As filed with the Securities and Exchange Commission on April 29, 2024
Securities Act Registration
No.
Investment
Company Registration No.
UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
REGISTRATION STATEMENT
UNDER
| THE SECURITIES ACT OF 1933 |
Pre-Effective Amendment
No.
Post-Effective Amendment No.
and/or
REGISTRATION STATEMENT
UNDER
| THE INVESTMENT COMPANY ACT OF 1940 |
Amendment
No.
(Exact Name of Registrant as Specified in Charter)
(Address
of Principal Executive Offices)
Registrant’s Telephone
Number, including Area Code:
(
(Name
and Address of Agent for Service)
Copies to:
| Craig
Ruckman Brookfield Public Securities Group LLC Brookfield Place 225 Liberty Street New York, New York 10281-1023 |
Michael
R. Rosella, Esq.
Thomas D. Peeney, Esq. Paul Hastings LLP200 Park Avenue New York, New York 10166 (212) 318-6800 |
| Approximate Date
of Proposed Public Offering: | |
| Check box if the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans. | |
| Check box if any securities being registered on this Form will be offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933 (“Securities Act”), other than securities offered in connection with a dividend reinvestment plan. | |
| Check box if this Form is a registration statement pursuant to General Instruction A.2 or a post-effective amendment thereto. | |
| Check box if this Form is a registration statement pursuant to General Instruction B or a post-effective amendment thereto that will become effective upon filing with the Commission pursuant to Rule 462(e) under the Securities Act. | |
| Check box if this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction B to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act. |
| It is proposed that this filing will become effective (check appropriate box): | |
| when declared effective pursuant to Section 8(c), or as follows: | |
| immediately upon filing pursuant to paragraph (b) of Rule 486. | |
| on (date) pursuant to paragraph (b) of Rule 486. | |
| 60 days after filing pursuant to paragraph (a) of Rule 486. | |
| on (date) pursuant to paragraph (a) of Rule 486. | |
| If appropriate, check the following box: | |
| This post-effective amendment designates a new effective date for a previously filed post-effective amendment. | |
| This Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, and the Securities Act registration statement number of the earlier effective registration statement for the same offering is: ______. | |
| This Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, and the Securities Act registration statement number of the earlier effective registration statement for the same offering is: ______. | |
| This Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, and the Securities Act registration statement number of the earlier effective registration statement for the same offering is: ______. | |
| Check each box that appropriately characterizes the Registrant: | |
| Registered Closed-End Fund (closed-end company that is registered under the Investment Company Act of 1940 (“Investment Company Act”)). | |
| Business Development Company (closed-end company that intends or has elected to be regulated as a business development company under the Investment Company Act). | |
| Interval Fund (Registered Closed-End Fund or a Business Development Company that makes periodic repurchase offers under Rule 23c-3 under the Investment Company Act). | |
| A.2 Qualified (qualified to register securities pursuant to General Instruction A.2 of this Form). | |
| Well-Known Seasoned Issuer (as defined by Rule 405 under the Securities Act). | |
| Emerging Growth Company (as defined by Rule 12b-2 under the Securities Exchange Act of 1934 (“Exchange Act”). | |
| ☐ | If an Emerging Growth Company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of Securities Act. |
| New Registrant (registered or regulated under the Investment Company Act for less than 12 calendar months preceding this filing). | |
EXPLANATORY NOTE
This Post-Effective Amendment No. 4 (the “Amendment”) to the Registration Statement on Form N-2 of Oaktree Diversified Income Fund Inc. (the “Registrant”) is being filed pursuant to Rule 486(b) under the Securities Act of 1933, as amended (the “1933 Act”), to provide updated financial information and make certain other changes to the Registrant’s Prospectus and Statement of Additional Information.
This Amendment is organized as follows: (a) Prospectus; (b) Statement of Additional Information; and (c) Part C Information relating to the Registrant.
PROSPECTUS
APRIL 29,
2024
2024
| |
OAKTREE DIVERSIFIED INCOME FUND INC. |
| ||||
| |
Class D – (ODIDX) |
| | |
Class T– (ODITX) |
|
The U.S. Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to the contrary is a criminal offense.
Oaktree Diversified Income Fund Inc.
| | Class D | | |
ODIDX |
|
| | Class T | | |
ODITX |
|
The
Fund. Oaktree Diversified Income Fund Inc.
(the “Fund”) is a diversified, closed-end management investment company that continuously offers its shares of common stock
(the “Shares”), and is operated as an “interval fund.”
Securities
Offered. The Fund offers two classes of Shares:
Class D Shares and Class T Shares. The Fund was granted exemptive relief (the “Exemptive Relief”) from the Securities and
Exchange Commission (the “SEC”), permitting the Fund to issue multiple classes of shares and to impose asset-based distribution
fees and early-withdrawal fees. At present, both Class D and Class T Shares are available for purchase. The Fund may offer additional
classes of shares in the future.
Investment
Objective. The Fund’s investment objective
is to seek current income and attractive total return.
Investment
Strategy. The Fund seeks to achieve its investment
objective by investing globally, including in emerging market countries, in high-conviction opportunities across Oaktree Fund Advisors,
LLC’s (the “Adviser”) performing credit platform of high-yield bonds, senior loans, including covenant-lite loans, structured
credit, emerging markets debt and convertibles, inclusive of public sector companies that trade on the public markets and private companies
that do not have securities trading on the public markets. High-conviction opportunities are investment opportunities that fall within
the Fund’s investment strategy, which are identified by the Adviser based on its holistic, bottom-up proprietary research and credit
analysis, including analysis of fundamental, valuation, technical and other market factors. The Adviser’s performing credit platform
encompasses a broad array of credit strategy groups that invest in public and private corporate credit instruments across the liquidity
spectrum. High-yield bonds are also referred to as “below-investment grade rated securities” or “junk bonds,”
as described in this Prospectus. Structured credit may include collateralized loan obligations (CLOs), commercial mortgage-backed securities
(CMBS), residential mortgage-backed securities (RMBS) and other asset-based securities. The Fund seeks to add value through three sources:
(1) providing exposure to asset classes that require specialized expertise; (2) performing well in each asset class through proprietary,
bottom-up and credit research; and (3) allocating capital opportunistically among asset classes based on the Adviser’s assessment
of relative value.
Interval
Fund Repurchase Offers. The Fund is an “interval
fund,” a type of fund that, in order to provide liquidity to Shareholders, has adopted a fundamental investment policy to make quarterly
offers to repurchase between 5% and 25% of its outstanding Shares at net asset value. Subject to applicable law and approval of the Fund’s
Board of Directors, for each quarterly repurchase offer, the Fund currently expects to offer to repurchase at least 5% of the Fund’s
outstanding Shares at net asset value, which is the minimum amount permitted.
Adviser. Oaktree
Fund Advisors, LLC (the “Adviser”) is the Fund’s investment adviser. The Adviser is an affiliate of Oaktree Capital
Management, L.P. (“OCM”), a leading global investment management firm headquartered in Los Angeles, California focused on
less efficient markets and alternative investments, and a subsidiary of Oaktree Capital Group, LLC (the Adviser, together with its affiliates,
“Oaktree”). As of December 31, 2023, OCM had approximately $189 billion in assets under management.
Administrator. Brookfield
Public Securities Group LLC is the Fund’s administrator (the “Administrator” or “PSG”).
Investing
in the Shares involves certain risks. See “Principal Risks of the Fund” beginning on page 25 of this Prospectus.
| | | |
Offering
Price (1) |
| |
Maximum Sales Load |
| |
Proceeds to
the Fund (2) |
| |||
|
Class D Shares, per share |
| |
Current NAV |
| | | | None | | | |
$ amount invested at current NAV |
|
|
Class T Shares, per share |
| |
Current NAV plus sales load
|
| | | | 3.00% | | | |
$ amount invested at current NAV less applicable sales load |
|
(1)
Each
class of Shares is continuously offered at a price equal to NAV per Share, plus, in the case of Class T Shares, a maximum sales load of
up to 3.00% of the offering price. Class D Shares are not subject to a sales load; however, investors transacting in Class D Shares through
a broker acting as an agent for the investor may be required to pay a commission and/or other forms of compensation to the broker. See
“Plan of Distribution — Share Classes.”
(2)
The
Adviser has contractually agreed to waive all or a portion of its investment advisory fees and/or to reimburse certain expenses of the
Fund, including organizational expenses and offering costs, to the extent necessary to maintain the Total Annual Fund Operating Expenses
After Fee Waiver and/or Expense Reimbursement (excluding any front-end or contingent deferred sales loads, brokerage commissions and other
transactional expenses, acquired fund fees and expenses, interest (including, “Interest Payments on Borrowed Funds”), taxes,
and extraordinary expenses, such as litigation; and other expenses not incurred in the ordinary course of the Fund’s business) at
no more than 2.10% for Class D Shares and 2.85% for Class T Shares. The fee waiver and expense reimbursement arrangement will continue
for a period of no less than one year from the effective date of the Fund’s registration statement and may not be terminated by
the Fund or the Adviser before such time. Thereafter, this arrangement may only be terminated or amended to increase the expense cap,
provided that in the case of a termination by the Adviser, the Adviser will provide the Board of Directors with written notice of its
intention to terminate the arrangement prior to the expiration of its then current term. Any waivers and/or reimbursements made by the
Adviser are subject to recoupment from the Fund for a period not to exceed three years after the occurrence of the waiver and/or reimbursement,
provided that the Fund may only make repayments to the Adviser if such repayment does not cause the Fund’s expense ratio (after
the repayment is taken into account) to exceed the lesser of (1) the expense cap in place at the time such amounts were waived, or (2)
the Fund’s current expense cap.
Neither the Securities and Exchange Commission
(the “SEC”) nor any state securities commission has approved or disapproved of these securities or determined if this Prospectus
is truthful or complete. Any representation to the contrary is a criminal offense.
Prospectus
dated April 29, 2024
Risks. An
investment in the Fund is subject to, among others, the following risks:
•
•
An investment in the
Fund is not suitable for investors who need certainty about their ability to access all of the money they invest in the short term.
•
Even though the Fund
will make quarterly repurchase offers for its outstanding Shares, investors should consider Shares of the Fund to be an illiquid investment.
•
There is no guarantee
that you will be able to sell your Shares at any given time or in the quantity that you desire.
•
There is no assurance
that the Fund will be able to maintain a certain level of distributions to the holders of Shares of the Fund (the “Shareholders”).
•
The Fund’s
distributions may be funded from unlimited amounts of offering proceeds or borrowings,
which may constitute a return of capital and reduce the amount of capital
available to the Fund for investment. Any capital returned to Shareholders through distributions will be distributed after payment of
fees and expenses. Although the Fund’s distributions may constitute a return of capital, return of capital does not constitute income.
•
The ultimate tax characterization of
the Fund’s distributions in a calendar year may not finally be determined until after the end of that calendar year. The Fund may
make distributions during a calendar year that exceed the Fund’s net investment income and net realized capital gains for that year.
In such a situation, the amount by which the Fund’s total distributions exceed net investment income and net realized capital gains
would generally be treated as a tax-free return of capital up to the amount of the Shareholder’s tax basis in his or her Shares,
with any amounts exceeding such basis treated as gain from the sale of his or her Shares. Upon a sale of Shares, a return of capital distribution
may result in an investor paying more taxes by reducing the investor’s tax basis.
•
Investors should carefully consider
the Fund’s risks and investment objective, as an investment in the Fund may not be appropriate for all investors and is not designed
to be a complete investment program.
•
Because of the risks associated with
(i) the Fund’s ability to purchase high-yield bonds, senior loans, structured credit, emerging markets debt and convertibles, and
(ii) the Fund’s ability to use leverage, an investment in the Fund should be considered speculative and involving a high degree
of risk, including the risk of a substantial loss of investment.
•
Before making an investment/allocation
decision, investors and financial intermediaries should (i) consider the suitability of this investment with respect to an investor’s
or a client’s investment objective and individual situation and (ii) consider factors such as an investor’s or a client’s
net worth, income, age and risk tolerance.
•
Investment should be avoided where an
investor/client has a short-term investing horizon and/or cannot bear the loss of some or all of their investment. It is possible that
investing in the Fund may result in a loss of some or all of the amount invested.
Before buying any of the
Fund’s Shares, you should read the discussion of the principal risks of investing in the Fund in “Principal Risks of the Fund”
beginning on page 25 of this Prospectus. No assurance can be given that the Fund’s investment objective will be achieved, and you
could lose all of your investment in the Fund.
Leverage. The
Fund intends to add leverage to its portfolio by utilizing borrowings, such as through bank loans and/or other credit facilities, including
through one or more subsidiaries. Although it has no current intention to do so, the Fund may also determine to issue preferred shares
or other types of senior securities to add leverage to its portfolio. The Fund’s Board of Directors may authorize the issuance of
preferred shares without the approval of Shareholders; however, the Fund is not permitted under the Investment Company Act of 1940, as
amended (the “1940 Act” or the “Investment Company Act”), to issue preferred shares as of the date of this Prospectus.
If the Fund issues preferred shares in the future, all costs and expenses relating to the issuance and ongoing maintenance of the preferred
shares will be borne by the Shareholders, and these costs and expenses may be significant. The Fund may choose to increase or decrease,
or eliminate entirely, its use of leverage over time and from time to time based on the Adviser’s assessment of the yield curve
environment, interest rate trends, market conditions and other factors. Under the 1940 Act, the Fund may use borrowings, including loans
from certain financial institutions and the issuance of debt securities, in an aggregate amount of up to 331∕3%
of the Fund’s total assets plus the amount of any such borrowings. Furthermore, the Fund may add leverage to its portfolio through
the issuance of preferred shares in an aggregate amount of up to 50% of the Fund’s total assets immediately after such issuance.
By using leverage, the Fund seeks to obtain a higher return for holders of Shares than if the Fund did not use leverage. Leveraging is
a speculative technique and there are special risks and costs involved. There can be no assurance that a leveraging strategy will be used
or that it will be successful during any period in which it is employed.
Plan
of Distribution. Currently, only Class D
and Class T Shares are available for purchase. In the future, the Fund may also offer additional classes of shares.
The Fund’s Shares will be sold
at a public offering price equal to their net asset value per share, plus a sales charge where applicable. Each share class represents
an investment in the same portfolio of investments,
but each class has
its own expense structure and arrangements for shareholder services or distribution, which allows you to choose the class that best fits
your situation and eligibility requirements. Class T Shares of the Fund are primarily offered and sold to retail investors by certain
broker-dealers which are members of the Financial Industry Regulatory Authority (“FINRA”) and which have agreements with the
Fund’s distributor, Quasar Distributors, LLC (the “Distributor”), to sell Class T Shares, but may be made available
through other financial firms, including banks and trust companies and to specified benefit plans (as defined below) and other retirement
accounts. Only certain investors are eligible to purchase Class T Shares. See “Plan of Distribution — Share Classes.”
Class
D Shares. The minimum initial investment
for Class D Shares is $25,000 per account, except that the minimum investment may be modified for certain financial firms that submit
orders on behalf of their customers, the Directors and certain employees and their extended family members of the Adviser and its affiliates.
The minimum subsequent investment amount for Class D Shares is $5,000.
Class
T Shares. The minimum initial investment
for Class T Shares is $2,500 per account, except that the minimum investment may be modified for certain financial firms that submit orders
on behalf of their customers, the Directors and certain employees and their extended family members of the Adviser and its affiliates.
The minimum subsequent investment amount for Class T Shares is $500.
Please
read and retain this Prospectus for future reference. A Statement of Additional Information, dated April 29, 2024 (the “SAI”),
and other materials containing additional information about the Fund have been filed with the SEC. The SAI is incorporated by reference
in its entirety into this Prospectus, which means that it is considered to be part of this Prospectus. You may request a free copy of
the SAI, and other information filed with the SEC, by calling 1-855-862-5873 (toll-free), or by electronic mail at publicinfo@sec.gov.
Upon completion of this offering, the Fund will file annual and semi-annual shareholder reports, proxy statements and other information
with the SEC. To obtain this information or the Fund’s SAI electronically, please visit https://www.brookfieldoaktree.com/
or call 855-862-5873. You may also call this number to request additional information or to make other inquiries pertaining to the Fund.
You may also obtain a copy of any information regarding the Fund filed with the SEC from the SEC’s website (www.sec.gov).
Important
note: As permitted by regulations adopted by the SEC, paper copies of the Fund’s annual and semi-annual shareholder reports will
not be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on the Fund’s
website (https://www.brookfieldoaktree.com/), and you will be notified by mail each time
a report is posted and provided with a website link to access the report. You may elect to receive all reports in paper free of charge.
