing to increases in inflation. In light of these actions and current conditions, interest rates and bond
yields in the United States and many other countries were, until recently, at or near historic lows, but interest rates are currently
rising again. Certain countries have experienced negative interest rates on certain debt securities and have pursued negative interest
rate policies in recent years. A negative interest rate policy is an unconventional central bank monetary policy tool where nominal target
interest rates are set with negative value intended to create self-sustaining growth in the local economy. To the extent the Trust holds
a debt instrument with a negative interest rate, the Trust would generate a negative return on that investment. If negative interest rates
become more prevalent in the market, market participants may seek to reallocate their investments to other income-producing assets, which
could further reduce the value of instruments held by the Trust with a negative yield.
The current interest rate environment is magnifying the Trust’s
susceptibility to interest rate risk and may diminish yield and impact performance. As of the date of this report, the Federal Reserve
Board has begun to increase interest rates and has signaled the possibility of further increases during the remainder of 2022. It is difficult
to accurately predict the pace at which the Federal Reserve Board will increase interest rates any further, or the timing, frequency or
magnitude of any such increases, and the evaluation of macro-economic and other conditions could cause a change in approach in the future.
Any such changes could be sudden and unpredictable. Certain economic conditions and market environments will expose fixed-income and debt
instruments to heightened volatility and reduced liquidity, which can negatively impact the Trust’s performance or otherwise adversely
impact the Trust’s.
Reinvestment Risk. Reinvestment
risk is the risk that income from the Trust’s portfolio will decline if the Trust invests the proceeds from matured, traded or called
Income Securities at market interest rates that are below the Trust portfolio’s current earnings rate. A decline in income could
affect the Common Shares’ market price or the overall return of the Trust. These or similar conditions may also occur in the future.
Extension
Risk. Certain debt instruments, including mortgage- and other asset-backed securities, are subject to the risk that payments
on principal may occur at a slower rate or later than expected. In this event, the expected maturity could lengthen as short or intermediate-term
instruments become longer-term instruments, which would make the investment more sensitive to changes in interest rates. The likelihood
that payments on principal will occur at a slower rate or later than expected is
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heightened under the current conditions. In addition, the Trust’s
investment may sharply decrease in value and the Trust’s income from the investment may quickly decline. These types of instruments
are particularly subject to extension risk, and offer less potential for gains, during periods of rising interest rates. In addition,
the Trust may be delayed in its ability to reinvest income or proceeds from these instruments in potentially higher yielding investments,
which would adversely affect the Trust to the extent its investments are in lower interest rate debt instruments. Thus, changes in interest
rates may cause volatility in the value of and income received from these types of debt instruments.
Prepayment Risk. Certain
debt instruments, including loans and mortgage- and other asset-backed securities, are subject to the risk that payments on principal
may occur more quickly or earlier than expected (or an investment is converted or redeemed prior to maturity). For example, an issuer
may exercise its right to redeem outstanding debt securities prior to their maturity (known as a “call”) or otherwise pay
principal earlier than expected for a number of reasons (e.g., declining interest rates, changes in credit spreads and improvements in
the issuer’s credit quality). If an issuer calls or “prepays” a security in which the Trust has invested, the Trust
may not recoup the full amount of its initial investment and may be required to reinvest in generally lower-yielding securities, securities
with greater credit risks or securities with other, less favorable features or terms than the security in which the Trust initially invested,
thus potentially reducing the Trust’s yield. Income Securities frequently have call features that allow the issuer to repurchase
the security prior to its stated maturity. Loans and mortgage- and other asset-backed securities are particularly subject to prepayment
risk, and offer less potential for gains, during periods of declining interest rates (or narrower spreads) as issuers of higher interest
rate debt instruments pay off debts earlier than expected. In addition, the Trust may lose any premiums paid to acquire the investment.
Other factors, such as excess cash flows, may also contribute to prepayment risk. Thus, changes in interest rates may cause volatility
in the value of and income received from these types of debt instruments.
Variable or floating rate investments may be less vulnerable to
prepayment risk. Most floating rate loans and fixed-income securities allow for prepayment of principal without penalty. Accordingly,
the potential for the value of a floating rate loan or security to increase in response to interest rate declines is limited. Corporate
loans or fixed-income securities purchased to replace a prepaid corporate loan or security may have lower yields than the yield on the
prepaid corporate loan or security.
Valuation
of Certain Income Securities Risk. GPIM may use the fair value method to value investments if market quotations for them are
not readily available or are deemed unreliable, or if events occurring after the close of a securities market and before the Trust values
its assets would materially affect net asset value. Because the secondary markets for certain investments may be limited, they may be
difficult to value. Where market quotations are not readily available, valuation may require more research than for more liquid investments.
In addition, elements of judgment may play a greater role in valuation in such cases than for investments with a more active secondary
market because there is less reliable objective data available. A security that is fair valued may be valued at a price higher or lower
than the value determined by other funds using their own fair valuation procedures. Prices obtained by the Trust upon the sale of such
securities may not equal the value at which the Trust carried the investment on its books, which would adversely affect the net asset
value of the Trust.
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Duration Management
Risk
The Trust’s managers expect to employ investment and trading
strategies to seek to maintain the leverage-adjusted duration of the Trust’s portfolio at generally less than 15 years. Such strategies
include, among others, security selection and the use of financial products. Financial products may include US treasury swaps, total return
swaps and futures contracts, among others. The Trust seeks to invest in instruments that provide the Trust with protection against interest
rate volatility while providing income to the Trust. Duration is a measure of a bond’s price sensitivity to changes in interest
rates, expressed in years. Duration is a weighted average of the times that interest payments and the final return of principal are received.
The weights are the amounts of the payments discounted by the yield to maturity of the bond.
Financial Leverage Risk
Although the use of Financial Leverage by the Trust may create an
opportunity for increased after-tax total return for the Common Shares, it also results in additional risks and can magnify the effect
of any losses. If the income and gains earned on securities purchased with Financial Leverage proceeds are greater than the cost of Financial
Leverage, the Trust’s return will be greater than if Financial Leverage had not been used. Conversely, if the income or gains from
the securities purchased with such proceeds does not cover the cost of Financial Leverage, the return to the Trust will be less than if
Financial Leverage had not been used. There can be no assurance that a leveraging strategy will be implemented or that it will be successful
during any period during which it is employed.
Financial Leverage involves risks and special considerations for
shareholders, including the likelihood of greater volatility of NAV and market price of and dividends on the Common Shares than a comparable
portfolio without leverage; the risk that fluctuations in interest rates on borrowings and short-term debt or in the dividend rates on
any Financial Leverage that the Trust must pay will reduce the return to the Common Shareholders; and the effect of Financial Leverage
in a declining market, which is likely to cause a greater decline in the NAV of the Common Shares than if the Trust were not leveraged,
which may result in a greater decline in the market price of the Common Shares.
It is also possible that the Trust will be required to sell assets,
possibly at a loss, in order to redeem or meet payment obligations on any leverage. Such a sale would reduce the Trust’s net asset
value and also make it difficult for the net asset value to recover. The Trust in its best judgment nevertheless may determine to continue
to use Financial Leverage if it expects that the benefits to the Trust’s shareholders of maintaining the leveraged position will
outweigh the current reduced return.
Certain types of Borrowings subject the Trust to covenants in credit
agreements relating to asset coverage and portfolio composition requirements. Borrowings by the Trust also may subject the Trust to certain
restrictions on investments imposed by guidelines of one or more rating agencies, which may issue ratings for such Borrowings. Such guidelines
may impose asset coverage or portfolio composition requirements that are more stringent than those imposed by the 1940 Act.
It is not anticipated that these covenants or guidelines will impede
the Adviser or GPIM from managing the Trust’s portfolio in accordance with the Trust’s investment objectives and policies.
The Trust may enter into reverse repurchase agreements with the
same parties with whom they may enter into repurchase agreements (as described below). Under a reverse repurchase agreement, the Trust
would sell securities or other assets and agree to repurchase them at a particular price at a
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future date. Reverse repurchase agreements involve the risks that
the interest income earned on the investment of the proceeds will be less than the interest expense and Trust expenses associated with
the repurchase agreement, that the market value of the securities or other assets sold by the Trust may decline below the price at which
the Trust is obligated to repurchase such securities and that the securities may not be returned to the Trust. There is no assurance that
reverse repurchase agreements can be successfully employed. In connection with reverse repurchase agreements, the Trust will also be subject
to counterparty risk with respect to the purchaser of the securities. In the event of the insolvency of the counterparty to a reverse
repurchase agreement, recovery of the securities or other assets sold by the Trust may be delayed. The counterparty’s insolvency
may result in a loss equal to the amount by which the value of the securities or other assets sold by the Trust exceeds the repurchase
price payable by the Trust; if the value of the purchased securities or other assets increases during such a delay, that loss may also
be increased. When the Trust enters into a reverse repurchase agreement, any fluctuations in the market value of either the securities
or other assets transferred to another party or the securities or other assets in which the proceeds may be invested would affect the
market value of the Trust’s assets. As a result, such transactions may increase fluctuations in the NAV of the Trust’s Common
Shares.
The Trust may engage in certain derivatives transactions that have
economic characteristics similar to leverage. Under current regulatory requirements, to the extent the terms of any such transaction obligate
the Trust to make payments, to mitigate leveraging risk and otherwise comply with regulatory requirements, the Trust must segregate or
earmark liquid assets to meet its obligations under, or otherwise cover, the transactions that may give rise to this risk. Securities
so segregated or designated as “cover” will be unavailable for sale by GPIM (unless replaced by other securities qualifying
for segregation or cover requirements), which may adversely affect the ability of the Trust to pursue its investment objective.
The Trust may have Financial Leverage outstanding during a short-term
period during which such Financial Leverage may not be beneficial to the Trust if GPIM believes that the long-term benefits to Common
Shareholders of such Financial Leverage would outweigh the costs and portfolio disruptions associated with redeeming and reissuing or
closing out and reopening such Financial Leverage. However, there can be no assurance that GPIM’s judgment in weighing such costs
and benefits will be correct.
Because the fees received by the Adviser and each Sub-Adviser are
based on the Managed Assets of the Trust (including the proceeds of any Financial Leverage), the Adviser and Sub-Advisers have a financial
incentive for the Trust to utilize Financial Leverage, which may create a conflict of interest between the Adviser and Sub-Advisers on
the one hand and the Common Shareholders on the other. Common Shareholders bear a portion of the investment advisory fee attributable
to the assets purchased with the proceeds of Financial Leverage, which means that Common Shareholders effectively bear the entire advisory
fee.
Economic and market events have at times caused severe market volatility
and liquidity strains in the credit markets. The terms of the Trust’s credit facility include a variable interest rate. Accordingly,
during periods when interest rates or the applicable reference rate for the credit facility rise or there are dislocations in the credit
markets, the Trust’s leverage costs may increase and there is a risk that the Trust may not be able to renew or replace existing
leverage on favorable terms or at all. If the cost of leverage is no longer favorable, or if the Trust is otherwise required to reduce
its leverage, the
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Trust may not be able to maintain distributions on Common Shares
at historical levels and Common Shareholders will bear any costs associated with selling portfolio securities. Interest rates are currently
rising, and thus so is the cost of leverage and the risks highlighted above. The Trust may also be exposed to the risks associated with
Financial Leverage through its investments in Investment Funds.
The Trust’s total Financial Leverage may vary significantly
over time. To the extent the Trust increases its mount of Financial Leverage outstanding, it will be more exposed to these risks.
Investments in Investment Funds and certain other pooled and structured
finance vehicles, such as collateralized loan obligations, frequently expose the Trust to an additional layer of financial leverage and,
thus, increase the Trust’s exposure to leverage risk. From time to time, the Trust may invest a significant portion of its assets
in Investment Funds that employ leverage.
Inflation/Deflation Risk
Inflation risk is the risk that the intrinsic value of assets or
income from investments will be worth less in the future as inflation decreases the purchasing power and value of money. As inflation
increases, the real value of the Common Shares and distributions can decline. Inflation rates (which are currently elevated relative to
historical levels) may change frequently and significantly as a result of various factors, including unexpected shifts in the domestic
or global economy and changes in monetary or economic policies (or expectations that these policies may change), and the Trust’s
investments may not keep pace with inflation, which would adversely affect the Trust. The market price of debt securities generally falls
as inflation increases because the purchasing power of the future income and repaid principal is expected to be worth less when received
by the Trust. The risk of inflation is significantly elevated compared to normal conditions because of current monetary policy measures
and the current interest rate environment and level of government intervention and spending. In addition, during any periods of rising
inflation, the dividend rates or borrowing costs associated with the Trust’s use of Financial Leverage would likely increase, which
would tend to further reduce returns to Common Shareholders. Deflation risk is the risk that prices throughout the economy decline over
time—the opposite of inflation. Deflation may have an adverse effect on the creditworthiness of issuers and may make issuer default
more likely, which may result in a decline in the value of the Trust’s portfolio.
Insurance Risk
The Trust may purchase municipal securities that are secured by
insurance, bank credit agreements or escrow accounts. The credit quality of the companies that provide such credit enhancements will affect
the value of those securities. Certain significant providers of insurance for municipal securities have in the past incurred significant
losses as a result of exposure to sub-prime mortgages and other lower credit quality investments that experienced recent defaults or otherwise
suffered extreme credit deterioration. As a result, such losses reduced the insurers’ capital and called into question their continued
ability to perform their obligations under such insurance if they are called upon to do so in the future. While an insured municipal security
will typically be deemed to have the rating of its insurer, if the insurer of a municipal security suffers a downgrade in its credit rating
or the market discounts the value of the insurance provided by the insurer, the rating of the underlying municipal security will be more
relevant and the value of the municipal security would more closely, if not entirely, reflect such rating. In such a case, the value of
insurance associated with a municipal
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security would decline and may not add any value. The insurance
feature of a municipal security normally provides that it guarantees the full payment of principal and interest when due through the life
of an insured obligation, but does not guarantee the market value of the insured obligation or the net asset value of the Common Shares
attributable to such insured obligation.
Below Investment Grade Securities Risk
The Trust may invest in Income Securities rated below investment
grade or, if unrated, determined by the Adviser to be of comparable credit quality, which are commonly referred to as “high-yield”
or “junk” bonds. Investment in securities of below investment grade quality involves substantial risk of loss, the risk of
which is particularly acute under adverse economic conditions. Income Securities of below investment grade quality are predominantly speculative
with respect to the issuer’s capacity to pay interest and repay principal when due and therefore involve a greater risk of default
or decline in market value due to adverse economic and issuer-specific developments. Securities of below investment grade quality may
involve a greater risk of default or decline in market value due to adverse economic issuer-specific developments, such as operating results
and outlook and to real or perceived adverse economic and competitive industry conditions. Generally, the risks associated with high yield
securities are heightened during times of weakening economic conditions or rising interest rates (particularly for issuers that are highly
leveraged) and are therefore heightened under current conditions. If the Trust is unable to sell an investment at its desired time, the
Trust may miss other investment opportunities while it holds investments it would prefer to sell, which could adversely affect the Trust’s
performance. In addition, the liquidity of any Trust investment may change significantly over time as a result of market, economic, trading,
issuer-specific and other factors. Accordingly, the performance of the Trust and a shareholder’s investment in the Trust may be
adversely affected if an issuer is unable to pay interest and repay principal, either on time or at all. Issuers of below investment grade
securities are not perceived to be as strong financially as those with higher credit ratings. These issuers are more vulnerable to financial
setbacks and recessions and other adverse economic developments than more creditworthy issuers, which may impair their ability to make
interest and principal payments. Income Securities of below investment grade quality display increased price sensitivity to changing interest
rates and to a deteriorating economic environment. The market values, total return and yield for securities of below investment grade
quality tend to be more volatile than the market values, total return and yield for higher-quality securities. Securities of below investment
grade quality tend to be less liquid than investment grade debt securities and therefore more difficult to value accurately and sell at
an advantageous price or time and may involve greater transactions costs and wider bid/ask spreads, than higher-quality securities. To
the extent that a secondary market does exist for certain below investment grade securities, the market for them may be subject to irregular
trading activity, wide bid/ask spreads and extended trade settlement periods. Because of the substantial risks associated with investments
in below investment grade securities, you could have an increased risk of losing money on your investment in Common Shares, both in the
short-term and the long-term. To the extent that the Trust invests in securities that have not been rated by an NRSRO, the Trust’s
ability to achieve its investment objectives will be more dependent on the Adviser’s credit analysis than would be the case when
the Trust invests in rated securities.
