As filed with the Securities and Exchange Commission on
March 27, 2014
Securities Act File No. 333-190922
Investment Company Act File
No. 811-22482
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
N-2
(Check appropriate box or boxes)
x
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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x
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Pre-Effective
Amendment No. 1
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¨
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Post-Effective Amendment No.
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and
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
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Nuveen Energy
MLP Total Return Fund
Exact Name of Registrant as Specified in Declaration of Trust
333 West Wacker Drive, Chicago, Illinois 60606
Address of Principal Executive Offices (Number, Street, City, State, Zip Code)
(800)
257-8787
Registrants
Telephone Number, including Area Code
Kevin J. McCarthy
Vice President and Secretary
333 West Wacker Drive
Chicago, Illinois 60606
Name and Address (Number, Street, City, State, Zip Code) of Agent for Service.
Copies of Communications to:
Thomas S. Harman
Bingham McCutchen LLP
2020 K Street, NW
Washington, DC 20006
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are offered on a delayed or continuous basis in reliance on Rule 415 under the
Securities Act of 1933, other than securities offered in connection with a dividend reinvestment plan, check the following box.
x
It is proposed that this filing will become effective (check appropriate box)
¨
when declared effective pursuant to section 8(c)
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF
1933
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Title of Securities
Being Registered
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Amount
Being
Registered
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Proposed
Maximum
Offering Price
Per Unit
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Proposed
Maximum
Aggregate
Offering Price(1)
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Amount of
Registration
Fee(2)
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Common Shares, $0.01 par value
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9,800,000 Shares
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$
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18.91
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$
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185,318,000
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$
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23,868.96
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(1)
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Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(c) under the Securities Act of 1933 based on the average high and low
sales prices of beneficial interest on March 14, 2014 as reported on the NYSE.
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(2)
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Transmitted prior to filing. $2.65 previously paid.
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The information in this Prospectus is not complete and may be changed. We may not sell these
securities until the registration statement filed with the Securities and Exchange Commission is effective. This Prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where the
offer or sale is not permitted.
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PROSPECTUS
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SUBJECT TO COMPLETION, DATED MARCH 27, 2014
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9.8 Million Common Shares
Nuveen Energy MLP Total Return Fund
Nuveen Energy MLP Total Return Fund (Fund) is a
non-diversified,
closed-end
management investment company. The Funds investment objective is to provide tax-advantaged total return. The Fund cannot assure you that it will achieve its investment objective.
Investing in the Funds common shares (Common
Shares) involves certain risks
that are described in the Risk Factors section of this Prospectus (Prospectus).
Neither the Securities and Exchange Commission (SEC) nor any state securities commission has approved or disapproved of
these securities or determined if this Prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
You should read this Prospectus, which contains important information about the Fund, before deciding whether to invest and retain it for
future reference. A Statement of Additional Information, dated , 2014, (SAI), containing additional information about the Fund, has been filed with the SEC and is
incorporated by reference in its entirety into this Prospectus. You may request a free copy of the SAI, the table of contents of which is on page 87 of this prospectus, annual and semi-annual reports to shareholders, when available, and other
information about the Fund, and make shareholder inquiries by calling (800) 257-8787, by writing to the Fund at 333 West Wacker Drive, Chicago, Illinois 60606 or by visiting the Funds website (http://www.nuveen.com). The information
contained in, or accessed through, the Funds website is not part of this Prospectus. You may also obtain a copy of the SAI (and other information regarding the Fund) from the SECs website (http://www.sec.gov).
The Funds Common Shares do not represent a deposit or
obligation of, and are not guaranteed or endorsed by, any bank or other insured depository institution, and are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other governmental agency.
Portfolio
Contents.
As a non-fundamental policy, under normal market circumstances, the Fund will invest at least 80% of its Managed Assets (as defined below) in master limited partnerships or other entities that offer economic
exposure to master limited partnerships (collectively, MLPs) in the energy sector (Energy MLPs). For purposes of the 80% policy, the Fund considers investments in MLPs to include investments that offer economic exposure to
publicly traded MLPs and private investments that have MLP characteristics but are not publicly traded. These investments generally take the form of equity securities of MLPs, securities of entities holding primarily general partner or managing
member interests in MLPs, securities that represent indirect investments in MLPs, including I-Shares and collective investment vehicles (
i.e.
, exchange-traded funds and other registered funds) that primarily hold MLP interests, and debt
securities of MLPs. The Fund considers an MLP to be part of the energy sector if it derives at least 50% of its revenues from the business of exploring, developing, producing, transporting, gathering and processing, storing, refining, distributing,
mining or marketing natural gas, natural gas liquids (including propane), crude oil, refined petroleum products or coal. The Fund may invest up to 20% of its Managed Assets in securities of non-MLP issuers. In addition, under normal market
circumstances, the Fund may invest up to 30% of its Managed Assets in restricted securities. Under normal market circumstances, the Fund may also invest up to 30% of its Managed Assets in debt securities, all of which may be below investment grade
quality. Securities of below investment grade quality are regarded as having predominately speculative characteristics with respect to the issuers capacity to pay interest and repay principal, and are commonly referred to as junk
bonds. The Fund currently employs financial leverage primarily through borrowing. Managed Assets means the total assets of the Fund, minus the sum of its accrued liabilities (other than Fund liabilities incurred for the express purpose
of creating leverage). Total assets for this purpose shall include assets attributable to the Funds use of financial leverage through borrowing or the use of commercial paper or notes.
The Funds distributions to holders of common
shares of beneficial interest of the Fund (Common Shareholders) will reflect its investment returns from MLPs that typically are not treated as taxable entities for U.S. federal income tax purposes and that have historically made cash
distributions to their limited partners in excess of their allocable portion of taxable income. The distributions the Fund receives from such an MLP would be treated as a tax-deferred return of capital that would reduce the Funds tax basis in
the MLP and as capital gain to the extent the distributions exceed that basis. As a result, even though the Fund itself will be a taxable entity for U.S. federal income tax purposes, the Funds distributions to Common Shareholders are expected
to include high levels of tax-deferred return of capital. The cash distributed to Common Shareholders in excess of the Funds earnings and profits (as computed for tax purposes) would be treated as a tax-deferred return of capital, reducing a
Common Shareholders tax basis in the common shares of beneficial interest of the Fund and generating capital gain to the extent the distributions exceed that basis. However, there can be no assurance that these expectations will be realized,
and if these expectations are not realized, (1) the Fund would have more corporate income tax expense than expected, which would leave less cash available to distribute to Common Shareholders, and (2) a greater portion of the Funds
distributions to Common Shareholders would be treated as a taxable dividend instead of a tax-deferred return of capital. See Tax MattersTaxation of the Fund, Tax MattersMLP Equity Securities and Tax
MattersU.S. Holders.
Adviser and
Sub-Adviser.
Nuveen Fund Advisors, LLC (NFALLC), the Funds investment adviser, is responsible for determining the Funds overall investment strategy and its implementation, including the use of
leverage and hedging. Advisory Research, Inc. (ARI), the Funds sub-adviser, oversees the day-to-day operations of the Fund. ARIs MLP & Energy Infrastructure Team (formerly, FAMCO MLP and hereinafter referred to as the
MLP Team) will be responsible for investing the Funds Managed Assets.
The minimum price on any day at which Common Shares may be sold will not be less than the current net asset value per share plus the per share amount of the commission to be paid to the Funds
distributor, Nuveen Securities, LLC (Nuveen Securities). The Fund and Nuveen Securities will suspend the sale of Common Shares if the per share price of the shares is less than the minimum price. The Fund currently intends to distribute
the shares offered pursuant to this Prospectus primarily through at-the-market transactions, although from time to time it may also distribute shares through an underwriting syndicate or a privately negotiated transaction. To the extent shares are
distributed other than through at-the-market transactions, the Fund will file a supplement to this Prospectus describing such transactions. For more information on how Common Shares may be sold, see the Plan of Distribution section of
this Prospectus.
Common Shares are listed on
the New York Stock Exchange (NYSE). The trading or ticker symbol of the Fund is JMF. The Funds closing price on the NYSE on March 14, 2014 was $18.86.
The date of this Prospectus is 2014.
TABLE OF CONTENTS
You should rely only on
the information contained in or incorporated by reference into this Prospectus. The Fund has not, and the underwriters have not, authorized anyone to provide you with different information. If anyone provides you with different or inconsistent
information, you should not rely on it. The Fund is not, and the underwriters are not, making an offer of these securities in any jurisdiction where the offer is not permitted. You should not assume that the information contained in this Prospectus
is accurate as of any date other than the date on the front of this Prospectus. The Fund will update this Prospectus to reflect any material changes to the disclosure herein.
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PROSPECTUS SUMMARY
This is only a summary. You should review the more
detailed information contained elsewhere in this Prospectus and in the Statement of Additional Information (SAI).
The Fund
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Nuveen Energy MLP Total Return Fund (Fund) is a
non-diversified,
closed-end
management investment
company. See The Fund. The Funds common shares, $.01 par value per share (Common Shares), are traded on the New York Stock Exchange (NYSE) under the symbol JMF. See Description of
Shares. As of January 31, 2014, the Fund had 39,445,748 Common Shares outstanding and net assets applicable to Common Shares of $807,007,515.
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Market Opportunity
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The MLP Team believes that master limited partnerships or other entities that offer economic exposure to master limited partnerships (collectively, MLPs) in the energy sector (such
MLPs referred to herein as Energy MLPs) offer investors a compelling opportunity for total return given both their attractive cash distributions and the potential for capital appreciation. The MLP Team also believes that the current
yields on Energy MLPs are attractive and that Energy MLPs may be able to deliver meaningful growth on a consistent basis. Over the past five years, the number of listed Energy MLPs has grown by one-third to over 100 companies, and their combined
capitalization has increased four-fold to over $425 billion, according to FactSet as of September 30, 2013. The MLP Team believes the Energy MLP investment opportunity is driven by the fundamentals of the energy industry coupled with the dynamics in
the U.S. and global economies, which indicate strong potential for continued growth over the longer term.
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As part of the MLP Teams bottom-up investment process, it creates a proprietary quality scorecard that ranks each constituent of the investable Energy MLP
universe based on five fundamental metrics. The MLP Team believes that this may allow the Fund to avoid investments in more volatile (in terms of cash flow) Energy MLPs. The factors used in the process, listed top to bottom in the order of relative
importance are: asset quality, financial strength, management, parent corporate sponsor strength and business segment/geographic diversification.
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Investment Objective and Policies
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The Funds investment objective is to provide tax-advantaged total return. There can be no assurance that the Fund will achieve its investment objective. The Funds investment
objective and any investment policies identified as such are considered fundamental and may not be changed without shareholder approval.
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Energy MLP Investments.
As a non-fundamental policy, under normal market circumstances, the Fund will invest at least 80% of its
Managed Assets (as defined below) in Energy MLPs.
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Managed Assets means the total assets of the Fund, minus the sum of its accrued liabilities (other than Fund liabilities incurred for the express purpose of
creating leverage). Total assets for this purpose shall include assets attributable to the Funds use of financial leverage through borrowing or the use of commercial paper or notes.
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For purposes of the 80% policy, the Fund considers
investments in MLPs to include investments that offer economic exposure to publicly traded MLPs and private investments that have MLP characteristics, but are not publicly traded. These investments generally take the form of equity securities of
MLPs, securities of entities holding primarily general partner or managing member interests in MLPs, securities that represent indirect investments in MLPs, including
I-Shares
and collective investment
vehicles (
i.e.
, exchange-traded funds and other registered funds) that primarily hold MLP interests, and debt securities of MLPs. The Fund considers an MLP to be part of the energy sector if it derives at least 50% of its revenues from the
business of exploring, developing, producing, transporting, gathering and processing, storing, refining, distributing, mining or marketing natural gas, natural gas liquids (including propane), crude oil, refined petroleum products or coal. As of
January 31, 2014, approximately 113.0% of the Funds Managed Assets were invested in MLPs and MLP affiliates.
Master Limited PartnershipsTax Matters.
The Funds distributions to Common Shareholders will
reflect its investment returns from MLPs that typically are not treated as taxable entities for U.S. federal income tax purposes and that have historically made cash distributions to their limited partners in excess of their allocable portion of
taxable income.* The distributions the Fund receives from such an MLP would be treated as a tax-deferred return of capital that would reduce the Funds tax basis in the MLP and as capital gain to the extent the distributions exceed that basis.
As a result, even though the Fund itself will be a taxable entity for U.S. federal income tax purposes, the Funds distributions to Common Shareholders are expected to include high levels of tax-deferred return of capital. The cash distributed
to Common Shareholders in excess of the Funds earnings and profits (as computed for tax purposes) would be treated as a tax-deferred return of capital, reducing a Common Shareholders tax basis in the Funds Common Shares and
generating capital gain to the extent the distributions exceed that basis. However, there can be no assurance that these expectations will be realized, and if these expectations are not realized, (1) the Fund would have more corporate income tax
expense than expected, which would leave less cash available to distribute to Common Shareholders, and (2) a greater portion of the Funds distributions to Common Shareholders would be treated as a taxable dividend instead of a tax-deferred
return of capital. See Tax MattersTaxation of the Fund, Tax MattersMLP Equity Securities and Tax MattersU.S. Holders.
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Based on the performance of a representative MLP income model account for the period 2004-2012.
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MLP Equity Securities.
Equity securities of MLPs currently consist of general partner or managing member interests, common units,
subordinated units and preferred units, as described more fully below.
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An MLP typically consists of a general partner and limited partners (or in the case of MLPs organized as limited liability companies, a managing member and members).
The general partner or managing member typically controls the operations and management of the MLP and has an ownership stake in the MLP. The limited partners or members, through their ownership of limited partner or member interests, provide
capital to the entity, are intended to have no role in the operation and management of the entity and receive cash distributions. In certain circumstances, the holders of general partner or managing member interests can be liable for amounts greater
than the amount of the holders investment.
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MLP Common Units
. MLP common units are typically listed and traded on U.S. securities exchanges, including the NYSE and the NASDAQ Stock
Market (NASDAQ). The Fund will purchase MLP common units through open market transactions, but may also acquire MLP common units through direct placements. Holders of MLP common units have limited control and voting rights and such
common units are typically entitled to receive a minimum quarterly distribution (MQD), including arrearage rights, from the issuer.
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For a description of MLP general partner or managing member interests, MLP subordinated units and MLP preferred units, see The Funds
InvestmentsPortfolio Composition.
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Other MLP Equity Securities.
The Fund may invest in equity securities, including
I-Shares,
issued
by affiliates of MLPs, including the general partners or managing members of MLPs. Such issuers may be organized and/or taxed as corporations and therefore may not offer the advantageous tax characteristics of MLP units.
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I-Shares
. I-Shares
represent an ownership interest issued
by an MLP affiliate. The MLP affiliate uses the proceeds from the sale of
I-Shares
to purchase limited partnership interests in the MLP in the form of
I-units.
Thus,
I-Shares
represent an indirect interest in an MLP limited partnership interest.
I-units
have similar features as MLP common units in terms of voting rights, liquidation
preference and distribution.
I-Shares
themselves have limited voting rights and are similar in that respect to MLP common units.
I-Shares
differ from MLP common units
primarily in that instead of receiving cash distributions, holders of
I-Shares
will receive distributions of additional
I-Shares
in an amount equal to the cash
distributions received by common unit holders.
I-Shares
are traded on the NYSE and NASDAQ.
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Restricted Securities.
The Fund may invest up to 30% of its Managed Assets in restricted securities, including private investments in
public equities (commonly known as PIPEs). Restricted securities are
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securities that are unregistered or subject to contractual or other legal restrictions on resale. The Fund will typically acquire restricted securities in directly negotiated transactions. PIPE
investors purchase securities directly from a publicly traded company in a private placement transaction, typically at a discount to the market price of the companys common stock. Because the sale of the securities is not pre-registered with
the SEC, the securities are restricted and cannot be immediately resold by the investors into the public markets. Accordingly, the company will agree as part of the PIPE deal promptly to register the restricted securities with the SEC.
PIPE investments may be deemed illiquid. The MLP Team expects such securities to be liquid within nine to twelve months of investment, but the Fund may also invest in restricted securities with significantly longer or shorter restricted periods.
Although issuers typically bear the costs of registration, the Fund may in some cases be required to pay the expenses of registering restricted securities it holds with the SEC.
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Non-Energy MLP Equity Securities
. The Fund may invest up to 20% of its Managed Assets in equity securities of non-Energy MLP issuers,
including issuers in the business of energy, transportation or infrastructure. Investments in such securities are not expected to offer the same tax benefits of direct MLP investments. The Funds use of non-Energy MLP investments will be
opportunistic and market driven and based on the MLP Teams assessment of various factors, including valuation, total return potential and tax considerations.
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Debt Securities.
The Fund may
invest up to 30% of its Managed Assets in debt securities of any maturity of MLPs and other issuers, including debt securities of below investment grade quality. These securities are commonly called high yield or junk bonds.
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Derivatives Instruments.
The Fund may use derivative instruments to seek to hedge some of the risk of the Funds investments or its
leverage, to enhance returns, to serve as a substitute for a position in an underlying asset, to reduce transaction costs, to manage the Funds effective interest rate exposure, to maintain full market exposure, to manage cash flows or to
preserve capital. Such instruments may include financial futures contracts, swap contracts (including interest rate swaps), options on equity securities, options on MLP-based securities indices, options on financial futures, structured notes or
exchange-traded notes, or other derivative instruments.
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In certain market environments, the Fund anticipates it will use various hedging techniques consistent with its top-down investment style with the goal of enhancing
its total return over the longer term. In those circumstances, the Fund will seek to mitigate key risks associated with investments in MLPs including equity securities risk, interest rate risk, commodity price risk and regulatory risk, which, among
other factors, could adversely affect market valuations of specific securities or certain sectors of the energy MLP market, or the overall portfolio. In turn, such
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risks could adversely affect the secondary market price of the Funds shares. To execute its hedging operations, the Fund may sell call options, buy call or put options, invest in structured
notes or exchange-traded notes or use other derivatives developed in the future. Certain of the potential hedging techniques are discussed more fully below. The Funds use of hedging techniques will be market driven and discretionary, based
primarily upon the proprietary analytical methods and qualitative judgments of the MLP Team coupled with the oversight of the Funds investment adviser, NFALLC (as defined below under Investment Adviser). There can be no assurance
that the hedging techniques, as they may be developed and implemented by the Fund, will be successful in mitigating risk or achieving the goal of enhancing the Funds risk-adjusted total return over the longer term.
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The Fund may sell call options on a portion of the Funds portfolio of equity securities and on MLP-based securities indices or certain exchange-traded notes. The
extent of the Funds equity call option writing activity (which may at times be little or none, and at other times, may be on a substantial portion of the Funds Managed Assets) will depend on market conditions and an ongoing assessment of
the attractiveness (from a risk-adjusted total return standpoint) of writing call options. Generally, the Fund does not intend to sell call options for the express purpose of generating option premiums to enhance distributions to shareholders. To
seek to hedge a portion of the Funds equity securities risk or individual security price risk, the Fund may buy call or put options on a portion of the Funds portfolio of equity securities and on MLP-based securities indices or certain
exchange-traded notes. In addition, the Fund may make limited short-term investments in structured notes or exchange-traded notes that are designed to provide short exposure to the energy MLP market. To seek to hedge a portion of the Funds
commodity market risk, the Fund may buy put or call options on energy commodity futures. In addition, the Fund may enter into interest rate swaps to fix the rate paid on all or a portion of the Funds leverage.
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The Funds use of derivatives such as the purchase of put or call options may generate costs that would reduce the Funds net asset value. These capital costs
may be offset over time by gains generated from hedging. The potential to achieve such gains will depend largely on the MLP Teams investment capabilities in executing the Funds hedging techniques.
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Certain portfolio management techniques, such as writing futures contracts or writing options on portfolio securities, may be considered senior securities for the
purposes of the Investment Company Act of 1940 (1940 Act), unless appropriate steps are taken to segregate the Funds assets or otherwise cover its obligations. See The Funds InvestmentsOther
InvestmentsDerivatives.
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The Funds derivative investments are not expected to offer the same tax benefits of investing directly in MLPs. The use of derivative instruments involves
judgment and there can be no guarantee that it will be successful. See The Funds InvestmentsOther InvestmentsDerivatives.
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Non-Diversified.
The Fund may invest up to 10% of its Managed Assets, at the time of investment,
in securities of any single issuer.
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Other Investment Techniques.
The Fund may use a variety of other investment techniques to seek to achieve its investment objective, to enhance return, or as a
substitute for a position in an underlying asset. From time to time, the Fund may invest in certain derivative instruments such as options, futures, swaps and short sales. In addition, the Fund may invest up to 10% of its Managed Assets in other
investment companies, the assets of which consist primarily of securities issued by MLPs in the energy sector. Such investments in derivatives or other investment companies are not expected to offer the same tax benefits of investing directly in
MLPs. See The Funds Investments and the SAI for further information on these investment techniques.
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During temporary defensive periods or in order to keep the Funds cash fully invested, including during the period when the net proceeds of the offering of Common
Shares are first being invested, the Fund may deviate from its investment policies and objective and invest up to 100% of its Managed Assets in cash or high quality, short-term investments. There can be no assurance that such investment techniques
will be successful. For a more complete discussion of the Funds portfolio composition, see The Funds Investments.
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Comparison with Direct Investment
in MLPs
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The Fund is an MLP investment vehicle that seeks to provide several potential advantages over direct investments in individual MLPs, including the following:
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Simplified tax reporting.
Investors in the Fund, while gaining exposure to a diverse portfolio of Energy MLPs, will
receive a single Form 1099, rather than multiple Schedule
K-1s
from each directly held MLP. Also, direct MLP investors may be required to file state income tax returns in each state in which the MLP operates,
while investors in the Fund will not be required to file state income tax returns in each state where the MLPs operate.
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Access to investments typically unavailable to retail investors.
In addition to publicly traded MLPs, the Fund may invest
in MLPs through direct placements, such as PIPEs. Direct placements offer the potential for increased returns, but are usually available only to a limited number of institutional investors.
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Favorable tax treatment.
Distributions from the Fund may be
tax-deferred,
although no assurance can be given in this regard. To
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the extent that distributions exceed the Funds earnings and profits, distributions are generally not treated as taxable income for the investor. Instead, the Funds Common Shareholders
will experience a reduction in basis in their shares, which may increase the capital gain, or reduce capital loss, realized upon the sale of such shares. If such distributions exceeds the shareholders basis in their Common Shares, the excess
will be taxed as a capital gain. See Tax Matters.
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Active management by a leading MLP manager.
MLP Team of ARI (as defined below) has significant experience managing energy
MLP investments, with approximately $4.3 billion of MLP assets under management as of September 30, 2013, including the assets of two MLP closed-end funds. ARIs MLP Team has approximately 100 years of combined MLP investment experience. The
MLP Team has the longest standing track record in managing MLPs and has managed through multiple MLP market cycles (periods of performance through both up and down markets) since 1995. The MLP Team is an experienced closed-end fund manager with
approximately 10 years in the marketplace.
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Appropriate for inclusion in IRAs and other qualified accounts.
Because the Funds distributions are not considered
unrelated business taxable income (UBTI), whereas distributions from an individual MLP may be considered UBTI, individual retirement accounts (IRAs), 401(k) plans and other employee benefit plans may invest in the Fund.
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Suitable investments for corporations and investment companies.
Subject to certain holding period and other requirements,
any distributions by the Fund that may be taxable as dividends (
i.e.
, distributions out of the Funds current or accumulated earnings and profits) generally will be eligible for the dividends received deduction in the case of corporate
shareholders and generally will be treated as qualified dividend income eligible for reduced rates of taxation for shareholders taxed as individuals. In addition, the Funds Common Share dividends will be treated as qualifying
income for each of the Funds Common Shareholders that is an investment company (including mutual funds) that has elected to be taxed as a regulated investment company. In contrast, income received directly by such investment companies from
MLPs may not be treated as qualifying income by such investment companies.
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However, investors should be aware that the Fund will pay management fees and other expenses which will be borne by the Funds Common Shareholders. Direct
investments in an MLP are not subject to these costs. Moreover, because MLPs themselves generally do not pay U.S. federal income taxes, direct investors in MLPs are generally not subject to double taxation (
i.e.,
corporate level tax and tax
on corporate dividends). By contrast, the Fund itself will be treated as a regular corporation for U.S. federal income tax purposes and will therefore be
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subject to corporate income tax to the extent it recognizes taxable income. Distributions by the Fund to Common Shareholders will also be subject to U.S. federal income tax laws applicable to
corporate distributions, and therefore the Funds taxable income will be subject to a double layer of taxation.
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Investment Adviser
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Nuveen Fund Advisors, LLC (NFALLC or the Adviser) serves as the Funds investment adviser and is responsible for overseeing the Funds overall investment
strategy and its implementation, including the use of leverage. NFALLC is also responsible for monitoring the performance of the MLP Team and for managing the Funds business affairs and providing certain clerical, bookkeeping and other
administrative services. NFALLC, a registered investment adviser, is a wholly owned subsidiary of Nuveen Investments. Founded in 1898, Nuveen Investments and its affiliates had approximately $214.9 billion in assets under management as of September
30, 2013. See Management of the FundInvestment Adviser, Sub-Adviser and Portfolio Managers.
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Sub-Adviser
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Advisory Research, Inc. (ARI), a Delaware corporation and registered investment adviser, serves as the Funds sub-adviser. ARI was founded in 1974 and is a wholly-owned
subsidiary of Piper Jaffray Companies, a publicly traded company listed on the NYSE, trading under the symbol PJC. ARIs MLP Team is dedicated to managing MLPs and energy infrastructure strategies for open-end and closed-end
management investment companies, public and corporate pension plans, endowments and foundations and wealthy individuals. The MLP Team manages approximately $4.5 billion in MLP and energy infrastructure assets, which include the assets of two MLP
closed-end funds (including, in addition to JMF, a closed-end fund trading under the ticker symbol FMO), as of December 31, 2013. Shares of FMO are not offered pursuant to this Prospectus.
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Leverage
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The Fund employs financial leverage through borrowing (Borrowing). On December 19, 2013, the Fund entered into a $315 million (maximum commitment amount) credit agreement with an
affiliate of Bank of America Merrill Lynch (BAML). Prior to December 19, 2013, the Fund had entered into a prime brokerage facility with Deutsche Bank AG (Deutsche Bank) as a means of financial leverage. During the fiscal
year ended November 30, 2013, the average daily balance outstanding and average annual interest rate on the Borrowings was $266,287,671 and 1.12%, respectively.
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The Fund may utilize the following forms of leverage:
(a) borrowings from a financial institution (Borrowings); and (b) the issuance of preferred shares or other senior securities. To date, the Fund has not issued preferred shares, but may in the future.
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Given the current economic and debt market environment with historically low short-term to intermediate-term interest rates, the Fund
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may use derivatives such as interest rate swaps, with terms that may range from one to ten years, to fix the rate after expenses (commonly referred to as the all-in rate) paid on all
or a significant portion of the Funds leverage. The interest rate swap program, if implemented, will seek to achieve potentially lower leverage costs and thereby enhance distributions over an extended period. This strategy would enhance Common
Shareholder returns if short-term interest rates were to rise over time to exceed on average the all-in fixed interest rate over the term of the swap. This strategy, however, will add to leverage costs initially (because the swap costs are likely to
be higher than current benchmark adjustable short-term rates) and would increase overall leverage costs over the entirety of any such time period in the event that short-term interest rates do not rise sufficiently during that period to exceed on
average the all-in fixed interest rate for that time period.
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The Fund pays a management fee to NFALLC (which in turn pays a portion of such fee to ARI) based on a percentage of Managed Assets. Managed Assets include the proceeds
realized and managed from the Funds use of leverage. NFALLC will be responsible for using leverage to pursue the Funds investment objective. NFALLC will base its decision regarding whether and how much leverage to use for the Fund on its
assessment of whether such use of leverage is in the best interests of the Fund. However, the fact that a decision to employ or increase leverage will have the effect, all other things being equal, of increasing Managed Assets and therefore
NFALLCs fees means that NFALLC may have a conflict of interest in determining whether to use or increase leverage. NFALLC will seek to manage that potential conflict by leveraging the Fund (or increasing such leverage) only when it determines
that such action is in the best interests of the Fund, and by periodically reviewing the Funds performance and use of leverage with the Board of Trustees of the Fund (Board of Trustees).
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Leverage involves special risks. See Risk FactorsLeverage Risk. There is no assurance that the Funds leveraging strategy will be successful.
Interest on Borrowings may be at a fixed or floating rate, but generally will be based on short-term rates. The Fund will seek to invest the proceeds of any future financial leverage in a manner consistent with the Funds investment objective
and policies. See Use of Leverage.
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Offering Methods
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The Fund may offer shares using one or more of the following methods: (i) at-the-market transactions conducted through one or more broker-dealers that have entered into a selected dealer
agreement with Nuveen Securities, one of the Funds underwriters; (ii) through an underwriting syndicate; and (iii) through privately negotiated transactions between the Fund and specific investors. See Plan of Distribution.
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Distribution Through At-The-Market Transactions.
The Fund from time to time may issue and sell its Common Shares through Nuveen
Securities LLC (Nuveen Securities) to certain broker-dealers that have entered into
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selected dealer agreements with Nuveen Securities. Currently, Nuveen Securities has entered into a selected dealer agreement with UBS Securities LLC (UBS) pursuant to which UBS will
act as the exclusive sub-placement agent with respect to at-the-market offerings of Common Shares. Common Shares will only be sold on such days as shall be agreed to by the Fund, Nuveen Securities and UBS. Common Shares will be sold at market
prices, which shall be determined with reference to trades on the NYSE, subject to a minimum price to be established each day by Nuveen Securities. The minimum price on any day will not be less than the current net asset value per share plus the per
share amount of the commission to be paid to Nuveen Securities. The Fund and Nuveen Securities will suspend the sale of Common Shares if the per share price of the shares is less than the minimum price.
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The Fund will compensate Nuveen Securities with respect to sales of the Common Shares at a commission rate of up to 1.0% of the gross proceeds of the sale of Common
Shares. Nuveen Securities will compensate broker-dealers at a rate of up to 0.8% of the gross sales proceeds of the sale of Common Shares sold by that broker-dealer. Settlements of Common Share sales will occur on the third business day following
the date of sale.
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In connection with the sale of the Common Shares on behalf of the Fund, Nuveen Securities may be deemed to be an underwriter within the meaning of the Securities Act of
1933, as amended (1933 Act), and the compensation of Nuveen Securities may be deemed to be underwriting commissions or discounts. Unless otherwise indicated in a Prospectus supplement, Nuveen Securities will act as underwriter on a
reasonable efforts basis.
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The offering of Common Shares pursuant to the Distribution Agreement (defined below under Plan of DistributionDistribution Through At-The-Market
Transactions) will terminate upon the earlier of (i) the sale of all Common Shares subject thereto or (ii) termination of the Distribution Agreement. The Fund and Nuveen Securities each have the right to terminate the Distribution Agreement in
its discretion at any time. See Plan of DistributionDistribution Through At-The-Market Transactions.
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The Fund currently intends to distribute the shares offered pursuant to this Prospectus primarily through at-the-market transactions, although from time to time it may
also distribute shares through an underwriting syndicate or a privately negotiated transaction. To the extent shares are distributed other than through at-the-market transactions, the Fund will file a supplement to this Prospectus describing such
transactions.
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UBS, its affiliates and their respective employees hold or may hold in the future, directly or indirectly, investment interests in Nuveen Investments, Inc. and its
funds. The interests held by employees of UBS or its affiliates are not attributable to, and no investment discretion is held by, UBS or its affiliates.
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The Funds closing price on the NYSE on March 14, 2014 was $18.86.
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Distribution Through Underwriting Syndicates.
The Fund from time to time may issue additional Common Shares through a syndicated secondary
offering. In order to limit the impact on the market price of the Funds Common Shares, underwriters will market and price the offering on an expedited basis (
e.g.
, overnight or similarly abbreviated offering period). The Fund will
launch a syndicated offering on a day, and upon terms, mutually agreed upon between the Fund, Nuveen Securities and the underwriting syndicate.
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The Fund will offer its shares at a price equal to a specified discount of up to 5% from the closing market price of the Funds Common Shares on the day prior to
the offering date. The applicable discount will be negotiated by the Fund and Nuveen Securities in consultation with the underwriting syndicate on a transaction-by-transaction basis. The Fund will compensate the underwriting syndicate out of the
proceeds of the offering based upon a sales load of up to 4% of the gross proceeds of the sale of Common Shares. The minimum net proceeds per share to the Fund will not be less than the greater of (i) the Funds latest net asset value per
Common Share or (ii) 94% of the closing market price of the Funds Common Shares on the day prior to the offering date. See Plan of DistributionDistribution Through Underwriting Syndicates.
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Distribution Through Privately Negotiated Transactions.
The Fund, through Nuveen Securities, from time to time may sell directly to, and
solicit offers from, institutional and other sophisticated investors, who may be deemed to be underwriters as defined in the 1933 Act for any resale of Common Shares. No sales commission or other compensation will be paid to Nuveen Securities or any
other FINRA member in connection with such transactions.
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The terms of such privately negotiated transactions will be subject to the discretion of the management of the Fund. In determining whether to sell Common Shares
through a privately negotiated transaction, the Fund will consider relevant factors including, but not limited to, the attractiveness of obtaining additional funds through the sale of Common Shares, the purchase price to apply to any such sale of
Common Shares and the investor seeking to purchase the Common Shares.
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Common Shares issued by the Fund through privately negotiated transactions will be issued at a price equal to the greater of (i) the net asset value per Common
Share or (ii) at a discount ranging from 0% to 5% of the average daily closing market price of the Funds Common Shares at the close of business on the two business days preceding the date upon which Common Shares are sold pursuant to the
privately negotiated transaction. The applicable discount will be determined by the Fund on a transaction-by-transaction basis. See Plan of DistributionDistribution Through Privately Negotiated Transactions.
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Federal Income Taxes
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Taxation.
The Fund intends to invest primarily in MLPs that are treated as partnerships for U.S. federal income tax purposes, but it also may invest in MLPs that
are taxed as corporations.
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The Fund is treated as a regular corporation, or a C corporation, for U.S. federal income tax purposes. Accordingly, the Fund pays federal and applicable
state corporate taxes on its taxable income. MLPs treated as partnerships for U.S. federal income tax purposes typically have made high levels of tax-deferred cash distributions. Such MLPs historically have made cash distributions to limited
partners or members that exceed the amount of taxable income allocable to limited partners or members, due to a variety of factors, including significant
non-cash
deductions, such as depreciation and
depletion.* If the cash distributions received by the Fund exceed the Funds taxable income in a particular tax year, the excess cash distributions would not be taxed as income to the Fund in that tax year but rather would be treated as a
return of capital for federal income tax purposes to the extent of the Funds basis in its MLP units. See Tax Matters.
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If the Fund determines that doing so is in the best interest of its shareholders, in the future the Fund may elect to be treated as a regulated investment company (a
RIC) under Subchapter M of the Code for federal income tax purposes. The Fund may make such an election, for example, if changes to the Code made it possible for the Fund to qualify as a RIC despite its concentration in MLP securities
and as a result made it disadvantageous to continue to be treated as a C corporation for federal income tax purposes. Making such an election would generally require, among other things, that the Fund either (i) be subject to corporate
level taxes on any net built-in gains actually recognized over a ten-year period or (ii) recognize and pay tax on unrealized gains as of the last day of the Funds last taxable year as a C corporation.
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Common Shareholder Tax Features.
The Fund expects to pay cash distributions to its Common
Shareholders in excess of its taxable income per share, although no assurance can be given in this regard. If the Fund distributes cash from current or accumulated earnings and profits as computed for federal income tax purposes, such distributions
will generally be taxable to Common Shareholders to the extent of such earnings and profits in the current period as dividend income for federal income tax purposes. Subject to certain holding period and other requirements, such dividend income will
generally be eligible for the dividends received deduction in the case of corporate shareholders and will generally be treated as qualified dividend income eligible for reduced rates of taxation for shareholders taxed as individuals. If
the Funds distributions exceed its current and accumulated earnings and profits as computed for federal income tax purposes, such excess distributions will constitute a
non-taxable
return of capital that
will reduce a Common Shareholders basis in the Funds Common Shares. To
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*
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Based on the performance of a representative MLP income model account for the period 2004-2012.
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the extent that excess exceeds a Common Shareholders basis in the Funds Common Shares, the excess will be taxed as capital gain. The Fund expects that a significant portion of its
distributions to its Common Shareholders will constitute a
non-taxable
return of capital and will reduce their basis in the Common Shares. Upon the sale of Common Shares, a Common Shareholder generally will
recognize capital gain or loss measured by the difference between the sale proceeds received by the Funds Common Shareholder and the holders federal income tax basis in the Common Shares sold, as adjusted to reflect return of capital. It
is possible that a return of capital could cause a shareholder to pay tax on capital gains with respect to shares that are sold for an amount less than the price originally paid for them. See Tax Matters.
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Special Risk Considerations
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Investment in the Fund involves special risk considerations, which are summarized below. The Fund is designed as a long-term investment and not as a trading vehicle. The Fund is not intended to
be a complete investment program. See Risks for a more complete discussion of the special risk considerations of an investment in the Fund.
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Investment and Market Risk.
An investment in the Funds Common Shares is subject to investment risk, including the possible loss of
the entire principal amount that you invest. Your investment in Common Shares represents an indirect investment in MLPs and other securities owned by the Fund, many of which could be purchased directly. Your Common Shares at any point in time may be
worth less than your original investment, even after taking into account the reinvestment of Fund dividends and distributions. See Risk FactorsInvestment and Market Risk.
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Market Discount from Net Asset Value.
Shares of closed-end investment companies like the Fund have during some periods traded at prices higher than net asset
value and have during other periods traded at prices lower than net asset value. The Fund cannot predict whether Common Shares will trade at, above or below net asset value. This characteristic is a risk separate and distinct from the risk that the
Funds net asset value could decrease as a result of investment activities. Investors bear a risk of loss to the extent that the price at which they sell their shares is lower in relation to the Funds net asset value than at the time of
purchase, assuming a stable net asset value. The Common Shares are designed primarily for long-term investors, and you shouldnt view the Fund or a vehicle for trading purposes. Proceeds from the sale of Common Shares in this offering will be
reduced by shareholder transaction costs (if applicable, which vary depending on the offering method used). Depending on the premium of the Common Shares at the time of any offering of Common Shares hereunder, the Funds net asset value may be
reduced by an amount up to the offering costs borne by the Fund (estimated to be an additional 0.12% of the offering price assuming a Common Share offering price of $18.86) (the Funds closing price on the NYSE on March 14, 2014)). The net
asset value per Common Share will also be reduced by costs associated with any future issuances of Common Shares or preferred shares. The
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Common Shares are designed primarily for long-term investors, and you should not view the Fund as a vehicle for trading purposes. See Risk FactorsMarket Discount from Net Asset
Value.
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Risks Related to Investments in MLP Units.
An investment in MLP units involves risks that differ from a similar investment in equity
securities, such as common stock, of a corporation. Holders of MLP units have the rights typically afforded to limited partners in a limited partnership. As compared to common stockholders of a corporation, holders of MLP units have more limited
control and limited rights to vote on matters affecting the partnership. There are certain tax risks associated with an investment in MLP units (described further below). Additionally, conflicts of interest may exist among common unit holders,
subordinated unit holders and the general partner or managing member of an MLP; for example a conflict may arise as a result of incentive distribution payments.
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U.S. Federal Budget Risk.
From year to year, the U.S. federal budget process may lead to modification of certain tax incentives widely
used by oil, gas and coal companies and result in the imposition of new fees on certain energy producers. Changes to such tax incentives and the imposition of such fees could adversely affect MLPs in which the Fund invests and the natural resources
industry generally.
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Tax Risks.
The Fund invests primarily in MLPs that pay no separate corporate-level tax because they qualify as partnerships under current U.S. tax law. A change in
law or in the business of such MLPs that caused them to be treated as taxable corporations could reduce their cash available for distribution to the Fund and require them to treat their distributions as dividends to the extent of their current or
accumulated earnings and profits. Such a tax reclassification could materially reduce the
after-tax
return to the Fund from the affected MLPs, possibly causing a decline in the value of the Common Shares. In
addition, other changes in tax laws or tax administration could adversely affect the Fund or the MLPs in which the Fund invests.
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The Funds taxable income includes its allocable share of the income, gains, losses, deductions, expenses and credits recognized by each MLP treated as a
partnership for U.S. federal income tax purposes in which it invests, regardless of whether the MLP distributes cash to the Fund. The Fund will incur a current tax liability on its share of MLP income that is not offset by MLP tax deductions. Any
portion of a distribution from an MLP that is offset by the MLPs tax deductions reduces the Funds adjusted tax basis in the MLP, eventually increasing the amount of gain (or decreasing the amount of loss) the Fund will recognize upon the
sale of its MLP interest or distributions by the MLP. Cash distributions from an MLP to the Fund (and, in certain cases, the value of marketable securities distributed by an MLP to the Fund) in excess of the Funds basis in the MLP will
generally be taxable to the Fund as capital gain. The Fund will not benefit from current favorable federal
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income tax rates on long-term capital gains because it will be taxed as a corporation for federal income tax purposes. Historically, such MLPs have been able to offset a significant portion of
their taxable income with deductions, but that portion may fluctuate in the future.* Reduction or deceleration in an MLPs allocation of tax deductions or credits to the Fund could increase the current tax liability for the Fund. The Fund will
accrue deferred income taxes for the future tax liability associated with the difference between the tax basis and the fair market value of each MLP interest. From time to time, the Fund will modify its estimates or assumptions regarding its accrual
as new information becomes available with respect to each MLP. Although the Funds net asset value may take into account deferred tax liabilities, there can be no assurance that the purchase price you pay for Common Shares will take into
account deferred tax liabilities. If you purchase Common Shares at a substantial premium to net asset value, the value of the Common Shares may be adversely affected by an event that triggers a deferred tax liability not fully reflected in your
purchase price.
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Depreciation or other cost recovery deductions passed through to the Fund from investments in MLPs and used to reduce the Funds taxable income may be recaptured
in the Funds taxable income (and earnings and profits) in subsequent years when the MLPs dispose of their assets or when the Fund disposes of its interests in the MLPs. When deductions are recaptured, the Fund will be subject to tax on the
recapture income and distributions to the Funds shareholders may be taxable, even if those shareholders did not hold shares in the Fund at the time the deductions were taken by the Fund, and even though the shareholders will not have
corresponding economic gains on their shares at the time of the distribution.
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Because of the Funds status as a corporation for tax purposes and its investments in MLPs, its earnings and profits may be calculated differently from taxable income. The Funds
distributions out of current or accumulated earnings and profits will be treated as dividends even in years when the amount of the Funds distributions exceeds its taxable income.
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The tax treatment of all items allocated to the Fund each
year by the MLPs will not be known until the Fund receives a schedule K-1 for that year with respect to each of its MLP investments. The Funds tax liability will not be known until the Fund completes its annual tax return. The Funds tax
estimates could vary substantially from the actual liability and therefore the determination of the Funds actual tax liability may have a material adverse effect on the value of an investment in the Fund. The payment of corporate income taxes
imposed on the Fund will decrease cash available for distribution to shareholders. See Tax Matters.
*
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Based on the performance of a representative MLP income model account for the period 2004-2012.
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Affiliated Party Risk.
Certain MLPs in which the Fund may
invest depend upon their parent or sponsor entities for the majority of their revenues. If their parent or sponsor entities fail to make such payments or satisfy their obligations, the revenues and cash flows of such MLPs and ability of such MLPs to
make distributions to unit holders, such as the Fund, would be adversely affected.
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Equity Securities Risk.
A substantial percentage of the Funds assets will be invested in MLP equity securities. Equity risk is the
risk that MLP units or other equity securities held by the Fund will fall due to general market or economic conditions, perceptions regarding the industries in which the issuers of securities held by the Fund participate, changes in interest rates,
and the particular circumstances and performance of particular companies whose securities the Fund holds. The price of an equity security of an issuer may be particularly sensitive to general movements in the stock market, and a drop in the stock
market may depress the price of most or all of the equity securities held by the Fund. In addition, equity securities held by the Fund may decline in price if the issuer fails to make anticipated distributions or dividend payments.
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MLP subordinated units typically are convertible to MLP common units at a one-to-one ratio. The price of MLP subordinated units is typically tied to the price of the
corresponding MLP common unit, less a discount. The size of the discount depends upon a variety of factors, including the likelihood of conversion, the length of time remaining until conversion and the size of the block of subordinated units being
purchased or sold.
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The Fund may invest in equity securities issued by affiliates of MLPs, including general partners of MLPs. Such issuers may be organized and/or taxed as corporations,
and these equity securities therefore may not offer the advantageous tax characteristics of MLP units. Investments in such MLP affiliates would be expected by the MLP Team to provide economic exposure to the MLP asset class; however, such
investments may not exhibit precise price correlation to any particular MLP or the MLP asset class generally.
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I-Shares represent an indirect investment in MLP I-units. Prices and volatilities of I-Shares tend to correlate to the price of common units, although the price
correlation may not be precise. I-Shares differ from MLP common units primarily in that instead of receiving cash distributions, holders of I-Shares will receive distributions of additional I-Shares, in an amount equal to the cash distributions
received by common unit holders. I-Shares have limited voting rights. Holders of
I-Shares
are subject to the same risks as holders of MLP common units. See Risk FactorsEquity Securities Risk.
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Energy Sector Risks.
Concentration in the energy sector may present more risks than if the Fund invested in numerous sectors of the
economy. A downturn in the energy sector could have a larger impact on the Fund than on a fund that does not concentrate in the sector. At times, the performance of securities in the energy sector may lag the
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performance of other sectors or the broader market as a whole. In addition, there are several specific risks associated with investments in the energy sector, including the following:
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Commodity Price Risk
. MLPs and other entities operating in the energy sector may be affected by fluctuations in the prices of energy
commodities, including, for example, natural gas, natural gas liquids (including propane), crude oil and coal in the short-term and long-term. Fluctuations in energy commodity prices would impact directly companies that own such energy commodities
and could impact indirectly companies that engage in transportation, storage, processing, distribution or marketing of such energy commodities. Fluctuations in energy commodity prices can result from changes in general economic conditions or
political circumstances (especially of key energy producing and consuming countries); market conditions; weather patterns; domestic production levels; volume of imports; energy conservation; domestic and foreign governmental regulation;
international politics; policies of the Organization of Petroleum Exporting Countries (OPEC); taxation; tariffs; and the availability and costs of local, intrastate and interstate transportation methods. The energy sector as a whole may
also be impacted by the perception that the performance of energy sector companies is directly linked to commodity prices. High commodity prices may drive further energy conservation efforts, and a slowing economy may adversely impact energy
consumption, which may adversely affect the performance of MLPs and other companies operating in the energy sector. Recent economic and market events have fueled concerns regarding potential liquidations of commodity futures and options positions.
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Depletion Risk
. MLPs and other entities engaged in the exploration, development, management or production of energy commodities face the
risk that commodity reserves are depleted over time. Such companies seek to increase their reserves through expansion of their current businesses, acquisitions, further development of their existing sources of energy commodities, exploration of new
sources of energy commodities or by entering into long-term contracts for additional reserves; however, there are risks associated with each of these potential strategies. If such companies fail to acquire additional reserves in a cost-effective
manner and at a rate at least equal to the rate at which their existing reserves decline, their financial performance may suffer. Additionally, failure to replenish reserves could reduce the amount and affect the tax characterization of the
distributions paid by such companies.
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Supply and Demand Risk
. MLPs and other entities operating in the energy sector could be adversely affected by reductions in the supply of or demand for energy commodities.
The volume of production of energy commodities and the volume of energy commodities available for transportation, storage, processing or distribution could be affected by a variety of factors, including depletion of resources; depressed commodity
prices; catastrophic events; labor relations; increased
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environmental or other governmental regulation; equipment malfunctions and maintenance difficulties; import volumes; international politics; policies of OPEC; and increased competition from
alternative energy sources. Alternatively, a decline in demand for energy commodities could result from factors such as adverse economic conditions (especially in key energy-consuming countries); increased taxation; increased environmental or other
governmental regulation; increased fuel economy; increased energy conservation or use of alternative energy sources; legislation intended to promote the use of alternative energy sources; or increased commodity prices.
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Regulatory Risk
. The energy sector is highly regulated. MLPs and other entities operating in the energy sector are subject to significant
regulation of nearly every aspect of their operations by federal, state and local governmental agencies. Such regulation can change over time in both scope and intensity. For example, a particular
by-product
may be declared hazardous by a regulatory agency and unexpectedly increase production costs. Various governmental authorities have the power to enforce compliance with these regulations and the permits issued under them, and violators are subject to
administrative, civil and criminal penalties, including fines, injunctions or both. Governmental agencies may in the future seek to limit or prohibit certain activities (
i.e.
, hydraulic fracturing or fracking) that produce energy
commodities, which could adversely affect the financial condition of the MLPs in which the Fund invests. Stricter laws, regulations or enforcement policies could be enacted in the future which would likely increase compliance costs and may adversely
affect the financial performance of MLPs.
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There is an inherent risk that MLPs may incur environmental costs and liabilities due to the nature of their businesses and the substances they handle. For example, an
accidental release from wells or energy infrastructure assets could subject them to substantial liabilities for environmental cleanup and restoration costs, claims made by neighboring landowners and other third parties for personal injury and
property damage, and fines or penalties for related violations of environmental laws or regulations. Moreover, the possibility exists that stricter laws, regulations or enforcement policies could significantly increase compliance costs and
remediation costs. MLPs may not be able to recover these costs from insurance. See Risk FactorsRegulatory Risk.
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Acquisition Risk
. MLP investments owned by the Fund may depend on their ability to make acquisitions that increase adjusted operating
surplus per unit in order to increase distributions to unit holders. The ability of such MLPs to make future acquisitions is dependent on their ability to identify suitable targets, negotiate favorable purchase contracts, obtain acceptable financing
and outbid competing potential acquirers. To the extent that such MLPs are unable to make future acquisitions, or such future acquisitions fail to increase the adjusted operating surplus per unit, their growth and ability to make distributions will
be limited. See Risk FactorsAcquisition Risk.
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Weather Risk
. Weather plays a role in the seasonality of some MLPs cash flows. MLPs in the propane industry, for example, rely on
the winter season to generate almost all of their earnings. In an unusually warm winter season, propane MLPs experience decreased demand for their product. Although most MLPs can reasonably predict seasonal weather demand based on normal weather
patterns, extreme weather conditions, such as the hurricanes that severely damaged cities along the U.S. Gulf Coast in recent years, demonstrate that no amount of preparation can protect an MLP from the unpredictability of the weather or possible
climate change. The damage done by extreme weather also may serve to increase many MLPs insurance premiums and could adversely affect such companies financial condition and ability to pay distributions to shareholders.
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Catastrophic Event Risk
. MLPs and other entities operating in the energy sector are subject to many dangers inherent in the production,
exploration, management, transportation, processing and distribution of natural gas, natural gas liquids (including propane), crude oil, refined petroleum and petroleum products and other hydrocarbons. These dangers include leaks, fires, explosions,
damage to facilities and equipment resulting from natural disasters, inadvertent damage to facilities and equipment and terrorist acts. Since the September 11
th
terrorist attacks, the U.S. government has issued warnings that energy assets, specifically U.S. pipeline
infrastructure, may be targeted in future terrorist attacks. These dangers give rise to risks of substantial losses as a result of loss or destruction of commodity reserves; damage to or destruction of property, facilities and equipment; pollution
and environmental damage; and personal injury or loss of life. Any occurrence of such catastrophic events could bring about a limitation, suspension or discontinuation of operations in the energy sector. See Risk FactorsCatastrophic
Event Risk.
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Industry Specific Risks.
MLPs and other entities operating in the energy sector are also subject to risks that are specific to the
industry they serve.
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Pipelines
. Pipeline companies are subject to the demand for natural gas, natural gas liquids (including propane), crude oil or refined
products in the markets they serve, changes in the availability of products for gathering, transportation, processing or sale due to natural declines in reserves and production in the supply areas serviced by the companies facilities, sharp
decreases in crude oil or natural gas prices that cause producers to curtail production or reduce capital spending for exploration activities, and environmental regulation. Demand for gasoline, which accounts for a substantial portion of refined
product transportation, depends on price, prevailing economic conditions in the markets served, and demographic and seasonal factors. Companies that own interstate pipelines are subject to regulation by the Federal Energy Regulatory Commission
(FERC) with respect to the tariff rates they may charge for transportation services. An adverse determination by
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FERC with respect to the tariff rates of such a company could have a material adverse effect on its business, financial condition, results of operations and cash flows and its ability to pay cash
distributions or dividends. In addition, FERC has a tax allowance policy, which permits such companies to include in their cost of service an income tax allowance to the extent that their owners have an actual or potential tax liability on the
income generated by them. If FERCs income tax allowance policy were to change in the future to disallow a material portion of the income tax allowance taken by such interstate pipeline companies, it would adversely impact the maximum tariff
rates that such companies are permitted to charge for their transportation services, which would in turn could adversely affect such companies financial condition and ability to pay distributions to shareholders.
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Gathering and Processing
. Gathering and processing companies are subject to natural declines in the production of oil and natural gas
fields, which utilize their gathering and processing facilities as a way to market their production, prolonged declines in the price of natural gas or crude oil, which curtails drilling activity and therefore production, and declines in the prices
of natural gas liquids (including propane) and refined petroleum products, which cause lower processing margins. In addition, some gathering and processing contracts subject the gathering or processing company to direct commodities price risk.
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Midstream
. Midstream MLPs gather, process, transport and store oil, natural gas, and refined petroleum products. Midstream MLPs and other
entities that provide crude oil, refined product and natural gas services are subject to supply and demand fluctuations in the markets they serve which may be impacted by a wide range of factors including fluctuating commodity prices, weather,
increased conservation or use of alternative fuel sources, increased governmental or environmental regulation, depletion, rising interest rates, declines in domestic or foreign production, accidents or catastrophic events, and economic conditions,
among others.
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Exploration and Production
. Exploration, development and production companies are particularly vulnerable to declines in the demand
for and prices of crude oil and natural gas. Reductions in prices for crude oil and natural gas can cause a given reservoir to become uneconomic for continued production earlier than it would if prices were higher, resulting in the plugging and
abandonment of, and cessation of production from, that reservoir. In addition, lower commodity prices not only reduce revenues but also can result in substantial downward adjustments in reserve estimates. The accuracy of any reserve estimate is a
function of the quality of available data, the accuracy of assumptions regarding future commodity prices and future exploration and development costs and engineering and geological interpretations and judgments. Different reserve engineers may make
different estimates of reserve quantities and related revenue based on the same data. Actual oil and gas prices, development expenditures and
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operating expenses will vary from those assumed in reserve estimates, and these variances may be significant. Any significant variance from the assumptions used could result in the actual
quantity of reserves and future net cash flow being materially different from those estimated in reserve reports. In addition, results of drilling, testing and production and changes in prices after the date of reserve estimates may result in
downward revisions to such estimates. Substantial downward adjustments in reserve estimates could have a material adverse effect on a given exploration and production companys financial position and results of operations. In addition, due to
natural declines in reserves and production, exploration and production companies must economically find or acquire and develop additional reserves in order to maintain and grow their revenues and distributions.
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Propane
. Propane MLPs are subject to earnings variability based upon weather conditions in the markets they serve, fluctuating commodity
prices, increased use of alternative fuels, increased governmental or environmental regulation, and accidents or catastrophic events, among others.
|
|
Coal
. MLP entities and other entities with coal assets are subject to supply and demand fluctuations in the markets they serve, which may
be impacted by a wide range of factors including fluctuating commodity prices, the level of their customers coal stockpiles, weather, increased conservation or use of alternative fuel sources, increased governmental or environmental
regulation, depletion, rising interest rates, declines in domestic or foreign production, mining accidents or catastrophic events, health claims and economic conditions, among others. MLP entities and other entities with coal assets are also subject
to supply variability based on geological conditions that reduce the productivity of mining operations, the availability of regulatory permits for mining activities and the availability of coal that meets the standards of the 1990 Clean Air Act.
|
|
Marine Shipping
. Marine shipping (or tanker companies) are exposed to many of the same risks as other energy companies. In
addition, the highly cyclical nature of the industry may lead to volatile changes in charter rates and vessel values, which may adversely affect the earnings of tanker companies in the Funds portfolio. Fluctuations in charter rates and vessel
values result from changes in the supply and demand for tanker capacity and changes in the supply and demand for oil and oil products. Historically, the tanker markets have been volatile because of the many conditions and factors that can affect the
supply and demand for tanker capacity. Changes in demand for transportation of oil over longer distances and supply of tankers to carry that oil may materially affect revenues, profitability and cash flows of tanker companies. The successful
operation of vessels in the charter market depends upon, among other things, obtaining profitable spot charters and minimizing time spent waiting for charters and traveling unladen to pick up cargo. The value of tanker vessels may fluctuate and
could adversely affect the value of tanker company securities in the Funds
|
23
|
portfolio. Declining tanker values could affect the ability of tanker companies to raise cash by limiting their ability to refinance their vessels, thereby adversely impacting tanker company
liquidity. Tanker company vessels are at risk of damage or loss because of events such as mechanical failure, collision, human error, war, terrorism, piracy, cargo loss and bad weather. In addition, changing economic, regulatory and political
conditions in some countries, including political and military conflicts, have from time to time resulted in attacks on vessels, mining of waterways, piracy, terrorism, labor strikes, boycotts and government requisitioning of vessels. These sorts of
events could interfere with shipping lanes and result in market disruptions and a significant loss of tanker company earnings. Some marine shipping MLPs are organized and headquartered outside the United States and taxed as corporations in the
United States. As a result, these non-U.S. MLPs may not offer the tax benefits typically associated with domestic MLPs.
|
|
Interest Rate Risk.
Rising interest rates could increase the costs of capital thereby increasing operating costs and reducing the ability
of MLPs and other entities to carry out acquisitions or expansions in a cost-effective manner. As a result, rising interest rates could negatively affect the financial performance of MLPs. Rising interest rates may also impact the price of the
securities of MLPs as the yields on alternative investments increase. See RisksInterest Rate Risk.
|
|
Inflation and Deflation Risk.
Inflation risk is the risk that the value of assets or income from investment will be worth less in the
future, as inflation decreases the value of money. As inflation increases, the real value of the Common Shares and distributions on those shares can decline. In addition, during any periods of rising inflation, interest rates on any borrowings by
the Fund would likely increase, which would tend to further reduce returns to the holders of Common Shares. Deflation risk is the risk that prices throughout the economy decline over time, which may have an adverse effect on the market valuation of
companies, their assets and revenues. In addition, 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 Funds portfolio.
|
|
Liquidity Risk.
Although the equity securities of the MLPs in which the Fund invests generally trade on major stock exchanges, certain
securities may trade less frequently, particularly those of MLPs and other issuers with smaller capitalizations. Securities with limited trading volumes may display volatile or erratic price movements. Also, the Fund may be one of the largest
investors in certain
sub-sectors
of the energy or natural resource sectors. Thus, it may be more difficult for the Fund to buy and sell significant amounts of such securities without an unfavorable impact on
prevailing market prices. Larger purchases or sales of these securities by the Fund in a short period of time may cause abnormal movements in the market price of these securities. As a result, these securities may be difficult to dispose of at a
fair price at the times when the MLP Team believes it is desirable to do so.
|
24
|
Small Capitalization Risk.
The Fund may invest in securities of MLPs and other issuers that have comparatively smaller
capitalizations relative to issuers whose securities are included in major equity benchmark indexes, which presents unique investment risks. These companies often have limited product lines, markets, distribution channels or financial resources, and
the management of such companies may be dependent upon one or a few key people. The market movements of equity securities issued by MLPs with smaller capitalizations may be more abrupt or erratic than the market movements of equity securities of
larger, more established companies or the stock market in general.
|
|
Restricted Securities Risk.
The Fund may invest up to 30% of its Managed Assets in restricted securities including PIPEs. Because the sale
of the securities is not registered under the 1933 Act, which, therefore, are restricted and cannot be immediately resold by the investors into the public markets. Restricted securities are often purchased at a discount from the market
price of unrestricted securities of the same issuer reflecting the fact that such securities may not be readily marketable without some time delay. Such securities are often more difficult to value and the sale of such securities often requires more
time and results in higher brokerage charges or dealer discounts and other selling expenses than does the sale of liquid securities trading on national securities exchanges or in the
over-the-counter
markets. Until the Fund can sell such securities into the public markets, its holdings will be less liquid and any sales will need to be made pursuant
to an exemption under the Securities Act.
|
|
PIPEs Risk.
The Fund may be involved in PIPEs or private financing of public companies. PIPE investors may purchase securities directly
from a publicly traded company in a private placement transaction, typically at a discount to the market price of the companys common stock. In a PIPE transaction, the Fund may bear the price risk from the time of pricing until the time of
closing. In addition, the Fund may have to commit to purchase a specified number of shares at a fixed price, with the closing conditioned upon, among other things, the SECs preparedness to declare effective a resale registration statement
covering the resale, from time to time, of the shares sold in the private financing. Because the sale of the securities is not registered under the Securities Act, the securities are restricted and cannot be immediately resold by the
investors into the public markets. Accordingly, the company typically agrees as part of the PIPE deal to register the restricted securities with the SEC. PIPE securities may be deemed illiquid.
|
|
Competition Risk.
A number of alternatives to the Fund as vehicles for investment in a portfolio of MLPs currently exist, including
other publicly traded investment companies, structured notes and private funds. In addition, tax law changes in the last decade have increased the ability of regulated investment companies and other institutions to invest in MLPs. These competitive
conditions may adversely impact the
|
25
|
Funds ability to meet its investment objective, which in turn could adversely impact its ability to make distributions. See RisksCompetition Risk.
|
|
Cash Flow Risk.
The Fund expects that a substantial portion of the cash flow it receives will be derived from its investments in equity
securities of MLPs. The amount and tax characterization of cash available for distribution by an MLP depends upon the amount of cash generated by such entitys operations. Cash available for distribution by MLPs will vary widely from quarter to
quarter due to various factors affecting the entitys operations. In addition to the risks described herein, operating costs, capital expenditures, acquisition costs, construction costs, exploration costs and borrowing costs may reduce the
amount of cash that an MLP has available for distribution in a given period.
|
|
Capital Market Risk.
Global financial markets and economic conditions have been, and continue to be, volatile due to a variety of factors,
including significant write-offs in the financial services sector. As a result, the cost of raising capital in the debt and equity capital markets has increased substantially while the ability to raise capital from those markets has diminished
significantly. MLPs may therefore be unable to obtain new debt or equity financing on acceptable terms or at all. If funding is not available when needed, or is available only on unfavorable terms, MLPs may not be able to meet their obligations as
they come due. Moreover, without adequate funding, MLPs may be unable to execute their growth strategies, complete future acquisitions, take advantage of other business opportunities or respond to competitive pressures, any of which could have a
material adverse effect on their revenues and results of operations.
|
|
Valuation Risk.
The Fund is subject to valuation risk from its estimates of deferred tax assets and liabilities and from its
investments in certain securities for which market prices may be unavailable.
|
|
As a limited partner in the MLPs, the Fund includes its allocable share of the MLPs taxable income in computing its own taxable income. Deferred income taxes
in the financial statements of the Fund reflect (i) taxes on unrealized gains/losses, which are attributable to the temporary difference between fair market value and the tax basis of the Funds assets, (ii) the net tax effects of
temporary differences between the carrying amounts of such assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and (iii) the net tax benefit of accumulated net operating losses. To the extent the
Fund has a deferred tax asset, consideration is given as to whether or not a valuation allowance is required. The need to establish a valuation allowance for deferred tax assets is assessed periodically by the Fund based on the criterion established
by the Financial Accounting Standards Board Codification Topic 740, Income Taxes (formerly Statement of Financial Accounting Standards No. 109) (ASC Topic
|
26
|
740) that it is more likely than not that some portion or all of the deferred tax asset will not be realized. In the assessment for a valuation allowance, consideration is given to all
positive and negative evidence related to the realization of the deferred tax asset. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability (which are
highly dependent on future MLP cash distributions), the duration of statutory carryforward periods and the associated risk that operating loss carryforwards may expire unused.
|
|
The Fund may rely to some extent on information provided by the MLPs, which may not necessarily be timely, to estimate taxable income allocable to the MLP units held in
the portfolio and to estimate the associated deferred tax asset or liability. Such estimates are made in good faith. From time to time, as new information becomes available, the Fund will modify its estimates or assumptions regarding the deferred
tax asset or liability.
|
|
Deferred tax assets may constitute a relatively high percentage of the Funds net asset value. Any valuation allowance required against such deferred tax assets or
future adjustments to a valuation allowance may reduce the Funds deferred tax assets and could have a material impact on the Funds net asset value and results of operations in the period the valuation allowance is recorded or adjusted.
|
|
The Fund may make investments in securities for which market prices may not be available, including restricted or unregistered securities of certain MLPs and private
companies, MLP subordinated units and direct ownership of general partner or managing member interests. The value of such securities will be determined pursuant to fair valuation policies adopted by the Board of Trustees. Proper valuation of such
securities may require more reliance on the judgment of NFALLC and the MLP Team than for valuation of securities for which an active trading market exists.
|
|
Below Investment Grade Risk
.
The Fund may invest up to 30% (measured at the time of investment) of its Managed Assets in debt
securities that are of below investment grade quality. Securities of below investment grade quality, commonly referred to as junk bonds, are regarded as having predominately speculative characteristics with respect to the issuers capacity to
pay interest and repay principal when due, and are more susceptible to default or decline in market value due to adverse economic and business developments than investment grade securities. Also, to the extent that the rating assigned to a security
in the Funds portfolio is downgraded by any nationally recognized statistical rating organization (NRSRO), the market price and liquidity of such security may be adversely affected. The market values for securities of below
investment grade quality tend to be volatile, and these securities are less liquid than investment grade securities. See Risk FactorsBelow Investment Grade Risk.
|
27
|
Leverage Risk.