If you invest through a financial intermediary, you may contact your financial intermediary to request that you receive paper copies of
your shareholder reports. If you invest directly with the Fund, you may call 1-855-862-5873 or send an email request to publicsecurities.enquiries@brookfield.com
to let the Fund know you wish to receive paper copies of your shareholder reports. Your election to receive reports in paper will apply
to all funds held in your account if you invest through your financial intermediary or all funds held within the fund complex if you invest
directly with the Fund.
The Fund’s 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 insured
by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency.
TABLE OF CONTENTS
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You should rely only on the information
contained or incorporated by reference in this Prospectus. The Fund has not authorized any other person 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 making an offer
to sell these securities in any jurisdiction where the offer or sale is not permitted.
i
Prospectus Summary
This is only a summary.
This summary may not contain all of the information that you should consider before investing in Shares of the Fund. You should review
the more detailed information contained in this Prospectus and in the Statement of Additional Information. In particular, you should carefully
read the risks of investing in the Fund’s Shares, as discussed under “Principal Risks of the Fund.”
The Fund
Oaktree
Diversified Income Fund Inc. (the “Fund”) is a diversified, closed-end management investment company that continuously offers
its shares of common stock (the “Shares”). The Fund is operated as an “interval fund” (as defined below).
Continuous Offering
The Fund currently offers
two classes of Shares: Class D Shares and Class T Shares. Each share class represents an investment in the same portfolio of investments,
but each class has its own expense structure and arrangements for shareholder services or distribution, which allows you to choose the
class that best fits your situation and eligibility requirements. In the future, the Fund may offer additional classes of shares.
The Fund continuously
offers its Shares through Quasar Distributors, LLC (the “Distributor”), as principal underwriter, on a best efforts basis.
Class D Shares and Class T Shares will be sold on a continuous basis at the Fund’s then current net asset value (“NAV”)
per Share, plus for Class T Shares only, a maximum front-end sales commission of 3.00%. The sale of Shares may be suspended during any
period in which the New York Stock Exchange (“NYSE”) is closed other than weekends or holidays, or if permitted by the rules
of the SEC, when trading on the NYSE is restricted or during an emergency which makes it impracticable for the Fund to dispose of its
securities or to determine fairly the value of its net assets, or during any other period as permitted by the SEC for the protection of
investors. While neither the Fund nor the Distributor impose a front-end sales commission on Class D Shares, if you buy Class D Shares
through certain financial firms, they may directly charge you transaction or other fees in such amount as they may determine. Please consult
your financial firm for additional information.
The minimum initial
investment generally required for Class D Shares is $25,000 per account. The minimum may be waived for Class D Shares for certain wrap
fee programs if approved by the Distributor and for certain intermediaries that have entered into a relevant agreement with the Distributor.
The minimum initial investment generally required for Class T Shares is $2,500 per account. The minimum investments may be modified for
certain financial firms that submit orders on behalf of their customers, the Directors and certain employees and their extended family
members of the Adviser and its affiliates. The minimum subsequent investment amount for Class D Shares is $5,000. The minimum subsequent
investment amount for Class T Shares is $500.
For additional information
regarding each share class, please see “Plan of Distribution — Share Classes” in this Prospectus. The Fund and the Distributor
each reserves the right, in its sole discretion, to suspend the offering of shares of the Fund or to reject any purchase order, in whole
or in part, when, in the judgment of management, such suspension or rejection is in the best interests of the Fund. The sale of Shares
may be suspended during any period in which the NYSE is closed other than weekends or holidays, or if permitted by the rules of the SEC,
when trading on the NYSE is restricted or during an emergency which makes it impracticable for the Fund to dispose of its securities or
to determine fairly the value of its net assets, or during any other period as permitted by the SEC for the protection of investors. Shareholders
will not have the right to redeem their Shares. However, as described below, in order to provide liquidity to Shareholders, the Fund will
conduct periodic repurchase offers for a portion of its outstanding Shares.
Principal Strategies
The Fund’s investment
objective is to seek current income and attractive total return. The Fund seeks to achieve its investment objective by investing globally,
including in emerging market countries, in high-conviction opportunities across Oaktree Fund Advisors, LLC’s (the “Adviser”)
performing credit
1
platform of high-yield bonds, senior loans, including
covenant-lite loans, structured credit, emerging markets debt and convertibles, inclusive of public sector companies that trade on the
public markets and private companies that do not have securities trading on the public markets. High-conviction opportunities are investment
opportunities that fall within the Fund’s investment strategy, which are identified by the Adviser based on its holistic, bottom-up
proprietary research and credit analysis, including analysis of fundamental, valuation, technical and other market factors. The Adviser’s
performing credit platform encompasses a broad array of credit strategy groups that invest in public and private corporate credit instruments
across the liquidity spectrum. High-yield bonds are also referred to as “below-investment grade rated securities” or “junk
bonds,” as described in this Prospectus. Structured credit may include collateralized loan obligations (CLOs), commercial mortgage-backed
securities (CMBS), residential mortgage-backed securities (RMBS) and other asset-based securities. The Fund seeks to add value through
three sources: (1) providing exposure to asset classes that require specialized expertise; (2) performing well in each asset class through
proprietary, bottom-up, credit research; and (3) allocating capital opportunistically among asset classes based on the Adviser’s
assessment of relative value.
Under normal market conditions,
the Fund will attempt to achieve its investment objective by investing, as a principal strategy, at least 80% of its net assets (plus
the amount of any borrowing for investment purposes) in credit related investments, including, but not limited to, fixed income securities
(investment grade debt and high-yield-debt), floating rate securities (senior loans or structured credit) and other debt instruments and
in derivatives (futures, forward contracts, foreign currency exchange contracts, call and put options, selling or purchasing credit default
swaps, and total return swaps) and other instruments that have economic characteristics similar to such securities or investments (the
“80% Policy”). The Fund may invest in investment grade and below-investment grade rated debt instruments and securities of
sovereign and quasi-sovereign issuers, including debt issued by national, regional or local governments and other agencies. The Fund may
invest in securities denominated in U.S. dollars or in other foreign currencies.
The Fund may change the
80% Policy without Shareholder approval. The Fund will provide Shareholders with written notice at least 60 days prior to the implementation
of any such changes.
It is expected that the
Fund normally will have a short average portfolio duration (i.e.,
within a 11∕2
to 3-year range), as calculated by the Adviser, although it may be shorter or longer at any time or from time to time depending on market
conditions and other factors. While the Fund seeks to maintain a short average portfolio duration, there is no limit on the maturity or
duration of any individual security in which the Fund may invest. Duration is a measure used to determine the sensitivity of a security’s
price to changes in interest rates. The Fund’s duration strategy may entail maintaining a negative average portfolio duration from
time to time, which would potentially benefit the portfolio in an environment of rising market interest rates but would generally adversely
impact the portfolio in an environment of falling or neutral market interest rates.
Adviser
Oaktree
Fund Advisors, LLC (the “Adviser”), a Delaware limited liability company and a registered investment adviser under the Investment
Advisers Act of 1940, as amended (the “Advisers Act”), serves as the investment adviser to the Fund. The Adviser is an affiliate
of Oaktree Capital Management, L.P. (“OCM”), a leading global investment management firm headquartered in Los Angeles, California
focused on less efficient markets and alternative investments, and is a subsidiary of Oaktree Capital Group, LLC (“OCG,” together
with OCM and the Adviser, “Oaktree”). Oaktree was formed in April 1995 and is a leading global investment management firm
headquartered in Los Angeles, California, with more than 1,260 employees throughout offices in 25 cities worldwide. As of December 31,
2023, OCM had approximately $189 billion in assets under management. Oaktree’s senior executives and investment professionals have
focused on less efficient markets and alternative investments for the past 38 years. Oaktree emphasizes an opportunistic, value-oriented
approach to investments in distressed debt, corporate debt (including mezzanine finance, direct lending, high yield debt and senior loans),
control investing, convertible securities, real estate, listed equities and multi-strategy solutions.
2
The
firm’s competitive advantages include its experienced team of investment professionals, a global platform and a unifying investment
philosophy. This investment philosophy — the six tenets of which are risk control, consistency, market inefficiency, specialization,
bottom-up analysis and disavowal of market timing — is complemented by a set of core business principles that articulate Oaktree’s
commitment to excellence in investing; commonality of interests with clients; a collaborative and cooperative culture; and a disciplined,
opportunistic approach to the expansion of offerings. As a result of consistent application of our philosophy and principles, Oaktree
has earned a large and distinguished clientele. Among Oaktree’s clients are 65 of the 100 largest U.S. pension plans, more than
550 corporations around the world, 39 of the 50 state retirement plans in the United States, over 300 endowments and foundations globally,
and 18 sovereign wealth funds.
The firm’s expertise
in investing across the capital structure has allowed Oaktree to cultivate a diversified mix of global investment strategies in four categories:
credit, private equity, real assets and listed equities. Importantly, the expansion of our strategies has been achieved primarily through
“step-outs” into highly related fields, based on identifying markets that (a) Oaktree believes have the potential for attractive
returns, and (b) can be exploited in a manner consistent with the firm’s philosophy focused on risk control.
In
2019, Brookfield Asset Management ULC (formerly, Brookfield Asset Management Inc.), an unlimited liability company formed under the laws
of British Columbia, Canada (“BAM ULC”) (“Brookfield”), acquired a majority interest in Oaktree. Brookfield Corporation,
a publicly traded company (NYSE: BN; TSX: BN), holds a 75% interest in BAM ULC, while Brookfield Asset Management Ltd., a publicly traded
company (NYSE: BAM; TSX: BAMA) (“Brookfield Asset Management”), holds a 25% interest in BAM ULC. Brookfield Asset Management
is a leading global alternative asset manager focused on real estate, renewable power, infrastructure and private equity, with approximately
$900 billion of assets under management as of December 31, 2023. Together, Brookfield and Oaktree provide investors with one of the most
comprehensive offerings of alternative investment products available today.While partnering to leverage one another’s strengths,
Oaktree operates as an independent business within the Brookfield family, with its own product offerings and investment, marketing, and
support teams. As of December 31, 2023, the Adviser had approximately $9.5 billion under management.
Oaktree’s primary
firm-wide goal is to achieve attractive returns while bearing less than commensurate risk. Oaktree believes that it can achieve this goal
by taking advantage of market inefficiencies in which financial markets and their participants fail to accurately value assets or fail
to make available to companies the capital that they reasonably require.
Bruce Karsh, Wayne Dahl,
Armen Panossian, Danielle Poli, and David Rosenberg are the portfolio managers that are primarily responsible for the day-to-day management
of the Fund. Bruce Karsh is the lead portfolio manager for the Fund.
Periodic Repurchase Offers
The Fund is an “interval
fund,” a type of fund that, in order to provide liquidity to Shareholders, has adopted a fundamental investment policy, which may
only be changed with Shareholder approval, to make quarterly offers to repurchase between 5% and 25% of its outstanding Shares at NAV
(“Interval Fund”). Subject to applicable law and approval of the Fund’s Board of Directors (the “Board”
or “Board of Directors”), for each quarterly repurchase offer, the Fund currently expects to offer to repurchase at least
5% of the Fund’s outstanding Shares at NAV, which is the minimum amount permitted. Written notification of each quarterly repurchase
offer (the “Repurchase Offer Notice”) will be sent to Shareholders at least 21 calendar days before the repurchase request
deadline (i.e., the date by which Shareholders can tender
their Shares in response to a repurchase offer) (the “Repurchase Request Deadline”). The Fund does not currently charge a
repurchase fee. However, in the future the Fund may charge a repurchase fee of up to 2.00%, which the Fund would retain to help offset
non-de minimis estimated costs related to the repurchase incurred by the Fund, directly or indirectly, as a result of repurchasing Shares,
thus allocating estimated transaction costs to the Shareholder whose Shares are being repurchased. The Fund may introduce, or modify the
amount of, a repurchase fee at any time. The Fund will provide advance notice to
3
Shareholders of any such introduction or modification
of the repurchase fee. The Fund may also waive or reduce a repurchase fee if the Adviser determines that the repurchase is offset by a
corresponding purchase or if for other reasons the Fund will not incur transaction costs or will incur reduced transaction costs. The
Fund’s Shares are not listed for trading on any securities exchange. There is currently no secondary market for its Shares and the
Fund does not expect any secondary market to develop for its Shares. Accordingly, you may not be able to sell Shares when and/or in the
amount that you desire. Investors should consider Shares of the Fund to be an illiquid investment. Thus, the Shares are appropriate only
as a long-term investment. In addition, the Fund’s repurchase offers may subject the Fund and Shareholders to special risks. See
“Principal Risks of the Fund — Repurchase Offers Risk.”
Use of Leverage
The Fund intends to
add leverage to its portfolio by utilizing borrowings, such as through bank loans and/or other credit facilities, including through one
or more subsidiaries.
The Fund may also enter
into other transactions that may give rise to a form of leverage including, among others, loans of portfolio securities. Although it has
no current intention to do so, the Fund may also determine to issue preferred shares or other types of senior securities to add leverage
to its portfolio. The Fund’s Board of Directors may authorize the issuance of preferred shares without the approval of the holders
of Shares of the Fund (the “Shareholders”); however, the Fund is not permitted under the 1940 Act to issue preferred shares
as of the date of this Prospectus. If the Fund issues preferred shares in the future, all costs and expenses relating to the issuance
and ongoing maintenance of the preferred shares will be borne by the Shareholders, and these costs and expenses may be significant. The
Fund may choose to increase or decrease, or eliminate entirely, its use of leverage over time and from time to time based on the Adviser’s
assessment of the yield curve environment, interest rate trends, market conditions and other factors. The net proceeds the Fund obtains
from leverage utilized will be invested in accordance with the Fund’s investment objective and policies as described in this Prospectus.
So long as the rate of return, net of applicable Fund expenses, on the debt obligations and other investments purchased by the Fund exceeds
the costs to the Fund of the leverage it utilizes, the investment of the Fund’s assets attributable to leverage will generate more
income than will be needed to pay the costs of the leverage. If so, and all other things being equal, the excess may be used to pay higher
dividends to Shareholders than if the Fund were not so leveraged. The 1940 Act generally prohibits the Fund from engaging in most forms
of leverage (including the use of bank loans or other credit facilities, certain derivative transactions, loans of portfolio securities,
short sales and when issued, delayed delivery and forward commitment transactions, to the extent that these instruments are not covered
as described below) unless immediately after the issuance of the leverage the Fund has satisfied the asset coverage test with respect
to senior securities representing indebtedness prescribed by the 1940 Act; that is, the value of the Fund’s total assets less all
liabilities and indebtedness not represented by senior securities (for these purposes, “total net assets”) is at least 300%
of the senior securities representing indebtedness (effectively limiting the use of leverage through senior securities representing indebtedness
to 331∕3%
of the Fund’s total net assets, including assets attributable to such leverage). In addition, the Fund is not permitted to declare
any cash dividend or other distribution on Shares unless, at the time of such declaration, this asset coverage test is satisfied. To the
extent that the Fund engages in borrowings, it may prepay a portion of the principal amount of the borrowing to the extent necessary in
order to maintain the required asset coverage. Failure to maintain certain asset coverage requirements could result in an event of default.
Leveraging is a speculative
technique, and there are special risks and costs involved. There is no assurance that the Fund will utilize borrowings, issue preferred
shares or utilize any other forms of leverage. If used, there can be no assurance that the Fund’s leveraging strategies will be
successful or result in a higher yield on your Shares. When leverage is used, the net asset value of the Shares and the yield to Shareholders
will be more volatile. In addition, interest and other expenses borne by the Fund with respect to its use of borrowings or any other forms
of leverage are borne by the Shareholders and result in a reduction of the net asset value of the Shares. In addition, because the fees
received by the Adviser are based on the average daily value of the Fund’s average daily net assets plus the amount of borrowings
for
4
investment purposes (“Managed Assets”), the
Adviser has a financial incentive for the Fund to use certain forms of leverage (e.g.,
borrowings and preferred shares), which may create a conflict of interest between the Adviser, on the one hand, and the Shareholders,
on the other hand.
Please see “Leverage,”
and “Principal Risks of the Fund — Leverage Risk” for additional information regarding leverage and related risks.