Successful investment in lower-medium and lower-rated debt securities
may involve greater investment risk and is highly dependent on the Adviser’s credit analysis. The value of securities of
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below investment grade quality is particularly vulnerable to changes
in interest rates and a real or perceived economic downturn or higher interest rates could cause a decline in prices of such securities
by lessening the ability of issuers to make principal and interest payments. These securities are often thinly traded or subject to irregular
trading and can be more difficult to sell and value accurately than higher-quality securities because there tends to be less public information
available about these securities. Because objective pricing data may be less available, judgment may play a greater role in the valuation
process. In addition, the entire below investment grade market can experience sudden and sharp price swings due to a variety of factors,
including changes in economic forecasts, stock market activity, large or sustained sales by major investors, a high-profile default, or
a change in the market’s psychology. Adverse conditions could make it difficult at times for the Trust to sell certain securities
or could result in lower prices than those used in calculating the Trust’s NAV.
Sector Risk
The Trust may invest a significant portion of its managed assets
in certain sectors which may subject the Trust to additional risk and variability. To the extent that the Trust focuses its managed assets
in the hospital and healthcare facilities sector, for example, the Trust will be subject to risks associated with such sector, including
adverse government regulation and reduction in reimbursement rates, as well as government approval of products and services and intense
competition. Securities issued with respect to special taxing districts will be subject to various risks, including real-estate development
related risks and taxpayer concentration risk. Further, the fees, special taxes or tax allocations and other revenues established to secure
the obligations of securities issued with respect to special taxing districts are generally limited as to the rate or amount that may
be levied or assessed and are not subject to increase pursuant to rate covenants or municipal or corporate guarantees. Charter schools
and other private educational facilities are subject to various risks, including the reversal of legislation authorizing or funding charter
schools, the failure to renew or secure a charter, the failure of a funding entity to appropriate necessary funds and competition from
alternatives such as voucher programs. Issuers of municipal utility securities can be significantly affected by government regulation,
financing difficulties, supply and demand of services or fuel and natural resource conservation. The transportation sector, including
airports, airlines, ports and other transportation facilities, can be significantly affected by changes in the economy, fuel prices, maintenance,
labor relations, insurance costs and government regulation.
Short Sales Risk
The Trust may make short sales of securities. Short selling a security
involves selling a borrowed security with the expectation that the value of that security will decline, so that the security may be purchased
at a lower price when returning the borrowed security. If the price of the security sold short increases between the time of the short
sale and the time the Trust replaces the borrowed security, the Trust will incur a loss; conversely, if the price declines, the Trust
will realize a capital gain. Any gain will be decreased, and any loss will be increased, by the transaction costs incurred by the Trust,
including the costs associated with providing collateral to the broker-dealer (usually cash and liquid securities) and the maintenance
of collateral with its custodian. Although the Trust’s gain is limited to the price at which it sold the security short, its potential
loss is theoretically unlimited and is greater than a direct investment in the security itself because the price of the borrowed or reference
security may rise. The Trust may not always be able to close out a short position at a
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particular time or at an acceptable price. A lender may request
that borrowed securities be returned to it on short notice, and the Trust may have to buy the borrowed securities at an unfavorable price,
resulting in a loss. The Trust may have to pay a premium to borrow the securities and must pay any dividends or interest payable on the
securities until they are replaced, which will be expenses of the Trust. Short sales also subject the Trust to risks related to the lender
(such as bankruptcy risks) or the general risk that the lender does not comply with its obligations. Government actions also may affect
the Trust’s ability to engage in short selling. The use of physical short sales is typically more expensive than gaining short exposure
through derivatives
Special Risks Related to Certain Municipal Securities
The Trust may invest in municipal leases and certificates of participation
in such leases. Municipal leases and certificates of participation involve special risks not normally associated with general obligations
or revenue bonds. Leases and installment purchase or conditional sale contracts (which normally provide for title to the leased asset
to pass eventually to the governmental issuer) have evolved as a means for governmental issuers to acquire property and equipment without
meeting the constitutional and statutory requirements for the issuance of debt. The debt issuance limitations are deemed to be inapplicable
because of the inclusion in many leases or contracts of “non-appropriation” clauses that relieve the governmental issuer of
any obligation to make future payments under the lease or contract unless money is appropriated for such purpose by the appropriate legislative
body. In addition, such leases or contracts may be subject to the temporary abatement of payments in the event the governmental issuer
is prevented from maintaining occupancy of the leased premises or utilizing the leased equipment. Although the obligations may be secured
by the leased equipment or facilities, the disposition of the property in the event of non-appropriation or foreclosure might prove difficult,
time consuming and costly, and may result in a delay in recovering or the failure to fully recover the Trust’s original investment.
In the event of non-appropriation, the issuer would be in default and taking ownership of the assets may be a remedy available to the
Trust, although the Trust does not anticipate that such a remedy would normally be pursued. To the extent that the Trust invests in unrated
municipal leases or participates in such leases, the credit quality and risk of cancellation of such unrated leases will be monitored
on an ongoing basis. Certificates of participation, which represent interests in unmanaged pools of municipal leases or installment contracts,
involve the same risks as the underlying municipal leases. In addition, the Trust may be dependent upon the municipal authority issuing
the certificates of participation to exercise remedies with respect to the underlying securities. Certificates of participation entail
a risk of default or bankruptcy not only of the issuer of the underlying lease but also of the municipal agency issuing the certificate
of participation.
Structured Finance Investments Risk
The Trust’s structured finance investments may include residential
and commercial mortgage-related and other ABS issued by governmental entities and private issuers. While traditional fixed-income securities
typically pay a fixed rate of interest until maturity, when the entire principal amount is due, these investments represent an interest
in a pool of residential or commercial real estate or assets such as automobile loans, credit card receivables or student loans that have
been securitized and provide for monthly payments of interest and principal to the holder based from the cash flow of these assets. Holders
of structured finance investments bear risks of the underlying investments, index or reference obligation and are subject to counterparty
risk. The Trust may have the right to
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receive payments only from the structured product, and generally
does not have direct rights against the issuer or the entity that sold the assets to be securitized. While certain structured finance
investments enable the investor to acquire interests in a pool of securities without the brokerage and other expenses associated with
directly holding the same securities, investors in structured finance investments generally pay their share of the structured product’s
administrative and other expenses. Although it is difficult to accurately predict whether the prices of indices and securities underlying
structured finance investments will rise or fall, these prices (and, therefore, the prices of structured finance investments) will be
influenced by the same types of political, economic and other events that affect issuers of securities and capital markets generally.
If the issuer of a structured product uses shorter term financing to purchase longer term securities, the issuer may be forced to sell
its securities at below market prices if it experiences difficulty in obtaining short-term financing, which may adversely affect the value
of the structured finance investment owned by the Trust.
The Trust may invest in structured finance products collateralized
by low grade or defaulted loans or securities. Investments in such structured finance products are subject to the risks associated with
below investment grade securities. Such securities are characterized by high risk. It is likely that an economic recession could severely
disrupt the market for such securities and may have an adverse impact on the value of such securities.
The Trust may invest in senior and subordinated classes issued by
structured finance vehicles. The payment of cash flows from the underlying assets to senior classes take precedence over those of subordinated
classes, and therefore subordinated classes are subject to greater risk. Furthermore, the leveraged nature of subordinated classes may
magnify the adverse impact on such class of changes in the value of the assets, changes in the distributions on the assets, defaults and
recoveries on the assets, capital gains and losses on the assets, prepayment on assets and availability, price and interest rates of assets.
Structured finance securities may be thinly traded or have a limited
trading market. Structured finance securities are typically privately offered and sold, and thus are not registered under the securities
laws. As a result, investments in structured finance securities may be characterized by the Trust as illiquid securities; however, an
active dealer market may exist which would allow such securities to be considered liquid in some circumstances.
Structured finance securities, such as mortgage-backed securities,
issued by non-governmental issuers are not guaranteed as to principal or interest by the U.S. government or a government sponsored enterprise
and are typically subject to greater risk than those issued by such governmental entities. For example, privately issued mortgage-backed
securities are not subject to the same underwriting requirements for underlying mortgages as those issued by governmental entities and,
as a result, mortgage loans underlying such privately issued securities typically have less favorable underwriting characteristics (such
as credit risk and collateral) and a wider range in terms (such as interest rate, term and borrower characteristics).
Mortgage-Backed Securities Risk
Mortgage-backed securities (“MBS”) represent an interest
in a pool of mortgages. MBS are subject to certain risks, such as: credit risk associated with the performance of the underlying mortgage
properties and of the borrowers owning these properties; risks associated with their structure and execution (including the collateral,
the process by which principal and interest payments are
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allocated and distributed to investors and how credit losses affect
the return to investors in such MBS); risks associated with the servicer of the underlying mortgages; adverse changes in economic conditions
and circumstances, which are more likely to have an adverse impact on MBS secured by loans on certain types of commercial properties than
on those secured by loans on residential properties; prepayment and extension risks, which can lead to significant fluctuations in the
value of the MBS; loss of all or part of the premium, if any, paid; and decline in the market value of the security, whether resulting
from changes in interest rates, prepayments on the underlying mortgage collateral or perceptions of the credit risk associated with the
underlying mortgage collateral. The value of MBS may be substantially dependent on the servicing of the underlying pool of mortgages.
In addition, the Trust’s level of investment in MBS of a particular type or in MBS issued or guaranteed by affiliated obligors,
serviced by the same servicer or backed by underlying collateral located in a specific geographic region, may subject the Trust to additional
risk.
When market interest rates decline, more mortgages are refinanced
and the securities are paid off earlier than expected. Prepayments may also occur on a scheduled basis or due to foreclosure. When market
interest rates increase, the market values of MBS decline. At the same time, however, mortgage refinancings and prepayments slow, which
lengthens the effective maturities of these securities. As a result, the negative effect of the rate increase on the market value of MBS
is usually more pronounced than it is for other types of debt securities. In addition, due to increased instability in the credit markets,
the market for some MBS has experienced reduced liquidity and greater volatility with respect to the value of such securities, making
it more difficult to value such securities. The Trust may invest in sub-prime mortgages or MBS that are backed by sub-prime mortgages
or defaulted or nonperforming loans.
Additional risks relating to investments in MBS may arise because
of the type of MBS in which the Trust invests, defined by the assets collateralizing the MBS. For example, CMOs may have complex or highly
variable prepayment terms, such as companion classes, interest only or principal only payments, inverse floaters and residuals. These
investments generally entail greater market, prepayment and liquidity risks than other MBS, and may be more volatile or less liquid than
other MBS. These risks are heightened under the current state of economic, market, labor and public health conditions.
Moreover, the relationship between prepayments and interest rates
may give some high-yielding mortgage-related and asset-backed securities less potential for growth in value than conventional bonds with
comparable maturities. In addition, in periods of falling interest rates, the rate of prepayments tends to increase. During such periods,
the reinvestment of prepayment proceeds by the Trust will generally be at lower rates than the rates that were carried by the obligations
that have been prepaid. Because of these and other reasons, mortgage-related and asset-backed securities’ total return and maturity
may be difficult to predict precisely. To the extent that the Trust purchases mortgage-related and asset-backed securities at a premium,
prepayments (which may be made without penalty) may result in loss of the Trust’s principal investment to the extent of premium
paid.
Mortgage-backed securities generally are classified as either CMBS
or RMBS, each of which are subject to certain specific risks.
Commercial Mortgage-Backed
Securities Risk. The market for CMBS developed more recently and, in terms of total outstanding principal amount of issues, is relatively
small compared to the market for
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RMBS. CMBS are subject to particular risks, such as those associated
with lack of standardized terms, shorter maturities than residential mortgage loans and payment of all or substantially all of the principal
only at maturity rather than regular amortization of principal. In addition, commercial lending generally is viewed as exposing the lender
to a greater risk of loss than residential lending. Commercial lending typically involves larger loans to single borrowers or groups of
related borrowers than residential mortgage loans. In addition, the repayment of loans secured by income producing properties typically
is dependent upon the successful operation of the related real estate project and the cash flow generated therefrom. Net operating income
of an income-producing property can be affected by, among other things: tenant mix, success of tenant businesses, property management
decisions, property location and condition, competition from comparable types of properties, changes in laws that increase operating expense
or limit rents that may be charged, any need to address environmental contamination at the property, the occurrence of any uninsured casualty
at the property, changes in national, regional or local economic conditions and/or specific industry segments, declines in regional or
local real estate values, declines in regional or local rental or occupancy rates, increases in interest rates, real estate tax rates
and other operating expenses, change in governmental rules, regulations and fiscal policies, including environmental legislation, acts
of God, terrorism, social unrest and civil disturbances.
Consequently, adverse changes in economic conditions and circumstances
are more likely to have an adverse impact on MBS secured by loans on commercial properties than on those secured by loans on residential
properties. Economic downturns, rises in unemployment and other events, such as public health emergencies, that limit the activities of
and demand for commercial retail and office spaces (such as the current COVID-19 situation) adversely impact the value of such securities.
Additional risks may be presented by the type and use of a particular commercial property. Special risks are presented by hospitals, nursing
homes, hospitality properties and certain other property types. Commercial property values and net operating income are subject to volatility,
which may result in net operating income becoming insufficient to cover debt service on the related mortgage loan. The exercise of remedies
and successful realization of liquidation proceeds relating to CMBS may be highly dependent on the performance of the servicer or special
servicer. There may be a limited number of special servicers available, particularly those that do not have conflicts of interest.
Residential Mortgage-Backed
Securities Risk. Credit-related risk on RMBS arises from losses due to delinquencies and defaults by the borrowers in payments on
the underlying mortgage loans and breaches by originators and servicers of their obligations under the underlying documentation pursuant
to which the RMBS are issued. The rate of delinquencies and defaults on residential mortgage loans and the aggregate amount of the resulting
losses will be affected by a number of factors, including general economic conditions, particularly those in the area where the related
mortgaged property is located, the level of the borrower’s equity in the mortgaged property and the individual financial circumstances
of the borrower. If a residential mortgage loan is in default, foreclosure on the related residential property may be a lengthy and difficult
process involving significant legal and other expenses. The net proceeds obtained by the holder on a residential mortgage loan following
the foreclosure on the related property may be less than the total amount that remains due on the loan. The prospect of incurring a loss
upon the foreclosure of the related property may lead the holder of the residential mortgage loan to restructure the residential mortgage
loan or otherwise delay the foreclosure process. These risks are elevated given the current state of economic, market, public health and
labor conditions.