The use of financial leverage created through borrowing or any future issuance of preferred shares creates an opportunity
for increased Common Share net income and returns, but also creates special risks for Common Shareholders. There is no assurance that the Funds leveraging strategy will be successful. The risk of loss attributable to the Funds use of
leverage is borne by Common Shareholders. The Funds use of financial leverage can result in a greater decrease in net asset values in declining markets. The Funds use of financial leverage similarly can magnify the impact of changing
market conditions on Common Share market prices. See Risk FactorsLeverage Risk.
|
|
As of the date of this Prospectus, the Fund has not issued preferred shares. The Fund may in the future issue certain types of preferred securities to increase the
Funds leverage.
|
|
Furthermore, the amount of fees paid to NFALLC for investment advisory services will be higher if the Fund uses leverage because the fees will be calculated based on
the Funds Managed Assetsthis may create an incentive for NFALLC to leverage the Fund.
|
|
Other Investment Companies Risk.
The Fund may, subject to the limitations of the 1940 Act, invest in the securities of other investment companies including open-end
and closed-end funds and exchange-traded funds (ETFs). Such securities may be leveraged. As a result, the Fund may be indirectly exposed to leverage through an investment in such securities, which would magnify the Funds leverage
risk. The Fund, as a holder of the securities of other investment companies, will bear its pro rata portion of the other investment companies expenses, including advisory fees. These expenses are in addition to the direct expenses of the
Funds own operations. An ETF that is based on a specific index, whether stock or otherwise, may not be able to replicate and maintain exactly the composition and relative weighting of securities in the index. An ETF also incurs certain
expenses not incurred by its applicable index. The market value of shares of ETFs and closed-end funds may differ from their net asset value.
|
|
Risks Associated with Options on Securities
. There are several risks associated with transactions in options on securities. A decision
as to whether, when and how to use options involves the exercise of skill and judgment, and even a well-conceived transaction may be unsuccessful to some degree because of market behavior or unexpected events. As the writer of a covered call option,
the Fund forgoes, during the options life, the opportunity to profit from increases in the market value of the security covering the call option above the sum of the premium and the strike price of the call, but has retained the risk of loss
should the price of the underlying security decline. The writer of an option has no control over the time when it may be required to fulfill its obligation as a writer of the option. Once an option writer has received an exercise notice, it cannot
effect a closing purchase transaction in order to
|
28
|
terminate its obligation under the option and must deliver the underlying security at the exercise price. There can be no assurance that a liquid market will exist when the Fund seeks to close
out an option position. If trading were suspended in an option purchased by the Fund, the Fund would not be able to close out the option. If the Fund were unable to close out a covered call option that it had written on a security, it would not be
able to sell the underlying security unless the option expired without exercise.
|
Derivatives Risk, including the Risk of Swaps.
The Funds use of derivatives involves risks different
from, and possibly greater than, the risks associated with investing directly in the investments underlying the derivatives. If the Fund enters into a derivative transaction, it could lose more than the principal amount invested. Whether the
Funds use of derivatives is successful will depend on, among other things, if NFALLC and the MLP Team correctly forecast conditions, liquidity, market values, interest rates and other applicable factors. If NFALLC or the MLP Team incorrectly
forecasts these and other factors, the investment performance of the Fund will be negatively affected. In addition, there can be no assurance that any hedging techniques, as they may be developed and implemented by the Fund, will be successful in
mitigating risk or achieving the goal of enhancing the Funds risk-adjusted total return over the longer term.
|
The Fund may enter into debt-related derivatives instruments, including interest rate swaps. Like most derivative instruments, the use of swaps is a highly specialized
activity that involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. In addition, the use of swaps requires an understanding by NFALLC and the MLP Team of not only the referenced
asset, rate or index, but also of the swap itself. If the Fund implements an interest rate swap program, it will seek to achieve potentially lower leverage costs and thereby enhance distributions over an extended period. This strategy would enhance
Common Shareholder returns if short-term interest rates were to rise over time to exceed on average the all-in fixed interest rate over the term of the swap. This strategy, however, will add to leverage costs initially (because the swap costs are
likely to be higher than current benchmark adjustable short-term rates) and would increase overall leverage costs over the entirety of any such time period in the event that short-term interest rates do not rise sufficiently during that period to
exceed on average the all-in fixed interest rate for that time period. The derivatives market is subject to a changing regulatory environment. It is possible that regulatory and other developments in the derivatives market could adversely affect the
Funds ability to successfully use derivative instruments.
|
|
Counterparty Risk.
Changes in the credit quality of the companies that serve as the Funds counterparties with respect to
derivatives and other transactions supported by another partys credit may affect the value of those instruments. Certain entities that have served as counterparties in
|
29
|
the markets for these transactions have in recent years incurred significant losses and financial hardships. As a result, such hardships have reduced these entities capital and called into
question their continued ability to perform their obligations under such transactions. By using derivatives or other transactions, the Fund assumes the risk that its counterparties could experience similar financial hardships. In the event of
insolvency of a counterparty, the Fund may sustain losses or be unable to liquidate a derivatives position. See Risk FactorsCounterparty Risk.
|
Reliance on Investment
Adviser.
The Fund is dependent upon services and resources provided by its investment adviser, NFALLC, and therefore the investment advisers parent, Nuveen Investments. Nuveen Investments has a substantial amount of
indebtedness. Nuveen Investments, through its own business or the financial support of its affiliates, may not be able to generate sufficient cash flow from operations or ensure that future borrowings will be available in an amount sufficient to
enable it to pay its indebtedness with scheduled maturities beginning in 2014 or to fund its other liquidity needs. Nuveen Investments failure to satisfy the terms of its indebtedness, including covenants therein, may generally have an adverse
effect on the financial condition of Nuveen Investments.
|
Non-Diversified.
Because the Fund is classified as non-diversified under the 1940 Act, it can invest a greater portion of its assets in obligations of a
single issuer than a diversified fund. As a result, the Fund may be more susceptible than a diversified fund to any single corporate, economic, political, geographic or regulatory risk or occurrence. See
RisksNon-Diversified and The Funds Investments.
|
|
Anti-Takeover Provisions.
The Funds Declaration of Trust (Declaration) and the Funds By-Laws (By-Laws)
include provisions that could limit the ability of other entities or persons to acquire control of the Fund or convert the Fund to
open-end
status. These provisions could have the effect of depriving Common
Shareholders of opportunities to sell their Common Shares at a premium over the then-current market price of the Common Shares. See Certain Provisions in the Declaration of Trust and By-LawsAnti-Takeover Provisions and Risk
FactorsAnti-Takeover Provisions.
|
|
Potential Conflicts of Interest Risk.
NFALLC and ARI each provide a wide array of portfolio management and other asset
management services to a mix of clients and may engage in ordinary course activities in which their respective interests or those of their clients may compete or conflict with those of the Fund. For example, NFALLC and ARI may provide investment
management services to other funds and accounts that follow investment objectives similar to those of the Fund. In certain circumstances, and subject to its fiduciary obligations under the Investment Advisers Act of 1940, ARI may have to allocate a
limited
|
30
|
investment opportunity among its clients. NFALLC and ARI have each adopted policies and procedures designed to address such situations and other potential conflicts of interests. For additional
information about potential conflicts of interest, and the way in which NFALLC and ARI address such conflicts, please see the SAI.
|
Distributions
|
Under normal circumstances, the Fund intends to distribute substantially all of the cash flow received as distributions from MLPs, interest payments received on debt securities owned by the Fund
and other payments on securities owned by the Fund, less payments on any borrowings or preferred shares and other Fund expenses.
|
|
The Fund intends to make quarterly distributions. The Fund reserves the right to change its distribution policy and the basis for establishing the rate of its quarterly
distributions at any time and may do so without prior notice to Common Shareholders.
|
Custodian and Transfer Agent
|
State Street Bank and Trust Company will serve as the Funds custodian and transfer agent. See Custodian and Transfer Agent.
|
Voting Rights
|
The Fund does not currently, but may in the future, issue certain types of preferred securities. In that event, such preferred securities, voting as a separate class, would have the right to
elect at least two trustees at all times and to elect a majority of the trustees in the event two full years dividends on the preferred shares are unpaid. In each case, the remaining trustees would be elected by holders of Common Shares and
preferred shares voting together as a single class. The holders of preferred shares would vote as a separate class or classes on certain other matters as required under the Declaration, the Investment Company Act of 1940, as amended (1940
Act) and Massachusetts law. See Description of SharesPreferred SharesVoting Rights and Certain Provisions in the Declaration of Trust and By-Laws.
|
31
SUMMARY OF FUND EXPENSES
The table shows the expenses of the Fund as a percentage of
the average net assets applicable to Common Shares, and not as a percentage of total assets or Managed Assets.
|
|
|
|
|
Shareholder Transaction Expenses (as a percentage of offering price)
|
|
|
|
|
Maximum Sales Charge
|
|
|
4.00
|
%
|
Offering Expenses Borne by the Fund
(1)
|
|
|
0.12
|
%
|
|
|
|
|
Percentage of
Net Assets
Attributable to
Common Shares
(2)
|
|
Annual Expenses
|
|
|
|
|
Management Fees
|
|
|
1.42
|
%
|
Interest Expense on Borrowings
(3)
|
|
|
0.34
|
%
|
Other Expenses
(4)
|
|
|
0.15
|
%
|
Current Income Tax Expenses
|
|
|
0.22
|
%
|
Deferred Income Tax Expenses
|
|
|
11.03
|
%
|
|
|
|
|
|
Total Annual Expenses
|
|
|
13.16
|
%
|
|
|
|
|
|
(1)
|
Assuming a Common Share offering price of $18.86 (the Funds closing price on the NYSE on March 14, 2014).
|
(2)
|
Stated as a percentage of average net assets attributable to Common Shares for the fiscal year ended November 30, 2013, adjusted to reflect the
Funds current borrowing arrangement.
|
(3)
|
Interest Expense on Borrowings have been restated using current fees as if they had been in effect during the previous fiscal period. Interest Expense
on Borrowings are estimated and assume an annual interest rate of 0.92% on a $283,000,000 borrowing and no annual undrawn fee. The actual Interest Expense on Borrowings incurred in the future may be higher or lower.
|
(4)
|
Other Expenses are estimated based on actual expenses from the prior fiscal year.
|
The purpose of the table above is to help you understand all
fees and expenses that you, as a Common Shareholder, would bear directly or indirectly. See Management of the FundInvestment Adviser and Sub-Adviser.
Examples
The following examples illustrate the expenses (including the applicable transaction fees,
if any, and estimated offering costs of $1.20) that a shareholder would pay on a $1,000 investment that is held for the time periods provided in the table. Each example assumes that all dividends and other distributions are reinvested in the Fund
and that the Funds Total Annual Expenses, as provided above, remain the same. The examples also assume a 5% annual return.
(1)
Example # 1 (At-the-Market Transaction)
The following example assumes a transaction fee of 1.00%, as a percentage of the offering price.
|
|
|
|
|
|
|
1 Year
|
|
3 Years
|
|
5 Years
|
|
10 Years
|
$136
|
|
$356
|
|
$541
|
|
$888
|
32
Example # 2 (Underwriting Syndicate Transaction)
The following example assumes a transaction fee of 4.00%, as
a percentage of the offering price.
|
|
|
|
|
|
|
1 Year
|
|
3 Years
|
|
5 Years
|
|
10 Years
|
$162
|
|
$375
|
|
$555
|
|
$891
|
Example # 3 (Privately Negotiated
Transaction)
The following example assumes
there is no transaction fee.
|
|
|
|
|
|
|
1 Year
|
|
3 Years
|
|
5 Years
|
|
10 Years
|
$127
|
|
$349
|
|
$537
|
|
$887
|
The examples should not be considered
a representation of future expenses. Actual expenses may be greater or less than those shown above.
(1)
|
The examples assume that all dividends and distributions are reinvested at Common Share net asset value. Actual expenses may be greater or less than
those assumed. Moreover, the Funds actual rate of return may be greater or less than the hypothetical 5% return shown in the example.
|
33
FINANCIAL HIGHLIGHTS
The following Financial Highlights table is intended to
help a prospective investor understand the Funds financial performance for the periods shown. Certain information reflects financial results for a single Common Share of the Fund. The total returns in the table represent the rate an investor
would have earned or lost on an investment in Common Shares of the Fund (assuming reinvestment of all dividends). The Funds annual financial statements for the fiscal year ended November 30, 2013 and prior, have been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm. A copy of the 2013 Annual Report may be obtained from www.sec.gov or by visiting www.nuveen.com. The information contained in, or that can be accessed through, the
Funds website is not part of this Prospectus. Past results are not indicative of future performance.
The following per share data and ratios have been derived from information provided in the financial statements.
Selected data for a share outstanding throughout each period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended November 30
|
|
Per Share
Operating
Performance
|
|
2013
|
|
|
2012
|
|
|
2011(f)
|
|
Beginning Net Asset Value
|
|
$
|
17.73
|
|
|
$
|
17.22
|
|
|
$
|
19.10
|
|
Investment Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Investment Income (Loss)(a)
|
|
|
(0.29
|
)
|
|
|
0.05
|
|
|
|
(0.24
|
)
|
Net Realized/ Unrealized Gain (Loss)
|
|
|
4.04
|
|
|
|
1.72
|
|
|
|
(0.65
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3.75
|
|
|
|
1.77
|
|
|
|
(0.89
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Distributions:
|
|
|
|
|
|
|
|
|
|
|
|
|
From Net Investment Income
|
|
|
(1.14
|
)
|
|
|
0.00
|
|
|
|
0.00
|
|
Return of Capital
|
|
|
(0.12
|
)
|
|
|
(1.26
|
)
|
|
|
(0.95
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(1.26
|
)
|
|
|
(1.26
|
)
|
|
|
(0.95
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offering Costs
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
(0.04
|
)
|
Ending Net Asset Value
|
|
$
|
20.22
|
|
|
$
|
17.73
|
|
|
$
|
17.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Market Value
|
|
$
|
19.40
|
|
|
$
|
18.28
|
|
|
$
|
16.66
|
|
Total Returns:
|
|
|
|
|
|
|
|
|
|
|
|
|
Based on Net Asset Value(b)
|
|
|
21.51
|
%
|
|
|
10.71
|
%
|
|
|
(4.76
|
)%
|
Based on Market Value(b)
|
|
|
13.20
|
%
|
|
|
17.87
|
%
|
|
|
(11.94
|
)%
|
Ratios/Supplemental Data
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Net Assets (000)
|
|
$
|
797,625
|
|
|
$
|
696,370
|
|
|
$
|
409,905
|
|
Ratios to Average Net Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Before Income Taxes/Tax Benefit (Expense)(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
(1.98
|
)%
|
|
|
(2.10
|
)%
|
|
|
(1.78
|
)%*
|
Net Investment Income (Loss)
|
|
|
(1.97
|
)%
|
|
|
(2.10
|
)%
|
|
|
(1.78
|
)%*
|
Ratios to Average Net Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
After Income Taxes/Tax Benefit (Expense)(c)(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
(13.22
|
)%
|
|
|
(5.58
|
)%
|
|
|
(1.78
|
)%*
|
Net Investment Income (Loss)
|
|
|
(1.48
|
)%
|
|
|
0.25
|
%
|
|
|
(1.78
|
)%*
|
Ratios to Average Net Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Current and Deferred Tax Benefit (Expense)
|
|
|
(11.25
|
)%
|
|
|
(3.48
|
)%
|
|
|
0.00
|
%*
|
Portfolio Turnover Rate(e)
|
|
|
39
|
%
|
|
|
45
|
%
|
|
|
46
|
%
|
Borrowings at End of Period:
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Amount Outstanding (000)
|
|
$
|
283,000
|
|
|
$
|
257,000
|
|
|
$
|
125,000
|
|
Asset Coverage Per $1000
|
|
$
|
3,818
|
|
|
$
|
3,710
|
|
|
$
|
4,280
|
|
(a)
|
Per share Net Investment Income (Loss) is calculated using the average daily shares method.
|
(b)
|
Total Return Based on Market Value is the combination of changes in the market price per share and the effect of reinvested dividend income and
reinvested capital gains distributions, if any, at the average price paid per share at the time of reinvestment. The last dividend declared in the period, which is typically paid on the first business day of the following month, is assumed to be
reinvested at the ending
|
34
|
market price. The actual reinvestment for the last dividend declared in the period may take place over several days, and in some instances may not be based on the market price, so the actual
reinvestment price may be different from the price used in the calculation. Total returns are not annualized.
|
|
Total Return Based on Net Asset Value is the combination of changes in net asset value, reinvested dividend income at net asset value and reinvested capital gains
distributions at net asset value, if any. The last dividend declared in the period, which is typically paid on the first business day of the following month, is assumed to be reinvested at the ending net asset value. The actual reinvest price for
the last dividend declared in the period may often be based on the Funds market price (and not its net asset value), and therefore may be different from the price used in the calculation. Total returns are not annualized.
|
(c)
|
Expenses ratios include current and deferred tax benefit (expense) allocated to net investment income (loss) and deferred tax benefit (expense) allocated to realized
and unrealized gain (loss). Net Investment Income (Loss) ratios exclude deferred tax benefit (expense) allocated to realized and unrealized gain (loss).
|
(d)
|
Net Investment Income (Loss) ratios reflect income earned and expenses incurred on assets attributable to borrowings, as described in Note 7Borrowing
Arrangements in the most recent shareholder report.
|
|
Each ratio includes the effect of all interest expense, and other costs related to borrowings as follows:
|
|
|
|
|
|
Year Ended 11/30:
|
|
Ratios of Borrowings Expense to Average Net
Assets
|
|
2013
|
|
|
0.41
|
%*
|
2012
|
|
|
0.49
|
|
2011(f)
|
|
|
0.30
|
*
|
(e)
|
Portfolio Turnover Rate is calculated based on the lesser of long-term purchases or sales (as disclosed in Note 5Investment Transactions in the most recent
shareholder report) divided by the average long-term market value during the period.
|
(f)
|
For the period February 23, 2011 (commencement of operations) through November 30, 2011.
|
35
TRADING AND NET ASSET VALUE INFORMATION
The following table shows for the periods indicated:
(i) the high and low sales prices for the Common Shares reported as of the end of the day on the NYSE, (ii) the high and low net asset values of the Common Shares, and (iii) the high and low of the premium/(discount) to net asset
value (expressed as a percentage) of the shares of the Common Shares.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market Price
|
|
|
Net Asset Value
|
|
|
Premium/(Discount)
|
|
Fiscal Quarter Ended
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
February 2014
|
|
$
|
19.55
|
|
|
$
|
17.96
|
|
|
$
|
20.82
|
|
|
$
|
19.29
|
|
|
|
(4.37)%
|
|
|
|
(9.40)%
|
|
November 2013
|
|
$
|
19.46
|
|
|
$
|
18.18
|
|
|
$
|
20.27
|
|
|
$
|
19.14
|
|
|
|
(1.24)%
|
|
|
|
(8.11)%
|
|
August 2013
|
|
$
|
22.02
|
|
|
$
|
18.99
|
|
|
$
|
20.84
|
|
|
$
|
19.14
|
|
|
|
7.99%
|
|
|
|
(3.69)%
|
|
May 2013
|
|
$
|
21.65
|
|
|
$
|
19.40
|
|
|
$
|
20.75
|
|
|
$
|
18.98
|
|
|
|
6.47%
|
|
|
|
1.03%
|
|
February 2013
|
|
$
|
19.80
|
|
|
$
|
17.50
|
|
|
$
|
19.32
|
|
|
$
|
16.98
|
|
|
|
5.71%
|
|
|
|
0.63%
|
|
November 2012
|
|
$
|
18.93
|
|
|
$
|
16.72
|
|
|
$
|
18.56
|
|
|
$
|
16.50
|
|
|
|
3.88%
|
|
|
|
(1.83)%
|
|
August 2012
|
|
$
|
18.62
|
|
|
$
|
15.93
|
|
|
$
|
17.93
|
|
|
$
|
15.32
|
|
|
|
9.90%
|
|
|
|
(0.42)%
|
|
May 2012
|
|
$
|
18.67
|
|
|
$
|
16.88
|
|
|
$
|
18.86
|
|
|
$
|
16.03
|
|
|
|
7.10%
|
|
|
|
(2.10)%
|
|
February 2012
|
|
$
|
18.83
|
|
|
$
|
16.53
|
|
|
$
|
19.03
|
|
|
$
|
17.19
|
|
|
|
0.16%
|
|
|
|
(7.07)%
|
|
November 2011
|
|
$
|
17.54
|
|
|
$
|
14.22
|
|
|
$
|
17.41
|
|
|
$
|
14.86
|
|
|
|
5.92%
|
|
|
|
(6.19)%
|
|
The net asset value
per share, the market price and percentage of premium/(discount) to net asset value per Common Share on March 14, 2014 was $20.77, $18.86 and (9.20)%, respectively. As of January 31, 2014, the Fund had 39,445,748 Common Shares outstanding and
net assets applicable to Common Shares of $807,007,515. See Repurchase of Fund Shares; Conversion to Open-End Fund.
THE FUND
The Fund is a
non-diversified,
closed-end
management
investment company registered under the 1940 Act. The Fund was organized as a Massachusetts business trust on September 27, 2010, pursuant to the Declaration and is governed by the laws of The Commonwealth of Massachusetts. The Funds Common
Shares are listed on the NYSE under the symbol JMF.
The Funds principal office is located at 333 West Wacker Drive, Chicago, Illinois 60606, and its telephone number is (800) 257-8787.
The following provides information about the Funds outstanding Common Shares as of January 31,
2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
Title of Class
|
|
Amount
Authorized
|
|
|
Amount Held
by the Fund or
for its Account
|
|
|
Amount
Outstanding
|
|
Common
|
|
|
unlimited
|
|
|
|
0
|
|
|
|
39,445,748
|
|
USE OF PROCEEDS
The net proceeds from the issuance of Common Shares hereunder will be used by the Fund to invest in securities in accordance with the
Funds investment objective and policies as stated below. To the extent the Fund uses the net proceeds of any offering to invest in securities, it is presently anticipated that the Fund will be able to invest substantially all of such proceeds
in securities that meet the Funds investment objective and policies within one month from the date on which the proceeds from an offering are received by the Fund. Pending such investment, it is anticipated that the proceeds will be invested
in high-quality, short-term investments. See Risk FactorsLeverage Risk and Use of Leverage.
36
THE FUNDS INVESTMENTS
Investment Objective and Policies
The Funds investment objective is to provide
tax-advantaged total return. There can be no assurance that the Funds investment objective will be achieved.
Investment Philosophy
The MLP Team believes that MLPs represent an attractive investment opportunity for total return given both their historically attractive cash distributions and the potential capital appreciation over
time. The types of MLPs in which the Fund intends to invest historically have made high levels of cash distributions.* The MLP Team believes that MLPs have historically demonstrated the ability to grow over time, and that this growth has resulted in
rising cash distributions and capital appreciation benefiting MLP investors. The MLP Team anticipates further comparable growth in the foreseeable future.
The MLP Teams investment philosophy and top-down strategic investment style are rooted in its long-held belief that strategy
dominates tactics and in its experience managing MLP investments for over 17 years and through multiple MLP investment cycles. The MLP Team believes that a MLP portfolio that combines a top-down strategy, rigorous quantitative valuations, and strong
fundamental research increases the probability of outperformance.
*
|
Based on the performance of a representative MLP income model account for the period 2004-2012.
|
Investment Process
The MLP Teams investment management process
examines strategic industry and market themes and conducts a bottom-up analysis of company fundamentals, including cash flow models, valuation, credit analysis, asset level analysis, management review, and fiscal controls for each MLP in their
research universe. The ultimate goal of the process is to identify those MLPs that the MLP Team believes will generate sustainable distributions throughout a cycle, capitalize on key investment themes that they believe will provide growth
opportunities, and have the necessary access to capital required to realize that growth. The MLP Teams process includes consideration of qualitative, quantitative and relative value factors. Additionally, the MLP Team evaluates and manages
portfolios with consideration to other qualitative assessments of MLP issuers, securities and market dynamics. The MLP Team employs a proprietary modeling system that provides multiple sector-specific valuation metrics for every publicly traded MLP
in its coverage universe. The MLP Teams valuation metrics include discounted cash flow, dividend discount model, comparable company analysis and other sector-specific metrics.
As part of the MLP Teams bottom-up investment process, it creates a proprietary quality scorecard that
ranks each constituent of the investable Energy MLP universe based on five fundamental metrics. The MLP Team believes that this may allow the Fund to avoid investments in more volatile (in terms of cash flow) Energy MLPs. The factors used in the
process, listed top to bottom in the order of relative importance are: asset quality, financial strength, management, parent corporate sponsor strength and business segment/geographic diversification.
Portfolio Contents
The Funds portfolio is composed principally of the
following investments. A more detailed description of the Funds investment policies and restrictions and more detailed information about the Funds portfolio investments are contained in the SAI.
Energy MLP
Investments
. Under normal market circumstances, the Fund will invest at least 80% of its Managed Assets in Energy MLPs. For purposes of the 80% policy, the Fund considers investments in MLPs to include investments that
offer economic exposure to publicly traded MLPs and private investments that have MLP characteristics, but are not publicly traded. These investments generally take the form of equity securities of
37
MLPs, securities of entities holding primarily general partner or managing member interests in MLPs, securities representing indirect investments in MLPs, including
I-Shares
and collective investment vehicles (
i.e.,
exchange-traded funds and other registered funds) that primarily hold MLP interests, and debt securities of MLPs. The Fund considers an MLP to be part
of the energy sector if it derives at least 50% of its revenues from the business of exploring, developing, producing, transporting, gathering and processing, storing, refining, distributing, mining or marketing natural gas, natural gas liquids
(including propane), crude oil, refined petroleum products or coal. For as long as Energy MLP is in the name of the Fund, the Fund will invest at least 80% of its Managed Assets in Energy MLPs. The Fund may not change its policy to
invest at least 80% of its Managed Assets in Energy MLPs unless it provides shareholders with at least 60 days written notice of such change. As of January 31, 2014, approximately
113.0% of the Funds Managed Assets were
invested in MLPs and MLP affiliates.
For
comparative purposes, the Fund utilizes the Alerian MLP Index as its primary benchmark. The Alerian MLP Index is a composite of the 50 most prominent Energy MLPs calculated using a float-adjusted, capitalization-weighted methodology.
Tax
Matters.
Entities commonly referred to as MLPs are generally organized under state law as limited partnerships or limited liability companies, but in some cases may be organized and headquartered outside the
United States. The securities issued by many MLPs are listed and traded on a securities exchange. If publicly traded, MLPs must derive at least 90% of their gross income from qualifying sources as described in Section 7704 of the Code in order
to be treated as partnerships for U.S. federal income tax purposes. These qualifying sources include interest, dividends, real estate rents, gain from the sale or disposition of real property, income and gain from mineral or natural resources
activities, income and gain from the transportation or storage of certain fuels, and, in certain circumstances, income and gain from commodities or futures, forwards and options with respect to commodities. Mineral or natural resources activities
include exploration, development, production, processing, mining, refining, marketing and transportation (including pipelines) of oil and gas, minerals, geothermal energy, fertilizer, timber or industrial source carbon dioxide. Currently, most MLPs
operate in the energy, natural resources or real estate sectors.
Due to their structure as partnerships for U.S. federal income tax purposes and the expected character of their income, MLPs generally do not pay federal income taxes. Instead, the Fund itself will be
subject to tax on its allocable share of the MLPs net income. Thus, unlike investors in corporate securities, direct MLP investors are generally not subject to double taxation (i.e., corporate level tax and tax on corporate dividends). A
distribution received by the Fund from MLPs taxed as partnerships will be treated as a tax-free return of capital to the extent of the Funds tax basis in its MLP interest and as gain from the sale or exchange of the MLP interest to the extent
the distribution exceeds the Funds tax basis in its MLP interest. See Tax MattersMLP Equity Securities. Non-U.S. MLPs, although organized as partnerships, may be taxed as corporations in the United States and therefore may
not offer the tax benefits typically associated with U.S. MLPs. As a result of the tax characterization of cash distributions made by most MLPs to their investors (such as the Fund), a significant portion of the Funds income is expected to be
tax-deferred, which would allow distributions by the Fund to its Common Shareholders to include high levels of tax-deferred income. However, the Fund itself is a C corporation and will therefore be subject to federal income taxation to
the extent it reports net taxable income. See Tax Matters. For more information on the taxation of the Fund itself, see Tax MattersTaxation of the Fund. For information on taxation of Common Shareholders, see Tax
MattersU.S. Holders and Tax MattersNon-U.S. Holders. Non-U.S. MLPs, although organized as partnerships, may be taxed as corporations in the United States, and therefore may not offer the tax benefits typically
associated with U.S. MLPs.
MLP
Distributions.
MLPs are typically structured such that common units and general partner or managing member interests have first priority to receive the minimum quarterly distribution (MQD). Common and general
partner or managing member interests also accrue arrearages in distributions to the extent the MQD is not paid. Once common units and general partner or managing member interests have been paid, subordinated units generally receive distributions;
however, subordinated units generally do not accrue arrearages. The subordinated units are normally owned by the owners or affiliates of the general partner or managing member
38
and convert on a one for one basis into common units, generally in three to five years after the MLPs initial public offering or after certain distribution levels have been exceeded.
Distributable cash in excess of the MQD is distributed to both common and subordinated units generally on a pro rata basis. The general partner or managing member is also normally eligible to receive incentive distributions if the general partner or
managing member operates the business in a manner which results in payment of per unit distributions that exceed threshold levels above the MQD. As the general partner or managing member increases cash distributions to the limited partners or
members, the general partner or managing member receives an increasingly higher percentage of the incremental cash distributions. A common arrangement provides that the general partner or managing member can reach a tier where it receives 50% of
every incremental dollar distributed by the MLP. These incentive distributions encourage the general partner or managing member to increase the partnerships cash flow and raise the quarterly cash distribution by pursuing steady cash flow
investment opportunities, streamlining costs and acquiring assets. Such results benefit all security holders of the MLP.
MLP Equity Securities
Equity securities issued by MLPs currently consist of general partner or managing member interests, common units, subordinated units and
preferred units, as described more fully below.
MLP General Partner or Managing Member Interests.
The general partner or managing member interest in MLPs is
typically retained by the original sponsors of an MLP, such as its founders, corporate partners and entities that sell assets to the MLP. The holder of the general partner or managing member interest can be liable in certain circumstances for
amounts greater than the amount of the holders investment in the general partner or managing member. General partner or managing member interests often confer direct board participation rights in, and in many cases control over the operations
of, the MLP. General partner or managing member interests can be privately held or owned by publicly traded entities. General partner or managing member interests receive cash distributions, typically in an amount of up to 2% of available cash,
which is contractually defined in the partnership or limited liability company agreement. In addition, holders of general partner or managing member interests typically receive incentive distribution rights (IDRs), which provide them
with an increasing share of the entitys aggregate cash distributions upon the payment of per common unit distributions that exceed specified threshold levels above the MQD. Due to the IDRs, general partners of MLPs have higher distribution
growth prospects than their underlying MLPs, but quarterly incentive distribution payments would also decline at a greater rate than the decline rate in quarterly distributions to common and subordinated unit holders in the event of a reduction in
the MLPs quarterly distribution. The ability of the limited partners or members to remove the general partner or managing member without cause is typically very limited. In addition, some MLPs permit the holder of IDRs to reset, under
specified circumstances, the incentive distribution levels and receive compensation in exchange for the distribution rights given up in the reset.
MLP Common Units.
The common units of many MLPs are listed and traded on U.S. securities exchanges,
including the NYSE and the NASDAQ. The Fund will purchase such common units through open market transactions and underwritten offerings, but may also acquire common units through direct placements and privately negotiated transactions. Holders of
MLP common units typically have limited control and voting rights and such common units are typically entitled to receive the MQD, including arrearage rights, from the issuer. Generally, an MLP must pay (or set aside for payment) the MQD to holders
of common units before any distributions may be paid to subordinated unit holders. In addition, incentive distributions are typically not paid to the general partner or managing member unless the quarterly distributions on the common units exceed
specified threshold levels above the MQD. In the event of a liquidation, common unit holders are intended to have a preference to the remaining assets of the issuer over holders of subordinated units. MLPs also issue different classes of common
units that may have different voting, trading, and distribution rights. The Fund may invest in different classes of common units.
MLP Subordinated Units.
Subordinated units, which, like common units, represent limited partner
or member interests, are not typically listed or traded on an exchange. The Fund may purchase outstanding
39
subordinated units through negotiated transactions directly with holders of such units or newly issued subordinated units directly from the issuer. Holders of such subordinated units are
generally entitled to receive a distribution only after the MQD and any arrearages from prior quarters have been paid to holders of common units. Holders of subordinated units typically have the right to receive distributions before any incentive
distributions are payable to the general partner or managing member. Subordinated units generally do not provide arrearage rights. Most MLP subordinated units are convertible into common units after the passage of a specified period of time or upon
the achievement by the issuer of specified financial goals. MLPs also issue different classes of subordinated units that may have different voting, trading, and distribution rights. The Fund may invest in different classes of subordinated units.
MLP Preferred
Units.
MLP preferred units are not typically listed or traded on an exchange. The Fund may purchase MLP preferred units through negotiated transactions directly with MLPs, affiliates of MLPs and institutional holders of
such units. Holders of MLP preferred units can be entitled to a wide range of voting and other rights, depending on the structure of each separate security.
Other MLP Equity Securities
The Fund may invest in equity securities, including I-Shares, issued by affiliates of MLPs, including the general partners or managing
members of MLPs. Such issuers may be organized and/or taxed as corporations and therefore may not offer the advantageous tax characteristics of MLP units. The Fund intends to purchase such other MLP equity securities through open market
transactions, but may also do so through direct placements.
I-Shares.
I-Shares
represent an ownership interest issued by an MLP affiliate. The MLP
affiliate uses the proceeds from the sale of
I-Shares
to purchase limited partnership interests in the MLP in the form of
I-units.
Thus,
I-Shares
represent an indirect interest in a MLP limited partnership interest.
I-units
have similar features as MLP common units in terms of voting rights, liquidation
preference and distribution.
I-Shares
themselves have limited voting rights and are similar in that respect to MLP common units.
I-Shares
differ from MLP common units
primarily in that instead of receiving cash distributions, holders of
I-Shares
will receive distributions of additional
I-Shares
in an amount equal to the cash
distributions received by common unit holders.
I-Shares
are traded on the NYSE and NASDAQ.
MLP Industries
MLPs in the energy sector can generally be classified into the following industries:
Pipeline MLPs.
Pipeline MLPs
are common carrier transporters of natural gas, natural gas liquids (primarily propane, ethane, butane and natural gasoline), crude oil or refined petroleum products (gasoline, diesel fuel and jet fuel). Pipeline MLPs also may operate ancillary
businesses such as storage and marketing of such products. Pipeline MLPs derive revenue from capacity and transportation fees. Historically, pipeline output has been less exposed to cyclical economic forces due to its low cost structure and
government-regulated nature. In addition, most pipeline MLPs have limited direct commodity price exposure because they do not own the product being shipped.
Gathering and Processing MLPs.
Gathering and processing MLPs are gatherers and processors of natural gas as
well as providers of transportation, fractionation and storage of natural gas liquids (NGLs). Gathering and processing MLPs derive revenue from providing services to natural gas producers, which require treatment or processing before
their natural gas commodity can be marketed to utilities and other end user markets. Revenue for the processor is fee based, although it is not uncommon to have some participation in the prices of the natural gas and NGL commodities for a portion of
revenue.
Midstream
MLPs.
Midstream MLPs gather, process, transport and store oil, natural gas, and refined petroleum products. Midstream MLPs and energy companies that provide crude oil, refined product and natural
40
gas services are subject to supply and demand fluctuations in the markets they serve which will be impacted by a wide range of factors including, fluctuating commodity prices, weather, increased
conservation or use of alternative fuel sources, increased governmental or environmental regulation, depletion, rising interest rates, declines in domestic or foreign production, accidents or catastrophic events, and economic conditions, among
others.
Propane
MLPs.
Propane MLPs are distributors of propane to homeowners for space and water heating. Propane MLPs derive revenue from the resale of the commodity on a margin over wholesale cost. The ability to maintain margin is a
key to profitability. Propane serves a small portion of the household energy needs in the United States, largely for homes beyond the geographic reach of natural gas distribution pipelines. A majority of annual cash flow is earned during the winter
heating season (October through March). Accordingly, volumes are weather dependent, but have utility type functions similar to electricity and natural gas.
Exploration and Production MLPs (E&P MLPs).
E&P MLPs include MLPs that are engaged in
the exploration, development, production and acquisition of crude oil and natural gas properties. E&P MLP cash flows generally depend on the volume of crude oil and natural gas produced and the realized prices received for crude oil and natural
gas sales.
Coal
MLPs.
Coal MLPs own, lease and manage coal reserves. Coal MLPs derive revenue from production and sale of coal, or from royalty payments related to leases to coal producers. Electricity generation is the primary use of
coal in the United States. Demand for electricity and supply of alternative fuels to generators are the primary drivers of coal demand. Coal MLPs are subject to operating and production risks, such as: the MLP or a lessee meeting necessary
production volumes; federal, state and local laws and regulations which may limit the ability to produce coal; the MLPs ability to manage production costs and pay mining reclamation costs; and the effect on demand that the Environmental
Protection Agencys standards set in the 1990 Clean Air Act or other laws, regulations or trends have on
coal-end
users.
Marine Shipping
MLPs.
Marine shipping MLPs are primarily marine transporters of natural gas, crude oil or refined petroleum products. Marine shipping MLPs derive revenue from charging customers for the transportation of these products
utilizing the MLPs vessels. Transportation services are typically provided pursuant to a charter or contract, the terms of which vary depending on, for example, the length of use of a particular vessel, the amount of cargo transported, the
number of voyages made, the parties operating a vessel or other factors. Some marine shipping MLPs in which the Fund may invest may be organized and headquartered outside the U.S., which may subject them to special risks not presented by investments
in securities of U.S. MLPs. See, Risk FactorsNon-U.S. Issuers and Emerging Markets Risk. In addition, marine shipping MLPs typically elect to be taxed as corporations in the U.S. and are not expected to offer the same tax benefits
of investing in MLPs that are taxed as partnerships.
MLPs are subject to various federal, state and local environmental laws and health and safety laws as well as laws and regulations specific to their particular activities. These laws and regulations
address: health and safety standards for the operation of facilities, transportation systems and the handling of materials; air and water pollution requirements and standards; solid waste disposal requirements; land reclamation requirements; and
requirements relating to the handling and disposition of hazardous materials. MLPs are subject to the costs of compliance with such laws applicable to them, and changes in such laws and regulations may adversely affect their results of operations.
Restricted Securities and Securities with Limited Trading
Markets
The Fund may invest up to 30% of
its Managed Assets in restricted securities, including PIPEs. PIPE investors purchase securities directly from a publicly traded company in a private placement transaction, typically at a discount to the market price of the companys common
stock. Because the sale of the securities is not pre-registered with the SEC, the securities are restricted and cannot be immediately resold by the investors
41
into the public markets. Accordingly, the company will agree as part of the PIPE deal promptly to register the restricted securities with the SEC. PIPE investments may be deemed illiquid. The MLP
Team expects such securities to be liquid within nine to twelve months of investment, but the Fund may also invest in restricted securities with significantly longer or shorter restricted periods. Although issuers typically bear the costs of
registration, the Fund may in some cases be required to pay the expenses of registering restricted securities it holds with the SEC.
If the Fund were to assume substantial positions in securities with limited trading markets, the trading activities of the Fund could have
an adverse effect upon the liquidity and marketability of such securities and the Fund might not be able to dispose of its holdings in those securities at then current market prices. Circumstances could also exist when portfolio securities might
have to be sold by the Fund at times which otherwise might be considered to be disadvantageous so that the Fund might receive lower proceeds from such sales than it had expected to realize. The Fund could also be delayed in disposing of such
securities which might have an adverse effect upon the price and timing of sales and the liquidity of the Fund. Restricted securities and securities for which there is a limited trading market may be significantly more difficult to value due to the
unavailability of reliable market quotations for such securities, and investment in such securities may have an adverse impact on the Funds net asset value. The Fund may purchase Rule 144A securities for which there may be a secondary market
of qualified institutional buyers as contemplated by Rule 144A under the Securities Act of 1933, as amended (1933 Act).
Non-MLP
Equity Securities
The Fund may invest up to 20% of its Managed Assets in
common and preferred stock, convertible securities, warrants and depository receipts of companies that are organized as corporations, limited liability companies or limited partnerships (other than Energy MLPs). The Funds use of non-Energy MLP
investments will be opportunistic and market driven and based on the MLP Teams assessment of various factors, including valuation, total return potential and tax considerations.
Common Stock.
Common stock generally represents an equity ownership interest in
an issuer. Although common stocks have historically generated higher average total returns than fixed-income securities over the long term, common stocks also have experienced significantly more volatility in those returns and may
under-perform
relative to fixed-income securities during certain periods. An adverse event, such as an unfavorable earnings report, may depress the value of a particular common stock held by the Fund. Also, prices
of common stocks are sensitive to general movements in the stock market and a drop in the stock market may depress the price of common stocks to which the Fund has exposure. Common stock prices fluctuate for several reasons including changes in
investors perceptions of the financial condition of an issuer or the general condition of the relevant stock market, or the occurrence of political or economic events which effect the issuers. In addition, common stock prices may be
particularly sensitive to rising interest rates, which increases borrowing costs and the costs of capital.
Preferred Stock.
Preferred stock has a preference over common stock in liquidation (and generally as to
dividends as well) but is subordinated to the liabilities of the issuer in all respects. As a general rule, the market value of preferred stock with a fixed dividend rate and no conversion element varies inversely with interest rates and perceived
credit risk, while the market price of convertible preferred stock generally also reflects some element of conversion value. Because preferred stock is junior to debt securities and other obligations of the issuer, deterioration in the credit
quality of the issuer will cause greater changes in the value of a preferred stock than in a more senior debt security with similarly stated yield characteristics. The market value of preferred stock will also generally reflect whether (and if so
when) the issuer may force holders to sell their preferred shares back to the issuer and whether (and if so when) the holders may force the issuer to buy back their preferred shares. Generally, the right of the issuer to repurchase the preferred
stock tends to reduce any premium that the preferred stock might otherwise trade at due to interest rate or credit factors, while the right of the holders to require the issuer to repurchase the preferred stock tends to reduce any discount that the
preferred stock might
42
otherwise trade at due to interest rate or credit factors. In addition, some preferred stocks are
non-cumulative,
meaning that the dividends do not
accumulate and need not ever be paid. A portion of the Funds portfolio may include investments in
non-cumulative
preferred securities, whereby the issuer does not have an obligation to make up any
arrearages to its shareholders. There is no assurance that dividends or distributions on
non-cumulative
preferred stocks in which the Fund invests will be declared or otherwise paid. Preferred stock of certain
companies offers the opportunity for capital appreciation as well as periodic income. This may be particularly true in the case of companies that have performed below expectations. If a companys performance has been poor enough, its preferred
stock may trade more like common stock than like other fixed income securities, which may result in above average appreciation if the companys performance improves.
Convertible Securities.
A
convertible security is a preferred stock, warrant or other security that may be converted into or exchanged for a prescribed amount of common stock or other security of the same or a different issuer or into cash within a particular period of time
at a specified price or formula. A convertible security generally entitles the holder to receive the dividend paid on preferred stock until the convertible security matures or is redeemed, converted or exchanged. Before conversion, convertible
securities generally have characteristics similar to both fixed income and equity securities. The value of convertible securities tends to decline as interest rates rise and, because of the conversion feature, tends to vary with fluctuations in the
market value of the underlying securities. Convertible securities ordinarily provide a stream of income with generally higher yields than those of common stock of the same or similar issuers. Convertible securities generally rank senior to common
stock in a corporations capital structure but are usually subordinated to comparable
non-convertible
securities. Convertible securities generally do not participate directly in any dividend increases or
decreases of the underlying securities although the market prices of convertible securities may be affected by any dividend changes or other changes in the underlying securities.
Warrants and Rights.
The
Fund may invest in warrants or rights (including those acquired in units or attached to other securities) that entitle the holder to buy equity securities at a specific price for a specific period of time but will do so only if such equity
securities are deemed appropriate by the MLP Team for inclusion in the Funds portfolio.
MLP Debt Securities
The Fund may invest up to 30% of its Managed Assets in debt securities of any maturity of MLPs and other issuers. Debt securities may have fixed or variable principal payments and all types of interest
rate and dividend payment and reset terms, including fixed rate, adjustable rate, zero coupon, contingent, deferred, payment in kind and auction rate features. The Fund may make limited investments in debt securities such as structured notes or
exchange-traded notes, each issued by MLPs in the energy sector, that are designed to provide exposure to the MLP market. The Fund has the flexibility to invest in debt securities that are below investment grade quality (that is, rated Ba or lower
by Moodys Investors Service, Inc. (Moodys), BB+ or lower by Standard & Poors Financial Services, LLC, a subsidiary of The McGraw Hill Companies, Inc. (S&P) or Fitch Ratings, Inc. (Fitch),
comparably rated by another NRSRO). These debt securities are commonly referred to as junk or high yield securities. The Fund may invest in debt securities without regard for their ratings. Issuers of securities rated Ba/BB+
are regarded as having current capacity to make principal and interest payments but are subject to business, financial or economic conditions which could adversely affect such payment capacity. Debt securities rated Baa3 or
BBB-
or above are considered investment grade securities. Debt securities rated below investment grade quality are obligations of issuers that are considered predominately speculative with respect to the
issuers capacity to pay interest and repay principal according to the terms of the obligation and, therefore, carry greater investment risk, including the possibility of issuer default and bankruptcy and increased market price volatility. Debt
securities rated below investment grade tend to be less marketable than higher-quality securities because the market for them is less broad.
A general description of Moodys, S&Ps and Fitchs ratings of bonds is set forth in Appendix A to the SAI. The ratings
of Moodys, S&P and Fitch generally represent their opinions as to the quality of the bonds they rate.
43
It should be emphasized, however, that such ratings are relative and subjective, are not absolute standards of quality, are subject to change and do not evaluate the market risk and liquidity of
the securities. Consequently, bonds with the same maturity, coupon and rating may have different yields while obligations of the same maturity and coupon with different ratings may have the same yield. See RisksBelow Investment Grade
Risk.
Non-U.S. Issuers
The Fund may invest in securities of non-U.S. issuers
through the direct investment in securities of such issuers and through depositary receipts. For purposes of identifying non-U.S. issuers, the Fund will use a Bloomberg classification, which employs the following factors listed in order of
importance: (i) the country in which the issuers management is located, (ii) the country in which the issuers securities are primarily listed, (iii) the country from which the issuer primarily receives revenue, and (iv) the issuers
reporting currency.
Non-Diversified
The Fund is
non-diversified
for purposes of the 1940 Act.
Other Investments
Derivatives
From time to time, the Fund may invest in certain derivative instruments in pursuit of its investment objective, to hedge some of the risk of the Funds investments or as a substitute for a position
in the underlying asset. The Fund may also use derivative transactions to increase leverage or create investment exposure. The Fund may use any or all of these techniques at any time, and the use of any particular derivative transaction will depend
on market conditions. In certain market environments, the Fund anticipates it will use various hedging techniques consistent with its top-down investment style with the goal of enhancing its total return over the longer term. In those circumstances,
the Fund will seek to mitigate key risks associated with investments in MLPs including equity securities risk, interest rate risk, commodity price risk and regulatory risk, which, among other factors, could adversely affect market valuations of
specific securities or certain sectors of the energy MLP market place, or the overall portfolio. In turn, such risks could adversely affect the secondary market price of the Funds shares. To execute its hedging operations, the Fund may sell
call options, buy call or put options, invest in structured notes or exchange-traded notes or use other derivatives developed in the future. Certain of the potential hedging techniques are discussed more fully below. The Funds use of hedging
techniques will be market driven and discretionary, based primarily upon the proprietary analytical methods and qualitative judgments of the MLP Team coupled with the oversight of NFALLC. There can be no assurance that the hedging techniques, as
they may be developed and implemented by the Fund, will be successful in mitigating risk or achieving the goal of enhancing the Funds risk-adjusted total return over the longer term.
The Fund may sell call options on a portion of the
Funds portfolio of equity securities and on MLP-based securities indices or certain exchange-traded notes. The extent of the Funds equity call option writing activity (which may at times be little or none, and at other times, may be on a
substantial portion of the Funds Managed Assets) will depend on market conditions and an ongoing assessment of the attractiveness (from a risk-adjusted total return standpoint) of writing call options. Generally, the Fund does not intend to
sell call options for the express purpose of generating option premiums to enhance distributions to shareholders. To seek to hedge a portion of the Funds equity securities risk or individual security price risk, the Fund may buy call or put
options on a portion of the Funds portfolio of equity securities and on MLP-based securities indices or certain exchange-traded notes. In addition, the Fund may make limited short-term investments in structured notes or exchange-traded notes
that are designed to provide short exposure to the energy MLP market. To seek to hedge a portion of the Funds commodity market risk, the Fund may buy put or call options on energy commodity futures. In addition, the Fund may enter into
interest rate swaps to fix the rate paid on
44
all or a portion of the Funds leverage. To the extent that the security or index underlying the derivative or synthetic instrument is or is composed of securities of MLPs in the energy
sector, the Fund will include such derivative and synthetic instruments in the definition of MLPs as used in this Prospectus.
Generally, derivatives are financial contracts whose value depends upon, or is derived from, the value of an underlying asset, reference
rate or index, and may relate to individual debt or equity instruments, interest rates, currencies or currency exchange rates and related indexes. The Fund may invest in derivative instruments, such as exchange-traded and over-the-counter options
contracts, financial futures contracts, forward contracts, options on financial futures contracts structured notes, exchange-traded notes, indexed securities or other derivative instruments and various interest rate transactions such as swaps, caps,
floors or collars. The Fund may also purchase derivative instruments that combine features of these instruments.
Certain portfolio management techniques, such as writing futures contracts or writing options on portfolio securities, may be considered
senior securities for the purposes of the 1940 Act, unless appropriate steps are taken to segregate the Funds assets or otherwise cover its obligations. Although under no obligation to do so, the Fund intends to cover the its commitment with
respect to such techniques should the Fund enter into or engage in one or more of such techniques. To the extent the Fund covers its commitment with respect to such techniques by segregating liquid assets, entering into offsetting transactions or
owning positions covering its obligations, the instrument will not be considered a senior security for the purposes of the 1940 Act. The Fund may cover such transactions using other methods currently or in the future permitted under the 1940 Act,
the rules and regulations thereunder or orders issued by the SEC thereunder. For these purposes, interpretations and guidance provided by the SEC staff may be taken into account when deemed appropriate by the Fund. These segregation and coverage
requirements could result in the Fund maintaining securities positions that it would otherwise liquidate, segregating assets at a time when it might be disadvantageous to do so or otherwise restricting portfolio management. Such segregation and
coverage requirements will not limit or offset losses on related positions.
Additional information on the derivative transactions that the Fund may use is included in the SAI. The Funds ability to pursue certain of these strategies may be limited by applicable regulations
of the Commodity Futures Trading Commission (CFTC).
The Funds use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investment directly in securities and other more traditional investments.
Derivative instruments can be illiquid, may disproportionately increase losses, and may have a potentially large impact on Fund performance. See RisksDerivatives Risk.
Options
The Fund may employ an option strategy of writing (selling) covered call options on a portion of the securities, including common stocks
and MLP common units, in the Funds portfolio.
Call options are contracts representing the right to purchase a security at a specified price (strike price) at or before (depending on the type of option) a specified future date
(expiration date). The price of the option is determined from trading activity in the broad options market, and generally reflects the relationship between the current market price for the underlying security and the strike price, as
well as the time remaining until the expiration date. The Fund may write call options on securities (including those of MLPs) and securities indices that are listed on a national securities exchange or in the
over-the-counter
market.
The Fund will write call options and put options only if they are covered. In the case of a call option on a common stock, MLP unit or other security, the option is covered if the
Fund owns the security underlying the call or has an absolute and immediate right to acquire that security without additional cash consideration (or, if additional cash consideration is required, cash or other assets determined to be liquid by the
MLP Team (in accordance with procedures established by the Board of Trustees) in such amount are segregated by the Funds
45
custodian) upon conversion or exchange of other securities held by the Fund. A call option is also covered if the Fund holds a call on the same security as the call written where the exercise
price of the call held is (i) equal to or less than the exercise price of the call written, or (ii) greater than the exercise price of the call written, provided the difference is maintained by the Fund in segregated assets determined to
be liquid by the MLP Team as described above. The Fund may not write (sell) naked call options (options representing more shares of the security than are held in the Funds portfolio).
If an option written by the Fund is exercised, the Fund must
deliver the underlying security upon payment of the exercise price at the time called for by the option. If an option written by the Fund expires unexercised, the Fund realizes on the expiration date a capital gain equal to the premium received by
the Fund at the time the option was written. Prior to the earlier of exercise or expiration, an exchange-traded option may be closed out by an offsetting purchase or sale of an option of the same series (type, underlying security, exercise price,
and expiration). There can be no assurance, however, that a closing purchase or sale transaction can be effected when the Fund desires. The Funds ability to close out
over-the-counter
options is more limited than with exchange-traded options and may involve the risk that broker-dealers participating in such transactions will not
fulfill their obligations. If the Fund were unable to close out a covered call option that it had written on a security, it would not be able to sell the underlying security unless the option expired without exercise. The Fund will realize a capital
gain from a closing purchase transaction if the cost of the closing option is less than the premium received from writing the option, or, if it is more, the Fund will realize a capital loss.
Hedging Transactions.
As noted above, the Fund may invest in certain
derivative instruments as a hedging technique to protect against potential adverse changes in the market value of portfolio securities. These types of strategies may generate taxable income. There is no assurance that these derivative strategies
will be available at any time, that NFALLC and the MLP Team will determine to use them for the Fund or, if used, that the strategies will be successful. See Portfolio CompositionNon-MLPsHedging Techniques in the SAI for
further information on hedging transactions.
Limitations on the Use of Futures, Options on Futures, and Swaps.
Pursuant to a claim for exemption filed
with the National Futures Association on behalf of the Fund, the Fund is not deemed to be a commodity pool operator or a commodity pool under the Commodity Exchange Act (CEA) provided by the Commodity Futures Trading Commission
(CFTC) Regulation 4.5, and therefore neither it nor NFALLC or ARI is currently subject to registration or regulation as such under the CEA with respect to the Fund. In February 2012, the CFTC announced substantial amendments to
certain exemptions, and to the conditions for reliance on those exemptions, from registration as a commodity pool operator. Under amendments to the exemption provided under CFTC Regulation 4.5, if the Fund uses futures, options on futures, or swaps
other than for bona fide hedging purposes (as defined by the CFTC), the aggregate initial margin and premiums on these positions (after taking into account unrealized profits and unrealized losses on any such positions and excluding the amount by
which options that are in-the-money at the time of purchase are in-the-money) may not exceed 5% of the Funds net asset value, or alternatively, the aggregate net notional value of those positions may not exceed 100% of
the Funds net asset value (after taking into account unrealized profits and unrealized losses on any such positions). The CFTC amendments to Regulation 4.5 took effect on December 31, 2012, and the Fund intends to comply with amended
Regulation 4.5s requirements such that NFALLC and/or ARI will not be required to register with respect to the Fund as a commodity pool operator with the CFTC. The Fund reserves the right to engage in transactions involving futures,
options thereon and swaps to the extent allowed by CFTC regulations in effect from time to time and in accordance with the Funds policies. The requirements for qualification as a regulated investment company may limit the extent to which the
Fund may enter into futures transactions, engage in options transactions or engage in swap transactions.
NFALLC and the MLP Team may use derivative instruments to seek to enhance returns, to hedge some of the risk of the Funds
investments or its leverage to serve as a substitute for a position in the underlying asset, to reduce transaction costs, to manage the Funds effective interest rate exposure, to maintain fill market disclosure, to manage cash flows or to
preserve capital. These types of strategies may generate taxable income.
46
There is no assurance that these derivative strategies will be available at any time or
that NFALLC or the MLP Team will determine to use them for the Fund or, if used, that the strategies will be successful.
Other Investment Companies
The Fund may invest up to 10% of its Managed Assets in securities of other open- or closed-end investment companies, including
exchange-traded funds (ETFs) that invest primarily in MLP entities in which the Fund may invest directly to the extent permitted by the 1940 Act. In addition, the Fund may invest a portion of its Managed Assets in pooled investment
vehicles (other than investment companies) that invest primarily in securities issued by MLPs in the energy sector. The Fund may invest in other investment companies and/or other pooled investment vehicles either during periods when it has large
amounts of uninvested cash, such as the period shortly after the Fund receives the proceeds of the offering of its Common Shares, preferred shares and/or Borrowings, or during periods when there is a shortage of attractive MLP securities available
in the market or when the MLP Team believes share prices of other investment companies offer attractive values. The Fund may invest in investment companies that are advised by NFALLC, the MLP Team or their respective affiliates to the extent
permitted by applicable law and/or pursuant to exemptive relief from the SEC. The Fund has not received or applied for, nor does it currently intend to apply for, any such relief.
As an investor in an investment company, the Fund will bear
its ratable share of that investment companys expenses, and would remain subject to payment of the Funds advisory and administrative fees with respect to assets so invested. Common Shareholders would therefore be subject to duplicative
expenses to the extent the Fund invests in other investment companies. The MLP Team will take expenses into account when evaluating the investment merits of an investment in the investment company relative to available securities of the types in
which the Fund may invest directly. In addition, the securities of other investment companies also may be leveraged and therefore will be subject to the same leverage risks described herein. As described in the section entitled Risk
Factors, the net asset value and market value of leveraged shares will be more volatile and the yield to shareholders will tend to fluctuate more than the yield generated by unleveraged shares. Other investment companies may have investment
policies that differ from those of the Fund. In addition, to the extent the Fund invests in other investment companies, the Fund will be dependent upon the investment and research abilities of persons other than NFALLC and the MLP Team.
New Securities and Other Investment Techniques
New types of securities and other investment and hedging
practices are developed from time to time. The MLP Team expects, consistent with the Funds investment objective and policies, to invest in such new types of securities and to engage in such new types of investment practices if the MLP Team
believes that these investments and investment techniques may assist the Fund in achieving its investment objective. In addition, the MLP Team may use investment techniques and instruments that are not specifically described herein.
Temporary Defensive Investments
At times the MLP Team may judge that conditions in the
markets for securities of MLP entities make pursuing the Funds primary investment strategy inconsistent with the best interests of its shareholders. At such times the MLP Team may, temporarily, use alternative strategies primarily designed to
reduce fluctuations in the value of the Funds assets. During temporary defensive periods or in order to keep the Funds cash fully invested, including during the period when the net proceeds of this offering of Common Shares are first
being invested, the Fund may deviate from its investment policies and objective. During such periods, the Fund may invest up to 100% of its Managed Assets in cash or high quality, short-term investments. There can be no assurance that such
strategies will be successful.
Portfolio Turnover
The Fund may engage in portfolio trading
when considered appropriate, but short-term trading will not be used as the primary means of achieving the Funds investment objective. Although the Fund cannot accurately
47
predict its annual portfolio turnover rate, it is generally expected to be in the range of 15-40% under normal circumstances. However, there are no limits on the Funds rate of portfolio
turnover, and investments may be sold without regard to length of time held when, in NFALLCs opinion, investment considerations warrant such action. A higher portfolio turnover rate would result in correspondingly greater brokerage commissions
and other transactional expenses that are borne by the Fund. In addition, high portfolio turnover may result in the realization of net short-term capital gains by the Fund which, when distributed to shareholders, will be taxable as ordinary income.
See Tax Matters. For the fiscal year ended November 30, 2013, the Funds portfolio turnover rate was
39%.
Other Investment Policies
The Funds investment objective and, unless otherwise specified, the investment policies and limitations of the Fund, are not
considered to be fundamental by the Fund and can be changed without a vote of the Common Shareholders. However, the Funds policy of investing at least 80% of its Managed Assets in Energy MLPs may only be changed by the Board following the
provision of 60 days prior written notice to Common Shareholders.
Certain investment policies specifically identified as such in the SAI are considered fundamental and may not be changed without the approval of the holders of a majority of the outstanding Common Shares
(and preferred shares, if any). A majority of the outstanding shares means (i) 67% or more of the shares present at a meeting, if the holders of more than 50% of the shares outstanding are present or represented by proxy or
(ii) more than 50% of the shares outstanding, whichever of (i) or (ii) is less. See Investment Restrictions in the SAI for a complete list of the fundamental and non-fundamental investment policies of the Fund.
USE OF LEVERAGE
The amounts and forms of leverage used by the Fund may
vary with prevailing market or economic conditions. The timing and terms of any leverage transactions is determined by the Funds Board of Trustees. The Fund employs financial leverage primarily through borrowing. On December 19, 2013, the Fund
entered into a $315 million (maximum commitment amount) credit agreement with an affiliate of Bank of America Merrill Lynch (BAML). Prior to December 19, 2013, the Fund had entered into a prime brokerage facility with Deutsche Bank AG
(Deutsche Bank) as a means of financial leverage. During the fiscal year ended November 30, 2013, the average daily balance outstanding and average annual interest rate on the Borrowings was $266,287,671 and 1.12%, respectively.
The amount of outstanding borrowings may vary
with prevailing market or economic conditions. The Fund borrows money at rates generally available to institutional investors. The timing and terms of any leverage transactions is determined by the Funds Board of Trustees. Following an
offering of additional Common Shares from time to time, the Funds leverage ratio will decrease as a result of the increase in net assets attributable to Common Shares. The Funds leverage ratio may decline further to the extent that the
net proceeds of an offering of Common Shares are used to reduce the Funds financial leverage. A lower leverage ratio may result in lower (higher) returns to Common Shareholders over a period of time to the extent that net returns on the
Funds investment portfolio exceed (fall below) its cost of leverage over that period, which lower (higher) returns may impact the level of the Funds distributions. See Risk FactorsLeverage Risk.
Interest will be charged on the BAML Borrowings at a rate per
annum equal to the 1-Month LIBOR plus .75% or if LIBOR were to become unavailable, the Federal Funds Rate plus .50% plus .75%. The Fund will also accrue a commitment fee of .25% per annum on the daily undrawn portion of the Borrowings unless
the undrawn portion of the Borrowings on that day is less than 20% of the maximum commitment amount.
To date, the Fund has not issued preferred shares. The Fund may in the future issue certain types of preferred securities to increase the
Funds leverage.
48
Borrowings and preferred shares, if any, will have seniority over the Common Shares. The
issuance of preferred shares will leverage the Common Shares. Leverage involves special risks. There is no assurance that the Funds leveraging strategy will be successful. The Fund will seek to invest the proceeds from financial leverage in a
manner consistent with the Funds objective and policies.
The interest on Borrowings may be at a fixed or floating rate, but the Fund anticipates that it generally will be based upon short-term adjustable rates. So long as the rate of return, net of applicable
Fund expenses, on the Funds portfolio investments purchased with Borrowings exceeds the then current interest rate on any Borrowings, the investment of the proceeds of Borrowings will generate more income than will be needed to make interest
payments. If so, the excess income will be available to pay higher distributions to Common Shareholders.
Changes in the value of the Funds portfolio securities, including costs attributable to Borrowings or preferred shares, if any, will
be borne entirely by the Common Shareholders. If there is a net decrease (or increase) in the value of the Funds investment portfolio, the leverage will decrease (or increase) the net asset value per Common Share to a greater extent than if
the Fund were not leveraged.
Given the current
economic and debt market environment with historically low short-term to intermediate-term interest rates, the Fund may use derivatives such as interest rate swaps, with terms that may range from one to ten years, to fix the rate after expenses
(commonly referred to as the all-in rate) paid on all or a significant portion of the Funds leverage. The interest rate swap program will seek to achieve potentially lower leverage costs and thereby enhance distributions over an
extended period. This strategy would enhance Common Shareholder returns if short-term interest rates were to rise over time to exceed on average the all-in fixed interest rate over the term of the swap. This strategy, however, would add to leverage
costs initially (because the swap costs are likely to be higher than current benchmark adjustable short term rates) and would increase overall leverage costs over the entirety of any such time period, in the event that short-term interest rates do
not rise sufficiently during the period to exceed on average the all-in fixed interest rate for that time period.
The Fund pays NFALLC a management fee (which in turn pays ARI a portion of its fee) based on a percentage of Managed Assets. See
Management of the FundInvestment Management and Investment Sub-Advisory Agreements. Managed Assets for this purpose includes the proceeds realized from the Funds use of leverage. NFALLC will be responsible for using leverage
to pursue the Funds investment objective. NFALLC will base its decision regarding whether and how much leverage to use for the Fund based on its assessment of whether such use of leverage is in the best interests of the Fund. However, the fact
that a decision to increase the Funds leverage will have the effect of increasing Managed Assets and therefore NFALLCs fees means that NFALLC may have a conflict of interest in determining whether to use or increase leverage. NFALLC will
seek to manage that potential conflict by only increasing the Funds use of leverage when it determines that such increase is in the best interests of the Fund, and by periodically reviewing the Funds performance and use of leverage with
the Funds Board of Trustees.
Under the 1940
Act, the Fund generally is not permitted to issue commercial paper or notes or borrow unless immediately after the borrowing or commercial paper or note issuance the value of the Funds total assets less liabilities other than the principal
amount represented by commercial paper, notes or borrowings, is at least 300% of such principal amount. In addition, the 1940 Act generally prohibits the Fund from declaring any cash dividend or other distribution on its Common Shares unless, at the
time of such declaration, the value of the Funds total assets, less liabilities other than the principal amount represented by Borrowings, commercial paper or notes is at least 300% of such principal amount, after deducting the amount of such
dividend or distribution. This prohibition on declaring dividends does not apply to privately arranged debt that is not intended to be publicly distributed, or to loans made for temporary purposes and in an amount that does not exceed five percent
of the Funds total assets. If the Fund borrows, the Fund intends, to the extent possible, to prepay all or a portion of the principal amount of any outstanding commercial paper, notes or borrowing to the extent necessary in order to maintain
the required asset coverage. Failure to maintain certain asset coverage requirements could result in an event of default and entitle the debt holders to elect a majority of the Board of Trustees.