Distributions
The Fund intends to distribute
substantially all of its net investment income to Shareholders in the form of distributions. The Fund intends to declare and pay distributions
quarterly to Shareholders of record. In addition, the Fund intends to distribute any net capital gains earned from the sale of portfolio
securities to Shareholders no less frequently than annually. Net short-term capital gains may be paid more frequently.
Unless a Shareholder specifies
otherwise, distributions will be reinvested in Shares of the Fund in accordance with the Fund’s dividend reinvestment plan. The
Fund may pay distributions from sources that may not be available in the future and that are unrelated to the Fund’s performance,
such as from offering proceeds and/or borrowings. See “Distributions” and “Dividend Reinvestment Plan.”
Distributor, Custodian and Transfer Agent
Quasar
Distributors, LLC, a wholly owned subsidiary of Foreside Financial Group, LLC (dba ACA Global) (the “Distributor” or “Quasar”),
is located at Three Canal Plaza, Suite 100, Portland, Maine 04101, serves as the Fund’s principal underwriter and distributor. U.S.
Bank National Association, located at 1555 North River Center Drive, Suite 302, Milwaukee, Wisconsin 53212, serves as the custodian (the
“Custodian”) of the Fund’s assets pursuant to a custody agreement. U.S. Bancorp Fund Services, LLC, located at 615 East
Michigan Street, Milwaukee, Wisconsin 53202, serves as the Fund’s transfer agent and dividend disbursing agent with respect to the
Shares of the Fund.
Unlisted Closed-End Fund Structure; Limited Liquidity
The Fund’s Shares
are not listed for trading on any securities exchange. There is currently no secondary market for its Shares and the Fund does not expect
any secondary market to develop for its Shares. Shareholders of the Fund are not able to have their Shares redeemed or otherwise sell
their Shares on a daily basis because the Fund is an unlisted closed-end fund. In order to provide liquidity to Shareholders, the Fund
is structured as an Interval Fund and conducts periodic repurchase offers for a portion of its outstanding Shares, as described herein.
Investors should consider Shares of the Fund to be an illiquid investment. An investment in the Fund is suitable only for long-term investors
who can bear the risks associated with the limited liquidity of the Shares. Investors should consider their investment goals, time horizons
and risk tolerance before investing in the Fund.
Market Risk
Global economies and financial
markets are increasingly interconnected, which increases the likelihood that events or conditions in one country or region will adversely
impact markets or issuers in other countries or regions. Securities in the Fund’s portfolio may underperform in comparison to securities
in general financial markets, a particular financial market, or other asset classes due to a number of factors, including inflation (or
expectations for inflation), deflation (or expectations for deflation), interest rates, global demand for particular products or resources,
market instability, debt crises and downgrades, embargoes, tariffs, sanctions and other trade barriers, regulatory events, other governmental
trade or market control programs and related geopolitical events. In addition, the value of the Fund’s investments may be negatively
affected by the occurrence of global events such as war, terrorism, environmental disasters, natural disasters or events, country instability,
and infectious disease epidemics or pandemics.
For
example, there is significant uncertainty around how the Russian invasion of Ukraine and the conflict in Israel and Gaza will evolve,
as well as the potential economic impacts to the U.S. that could result from the conflicts. Other securities or markets could be similarly
affected by past or future geopolitical
5
or other events or
conditions. In addition, the outbreak of COVID-19 has negatively affected economies, markets and individual companies throughout the world,
including those in which the Fund may invest. The effects of this pandemic to public health and business and market conditions, including
exchange trading suspensions and closures, may continue to have a significant negative impact on the performance of the Fund’s investments,
increase the Fund’s volatility, exacerbate pre-existing political, social and economic risks to the Fund, and negatively impact
broad segments of businesses and populations. The Fund’s operations may be interrupted as a result, which may contribute to the
negative impact on investment performance. In addition, governments, their regulatory agencies, or self-regulatory organizations may take
actions in response to the pandemic that affect the instruments in which the Fund invests, or the issuers of such instruments, in ways
that could have a significant negative impact on the Fund’s investment performance. The full impact of the COVID-19 pandemic, or
other future epidemics or pandemics, is currently unknown and cannot be predicted.
Inflation Risk
Inflation
risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the value
of money. As inflation increases, the real value of the Fund’s shares and distributions thereon can decline. Inflation risk is linked
to increases in the prices of goods and services and a decrease in the purchasing power of money. Inflation often is accompanied or followed
by a recession, or period of decline in economic activity, which may include job loss and other hardships and may cause the value of securities
to go down generally. Inflation risk is greater for fixed-income instruments with longer maturities. In addition, this risk may be significantly
elevated compared to normal conditions because of recent monetary policy measures and the current interest rate environment. Inflation
has recently increased and it cannot be predicted whether it may decline.
Investor Suitability
An investment in the
Fund involves a considerable amount of risk. It is possible that you will lose money. An investment in the Fund is suitable only for investors
who can bear the risks associated with the limited liquidity of the Shares and should be viewed as a long-term investment. Before making
your investment decision, you should (i) consider the suitability of this investment with respect to your investment goals and personal
financial situation, and (ii) consider factors such as your personal net worth, income, age, risk tolerance and liquidity needs. An investment
in the Fund should not be viewed as a complete investment program.
Summary of Principal Risks of the Fund
Investing
in the Fund’s Shares involves a number of significant risks. Below is a summary of some of the principal risks of investing in the
Fund. Before you invest in the Fund’s Shares, you should be aware of various risks, including those described below. For a more
complete discussion of the risks of investing in the Fund, see “Principal Risks of the Fund.”
Investment Risk
An investment in the Fund’s
Shares is subject to investment risk, including the possible loss of the entire principal amount invested. An investment in the Shares
represents an indirect investment in the investments and other financial assets owned by the Fund. The value of the Fund’s investments
will generally fluctuate with, among other things, changes in prevailing interest rates, federal tax rates, counterparty risk, general
economic conditions, the condition of certain financial markets, developments or trends in any particular industry and the financial condition
of the issuer. Lower-quality debt securities involve greater risk of default or price changes and their value can fluctuate, especially
during periods of increased market volatility, economic recessions or periods of high interest rates. The Fund anticipates using leverage,
which would magnify the Fund’s investment, market and certain other risks. See “Principal Risks of the Fund — Leverage
Risk.”
6
Asset Allocation Risk
The Fund’s investment
performance depends upon how its assets are allocated and reallocated. A principal risk of investing in the Fund is that the Adviser may
make less than optimal or poor asset allocation decisions. The Adviser employs an active approach to allocation across multiple sectors,
but there is no guarantee that such allocation techniques will produce the desired results. It is possible that the Adviser will focus
on an investment that performs poorly or underperforms other investments under various market conditions. You could lose money on your
investment in the Fund as a result of these allocation decisions.
Issuer Risk
The value of securities
may decline for a number of reasons that directly relate to a security’s issuer, such as its financial strength, management performance,
financial leverage and reduced demand for the issuer’s goods and services, as well as the historical and prospective earnings of
the issuer and the value of its assets. A change in the financial condition of a single issuer may affect securities markets as a whole.
These risks can apply to the Shares issued by the Fund and to the issuers of securities and other instruments in which the Fund invests.
Repurchase Offers Risk
As described under “Periodic
Repurchase Offers” above, the Fund is an Interval Fund and, in order to provide liquidity to Shareholders, the Fund, subject to
applicable law, conducts quarterly repurchase offers of the Fund’s outstanding Shares at NAV, subject to approval of the Board of
Directors. In all cases such repurchases will be for at least 5% and not more than 25% of its outstanding Shares at NAV, pursuant to Rule
23c-3 under the 1940 Act. The Fund believes that these repurchase offers are generally beneficial to the Fund’s Shareholders, and
repurchases generally will be funded from available cash or sales of portfolio securities. However, repurchase offers and the need to
fund repurchase obligations may affect the ability of the Fund to be fully invested or force the Fund to maintain a higher percentage
of its assets in liquid investments, which may harm the Fund’s investment performance. Moreover, diminution in the size of the Fund
through repurchases may result in untimely sales of portfolio securities (with associated imputed transaction costs, which may be significant),
and may limit the ability of the Fund to participate in new investment opportunities or to achieve its investment objective. The Fund
may accumulate cash by holding back (i.e., not reinvesting)
payments received in connection with the Fund’s investments. The Fund believes that payments received in connection with the Fund’s
investments will generate sufficient cash to meet the maximum potential amount of the Fund’s repurchase obligations. If at any time
cash and other liquid assets held by the Fund are not sufficient to meet the Fund’s repurchase obligations, the Fund intends, if
necessary, to sell investments. If, as expected, the Fund employs investment leverage, repurchases of Shares would compound the adverse
effects of leverage in a declining market. In addition, if the Fund borrows to finance repurchases, interest on that borrowing will negatively
affect Shareholders who do not tender their Shares by increasing the Fund’s expenses and reducing any net investment income.
If a repurchase offer
is oversubscribed, the Fund may determine to increase the amount repurchased by up to 2% of the Fund’s outstanding shares as of
the date of the Repurchase Request Deadline. In the event that the Fund determines not to repurchase more than the repurchase offer amount,
or if Shareholders tender more than the repurchase offer amount plus 2% of the Fund’s outstanding shares as of the date of the Repurchase
Request Deadline, the Fund will repurchase the Shares tendered on a pro rata
basis, and Shareholders will have to wait until the next repurchase offer to make another repurchase request. As a result, Shareholders
may be unable to liquidate all or a given percentage of their investment in the Fund during a particular repurchase offer. Notwithstanding
the foregoing, the Fund may, in its sole discretion and for administrative convenience, accept all Shares tendered for repurchase by Shareholders
who own less than one hundred Shares and who tender all of their Shares, before prorating other amounts tendered. Some Shareholders, in
anticipation of proration, may tender more Shares than they wish to have repurchased in a particular quarter, thereby increasing the likelihood
that proration will occur. The NAV of the Fund’s Shares tendered in a repurchase offer may decline between the Repurchase Request
Deadline and the date on which the NAV for tendered Shares is determined. In addition, the repurchase of Shares by the Fund will be a
taxable event to Shareholders, potentially even to those Shareholders that do
7
not participate in the repurchase. For a discussion of
these tax consequences, please see “Tax Matters” and “Taxation” in the Statement of Additional Information.
Large Shareholder Risk
To the extent a large
proportion of Shares are held by a small number of Shareholders (or a single Shareholder), including affiliates of the Adviser, the Fund
is subject to the risk that these Shareholders will seek to sell Shares in large amounts rapidly in connection with repurchase offers.
These transactions could adversely affect the ability of the Fund to conduct its investment program. Furthermore, it is possible that
in response to a repurchase offer, the total amount of Shares tendered by a small number of Shareholders (or a single Shareholder) may
exceed the number of Shares that the Fund has offered to repurchase. If a repurchase offer is oversubscribed by Shareholders, the Fund
will repurchase only a pro rata portion of shares tendered
by each Shareholder. However, the Fund may determine to increase the repurchase offer by up to 2% of the Fund’s outstanding Shares
as of the date of the Repurchase Request Deadline. If the Fund only repurchases a pro rata
portion of shares tendered in connection with an oversubscribed repurchase offer, Shareholders unaffiliated with the Adviser will not
be given priority over Shareholders that are affiliates of the Adviser, whose holdings in the Fund may be significant and may have the
effect of diluting third-party Shareholders with respect to any repurchase offer. See “Principal Risks of the Fund — Repurchase
Offers Risk.”
Management Risk
The Fund does not have
internal management capacity or employees. The Fund depends on the diligence, skill and network of business contacts of the senior investment
professionals of the Adviser to achieve the Fund’s investment objective. The Fund expects that the Adviser will evaluate, negotiate,
structure, close and monitor the Fund’s investments in accordance with the terms of the management agreement between the Fund and
the Adviser (“Management Agreement”). The Fund can offer no assurance, however, that the senior investment professionals of
the Adviser will continue to provide investment advice to us. The loss of any member of the Adviser’s investment committee or of
other senior investment professionals of the Adviser and its affiliates would limit the Fund’s ability to achieve its investment
objective and operate as the Fund anticipates. This could have a material adverse effect on the Fund’s financial condition, results
of operations and cash flows.
Interest Rate Risk
General
interest rate fluctuations may have a substantial negative impact on the Fund’s investments and investment opportunities, and, accordingly,
may have a material adverse effect on the Fund’s investment objective and rate of return on investment capital. A portion of the
Fund’s income will depend upon the difference between the rate at which it borrows funds and the interest rate on the debt securities
in which it invests. Because the Fund will borrow money to make investments and may issue debt securities, preferred stock or other securities,
the Fund’s net investment income is dependent upon the difference between the rate at which the Fund borrows funds or pays interest
or dividends on such debt securities, preferred stock or other securities and the rate at which the Fund invests these funds. Typically,
the Fund anticipates that its interest-earning investments will accrue and pay interest at both variable and fixed rates, and that its
interest bearing liabilities will accrue interest at variable and fixed rates.
Bank Loan Risk
Bank loans (including
senior loans) are usually rated below investment grade. The market for bank loans may be subject to irregular trading activity, wide bid/ask
spreads and extended trade settlement periods. Investments in bank loans are typically in the form of an assignment or participation.
Investors in a loan participation assume the credit risk associated with the borrower and may assume the credit risk associated with an
interposed financial intermediary. Accordingly, if a lead lender becomes insolvent or a loan is foreclosed, the Fund could experience
delays in receiving payments or suffer a loss. In an assignment, the Fund effectively becomes a lender under the loan agreement with the
same rights and obligations as the assigning bank or other financial intermediary.
8
Accordingly, if the loan is foreclosed,
the Fund could become part owner of any collateral, and would bear the costs and liabilities associated with owning and disposing of the
collateral. Due to their lower place in the borrower’s capital structure and possible unsecured status, junior loans involve a higher
degree of overall risk than senior loans of the same borrower. In addition, the floating rate feature of loans means that bank loans will
not generally experience capital appreciation in a declining interest rate environment. Declines in interest rates may also increase prepayments
of debt obligations and require the Fund to invest assets at lower yields.
The Fund may also invest
in second-lien loans, which entail risks including (a) the subordination of the Fund’s claims to a senior lien in terms of the coverage
and recovery of the collateral and (b) the prohibition of or limitation on the right to foreclose on a second-lien loan or exercise other
rights as a second-lien holder. In certain cases, therefore, no recovery may be available from a defaulted second-lien loan. The level
of risk associated with investments in second-lien loans increases to the extent such investments are loans of distressed or below investment
grade companies.
Covenant-Lite Loans Risk
Covenant-lite loans contain
fewer maintenance covenants than other types of loans, or no maintenance covenants, and may not include terms that allow the lender to
monitor the performance of the borrower and declare a default if certain criteria are breached. Covenant-lite loans may carry more risk
than traditional loans as they allow individuals and corporations to engage in activities that would otherwise be difficult or impossible
under a covenant-heavy loan agreement. In the event of default, covenant-lite loans may exhibit diminished recovery values as the lender
may not have the opportunity to negotiate with the borrower prior to default.
High-Yield (“Junk”)
Securities Risk
Investors
should recognize that below investment grade and unrated securities in which the Fund will invest subject Fund Shareholders to greater
levels of credit risk, call risk and liquidity risk than funds that do not invest in such securities. Generally, lower rated or unrated
securities of equivalent credit quality offer a higher return potential than higher rated securities but involve greater volatility of
price and greater risk of loss of income and principal, including the possibility of a default or bankruptcy of the issuers of such securities.
Lower rated securities and comparable unrated securities will likely have larger uncertainties or major risk exposure to adverse conditions
and are predominantly speculative. The occurrence of adverse conditions and uncertainties would likely reduce the value of securities
held by the Fund, with a commensurate effect on the value of the Fund’s Shares.
Distressed Securities
Risk
An
investment in the securities of financially distressed issuers can involve substantial risks. These securities may present a substantial
risk of default or may be in default at the time of investment. The Fund may incur additional expenses to the extent it is required to
seek recovery upon a default in the payment of principal or interest on its portfolio holdings. In any reorganization or liquidation proceeding
relating to a portfolio company, the Fund may lose its entire investment or may be required to accept cash or securities with a value
less than its original investment. Among the risks inherent in investments in a troubled entity is the fact that it frequently may be
difficult to obtain information as to the true financial condition of such issuer. The Adviser’s judgment about the credit quality
of the issuer and the relative value and liquidity of its securities may prove to be wrong.