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Sub-Prime Mortgage
Market Risk. The residential mortgage market in the United States has experienced difficulties that may adversely affect the performance
and market value of certain mortgages and mortgage-related securities. Delinquencies and losses on residential mortgage loans (especially
sub-prime and second-line mortgage loans) generally have increased at times and may again increase, and a decline in or flattening of
housing values (as has at times been experienced and may again be experienced in many housing markets) may exacerbate such delinquencies
and losses. Borrowers with adjustable rate mortgage loans are more sensitive to changes in interest rates, which affect their monthly
mortgage payments, and may be unable to secure replacement mortgages at comparably low interest rates. Also, a number of residential mortgage
loan originators have experienced serious financial difficulties or bankruptcy. Largely due to the foregoing, reduced investor demand
for mortgage loans and mortgage-related securities and increased investor yield requirements have at times caused limited liquidity in
the secondary market for mortgage-related securities, which can adversely affect the market value of mortgage-related securities. It is
possible that such limited liquidity in such secondary markets could continue or worsen. If the economy of the United States deteriorates
further, the incidence of mortgage foreclosures, especially sub-prime mortgages, may increase, which may adversely affect the value of
any mortgage-backed securities owned by the Trust.
Any increase in prevailing market interest rates, which until recently
were near historical lows and have begun to rise, may result in increased payments for borrowers who have adjustable rate mortgages. Moreover,
with respect to hybrid mortgage loans after the initial fixed rate period, interest-only products or products having a lower rate, and
with respect to mortgage loans with a negative amortization feature which reach their negative amortization cap, borrowers may experience
a substantial increase in their monthly payment even without an increase in prevailing market interest rates. Increases in payments for
borrowers may result in increased rates of delinquencies and defaults on residential mortgage loans underlying RMBS.
The significance of the mortgage crisis and loan defaults in residential
mortgage loan sectors led to the enactment of numerous pieces of legislation relating to the mortgage and housing markets. These actions,
along with future legislation or regulation, may have significant impacts on the mortgage market generally and may result in a reduction
of available transactional opportunities for the Trust or an increase in the cost associated with such transactions and may adversely
impact the value of RMBS.
During the mortgage crisis, a number of originators and servicers
of residential and commercial mortgage loans, including some of the largest originators and servicers in the residential and commercial
mortgage loan market, experienced serious financial difficulties. These or similar difficulties may occur in the future and affect the
performance of non-agency RMBS and CMBS. There can be no assurance that originators and servicers of mortgage loans will not continue
to experience serious financial difficulties or experience such difficulties in the future, including becoming subject to bankruptcy or
insolvency proceedings, or that underwriting procedures and policies and protections against fraud will be sufficient in the future to
prevent such financial difficulties or significant levels of default or delinquency on mortgage loans.
Asset-Backed Securities Risk
ABS are a form of structured debt obligation. In addition to the
general risks associated with credit or debt securities discussed herein and the risks discussed under “Structured Finance Investments
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Risk,” ABS are subject to additional risks. While traditional
fixed-income securities typically pay a fixed rate of interest until maturity, when the entire principal amount is due, an ABS represents
an interest in a pool of assets, such as automobile loans, credit card receivables, unsecured consumer loans or student loans, that has
been securitized and provides for monthly payments of interest, at a fixed or floating rate, and principal from the cash flow of these
assets. This pool of assets (and any related assets of the issuing entity) is the only source of payment for the ABS. The ability of an
ABS issuer to make payments on the ABS, and the timing of such payments, is therefore dependent on collections on these underlying assets.
The recoveries on the underlying collateral may not, in some cases, be sufficient to support payments on these securities, which may result
in losses to investors in an ABS.
Generally, obligors may prepay the underlying assets in full or
in part at any time, subjecting the Trust to prepayment risk related to the ABS it holds. While the expected repayment streams on ABS
are determined by the contractual amortization schedules for the underlying assets, an investor’s yield to maturity on an ABS is
uncertain and may be reduced by the rate and speed of prepayments of the underlying assets, which may be influenced by a variety of economic,
social and other factors. Any prepayments, repurchases, purchases or liquidations of the underlying assets could shorten the average life
of the ABS to an extent that cannot be fully predicted. Some ABS may be structured to include a period of rapid amortization triggered
by events such as a significant rise in the default rate of the underlying collateral, a sharp drop in the credit enhancement level because
of credit losses on the underlying assets, a specified regulatory event or the bankruptcy of the originator. A rapid amortization event
will cause any revolving period to end earlier than expected and all collections on the underlying assets will be used to pay principal
to investors earlier than expected. In general, the senior most securities will be paid prior to any payments being made on the subordinated
securities, and if such payments are made earlier than expected, the Trust’s yield on such ABS may be negatively affected.
The collateral underlying ABS may constitute assets related to a
wide range of industries, such as credit card and automobile receivables or other assets derived from consumer, commercial or corporate
sectors, and these underlying assets may be secured or unsecured. The value of ABS held by the Trust also may be reduced because of actual
or perceived changes in the creditworthiness of the obligors on the underlying assets, the originators, the servicers, any financial institutions
providing credit support or hedging counterparties that are required to make payments on the ABS. Additionally, an obligor may seek protection
under debtor relief laws and therefore the debtor may be able to avoid or delay payments. Economic factors, including unemployment, interest
rates and the rate of inflation, may affect the rate of prepayments and defaults on the underlying receivables and may accelerate, delay
or reduce expected payments on an ABS. During recessions or periods of economic contraction, factors such as elevated unemployment, decreased
asset values or reductions in available credit may lead to increased delinquency and default rates on the underlying receivables.
In general, the value of the assets collateralizing an ABS will
exceed the principal amount of the ABS issued in a transaction. This excess value is generally referred to as “overcollateralization.”
The amount of overcollateralization varies based on the credit quality of the underlying collateral backing the ABS. In general, losses
on the assets underlying the ABS will reduce the amount of overcollateralization on the ABS and increase the risk to holders of the ABS.
Other forms of credit enhancement may be used, including letters of credit or monoline insurance policies. These forms of
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credit enhancement are subject to risk if the party obligated to
make payments on the letter of credit or insurance policy defaults on the obligation to the ABS issuer.
Payments to holders of ABS may be subject to deferral. If the cash
flow generated by the underlying assets is insufficient to make all payments required on a payment date, such payments may be deferred
to the following payment date. If the cash flow remains insufficient to make payments on the ABS as a result of credit losses on the underlying
assets, there may be no recourse by the Trust for any shortfall.
CLO, CDO and CBO Risk
The Trust may invest in CDOs, CBOs and CLOs. A CDO is an ABS whose
underlying collateral is typically a portfolio of other structured finance debt securities or synthetic instruments issued by another
ABS vehicle. A CBO is an ABS whose underlying collateral is a portfolio of bonds. A CLO is an ABS whose underlying collateral is a portfolio
of bank loans.
In addition to the general risks associated with credit or debt
securities discussed herein and the risks discussed under “Structured Finance Investments Risk” and “Asset Backed Securities
Risk,” CLOs, CDOs and CBOs are subject to additional risks. CLOs, CDOs and CBOs are subject to risks associated with the involvement
of multiple transaction parties related to the underlying collateral and disruptions that may occur as a result of the restructuring or
insolvency of the underlying obligors, which are generally corporate obligors. Unlike a consumer obligor that is generally obligated to
make payments on the collateral backing an ABS, the obligor on the collateral backing a CLO, a CDO or a CBO may have more effective defenses
or resources to cause a delay in payment or restructure the underlying obligation. If an obligor is permitted to restructure its obligations,
distributions from collateral securities may not be adequate to make interest or other payments.
The performance of CLOs, CDOs and CBOs depends primarily upon the
quality of the underlying assets and the level of credit support or enhancement in the structure and the relative priority of the interest
in the issuer of the CLO, CDO or CBO purchased by the Trust. In general, CLOs, CDOs and CBOs are actively managed by an asset manager
that is responsible for evaluating and acquiring the assets that will collateralize the CLO, CDO or CBO. The asset manager may have difficulty
in identifying assets that satisfy the eligibility criteria for the assets and may be restricted from trading the collateral. These criteria,
restrictions and requirements, while reducing the overall risk to the Trust, may limit the ability of GPIM to maximize returns on the
CLOs, CDOs and CBOs if an opportunity is identified by the collateral manager. In addition, other parties involved in CLOs, CDOs and CBOs,
such as credit enhancement providers and investors in senior obligations of the CLO, CDO or CBO may have the right to control the activities
and discretion of GPIM in a manner that is adverse to the interests of the Trust. A CLO, CDO or CBO generally includes provisions that
alter the priority of payments if performance metrics related to the underlying collateral, such as interest coverage and minimum overcollateralization,
are not met. These provisions may cause delays in payments on the securities or an increase in prepayments depending on the relative priority
of the securities owned by the Trust. The failure of a CLO, CDO or CBO to make timely payments on a particular tranche may have an adverse
effect on the liquidity and market value of such tranche.
Payments to holders of CLOs, CDOs and CBOs may be subject to deferral.
If cashflows generated by the underlying assets are insufficient to make all current and, if applicable, deferred payments on the CLOs,
CDOs and CBOs, no other assets will be available for payment of the deficiency and, following
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realization of the underlying assets, the obligations of the issuer
to pay such deficiency will be extinguished.
The value of securities issued by CLOs, CDOs and CBOs also may change
because of, among other things, changes in market value; changes in the market’s perception of the creditworthiness of the servicer
of the assets, the originator of an asset in the pool, or the financial institution or fund providing credit support or enhancement; loan
performance and prices; broader market sentiment, including expectations regarding future loan defaults, liquidity conditions and supply
and demand for structured products.
CLO Subordinated Notes Risk
The Trust may invest in any portion of the capital structure of
CLOs (including the subordinated, residual and deep mezzanine debt tranches). Investment in the subordinated tranche is subject to special
risks. The subordinated tranche does not receive ratings and is considered the riskiest portion of the capital structure of a CLO. The
subordinated tranche is junior in priority of payment to the more senior tranches of the CLO and is subject to certain payment restrictions.
As a result, the subordinated tranche bears the bulk of defaults from the loans in the CLO. In addition, the subordinated tranche generally
has only limited voting rights and generally does not benefit from any creditors’ rights or ability to exercise remedies under the
indenture governing the CLO notes. Certain mezzanine tranches in which the Trust may invest may also be subject to certain risks similar
to risks associated with investment in the subordinated tranche.
The subordinated tranche is unsecured and ranks behind all of the
secured creditors, known or unknown, of the CLO issuer, including the holders of the secured notes it has issued. Consequently, to the
extent that the value of the issuer’s portfolio of loan investments has been reduced as a result of conditions in the credit markets,
defaulted loans, capital gains and losses on the underlying assets, prepayment or changes in interest rates, the value of the subordinated
tranche realized at redemption could be reduced. If a CLO breaches certain tests set forth in the CLO’s indenture, excess cash flow
that would otherwise be available for distribution to the subordinated tranche investors is diverted to prepay CLO debt investors in order
of seniority until such time as the covenant breach is cured. If the covenant breach is not or cannot be cured, the subordinated tranche
investors (and potentially other investors in lower priority rated tranches) may experience a partial or total loss of their investment.
Accordingly, the subordinated tranche may not be paid in full and may be subject to up to 100% loss. At the time of issuance, the subordinated
tranche of a CLO is typically under-collateralized in that the liabilities of a CLO at inception exceed its total assets.
The leveraged nature of subordinated notes may magnify the adverse
impact on the subordinated notes of changes in the market value of the investments held by the issuer, changes in the distributions on
those investments, defaults and recoveries on those investments, capital gains and losses on those investments, prepayments on those investments
and availability, prices and interest rates of those investments.
Subordinated notes are not guaranteed by another party. There can
be no assurance that distributions on the assets held by the CLO will be sufficient to make any distributions or that the yield on the
subordinated notes will meet the Trust’s expectations. Investments in the subordinated tranche of a CLO are generally less liquid
than CLO debt tranches and subject to extensive transfer restrictions, and there may be no market for subordinated notes. Therefore, Trust
may be required to
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hold subordinated notes for an indefinite period of time or until
their stated maturity. Certain mezzanine tranches in which the Trust may invest may also be subject to certain risks similar to risks
associated with investment in the subordinated tranche.
Risks Associated with RLS
RLS are a form of derivative issued by insurance companies and insurance-related
special purpose vehicles that apply securitization techniques to catastrophic property and casualty damages. Unlike other insurable low-severity,
high-probability events (such as auto collision coverage), the insurance risk of which can be diversified by writing large numbers of
similar policies, the holders of a typical RLS are exposed to the risks from high-severity, low-probability events such as that posed
by major earthquakes or hurricanes. RLS represent a method of reinsurance, by which insurance companies transfer their own portfolio risk
to other reinsurance companies and, in the case of RLS, to the capital markets. A typical RLS provides for income and return of capital
similar to other fixed-income investments, but involves full or partial default if losses resulting from a certain catastrophe exceeded
a predetermined amount. In essence, investors invest funds in RLS and if a catastrophe occurs that “triggers” the RLS, investors
may lose some or all of the capital invested. In the case of an event, the funds are paid to the bond sponsor—an insurer, reinsurer
or corporation—to cover losses. In return, the bond sponsors pay interest to investors for this catastrophe protection. RLS can
be structured to pay-off on three types of variables—insurance-industry catastrophe loss indices, insure-specific catastrophe losses
and parametric indices based on the physical characteristics of catastrophic events. Such variables are difficult to predict or model,
and the risk and potential return profiles of RLS may be difficult to assess. Catastrophe-related RLS have been in use since the 1990s,
and the securitization and risk-transfer aspects of such RLS are beginning to be employed in other insurance and risk-related areas. No
active trading market may exist for certain RLS, which may impair the ability of the Trust to realize full value in the event of the need
to liquidate such assets.
Risks Associated with Structured Notes
Investments in structured notes involve risks associated with the
issuer of the note and the reference instrument. Where the Trust’s investments in structured notes are based upon the movement of
one or more factors, including currency exchange rates, interest rates, referenced bonds and stock indices, depending on the factor used
and the use of multipliers or deflators, changes in interest rates and movement of the factor may cause significant price fluctuations.
Additionally, changes in the reference instrument or security may cause the interest rate on the structured note to be reduced to zero,
and any further changes in the reference instrument may then reduce the principal amount payable on maturity. Structured notes may be
less liquid than other types of securities and more volatile than the reference instrument or security underlying the note.
Senior Loans Risk
The Trust may invest in senior secured floating rate Loans made
to corporations and other nongovernmental entities and issuers (“Senior Loans”). Senior Loans typically hold the most senior
position in the capital structure of the issuing entity, are typically secured with specific collateral and typically have a claim on
the assets of the borrower, including stock owned by the borrower and its subsidiaries, that is senior to that held by junior lien creditors,
subordinated debt holders and stockholders of the borrower. The Trust’s investments in Senior Loans are typically below investment
grade and are considered speculative because of the credit risk of the applicable issuer.
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There is less readily-available, reliable information about most
Senior Loans than is the case for many other types of securities. In addition, there is rarely a minimum rating or other independent evaluation
of a borrower or its securities, and GPIM relies primarily on its own evaluation of a borrower’s credit quality rather than on any
available independent sources. As a result, the Trust is particularly dependent on the analytical abilities of GPIM with respect to investments
in Senior Loans. GPIM’s judgment about the credit quality of a borrower may be wrong.
The risks associated with Senior Loans of below investment grade
quality are similar to the risks of other lower grade Income Securities, although Senior Loans are typically senior in payment priority
and secured on a senior priority basis in contrast to subordinated and unsecured Income Securities. Senior Loans’ higher priority
has historically resulted in generally higher recoveries in the event of a corporate reorganization. In addition, because their interest
payments are adjusted for changes in short-term interest rates, investments in Senior Loans have less interest rate risk than certain
other lower grade Income Securities, which may have fixed interest rates. Further, transactions in Senior Loans typically settle on a
delayed basis and may take longer than seven days to settle. As a result the Trust may receive the proceeds from a sale of a Senior Loan
on a delayed basis which may affect the Trust’s ability to repay debt, to pay dividends, to pay expenses, or to take advantage of
new investment opportunities. An economic downturn generally leads to a higher non-payment rate, and a debt obligation may lose significant
value before a default occurs. Moreover, any specific collateral used to secure a Senior Loan may decline in value or become illiquid,
which would adversely affect the Senior Loan’s value.