49
Under the 1940 Act, the Fund is not permitted to issue preferred shares unless
immediately after such issuance, the value of the Funds asset coverage is at least 200% of the liquidation value of the outstanding preferred shares (
i.e
., such liquidation value may not exceed 50% of the Funds asset coverage). In
addition, the Fund is not permitted to declare any cash dividend or other distribution on its Common Shares unless, at the time of such declaration, the value of the Funds asset coverage less liabilities other than borrowings is at least 200%
of the liquidation value of the preferred shares. If preferred shares are issued in the future, the Fund intends, to the extent possible, to purchase or redeem preferred shares from time to time to the extent necessary in order to maintain coverage
of any preferred shares. Though it does not currently, if the Fund were to have preferred shares outstanding, two of the Funds trustees would be elected by the holders of preferred shares, voting separately as a class. The remaining trustees
of the Fund would be elected by holders of Common Shares and preferred shares voting together as a single class. In the event the Fund would fail to pay dividends on preferred shares for two years, preferred shareholders would be entitled to elect a
majority of the trustees of the Fund.
The Fund
may be subject to certain restrictions imposed by either guidelines of one or more NRSROs that may issue ratings for commercial paper or notes, preferred shares, or, if the Fund borrows from a lender, by the lender. These guidelines may impose asset
coverage or portfolio composition requirements that are more stringent than those imposed on the Fund by the 1940 Act. It is not anticipated that these guidelines will impede NFALLC and the MLP Team from managing the Funds portfolio in
accordance with the Funds investment objective and policies. In addition to other considerations, to the extent that the Fund believes that the guidelines required by the NRSROs or lenders would impede its ability to meet its investment
objective, or if the Fund is unable to obtain the rating on borrowings or preferred shares, the Fund will not incur borrowings or issue preferred shares.
Assuming the utilization of leverage through borrowings in the aggregate amount of approximately 30% of the Funds Managed Assets, at
a combined interest or payment rate of 1.25% payable on such leverage, the income generated by the Funds portfolio (net of non-leverage expenses) must exceed 0.375% in order to cover such interest or payment rates and other expenses
specifically related to borrowing. Of course, these numbers are merely estimates, used for illustration. Actual interest or payment rates may vary frequently and may be significantly higher or lower than the rate estimated above.
The Fund may also borrow money for repurchase of its shares
or as a temporary measure for extraordinary or emergency purposes, including the payment of dividends and the settlement of securities transactions which otherwise might require untimely dispositions of Fund securities.
Effects of Leverage
The following table is furnished in response to
requirements of the SEC. It is designed to illustrate the effect of leverage on Common Share total return, assuming investment portfolio total returns (comprised of income and changes in the value of investments held in the Funds portfolio net
of expenses) at the assumed portfolio total return rates provided in the table. These assumed investment portfolio returns are hypothetical figures and are not necessarily indicative of the investment portfolio returns expected to be experienced by
the Fund. The table further reflects the use of Borrowings representing 30% of the Funds total capital and the Funds currently projected annual dividend rate, borrowing interest rate or payment rate set by an interest rate transaction of
1.25%. See Risk FactorsLeverage Risk and Use of Leverage.
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|
|
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|
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Assumed Portfolio Return
|
|
|
(10
|
)%
|
|
|
(5
|
)%
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|
|
0
|
%
|
|
|
5
|
%
|
|
|
10
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%
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Common Stock Total Return
|
|
|
(14.82
|
)%
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|
|
(7.68
|
)%
|
|
|
(0.54
|
)%
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|
|
6.61
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%
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|
|
13.75
|
%
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Common Share total
return is composed of two elementsthe Common Share dividends paid by the Fund (the amount of which is largely determined by the net investment income of the Fund after paying interest on any borrowings) and gains or losses on the value of the
securities the Fund owns. As required by SEC rules, the table assumes that the Fund is more likely to suffer capital losses than capital appreciation.
50
RISK FACTORS
Risk is inherent in all investing. Investing in any
investment company security involves risk, including the risk that you may receive little or no return on your investment or even that you may lose part or all of your investment. Therefore, before investing you should consider carefully the
following risks that you assume when you invest in Common Shares.
Investment and Market Risk
An investment in the Funds Common Shares is subject to investment risk, including the possible loss of the entire principal amount
that you invest. Your investment in Common Shares represents an indirect investment in MLPs and other securities owned by the Fund, which could be purchased directly. Your Common Shares at any point in time may be worth less than your original
investment, even after taking into account the reinvestment of Fund dividends and distributions.
Market Discount from Net Asset Value
Shares of closed-end investment companies like the Fund have during some periods traded at prices higher than net asset value and have during other periods traded at prices lower than net asset value. The
Fund cannot predict whether Common Shares will trade at, above or below net asset value. This characteristic is a risk separate and distinct from the risk that the Funds net asset value could decrease as a result of investment activities.
Investors bear a risk of loss to the extent that the price at which they sell their shares is lower in relation to the Funds net asset value than at the time of purchase, assuming a stable net asset value. Proceeds from the sale of Common
Shares in this offering will be reduced by transaction costs (if applicable, which vary depending on the offering method used). Depending on the premium of the Common Shares at the time of any offering of Common Shares hereunder, the Funds net
asset value may be reduced by an amount up to the offering costs borne by the Fund (estimated to be an additional 0.12% of the offering price assuming a Common Share offering price of $18.86 (the Funds closing price on the NYSE on March 14,
2014)). The net asset value per Common Share will also be reduced by costs associated with any future offerings of Common Shares or preferred shares. The Common Shares are designed primarily for long-term investors, and you should not view the Fund
as a vehicle for short-term trading purposes.
Risks
Related to Investments in MLP Units
An
investment in MLP units involves risks that differ from a similar investment in equity securities, such as common stock, of a corporation. Holders of MLP units have the rights typically afforded to limited partners in a limited partnership. As
compared to common stockholders of a corporation, holders of MLP units have more limited control and limited rights to vote on matters affecting the partnership. There are also certain tax risks associated with an investment in MLP units (described
further below). Additionally, conflicts of interest may exist among common unit holders, subordinated unit holders and the general partner or managing member of an MLP; for example a conflict may arise as a result of incentive distribution payments.
U.S. Federal Budget Risk
From year to year, the U.S. Federal Budget process may
lead to the modification of certain tax incentives widely used by oil, gas and coal companies and result in the imposition of new fees on certain energy producers. Changes to such tax incentives and the imposition of such fees could adversely affect
MLPs in which the Fund invests and the natural resources industry generally.
Tax Risks
Much of the benefit the Fund derives from its investment in equity securities of MLPs is a result of MLPs generally being treated as partnerships for U.S. federal income tax purposes. Partnerships do not
pay U.S. federal
51
income tax at the partnership level. Rather, each partner of a partnership, in computing its U.S. federal income tax liability, will include its allocable share of the partnerships income,
gains, losses, deductions, expenses and credits. A change in current tax law, or a change in the business of a given MLP, could result in an MLP being treated as a corporation for U.S. federal income tax purposes, which would result in such MLP
being required to pay U.S. federal income tax on its taxable income. The classification of an MLP as a corporation for U.S. federal income tax purposes would have the effect of reducing the amount of cash available for distribution by the MLP and
causing any such distributions received by the Fund to be taxed as dividend income to the extent of the MLPs current or accumulated earnings and profits. Thus, if any of the MLPs owned by the Fund were treated as corporations for U.S. federal
income tax purposes, the
after-tax
return to the Fund with respect to its investment in such MLPs would be materially reduced, which could cause a substantial decline in the value of the Common Shares.
To the extent that the Fund invests in the
equity securities of an MLP, the Fund will be a partner in such MLP. Accordingly, the Fund will be required to include in its taxable income the Funds allocable share of the income, gains, losses, deductions, expenses and credits recognized by
each such MLP, regardless of whether the MLP distributes cash to the Fund. Cash distributions from an MLP to the Fund (and, in certain cases, the value of marketable securities distributed by an MLP to the Fund) in excess of the Funds basis in
the MLP will generally be taxable to the Fund as capital gain. The Fund will not benefit from current favorable federal income tax rates on long-term capital gains because it will be taxed as a corporation for federal income tax purposes.
Historically, MLPs have been able to offset a
significant portion of their income with tax deductions.* The Fund will incur a current tax liability on its allocable share of an MLPs income and gains that is not offset by the MLPs tax deductions, losses and credits, or by the
Funds net operating loss carryforwards, if any. The portion, if any, of a distribution received by the Fund from an MLP that is offset by the MLPs tax deductions, losses or credits is essentially treated as a return of capital. However,
those distributions will reduce the Funds adjusted tax basis in the equity securities of the MLP, which will result in an increase in the amount of gain (or decrease in the amount of loss) that will be recognized by the Fund for tax purposes
upon the sale of any such equity securities or upon subsequent distributions in respect of such equity securities. The percentage of an MLPs income and gains that is offset by tax deductions, losses and credits will fluctuate over time for
various reasons. A significant slowdown in acquisition activity or capital spending by MLPs held in the Funds portfolio could result in a reduction of accelerated depreciation generated by new acquisitions, which may result in increased
current tax liability for the Fund.
The Fund
may engage in hedges or similar transactions with respect to its MLP interests. The tax accounting for such transactions may not be clear, leaving the possibility that the IRS could disagree with the Funds treatment. If the IRS were to prevail
in a challenge, the Fund might be exposed to a deferral of tax losses, acceleration of gain, changes in the character of income or gain, or other adverse consequences, including a change in the Funds determination of the amount of its earnings
and profits for purposes of determining taxability of dividends.
The Fund will accrue deferred income taxes for its future tax liability associated with the difference between the tax basis of an MLP security and the fair market value of the MLP security. Upon the
Funds sale of an MLP security, the Fund may be liable for previously deferred taxes. The Fund will rely to some extent on information provided by MLPs, which may not necessarily be timely, to estimate deferred tax liability for purposes of
financial statement reporting and determining its net asset value. From time to time, the Fund will modify its estimates or assumptions regarding its deferred tax liability as new information becomes available. Although the Funds net asset
value may take into account deferred tax liabilities, there can be no assurance that the purchase price you pay for Common Shares will take into account deferred tax liabilities. If you purchase Common Shares at a substantial premium to net asset
value, the value of the Common Shares may be adversely affected by an event that triggers a deferred tax liability not fully reflected in your purchase price.
Depreciation or other cost recovery deductions passed through to the Fund from investments in MLPs and used to reduce the Funds
taxable income may be recaptured in the Funds taxable income (and earnings and
*
|
Based on the performance of a representative MLP income model account for the period 2004-2012.
|
52
profits) in subsequent years when the MLPs dispose of their assets or when the Fund disposes of its interests in the MLPs. When deductions are recaptured, the Fund will be subject to tax on the
recapture income and distributions to the Funds shareholders may be taxable, even if those shareholders did not hold shares in the Fund at the time the deductions were taken by the Fund, and even though the shareholders will not have
corresponding economic gains on their shares at the time of the distribution.
Because of the Funds status as a corporation for U.S. federal income tax purposes and its investments in equity securities of MLPs, the Funds earnings and profits may be calculated using
accounting methods that are different from those used for calculating taxable income. Because of these differences, the Fund may make distributions out of its current or accumulated earnings and profits, which will be treated as dividends, in years
in which the Funds distributions exceed its taxable income.
The tax treatment of all items allocated to the Fund each year by the MLPs will not be known until the Fund receives a schedule K-1 for that year with respect to each of its MLP investments. The
Funds tax liability will not be known until the Fund completes its annual tax return. The Funds tax estimates could vary substantially from the actual liability and therefore the determination of the Funds actual tax liability may
have a material adverse effect on the value of an investment in the Fund. The payment of corporate income taxes imposed on the Fund will decrease cash available for distribution to shareholders.
Affiliated Party Risk
Certain MLPs in which the Fund may invest depend upon their
parent or sponsor entities for the majority of their revenues. If their parent or sponsor entities fail to make such payments or satisfy their obligations, the revenues and cash flows of such MLPs and ability of such MLPs to make distributions to
unit holders, such as the Fund, would be adversely affected.
Equity Securities Risk
A substantial percentage of the Funds assets will be invested in MLP equity securities, including MLP common units, MLP subordinated
units, MLP preferred units, equity securities of MLP affiliates, including
I-Shares,
and common stocks of other issuers. Equity risk is the risk that MLP units or other equity securities held by the Fund will
fall due to general market or economic conditions, perceptions regarding the industries in which the issuers of securities held by the Fund participate, changes in interest rates, and the particular circumstances and performance of particular
companies whose securities the Fund holds. The price of an equity security of an issuer may be particularly sensitive to general movements in the stock market, and a drop in the stock market may depress the price of most or all of the equity
securities held by the Fund. In addition, equity securities held by the Fund may decline in price if the issuer fails to make anticipated distributions or dividend payments because, among other reasons, the issuer experiences a decline in its
financial conditions.
MLP subordinated units
typically are convertible to MLP common units at a
one-to-one
ratio. The price of MLP subordinated units is typically tied to the price of the corresponding MLP common
unit, less a discount. The size of the discount depends upon a variety of factors, including the likelihood of conversion, the length of time remaining until conversion and the size of the block of subordinated units being purchased or sold.
The Fund may invest in equity securities
issued by affiliates of MLPs, including general partners of MLPs. Such issuers may be organized and/or taxed as corporations and, therefore these securities may not offer the advantageous tax characteristics of MLP units. Investments in such MLP
affiliates would be expected by the MLP Team to provide economic exposure to the MLP asset class; however, such investments may not exhibit precise price correlation to any particular MLP or the MLP asset class generally.
I-Shares represent an indirect investment in MLP I-units.
Prices and volatilities of I-Shares tend to correlate to the price of common units, although the price correlation may not be precise. I-Shares differ from MLP
53
common units primarily in that instead of receiving cash distributions, holders of I-Shares will receive distributions of additional I-Shares, in an amount equal to the cash distributions
received by common unit holders. I-Shares have limited voting rights. Holders of I-Shares are subject to the same risks as holders of MLP common units.
Energy Sector Risks
Concentration in the energy sector may present more risks than if the Fund were invested in numerous sectors of the economy. A downturn in
the energy sector could have a larger impact on the Fund than on a fund that does not concentrate in the sector. At times, the performance of securities in the energy sector may lag the performance of other sectors or the broader market as a whole.
In addition, there are several specific risks associated with investments in the energy sector, including the following.
Commodity Price Risk.
MLPs and other entities operating in the energy sector may be affected by fluctuations
in the prices of energy commodities, including, for example, natural gas, natural gas liquids (including propane), crude oil and coal in the short- and long-term. Fluctuations in energy commodity prices would impact directly companies that own such
energy commodities and could impact indirectly companies that engage in transportation, storage, processing, distribution or marketing of such energy commodities. Fluctuations in energy commodity prices can result from changes in general economic
conditions or political circumstances (especially of key energy producing and consuming countries); market conditions; weather patterns; domestic production levels; volume of imports; energy conservation; domestic and foreign governmental
regulation; international politics; policies of OPEC; taxation; tariffs; and the availability and costs of local, intrastate and interstate transportation methods. The energy sector as a whole may also be impacted by the perception that the
performance of energy sector companies is directly linked to commodity prices. High commodity prices may drive further energy conservation efforts, and a slowing economy may adversely impact energy consumption, which may adversely affect the
performance of MLPs and other companies operating in the energy sector. Recent economic and market events have fueled concerns regarding potential liquidations of commodity futures and options positions.
Depletion Risk.
MLPs and other
entities engaged in the exploration, development, management or production of energy commodities face the risk that commodity reserves are depleted over time. Such companies seek to increase their reserves through expansion of their current
businesses, acquisitions, further development of their existing sources of energy commodities, exploration of new sources of energy commodities or by entering into long-term contracts for additional reserves; however, there are risks associated with
each of these potential strategies. If such companies fail to acquire additional reserves in a cost-effective manner and at a rate at least equal to the rate at which their existing reserves decline, their financial performance may suffer.
Additionally, failure to replenish reserves could reduce the amount and affect the tax characterization of the distributions paid by such companies.
Supply and Demand Risk.
MLPs and other entities operating in the energy sector could be adversely affected
by reductions in the supply of or demand for energy commodities. The volume of production of energy commodities and the volume of energy commodities available for transportation, storage, processing or distribution could be affected by a variety of
factors, including depletion of resources; depressed commodity prices; catastrophic events; labor relations; increased environmental or other governmental regulation; equipment malfunctions and maintenance difficulties; import volumes; international
politics; policies of OPEC; and increased competition from alternative energy sources. Alternatively, a decline in demand for energy commodities could result from factors such as adverse economic conditions (especially in key energy-consuming
countries); increased taxation; increased environmental or other governmental regulation; increased fuel economy; increased energy conservation or use of alternative energy sources; legislation intended to promote the use of alternative energy
sources; or increased commodity prices.
54
Regulatory Risk.
The energy sector is highly regulated.
MLPs and other entities operating in the energy sector are subject to significant regulation of nearly every aspect of their operations by federal, state and local governmental agencies. Such regulation can change over time in both scope and
intensity. For example, a particular
by-product
may be declared hazardous by a regulatory agency and unexpectedly increase production costs. Various governmental authorities have the power to enforce
compliance with these regulations and the permits issued under them, and violators are subject to administrative, civil and criminal penalties, including fines, injunctions or both. Governmental agencies may in the future seek to limit or prohibit
certain activities (
i.e.
, hydraulic fracturing or fracking) that produce energy commodities, which could adversely affect the financial condition of the MLPs in which the Fund invests. Stricter laws, regulations or enforcement
policies could be enacted in the future which would likely increase compliance costs and may adversely affect the financial performance of MLPs.
Specifically, the operations of wells, gathering systems, pipelines, refineries and other facilities are subject to stringent and complex
federal, state and local environmental laws and regulations. These include, for example:
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the federal Clean Air Act and comparable state laws and regulations that impose obligations related to air emissions;
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the federal Clean Water Act and comparable state laws and regulations that impose obligations related to discharges of pollutants into regulated bodies
of water;
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the Resource Conservation and Recovery Act (RCRA) and comparable state laws and regulations that impose requirements for the handling and
disposal of waste from facilities; and
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the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), also known as Superfund, and
comparable state laws and regulations that regulate the cleanup of hazardous substances that may have been released at properties currently or previously owned or operated by MLPs or at locations to which they have sent waste for disposal.
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Failure to comply with these
laws and regulations may trigger a variety of administrative, civil and criminal enforcement measures, including the assessment of monetary penalties, the imposition of remedial requirements, and the issuance of orders enjoining future operations.
Certain environmental statutes, including RCRA, CERCLA, the federal Oil Pollution Act and analogous state laws and regulations, impose strict, joint and several liability for costs required to clean up and restore sites where hazardous substances
have been disposed of or otherwise released. Moreover, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the release of hazardous substances or other
waste products into the environment.
There is an
inherent risk that MLPs may incur environmental costs and liabilities due to the nature of their businesses and the substances they handle. For example, an accidental release from wells or energy infrastructure assets could subject them to
substantial liabilities for environmental cleanup and restoration costs, claims made by neighboring landowners and other third parties for personal injury and property damage, and fines or penalties for related violations of environmental laws or
regulations. Moreover, the possibility exists that stricter laws, regulations or enforcement policies could significantly increase compliance costs and remediation costs. MLPs may not be able to recover these costs from insurance.
Voluntary initiatives and mandatory controls have been
adopted or are being discussed both in the United States and worldwide to reduce emissions of greenhouse gases such as carbon dioxide, a
by-product
of burning fossil fuels, and methane, the major
constituent of natural gas, which many scientists and policymakers believe contribute to global climate change. These measures and future measures could result in increased costs to certain companies in which the Fund may invest to operate and
maintain facilities and administer and manage a greenhouse gas emissions program and may reduce demand for fuels that generate greenhouse gases and that are managed or produced by companies in which the Fund may invest.
55
In the wake of a Supreme Court decision holding that the Environmental Protection Agency
(EPA) EPA has some legal authority to deal with climate change under the 1990 Clean Air Act, the EPA and the Department of Transportation jointly wrote regulations to cut gasoline use and control greenhouse gas emissions from cars and
trucks. These measures, and other programs addressing greenhouse gas emissions, could reduce demand for energy or raise prices, which may adversely affect the total return of certain of the Funds investments.
Acquisition Risk.
MLP
investments owned by the Fund may depend on their ability to make acquisitions that increase adjusted operating surplus per unit in order to increase distributions to unit holders. The ability of such MLPs to make future acquisitions is dependent on
their ability to identify suitable targets, negotiate favorable purchase contracts, obtain acceptable financing and outbid competing potential acquirers. To the extent that such MLPs are unable to make future acquisitions, or such future
acquisitions fail to increase the adjusted operating surplus per unit, their growth and ability to make distributions will be limited.
There are risks inherent in any acquisition, including erroneous assumptions regarding revenues, acquisition expenses, operating expenses,
cost savings and synergies; assumption of unknown liabilities; indemnification; customer losses; key employee defections; distraction from other business operations; and unanticipated difficulties in operating or integrating new product areas and
geographic regions.
Weather
Risk.
Weather plays a role in the seasonality of some MLPs cash flows. MLPs in the propane industry, for example, rely on the winter season to generate almost all of their earnings. In an unusually warm winter
season, propane MLPs experience decreased demand for their product. Although most MLPs can reasonably predict seasonal weather demand based on normal weather patterns, extreme weather conditions, such as the hurricanes that severely damaged cities
along the U.S. Gulf Coast in recent years, demonstrate that no amount of preparation can protect an MLP from the unpredictability of the weather or possible climate change. The damage done by extreme weather also may serve to increase many
MLPs insurance premiums and could adversely affect such companies financial condition and ability to pay distributions to shareholders.
Catastrophic Event Risk.
MLPs and other entities operating in the energy sector are
subject to many dangers inherent in the production, exploration, management, transportation, processing and distribution of natural gas, natural gas liquids (including propane), crude oil, refined petroleum and petroleum products and other
hydrocarbons. These dangers include leaks, fires, explosions, damage to facilities and equipment resulting from natural disasters, inadvertent damage to facilities and equipment and terrorist acts. Since the September 11
th
terrorist attacks, the U.S. government has issued warnings that
energy assets, specifically U.S. pipeline infrastructure, may be targeted in future terrorist attacks. These dangers give rise to risks of substantial losses as a result of loss or destruction of commodity reserves; damage to or destruction of
property, facilities and equipment; pollution and environmental damage; and personal injury or loss of life. Any occurrence of such catastrophic events could bring about a limitation, suspension or discontinuation of operations in the energy sector.
MLPs and other entities operating in the energy sector may not be fully insured against all risks inherent in their business operations and therefore accidents and catastrophic events could adversely affect such companies financial condition
and ability to pay distributions to shareholders.
Industry
Specific Risks
MLPs and other entities
operating in the energy sector are also subject to risks that are specific to the industry they serve.
Pipelines.
Pipeline companies are subject to the demand for natural gas, natural gas liquids (including
propane), crude oil or refined products in the markets they serve, changes in the availability of products for gathering, transportation, processing or sale due to natural declines in reserves and production in the supply areas serviced by the
companies facilities, sharp decreases in crude oil or natural gas prices that cause producers to curtail production or reduce capital spending for exploration activities, and environmental regulation. Demand for gasoline, which accounts for a
substantial portion of refined product transportation, depends on price, prevailing
56
economic conditions in the markets served, and demographic and seasonal factors. Companies that own interstate pipelines are subject to regulation by FERC with respect to the tariff rates they
may charge for transportation services. An adverse determination by FERC with respect to the tariff rates of such companies could have a material adverse effect on its business, financial condition, results of operations and cash flows and its
ability to pay cash distributions or dividends. In addition, FERC has a tax allowance policy, which permits such companies to include in their cost of service an income tax allowance to the extent that their owners have an actual or potential tax
liability on the income generated by them. If FERCs income tax allowance policy were to change in the future to disallow a material portion of the income tax allowance taken by such interstate pipeline companies, it would adversely impact the
maximum tariff rates that such companies are permitted to charge for their transportation services, which in turn could adversely affect such companies financial condition and ability to pay distributions to shareholders.
Gathering and
Processing.
Gathering and processing companies are subject to natural declines in the production of oil and natural gas fields, which utilize their gathering and processing facilities as a way to market their production,
prolonged declines in the price of natural gas or crude oil, which curtails drilling activity and therefore production, and declines in the prices of natural gas liquids (including propane) and refined petroleum products, which cause lower
processing margins. In addition, some gathering and processing contracts subject the gathering or processing company to direct commodities price risk.
Midstream.
Midstream MLPs gather, process, transport and store oil, natural gas, and refined petroleum
products. Midstream MLPs and other entities that provide crude oil, refined product and natural gas services are subject to supply and demand fluctuations in the markets they serve which may be impacted by a wide range of factors including
fluctuating commodity prices, weather, increased conservation or use of alternative fuel sources, increased governmental or environmental regulation, depletion, rising interest rates, declines in domestic or foreign production, accidents or
catastrophic events, and economic conditions, among others.
Exploration and Production.
Exploration, development and production companies are particularly vulnerable to declines in the demand for and prices of crude oil and natural
gas. Reductions in prices for crude oil and natural gas can cause a given reservoir to become uneconomic for continued production earlier than it would if prices were higher, resulting in the plugging and abandonment of, and cessation of production
from, that reservoir. In addition, lower commodity prices not only reduce revenues but also can result in substantial downward adjustments in reserve estimates. The accuracy of any reserve estimate is a function of the quality of available data, the
accuracy of assumptions regarding future commodity prices and future exploration and development costs and engineering and geological interpretations and judgments. Different reserve engineers may make different estimates of reserve quantities and
related revenue based on the same data. Actual oil and gas prices, development expenditures and operating expenses will vary from those assumed in reserve estimates, and these variances may be significant. Any significant variance from the
assumptions used could result in the actual quantity of reserves and future net cash flow being materially different from those estimated in reserve reports. In addition, results of drilling, testing and production and changes in prices after the
date of reserve estimates may result in downward revisions to such estimates. Substantial downward adjustments in reserve estimates could have a material adverse effect on a given exploration and production companys financial position and
results of operations. In addition, due to natural declines in reserves and production, exploration and production companies must economically find or acquire and develop additional reserves in order to maintain and grow their revenues and
distributions.
Propane.
Propane MLPs are subject to earnings variability based upon weather conditions in the markets they
serve, fluctuating commodity prices, increased use of alternative fuels, increased governmental or environmental regulation, and accidents or catastrophic events, among others.
Coal.
MLP entities and other
entities with coal assets are subject to supply and demand fluctuations in the markets they serve, which may be impacted by a wide range of factors including fluctuating commodity prices, the level of their customers coal stockpiles,
weather, increased conservation or use of alternative fuel sources,
57
increased governmental or environmental regulation, depletion, rising interest rates, declines in domestic or foreign production, mining accidents or catastrophic events, health claims and
economic conditions, among others. MLP entities and other entities with coal assets are also subject to supply variability based on geological conditions that reduce the productivity of mining operations, the availability of regulatory permits for
mining activities and the availability of coal that meets the standards of the 1990 Clean Air Act.
Marine Shipping.
Marine shipping (or tanker companies) are exposed to many of the same risks as
other energy companies. In addition, the highly cyclical nature of the industry may lead to volatile changes in charter rates and vessel values, which may adversely affect the earnings of tanker companies in the Funds portfolio. Fluctuations
in charter rates and vessel values result from changes in the supply and demand for tanker capacity and changes in the supply and demand for oil and oil products. Historically, the tanker markets have been volatile because of the many conditions and
factors that can affect the supply and demand for tanker capacity. Changes in demand for transportation of oil over longer distances and supply of tankers to carry that oil may materially affect revenues, profitability and cash flows of tanker
companies. The successful operation of vessels in the charter market depends upon, among other things, obtaining profitable spot charters and minimizing time spent waiting for charters and traveling unladen to pick up cargo. The value of tanker
vessels may fluctuate and could adversely affect the value of tanker company securities in the Funds portfolio. Declining tanker values could affect the ability of tanker companies to raise cash by limiting their ability to refinance their
vessels, thereby adversely impacting tanker company liquidity. Tanker company vessels are at risk of damage or loss because of events such as mechanical failure, collision, human error, war, terrorism, piracy, cargo loss and bad weather. In
addition, changing economic, regulatory and political conditions in some countries, including political and military conflicts, have from time to time resulted in attacks on vessels, mining of waterways, piracy, terrorism, labor strikes, boycotts
and government requisitioning of vessels. These sorts of events could interfere with shipping lanes and result in market disruptions and a significant loss of tanker company earnings. Some marine shipping MLPs are organized and headquartered outside
the United States and taxed as corporations in the United States. As a result, these non-U.S. MLPs may not offer the tax benefits typically associated with domestic MLPs.
Interest Rate Risk
Rising interest rates could increase the costs of capital
thereby increasing operating costs and reducing the ability of MLPs and other entities to carry out acquisitions or expansions in a cost-effective manner. As a result, rising interest rates could negatively affect the financial performance of MLPs
and other entities operating in the energy sector. Rising interest rates may also impact the price of the securities of MLPs as the yields on alternative investments increase.
Inflation and Deflation Risk
Inflation risk is the risk that the value of assets or
income from investment will be worth less in the future, as inflation decreases the value of money. As inflation increases, the real value of the Common Shares and distributions on those shares can decline. In addition, during any periods of rising
inflation, interest rates on any borrowings by the Fund would likely increase, which would tend to further reduce returns to the holders of Common Shares. Deflation risk is the risk that prices throughout the economy decline over time, which may
have an adverse effect on the market valuation of companies, their assets and revenues. In addition, 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 Funds portfolio.
Liquidity Risk
Although the equity securities of the MLPs
in which the Fund invests generally trade on major stock exchanges, certain securities owned by the Fund may trade less frequently, particularly those of MLPs and other issuers with smaller capitalizations. Securities with limited trading volumes
may display volatile or erratic price
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movements. Also, the Fund may be one of the largest investors in certain
sub-sectors
of the energy or natural resource sectors. Thus, it may be more
difficult for the Fund to buy and sell significant amounts of such securities without an unfavorable impact on prevailing market prices. Larger purchases or sales of these securities by the Fund in a short period of time may cause abnormal movements
in the market price of these securities. As a result, these securities may be difficult to dispose of at a fair price at the times when the MLP Team believes it is desirable to do so.
Small Capitalization Risk
The Fund may invest in securities of MLPs and other issuers that have comparatively smaller capitalizations relative to issuers whose
securities are included in major equity benchmark indexes, which presents unique investment risks. These companies often have limited product lines, markets, distribution channels or financial resources, and the management of such companies may be
dependent upon one or a few key people. The market movements of equity securities issued by MLPs with smaller capitalizations may be more abrupt or erratic than the market movements of equity securities of larger, more established companies or the
stock market in general. Historically, smaller capitalization companies have sometimes gone through extended periods when they did not perform as well as larger companies. In addition, equity securities of smaller capitalization companies generally
are less liquid than those of larger companies. This means that the Fund could have greater difficulty selling such securities at the time and price that the Fund would like.
Competition Risk
A number of alternatives to the Fund as vehicles for
investment in a portfolio of MLPs currently exist, including other publicly traded investment companies, structured notes and private funds. In addition, tax law changes in the last decade have increased the ability of regulated investment companies
and other institutions to invest in MLPs. These competitive conditions may adversely impact the Funds ability to meet its investment objective, which in turn could adversely impact our ability to make distributions.
Contractual restrictions on the resale of securities result
from negotiations between the issuer and purchaser of such securities and therefore vary substantially in length and scope. To dispose of a restricted security that the Fund has a contractual right to sell, the Fund may first be required to cause
the security to be registered. A considerable period may elapse between a decision to sell the securities and the time when the Fund would be permitted to sell, during which time the Fund would bear market risks.
Restricted Securities Risk
The Fund may purchase securities that are not registered
under the Securities Act, which, therefore, are restricted and cannot be immediately resold by the Fund into the public markets. Restricted securities are often purchased at a discount from the market price of unrestricted securities of
the same issuer reflecting the fact that such securities may not be readily marketable without some time delay. Such securities are often more difficult to value and the sale of such securities often requires more time and results in higher
brokerage charges or dealer discounts and other selling expenses than does the sale of liquid securities trading on national securities exchanges or in the over-the-counter markets. Until the Fund can sell such securities into the public markets,
its holdings will be less liquid and any sales will need to be made pursuant to an exemption under the Securities Act.
PIPEs Risk
The Fund may be involved in PIPEs or private financing of public companies. PIPE investors may purchase securities directly from a
publicly traded company in a private placement transaction, typically at a discount to the market price of the companys common stock. In a PIPE transaction, the Fund may bear the price risk from the time of pricing until the time of closing.
In addition, the Fund may have to commit to purchase a specified number of shares at a fixed price, with the closing conditioned upon, among other things, the SECs preparedness
59
to declare effective a resale registration statement covering the resale, from time to time, of the shares sold in the private financing. Because the sale of the securities is not registered
under the Securities Act, the securities are restricted and cannot be immediately resold by the investors into the public markets. Accordingly, the company typically agrees as part of the PIPE deal to register the restricted securities
with the SEC. PIPE securities may be deemed illiquid.
Cash Flow Risk
The Fund expects that a substantial portion of the cash flow it receives will be derived from its investments in equity securities of
MLPs. The amount and tax characterization of cash available for distribution by an MLP depends upon the amount of cash generated by such entitys operations. Cash available for distribution by MLPs will vary widely from quarter to quarter due
to various factors affecting the entitys operations. In addition to the risks described herein, operating costs, capital expenditures, acquisition costs, construction costs, exploration costs and borrowing costs may reduce the amount of cash
that an MLP has available for distribution in a given period.
Capital Market Risk
Global financial markets and economic conditions have been, and continue to be, volatile due to a variety of factors, including
significant write-offs in the financial services sector. As a result, the cost of raising capital in the debt and equity capital markets has increased substantially while the ability to raise capital from those markets has diminished significantly.
In particular, as a result of concerns about the general stability of financial markets and specifically the solvency of lending counterparties, the cost of raising capital from the credit markets generally has increased as many lenders and
institutional investors have increased interest rates, enacted tighter lending standards, refused to refinance debt on existing terms or at all and reduced, or in some cases ceased to provide, funding to borrowers. In addition, lending
counterparties under existing revolving credit facilities and other debt instruments may be unwilling or unable to meet their funding obligations. MLPs may therefore be unable to obtain new debt or equity financing on acceptable terms or at all. If
funding is not available when needed, or is available only on unfavorable terms, MLPs may not be able to meet their obligations as they come due. Moreover, without adequate funding, MLPs may be unable to execute their growth strategies, complete
future acquisitions, take advantage of other business opportunities or respond to competitive pressures, any of which could have a material adverse effect on their revenues and results of operations.
Valuation Risk
The Fund is subject to valuation risk from its estimates
of deferred tax assets and liabilities and from its investments in certain securities for which market prices may be unavailable.
As a limited partner in the MLPs, the Fund includes its allocable share of the MLPs taxable income in computing its own taxable
income. Deferred income taxes in the financial statements of the Fund reflect (i) taxes on unrealized gains/losses, which are attributable to the temporary difference between fair market value and the tax basis of the Funds assets,
(ii) the net tax effects of temporary differences between the carrying amounts of such assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and (iii) the net tax benefit of accumulated net
operating losses. To the extent the Fund has a deferred tax asset, consideration is given as to whether or not a valuation allowance is required. The need to establish a valuation allowance for deferred tax assets is assessed periodically by the
Fund based on the criterion established by ASC Topic 740 that it is more likely than not that some portion or all of the deferred tax asset will not be realized. In the assessment for a valuation allowance, consideration is given to all positive and
negative evidence related to the realization of the deferred tax asset. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability (which are highly
dependent on future MLP cash distributions), the duration of statutory carryforward periods and the associated risk that operating loss carryforwards may expire unused.
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The Fund may rely to some extent on information provided by the MLPs, which may not
necessarily be timely, to estimate taxable income allocable to the MLP units held in the portfolio and to estimate the associated deferred tax asset or liability. Such estimates are made in good faith. From time to time, as new information becomes
available, the Fund modifies its estimates or assumptions regarding the deferred tax asset or liability.
Deferred tax assets may constitute a relatively high percentage of the Funds net asset value. Any valuation allowance required
against such deferred tax assets or future adjustments to a valuation allowance may reduce the Funds deferred tax assets and could have a material impact on the Funds net asset value and results of operations in the period the valuation
allowance is recorded or adjusted.
The Fund
may make investments in securities for which market prices may not be available, including restricted or unregistered securities of certain MLPs and private companies, MLP subordinated units and direct ownership of general partner or managing member
interests. The value of such securities will be determined pursuant to fair valuation policies adopted by the Board of Trustees. Proper valuation of such securities may require more reliance on the judgment of NFALLC and the MLP Team than valuation
of securities for which an active trading market exists.
Below Investment Grade Risk
The Fund may invest up to 30% (measured at the time of investment) of its Managed Assets in debt securities that are of below investment
grade quality. Securities of below investment grade quality, commonly referred to as junk bonds, are regarded as having predominately speculative characteristics with respect to the issuers capacity to pay interest and repay principal when
due, and are more susceptible to default or decline in market value due to adverse economic and business developments than investment grade securities. Also, to the extent that the rating assigned to a security in the Funds portfolio is
downgraded by any NRSRO, the market price and liquidity of such security may be adversely affected. The secondary market for high yield securities may not be as liquid as the secondary market for more highly rated securities, a factor which may have
an adverse effect on the Funds ability to dispose of a particular security. The market values for securities of below investment grade quality tend to be volatile, and these securities are less liquid than investment grade securities. For
these reasons, an investment in the Fund, compared with a portfolio consisting solely of investment grade securities, may experience the following:
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increased price sensitivity resulting from a deteriorating economic environment and changing interest rates;
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greater risk of loss due to default or declining credit quality;
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adverse issuer specific events that are more likely to render the issuer unable to make interest and/or principal payments; and
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the possibility that a negative perception of the below investment grade market develops, resulting in the price and liquidity of below investment
grade securities becoming depressed, and this negative perception could last for a significant period of time.
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See Risk FactorsMarket Discount From Net Asset Value.
Leverage Risk
Leverage risk is the risk associated with the use of the Funds borrowings, outstanding preferred shares, if issued in the future, or
the use of tender option bonds to leverage the Common Shares. There can be no assurance that the Funds leveraging strategy will be successful. Because the long-term interest securities in which the Fund invests generally pay fixed rates of
interest while the Funds costs of leverage generally fluctuate with short- to intermediate-term yields, the incremental earnings from leverage will vary over time. However, the Fund may use derivatives, such as interest rate swaps, to fix the
effective rate paid on all or a portion of the Funds leverage in an effort to lower leverage costs over an extended period. Accordingly, the Fund cannot assure you that the use
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of leverage will result in a higher yield or return to Common Shareholders. The income benefit from leverage will be reduced to the extent that the difference narrows between the net earnings on
the Funds portfolio securities and its cost of leverage. The income benefit from leverage will increase to the extent that the difference widens between the net earnings on the Funds portfolio securities and its cost of leverage. If
short- or intermediate-term rates rise, the Funds cost of leverage could exceed the fixed rate of return on longer-term bonds held by the Fund that were acquired during periods of lower interest rates, reducing returns to Common Shareholders.
This could occur even if short- or intermediate-term and long-term interest rates rise. Because of the costs of leverage, the Fund may incur losses even if the Fund has positive returns, if they are not sufficient to cover the costs of leverage. The
Funds cost of leverage includes expenses relating to the issuance and ongoing maintenance of any borrowings or the interest attributable to tender option bonds as well as any one-time costs (
e.g.,
issuance costs) and ongoing fees and
expenses associated with such leverage.
The risk
of loss attributable to the Funds use of leverage is borne by Common Shareholders. The Funds use of financial leverage can result in a greater decrease in net asset values in declining markets. The Fund is required to maintain certain
regulatory and rating agency asset coverage requirements in connection with its outstanding borrowings, in order to be able to maintain the ability to declare and pay Common Share distributions and to maintain the rating of preferred shares, if
issued in the future. In order to maintain required asset coverage levels, the Fund may be required to alter the composition of its investment portfolio or take other actions, such as redeeming preferred shares, if any, or prepaying borrowings with
the proceeds from portfolio transactions, at what might be an inopportune time in the market. Such actions could reduce the net earnings or returns to Common Shareholders over time.
The Fund pays a management fee to NFALLC (which in turn pays a portion of its fee to ARI) based on a
percentage of Managed Assets. Nuveen Fund Advisors will base its decision regarding whether and how much leverage to use for the Fund based on its assessment of whether such use of leverage is in the best interests of the Fund. However, the fact
that a decision to employ or increase the Funds leverage will have the effect, all other things being equal, of increasing Managed Assets and therefore the amount of fees paid to NFALLC. This means that NFALLC may have a conflict of interest
in determining whether to use or increase leverage. NFALLC will seek to manage that potential conflict by leveraging the Fund (or increasing such leverage) only when it determines that such action is in the best interests of the Fund, and by
periodically reviewing the Funds performance and use of leverage with the Board of Trustees.
Non-U.S. Issuers and Emerging Markets Risk
Investments in securities of non-U.S. companies involve special risks not presented by investments in securities of U.S. companies, including the following: potential adverse effects of fluctuations in
controls on the value of the Funds investments; the economies of non-U.S. countries may grow at slower rates than expected or may experience a downturn or recession; the impact of economic, political, social or diplomatic events; possible
seizure of a companys assets; restrictions imposed by non-U.S. countries limiting the ability of non-U.S. issuers to make payments of principal and/or interest; and withholding and other non-U.S. taxes may decrease the Funds return.
These risks are more pronounced to the extent that the Fund invests a significant amount of its assets in companies located in one region and to the extent that the Fund invests in securities of issuers in emerging markets. Investments in emerging
markets may be considered speculative. Emerging markets are riskier because they develop unevenly and may never fully develop. They are more likely to experience hyperinflation and currency devaluations, including sudden, significant devaluations.
In addition, many emerging markets countries have histories of political instability and abrupt changes in policies. Economies and social and political climates in individual countries may differ unfavorably from the United States. Non-U.S.
economies may have less favorable rates of growth of gross domestic product, rates of inflation, currency valuation, capital reinvestment, resource self-sufficiency and balance of payments positions. Many countries have experienced substantial, and
in some cases extremely high, rates of inflation for many years. Unanticipated economic, political and social developments also may affect the values of the Funds investments and the availability to the Fund of additional investments in such
countries.
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Other Investment Companies Risk
The Fund may, subject to the limitations of the 1940
Act, invest in the securities of other investment companies, including open-end and closed-end funds and exchange-traded funds (ETFs). Such securities may be leveraged. As a result, the Fund may be indirectly exposed to leverage through
an investment in such securities, which would magnify the Funds leverage risk. The Fund, as a holder of the securities of other investment companies, will bear its pro rata portion of the other investment companies expenses, including
advisory fees. These expenses are in addition to the direct expenses of the Funds own operations. An ETF that is based on a specific index, whether stock or otherwise, may not be able to replicate and maintain exactly the composition and
relative weighting of securities in the index. An ETF also incurs certain expenses not incurred by its applicable index. The market value of shares of ETFs and closed-end funds may differ from their net asset value.
The Fund may invest in the securities of other investment
companies, which may themselves be leveraged and therefore present similar risks to those described above.
Risks Associated with Options on Securities
There are several risks associated with transactions in options on securities. A decision as to whether, when and how to use options involves the exercise of skill and judgment, and even a well-conceived
transaction may be unsuccessful to some degree because of market behavior or unexpected events. As the writer of a covered call option, the Fund forgoes, during the options life, the opportunity to profit from increases in the market value of
the security covering the call option above the sum of the premium and the strike price of the call, but has retained the risk of loss should the price of the underlying security decline. The writer of an option has no control over the time when it
may be required to fulfill its obligation as a writer of the option. Once an option writer has received an exercise notice, it cannot effect a closing purchase transaction in order to terminate its obligation under the option and must deliver the
underlying security at the exercise price. There can be no assurance that a liquid market will exist when the Fund seeks to close out an option position. If trading were suspended in an option purchased by the Fund, the Fund would not be able to
close out the option. If the Fund were unable to close out a covered call option that it had written on a security, it would not be able to sell the underlying security unless the option expired without exercise.
Derivatives Risk
The use of derivatives involves risks different from,
and possibly greater than, the risks associated with investing directly in the investments underlying the derivatives. If the Fund invests in a derivative instrument, it can lose more than the principal amount invested. Whether the Funds use
of derivatives is successful will depend on, among other things, if NFALLC and the MLP Team correctly forecast market values, interest rates and other applicable factors. If NFALLC and the MLP Team incorrectly forecast these and other factors, the
investment performance of the Fund may be negatively affected. In addition, the derivatives market is largely unregulated. It is possible that developments in the derivatives market could adversely affect the Funds ability to successfully use
derivative instruments.
The Fund may enter into
debt-related derivatives instruments, including interest rate swaps. Like most derivative instruments, the use of swaps is a highly specialized activity that involves investment techniques and risks different from those associated with ordinary
portfolio securities transactions. In addition, the use of swaps requires an understanding by NFALLC and the MLP Team of not only the referenced asset, rate or index, but also of the swap itself. If the Fund implements an interest rate swap program,
it will seek to achieve potentially lower leverage costs and thereby enhance distributions over an extended period. This strategy would enhance Common Shareholder returns if short-term interest rates were to rise over time to exceed on average the
all-in fixed interest rate over the term of the swap. This strategy, however, will add to leverage costs initially (because the swap costs are likely to be higher than current benchmark adjustable short-term rates) and would increase overall
leverage costs over the entirety of any such time period in the event that short-term interest rates do not
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rise sufficiently during that period to exceed on average the all-in fixed interest rate for that time period. The derivatives market is subject to a changing regulatory environment. It is
possible that regulatory and other developments in the derivatives market could adversely affect the Funds ability to successfully use derivative instruments.
Derivative transactions may subject the Fund to increased
risk of principal loss due to imperfect correlation between the values of the derivatives and the underlying securities or unexpected price or interest rate movements. The Fund also will be subject to credit risk with respect to the counterparties
to the derivatives contracts purchased by the Fund. If a counterparty becomes bankrupt or otherwise fails to perform its obligations under a derivative contract due to financial difficulties, the Fund may experience significant delays in obtaining
any recovery under the derivative contract in a bankruptcy or other reorganization proceeding. The Fund may obtain only a limited recovery or may obtain no recovery in such circumstances. Derivatives involve investment exposure that may exceed their
original cost, and a small investment in derivatives could result in a potentially unlimited loss to the Fund under certain circumstances.
Counterparty Risk
Changes in the credit quality of the companies that serve as the Funds counterparties with respect to derivatives, and other
transactions supported by another partys credit may affect the value of those instruments. Certain entities that have served as counterparties in the markets for these transactions have in recent years incurred significant losses and financial
hardships including bankruptcy as a result of exposure to sub-prime mortgages and other lower quality credit investments that have experienced recent defaults or otherwise suffered extreme credit deterioration. As a result, such hardships have
reduced these entities capital and called into question their continued ability to perform their obligations under such transactions. By using derivatives or other transactions, the Fund assumes the risk that its counterparties could
experience similar financial hardships. In the event of insolvency of a counterparty, the Fund may sustain losses or be unable to liquidate a derivatives position.
Risks Related to the Funds Clearing Broker and Central Clearing
Counterparty
The Commodity Exchange Act
(CEA) requires swaps and futures clearing brokers registered as futures commission merchants to segregate all funds received from customers with respect to any orders for the purchase or sale of U.S. domestic futures
contracts and cleared swaps from the brokers proprietary assets. Similarly, the CEA requires each futures commission merchant to hold in separate secure accounts all funds received from customers with respect to any orders for the purchase or
sale of foreign futures contracts and cleared swaps and segregate any such funds from the funds received with respect to domestic futures contracts. However, all funds and other property received by a clearing broker from its customers are held by
the clearing broker on a commingled basis in an omnibus account and may be invested in certain instruments permitted under applicable regulations. There is a risk that assets deposited by the Fund with any swaps or futures clearing broker as margin
for futures contracts or cleared swaps may, in certain circumstances, be used to satisfy losses of other clients of the Funds clearing broker. In addition, the assets of the Fund might not be fully protected in the event of the Funds
clearing brokers bankruptcy, as the Fund would be limited to recovering only a pro rata share of all available funds segregated on behalf of the clearing brokers customers for the relevant account class.
Similarly, the CEA requires a clearing organization approved
by the CFTC as a derivatives clearing organization to segregate all funds and other property received from a clearing members clients in connection with domestic cleared derivative contracts from any funds held at the clearing organization to
support the clearing members proprietary trading. Nevertheless, all customer funds held at a clearing organization in connection with any futures contracts are held in a commingled omnibus account and are not identified to the name of the
clearing members individual customers. All customer funds held at a clearing organization with respect to cleared swaps of customers of a clearing broker are also held in an omnibus account, but CFTC rules require that the clearing broker
notify the clearing organization of the amount of the initial margin provided by the clearing broker to the clearing organization that is attributable to each customer. With respect to futures and
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options contracts, a clearing organization may use assets of a nondefaulting customer held in an omnibus account at the clearing organization to satisfy payment obligations of a defaulting
customer of the clearing member to the clearing organization. With respect to cleared swaps, a clearing organization generally cannot do so, but may do so if the clearing member does not provide accurate reporting to the clearing organization as to
the attribution of margin among its clients. Also, since clearing brokers generally provide to clearing organizations the net amount of variation margin required for cleared swaps for all of its customers in the aggregate, rather than the gross
amount of each customer, the Fund is subject to the risk that a clearing organization will not make variation margin payments owed to the Fund if another customer of the clearing member has suffered a loss and is in default. As a result, in the
event of a default or the clearing brokers other clients or the clearing brokers failure to extend its own funds in connection with any such default, the Fund may not be able to recover the full amount of assets deposited by the clearing
broker on behalf of the Fund with the clearing organization.
Impact of Offering Methods Risk
The issuance of Common Shares through the various methods described in the Prospectus may have an adverse effect on prices in the
secondary market for the Funds Common Shares by increasing the number of Common Shares available for sale. In addition, the Common Shares may be issued at a discount to the market price for such Common Shares, which may put downward pressure
on the market price for Common Shares of the Fund.
Reliance on
Investment Adviser
The Fund is dependent
upon services and resources provided by its investment adviser, NFALLC, and therefore the investment advisers parent, Nuveen Investments. Nuveen Investments has a substantial amount of indebtedness. Nuveen Investments, through its own business
or the financial support of its affiliates, may not be able to generate sufficient cash flow from operations or ensure that future borrowings will be available in an amount sufficient to enable it to pay its indebtedness with scheduled maturities
beginning in 2014 or to fund its other liquidity needs. Nuveen Investments failure to satisfy the terms of its indebtedness, including covenants therein, may generally have an adverse effect on the financial condition of Nuveen Investments. In
addition, the Fund is dependent on the MLP Teams expertise in managing the Funds portfolio, including MLPs.
Certain Affiliations
Certain broker-dealers may be considered to be affiliated persons of the Fund, NFALLC, Nuveen Investments and/or Nuveen Securities. Absent
an exemption from the SEC or other regulatory relief, the Fund is generally precluded from effecting certain principal transactions with affiliated brokers, and its ability to purchase securities being underwritten by an affiliated broker or a
syndicate including an affiliated broker, or to utilize affiliated brokers for agency transactions, is subject to restrictions. The Fund has applied for such relief to permit the Fund to effect certain principal transactions with a certain broker
and its trading affiliates that may be deemed to be Fund affiliates. However, such relief would be limited to specific circumstances and would not extend to other affiliated brokers, and there is no guarantee that the relief will be granted. The
Fund has not applied for and does not currently intend to apply for such relief. This could limit the Funds ability to engage in securities transactions and take advantage of market opportunities.
Non-Diversified
Because the Fund is classified as
non-diversified under the 1940 Act, it can invest a greater portion of its assets in obligations of a single issuer than a diversified fund. As a result, the Fund may be more susceptible than a diversified fund to any single
corporate, economic, political, geographic or regulatory occurrence.
Anti-Takeover Provisions
The Declaration and By-Laws include provisions that could limit the ability of other entities or persons to acquire control of the Fund or convert the Fund to open-end status. These provisions could have
the effect of
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depriving the Common Shareholders of opportunities to sell their Common Shares at a premium over the then current market price of the Common Shares. See Certain Provisions in the
Declaration of Trust and By-Laws.
MANAGEMENT OF THE FUND
Trustees and Officers
The Board of Trustees is responsible for the Funds
management, including supervision of the duties performed by NFALLC and the MLP Team. The names and business addresses of the Funds trustees and officers and their principal occupations and other affiliations during the past five years are set
forth under Management of the Fund in the SAI.
Investment Adviser, Sub-Adviser and Portfolio Managers
Investment Adviser
. Nuveen Fund Advisors, LLC, the Funds investment adviser, offers advisory and
investment management services to a broad range of mutual fund and closed-end fund clients. NFALLC is responsible for the overall investment strategy, overseeing the Funds use of leverage and monitoring the performance of the MLP Team. NFALLC
is also responsible for managing the Nuveen Funds business affairs and providing certain clerical, bookkeeping and other administrative services. NFALLC is located at 333 West Wacker Drive, Chicago, IL 60606.
NFALLC is a wholly-owned subsidiary of Nuveen Investments.
Founded in 1898, Nuveen Investments and its affiliates had approximately $214.9 billion in assets under management as of September 30, 2013.
Sub-Adviser.
ARI, a Delaware corporation and registered investment adviser, serves as the Funds
sub-adviser pursuant to an investment subadvisory agreement between NFALLC and ARI. The MLP Team is responsible for investing the Funds Managed Assets. The MLP Team is located at 8235 Forsyth Blvd., Ste. 700, St. Louis, Missouri 63105. The MLP
Team has approximately $4.5 billion in assets under management as of December 31, 2013, which includes the assets of two MLP closed-end funds (including the Fund, and another closed-end fund trading under the ticker symbol FMO).
Shares of FMO referred to above are not offered pursuant to this prospectus.
ARI was founded in 1974 and the MLP Team has managed MLP portfolios for clients since 1995. Since March 2010, ARI has been a wholly owned subsidiary of Piper Jaffray Companies. Piper Jaffray Companies is
a leading, international middle-market investment bank and institutional securities firm, serving the needs of middle market corporations, private equity groups, public entities, nonprofit clients and institutional investors. Founded in 1895, Piper
Jaffray Companies provides a comprehensive set of products and services, including equity and debt capital markets products; public finance services; mergers and acquisitions advisory services; high-yield and structured products; institutional
equity and fixed-income sales and trading; and equity and high-yield research. With headquarters in Minneapolis, Piper Jaffray Companies has 44 offices across the United States and international locations in London and Zurich.
The MLP Team has day-to-day responsibility for managing the
Funds direct investments in MLPs and other permitted investments.
NFALLC and ARI are unaffiliated registered investment advisers.
Portfolio Managers.
James J. Cunnane, Jr. and Quinn T. Kiley will serve as the Funds portfolio
managers and are primarily responsible for the day-to-day management of the Funds portfolio.
Mr. Cunnane, with 21 years of investment experience, is Managing Director and Chief Investment Officer of the MLP Team (August 2011
to present). He oversees the firms MLP and energy infrastructure product lines
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and chairs the Risk Management Committee. Prior to serving in his current role, Mr. Cunnane served as Managing Director and Senior Portfolio Manager from June 2008 to March 2009 and Chief
Investment Officer from March 2009 to August 2011. He joined the MLP Team in 1996 and currently serves as a portfolio manager for, in addition to the Fund, another publicly traded closed-end fund: the Fiduciary/Claymore MLP Opportunity Fund (ticker
symbol FMO). He also serves as a portfolio manager for the Advisory Research MLP & Energy Income Fund, an open-end mutual fund, as well as a privately offered open-end fund. Mr. Cunnane holds a B.S. in finance from Indiana
University and is a Chartered Financial Analyst (CFA) charterholder. He serves on the finance council and investment committee of the Archdiocese of St. Louis and on the Board of Directors of St. Patricks Center.
Mr. Kiley, with 13 years of investment experience, is
Managing Director and Senior Portfolio Manager of the MLP Team and his responsibilities include portfolio management of various energy infrastructure assets and oversight of the energy infrastructure research process. Prior to serving in his current
role, Mr. Kiley served as Senior Vice President and Senior Portfolio Manager from June 2008 to August 2011. He joined the MLP Team in 2005. Prior to joining the MLP Team, Mr. Kiley served as Vice President of Corporate & Investment
Banking at Banc of America Securities in New York. He was responsible for executing strategic advisory and financing transactions for clients in the Energy & Power sectors. Mr. Kiley serves as a portfolio manager for, in addition to
the Fund, another publicly traded closed-end fund: the Fiduciary/Claymore MLP Opportunity Fund (ticker symbol FMO). He also serves as a portfolio manager for the Advisory Research MLP & Energy Income Fund, an open-end mutual
fund, as well as a privately offered open-end fund. Mr. Kiley holds a B.S. with Honors in Geology from Washington & Lee University, a M.S. in Geology from the University of Montana, a Juris Doctorate from Indiana University School of
Law, and a M.B.A. from the Kelley School of Business at Indiana University. Mr. Kiley has been admitted to the New York State Bar.
Additional information about the Portfolio Managers compensation, other accounts managed by the Portfolio Managers and the Portfolio
Managers ownership of the securities in the Fund is provided in the SAI.
Shares of FMO and the open-end funds referred to above, other than the Fund, are not offered pursuant to this prospectus.
The SAI is available free of charge by calling (800) 257-8787
or by visiting Nuveen Investments website at www.nuveen.com. The information contained in, or that can be accessed through, the Funds website is not part of this Prospectus or the SAI.
Investment Management and Sub-Advisory Agreements
Investment Management
Agreement
. Pursuant to an investment management agreement between NFALLC and the Fund (Investment Management Agreement), the Fund has agreed to pay an annual management fee for the services and facilities
provided by NFALLC, payable on a monthly basis, based on the sum of a fund-level fee and a complex-level fee, as described below.
Fund-Level Fee.
The annual fund-level fee, payable monthly, is calculated according to the following
schedule:
|
|
|
|
|
Average Daily Managed Assets(1)
|
|
Fund-Level Fee Rate
|
|
For the first $500 million
|
|
|
0.9000
|
%
|
For the next $500 million
|
|
|
0.8750
|
%
|
For the next $500 million
|
|
|
0.8500
|
%
|
For the next $500 million
|
|
|
0.8250
|
%
|
For managed assets over $2 billion
|
|
|
0.8000
|
%
|
67
Complex-Level Fee.
The annual complex-level fee, payable
monthly, is calculated according to the following schedule:
|
|
|
|
|
Complex-Level Managed Asset Breakpoint
Level(2)
|
|
Effective Rate at
Breakpoint Level
|
|
$55 billion
|
|
|
0.2000
|
%
|
$56 billion
|
|
|
0.1996
|
%
|
$57 billion
|
|
|
0.1989
|
%
|
$60 billion
|
|
|
0.1961
|
%
|
$63 billion
|
|
|
0.1931
|
%
|
$66 billion
|
|
|
0.1900
|
%
|
$71 billion
|
|
|
0.1851
|
%
|
$76 billion
|
|
|
0.1806
|
%
|
$80 billion
|
|
|
0.1773
|
%
|
$91 billion
|
|
|
0.1691
|
%
|
$125 billion
|
|
|
0.1599
|
%
|
$200 billion
|
|
|
0.1505
|
%
|
$250 billion
|
|
|
0.1469
|
%
|
$300 billion
|
|
|
0.1445
|
%
|
(1)
|
For the Fund, Managed Assets means the Funds total assets less its liabilities, other than liabilities incurred for leveraging purposes. Total assets
for this purpose shall include assets attributable to the Funds use of effective leverage (whether or not those assets are reflected in the Funds financial statements for purposes of generally accepted accounting principles).
|
(2)
|
The complex-level fee is calculated based upon the aggregate daily eligible assets of all Nuveen Funds. Eligible assets do not include assets attributable
to investments in other Nuveen Funds or assets in excess of a determined amount (originally $2 billion) added to the Nuveen fund complex in connection with NFALLCs assumption of the management of the former First American Funds effective
January 1, 2011. With respect to closed-end funds, eligible assets include assets managed by NFALLC that are attributable to certain types of leverage. For these purposes, leverage includes the use of preferred stock and borrowings (which the
Fund currently employs) and certain investments in the residual interest certificates (also called inverse floating rate securities) in tender option bond (TOB) trusts, including the portion of assets held by a TOB trust that has been effectively
financed by the trusts issuance of floating rate securities, subject to an agreement by NFALLC as to certain funds to limit the amount of such assets for determining eligible assets in certain circumstances. As of December 31, 2013, the
complex-level fee rate for the Fund was 0.1686%.
|
In addition to the fee of NFALLC, the Fund pays all other costs and expenses of its operations, including compensation of its trustees (other than those affiliated with NFALLC or ARI), custodian, transfer
agency and dividend disbursing expenses, legal fees, expenses of independent auditors, expenses of repurchasing shares, expenses associated with any borrowings, expenses of preparing, printing and distributing shareholder reports, notices, proxy
statements and reports to governmental agencies, and taxes, if any. All fees and expenses are accrued daily and deducted before payment of dividends to investors.
A discussion regarding the basis for the Board of
Trustees decision to renew the Investment Management Agreement for the Fund is available in the Funds semi-annual report to shareholders dated May 31 of each year.
Sub-Advisory
Agreement
. Pursuant to an investment subadvisory agreement between NFALLC and ARI (Sub Advisory Agreement), NFALLC will pay ARI a portfolio management fee equal to 0.50% of the Funds Managed Assets.
NFALLC and ARI retain the right to reallocate
investment advisory responsibilities and fees between themselves in the future.
68
A discussion regarding the basis for the Board of Trustees decision to renew the
Sub-Advisory Agreement is available in the Funds semi-annual report to shareholders dated May 31 of each year.
NET ASSET VALUE
The Funds net asset value per share is determined as of the close of regular session trading (normally 4:00 p.m., Eastern Time)
on each day the NYSE is open for business. Net asset value is computed by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid),
by the total number of shares outstanding. In determining net asset value, expenses are accrued and applied daily and securities and other assets for which market quotations are available are valued at market value. Exchange-listed securities are
generally valued at the last sales price on the securities exchange on which such securities are primarily traded. Securities traded on a securities exchange for which there are no transactions on a given day or securities not listed on a securities
exchange are valued at the mean of the closing bid and asked prices. Securities reported on NASDAQ are valued at the NASDAQ Official Closing Price. Temporary investments in securities that have variable rate and demand features qualifying them as
short-term investments are valued at amortized cost, which approximates market value.
The Funds securities are valued in accordance with procedures approved by the Board of Trustees. Under the procedures, equity securities and certain derivative instruments that are traded on an
exchange are valued at the closing price or, if that price is unavailable or deemed not representative of market value, the last sale price. Where a security is traded on more than one exchange, the security is generally valued at the price on the
exchange considered to be the primary exchange. In the case of securities not traded on an exchange, or if exchange prices are not otherwise available, the prices are typically determined by independent third party pricing services that use a
variety of techniques and methodologies.
The
valuations for fixed income securities and certain derivative instruments are typically the prices supplied by independent third party pricing services, which may use market prices or broker/dealer quotations or a variety of fair valuation
techniques and methodologies. Short-term fixed income securities that will mature in 60 days or less are valued at amortized cost, unless it is determined that using this method would not reflect an investments fair value.
The valuations of certain fixed income securities will
generally be based on prices determined as of the earlier closing time of the markets on which they primarily trade, unless a significant event has occurred.
If independent third party pricing services are unable to supply prices for a portfolio investment, or if the prices supplied are deemed
to be unreliable, the market price may be determined by using quotations from one or more broker/dealers. When such prices or quotations are not available, or when believed to be unreliable, securities may be priced using fair value procedures
approved by the Board of Trustees. These procedures permit, among other things, the use of a matrix, formula or other method that takes into consideration market indexes, yield curves and other specific adjustments to determine fair value. The Fund
may also use fair value procedures if it is determined that a significant event has occurred between the time at which a market price is determined and the time at which the funds net asset value is calculated. The effect of using fair value
pricing is that the Common Share net asset value will be subject to the judgment of the Board of Trustees or its designee instead of being determined by the market.
As a limited partner in the MLPs, the Fund includes its
allocable share of the MLPs taxable income in computing its own taxable income. Deferred income taxes in the financial statements of the Fund will reflect (i) taxes on unrealized gains/(losses), which are attributable to the temporary
difference between the fair market value and the tax basis of the Funds assets, (ii) the net tax effects of temporary differences between the carrying amounts of such assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes and (iii) the net tax benefit of accumulated net operating losses. To the extent the Fund has a deferred tax asset, consideration is given as to whether or not a valuation allowance is required. The need to
establish a
69
valuation allowance for deferred tax assets is assessed periodically by the Fund based on the criterion established by ASC Topic 740 that it is more likely than not that some portion or all of
the deferred tax asset will not be realized. In the assessment for a valuation allowance, consideration is given to all positive and negative evidence related to the realization of the deferred tax asset. This assessment considers, among other
matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability (which are highly dependent on future MLP cash distributions), the duration of statutory carryforward periods and the associated risk
that operating loss carryforwards may expire unused.
The Fund may rely to some extent on information provided by the MLPs, which may not necessarily be timely, to estimate taxable income allocable to the MLP units held in the portfolio and to estimate the
associated deferred tax asset or liability. Such estimates are made in good faith. From time to time, as new information becomes available, the Fund will modify its estimates or assumptions regarding the deferred tax asset or liability.