Collateralized Loan Obligation (“CLO”) Risk
CLOs and other similarly
structured securities are types of asset-backed securities. The cash flows from the CLO trust are split into two or more portions, called
tranches, varying in risk and yield. The riskiest portion is the “equity” tranche which bears the bulk of defaults from the
loans in the trust and serves to protect the other, more senior tranches from default in all but the most severe circumstances. Since
it is partially protected from defaults, a senior tranche from a CLO trust typically has higher ratings and lower
9
yields than the underlying securities, and can be rated
investment grade. Despite the protection from the equity tranche, CLO tranches can experience substantial losses due to actual defaults,
increased sensitivity to defaults due to collateral default and disappearance of protecting tranches, market anticipation of defaults
and aversion to CLO securities as a class. The risks of an investment in a CLO depend largely on the collateral and the class of the CLO
in which the Fund invests. Normally, CLOs and other similarly structured securities are privately offered and sold, and thus are not registered
under the securities laws. As a result, investments in CLOs may be characterized by the Fund as illiquid securities; however, an active
dealer market, or other relevant measures of liquidity, may exist for CLOs allowing a CLO potentially to be deemed liquid by the Adviser
under liquidity policies approved by the Fund’s Board of Directors. In addition to the risks associated with debt instruments (e.g.,
interest rate risk and credit risk), CLOs carry additional risks including, but not limited to: (i) the possibility that distributions
from collateral securities will not be adequate to make interest or other payments; (ii) the quality of the collateral may decline in
value or default; (iii) the possibility that the Fund may invest in CLOs that are subordinate to other classes; and (iv) the complex structure
of the security may not be fully understood at the time of investment and may produce disputes with the issuer or unexpected investment
results.
Mortgage- and Asset-Backed Securities
The Fund may invest in
a variety of mortgage related and other asset-backed securities, including both commercial and residential mortgage securities and other
mortgage-backed instruments issued on a public or private basis. Mortgage-backed securities represent the right to receive a portion of
principal and/or interest payments made on a pool of residential or commercial mortgage loans. When interest rates fall, borrowers may
refinance or otherwise repay principal on their mortgages earlier than scheduled. When this happens, certain types of mortgage-backed
securities will be paid off more quickly than originally anticipated and the Fund will have to invest the proceeds in securities with
lower yields. This risk is known as “prepayment risk.” When interest rates rise, certain types of mortgage-backed securities
will be paid off more slowly than originally anticipated and the value of these securities will fall. This risk is known as “extension
risk.” Because of prepayment risk, mortgage-backed securities react differently to changes in interest rates than other fixed income
securities. Small movements in interest rates (both increases and decreases) may quickly and significantly reduce the value of certain
mortgage-backed securities.
Residential Mortgage-Backed Securities Risk
The investment characteristics
of RMBS differ from those of traditional debt securities. The major differences include the fact that, on certain RMBS, prepayments of
principal may be made at any time. Prepayment rates are influenced by changes in current interest rates and a variety of economic, geographic,
social and other factors and cannot be predicted with certainty. Subordinated classes of CMOs are entitled to receive repayment of principal
in many cases only after all required principal payments have been made to more senior classes and also have subordinated rights as to
receipt of interest distributions. Such subordinated classes are subject to a greater risk of non-payment than are senior classes of CMOs
guaranteed by an agency or instrumentality of the U.S. Government.
Commercial Mortgage-Backed Securities Risk
CMBS may involve the risks
of delinquent payments of interest and principal, early prepayments and potentially unrecoverable principal loss from the sale of foreclosed
property. Subordinated classes of CMBS are entitled to receive repayment of principal only after all required principal payments have
been made to more senior classes and also have subordinated rights as to receipt of interest distributions. Such subordinated classes
are subject to a greater risk of non-payment than are senior classes.
Derivatives Risk
The use of derivative
instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other
traditional investments. Derivatives are subject to a number of risks, such as liquidity risk (which may be heightened for highly-customized
derivatives), interest rate risk, market risk, credit risk, leveraging risk, counterparty risk, tax risk, and management risk,
10
as well as risks arising from changes in applicable requirements.
They also involve the risk of mispricing, the risk of unfavorable or ambiguous documentation and the risk that changes in the value of
the derivative may not correlate perfectly with the underlying asset, rate or index. The Fund’s use of derivatives may increase
or accelerate the amount of taxes payable by Shareholders.
The SEC recently adopted
Rule 18f-4 under the 1940 Act, which regulates the use of derivatives, short sales, reverse repurchase agreements and certain other transactions
for certain funds registered under the 1940 Act. Among other things, Rule 18f-4 requires funds that invest in derivative instruments beyond
a specified limited amount to apply a value-at-risk (“VaR”) based limit to their use of certain derivative instruments and
financing transactions and to adopt and implement a derivatives risk management program. Consequently, unless a fund qualifies as a “limited
derivatives user” as defined in Rule 18f-4, the fund has established a comprehensive derivatives risk management program to
comply with a VaR based leverage limit, appointed a derivatives risk manager and will provide additional disclosure both publicly and
to the SEC regarding its derivatives positions. If a fund qualifies as a limited derivatives user, Rule 18f-4 requires the fund to have
policies and procedures to manage its aggregate derivatives risk, which may require the fund to alter, perhaps materially, its use of
derivatives, short sales, and reverse repurchase agreements and similar financing transactions as part of its investment strategies. In
connection with the adoption of Rule 18f-4, the SEC also eliminated the asset segregation framework for covering derivatives and certain
financial instruments arising from SEC and staff guidance. Since the Fund is a “limited derivatives user,” the Fund has adopted
and implemented policies and procedures reasonably designed to manage the Fund’s derivatives risks, including counterparty risk,
leverage risk, liquidity risk, market risk, operational risk, and legal risk.
Privacy and Data Security Laws
Many jurisdictions in
which the Fund and its portfolio companies operate have laws and regulations relating to data privacy, cyber security and protection of
personal information, including the General Data Protection Regulation (“GDPR”) in the European Union that went into effect
in May 2018 and the California Consumer Privacy Act (“CCPA”) that took effect in January 2020 and provides for enhanced consumer
protections for California residents, a private right of action for data breaches and statutory fines for data breaches or other CCPA
violations. If the Fund or the Adviser fail to comply with the relevant laws and regulations, it could result in regulatory investigations
and penalties, which could lead to negative publicity and may cause investors and clients to lose confidence in the effectiveness of the
Fund’s security measures.
Liquidity Risk
The
Fund intends to invest in illiquid investments. An illiquid investment is a security or other investment that the Fund reasonably expects
cannot be sold or disposed of in current market conditions in seven calendar days or less without the sale or disposition significantly
changing the market value of the investment at approximately the value ascribed to it by the Fund. Illiquid investments often can be resold
only in privately negotiated transactions with a limited number of purchasers or in a public offering registered under the Securities
Act of 1933, as amended (the “1933 Act”). Considerable delay could be encountered in either event and, unless otherwise contractually
provided, the Fund’s proceeds upon sale may be reduced by the costs of registration or underwriting discounts. The difficulties
and delays associated with such transactions could result in the Fund’s inability to realize a favorable price upon disposition
of illiquid investments, and at times might make disposition of such securities impossible.
Valuation Risk
The Adviser may use an
independent pricing service or prices provided by dealers to value certain fixed income securities at their market value. Because the
secondary markets for certain investments may be limited, they may be difficult to value. When market quotations are not readily available
or are deemed to be unreliable, the Fund values its investments at fair value as determined in good faith pursuant to policies and procedures
approved by the Board of Directors. Fair value pricing may require subjective determinations about the value of a security or other asset.
As a result, there can be no assurance that fair
11
value pricing will result in adjustments to the prices
of securities or other assets, or that fair value pricing will reflect actual market value, and it is possible that the fair value determined
for a security or other asset will be materially different from quoted or published prices, from the prices used by others for the same
security or other asset and/or from the value that actually could be or is realized upon the sale of that security or other asset. Where
market quotations are not readily available, valuation may require more research than for more liquid investments.
Leverage Risk
The Fund currently intends
to use leverage to seek to achieve its investment objective. The borrowing of money or issuance of debt securities and preferred stock
represents the leveraging of the Fund’s common stock. In addition, the Fund may also leverage its Shares through investment techniques,
such as reverse repurchase agreements, writing credit default swaps, or futures. Leverage creates risks that may adversely affect the
return for the holders of common stock.
Leverage is a speculative
technique that could adversely affect the returns to Shareholders. Leverage can cause the Fund to lose money and can magnify the effect
of any losses. To the extent the income or capital appreciation derived from securities purchased with funds received from leverage exceeds
the cost of leverage, the Fund’s return will be greater than if leverage had not been used. Conversely, if the income or capital
appreciation from the securities purchased with such funds is not sufficient to cover the cost of leverage or if the Fund incurs capital
losses, the return of the Fund will be less than if leverage had not been used, and therefore the amount available for distribution to
Shareholders as dividends and other distributions will be reduced or potentially eliminated (or, in the case of distributions, will consist
of return of capital).
The Fund will pay (and
the Shareholders will bear) all costs and expenses relating to the Fund’s use of leverage, which will result in the reduction of
the NAV of the Shares.
Focused Investment Risk
To the extent that the
Fund focuses its investments in a particular sector or country, the NAV of the Shares will be more susceptible to events or factors affecting
companies in that sector or country. These may include, but are not limited to, governmental regulation, inflation, rising interest rates,
cost increases in raw materials, fuel and other operating expenses, technological innovations that may render existing products and equipment
obsolete, competition from new entrants, high research and development costs, increased costs associated with compliance with environmental
or other regulation and other economic, market, political or other developments specific to that sector or country. Also, the Fund may
invest a substantial portion of its assets in companies in related sectors that may share common characteristics, are often subject to
similar business risks and regulatory burdens and whose securities may react similarly to the types of events and factors described above,
which will subject the Fund to greater risk.
Risk of Regulatory Changes
Legal, tax and regulatory
changes could occur and may adversely affect the Fund and its ability to pursue its investment strategies and/or increase the costs of
implementing such strategies. New (or revised) laws or regulations may be imposed by the U.S. Commodity Futures Trading Commission (“CFTC”),
the SEC, the U.S. Internal Revenue Service (“IRS”), the U.S. Federal Reserve or other banking regulators, other governmental
regulatory authorities or self-regulatory organizations that supervise the financial markets that could adversely affect the Fund. In
particular, these agencies are implementing a variety of new rules pursuant to financial reform legislation in the United States. The
EU (and some other countries) are implementing similar requirements. The Fund also may be adversely affected by changes in the enforcement
or interpretation of existing statutes and rules by these governmental regulatory authorities or selfregulatory organizations.
Risks Associated With Status as a Regulated Investment Company
The Fund intends to qualify
for federal income tax purposes as a regulated investment company under Subchapter M of the Code. Qualification requires, among other
things, compliance by the Fund
12
with certain distribution requirements. Statutory limitations
on distributions on the common shares if the Fund is leveraged and fails to satisfy the 1940 Act’s asset coverage requirements could
jeopardize the Fund’s ability to meet such distribution requirements. The Fund presently intends, however, to purchase or redeem
any outstanding leverage to the extent necessary in order to maintain compliance with such asset coverage requirements.
Potential Conflicts of Interest Risk
The Adviser and its
affiliates are involved worldwide with a broad spectrum of financial services and asset management activities and may engage in the ordinary
course of business in activities in which their interests or the interests of their clients may conflict with those of the Fund. The Adviser
and its affiliates may provide investment management services to other funds and discretionary managed accounts that follow an investment
program similar to that of the Fund. Subject to the requirements of the 1940 Act, the Adviser and its affiliates intend to engage in such
activities and may receive compensation from third parties for their services. Neither the Adviser nor its affiliates are under any obligation
to share any investment opportunity, idea or strategy with the Fund. As a result, the Adviser and its affiliates may compete with the
Fund for appropriate investment opportunities. The results of the Fund’s investment activities, therefore, may differ from those
of other accounts managed by the Adviser and its affiliates, and it is possible that the Fund could sustain losses during periods in which
one or more of the proprietary or other accounts managed by the Adviser or its affiliates achieve profits.
Foreign Currency Risk
The Fund’s investments
that are denominated in a foreign currency will be subject to the risk that the value of a particular currency may change in relation
to the U.S. dollar. Among the factors that may affect currency values are trade balances, the level of short-term interest rates, differences
in relative values of similar assets in different currencies, long-term opportunities for investment and capital appreciation and political
developments. As a result, a change in currency exchange rates may adversely affect the Fund’s profitability.
Income and Distribution Risk
The income that Shareholders
receive from the Fund is expected to be based in part on income from short-term gains that the Fund earns from dividends and other distributions
received from its investments. If the distribution rates or yields of the Fund’s holdings decrease, Shareholders’ income from
the Fund could decline. In selecting equity income securities in which the Fund will invest, the Adviser will consider the issuer’s
history of making regular periodic distributions (i.e.,
dividends) to its equity holders. An issuer’s history of paying dividends or other distributions, however, does not guarantee that
the issuer will continue to pay dividends or other distributions in the future. The dividend income stream associated with equity income
securities generally is not fixed but is elected and declared at the discretion of the issuer’s board of directors and will be subordinate
to payment obligations of the issuer on its debt and other liabilities. Accordingly, an issuer may forgo paying dividends on its equity
securities. In addition, because in most instances issuers are not obligated to make periodic distributions to the holders of their equity
securities, such distributions or dividends generally may be discontinued at the issuer’s discretion. There can be no assurance
that quarterly distributions paid by the Fund to the Shareholders will be maintained at initial levels or increase over time.
Cyber Security Risk
The occurrence of a disaster
such as a cyber-attack, a natural catastrophe, an industrial accident, a terrorist attack or war, events unanticipated in the disaster
recovery systems of the Fund, and Adviser, or a support failure from external providers, could have an adverse effect on the Fund’s
ability to conduct business and on its results of operations and financial condition, particularly if those events affect the Fund, or
the Adviser’s computer-based data processing, transmission, storage, and retrieval systems, or destroy data. If the Adviser was
unavailable in the event of a disaster, the Fund’s ability to effectively conduct its business could be severely compromised.
13
Emerging Markets Risk
The
Fund may invest in securities of companies in an “emerging market.” Investments in emerging market securities involve a greater
degree of risk than, and special risks in addition to the risks associated with, investments in domestic securities or in securities of
foreign, developed countries. Foreign investment risk may be particularly high to the extent that the Fund invests in securities of issuers
based or doing business in emerging market countries or invests in securities denominated in the currencies of emerging market countries.
Investing in securities of issuers based or doing business in emerging markets entails all of the risks of investing in securities of
foreign issuers, including being less liquid, more volatile and harder to value than U.S. securities, but to a heightened degree.
Infectious Illness Risk. A
widespread outbreak of an infectious illness, such as the COVID-19 pandemic, may result in travel restrictions, disruption of healthcare
services, prolonged quarantines, cancellations, supply chain disruptions, business closures, lower consumer demand, layoffs, ratings downgrades,
defaults and other significant economic, social and political impacts. Markets may experience temporary closures, extreme volatility,
severe losses, reduced liquidity and increased trading costs. Such events may adversely affect the Fund, its investments, and the value
of your investment in the Fund.
The fallout from the COVID-19 pandemic
and its subsequent variants, and the long-term impact on economies, markets, industries and individual issuers, are not known. Some sectors
of the economy and individual issuers have experienced, and could continue to experience, particularly large losses as a result of new
variants of COVID-19.
Convertible Securities Risk
Convertible securities
generally offer lower interest or dividend yields than non-convertible securities of similar quality. The market values of convertible
securities tend to decline as interest rates increase and, conversely, to increase as interest rates decline. In the absence of adequate
anti-dilutive provisions in a convertible security, dilution in the value of the Fund’s holding may occur in the event the underlying
stock is subdivided, additional equity securities are issued for below market value, a stock dividend is declared or the issuer enters
into another type of corporate transaction that has a similar effect.
Credit Default Swaps Risk
Credit default swap
agreements may involve greater risks than if the Fund had invested in the reference obligation directly since, in addition to general
market risks, credit default swaps are subject to illiquidity risk, counterparty risk and credit risk. A buyer generally also will lose
its investment and recover nothing should no credit event occur and the swap is held to its termination date. If a credit event were to
occur, the value of any deliverable obligation received by the seller (if any), coupled with the upfront or periodic payments previously
received, may be less than the full notional value it pays to the buyer, resulting in a loss of value to the seller. When the Fund acts
as a seller of a credit default swap, it is exposed to many of the same risks of leverage described herein since if an event of default
occurs, the seller must pay the buyer the full notional value of the reference obligation.