Economic and other events (whether real or perceived) can reduce
the demand for certain Senior Loans or Senior Loans generally, which may reduce market prices and cause the Trust’s NAV per share
to fall. The frequency and magnitude of such changes cannot be predicted.
Loans and other debt instruments are also subject to the risk of
price declines due to increases in prevailing interest rates, although floating-rate debt instruments are substantially less exposed to
this risk than fixed-rate debt instruments. Interest rate changes may also increase prepayments of debt obligations and require the Trust
to invest assets at lower yields. No active trading market may exist for certain Senior Loans, which may impair the ability of the Trust
to realize full value in the event of the need to liquidate such assets. Adverse market conditions may impair the liquidity of some actively
traded Senior Loans, meaning that the Trust may not be able to sell them quickly at a desirable price. To the extent that a secondary
market does exist for certain Senior Loans, the market may be subject to irregular trading activity, wide bid/ask spreads and extended
trade settlement periods. Illiquid Senior Loans may also be difficult to value.
Although the Senior Loans in which the Trust will invest generally
will be secured by specific collateral, there can be no assurance that liquidation of such collateral would satisfy the borrower’s
obligation in the event of non-payment of scheduled interest or principal or that such collateral could be readily liquidated. In the
event of the bankruptcy of a borrower, the Trust could experience delays or limitations with respect to its ability to realize the benefits
of the collateral securing a Senior Loan. If the terms of a Senior Loan do not require the borrower to pledge additional collateral in
the event of a decline in the value of the already pledged collateral, the Trust will be exposed to the risk that the value of the collateral
will not at all times equal or exceed the amount of the borrower’s obligations under the Senior Loans. To the extent that a Senior
Loan is collateralized by stock in the borrower or its subsidiaries, such stock may lose all of its value in the event of the bankruptcy
of the
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borrower. Such Senior Loans involve a greater risk of loss. Some
Senior Loans are subject to the risk that a court, pursuant to fraudulent conveyance or other similar laws, could subordinate or otherwise
adversely affect the priority of the Senior Loans to presently existing or future indebtedness of the borrower or could take other action
detrimental to lenders, including the Trust. Such court action could under certain circumstances include invalidation of Senior Loans.
Senior Loans are subject to legislative risk. If legislation or
state or federal regulations impose additional requirements or restrictions on the ability of financial institutions to make loans, the
availability of Senior Loans for investment by the Trust may be adversely affected. In addition, such requirements or restrictions could
reduce or eliminate sources of financing for certain borrowers. This could increase the risk of default. If legislation or federal or
state regulations require financial institutions to increase their capital requirements in order to make or hold certain debt investments,
this may cause financial institutions to dispose of Senior Loans that are considered highly levered transactions. Such sales could result
in prices that, in the opinion of the Adviser, do not represent fair value. If the Trust attempts to sell a Senior Loan at a time when
a financial institution is engaging in such a sale, the price the Trust could receive for the Senior Loan may be adversely affected.
The Trust’s investments in Senior Loans may be subject to
lender liability risk. Lender liability refers to a variety of legal theories generally founded on the premise that a lender has violated
a duty of good faith, commercial reasonableness and fair dealing or a similar duty owed to the borrower or has assumed an excessive degree
of control over the borrower resulting in the creation of a fiduciary duty owed to the borrower or its other creditors or shareholders.
Because of the nature of its investments, the Trust may be subject to allegations of lender liability. In addition, under common law principles
that in some cases form the basis for lender liability claims, a court may elect to subordinate the claim of an offending lender or bondholder
(or group of offending lenders or bondholders) to the claims of a disadvantaged creditor (or group of creditors).
Economic exposure to Senior Loans through the use of derivatives
transactions may involve greater risks than if the Trust had invested in the Senior Loan interest directly during a primary distribution
or through assignments or participations in a loan acquired in secondary markets since, in addition to the risks described above, derivatives
transactions to gain exposure to Senior Loans may be subject to leverage risk and greater illiquidity risk, counterparty risk, valuation
risk and other risks associated with derivatives discussed herein.
Second Lien Loans Risk
The Trust may invest in “second lien” secured floating
rate loans made by public and private corporations and other non-governmental entities and issuers for a variety of purposes (“Second
Lien Loans”). Second Lien Loans are typically second in right of payment and/or second in right of priority with respect to collateral
remedies to one or more Senior Loans of the related borrower. Second Lien Loans are subject to the same risks associated with investment
in Senior Loans and other lower grade Income Securities. However, Second Lien Loans are second in right of payment and/or second in right
of priority with respect to collateral remedies to Senior Loans and therefore are subject to the additional risk that the cash flow of
the borrower and/or the value of any property securing the Loan may be insufficient to meet scheduled payments or otherwise be available
to repay the Loan after giving effect to payments in respect of a Senior Loan, including payments made with the proceeds of any property
securing the Loan and any senior secured obligations of the borrower.
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Second Lien Loans are expected to have greater price volatility
and exposure to losses upon default than Senior Loans and may be less liquid. There is also a possibility that originators will not be
able to sell participations in Second Lien Loans, which would create greater credit risk exposure.
Subordinated Secured Loans Risk
Subordinated secured loans generally are subject to similar risks
as those associated with investment in Senior Loans, Second Lien Loans and below investment grade securities. However, such loans may
rank lower in right of payment than any outstanding Senior Loans, Second Lien Loans or other debt instruments with higher priority of
the borrower and therefore are subject to additional risk that the cash flow of the borrower and any property securing the loan may be
insufficient to meet scheduled payments and repayment of principal in the event of default or bankruptcy after giving effect to the higher
ranking secured obligations of the borrower. Subordinated secured loans are expected to have greater price volatility than Senior Loans
and Second Lien Loans and may be less liquid.
Unsecured Loans Risk
Unsecured loans generally are subject to similar risks as those
associated with investment in Senior Loans, Second Lien Loans, subordinated secured loans and below investment grade securities. However,
because unsecured loans have lower priority in right of payment to any higher ranking obligations of the borrower and are not backed by
a security interest in any specific collateral, they are subject to additional risk that the cash flow of the borrower and available assets
may be insufficient to meet scheduled payments and repayment of principal after giving effect to any higher ranking obligations of the
borrower. Unsecured loans are expected to have greater price volatility than Senior Loans, Second Lien Loans and subordinated secured
loans and may be less liquid.
Loans and Loan Participations and Assignments Risk
The Trust may invest in loans directly or through participations
or assignments. The Trust may purchase loans on a direct assignment basis from a participant in the original syndicate of lenders or from
subsequent assignees of such interests. The Trust may also purchase, without limitation, participations in loans. The purchaser of an
assignment typically succeeds to all the rights and obligations of the assigning institution and becomes a lender under the credit agreement
with respect to the debt obligation; however, the purchaser’s rights can be more restricted than those of the assigning institution,
and, in any event, the Trust may not be able to unilaterally enforce all rights and remedies under the loan and with regard to any associated
collateral. A participation typically results in a contractual relationship only with the institution participating out the interest,
not with the borrower. In purchasing participations, the Trust generally will have no right to enforce compliance by the borrower with
the terms of the loan agreement against the borrower, and the Trust may not directly benefit from the collateral supporting the debt obligation
in which it has purchased the participation. As a result, the Trust will be exposed to the credit risk of both the borrower and the institution
selling the participation. Further, in purchasing participations in lending syndicates, the Trust may not be able to conduct the same
due diligence on the borrower with respect to a Senior Loan that the Trust would otherwise conduct. In addition, as a holder of the participations,
the Trust may not have voting rights or inspection rights that the Trust would otherwise have if it were investing directly in the Senior
Loan, which may result in the Trust being exposed to greater credit or fraud risk with respect to the borrower or the Senior Loan. Lenders
selling a participation and other
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persons inter-positioned between the lender and the Trust with respect
to a participation will likely conduct their principal business activities in the banking, finance and financial services industries.
Because the Trust may invest in participations, the Trust may be more susceptible to economic, political or regulatory occurrences affecting
such industries.
Certain of the loan participations or assignments acquired by the
Trust may involve unfunded commitments of the lenders, revolving credit facilities, delayed draw credit facilities or other investments
under which a borrower may from time to time borrow and repay amounts up to the maximum amount of the facility. In such cases, the Trust
would have an obligation to advance its portion of such additional borrowings upon the terms specified in the loan documentation. Such
an obligation may have the effect of requiring the Trust to increase its investment in a company at a time when it might not be desirable
to do so (including at a time when the company’s financial condition makes it unlikely that such amounts will be repaid). These
commitments are generally subject to the borrowers meeting certain criteria such as compliance with covenants and certain operational
metrics. The terms of the borrowings and financings subject to commitment are comparable to the terms of other loans and related investments
in the Trust’s portfolio.
Should a loan in which the Trust is invested be foreclosed on, the
Trust may become owner of the collateral and will be responsible for any costs and liabilities associated with owning the collateral.
If the collateral includes a pledge of equity interests in the borrower by its owners, the Trust may become the owner of equity in the
borrower and may be responsible for the borrower’s business operations and/or assets. The applicability of the securities laws is
subject to court interpretation of the nature of the loan and its characterization as a security. Accordingly, the Trust cannot be certain
of any protections it may be afforded under the securities or other laws against fraud or misrepresentation.
Loans are especially vulnerable to the financial health, or perceived
financial health, of the borrower but are also particularly susceptible to economic and market sentiment such that changes in these conditions
or the occurrence of other economic or market events may reduce the demand for loans and cause their value to decline rapidly and unpredictably.
Many loans and loan interests are subject to legal or contractual restrictions on transfer, resale or assignment that may limit the ability
of the Trust to sell its interest in a loan at an advantageous time or price. The resale, or secondary, market for loans is currently
growing, but may become more limited or more difficult to access, and such changes may be sudden and unpredictable. Transactions in loans
are often subject to long settlement periods (in excess of the standard T+2 days settlement cycle for most securities and often longer
than seven days). As a result, sale proceeds potentially will not be available to the Trust to make additional investments or to use proceeds
to meet its current obligations. The Trust thus is subject to the risk of selling other investments at disadvantageous times or prices
or taking other actions necessary to raise cash to meet its obligations such as borrowing from a bank or holding additional cash, particularly
during periods of unusual market or economic conditions or financial stress.
The Trust invests in or is exposed to loans and other similar debt
obligations that are sometimes referred to as “covenant-lite” loans or obligations (“covenant-lite obligations”),
which are generally subject to more risk than investments that contain traditional financial maintenance covenants and financial reporting
requirements. The Trust may have fewer rights with respect to covenant-lite obligations, including fewer protections against the possibility
of default and fewer remedies in the
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event of default. As a result, investments in (or exposure to) covenant-lite
obligations are subject to more risk than investments in (or exposure to) certain other types of obligations.
In certain circumstances, the Adviser or its affiliates (including
on behalf of clients other than the Trust) or the Trust may be in possession of material non-public information about a borrower as a
result of its ownership of a loan and/or corporate debt security of a borrower. Because U.S. laws and regulations generally prohibit trading
in securities of issuers while in possession of material, non¬public information, the Trust might be unable (potentially for a substantial
period of time) to trade securities or other instruments issued by the borrower when it would otherwise be advantageous to do so and,
as such, could incur a loss. In circumstances when the Adviser, GPIM or the Trust determines to avoid or to not receive non-public information
about a borrower for loan investments being considered for acquisition by the Trust or held by the Trust, the Trust may be disadvantaged
relative to other investors that do receive such information, and the Trust may not be able to take advantage of other investment opportunities
that it may otherwise have. The Adviser or its affiliates may participate in the primary and secondary market for loans or other transactions
with possible borrowers. As a result, the Trust may be legally restricted from acquiring some loans and from participating in a restructuring
of a loan or other similar instrument. Further, if the Trust, in combination with other accounts managed by the Adviser or its affiliates,
acquires a large portion of a loan, the Trust’s valuation of its interests in the loan and the Trust’s ability to dispose
of the loan at favorable times or prices may be adversely affected.
The Trust is subject to other risks associated with investments
in (or exposure to) loans and other similar obligations, including that such loans or obligations may not be considered “securities”
and, as a result, the Trust may not be entitled to rely on the anti-fraud protections under the federal securities laws and instead may
have to resort to state law and direct claims.
Unfunded Commitments Risk
Certain of the loan participations or assignments acquired by the
Trust may involve unfunded commitments of the lenders, revolving credit facilities, delayed draw credit facilities or other investments
under which a borrower may from time to time borrow and repay amounts up to the maximum amount of the facility. In such cases, the Trust
would have an obligation to advance its portion of such additional borrowings upon the terms specified in the loan documentation. Such
an obligation may have the effect of requiring the Trust to increase its investment in a company at a time when it might not be desirable
to do so (including at a time when the company’s financial condition makes it unlikely that such amounts will be repaid). These
commitments are generally subject to the borrowers meeting certain criteria such as compliance with covenants and certain operational
metrics. The terms of the borrowings and financings subject to commitment are comparable to the terms of other loans and related investments
in the Trust’s portfolio.
Distressed and Defaulted Securities Risk
Investments in the securities of financially distressed issuers
involve substantial risks. These securities may present a substantial risk of default or may be in default at the time of investment.
The Trust may incur additional expenses to the extent it is required to seek recovery upon a default in the payment of principal or interest
on its portfolio holdings. In any reorganization or liquidation proceeding relating to a portfolio company, the Trust may lose its entire
investment or may be required to accept cash or securities with a value less than its original investment. Among the risks
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inherent in investments in a troubled entity is the fact that it
frequently may be difficult to obtain information as to the true financial condition of such issuer. The Adviser’s judgment about
the credit quality of the issuer and the relative value and liquidity of its securities may prove to be wrong.
Convertible Securities Risk
Convertible securities, debt or preferred equity securities convertible
into, or exchangeable for, equity securities, are generally preferred stocks and other securities, including fixed-income securities and
warrants that are convertible into or exercisable for common stock. Convertible securities generally participate in the appreciation or
depreciation of the underlying stock into which they are convertible, but to a lesser degree and are subject to the risks associated with
debt and equity securities, including interest rate, market and issuer risks. For example, if market interest rates rise, the value of
a convertible security usually falls. Certain convertible securities may combine higher or lower current income with options and other
features. Warrants are options to buy a stated number of shares of common stock at a specified price anytime during the life of the warrants
(generally, two or more years). Convertible securities may be lower-rated securities subject to greater levels of credit risk. A convertible
security may be converted before it would otherwise be most appropriate, which may have an adverse effect on the Trust’s ability
to achieve its investment objective.
“Synthetic” convertible securities have economic characteristics
similar to those of a traditional convertible security due to the combination of separate securities that possess the two principal characteristics
of a traditional convertible security, i.e., an income-producing security (“income-producing component”) and the right to
acquire an equity security (“convertible component”). The income-producing component is achieved by investing in non-convertible,
income-producing securities such as bonds, preferred stocks and money market instruments, which may be represented by derivative instruments.
The convertible component is achieved by investing in securities
or instruments such as warrants or options to buy common stock at a certain exercise price, or options on a stock index. A simple example
of a synthetic convertible security is the combination of a traditional corporate bond with a warrant to purchase equity securities of
the issuer of the bond. The income-producing and convertible components of a synthetic convertible security may be issued separately by
different issuers and at different times.