Deferred tax assets may constitute a relatively high
percentage of the Funds net asset value. Any valuation allowance required against such deferred tax assets or future adjustments to a valuation allowance may reduce the Funds deferred tax assets and could have a material impact on the
Funds net asset value and results of operations in the period the valuation allowance is recorded or adjusted.
DISTRIBUTIONS
Under normal circumstances, the Fund intends to distribute substantially all of the cash flow received as distributions from MLPs,
interest payments received on debt securities owned by the Fund and other payments on securities owned by the Fund, less payments on any borrowings or preferred shares and other Fund expenses.
The Fund intends to make quarterly distributions. The Fund reserves the right to change its distribution policy
and the basis for establishing the rate of its quarterly distributions at any time and may do so without prior notice to Common Shareholders.
DIVIDEND REINVESTMENT PLAN
If your Common Shares are registered directly with the Fund
or if you hold your Common Shares with a brokerage firm that participates in the Funds Dividend Reinvestment Plan (Plan), you may elect to have all dividends, including any capital gain dividends, on your Common Shares
automatically reinvested by the Plan Agent (defined below) in additional Common Shares under the Plan. You may elect to participate in the Plan by contacting Nuveen Investor Services at (800) 257-8787. If you do not participate, you will receive all
distributions in cash paid by check mailed directly to you or your brokerage firm by State Street Bank and Trust Company as dividend paying agent (Plan Agent).
If you decide to participate in the Plan, the number of
Common Shares you will receive will be determined as follows:
(1) If Common Shares are trading at or above net asset value at the time of valuation, the Fund will issue new shares at the then current market price;
(2) If Common Shares are trading below net
asset value at the time of valuation, the Plan Agent will receive the dividend or distribution in cash and will purchase Common Shares in the open market, on the NYSE or elsewhere, for the participants accounts. It is possible that the market
price for the Common Shares may increase before the Plan Agent has completed its purchases. Therefore, the average purchase price per share paid by the Plan Agent may exceed the market price at the time of valuation, resulting in the purchase of
fewer shares than if the dividend or distribution had been paid in Common Shares issued by the Fund. The Plan Agent will use all dividends and distributions received in cash to purchase Common Shares in the open market within 30 days of the
valuation date. Interest will not be paid on any uninvested cash payments; or
70
(3) If the Plan Agent begins purchasing Fund shares on the open market while
shares are trading below net asset value, but the Funds shares subsequently trade at or above their net asset value before the Plan Agent is able to complete its purchases, the Plan Agent may cease open-market purchases and may invest the
uninvested portion of the distribution in newly-issued Fund shares at a price equal to the greater of the shares net asset value or 95% of the shares market value.
You may withdraw from the Plan at any time by giving written
notice to the Plan Agent. If you withdraw or the Plan is terminated, you will receive whole shares in your account under the Plan and you will receive a cash payment for any fraction of a share in your account. If you wish, the Plan Agent will sell
your shares and send you the proceeds, minus brokerage commissions and a $2.50 service fee.
The Plan Agent maintains all shareholders accounts in the Plan and gives written confirmation of all transactions in the accounts, including information you may need for tax records. Upon a
repurchase of your shares, the Fund (or its administrative agent) may be generally required to report to the Internal Revenue Service (IRS) and furnish to you cost basis and holding period information for Fund shares that you purchased
on or after January 1, 2012 (covered shares).
For shares of the Fund held in the Plan, you are permitted to elect from among several permitted cost basis methods. In the absence of an election, the Plan will use first-in first-out (FIFO)
methodology for tracking and reporting your cost basis on covered shares as its default cost basis method. The cost basis method you use may not be changed with respect to a repurchase of shares after the settlement date of the repurchase. You
should consult with your tax advisors to determine the best permitted cost basis method for your tax situation and to obtain more information about how the new cost basis reporting rules apply to you.
Common Shares in your account will be held by the Plan Agent
in non-certificated form. Any proxy you receive will include all Common Shares you have received under the Plan.
There is no brokerage charge for reinvestment of your dividends or distributions in Common Shares. However, all participants will pay a
pro rata share of brokerage commissions incurred by the Plan Agent when it makes open market purchases.
Automatically reinvesting dividends and distributions does not mean that you do not have to pay income taxes due upon receiving dividends
and distributions.
If you hold your Common Shares
with a brokerage firm that does not participate in the Plan, you will not be able to participate in the Plan and any dividend reinvestment may be effected on different terms than those described above. Consult your financial advisor for more
information.
The Fund reserves the right to amend
or terminate the Plan if in the judgment of the Board of Trustees the change is warranted. There is no direct service charge to participants in the Plan; however, the Fund reserves the right to amend the Plan to include a service charge payable by
the participants. Additional information about the Plan may be obtained by writing to State Street Bank and Trust Company, Attn: ComputerShare Nuveen Investments, P.O. Box 43071, Providence, Rhode Island 02940-3071 or by calling (800) 257-8787.
PLAN OF DISTRIBUTION
The Fund may sell the Common Shares offered
under this Prospectus through
|
|
|
at-the-market transactions;
|
|
|
|
underwriting syndicates; and
|
|
|
|
privately negotiated transactions.
|
71
The Fund will bear the expenses of the offering, including but not limited to, the expenses
of preparation of the Prospectus and SAI for the offering and the expense of counsel and auditors in connection with the offering.
Distribution Through At-The-Market Transactions
The Fund has entered into a distribution agreement with Nuveen Securities (Distribution Agreement), which has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part. The summary of the Distribution Agreement contained herein is qualified by reference to the Distribution Agreement. Subject to the terms and conditions of the Distribution
Agreement, the Fund may from time to time issue and sell its Common Shares through Nuveen Securities to certain broker-dealers which have entered into selected dealer agreements with Nuveen Securities. Currently, Nuveen Securities has entered into a
selected dealer agreement with UBS pursuant to which UBS will act as the exclusive sub-placement agent with respect to at-the-market offerings of Common Shares. The selected dealer agreement has been filed as an exhibit to the Registration Statement
of which this Prospectus is a part. The summary of the selected dealer agreement contained herein is qualified by reference to the selected dealer agreement.
Common Shares will only be sold on such days as shall be agreed to by the Fund, Nuveen Securities and UBS. Common Shares will be sold at
market prices, which shall be determined with reference to trades on the NYSE, subject to a minimum price to be established each day by Nuveen Securities. The minimum price on any day will not be less than the current net asset value per Common
Share plus the per share amount of the commission to be paid to Nuveen Securities. The Fund and Nuveen Securities will suspend the sale of Common Shares if the per share price of the shares is less than the minimum price.
The Fund will compensate Nuveen Securities with respect to
sales of the Common Shares at a commission rate of up to 1.0% of the gross proceeds of the sale of Common Shares. Nuveen Securities will compensate broker-dealers at a rate of up to 0.8% of the gross proceeds of the sale of Common Shares sold by
that broker-dealer. Settlements of sales of Common Shares will occur on the third business day following the date on which any such sales are made.
In connection with the sale of the Common Shares on behalf of the Fund, Nuveen Securities may be deemed to be an underwriter within the
meaning of the 1933 Act, and the compensation of Nuveen Securities may be deemed to be underwriting commissions or discounts. Unless otherwise indicated in a Prospectus supplement, Nuveen Securities will act as underwriter on a reasonable efforts
basis.
The offering of Common Shares
pursuant to the Distribution Agreement will terminate upon the earlier of (i) the sale of all Common Shares subject thereto or (ii) termination of the Distribution Agreement. The Fund and Nuveen Securities each have the right to terminate the
Distribution Agreement in its discretion at any time.
The Fund currently intends to distribute the shares offered pursuant to this Prospectus primarily through at-the-market transactions, although from time to time it may also distribute shares through an
underwriting syndicate or a privately negotiated transaction. To the extent shares are distributed other than through at-the-market transactions, the Fund will file a supplement to this Prospectus describing such transactions.
UBS, its affiliates and their respective employees hold or
may hold in the future, directly or indirectly, investment interests in Nuveen Investments, Inc. and its funds. The interests held by employees of UBS or its affiliates are not attributable to, and no investment discretion is held by, UBS or its
affiliates.
The Funds closing price on
the NYSE on March 14, 2014 was $18.86.
Distribution
Through Underwriting Syndicates
The Fund
from time to time may issue additional Common Shares through a syndicated secondary offering. In order to limit the impact on the market price of the Funds Common Shares, underwriters will market and
72
price the offering on an expedited basis (
e.g.,
overnight or similarly abbreviated offering period). The Fund will launch a syndicated offering on a day, and upon terms, mutually agreed
upon between the Fund, Nuveen Securities, one of the Funds underwriters, and the underwriting syndicate.
The Fund will offer its shares at a price equal to a specified discount of up to 5% from the closing market price of the Funds
Common Shares on the day prior to the offering date. The applicable discount will be negotiated by the Fund and Nuveen Securities in consultation with the underwriting syndicate on a transaction-by-transaction basis. The Fund will compensate the
underwriting syndicate out of the proceeds of the offering based upon a sales load of up to 4% of the gross proceeds of the sale of Common Shares. The minimum net proceeds per share to the Fund will not be less than the greater of (i) the
Funds latest net asset value per Common Share or (ii) 91% of the closing market price of the Funds Common Shares on the day prior to the offering date.
Distribution Through Privately Negotiated Transactions
The Fund, through Nuveen Securities, from time to time
may sell directly to, and solicit offers from, institutional and other sophisticated investors, who may be deemed to be underwriters as defined in the 1933 Act for any resale of Common Shares. No sales commission or other compensation will be paid
to Nuveen Securities or any other FINRA member in connection with such transactions.
The terms of such privately negotiated transactions will be subject to the discretion of the management of the Fund. In determining whether to sell Common Shares through a privately negotiated
transaction, the Fund will consider relevant factors, including, but not limited to, the attractiveness of obtaining additional funds through the sale of Common Shares, the purchase price to apply to any such sale of Common Shares and the person
seeking to purchase the Common Shares.
Common
Shares issued by the Fund through privately negotiated transactions will be issued at a price equal to the greater of (i) the net asset value per Common Share of the Funds Common Shares or (ii) at a discount ranging from 0% to 5% of the
average daily closing market price of the Funds Common Shares at the close of business on the two business days preceding the date upon which Common Shares are sold pursuant to the privately negotiated transaction. The applicable discount will
be determined by the Fund on a transaction-by-transaction basis.
The principal business address of Nuveen Securities is 333 West Wacker Drive, Chicago, Illinois 60606.
DESCRIPTION OF SHARES
Common Shares
The Declaration authorizes the issuance of an unlimited
number of Common Shares. The Common Shares being offered have a par value of $0.01 per share and, subject to the rights of holders of preferred shares, if issued, and Borrowings, if incurred, have equal rights to the payment of dividends and the
distribution of assets upon liquidation. The Common Shares being offered will, when issued, be fully paid and, subject to matters discussed under Certain Provisions in the Declaration of Trust and By-Laws, non-assessable, and will have
no preemptive or conversion rights or rights to cumulative voting. Each Common Share has one vote with respect to matters upon which a shareholder vote is required, consistent with the requirements of the 1940 Act and the rules promulgated
thereunder, and will vote together as a single class. If the Fund issues Preferred Shares and/or incurs Borrowings, the Common Shareholders will not be entitled to receive any cash distributions from the Fund unless all interest on such Borrowings
has been paid and all accrued dividends on preferred shares have been paid, and unless asset coverage (as defined in the 1940 Act) with respect to any Borrowings would be at least 300% after giving effect to the distributions and asset coverage (as
defined in the 1940 Act) with respect to preferred shares would be at least 200% after giving effect to the distributions. See Description of SharesPreferred Shares below.
73
The Common Shares are listed on the NYSE and trade under the symbol JMF. The
Fund intends to hold annual meetings of shareholders so long as the Common Shares are listed on a national securities exchange and such meetings are required as a condition to such listing. The Fund will not issue share certificates.
Unlike open-end funds, closed-end funds like the Fund do
not continuously offer shares and do not provide daily redemptions. Rather, if a Common Shareholder determines to buy additional Common Shares or sell shares already held, the Common Shareholder may conveniently do so by trading on the exchange
through a broker or otherwise. Shares of closed-end investment companies may frequently trade on an exchange at prices lower than net asset value. Shares of closed-end investment companies like the Fund, during some periods, have traded at prices
higher than net asset value and, during other periods, have traded at prices lower than net asset value. Because the market value of the Common Shares may be influenced by such factors as distribution levels (which are in turn affected by expenses),
dividend stability, net asset value, relative demand for and supply of such shares in the market, general market and economic conditions, and other factors beyond the Funds control, the Fund cannot guarantee you that Common Shares will trade
at a price equal to or higher than net asset value in the future. The Common Shares are designed primarily for long-term investors, and investors in the Common Shares should not view the Fund as a vehicle for trading purposes. See Repurchase
of Fund Shares; Conversion to Open-End Fund in this Prospectus and in the SAI.
Borrowing
The Declaration authorizes the Fund, without approval of the Common Shareholders, to borrow money. In this connection, the Fund may issue notes or other evidence of indebtedness (including bank borrowings
or commercial paper) and may secure any such debt by mortgaging, pledging or otherwise subjecting as security the Funds assets. On December 19, 2013, the Fund entered into a $315 million (maximum commitment amount) credit agreement with an
affiliate of Bank of America Merrill Lynch (BAML). Prior to December 19, 2013, the Fund had entered into a prime brokerage facility with Deutsche Bank AG (Deutsche Bank) as a means of financial leverage. During the fiscal
year ended November 30, 2013, the average daily balance outstanding and average annual interest rate on the Borrowings was $266,287,671 and 1.12%, respectively.
The Fund borrows money at rates generally available to institutional investors. In connection with such Borrowings, the Fund may be
required to maintain minimum average balances with the lender or to pay a commitment or other fee to maintain a line of credit. Any such requirements will increase the cost of any such Borrowings over the stated interest rate. Under the requirements
of the 1940 Act, the Fund, immediately after issuing any such debt, must have an asset coverage of at least 300%. With respect to any such debt, asset coverage means the ratio that the value of the total assets of the Fund, less all
liabilities and indebtedness not represented by senior securities (as defined in the 1940 Act), bears to the aggregate amount of such Borrowings represented by senior securities issued by the Fund. Certain types of debt may result in the Fund being
subject to covenants in credit agreements relating to asset coverages or portfolio coverages or otherwise. In addition, as with the issuance of preferred shares, certain types of Borrowings may result in the Fund being subject to certain
restrictions imposed by guidelines of one or more rating agencies that may issue ratings for commercial paper or notes issued by the Fund. Such restrictions may be more stringent than those imposed by the 1940 Act.
Interest will be charged on the BAML Borrowings at a rate per
annum equal to the 1-Month LIBOR plus .75% or if LIBOR were to become unavailable, the Federal Funds Rate plus .50%, plus .75%. The Fund will also accrue a commitment fee of .25% per annum on the daily undrawn portion of the Borrowings unless
the undrawn portion of the Borrowings on that day is less than 20% of the maximum commitment amount.
The rights of lenders to the Fund to receive interest on and repayment of principal of any such Borrowings will be senior to those of the
Common Shareholders, and the terms of any such Borrowings may contain provisions which limit certain activities of the Fund, including the payment of dividends to Common Shareholders in certain circumstances. Furthermore, the 1940 Act does (in
certain circumstances) grant to the lenders to the Fund certain voting rights in the event of default in the payment of interest on or repayment of
74
principal. In the event that such provisions would impair the Funds eligibility for treatment as a regulated investment company under the Code, the Fund will attempt to repay or restructure
the Borrowings to preserve that eligibility. Any debt will likely be ranked senior or equal to all other existing and future Borrowings of the Fund. The Fund may also borrow money for repurchase of its shares or as a temporary measure for
extraordinary or emergency situations. See Investment Restrictions in the SAI.
Preferred Shares
The Declaration authorizes the issuance of an unlimited number of preferred shares in one or more classes or series, with rights as determined by the Board of Trustees, by action of the Board of Trustees
without the approval of the Common Shareholders. The terms of any preferred shares that may be issued by the Fund may be the same as, or different from, the terms described below, subject to applicable law and the Declaration.
Limited Issuance of Preferred Shares
. Under the 1940
Act, the Fund could issue preferred shares with an aggregate liquidation value of up to one-half of the value of the Funds total net assets, measured immediately after issuance of the preferred shares. Liquidation value means the
original purchase price of the shares being liquidated plus any accrued and unpaid dividends. In addition, the Fund is not permitted to declare any cash dividend or other distribution on its Common Shares unless the liquidation value of the
preferred shares is less than one-half of the value of the Funds total net assets (determined after deducting the amount of such dividend or distribution) immediately after the distribution.
Distribution Preference
. If issued in the future, any
preferred shares would have complete priority over the Common Shares as to distribution of assets.
Liquidation Preference
. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Fund, holders of preferred shares would be entitled to receive a
preferential liquidating distribution (expected to equal the original purchase price per share plus accumulated and unpaid dividends thereon, whether or not earned or declared) before any distribution of assets is made to Common Shareholders. After
payment of the full amount of the liquidating distribution to which they are entitled, holders of preferred shares will not be entitled to any further participation in any distribution of assets by the Fund. A consolidation or merger of the Fund
with or into any Massachusetts business trust or corporation or a sale of all or substantially all of the assets of the Fund shall not be deemed to be a liquidation, dissolution or winding up of the Fund.
Voting Rights
. Preferred shares are required to be
voting shares and to have equal voting rights with Common Shares. Except as otherwise indicated in the SAI and except as otherwise required by applicable law, holders of preferred shares would vote together with Common Shareholders as a single
class.
Holders of preferred shares, if issued in
the future, voting as a separate class, would be entitled to elect two of the Funds trustees, and the remaining trustees would be elected by Common Shareholders and holders of preferred shares, voting together as a single class. In addition,
if at any time dividends on the Funds outstanding preferred shares would be unpaid in an amount equal to two full years dividends thereon, the holders of all outstanding preferred shares, voting as a separate class, would be entitled to
elect a majority of the Funds trustees until all dividends in arrears have been paid or declared and set apart for payment. In order for the Fund to take certain actions or enter into certain transactions, a separate class vote of holders of
preferred shares, if issued in the future, would be required, in addition to the single class vote of the holders of preferred shares, if issued in the future, and Common Shares. See Certain Provisions in the Declaration of Trust and the
SAI under Description of SharesPreferred SharesVoting Rights.
The affirmative vote of the holders of a majority of the Funds outstanding preferred shares of any class or series, as the case may be, voting as a separate class, would be required to, among other
things, (1) take certain actions that would affect the preferences, rights, or powers of such class or series or (2) authorize or issue any class or series ranking prior to the preferred shares. Except as may otherwise be required by law, (1) the
75
affirmative vote of the holders of at least two-thirds of the Funds preferred shares outstanding at the time, voting as a separate class, would be required to approve any conversion of the
Fund from a closed-end to an open-end investment company and (2) the affirmative vote of the holders of at least two-thirds of the outstanding preferred shares, voting as a separate class, would be required to approve any plan of reorganization (as
such term is used in the 1940 Act) adversely affecting such shares; provided however, that such separate class vote would be a majority vote if the action in question has previously been approved, adopted or authorized by the affirmative vote of
two-thirds of the total number of trustees fixed in accordance with the Declaration or the By-Laws. The affirmative vote of the holders of a majority of the outstanding preferred shares, voting as a separate class, would be required to approve any
action not described in the preceding sentence requiring a vote of security holders under Section 13(a) of the 1940 Act including, among other things, changes in a Funds investment objectives or changes in the investment restrictions described
as fundamental policies under Investment Restrictions in the SAI. The class or series vote of holders of preferred shares described above would in each case be in addition to any separate vote of the requisite percentage of Common Shares
and preferred shares necessary to authorize the action in question.
The foregoing voting provisions would not apply with respect to the Funds preferred shares if, at or prior to the time when a vote was required, such shares would have been (1) redeemed or (2)
called for redemption and sufficient funds would have been deposited in trust to effect such redemption.
Redemption, Purchase and Sale of Preferred Shares.
The terms of the preferred shares may provide that they are redeemable by the
Fund at certain times, in whole or in part, at the original purchase price per share plus accumulated dividends, that the Fund may tender for or purchase preferred shares and that the Fund may subsequently resell any shares so tendered for or
purchased. Any redemption or purchase of preferred shares by the Fund would reduce the leverage applicable to Common Shares, while any resale of such shares by the Fund would increase such leverage.
For more information on Preferred Shares, see
Description of SharesPreferred Shares in the SAI.
CERTAIN PROVISIONS IN THE DECLARATION OF TRUST AND
BY-LAWS
Shareholder and Trustee Liability.
Under Massachusetts
law, shareholders could, under certain circumstances, be held personally liable for the Funds obligations. However, the Declaration contains an express disclaimer of shareholder liability for the Funds debts or obligations and requires
that notice of such limited liability be given in each agreement, obligation or instrument entered into or executed by the Fund or the trustees. The Declaration further provides for indemnification out of the Funds assets and property for all
loss and expense of any shareholder held personally liable for the Funds obligations. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the Fund would be unable to
meet its obligations. The Fund believes that the likelihood of such circumstances is remote.
The Declaration provides that the Funds obligations are not binding upon the Funds trustees individually, but only upon the Funds assets and property, and that the trustees shall not be
liable for errors of judgment or mistakes of fact or law. Nothing in the Declaration, however, protects a trustee against any liability to which he or she would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office.
Anti-Takeover Provisions.
The Declaration and By-Laws include provisions that could limit the ability of other entities or persons to acquire control of the Fund or to convert the Fund to open-end
status. The By-Laws require the Board of Trustees be divided into three classes with staggered terms. See the SAI under Management of the Fund. This provision of the By-Laws could delay for up to two years the replacement of a majority
of the Board of Trustees. If preferred shares are issued, holders of preferred shares, voting as a separate class, will be entitled to elect two of the Funds trustees. In addition, the Declaration requires a vote by holders of
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at least two-thirds of the Common Shares and, if issued, preferred shares, voting together as a single class, except as described below, to authorize (1) a conversion of the Fund from a
closed-end to an open-end investment company, (2) a merger or consolidation of the Fund, or a series or class of the Fund, with any corporation, association, trust or other organization or a reorganization of the Fund, or a series or class of the
Fund, (3) a sale, lease or transfer of all or substantially all of the Funds assets (other than in the regular course of the Funds investment activities), (4) in certain circumstances, a termination of the Fund, or a series or class of
the Fund or (5) a removal of trustees by shareholders, and then only for cause, unless, with respect to (1) through (4), such transaction has already been authorized by the affirmative vote of two-thirds of the total number of trustees fixed in
accordance with the Declaration or the By-Laws, in which case the affirmative vote of the holders of at least a majority of the Funds Common Shares and, if issued, preferred shares outstanding at the time, voting together as a single class,
would be required; provided, however, that where only a particular class or series is affected (or, in the case of removing a trustee, when the trustee has been elected by only one class), only the required vote by the applicable class or series
will be required. Approval of shareholders would not be required, however, for any transaction, whether deemed a merger, consolidation, reorganization or otherwise whereby the Fund issues shares in connection with the acquisition of assets
(including those subject to liabilities) from any other investment company or similar entity. In the case of the conversion of the Fund to an open-end investment company, or in the case of any of the foregoing transactions constituting a plan of
reorganization that adversely affects the holders of any outstanding preferred shares, the action in question also would require the affirmative vote of the holders of at least two-thirds of the preferred shares outstanding at the time, voting as a
separate class, or, if such action has been authorized by the affirmative vote of two-thirds of the total number of trustees fixed in accordance with the Declaration or the By-Laws, the affirmative vote of the holders of at least a majority of the
preferred shares outstanding at the time, voting as a separate class. None of the foregoing provisions may be amended except by the vote of at least two-thirds of the Common Shares and, if issued, preferred shares, voting together as a single class.
The votes required to approve the conversion of the Fund from a closed-end to an open-end investment company or to approve transactions constituting a plan of reorganization that adversely affects the holders of any outstanding preferred shares are
higher than those required by the 1940 Act. The Board of Trustees believes that the provisions of the Declaration relating to such higher votes are in the best interest of the Fund and its shareholders. In addition to removal by shareholders for
cause, a trustee may also be removed for cause by action of the Board of Trustees, may be removed as required by the 1940 Act or may no longer serve as trustee once a successor is elected and qualified.
The provisions of the Declaration and By-Laws described above
could have the effect of depriving the Common Shareholders of opportunities to sell their Common Shares at a premium over the then current market price of the Common Shares by discouraging a third party from seeking to obtain control of the Fund in
a tender offer or similar transaction. The overall effect of these provisions is to render more difficult the accomplishment of a merger or the assumption of control by a third party. They provide, however, the advantage of potentially requiring
persons seeking control of the Fund to negotiate with its management regarding the price to be paid and facilitating the continuity of the Funds investment objectives and policies. The Funds Board of Trustees has considered the foregoing
anti-takeover provisions and concluded that they are in the best interests of the Fund and its Common Shareholders.
Preemptive Rights.
The Declaration provides that Common Shareholders shall have no right to acquire, purchase or subscribe for any
shares or securities of the Fund, other than such right, if any, as the Funds Board of Trustees in its discretion may determine. As of the date of this prospectus, no preemptive rights have been granted by the Board of Trustees.
Reference should be made to the Declaration and By-Laws on
file with the SEC for the full text of these provisions.
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REPURCHASE OF FUND SHARES; CONVERSION TO OPEN-END FUND
The Fund is a closed-end investment company
and as such its shareholders do not have the right to cause the Fund to redeem their shares. Instead, the Common Shares trade in the open market at a price that is a function of several factors, including dividend levels (which are in turn affected
by expenses), net asset value, dividend stability, relative demand for and supply of such shares in the market, general market and economic conditions and other factors. Because shares of closed-end investment companies frequently may trade at
prices lower than net asset value, the Funds Board of Trustees has currently determined that, at least annually, it will consider action that might be taken to reduce or eliminate any material discount from net asset value in respect of Common
Shares, which may include the repurchase of such shares in the open market or in private transactions, the making of a tender offer for such shares at net asset value, or the conversion of the Fund to an open-end investment company. The Fund cannot
assure you that its Board of Trustees will decide to take any of these actions, or that share repurchases or tender offers will actually reduce market discount. During November 2012, the Funds Board of Trustees reauthorized the open-market
share repurchase program under which the Fund may purchase up to 10% of its Common Shares. As of the date of this Prospectus, the Fund has not repurchased any of its Common Shares since the inception of its repurchase program.
If the Fund converted to an open-end investment company, the
Common Shares would no longer be listed on the NYSE or elsewhere. In contrast to a closed-end investment company, shareholders of an open-end investment company may require the company to redeem their shares at any time (except in certain
circumstances as authorized by the 1940 Act or the rules thereunder) at their net asset value, less any redemption charge that is in effect at the time of redemption. See Repurchase of Fund Shares; Conversion to Open-End Fund in the SAI
for a discussion of the voting requirements applicable to the conversion of the Fund to an open-end investment company.
Before deciding whether to take any action if the Common Shares trade below net asset value, the Board of Trustees would consider all
relevant factors, including the extent and duration of the discount, the liquidity of the Funds portfolio, the impact of any action that might be taken on the Fund or its shareholders, and market considerations. Based on these considerations,
even if the Funds shares should trade at a discount, the Board of Trustees may determine that, in the interest of the Fund and its shareholders, no action should be taken. See Repurchase of Fund Shares; Conversion to Open-End Fund
in the SAI for a further discussion of possible action to reduce or eliminate such discount to net asset value.
TAX MATTERS
The discussion below and disclosure in the SAI provide a summary of certain United States federal income tax considerations relating to
the Fund and the purchase, ownership and disposition of Common Shares as of the date hereof. Except where noted, this summary deals only with Common Shares purchased in this offering and held as a capital asset. This summary does not represent a
detailed description of the United States federal income tax consequences applicable to a Common Shareholder if such holder is subject to special treatment under the United States federal income tax laws, including if the holder is:
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a dealer in securities or currencies or other person subject to
mark-to-market
treatment;
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a financial institution;
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a regulated investment company;
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a real estate investment trust;
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a
tax-exempt
organization;
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a person holding Common Shares as part of a hedging, integrated or conversion transaction, a constructive sale or a straddle;
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a trader in securities that has elected the
mark-to-market
method of
accounting for its securities;
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a person liable for alternative minimum tax;
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a partnership or other pass-through entity for United States federal income tax purposes; or
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a holder receiving Common Shares as compensation for services;
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a U.S. Holder (as defined below) whose functional currency is not the United States dollar.
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As used herein, the term U.S. Holder means a
beneficial owner of Common Shares that is for United States federal income tax purposes:
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an individual citizen or resident of the United States;
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a corporation (or other entity treated as a corporation for United States federal income tax purposes) created or organized in or under the laws of the
United States, any state thereof or the District of Columbia;
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an estate the income of which is subject to United States federal income taxation regardless of its source; or
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a trust if it (1) is subject to the primary supervision of a court within the United States and one or more United States persons have the
authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable United States Treasury regulations to be treated as a United States person.
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As used herein, the term non-U.S. Holder means a
beneficial owner of Common Shares that is neither a U.S. Holder nor a partnership (or other entity treated as a partnership or disregarded entity for United States federal income tax purposes).
The discussion below is based upon the provisions of the
Code, and regulations, rulings and judicial decisions thereunder as of the date hereof, and such authorities may be replaced, revoked or modified, possibly with retroactive effect, so as to result in United States federal income tax consequences
different from those discussed below.
If a
partnership holds Common Shares, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. Investors that are partners in a partnership holding Common Shares should consult their tax
advisors.
This summary does not contain a
detailed description of all the United States federal income tax consequences applicable to the Fund or to investors in light of their particular circumstances, and does not address the effects of any state, local or
non-United
States tax laws. Investors considering the purchase, ownership or disposition of Common Shares should consult their own tax advisors concerning the United States federal income tax consequences to
them in light of their particular situations as well as any consequences arising under the laws of any other taxing jurisdiction.
Taxation of the Fund
The Fund is treated as a regular corporation, or a C corporation, for United States federal income tax purposes. Accordingly,
the Fund generally is subject to United States federal income tax on its taxable income at the graduated rates applicable to corporations (currently at a maximum rate of 35%). Such taxable income generally includes, among other items, all of the
Funds net income and gain from its investments in and dispositions of the equity securities of MLPs, other types of equity securities, derivatives, debt securities, royalty trusts and foreign securities less Fund expenses. The Fund may be
subject to a 20% alternative minimum tax on
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its alternative minimum taxable income to the extent that the alternative minimum tax exceeds the Funds regular income tax liability. The Funds payment of corporate income tax or
alternative minimum tax could materially reduce the amount of cash available for the Fund to make distributions on the Common Shares. In addition, distributions to Common Shareholders of the Fund are taxed under United States federal income tax laws
applicable to corporate distributions, and thus the Funds taxable income will be subject to a double layer of taxation. As a regular corporation, the Fund may also be subject to state income tax or, possibly, foreign tax by reason of its
investments in equity securities of MLPs.
If the
Fund determines that doing so is in the best interest of its shareholders, the Fund may in the future elect to be treated as a RIC under Subchapter M of the Code for federal income tax purposes. The Fund may make such an election, for example, if
changes to the Code made it possible for the Fund to qualify as a RIC despite its concentration in MLP securities and disadvantageous to continue to be treated as a C corporation for federal income tax purposes. Making such an election
would generally, among other things, require that the Fund either (i) be subject to corporate level taxes on any net built-in gains actually recognized over a ten-year period or (ii) recognize and pay tax on unrealized gains as of the last day of
the Funds last taxable year as a C corporation.
MLP Equity Securities
MLPs are generally characterized as publicly traded partnerships for United States federal income tax purposes because MLPs
are typically organized as limited partnerships or limited liability companies that are publicly traded. The Code generally requires all publicly traded partnerships to be treated as corporations for United States federal income tax purposes. If,
however, a publicly traded partnership derives at least 90% of its gross income from qualifying sources as described in Section 7704 of the Code, the publicly traded partnership will be treated as a partnership for United States federal income
tax purposes. These qualifying sources include interest, dividends, real estate rents, gain from the sale or disposition of real property, income and gain from mineral or natural resources activities, income and gain from the transportation or
storage of certain fuels, and, in certain circumstances, income and gain from commodities or futures, forwards and options with respect to commodities. Mineral or natural resources activities include exploration, development, production, processing,
mining, refining, marketing and transportation (including pipelines) of oil and gas, minerals, geothermal energy, fertilizer, timber or industrial source carbon dioxide. The Fund intends to invest primarily in MLPs that are treated as partnerships
for U.S. federal income tax purposes, but it may also invest in MLPs that are taxed as corporations.
When the Fund invests in the equity securities of an MLP, the Fund is a partner in such MLP. Accordingly, the Fund is required to include
in its taxable income the Funds allocable share of the income, gains, losses and deductions recognized by each such MLP, whether or not the MLP distributes cash to the Fund. A distribution from an MLP is treated as a
tax-free
return of capital to the extent of the Funds tax basis in its MLP interest and as gain from the sale or exchange of the MLP interest to the extent the distribution exceeds the Funds tax basis in
its MLP interest. Based upon a review of the historic results of the type of MLPs in which the Fund invests, the Fund expects that the cash distributions it will receive with respect its investments in equity securities of MLPs will exceed the net
taxable income allocated to the Fund from such MLPs because of non-cash tax deductions such as depreciation, amortization and depletion that will be allocated to the Fund from the MLPs. No assurance, however, can be given in this regard. If this
expectation is not realized, the Fund will have a larger corporate income tax expense than expected, which will result in less cash available to distribute to Common Shareholders.
In addition, for purposes of calculating the Funds
alternative minimum taxable income, the Funds allocable share of certain percentage-depletion deductions and intangible drilling costs of the MLPs in which the Fund invests may be treated as items of tax preference. Such items will increase
the Funds alternative minimum taxable income and increase the likelihood that the Fund may be subject to the alternative minimum tax.
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U.S. Holders
Taxation of Dividends
The gross amount of distributions by the Fund in respect of
Common Shares will be taxable to a U.S. Holder as dividend income to the extent the distributions are paid out of the Funds current or accumulated earnings and profits, as determined under United States federal income tax principles. Such
income will be included in a U.S. Holders gross income on the day actually or constructively received by such holder. Subject to certain holding period and other requirements, such dividend income will generally be eligible for the dividends
received deduction in the case of corporate U.S. Holders and will generally be treated as qualified dividend income eligible for reduced rates of taxation at the rates applicable to long-term capital gains for noncorporate U.S. Holders
(including individuals).
To the extent that the
amount of any distribution by the Fund exceeds the Funds current and accumulated earnings and profits for a taxable year, as determined under United States federal income tax principles, the distribution will first be treated as a
tax-free
return of capital, causing a reduction in the adjusted basis of Common Shares (thereby increasing the amount of gain, or decreasing the amount of loss, to be recognized by a U.S. Holder on a subsequent
disposition of the Common Shares), and the balance in excess of adjusted basis will be taxed as capital gain. Any such capital gain will be long-term capital gain if such U.S. Holder has held the applicable Common Shares for more than one year.
A corporations earnings and profits are
generally calculated by making certain adjustments to the corporations reported taxable income. Based upon the historic performance of similar MLPs in which the Fund invests, the Fund anticipates that the distributed cash from the MLPs in its
portfolio will exceed its earnings and profits. Thus, the Fund anticipates that only a portion of its distributions will be treated as dividends to its Common Shareholders for United States federal income tax purposes, although no assurance can be
given in this regard.
Because of the Funds
status as a corporation for United States federal income tax purposes and its investments in equity securities of MLPs, the Funds earnings and profits may be calculated using accounting methods that are different from those used for
calculating taxable income. For instance, the Fund may use a slower method of depreciation and depletion for purposes of computing its earnings and profits than the method used for purposes of calculating the taxable income of an MLP. In that case,
the Funds earnings and profits would not be increased solely by its allocable share of the MLPs taxable income, but would also have to be adjusted to reflect the impact of the slower depreciation and depletion methods. Because of these
differences, the Fund may make distributions out of its current or accumulated earnings and profits, treated as dividends, in years in which the Funds distributions exceed its taxable income.
Taxation of Sales, Exchanges or Other Dispositions
A U.S. Holder will recognize taxable
gain or loss on any sale, exchange or other disposition of Common Shares in an amount equal to the difference between the amount realized for the Common Shares and the holders adjusted tax basis in such Common Shares. Generally, a U.S.
Holders adjusted tax basis in the Common Shares will be equal to the cost of the holders Common Shares, reduced by adjustments for distributions paid by the Fund in excess of its earnings and profits (
i.e.
, returns of capital).
Such gain or loss will generally be capital gain or loss. It is possible that a return of capital could cause a shareholder to pay a tax on capital gains with respect to shares that are sold for an amount less than the price originally paid for
them. Capital gains of
non-corporate
U.S. Holders (including individuals) derived with respect to capital assets held for more than one year are eligible for reduced rates of taxation. The deductibility of
capital losses is subject to limitations.
Tax on Net
Investment Income
A 3.8% Medicare
contribution tax generally applies to all or a portion of the net investment income of a Common Shareholder who is an individual and not a nonresident alien for federal income tax purposes and who
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has adjusted gross income (subject to certain adjustments) that exceeds a threshold amount ($250,000 if married filing jointly or if considered a surviving spouse for federal income
tax purposes, $125,000 if married filing separately, and $200,000 in other cases). This 3.8% tax will also apply to all or a portion of the undistributed net investment income of certain U.S. Shareholders that are estates and trusts. For these
purposes, dividend and capital gain income are generally taken into account in computing net investment income. Common Shareholders are advised to consult their own tax advisors regarding additional taxation of net investment income.
Information Reporting and Backup Withholding
In general, information reporting will apply to
distributions in respect of Common Shares and the proceeds from the sale, exchange or other disposition of Common Shares that are paid to a U.S. Holder within the United States (and in certain cases, outside the United States), unless the holder is
an exempt recipient. A backup withholding tax (at a maximum rate of 28%) may apply to such payments if the holder fails to provide a taxpayer identification number (generally on a Form
W-9)
or certification of
other exempt status or fails to report in full dividend and interest income. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules will be allowed as a refund or as a credit against a U.S. Holders
United States federal income tax liability provided the required information is timely furnished to the Internal Revenue Service.
Non-U.S.
Holders
The following discussion is a summary of certain United
States federal income tax consequences that will apply to
non-U.S.
Holders. Special rules may apply to certain
non-U.S.
Holders, such as controlled foreign
corporations, passive foreign investment companies and certain expatriates, among others, that are subject to special treatment under the Code. Such
non-U.S.
Holders should consult their own
tax advisors to determine the United States federal, state, local and other tax consequences that may be relevant to them.
Taxation of Dividends
The gross amount of distributions by the Fund in respect of Common Shares will be treated as dividends to the extent paid out of the
Funds current or accumulated earnings and profits, as determined under United States federal income tax principles. Dividends paid to a
non-U.S.
Holder generally will be subject to withholding of United
States federal income tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. However, dividends that are effectively connected with the conduct of a trade or business by a
non-U.S.
Holder within the United States (and, if required by an applicable income tax treaty, are attributable to a United States permanent establishment) are not subject to the withholding tax, provided
certain certification and disclosure requirements (generally on a Form
W-8ECI)
are satisfied. Instead, such dividends are subject to United States federal income tax on a net income basis in the same manner as
if the
non-U.S.
Holder were a United States person as defined under the Code. Any such effectively connected dividends received by a foreign corporation may also be subject to an additional branch
profits tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty.
A
non-U.S.
Holder who wishes to claim the benefits of an applicable income tax treaty (and avoid
backup withholding, as discussed below) for dividends will be required (a) to complete a Form
W-8BEN
(or other applicable form) and certify under penalty of perjury that such holder is not a United States
person as defined under the Code and is eligible for treaty benefits or (b) if Common Shares are held through certain foreign intermediaries, to satisfy the relevant certification requirements of applicable United States Treasury regulations.
Special certification and other requirements apply to certain
non-U.S.
Holders that are pass-through entities rather than corporations or individuals.
A
non-U.S.
Holder
eligible for a reduced rate of United States withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund with the Internal Revenue Service.
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If the amount of a distribution to a
non-U.S.
Holder exceeds the Funds current and accumulated earnings and profits, such excess will be treated first as a
tax-free
return of capital to the extent of the
non-U.S.
Holders tax basis in the Common Shares, and then as capital gain. As discussed above under the caption U.S. HoldersTaxation of Dividends, the Fund expects that only a
portion of its distributions to its Common Shareholders with respect to the Common Shares will be treated as dividends for United States federal income tax purposes, although no assurance can be given in this regard. Capital gain recognized by a
non-U.S.
Holder as a consequence of a distribution by the Fund in excess of its current and accumulated earnings and profits will generally not be subject to United States federal income tax, except as described
below under the caption Taxation of Sales, Exchanges or Other Dispositions.
Taxation of Sales, Exchanges or Other Dispositions
A
non-U.S.
Holder generally will not be subject to United States federal income tax on any gain
realized on the disposition of Common Shares unless:
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the gain is effectively connected with a trade or business of the
non-U.S.
Holder in the United States (and, if
required by an applicable income tax treaty, is attributable to a United States permanent establishment of the
non-U.S.
Holder);
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the
non-U.S.
Holder is an individual who is present in the United States for 183 days or more in the taxable
year of that disposition, and certain other conditions are met; or
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the Fund is or has been a United States real property holding corporation for United States federal income tax purposes.
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An individual
non-U.S.
Holder described in the first bullet point immediately above will be subject to tax on the net gain derived from the sale under regular graduated United States federal income tax rates. An individual
non-U.S.
Holder described in the second bullet point immediately above will be subject to a flat 30% tax on the gain derived from the sale, which may be offset by United States source capital losses, even though the
individual is not considered a resident of the United States. If a
non-U.S.
Holder that is a foreign corporation falls under the first bullet point immediately above, the holder will be subject to tax on its
net gain in the same manner as if the holder were a United States person as defined under the Code and, in addition, may be subject to the branch profits tax equal to 30% of its effectively connected earnings and profits or at such lower rate as may
be specified by an applicable income tax treaty.
The Fund may be a United States real property holding corporation for United States federal income tax purposes. With respect
to the third bullet point above, if the Fund is or becomes a United States real property holding corporation, so long as the Funds Common Shares are regularly traded on an established securities market (such as the NYSE), only a
non-U.S.
Holder who holds or held (at any time during the shorter of the five year period preceding the date of disposition or the holders holding period) more than 5% (directly or indirectly as determined
under applicable attribution rules of the Code) of the Funds Common Shares will be subject to United States federal income tax on the disposition of Common Shares.
Information Reporting and Backup Withholding
The Fund must report annually to the Internal Revenue
Service and to each
non-U.S.
Holder the amount of distributions paid to such holder (whether treated as dividends or a return of capital) and the tax withheld with respect to such distributions. Copies of the
information returns reporting such distributions and withholding may also be made available to the tax authorities in the country in which the
non-U.S.
Holder resides under the provisions of an applicable
income tax treaty.
A
non-U.S.
Holder will be subject to backup withholding for dividends paid to such holder unless such holder certifies under penalty of perjury that it is a
non-U.S.
Holder (and
the payor does not have actual
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knowledge or reason to know that such holder is a United States person as defined under the Code), or such holder otherwise establishes an exemption. Dividends subject to withholding of United
States federal income tax as described under the caption Non-U.S. HoldersTaxation of Dividends above will not be subject to backup withholding.
Information reporting and, depending on the circumstances,
backup withholding will apply to the proceeds of a sale of Common Shares within the United States or conducted through certain United States-related financial intermediaries, unless the beneficial owner certifies under penalty of perjury that it is
a
non-U.S.
Holder (and the payor does not have actual knowledge or reason to know that the beneficial owner is a United States person as defined under the Code), or such owner otherwise establishes an
exemption.
Any amounts withheld under the backup
withholding rules will be allowed as a refund or as a credit against a
non-U.S.
Holders United States federal income tax liability provided the required information is timely furnished to the Internal
Revenue Service.
Non-U.S.
Holders should consult their tax advisor regarding the application of the information
reporting and backup withholding rules to them.
Additional
Withholding Requirements
Unless certain
non-U.S. Holders comply with IRS requirements that will generally require them to report information regarding U.S. persons investing in, or holding accounts with, such non-U.S. Holders, a 30% withholding tax may apply to Fund distributions payable
to such entities after June 30, 2014 (or, in certain cases, after later dates) and gross proceeds on the sale or disposition of Common Shares payable to such entities after December 31, 2016. A non-U.S. Holder may be exempt from the withholding
described in this paragraph under an applicable intergovernmental agreement between the U.S. and a foreign government, provided that the shareholder and the applicable foreign government comply with the terms of such agreement.
Investment by
Tax-Exempt
Investors
Employee benefit plans and most other
organizations exempt from United States federal income tax, including individual retirement accounts and other retirement plans, are subject to United States federal income tax on UBTI. Because the Fund is a corporation for United States federal
income tax purposes, an owner of Common Shares will not report on its federal income tax return any of the Funds items of income, gain, loss and deduction. Therefore, a
tax-exempt
investor generally will
not have UBTI attributable to its ownership or sale of Common Shares unless its ownership of Common Shares is debt-financed. In general, Common Shares would be debt-financed if the
tax-exempt
owner of Common
Shares incurs debt to acquire Common Shares or otherwise incurs or maintains a debt that would not have been incurred or maintained if the Common Shares had not been acquired.
Other Taxation
The Funds Common Shareholders may be subject to state,
local and foreign taxes on its distributions. Common Shareholders are advised to consult their own tax advisors with respect to the particular tax consequences to them of an investment in the Fund.
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CUSTODIAN AND TRANSFER AGENT
The custodian of the assets of the Fund is State Street
Bank and Trust Company, One Lincoln Street, Boston, Massachusetts 02111 (Custodian). The Custodian performs custodial, fund accounting and portfolio accounting services. The Funds transfer, shareholder services and dividend paying
agent is also State Street Bank and Trust Company (Transfer Agent). The Transfer Agent is located at 250 Royall Street, Canton, Massachusetts 02021.
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
PricewaterhouseCoopers LLP,
an independent registered public accounting firm, provides auditing services to the Fund. The principal business address of PricewaterhouseCoopers LLP is 1 North Wacker Drive, Chicago, Illinois, 60606.
LEGAL OPINION
Certain legal matters in connection with the Common Shares
will be passed upon for the Fund by Bingham McCutchen LLP, Washington, D.C.
AVAILABLE INFORMATION
The Fund is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (Exchange Act) and
the 1940 Act and is required to file reports, proxy statements and other information with the SEC. These documents can be inspected and copied for a fee at the SECs public reference room, 100 F Street, NE, Washington, D.C. 20549-0102, and
Northeast Regional Office, Woolworth Building, 233 Broadway, New York, New York 10013-2409. Reports, proxy statements, and other information about the Fund can be inspected at the offices of the NYSE.
This Prospectus does not contain all of the information in
the Funds Registration Statement, including amendments, exhibits, and schedules. Statements in this Prospectus about the contents of any contract or other document are not necessarily complete and in each instance reference is made to the copy
of the contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by this reference.
Additional information about the Fund and Common Shares can be found in the Funds Registration Statement (including amendments,
exhibits, and schedules) on Form N-2 filed with the SEC. The SEC maintains a web site (http://www.sec.gov) that contains the Funds Registration Statement, other documents incorporated by reference, and other information the Fund has filed
electronically with the SEC, including proxy statements and reports file under the Exchange Act.
85
TABLE OF CONTENTS FOR THE
STATEMENT OF ADDITIONAL INFORMATION
86
9.8 Million Shares
Nuveen Energy MLP Total Return Fund
PROSPECTUS
, 2014
LPR-JMF-0314
The information in this Statement of Additional Information is not complete and may be changed. We
may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This Statement of Additional Information is not an offer to sell these securities and is not soliciting an offer to buy
these securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION,
DATED March 27, 2014
NUVEEN ENERGY MLP TOTAL RETURN FUND
9.8 Million Common Shares
333 West Wacker Drive
Chicago, Illinois 60606
STATEMENT OF ADDITIONAL INFORMATION
, 2014
Nuveen Energy MLP Total Return Fund (Fund) is a
non-diversified,
closed-end
management investment company registered under the Investment Company Act of 1940, as amended (1940 Act). The Fund was organized on September 27, 2010.
This Statement of Additional Information relating to common shares of the Fund (Common Shares) does not constitute a
prospectus, but should be read in conjunction with the Funds prospectus relating thereto dated , 2014 (Prospectus). This Statement of Additional Information does not include all information that a
prospective investor should consider before purchasing Common Shares. Investors should obtain and read the Prospectus prior to purchasing such shares. In addition, the Funds financial statements and the independent registered public accounting
firms report therein included in the Funds annual report dated November 30, 2013, are incorporated herein by reference. A copy of the Prospectus may be obtained without charge by calling (800) 257-8787. You may also obtain a copy of the
Prospectus on the U.S. Securities and Exchange Commissions (SEC) website (http://www.sec.gov). Capitalized terms used but not defined in this Statement of Additional Information have the meanings ascribed to them in the Prospectus.
1
TABLE OF CONTENTS
2
USE OF PROCEEDS
The net proceeds from the issuance of Common Shares hereunder will be used by the Fund to invest in securities in accordance with the
Funds investment objective and policies as stated below. To the extent the Fund uses the net proceeds of any offering to invest in securities, it is presently anticipated that the Fund will be able to invest substantially all of such proceeds
in securities that meet the Funds investment objective and policies within one month from the date on which the proceeds from an offering are received by the Fund. Pending such investment, it is anticipated that the proceeds will be invested
in high-quality, short-term investments.
INVESTMENT OBJECTIVE
The Funds investment objective is to provide tax-advantaged total return. The Fund cannot assure you that it will achieve its
investment objective. The Funds investment objective is a fundamental policy of the Fund.
Nuveen Fund Advisors, LLC
(NFALLC or the Adviser), the Funds investment adviser, is responsible for the Funds overall investment strategy and its implementation, including the use of leverage and hedging. ARI is the Funds sub-adviser
and ARIs MLP Team is responsible for the day-to-day management of the Funds Managed Assets.
The Fund seeks to
achieve its investment objective by investing primarily in master limited partnerships or other entities that offer economic exposure to master limited partnerships (collectively, MLPs) in the energy sector (Energy MLPs)
.
Under normal market circumstances, the Fund will invest at least 80% of its Managed Assets in Energy MLPs (80% policy). For purposes of the 80% policy, the Fund considers investments in MLPs to include investments that offer economic
exposure to both publicly traded MLPs and private investments that have MLP characteristics, but are not publicly traded. These investments generally take the form of equity securities of MLPs, securities of entities holding primarily general
partner or managing member interests in MLPs, securities that represent indirect investments in MLPs, including I-Shares and collective investment vehicles (
i.e.
exchange-traded funds and registered other funds) that primarily hold MLP
interests, and debt securities of MLPs. The Fund considers an MLP to be part of the energy sector if it derives at least 50% of its revenues from the business of exploring, developing, producing, transporting, gathering and processing, storing,
refining, distributing, mining or marketing natural gas, natural gas liquids (including propane), crude oil, refined petroleum products or coal.
The Fund cannot change its investment objective without the approval of the holders of a majority of the outstanding Common Shares and preferred shares voting together as a single class, and
of the holders of a majority of the outstanding preferred shares voting as a separate class. When used with respect to particular shares of the Fund, a majority of the outstanding shares means (i) 67% or more of the shares
present at a meeting, if the holders of more than 50% of the shares are present or represented by proxy, or (ii) more than 50% of the shares, whichever is less. See Description of SharesPreferred SharesVoting Rights in the
Prospectus and in this Statement of Additional Information for additional information with respect to the voting rights of holders of preferred shares.
3
INVESTMENT RESTRICTIONS
Except as described below, the Fund, as a fundamental policy, may not, without the approval of the holders of a majority of the
outstanding Common Shares and, if issued, preferred shares voting together as a single class, and of the holders of a majority of the outstanding preferred shares voting as a separate class:
(1) Issue senior securities, as defined in the Investment Company Act of 1940, as amended (1940
Act), except as permitted by the 1940 Act;
1
(2) Borrow money, except as permitted by the 1940 Act and exemptive orders granted
under the 1940 Act;
1,2
(3) Act as underwriter of another issuers securities, except to the extent that the Fund may be deemed to be an
underwriter within the meaning of the Securities Act of 1933, as amended (Securities Act), in connection with the purchase and sale of portfolio securities;
(4) Invest more than 25% of its total assets in securities of issuers in any one industry except that
the Fund will invest at least 25% of its total assets in securities of issuers in the energy industry;
3
(5) Purchase or sell real estate, but this shall not
prevent the Fund from investing in municipal securities secured by real estate or interests therein or foreclosing upon and selling such real estate;
(6) Purchase or sell physical commodities unless acquired as a result of ownership of securities or other instruments (but this shall not prevent the Fund from purchasing or selling options, futures
contracts or derivative instruments or from investing in securities or other instruments backed by physical commodities); and
(7) Make loans, except as permitted by the 1940 Act and exemptive orders granted under the 1940 Act.
4
The Fund is non-diversified for purposes of the 1940 Act.
Under the 1940 Act,
the Fund may invest only up to 10% of its total assets in the aggregate in shares of other investment companies and only up to 5% of its total assets in any one investment company, provided the investment does not represent more than 3% of the
voting stock of the acquired investment company at the time such shares are purchased. As a stockholder in any investment company, the Fund will bear its ratable share of that investment companys expenses, and will remain subject to payment of
the Funds management, advisory
1
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Section 18(c) of the 1940 Act generally limits a registered closed-end investment company to issuing one class of senior securities representing indebtedness and one
class of senior securities representing stock, except that the class of indebtedness or stock may be issued in one or more series, and promissory notes or other evidences of indebtedness issued in consideration of any loan, extension, or renewal
thereof, made by a bank or other person and privately arranged, and not intended to be publicly distributed, are not deemed a separate class of senior securities. The Fund has not applied for, and currently does not intend to apply for, any related
exemptive relief, but reserves the right to do so in the future.
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2
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Section 18(a) of the 1940 Act generally prohibits a registered closed-end fund from incurring borrowings if, immediately thereafter, the aggregate amount of its
borrowings exceeds 33 1/3% of its total assets. The Fund has not applied for, and currently does not intend to apply for, any exemptive relief that would allow it to borrow outside of the limits of the 1940 Act.
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3
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For purposes of this restriction, governments and their political subdivisions are not members of any industry.
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4
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Section 21 of the 1940 Act makes it unlawful for a registered investment company, like the Fund, to lend money or other property if (i) the investment companys
policies set forth in its registration statement do not permit such a loan or (ii) the borrower controls or is under common control with the investment company. The Fund has not applied for, and currently does not intend to apply for, any exemptive
relief that would allow it to make loans outside of the limits of the 1940 Act.
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4
and administrative fees with respect to assets so invested. Holders of Common Shares of the Fund (Common Shareholders) would therefore be subject to duplicative expenses to the extent
the Fund invests in other investment companies. In addition, the securities of other investment companies may be leveraged and therefore may be subject to the same leverage risks described herein.
For purposes of the foregoing and Description of SharesPreferred SharesVoting Rights below, majority of the
outstanding, when used with respect to particular shares of the Fund, means (i) 67% or more of the shares present at a meeting, if the holders of more than 50% of the shares are present or represented by proxy, or (ii) more than 50% of the
shares, whichever is less.
For the purpose of applying the limitation set forth in subparagraph (1) above, the Fund may not
issue senior securities not permitted by the 1940 Act simply by describing such securities in the Prospectus.
For the purpose
of applying the limitation set forth in subparagraph (2) above, under the 1940 Act, the Fund generally is not permitted to issue commercial paper or notes or borrow unless immediately after the borrowing or commercial paper or note issuance the
value of the Funds total assets less liabilities other than the principal amount represented by the commercial paper, notes or borrowings, is at least 300% of such principal amount. The Fund does not currently have or have pending any
exemptive relief with the SEC that would allow it to borrow outside of the limits of the 1940 Act.
For the purpose of
applying the limitation set forth in subparagraph (4) above, such policy will apply to municipal securities if the payment of principal and interest for such securities is derived solely from a specific project, and in that situation the Fund will
consider such municipal securities to be in an industry associated with the project.
Under the 1940 Act, the Fund may
invest only up to 10% of its total assets in the aggregate in shares of other investment companies and only up to 5% of its total assets in any one investment company, provided the investment does not represent more than 3% of the voting stock of
the acquired investment company at the time such shares are purchased. As a stockholder in any investment company, the Fund will bear its ratable share of that investment companys expenses, and will remain subject to payment of the Funds
management, advisory and administrative fees with respect to assets so invested. Holders of Common Shares would therefore be subject to duplicative expenses to the extent the Fund invests in other investment companies. In addition, the securities of
other investment companies may also be leveraged and will therefore be subject to the same leverage risks described herein. As described in the Prospectus in the section entitled Risk Factors, the net asset value and market value of
leveraged shares will be more volatile and the yield to shareholders will tend to fluctuate more than the yield generated by unleveraged shares.
In addition to the foregoing fundamental investment policies, the Fund is also subject to the following
non-fundamental
restrictions and policies, which may be
changed by the Board of Trustees. The Fund may not:
(1) sell securities short, unless the Fund owns or has the
right to obtain securities equivalent in kind and amount to the securities sold at no added cost, and provided that transactions in options, futures contracts, options on futures contracts, or other derivative instruments are not deemed to
constitute selling securities short;
(2) purchase securities of
open-end
or
closed-end
investment companies except in compliance with the 1940 Act or any exemptive relief obtained thereunder
5
; and
(3) purchase securities of companies for the purpose of exercising control, except to the extent that exercise by the Fund
of its rights under loan agreements would be deemed to constitute exercising control.
5
|
The Fund has not applied for, and currently does not intend to apply for, any related exemptive relief, but reserves the right to do so in the future.
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5
The restrictions and other limitations set forth above will apply only at the time of
purchase of securities and will not be considered violated unless an excess or deficiency occurs or exists immediately after and as a result of an acquisition of securities.
The Fund may issue senior securities, including preferred shares, and debt. If it does so, the Fund may be subject to certain
restrictions imposed by either guidelines of one or more nationally recognized statistical rating organizations (NRSROs) that may issue ratings for preferred shares, commercial paper or notes, or, if the Fund borrows from a lender, by
the lender. These guidelines may impose asset coverage or portfolio composition requirements that are more stringent than those imposed on the Fund by the 1940 Act. It is not anticipated that these covenants or guidelines will impede NFALLC and
the MLP Team from managing the Funds portfolio in accordance with the Funds investment objective and policies. In addition to other considerations, to the extent that the Fund believes that the covenants and guidelines required by the
NRSROs or lenders would impede its ability to meet its investment objective, or if the Fund is unable to obtain the rating on preferred shares (expected to be at least AA/Aa), the Fund will not issue preferred shares.
INVESTMENT POLICIES AND TECHNIQUES
Under normal circumstances, the Fund will invest at least 80% of its Managed Assets in securities of Energy MLPs. For purposes of the 80%
policy, the Fund considers investments in MLPs to include investments that offer economic exposure to publicly traded MLPs and private investments that have MLP characteristics, but are not publicly traded. These investments generally take the form
of equity securities of MLPs, securities of entities holding primarily general partner or managing member interests in MLPs, securities that represent indirect investments in MLPs, including I-Shares and, collective investment vehicles (
i.e.
,
exchange-traded funds and other registered funds) that primarily hold MLP interests, and debt securities of MLPs. The Fund considers an MLP to be part of the energy sector if it derives at least 50% of its revenues from the business of exploring,
developing, producing, transporting, gathering and processing, storing, refining, distributing, mining or marketing natural gas, natural gas liquids (including propane), crude oil, refined petroleum products or coal. For as long as Energy
MLP is in the name of the Fund, the Fund will invest at least 80% of its Managed Assets in Energy MLPs. The Fund may not change its policy to invest at least 80% of its Managed Assets in Energy MLPs unless it provides shareholders with at
least 60 days written notice of such change.
Non-MLP Issuers
The Fund may invest up to 20% of its Managed Assets in Non-MLP issuers. This 20% allocation may be in any of the securities described in
the Prospectus and this Statement of Additional Information, including securities of
non-MLP
companies engaged primarily in the energy sector. Such issuers may be treated as corporations for U.S. federal
income tax purposes and, therefore, may not offer the tax benefits of investing in MLPs.
At times the MLP Team may judge
that conditions in the markets for securities of MLP entities make pursuing the Funds primary investment strategy inconsistent with the best interests of its shareholders. At such times the MLP Team may, temporarily, use alternative strategies
primarily designed to reduce fluctuations in the value of the Funds assets. During temporary defensive periods or in order to keep the Funds cash fully invested, including during the period when the net proceeds of this offering of
Common Shares are first being invested, the Fund may deviate from its investment policies and objective. During such periods, the Fund may invest up to 100% of its Managed Assets in cash or high quality, short-term investments. There can be no
assurance that such strategies will be successful.
The Funds investment objective, and certain investment policies
specifically identified as such in this Statement of Additional Information, are considered fundamental and may not be changed without the approval of the holders of a majority of the outstanding Common Shares (and Preferred Shares, if any). A
majority of the outstanding shares means (i) 67% or more of the shares present at a meeting, if the holders of more than 50% of
6
the shares outstanding are present or represented by proxy or (ii) more than 50% of the shares outstanding, whichever of (i) or (ii) is less. See Investment
Restrictions in this Statement of Additional Information for a complete list of the fundamental and
non-fundamental
investment policies of the Fund.
Investment Philosophy
NFALLC and the MLP Team believe that MLPs represent an attractive investment opportunity for total return given both their historically attractive cash distributions and the potential capital appreciation
over time. The types of MLPs in which the Fund intends to invest historically have made high levels of cash distributions.* The MLP Team believes that MLPs have historically demonstrated the ability to grow over time, and that this growth has
resulted in rising cash distributions and capital appreciation benefiting MLP investors. The MLP Team anticipates further comparable growth in the foreseeable future.
The MLP Teams investment philosophy and top-down strategic investment style are rooted in its long-held belief that strategy dominates tactics and in its experience managing MLP investments for over
17 years and through multiple MLP investment cycles. The MLP Team believes that a MLP portfolio that combines a
top-down
strategy, rigorous quantitative valuations, and strong fundamental research increases
the probability of outperformance.
*
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Based on the performance of a representative MLP income model account for the period 2004-2012.
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Investment Process
The MLP Teams investment management process examines strategic industry and market themes and conducts a bottom-up analysis of company fundamentals, including cash flow models, valuation, credit
analysis, asset level analysis, management review, and fiscal controls for each MLP in their research universe. The ultimate goal of the process is to identify those MLPs that the MLP Team believes will generate sustainable distributions throughout
a cycle, capitalize on key investment themes that they believe will provide growth opportunities, and have the necessary access to capital required to realize that growth. The MLP Teams process includes consideration of qualitative,
quantitative and relative value factors. Additionally, the MLP Team evaluates and manages portfolios with consideration to other qualitative assessments of MLP issuers, securities and market dynamics. The MLP Team employs a proprietary modeling
system that provides multiple sector-specific valuation metrics for every publicly traded MLP in its coverage universe. The MLP Teams valuation metrics include discounted cash flow, dividend discount model, comparable company analysis and
other sector-specific metrics.
The MLP Teams proprietary quality scorecard process ranks each constituent of the
investable Energy MLP universe based on five fundamental metrics. The MLP Team believes that this should allow the Fund to avoid investments in more volatile (in terms of cash flow) Energy MLPs. The factors used in the process, listed top to bottom
in the order of relative importance are: asset quality, financial strength, management, corporate parent/sponsor strength and business segment/geographic diversification.
PORTFOLIO COMPOSITION
The Funds portfolio
will be composed principally of the following investments.
Master Limited Partnerships
Entities commonly referred to as MLPs are generally organized under state law as limited partnerships or limited liability
companies, but in some cases may be organized and headquartered outside the United States. The securities issued by many MLPs are listed and traded on a securities exchange. If publicly traded, to be treated as a partnership for U.S. federal income
tax purposes, an MLP must derive at least 90% of its gross income for each taxable year from specified qualifying sources as described in Section 7704 of the Internal Revenue Code of 1986, as amended (Code). These qualifying sources
include interest, dividends, real estate rents, gain from the
7
sale or disposition of real property, income and gain from mineral or natural resources activities, income and gain from the transportation or storage of certain fuels, and, in certain
circumstances, income and gain from commodities or futures, forwards and options with respect to commodities. Mineral or natural resources activities include exploration, development, production, processing, mining, refining, marketing and
transportation (including pipelines) of oil and gas, minerals, geothermal energy, fertilizer, timber or industrial source carbon dioxide. Currently, most MLPs operate in the energy, natural resources or real estate sectors.
Due to their structure as partnerships for U.S. federal income tax purposes and the expected character of their income, MLPs generally do
not pay federal income taxes. Instead, the Fund itself will be subject to tax on its allocable share of the MLPs net income. Thus, unlike investors in corporate securities, direct MLP investors are generally not subject to double taxation
(i.e., corporate level tax and tax on corporate dividends). A distribution received by the Fund from MLPs taxed as partnerships will be treated as a tax-free return of capital to the extent of the Funds tax basis in its MLP interest and as
gain from the sale or exchange of the MLP interest to the extent the distribution exceeds the Funds tax basis in its MLP interest. See Tax MattersMLP Equity Securities. Non-U.S. MLPs, although organized as partnerships, may
be taxed as corporations in the United States and therefore may not offer the tax benefits typically associated with U.S. MLPs. As a result of the tax characterization of cash distributions made by most MLPs to their investors (such as the Fund), a
significant portion of the Funds income is expected to be tax-deferred, which would allow distributions by the Fund to its Common Shareholders to include high levels of tax-deferred income. However, the Fund itself is a C
corporation and will therefore be subject to federal income taxation to the extent it reports net taxable income. See Tax Matters. For more information on the taxation of the Fund itself, see Tax MattersTaxation of the
Fund. For information on taxation of Common Shareholders, see Tax MattersU.S. Holders and Tax MattersNon-U.S. Holders. Non-U.S. MLPs, although organized as partnerships, may be taxed as corporations in the
United States, and therefore may not offer the tax benefits typically associated with U.S. MLPs. For a further discussion of the U.S. federal income tax consequences relating to the MLPs, see Tax Matters.