Although the Fund may
seek to realize gains by selling credit default swaps that increase in value, to realize gains on selling credit default swaps, an active
secondary market for such instruments must exist or the Fund must otherwise be able to close out these transactions at advantageous times.
In addition to the risk of losses described above, if no such secondary market exists or the Fund is otherwise unable to close out these
transactions at advantageous times, selling credit default swaps may not be profitable for the Fund.
14
Summary
of Fund Expenses
| | |
Class D
Shares |
| |
Class T
Shares |
| |||||||
| Shareholder Transaction Expenses: | | ||||||||||||
|
Maximum Sales Charge
(Load) on Purchases ( |
| | | | | | | | | ||||
|
Maximum Deferred
Sales Charge (Load) (as a percentage of the lesser of your purchase or redemption price)(1)
|
| | | | | | | ||||||
|
Repurchase Fee (2)
|
| | | | | | | | | | | ||
|
Annual Fund Operating Expenses (as a percentage of
average net assets attributable to Shares): |
| ||||||||||||
|
Management Fees (3)
|
| | | | | | | | | | | ||
|
Distribution and/or Service (Rule
12b-1) Fees (4)
|
| | | | | | | | | ||||
|
Interest Expense (5)
|
| | | | | | | | | | | ||
|
Other Expenses (6)
|
| | | | | | | | | | | ||
|
Total Annual Fund Operating Expenses
|
| | | | | | | | | | | ||
|
Fees Waived and/or Expenses Reimbursed
or Recouped(7) |
| | | | | | | | | | | ||
|
Total Annual Fund Operating Expenses
After Fee Waiver and/or Expense Reimbursement or Recoupment |
| | | | | | | | | ||||
(1)
While
neither the Fund nor the Distributor imposes an initial sales charge on Class D Shares, if you buy Class D Shares through certain Financial
Intermediaries, they may directly charge you transaction or other fees in such amounts as they may determine. Class D Shares and Class
T Shares will be sold on a continuous basis at the Fund’s then current net asset value (“NAV”) per Share, plus for Class
T Shares only, a maximum front-end sales commission of 3.00%. Please consult your financial intermediary for additional information. Investors
that purchase $1,000,000 or more of the Fund’s Class T Shares will not pay any initial sales charge on the purchase. However, unless
eligible for a waiver, purchases of $1,000,000 or more of Class T Shares will be subject to an early withdrawal charge of 1.00% if the
shares are repurchased during the first 12 months after their purchase. See “Early Withdrawal Charges — Class T Shares”
and “Sales at Net Asset Value” below.
(2)
The
Fund may impose repurchase fees of up to 2.00% on shares accepted for repurchase that have been held for less than one year.
?
(3)
(4)
The
maximum annual rate at which distribution fees may be paid under the Distribution Plan is 0.75% for Class T Shares (calculated as a percentage
of the Fund’s average daily net assets attributable to the Class T Shares).
?
15
?
(5)
Interest
Expense shown in the table above assumes financial leverage of 13.21% of the Fund’s Managed Assets, based upon the Fund’s
outstanding borrowings as of December 31, 2023, of approximately $35,000,000 in borrowings outstanding under the Senior Secured Revolving
Credit Facility (the “Credit Facility”) with Sumitomo Mitsui Banking Corporation, at a weighted average daily interest rate
of 6.47% for the Credit Facility.
(6)
16
?
(7)
The
Adviser has contractually agreed to waive all or a portion of its investment advisory fees and/or to reimburse certain expenses of the
Fund, including organizational expenses and offering costs, to the extent necessary to maintain the Total Annual Fund Operating Expenses
After Fee Waiver and/or Expense Reimbursement (excluding any front-end or contingent deferred sales loads, brokerage commissions and other
transactional expenses, acquired fund fees and expenses, interest (including, “Interest Payments on Borrowed Funds”), taxes,
and extraordinary expenses, such as litigation; and other expenses not incurred in the ordinary course of the Fund’s business) at
no more than 2.10% for Class D Shares and 2.85% for Class T Shares. The fee waiver and expense reimbursement arrangement will continue
until at least April 30, 2025, and may not be terminated by the Fund or the Adviser before such time. Thereafter, this arrangement may
only be terminated or amended to increase the expense cap, provided that in the case of a termination by the Adviser, the Adviser will
provide the Board of Directors with written notice of its intention to terminate the arrangement prior to the expiration of its then current
term. Any waivers and/or reimbursements made by the Adviser are subject to recoupment from the Fund for a period not to exceed three years
after the occurrence of the waiver and/or reimbursement, provided that the Fund may only make repayments to the Adviser if such repayment
does not cause the Fund’s expense ratio (after the repayment is taken into account) to exceed the lesser of (1) the expense cap
in place at the time such amounts were waived, or (2) the Fund’s current expense cap. In addition, The Adviser has contractually
agreed to limit the shareholder servicing fees for each share class to the extent necessary to maintain such fees at no more than 0.10%
(the “Annual Limit”) of the average daily net assets of the Fund’s Class D Shares and Class T Shares, respectively,
until at least April 30, 2025. Thereafter, this arrangement may be extended, terminated, or modified by the Adviser in its sole discretion
and at any time. If the Fund’s Class D Shares or Class T Shares operate below the total expense ratio for each share class after
fee waivers and/or expense reimbursement (as discussed herein), this arrangement will continue to limit the shareholder servicing fees
for each share class to the extent necessary to maintain the shareholder servicing fee expense cap, as described above. The Fund’s
actual shareholder servicing fees may differ from the estimates above. Any shareholder servicing fee reimbursed or otherwise absorbed
by the Adviser are subject to recoupment from the Fund for a period not to exceed three years after the occurrence of the reimbursement,
provided that the Fund may only make repayments to the Adviser if such repayment does not cause the Fund’s shareholder servicing
fees (after the repayment is taken into account) to exceed the lesser of (1) the Annual Limit in place at the time such amounts were waived,
or (2) the Fund’s current Annual Limit.
Example
The
following example illustrates the expenses (including any applicable sales charge) that you would pay on a $1,000 investment in the Shares,
assuming a 5% annual return. The fee waiver is taken into account only for the one-year expense example: (1)
If
you redeem your Shares at the end of each period:
| | | |
1-Year
|
| |
3-Year
|
| |
5-Year
|
| |
10-Year
|
|
|
Class
D Shares |
| |
$ |
| |
$ |
| |
$ |
| |
$ |
|
|
Class
T Shares |
| |
$ |
| |
$ |
| |
$ |
| |
$ |
|
If
you do not redeem your Shares:
| | | |
1-Year
|
| |
3-Year
|
| |
5-Year
|
| |
10-Year
|
|
|
Class
D Shares |
| |
$31
|
| |
$94
|
| |
$159
|
| |
$334
|
|
|
Class
T Shares |
| |
$67
|
| |
$142
|
| |
$219
|
| |
$419
|
|
(1)
The
example above should not be considered a representation of future expenses, and actual expenses may be greater or less than those show.
The example assumes that the estimated Interest Payments on Borrowed Funds and Other Expenses set forth in the Annual Fund Operating Expenses
table are accurate, that the Total Annual Fund Operating Expenses (as described above) remain the same for all time periods shown and
that all dividends and distributions are reinvested at NAV. Moreover, the Fund’s actual rate of return may be greater or less than
the hypothetical 5% annual return shown in the example. In addition to the fees and expenses described above, you may also be required
to pay transaction or other fees on purchases of Class D Shares of the Fund, which are not reflected in the example.
17
Financial Highlights
The
financial highlights table set forth below is intended to help you understand the Fund’s recent financial performance for the periods
indicated. Information shown reflects performance of the Fund’s Class D Shares. The financial highlights for the years ended December
31, 2023, 2022, and for the period from November 1, 2021 (commencement of operations) through December 31, 2021, have been audited by
Deloitte & Touche LLP, the Fund’s independent registered public accounting firm. The Fund’s 2023 Annual Report for the
fiscal year ended December 31, 2023, is available, without charge, upon request, and is incorporated by reference into the Statement of
Additional Information.
OAKTREE DIVERSIFIED INCOME FUND INC.
Financial Highlights
Financial Highlights
Class D
| | | |
For the Year Ended December 31, 2023 |
| |
For the Year Ended December 31, 2022 |
| |
For the Period November 1, 2021 (1) through December 31, 2021 |
| |||||||||
| Per Share Operating Performance: | | ||||||||||||||||||
|
Net asset value, beginning of period
|
| | | $ | | | | | $ | | | | | $ | | | |||
| Income from Investment Operations: | | ||||||||||||||||||
| Net investment income (2) | | | | | 0.78 | | | | | | 0.50 | | | | | | 0.02 | | |
| Net realized and change in unrealized loss | | | | | 0.20 | | | | | | (1.20) | | | | | | (0.07) | | |
| Net decrease in net asset value resulting from operations | | | | | 0.98 | | | | | | (0.70) | | | | | | (0.05) | | |
| Distributions to Shareholders: | | ||||||||||||||||||
| From net investment income | | | | | (0.69) | | | | | | (0.65) | | | | | | (0.01) | | |
| Total distributions paid(*) | | | | | ( |
| | | | | ( |
| | | | | ( |
| |
| Net asset value, end of period | | | | $ | | | | | $ | | | | | $ | | | |||
| Total Investment Return (†) (3) | | | | | 11.76% | | | | | | (7.03)% (4) | | | | | | (0.37)% | | |
| Ratios to Average Net Assets/Supplementary Data: | | ||||||||||||||||||
| Net assets, end of period (000s) | | | | $ | 230,117 | | | | | $ | 151,702 | | | | | $ | 150,092 | | |
| Gross operating expenses excluding interest expense (5) | | | | | 2.03% | | | | | | 1.96% | | | | | | 5.55% | | |
| Gross operating expenses (5) | | | | | 3.01% | | | | | | 2.51% | | | | | | 5.55% | | |
|
Net expenses, including
fee waivers and reimbursement or recoupment and excluding interest expense(5) |
| | | | 2.10% | | | | | | 2.10% | | | | | | 2.10% | | |
|
Net expenses, including
fee waivers and reimbursement or recoupment and interest expense(5) |
| | | | 3.08% | | | | | | 2.65% | | | | | | 2.10% | | |
| Net investment income (5) | | | | | 8.81% | | | | | | 5.64% | | | | | | 1.51% | | |
|
Net investment
income (loss), excluding the effect of fee waivers and reimbursement or recoupment(5)
|
| | | | 8.88% | | | | | | 5.50% | | | | | | (1.94)% | | |
| Portfolio turnover rate (3) | | | | | 24% | | | | | | 25% | | | | | | 4% | | |
*
Distributions
for annual periods determined in accordance with federal income tax regulations.
(1)
Commencement
of operations.
(2)
Per
share amounts presented are based on average shares outstanding throughout the period indicated.
?
(3)
Not
annualized for periods less than one year.
?
(4)
The
total investment return for the year ended December 31, 2022 has been restated to (7.03)% for the correction of a typographical error.
The Adviser and Administrator have evaluated the quantitative and qualitative aspects of this error and concluded it is not material to
the previously issued consolidated financial statements.
?
(5)
Annualized
for periods less than one year.
?
†
Total
investment return is computed based upon the net asset value of the Fund’s shares and excludes the effects of sales charges or contingent
deferred sales charges, if applicable. Distributions are assumed to be reinvested at the net asset value of the Class on the ex-date of
the distribution.
18
The Fund
The
Fund is a diversified, closed-end management investment company registered under the 1940 Act. The Fund continuously offers its Shares
and is operated as an Interval Fund. At present, only Class D and Class T Shares are available for purchase. In the future, the Fund may
offer additional classes of shares. An investment in the Fund may not be appropriate for all investors. The Fund was organized as a Maryland
corporation on June 29, 2021, pursuant to articles of incorporation. The Fund’s principal office is located at 225 Liberty Street,
35th Floor, New York, New York 10281-1023.
19
Use of Proceeds
The Fund expects to
use the net proceeds from the sale of the Shares to invest in accordance with its investment objective and policies. Pending such investment,
the Fund expects that the net proceeds of this offering will be invested in money market mutual funds, cash, cash equivalents, securities
issued or guaranteed by the U.S. government or its instrumentalities or agencies, high-quality, short-term money market instruments, short-term
debt securities, certificates of deposit, bankers’ acceptances and other bank obligations, commercial paper or other liquid debt
securities. It is currently anticipated that the Fund will be able to invest all or substantially all of the net proceeds according to
its investment objectives and strategies within approximately three months after receipt of the proceeds, depending on the amount and
timing of proceeds available to the Fund as well as the availability of investments consistent with the Fund’s investment objectives
and strategies, and except to the extent proceeds are held in cash to pay dividends or expenses, satisfy repurchase offers or for temporary
defensive purposes. However, additional time may be required to fully deploy the Fund’s net proceeds to invest in certain of the
Fund’s investments.
20
The
Fund’s Investment Objective and Principal Strategies
The
Fund’s investment objective is to seek current income and attractive total return. The Fund seeks to achieve its investment objective
by investing globally, including in emerging market countries, in high conviction opportunities across Oaktree Fund Advisors, LLC’s
(the “Adviser”) performing credit platform of high-yield bonds, senior loans, including covenant-lite loans, structured credit,
emerging markets debt and convertibles, inclusive of public sector companies that trade on the public markets and private companies that
do not have securities trading on the public markets. High-conviction opportunities are investment opportunities that fall within the
Fund’s investment strategy, which are identified by the Adviser based on its holistic, bottom-up proprietary research and credit
analysis, including analysis of fundamental, valuation, technical and other market factors. The Adviser’s performing credit platform
encompasses a broad array of credit strategy groups that invest in public and private corporate credit instruments across the liquidity
spectrum. High-yield bonds are also referred to as “below-investment grade rated securities” or “junk bonds,”
as described in this Prospectus. Structured credit may include collateralized loan obligations (CLOs), commercial mortgage-backed securities
(CMBS), residential mortgage-backed securities (RMBS) and other asset-based securities. The Fund seeks to add value through three sources:
(1) providing exposure to asset classes that require specialized expertise; (2) performing well in each asset class through proprietary,
bottom-up, credit research; and (3) allocating capital opportunistically among asset classes based on the Adviser’s assessment of
relative value.
Under
normal market conditions, the Fund will attempt to achieve its investment objective by investing, as a principal strategy, at least 80%
of its net assets (plus the amount of any borrowing for investment purposes) in credit related investments, including, but not limited
to, fixed income securities (investment grade debt and high-yield debt), floating rate securities (senior loans or structured credit)
and other debt instruments and in derivatives (futures, forward contracts, foreign currency exchange contracts, call and put options,
selling or purchasing credit default swaps, and total return swaps) and other instruments that have economic characteristics similar to
such securities or investments (the “80% Policy”). The Fund may invest in investment grade and below-investment grade rated
debt instruments and securities of sovereign and quasi-sovereign issuers, including debt issued by national, regional or local governments
and other agencies. The Fund may invest in securities denominated in U.S. dollars or in other foreign currencies.
The
Fund may change the 80% Policy without Shareholder approval. The Fund will provide Shareholders with written notice at least 60 days prior
to the implementation of any such changes.
It
is expected that the Fund normally will have a short average portfolio duration (i.e.,
within a 11∕2
to 3-year range), as calculated by the Adviser, although it may be shorter or longer at any time or from time to time depending on market
conditions and other factors. While the Fund seeks to maintain a short average portfolio duration, there is no limit on the maturity or
duration of any individual security in which the Fund may invest. Duration is a measure used to determine the sensitivity of a security’s
price to changes in interest rates. The Fund’s duration strategy may entail maintaining a negative average portfolio duration from
time to time, which would potentially benefit the portfolio in an environment of rising market interest rates but would generally adversely
impact the portfolio in an environment of falling or neutral market interest rates.
On
behalf of the Fund, the Adviser employs a fundamental, value-driven approach with an emphasis on risk control. Bruce Karsh, Wayne Dahl,
Armen Panossian, Danielle Poli and David Rosenberg are primarily responsible for management of the Fund. Bruce Karsh is the lead portfolio
manager for the Fund. This seasoned team is responsible for building a portfolio from the bottom up, leveraging proprietary credit research
and market analysis across the firm’s investment areas. The Fund allocates flexibly among credit asset classes, including public
sector companies that trade on the public markets and private companies that do not have securities trading on the public markets, based
on changing market conditions and relative value insights applied from Oaktree’s Global Credit Investment Committee, which in addition
to the Fund’s co-portfolio managers includes senior credit investment professionals, which manage asset-class specific portfolios
at the firm. The Fund’s all-weather investment strategy will enable the portfolio to perform well in periods of market dislocation,
informed by Oaktree’s contrarian investment
21
style.