Liquidity Risk
The Trust may invest in municipal securities that are, at the time
of investment, illiquid. Illiquid securities are securities that cannot be disposed of within seven days in the ordinary course of business
at approximately the value that the Trust values the securities. Illiquid securities may trade at a discount from comparable, more liquid
securities and may be subject to wide fluctuations in market value. The Trust may be subject to significant delays in disposing of illiquid
securities. Accordingly, the Trust may be forced to sell these securities at less than fair market value or may not be able to sell them
when the Adviser believes it is desirable to do so. Illiquid securities also may entail registration expenses and other transaction costs
that are higher than those for liquid securities. Restricted securities (i.e., securities subject to legal or contractual restrictions
on resale) may be illiquid. However, some restricted securities (such as securities issued pursuant to Rule 144A under the Securities
Act of 1933, as amended (the “1933 Act”) and certain commercial paper) may be treated as liquid for these purposes. Inverse
floating-rate securities or the residual interest
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certificates of tender option bond trusts are not considered illiquid
securities. Dislocations in certain parts of markets have in the past and may in the future result in reduced liquidity for certain investments.
Liquidity of financial markets may also be affected by government intervention.
Volatility Risk
The use of Financial Leverage by the Trust will cause the net asset
value, and possibly the market price, of the Trust’s Common Shares to fluctuate significantly in response to changes in interest
rates and other economic indicators. In addition, the Trust may invest up to 20% of its managed assets in below investment grade securities
(i.e., “junk bonds”), which may be less liquid and therefore more volatile than investment grade municipal securities. As
a result, the net asset value and market price of the Trust’s Common Shares will be more volatile than those of a closed-end investment
company that is not exposed to leverage or that does not invest in below investment grade securities. In a declining market, the use of
leverage may result in a greater decline in the net asset value of the Common Shares than if the Trust were not leveraged.
Inverse Floating-Rate Securities Risk
Under current market conditions, the Trust anticipates utilizing
Financial Leverage through Indebtedness and/or engaging in reverse repurchase agreements. However, the Trust also may utilize Financial
Leverage through investments in inverse floating-rate securities (sometimes referred to as “inverse floaters”). Typically,
inverse floating-rate securities represent beneficial interests in a special purpose trust (sometimes called a “tender option bond
trust”) formed by a third party sponsor for the purpose of holding municipal bonds. Distributions on inverse floating-rate securities
bear an inverse relationship to short-term municipal bond interest rates. In general, income on inverse floating-rate securities will
decrease, or in the extreme be eliminated, when interest rates increase and increase when interest rates decrease. Investments in inverse
floating-rate securities may subject the Trust to the risks of reduced or eliminated interest payments and losses of principal. Short-term
interest rates are at historic lows and may be more likely to rise in the current market environment. Inverse floating-rate securities
may increase or decrease in value at a greater rate than the underlying interest rate, which effectively leverages the Trust’s investment.
As a result, the market value of such securities generally will be more volatile than that of fixed-rate securities. Inverse floating-rate
securities have varying degrees of liquidity based, among other things, upon the liquidity of the underlying securities deposited in a
special purpose trust. The Trust may invest in taxable inverse floating-rate securities, issued by special purpose trusts formed with
taxable municipal securities. The market for such inverse floating-rate securities issued by special purpose trusts formed with taxable
municipal securities is relatively new and undeveloped. Initially, there may be a limited number of counterparties, which may increase
the credit risks, counterparty risk and liquidity risk of investing in taxable inverse floating-rate securities. The leverage attributable
to such inverse floating-rate securities may be “called away” on relatively short notice and therefore may be less permanent
than more traditional forms of Financial Leverage. In certain circumstances, to the extent the Trust relies on inverse floating-rate securities
to achieve its desired effective leverage ratio the likelihood of an increase in the volatility of net asset value and market price of
the Common Shares may be greater. To the extent the Trust relies on inverse floating-rate securities to achieve its desired effective
leverage ratio, the Trust may be required to sell its inverse floating-rate securities at less than favorable prices, or liquidate other
Trust portfolio holdings in certain circumstances.
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Investments in sovereign debt securities, such as foreign government
debt or foreign treasury bills, involve special risks, including the availability of sufficient foreign exchange on the date a payment
is due, the relative size of the debt service burden to the economy as a whole, the government debtor’s policy towards the International
Monetary Fund or international lenders, the political constraints to which the debtor may be subject and other political considerations.
Periods of economic and political uncertainty may result in the illiquidity and increased price volatility of sovereign debt securities
held by the Trust. The governmental authority that controls the repayment of sovereign debt may be unwilling or unable to repay the principal
and/or interest when due in accordance with the terms of such securities due to the extent of its foreign reserves. If an issuer of sovereign
debt defaults on payments of principal and/or interest, the Trust may have limited or no legal recourse against the issuer and/or guarantor.
In certain cases, remedies must be pursued in the courts of the defaulting party itself. For example, there may be no bankruptcy or similar
proceedings through which all or part of the sovereign debt that a governmental entity has not repaid may be collected. There can be no
assurance that the holders of commercial bank loans to the same sovereign entity may not contest payments to the holders of sovereign
debt in the event of default under commercial bank loan agreements.
Certain issuers of sovereign debt may be dependent on disbursements
from foreign governments, multilateral agencies and others abroad to reduce principal and interest arrearages on their debt. Such disbursements
may be conditioned upon a debtor’s implementation of economic reforms and/or economic performance and the timely service of such
debtor’s obligations. A failure on the part of the debtor to implement such reforms, achieve such levels of economic performance
or repay principal or interest when due may result in the cancellation of such third parties’ commitments to lend funds to the debtor,
which may impair the debtor’s ability to service its debts on a timely basis. Foreign investment in certain sovereign debt is restricted
or controlled to varying degrees, including requiring governmental approval for the repatriation of income, capital or proceeds of sales
by foreign investors.
These restrictions or controls may at times limit or preclude foreign
investment in certain sovereign debt and increase the costs and expenses of the Trust.
As a holder of sovereign debt, the Trust may be requested to participate
in the restructuring of such sovereign indebtedness, including the rescheduling of payments and the extension of further loans to debtors,
which may adversely affect the Trust. There can be no assurance that such restructuring will result in the repayment of all or part of
the debt. Sovereign debt risk is increased for emerging market issuers and certain emerging market countries have declared moratoria on
the payment of principal and interest on external debt. Certain emerging market countries have experienced difficulty in servicing their
sovereign debt on a timely basis, which has led to defaults and the restructuring of certain indebtedness.
The Trust may also invest in securities or other obligations issued
or backed by supranational organizations, which are international organizations that are designated or supported by government entities
or banking institutions typically to promote economic reconstruction or development. These obligations are subject to the risk that the
government(s) on whose support the organization depends may be unable or unwilling to provide the necessary support. With respect to both
sovereign and supranational obligations, the Trust may have little recourse against the foreign
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government or supranational organization that issues or backs the
obligation in the event of default. These obligations may be denominated in foreign currencies and the prices of these obligations may
be more volatile than corporate debt obligations.
Strategic Transactions Risk
The Trust may engage in various portfolio strategies, including
derivatives transactions involving interest rate and foreign currency transactions, swaps, options and futures, for hedging and risk management
purposes and to enhance total return. The use of Strategic Transactions to enhance total return may be particularly speculative. Strategic
Transactions involve risks, including the imperfect correlation between the value of such instruments and the underlying assets, the possible
default of the other party to the transaction and illiquidity of the derivative instruments. Furthermore, the Trust’s ability to
successfully use Strategic Transactions depends on the Adviser’s ability to predict pertinent market movements, which cannot be
assured. The use of Strategic Transactions s may result in losses greater than if they had not been used, may require the Trust to sell
or purchase portfolio securities at inopportune times or for prices other than current market values, may limit the amount of appreciation
the Trust can realize on an investment or may cause the Trust to hold a security that it might otherwise sell. Additionally, amounts paid
by the Trust as premiums and cash or other assets held in margin accounts with respect to Strategic Transactions are not otherwise available
to the Trust for investment purposes.
Synthetic Investments Risk
The Trust may be exposed to certain additional risks to the extent
the Adviser uses derivatives as a means to synthetically implement the Trust’s investment strategies. If the Trust enters into a
derivative instrument whereby it agrees to receive the return of a security or financial instrument or a basket of securities or financial
instruments, it will typically contract to receive such returns for a predetermined period of time. During such period, the Trust may
not have the ability to increase or decrease its exposure. In addition, such customized derivative instruments will likely be highly illiquid,
and it is possible that the Trust will not be able to terminate such derivative instruments prior to their expiration date or that the
penalties associated with such a termination might impact the Trust’s performance in a material adverse manner. Furthermore, certain
derivative instruments contain provisions giving the counterparty the right to terminate the contract upon the occurrence of certain events.
Such events may include a decline in the value of the reference securities and material violations of the terms of the contract or the
portfolio guidelines as well as other events determined by the counterparty. If a termination were to occur, the Trust’s return
could be adversely affected as it would lose the benefit of the indirect exposure to the reference securities and it may incur significant
termination expenses.
Counterparty Risk
Counterparty risk is the risk that a counterparty to Trust transactions
(e.g., prime brokerage or securities lending arrangement or derivatives transaction) will be unable or unwilling to perform its contractual
obligation to the Trust. The Trust will be subject to credit risk with respect to the counterparties to the derivative contracts purchased
by the Trust. If a counterparty becomes bankrupt or otherwise fails to perform its obligations under a derivative contract, the Trust
may experience significant delays in obtaining any recovery under the derivative contract in bankruptcy or other reorganization proceedings,
the risk of which is particularly acute under current conditions.
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The Trust may obtain only a limited recovery or may obtain no recovery
in such circumstances. If a counterparty’s credit becomes significantly impaired, multiple requests for collateral posting in a
short period of time could increase the risk that the Trust may not receive adequate collateral.
The Trust bears the risk that conterparties may be adversely affected
by legislative or regulatory changes, adverse market conditions (such as the current conditions), increased competition, and/or wide scale
credit losses resulting from financial difficulties of the counterparties' other trading partners or borrowers.
Securities Lending Risk
The Trust may lend its portfolio securities to banks or dealers
which meet the creditworthiness standards established by the Board of Trustees. Securities lending is subject to the risk that loaned
securities may not be available to the Trust on a timely basis and the Trust may therefore lose the opportunity to sell the securities
at a desirable price. Any loss in the market price of securities loaned by the Trust that occurs during the term of the loan would be
borne by the Trust and would adversely affect the Trust’s performance. Also, there may be delays in recovery, or no recovery, of
securities loaned or even a loss of rights in the collateral should the borrower of the securities fail financially while the loan is
outstanding.
Investment Funds Risk
As an alternative to holding investments directly, the Trust may
also obtain investment exposure to securities in which it may invest directly by investing up to 20% of its Managed Assets in Investment
Funds. These investments include open-end funds, closed-end funds, exchange-traded funds and business development companies as well as
other pooled investment vehicles. Investment Funds may include those advised by the Adviser or its affiliates. Investments in Investment
Funds present certain special considerations and risks not present in making direct investments in securities in which the Trust may invest.
Investments in Investment Funds subject the Trust to the risks affecting such Investment Funds and involve operating expenses and fees
that are in addition to the expenses and fees borne by the Trust. Such expenses and fees attributable to the Trust’s investment
in another Investment Fund are borne indirectly by Common Shareholders. Accordingly, investment in such entities involves expenses and
fees at both levels. Fees and expenses borne by other Investment Funds in which the Trust invests may be similar to the fees and expenses
borne by the Trust and can include asset-based management fees and administrative fees payable to such entities’ advisers and managers,
as well as other expenses borne by such entities, thus resulting in fees and expenses at both levels. To the extent management fees of
Investment Funds are based on total gross assets, it may create an incentive for such entities’ managers to employ Financial Leverage,
thereby adding additional expense and increasing volatility and risk (including the Trust’s overall exposure to financial leverage
risk). Fees payable to advisers and managers of Investment Funds may include performance-based incentive fees calculated as a percentage
of profits. Such incentive fees directly reduce the return that otherwise would have been earned by investors over the applicable period.
A performance-based fee arrangement may create incentives for an adviser or manager to take greater investment risks in the hope of earning
a higher profit participation.
Investments in Investment Funds frequently expose the Trust to an
additional layer of Financial Leverage. The use of leverage by Investment Funds may cause the Investments Funds’ market price of
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common shares and/or NAV to be more volatile and can magnify the
effect of any losses. From time to time, the Trust may invest a significant portion of its assets in Investment Funds that employ leverage.
Investments in Investment Funds expose the Trust to additional management
risk. The success of the Trust’s investments in Investment Funds will depend in large part on the investment skills and implementation
abilities of the advisers or managers of such entities. Decisions made by the advisers or managers of such entities may cause the Trust
to incur losses or to miss profit opportunities. While GPIM will seek to evaluate managers of Investment Funds and where possible independently
evaluate the underlying assets, a substantial degree of reliance on such entities’ managers is nevertheless present with such investments.
The Trust may invest in Investment Funds in excess of statutory
limits imposed by the 1940 Act in reliance on Rule 12d1-4 under the 1940 Act. These investments would be subject to the applicable conditions
of Rule 12d1-4, which in part could affect or otherwise impose certain limits on the investments and operations of the underlying Investment
Fund (notably such fund’s ability to invest in other investment companies and private funds, which include certain structured finance
vehicles). It is uncertain what effect the conditions of Rule 12d1-4 will have on the Trust’s investment strategies and operations
or those of the Investment Funds in which the Trust may invest.
If the Trust invests in Investment Funds, the Trust's realized losses
on sales of shares of an underlying Investment Fund may be indefinitely or permanently deferred as "wash sales." Distributions
of short-term capital gains by an underlying Investment Fund will be recognized as ordinary income by the Trust and would not be offset
by the Trust's capital loss carryforwards, if any. Capital loss carryforwards of an underlying Investment Fund, if any, would not offset
net capital gain of the Trust or of another underlying Investment Fund.
Market Discount Risk
Shares of closed-end management investment companies frequently
trade at a discount from their net asset value, which is a risk separate and distinct from the risk that the Trust’s net asset value
could decrease as a result of its investment activities. Although the value of the Trust’s net assets is generally considered by
market participants in determining whether to purchase or sell Common Shares, whether investors will realize gains or losses upon the
sale of Common Shares will depend entirely upon whether the market price of Common Shares at the time of sale is above or below the investor’s
purchase price for Common Shares.
The Trust’s net asset value will be reduced immediately following
an offering of the Common Shares due to the costs of such offering, which will be borne entirely by the Trust. The sale of Common Shares
by the Trust (or the perception that such sales may occur) may have an adverse effect on prices of Common Shares in the secondary market.
An increase in the number of Common Shares available may put downward pressure on the market price for Common Shares. The Trust may, from
time to time, seek the consent of Common Shareholders to permit the issuance and sale by the Trust of Common Shares at a price below the
Trust’s then current net asset value, subject to certain conditions, and such sales of Common Shares at price below net asset value,
if any, may increase downward pressure on the market price for Common Shares. These sales, if any, also might make it more difficult for
the Trust to sell additional Common Shares in the future at a time and price it deems appropriate.
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Whether Common Shareholder will realize a gain or loss upon the
sale of Common Shares depends upon whether the market value of the Common Shares at the time of sale is above or below the price the Common
Shareholder paid, taking into account transaction costs for the Common Shares, and is not directly dependent upon the Trust’s net
asset value. Because the market price of Common Shares will be determined by factors such as net asset value, dividend and distribution
levels (which are dependent, in part, on expenses), supply of and demand for Common Shares, stability of dividends or distributions, trading
volume of Common Shares, general market and economic conditions and other factors beyond the control of the Trust, the Trust cannot predict
whether Common Shares will trade at, below or above net asset value or at, below or above the public offering price for the Common Shares.
Common Shares of the Trust are designed primarily for long-term investors; investors in Common Shares should not view the Trust as a vehicle
for trading purposes.