MLPs are typically structured such that common units and general partner or managing member interests have first priority to receive the
minimum quarterly distributions (MQD). Common and general partner or managing member interests also accrue arrearages in distributions to the extent the MQD is not paid. Once common units and general partner or managing member interests
have been paid, subordinated units generally receive distributions; however, subordinated units generally do not accrue arrearages. The subordinated units are normally owned by the owners or affiliates of the general partner or managing member and
convert on a one for one basis into common units, generally in three to five years after the MLPs initial public offering or after certain distribution levels have been exceeded. Distributable cash in excess of the MQD is distributed to both
common and subordinated units generally on a pro rata basis. The general partner or managing member is also normally eligible to receive incentive distributions if the general partner or managing member operates the business in a manner which
results in payment of per unit distributions that exceed threshold levels above the MQD. As the general partner or managing member increases cash distributions to the limited partners or members, the general partner or managing member receives an
increasingly higher percentage of the incremental cash distributions. A common arrangement provides that the general partner or managing member can reach a tier where it receives 50% of every incremental dollar distributed by the MLP. These
incentive distributions encourage the general partner or managing member to increase the partnerships cash flow and raise the quarterly cash distribution by pursuing steady cash flow investment opportunities, streamlining costs and acquiring
assets. Such results benefit all security holders of the MLP.
Securities
MLP Equity Securities
Equity securities issued by MLPs currently
consist of general partner or managing member interests, common units, subordinated units and preferred units as described more fully below.
MLP General Partner or Managing Member Interests.
The general partner or managing member interest in MLPs is typically retained by the original sponsors of an MLP, such as its founders, corporate
partners and
8
entities that sell assets to the MLP. The holder of the general partner or managing member interest can be liable in certain circumstances for amounts greater than the amount of the holders
investment in the general partner or managing member. General partner or managing member interests often confer direct board participation rights in, and in many cases control over the operations of, the MLP. General partner or managing member
interests can be privately held or owned by publicly traded entities. General partner or managing member interests receive cash distributions, typically in an amount of up to 2% of available cash, which is contractually defined in the partnership or
limited liability company agreement. In addition, holders of general partner or managing member interests typically receive incentive distribution rights (IDRs), which provide them with an increasing share of the entitys aggregate
cash distributions upon the payment of per common unit distributions that exceed specified threshold levels above the MQD. Due to the IDRs, general partners of MLPs have higher distribution growth prospects than their underlying MLPs, but quarterly
incentive distribution payments would also decline at a greater rate than the decline rate in quarterly distributions to common and subordinated unit holders in the event of a reduction in the MLPs quarterly distribution. The ability of the
limited partners or members to remove the general partner or managing member without cause is typically very limited. In addition, some MLPs permit the holder of IDRs to reset, under specified circumstances, the incentive distribution levels and
receive compensation in exchange for the distribution rights given up in the reset.
MLP Common Units
. MLP common units
are typically listed and traded on U.S. securities exchanges, including the New York Stock Exchange (NYSE) and the NASDAQ Stock Market (NASDAQ). The Fund will purchase MLP common units through open market transactions and
underwritten offerings, but may also acquire common units through direct placements and privately negotiated transactions. Holders of MLP common units typically have limited control and voting rights and such common units are typically entitled to
receive the MQD, including arrearage rights, from the issuer. Generally, an MLP must pay (or set aside for payment) the MQD to holders of common units before any distributions may be paid to subordinated unit holders. In addition, incentive
distributions are typically not paid to the general partner or managing member unless the quarterly distributions on the common units exceed specified threshold levels above the MQD. In the event of a liquidation, common unit holders are intended to
have a preference to the remaining assets of the issuer over holders of subordinated units. Master limited partnerships also issue different classes of common units that may have different voting, trading, and distribution rights. The Fund may
invest in different classes of common units.
MLP Subordinated Units.
Subordinated units, which, like common
units, represent limited partner or member interests, are not typically listed on an exchange or publicly traded. The Fund will typically purchase outstanding subordinated units through negotiated transactions directly with holders of such units or
newly-issued subordinated units directly from the issuer. Holders of such subordinated units are generally entitled to receive a distribution only after the MQD and any arrearages from prior quarters have been paid to holders of common units.
Holders of subordinated units typically have the right to receive distributions before any incentive distributions are payable to the general partner or managing member. Subordinated units generally do not provide arrearage rights. Most MLP
subordinated units are convertible into common units after the passage of a specified period of time or upon the achievement by the issuer of specified financial goals. Master limited partnerships also issue different classes of subordinated units
that may have different voting, trading, and distribution rights. The Fund may invest in different classes of subordinated units.
MLP Preferred Units.
MLP preferred units are not typically listed on an exchange or publicly traded. The Fund will typically purchase MLP preferred units through negotiated transactions directly
with MLPs, affiliates of MLPs and institutional holders of such units. Holders of MLP preferred units can be entitled to a wide range of voting and other rights, depending on the structure of each separate security.
Other MLP Equity Securities
The Fund may invest in equity securities, including I-Shares, issued by affiliates of MLPs, including the general partners or managing members of MLPs. Such issuers may be organized and/or taxed as
corporations and therefore may not offer the advantageous tax characteristics of MLP units. The Fund intends to purchase MLP equity securities through open market transactions, but may also do so through direct placements.
9
I-Shares
.
I-Shares
represent an ownership interest issued by an MLP affiliate. The MLP affiliate uses the proceeds from the sale of
I-Shares
to purchase limited partnership
interests in the MLP in the form of
I-units.
Thus,
I-Shares
represent an indirect interest in a MLP limited partnership interest.
I-units
have similar features as MLP common units in terms of voting rights, liquidation preference and distribution.
I-Shares
themselves have limited voting rights and
are similar in that respect to MLP common units.
I-Shares
differ from MLP common units primarily in that instead of receiving cash distributions, holders of
I-Shares
will receive distributions of additional
I-Shares
in an amount equal to the cash distributions received by common unit holders.
I-Shares
are traded on the NYSE and
NASDAQ. For purposes of the Funds 80% policy, securities that represent indirect investments in MLPs include
I-Shares
and other derivative securities that have economic characteristics of MLP securities.
MLP Industries
MLPs in the energy sector can generally be classified into the following industries:
Pipeline MLPs
. Pipeline MLPs are common carrier transporters of natural gas, natural gas liquids (primarily propane, ethane, butane and natural gasoline), crude oil or refined petroleum products
(gasoline, diesel fuel and jet fuel). Pipeline MLPs also may operate ancillary businesses such as storage and marketing of such products. Pipeline MLPs derive revenue from capacity and transportation fees. Historically, pipeline output has been less
exposed to cyclical economic forces due to its contract structure and government-regulated nature. In addition, most pipeline MLPs have limited direct commodity price exposure because they do not own the product being shipped.
Gathering and Processing MLPs
. Gathering and processing MLPs are gatherers and processors of natural gas as well as providers of
transportation, fractionation and storage of natural gas liquids (NGLs). Gathering and processing MLPs derive revenue from providing services to natural gas producers, which require treatment or processing before their natural gas
commodity can be marketed to utilities and other end user markets. Revenue for the processor is fee based, although it is not uncommon to have some participation in the prices of the natural gas and NGL commodities for a portion of revenue.
Midstream MLPs
. Midstream MLPs gather, process, transport and store oil, natural gas, and refined petroleum products.
Midstream MLPs and energy companies that provide crude oil, refined product and natural gas services are subject to supply and demand fluctuations in the markets they serve which will be impacted by a wide range of factors including, fluctuating
commodity prices, weather, increased conservation or use of alternative fuel sources, increased governmental or environmental regulation, depletion, rising interest rates, declines in domestic or foreign production, accidents or catastrophic events,
and economic conditions, among others.
Propane MLPs
. Propane MLPs are distributors of propane to homeowners for space
and water heating. Propane MLPs derive revenue from the resale of the commodity on a margin over wholesale cost. The ability to maintain margin is a key to profitability. Propane serves a small portion of the household energy needs in the United
States, largely for homes beyond the geographic reach of natural gas distribution pipelines. A majority of annual cash flow is earned during the winter heating season (October through March). Accordingly, volumes are weather dependent, but have
utility type functions similar to electricity and natural gas.
Exploration and Production MLPs (E&P MLPs).
E&P MLPs include MLPs that are engaged in the exploration, development, production and acquisition of crude oil and natural gas properties. E&P MLP cash flows generally depend on the volume of crude oil and natural gas produced and the
realized prices received for crude oil and natural gas sales.
Coal MLPs
. Coal MLPs own, lease and manage coal
reserves. Coal MLPs derive revenue from production and sale of coal, or from royalty payments related to leases to coal producers. Electricity generation is the primary use of coal in the United States. Demand for electricity and supply of
alternative fuels to generators are the primary drivers of coal demand. Coal MLPs are subject to operating and production risks, such as: the MLP or a lessee meeting necessary production volumes; federal, state and local laws and regulations which
may limit the ability to produce coal; the MLPs ability to manage production costs and pay mining reclamation costs; and
10
the effect on demand that the Environmental Protection Agencys standards set in the 1990 Clean Air Act or other laws, regulations or trends have on coal
end-users.
Marine Shipping MLPs
. Marine shipping MLPs are primarily marine
transporters of natural gas, crude oil or refined petroleum products. Marine shipping MLPs derive revenue from charging customers for the transportation of these products utilizing the MLPs vessels. Transportation services are typically
provided pursuant to a charter or contract, the terms of which vary depending on, for example, the length of use of a particular vessel, the amount of cargo transported, the number of voyages made, the parties operating a vessel or other factors.
Some marine shipping MLPs in which the Fund may invest may be organized and headquartered outside the U.S., which may subject them to special risks not presented by investments in securities of U.S. MLPs. See, Risk FactorsNon-U.S.
Issuers and Emerging Markets Risk. In addition, marine shipping MLPs typically elect to be taxed as corporations in the U.S. and are not expected to offer the same tax benefits of investing in MLPs that are taxed as partnerships.
MLPs typically achieve distribution growth by internal and external means. MLPs achieve growth internally by experiencing higher
commodity volume driven by the economy and population, and through the expansion of existing operations including increasing the use of underutilized capacity, pursuing projects that can leverage and gain synergies with existing infrastructure and
pursuing so called greenfield projects. External growth is achieved by making accretive acquisitions. MLPs also may achieve external growth due to higher commodity prices.
MLPs are subject to various federal, state and local environmental laws and health and safety laws as well as laws and regulations
specific to their particular activities. These laws and regulations address: health and safety standards for the operation of facilities, transportation systems and the handling of materials; air and water pollution requirements and standards; solid
waste disposal requirements; land reclamation requirements; and requirements relating to the handling and disposition of hazardous materials. MLPs are subject to the costs of compliance with such laws applicable to them, and changes in such laws and
regulations may adversely affect their results of operations.
MLPs operating interstate pipelines and storage facilities are
subject to substantial regulation by the Federal Energy Regulatory Commission (FERC), which regulates interstate transportation rates, services and other matters regarding natural gas pipelines including: the establishment of rates for
service; regulation of pipeline storage and liquified natural gas facility construction; issuing certificates of need for companies intending to provide energy services or constructing and operating interstate pipeline and storage facilities; and
certain other matters. FERC also regulates the interstate transportation of crude oil, including: regulation of rates and practices of oil pipeline companies; establishing equal service conditions to provide shippers with equal access to pipeline
transportation; and establishment of reasonable rates for transporting petroleum and petroleum products by pipeline.
MLPs may
be subject to liability relating to the release of substances into the environment, including liability under federal Superfund and similar state laws for investigation and remediation of releases and threatened releases of hazardous
materials, as well as liability for injury and property damage for accidental events, such as explosions or discharges of materials causing personal injury and damage to property. Such potential liabilities could have a material adverse effect upon
the financial condition and results of operations of MLPs.
MLPs are subject to numerous business related risks, including:
deterioration of business fundamentals reducing profitability due to development of alternative energy sources, consumer sentiment with respect to global warming, changing demographics in the markets served, unexpectedly prolonged and precipitous
changes in commodity prices and increased competition that reduces the MLPs market share; the lack of growth of markets requiring growth through acquisitions; disruptions in transportation systems; the dependence of certain MLPs upon the
energy exploration and development activities of unrelated third parties; availability of capital for expansion and construction of needed facilities; a significant decrease in natural gas production due to depressed commodity prices or otherwise;
the inability of MLPs to successfully integrate recent or future acquisitions; and the general level of the economy.
11
Restricted Securities and Securities with Limited Trading Markets
The Fund may invest up to 30% of its Managed Assets in restricted securities, including PIPEs. PIPE investors purchase securities directly
from a publicly traded company in a private placement transaction, typically at a discount to the market price of the companys common stock. Because the sale of the securities is not pre-registered with the SEC, the securities are
restricted and cannot be immediately resold by the investors into the public markets. Accordingly, the company will agree as part of the PIPE deal promptly to register the restricted securities with the SEC. PIPE investments may be
deemed illiquid. The MLP Team expects such securities to be liquid within nine to twelve months of investment, but the Fund may also invest in restricted securities with significantly longer or shorter restricted periods. Although issuers typically
bear the costs of registration, the Fund may in some cases be required to pay the expenses of registering restricted securities it holds with the SEC.
If the Fund were to assume substantial positions in securities with limited trading markets, the trading activities of the Fund could have an adverse effect upon the liquidity and marketability of such
securities and the Fund might not be able to dispose of its holdings in those securities at then current market prices. Circumstances could also exist when portfolio securities might have to be sold by the Fund at times which otherwise might be
considered to be disadvantageous so that the Fund might receive lower proceeds from such sales than it had expected to realize. The Fund could also be delayed in disposing of such securities which might have an adverse effect upon the price and
timing of sales and the liquidity of the Fund. Restricted securities and securities for which there is a limited trading market may be significantly more difficult to value due to the unavailability of reliable market quotations for such securities,
and investment in such securities may have an adverse impact on net asset value. As more fully described below, the Fund may purchase Rule 144A securities for which there may be a secondary market of qualified institutional buyers as contemplated by
Rule 144A under the 1933 Act.
Rule 144A Securities
The Fund may purchase Rule 144A securities for which there is a secondary market of qualified institutional buyers, as defined in Rule 144A promulgated under the 1933 Act. Rule 144A provides an exemption
from the registration requirements of the 1933 Act for the resale of certain restricted securities to qualified institutional buyers.
The Board of Trustees of the Fund has determined that Rule 144A securities may be considered liquid securities if so determined by NFALLC and the MLP Team. NFALLC and the MLP Team have adopted policies
and procedures for the purpose of determining whether securities that are eligible for resales under Rule 144A are liquid or illiquid. Pursuant to those policies and procedures, NFALLC and the MLP Team may make the determination as to whether a
particular security is liquid or illiquid with consideration to be given to, among other things, the frequency of trades and quotes for the security, the number of dealers willing to sell the security, the number of potential purchasers, dealer
undertakings to make a market in the security, the nature of the security and the time needed to dispose of the security.
To
the extent that liquid Rule 144A securities that the Fund holds become illiquid, due to the lack of sufficient qualified institutional buyers or market or other conditions, the percentage of the Funds assets invested in illiquid assets would
increase. NFALLC and the MLP Team will monitor Fund investments in Rule 144A securities and will consider appropriate measures to enable the Fund to meet any investment limitations and to maintain sufficient liquidity for operating purposes.
Non-MLPs
The Fund may invest in companies that are not organized as MLPs.
Non-MLP
companies may include companies that operate energy assets but which are organized as
corporations or limited liability companies rather than in partnership form. Generally, the partnership form is more suitable for companies that operate assets which generate more stable cash flows. Companies that operate midstream
assets (
e.g.
, transporting,
12
processing, storing, distributing and marketing) tend to generate more stable cash flows than those that engage in exploration and development or delivery of products to the end consumer.
Non-MLP
companies also may include companies that provide services directly related to the generation of income from energy-related assets, such as oil drilling services, pipeline construction and maintenance, and
compression services.
The energy industry and particular energy infrastructure companies may be adversely affected by
possible terrorist attacks, such as the attacks that occurred on September 11, 2001. It is possible that facilities of energy infrastructure companies, due to the critical nature of their energy businesses to the United States, could be direct
targets of terrorist attacks or be indirectly affected by attacks on others. They may have to incur significant additional costs in the future to safeguard their assets. In addition, changes in the insurance markets after September 11, 2001 may
make certain types of insurance more difficult to obtain or obtainable only at significant additional cost. To the extent terrorism results in a lower level of economic activity, energy consumption could be adversely affected, which would reduce
revenues and impede growth. Terrorist or war related disruption of the capital markets could also affect the ability of energy infrastructure companies to raise needed capital.
Non-MLP Equity Securities
The Fund may invest up to 20% of its Managed
Assets in common and preferred stock, convertible securities, warrants and depositary receipts of companies that are organized as corporations, limited liability companies or limited partnerships (other than Energy MLPs). The Funds use of
non-Energy MLP investments will be opportunistic and market driven and based on the MLP Teams assessment of various factors, including valuation, total return potential and tax considerations.
Common Stock.
Common stock generally represents an equity ownership interest in an issuer. Although common stocks have
historically generated higher average total returns than fixed-income securities over the long term, common stocks also have experienced significantly more volatility in those returns and may under-perform relative to fixed-income securities during
certain periods. An adverse event, such as an unfavorable earnings report, may depress the value of a particular common stock held by the Fund. Also, prices of common stocks are sensitive to general movements in the stock market and a drop in the
stock market may depress the price of common stocks to which the Fund has exposure. Common stock prices fluctuate for several reasons including changes in investors perceptions of the financial condition of an issuer or the general condition
of the relevant stock market, or the occurrence of political or economic events which effect the issuers. In addition, common stock prices may be particularly sensitive to rising interest rates, which increases borrowing costs and the costs of
capital.
Preferred Stock.
Preferred stock has a preference over common stock in liquidation (and generally as to
dividends as well) but is subordinated to the liabilities of the issuer in all respects. As a general rule, the market value of preferred stock with a fixed dividend rate and no conversion element varies inversely with interest rates and perceived
credit risk, while the market price of convertible preferred stock generally also reflects some element of conversion value. Because preferred stock is junior to debt securities and other obligations of the issuer, deterioration in the credit
quality of the issuer will cause greater changes in the value of a preferred stock than in a more senior debt security with similarly stated yield characteristics. The market value of preferred stock will also generally reflect whether (and if so
when) the issuer may force holders to sell their preferred shares back to the issuer and whether (and if so when) the holders may force the issuer to buy back their preferred shares. Generally, the right of the issuer to repurchase the preferred
stock tends to reduce any premium that the preferred stock might otherwise trade at due to interest rate or credit factors, while the right of the holders to require the issuer to repurchase the preferred stock tends to reduce any discount that the
preferred stock might otherwise trade at due to interest rate or credit factors. In addition, some preferred stocks are
non-cumulative,
meaning that the dividends do not accumulate and need not ever be paid. A
portion of the portfolio may include investments in
non-cumulative
preferred securities, whereby the issuer does not have an obligation to make up any arrearages to its shareholders. There is no assurance that
dividends or distributions on
non-cumulative
preferred stocks in which the Fund invests will be declared or otherwise paid. Preferred stock of certain companies offers the opportunity for capital appreciation
as well as periodic income. This may be particularly
13
true in the case of companies that have performed below expectations. If a companys performance has been poor enough, its preferred stock may trade more like common stock than like other
fixed income securities, which may result in above average appreciation if the companys performance improves.
Convertible Securities.
A convertible security is a preferred stock, warrant or other security that may be converted into or
exchanged for a prescribed amount of common stock or other security of the same or a different issuer or into cash within a particular period of time at a specified price or formula. A convertible security generally entitles the holder to receive
the dividend paid on preferred stock until the convertible security matures or is redeemed, converted or exchanged. Before conversion, convertible securities generally have characteristics similar to both fixed income and equity securities. The
value of convertible securities tends to decline as interest rates rise and, because of the conversion feature, tends to vary with fluctuations in the market value of the underlying securities. Convertible securities ordinarily provide a stream of
income with generally higher yields than those of common stock of the same or similar issuers. Convertible securities generally rank senior to common stock in a corporations capital structure but are usually subordinated to comparable
non-convertible
securities. Convertible securities generally do not participate directly in any dividend increases or decreases of the underlying securities although the market prices of convertible securities may
be affected by any dividend changes or other changes in the underlying securities.
Warrants and Rights.
The Fund
may invest in warrants or rights (including those acquired in units or attached to other securities) that entitle the holder to buy equity securities at a specific price for a specific period of time but will do so only if such equity securities are
deemed appropriate by the MLP Team for inclusion in the Funds portfolio.
Royalty Trusts
The Fund may invest in royalty trusts. However, such investments do not count towards the Funds 80% policy. In many circumstances,
the royalty trusts in which the Fund may invest have limited operating histories. Royalty trusts are publicly traded investment vehicles that gather income on royalties and pay out almost all cash flows to stockholders as distributions. The value of
the equity securities of the royalty trusts in which the Fund invests may fluctuate in accordance with changes in the financial condition of those royalty trusts, the condition of equity markets generally, commodity prices, and other factors.
Distributions on royalty trusts in which the Fund may invest will depend upon the declaration of distributions from the constituent royalty trusts, but there can be no assurance that those royalty trusts will pay distributions. Royalty trusts
typically have no physical operations and no management or employees. Typically royalty trusts own the rights to royalties on the production and sales of a natural resource, including oil, gas, minerals and timber. As these deplete, production and
cash flows steadily decline, which may decrease distributions. The declaration of such distributions generally depends upon various factors, including the operating performance and financial condition of the royalty trust and general economic
conditions. In addition, the value of royalty trust securities depends on factors that are not within the Funds control, including the financial performance of the respective issuers, interest rates, exchange rates and commodity prices (which
will vary and are determined by supply and demand factors including weather and general economic and political conditions), the hedging policies employed by such issuers, issues relating to the regulation of the energy industry and operational risks
relating to the energy industry.
MLP Debt Securities
The Fund may invest up to 30% of its Managed Assets in debt securities. Debt securities may have fixed or variable principal payments and all types of interest rate and dividend payment and reset terms,
including fixed rate, adjustable rate, zero coupon, contingent, deferred, payment in kind and auction rate features. The Fund may make limited investments in debt securities such as structured notes or exchange-traded notes that are designed to
provide exposure to the MLP market. To the extent the Fund invests in auction rate securities, the Fund will be subject to certain risks associated with participating in an auction, including the risk that an auction may fail and the Fund may
lose its investment. The Fund has the flexibility to invest in debt securities that are below
14
investment grade quality (that is, rated Ba or lower by Moodys, BB+ or lower by S&P or Fitch, or comparably rated by another NSRSO). These debt securities are commonly referred to as
junk or high yield securities. [The Fund may invest in debt securities without regard for their ratings.] Issuers of securities rated Ba1/BB+ are regarded as having current capacity to make principal and interest payments but are subject
to business, financial or economic conditions which could adversely affect such payment capacity. Debt securities rated Baa3 or
BBB-
or above are considered investment grade securities. Debt
securities rated below investment grade quality are obligations of issuers that are considered predominately speculative with respect to the issuers capacity to pay interest and repay principal according to the terms of the obligation and,
therefore, carry greater investment risk, including the possibility of issuer default and bankruptcy and increased market price volatility. Debt securities rated below investment grade tend to be less marketable than higher-quality securities
because the market for them is less broad.
A general description of Moodys, S&Ps and Fitchs ratings of
bonds is set forth in Appendix A hereto. The ratings of Moodys, S&P and Fitch generally represent their opinions as to the quality of the bonds they rate. It should be emphasized, however, that such ratings are relative and subjective, are
not absolute standards of quality, are subject to change and do not evaluate the market risk and liquidity of the securities. Consequently, bonds with the same maturity, coupon and rating may have different yields while obligations of the same
maturity and coupon with different ratings may have the same yield.
If a security satisfies the Funds minimum
rating criteria at the time of purchase and is subsequently downgraded below such rating, the Fund will not be required to dispose of such security. If a downgrade occurs, the MLP Team will consider what action, including the sale of such security,
is in the best interest of us and our shareholders.
Securities Rated Below Investment Grade
Under rating agency guidelines,
medium-
and lower-rated securities and comparable unrated
securities will likely have some quality and protective characteristics that are outweighed by large uncertainties or major risk exposures to adverse conditions.
Medium-
and lower-rated securities may have
poor prospects of ever attaining any real investment standing, may have a current identifiable vulnerability to default or be in default, may be unlikely to have the capacity to pay interest and repay principal when due in the event of adverse
business, financial or economic conditions, and/or may be likely to be in default or not current in the payment of interest or principal. Such securities are considered speculative with respect to the issuers capacity to pay interest and repay
principal in accordance with the terms of the obligations. Accordingly, it is possible that these types of factors could reduce the value of securities held by the Fund with a commensurate effect on the value of the Funds shares.
The secondary markets for high yield securities are generally not as liquid as the secondary markets for higher rated securities. The
secondary markets for high yield securities are concentrated in relatively few market makers and the participants in the market are mostly institutional investors, including insurance companies, banks, other financial institutions and mutual funds.
In addition, the trading volume for high yield securities is generally lower than that for higher-rated securities, and the secondary markets could contract under adverse market or economic conditions independent of any specific adverse changes in
the condition of a particular issuer. These factors may have an adverse effect on the ability of the Fund to dispose of particular portfolio investments, may adversely affect the Funds net asset value per share and may limit the ability of the
Fund to obtain accurate market quotations for purposes of valuing securities and calculating net asset value. If the Fund is not able to obtain precise or accurate market quotations for a particular security, it will become more difficult to value
the Funds portfolio securities, and a greater degree of judgment may be necessary in making such valuations. Less liquid secondary markets may also affect the ability of the Fund to sell securities at their fair value. If the secondary markets
for high yield securities contract due to adverse economic conditions or for other reasons, certain liquid securities in the Funds portfolio may become illiquid and the proportion of the Funds assets invested in illiquid securities may
significantly increase.
15
Prices for high yield securities may be affected by legislative and regulatory developments.
These laws could adversely affect the Funds net asset value and investment practices, the secondary market for high yield securities, the financial condition of issuers of these securities and the value of outstanding high yield securities.
For example, federal legislation requiring the divestiture by federally insured savings and loan associations of their investments in high yield bonds and limiting the deductibility of interest by certain corporate issuers of high yield bonds
adversely affected the market in the past. See RisksBelow Investment Grade Risk in the Prospectus.
Zero Coupon
Securities
The Funds investments in debt securities may be in the form of a zero coupon bond. Zero coupon bonds are
debt obligations that do not entitle the holder to any periodic payments of interest for the entire life of the obligation. When held to its maturity, its return comes from the difference between the purchase price and its maturity value. These
instruments are typically issued and traded at a deep discount from their face amounts. The amount of the discount varies depending on such factors as the time remaining until maturity of the securities, prevailing interest rates, the liquidity of
the security and the perceived credit quality of the issuer. The market prices of zero coupon bonds generally are more volatile than the market prices of debt instruments that pay interest currently and in cash and are likely to respond to changes
in interest rates to a greater degree than do other types of securities having similar maturities and credit quality. Under many market conditions, investments in zero coupon bonds may be illiquid, making it difficult for the Fund to dispose of them
or determine their current value.
Variable Rate Obligations
The Fund may invest in variable rate obligations. Variable rate obligations bear interest at rates that are not fixed, but vary with changes in specified market rates or indexes, such as the prime rate,
and at specified intervals. Such obligations include, but are not limited to, variable rate master demand notes, which are unsecured instruments issued pursuant to an agreement between the issuer and the holder that permit the indebtedness
thereunder to vary and provide for periodic adjustments in the interest rate.
Certain of the variable rate obligations
that may be purchased by the Fund may carry a demand feature that would permit the holder to tender them back to the issuer of the instrument or to a third party at par value prior to maturity. Some of the demand instruments that may be purchased by
the Fund may not trade in a secondary market and would derive their liquidity solely from the ability of the holder to demand repayment from the issuer or third party providing credit support. If a demand instrument is not traded in a secondary
market, the Fund will nonetheless treat the instrument as readily marketable for the purposes of determining whether the instrument is an illiquid security unless the demand feature has a notice period of more than seven days in which
case the instrument will be characterized as not readily marketable and therefore illiquid. The MLP Team will monitor on an ongoing basis the ability of an issuer of a demand instrument to pay principal and interest on demand.
The Funds right to obtain payment at par on a demand instrument could be affected by events occurring between the
date the Fund elects to demand payment and the date payment is due that may affect the ability of the issuer of the instrument or the third party providing credit support to make payment when due, except when such demand instruments permit same day
settlement. To facilitate settlement, these same day demand instruments may be held in book entry form at a bank other than the Funds custodian subject to a
sub-custodian
agreement approved by the Fund
between that bank and the Funds custodian.
U.S. Government Obligations
Securities issued or guaranteed by U.S. Government agencies and instrumentalities include obligations that are supported by: (a) the
full faith and credit of the U.S. Treasury (
e.g.
, direct pass-through certificates of the Government National Mortgage Association (Ginnie Maes)); (b) the limited authority of the issuer or guarantor to borrow from the U.S.
Treasury (
e.g.
, obligations of Federal Home Loan Banks); or (c) only the credit of the issuer or guarantor (
e.g.
, obligations of the Federal Home Loan Mortgage Corporation). In the case of obligations
16
not backed by the full faith and credit of the U.S. Treasury, the agency issuing or guaranteeing the obligation is principally responsible for ultimate repayment.
Agencies and instrumentalities that issue or guarantee debt securities and that have been established or sponsored by the U.S. Government
include, in addition to those identified above, the Bank for Cooperatives, the Export-Import Bank, the Federal Farm Credit System, the Federal Intermediate Credit Banks, the Federal Land Banks, the Federal National Mortgage Association and the
Student Loan Marketing Association.
Loans of Portfolio Securities
The Fund may lend portfolio securities to brokers or dealers or other financial institutions although it has no current intention to do
so. The procedure for the lending of securities will include the following features and conditions. The borrower of the securities will deposit cash or liquid securities with the Fund in an amount equal to a minimum of 100% of the market value of
the securities lent. The Fund will invest the cash collateral in
short-term
debt securities or cash equivalents and earn the interest thereon. A negotiated portion of the income so earned may be paid to the
borrower and/or the broker who arranged the loan. If the Fund receives securities as collateral, the Fund will receive a fee from the borrower. If the value of the collateral drops below the required minimum at any time, the borrower may be called
upon to post additional collateral. If the additional collateral is not paid, the loan will be immediately due and the Fund may use the collateral or its own cash to replace the securities by purchase in the open market charging any loss to the
borrower. These will be demand loans and may be terminated by the Fund at any time. The Fund will receive any dividends and interest paid on the securities lent and the loans will be structured to assure that the Fund will be able to
exercise its voting rights on the securities.
Derivatives
From time to time, the Fund may invest in certain derivative instruments in pursuit of its investment objective, to hedge some of the risk of the Funds investments or as a substitute for a position
in the underlying asset. The Fund may also use derivative transactions to increase leverage or create investment exposure. The Fund may use any or all of these techniques at any time, and the use of any particular derivative transaction will depend
on market conditions. To the extent that the security or index underlying the derivative or synthetic instrument is or is composed of securities of MLPs in the energy sector, the Fund will include such derivative and synthetic instruments in the
definition of MLPs as used in the Prospectus.
The Fund may use various investment strategies described below to hedge market
risks (such as broad or specific market movements), to manage the effective maturity or duration of debt instruments held by the Fund, or to seek to increase the Funds income or gain.
The Fund may purchase and sell stock or bond index futures contracts; purchase and sell (or write) exchange listed and
over-the-counter
(OTC) put and call options on securities, futures contracts, indexes and other financial instruments; enter into forward transactions, equity or
debt swaps and related transactions; and invest in indexed securities and other similar transactions, which may be developed to the extent that the MLP Team determines that they are consistent with the Funds investment objective and policies
and applicable regulatory requirements (collectively, these transactions are referred to as Derivatives). The Funds interest rate transactions may take the form of swaps, caps, floors, collars and other combinations of options,
forwards, swaps and/or futures.
Limitations on the Use of Futures, Options on Futures, and Swaps.
Pursuant to a claim
for exemption filed with the National Futures Association on behalf of the Fund, the Fund is not deemed to be a commodity pool operator or a commodity pool under the Commodity Exchange Act (CEA) provided by the Commodity Futures Trading
Commission (CFTC) Regulation 4.5, and therefore neither it nor NFALLC or ARI is currently subject to registration or regulation as such under the CEA with respect to the Fund. In February 2012,
17
the CFTC announced substantial amendments to certain exemptions, and to the conditions for reliance on those exemptions, from registration as a commodity pool operator. Under amendments to the
exemption provided under CFTC Regulation 4.5, if the Fund uses futures, options on futures, or swaps other than for bona fide hedging purposes (as defined by the CFTC), the aggregate initial margin and premiums on these positions (after taking into
account unrealized profits and unrealized losses on any such positions and excluding the amount by which options that are in-the-money at the time of purchase are in-the-money) may not exceed 5% of the Funds net asset
value, or alternatively, the aggregate net notional value of those positions may not exceed 100% of the Funds net asset value (after taking into account unrealized profits and unrealized losses on any such positions). The CFTC amendments to
Regulation 4.5 took effect on December 31, 2012, and the Fund intends to comply with amended Regulation 4.5s requirements such that NFALLC and/or ARI will not be required to register with respect to the Fund as a commodity pool operator
with the CFTC. The Fund reserves the right to engage in transactions involving futures, options thereon and swaps to the extent allowed by CFTC regulations in effect from time to time and in accordance with the Funds policies. The requirements
for qualification as a regulated investment company may limit the extent to which the Fund may enter into futures transactions, engage in options transactions or engage in swap transactions.
NFALLC and the MLP Team may use derivative instruments to seek to enhance returns, to hedge some of the risk of the Funds
investments or its leverage to serve as a substitute for a position in the underlying asset, to reduce transaction costs, to manage the Funds effective interest rate exposure, to maintain fill market disclosure, to manage cash flows or to
preserve capital. These types of strategies may generate taxable income.
Derivatives involve special risks, including
possible default by the other party to the transaction, illiquidity and, to the extent NFALLC and the MLP Teams views as to certain market movements are incorrect, the risk that the use of Derivatives could result in significantly
greater losses than if they had not been used.
Futures Contracts.
The Fund may trade futures contracts:
(1) on domestic and foreign exchanges on bond indexes; and (2) on domestic and, to the extent permitted by the CFTC, foreign exchanges on single stocks and stock indexes. Futures contracts are generally bought and sold on the commodities
exchanges on which they are listed with payment of initial and variation margin as described below. The sale of a futures contract creates a firm obligation by the Fund, as seller, to deliver to the buyer the specific type of financial instrument
called for in the contract at a specific future time for a specified price (or with respect to certain instruments, the net cash amount). The Funds use of financial futures contracts and options thereon will in all cases be consistent with
applicable regulatory requirements and in particular the rules and regulations of the CFTC. Maintaining a futures contract or selling an option on a futures contract will typically require the Fund to deposit with a financial intermediary, as
security for its obligations, an amount of cash or other specified assets (initial margin) that initially is from 1% to 10% of the face amount of the contract (but may be higher in some circumstances). Additional cash or assets
(variation margin) may be required to be deposited thereafter daily as the
mark-to-market
value of the futures contract fluctuates. In addition, the value of
all futures contracts sold by the Fund (adjusted for the historical volatility relationship between the Fund and the contracts) will not exceed the total market value of the Funds securities. In addition, the value of the Funds long
futures and options positions (futures contracts on stock or bond indexes, and call options on such futures contracts) will not exceed the sum of: (a) liquid assets segregated for this purpose; (b) cash proceeds on existing investments due
within thirty days; and (c) accrued profits on the particular futures or options positions.
Options
. In order to
hedge against adverse market shifts or to increase income or gain, the Fund may purchase put and call options or write covered put and call options on securities or fixed income instruments or on futures contracts on securities or stock
indexes. A call option is covered if, so long as the Fund is obligated as the writer of the option, it will: (i) own the underlying investment subject to the option; (ii) own securities convertible or exchangeable without the
payment of any consideration into the securities subject to the option; (iii) own a call option on the relevant security with an exercise price no higher than the exercise price on the call option written or (iv) deposit with its custodian
in a segregated account liquid assets having a value equal to the excess of the value of the security or index that is the subject of the call over the exercise price. A put option is
18
covered if, to support its obligation to purchase the underlying investment if a put option that the Fund writes is exercised, the Fund will either (a) deposit with its custodian
in a segregated account liquid assets having a value at least equal to the exercise price of the underlying investment or (b) continue to own an equivalent number of puts of the same series (that is, puts on the same underlying
investment having the same exercise prices and expiration dates as those written by the Fund), or an equivalent number of puts of the same class (that is, puts on the same underlying investment) with exercise prices greater than those
that it has written (or, if the exercise prices of the puts it holds are less than the exercise prices of those it has written, it will deposit the difference with its custodian in a segregated account). Parties to options transactions must make
certain payments and/or set aside certain amounts of assets in connection with each transaction, as described below.
In all
cases, except for certain options on interest rate futures contracts, by writing a call, the Fund will limit its opportunity to profit from an increase in the market value of the underlying investment above the exercise price of the option for as
long as the Funds obligation as writer of the option continues. By writing a put, the Fund will limit its opportunity to profit from a decrease in the market value of the underlying investment below the exercise price of the option for as long
as the Funds obligation as writer of the option continues. Upon the exercise of a put option written by the Fund, the Fund may suffer an economic loss equal to the difference between the price at which the Fund is required to purchase the
underlying investment and its market value at the time of the option exercise, less the premium received for writing the option. Upon the exercise of a call option written by the Fund, the Fund may suffer an economic loss equal to an amount not less
than the excess of the investments market value at the time of the option exercise over the Funds acquisition cost of the investment, less the sum of the premium received for writing the option and the positive difference, if any,
between the call price paid to the Fund and the Funds acquisition cost of the investment.
In all cases except for
certain options on interest rate futures contracts, in purchasing a put option, the Fund will seek to benefit from a decline in the market price of the underlying investment, while in purchasing a call option, the Fund will seek to benefit from an
increase in the market price of the underlying investment. If an option purchased is not sold or exercised when it has remaining value, or if the market price of the underlying investment remains equal to or greater than the exercise price, in the
case of a put, or remains equal to or below the exercise price, in the case of a call, during the life of the option, the Fund will lose its investment in the option. For the purchase of an option to be profitable, the market price of the underlying
investment must decline sufficiently below the exercise price, in the case of a put, and must increase sufficiently above the exercise price, in the case of a call, to cover the premium and transaction costs.
In the case of certain options on interest rate futures contracts, the Fund may purchase a put option in anticipation of a rise in
interest rates, and purchase a call option in anticipation of a fall in interest rates. By writing a covered call option on interest rate futures contracts, the Fund will limit its opportunity to profit from a fall in interest rates. By writing a
covered put option on interest rate futures contracts, the Fund will limit its opportunity to profit from a rise in interest rates.
The Fund may choose to exercise the options it holds, permit them to expire or terminate them prior to their expiration by entering into closing transactions. The Fund may enter into a closing purchase
transaction in which the Fund purchases an option having the same terms as the option it had written or a closing sale transaction in which the Fund sells an option having the same terms as the option it had purchased. A covered option writer unable
to effect a closing purchase transaction will not be able to sell the underlying security until the option expires or the underlying security is delivered upon exercise, with the result that the writer will be subject to the risk of market decline
in the underlying security during such period. Should the Fund choose to exercise an option, the Fund will purchase in the open market the securities, commodities or commodity futures contracts underlying the exercised option.
Exchange-listed options on securities and currencies, with certain exceptions, generally settle by physical delivery of the underlying
security or currency, although in the future, cash settlement may become available. Frequently, rather than taking or making delivery of the underlying instrument through the process of exercising
19
the option, listed options are closed by entering into offsetting purchase or sale transactions that do not result in ownership of the new option. Index options are cash settled for the net
amount, if any, by which the option is
in-the-money
(that is, the amount by which the value of the underlying instrument exceeds, in the case of a call
option, or is less than, in the case of a put option, the exercise price of the option) at the time the option is exercised.
Put options and call options typically have similar structural characteristics and operational mechanics regardless of the underlying
instrument on which they are purchased or sold. Thus, the following general discussion relates to each of the particular types of options discussed in greater detail below. In addition, many Derivatives involving options require segregation of Fund
assets in special accounts.
A put option gives the purchaser of the option, upon payment of a premium, the right to sell,
and the writer of the option the obligation to buy, the underlying security, index, currency or other instrument at the exercise price. The Funds purchase of a put option on a security, for example, might be designed to protect its holdings in
the underlying instrument (or, in some cases, a similar instrument) against a substantial decline in the market value of such instrument by giving the Fund the right to sell the instrument at the option exercise price. A call option, upon payment of
a premium, gives the purchaser of the option the right to buy, and the seller the obligation to sell, the underlying instrument at the exercise price. The Funds purchase of a call option on a security, financial futures contract, index,
currency or other instrument might be intended to protect the Fund against an increase in the price of the underlying instrument that it intends to purchase in the future by fixing the price at which it may purchase the instrument. An
American style put or call option may be exercised at any time during the option exercised period. A European style put or call option may be exercised only upon expiration. A Bermudan style put or call option may
be exercised at any time on fixed dates occurring during the term of the option. Exchange-listed options are issued by a regulated intermediary such as the Options Clearing Corporation (OCC), which guarantees the performance of the
obligations of the parties to the options. The discussion below uses the OCC as an example, but is also applicable to other similar financial intermediaries.
Index options are cash settled for the net amount, if any, by which the option is
in-the-money
(that is, the
amount by which the value of the underlying instrument exceeds, in the case of a call option, or is less than, in the case of a put option, the exercise price of the option) at the time the option is exercised. Frequently, rather than taking or
making delivery of the underlying instrument through the process of exercising the option, listed options are closed by entering into offsetting purchase or sale transactions that do not result in ownership of the new option.
The Funds ability to close out its position as a purchaser or seller of an
OCC-issued
or
exchange-listed put or call option is dependent, in part, upon the liquidity of the particular option market. Among the possible reasons for the absence of a liquid option market on an exchange are: (1) insufficient trading interest in certain
options, (2) restrictions on transactions imposed by an exchange, (3) trading halts, suspensions or other restrictions imposed with respect to particular classes or series of options or underlying securities, including reaching daily price
limits, (4) interruption of the normal operations of the OCC or an exchange, (5) inadequacy of the facilities of an exchange or the OCC to handle current trading volume, or (6) a decision by one or more exchanges to discontinue the
trading of options (or a particular class or series of options), in which event the relevant market for that option on that exchange would cease to exist, although any such outstanding options on that exchange would continue to be exercisable in
accordance with their terms.
The hours of trading for listed options may not coincide with the hours during which the
underlying financial instruments are traded. To the extent that the option markets close before the markets for the underlying financial instruments, significant price and rate movements can take place in the underlying markets that would not be
reflected in the corresponding option markets.
20
OTC options are purchased from or sold to securities dealers, financial institutions or
other parties (collectively referred to as Counterparties and individually referred to as a Counterparty) through a direct bilateral agreement with the Counterparty. In contrast to exchange-listed options, which generally
have standardized terms and performance mechanics, all of the terms of an OTC option, including such terms as method of settlement, term, exercise price, premium, guaranties and security, are determined by negotiation of the parties. It is
anticipated that the Fund will generally only enter into OTC options that have cash settlement provisions, although it will not be required to do so.
Unless the parties provide for it, no central clearing or guaranty function is currently expected to be involved in an OTC option. As a result, if a Counterparty fails to make or take delivery of the
security, currency or other instrument underlying an OTC option it has entered into with the Fund or fails to make a cash settlement payment due in accordance with the terms of that option, the Fund will lose any premium it paid for the option as
well as any anticipated benefit of the transaction. Thus, the MLP Team must assess the creditworthiness of each such Counterparty or any guarantor or credit enhancement of the Counterpartys credit to determine the likelihood that the terms of
the OTC option will be met. The Fund will enter into OTC option transactions only with U.S. government securities dealers recognized by the Federal Reserve Bank of New York as primary dealers, or broker-dealers, domestic or foreign
banks, or other financial institutions that the MLP Team deems to be creditworthy. In the absence of a change in the current position of the SEC, OTC options purchased by the Fund and the amount of the Funds obligation pursuant to an OTC
option sold by the Fund (the cost of the sell-back plus the
in-the-money
amount, if any) or the value of the assets held to cover such options will be deemed illiquid.
If the Fund sells a call option, it is foregoing its participation in the appreciation in the value of the underlying
asset; however, the premium that it receives may serve as a partial hedge, to the extent of the option premium, against an increase in the value of the underlying securities or instruments held by the Fund and may increase the Funds income.
Similarly, the sale of put options can also provide gains for the Fund.
The Fund may purchase and sell call options on
securities that are traded on U.S. and foreign securities exchanges and in the OTC markets, and on securities indexes, currencies and futures contracts. All calls sold by the Fund must be covered (that is, the Fund must own the
securities or futures contract subject to the call), or must otherwise meet the asset segregation requirements described below for so long as the call is outstanding. Even though the Fund will receive the option premium to help protect it against
loss, a call sold by the Fund will expose the Fund during the term of the option to possible loss of opportunity to realize appreciation in the market price of the underlying security or instrument and may require the Fund to hold a security or
instrument that it might otherwise have sold.
The Fund reserves the right to purchase or sell options on instruments and
indexes which may be developed in the future to the extent consistent with applicable law and the Funds investment objective and the restrictions set forth herein.
The Fund may purchase and sell put options on securities (whether or not it holds the securities in its portfolio) and on securities indexes, currencies and futures contracts. In selling put options, the
Fund faces the risk that it may be required to buy the underlying security at a disadvantageous price above the market price.
Options on Futures Contracts.
The Fund may purchase put and call options and write covered put and call options on futures
contracts on stock indexes traded on domestic and, to the extent permitted by the CFTC, foreign exchanges, in order to hedge all or a portion of its investments or to increase income or gain and may enter into closing transactions in order to
terminate existing positions. There is no guarantee that such closing transactions can be effected. An option on a stock index futures contract, as contrasted with the direct investment in such a contract, gives the purchaser the right, in return
for the premium paid, to assume a position in the underlying contract at a specified exercise price at any time on or before the expiration date of the option. Upon exercise of an option, the delivery of the futures position by the writer of the
option to the holder of the option
21
will be accompanied by delivery of the accumulated balance in the writers futures margin account. The potential loss related to the purchase of an option on a futures contract is limited to
the premium paid for the option (plus transaction costs). While the price of the option is fixed at the point of sale, the value of the option does change daily and the change would be reflected in the net asset value of the Fund.
The purchase of an option on a financial futures contract involves payment of a premium for the option without any further obligation on
the part of the Fund. If the Fund exercises an option on a futures contract it will be obligated to post initial margin (and potentially variation margin) for the resulting futures position just as it would for any futures position. Futures
contracts and options thereon are generally settled by entering into an offsetting transaction, but no assurance can be given that a position can be offset prior to settlement or that delivery will occur.
Risk Factors.
Derivatives have special risks associated with them, including possible default by the counterparty to the
transaction, illiquidity and, to the extent NFALLCs and the MLP Teams views as to certain market movements are incorrect, the risk that the use of the Derivatives could result in losses greater than if they had not been used. Use of put
and call options could result in losses to the Fund, force the purchase or sale, as the case may be, of written portfolio securities at inopportune times or for prices higher than (in the case of written put options) or lower than (in the case of
written call options) current market values, or cause the Fund to hold a security it might otherwise sell.
The use of
futures and options transactions entails certain special risks. In particular, the variable degree of correlation between price movements of futures contracts and price movements in the related securities position of the Fund could create the
possibility that losses on the hedging instrument are greater than gains in the value of the Funds position. In addition, futures and options markets could be illiquid in some circumstances and certain OTC options could have no markets. As a
result, in certain markets, the Fund might not be able to close out a transaction without incurring substantial losses. Although the Funds use of futures and options transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time it will tend to limit any potential gain to the Fund that might result from an increase in value of the position. There is also the risk of loss by the Fund of margin deposits in the
event of bankruptcy of a broker with whom the Fund has an open position in a futures contract or option thereon. Finally, the daily variation margin requirements for futures contracts create a greater ongoing potential financial risk than would
purchases of options, in which case the exposure is limited to the cost of the initial premium. However, because option premiums paid by the Fund are small in relation to the market value of the investments underlying the options, buying options can
result in large amounts of leverage. This leverage offered by trading in options could cause the Funds net asset value to be subject to more frequent and wider fluctuation than would be the case if the Fund did not invest in options.
Because the amount of interest and/or principal payments which the issuer of indexed securities is obligated to make is
linked to the prices of other securities, securities indexes, currencies, or other financial indicators, such payments may be significantly greater or less than payment obligations in respect of other types of debt securities. As a result, an
investment in indexed securities may be considered speculative. Moreover, the performance of indexed securities depends to a great extent on the performance of, and may be more volatile than, the security, currency, or other instrument to which they
are indexed, and may also be influenced by interest rate changes in the United States and abroad. At the same time, indexed securities are subject to the credit risks associated with the issuer of the security, and their values may decline
substantially if the issuers creditworthiness deteriorates.
Losses resulting from the use of Derivatives will reduce
the Funds net asset value, and possibly income, and the losses can be greater than if Derivatives had not been used. See Risk FactorsDerivatives Risk in the Prospectus.
22
Use of Segregated and Other Special Accounts
. Use of many Derivatives by the Fund
will require, among other things, that the Fund segregate liquid assets with its custodian, or a designated
sub-custodian,
to the extent the Funds obligations are not otherwise covered
through ownership of the underlying security or financial instrument. In general, either the full amount of any obligation by the Fund to pay or deliver securities or assets must be covered at all times by the securities or instruments required to
be delivered, or, subject to any regulatory restrictions, an amount of liquid assets at least equal to the current amount of the obligation must be segregated with the custodian or subcustodian in accordance with established procedures. The
segregated assets cannot be sold or transferred unless equivalent assets are substituted in their place or it is no longer necessary to segregate them. A call option on securities written by the Fund, for example, will require the Fund to hold the
securities subject to the call (or securities convertible into the needed securities without additional consideration) or to segregate liquid high grade debt obligations sufficient to purchase and deliver the securities if the call is exercised. A
call option sold by the Fund on an index will require the Fund to own portfolio securities that correlate with the index or to segregate liquid high grade debt obligations equal to the excess of the index value over the exercise price on a current
basis. A put option on securities written by the Fund will require the Fund to segregate liquid high grade debt obligations equal to the exercise price.
OTC options entered into by the Fund, including those on securities, financial instruments or indexes, and
OCC-issued
and exchange-listed index options will
generally provide for cash settlement, although the Fund will not be required to do so. As a result, when the Fund sells these instruments it will segregate an amount of assets equal to its obligations under the options.
OCC-issued
and exchange-listed options sold by the Fund other than those described above generally settle with physical delivery, and the Fund will segregate an amount of assets equal to the full value of the
option. OTC options settling with physical delivery or with an election of either physical delivery or cash settlement will be treated the same as other options settling with physical delivery.
In the case of a futures contract or an option on a futures contract, the Fund must deposit the initial margin and, in some instances,
the daily variation margin in addition to segregating liquid assets sufficient to meet its obligations to purchase or provide securities or currencies, or to pay the amount owed at the expiration of an index-based futures contract. The Fund will
accrue the net amount of the excess, if any, of its obligations relating to swaps over its entitlements with respect to each swap on a daily basis and will segregate with its custodian, or designated
sub-custodian,
an amount of liquid assets having an aggregate value equal to at least the accrued excess. Caps, floors and collars require segregation of liquid assets with a value equal to the Funds net
obligation, if any.
Derivatives may be covered by means other than those described above when consistent with applicable
regulatory policies. The Fund may also enter into offsetting transactions so that its combined position, coupled with any segregated assets, equals its net outstanding obligation in related Derivatives. The Fund could purchase a put option, for
example, if the strike price of that option is the same or higher than the strike price of a put option sold by the Fund. Moreover, instead of segregating assets if it holds a futures contract or forward contract, the Fund could purchase a put
option on the same futures contract or forward contract with a strike price as high or higher than the price of the contract held. Other derivatives may also be offset in combinations. If the offsetting transaction terminates at the time of or after
the primary transaction, no segregation is required, but if it terminates prior to that time, assets equal to any remaining obligation would need to be segregated.
Other Investment Companies
The Fund may invest up to 10% of its total
assets in other investment companies, the assets of which consist primarily of securities issued by MLPs in the energy sector. Such investments are not expected to offer the same tax benefits of directly investing in MLPs.
The Fund may invest in securities of other open- or closed-end investment companies, including exchange traded Funds that invest
primarily in MLP entities in which the Fund may invest directly, to the extent that such investments are consistent with the Funds investment objective and policies and are permissible under the 1940
23
Act. The 1940 Act imposes the following restrictions on investments in other investment companies: (i) the Fund may not purchase more than 3% of the total outstanding voting stock of another
investment company; (ii) the Fund may not invest more than 5% of its total assets in securities issued by another investment company; and (iii) the Fund may not invest more than 10% of its total assets in securities issued by other investment
companies. These limitations do not apply to the purchase of shares of any investment company (i) in connection with a merger, consolidation, reorganization or acquisition of substantially all the assets of another investment company or (ii)
pursuant to any exemption granted under the 1940 Act.
The Fund may invest in other investment companies either during
periods when it has large amounts of uninvested cash, such as the period shortly after the Fund receives the proceeds of the offering of its Common Shares, during periods when there is a shortage of attractive MLP securities available in the market,
or when the MLP Team believes share prices of other investment companies offer attractive values. The Fund may invest in investment companies that are advised by the MLP Team or its affiliates to the extent permitted by applicable law and/or
pursuant to exemptive relief from the SEC. The Fund has not applied for, and currently does not intend to apply for, such exemptive relief, but reserves the right to do so in the future. As a stockholder in an investment company, the Fund would
indirectly bear its proportionate share of the advisory fees and other operating expenses of such investment company, and would remain subject to payment of the Funds management fees and other expenses with respect to assets so invested.
Stockholders would therefore be subject to duplicative expenses to the extent the Fund invests in other investment companies. The MLP Team will take expenses into account when evaluating the investment merits of an investment in an investment
company relative to available investments in other securities. In addition, the securities of other investment companies may also be leveraged and will therefore be subject to the same leverage risks described in the Prospectus and herein. The net
asset value and market value of leveraged shares will be more volatile and the yield to stockholders will tend to fluctuate more than the yield generated by unleveraged shares. Other investment companies may have investment policies that differ from
those of the Fund. In addition, to the extent the Fund invests in other investment companies, the Fund will be dependent upon the investment and research abilities of persons other than NFALLC and the MLP Team.
Non-U.S. Issuers
Investing in the securities of foreign issuers involves special considerations which are not typically associated with investing in the securities of U.S. issuers. Investments in securities of foreign
issuers may involve risks arising from differences between U.S. and foreign securities markets, including less volume, much greater price volatility in and illiquidity of certain foreign securities markets, different trading and settlement practices
and less governmental supervision and regulation, from changes in currency exchange rates, from high and volatile rates of inflation, from economic, social and political conditions such as wars, terrorism, civil unrest and uprisings, and, as with
domestic multinational corporations, from fluctuating interest rates.
There may be less publicly-available information
about a foreign issuer than about a U.S. issuer, and foreign issuers may not be subject to the same accounting, auditing and financial record-keeping standards and requirements as U.S. issuers. In particular, the assets and profits appearing on the
financial statements of an emerging market country issuer may not reflect its financial position or results of operations in the way they would be reflected had the financial statements been prepared in accordance with U.S. generally accepted
accounting principles. In addition, for an issuer that keeps accounting records in local currency, inflation accounting rules may require, for both tax and accounting purposes, that certain assets and liabilities be restated on the issuers
balance sheet in order to express items in terms of currency of constant purchasing power. Inflation accounting may indirectly generate losses or profits. Consequently, financial data may be materially affected by restatements for inflation and may
not accurately reflect the real condition of those issuers and securities markets. Finally, in the event of a default in any such foreign obligations, it may be more difficult for the Fund to obtain or enforce a judgment against the issuers of such
obligations.
Other investment risks include the possible imposition of foreign withholding taxes on certain amounts of the
Funds income, the possible seizure or nationalization of foreign assets and the possible establishment of
24
exchange controls, expropriation, confiscatory taxation, other foreign governmental laws or restrictions which might affect adversely payments due on securities held by the Fund, the lack of
extensive operating experience of eligible foreign subcustodians and legal limitations on the ability of the Fund to recover assets held in custody by a foreign subcustodian in the event of the subcustodians bankruptcy.
There generally is less governmental supervision and regulation of exchanges, brokers and issuers in foreign countries than there is in
the United States. For example, there may be no comparable provisions under certain foreign laws to insider trading and similar investor protection securities laws that apply with respect to securities transactions consummated in the United States.
Further, brokerage commissions and other transaction costs on foreign securities exchanges generally are higher than in the United States.
In some countries, banks or other financial institutions may constitute a substantial number of the leading companies or companies with the most actively traded securities. The 1940 Act limits the
Funds ability to invest in any equity security of an issuer which, in its most recent fiscal year, derived more than 15% of its revenues from securities related activities, as defined by the rules thereunder. These provisions may
also restrict the Funds investments in certain foreign banks and other financial institutions.
Foreign markets have
different clearance and settlement procedures, and in certain markets there have been times when settlements have failed to keep pace with the volume of securities transactions, making it difficult to conduct such transactions. Further, satisfactory
custodial services for investment securities may not be available in some countries having smaller, emerging capital markets, which may result in the Fund incurring additional costs and delays in transporting such securities outside such countries.
Delays in settlement or other problems could result in periods when assets of the Fund are uninvested and no return is earned thereon. The inability of the Fund to make intended security purchases due to settlement problems or the risk of
intermediary counterparty failures could cause the Fund to forego attractive investment opportunities. The inability to dispose of a portfolio security due to settlement problems could result either in losses to the Fund due to subsequent declines
in the value of such portfolio security or, if the Fund has entered into a contract to sell the security, could result in possible liability to the purchaser.
Rules adopted under the 1940 Act permit the Fund to maintain its foreign securities and cash in the custody of certain eligible
non-U.S.
banks and securities
depositories. Certain banks in foreign countries may not be eligible
sub-custodians,
as defined in the 1940 Act, for the Fund, in which event the Fund may be precluded from purchasing securities in
certain foreign countries in which it otherwise would invest or which may result in the Funds incurring additional costs and delays in providing transportation and custody services for such securities outside of such countries. The Fund may
encounter difficulties in effecting on a timely basis portfolio transactions with respect to any securities of issuers held outside their countries. Other banks that are eligible foreign
sub-custodians
may be
recently organized or otherwise lack extensive operating experience. In addition, in certain countries there may be legal restrictions or limitations on the ability of the Fund to recover assets held in custody by foreign
sub-custodians
in the event of the bankruptcy of the
sub-custodian.
Certain of the risks associated with international investments and investing in smaller capital markets are heightened for investments in emerging market countries. For example, some of the currencies of
emerging market countries have experienced devaluation relative to the U.S. dollar, and major adjustments have been made periodically in certain of such currencies. Certain of such countries face serious exchange constraints. In addition,
governments of many emerging market countries have exercised and continue to exercise substantial influence over many aspects of the private sector. In certain cases, the government owns or controls many companies. Accordingly, government actions in
the future could have a significant effect on economic conditions in developing countries which could affect private sector companies and consequently, the value of certain securities held in the Funds portfolio.
Investment in certain emerging market securities is restricted or controlled to varying degrees which may at times limit or preclude
investment in certain emerging market securities and increase the costs and expenses of
25
the Fund. Certain emerging market countries require governmental approval prior to investments by foreign persons, limit the amount of investment by foreign persons in a particular issuer, limit
the investment by foreign persons only to a specific class of securities of an issuer that may have less advantageous rights than other classes, restrict investment opportunities in issuers in industries deemed important to national interests and/or
impose additional taxes on foreign investors. For a discussion of the U.S. federal income tax consequences applicable to foreign investors, see Tax Matters.
The manner in which foreign investors may invest in companies in certain emerging market countries, as well as limitations on such investments, also may have an adverse impact on the operations of the
Fund. For example, the Fund may be required in some countries to invest initially through a local broker or other entity and then have the shares purchased
re-registered
in the name of the Fund.
Re-registration
may in some instances not occur on a timely basis, resulting in a delay during which the Fund may be denied certain of its rights as an investor.
Certain emerging market countries may require governmental approval for the repatriation of investment income, capital or the proceeds of
sales of securities by foreign investors which could adversely affect the Fund. In addition, if a deterioration occurs in the countrys balance of payments, it could impose temporary restrictions on foreign capital remittances. Investing in
local markets in emerging market countries may require the Fund to adopt special procedures, seek local government approvals or take other actions, each of which may involve additional costs to the Fund.
With respect to investments in certain emerging market countries, different legal standards may have an adverse impact on the Fund. For
example, while the potential liability of a shareholder in a U.S. corporation with respect to acts of the corporation is generally limited to the amount of the shareholders investment, the notion of limited liability is less clear in certain
emerging market countries. Similarly, the rights of investors in emerging market companies may be more limited than those of shareholders of U.S. corporations.
Certain markets are in only the earliest stages of development. There is also a high concentration of market capitalization and trading volume in a small number of issuers representing a limited number of
industries, as well as a high concentration of investors and financial intermediaries. Many of such markets also may be affected by developments with respect to more established markets in the region. Brokers in emerging market countries typically
are fewer in number and less capitalized than brokers in the United States. These factors, combined with the U.S. regulatory requirements for investment companies and the restrictions on foreign investment, result in potentially fewer investment
opportunities for the Fund and may have an adverse impact on the investment performance of the Fund.
Depositary Receipts
The Funds investments in non-U.S. issuers may include investment in depositary receipts, including American Depositary Receipts
(ADRs), European Depositary Receipts (EDRs), and Global Depositary Receipts (GDRs). U.S. dollar-denominated ADRs, which are traded in the United States on exchanges or over-the-counter, are issued by domestic banks. ADRs represent the right to
receive securities of foreign issuers deposited in a domestic bank or a correspondent bank. ADRs do not eliminate all the risk inherent in investing in the securities of foreign issuers. However, by investing in ADRs rather than directly in foreign
issuers stock, the Fund can avoid currency risks during the settlement period for either purchases or sales. In general, there is a large, liquid market in the United States for many ADRs. The information available for ADRs is subject to the
accounting, auditing and financial reporting standards of the domestic market or exchange on which they are traded, which standards are more uniform and more exacting than those to which many foreign issuers may be subject. The Fund also may invest
in EDRs, GDRs, and in other similar instruments representing securities of foreign companies. EDRs and GDRs are securities that are typically issued by foreign banks or foreign trust companies, although U.S. banks or U.S. trust companies may issue
them. EDRs and GDRs are structured similarly to the arrangements of ADRs. EDRs, in bearer form, are designed for use in European securities markets and are not necessarily denominated in the currency of the underlying security.
26
Certain depositary receipts, typically those denominated as unsponsored, require the holders
thereof to bear most of the costs of the facilities while issuers of sponsored facilities normally pay more of the costs thereof. The depository of an unsponsored facility frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited securities or to pass through the voting rights to facility holders in respect to the deposited securities, whereas the depository of a sponsored facility typically distributes shareholder communications and
passes through voting rights.
Hedging Techniques
In certain market environments, the Fund anticipates it will use various hedging techniques consistent with its top-down investment style
with the goal of enhancing its total return over the longer term. In those circumstances, the Fund will seek to mitigate key risks associated with investments in MLPs including equity securities risk, interest rate risk, commodity price risk and
regulatory risk, which, among other factors, could adversely affect market valuations of specific securities or certain sectors of the energy MLP market place, or the overall portfolio. In turn, such risks could adversely effect the secondary market
price of the Funds shares. To execute its hedging operations, the Fund may sell call options, buy call or put options, invest in structured notes or exchange-traded notes or use other derivatives developed in the future. Certain of the
potential hedging techniques are discussed in the following paragraphs. The Funds use of hedging techniques will be market driven and discretionary, based primarily upon the proprietary analytical methods and qualitative judgments of the MLP
Team coupled with the oversight of NFALLC. There can be no assurance that the hedging techniques, as they may be developed and implemented by the Fund, will be successful in mitigating risk or achieving the goal of enhancing the Funds
risk-adjusted total return over the longer term.
The Fund may sell call options on a portion of the Funds
portfolio of equity securities and on MLP-based securities indices or certain exchange-traded notes. The extent of the Funds equity call option selling activity (which may at times be little or none, and at other times, may be on a substantial
portion of the Funds Managed Assets) will depend on market conditions and an ongoing assessment of the attractiveness (from a risk-adjusted total return standpoint) of selling call options. Generally, the Fund does not intend to sell call
options for the express purpose of generating option premiums to enhance distributions to shareholders. To seek to hedge a portion of the Funds equity securities risk or individual security price risk, the Fund may buy call or put options on a
portion of the Funds portfolio of equity securities and on MLP-based securities indices or certain exchange-traded notes. To seek to hedge a portion of the Funds commodity market risk, the Fund may buy put or call options on energy
commodity futures.
The Funds use of derivatives such as the purchase of put or call options may generate costs that
would reduce the Funds net asset value. These capital costs may be offset over time by gains generated from hedging. The potential to achieve such gains will depend largely on the MLP Teams investment capabilities in executing the
Funds hedging techniques.