Oaktree’s contrarian investment style refers to investors who prioritize downside protection and patience over
immediate capital deployment. Oaktree’s expertise and experience in distressed debt investing informs and guides it in analyzing
new investments and as a result, its extensive distressed investing experience should allow it to minimize downside risk associated with
investments made on behalf of the Fund. The Fund further manages risk and opportunity through holistic portfolio analysis conducted by
Oaktree’s portfolio analytics and risk group. Holistic portfolio analysis encompasses a focus on the entire portfolio of investments
versus a focus on a credit-by-credit basis.
The
Fund generally invests in securities from the Adviser’s credit strategies selected with the objective of maximizing risk-adjusted
returns. The Adviser’s credit strategy portfolio managers select these securities based upon input from the firm’s research
analysts who are responsible for underwriting credit risk in the Fund. Fund allocations are determined by the Adviser’s analysis
of fundamental, valuation, technical and other market factors. Both qualitative and quantitative inputs are considered in the allocation
process. Importantly, the allocation of the Fund’s assets will change over time, sometimes rapidly, based on the Adviser’s
relative value assessment. Active portfolio and risk management are designed to ensure optimal portfolio positioning, including diversity
of industries and issuers across asset classes. The Fund’s investments, allocations, performance attribution, risk sensitivities
and characteristics are monitored by the Adviser on a daily basis. Stress testing and scenario analysis is also performed.
The
Fund follows the Adviser’s “buy” and “sell” disciplines, overseen by the Fund’s co-portfolio managers:
Buy
Discipline
Investments
are made if: (a) the absolute amount of risk is acceptable; (b) the promised yield compensates for the risk; and (c) the investment’s
relationship between risk and return is adequately attractive relative to the opportunity set.
Sell
Discipline
In
general, the Fund will consider selling an investment if: (a) it is early in spotting actual or potential deterioration in credit quality
before it is reflected in the security’s price; (b) the security’s price has significantly appreciated, lowering its yield;
or (c) another security is available that offers a better risk/ reward trade-off.
Monitoring
If
the investment is made, it is systematically monitored by the strategy portfolio manager(s) and supporting analysts on an ongoing basis
to assure its credit quality remains satisfactory. Broader portfolio and risk monitoring is performed by a dedicated risk and analytics
team.
Implementation
Asset
allocation decisions also necessitate trading activity, and securities may be bought or sold to increase or decrease various asset class
exposures. Depending on the security type, buy and sell decisions are either transacted by the strategy portfolio manager or by execution
traders.
22
Leverage
The Fund intends to add
leverage to its portfolio by utilizing borrowings, such as through bank loans and/or other credit facilities, including through one or
more subsidiaries. The Fund will treat the assets of wholly-owned and controlled subsidiaries formed by the Fund as assets of the Fund
for purposes of determining compliance with various provisions of the 1940 Act applicable to the Fund, including those relating to investment
policies (Section 8), affiliated transactions and custody (Section 17) and capital structure and leverage (Section 18). In addition, the
Adviser and the Fund’s Board of Directors will comply with the provisions of Section 15 of the 1940 Act with respect to a subsidiary’s
investment advisory contract, as applicable.
The Fund may also enter
into other transactions that may give rise to a form of leverage including, among others, loans of portfolio securities. Although it has
no current intention to do so, the Fund may also determine to issue preferred shares or other types of senior securities to add leverage
to its portfolio. The Fund’s Board of Directors may authorize the issuance of preferred shares without the approval of Shareholders;
however, the Fund is not permitted under the 1940 Act to issue preferred shares as of the date of this Prospectus. If the Fund issues
preferred shares in the future, all costs and expenses relating to the issuance and ongoing maintenance of the preferred shares will be
borne by the Shareholders, and these costs and expenses may be significant. The Fund may choose to increase or decrease, or eliminate
entirely, its use of leverage over time and from time to time based on the Adviser’s assessment of the yield curve environment,
interest rate trends, market conditions and other factors. See “Principal Risks of the Fund — Leverage Risk.”
The net proceeds the Fund
obtains from leverage utilized will be invested in accordance with the Fund’s investment objective and policies as described in
this Prospectus. So long as the rate of return, net of applicable Fund expenses, on the debt obligations and other investments purchased
by the Fund exceeds the costs to the Fund of the leverage it utilizes, the investment of the Fund’s assets attributable to leverage
will generate more income than will be needed to pay the costs of the leverage. If so, and all other things being equal, the excess may
be used to pay higher distributions to Shareholders than if the Fund were not so leveraged.
The 1940 Act generally
prohibits the Fund from engaging in most forms of leverage (including the use of bank loans or other credit facilities, certain derivative
transactions, loans of portfolio securities, short sales and when-issued, delayed delivery and forward commitment transactions, to the
extent that these instruments are not covered as described below) unless immediately after the issuance of the leverage the Fund has satisfied
the asset coverage test with respect to senior securities representing indebtedness prescribed by the 1940 Act; that is, the value of
the Fund’s total assets less all liabilities and indebtedness not represented by senior securities (for these purposes, “total
net assets”) is at least 300% of the senior securities representing indebtedness (effectively limiting the use of leverage through
senior securities representing indebtedness to 331∕3%
of the Fund’s total net assets, including assets attributable to such leverage). In addition, the Fund is not permitted to declare
any cash dividend or other distribution on Shares unless, at the time of such declaration, this asset coverage test is satisfied. To the
extent that the Fund engages in borrowings, it may prepay a portion of the principal amount of the borrowing to the extent necessary in
order to maintain the required asset coverage. Failure to maintain certain asset coverage requirements could result in an event of default.
Under the 1940 Act, the
Fund is not permitted to issue preferred shares unless immediately after such issuance the value of the Fund’s 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 Fund’s assets less all liabilities other than borrowings and outstanding preferred
shares). In addition, the Fund is not permitted to declare any cash dividend or other distribution on its Shares unless, at the time of
such declaration, the value of the Fund’s assets less liabilities other than borrowings and outstanding preferred shares satisfies
the above-referenced 200% coverage requirement. If the Fund uses a combination of borrowing (including notes and other securities representing
indebtedness) and issuing preferred shares, the maximum asset coverage required would be between 300% and 200% depending on the relative
amounts of borrowings and preferred shares.
23
Leveraging is a speculative technique
and there are special risks and costs involved. There is no assurance that the Fund will utilize borrowings, issue preferred shares or
utilize any other forms of leverage. If used, there can be no assurance that the Fund’s leveraging strategies will be successful
or result in a higher yield on your Shares. When leverage is used, the NAV of the Shares and the yield to Shareholders will be more volatile.
In addition, interest and other expenses borne by the Fund with respect to its use of borrowings or any other forms of leverage are borne
by the Shareholders and result in a reduction of the NAV of the Shares. In addition, because the fees received by the Adviser are based
on the average daily value of the Fund’s Managed Assets, the Adviser has a financial incentive for the Fund to use certain forms
of leverage (e.g., borrowings and preferred shares),
which may create a conflict of interest between the Adviser, on the one hand, and the Shareholders, on the other hand.
The
Fund also may borrow money in order to repurchase its shares or as a temporary measure for extraordinary or emergency purposes, including
for the payment of dividends or the settlement of securities transactions which otherwise might require untimely dispositions of portfolio
securities held by the Fund.
Effects
of Leverage
Assuming
that leverage will represent approximately 13.21% of the Fund’s Managed Assets, the rate of return on the Fund’s investments
would need to exceed 0.86% in order to cover the leverage costs on the borrowings.
The
following table is designed to illustrate the effect of leverage on Common Share Total Return (as retainer return), assuming hypothetical
investment portfolio total returns (comprised of income and changes in the value of securities held in the Fund’s portfolio) of
-10%, -5%, 0%, 5% and 10%. These assumed
investment portfolio returns are hypothetical figures and are not necessarily indicative of the investment portfolio returns experienced
or expected to be experienced by the Fund. “Principal Risks of the Fund — Leverage Risk.” Actual returns may be greater
or less than those reflected in the table.
The
table further reflects the (i) use of financial leverage representing approximately 13.21% of the Fund’s Managed Assets and (ii)
interest costs to the Fund at an average annual rate of 6.47 %
on the borrowings with respect to such financial leverage.
|
Assumed
Portfolio Total Return (Net of Expenses) |
| |
-10%
|
| |
-5%
|
| |
0%
|
| |
5%
|
| |
10%
|
| |||||||||||||||
|
Common
Share Total Return |
| | | | - |
| | | | | - |
| | | | | - |
| | | | | | | | | | | | ||
“Common
Share Total Return” is composed of two elements: (i) the Common Share dividends and distributions paid by the Fund (the amount of
which is largely determined by the net investment income of the Fund after paying expenses on any forms of leverage outstanding) and (ii)
gains or losses on the value of the securities the Fund owns. As required by SEC rules, the table above assumes that the Fund is more
likely to suffer capital losses than to enjoy capital appreciation. For example, to assume a total return of 0%, the Fund must assume
that the interest it receives on its investments is entirely offset by losses in the value of those investments.
If
the Fund uses leverage, the amount of fees paid to the Adviser for its services will be higher than if the Fund does not use leverage
because the fees paid are calculated based on the average daily value of the Fund’s Managed Assets, which includes assets purchased
with leverage. Therefore, the Adviser has a financial incentive to use leverage, which creates a conflict of interest between the Adviser,
on the one hand, and the Shareholders, on the other hand, as only the Shareholders would bear the fees and expenses incurred through the
Fund’s use of leverage. See “Principal Risks of the Fund.” The Fund’s willingness to use leverage, and the extent
to which leverage is used at any time, will depend on many factors, including, among other things, the Adviser’s assessment of the
yield curve, interest rate trends, market conditions and other factors.
24
Principal
Risks of the Fund
Investing
in the Fund’s Shares involves a number of significant risks. Before you invest in the Fund’s Shares, you should be aware of
various risks, including those described below. The risks set out below are not the only risks the Fund will face. Additional risks and
uncertainties not presently known to the Fund or not presently deemed material may also impair the Fund’s operations and performance.
If any of the following events occur, the Fund’s business, financial condition, results of operations and cash flows could be materially
and adversely affected. In such case, the Fund’s NAV could decline, and you may lose all or part of your investment. The risk factors
described below are the principal risk factors associated with an investment in the Fund as well as those factors generally associated
with an investment company with investment objective, investment policies, capital structure or trading markets similar to the Fund.
Investment
Risk
An
investment in the Fund’s Shares is subject to investment risk, including the possible loss of the entire principal amount invested.
An investment in the Shares represents an indirect investment in the investments and other financial assets owned by the Fund. The value
of the Fund’s investments will generally fluctuate with, among other things, changes in prevailing interest rates, federal tax rates,
counterparty risk, general economic conditions, the condition of certain financial markets, developments or trends in any particular industry
and the financial condition of the issuer. The Fund anticipates using leverage, which would magnify the Fund’s investment, market
and certain other risks. See “Principal Risks of the Fund — Leverage Risk.” During periods of limited liquidity and
higher price volatility, the Fund’s ability to dispose of investments at a price and time that the Adviser deems advantageous may
be impaired. Lower-quality debt securities involve greater risk of default or price changes due to changes in the credit quality of the
issuer. The value of lower-quality debt securities often fluctuates in response to company, political or economic developments and can
decline significantly over short periods of time or during periods of general or regional economic difficulty. Lower-quality debt securities
can be thinly traded or have restrictions on resale, making them difficult to sell at an acceptable price. The default rate for lower-quality
debt securities is likely to be higher during economic recessions or periods of high interest rates. In addition, the Adviser’s
response to these market movements may not be successful. The Shares at any point in time may be worth less than the original cost, even
after taking into account any reinvestment of dividends and distributions.
Market
Risk
Global
economies and financial markets are increasingly interconnected, which increases the likelihood that events or conditions in one country
or region will adversely impact markets or issuers in other countries or regions. Securities in the Fund’s portfolio may underperform
in comparison to securities in general financial markets, a particular financial market, or other asset classes due to a number of factors,
including inflation (or expectations for inflation), deflation (or expectations for deflation), interest rates, global demand for particular
products or resources, market instability, debt crises and downgrades, embargoes, tariffs, sanctions and other trade barriers, regulatory
events, other governmental trade or market control programs and related geopolitical events. In addition, the value of the Fund’s
investments may be negatively affected by the occurrence of global events such as war, terrorism, environmental disasters, natural disasters
or events, country instability, and infectious disease epidemics or pandemics. For example, there is significant uncertainty around how
the Russian invasion of Ukraine and the conflict in Israel and Gaza will evolve, as well as the potential economic impacts to the U.S.
that could result from the conflicts. Other securities or markets could be similarly affected by past or future geopolitical or other
events or conditions. In addition, the outbreak of COVID-19 has negatively affected economies, markets and individual companies throughout
the world, including those in which the Fund may invest. The effects of the COVID-19 pandemic, or other future epidemics or pandemics,
to public health and business and market conditions, including exchange trading suspensions and closures, may continue to have a significant
negative impact on the performance of the Fund’s investments, increase the Fund’s volatility, exacerbate pre-existing political,
social and economic risks to the Fund, and negatively impact broad segments of businesses and populations. The Fund’s operations
may be interrupted as a result, which may contribute to the negative impact on investment performance. In addition, governments, their
regulatory agencies, or self-regulatory
25
organizations
may take actions in response to the pandemic that affect the instruments in which the Fund invests, or the issuers of such instruments,
in ways that could have a significant negative impact on the Fund’s investment performance. The full impact of the COVID-19 pandemic,
or other future epidemics
or pandemics, is currently unknown and cannot be predicted.
Inflation
Risk
Inflation
risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the value
of money. As inflation increases, the real value of the Fund’s shares and distributions thereon can decline. Inflation risk is linked
to increases in the prices of goods and services and a decrease in the purchasing power of money. Inflation often is accompanied or followed
by a recession, or period of decline in economic activity, which may include job loss and other hardships and may cause the value of securities
to go down generally. Inflation risk is greater for fixed-income instruments with longer maturities. In addition, this risk may be significantly
elevated compared to normal conditions because of recent monetary policy measures and the current interest rate environment. Inflation
has recently increased and it cannot be predicted whether it may decline.
Although
the Federal Reserve has raised the federal funds rate, there is no guarantee that such increases will be effective at lowering inflation.
Unanticipated or persistent inflation may have a material and adverse impact on the financial conditions or operating results of issuers
in which the Fund may invest, which may cause the value of the Fund’s investments to decline. In addition, higher interest rates
that often accompany or follow periods of high inflation may cause investors to favor asset classes other than common stocks, which may
lead to broader market declines not necessarily related to the performance of any specific investment or specific issuers.
Asset
Allocation Risk
The
Fund’s investment performance depends upon how its assets are allocated and reallocated. A principal risk of investing in the Fund
is that the Adviser may make less than optimal or poor asset allocation decisions. The Adviser employs an active approach to allocation
across multiple credit sectors, but there is no guarantee that such allocation techniques will produce the desired results. It is possible
that the Adviser will focus on an investment that performs poorly or underperforms other investments under various market conditions.
You could lose money on your investment in the Fund as a result of these allocation decisions.
Issuer
Risk
The
value of securities may decline for a number of reasons that directly relate to a security’s issuer, such as its financial strength,
management performance, financial leverage and reduced demand for the issuer’s goods and services, as well as the historical and
prospective earnings of the issuer and the value of its assets. A change in the financial condition of a single issuer may affect securities
markets as a whole. These risks can apply to the Shares issued by the Fund and to the issuers of securities and other instruments in which
the Fund invests.
The
value of securities may decline for a number of reasons that directly relate to a security’s issuer, such as its financial strength,
management performance, financial leverage and reduced demand for the issuer’s goods and services, as well as the historical and
prospective earnings of the issuer and the value of its assets.