Dilution Risk
The voting power of current Common Shareholders will be diluted
to the extent that current Common Shareholders do not purchase Common Shares in any future offerings of Common Shares or do not purchase
sufficient Common Shares to maintain their percentage interest. If the Trust is unable to invest the proceeds of such offering as intended
or if investments made with these proceeds perform poorly, the Trust’s per Common Share distribution may decrease, and the Trust
may not participate in market advances to the same extent as if such proceeds were fully invested as planned. If the Trust sells Common
Shares at a price below NAV pursuant to the consent of Common Shareholders, shareholders will experience a dilution of the aggregate NAV
per Common Share because the sale price will be less than the Trust’s then-current NAV per Common Share. Similarly, were the expenses
of the offering to exceed the amount by which the sale price exceeded the Trust’s then current NAV per Common Share, shareholders
would experience a dilution of the aggregate NAV per Common Share. This dilution will be experienced by all shareholders, irrespective
of whether they purchase Common Shares in any such offering.
Special Purpose Acquisition Companies Risk
The Trust may invest in stock, warrants, rights and other securities
of SPACs or similar special purpose entities in a private placement transaction or as part of a public offering. As an alternative to
obtaining a public listing through a traditional IPO, SPAC investments carry many of the same risks as investments in IPO securities.
These may include, but are not limited to, erratic price movements, greater risk of loss, lack of information about the issuer, limited
operating and little public or no trading history, and higher transaction costs.
Investments in SPACs also have risks peculiar to the SPAC structure
and investment process. Until an acquisition or merger is completed, a SPAC generally invests its assets, less a portion retained to cover
expenses, in U.S. government securities, money market securities and cash and does not typically pay dividends in respect of its common
stock. To the extent a SPAC is invested in cash or similar securities, this may impact the Trust’s ability to meet its investment
objective. SPAC investments are also subject to the risk that a significant portion of the funds raised by the SPAC may be expended during
the search for a target acquisition or merger. Some SPACs pursue acquisitions and mergers only within certain market sectors or regions,
which can increase the volatility of their prices. Conversely, other SPACs may invest without such limitations, in which case management
may have limited experience or knowledge of the market sector or region in which the transaction is contemplated. Moreover, interests
in SPACs may be illiquid and/or be subject to
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restrictions on resale, which may remain for an extended time, and
may only be traded in the over-the-counter market. If there is no market for interests in a SPAC, or only a thinly traded market for interests
in a SPAC develops, the Trust may not be able to sell its interest in a SPAC, or may be able to sell its interest only at a price below
what the Trust believes is the SPAC interest’s value.
Portfolio Turnover Risk
The Trust’s annual portfolio turnover rate may vary greatly
from year to year. Portfolio turnover rate is not considered a limiting factor in the execution of investment decisions for the Trust.
A higher portfolio turnover rate results in correspondingly greater brokerage commissions and other transactional expenses that are borne
by the Trust. High portfolio turnover may result in an increased realization of net short-term capital gains by the Trust which, when
distributed to Common Shareholders, will be taxable as ordinary income. Additionally, in a declining market, portfolio turnover may create
realized capital losses.
UK Departure from EU (“Brexit”) Risk
On January 31, 2020, the United Kingdom officially withdrew from
the European Union (“EU”) which started an 11-month transition period ending on December 31, 2020. The United Kingdom and
the EU entered into a bilateral trade agreement on December 30, 2020, governing certain aspects of the EU’s and the United Kingdom’s
relationship following the end of the transition period, the EU-UK Trade and Cooperation Agreement (the “TCA”). The TCA provisionally
went into effect on January 1, 2021, and was ratified by the United Kingdom Parliament in December 2020 and by the EU Parliament in April
2021. Brexit has resulted in considerable uncertainty as to the United Kingdom’s post-transition framework, how future negotiations
between the United Kingdom and the EU will proceed on economic, trade, foreign policy and social issues and how the financial markets
will react in the near future and on an ongoing basis. Brexit has resulted in increased volatility and illiquidity and could result in
lower economic growth. It is not possible to anticipate the long-term impact to the economic, legal, political, regulatory and social
framework that will result from Brexit. Brexit may have a negative impact on the economy and currency of the United Kingdom and EU as
a result of anticipated, perceived or actual changes to the United Kingdom’s economic and political relations with the EU. Brexit
may also have a destabilizing impact on the EU to the extent other member states similarly seek to withdraw from the union. Any further
exits from member states of the EU, or the possibility of such exits, would likely cause additional market disruption globally and introduce
new legal and regulatory uncertainties. Any or all of these challenges may affect the value of the Trust’s investments that are
economically tied to the United Kingdom or the EU, and could have an adverse impact on the Trust’s performance.
Redenomination Risk
The result of Brexit, the progression of the European debt crisis
and the possibility of one or more Eurozone countries exiting the European Monetary Union (“EMU”), or even the collapse of
the euro as a common currency, has in recent years created significant volatility in currency and financial markets generally. The effects
of the collapse of the euro, or of the exit of one or more countries from the EMU, on the U.S. and global economies and securities markets
are impossible to predict and any such events could have a significant adverse impact on the value and risk profile of the Trust’s
portfolio. Any partial or complete dissolution of the EMU could have significant adverse effects on currency and financial markets, and
on the values of the Trust’s portfolio investments. If one or more
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EMU countries were to stop using the euro as its primary currency,
the Trust’s investments in such countries may be redenominated into a different or newly adopted currency. As a result, the value
of those investments could decline significantly and unpredictably. In addition, securities or other investments that are redenominated
may be subject to foreign currency risk, liquidity risk and valuation risk to a greater extent than similar investments currently denominated
in euros. To the extent a currency used for redenomination purposes is not specified in respect of certain EMU-related investments, or
should the euro cease to be used entirely, the currency in which such investments are denominated may be unclear, making such investments
particularly difficult to value or dispose of. The Trust may incur additional expenses to the extent it is required to seek judicial or
other clarification of the denomination or value of such securities.
LIBOR Replacement Risk
The terms of many investments, financings or other transactions
in the U.S. and globally have been historically tied to interbank reference rates (referred to collectively as the “London Interbank
Offered Rate” or “LIBOR”), which function as a reference rate or benchmark for such investments, financings or other
transactions. LIBOR may be a significant factor in determining payment obligations under derivatives transactions, the cost of financing
of Trust investments or the value or return on certain other Trust investments. As a result, LIBOR may be relevant to, and directly affect,
the Trust’s performance, price volatility, liquidity and value, as well as the price volatility, liquidity and value of the assets
that the Trust holds.
On July 27, 2017, the Chief Executive of the Financial Conduct Authority
(“FCA”), the United Kingdom’s financial regulatory body and regulator of LIBOR, announced that after 2021 it will cease
its active encouragement of banks to provide the quotations needed to sustain LIBOR due to the absence of an active market for interbank
unsecured lending and other reasons. However subsequent announcements by the FCA, the LIBOR administrator and other regulators indicate
that it is possible that the most widely used tenors of US dollar LIBORs may continue until mid-2023. It is anticipated that LIBOR ultimately
will be officially discontinued or the regulator will announce that it is no longer sufficiently robust to be representative of its underlying
market around that time. In connection with supervisory guidance from regulators, regulated entities have ceased entering into certain
new LIBOR contracts after January 1, 2022. Various financial industry groups have begun planning for that transition and certain regulators
and industry groups have taken actions to establish alternative reference rates (e.g., the Secured Overnight Financing Rate (“SOFR”),
which measures the cost of overnight borrowings through repurchase agreement transactions collateralized with U.S. Treasury securities
and is intended to replace U.S. dollar LIBORs with certain adjustments). There is no assurance that the composition or characteristics
of any such alternative reference rate will be similar to or produce the same value or economic equivalence as LIBOR or that it will have
the same volume or liquidity as did LIBOR prior to its discontinuance or unavailability, which may affect the value or liquidity or return
on certain of the Trust’s investments and result in costs incurred in connection with closing out positions and entering into new
trades. However, there are challenges to converting certain contracts and transactions to a new benchmark and neither the full effects
of the transition process nor its ultimate outcome is known.
The transition process might lead to increased volatility and illiquidity
in markets for instruments with terms tied to LIBOR. It could also lead to a reduction in the interest rates on, and the value of,
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some LIBOR-based investments and reduce the effectiveness of hedges
mitigating risk in connection with LIBOR-based investments. Although some LIBOR-based instruments may contemplate a scenario where LIBOR
is no longer available by providing for an alternative rate-setting methodology and/or increased costs for certain LIBOR-related instruments
or financing transactions, others may not have such provisions and there may be significant uncertainty regarding the effectiveness of
any such alternative methodologies. Instruments that include robust fallback provisions to facilitate the transition from LIBOR to an
alternative reference rate may also include adjustments that do not adequately compensate the holder for the different characteristics
of the alternative reference rate. The result may be that the fallback provision results in a value transfer from one party to the instrument
to the counterparty. Additionally, because such provisions may differ across instruments (e.g., hedges versus cash positions hedged or
investments in structured finance products transitioning to a different rate or at a different time as the assets underlying those structured
finance products), LIBOR’s cessation may give rise to basis risk and render hedges less effective. As the usefulness of LIBOR as
a benchmark could deteriorate during the transition period, these effects and related adverse conditions could occur prior to the anticipated
cessation of the remaining US dollar LIBOR tenors in mid-2023. There also remains uncertainty and risk regarding the willingness and ability
of issuers to include enhanced provisions in new and existing contracts or instruments, notwithstanding significant efforts by the industry
to develop robust LIBOR replacement clauses. The effect of any changes to, or discontinuation of, LIBOR on the Trust will vary depending,
among other things, on (1) existing fallback or termination provisions in individual contracts and the possible renegotiation of existing
contracts and (2) whether, how, and when industry participants develop and adopt new reference rates and fallbacks for both legacy and
new products and instruments. Trust investments may also be tied to other interbank offered rates and currencies, which also will face
similar issues. In many cases, in the event that an instrument falls back to an alternative reference rate, including the SOFR or any
reference rate based on SOFR, the alternative reference rate will not perform the same as would have and may not include adjustments to
such alternative reference rate that are reflective of current economic circumstances or differences between such alternative reference
rate and LIBOR. SOFR is based on a secured lending markets in U.S. government securities and does not reflect credit risk in the inter-bank
lending market in the way that LIBOR did. The alternative reference rates are generally secured by U.S. treasury securities and will reflect
the performance of the market for U.S. treasury securities and not the inter-bank lending markets. In the event of a credit crisis, floating
rate instruments using alternative reference rates could therefore perform differently than those instruments using a rate indexed to
the inter¬bank lending market.
Certain classes of instruments invested in by the Trust may be more
sensitive to LIBOR cessation than others. For example, certain asset classes such as floating rate notes may not contemplate a LIBOR cessation
and/or might freeze a last-published or last-used LIBOR rate for all future payment dates upon a discontinuation of LIBOR (although such
investments may be impacted by relevant state or federal LIBOR replacement legislation). Also, for example, syndicated and other business
loans tied to LIBOR may not provide a clear roadmap for LIBOR’s replacement, leaving any future adjustments to the determination
of a quantum of lenders. Securitizations and other asset-backed transactions may experience disruption as a result of inconsistencies
between when collateral assets shift from LIBOR and what rate those assets replace LIBOR with, on the one hand, and when the securitization
notes shift from LIBOR and what rate the securitization notes replace LIBOR with.
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Various pieces of legislation, including pending legislation in
various states such as Florida and Georgia and the federal law enacted in March 2022 in the U.S. Congress and laws enacted by the states
of New York and Alabama, may affect the transition of LIBOR-based instruments as well by permitting trustees and calculation agents to
transition instruments with no LIBOR transition language to an alternative reference rate selected by such agents. Such pieces of legislation
also include safe harbors from liability, which may limit the recourse the Trust may have if the alternative reference rate does not fully
compensate the Trust for the transition of an instrument from LIBOR. It is uncertain what impact any such legislation may have or that
any such legislation will be effective with respect to any particular instrument.
These developments could negatively impact financial markets in
general and present heightened risks, including with respect to the Trust’s investments. As a result of this uncertainty and developments
relating to the transition process, the Trust and its investments may be adversely affected.
Recent Market Developments Risk
Periods of market volatility remain, and may continue to occur in
the future, in response to various political, social, geopolitical, economic and public health events both within and outside of the United
States. These conditions have resulted in, and in many cases continue to result in, greater price volatility, less liquidity, widening
credit spreads and a lack of price transparency, with certain securities remaining illiquid and of uncertain value. Such market conditions
may adversely affect the Trust, including by making valuation of some of the Trust’s securities uncertain and/or result in sudden
and significant valuation increases or declines in the Trust’s holdings. If there is a significant decline in the value of the Trust’s
portfolio, this may impact the asset coverage levels for the Trust’s outstanding leverage.
Risks resulting from any future debt or other economic or public
health situation could also have a detrimental impact on the global economic recovery, the financial condition of financial institutions,
operations of businesses and the Trust’s business, financial condition and results of operation. Market and economic disruptions
have affected, and may in the future affect, consumer confidence levels and spending, personal bankruptcy rates, levels of incurrence
and default on consumer and other debt and home prices, among other factors. To the extent uncertainty regarding the U.S. or global economy
negatively impacts consumer confidence and consumer credit factors, the Trust’s business, financial condition and results of operations
could be significantly and adversely affected. Downgrades to the credit ratings of major banks could result in increased borrowing costs
for such banks and negatively affect the broader economy. Moreover, Federal Reserve policy, including with respect to certain interest
rates, may also adversely affect the value, volatility and liquidity of various investments, notably dividend- and interest-paying securities.
Market volatility, rising interest rates and/or unfavorable economic conditions could impair the Trust’s ability to achieve its
investment objective.
The COVID-19 pandemic and the recovery response has caused and continues
to cause at times reduced consumer demand and economic output, supply chain disruptions, and market closures, travel restrictions, quarantines,
and disparate global vaccine distributions. As with other serious economic disruptions, governmental authorities and regulators have responded
in recent years to this situation with significant fiscal and monetary policy changes. These included providing direct
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capital infusions into companies, introducing new monetary programs,
and lowering interest rates. In some cases, these responses resulted in high inflation, low interest rates, and negative interest rates
(which have since risen). Recently, the United States and other governments have also made investments and engaged in infrastructure modernization
projects that have also increased public debt and spending. These actions, including their reversal or potential ineffectiveness, could
further increase volatility in securities and other financial markets, reduce market liquidity, continue to cause higher inflation, heighten
investor uncertainty, and adversely affect the value of the Trust’s investments and the performance of the Trust. These actions
also contribute to a risk that asset prices have a high degree of correlation across markets and asset classes. The duration and extent
of COVID-19 over the long term cannot be reasonably estimated at this time. The ultimate impact of COVID-19 and the extent to which COVID-19
impacts the Trust will depend on future developments, which are highly uncertain and difficult to predict.
The value of, or income generated by, the investments held by the
Trust are subject to the possibility of rapid and unpredictable fluctuation, and loss. These movements may result from factors affecting
individual companies, or from broader influences, including real or perceived changes in prevailing interest rates, changes in inflation
rates or expectations about inflation rates (which are currently elevated relative to normal conditions), adverse investor confidence
or sentiment, changing economic, political (including geopolitical), social or financial market conditions, increased instability or general
uncertainty, environmental disasters, governmental actions, public health emergencies (such as the spread of infectious diseases, pandemics
and epidemics), debt crises, actual or threatened wars or other armed conflicts (such as the current Russia-Ukraine conflict and its risk
of expansion or collateral economic and other effects) or ratings downgrades, and other similar events, each of which may be temporary
or last for extended periods. Moreover, changing economic, political, geopolitical, social, financial market or other conditions in one
country or geographic region could adversely affect the value, yield and return of the investments held by the Trust in a different country
or geographic region and economies, markets and issuers generally because of the increasingly interconnected global economies and financial
markets.