New Securities and Other Investment Techniques
New types of securities and other investment and hedging practices are developed from time to time. The MLP Team expects, consistent with
the Funds investment objective and policies, to invest in such new types of securities and to engage in such new types of investment practices if the MLP Team believes that these investments and investment techniques may assist the Fund in
achieving its investment objective. In addition, the MLP Team may use investment techniques and instruments that are not specifically described herein.
Short-Term Debt Securities; Temporary Defensive Position;
Invest-Up
Period
During the period in which the net proceeds of the offering of Common Shares are being invested, the proceeds from the issuance of Preferred Shares, if any, commercial paper or notes and/or other
borrowings are being invested, or during periods in which NFALLC or the MLP Team determines that it is temporarily unable to
27
follow the Funds investment strategy or that it is impractical to do so, the Fund may deviate from its investment strategy and invest all or any portion of its Managed Assets in cash and
cash equivalents. NFALLC or the MLP Teams determination that it is temporarily unable to follow the Funds investment strategy or that it is impracticable to do so will generally occur only in situations in which a market disruption event
has occurred and where trading in the securities selected through application of the Funds investment strategy is extremely limited or absent. In such a case, the Fund may not pursue or achieve its investment objective.
Cash and cash equivalents are defined to include, without limitation, the following:
(1)
Non-U.S.
government securities which have received the highest
investment-grade credit rating and U.S. government securities, including bills, notes and bonds differing as to maturity and rates of interest that are either issued or guaranteed by the U.S. Treasury or by U.S. Government agencies or
instrumentalities. U.S. government agency securities include securities issued by (a) the Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration and the Government
National Mortgage Association, whose securities are supported by the full faith and credit of the United States; (b) the Federal Home Loan Banks, Federal Intermediate Credit Banks, and the Tennessee Valley Authority, whose securities are
supported by the right of the agency to borrow from the U.S. Treasury; (c) the Federal National Mortgage Association, whose securities are supported by the discretionary authority of the U.S. Government to purchase certain obligations of the
agency or instrumentality; and (d) the Student Loan Marketing Association, whose securities are supported only by its credit. While the U.S. Government provides financial support to such U.S. Government-sponsored agencies or instrumentalities,
no assurance can be given that it always will do so since it is not so obligated by law. The U.S. Government, its agencies and instrumentalities do not guarantee the market value of their securities. Consequently, the value of such securities may
fluctuate.
(2) Certificates of deposit issued against funds deposited in a bank or a savings and loan
association. Such certificates are for a definite period of time, earn a specified rate of return, and are normally negotiable. The issuer of a certificate of deposit agrees to pay the amount deposited plus interest to the bearer of the certificate
on the date specified thereon. Under current Federal Deposit Insurance Corporation regulations, the maximum insurance payable as to any one certificate of deposit is $250,000; therefore, certificates of deposit purchased by the Fund may not be fully
insured.
(3) Commercial paper, which consists of short-term unsecured promissory notes, including variable
rate master demand notes issued by corporations to finance their current operations. Investments in commercial paper will be limited to commercial paper rated in the highest categories by an NRSRO and which mature within one year of the date of
purchase or carry a variable rate of interest. Master demand notes are direct lending arrangements between the Fund and a corporation. There is no secondary market for such notes. However, they are redeemable by the Fund at any time. The MLP Team
will consider the financial condition of the corporation (
e.g.
, earning power, cash flow, and other liquidity measures) and will continuously monitor the corporations ability to meet all of its financial obligations, because the
Funds liquidity might be impaired if the corporation were unable to pay principal and interest on demand.
(4) The Fund may invest in bankers acceptances, which are short-term credit instruments used to finance commercial transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific merchandise. The draft is then accepted by a bank that, in effect, unconditionally guarantees to pay the face value of the instrument on its maturity date.
The acceptance may then be held by the accepting bank as an asset or it may be sold in the secondary market at the going rate of interest for a specific maturity.
(5) The Fund may invest in bank time deposits, which are monies kept on deposit with banks or savings and loan
associations for a stated period of time at a fixed rate of interest. There may be penalties for the early withdrawal of such time deposits, in which case the yields of these investments will be reduced.
(6) The Fund may invest in shares of money market funds in accordance with the provisions of the 1940 Act, the rules
thereunder and interpretations thereof.
28
SEGREGATION OF ASSETS
As a closed-end investment company registered with the SEC, the Fund is subject to the federal securities laws, including the 1940 Act,
the rules thereunder, and various interpretive provisions of the SEC and its staff. In accordance with these laws, rules and positions, the Fund must set aside (often referred to as asset segregation) liquid assets, or engage
in other SEC or staff-approved measures, to cover open positions with respect to certain kinds of derivatives instruments. In the case of forward currency contracts that are not contractually required to cash settle, for example, the
Fund must set aside liquid assets equal to such contracts full notional value while the positions are open. With respect to forward currency contracts that are contractually required to cash settle, however, the Fund is permitted to set aside
liquid assets in an amount equal to the Funds daily marked-to-market net obligations (
i.e.
, the Funds daily net liability) under the contracts, if any, rather than such contracts full notional value. The Fund reserves the
right to modify its asset segregation policies in the future to comply with any changes in the positions from time to time articulated by the SEC or its staff regarding asset segregation.
To the extent that the Fund uses its assets to cover its obligations as required by the 1940 Act, the rules thereunder, and applicable
positions of the SEC and its staff, such assets may not be used to cover other obligations. As a result of their segregation, such assets may not be used for other operational purposes. NFALLC will monitor the Funds use of derivatives and will
take action as necessary for the purpose of complying with the asset segregation policy stated above. Such actions may include the sale of the Funds portfolio investments.
29
MANAGEMENT OF THE FUND
Trustees and Officers
The management of the Fund, including general supervision of the duties performed for the Fund under the investment management agreement
with NFALLC (as defined under Investment Adviser, Sub-Adviser and Portfolio ManagersInvestment Management Agreement and Related Fees), is the responsibility of the Board of Trustees of the Fund. The number of trustees of the Fund
is twelve, two of whom are interested persons (as the term interested person is defined in the 1940 Act) and ten whom are not interested persons (referred to herein as independent trustees). None of the
independent trustees has ever been a trustee, director or employee of, or consultant to, Nuveen Investments, Inc. (Nuveen Investments), NFALLC or their affiliates. The Board of Trustees is divided into three classes, Class I, Class II
and Class III, the Class I trustees serving until the 2016 annual meeting, the Class II trustees serving until the 2014 annual meeting and the Class III trustees serving until the 2015 annual meeting, in each case until their respective successors
are elected and qualified, as described below. Currently, William C. Hunter, Judith M. Stockdale, Carole E. Stone and Virginia L. Stringer are slated in Class I, William Adams IV, David J. Kundert, John K. Nelson and Terence J. Toth are slated in
Class II and Robert P. Bremner, Jack B. Evans, William J. Schneider and Thomas S. Schreier, Jr. are slated in Class III. The officers of the Fund serve annual terms and are approved by the Board on an annual basis. The names, business addresses and
years of birth of the trustees and officers of the Fund, their principal occupations and other affiliations during the past five years, the number of portfolios each oversees and other directorships they hold are set forth below. The trustees of the
Fund are directors or trustees, as the case may be, of 106 Nuveen-sponsored
open-end
funds (Nuveen Mutual Funds) and 100 Nuveen-sponsored
closed-end
funds
(collectively with the Nuveen Mutual Funds, Nuveen Funds).
|
|
|
|
|
|
|
|
|
|
|
Name, Year of Birth
and Business Address
|
|
Position(s)
Held with
Fund
|
|
Term of Office
and Length
of
Time Served with
Fund
|
|
Principal Occupation(s)
During Past Five Years
|
|
Number of
Portfolios
in Fund
Complex
Overseen By
Trustee
|
|
Other
Directorships
Held
by
Trustee
During Past
5 Years
|
Independent Trustees:
|
|
|
|
|
|
|
William J. Schneider
1944
333 West Wacker Drive
Chicago, IL
60606
|
|
Chairman of
the Board
and Trustee
|
|
TermClass III
Length of Service
Since
2010
|
|
Chairman of Miller-Valentine Partners, a real estate investment company; Board Member of Med-America Health System, of Tech Town, Inc., a not-for-profit community development
company, and of WDPR Public Radio Station; formerly, Senior Partner and Chief Operating Officer (retired 2004) of Miller-Valentine Group; formerly, Director, Dayton Development Coalition; formerly, Board member, Business Advisory Council, Cleveland
Federal Reserve Bank and University of Dayton Business School Advisory Council.
|
|
206
|
|
None
|
30
|
|
|
|
|
|
|
|
|
|
|
Name, Year of Birth
and Business Address
|
|
Position(s)
Held with
Fund
|
|
Term of Office
and Length
of
Time Served with
Fund
|
|
Principal Occupation(s)
During Past Five Years
|
|
Number of
Portfolios
in Fund
Complex
Overseen By
Trustee
|
|
Other
Directorships
Held
by
Trustee
During Past
5 Years
|
Robert P. Bremner
1940
333 West Wacker Drive
Chicago, IL 60606
|
|
Trustee
|
|
TermClass III
Length
of
ServiceSince
2010
|
|
Private Investor and Management Consultant; Treasurer and Director, Humanities Council of Washington, D.C.; Board Member, Independent Directors Council affiliated with the
Investment Company Institute.
|
|
206
|
|
None
|
|
|
|
|
|
|
Jack B. Evans
1948
333 West Wacker Drive
Chicago, IL 60606
|
|
Trustee
|
|
TermClass III
Length
of
ServiceSince
2010
|
|
President, The Hall-Perrine Foundation, a private philanthropic corporation (since 1996); Director, Source Media Group; Life Trustee of Coe College and the Iowa College Foundation;
formerly, Director, Federal Reserve Bank of Chicago; formerly, President and Chief Operating Officer, SCI Financial Group, Inc., a regional financial services firm; formerly, member and President Pro-Tem of the Board of Regents for the State of Iowa
University System.
|
|
206
|
|
Director and Chairman, United Fire Group, a publicly held company; formerly, Director, Alliant Energy.
|
|
|
|
|
|
|
William C. Hunter
1948
333 West Wacker Drive
Chicago, IL 60606
|
|
Trustee
|
|
TermClass I
Length of
ServiceSince
2010
|
|
Dean Emeritus (since June 30, 2012), formerly, Dean, Tippie College of Business, University of Iowa (2006-2012); Director (since 2005) and President (since July 2012) of Beta Gamma
Sigma, Inc., The International Honor Society; Director of Wellmark, Inc. (since 2009); formerly, Director (1997-2007), Credit Research Center at Georgetown University; formerly, Dean and Distinguished Professor of Finance, School of Business at the
University of Connecticut (2003-2006); previously, Senior Vice President and Director of Research at the Federal Reserve Bank of Chicago (1995-2003).
|
|
206
|
|
Director (since 2004) of Xerox Corporation.
|
31
|
|
|
|
|
|
|
|
|
|
|
Name, Year of Birth
and Business Address
|
|
Position(s)
Held with
Fund
|
|
Term of Office
and Length
of
Time Served with
Fund
|
|
Principal Occupation(s)
During Past Five Years
|
|
Number of
Portfolios
in Fund
Complex
Overseen By
Trustee
|
|
Other
Directorships
Held
by
Trustee
During Past
5 Years
|
David J. Kundert
1942
333 West Wacker Drive
Chicago, IL 60606
|
|
Trustee
|
|
TermClass II
Length of
ServiceSince
2010
|
|
Formerly, Director, Northwestern Mutual Wealth Management Company (2006-2013); retired (since 2004) as Chairman, JPMorgan Fleming Asset Management, President and CEO, Banc One
Investment Advisors Corporation, and President, One Group Mutual Funds; prior thereto, Executive Vice President, Banc One Corporation and Chairman and CEO, Banc One Investment Management Group; Regent Emeritus, Member of Investment Committee, Luther
College; member of the Wisconsin Bar Association; member of Board of Directors, Friends of Boerner Botanical Gardens; member of Board of Directors and Chair of Investment Committee, Greater Milwaukee Foundation; member of the Board of Directors
(Milwaukee), College Possible.
|
|
206
|
|
None
|
32
|
|
|
|
|
|
|
|
|
|
|
Name, Year of Birth
and Business Address
|
|
Position(s)
Held with
Fund
|
|
Term of Office
and Length
of
Time Served with
Fund
|
|
Principal Occupation(s)
During Past Five Years
|
|
Number of
Portfolios
in Fund
Complex
Overseen By
Trustee
|
|
Other
Directorships
Held
by
Trustee
During Past
5 Years
|
John K. Nelson
1962
333 West Wacker Drive
Chicago, Il 60606
|
|
Trustee
|
|
TermClass II
Length of
ServiceSince
2013
|
|
Senior external advisor to the financial services practice of Deloitte Consulting LLP (since 2012); Member of the Board of Directors of Core12 LLC (since 2008), a private firm
which develops branding, marketing and communications strategies for clients; Director of the Curran Center for Catholic American Studies (since 2009) and The Presidents Council, Fordham University (since 2010); former Chairman of the Board of
Trustees of Marian University (2010-2014 as trustee, 2011-2014 as Chairman); formerly, Chief Executive Officer of ABN AMRO N.V. North America, and Global Head of its Financial Markets Division (2007-2008); prior senior positions held at ABN AMRO
include Corporate Executive Vice President and Head of Global Marketsthe Americas (2006-2007), CEO of Wholesale BankingNorth America and Global Head of Foreign Exchange and Futures Markets (2001-2006), and Regional Commercial Treasurer
and Senior Vice President TradingNorth America (1996-2001); formerly, Trustee at St. Edmund Preparatory School in New York City.
|
|
206
|
|
None
|
|
|
|
|
|
|
Judith M. Stockdale
1947
333 West Wacker Drive
Chicago, IL 60606
|
|
Trustee
|
|
TermClass I
Length of
ServiceSince
2010
|
|
Board Member, Land Trust Alliance (since June 2013) and U.S. Endowment for Forestry and Communities (since November 2013); formerly, Executive Director (1994-2012), Gaylord and
Dorothy Donnelley Foundation; prior thereto, Executive Director, Great Lakes Protection Fund (1990-1994).
|
|
206
|
|
None
|
33
|
|
|
|
|
|
|
|
|
|
|
Name, Year of Birth
and Business Address
|
|
Position(s)
Held with
Fund
|
|
Term of Office
and Length
of
Time Served with
Fund
|
|
Principal Occupation(s)
During Past Five Years
|
|
Number of
Portfolios
in Fund
Complex
Overseen By
Trustee
|
|
Other
Directorships
Held
by
Trustee
During Past
5 Years
|
Carole E. Stone
1947
333 West Wacker Drive
Chicago, IL 60606
|
|
Trustee
|
|
TermClass I
Length of
ServiceSince
2010
|
|
Director, Chicago Board Options Exchange (since 2006); Director, C2 Options Exchange, Incorporated (since 2009); formerly, Commissioner, New York State Commission on Public
Authority Reform (2005-2010); formerly, Chair, New York Racing Association Oversight Board (2005-2007).
|
|
206
|
|
Director, CBOE Holdings, Inc. (since 2010).
|
|
|
|
|
|
|
Virginia L. Stringer
1944
333 West Wacker Drive
Chicago, IL 60606
|
|
Trustee
|
|
TermClass I
Length of
ServiceSince
2011
|
|
Board Member, Mutual Fund Directors Forum; formerly, Member, Governing Board, Investment Company Institutes Independent Directors Council; Governance consultant and non-profit
board member; formerly, Owner and President, Strategic Management Resources, Inc., a management consulting firm; previously, held several executive positions in general management, marketing and human resources at IBM and The Pillsbury
Company.
|
|
206
|
|
Previously, Independent Director, (1987-2010) and Chair
(1997-2010),
First American Fund
Complex
|
34
|
|
|
|
|
|
|
|
|
|
|
Name, Year of Birth
and Business Address
|
|
Position(s)
Held with
Fund
|
|
Term of Office
and Length
of
Time Served with
Fund
|
|
Principal Occupation(s)
During Past Five Years
|
|
Number of
Portfolios
in Fund
Complex
Overseen By
Trustee
|
|
Other
Directorships
Held
by
Trustee
During Past
5 Years
|
Terrence J. Toth
1959
333 West Wacker Drive
Chicago, IL 60606
|
|
Trustee
|
|
TermClass II
Length of
ServiceSince
2010
|
|
Managing Partner, Promus Capital (since 2008); Director, Fulcrum IT Service LLC (since 2010), Quality Control Corporation (since 2012) and LogicMark LLC (since 2012); formerly,
Director, Legal & General Investment Management America, Inc. (2008-2013); formerly, CEO and President, Northern Trust Global Investments (2004-2007); Executive Vice President, Quantitative Management & Securities Lending (2000-2004); prior
thereto, various positions with Northern Trust Company (since 1994); member: Chicago Fellowship Board (since 2005), Catalyst Schools of Chicago Board (since 2008) and Mather Foundation Board (since 2012), and a member of its investment committee;
formerly, Member, Northern Trust Mutual Funds Board (2005-2007), Northern Trust Global Investments Board (2004-2007), Northern Trust Japan Board (2004-2007), Northern Trust Securities Inc. Board (2003-2007) and Northern Trust Hong Kong Board
(1997-2004).
|
|
206
|
|
None
|
|
|
|
|
|
|
William Adams IV
(1)
1955
333 West Wacker Drive
Chicago, IL 60606
|
|
Trustee
|
|
TermClass II
Length of
Service
Since 2013
|
|
Senior Executive Vice President, Global Structured Products of Nuveen Investments, Inc. (since 2010); Co-President of Nuveen Fund Advisors, LLC (since 2011); President (since 2011),
formerly, Managing Director (2010-2011), of Nuveen Commodities Asset Management, LLC; Board Member of the Chicago Symphony Orchestra and of Gildas Club Chicago; formerly, Executive Vice President, U.S. Structured Products, of Nuveen
Investments, Inc. (1999-2010).
|
|
132
|
|
None
|
35
|
|
|
|
|
|
|
|
|
|
|
Name, Year of Birth
and Business Address
|
|
Position(s)
Held with
Fund
|
|
Term of Office
and Length
of
Time Served with
Fund
|
|
Principal Occupation(s)
During Past Five Years
|
|
Number of
Portfolios
in Fund
Complex
Overseen By
Trustee
|
|
Other
Directorships
Held
by
Trustee
During Past
5 Years
|
Thomas S. Schreier, Jr.
(1)
1962
333 West Wacker Drive
Chicago, IL 60606
|
|
Trustee
|
|
TermClass III
Length of
Service
Since 2013
|
|
Vice Chairman, Wealth Management of Nuveen Investments, Inc. (since 2011); Co-President of Nuveen Fund Advisors, LLC (since 2011); Chairman of Nuveen Asset Management, LLC (since
2011); Co-Chief Executive Officer of Nuveen Securities, LLC (since 2011); Member of the Board of Governors and Chairmans Council of the Investment Company Institute; formerly, Chief Executive Officer (2000-2010) and Chief Investment Officer
(2007-2010) of FAF Advisors, Inc.; formerly, President of First American Funds (2001-2010).
|
|
132
|
|
None
|
(1)
|
Interested person as defined in the 1940 Act, by reason of his positions with Nuveen Investments and certain of its subsidiaries.
|
36
OFFICER INFORMATION
|
|
|
|
|
|
|
|
|
Name, Year of Birth
and Business Address
|
|
Position(s) Held
with Fund
|
|
Term of Office and
Length of
Time Served with
Fund
|
|
Principal Occupations Including Other
Directorships During Past Five
Years
|
|
Number of
Portfolios
in Fund
Complex
Overseen by
Officer
|
Gifford R. Zimmerman
1956
333 West Wacker Drive
Chicago, IL
60606
|
|
Chief
Administrative
Officer
|
|
TermUntil
August 2014
Length
of
ServiceSince
2010
|
|
Managing Director (since 2002) and Assistant Secretary of Nuveen Securities, LLC; Managing Director (since 2002), Assistant Secretary (since 1997) and Co-General Counsel (since
2011) of Nuveen Fund Advisors, LLC; Managing Director, Assistant Secretary and Associate General Counsel of Nuveen Asset Management, LLC (since 2011); Managing Director (since 2004) and Assistant Secretary (since 1994) of Nuveen Investments, Inc.;
Vice President and Assistant Secretary of NWQ Investment Management Company, LLC (since 2002); Vice President and Assistant Secretary of Nuveen Investments Advisers Inc. (since 2002); Managing Director, Associate General Counsel and Assistant
Secretary of Symphony Asset Management LLC (since 2003); Vice President and Assistant Secretary of Santa Barbara Asset Management, LLC (since 2006) and Winslow Capital Management, LLC (since 2010); Vice President and Assistant Secretary (since
2013), formerly, Chief Administrative Officer and Chief Compliance Officer (2006-2013) of Nuveen Commodities Asset Management, LLC; Chartered Financial Analyst.
|
|
206
|
|
|
|
|
|
Cedric H. Antosiewicz
1962
333 West Wacker Drive
Chicago, IL 60606
|
|
Vice President
|
|
TermUntil
August 2014
Length
of
ServiceSince
2010
|
|
Managing Director of Nuveen Securities, LLC.
|
|
100
|
37
|
|
|
|
|
|
|
|
|
Name, Year of Birth
and Business Address
|
|
Position(s) Held
with Fund
|
|
Term of Office and
Length of
Time Served with
Fund
|
|
Principal Occupations Including Other
Directorships During Past Five
Years
|
|
Number of
Portfolios
in Fund
Complex
Overseen by
Officer
|
Margo L. Cook
1964
333 West Wacker Drive
Chicago, IL 60606
|
|
Vice President
|
|
TermUntil
August 2014
Length
of
ServiceSince
2010
|
|
Executive Vice President (since 2008) of Nuveen Investments, Inc., Nuveen Fund Advisors, LLC (since 2011) and Nuveen Securities, LLC (since 2013); Managing Director-Investment
Services of Nuveen Commodities Asset Management, LLC (since August 2011); previously, Head of Institutional Asset Management (2007-2008) of Bear Stearns Asset Management; Head of Institutional Asset Management (1986-2007) of Bank of NY Mellon;
Chartered Financial Analyst.
|
|
206
|
|
|
|
|
|
Lorna C. Ferguson
1945
333 West Wacker Drive
Chicago, IL 60606
|
|
Vice President
|
|
TermUntil
August 2014
Length
of
ServiceSince
2010
|
|
Managing Director of Nuveen Investments Holdings, Inc.
|
|
206
|
|
|
|
|
|
Stephen D. Foy
1954
333 West Wacker Drive
Chicago, IL 60606
|
|
Vice President
and Controller
|
|
TermUntil
August 2014
Length
of
ServiceSince
2010
|
|
Managing Director (since 2014), formerly, Senior Vice President (since 2013-2014), formerly, Vice President of Nuveen Fund Advisors, LLC; Chief Financial Officer of Nuveen
Commodities Asset Management, LLC (since 2010); Senior Vice President (2010-2011), formerly, Vice President (2005-2010) and Funds Controller of Nuveen Securities, LLC; Certified Public Accountant.
|
|
206
|
38
|
|
|
|
|
|
|
|
|
Name, Year of Birth
and Business Address
|
|
Position(s) Held
with Fund
|
|
Term of Office and
Length of
Time Served with
Fund
|
|
Principal Occupations Including Other
Directorships During Past Five
Years
|
|
Number of
Portfolios
in Fund
Complex
Overseen by
Officer
|
Scott S. Grace
1970
333 West Wacker Drive
Chicago, IL 60606
|
|
Vice President
and Treasurer
|
|
TermUntil
August 2014
Length
of
ServiceSince
2010
|
|
Managing Director and Treasurer (since 2009) of Nuveen Investments Advisers Inc., Nuveen Investments Holdings, Inc., Nuveen Fund Advisors, LLC, Nuveen Securities, LLC and (since
2011) Nuveen Asset Management, LLC; Vice President and Treasurer of NWQ Investment Management Company, LLC, Tradewinds Global Investors, LLC, Symphony Asset Management LLC and Winslow Capital Management, LLC; Vice President of Santa Barbara Asset
Management, LLC; formerly, Treasurer (2006-2009), Senior Vice President (2008-2009), previously, Vice President (2006-2008) of Janus Capital Group, Inc.; formerly, Senior Associate in Morgan Stanleys Global Financial Services Group
(2000-2003); Chartered Accountant.
|
|
206
|
|
|
|
|
|
Walter M. Kelly
1970
333 West Wacker Drive
Chicago, IL 60606
|
|
Vice President
and Chief
Compliance
Officer
|
|
TermUntil
August 2014
Length
of
ServiceSince
2010
|
|
Senior Vice President (since 2008) of Nuveen Investment Holdings, Inc.
|
|
206
|
|
|
|
|
|
Tina M. Lazar
1961
333 West Wacker Drive
Chicago, IL 60606
|
|
Vice President
|
|
TermUntil
August 2014
Length
of
ServiceSince
2010
|
|
Senior Vice President of Nuveen Investments Holdings, Inc.
|
|
206
|
39
|
|
|
|
|
|
|
|
|
Name, Year of Birth
and Business Address
|
|
Position(s) Held
with Fund
|
|
Term of Office and
Length of
Time Served with
Fund
|
|
Principal Occupations Including Other
Directorships During Past Five
Years
|
|
Number of
Portfolios
in Fund
Complex
Overseen by
Officer
|
Kevin J. McCarthy
1966
333 West Wacker Drive
Chicago, IL 60606
|
|
Vice President
and Secretary
|
|
TermUntil
August 2014
Length
of
ServiceSince
2010
|
|
Managing Director and Assistant Secretary (since 2008) of Nuveen Securities, LLC and Nuveen Investments, Inc.; Managing Director (since 2008), Assistant Secretary (since 2007) and
Co-General
Counsel (since 2011) of Nuveen Fund Advisors, LLC; Managing Director, Assistant Secretary and Associate General Counsel (since 2011) of Nuveen Asset Management, LLC; Managing Director (since 2008) and
Assistant Secretary of Nuveen Investment Holdings, Inc., and Nuveen Invesments Advisers Inc.; Vice President (since 2007) and Assistant Secretary of NWQ Investment Management Company, LLC, NWQ Holdings, LLC, Symphony Asset Management LLC, Santa
Barbara Asset Management, LLC, and Winslow Capital Management, LLC (since 2010); Vice President (since 2010) and Assistant Secretary of Nuveen Commodities Asset Management, LLC.
|
|
206
|
|
|
|
|
|
Kathleen L. Prudhomme
1953
901 Marquette Avenue
Minneapolis, MN 55402
|
|
Vice President
and Assistant
Secretary
|
|
TermUntil
August 2014
Length
of
ServiceSince
2011
|
|
Managing Director and Assistant Secretary of Nuveen Securities, LLC (since 2011); Managing Director, Assistant Secretary and Co-General Counsel (since 2011) of Nuveen Fund Advisors,
LLC; Managing Director, Assistant Secretary and Associate General Counsel (since 2011) of Nuveen Asset Management, LLC; formerly, Deputy General Counsel, FAF Advisors, Inc. (2004-2010).
|
|
206
|
|
|
|
|
|
Joel T. Slager
1978
333 West Wacker Drive
Chicago, IL 60606
|
|
Vice President
and Assistant
Secretary
|
|
TermUntil
August 2014
Length of
ServiceSince
2013
|
|
Fund Tax Director for Nuveen Funds (since May, 2013); previously, Vice President of Morgan Stanley Investment Management, Inc., Assistant Treasurer of the Morgan Stanley Funds (from
2010 to 2013); Tax Director at PricewaterhouseCoopers LLP (from 2008 to 2010).
|
|
206
|
40
Board Leadership Structure and Risk Oversight
The Board of Directors or the Board of Trustees (as the case may be, each is referred to hereafter as the Board and the
trustees or directors of the Nuveen Funds, as applicable, are each referred to herein as Trustees) oversees the operations and management of the Nuveen Funds, including the duties performed for the Nuveen Funds by NFALLC and ARI, as
applicable. The Board has adopted a unitary board structure. A unitary board consists of one group of trustees who serve on the board of every fund in the complex (all of the independent trustees/directors serve on the Board of every fund in the
Nuveen Fund Complex; the interested trustees of the Fund are directors or trustees, as the case may be, of 32 Nuveen Mutual Funds and 100 Nuveen-sponsored closed-end funds). In adopting a unitary board structure, the Trustees seek to provide
effective governance through establishing a board, the overall composition of which, will, as a body, possess the appropriate skills, independence and experience to oversee the Nuveen Funds business. With this overall framework in mind, when
the Board, through its Nominating and Governance Committee discussed below, seeks nominees for the Board, the Trustees consider, not only the candidates particular background, skills and experience, among other things, but also whether such
background, skills and experience enhance the Boards diversity and at the same time complement the Board given its current composition and the mix of skills and experiences of the incumbent Trustees.
The Board believes the unitary board structure enhances good and effective governance, particularly given the nature of the structure of
the investment company complex. Funds in the same complex generally are served by the same service providers and personnel and are governed by the same regulatory scheme which raises common issues that must be addressed by the Trustees across the
fund complex (such as compliance, valuation, liquidity, brokerage, trade allocation or risk management). The Board believes it is more efficient to have a single board review and oversee common policies and procedures which increases the
Boards knowledge and expertise with respect to the many aspects of fund operations that are complex-wide in nature. The unitary structure also enhances the Boards influence and oversight over NFALLC, ARI and other service providers.
In an effort to enhance the independence of the Board, the Board also has a Chairman that is an independent Trustee. The
Board recognizes that a chairman can perform an important role in setting the agenda for the Board, establishing the boardroom culture, establishing a point person on behalf of the Board for fund management, and reinforcing the Boards focus on
the long-term interests of shareholders. The Board recognizes that a chairman may be able to better perform these functions without any conflicts of interests arising from a position with fund management. Accordingly, the Trustees have elected
William J. Schneider as the independent Chairman of the Board. Specific responsibilities of the Chairman include: (i) presiding at all meetings of the Board and of the shareholders; (ii) seeing that all orders and resolutions of the
Trustees are carried into effect; and (iii) maintaining records of and, whenever necessary, certifying all proceedings of the Trustees and the shareholders.
Although the Board has direct responsibility over various matters (such as advisory contracts, underwriting contracts and Fund performance), the Board also exercises certain of its oversight
responsibilities through several committees that it has established and which report back to the full Board. The Board believes that a committee structure is an effective means to permit the Trustees to focus on particular operations or issues
affecting the Nuveen Funds, including risk oversight. More specifically, with respect to risk oversight, the Board has delegated matters relating to valuation and compliance to certain committees (as summarized below) as well as certain aspects of
investment risk. In addition, the Board believes that the periodic rotation of Trustees among the different committees allows the Trustees to gain additional and different perspectives of the Funds operations. The Board has established seven
standing committees: the Executive Committee, the Dividend Committee, the Audit Committee, the Compliance, Risk Management and Regulatory Oversight Committee, the Nominating and Governance Committee, the Open-End Funds Committee and the Closed-End
Funds Committee. The Board may also from time to time create ad hoc committees to focus on particular issues as the need arises. The membership and functions of the standing committees are summarized below.
41
The Executive Committee, which meets between regular meetings of the Board, is
authorized to exercise all of the powers of the Board. William Adams IV, William J. Schneider, Chair, and Judith M. Stockdale serve as the current members of the Executive Committee of the Board. During the fiscal year ended November 30, 2013,
the Executive Committee did not meet.
The Dividend Committee is authorized to declare distributions on the Funds shares
including, but not limited to, regular and special dividends, capital gains and ordinary income distributions. The members of the Dividend Committee are Jack B. Evans, Chair, William C. Hunter, Judith M. Stockdale and Terence J. Toth. During the
fiscal year ended November 30, 2013, the Dividend Committee met eight
times.
The Compliance, Risk Management and
Regulatory Oversight Committee (Compliance Committee) is responsible for the oversight of compliance issues, risk management and other regulatory matters affecting the Nuveen Funds that are not otherwise the jurisdiction of the other
committees. The Board has adopted and periodically reviews policies and procedures designed to address the Nuveen Funds compliance and risk matters. As part of its duties, the Compliance Committee reviews the policies and procedures relating
to compliance matters and recommends modifications thereto as necessary or appropriate to the full Board; develops new policies and procedures as new regulatory matters affecting the Nuveen Funds arise from time to time; evaluates or considers any
comments or reports from examinations from regulatory authorities and responses thereto; and performs any special reviews, investigations or other oversight responsibilities relating to risk management, compliance and/or regulatory matters as
requested by the Board.
In addition, the Compliance Committee is responsible for risk oversight, including, but not limited
to, the oversight of risks related to investments and operations. Such risks include, among other things, exposures to particular issuers, market sectors, or types of securities; risks related to product structure elements, such as leverage; and
techniques that may be used to address those risks, such as hedging and swaps. In assessing issues brought to the committees attention or in reviewing a particular policy, procedure, investment technique or strategy, the Compliance Committee
evaluates the risks to the Nuveen Funds in adopting a particular approach or resolution compared to the anticipated benefits to the Nuveen Funds and their shareholders. In fulfilling its obligations, the Compliance Committee meets on a quarterly
basis, and at least once a year in person. The Compliance Committee receives written and oral reports from the Nuveen Funds Chief Compliance Officer (CCO) and meets privately with the CCO at each of its quarterly meetings. The CCO
also provides an annual report to the full Board regarding the operations of the Nuveen Funds and other service providers compliance programs as well as any recommendations for modifications thereto. The Compliance Committee also
receives reports from the investment services group of Nuveen regarding various investment risks. Notwithstanding the foregoing, the full Board also participates in discussions with management regarding certain matters relating to investment risk,
such as the use of leverage and hedging. The investment services group therefore also reports to the full Board at its quarterly meetings regarding, among other things, Fund performance and the various drivers of such performance. Accordingly, the
Board directly and/or in conjunction with the Compliance Committee oversees matters relating to investment risks. Matters not addressed at the committee level are addressed directly by the full Board. The committee operates under a written
charter adopted and approved by the Board of Trustees. The members of the Compliance Committee are William C. Hunter, John K. Nelson, Virginia L. Stringer and Judith M. Stockdale, Chair. During the fiscal year ended November 30,
2013, the Compliance Committee met five
times.
The Audit Committee assists the Board in the oversight and
monitoring of the accounting and reporting policies, processes and practices of the Nuveen Funds, and the audits of the financial statements of the Nuveen Funds; the quality and integrity of the financial statements of the Nuveen Funds; the Nuveen
Funds compliance with legal and regulatory requirements relating to the Nuveen Funds financial statements; the independent auditors qualifications, performance and independence; and the pricing procedures of the Nuveen Funds and
the internal valuation group of Nuveen. It is the responsibility of the Audit Committee to select, evaluate and replace any independent auditors (subject only to Board and, if applicable, shareholder ratification) and to determine their
compensation. The Audit Committee is also responsible for, among other things, overseeing the valuation of securities comprising the Nuveen Funds portfolios. Subject to the Boards general supervision of such actions,
42
the Audit Committee addresses any valuation issues, oversees the Nuveen Funds pricing procedures and actions taken by Nuveens internal valuation group which provides regular reports
to the committee, reviews any issues relating to the valuation of the Funds securities brought to its attention and considers the risks to the Funds in assessing the possible resolutions to these matters. The Audit Committee may also consider
any financial risk exposures for the Funds in conjunction with performing its functions.
To fulfill its oversight duties,
the Audit Committee receives annual and semi-annual reports and has regular meetings with the external auditors for the Nuveen Funds and the internal audit group at Nuveen Investments. The Audit Committee also may review in a general manner the
processes the Board or other Board committees have in place with respect to risk assessment and risk management as well as compliance with legal and regulatory matters relating to the Nuveen Funds financial statements. The committee operates
under a written charter adopted and approved by the Board. Members of the Audit Committee shall be independent (as set forth in the charter) and free of any relationship that, in the opinion of the Trustees, would interfere with their exercise of
independent judgment as an Audit Committee member. The members of the Audit Committee are Robert P. Bremner, Jack B. Evans, Chair, David J. Kundert, Carole E. Stone and Terence J. Toth, each of whom is an independent Director/Trustee of the Nuveen
Funds. During the fiscal year ended November 30, 2013, the Audit Committee met four
times.
The Nominating
and Governance Committee is responsible for seeking, identifying and recommending to the Board qualified candidates for election or appointment to the Board. In addition, the Nominating and Governance Committee oversees matters of corporate
governance, including the evaluation of Board performance and processes, the assignment and rotation of committee members, and the establishment of corporate governance guidelines and procedures, to the extent necessary or desirable, and matters
related thereto. Although the unitary and committee structure has been developed over the years and the Nominating and Governance Committee believes the structure has provided efficient and effective governance, the committee recognizes that as
demands on the Board evolve over time (such as through an increase in the number of funds overseen or an increase in the complexity of the issues raised), the committee must continue to evaluate the Board and committee structures and their processes
and modify the foregoing as may be necessary or appropriate to continue to provide effective governance. Accordingly, the Nominating and Governance Committee has a separate meeting each year to, among other things, review the Board and committee
structures, their performance and functions, and recommend any modifications thereto or alternative structures or processes that would enhance the Boards governance over the Nuveen Funds business.
In addition, the Nominating and Governance Committee, among other things, makes recommendations concerning the continuing education of
Trustees; monitors performance of legal counsel and other service providers; establishes and monitors a process by which security holders are able to communicate in writing with members of the Board; and periodically reviews and makes
recommendations about any appropriate changes to Director/Trustee compensation. In the event of a vacancy on the Board, the Nominating and Governance Committee receives suggestions from various sources, including shareholders, as to suitable
candidates. Suggestions should be sent in writing to Lorna Ferguson, Manager of Fund Board Relations, Nuveen Investments, 333 West Wacker Drive, Chicago, IL 60606. The Nominating and Governance Committee sets appropriate standards and requirements
for nominations for new Trustees and reserves the right to interview any and all candidates and to make the final selection of any new Trustees. In considering a candidates qualifications, each candidate must meet certain basic requirements,
including relevant skills and experience, time availability (including the time requirements for due diligence site visits to internal and external sub-advisers and service providers) and, if qualifying as an Independent Director/Trustee candidate,
independence from NFALLC, ARI, underwriters or other service providers, including any affiliates of these entities. These skill and experience requirements may vary depending on the current composition of the Board, since the goal is to ensure an
appropriate range of skills, diversity and experience, in the aggregate. Accordingly, the particular factors considered and weight given to these factors will depend on the composition of the Board and the skills and backgrounds of the incumbent
Trustees at the time of consideration of the nominees. All candidates, however, must meet high expectations of personal integrity, independence, governance experience and professional competence. All candidates must be willing to be critical
within the Board
43
and with management and yet maintain a collegial and collaborative manner toward other Board members. The committee operates under a written charter adopted and approved by the Board. This
committee is composed of the independent Trustees of the Nuveen Funds. Accordingly, the members of the Nominating and Governance Committee are Robert P. Bremner, Jack B. Evans, William C. Hunter, David J. Kundert, John K. Nelson,
William J. Schneider, Chair, Judith M. Stockdale, Carole E. Stone, Virginia L. Stringer and Terence J. Toth. During the fiscal year ended November 30, 2013, the Nominating and Governance Committee met
six times.
The Open-End Funds Committee is responsible for assisting the Board in the oversight and monitoring of the Nuveen Funds that are
registered as open-end management investment companies (Open-End Funds). The committee may review and evaluate matters related to the formation and the initial presentation to the Board of any new Open-End Fund and may review and
evaluate any matters relating to any existing Open-End Fund. The committee operates under a written charter adopted and approved by the Board. The members of the Open-End Funds Committee are Robert P. Bremner, David J. Kundert, William J. Schneider,
Judith M. Stockdale, Virginia L. Stringer and Terence J. Toth, Chair. During the fiscal year ended November 30, 2013, the Open-End Funds Committee did not meet.
The Closed-End Funds Committee is responsible for assisting the Board in the oversight and monitoring of the Nuveen Funds that are registered as closed-end investment companies (Closed-End
Funds). The committee may review and evaluate matters related to the formation and the initial presentation to the Board of any new Closed-End Fund and may review and evaluate any matters relating to any existing Closed-End Fund. The committee
operates under a written charter adopted and approved by the Board. The members of the Closed-End Funds Committee are Jack B. Evans, William C. Hunter, John K. Nelson, William J. Schneider and Carole E. Stone, Chair. During the fiscal year ended
November 30, 2013, the Closed-End Funds Committee met four
times.
Board Diversification and Director/Trustee
Qualifications
In determining that a particular Board Member was qualified to serve as a Board Member, the Board has
considered each Board Members background, skills, experience and other attributes in light of the composition of the Board with no particular factor controlling. The Board believes that Board Members need to have the ability to critically
review, evaluate, question and discuss information provided to them, and to interact effectively with Fund management, service providers and counsel, in order to exercise effective business judgment in the performance of their duties and the Board
believes each Board Member satisfies this standard. An effective Board Member may achieve this ability through his or her educational background; business, professional training or practice; public service or academic positions; experience from
service as a board member (including the Boards of the Nuveen Funds), or as an executive of investment funds, public companies or significant private or not-for-profit entities or other organizations; and or/other life experiences. Accordingly, set
forth below is a summary of the experiences, qualifications, attributes, and skills that led to the conclusion, as of the date of this document that each Board Member should continue to serve in that capacity. References to the experiences,
qualifications, attributes and skills of Board Members are pursuant to requirements of the SEC, do not constitute holding out of the Board or any Board Member as having any special expertise or experience and shall not impose any greater
responsibility or liability on any such person or on the Board by reason thereof.
William Adams IV
Mr. Adams, an interested Director/Trustee of the Nuveen Funds, has been Senior Executive Vice President, Global Structured Products of
Nuveen Investments since November 2010. Mr. Adams has also served as Co-President of NFALLC since January 2011. Prior to that, he was Executive Vice President, U.S. Structured Products from December 1999 until November 2010 and served as Managing
Director of Structured Investments from September 1997 to December 1999 and Vice President and Manager, Corporate Marketing from August 1994 to September 1997. Mr. Adams earned his Bachelor degree from Yale University and his Masters of Business
Administration (
MBA
) from the University of Chicagos Graduate School of Business. He is an Associate Fellow of Yales Timothy Dwight College and is currently on the Board of the Chicago Symphony Orchestra and of
Gildas Club Chicago.
44
Robert P. Bremner
Mr. Bremner is a private investor and management consultant in Washington, D.C. His biography of William McChesney Martin, Jr., a former chairman of the Federal Reserve Board, was published by Yale
University Press in November 2004. From 1994 to 1997, he was a Senior Vice President at Samuels International Associates, an international consulting firm specializing in governmental policies, where he served in a part-time capacity. Previously,
Mr. Bremner was a partner in the LBK Investors Partnership and was chairman and majority stockholder with ITC Investors Inc., both private investment firms. He currently serves on the Board and as Treasurer of the Humanities Council of
Washington D.C. and is a Board Member of the Independent Directors Council affiliated with the Investment Company Institute. From 1984 to 1996, Mr. Bremner was an independent Trustee of the Flagship Funds, a group of municipal open-end funds.
He began his career at the World Bank in Washington D.C. He graduated with a Bachelor of Science degree from Yale University and received his MBA from Harvard University.
Jack B. Evans
Mr. Evans has served as President of the Hall-Perrine
Foundation, a private philanthropic corporation, since 1996. Mr. Evans was formerly President and Chief Operating Officer of the SCI Financial Group, Inc., a regional financial services firm headquartered in Cedar Rapids, Iowa. Formerly, he was
a member of the Board of the Federal Reserve Bank of Chicago, a Director of Alliant Energy and President Pro Tem of the Board of Regents for the State of Iowa University System. Mr. Evans is Chairman of the Board of United Fire Group, sits on
the Board of the Source Media Group, and is a Life Trustee of Coe College. He has a Bachelor of Arts degree from Coe College and an MBA from the University of Iowa.
William C. Hunter
Mr. Hunter became Dean Emeritus of the Henry B.
Tippie College of Business at the University of Iowa on June 30, 2012. He was appointed Dean of the College effective July 1, 2006. He had been Dean and Distinguished Professor of Finance at the University of Connecticut School of Business
from 2003 to 2006. From 1995 to 2003, he was the Senior Vice President and Director of Research at the Federal Reserve Bank of Chicago. While there he served as the Banks Chief Economist and was an Associate Economist on the Federal Reserve
Systems Federal Open Market Committee (FOMC). In addition to serving as a Vice President in charge of financial markets and basic research at the Federal Reserve Bank in Atlanta, he held faculty positions at Emory University, Atlanta
University, the University of Georgia and Northwestern University. A past Director of the Credit Research Center at Georgetown University, SS&C Technologies, Inc. (2005) and past President of the Financial Management Association
International, he has consulted with numerous foreign central banks and official agencies in Western Europe, Central and Eastern Europe, Asia, Central America and South America. From 1990 to 1995, he was a U.S. Treasury Advisor to Central and
Eastern Europe. He has been a Director of the Xerox Corporation since 2004 and Wellmark, Inc. since 2009. He is a Director and President of Beta Gamma Sigma, Inc., The International Business Honor Society.
David J. Kundert
Mr. Kundert retired in 2004 as Chairman of JPMorgan Fleming Asset Management, and as President and CEO of Banc One Investment
Advisors Corporation, and as President of One Group Mutual Funds. Prior to the merger between Banc One Corporation and JPMorgan Chase and Co., he was Executive Vice President, Banc One Corporation and, since 1995, the Chairman and CEO, Banc One
Investment Management Group. From 1988 to 1992, he was President and CEO of Bank One Wisconsin Trust Company. Mr. Kundert recently retired as a Director of the Northwestern Mutual Wealth Management Company, where he served from 2006 to 2013. He
started his career as an attorney for Northwestern Mutual Life Insurance Company where he served from 2006 to 2013. Mr. Kundert has served on the Board of Governors of the Investment Company Institute and he is currently a member of the
Wisconsin Bar Association. He is on the Board of the Greater Milwaukee Foundation and chairs
45
its Investment Committee. He is Regent Emeritus of Luther College and is a member of its Investment Committee. Mr. Kundert is also a member of the Board of Directors (Milwaukee) for College
Possible. He received his Bachelor of Arts degree from Luther College, and his Juris Doctor from Valparaiso University.
John K. Nelson
Mr. Nelson is currently a senior external advisor to the financial services practice of Deloitte Consulting LLP. He is
on the Board of Directors of Core12 LLC, a private firm which develops branding, marketing, and communications strategies for clients. Mr. Nelson has served in several senior executive positions with ABN AMRO Holdings N.V. and its affiliated
entities and predecessors, including LaSalle Bank Corporation from 1996 to 2008. From 2007 to 2008, Mr. Nelson was Chief Executive Officer of ABN AMRO N.V. North America, and Global Head of its Financial Markets Division. He was a member of the
Foreign Exchange Committee of the Federal Reserve Bank of the United States, and during his tenure with ABN AMRO, served as the banks representative on various committees of the Bank of Canada, European Central Bank, and the Bank of England.
At Fordham University, he currently serves as a director of The Curran Center for Catholic American Studies, and The Presidents Council. He is also a member of The Economic Club of Chicago and The Hyde Park Angels, and was formerly a Trustee
at St. Edmund Preparatory School in New York City. He formerly served as the Chairman of The Board of Trustees of Marian University. Mr. Nelson graduated and received his MBA from Fordham University.
William J. Schneider
Mr. Schneider, the Nuveen Funds Independent Chairman, is currently Chairman, formerly Senior Partner and Chief Operating Officer
(retired, December 2004) of Miller-Valentine Partners, a real estate investment company. He is an owner in several other Miller-Valentine Group entities. He is currently a member of the boards of WDPR Public radio station, of Med-America Health
System and of Tech Town, Inc., a non-for-profit Dayton community development corporation. He is formerly a Director and Past Chair of the Dayton Development Coalition. He was formerly a member of the Community Advisory Board of the National City
Bank in Dayton as well as a former member of the Business Advisory Council of the Cleveland Federal Reserve Bank. Mr. Schneider was also a member of the Business Advisory Council for the University of Dayton College of Business. He also served as
Chair of the Miami Valley Hospital and as Chair of the Finance Committee of its parent holding company. Mr. Schneider was an independent Trustee of the Flagship Funds, a group of municipal open-end funds. Mr. Schneider has a Bachelor of Science in
Community Planning from the University of Cincinnati and a Masters of Public Administration from the University of Dayton. He has been a member of the Board since 1996.
Thomas S. Schreier, Jr.
Mr. Schreier, an interested trustee
Director/Trustee of the Nuveen Funds, has been Vice Chairman, Wealth Management of Nuveen Investments since January 2011. Mr. Schreier has also served as Co-President of NFALLC since January 2011. Until Nuveen Investments acquisition of FAF
Advisors on January 1, 2011, Mr. Schreier was Chief Executive Officer of FAF Advisors from November 2000, Chief Investment Officer of FAF Advisors from September 2007 and President of First American Funds from February 2001 to December 2010.
From 1998 to November 2000, Mr. Schreier served as Senior Managing Director and Head of Equity Research for U.S. Bancorp Piper Jaffray, Inc. He received a Bachelors degree from the University of Notre Dame and an MBA from Harvard
University. Mr. Schreier is a member of the Board of Governors of the Investment Company Institute and is on its Chairmans Council. He has also served as director, chairman of the finance committee, and member of the audit committee for
Pinnacle Airlines Corp. Mr. Schreier is former chairman of the Saint Thomas Academy Board of Trustees, a founding investor of Granite Global Ventures, and a member of the Applied Investment Management Advisory Board for the University of Notre Dame.
46
Judith M. Stockdale
At the end of 2012, Ms. Stockdale retired as Executive Director of the Gaylord and Dorothy Donnelley Foundation, a private foundation working in land conservation and artistic vitality in the Chicago
region and the Lowcountry of South Carolina. In November 2013, she joined as a board member of the U.S. Endowment for Forestry and Communities and rejoined the board of the Land Trust Alliance in June 2013. Her previous positions include Executive
Director of the Great Lakes Protection Fund, Executive Director of Openlands, and Senior Staff Associate at the Chicago Community Trust. She has served on the Boards of the National Zoological Park, the Governors Science Advisory Council
(Illinois), the Nancy Ryerson Ranney Leadership Grants Program, Friends of Ryerson Woods and the Donors Forum. Ms. Stockdale, a native of the United Kingdom, has a Bachelor of Science degree in geography from the University of Durham (UK) and a
Master of Forest Science degree from Yale University.
Carole E. Stone
Ms. Stone retired from the New York State Division of the Budget in 2004, having served as its Director for nearly five years and as
Deputy Director from 1995 through 1999. Ms. Stone is currently on the Board of Directors of the Chicago Board Options Exchange, CBOE Holdings, Inc. and C2 Options Exchange, Incorporated and was formerly a Commissioner on the New York State
Commission on Public Authority Reform. She has also served as the Chair of the New York Racing Association Oversight Board, as Chair of the Public Authorities Control Board and as a member of the Boards of Directors of several New York State public
authorities. Ms. Stone has a Bachelor of Arts from Skidmore College in Business Administration.
Virginia L. Stringer
Ms. Stringer served as the independent chair of the Board of the First American Fund Complex from 1997 to 2010, having joined such
Board in 1987. Ms. Stringer serves on the board of the Mutual Fund Directors Forum. She is a recipient of the Outstanding Corporate Director award from Twin Cities Business Monthly and the Minnesota Chapter of the National Association of
Corporate Directors. Ms. Stringer is the past board chair of the Oak Leaf Trust, emeritus director and former chair of the Saint Paul Riverfront Corporation and also served as President of the Minneapolis Clubs Governing Board. She is a
director and former board chair of the Minnesota Opera and a Life Trustee and former board member of the Voyageur Outward Bound School. She also served as a trustee of Outward Bound USA. She was appointed by the Governor of Minnesota to the Board on
Judicial Standards and served on a Minnesota Supreme Court Judicial Advisory Committee to reform the states judicial disciplinary process. She is a member of the International Womens Forum and attended the London Business School as an
International Business Fellow. Ms. Stringer recently served as board chair of the Human Resource Planning Society, the Minnesota Womens Campaign Fund and the Minnesota Womens Economic Roundtable. Ms. Stringer is the retired
founder of Strategic Management Resources, a consulting practice focused on corporate governance, strategy and leadership. She has twenty five years of corporate experience having held executive positions in general management, marketing and human
resources with IBM and the Pillsbury Company.
Terence J. Toth
Mr. Toth is a Managing Partner of Promus Capital (since 2008) and is Director of Fulcrum IT Service LLC (since 2010), Quality Control
Corporation (since 2012) and Logicmark LLC (since 2012). He was formerly a Director of Legal & General Investment Management America, Inc. from 2008 to 2013. From 2004 to 2007, he was Chief Executive Officer and President of Northern Trust
Global Investments, and Executive Vice President of Quantitative Management & Securities Lending from 2000 to 2004. He also formerly served on the Board of the Northern Trust Mutual Funds. He joined Northern Trust in 1994 after serving as
Managing Director and Head of Global Securities Lending at Bankers Trust (1986 to 1994) and Head of Government Trading and Cash Collateral Investment at Northern Trust from 1982 to 1986. He currently serves on the Board of Chicago Fellowship and is
Chairman of the Board of Catalyst Schools of Chicago. He is on the Mather Foundation Board (since 2012) and is a member of its investment committee. Mr. Toth graduated with a Bachelor of Science degree from the University of Illinois, and
received his MBA from New York University. In 2005, he graduated from the CEO Perspectives Program at Northwestern University.
47
INDEPENDENT CHAIRMAN
The trustees have elected William J. Schneider as the independent Chairman of the Board of Trustees. Specific responsibilities of the Chairman include (a) presiding at all meetings of the Board of
Trustees and of the shareholders; (b) seeing that all orders and resolutions of the trustees are carried into effect; and (c) maintaining records of and, whenever necessary, certifying all proceedings of the trustees and the shareholders.
Class I trustees will serve until the annual meeting of shareholders in 2016; Class II trustees will serve until the annual
meeting of shareholders in 2014; and Class III trustees will serve until the annual meeting of shareholders in 2015. As each trustees term expires, common shareholders will be asked to elect trustees unless any Preferred Shares are outstanding
at that time, in which event holders of Preferred Shares, voting as a separate class, will elect two trustees and the remaining trustees shall be elected by holders of the Funds common stock and holders of Preferred Stock, voting together as a
single class. Holders of Preferred Stock will be entitled to elect a majority of the Funds trustees under certain circumstances. Trustees shall be elected for a term expiring at the time of the third succeeding annual meeting subsequent to
their election or thereafter in each case when their respective successors are duly elected and qualified. These provisions could delay for up to two years the replacement of a majority of the Board of Trustees. See the Funds Prospectus under
Certain Provisions in the Declaration of Trust and
By-Laws.
SHARE OWNERSHIP
The following table sets forth the dollar range of equity securities beneficially owned by each trustee as of December
31, 2013:
|
|
|
|
|
Name of Trustee
|
|
Dollar Range
of Equity
Securities in
the Fund
|
|
Aggregate Dollar Range
of
Equity Securities in
All Registered
Investment Companies
Overseen by Trustee
in Family of Investment
Companies
|
William Adams IV*
|
|
None
|
|
Over $100,000
|
Robert P. Bremner
|
|
None
|
|
Over $100,000
|
Jack B. Evans
|
|
None
|
|
Over $100,000
|
William C. Hunter
|
|
None
|
|
Over $100,000
|
David J. Kundert
|
|
None
|
|
Over $100,000
|
John K. Nelson*
|
|
None
|
|
None
|
William S. Schneider
|
|
None
|
|
Over $100,000
|
Thomas S. Schreier, Jr*
|
|
None
|
|
Over $100,000
|
Judith M. Stockdale
|
|
None
|
|
Over $100,000
|
Carole E. Stone
|
|
None
|
|
Over $100,000
|
Virginia L. Stringer
|
|
None
|
|
Over $100,000
|
Terence J. Toth
|
|
None
|
|
Over $100,000
|
*
|
Mssrs. Adams, Nelson and Schreier were appointed to the Board of Directors/Trustees of the Nuveen Funds effective September 1, 2013.
|
No Trustee who is not an interested person of the Fund or his immediate family member owns beneficially or of record, any security of
NFALLC, Nuveen Investments, ARI or any person (other than a registered investment company) directly or indirectly controlling, controlled by or under common control with NFALLC, Nuveen Investments or ARI.
As of March 17, 2014, the officers and Trustees as a group beneficially owned less than 1% of any class of the Funds outstanding
securities. Additionally, no disinterested Trustee owned shares of NFALLC, Nuveen Investments or ARI (or any entity controlled by or under common control with NFALLC, Nuveen Investments or ARI).
48
5% Shareholders
The following table sets forth the percentage ownership of each person who, as of March 1, 2014, owned of record, or is known by the Fund to own of record beneficially, 5% of more of any class of the
Funds equity securities:*
|
|
|
|
|
|
|
Name of Equity Security
|
|
Name and Address of Owner
|
|
5% of Record Ownership
|
|
Common Stock
|
|
First Trust Portfolios L.P.
First Trust Advisors L.P.
The Charger
Corporation
120 East Liberty Drive, Suite 400
Wheaton, Illinois 60187
|
|
|
13.31
|
%
|
*
|
The information contained in this table is based on a Schedule 13G filing made February 12, 2014.
|
COMPENSATION
The
following table shows, for each independent trustee, (1) the aggregate compensation paid by the Fund for its fiscal year ended November 30, 2013, (2) the amount of total compensation paid by the Fund that has been deferred and
(3) the total compensation paid to each trustee by the Nuveen Funds during the calendar year ended December 31, 2013. The Fund does not have a retirement or pension plan. The officers and trustees affiliated with Nuveen Investments serve
without any compensation from the Fund. Certain of the Nuveen Funds have a deferred compensation plan (Compensation Plan) that permits any trustee who is not an interested person of certain funds to elect to defer receipt of
all or a portion of his or her compensation as a trustee. The deferred compensation of a participating trustee is credited to the book reserve account of a fund when the compensation would otherwise have been paid to the trustee. The value of the
trustees deferral account at any time is equal to the value that the account would have had if contributions to the account had been invested and reinvested in shares of one or more of the eligible Nuveen Funds. At the time for commencing
distributions from a trustees deferral account, the trustee may elect to receive distributions in a lump sum or over a period of five years. The Fund will not be liable for any other funds obligations to make distributions under the
Compensation Plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
Name of Trustee
|
|
Aggregate
Compensation from Fund(1)
|
|
|
Amount of Total
Compensation
from the Fund
That
Has
Been Deferred(2)
|
|
|
Total Compensation from
Fund and Fund Complex(3)
|
|
Robert P. Bremner
|
|
$
|
3,035
|
|
|
$
|
517
|
|
|
$
|
337,257
|
|
Jack B. Evans
|
|
|
5,602
|
|
|
|
1,212
|
|
|
|
288,616
|
|
William C. Hunter
|
|
|
2,233
|
|
|
|
|
|
|
|
251,250
|
|
David J. Kundert
|
|
|
2,844
|
|
|
|
2,844
|
|
|
|
311,440
|
|
John K. Nelson(4)
|
|
|
120
|
|
|
|
|
|
|
|
17,667
|
|
William J. Schneider
|
|
|
3,100
|
|
|
|
3,100
|
|
|
|
326,103
|
|
Judith M. Stockdale
|
|
|
5,719
|
|
|
|
1,068
|
|
|
|
283,063
|
|
Carole E. Stone
|
|
|
2,639
|
|
|
|
1,087
|
|
|
|
284,971
|
|
Virginia L. Stringer
|
|
|
2,332
|
|
|
|
|
|
|
|
256,750
|
|
Terence J. Toth
|
|
|
5,729
|
|
|
|
1,029
|
|
|
|
306,322
|
|
(1)
|
The compensation paid, including deferred amounts, to the independent trustees for the fiscal year ended November 30, 2013 for services to the Fund.
|
(2)
|
Pursuant to a deferred compensation agreement with certain of the Nuveen Funds, deferred amounts are treated as though an equivalent dollar amount has been invested in
shares of one or more eligible Nuveen Funds. Total deferred fees for the Fund (including the return from the assumed investment in the eligible Nuveen Funds) payable are stated above.
|
(3)
|
Based on the compensation paid (including any amounts deferred) for the calendar year ended December 31, 2013 for services to the Nuveen Funds. Because Nuveen
Funds have different fiscal year ends, the amounts shown in this column are presented on a calendar year basis.
|
(4)
|
Mr. Nelson was appointed to the Board of Trustees of the Nuveen Funds effective September 1, 2013.
|
49
For the calendar year 2013, independent trustees received a $140,000 annual retainer.
Effective January 1, 2014, the independent trustees receive a $150,000 annual retainer. The independent trustees also receive (a) a fee of $5,000 per day ($4,500 per day for the 2013 calendar year) for attendance in person or by telephone at a
regularly scheduled meeting of the Board of Trustees; (b) a fee of $3,000 per meeting for attendance in person where such
in-person
attendance is required and $2,000 per meeting for attendance by
telephone or in person where
in-person
attendance is not required at a special,
non-regularly
scheduled board meeting; (c) a fee of $2,500 per meeting for
attendance at an Audit Committee meeting where
in-person
attendance is required and $2,000 per meeting by telephone where
in-person
attendance is not required;
(d) a fee of $2,500 per meeting for attendance in person at a Compliance, Risk Management and Regulatory Oversight Committee meeting where
in-person
attendance is required and $2,000 per meeting for
attendance by telephone where
in-person
attendance is not required; (e) a fee of $1,000 per meeting for attendance in person or by telephone for a meeting of the Dividend Committee; and (f) a fee of
$500 per meeting for attendance in person at all other committee meetings ($1,000 for shareholder meetings) on a day on which no regularly scheduled board meeting is held in which
in-person
attendance is
required and $250 per meeting for attendance by telephone or in person at such committee meetings (excluding shareholder meetings) where
in-person
attendance is not required and $100 per meeting when the
Executive Committee acts as pricing committee for initial public offerings, plus, in each case, expenses incurred in attending such meetings. In addition to the payments described above, the independent Chairman of the Board of Trustees receives
$75,000, the chairpersons of the Audit Committee, the Dividend Committee and the Compliance, Risk Management and Regulatory Oversight Committee receive $10,000 and the chairperson of the Nominating and Governance Committee receives $5,000 as
additional retainers to the annual retainer paid to such individuals. Independent trustees also receive a fee of $3,000 per day for site visits to entities that provide services to the Nuveen Funds on days on which no regularly scheduled board
meeting is held. When ad hoc committees are organized, the Nominating and Governance Committee will at the time of formation determine compensation to be paid to the members of such committee; however, in general, such fees will be $1,000 per
meeting for attendance in person at any ad hoc committee meeting where
in-person
attendance is required and $500 per meeting for attendance by telephone or in person at such meetings where
in-person
attendance is not required. The annual retainer, fees and expenses are allocated among the Nuveen Funds on the basis of relative net asset sizes, although fund management may, in its discretion, establish
a minimum amount to be allocated to each fund.
As noted above, effective January 1, 2014, the annual retainer paid to each
independent director is $150,000 and a $5,000 fee for attendance in person or by telephone at regularly scheduled meetings of the Board. All other compensation listed above remains the same.
The Fund has no employees. Its officers are compensated by Nuveen Investments or its affiliates.
INVESTMENT ADVISER, SUB-ADVISER AND PORTFOLIO MANAGERS
Investment Adviser.
Nuveen Fund Advisors, LLC, a registered investment adviser, is responsible for determining the
Funds overall investment strategy and its implementation and ongoing monitoring of the MLP Team. NFALLC also is responsible for managing the Funds business affairs and providing certain clerical, bookkeeping and other administrative
services.
NFALLC, 333 West Wacker Drive, Chicago, Illinois 60606, is a wholly owned subsidiary of Nuveen Investments. Founded
in 1898, Nuveen Investments and its affiliates had approximately $214.9 billion in assets under management as of September 30, 2013.
Investment Management Agreement and Related Fees.
Pursuant to an investment management agreement between NFALLC and the Fund (Investment Management Agreement), the Fund has
agreed to pay an annual management fee for the overall advisory and administrative services and general office facilities provided by NFALLC. The Funds management fee is separated into two componentsa complex-level component, based on
50
the aggregate amount of all fund assets managed by NFALLC, and a specific fund-level component, based only on the amount of assets within the Fund. This pricing structure enables Nuveen fund
shareholders to benefit from growth in the assets within each individual fund as well as from growth in the amount of complex-wide assets managed by NFALLC.
Fund-Level Fee.
The annual fund-level fee for the Fund, payable monthly, is calculated according to the following schedule:
|
|
|
|
|
Average Daily Managed Assets(1)
|
|
Fund-Level Fee Rate
|
|
For the first $500 million
|
|
|
0.9000
|
%
|
For the next $500 million
|
|
|
0.8750
|
%
|
For the next $500 million
|
|
|
0.8500
|
%
|
For the next $500 million
|
|
|
0.8250
|
%
|
For managed assets over $2 billion
|
|
|
0.8000
|
%
|
Complex-Level Fee.