Repurchase
Offers Risk
As
described under “Periodic Repurchase Offers” above, the Fund is an Interval Fund and, in order to provide liquidity to Shareholders,
the Fund, subject to applicable law, conducts quarterly repurchase offers of the Fund’s outstanding Shares at NAV, subject to approval
of the Board of Directors. In all cases such repurchases will be for at least 5% and not more than 25% of its outstanding Shares at NAV,
pursuant to Rule 23c-3 under the 1940 Act. The Fund believes that these repurchase offers are generally
26
beneficial
to the Fund’s Shareholders, and repurchases generally will be funded from available cash or sales of portfolio securities. However,
repurchase offers and the need to fund repurchase obligations may affect the ability of the Fund to be fully invested or force the Fund
to maintain a higher percentage of its assets in liquid investments, which may harm the Fund’s investment performance. Moreover,
diminution in the size of the Fund through repurchases may result in untimely sales of portfolio securities (with associated imputed transaction
costs, which may be significant), and may limit the ability of the Fund to participate in new investment opportunities or to achieve its
investment objective. The Fund may accumulate cash by holding back (i.e.,
not reinvesting) payments received in connection with the Fund’s investments. The Fund believes that payments received in connection
with the Fund’s investments will generate sufficient cash to meet the maximum potential amount of the Fund’s repurchase obligations.
If at any time cash and other liquid assets held by the Fund are not sufficient to meet the Fund’s repurchase obligations, the Fund
intends, if necessary, to sell investments. If, as expected, the Fund employs investment leverage, repurchases of Shares would compound
the adverse effects of leverage in a declining market. In addition, if the Fund borrows to finance repurchases, interest on that borrowing
will negatively affect Shareholders who do not tender their Shares by increasing the Fund’s expenses and reducing any net investment
income.
If
a repurchase offer is oversubscribed, the Fund may determine to increase the amount repurchased by up to 2% of the Fund’s outstanding
shares as of the date of the Repurchase Request Deadline. In the event that the Fund determines not to repurchase more than the repurchase
offer amount, or if Shareholders tender more than the repurchase offer amount plus 2% of the Fund’s outstanding shares as of the
date of the Repurchase Request Deadline, the Fund will repurchase the Shares tendered on a pro
rata basis, and Shareholders will have to wait until the next repurchase offer to make another
repurchase request. As a result, Shareholders may be unable to liquidate all or a given percentage of their investment in the Fund during
a particular repurchase offer. Notwithstanding the foregoing, the Fund may in its sole discretion and for administrative convenience accept
all Shares tendered for repurchase by Shareholders who own less than one hundred Shares and who tender all of their Shares before prorating
other amounts tendered. Some Shareholders, in anticipation of proration, may tender more Shares than they wish to have repurchased in
a particular quarter, thereby increasing the likelihood that proration will occur. The NAV of the Fund’s Shares tendered in a repurchase
offer may decline between the Repurchase Request Deadline and the date on which the NAV for tendered Shares is determined. In addition,
the repurchase of Shares by the Fund will be a taxable event to Shareholders, potentially even to those Shareholders that do not participate
in the repurchase. For a discussion of these tax consequences, please see “Tax Matters” and “Taxation” in the
Statement of Additional Information.
Large
Shareholder Risk
To
the extent a large proportion of Shares are held by a small number of Shareholders (or a single Shareholder), including affiliates of
the Adviser, the Fund is subject to the risk that these Shareholders will seek to sell Shares in large amounts rapidly in connection with
repurchase offers. These transactions could adversely affect the ability of the Fund to conduct its investment program. Furthermore, it
is possible that in response to a repurchase offer, the total amount of Shares tendered by a small number of Shareholders (or a single
Shareholder) may exceed the number of Shares that the Fund has offered to repurchase. If a repurchase offer is oversubscribed by Shareholders,
the Fund will repurchase only a pro rata portion of shares
tendered by each Shareholder. However, the Fund may determine to increase the repurchase offer by up to 2% of the Fund’s outstanding
Shares as of the date of the Repurchase Request Deadline. If the Fund only repurchases a pro rata
portion of shares tendered in connection with an oversubscribed repurchase offer, Shareholders unaffiliated with the Adviser will not
be given priority over Shareholders that are affiliates of the Adviser, whose holdings in the Fund may be significant and may have the
effect of diluting third-party Shareholders with respect to any repurchase offer. See “Principal Risks of the Fund — Repurchase
Offers Risk.”
Management
Risk
The
Fund does not have internal management capacity or employees. The Fund depends on the diligence, skill and network of business contacts
of the senior investment professionals of the Adviser to achieve the Fund’s investment objective. The Fund expects that the Adviser
will evaluate, negotiate, structure,
close
and monitor the Fund’s investments in accordance with the terms of the Management Agreement (as defined below). The Fund can offer
no assurance, however, that the senior investment professionals of the Adviser will continue to provide investment advice to the Fund.
The loss of any member of the Adviser’s investment committee or of other senior investment professionals of the Adviser and its
affiliates would limit the Fund’s ability to achieve its investment objective and operate as the Fund anticipates. This could have
a material adverse effect on the Fund’s financial condition, results of operations and cash flows.
Interest
Rate Risk
General
interest rate fluctuations may have a substantial negative impact on the Fund’s investments and investment opportunities, and, accordingly,
may have a material adverse effect on the Fund’s investment objective and rate of return on investment capital. A portion of the
Fund’s income will depend upon the difference between the rate at which it borrows funds and the interest rate on the debt securities
in which it invests. Because the Fund will borrow money to make investments and may issue debt securities, preferred stock or other securities,
the Fund’s net investment income is dependent upon the difference between the rate at which the Fund borrows funds or pays interest
or dividends on such debt securities, preferred stock or other securities and the rate at which the Fund invests these funds.
A
significant increase in market interest rates could harm the Fund’s ability to attract new portfolio companies and originate new
loans and investments. The Fund expects that a majority of its investments in debt will continue to be at floating rates with a floor.
However, in the event that the Fund makes investments in debt at variable rates, a significant increase in market interest rates could
also result in an increase in the Fund’s non-performing assets and a decrease in the value of the Fund’s portfolio because
the Fund’s floating-rate loan portfolio companies may be unable to meet higher payment obligations. In periods of rising interest
rates, the Fund’s cost of funds would increase, resulting in a decrease in the Fund’s net investment income. In addition,
a decrease in interest rates may reduce net income, because new investments may be made at lower rates despite the increased demand for
the Fund’s capital that the decrease in interest rates may produce. The Adviser may, but is not required to, hedge against the risk
of adverse movement in interest rates in the Fund’s short-term and long-term borrowings relative to the Fund’s portfolio of
assets. If the Adviser engages in hedging activities on behalf of the Fund, it may limit the Fund’s ability to participate in the
benefits of lower interest rates with respect to the hedged portfolio. Adverse developments resulting from changes in interest rates or
hedging transactions could have a material adverse effect on the Fund’s business, financial condition, and results of operations.
Adverse developments resulting from changes in interest rates or hedging transactions could have a material adverse effect on the Fund’s
business, financial condition, and results of operations.
Below
Investment Grade (High-Yield or “Junk Bond”) Securities
Selection
and supervision of high-yield securities, by the Adviser, involves continuous analysis of individual issuers, general business conditions
and other factors which may be too time-consuming or too costly for the average investor. The furnishing of these services does not, of
course, guarantee successful results. The Adviser’s analysis of issuers includes, among other things, historic and current financial
conditions, current and anticipated cash flow and borrowing requirements, value of assets in relation to historical costs, strength of
management, responsiveness to business conditions, credit standing, and current and anticipated results of operations. Analysis of general
conditions and other factors may include anticipated changes in economic activity and interest rates, the availability of new investment
opportunities and the economic outlook for specific industries.
The
ratings of Moody’s, S&P and the other Rating Agencies represent their opinions as to the quality of the obligations which they
undertake to rate. Ratings are relative and subjective and, although ratings may be useful in evaluating the safety of interest and principal
payments, they do not evaluate the market value risk of such obligations. While the Adviser considers as one factor in its credit analysis
the ratings assigned by the rating services, the Adviser performs its own independent credit analysis of issuers and, consequently, the
Fund may invest, without limit, in unrated securities. As a result, the Fund’s ability to achieve its investment objective may depend
to a greater extent on the Adviser’s own credit analysis than investment companies which invest in investment grade securities.
The Fund may continue to
hold
securities that are downgraded after the Fund purchases them and will sell such securities only if, in the Adviser’s judgment, it
is advantageous to sell such securities. Investments in high-yield securities generally provide greater income and increased opportunity
for capital appreciation than investments in investment grade fixed income securities, but they also typically entail greater price volatility
and principal and income risk, including the possibility of issuer default and bankruptcy. High-yield securities are regarded as being
predominantly speculative as to the issuer’s ability to make repayments of principal and payments of interest. Investment in such
securities involves substantial risk. Issuers of high-yield securities may be highly leveraged and may not have available to them more
traditional methods of financing. Therefore, the risks associated with acquiring the securities of such issuers generally are greater
than is the case with investment grade securities. For example, during an economic downturn or a sustained period of rising interest rates,
issuers of high-yield securities may be more likely to experience financial stress, especially if such issuers are highly leveraged. During
periods of economic downturn, such issuers may not have sufficient revenues to meet their interest payment obligations. The issuer’s
ability to service its debt obligations also may be adversely affected by specific issuer developments, or the issuer’s inability
to meet specific projected business forecasts or the unavailability of additional financing. Therefore, there can be no assurance that
in the future there will not exist a higher default rate relative to the rates currently existing in the high-yield market. If an issuer
of high-yield securities defaults, in addition to risking non-payment of all or a portion of interest and principal, the Fund may incur
additional expenses to seek recovery. The market prices of high-yield securities structured as zero-coupon, step-up or payment-in-kind
securities will normally be affected to a greater extent by interest rate changes, and therefore tend to be more volatile than the prices
of securities that pay interest currently and in cash. Other than with respect to Distressed Securities (which are discussed below), the
high-yield securities in which the Fund may invest do not include securities which, at the time of investment, are in default or the issuers
of which are in bankruptcy. However, there can be no assurance that such events will not occur after the Fund purchases a particular security,
in which case the Fund may experience losses and incur costs.
High-yield
securities tend to be more volatile than investment grade fixed income securities, so that adverse events may have a greater impact on
the prices of high-yield securities than on investment grade fixed income securities. Factors adversely affecting the market value of
such securities are likely to affect adversely the Fund’s net asset value.
Like
investment grade fixed income securities, high-yield securities are generally purchased and sold through dealers who make a market in
such securities for their own accounts. There are fewer dealers, however, in the high-yield market, and thus the market may be less liquid
than the market for investment grade fixed income securities, even under normal economic conditions. In addition, there may be significant
disparities in the prices quoted for high-yield securities by various dealers and the spread between the bid and asked price is generally
much larger than for investment grade securities. As a result, the Fund may experience difficulty acquiring appropriate high-yield securities
for investment.
Adverse
conditions and investor perceptions thereof (whether or not based on economic fundamentals) may impair liquidity in the high-yield market
and may cause the prices the Fund receives for its high-yield securities to be reduced. In addition, the Fund may experience difficulty
in liquidating a portion of its portfolio when necessary to meet the Fund’s liquidity needs or in response to a specific economic
event such as a deterioration in the creditworthiness of the issuer. Under such conditions, judgment may play a greater role in valuing
certain of the Fund’s portfolio securities than in the case of securities trading in a more liquid market. In addition, the Fund
may incur additional expenses if it is forced to seek recovery upon a default of a portfolio holding or if it participates in the restructuring
of the obligation.
The
risk of loss due to default by an issuer is significantly greater for the holders of junk bonds because such securities are often unsecured
and subordinated to other creditors of the issuer. In addition, junk bonds may have call or redemption features that permit an issuer
to repurchase the securities from the Fund. If a call were to be exercised by an issuer during a period of declining interest rates, the
Fund would likely have to replace such called securities with lower yielding securities, thereby decreasing the net investment income
to the Fund and dividends to Shareholders.
The
high-yield securities in which the Fund invests may include credit-linked notes, structured notes or other instruments evidencing interests
in special purpose vehicles or trusts that hold interests in high-yield
securities.
Structured notes and other related instruments are privately negotiated debt obligations in which the principal and/or interest is determined
by reference to the performance of a benchmark asset, market or interest rate (an “embedded index”), such as selected securities,
an index of securities or specified interest rates, or the differential performance of two assets or markets. Structured instruments may
be issued by corporations, including banks, and by governmental agencies. Structured instruments frequently are assembled in the form
of medium-term notes, but a variety of forms are available and may be used in particular circumstances. The terms of such structured instruments
normally provide that their principal and/or interest payments are to be adjusted upward or downward (but ordinarily not below zero) to
reflect changes in the embedded index while the structured instruments are outstanding. As a result, the interest and/or principal payments
that may be made on a structured product may vary widely, depending on a variety of factors, including the volatility of the embedded
index and the effect of changes in the embedded index on principal and/or interest payments. The rate of return on structured notes may
be determined by applying a multiplier to the performance or differential performance of the referenced index(es) or other asset(s). Application
of a multiplier involves leverage that will serve to magnify the potential for gain and the risk of loss.
Structured
instruments may be less liquid than other fixed income securities and the price of structured instruments may be more volatile. In some
cases, depending on the terms of the embedded index, a structured instrument may provide that the principal and/or interest payments may
be adjusted below zero. Structured instruments also may involve significant credit risk and risk of default by the counterparty. Structured
instruments may also be illiquid. Like other sophisticated strategies, the Fund’s use of structured instruments may not work as
intended.
The
Fund may receive warrants or other non-income producing equity securities in connection with its investments in high-yield securities,
including in unit offerings, in an exchange offer, upon the conversion of a convertible security or upon the restructuring or bankruptcy
of investments owned by the Fund.
Warrants
are privileges issued by corporations enabling the owners to subscribe to and purchase a specified number of shares of the corporation
at a specified price during a specified period of time. Subscription rights normally have a short life span to expiration. The purchase
of warrants involves the risk that the Fund could lose the purchase value of a right or warrant if the right to subscribe to additional
shares is not exercised prior to the warrants’ expiration. Also, the purchase of warrants involves the risk that the effective price
paid for the warrant added to the subscription price of the related security may exceed the value of the subscribed security’s market
price such as when there is no movement in the level of the underlying security.
Distressed
Securities
The
Fund may invest in securities of corporate issuers that are the subject of bankruptcy proceedings or otherwise in default as to the repayment
of principal and/or interest or in significant risk of being in such default, or that are rated in the lower rating categories (Ca or
lower by Moody’s and CC or lower by S&P) or, if unrated, are considered by the Adviser to be of comparable quality (collectively,
“Distressed Securities”). Investment in Distressed Securities is speculative and involves significant risk. Distressed Securities
frequently do not produce income while they are outstanding and may require the Fund to bear certain extraordinary expenses in order to
protect and recover its investment. Therefore, to the extent the Fund seeks its secondary objective of capital appreciation through investment
in Distressed Securities, the Fund’s ability to achieve current income for its Shareholders may be diminished. The Fund also will
be subject to significant uncertainty as to when and in what manner and for what value the obligations evidenced by the Distressed Securities
will eventually be satisfied (e.g.,
through a liquidation of the obligor’s assets, an exchange offer or plan of reorganization involving the Distressed Securities or
a payment of some amount in satisfaction of the obligation). In addition, even if an exchange offer is made or a plan of reorganization
is adopted with respect to Distressed Securities held by the Fund, there can be no assurance that the securities or other assets received
by the Fund in connection with such exchange offer or plan of reorganization will not have a lower value or income potential than may
have been anticipated when the investment was made. Moreover, any securities received by the Fund upon completion of an exchange offer
or plan of reorganization may be restricted as to resale. As a result of the Fund’s
participation
in negotiations with respect to any exchange offer or plan of reorganization with respect to an issuer of Distressed Securities, the Fund
may be restricted from disposing of such securities.
Bank
Loan Risk
Bank
loans (including senior loans) are usually rated below investment grade. The market for bank loans may be subject to irregular trading
activity, wide bid/ask spreads and extended trade settlement periods.
Investments in bank loans are typically in the form of an assignment or participation. Investors in a loan participation assume the credit
risk associated with the borrower and may assume the credit risk associated with an interposed financial intermediary. Accordingly, if
a lead lender becomes insolvent or a loan is foreclosed, the Fund could experience delays in receiving payments or suffer a loss. In an
assignment, the Fund effectively becomes a lender under the loan agreement with the same rights and obligations as the assigning bank
or other financial intermediary. Accordingly, if the loan is foreclosed, the Fund could become part owner of any collateral, and would
bear the costs and liabilities associated with owning and disposing of the collateral. Due to their lower place in the borrower’s
capital structure and possible unsecured status, junior loans involve a higher degree of overall risk than senior loans of the same borrower.
In addition, the floating rate feature of loans means that bank loans will not generally experience capital appreciation in a declining
interest rate environment. Declines in interest rates may also increase prepayments of debt obligations and require the Fund to invest
assets at lower yields.