Increasing Government and other Public Debt Risk
Government and other public debt, including municipal obligations
in which the Trust may invest, can be adversely affected by large and sudden changes in local and global economic conditions that result
in increased debt levels. Although high levels of government and other public debt do not necessarily indicate or cause economic problems,
high levels of debt may create certain systemic risks if sound debt management practices are not implemented. A high debt level may increase
market pressures to meet an issuer’s funding needs, which may increase borrowing costs and cause a government or public or municipal
entity to issue additional debt, thereby increasing the risk of refinancing. A high debt level also raises concerns that the issuer may
be unable or unwilling to repay the principal or interest on its debt, which may adversely impact instruments held by the Trust that rely
on such payments. Extraordinary governmental and quasigovernmental responses to the current economic, market, labor and public health
conditions are significantly increasing government and other public debt, which heighten these risks and the long-term consequences of
these actions are not known. Unsustainable debt levels can decline the valuation of currencies and can prevent a government from implementing
effective counter cyclical fiscal policy during economic downturns or can lead to increases in inflation or generate or contribute to
an economic downturn.
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Legislation and
Regulation Risk
At any time after the date hereof, U.S. and non-U.S. governmental
agencies and other regulators may implement additional regulations and legislators may pass new laws that affect the investments held
by the Trust, the strategies used by the Trust or the level of regulation or taxation applying to the Trust (such as regulations related
to investments in derivatives and other transactions). These regulations and laws may impact the investment strategies, performance, costs
and operations of the Trust, as well as the way investments in, and shareholders of, the Trust are taxed.
Risk of Failure to Qualify as a RIC
To qualify for the favorable U.S. federal income tax treatment generally
accorded to regulated investment companies (“RICs”), the Trust must, among other things, derive in each taxable year at least
90% of its gross income from certain prescribed sources, meet certain asset diversification tests and distribute for each taxable year
at least 90% of its “investment company taxable income” (generally, ordinary income plus the excess, if any, of net short-term
capital gain over net long term capital loss). If for any taxable year the Trust does not qualify as a RIC, all of its taxable income
for that year (including its net capital gain) would be subject to tax at regular corporate rates without any deduction for distributions
to shareholders, and such distributions would be taxable as ordinary dividends to the extent of the Trust’s current and accumulated
earnings and profits.
Conflicts of Interest Risk
Guggenheim Partners, LLC (“Guggenheim Partners”) is
a global asset management and investment advisory organization. Guggenheim Partners and its affiliates advise clients in various markets
and transactions and purchase, sell, hold and recommend a broad array of investments for their own accounts and the accounts of clients
and of their personnel and the relationships and products they sponsor, manage and advise. Accordingly, Guggenheim Partners and its affiliates
may have direct and indirect interests in a variety of global markets and the securities of issuers in which the Trust may directly or
indirectly invest. These interests may cause the Trust to be subject to regulatory limits, and in certain circumstances, these various
activities may prevent the Trust from participating in an investment decision.
An investment in the Trust is subject to a number of actual or potential
conflicts of interest. For example, the Adviser and its affiliates are engaged in a variety of business activities that are unrelated
to managing the Trust, which may give rise to actual, potential or perceived conflicts of interest in connection with making investment
decisions for the Trust. As a result, activities and dealings of Guggenheim Partners and its affiliates may affect the Trust in ways that
may disadvantage or restrict the Trust or be deemed to benefit Guggenheim Partners and its affiliates. From time to time, conflicts of
interest may arise between a portfolio manager’s management of the investments of the Trust on the one hand and the management of
other registered investment companies, pooled investment vehicles and other accounts (collectively, “other accounts”) on the
other. The other accounts might have similar investment objectives or strategies as the Trust or otherwise hold, purchase, or sell securities
that are eligible to be held, purchased or sold by the Trust. In certain circumstances, and subject to its fiduciary obligations under
the Investment Advisers Act of 1940 and the requirements of the 1940 Act, the Adviser or GPIM may have to allocate a limited investment
opportunity among its clients. The other accounts might also have different investment objectives or strategies than the Trust. In addition,
the Trust may be limited in its ability to invest in, or hold securities of, any companies that the Adviser or its affiliates (or other
accounts
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managed by the Adviser or its affiliates) control, or companies
in which the Adviser or its affiliates have interests or with whom they do business. For example, affiliates of the Adviser may act as
underwriter, lead agent or administrative agent for loans or otherwise participate in the market for loans. Because of limitations imposed
by applicable law, the presence of the Adviser’s affiliates in the markets for loans may restrict the Trust’s ability to acquire
some loans or affect the timing or price of such acquisitions. To address these conflicts, the Trust and Guggenheim Partners and its affiliates
have established various policies and procedures that are reasonably designed to detect and prevent such conflicts and prevent the Trust
from being disadvantaged. There can be no guarantee that these policies and procedures will be successful in every instance.
Market Disruption and Geopolitical Risk
The Trust does not know and cannot predict how long the securities
markets may be affected by geopolitical events and the effects of these and similar events in the future on the U.S. economy and securities
markets. The Trust may be adversely affected by abrogation of international agreements and national laws which have created the market
instruments in which the Trust may invest, failure of the designated national and international authorities to enforce compliance with
the same laws and agreements, failure of local, national and international organization to carry out their duties prescribed to them under
the relevant agreements, revisions of these laws and agreements which dilute their effectiveness or conflicting interpretation of provisions
of the same laws and agreements. The Trust may be adversely affected by uncertainties such as terrorism, international political developments,
and changes in government policies, taxation, restrictions on foreign investment and currency repatriation, currency fluctuations and
other developments in the laws and regulations of the countries in which it is invested and the risks associated with financial, economic,
geopolitical, public health, labor and other global market developments and disruptions, such as the current Russia-Ukraine conflict and
its risk of expansion or collateral economic and other effects.
Cyber Security, Market Disruptions and Operational Risk
Like other funds and other parts of the modern economy, the Trust
and its service providers, as well as exchanges and market participants through or with which the Trust trades and exchanges on which
shares trade and other infrastructures, services and parties on which the Trust, the Adviser, the Sub-Advisers or the Trust’s other
service providers rely, are susceptible to ongoing risks related to cyber incidents and the risks associated with financial, economic,
public health, labor and other global market developments and disruptions, including those arising out of geopolitical events, public
health emergencies (such as the spread of infectious diseases, pandemics and epidemics), natural/environmental disasters, war, terrorism
and governmental or quasi-governmental actions. Cyber incidents can result from unintentional events (such as an inadvertent release of
confidential information) or deliberate attacks by insiders or third parties, including cyber criminals, competitors, nation-states and
“hacktivists,” and can be perpetrated by a variety of complex means, including the use of stolen access credentials, malware
or other computer viruses, ransomware, phishing, structured query language injection attacks, and distributed denial of service attacks,
among other means. Cyber incidents and market disruptions may result in actual or potential adverse consequences for critical information
and communications technology, systems and networks that are vital to the operations of the Trust or its service providers, or otherwise
impair Trust or service provider operations. For example, a cyber incident may cause operational disruptions and failures impacting information
systems or information that a system processes, stores, or transmits, such as
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by theft, damage or destruction, or corruption or modification of
and denial of access to data maintained online or digitally, denial of service on websites rendering the websites unavailable to intended
users or not accessible for such users in a timely manner, and the unauthorized release or other exploitation of confidential information.
A cyber incident or sudden market disruption could adversely impact
the Trust, its service providers or its shareholders by, among other things, interfering with the processing of transactions or other
operational functionality, impacting the Trust’s ability to calculate its NAV or other data, causing the release of private shareholder
information (i.e., identity theft or other privacy breaches) or confidential Trust information or otherwise compromising the security
and reliability of information, impeding trading, causing reputational damage, and subjecting the Trust to regulatory fines, penalties
or financial losses, reimbursement or other compensation or remediation costs, litigation expenses and additional compliance and cyber
security risk management costs, which may be substantial. The same could affect the exchange through which Trust shares trade. A cyber
incident could also adversely affect the ability of the Trust (and its Adviser) to invest or manage the Trust’s assets.
Cyber incidents and developments and disruptions to financial, economic,
public health, labor and other global market conditions can obstruct the regular functioning of business workforces (including requiring
employees to work from external locations or from their homes), cause business slowdowns or temporary suspensions of business activities,
each of which can negatively impact Trust service providers and Trust operations. Although the Trust and its service providers, as well
as exchanges and market participants through or with which the Trust trades and other infrastructures on which the Trust or its service
providers rely, may have established business continuity plans and systems reasonably designed to protect from and/or defend against the
risks or adverse consequences associated with cyber incidents and market disruptions, there are inherent limitations in these plans and
systems, including that certain risks may not yet be identified, in large part because different or unknown threats may emerge in the
future and the threats continue to rapidly evolve and increase in sophistication. As a result, it is not possible to anticipate and prevent
every cyber incident and possible obstruction to the normal activities of these entities’ employees resulting from market disruptions
and attempts to mitigate the occurrence or impact of such events may be unsuccessful. For example, public health emergencies and governmental
responses to such emergencies, including through quarantine measures and travel restrictions, can create difficulties in carrying out
the normal working processes of these entities’ employees, disrupt their operations and hamper their capabilities. The nature, extent,
and potential magnitude of the adverse consequences of these events cannot be predicted accurately but may result in significant risks,
adverse consequences and costs to the Trust and its shareholders.
The issuers of securities in which the Trust invests are also subject
to the ongoing risks and threats associated with cyber incidents and market disruptions. These incidents could result in adverse consequences
for such issuers, and may cause the Trust’s investment in such securities to lose value. For example, a cyber incident involving
an issuer may include the theft, destruction or misappropriation of financial assets, intellectual property or other sensitive information
belonging to the issuer or their customers (i.e., identity theft or other privacy breaches) and a market disruption involving an issuer
may include materially reduced consumer demand and output, disrupted supply chains, market closures, travel restrictions and quarantines.
As a result, the issuer may experience the types of adverse consequences summarized above, among others (such as loss
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of revenue), despite having implemented preventative and other measures
reasonably designed to protect from and/or defend against the risks or adverse effects associated with cyber incidents and market disruptions.
The Trust and its service providers, as well as exchanges and market
participants through or with which the Trust trades and other infrastructures on which the Trust or its service providers rely, are also
subject to the risks associated with technological and operational disruptions or failures arising from, for example, processing errors
and human errors, inadequate or failed internal or external processes, failures in systems and technology, errors in algorithms used with
respect to the Trust, changes in personnel, and errors caused by third parties or trading counterparties. Although the Trust attempts
to minimize such failures through controls and oversight, it is not possible to identify all of the operational risks that may affect
the Trust or to develop processes and controls that completely eliminate or mitigate the occurrence of such failures or other disruptions
in service.
Cyber incidents, market disruptions and operational errors or failures
or other technological issues may adversely affect the Trust’s ability to calculate its NAV correctly, in a timely manner or process
trades, including over a potentially extended period. The Trust does not control the cyber security, disaster recovery, or other operational
defense plans or systems of its service providers, intermediaries, exchanges where its shares trades, companies in which it invests or
other third-parties. The value of an investment in Trust shares may be adversely affected by the occurrence of the cyber incidents, market
disruptions and operational errors or failures or technological issues summarized above or other similar events and the Trust and its
shareholders may bear costs tied to these risks.
The Trust and its service providers are still impacted by rolling
quarantines and similar measures being enacted by governments in response to COVID-19, which are obstructing the regular functioning of
business workforces (including requiring employees to work from external locations and their homes). These and associated restrictive
measures may continue to affect economic activity, the unemployment rate and inflation. The impact of such measures on the Trust is unknown.
Accordingly, the risks described above are heightened under current conditions.
Technology Risk
As the use of Internet technology has become more prevalent, the
Trust and its service providers and markets generally have become more susceptible to potential operational risks related to intentional
and unintentional events that may cause the Trust or a service provider to lose proprietary information, suffer data corruption or lose
operational capacity. There can be no guarantee that any risk management systems established by the Trust, its service providers, or issuers
of the securities in which the Trust invests to reduce technology and cyber security risks will succeed, and the Trust cannot control
such systems put in place by service providers, issuers or other third parties whose operations may affect the Trust.
In addition, investors
should note that the Trust reserves the right to merge or reorganize with another fund, liquidate or convert into an open-end fund, in
each case subject to applicable approvals by shareholders and the Trust’s Board of Trustees as required by law and the Trust’s
governing documents.
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ANTI-TAKEOVER PROVISIONS
The Trust’s Agreement and Declaration of Trust and the Trust’s
Bylaws include provisions that could limit the ability of other in the Trust’s entities or persons to acquire control of the Trust
or convert the Trust to an open-end fund. These provisions could have the effect of depriving the Common Shareholders of opportunities
to sell their Common Shares at a premium over the then-current market price of the Common Shares.
EFFECTS
OF LEVERAGE
Assuming that the Trust’s total Financial Leverage represented
approximately 29.5% of the Trust’s Managed Assets (based on the Trust’s outstanding Financial Leverage of $167,775,690) and
interest costs to the Trust at a combined average annual rate of 0.60%
(based on the Trust’s average annual leverage costs for the fiscal year ended May 31, 2022) with respect to such Financial Leverage,
then the incremental income generated by the Trust’s portfolio (net of estimated expenses including expenses related to the Financial
Leverage) must exceed approximately 0.18%
to cover such interest specifically related to the debt. These numbers are merely estimates used for illustration. Actual interest rates
may vary frequently and may be significantly higher or lower than the rate estimated above.
The
following table is furnished pursuant to requirements of the SEC. It is designed to illustrate the effect of leverage on Common Share
total return, assuming investment portfolio total returns (comprised of income, net expenses and changes in the value of investments held
in the Trust’s portfolio) of -10%, -5%, 0%, 5% and 10%. These assumed investment portfolio returns are hypothetical figures and
are not necessarily indicative of what the Trust’s investment portfolio returns will be. The table further reflects the issuance
of Financial Leverage representing approximately 29.5% of the Trust’s Managed Assets. The table does not reflect any offering costs
of Common Shares or Borrowings.
| Assumed
portfolio total return (net of expenses) |
(10.00%) |
(5.00%) |
0.00% |
5.00% |
10.00% |
| Common
Share total return |
(14.43%) |
(7.34%) |
(0.25%) |
6.84% |
13.93% |
Common Share total return is composed of two elements—the
Common Share dividends paid by the Trust (the amount of which is largely determined by the Trust’s net investment income after paying
the carrying cost of Financial Leverage) and realized and unrealized gains or losses on the value of the securities the Trust owns. As
required by Securities and Exchange Commission rules, the table assumes that the Trust is more likely to suffer capital loss than to enjoy
capital appreciation. For example, to assume a total return of 0%, the Trust must assume that the net investment income it receives on
its investments is entirely offset by losses on the value of those investments. This table reflects the hypothetical performance of the
Trust’s portfolio and not the performance of the Trust’s Common Shares, the value of which will be determined by market and
other factors.
During the time in which the Trust is utilizing Financial Leverage,
the amount of the fees paid to the Adviser and each Sub-Adviser for investment advisory services will be higher than if the Trust did
not utilize Financial Leverage because the fees paid will be calculated based on the Trust’s Managed Assets which may create a conflict
of interest between the Adviser and the Sub-Advisers and the Common Shareholders. Because the Financial Leverage costs will be borne by
the Trust at a specified rate, only the Trust’s Common Shareholders will bear the cost of the Trust’s fees and expenses. The
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Trust generally will
not use Financial Leverage if the Adviser and the Sub-Advisers anticipate that such use would result in a lower return to Common Shareholders
for any significant amount of time.