The annual complex-level fee for the Fund, payable monthly, is calculated according to the
following schedule:
|
|
|
|
|
Complex-Level Managed Asset Breakpoint Level(2)
|
|
Effective Rate at
Breakpoint Level
|
|
$55 billion
|
|
|
0.2000
|
%
|
$56 billion
|
|
|
0.1996
|
%
|
$57 billion
|
|
|
0.1989
|
%
|
$60 billion
|
|
|
0.1961
|
%
|
$63 billion
|
|
|
0.1931
|
%
|
$66 billion
|
|
|
0.1900
|
%
|
$71 billion
|
|
|
0.1851
|
%
|
$76 billion
|
|
|
0.1806
|
%
|
$80 billion
|
|
|
0.1773
|
%
|
$91 billion
|
|
|
0.1691
|
%
|
$125 billion
|
|
|
0.1599
|
%
|
$200 billion
|
|
|
0.1505
|
%
|
$250 billion
|
|
|
0.1469
|
%
|
$300 billion
|
|
|
0.1445
|
%
|
(1)
|
For the Fund, Managed Assets means the Funds total assets less its liabilities, other than liabilities incurred for leveraging purposes. Total assets
for this purpose shall include assets attributable to the Funds use of effective leverage (whether or not those assets are reflected in the Funds financial statements for purposes of generally accepted accounting principles).
|
(2)
|
The complex-level fee is calculated based upon the aggregate daily eligible assets of all Nuveen Funds. Eligible assets do not include assets attributable
to investments in other Nuveen Funds or assets in excess of a determined amount (originally $2 billion) added to the Nuveen fund complex in connection with NFALLCs assumption of the management of the former First American Funds effective
January 1, 2011. With respect to closed-end funds, eligible assets include assets managed by NFALLC that are attributable to certain types of leverage. For these purposes, leverage includes the use of preferred stock and borrowings (which the
Fund currently employs) and certain investments in the residual interest certificates (also called inverse floating rate securities) in tender option bond (TOB) trusts, including the portion of assets held by a TOB trust that has been effectively
financed by the trusts issuance of floating rate securities, subject to an agreement by NFALLC as to certain funds to limit the amount of such assets for determining eligible assets in certain circumstances. As of December 31, 2013, the
complex-level fee rate for the Fund was 0.1686%.
|
51
The following table sets forth the management fee paid by the Fund for the last three
fiscal periods:
|
|
|
|
|
|
|
|
|
|
|
Management Fee Net of Expense
Reimbursement
for the Fiscal
Period Ended
|
|
|
Expense Reimbursement
for the Fiscal Period Ended
|
|
Fiscal period ended November 30, 2011*
|
|
$
|
4,073,073
|
|
|
$
|
|
|
Fiscal year ended November 30, 2012
|
|
$
|
7,165,529
|
|
|
$
|
|
|
Fiscal year ended November 30, 2013
|
|
$
|
10,865,632
|
|
|
$
|
|
|
*
|
For the period February 23, 2011 (commencement of operations) through November 30, 2011.
|
In addition to the fee of NFALLC, the Fund pays all other costs and expenses of its operations, including compensation of its trustees
(other than those affiliated with NFALLC), custodian, transfer agency and dividend disbursing expenses, legal fees, expenses of independent auditors, expenses of repurchasing shares, expenses associated with any Borrowings, expenses of issuing any
preferred shares, expenses of preparing, printing and distributing shareholder reports, notices, proxy statements and reports to governmental agencies, and taxes, if any. All fees and expenses are accrued daily and deducted before payment of
dividends to investors.
A discussion regarding the Board of Trustees decision to renew the Investment Management
Agreement is in the Funds semi-annual report to shareholders dated May 31 of each year.
Sub-Adviser.
Pursuant to an investment sub-advisory agreement between NFALLC and ARI, (Sub-Advisory Agreement), ARI serves as the Sub-Adviser for the Fund. ARI was founded in 1974 and is a wholly-owned subsidiary of Piper Jaffray Companies, a
publicly traded company listed on the NYSE, trading under the symbol PJC. The MLP Team is responsible for investing the Funds Managed Assets. The MLP Team is dedicated to managing MLPs and energy infrastructure strategies for
open-end and closed-end management investment companies, public and corporate pension plans, endowments and foundations and wealthy individuals. The MLP Team manages approximately $4.5 billion of MLP and energy infrastructure assets, which includes
the assets of two MLP closed-end funds (including, in addition to JMF, a closed-end fund trading under the ticker symbol FMO), as of December 31, 2013. Shares of FMO are not offered pursuant to the Funds Prospectus or
this Statement of Additional Information.
Sub-Advisory Agreement and Related Fees
.
Pursuant to the Sub-Advisory Agreement, NFALLC will pay ARI a portfolio management fee equal to 0.50% of the Funds Managed Assets.
The following table sets forth the management fee paid by NFALLC to ARI for the last three fiscal periods:
|
|
|
|
|
|
|
Sub-advisory Fee Paid
by NFALLC to
ARI
|
|
Fiscal period ended November 30, 2011*
|
|
$
|
1,350,610
|
|
Fiscal year ended November 30, 2012
|
|
$
|
2,552,702
|
|
Fiscal year ended November 30, 2013
|
|
$
|
4,730,137
|
|
*
|
For the period February 23, 2011 (commencement of operations) through November 30, 2011.
|
A discussion regarding the basis for the Board of Trustees decision to renew the Sub-Advisory Agreement is available in the
Funds semi-annual report to shareholders dated May 31 of each year.
Portfolio Managers
. James J. Cunnane, Jr.
and Quinn T. Kiley will serve as the Funds portfolio managers and are primarily responsible for the day-to-day management of the Funds portfolio.
Mr. Cunnane, with 21 years of investment experience, is Managing Director and Chief Investment Officer of the MLP Team (August 2011 to present). He oversees the firms MLP and energy infrastructure
product lines and chairs the Risk Management Committee. Prior to serving in his current role, Mr. Cunnane served as Managing Director and Senior Portfolio Manager from June 2008 to March 2009 and Chief Investment Officer from March 2009 to
52
August 2011. He joined the MLP Team in 1996 and currently serves as a portfolio manager for, in addition to the Fund, another publicly traded closed-end fund: the Fiduciary/Claymore MLP
Opportunity Fund (ticker symbol FMO). He also serves as a portfolio manager for the Advisory Research MLP & Energy Income Fund, an open-end mutual fund, as well as a privately offered open-end fund. Mr. Cunnane holds a B.S. in
finance from Indiana University and is a Chartered Financial Analyst (CFA) charterholder. He serves on the finance council and investment committee of the Archdiocese of St. Louis and on the Board of Directors of St. Patricks Center.
Mr. Kiley, with 13 years of investment experience, is Managing Director and Senior Portfolio Manager of the MLP Team and his
responsibilities include portfolio management of various energy infrastructure assets and oversight of the energy infrastructure research process. Prior to serving in his current role, Mr. Kiley served as Senior Vice President and Senior Portfolio
Manager from June 2008 to August 2011. He joined the MLP Team in 2005. Prior to joining the MLP Team, Mr. Kiley served as Vice President of Corporate & Investment Banking at Banc of America Securities in New York. He was responsible for
executing strategic advisory and financing transactions for clients in the Energy & Power sectors. Mr. Kiley serves as a portfolio manager for, in addition to the Fund, another publicly traded closed-end fund: the Fiduciary/Claymore MLP
Opportunity Fund (ticker symbol FMO). He also serves as a portfolio manager for the Advisory Research MLP & Energy Income Fund, an open-end mutual fund, as well as a privately offered open-end fund. Mr. Kiley holds a B.S. with Honors
in Geology from Washington & Lee University, a M.S. in Geology from the University of Montana, a Juris Doctorate from Indiana University School of Law, and a M.B.A. from the Kelley School of Business at Indiana University. Mr. Kiley has been
admitted to the New York State Bar.
Other Accounts Managed by the Portfolio Managers.
Each portfolio manager also
has responsibility for the day-to-day management of accounts other than the Fund. Information regarding these other accounts is set forth below.
NUMBER OF OTHER ACCOUNTS MANAGED AND ASSETS BY ACCOUNT TYPE AS OF NOVEMBER 30, 2013
In addition to serving as a portfolio manager to the Fund, Mr. Cunnane is also primarily responsible for the
day-to-day
portfolio management of the following accounts.
|
|
|
|
|
|
|
|
|
Type of Account Managed
|
|
Number of Accounts (Total)
|
|
|
Assets (Total)
|
|
Registered Investment Company
|
|
|
3
|
|
|
$
|
1,741,675,919
|
|
Other Pooled Investment Vehicles
|
|
|
4
|
|
|
$
|
32,088,243
|
|
Other Accounts
|
|
|
519
|
|
|
$
|
1,441,589,548
|
|
|
|
|
Type of Account Managed
|
|
Number of Accounts
with Performance-based Fees
|
|
|
Assets (Accounts with
Performance-based
Fees)
|
|
Registered Investment Company
|
|
|
0
|
|
|
$
|
0
|
|
Other Pooled Investment Vehicles
|
|
|
1
|
|
|
$
|
18,849,357
|
|
Other Accounts
|
|
|
0
|
|
|
$
|
0
|
|
In addition to serving as a portfolio manager to the Fund, Mr. Kiley is also primarily
responsible for the
day-to-day
portfolio management of the following accounts.
|
|
|
|
|
|
|
|
|
Type of Account Managed
|
|
Number of Accounts (Total)
|
|
|
Assets (Total)
|
|
Registered Investment Company
|
|
|
3
|
|
|
$
|
1,741,675,919
|
|
Other Pooled Investment Vehicles
|
|
|
4
|
|
|
$
|
32,088,243
|
|
Other Accounts
|
|
|
519
|
|
|
$
|
1,441,589,548
|
|
|
|
|
Type of Account Managed
|
|
Number of Accounts
with Performance-based Fees
|
|
|
Assets (Accounts with
Performance-based
Fees)
|
|
Registered Investment Company
|
|
|
0
|
|
|
$
|
0
|
|
Other Pooled Investment Vehicles
|
|
|
1
|
|
|
$
|
18,849,357
|
|
Other Accounts
|
|
|
0
|
|
|
$
|
0
|
|
53
Portfolio Manager Compensation
As of December 31, 2013, the portfolio managers compensation consisted of the following elements:
Base Salary.
The primary portfolio managers are paid a base salary which is set at a level determined to be appropriate based upon
the portfolio managers experience and responsibilities.
Annual Bonus.
The portfolio managers annual bonus
is determined by the CEO of ARI pursuant to a specific company formula. It is not based on the performance of the registrant or other managed accounts. The monies paid are directly derived from a pool created from the MLP Teams
earnings. The bonus may be payable in a combination of cash and restricted Piper Jaffray Companies stock.
Potential Conflicts of
Interest
NFALLC, the MLP Team and the portfolio managers have interests which may conflict with the interests of the
Fund. There is no guarantee that the policies and procedures adopted by NFALLC, the MLP Team and the Fund will be able to identify or mitigate these conflicts of interest.
Some examples of material conflicts of interest include:
Allocation of Limited Time and Attention.
A portfolio manager who is responsible for managing multiple funds and/or accounts may devote unequal time and attention to the management of those funds
and/or accounts. A portfolio manager may not be able to formulate as complete a strategy or identify equally attractive investment opportunities for each of those funds and accounts as might be the case if he or she were to devote substantially more
attention to the management of a single fund. Such a portfolio manager may make general determinations across multiple funds, rather than tailoring a unique approach for each fund. The effects of this conflict may be more pronounced where funds
and/or accounts overseen by a particular portfolio manager have different investment strategies.
Allocation of Limited
Investment Opportunities; Aggregation of Orders.
If a portfolio manager identifies a limited investment opportunity that may be suitable for multiple funds and/or accounts, the opportunity may be allocated among these several funds or accounts,
which may limit the Funds ability to take full advantage of the investment opportunity. Additionally, the MLP Team may aggregate transaction orders for multiple accounts for purpose of execution. Such aggregation may cause the price or
brokerage costs to be less favorable to a particular client than if similar transactions were not being executed concurrently for other accounts. In addition, the MLP Teams trade allocation policies may result in the Funds orders not
being fully executed or being delayed in execution.
Pursuit of Differing Strategies.
At times, a portfolio
manager may determine that an investment opportunity may be appropriate for only some of the funds and/or accounts for which he or she exercises investment responsibility, or may decide that certain of the funds and/or accounts should take differing
positions with respect to a particular security. In these cases, the portfolio manager may place separate transactions for one or more funds or accounts which may affect the market price of the security or the execution of the transaction, or both,
to the detriment or benefit of one or more other funds and/or accounts. For example, a portfolio manager may determine that it would be in the interest of another account to sell a security that the Fund holds long, potentially resulting in a
decrease in the market value of the security held by the Fund.
Cross Trades.
Portfolio managers may manage funds that
engage in cross trades, where one of the managers funds or accounts sells a particular security to another fund or account managed by the same manager. Cross trades may pose conflicts of interest because of, for example, the possibility that
one account sells a security to another account at a higher price than an independent third party would pay or otherwise enters into a transaction that it would not enter into with an independent party, such as the sale of a
difficult-to-obtain
security.
Selection of
Broker/Dealers.
Portfolio managers may select or influence the selection of the brokers and dealers that are used to execute securities transactions for the funds and/or accounts that they supervise. In
54
addition to executing trades, some brokers and dealers provide the MLP Team with brokerage and research services, These services may be taken into account in the selection of brokers and dealers
whether a broker is being selected to effect a trade on an agency basis for a commission or whether a dealer is being selected to effect a trade on a principal basis. This may result in the payment of higher brokerage fees and/or execution at a less
favorable price than might have otherwise been available. The services obtained may ultimately be more beneficial to certain of the managers funds or accounts than to others (but not necessarily to the funds that pay the increased commission
or incur the less favorable execution). A decision as to the selection of brokers and dealers could therefore yield disproportionate costs and benefits among the funds and/or accounts managed.
Variation in Financial and Other Benefits.
A conflict of interest arises where the financial or other benefits available to a
portfolio manager differ among the funds and/or accounts that he or she manages. If the amount or structure of the investment managers management fee and/or a portfolio managers compensation differs among funds and/or accounts (such as
where certain funds or accounts pay higher management fees or performance-based management fees), the portfolio manager might be motivated to help certain funds and/or accounts over others. Similarly, the desire to maintain assets under management
or to enhance the portfolio managers performance record or to derive other rewards, financial or otherwise, could influence the portfolio manager in affording preferential treatment to those funds and/or accounts that could most significantly
benefit the portfolio manager. A portfolio manager may, for example, have an incentive to allocate favorable or limited opportunity investments or structure the timing of investments to favor such funds and/or accounts. Also, a portfolio
managers or NFALLC or the MLP Teams desire to increase assets under management could influence the portfolio manager to keep a fund open for new investors without regard to potential benefits of closing the fund to new investors.
Additionally, the portfolio manager might be motivated to favor funds and/or accounts in which he or she has an ownership interest or in which the investment manager and/or its affiliates have ownership interests. Conversely, if a portfolio manager
does not personally hold an investment in the fund, the portfolio managers conflicts of interest with respect to the Fund may be more acute.
Related Business Opportunities.
NFALLC or its affiliates may provide more services (such as distribution or recordkeeping) for some types of funds or accounts than for others. In such cases, a
portfolio manager may benefit, either directly or indirectly, by devoting disproportionate attention to the management of funds and/or accounts that provide greater overall returns to the investment manager and its affiliates.
A portfolio manager may also face other potential conflicts of interest in managing the Fund, and the description above is not a complete
description of every conflict of interest that could be deemed to exist in managing both a Fund and the other accounts listed above.
Code
of Ethics
The Fund, NFALLC, ARI, Nuveen Investments and other related entities have adopted codes of ethics under Rule
17j-1 under the 1940 Act that essentially prohibit certain of their personnel, including the Funds portfolio managers, from engaging in personal investments that compete or interfere with, or attempt to take advantage of a clients,
including the Funds, anticipated or actual portfolio transactions, and are designed to assure that the interests of clients, including Fund shareholders, are placed before the interests of personnel in connection with personal investment
transactions. Personnel subject to a code of ethics may invest in securities for their personnel investment accounts, including securities that may be purchased or held by the Fund, but only so long as such investments are made in accordance with a
codes requirements. Text-only versions of the codes of ethics of the Fund, NFALLC and ARI can be viewed online or downloaded from the EDGAR Database on the Securities and Exchange Commissions internet web site at www.sec.gov. You may
also review and copy those documents by visiting the Securities and Exchange Commissions Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling the Securities and Exchange
Commission at 202-942-8090. In addition, copies of those codes of ethics may be obtained, after mailing the appropriate duplicating fee, by writing to the Securities and Exchange Commissions Public Reference Section, 100 F Street, N.E.,
Washington, DC 20549-0102 or by e-mail request at publicinfo@sec.gov.
55
PROXY VOTING POLICIES AND PROCEDURES
NFALLC has delegated to the MLP Team the authority to vote all proxies relating to the Funds portfolio securities pursuant to
the proxy voting policies and procedures set out in Appendix B hereto. Information regarding how the Fund voted proxies (for periods subsequent to the Fund commencing operations) relating to portfolio securities during the most recent
12-month period ending June 30 (or any lesser period of time ending June 30 if the Fund has not been operating for that long) of each year is available starting August 31 of that year without charge, upon request, by calling toll free 1-877-449-4742
or through the SECs website at http://www.sec.gov. This reference to the website does not incorporate the contents of the website into this Statement of Additional Information.
Portfolio Manager Securities Ownership
The following table discloses
the dollar range of equity securities of the Fund beneficially owned by the portfolio managers as of November 30, 2013:
|
|
|
|
|
Portfolio Manager
|
|
Dollar Range
of Securities
Beneficially Owned
|
|
James J. Cunnane, Jr.
|
|
|
None
|
|
Quinn T. Kiley
|
|
$
|
50,001 $100,000
|
|
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the supervision of the Board, the MLP Team is primarily responsible for the Funds portfolio decisions and the placing of
the Funds portfolio transactions. Commissions are negotiated with broker/dealers on all transactions.
Pursuant to the
Investment Management Agreement and the Sub-Advisory Agreement, each of NFALLC and the MLP Team is authorized to place orders pursuant to its investment determinations for the Fund either directly with the issuer or with any broker or dealer,
foreign currency dealer, futures commission merchant or others selected by it. The general policy of NFALLC and the MLP Team in selecting brokers and dealers is to obtain the best results achievable in the context of a number of factors which are
considered both in relation to individual trades and broader trading patterns, including the reliability of the broker/dealer, the competitiveness of the price and the commission, the research services received and whether the broker/dealer commits
its own capital.
In connection with the selection of such brokers or dealers and the placing of such orders, subject to
applicable law, brokers or dealers may be selected who also provide brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934, as amended (the 1934 Act)) to the Fund and/or
the other accounts over which NFALLC, the MLP Team or their affiliates exercise investment discretion. NFALLC and the MLP Team are authorized to pay a broker or dealer who provides such brokerage and research services a commission for executing a
portfolio transaction for the Fund which is in excess of the amount of commission another broker or dealer would have charged for effecting that transaction if NFALLC or the MLP Team, as applicable, determines in good faith that such amount of
commission is reasonable in relation to the value of the brokerage and research services provided by such broker or dealer. Investment research services include information and analysis on particular companies and industries as well as market or
economic trends and portfolio strategy, market quotations for portfolio evaluations, analytical software and similar products and services. If a research service also assists NFALLC or the MLP Team in a
non-research
capacity (such as bookkeeping or other administrative functions), then only the percentage or component that provides assistance to NFALLC or the MLP Team in the investment decision making process
may be paid in commission dollars.
56
This determination may be viewed in terms of either that particular transaction or the overall responsibilities that NFALLC or the MLP Team, as applicable, and its affiliates have with respect to
accounts over which they exercise investment discretion. NFALLC and the MLP Team may also have arrangements with brokers pursuant to which such brokers provide research services to NFALLC or the MLP Team, as applicable, in exchange for a certain
volume of brokerage transactions to be executed by such brokers. While the payment of higher commissions increases the Funds costs, NFALLC and the MLP Team do not believe that the receipt of such brokerage and research services significantly
reduces its expenses as NFALLC or the MLP Team, as applicable. Arrangements for the receipt of research services from brokers may create conflicts of interest.
Research services furnished to NFALLC or the MLP Team by brokers that effect securities transactions for the fund may be used by NFALLC or the MLP Team, as applicable, in servicing other investment
companies and accounts which it manages. Similarly, research services furnished to NFALLC or the MLP Team by brokers who effect securities transactions for other investment companies and accounts which NFALLC or the MLP Team manages may be used by
NFALLC or the MLP Team, as applicable, in servicing the Fund. Not all of these research services are used by the NFALLC or the MLP Team in managing any particular account, including the Fund.
The Fund contemplates that, consistent with the policy of obtaining the best net results, brokerage transactions may be conducted through
affiliated broker/dealers, as defined in the 1940 Act. The Board has adopted procedures in accordance with Rule
17e-1
under the 1940 Act to ensure that all brokerage commissions paid to such
affiliates are reasonable and fair in the context of the market in which such affiliates operate.
In certain instances
there may be securities that are suitable as an investment for the Fund as well as for one or more of NFALLC or the MLP Teams other clients. Investment decisions for the Fund and for NFALLC or the MLP Teams other clients are
made with a view to achieving their respective investment objectives. It may develop that a particular security is bought or sold for only one client even though it might be held by, or bought or sold for, other clients. Likewise, a particular
security may be bought for one or more clients when one or more clients are selling the same security. Some simultaneous transactions are inevitable when several clients receive investment advice from the same investment adviser, particularly when
the same security is suitable for the investment objectives of more than one client. When two or more clients are simultaneously engaged in the purchase or sale of the same security, the securities are allocated among clients in a manner believed to
be equitable to each. It is recognized that in some cases this system could adversely affect the price of or the size of the position obtainable in a security for the fund. When purchases or sales of the same security for the Fund and for other
portfolios managed by NFALLC or the MLP Team, as applicable, occur contemporaneously, the purchase or sale orders may be aggregated in order to obtain any price advantages available to large volume purchases or sales.
Substantially all of the Funds trades are effected on a principal basis. The following table sets forth the aggregate amount of
brokerage commissions paid by the Fund for the last three fiscal periods:
|
|
|
|
|
Fiscal Period Ended
|
|
Brokerage Commissions Paid
|
|
Fiscal period ended November 30, 2011*
|
|
$
|
733,617
|
|
Fiscal year ended November 30, 2012
|
|
$
|
473,324
|
|
Fiscal year ended November 30, 2013
|
|
$
|
546,662
|
|
*
|
For the period February 23, 2011 (commencement of operations) through November 30, 2011.
|
During the fiscal year ended November 30, 2013, the Fund did not pay commissions to brokers in return for research services or hold any
securities of its regular broker-dealers.
Although the Fund does not have any restrictions on portfolio turnover, it is
not the Funds policy to engage in transactions with the objective of seeking profits from short-term trading. It is expected that the annual portfolio turnover rate of the Fund will be in the range of 15-40%. The portfolio turnover rate is
calculated by dividing the lesser of sales or purchases of portfolio securities by the average monthly value of the Funds portfolio securities.
57
For purposes of this calculation, portfolio securities exclude all securities having a maturity when purchased of one year or less. A high rate of portfolio turnover involves correspondingly
greater transaction costs than a lower rate, which costs are borne by the Fund and its shareholders.
NET ASSET VALUE
The Funds net asset value per share is determined as of the close of regular session trading
(normally 4:00 p.m., Eastern Time) on each day the NYSE is operator business. Net asset value is computed by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued
expenses and dividends declared but unpaid), by the total number of shares outstanding. In determining net asset value, expenses are accrued and applied daily and securities and other assets for which market quotations are available are valued at
market value. Exchange-listed securities are generally valued at the last sales price on the securities exchange on which such securities are primarily traded. Securities traded on a securities exchange for which there are no transactions on a given
day or securities not listed on a securities exchange are valued at the mean of the closing bid and asked prices. Securities reported on NASDAQ are valued at the NASDAQ Official Closing Price. Temporary investments in securities that have variable
rate and demand features qualifying them as short-term investments are valued at amortized cost, which approximates market value.
The Funds securities are valued in accordance with procedures approved by the Board of Trustees. Under the procedures, equity securities and certain derivative instruments that are traded on an
exchange are valued at the closing price or, if that price is unavailable or deemed not representative of market value, the last sale price. Where a security is traded on more than one exchange, the security is generally valued at the price on the
exchange considered to be the primary exchange. In the case of securities not traded on an exchange, or if exchange prices are not otherwise available, the prices are typically determined by independent third party pricing services that use a
variety of techniques and methodologies.
The valuations for fixed income securities and certain derivative instruments are
typically the prices supplied by independent third party pricing services, which may use market prices or broker/dealer quotations or a variety of fair valuation techniques and methodologies. Short-term fixed income securities that will mature in 60
days or less are valued at amortized cost, unless it is determined that using this method would not reflect an investments fair value.
The valuations of certain fixed income securities will generally be based on prices determined as of the earlier closing time of the markets on which they primarily trade, unless a significant event has
occurred.
If independent third party pricing services are unable to supply prices for a portfolio investment, or if the
prices supplied are deemed to be unreliable, the market price may be determined by using quotations from one or more broker/dealers. When such prices or quotations are not available, or when believed to be unreliable, securities may be priced using
fair value procedures approved by the Board of Trustees. These procedures permit, among other things, the use of a matrix, formula or other method that takes into consideration market indexes, yield curves and other specific adjustments to determine
fair value. The Fund may also use fair value procedures if it is determined that a significant event has occurred between the time at which a market price is determined and the time at which the funds net asset value is calculated. The effect
of using fair value pricing is that the Common Share net asset value will be subject to the judgment of the Board of Trustees or its designee instead of being determined by the market.
As a limited partner in the MLPs, the Fund includes its allocable share of the MLPs taxable income in computing its own taxable
income. Deferred income taxes in the financial statements of the Fund will reflect (i) taxes on unrealized gains/(losses), which are attributable to the temporary difference between the fair market value and the tax basis of the Funds
assets, (ii) the net tax effects of temporary differences between the carrying amounts of such assets and liabilities for financial reporting purposes and the amounts used for income tax
58
purposes and (iii) the net tax benefit of accumulated net operating losses. To the extent the Fund has a deferred tax asset, consideration is given as to whether or not a valuation allowance
is required. The need to establish a valuation allowance for deferred tax assets is assessed periodically by the Fund based on the criterion established by ASC Topic 740 that it is more likely than not that some portion or all of the deferred tax
asset will not be realized. In the assessment for a valuation allowance, consideration is given to all positive and negative evidence related to the realization of the deferred tax asset. This assessment considers, among other matters, the nature,
frequency and severity of current and cumulative losses, forecasts of future profitability (which are highly dependent on future MLP cash distributions), the duration of statutory carryforward periods and the associated risk that operating loss
carryforwards may expire unused.
The Fund may rely to some extent on information provided by the MLPs, which may not
necessarily be timely, to estimate taxable income allocable to the MLP units held in the portfolio and to estimate the associated deferred tax asset or liability. Such estimates are made in good faith. From time to time, as new information becomes
available, the Fund will modify its estimates or assumptions regarding the deferred tax asset or liability.
Deferred tax
assets may constitute a relatively high percentage of the Funds net asset value. Any valuation allowance required against such deferred tax assets or future adjustments to a valuation allowance may reduce the Funds deferred tax assets
and could have a material impact on the Funds net asset value and results of operations in the period the valuation allowance is recorded or adjusted.
DISTRIBUTIONS
Under normal circumstances, the
Fund intends to distribute substantially all of the cash flow received as distributions from MLPs, interest payments received on debt securities owned by the Fund and other payments on securities owned by the Fund, less payments on any borrowings or
preferred shares and other Fund expenses.
The Fund intends to make quarterly distributions. The Fund reserves the right to
change its distribution policy and the basis for establishing the rate of its quarterly distributions at any time and may do so without prior notice to Common Shareholders.
DIVIDEND REINVESTMENT PLAN
If your Common
Shares are registered directly with the Fund or if you hold your Common Shares with a brokerage firm that participates in the Funds Dividend Reinvestment Plan (Plan), you may elect to have all dividends, including any capital gain
dividends, on your Common Shares automatically reinvested by the Plan Agent (defined below) in additional Common Shares under the Plan. You may elect to participate in the Plan by contacting Nuveen Investor Services at (800) 257-8787. If you do not
participate, you will receive all distributions in cash paid by check mailed directly to you or your brokerage firm by State Street Bank and Trust Company as dividend paying agent (Plan Agent).
If you decide to participate in the Plan, the number of Common Shares you will receive will be determined as follows:
(1) If Common Shares are trading at or above net asset value at the time of valuation, the Fund will issue new shares at
the then current market price;
(2) If Common Shares are trading below net asset value at the time of
valuation, the Plan Agent will receive the dividend or distribution in cash and will purchase Common Shares in the open market, on the NYSE or elsewhere, for the participants accounts. It is possible that the market price for the Common Shares
may increase before the Plan Agent has completed its purchases. Therefore, the average purchase price per share paid by the Plan Agent may exceed the market price at the time of valuation, resulting in the
59
purchase of fewer shares than if the dividend or distribution had been paid in Common Shares issued by the Fund. The Plan Agent will use all dividends and distributions received in cash to
purchase Common Shares in the open market within 30 days of the valuation date. Interest will not be paid on any uninvested cash payments; or
(3) If the Plan Agent begins purchasing Fund shares on the open market while shares are trading below net asset value, but the Funds shares subsequently trade at or above their net asset value
before the Plan Agent is able to complete its purchases, the Plan Agent may cease open-market purchases and may invest the uninvested portion of the distribution in newly-issued Fund shares at a price equal to the greater of the shares net
asset value or 95% of the shares market value.
You may withdraw from the Plan at any time by giving written notice to
the Plan Agent. If you withdraw or the Plan is terminated, you will receive whole shares in your account under the Plan and you will receive a cash payment for any fraction of a share in your account. If you wish, the Plan Agent will sell your
shares and send you the proceeds, minus brokerage commissions and a $2.50 service fee.
The Plan Agent maintains all
shareholders accounts in the Plan and gives written confirmation of all transactions in the accounts, including information you may need for tax records. Upon a repurchase of your shares, the Fund (or its administrative agent) may be generally
required to report to the Internal Revenue Service (IRS) and furnish to you cost basis and holding period information for Fund shares that you purchased on or after January 1, 2012 (covered shares).
For shares of the Fund held in the Plan, you are permitted to elect from among several permitted cost basis methods. In the absence of an
election, the Plan will use first-in first-out (FIFO) methodology for tracking and reporting your cost basis on covered shares as its default cost basis method. The cost basis method you use may not be changed with respect to a
repurchase of shares after the settlement date of the repurchase. You should consult with your tax advisors to determine the best permitted cost basis method for your tax situation and to obtain more information about how the new cost basis
reporting rules apply to you.
Common Shares in your account will be held by the Plan Agent in non-certificated form. Any
proxy you receive will include all Common Shares you have received under the Plan.
There is no brokerage charge for
reinvestment of your dividends or distributions in Common Shares. However, all participants will pay a pro rata share of brokerage commissions incurred by the Plan Agent when it makes open market purchases.
Automatically reinvesting dividends and distributions does not mean that you do not have to pay income taxes due upon receiving dividends
and distributions.
If you hold your Common Shares with a brokerage firm that does not participate in the Plan, you will not
be able to participate in the Plan and any dividend reinvestment may be effected on different terms than those described above. Consult your financial advisor for more information.
The Fund reserves the right to amend or terminate the Plan if in the judgment of the Board of Trustees the change is warranted. There is
no direct service charge to participants in the Plan; however, the Fund reserves the right to amend the Plan to include a service charge payable by the participants. Additional information about the Plan may be obtained by writing to State Street
Bank and Trust Company, Attn: ComputerShare Nuveen Investments, P.O. Box 43071, Providence, Rhode Island 02940-3071 or by calling (800) 257-8787.
60
PLAN OF DISTRIBUTION
The Fund may sell the Common Shares offered under the Prospectus and this Statement of Additional Information through
|
|
|
at-the-market transactions;
|
|
|
|
underwriting syndicates; and
|
|
|
|
privately negotiated transactions.
|
The Fund will bear the expenses of the offering, including but not limited to, the expenses of preparation of the Prospectus and Statement of Additional Information for the offering and the expense of
counsel and auditors in connection with the offering.
Distribution Through At-The-Market Transactions
The Fund has entered into a distribution agreement with Nuveen Securities (Distribution Agreement), which has been filed as an
exhibit to the Registration Statement of which this Statement of Additional Information is a part. The summary of the Distribution Agreement contained herein is qualified by reference to the Distribution Agreement. Subject to the terms and
conditions of the Distribution Agreement, the Fund may from time to time issue and sell its Common Shares through Nuveen Securities to certain broker-dealers which have entered into selected dealer agreements with Nuveen Securities. Currently,
Nuveen Securities has entered into a selected dealer agreement with UBS pursuant to which UBS will act as exclusive sub-placement agent with respect to at-the-market offerings of Common Shares. The selected dealer agreement has been filed as an
exhibit to the Registration Statement of which this Statement of Additional Information is a part. The summary of the selected dealer agreement contained herein is qualified by reference to the selected dealer agreement.
Common Shares will only be sold on such days as shall be agreed to by the Fund, Nuveen Securities and UBS. Common Shares will be sold at
market prices, which shall be determined with reference to trades on the NYSE, subject to a minimum price to be established each day by Nuveen Securities. The minimum price on any day will not be less than the current net asset value per Common
Share plus the per share amount of the commission to be paid to Nuveen Securities. The Fund and Nuveen Securities will suspend the sale of Common Shares if the per share price of the shares is less than the minimum price.
The Fund will compensate Nuveen Securities with respect to sales of the Common Shares at a commission rate of up to 1.0% of the gross
proceeds of the sale of Common Shares. Nuveen Securities will compensate broker-dealers at a rate of up to 0.8% of the gross proceeds of the sale of Common Shares sold by that broker-dealer. Settlements of sales of Common Shares will occur on the
third business day following the date on which any such sales are made.
In connection with the sale of the Common Shares on
behalf of the Fund, Nuveen Securities may be deemed to be an underwriter within the meaning of the 1933 Act, and the compensation of Nuveen Securities may be deemed to be underwriting commissions or discounts. Unless otherwise indicated in a
Prospectus supplement, Nuveen Securities will act as underwriter on a reasonable efforts basis.
The offering of Common
Shares pursuant to the Distribution Agreement will terminate upon the earlier of (i) the sale of all Common Shares subject thereto or (ii) termination of the Distribution Agreement. The Fund and Nuveen Securities each have the right to terminate the
Distribution Agreement in its discretion at any time.
The Fund currently intends to distribute the shares offered pursuant to
this Statement of Additional Information primarily through at-the-market transactions, although from time to time it may also distribute shares through an underwriting syndicate or a privately negotiated transaction. To the extent shares are
distributed other than through at-the-market transactions, the Fund will file a supplement to the Prospectus and this Statement of Additional Information describing such transactions.
61
UBS, its affiliates and their respective employees hold or may hold in the future, directly
or indirectly, investment interests in Nuveen Investments, Inc. and its funds. The interests held by employees of UBS or its affiliates are not attributable to, and no investment discretion is held by, UBS or its affiliates.
The Funds closing price on the NYSE on March 14, 2014 was $18.86.
Distribution Through Underwriting Syndicates
The Fund from time to time
may issue additional Common Shares through a syndicated secondary offering. In order to limit the impact on the market price of the Funds Common Shares, underwriters will market and price the offering on an expedited basis (
e.g.
,
overnight or similarly abbreviated offering period). The Fund will launch a syndicated offering on a day, and upon terms, mutually agreed upon between the Fund, Nuveen Securities, one of the Funds underwriters, and the underwriting syndicate.
The Fund will offer its shares at a price equal to a specified discount of up to 5% from the closing market price of the
Funds Common Shares on the day prior to the offering date. The applicable discount will be negotiated by the Fund and Nuveen Securities in consultation with the underwriting syndicate on a transaction-by-transaction basis. The Fund will
compensate the underwriting syndicate out of the proceeds of the offering based upon a sales load of up to 4% of the gross proceeds of the sale of Common Shares. The minimum net proceeds per share to the Fund will not be less than the greater of (i)
the Funds latest net asset value per Common Share or (ii) 91% of the closing market price of the Funds Common Shares on the day prior to the offering date.
Distribution Through Privately Negotiated Transactions
The Fund,
through Nuveen Securities, from time to time may sell directly to, and solicit offers from, institutional and other sophisticated investors, who may be deemed to be underwriters as defined in the 1933 Act for any resale of Common Shares. No sales
commission or other compensation will be paid to Nuveen Securities or any other FINRA member in connection with such transactions.
The terms of such privately negotiated transactions will be subject to the discretion of the management of the Fund. In determining whether to sell Common Shares through a privately negotiated
transaction, the Fund will consider relevant factors, including, but not limited to, the attractiveness of obtaining additional funds through the sale of Common Shares, the purchase price to apply to any such sale of Common Shares and the person
seeking to purchase the Common Shares.
Common Shares issued by the Fund through privately negotiated transactions will be
issued at a price equal to the greater of (i) the net asset value per Common Share of the Funds Common Shares or (ii) at a discount ranging from 0% to 5% of the average daily closing market price of the Funds Common Shares at the close
of business on the two business days preceding the date upon which Common Shares are sold pursuant to the privately negotiated transaction. The applicable discount will be determined by the Fund on a transaction-by-transaction basis.
The principal business address of Nuveen Securities is 333 West Wacker Drive, Chicago, Illinois 60606.
DESCRIPTION OF SHARES
Common Shares
The Declaration of Trust (Declaration)
authorizes the issuance of an unlimited number of Common Shares. The Common Shares being offered have a par value of $0.01 per share subject to the rights of preferred shares, if issued, and borrowings, if incurred, and have equal rights to the
payment of dividends and the distribution of
62
assets upon liquidation of the Fund. The Common Shares being offered will, when issued, be fully paid and, subject to matters discussed under Certain Provisions in the Declaration of Trust
and By-Laws in the Prospectus, non-assessable, and will have no preemptive or conversion rights or rights to cumulative voting. The Declaration provides that each whole Common Share shall be entitled to one vote as to any matter on which it is
entitled to vote and each fractional Common Share shall be entitled to a proportionate fractional vote consistent with the requirements of the 1940 Act and the rules promulgated thereunder, and will vote as a single class. If the Fund incurs
borrowings and/or issues preferred shares, the Common Shareholders will not be entitled to receive any cash distributions from the Fund unless all interest on such borrowings has been paid and all accrued dividends on preferred shares have been
paid, and unless asset coverage (as defined in the 1940 Act) with respect to preferred shares would be at least 200% after giving effect to the distributions. See Preferred Shares below.
The Common Shares are listed on the NYSE and trade under the symbol JMF. The Fund intends to hold annual meetings of
shareholders so long as the Common Shares are listed on a national securities exchange and such meetings are required as a condition to such listing. The Fund will not issue share certificates.
Proceeds from the sale of Common Shares in this offering will be reduced by 4.5% (the amount of the sales load as a percentage of the
offering price), making the Funds net asset value per Common Share equal to $19.10, before deducting offering expenses. Net asset value of the Fund and the net asset value per Common Share are then further reduced by the amount of offering
expenses paid by the Fund. Nuveen Fund Advisors has agreed to (i) reimburse all organization expenses of the Fund and (ii) pay all offering costs of the Fund (other than sales load) that exceed $0.04 per Common Share. See Use of Proceeds
in the Prospectus.
Unlike open-end funds, closed-end funds like the Fund do not continuously offer shares and do not provide
daily redemptions. Rather, if a Common Shareholder determines to buy additional Common Shares or sell shares already held, the Common Shareholder may conveniently do so by trading on the exchange through a broker or otherwise. Shares of closed-end
investment companies may frequently trade on an exchange at prices lower than net asset value. Shares of closed-end investment companies like the Fund have, during some periods, traded at prices higher than net asset value and, during other periods,
have traded at prices lower than net asset value. Because the market value of the Common Shares may be influenced by such factors as dividend levels (which are in turn affected by expenses), dividend stability, net asset value, relative demand for
and supply of such shares in the market, general market and economic conditions, and other factors beyond the Funds control, the Fund cannot guarantee you that Common Shares will trade at a price equal to or higher than net asset value in the
future. The Common Shares are designed primarily for long-term investors, and investors in the Common Shares should not view the Fund as a vehicle for trading purposes. See Repurchase of Fund Shares; Conversion to Open-End Fund.
Preferred Shares
The Declaration authorizes the issuance of an unlimited number of preferred shares in one or more classes or series, with rights as determined by the Board of Trustees of the Fund, by action of the Board
of Trustees without the approval of the Common Shareholders. The terms of any preferred shares that may be issued by the Fund may be the same as, or different from, the terms described below, subject to applicable law and the Declaration.
Limited Issuance of Preferred Shares.
Under the 1940 Act, the Fund could issue preferred shares with an aggregate
liquidation value of up to
one-half
of the value of the Funds total net assets, measured immediately after issuance of the preferred shares. Liquidation value means the original purchase
price of the shares being liquidated plus any accrued and unpaid dividends. In addition, the Fund is not permitted to declare any cash dividend or other distribution on its Common Shares unless the liquidation value of the preferred shares is less
than
one-half
of the value of the Funds total net assets (determined after deducting the amount of such dividend or distribution) immediately after the distribution.
63
Distribution Preference.
Any preferred shares would have complete priority over the
Common Shares as to distribution of assets.
Liquidation Preference.
In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Fund, holders of preferred shares would be entitled to receive a preferential liquidating distribution (expected to equal the original purchase price per share plus accumulated and unpaid
dividends thereon, whether or not earned or declared) before any distribution of assets is made to Common Shareholders. After payment of the full amount of the liquidating distribution to which they are entitled, holders of preferred shares will not
be entitled to any further participation in any distribution of assets by the Fund. A consolidation or merger of the Fund with or into any Massachusetts business trust or corporation or a sale of all or substantially all of the assets of the Fund
shall not be deemed to be a liquidation, dissolution or winding up of the Fund.
Voting Rights.
In connection with any
issuance of preferred shares, the Fund must comply with Section 18(i) of the 1940 Act, which requires, among other things, that preferred shares be voting shares and have equal voting rights with Common Shares. Except as otherwise indicated in
this Statement of Additional Information and except as otherwise required by applicable law, holders of preferred shares would vote together with Common Shareholders as a single class.
In connection with the election of the Funds trustees, holders of preferred shares, voting as a separate class, would be entitled
to elect two of the Funds trustees, and the remaining trustees would be elected by Common Shareholders and holders of preferred shares, voting together as a single class. In addition, if at any time dividends on the Funds outstanding
preferred shares would be unpaid in an amount equal to two full years dividends thereon, the holders of all outstanding preferred shares, voting as a separate class, would be entitled to elect a majority of the Funds trustees until all
dividends in arrears have been paid or declared and set apart for payment.
The affirmative vote of the holders of a majority
of the Funds outstanding preferred shares of any class or series, as the case may be, voting as a separate class, would be required to, among other things, (1) take certain actions that would affect the preferences, rights, or powers of
such class or series or (2) authorize or issue any class or series ranking prior to the preferred shares. Except as may otherwise be required by law, (1) the affirmative vote of the holders of at least
two-thirds
of the Funds preferred shares outstanding at the time, voting as a separate class, would be required to approve any conversion of the Fund from a
closed-end
to an
open-end
investment company and (2) the affirmative vote of the holders of at least
two-thirds
of the
outstanding preferred shares, voting as a separate class, would be required to approve any plan of reorganization (as such term is used in the 1940 Act) adversely affecting such shares; provided however, that such separate class vote would be a
majority vote if the action in question has previously been approved, adopted or authorized by the affirmative vote of
two-thirds
of the total number of trustees fixed in accordance with the Declaration or the
By-Laws.
The affirmative vote of the holders of a majority of the outstanding preferred shares, voting as a separate class, would be required to approve any action not described in the preceding sentence
requiring a vote of security holders under Section 13(a) of the 1940 Act including, among other things, changes in a Funds investment objectives or changes in the investment restrictions described as fundamental policies under
Investment Restrictions in this Statement of Additional Information. The class or series vote of holders of preferred shares described above would in each case be in addition to any separate vote of the requisite percentage of Common
Shares and preferred shares necessary to authorize the action in question.
The foregoing voting provisions would not apply
with respect to the Funds preferred shares if, at or prior to the time when a vote was required, such shares would have been (1) redeemed or (2) called for redemption and sufficient funds would have been deposited in trust to effect
such redemption.
Redemption, Purchase and Sale of Preferred Shares.
The terms of the preferred shares may provide that
they are redeemable by the Fund at certain times, in whole or in part, at the original purchase price per share plus accumulated dividends, that the Fund may tender for or purchase preferred shares and that the Fund may
64
subsequently resell any shares so tendered for or purchased. Any redemption or purchase of preferred shares by the Fund would reduce the leverage applicable to Common Shares, while any resale of
such shares by the Fund would increase such leverage.
In the event of any future issuance of preferred shares, the Fund
likely would apply for ratings from an NRSRO. In such event, as long as preferred shares are outstanding, the composition of the Funds portfolio would reflect guidelines established by such NRSRO. Based on previous guidelines established by
such NRSROs for the securities of other issuers, the Fund anticipates that the guidelines may impose asset coverage or portfolio composition requirements that are more stringent than those imposed on the Fund by the 1940 Act. However, at this time,
no assurance can be given as to the nature or extent of the guidelines that may be imposed in connection with obtaining a rating of any preferred shares.
BORROWINGS
The Declaration authorizes the Fund,
without prior approval of the Common Shareholders, to borrow money. In this connection, the Fund may issue notes or other evidence of indebtedness (including bank borrowings or commercial paper) and may secure any such debt by mortgaging, pledging
or otherwise subjecting as security the Funds assets. In connection with such borrowing, the Fund may be required to maintain minimum average balances with the lender or to pay a commitment or other fee to maintain a line of credit. Any such
requirements will increase the cost of any such borrowing over the stated interest rate. Under the requirements of the 1940 Act, the Fund, immediately after issuing any debt, must have an asset coverage of at least 300%. With respect to any such
debt, asset coverage means the ratio that the value of the total assets of the Fund, less all liabilities and indebtedness not represented by senior securities (as defined in the 1940 Act), bears to the aggregate amount of such borrowing represented
by senior securities issued by the Fund. Certain types of debt may result in the Fund being subject to covenants in credit agreements relating to asset coverages or portfolio composition or otherwise. In addition, the Fund may be subject to certain
restrictions imposed by guidelines of one or more rating agencies that may issue ratings on commercial paper or notes issued by the Fund. Such restrictions may be more stringent than those imposed by the 1940 Act.
The rights of lenders to the Fund to receive interest on and repayment of principal of any such debt would be senior to those of the
Common Shareholders, and the terms of any such debt may contain provisions that limit certain activities of the Fund, including the payment of dividends to Common Shareholders in certain circumstances. Further, the 1940 Act would (in certain
circumstances) grant to the lenders to the Fund certain voting rights in the event of default in the payment of interest on or repayment of principal. Any debt will likely be ranked senior or equal to all other existing and future debt of the Fund.
In addition to debt, the Fund also may borrow up to an additional 5% of its total assets for temporary emergency purposes.
CERTAIN PROVISIONS IN THE DECLARATION OF TRUST AND
BY-LAWS
Shareholder and
Trustee Liability.
Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the Funds obligations. However, the Declaration contains an express disclaimer of shareholder liability for the
Funds debts or obligations and requires that notice of such limited liability be given in each agreement, obligation or instrument entered into or executed by the Fund or the trustees. The Declaration further provides for indemnification out
of the Funds assets and property for all loss and expense of any shareholder held personally liable for the Funds obligations. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to
circumstances in which the Fund would be unable to meet its obligations. The Fund believes that the likelihood of such circumstances is remote.
The Declaration provides that the Funds obligations are not binding upon the Funds trustees individually, but only upon the Funds assets and property, and that the trustees shall not be
liable for errors of judgment or mistakes of fact or law. Nothing in the Declaration, however, protects a trustee against any liability to which he or she would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office.
65
Anti-Takeover Provisions.
The Declaration and By-Laws include provisions that could
limit the ability of other entities or persons to acquire control of the Fund or to convert the Fund to open-end status. The By-Laws require the Board of Trustees be divided into three classes with staggered terms. See the Statement of Additional
Information under Management of the Fund. This provision of the By-Laws could delay for up to two years the replacement of a majority of the Board of Trustees. If preferred shares are issued, holders of preferred shares, voting as a
separate class, will be entitled to elect two of the Funds trustees. In addition, the Declaration requires a vote by holders of at least two-thirds of the Common Shares and, if issued, preferred shares, voting together as a single class,
except as described below, to authorize (1) a conversion of the Fund from a closed-end to an open-end investment company, (2) a merger or consolidation of the Fund, or a series or class of the Fund, with any corporation, association, trust or other
organization or a reorganization of the Fund, or a series or class of the Fund, (3) a sale, lease or transfer of all or substantially all of the Funds assets (other than in the regular course of the Funds investment activities), (4) in
certain circumstances, a termination of the Fund, or a series or class of the Fund or (5) a removal of trustees by shareholders, and then only for cause, unless, with respect to (1) through (4), such transaction has already been authorized by the
affirmative vote of two-thirds of the total number of trustees fixed in accordance with the Declaration or the By-Laws, in which case the affirmative vote of the holders of at least a majority of the Funds Common Shares and, if issued,
preferred shares outstanding at the time, voting together as a single class, would be required; provided, however, that where only a particular class or series is affected (or, in the case of removing a trustee, when the trustee has been elected by
only one class), only the required vote by the applicable class or series will be required. Approval of shareholders would not be required, however, for any transaction, whether deemed a merger, consolidation, reorganization or otherwise whereby the
Fund issues shares in connection with the acquisition of assets (including those subject to liabilities) from any other investment company or similar entity. In the case of the conversion of the Fund to an open-end investment company, or in the case
of any of the foregoing transactions constituting a plan of reorganization that adversely affects the holders of any outstanding preferred shares, the action in question also would require the affirmative vote of the holders of at least two-thirds
of the preferred shares outstanding at the time, voting as a separate class, or, if such action has been authorized by the affirmative vote of two-thirds of the total number of trustees fixed in accordance with the Declaration or the By-Laws, the
affirmative vote of the holders of at least a majority of the Preferred Shares outstanding at the time, voting as a separate class. None of the foregoing provisions may be amended except by the vote of at least two-thirds of the Common Shares and,
if issued, Preferred Shares, voting together as a single class. The votes required to approve the conversion of the Fund from a closed-end to an open-end investment company or to approve transactions constituting a plan of reorganization that
adversely affects the holders of any outstanding Preferred Shares are higher than those required by the 1940 Act. The Board of Trustees believes that the provisions of the Declaration relating to such higher votes are in the best interest of
the Fund and its shareholders. In addition to removal by shareholders for cause, a trustee may also be removed for cause by action of the Board of Trustees, may be removed as required by the 1940 Act or may no longer serve as trustee once a
successor is elected and qualified.
The provisions of the Declaration and By-Laws described above could have the effect of
depriving the Common Shareholders of opportunities to sell their Common Shares at a premium over the then current market price of the Common Shares by discouraging a third party from seeking to obtain control of the Fund in a tender offer or similar
transaction. The overall effect of these provisions is to render more difficult the accomplishment of a merger or the assumption of control by a third party. They provide, however, the advantage of potentially requiring persons seeking control of
the Fund to negotiate with its management regarding the price to be paid and facilitating the continuity of the Funds investment objectives and policies. The Funds Board of Trustees has considered the foregoing anti-takeover provisions
and concluded that they are in the best interests of the Fund and its Common Shareholders.
Preemptive Rights.
The
Declaration provides that Common Shareholders shall have no right to acquire, purchase or subscribe for any shares or securities of the Fund, other than such right, if any, as the Funds Board of Trustees in its discretion may determine. As of
the date of this Statement of Additional Information, no preemptive rights have been granted by the Board of Trustees.
66
Reference should be made to the Declaration and By-Laws on file with the SEC for the full
text of these provisions.
REPURCHASE OF FUND SHARES; CONVERSION TO
OPEN-END
FUND
The Fund is a closed-end investment company and as such its shareholders
will not have the right to cause the Fund to redeem their shares. Instead, the Funds Common Shares will trade in the open market at a price that will be a function of several factors, including dividend levels (which are in turn affected by
expenses), net asset value, call protection, price, dividend stability, relative demand for and supply of such shares in the market, general market and economic conditions and other factors. Because shares of a closed-end investment company may
frequently trade at prices lower than net asset value, the Funds Board of Trustees has currently determined that, at least annually, it will consider action that might be taken to reduce or eliminate any material discount from net asset value
in respect of common shares, which may include the repurchase of such shares in the open market or in private transactions, the making of a tender offer for such shares at net asset value, or the conversion of the Fund to an open-end investment
company. There can be no assurance, however, that the Board of Trustees will decide to take any of these actions, or that share repurchases or tender offers, if undertaken, will reduce market discount. During November 2012, the Funds Board of
Trustees reauthorized the open-market share repurchase program under which the Fund may purchase up to 10% of its Common Shares. As of the date of this Statement of Additional Information, the Fund has not repurchased any of its Common Shares since
the inception of its repurchase program.
Notwithstanding the foregoing, at any time if the Fund has preferred shares
outstanding, the Fund may not purchase, redeem or otherwise acquire any of its Common Shares unless (1) all accrued preferred shares dividends have been paid and (2) at the time of such purchase, redemption or acquisition, the net asset value of the
Funds portfolio (determined after deducting the acquisition price of the Common Shares) is at least 200% of the liquidation value of the outstanding preferred shares (expected to equal the original purchase price per share plus any accrued and
unpaid dividends thereon). The staff of the U.S. Securities and Exchange Commission currently requires that any tender offer made by a closed-end investment company for its shares must be at a price equal to the net asset value of such shares at the
close of business on the last day of the tender offer. Any service fees incurred in connection with any tender offer made by the Fund will be borne by the Fund and will not reduce the stated consideration to be paid to tendering shareholders.
Subject to its investment limitations, the Fund may borrow to finance the repurchase of shares or to make a tender offer.
Interest on any borrowings to finance share repurchase transactions or the accumulation of cash by the Fund in anticipation of share repurchases or tenders will reduce the Funds net income. Any share repurchase, tender offer or borrowing that
might be approved by the Board of Trustees would have to comply with the Securities Exchange Act of 1934, as amended, and the 1940 Act and the rules and regulations thereunder.
Although the decision to take action in response to a discount from net asset value will be made by the Board of the Fund at the time it
considers such issue, it is the Boards present policy, which may be changed by the Board, not to authorize repurchases of Common Shares or a tender offer for such shares if (1) such transactions, if consummated, would (a) result in the
delisting of the Common Shares from the NYSE, or (b) impair the Funds eligibility for treatment as a regulated investment company under the Code or impair the Funds status as a registered closed-end investment company under the 1940 Act;
(2) the Fund would not be able to liquidate portfolio securities in an orderly manner and consistent with the Funds investment objective and policies in order to repurchase shares; or (3) there is, in the Boards judgment, any (a)
material legal action or proceeding instituted or threatened challenging such transactions or otherwise materially adversely affecting the Fund, (b) general suspension of or limitation on prices for trading securities on the NYSE, (c) declaration of
a banking moratorium by Federal or state authorities or any suspension of payment by United States or state banks in which the Fund invests, (d) material limitation affecting the Fund or the issuers of its portfolio securities by federal or state
authorities on the extension of credit by lending institutions or on the exchange of foreign
67
currency, (e) commencement of war, armed hostilities or other international or national calamity directly or indirectly involving the United States, or (f) other event or condition which would
have a material adverse effect (including any adverse tax effect) on the Fund or its shareholders if shares were repurchased. The Board of Trustees of the Fund may in the future modify these conditions in light of experience.
Conversion to an open-end company would require the approval of the holders of at least two-thirds of the Funds common shares and
preferred shares, if issued in the future, outstanding at the time, voting together as a single class, and of the holders of at least two-thirds of the Funds preferred shares, if issued in the future, outstanding at the time, voting as a
separate class, provided, however, that such separate class vote shall be a majority vote if the action in question has previously been approved, adopted or authorized by the affirmative vote of two-thirds of the total number of trustees fixed in
accordance with the Declaration or By-Laws. See the Prospectus under Certain Provisions in the Declaration of Trust for a discussion of voting requirements applicable to conversion of the Fund to an open-end company. If the Fund
converted to an open-end company, it would be required to redeem all preferred shares then outstanding, and the Funds Common Shares would no longer be listed on the NYSE. Shareholders of an open-end investment company may require the company
to redeem their shares on any business day (except in certain circumstances as authorized by or under the 1940 Act) at their net asset value, less such redemption charge, if any, as might be in effect at the time of redemption. In order to avoid
maintaining large cash positions or liquidating favorable investments to meet redemptions, open-end companies typically engage in a continuous offering of their shares. Open-end companies are thus subject to periodic asset in-flows and out-flows
that can complicate portfolio management. The Board of Trustees of the Fund may at any time propose conversion of the Fund to an open-end company depending upon their judgment as to the advisability of such action in light of circumstances then
prevailing.
The repurchase by the Fund of its shares at prices below net asset value would result in an increase in the net
asset value of those shares that remain outstanding. However, there can be no assurance that share repurchases or tenders at or below net asset value would result in the Funds shares trading at a price equal to their net asset value.
Nevertheless, the fact that the Funds shares may be the subject of repurchase or tender offers at net asset value from time to time, or that the Fund may be converted to an open-end company, may reduce any spread between market price and net
asset value that might otherwise exist.
In addition, a purchase by the Fund of its Common Shares would decrease the
Funds total assets which would likely have the effect of increasing the Funds expense ratio. Any purchase by the Fund of its Common Shares at a time when preferred shares are outstanding will increase the leverage applicable to the
outstanding Common Shares then remaining.
Before deciding whether to take any action if the Funds common shares trade
below net asset value, the Board of the Fund would consider all relevant factors, including the extent and duration of the discount, the liquidity of the Funds portfolio, the impact of any action that might be taken on the Fund or its
shareholders and market considerations. Based on these considerations, even if the Funds shares should trade at a discount, the Board of Trustees may determine that, in the interest of the Fund and its shareholders, no action should be taken.
TAX MATTERS
The following is a summary of certain United States federal income tax considerations relating to the Fund and the purchase, ownership and disposition of Common Shares as of the date hereof. Except where
noted, this summary deals only with Common Shares purchased in this offering and held as a capital asset. This summary does not represent a detailed description of the United States federal income tax consequences applicable to a Common Shareholder
if such holder is subject to special treatment under the United States federal income tax laws, including if the holder is:
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a dealer in securities or currencies or other person subject to mark-to-market treatment;
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a financial institution;
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a regulated investment company;
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a real estate investment trust;
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a
tax-exempt
organization;
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a person holding Common Shares as part of a hedging, integrated or conversion transaction, a constructive sale or a straddle;
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a trader in securities that has elected the
mark-to-market
method of
accounting for its securities;
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a person liable for alternative minimum tax;
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a partnership or other pass-through entity for United States federal income tax purposes; or
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a holder receiving Common Shares as compensation for services;
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a U.S. Holder (as defined below) whose functional currency is not the United States dollar.
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As used herein, the term U.S. Holder means a beneficial owner of Common Shares that is for United States federal income tax
purposes:
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an individual citizen or resident of the United States;
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a corporation (or other entity treated as a corporation for United States federal income tax purposes) created or organized in or under the laws of the
United States, any state thereof or the District of Columbia;
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an estate the income of which is subject to United States federal income taxation regardless of its source; or
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a trust if it (1) is subject to the primary supervision of a court within the United States and one or more United States persons have the
authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable United States Treasury regulations to be treated as a United States person.
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As used herein, the term non-U.S. Holder means a beneficial owner of Common Shares that is neither a U.S. Holder nor a
partnership (or other entity treated as a partnership for United States federal income tax purposes).
The discussion
below is based upon the provisions of the Code and regulations, rulings and judicial decisions thereunder as of the date hereof, and such authorities may be replaced, revoked or modified, possibly with retroactive effect, so as to result in United
States federal income tax consequences different from those discussed below.
If a partnership holds Common Shares, the tax
treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. Investors that are partners in a partnership holding Common Shares should consult their tax advisors.
This summary does not contain a detailed description of all the United States federal income tax consequences applicable to the Fund or
to investors in light of their particular circumstances, and does not address the effects of any state, local or
non-United
States tax laws.
Investors considering the purchase, ownership or disposition of
Common Shares should consult their own tax advisors concerning the United States federal income tax consequences to them in light of their particular situations as well as any consequences arising under the laws of any other taxing jurisdiction.
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Taxation of the Fund
The Fund is treated as a regular corporation, or a C corporation, for United States federal income tax purposes. Accordingly, the Fund generally is subject to United States federal income tax
on its taxable income at the graduated rates applicable to corporations (currently at a maximum rate of 35%). Such taxable income generally includes, among other items, all of the Funds net income and gain from its investments in and
dispositions of the equity securities of MLPs, other types of equity securities, derivatives, debt securities, royalty trusts and foreign securities less Fund expenses. The Fund may be subject to a 20% alternative minimum tax on its alternative
minimum taxable income to the extent that the alternative minimum tax exceeds the Funds regular income tax liability. The Funds payment of corporate income tax or alternative minimum tax could materially reduce the amount of cash
available for the Fund to make distributions on the Common Shares. In addition, distributions to Common Shareholders of the Fund are taxed under United States federal income tax laws applicable to corporate distributions, and thus the Funds
taxable income will be subject to a double layer of taxation. As a regular corporation, the Fund may also be subject to state income tax or, possibly, foreign tax by reason of its investments in equity securities of MLPs.
The income from equity securities of certain MLPs is treated as qualifying income for purposes of qualifying as a regulated investment
company under the Code. However, a regulated investment company may not invest more than 25% of its assets in the equity securities of certain MLPs. Thus, the Fund does not expect that it will be eligible to elect to be treated as a regulated
investment company because the Fund intends to invest more than 25% of its assets in the equity securities of certain MLPs.
Certain
of the Funds Investments
MLP Equity Securities
The MLPs whose tax treatment is described in this section, and in which the Fund will primarily invest, are MLPs that are treated as
partnerships for U.S. federal income tax purposes.
MLPs are generally characterized as publicly traded
partnerships for United States federal income tax purposes because MLPs are typically organized as limited partnerships or limited liability companies that are publicly traded. The Code generally requires all publicly traded partnerships to be
treated as corporations for United States federal income tax purposes. If, however, a publicly traded partnership satisfies specific requirements, the publicly traded partnership will be treated as a partnership for United States federal income tax
purposes. The Fund intends to invest in MLPs that satisfy (and references in this discussion to MLPs include only those MLPs that satisfy) these requirements. Under these requirements, an MLP is required to derive at least 90% of its gross income
for each taxable year from specified sources of qualifying income, such as interest, dividends, real property rents, gain from the sale or disposition of real property, gains on sales of certain capital assets, and in certain limited circumstances,
income and gain from commodities or futures, forwards and options with respect to commodities. Qualifying income also includes income and gains derived from mineral or natural resources (including energy related) activities, including the
exploration, development, mining or production, processing, refining, transportation (including pipelines transporting gas, oil, or products thereof), or the marketing of any mineral or natural resource (including fertilizer, geothermal energy, and
timber), industrial source carbon dioxide, or the transportation or storage of certain fuels (including alcohol, biodiesel and alternative fuels).
If the MLPs are taxed as partnerships, the MLPs will be taxed differently from corporations for United States federal income tax purposes. A corporation is required to pay United States federal income tax
on its income, and, to the extent the corporation makes distributions to its stockholders in the form of dividends from current or accumulated earnings and profits, its stockholders are required to pay United States federal income tax on such
dividends. For this reason, it is said that corporate income is taxed at two levels. In contrast, no United States federal income tax would be imposed at the MLP entity level for an MLP taxed as a partnership. Instead, a partnerships items of
taxable income, gain, loss, deductions, and credits are generally allocated among all the partners in
70
proportion to their interests in the partnership. Each partner is required to take into account its allocable shares of these tax items in computing its taxable income and tax liabilities and to
adjust its basis in its partnership interest correspondingly. Partnership income is said to be taxed only at one levelat the partner level.
Although distributions from MLPs resemble corporate dividends, they are treated differently for United States federal income tax purposes. A distribution from an MLP is treated as a
tax-free
return of capital to the extent of, and in reduction of, the partners tax basis in its MLP interest and as gain from the sale or exchange of the MLP interest to the extent the distribution exceeds the
partners tax basis in its MLP interest. When the Fund invests in the equity securities of an MLP, the Fund will be a partner in such MLP. Accordingly, the Fund will be required to take into account the Funds allocable share of the
income, gains, losses, deductions and credits recognized by each such MLP, whether or not the MLP distributes cash to the Fund. Based upon a review of the historic results of the type of MLPs in which the Fund invests, the Fund expects that the cash
distributions it will receive with respect its investments in equity securities of MLPs will exceed the taxable income allocated to the Fund from such MLPs because of non-cash tax deductions such as depreciation, amortization and depletion
that will be allocated to the Fund from the MLPs. No assurance, however, can be given in this regard. If this expectation is not realized, the Fund will have more corporate income tax expense than expected, which will result in less cash
available to distribute to Common Shareholders.
The Fund will recognize gain or loss on the sale, exchange or other taxable
disposition of an equity security of an MLP equal to the difference between the amount realized by the Fund on the sale, exchange or other taxable disposition and the Funds adjusted tax basis in such equity security. Any such gain will be
subject to United States federal income tax at the regular graduated corporate rates (currently at a maximum rate of 35%). Because the Fund will be taxed as a regular corporation it will not be eligible for reduced rates of taxation with respect to
such gain, even if such gain is long-term capital gain. The amount realized by the Fund generally will be the amount paid by the purchaser of the equity security plus the portion of the Funds allocable share, if any, of the MLPs debt
that will be allocated to the purchaser as a result of the sale, exchange or other taxable disposition. The Funds adjusted tax basis in its equity securities in an MLP is generally equal to the amount the Fund paid for the equity securities,
(x) increased by the Funds allocable share of the MLPs net taxable income and the Funds allocable share of the MLPs debt, if any, and (y) decreased by the Funds allocable share of the MLPs net losses,
reductions in the Funds allocable share of the MLPs debt, if any, and any distributions received by the Fund from the MLP. Although any distribution by an MLP to the Fund in excess of the Funds allocable share of such MLPs
net taxable income generally will not be taxable to the extent the distribution does not exceed the Funds tax basis in the MLP, such distribution will reduce the Funds tax basis and thus increase the amount of gain (or decrease the
amount of loss) that will be recognized on the sale of an equity security in the MLP by the Fund or on a subsequent distribution by the MLP to the Fund. A portion of any gain or loss recognized by the Fund on a disposition of an MLP equity security
(or by an MLP on a disposition of an underlying asset) may be separately computed and taxed as ordinary income or loss under the Code to the extent attributable to assets of the MLP that give rise to depreciation recapture, intangible drilling and
development cost recapture, or other unrealized receivables or inventory items under the Code. Any such gain may exceed net taxable gain realized on the disposition and will be recognized even if there is a net taxable loss
on the disposition. As a corporation, the Funds capital gains will be taxed at ordinary income rates, so treatment of gains as ordinary income will not cause the gains to be taxed at a higher rate. Nevertheless, the Funds net capital
losses may only be used to offset capital gains and therefore could not be used to offset gains that are treated as ordinary income. Thus, the Fund could recognize both gain that is treated as ordinary income and capital loss on a disposition of an
MLP equity security (or on an MLPs disposition of an underlying asset) and would not be able to use the capital loss to offset that gain.
Any capital losses that the Fund recognizes on a disposition of an equity security of an MLP can only be used to offset capital gains that the Fund recognizes. Any capital losses that the Fund is
unable to use may be carried back for three taxable years and forward for five taxable years to reduce the Funds capital gains in such years. Because (i) the periods for which capital losses may be carried back and forward are
limited and (ii) the disposition of an equity security of an MLP may be treated, in significant part, as ordinary income, capital losses incurred by the Fund may expire without being utilized.
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The Funds allocable share of certain percentage-depletion deductions and intangible
drilling costs of the MLPs in which the Fund invests may be treated as items of tax preference for purposes of calculating the Funds alternative minimum taxable income. Such items will increase the Funds alternative minimum taxable
income and increase the likelihood that the Fund may be subject to the alternative minimum tax.
Corporate Investments
The Fund may invest in entities that are taxed as corporations for United States federal income tax purposes,
including certain MLPs that elect corporate treatment. Distributions that the Fund receives from such corporations will generally be taxable to the extent of the corporations current or accumulated earnings and profits. Investment by the Fund in
passive foreign investment companies (PFICs) could subject the Fund to U.S. federal income tax (including interest charges) on distributions received from such a company or on the proceeds from the sale of its investment in
such a company. A passive foreign investment company is any foreign corporation: (i) 75% or more of the income of which for the taxable year is passive income, or (ii) the average percentage of the assets of which (generally by value,
but by adjusted tax basis in certain cases) that produce or are held for the production of passive income is at least 50%. The Fund may avoid the tax on PFIC distributions and the sale of interests in PFICs by making an election to mark such
investments to market annually, treating gains as ordinary income. In so doing, the Fund would be required to include its share of the PFICs income and net capital gains annually, if the Fund is eligible to do so, and regardless of whether it
receives any distribution from the PFIC. The mark-to-market election may accelerate the recognition of income without the receipt of cash. Making this election therefore may require the Fund to liquidate other investments (including when it is not
advantageous to do so), which also may accelerate the recognition of gain and affect the Funds total return.
Other
Investments
The Funds transactions in foreign currencies, forward contracts, options and futures contracts
(including options and futures contracts on foreign currencies), to the extent permitted, will be subject to special provisions of the Code (including provisions relating to hedging transactions and straddles) that, among
other things, may affect the character of gains and losses realized by the Fund (
i.e.
, may affect whether gains or losses are ordinary or capital or short-term versus long-term), accelerate recognition of income to the Fund and defer Fund
losses. These provisions also (a) will require the Fund to
mark-to-market
certain types of the positions in its portfolio (
i.e
., treat them as if they were
closed out at the end of each year) and (b) may cause the Fund to recognize income without receiving a corresponding amount of cash. If the Fund invests in debt obligations having original issue discount, the Fund may recognize taxable income
from such investments in excess of any cash received from the investments.
Foreign Investments
Dividends or other income (including, in some cases, capital gains) received by the Fund from investments in
non-United
States securities may be subject to withholding and other taxes imposed by foreign countries. Tax conventions between certain countries and the United States may reduce or eliminate such taxes in some
cases. Foreign taxes paid by the Fund will reduce the return from the Funds investments. Common Shareholders will not be entitled to claim credits or deductions on their own tax returns for foreign taxes paid by the Fund.
U.S. Holders
Taxation of
Dividends
The gross amount of distributions by the Fund in respect of Common Shares will be taxable to a U.S. Holder
as dividend income to the extent the distributions are paid out of the Funds current or accumulated earnings and profits, as determined under United States federal income tax principles. Such income will be included in a U.S. Holders
gross income on the day actually or constructively received by such holder. Subject to certain holding
72
period and other requirements, such dividend income will generally be eligible for the dividends received deduction in the case of corporate U.S. Holders and will generally be treated as
qualified dividend income for non-corporate U.S. Holders (including individuals) and will be eligible for reduced rates of taxation.
To the extent that the amount of any distribution exceeds the Funds current and accumulated earnings and profits for a taxable year, as determined under United States federal income tax principles,
the distribution will first be treated as a
tax-free
return of capital, causing a reduction in the adjusted basis of Common Shares (thereby increasing the amount of gain, or decreasing the amount of loss, to
be recognized by a U.S. Holder on a subsequent disposition of the Common Shares), and the balance in excess of adjusted basis will be taxed as capital gain. Any such capital gain will be long-term capital gain if such U.S. Holder has held the
applicable Common Shares for more than one year.
A corporations earnings and profits are generally calculated by making
certain adjustments to the corporations reported taxable income. Based upon the historic performance of similar MLPs, the Fund anticipates that the distributed cash from the MLPs in its portfolio will exceed its earnings and profits. Thus, the
Fund anticipates that only a portion of its distributions will be treated as dividends to its Common Shareholders for United States federal income tax purposes, although no assurance can be given in this regard.
Because of the Funds status as a corporation for United States federal income tax purposes and its investments in equity securities
of MLPs, the Funds earnings and profits may be calculated using accounting methods that are different from those used for calculating taxable income. For instance, the Fund may use a slower method of depreciation and depletion for purposes of
computing its earnings and profits than the method used for purposes of calculating the taxable income of an MLP. In that case, the Funds earnings and profits would not be increased solely by its allocable share of the MLPs taxable
income, but would also have to be adjusted to reflect the impact of the slower depreciation and depletion methods. Because of these differences, the Fund may make distributions out of its current or accumulated earnings and profits, treated as
dividends, in years in which the Funds distributions exceed its taxable income.
Distributions will be treated in the
manner described above regardless of whether such distributions are paid in cash or invested in additional Common Shares of the Fund. Common Shareholders receiving distributions in the form of additional Common Shares of the Fund will be treated as
receiving a distribution in the amount of cash that they would have received if they had elected to receive the distribution in cash.
Taxation of Sales, Exchanges or Other Dispositions
A U.S. Holder will recognize taxable gain or loss on any sale, exchange or other disposition of Common Shares in an amount equal to the difference between the amount realized for the Common Shares and the
holders adjusted tax basis in such Common Shares. Generally, a U.S. Holders adjusted tax basis in the Common Shares will be equal to the cost of the holders Common Shares, reduced by adjustments for distributions paid by the Fund
in excess of its earnings and profits (
i.e.
, returns of capital). Such gain or loss will generally be capital gain or loss. It is possible that a return of capital could cause a shareholder to pay a tax on capital gains with respect to shares
that are sold for an amount less than the price originally paid for them. Capital gains of
non-corporate
U.S. Holders (including individuals) derived with respect to capital assets held for more than one year
are eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations.
Tax on Net Investment
Income
A 3.8% Medicare contribution tax generally applies to all or a portion of the net investment income
of a Common Shareholder who is an individual and not a nonresident alien for federal income tax purposes and who has adjusted gross income (subject to certain adjustments) that exceeds a threshold amount ($250,000 if married filing jointly or if
considered a surviving spouse for federal income tax purposes, $125,000 if married filing separately, and $200,000 in other cases). This 3.8% tax will also apply to all or a portion of the undistributed net
73
investment income of certain U.S. Shareholders that are estates and trusts. For these purposes, dividend and capital gain income are generally taken into account in computing net investment
income. Common Shareholders are advised to consult their own tax advisors regarding additional taxation of net investment income.
Non-U.S.
Holders
The following discussion is a summary of certain United States federal
income tax consequences that will apply to
non-U.S.
Holders. Special rules may apply to certain
non-U.S.
Holders, such as controlled foreign corporations,
passive foreign investment companies and certain expatriates, among others, that are subject to special treatment under the Code. Such
non-U.S.
Holders should consult their own tax advisors to
determine the United States federal, state, local and other tax consequences that may be relevant to them.
Taxation of Dividends
The gross amount of distributions by the Fund in respect of Common Shares is treated as dividends to the extent
paid out of the Funds current or accumulated earnings and profits, as determined under United States federal income tax principles. Dividends paid to a
non-U.S.
Holder generally are subject to
withholding of United States federal income tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. However, dividends that are effectively connected with the conduct of a trade or business by a
non-U.S.
Holder within the United States (and, if required by an applicable income tax treaty, are attributable to a United States permanent establishment) are not subject to the withholding tax, provided certain
certification and disclosure requirements (generally on a Form
W-8ECI)
are satisfied. Instead, such dividends are subject to United States federal income tax on a net income basis in the same manner as if the
non-U.S.
Holder were a United States person as defined under the Code. Any such effectively connected dividends received by a foreign corporation may also be subject to an additional branch profits tax
at a 30% rate or such lower rate as may be specified by an applicable income tax treaty.
A
non-U.S.
Holder who wishes to claim the benefits of an applicable income tax treaty (and avoid backup withholding, as discussed below) for dividends will be required (a) to complete a Form
W-8BEN
(or other applicable form) and certify under penalty of perjury that such holder is not a United States person as defined under the Code and is eligible for treaty benefits or (b) if Common Shares are
held through certain foreign intermediaries, to satisfy the relevant certification requirements of applicable United States Treasury regulations. Special certification and other requirements apply to certain
non-U.S.
Holders that are pass-through entities rather than corporations or individuals.
A
non-U.S.
Holder eligible for a reduced rate of United States withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld
by filing an appropriate claim for refund with the Internal Revenue Service.
If the amount of a distribution to a
non-U.S.
Holder exceeds the Funds current and accumulated earnings and profits, such excess will be treated first as a
tax-free
return of capital to the extent of the
non-U.S.
Holders tax basis in the Common Shares, and then as capital gain. As discussed above under the caption U.S. HoldersTaxation of Dividends, the Fund expects that only a portion
of its distributions to its Common Shareholders with respect to the Common Shares will be treated as dividends for United States federal income tax purposes, although no assurance can be given in this regard. Capital gain recognized by a
non-U.S.
Holder as a consequence of a distribution by the Fund in excess of its current and accumulated earnings and profits will generally not be subject to United States federal income tax, except as described
below under the caption Taxation of Sales, Exchanges or Other Dispositions.
74
Taxation of Sales, Exchanges or Other Dispositions
A
non-U.S.
Holder generally will not be subject to United States federal income tax on any gain
realized on the disposition of Common Shares unless:
|
|
|
the gain is effectively connected with a trade or business of the
non-U.S.
Holder in the United States (and, if
required by an applicable income tax treaty, is attributable to a United States permanent establishment of the
non-U.S.
Holder);
|
|
|
|
the
non-U.S.
Holder is an individual who is present in the United States for 183 days or more in the taxable
year of that disposition, and certain other conditions are met; or
|
|
|
|
the Fund is or has been a United States real property holding corporation for United States federal income tax purposes.
|
An individual
non-U.S.
Holder described in the first bullet point
immediately above will be subject to tax on the net gain derived from the sale under regular graduated United States federal income tax rates. An individual
non-U.S.
Holder described in the second bullet point
immediately above will be subject to a flat 30% tax on the gain derived from the sale, which may be offset by United States source capital losses, even though the individual is not considered a resident of the United States. If a
non-U.S.
Holder that is a foreign corporation falls under the first bullet point immediately above, the holder will be subject to tax on its net gain in the same manner as if the holder were a United States person
as defined under the Code and, in addition, may be subject to the branch profits tax equal to 30% of its effectively connected earnings and profits or at such lower rate as may be specified by an applicable income tax treaty.
The Fund may be a United States real property holding corporation for United States federal income tax purposes. With respect
to the third bullet point above, if the Fund is or becomes a United States real property holding corporation, so long as the Funds Common Shares are regularly traded on an established securities market (such as the NYSE), only a
non-U.S.
Holder who holds or held (at any time during the shorter of the five year period preceding the date of disposition or the holders holding period) more than 5% (directly or indirectly as determined
under applicable attribution rules of the Code) of the Funds Common Shares will be subject to United States federal income tax on the disposition of Common Shares.
Information Reporting and Backup Withholding
U.S. Holders
In general, information reporting will apply to distributions in respect of Common Shares and the proceeds from the sale, exchange or
other disposition of Common Shares that are paid to a U.S. Holder within the United States (and in certain cases, outside the United States), unless the holder is an exempt recipient. A backup withholding tax (at a maximum rate of 28%) may apply to
such payments if the holder fails to provide a taxpayer identification number (generally on a Form
W-9)
or certification of other exempt status or fails to report in full dividend and interest income.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules will be allowed as
a refund or as a credit against a U.S. Holders United States federal income tax liability provided the required information is timely furnished to the Internal Revenue Service.
Non-U.S.
Holders
The Fund
must report annually to the Internal Revenue Service and to each
non-U.S.
Holder the amount of distributions paid to such holder (whether treated as dividends or a return of capital) and the tax withheld with
respect to such distributions. Copies of the information returns reporting such distributions and withholding may also be made available to the tax authorities in the country in which the
non-U.S.
Holder
resides under the provisions of an applicable income tax treaty.
75
A
non-U.S.
Holder will be subject to backup
withholding for dividends paid to such holder unless such holder certifies under penalty of perjury that it is a
non-U.S.
Holder (and the payor does not have actual knowledge or reason to know that such holder
is a United States person as defined under the Code), or such holder otherwise establishes an exemption. Dividends subject to withholding of United States federal income tax as described under the caption Non-U.S. HoldersTaxation
of Dividends above will not be subject to backup withholding.
Information reporting and, depending on the
circumstances, backup withholding will apply to the proceeds of a sale of Common Shares within the United States or conducted through certain United States-related financial intermediaries, unless the beneficial owner certifies under penalty of
perjury that it is a
non-U.S.
Holder (and the payor does not have actual knowledge or reason to know that the beneficial owner is a United States person as defined under the Code), or such owner otherwise
establishes an exemption.
Any amounts withheld under the backup withholding rules will be allowed as a refund or as a credit
against a
non-U.S.
Holders United States federal income tax liability provided the required information is timely furnished to the Internal Revenue Service.
Non-U.S.
Holders should consult their tax advisor regarding the application of the information
reporting and backup withholding rules to them.
Additional Withholding Requirements
Unless certain non-U.S. Holders comply with IRS requirements that will generally require them to report information regarding U.S. persons
investing in, or holding accounts with, such
non-U.S.
Holders, a 30% withholding tax may apply to Fund distributions payable to such entities after June 30, 2014 (or, in certain cases, after later dates) and
gross proceeds on the sale or disposition of Common Shares payable to such entities after December 31, 2016. A non-U.S. Holder may be exempt from the withholding described in this paragraph under an applicable intergovernmental agreement between the
U.S. and a foreign government, provided that the shareholder and the applicable foreign government comply with the terms of such agreement.
Investment by
Tax-Exempt
Investors
Employee benefit plans and most other organizations exempt from United States federal income tax, including individual retirement accounts
and other retirement plans, are subject to United States federal income tax on unrelated business taxable income (UBTI). Because the Fund is a corporation for United States federal income tax purposes, an owner of Common Shares will not
report on its federal income tax return any of the Funds items of income, gain, loss and deduction. Therefore, a
tax-exempt
investor generally will not have UBTI attributable to its ownership or sale of
Common Shares unless its ownership of Common Shares is debt-financed. In general, Common Shares would be debt-financed if the
tax-exempt
owner of Common Shares incurs debt to acquire Common Shares or otherwise
incurs or maintains a debt that would not have been incurred or maintained if the Common Shares had not been acquired.
Other Taxation
The Funds Common Shareholders may be subject to state, local and foreign taxes on its distributions. Common
Shareholders are advised to consult their own tax advisors with respect to the particular tax consequences to them of an investment in the Fund.
76
FINANCIAL STATEMENTS
The Financial Statements and the independent registered public accounting firms report thereon, appearing in the Funds annual
shareholder report for the fiscal year ended November 30, 2013 are incorporated herein by reference in this Statement of Additional Information. The Funds annual shareholder report may be obtained without charge by calling (800) 257-8787.
CUSTODIAN AND TRANSFER AGENT
The custodian of the assets of the Fund is State Street Bank and Trust Company, One Lincoln Street, Boston, Massachusetts 02110
(Custodian). The Custodian performs custodial, fund accounting and portfolio accounting services. The Funds transfer, shareholder services and dividend paying agent is also State Street Bank and Trust Company (Transfer
Agent). The Transfer Agent is located at 250 Royall Street, Canton, Massachusetts 02021.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP, an independent registered public accounting firm, provides auditing services to the Fund. The principal
business address of PricewaterhouseCoopers LLP is 1 North Wacker Drive, Chicago, Illinois, 60606.
LEGAL OPINION
Certain legal matters in connection with the Common Shares will be passed upon for the Fund by Bingham McCutchen LLP, Washington, D.C.
ADDITIONAL INFORMATION
A Registration Statement on Form
N-2,
including amendments thereto, relating to the shares of the Fund offered hereby, has been filed by the Fund with the SEC in
Washington, D.C. The Funds Prospectus and this Statement of Additional Information do not contain all of the information set forth in the Registration Statement, including any exhibits and schedules thereto. For further information with
respect to the Fund and the shares offered hereby, reference is made to the Funds Registration Statement. Statements contained in the Funds Prospectus and this Statement of Additional Information as to the contents of any contract or
other document referred to are not necessarily complete and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by
such reference. Copies of the Registration Statement may be inspected without charge at the SECs principal office in Washington, D.C., and copies of all or any part thereof may be obtained from the SEC upon the payment of certain fees
prescribed by the SEC or on the SECs website at http://www.sec.gov.
77
APPENDIX A
Ratings of Investments
Standard & Poors Corporation
Standard & Poors CorporationA brief description of the applicable Standard & Poors Financial Services LLC, a subsidiary of The McGraw-Hill Companies
(Standard & Poors or S&P), rating symbols and their meanings (as published by S&P) follows:
A Standard & Poors issue credit rating is a forward-looking opinion about the creditworthiness of an obligor with respect to a specific financial obligation, a specific class of financial
obligations, or a specific financial program (including ratings on medium term note programs and commercial paper programs). It takes into consideration the creditworthiness of guarantors, insurers, or other forms of credit enhancement on the
obligation and takes into account the currency in which the obligation is denominated. The opinion reflects Standard & Poors view of the obligors capacity and willingness to meet its financial commitments as they come due, and may
assess terms, such as collateral security and subordination, which could affect ultimate payment in the event of default.
Issue credit ratings can be either long-term or short-term. Short-term ratings are generally assigned to those obligations considered
short-term in the relevant market. In the U.S., for example, that means obligations with an original maturity of no more than 365 daysincluding commercial paper.
Short-term ratings are also used to indicate the creditworthiness of an obligor with respect to put features on long-term obligations. The result is a dual rating, in which the short-term rating addresses
the put feature, in addition to the usual long-term rating. Medium-term notes are assigned long-term ratings.
LONG-TERM ISSUE CREDIT
RATINGS
Issue credit ratings are based in varying degrees, on S&Ps analysis of the following considerations:
1. Likelihood of paymentcapacity and willingness of the obligor to meet its financial commitment on an
obligation in accordance with the terms of the obligation;
2. Nature of and provisions of the obligation; and
3. Protection afforded by, and relative position of, the obligation in the event of bankruptcy,
reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors rights.
The issue
ratings are an assessment of default risk, but may incorporate an assessment of relative seniority or ultimate recovery in the event of default. Junior obligations are typically rated lower than senior obligations, to reflect the lower priority in
bankruptcy, as noted above. (Such differentration applies when an entity has both senior and subordinated obligations, secured and unsecured obligations, or operating company and holding company obligations.)
AAA
An
obligation rated AAA has the highest rating assigned by Standard & Poors. The obligors capacity to meet its financial commitment on the obligation is extremely strong.
AA
An
obligation rated AA differs from the highest-rated obligations only to a small degree. The obligors capacity to meet its financial commitment on the obligation is very strong.
A
An
obligation rated A is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligors capacity to meet its financial commitment
on the obligation is still strong.
A-1
BBB
An obligation rated BBB exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to
meet its financial commitment on the obligation.
BB, B, CCC, CC, and C
Obligations rated BB, B, CCC, CC, and C are regarded as having significant
speculative characteristics. BB indicates the least degree of speculation and C the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties
or major exposures to adverse conditions.
BB
An obligation rated BB is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic
conditions, which could lead to the obligors inadequate capacity to meet its financial commitment on the obligation.
B
An obligation rated B is more vulnerable to nonpayment than obligations rated BB, but the obligor
currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligors capacity or willingness to meet its financial commitment on the obligation.
CCC
An obligation rated CCC is currently vulnerable to nonpayment, and is dependent upon favorable business, financial, and
economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the
obligation.
CC
An obligation rated CC is currently highly vulnerable to nonpayment.
C
A
C rating is assigned to obligations that are currently highly vulnerable to nonpayment, obligations that have payment arrearages allowed by the terms of the documents, or obligations of an issuer that is the subject of a bankruptcy
petition or similar action which have not experienced a payment default. Among others, the C rating may be assigned to subordinated debt, preferred stock or other obligations on which cash payments have been suspended in accordance with
the instruments terms or when preferred stock is the subject of a distressed exchange offer, whereby some or all of the issue is either repurchased for an amount of cash or replaced by other instruments having a total value that is less than
par.
D
An obligation rated D is in payment default. The D rating category is used when payments on an obligation, including a regulatory capital instrument, are not made on the date due
even if the applicable grace period has not expired, unless Standard & Poors believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition or the
taking of a similar action if payments on an obligation are jeopardized. An obligations rating is lowered to D upon completion of a distressed exchange offer, whereby some or all of the issue is either repurchased for an amount of
cash or replaced by other instruments having a total value that is less than par.
A-2
Plus (+) or minus
(-).
The ratings from
AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.
N.R.
This indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that Standard & Poors does not rate a particular obligation as a matter of policy.
SHORT-TERM ISSUE CREDIT RATINGS
A-1
A short-term obligation rated
A-1
is rated in the highest category by Standard & Poors. The obligors capacity to meet its financial commitment on the obligation is strong. Within this category, certain
obligations are designated with a plus sign (+). This indicates that the obligors capacity to meet its financial commitment on these obligations is extremely strong.
A-2
A short-term obligation rated
A-2
is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rating categories. However, the obligors capacity to meet its
financial commitment on the obligation is satisfactory.
A-3
A short-term obligation rated
A-3
exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
B
A short-term obligation rated B is regarded as having significant
speculative characteristics. Ratings of
B-1,
B-2, and B-3 may be assigned to indicate finer distinctions within the B category. The obligor currently has the
capacity to meet its financial commitment on the obligation; however, it faces major ongoing uncertainties which could lead to the obligors inadequate capacity to meet its financial commitment on the obligation.
B-1
A
short-term obligation rated B-1 is regarded as having significant speculative characteristics, but the obligor has a relatively stronger capacity to meet its financial commitments over the short-term compared to other speculative-grade
obligors.
B-2
A short-term obligation rated B-2 is regarded as having significant speculative characteristics, and the obligor has an average speculative-grade capacity to meet its financial commitments
over the short-term compared to other speculative-grade obligors.
B-3
A short-term obligation rated B-3 is regarded as having significant speculative characteristics, and the obligor has a
relatively weaker capacity to meet its financial commitments over the short-term compared to other speculative-grade obligors.
C
A short-term
obligation rated C is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation.
A-3
D
A short-term obligation rated D is in payment default. The D rating category is used when payments on an obligation, including a regulatory capital instrument, are not made on the
date due even if the applicable grace period has not expired, unless Standard & Poors believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy
petition or the taking of a similar action if payments on an obligation are jeopardized.
MUNICIPAL SHORT-TERM NOTE RATINGS DEFINITIONS
A Standard & Poors U.S. municipal note rating reflects Standard & Poors opinion about the liquidity
factors and market access risks unique to the notes. Notes due in three years or less will likely receive a note rating. Notes with an original maturity of more than three years will most likely receive a long-term debt rating. In determining which
type of rating, if any, to assign, Standard & Poors analysis will review the following considerations:
1. Amortization schedulethe larger the final maturity relative to other maturities, the more likely it will be
treated as a note; and
2. Source of paymentthe more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note.
Note rating symbols are as follows:
SP-1
Strong
capacity to pay principal and interest. An issue determined to possess a very strong capacity to pay debt service is given a plus (+) designation.
SP-2
Satisfactory capacity to pay principal and interest, with some vulnerability
to adverse financial and economic changes over the term of the notes.
SP-3
Speculative capacity to pay principal and interest.
Moodys Investors Service, Inc.
Moodys Investors Service,
Inc.A brief description of the applicable Moodys Investors Service, Inc. (Moodys) rating symbols and their meanings (as published by Moodys) follows:
LONG-TERM OBLIGATION RATINGS
Moodys long-term ratings are opinions
of the relative credit risk of financial obligations with an original maturity of one year or more. They address the possibility that a financial obligation will not be honored as promised. Such ratings use Moodys Global Scale and reflect both
the likelihood of default and any financial loss suffered in the event of default.
Aaa
Obligations rated Aaa are judged to be of the highest quality, with minimal credit risk.
Aa
Obligations
rated Aa are judged to be of high quality and are subject to very low credit risk.
A
Obligations rated A are considered upper-medium grade and are subject to low credit risk.
A-4
Baa
Obligations rated Baa are subject to moderate credit risk. They are considered medium grade and as such may possess certain speculative characteristics.
Ba
Obligations
rated Ba are judged to have speculative elements and are subject to substantial credit risk.
B
Obligations rated B are considered speculative and are subject to high credit risk.
Caa
Obligations rated Caa are judged to be of poor standing and are subject to very high credit risk.
Ca
Obligations
rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest.
C
Obligations rated C are the lowest rated class of bonds and are typically in
default, with little prospect for recovery of principal or interest.
Note: Moodys appends numerical modifiers 1, 2, and
3 to each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in
the lower end of that generic rating category.
SHORT-TERM OBLIGATION RATINGS
Moodys short-term ratings are opinions of the ability of issuers to honor short-term financial obligations. Ratings may be assigned
to issuers, short-term programs or to individual short-term debt instruments. Such obligations generally have an original maturity not exceeding thirteen months, unless explicitly noted. Moodys employs the following designations to indicate
the relative repayment ability of rated issuers:
P-1
Issuers (or supporting institutions) rated Prime-1 have a superior ability to repay short-term debt obligations.
P-2
Issuers (or supporting institutions) rated Prime-2 have a strong ability to
repay short-term debt obligations.
P-3
Issuers (or supporting institutions) rated Prime-3 have an acceptable ability to repay short-term obligations.
NP
Issuers (or supporting institutions) rated Not Prime do not fall within any of
the Prime rating categories.
U.S. MUNICIPAL SHORT-TERM OBLIGATION RATINGS
There are three rating categories for short-term municipal obligations that are considered investment grade. These ratings are designated
as Municipal Investment Grade (MIG) and are divided into three levelsMIG 1 through MIG 3. In addition, those short-term obligations that are of speculative quality are designated SG, or speculative grade. MIG ratings expire at the maturity of
the obligation.
A-5
MIG 1
This designation denotes superior credit quality. Excellent protection is afforded by established cash flows, highly reliable liquidity support, or demonstrated broad-based access to the market for
refinancing.
MIG 2
This designation denotes strong credit quality. Margins of protection are ample, although not as large as in the preceding group.
MIG 3
This designation denotes acceptable credit quality. Liquidity and cash-flow
protection may be narrow, and market access for refinancing is likely to be less well-established.
SG
This designation denotes speculative-grade credit quality. Debt instruments in this category may lack sufficient margins of protection.
Fitch Ratings, Inc.
Fitch Ratings, Inc.A brief description of the applicable Fitch Ratings, Inc. (Fitch) ratings symbols and meanings (as published by Fitch) follows:
Rated entities in a number of sectors, including financial and non-financial corporations, sovereigns and insurance companies, are
generally assigned Issuer Default Ratings (IDRs). IDRs opine on an entitys relative vulnerability to default on financial obligations. The threshold default risk addressed by the IDR is generally that of the financial obligations
whose non-payment would best reflect the uncured failure of that entity. As such, IDRs also address relative vulnerability to bankruptcy, administrative receivership or similar concepts, although the agency recognizes that issuers may also make
pre-emptive and therefore voluntary use of such mechanisms.
In aggregate, IDRs provide an ordinal ranking of issuers based on
the agencys view of their relative vulnerability to default, rather than a prediction of a specific percentage likelihood of default. For historical information on the default experience of Fitch-rated issuers, please consult the transition
and default performance studies available from the Fitch Ratings website.
LONG-TERM CREDIT RATINGS
AAA
Highest
credit quality. AAA ratings denote the lowest expectation of default risk. They are assigned only in case of exceptionally strong capacity for payment of financial commitments. This capacity is highly unlikely to be adversely affected by
foreseeable events.
AA
Very high credit quality. AA ratings denote expectations of a very low default risk. They indicate very strong capacity for payment of financial commitments. This capacity is not significantly
vulnerable to foreseeable events.
A
High credit quality. A ratings denote expectations of low default risk. The capacity for payment of financial commitments is considered strong. This capacity may, nevertheless, be more
vulnerable to adverse business or economic conditions than is the case for higher ratings.
A-6
BBB
Good credit quality. BBB ratings indicate that expectations of default risk are currently low. The capacity for payment of financial commitments is considered adequate, but adverse business or
economic conditions are more likely to impair this capacity.
BB
Speculative. BB ratings indicate an elevated vulnerability to default risk developing, in the event of adverse changes in
business or economic conditions over time; however, business or financial flexibility exists which supports the servicing of financial commitments.
B
Highly speculative. B ratings indicate that material default risk
is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is vulnerable to deterioration in the business and economic environment.
CCC
Substantial credit risk. Default is a real possibility.
CC
Very high levels of credit risk. Default of some kind appears probable.
C
Exceptionally high levels of credit risk. Default is imminent or inevitable, or the issuer is in standstill. Conditions that are
indicative of a C category rating for an issuer include:
a. the issuer has entered into a grace or
cure period following non-payment of a material financial obligation;
b. the issuer has entered into a
temporary negotiated waiver or standstill agreement following a payment default on a material financial obligation; or
c. Fitch Ratings otherwise believes a condition of RD or D to be imminent or inevitable, including through the formal announcement of a coercive debt exchange.
RD
Restricted
default. RD ratings indicate an issuer that in Fitch Ratings opinion has experienced an uncured payment default on a bond, loan or other material financial obligation but which has not entered into bankruptcy filings,
administration, receivership, liquidation or other formal winding-up procedure, and which has not otherwise ceased business. This would include:
a. the selective payment default on a specific class or currency of debt;
b. the uncured expiry of any applicable grace period, cure period or default forbearance period following a payment default on a bank loan, capital markets security or other material financial obligation;
c. the extension of multiple waivers or forbearance periods upon a payment default on one or more material
financial obligations, either in series or in parallel; or
d. execution of a coercive debt exchange on one or
more material financial obligations.
D
Default. D ratings indicate an issuer that in Fitch Ratings opinion has entered into bankruptcy filings, administration, receivership, liquidation or other formal winding-up procedure,
or which has otherwise ceased
A-7
business. Default ratings are not assigned prospectively to entities or their obligations; within this context, non- payment on an instrument that contains a deferral feature or grace period will
generally not be considered a default until after the expiration of the deferral or grace period, unless a default is otherwise driven by bankruptcy or other similar circumstance, or by a coercive debt exchange.
Imminent default typically refers to the occasion where a payment default has been intimated by the issuer, and is all but
inevitable. This may, for example, be where an issuer has missed a scheduled payment, but (as is typical) has a grace period during which it may cure the payment default. Another alternative would be where an issuer has formally announced a coercive
debt exchange, but the date of the exchange still lies several days or weeks in the immediate future.
In all cases, the
assignment of a default rating reflects the agencys opinion as to the most appropriate rating category consistent with the rest of its universe of ratings, and may differ from the definition of default under the terms of an issuers
financial obligations or local commercial practice.
Note: The modifiers + or - may be appended to a
rating to denote relative status within major rating categories. Such suffixes are not added to the AAA Long-Term IDR category, or to Long-Term IDR categories below B.
Specific limitations relevant to the issuer credit rating scale include:
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|
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The ratings do not predict a specific percentage of default likelihood over any given time period.
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The ratings do not opine on the market value of any issuers securities or stock, or the likelihood that this value may change.
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The ratings do not opine on the liquidity of the issuers securities or stock.
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The ratings do not opine on the possible loss severity on an obligation should an issuer default.
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The ratings do not opine on the suitability of an issuer as a counterparty to trade credit.
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The ratings do not opine on any quality related to an issuers business, operational or financial profile other than the agencys opinion on
its relative vulnerability to default.
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Ratings assigned by Fitch Ratings articulate an opinion on discrete
and specific areas of risk. The above list is not exhaustive, and is provided for the readers convenience.
SHORT-TERM OBLIGATION
RATINGS
A short-term issuer or obligation rating is based in all cases on the short-term vulnerability to default of the
rated entity or security stream and relates to the capacity to meet financial obligations in accordance with the documentation governing the relevant obligation. Short-Term Ratings are assigned to obligations whose initial maturity is viewed as
short term based on market convention. Typically, this means up to 13 months for corporate, sovereign, and structured obligations, and up to 36 months for obligations in U.S. public finance markets.
F1
Highest
short-term credit quality. Indicates the strongest intrinsic capacity for timely payment of financial commitments; may have an added + to denote any exceptionally strong credit feature.
F2
Good
short-term credit quality. Good intrinsic capacity for timely payment of financial commitments.
A-8
F3
Fair short-term credit quality. The intrinsic capacity for timely payment of financial commitments is adequate.
B
Speculative short-term credit quality. Minimal capacity for timely payment of
financial commitments, plus heightened vulnerability to near-term adverse changes in financial and economic conditions.
C
High short-term default risk. Default is a real possibility.
RD
Restricted
default. Indicates an entity that has defaulted on one or more of its financial commitments, although it continues to meet other financial obligations. Applicable to entity ratings only.
D
Default.
Indicates a broad-based default event for an entity, or the default of a specific short-term obligation.
Specific limitations
relevant to the Short-Term Ratings scale include:
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The ratings do not predict a specific percentage of default likelihood over any given time period.
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The ratings do not opine on the market value of any issuers securities or stock, or the likelihood that this value may change.
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The ratings do not opine on the liquidity of the issuers securities or stock.
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The ratings do not opine on the possible loss severity on an obligation should an obligation default.
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The ratings do not opine on any quality related to an issuer or transactions profile other than the agencys opinion on the relative
vulnerability to default of the rated issuer or obligation.
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Ratings assigned by Fitch Ratings articulate an
opinion on discrete and specific areas of risk. The above list is not exhaustive, and is provided for the readers convenience.
RATING WATCHES AND RATING OUTLOOKS
Rating Watch
Rating Watches indicate that there is a heightened probability of a
rating change and the likely direction of such a change. These are designated as Positive, indicating a potential upgrade, Negative, for a potential downgrade, or Evolving, if ratings may be raised, lowered or
affirmed. However, ratings that are not on Rating Watch can be raised or lowered without being placed on Rating Watch first, if circumstances warrant such an action. A Rating Watch is typically event-driven and, as such, it is generally resolved
over a relatively short period. The event driving the Watch may be either anticipated or have already occurred, but in both cases, the exact rating implications remain undetermined. The Watch period is typically used to gather further information
and/or subject the information to further analysis. Additionally, a Watch may be used where the rating implications are already clear, but where a triggering event (
e.g.
shareholder or regulatory approval) exists. The Watch will typically
extend to cover the period until the triggering event is resolved or its outcome is predictable with a high enough degree of certainty to permit resolution of the Watch. Rating Watches can be employed by all analytical groups and are applied to the
ratings of individual entities and/or individual instruments. At the lowest categories of speculative grade (CCC, CC and C) the high volatility of credit profiles may imply that almost all ratings should carry a
Watch. Watches are nonetheless only applied selectively in these categories, where a committee decides that particular events or threats are best communicated by the addition of the Watch designation.
A-9
Rating Outlook
Rating Outlooks indicate the direction a rating is likely to move over a one- to two-year period. They reflect financial or other trends that have not yet reached the level that would trigger a rating
action, but which may do so if such trends continue. The majority of Outlooks are generally Stable, which is consistent with the historical migration experience of ratings over a one- to two-year period. Positive or Negative rating Outlooks do not
imply that a rating change is inevitable and, similarly, ratings with Stable Outlooks can be raised or lowered without a prior revision to the Outlook, if circumstances warrant such an action. Occasionally, where the fundamental trend has strong,
conflicting elements of both positive and negative, the Rating Outlook may be described as Evolving. Outlooks are currently applied on the long-term scale to issuer ratings in corporate finance (including sovereigns, industrials, utilities,
financial institutions and insurance companies) and public finance outside the U.S.; to issue ratings in public finance in the U.S.; to certain issues in project finance; to Insurer Financial Strength Ratings; to issuer and/or issue ratings in a
number of National Rating scales; and to the ratings of structured finance transactions. Outlooks are not applied to ratings assigned on the short-term scale and are applied selectively to ratings in the CCC, CC and
C categories. Defaulted ratings typically do not carry an Outlook.
Deciding When to Assign Rating Watch or
Outlook
Timing is informative but not critical to the choice of a Watch rather than an Outlook. A discrete event that is
largely clear and the terms of which are defined, but which will not happen for more than six monthssuch as a lengthy regulatory approval processwould nonetheless likely see ratings placed on Watch rather than a revision to the Outlook.
An Outlook revision may, however, be deemed more appropriate where a series of potential event risks has been identified, none of which individually warrants a Watch but which cumulatively indicate heightened probability of a rating change over the
following one to two years.
A revision to the Outlook may also be appropriate where a specific event has been identified, but
where the conditions and implications of that event are largely unclear and subject to high execution risk over an extended periodfor example a proposed, but politically controversial, privatization.
STANDARD RATING ACTIONS
Affirmed
The
rating has been reviewed and no change has been deemed necessary.
Confirmed
Action taken in response to an external request or change in terms. Rating has been reviewed in either context, and no rating change has
been deemed necessary.
Correction
Correction of rating publication error in a rating action commentary or correction of a rating data error in Fitchs ratings database.
Downgrade
The
rating has been lowered in the scale.
Paid-In-Full
This tranche has reached maturity, regardless of whether it was amortized or called early. As the issue no longer exists, it is therefore no longer rated. Indicated in rating databases with the symbol
PIF.
Publish
Initial public announcement of rating on the agencys website, although not necessarily the first rating assigned. This action denotes when a previously private rating is published.
A-10
Rating Watch Maintained
The issue or issuer has been reviewed and remains on active Rating Watch status.
Rating Watch On
The issue or issuer has been placed on active Rating Watch status.
Revision Enhancement
Some form of the credit support affecting the rating opinion has been added, removed, or substituted.
Revision Implication Watch
The Rating Watch status has changed.
Revision Outlook
The Rating Outlook status has changed.
Upgrade
The rating has been raised in the scale.
Withdrawn
The
rating has been withdrawn and the issue or issuer is no longer rated by Fitch Ratings. Indicated in rating databases with the symbol WD.
A-11
APPENDIX B
MLP & ENERGY INFRASTRUCTURE TEAM
PROXY VOTING POLICY
A. Statement of Policy
1. It is the policy of the MLP Team to vote all proxies over which it has voting authority in the best interest of the MLP Teams clients.
B. Definitions
2.
By best interest of the MLP Teams clients, the MLP Team means clients best economic interest over the long term that is, the common interest that all clients share in seeing the value of a common investment increase
over time. Clients may have differing political or social interests, but their best economic interest is generally uniform.
3. By
material conflict of interest, the MLP Team means circumstances when the MLP Team itself knowingly does business with a particular proxy issuer or closely affiliated entity, and may appear to have a significant conflict of interest
between its own interests and the interests of clients in how proxies of that issuer are voted.
C. The MLP Team Invests With Managements
That Seek Shareholders Best Interests
4. Under its investment philosophy, the MLP Team generally invests client funds in a company
only if the MLP Team believes that the companys management seeks to serve shareholders best interests. Because the MLP Team has confidence in the managements of the companies in which it invests, it believes that management decisions and
recommendations on issues such as proxy voting
generally
are likely to be in shareholders best interests.
5. The MLP Team may
periodically reassess its view of company managements. If the MLP Team concludes that a companys management no longer serves shareholders best interests, the MLP Team generally sells its clients shares of the company. The MLP Team
believes that clients do not usually benefit from holding shares of a poorly managed company or engaging in proxy contests with management. There are times when the MLP Team believes managements position on a particular proxy issue is not in
the best interests of our clients but it does not warrant a sale of the clients shares. In these circumstances, the MLP Team will vote contrary to managements recommendations.
D. The MLP Teams Proxy Voting Procedures
6. When companies in which the MLP Team has
invested client funds issue proxies, the MLP Team routinely votes the proxies as recommended by management, because it believes that recommendations by these companies managements generally are in shareholders best interests, and
therefore in the best economic interest of the MLP Teams clients.
7. If the MLP Team has decided to sell the shares of a company,
whether because of concerns about the companys management or for other reasons, the MLP Team generally abstains from voting proxies issued by the company after the MLP Team has made the decision to sell. The MLP Team generally will not notify
clients when this type of routine abstention occurs.
8. The MLP Team also may abstain from voting proxies in other circumstances. The MLP
Team may determine, for example, that abstaining from voting is appropriate if voting may be unduly burdensome or expensive, or
B-1
otherwise not in the best economic interest of clients, such as when foreign proxy issuers impose unreasonable voting or holding requirements. The MLP Team generally will not notify clients when
this type of routine abstention occurs.
9. The procedures in this policy apply to all proxy voting matters over which the MLP Team has voting
authority, including changes in corporate governance structures, the adoption or amendment of compensation plans (including stock options), and matters involving social issues or corporate responsibility.
E. Alternative Procedures for Potential Material Conflicts of Interest
10. In certain circumstances, such as when the proponent of a proxy proposal is also a client of the MLP Team, an appearance might arise of a potential conflict between the MLP Teams interests and
the interests of affected clients in how the proxies of that issuer are voted.
11.a. When the MLP Team itself knowingly does business with a
particular proxy issuer and a material conflict of interest between the MLP Teams interests and clients interests may appear to exist, the MLP Team generally would, to avoid any appearance concerns, follow an alternative procedure rather
than vote proxies as recommended by management. Such an alternative procedure generally would involve causing the proxies to be voted in accordance with the recommendations of an independent service provider that the MLP Team may use to assist in
voting proxies. The MLP Team generally will not notify clients if it uses this procedure to resolve an apparent material conflict of interest. The MLP Team will document the identification of any material conflict of interest and its procedure for
resolving the particular conflict.
11.b. In unusual cases, the MLP Team may use other alternative procedures to address circumstances when a
material conflict of interest may appear to exist, such as, without limitation:
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(i)
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Notifying affected clients of the conflict of interest (if practical), and seeking a waiver of the conflict to permit the MLP Team to vote the proxies under its usual
policy;
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(ii)
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Abstaining from voting the proxies; or
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(iii)
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Forwarding the proxies to clients so that clients may vote the proxies themselves.
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The MLP Team generally will notify affected clients if it uses one of these alternative procedures to resolve a material conflict of interest.
F. Other Exceptions
12. On an
exceptions basis, the MLP Team may for other reasons choose to depart from its usual procedure of routinely voting proxies as recommended by management.
G. Voting by Client Instead of the MLP Team
13. The MLP Team client may vote its own
proxies instead of directing the MLP Team to do so. The MLP Team recommends this approach if a client believes that proxies should be voted based on political or social interests.
14. The MLP Team generally will not accept proxy voting authority from a client (and will encourage the client to vote its own proxies) if the client seeks to impose client-specific voting guidelines that
may be inconsistent with the MLP Teams guidelines or with the clients best economic interest in the MLP Teams view.
15. The
MLP Team generally will abstain from voting on (or otherwise participating in) the commencement of legal proceedings such as shareholder class actions or bankruptcy proceedings.
B-2
H. Persons Responsible for Implementing the MLP Teams Policy
16. The MLP Teams proxy voting staff has primary responsibility for implementing the MLP Teams proxy voting procedures, including ensuring
that proxies are timely submitted. The MLP Team also may use a service provider to assist in voting proxies, recordkeeping, and other matters.
17. The MLP Teams proxy voting staff will routinely confer with the MLP Teams Chief Investment Officer if there is a proxy proposal which
would result in a vote against management.
I. Recordkeeping
18. The MLP Team or a service provider maintains, in accordance with Rule 204-2 of the Investment Advisers Act:
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(i)
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Copies of all proxy voting policies and procedures;
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(ii)
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Copies of proxy statements received (unless maintained elsewhere as described below);
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(iii)
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Records of proxy votes cast on behalf of clients;
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(iv)
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Documents prepared by the MLP Team that are material to a decision on how to vote or memorializing the basis for a decision;
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(v)
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Written client requests for proxy voting information, and (vi) written responses by the MLP Team to written or oral client requests.
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19. The MLP Team will obtain an undertaking from any service provider that the service provider will provide copies of proxy voting records and other
documents promptly upon request if the MLP Team relies on the service provider to maintain related records.
20. The MLP Team or its service
provider may rely on the SECs EDGAR system to keep records of certain proxy statements if the proxy statements are maintained by issuers on that system (as is generally true in the case of larger U.S.-based issuers).
21. All proxy related records will be maintained in an easily accessible place for five years (and an appropriate office of the MLP Team or a service
provider for the first two years).
J. Availability of Policy and Proxy Voting Records to Clients
22. The MLP Team will initially inform clients of this policy and how a client may learn of the MLP Teams voting record for the clients
securities through summary disclosure in Part II of the MLP Teams Form ADV. Upon receipt of a clients request for more information, the MLP Team will provide to the client a copy of this proxy voting policy and/or how the MLP Team voted
proxies for the client during the period since this policy was adopted.
Adopted effective August 1, 2003 and as amended March 29, 2012.
B-3
Nuveen Energy MLP Total Return Fund
STATEMENT OF ADDITIONAL INFORMATION
, 2014
PART COTHER INFORMATION
Item 25:
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Financial Statements and Exhibits
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Financial Highlights for the Nuveen Energy MLP Total Return Fund (Fund or Registrant) for the fiscal years ended November 30, 2013 and 2012 and
for the fiscal period ended November 30, 2011.
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Financial Statements are incorporated in Part B by reference to the Registrants November 30, 2013 Annual Report (audited) on Form N-CSR as filed with the U.S.
Securities and Exchange Commission (SEC) via EDGAR Accession No. 0001104659-14-007066 on February 6, 2014.
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a.
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Declaration of Trust dated September 27, 2010. Filed on October 6, 2010 as Exhibit a. to the Registrants Registration Statement on Form N-2 (File No. 333-169775)
and incorporated herein by reference.
|
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b.
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By-Laws
of Registrant. Filed on October 6, 2010 as Exhibit b. to the Registrants Registration Statement on Form N-2 (File
No. 333-169775) and incorporated herein by reference.
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e.
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Terms and Conditions of the Dividend Reinvestment Plan. Filed on January 26, 2011 as Exhibit e. to Pre-Effective Amendment No. 1 to the Registrants
Registration Statement on Form N-2 (File No. 333-169775) and incorporated herein by reference.
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g.1
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Investment Management Agreement dated January 20, 2011 between the Registrant and Nuveen Fund Advisers, Inc. (now Nuveen Fund Advisers, LLC). Filed on February 23, 2011
as Exhibit g.1 to Pre-Effective Amendment No. 2 to the Registrants Registration Statement on Form N-2 (File No. 333-169775) and incorporated herein by reference.
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g.2
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Investment Sub-Advisory Agreement dated January 20, 2011 between Nuveen Fund Advisers, Inc. (now Nuveen Fund Advisers, LLC) and Advisory Research, Inc. (formerly,
Fiduciary Asset Management, Inc.). Filed on February 23, 2011 as Exhibit g.2 to Pre-Effective Amendment No. 2 to the Registrants Registration Statement on Form N-2 (File No. 333-149775) and incorporated herein by reference.
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h.1
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Distribution Agreement Relating to At-The-Market Offerings dated September 11, 2013 between the Registrant and Nuveen Securities, LLC.*
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h.2
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Dealer Agreement Relating to At-The-Market Offerings, dated September 10, 2013 between Nuveen Securities, LLC and UBS Securities, LLC.*
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i.
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Nuveen
Open-End
and
Closed-End
Funds Deferred Compensation Plan for Independent
Directors and Trustees (as Amended and Restated as of January 1, 2013). Filed on August 30, 2013 as Exhibit i. to the Registrants Registration Statement on Form N-2 (File No. 333-190922) and incorporated herein by reference.
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j.1
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Amended and Restated Master Custodian Agreement dated February 25, 2005 between the Registrant and State Street Bank and Trust Company (Custodian
Agreement). Filed on January 26, 2011 as Exhibit j.1 to Pre-Effective Amendment No. 1 to the Registrants Registration Statement on Form N-2 (File No. 333-169775) and incorporated herein by reference.
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j.2
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Appendix A, dated March 9, 2012, to the Custodian Agreement. Filed on August 30, 2013 as Exhibit j.2 to the Registrants Registration Statement on Form N-2 (File
No. 333-190922) and incorporated herein by reference.
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k.1
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Transfer Agency and Service Agreement dated October 7, 2002 between Registrant and State Street Bank and Trust Company (Transfer Agency Agreement).
Filed on January 26, 2011 as Exhibit k.1 to Pre-Effective Amendment No. 1 to the Registrants Registration Statement on Form N-2 (File No. 333-169775) and incorporated herein by reference.
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k.2
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Schedule A, dated May 25, 2011, to the Transfer Agency Agreement. Filed on August 30, 2013 as Exhibit k.2 to the Registrants Registration Statement on Form N-2
(File No. 333-190922) and incorporated herein by reference.
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k.3
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Amendment, dated July 1, 2011, to the Transfer Agency Agreement. Filed on August 30, 2013 as Exhibit k.3 to the Registrants Registration Statement on Form N-2
(File No. 333-190922) and incorporated herein by reference.
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l.
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Opinion and Consent of Bingham McCutchen LLP.*
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n.
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Consent of PricewaterhouseCoopers LLP.*
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r.1
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Code of Ethics and Reporting Requirements of Nuveen Investments, Inc. (including affiliated entities) and the Nuveen Funds, effective January 1, 2013. Filed on August
30, 2013 as Exhibit r.1 to the Registrants Registration Statement on Form N-2 (File No. 333-190922) and incorporated herein by reference.
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r.2
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Code of Ethics of Advisory Research, Inc. (formerly, Fiduciary Asset Management, Inc.). Filed on February 23, 2011 as Exhibit r.2 to Pre-Effective Amendment No. 2 to
the Registrants Registration Statement on Form N-2 (File No. 333-169775) and incorporated herein by reference.
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s.1
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Powers of Attorney dated June 25, 2013 for Messrs. Toth, Evans, Schneider, Bremner, Hunter, and Kundert and for Melles. Stockdale, Stone, and Stringer. Filed on August
30, 2013 as Exhibit s. to the Registrants Registration Statement on Form N-2 (File No. 333-190922) and incorporated herein by reference.
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s.2
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Powers of Attorney dated September 1, 2013 for Messrs. Adams, Nelson, and Schreier.*
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Item 26:
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Marketing Arrangements
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See the Distribution Agreement and Dealer Agreement to be filed as Exhibits h.1 and h.2, respectively, to this Registration Statement.
Item 27:
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Other Expenses of Issuance and Distribution
|
|
|
|
|
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Printing and Engraving Fees
|
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$
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50,000
|
|
Legal Fees
|
|
$
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65,000
|
|
Accounting Fees
|
|
$
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11,000
|
|
Financial Industry Regulatory Authority Fees
|
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$
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28,224
|
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Stock Exchange Listing Fees
|
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$
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34,300
|
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Securities and Exchange Commission Registration Fees
|
|
$
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23,806
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Miscellaneous Fees
|
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$
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2,670
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|
|
|
|
|
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|
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$
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215,000
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2
Item 28:
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Persons Controlled by or under Common Control with Registrant
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Not applicable.
Item 29:
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Number of Holders of Securities
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As of December 31, 2013:
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Title of Class
|
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Number of
Record Holders
|
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Common Shares, $0.01 par value
|
|
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25,567
|
|
Section 4 of Article XII of the Registrants Declaration of Trust provides as follows:
Subject to the exceptions and limitations contained in this Section 4, every person who is, or has been, a Trustee, officer,
employee or agent of the Trust, including persons who serve at the request of the Trust as directors, trustees, officers, employees or agents of another organization in which the Trust has an interest as a shareholder, creditor or otherwise
(hereinafter referred to as a Covered Person), shall be indemnified by the Trust to the fullest extent permitted by law against liability and against all expenses reasonably incurred or paid by him in connection with any claim, action,
suit or proceeding in which he becomes involved as a party or otherwise by virtue of his being or having been such a Trustee, director, officer, employee or agent and against amounts paid or incurred by him in settlement thereof.
No indemnification shall be provided hereunder to a Covered Person:
(a) against any liability to the Trust or its Shareholders by reason of a final adjudication by the court or other body
before which the proceeding was brought that he engaged in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office;
(b) with respect to any matter as to which he shall have been finally adjudicated not to have acted in good faith in the
reasonable belief that his action was in the best interests of the Trust; or
(c) in the event of a settlement
or other disposition not involving a final adjudication (as provided in paragraph (a) or (b)) and resulting in a payment by a Covered Person, unless there has been either a determination that such Covered Person did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office by the court or other body approving the settlement or other disposition or a reasonable determination, based on a review of readily
available facts (as opposed to a full trial-type inquiry), that he did not engage in such conduct:
(i) by a
vote of a majority of the Disinterested Trustees acting on the matter (provided that a majority of the Disinterested Trustees then in office act on the matter); or
(ii) by written opinion of independent legal counsel.
The rights of indemnification herein provided may be insured against by policies maintained by the Trust, shall be severable, shall not
affect any other rights to which any Covered Person may now or hereafter be entitled, shall continue as to a person who has ceased to be such a Covered Person and shall inure to the benefit of the heirs, executors and administrators of such a
person. Nothing contained herein shall affect any rights to indemnification to which Trust personnel other than Covered Persons may be entitled by contract or otherwise under law.
Expenses of preparation and presentation of a defense to any claim, action, suit or proceeding subject to a claim for indemnification
under this Section 4 shall be advanced by the Trust prior to final disposition thereof
3
upon receipt of an undertaking by or on behalf of the recipient to repay such amount if it is ultimately determined that he is not entitled to indemnification under this Section 4, provided
that either:
(a) such undertaking is secured by a surety bond or some other appropriate security or the Trust
shall be insured against losses arising out of any such advances; or
(b) a majority of the Disinterested
Trustees acting on the matter (provided that a majority of the Disinterested Trustees then in office act on the matter) or independent legal counsel in a written opinion shall determine, based upon a review of the readily available facts (as opposed
to a full trial-type inquiry), that there is reason to believe that the recipient ultimately will be found entitled to indemnification.
As used in this Section 4, a Disinterested Trustee is one (x) who is not an Interested Person of the Trust (including anyone, as such Disinterested Trustee, who has been exempted
from being an Interested Person by any rule, regulation or order of the Commission), and (y) against whom none of such actions, suits or other proceedings or another action, suit or other proceeding on the same or similar grounds is then or has
been pending.
As used in this Section 4, the words claim, action, suit or
proceeding shall apply to all claims, actions, suits, proceedings (civil, criminal, administrative or other, including appeals), actual or threatened; and the words liability and expenses shall include without
limitation, attorneys fees, costs, judgments, amounts paid in settlement, fines, penalties and other liabilities.
The
trustees and officers of the Registrant are covered by the Mutual Fund Professional Liability policy in the aggregate amount of $70,000,000 against liability and expenses of claims of wrongful acts arising out of their position with the Registrant
and other Nuveen funds, except for matters that involve willful acts, bad faith, gross negligence and willful disregard of duty (
i.e.
, where the insured did not act in good faith for a purpose he or she reasonably believed to be in the best
interest of the Registrant or where he or she had reasonable cause to believe this conduct was unlawful). The policy has a $2,500,000 deductible for operational failures (after the deductible is satisfied, the insurer would cover 80% of any
operational failure claims and the Fund would be liable for 20% of any such claims) and $1,000,000 deductible for all other claims, with $0 deductible for individual insureds.
Section 6 of the Form of Underwriting Agreement filed as Exhibit h.1 to this Registration Statement provides for each of the parties thereto, including the Registrant and the underwriters, to indemnify
the others, their trustees, directors, certain of their officers, trustees, directors and persons who control them against certain liabilities in connection with the offering described herein, including liabilities under the federal securities laws.
Insofar as indemnification for liability arising under the Securities Act may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
Item 31:
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Business and Other Connections of Investment Adviser and Sub-Adviser
|
NFALLC, Inc. (NFALLC) serves as investment adviser to the Fund and as investment adviser or manager to other
open-end
and
closed-end
management investment companies and to separately managed accounts. The principal business address for all of these investment companies and the persons named below is 333 West Wacker Drive,
Chicago, Illinois 60606.
4
A description of any other business, profession, vocation or employment of a substantial
nature in which the trustees and officers of NFALLC who serve as officers or Trustees of the Registrant have engaged during the last two years for his or her account or in the capacity of director, officer, employee, partner or trustee appears under
Management in the Statement of Additional Information. Such information for the remaining senior officers of NFALLC appears below:
|
|
|
Name and Position with NFALLC
|
|
Other Business, Profession, Vocation or Employment During Past Two Years
|
Robert D. Luse
Executive Vice
President
|
|
Executive Vice President of Nuveen Asset Management, LLC and Nuveen Securities, LLC; Executive Vice President and Assistant Secretary of Nuveen Investments, Inc.; Vice President
of Santa Barbara Asset Management, LLC, Symphony Asset Management LLC and Winslow Capital Management, LLC.
|
|
|
John L. MacCarthy, Executive Vice President and Secretary
|
|
Executive Vice President (since 2008), Secretary and General Counsel (since 2006) of Nuveen Investments, Inc., and Nuveen Investments Holdings, Inc.; Executive Vice President
(since 2008) and Secretary (since 2006) of Nuveen Investments Advisers Inc., and (since 2011) of Nuveen Asset Management, LLC; Vice President and Secretary of NWQ Investment Management Company, LLC, Tradewinds Global Investors, LLC, Symphony Asset
Management LLC, Winslow Capital Management, LLC and Santa Barbara Asset Management, LLC and Nuveen Commodities Asset Management, LLC.
|
|
|
Joseph T. Castro Managing Director and Chief Compliance Officer
|
|
Managing Director (since 2011), Head of Compliance (since 2013) of Nuveen Investments, Inc.
|
|
|
Stuart J. Cohen
Managing
Director and Assistant Secretary
|
|
Managing Director and Assistant Secretary of Nuveen Investments, Inc. Nuveen Asset Management, LLC and Nuveen Securities, LLC; Vice President and Assistant Secretary of Nuveen
Commodities Asset Management, LLC, NWQ Investment Management Company, LLC, Santa Barbara Asset Management, LLC, Symphony Asset Management LLC, Tradewinds Global Investors, LLC and Winslow Capital Management, LLC.
|
|
|
Sherri A. Hlavacek, Managing Director and Controller
|
|
Managing Director and Corporate Controller of Nuveen Investments, Inc. and Nuveen Securities, LLC; Managing Director and Controller of Nuveen Investments Advisers Inc., Nuveen
Investments Holdings, Inc. and of Nuveen Asset Management, LLC (since 2011); Vice President and Controller, NWQ Investment Management Company, LLC, Santa Barbara Asset Management, LLC, Tradewinds Global Investors, LLC, and Symphony Asset Management
LLC; Certified Public Accountant.
|
|
|
Timothy N. Kafesjian
Senior
Vice President
|
|
Senior Vice President of Nuveen Securities, LLC; Vice President of NWQ Investment Management Company, LLC, Santa Barbara Asset Management, LLC and Tradewinds Global Investors,
LLC.
|
|
|
Lucas A. Satre
Senior Vice President and Assistant Secretary
|
|
Senior Vice President, Secretary and General Counsel of Nuveen Securities, LLC; Senior Vice President and Assistant Secretary of Nuveen Asset Management, LLC and Nuveen Investments,
Inc.; Vice President and Assistant Secretary of Nuveen Commodities Asset Management, LLC, NWQ Investment Management Company, LLC, Santa Barbara Asset Management, LLC, Symphony Asset Management LLC, Tradewinds Global Investors, LLC and Winslow
Capital Management, LLC.
|
5
The principal business address of Advisory Research, Inc. (ARI), the
Funds sub-adviser, is 180 N. Stetson, Chicago, IL 60601. ARI is an investment adviser registered under the Investment Advisers Act of 1940. During the last two fiscal years, no officer or director of the MLP Team has engaged in any other
business, profession, vocation or employment of a substantial nature other than that of the business of investment management.
Item 32:
|
Location of Accounts and Records
|
NFALLC, 333 West Wacker Drive, Chicago, Illinois 60606, maintains the Declaration of Trust,
By-Laws,
minutes of Trustees and shareholders meetings and
contracts of the Registrant and all advisory material of the investment adviser. ARI, in its capacity as sub-adviser, may also hold certain accounts and records of the Fund.
State Street Bank and Trust Company, 250 Royall Street, Canton, Massachusetts 02021, maintains all general and subsidiary ledgers, journals, trial balances, records of all portfolio purchases and sales,
and all other required records not maintained by NFALLC and ARI.
Item 33:
|
Management Services
|
Not
applicable.
1.
Registrant undertakes to suspend the offering of its shares until it amends its Prospectus if: (1) subsequent to the effective date of its Registration Statement, the net asset value declines more than 10 percent from its net asset value as of
the effective date of the Registration Statement; or (2) the net asset value increases to an amount greater than its net proceeds as stated in the Prospectus.
2. Not applicable.
3. Not applicable.
4. Not applicable.
5. The Registrant undertakes that:
a. For purposes of determining
any liability under the Securities Act, the information omitted from the form of Prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in the form of Prospectus filed by the Registrant under Rule 497(h)
under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective.
b. For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of Prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering thereof.
6. The Registrant undertakes to send by first class mail or other means designed to ensure equally prompt delivery, within two business days of receipt of a written or oral request, any Statement of
Additional Information.
6
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment Company Act of 1940, as amended, the Registrant has duly caused
this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in this City of Chicago, and State of Illinois, on the 27th day of March, 2014.
|
NUVEEN ENERGY MLP TOTAL RETURN FUND
|
|
/s/ Kevin J. McCarthy
|
Kevin J. McCarthy, Vice President and Secretary
|
Pursuant to the requirements of the Securities Act, this Registration Statement has been signed
below by the following persons in the capacities and on the date indicated.
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
/s/ Stephen D. Foy
Stephen D. Foy
|
|
Vice President and Controller (principal financial and accounting officer)
|
|
March 27, 2014
|
|
|
|
/s/ Gifford R. Zimmerman
Gifford R. Zimmerman
|
|
Chief Administrative Officer (principal executive officer)
|
|
March 27, 2014
|
|
|
|
William Adams IV*
|
|
Trustee
|
|
|
|
|
|
Robert P. Bremner*
|
|
Trustee
|
|
|
|
|
|
Jack B. Evans*
|
|
Trustee
|
|
|
|
|
|
William C. Hunter*
|
|
Trustee
|
|
|
|
|
|
David J. Kundert*
|
|
Trustee
|
|
|
|
|
|
John K. Nelson*
|
|
Trustee
|
|
|
|
|
|
William J. Schneider*
|
|
Chairman of the Board and Trustee
|
|
|
|
|
|
Thomas S. Schreier, Jr.*
|
|
Trustee
|
|
|
|
|
|
Judith M. Stockdale*
|
|
Trustee
|
|
|
|
|
|
Carole E. Stone*
|
|
Trustee
|
|
|
|
|
|
Virginia L. Stringer*
|
|
Trustee
|
|
|
|
|
|
Terence J. Toth*
|
|
Trustee
|
|
|
|
|
|
|
|
By:
|
|
/s/ Kevin J. McCarthy
|
|
|
Kevin J. McCarthy
|
|
|
Attorney-In-Fact
|
|
|
March 27, 2014
|
*
|
The powers of attorney authorizing Kevin J. McCarthy, among others, to execute this Registration Statement, and Amendments thereto, for the Trustees of the Registrant
on whose behalf this Registration Statement is filed, have been executed and are filed as Exhibit s.1 and s.2 and incorporated herein by reference.
|
INDEX TO EXHIBITS
|
|
|
Exhibit
|
|
Exhibit Name
|
EX-99.H1
|
|
Distribution Agreement Relating to At-The-Market Offerings dated September 11, 2013 between the Registrant and Nuveen Securities,
LLC.
|
|
|
EX-99.H2
|
|
Dealer Agreement Relating to At-The-Market Offerings dated September 10, 2013 between Nuveen Securities, LLC and UBS Securities,
LLC.
|
|
|
EX-99.L
|
|
Opinion and Consent of Bingham McCutchen LLP.
|
|
|
EX-99.N
|
|
Consent of PricewaterhouseCoopers LLP.
|
|
|
EX-99.S2
|
|
Powers of Attorney dated September 1, 2013 for Messrs. Adams, Nelson, and Schreier.
|
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