INTEREST RATE TRANSACTIONS
In connection with the Trust’s duration management strategy
and anticipated use of Financial Leverage, the Trust may enter into interest rate swap or cap transactions. Interest rate swaps involve
the Trust’s agreement with the swap counterparty to pay or receive a fixed-rate payment in exchange for a variable-rate payment.
An interest rate cap transaction would require the Trust to pay a premium to the cap counterparty and would entitle it, to the extent
that a specified variable-rate index exceeds a predetermined fixed rate, to receive payment from the counterparty of the difference based
on the notional amount.
In connection with the Trust’s duration management strategy,
the Trust may use interest rate swaps to reduce the overall duration of the portfolio. In connection with the Trust’s anticipated
leverage, the Trust may use interest rate swaps or caps to reduce or eliminate the risk that an increase in short-term interest rates
could have on Common Share net earnings as a result of Financial Leverage. For example, the Trust may agree to pay to the swap counterparty
a fixed-rate payment in exchange for the counterparty’s paying the Trust a variable-rate payment that is intended to approximate
all or a portion of the Trust’s variable-rate payment obligation on the Trust’s Financial Leverage.
The Trust will usually enter into swaps or caps on a net basis;
that is, the two payment streams will be netted out in a cash settlement on the payment date or dates specified in the instrument, with
the Trust’s receiving or paying, as the case may be, only the net amount of the two payments. The Trust currently intends to earmark
or segregate cash or liquid securities having a value at least equal to the Trust’s net payment obligations under any swap transaction,
marked-to-market daily. The Trust will treat such amounts as illiquid.
In October 2020, the SEC adopted a final rule related to the use
of derivatives, reverse repurchase agreements and certain other transactions by registered investment companies that will rescind and
withdraw the guidance of the SEC and its staff regarding asset segregation and cover transactions reflected in the Trust’s asset
segregation and cover practices discussed herein. The scheduled compliance date for the rule is August 19, 2022.
The use of interest rate swaps and caps is a highly specialized
activity that involves investment techniques and risks different from those associated with ordinary portfolio security transactions.
Depending on the state of interest rates in general, the Trust’s use of interest rate instruments could enhance or harm the overall
performance of the Common Shares.
Interest rate swaps and caps do not involve the delivery of securities
or other underlying assets or principal. Accordingly, the risk of loss with respect to interest rate swaps is limited to the net amount
of interest payments that the Trust is contractually obligated to make. The Trust will be subject to credit risk with respect to the counterparties
to interest rate transactions entered into by the Trust. If a counterparty becomes bankrupt or otherwise fails to perform its obligations
under a derivative contract, the Trust may experience significant delays in obtaining any recovery under the derivative contract in bankruptcy
or other reorganization proceedings. The Trust may obtain only a limited recovery or may obtain no recovery in such circumstances. Depending
on whether the Trust would be
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entitled to receive net payments from the counterparty on the swap
or cap, which in turn would depend on the general state of short-term interest rates at that point in time, such default by a counterparty
could negatively impact the performance of the Common Shares.
Although this will not guarantee that the counterparty does not
default, the Trust will not enter into an interest rate swap or cap transaction with any counterparty that the Adviser believes does not
have the financial resources to honor its obligation under the interest rate swap or cap transaction. Further, the Adviser will regularly
monitor the financial stability of a counterparty to an interest rate swap or cap transaction in an effort to proactively protect the
Trust’s investments.
At the time the interest rate swap or cap transaction reaches its
scheduled termination date, there is a risk that the Trust will not be able to obtain a replacement transaction or that the terms of the
replacement will not be as favorable as on the expiring transaction. If this occurs, it could have a negative impact on the performance
of the Common Shares. The Trust may choose or be required to prepay Indebtedness. Such a prepayment would likely result in the Trust’s
seeking to terminate early all or a portion of any swap or cap transaction entered into in connection with the Trust’s use of Financial
Leverage. Such early termination of a swap could result in a termination payment by or to the Trust. An early termination of a cap could
result in a termination payment to the Trust. There may also be penalties associated with early termination.
FUNDAMENTAL INVESTMENT RESTRICTIONS
The Trust operates under the following restrictions that constitute
fundamental policies that, except as otherwise noted, cannot be changed without the affirmative vote of the holders of a majority of the
outstanding voting securities of the Trust voting together as a single class, which is defined by the 1940 Act as the lesser of (i) 67%
or more of the Trust’s voting securities present at a meeting, if the holders of more than 50% of the Trust’s outstanding
voting securities are present or represented by proxy; or (ii) more than 50% of the Trust’s outstanding voting securities. Except
as otherwise noted, all percentage limitations set forth below apply immediately after a purchase or initial investment and any subsequent
change in any applicable percentage resulting from market fluctuations does not require any action. These restrictions provide that the
Trust shall not:
1. Issue senior securities nor borrow money, except the Trust may
issue senior securities or borrow money to the extent permitted by applicable law.
2. Act as underwriter of another issuer’s securities, except
to the extent that the Trust may be deemed to be an underwriter within the meaning of the Securities Act, in connection with the purchase
and sale of portfolio securities.
3. Invest in any security if, as a result, 25% or more of the value
of the Trust’s total assets, taken at market value at the time of each investment, are in the securities of issuers in any particular
industry or group of related industries, except that this policy shall not apply to (i) securities issued or guaranteed by the U.S. Government
and its agencies and instrumentalities or (ii) securities issued by state and municipal governments or their political subdivisions (other
than those municipal securities backed only by the assets and revenues of non-governmental users with respect to which the Trust will
not invest 25% or more of the value of the Trust’s total assets in securities backed by the same source of revenue).
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4. Purchase or sell real estate except that the Trust may: (a) acquire
or lease office space for its own use, (b) invest in securities of issuers that invest in real estate or interests therein or that are
engaged in or operate in the real estate industry, (c) invest in securities that are secured by real estate or interests therein, (d)
purchase and sell mortgage-related securities, (e) hold and sell real estate acquired by the Trust as a result of the ownership of securities
and (f) as otherwise permitted by applicable law.
5. Purchase or sell physical commodities unless acquired as a result
of ownership of securities or other instruments; provided that this restriction shall not prohibit the Trust from purchasing or selling
options, futures contracts and related options thereon, forward contracts, swaps, caps, floors, collars and any other financial instruments
or from investing in securities or other instruments backed by physical commodities or as otherwise permitted by applicable law.
6. Make loans of money or property to any person, except (a) to
the extent that securities or interests in which the Trust may invest are considered to be loans, (b) through the loan of portfolio securities
in an amount up to 331/3% of the Trust’s total assets, (c) by engaging in repurchase agreements or (d) as may otherwise be permitted
by applicable law.
7. With respect to 75% of the value of the Trust’s total assets,
purchase any securities (other than obligations issued or guaranteed by the U.S. Government or by its agencies or instrumentalities),
if as a result more than 5% of the Trust’s total assets would then be invested in securities of a single issuer or if as a result
the Trust would hold more than 10% of the outstanding voting securities of any single issuer.
In addition to the foregoing fundamental investment policies, the
Trust is also subject to the following non-fundamental restrictions and policies, which may be changed by the board of trustees (the “Board”):
(a) In addition to the issuer diversification limits set forth in
investment restriction (7) above, under normal market conditions, the Trust will not purchase any securities (other than obligations issued
or guaranteed by the U.S. Government or by its agencies or instrumentalities), if as a result more than 15% of the Trust’s total
assets would then be invested in securities of a single issuer; provided, however, that such limitation shall not apply during the period
prior to the full investment of the proceeds of any offering completed by the Trust.
For purposes of applying the limitation set forth in subparagraph
(3) above to securities that have a security interest or other collateral claim on specified underlying collateral (including asset-backed
securities and collateralized debt and loan obligations) the Trust will determine the industry classifications of such investments based
on the GPIM’s evaluation of the risks associated with the collateral underlying such investments.
For the purpose of applying the limitation set forth in subparagraphs
(7) and (a) above, a governmental issuer shall be deemed the single issuer of a security when its assets and revenues are separate from
other governmental entities and its securities are backed only by its assets and revenues. Similarly, in the case of a nongovernmental
issuer, if the security is backed only by the assets and revenues of the non-governmental issuer, then such non-governmental issuer would
be deemed to be the single issuer. Where a security is also backed by the enforceable obligation of a
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superior or unrelated governmental or other entity (other than a
bond insurer), it shall also be included in the computation of securities owned that are issued by such governmental or other entity.
Where a security is guaranteed by a governmental entity or some other facility, such as a bank guarantee or letter of credit, such a guarantee
or letter of credit would be considered a separate security and would be treated as an issue of such government, other entity or bank.
When a municipal security is insured by bond insurance, it shall not be considered a security that is issued or guaranteed by the insurer;
instead, the issuer of such municipal security will be determined in accordance with the principles set forth above. The foregoing restrictions
do not limit the percentage of the Trust’s assets that may be invested in municipal securities insured by any given insurer.
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| Board of Trustees |
Investment Adviser |
Randall C. Barnes
Angela
Brock-Kyle
Amy
J. Lee*
Thomas
F. Lydon, Jr.
Ronald
A. Nyberg
Sandra
G. Sponem
Ronald
E. Toupin, Jr.,
Chairman
* Trustee is an “interested person” (as defined
in Section 2(a)(19) of the 1940 Act)
(“Interested Trustee”) of the Trust because of
her affiliation with Guggenheim Investments.
Principal Executive Officers
Brian E. Binder
President and Chief Executive Officer
Joanna M. Catalucci
Chief Compliance Officer
Amy J. Lee
Vice President and Chief Legal Officer
Mark E. Mathiasen
Secretary
John L. Sullivan
Chief Financial Officer, Chief Accounting
Officer and Treasurer |
Guggenheim Funds Investment
Advisors, LLC
Chicago, IL
Investment Sub-Advisers
Guggenheim Partners Investment
Management, LLC
Santa Monica, CA
Guggenheim Partners Advisors, LLC
Santa Monica, CA
Administrator and Accounting Agent
MUFG Investor Services (US), LLC
Rockville, MD
Custodian
The Bank of New York Mellon Corp.
New York, NY
Legal Counsel
Dechert LLP
Washington, D.C.
Independent Registered Public Accounting
Firm
Ernst & Young LLP
Tysons, VA |
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Privacy Principles of Guggenheim Taxable Municipal Bond &
Investment Grade Debt Trust for Shareholders
The Trust is committed to maintaining the privacy of its shareholders
and to safeguarding its non-public personal information. The following information is provided to help you understand what personal information
the Trust collects, how we protect that information and why, in certain cases, we may share information with select other parties.
Generally, the Trust does not receive any non-public personal information
relating to its shareholders, although certain non-public personal information of its shareholders may become available to the Trust.
The Trust does not disclose any non-public personal information about its shareholders or former shareholders to anyone except as permitted
by law or as is necessary in order to service shareholder accounts (for example, to a transfer agent or third party administrator).
The Trust restricts access to non-public personal information about
the shareholders to Guggenheim Funds Investment Advisors, LLC employees with a legitimate business need for the information. The Trust
maintains physical, electronic and procedural safeguards designed to protect the non-public personal information of its shareholders.
Questions concerning your shares of Guggenheim Taxable Municipal
Bond & Investment Grade Debt Trust?
| • |
|
If your shares are held in a Brokerage Account, contact your Broker. |
| • |
|
If you have physical possession of your shares in certificate form, contact the Trust’s Transfer Agent:
Computershare Trust Company, N.A., P.O. Box 30170 College Station, TX 77842-3170; (866) 488-3559 or online at www.computershare.com/investor |
This report is provided to shareholders of Guggenheim Taxable Municipal
Bond & Investment Grade Debt Trust for their information. It is not a Prospectus, circular or representation intended for use in the
purchase or sale of shares of the Trust or of any securities mentioned in this report.
Paper copies of the Trust’s annual and semi-annual shareholder
reports are not sent by mail, unless you specifically request paper copies of the reports. Instead, the reports are made available on
a website, and you are notified by mail each time a report is posted and provided with a website address to access the report.
You may elect to receive paper copies of all future shareholder
reports free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you
may receive paper copies of your shareholder reports; if you invest directly with the Trust, you may call Computershare at 1-866-488-3559.
Your election to receive reports in paper form may apply to all funds held in your account with your financial intermediary or, if you
invest directly, to all Guggenheim closed-end funds you hold.
The Trust’s Statement of Additional Information includes additional
information about directors of the Trust and is available, without charge, upon request, by calling the Trust at (888) 991-0091.
A description of the Trust’s proxy voting policies and procedures
related to portfolio securities is available without charge, upon request, by calling the Trust at (888) 991-0091 and on the SEC's website
at www.sec.gov.
Information regarding how the Trust voted proxies for portfolio
securities, if applicable, during the most recent 12-month period ended June 30, is also available, without charge and upon request by
calling (888) 991-0091, by visiting the Trust’s website at guggenheiminvestments.com/gbab or by accessing the Trust’s Form
N-PX on the U.S. Securities and Exchange Commission’s (SEC) website at www.sec.gov.
The Trust files its complete schedule of portfolio holdings with
the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT, and for reporting periods ended
prior to August 31, 2019, on Form N-Q. The Trust’s Forms N-PORT and N-Q are available on the SEC website at www.sec.gov or at guggenheiminvestments.com/gbab.
Notice to Shareholders
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940, as amended, that the Trust from time to time may purchase shares of its common stock in the open market or in private
transactions.
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ABOUT THE TRUST MANAGERS
GUGGENHEIM FUNDS INVESTMENT ADVISORS, LLC
Guggenheim Investments represents the investment management businesses
of Guggenheim Partners, LLC (“Guggenheim”), which includes Guggenheim Funds Investment Advisors, LLC (“GFIA”)
the investment adviser to the referenced fund. Collectively Guggenheim Investments has a long, distinguished history of serving institutional
investors, ultra-high-net-worth individuals, family offices and financial intermediaries. Guggenheim Investments offers clients a wide
range of differentiated capabilities built on a proven commitment to investment excellence.
Guggenheim Partners Investment Management, LLC
Guggenheim Partners Investment Management, LLC (“GPIM”)
is an indirect subsidiary of Guggenheim Partners, LLC, a diversified financial services firm. The firm provides capital markets services,
portfolio and risk management expertise, wealth management, and investment advisory services. Clients of Guggenheim Partners, LLC subsidiaries
are an elite mix of individuals, family offices, endowments, foundations, insurance companies and other institutions.
Investment Philosophy
GPIM’s investment philosophy is predicated upon the belief
that thorough research and independent thought are rewarded with performance that has the potential to outperform benchmark indices with
both lower volatility and lower correlation of returns over time as compared to such benchmark indices.
Investment Process
GPIM’s investment process is a collaborative effort between
various groups including the Portfolio Construction Group, which utilize proprietary portfolio construction and risk modeling tools to
determine allocation of assets among a variety of sectors, and its Sector Specialists, who are responsible for security selection within
these sectors and for implementing securities transactions, including the structuring of certain securities directly with the issuers
or with investment banks and dealers involved in the origination of such securities.
Guggenheim Partners Advisors, LLC
The Investment Adviser engaged Guggenheim Partners Advisors, LLC
to provide investment sub-advisory services to the Trust, effective April 29, 2022. Guggenheim Partners Advisors, LLC assists the Investment
Adviser in the supervision and direction of the investment strategy of the Trust in accordance with the Trust’s investment objectives,
policies, and restrictions. The Investment Adviser, and not the Trust, compensates Guggenheim Partners Advisors, LLC for these services.
Guggenheim Funds Distributors, LLC
227 West Monroe Street
Chicago, IL 60606
Member FINRA/SIPC (07/22)
CEF-GBAB-AR-0522
NOT FDIC-INSURED l NOT BANK-GUARANTEED l
MAY LOSE VALUE