The
Fund that invests in senior loans may be subject to greater levels of credit risk, call risk, settlement risk and liquidity risk than
funds that do not invest in such securities. Senior Loans and other types of direct indebtedness may not be readily marketable and may
be subject to restrictions on resale because, among other reasons, they may not be listed on any exchange, or a secondary market for such
loans may not exist or if a secondary market exists, it may be comparatively illiquid relative to markets for other more liquid fixed
income securities. As a result, in some cases, transactions in senior loans may involve greater costs than transactions in more actively
traded securities. Furthermore, restrictions on transfers in loan agreements, a lack of publicly available information, irregular trading
activity and wide bid/ask spreads among other factors, may, in certain circumstances, make senior loans more difficult to sell at what
the Adviser believes to be a fair price for such security. These factors may result in the Fund being unable to realize full value for
the senior loans and/or may result in the Fund not receiving the proceeds from a sale of a senior loan for an extended period after such
sale, each of which could result in losses to the Fund. Senior loans may have extended trade settlement periods which may result in cash
not being immediately available to the Fund. In addition, valuation of illiquid indebtedness involves a greater degree of judgment in
determining the Fund’s NAV than if that value were based on available market quotations, and could result in significant variations
in the Fund’s daily share price. At the same time, some loan interests are traded among certain financial institutions and accordingly
may be deemed liquid. The Adviser will determine the liquidity of the Fund’s investments by reference to market conditions and contractual
provisions. Senior loans may not be securities and therefore an investor in senior loans may not receive the protection of the federal
securities laws.
The
Fund may also invest in second-lien loans, which entail risks including (a) the subordination of the Fund’s claims to a senior lien
in terms of the coverage and recovery of the collateral and (b) the prohibition of or limitation on the right to foreclose on a second-lien
or exercise other rights as a second-lien holder. In certain cases, therefore, no recovery may be available from a defaulted second-lien
loan. The level of risk associated with investments in second-lien loans increases to the extent such investments are loans of distressed
or below investment grade companies.
Covenant-Lite
Loans
The
Fund may invest in, or obtain exposure to, loans that may be “covenant-lite.” The Fund uses the term “covenant-lite”
to refer generally to loans that do not have financial maintenance covenants. Generally, “covenant-lite” loans provide borrower
companies more freedom to negatively impact lenders because their covenants are incurrence-based, which means they are only tested and
can only be breached following an affirmative action of the borrower, rather than by a deterioration in the borrower’s financial
condition or operating results. Accordingly, when the Fund invests in “covenant-lite” loans, the Fund may have
fewer
rights against a borrower and may have a greater risk of loss on such investments as compared to investments in or exposure to loans with
financial maintenance covenants.
Collateralized
Loan Obligation (“CLO”)
CLOs
and other similarly structured securities are types of asset-backed securities. The cash flows from the CLO trust are split into two or
more portions, called tranches, varying in risk and yield. The riskiest portion is the “equity” tranche which bears the bulk
of defaults from the loans in the trust and serves to protect
the other, more senior tranches from default in all but the most severe circumstances. Since it is partially protected from defaults,
a senior tranche from a CLO trust typically has higher ratings and lower yields than the underlying securities, and can be rated investment
grade. Despite the protection from the equity tranche, CLO tranches can experience substantial losses due to actual defaults, increased
sensitivity to defaults due to collateral default and disappearance of protecting tranches, market anticipation of defaults and aversion
to CLO securities as a class. The risks of an investment in a CLO depend largely on the collateral and the class of the CLO in which the
Fund invests. Normally, CLOs and other similarly structured securities are privately offered and sold, and thus are not registered under
the securities laws. As a result, investments in CLOs may be characterized by the Fund as illiquid securities; however, an active dealer
market, or other relevant measures of liquidity, may exist for CLOs allowing a CLO potentially to be deemed liquid by the Adviser under
liquidity policies approved by the Fund’s Board of Directors. In addition to the risks associated with debt instruments (e.g.,
interest rate risk and credit risk), CLOs carry additional risks including, but not limited to: (i) the possibility that distributions
from collateral securities will not be adequate to make interest or other payments; (ii) the quality of the collateral may decline in
value or default; (iii) the possibility that the Fund may invest in CLOs that are subordinate to other classes; and (iv) the complex structure
of the security may
not be fully understood at the time of investment and may produce disputes with the issuer or unexpected investment results.
Mortgage-
and Asset-Backed Securities
The
Fund may invest in a variety of mortgage related and other asset-backed securities, including both commercial and residential mortgage
securities and other mortgage-backed instruments issued on a public or private basis. Mortgage-backed securities represent the right to
receive a portion of principal and/or interest payments made on a pool of residential or commercial mortgage loans. When interest rates
fall, borrowers may refinance or otherwise repay principal on their mortgages earlier than scheduled. When this happens, certain types
of mortgage-backed securities will be paid off more quickly than originally anticipated and the Fund will have to invest the proceeds
in securities with lower yields. This risk is known as “prepayment risk.” When interest rates rise, certain types of mortgage-backed
securities will be paid off more slowly than originally anticipated and the value of these securities will fall. This risk is known as
“extension risk.” Because of prepayment risk, mortgage-backed securities react differently to changes in interest rates than
other fixed income securities. Small movements in interest rates (both increases and decreases) may quickly and significantly reduce the
value of certain mortgage-backed securities.
Residential
Mortgage-Backed Securities Risk
The
investment characteristics of RMBS differ from those of traditional debt securities. The major differences include the fact that, on certain
RMBS, prepayments of principal may be made at any time. Prepayment rates are influenced by changes in current interest rates and a variety
of economic, geographic, social and other factors and cannot be predicted with certainty. Subordinated classes of CMOs are entitled to
receive repayment of principal in many cases only after all required principal payments have been made to more senior classes and also
have subordinated rights as to receipt of interest distributions. Such subordinated classes are subject to a greater risk of non-payment
than are senior classes of CMOs guaranteed by an agency or instrumentality of the U.S. Government.
Commercial
Mortgage-Backed Securities Risk
CMBS
may involve the risks of delinquent payments of interest and principal, early prepayments and potentially unrecoverable principal loss
from the sale of foreclosed property. Subordinated classes of CMBS
are
entitled to receive repayment of principal only after all required principal payments have been made to more senior classes and also have
subordinated rights as to receipt of interest distributions. Such subordinated classes are subject to a greater risk of non-payment than
are senior classes.
Derivatives
Risk
The
use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in
securities and other traditional investments. Derivatives are subject to a number of risks, such as liquidity risk (which may be heightened
for highly-customized derivatives), interest rate risk, market risk, credit
risk, leveraging risk, counterparty risk, tax risk and management risk, as well as risks arising from changes in applicable requirements.
They also involve the risk of mispricing, the risk of unfavorable or ambiguous documentation and the risk that changes in the value of
a derivative may not correlate perfectly with the underlying asset, rate or index. By investing in a derivative instrument, it could lose
more than the amount invested and derivatives may increase the volatility of the Fund, especially in unusual or extreme market conditions.
Also, suitable derivative transactions may not be available in all circumstances and there can be no assurance that the Fund will engage
in these transactions to reduce exposure to other risks when that would be beneficial or that, if used, such strategies will be successful.
In addition, the Fund’s use of derivatives may increase or accelerate the amount of taxes payable by Shareholders.
Over-the-counter
(“OTC”) derivatives are also subject to the risk that a counterparty to the transaction will not fulfill its contractual obligations
to the other party, as many of the protections afforded to centrallycleared derivatives might not be available for OTC derivatives transactions.
For derivatives traded on an exchange or through a central counterparty, credit risk resides with the Fund’s clearing broker, or
the clearinghouse itself, rather than with a counterparty in an OTC derivative transaction. The primary credit risk on derivatives that
are exchange-traded or traded through a central clearing counterparty resides with the Fund’s clearing broker, or the clearinghouse.
Participation in the markets for derivative instruments involves investment risks and transaction costs to which the Fund may not be subject
absent the use of these strategies. The skills needed to successfully execute derivative strategies may be different from those needed
for other types of transactions. If the Fund incorrectly forecasts the value and/or creditworthiness of securities, currencies, interest
rates, counterparties or other economic factors involved in a derivative transaction, the Fund might have been in a better position if
the Fund had not entered into such derivative transaction. In evaluating the risks and contractual obligations associated with particular
derivative instruments, it is important to consider that certain derivative transactions may be modified or terminated only by mutual
consent of the Fund and its counterparty.
It
may not be possible for the Fund to modify, terminate, or offset the Fund’s obligations or the Fund’s exposure to the risks
associated with a derivative transaction prior to its scheduled termination or maturity date, which may create a possibility of increased
volatility and/or decreased liquidity to the Fund. Hedges are sometimes subject to imperfect matching between the derivative and the underlying
instrument, and there can be no assurance that the Fund’s hedging transactions will be effective. In such case, the Fund may lose
money.
Privacy
and Data Security Laws
Many
jurisdictions in which the Fund and its portfolio companies operate have laws and regulations relating to data privacy, cyber security
and protection of personal information, including GDPR in the European Union that went into effect in May 2018 and the CCPA that took
effect in January 2020, which provides for enhanced consumer protections for California residents, a private right of action for data
breaches and statutory fines for data breaches or other CCPA violations. If the Fund or the Adviser fails to comply with the relevant
laws and regulations, it could result in regulatory investigations and penalties, which could lead to negative publicity and may cause
investors and clients to lose confidence in the effectiveness of the Fund’s security measures.
Liquidity
Risk
The
Fund intends to invest in illiquid investments. An illiquid investment is a security or other investment that the Fund reasonably expects
cannot be sold or disposed of in current market conditions in seven calendar days or less without the sale or disposition significantly
changing the market value of the investment at approximately the value ascribed to it by the Fund. Illiquid investments often can be resold
only in privately negotiated transactions with a limited number of purchasers or in a public offering registered under the 1933 Act. Considerable
delay could be encountered in either event and, unless otherwise contractually provided, the Fund’s proceeds upon sale may be reduced
by the costs of registration or underwriting discounts. The difficulties and delays associated with such transactions could result in
the Fund’s inability to realize a favorable price upon disposition of illiquid investments, and at times might make disposition
of such securities impossible. In addition, the Fund may be unable to sell other illiquid investments when it desires to do so, resulting
in the Fund obtaining a lower price or being required to retain the investment. Illiquid investments generally must be valued at fair
value, which is inherently less precise than utilizing market value for liquid investments, and may lead to differences between the price
at which a security is valued for determining the Fund’s NAV and the price the Fund actually receives upon sale. For the period
between the repurchase offer notice and the end of the repurchase period, the Fund must maintain 100% of the repurchase offer amount in
liquid assets.
Valuation
Risk
The
Adviser may use an independent pricing service or prices provided by dealers to value certain fixed income securities at their market
value. Because the secondary markets for certain investments may be limited, they may be difficult to value. When market quotations are
not readily available or are deemed to be unreliable, the Fund values its investments at fair value as determined in good faith pursuant
to policies and procedures approved by the Board of Directors. Fair value pricing may require subjective determinations about the value
of a security or other asset. As a result, there can be no assurance that fair value pricing will result in adjustments to the prices
of securities or other assets, or that fair value pricing will reflect actual market value, and it is possible that the fair value determined
for a security or other asset will be materially different from quoted or published prices, from the prices used by others for the same
security or other asset and/or from the value that actually could be or is realized upon the sale of that security or other asset. Where
market quotations are not readily available, valuation may require more research than for more liquid investments. In addition, elements
of judgment may play a greater role in valuation in such cases than for investments with a more active secondary market because there
is less reliable objective data available.
Leverage
Risk
The
Fund currently intends to use leverage to seek to achieve its investment objective. The borrowing of money or issuance of debt securities
and preferred stock represents the leveraging of the Fund’s Shares. In addition, the Fund may also leverage its Shares through investment
techniques, such as reverse repurchase agreements, writing credit default swaps, or futures. Leverage creates risks which may adversely
affect the return for the holders of Shares including:
•
the
likelihood of greater volatility of NAV and market price of and distributions in the Fund’s Shares;
•
fluctuations
in the dividend rates on any preferred stock or in interest rates on borrowings and short-term debt;
•
increased
operating costs, which are effectively borne by Shareholders, may reduce the Fund’s total return; and
•
the
potential for a decline in the value of an investment acquired with borrowed funds, while the Fund’s obligations under such borrowing
or preferred stock remain fixed.
In
addition, the rights of lenders and the holders of preferred stock and debt securities issued by the Fund will be senior to the rights
of the holders of Shares with respect to the payment of dividends or to the distribution of assets upon liquidation. Holders of preferred
stock have voting rights in addition to and
separate
from the voting rights of Shareholders. The holders of preferred stock, on the one hand, and the holders of the Shares, on the other hand,
may have interests that conflict in certain situations.
Leverage
is a speculative technique that could adversely affect the returns to Shareholders. Leverage can cause the Fund to lose money and can
magnify the effect of any losses. To the extent the income or capital appreciation derived from securities purchased with funds received
from leverage exceeds the cost of leverage, the Fund’s return will be greater than if leverage had not been used. Conversely, if
the income or capital appreciation from the securities purchased with such funds is not sufficient to cover the cost of leverage or if
the Fund incurs capital losses, the return of the Fund will be less than if leverage had not been used, and therefore the amount available
for distribution to Shareholders as dividends and other distributions will be reduced or potentially eliminated (or, in the case of distributions,
will consist of return of capital).
The
Fund will pay (and the Shareholders will bear) all costs and expenses relating to the Fund’s use of leverage, which will result
in the reduction of the NAV of the Shares.
The
Fund’s leverage strategy may not work as planned or achieve its goals. In addition, the amount of fees paid to the Adviser will
be higher if the Fund uses leverage because the fees will be calculated on the Fund’s Managed Assets, which may create an incentive
for the Adviser to leverage the Fund.
Certain
types of borrowings may result in the Fund being subject to covenants in credit agreements, including those relating to asset coverage,
borrowing base and portfolio composition requirements and additional covenants that may affect the Fund’s ability to pay dividends
and distributions on Shares in certain instances. The Fund may also be required to pledge its assets to the lenders in connection with
certain types of borrowings. The Fund may be subject to certain restrictions on investments imposed by guidelines of one or more rating
agencies which may issue ratings for any preferred shares or short-term debt instruments issued by the Fund. These guidelines may impose
asset coverage or portfolio composition requirements that are more stringent than those imposed by the 1940 Act.
Temporary
Defensive Strategies Risk
From
time to time, the Fund may temporarily depart from its principal investment strategies as a defensive measure when the Adviser anticipates
unusual market or other conditions. When a temporary defensive posture is believed by the Adviser to be warranted (“temporary defensive
periods”), the Fund may, without limitation, hold cash or invest its Managed Assets in money market instruments and repurchase agreements
in respect of those instruments. The money market instruments in which the Fund may invest are obligations of the U.S. government, its
agencies or instrumentalities; commercial paper rated A-1 or higher by S&P or Prime-1 by Moody’s; and certificates of deposit
and bankers’ acceptances issued by domestic branches of U.S. banks that are members of the Federal Deposit Insurance Corporation.
During temporary defensive periods, the Fund may also invest to the extent permitted by applicable law in shares of money market mutual
funds. Money market mutual funds are investment companies and the investments in those companies by the Fund are in some cases subject
to applicable law. To the extent that the Fund invests defensively, it may not achieve its investment objective.
Focused
Investment Risk
To
the extent that the Fund focuses its investments in a particular industry, the NAV of the Shares will be more susceptible to events or
factors affecting companies in that industry. These may include, but are not limited to, governmental regulation, inflation, rising interest
rates, cost increases in raw materials, fuel and other operating expenses, technological innovations that may render existing products
and equipment obsolete, competition from new entrants, high research and development costs, increased costs associated with compliance
with environmental or other regulation and other economic, market, political or other developments specific to that industry. Also, the
Fund may invest a substantial portion of its assets in companies in related sectors that may share common characteristics, are often subject
to similar business risks and regulatory burdens and whose securities may react similarly to the types of events and factors described
above, which will subject the Fund to greater risk. The Fund also will be subject to focused investment risk to the extent that it invests
a substantial portion of its assets in a particular country or geographic region.
Risk
of Regulatory Changes
Legal,
tax and regulatory changes could occur and may adversely affect the Fund and its ability to pursue its investment strategies and/or increase
the costs of implementing such strategies. New (or revised) laws or regulations may be imposed by the CFTC, the SEC, the IRS, the U.S.
Federal Reserve or other banking regulators, other governmental regulatory authorities or self-regulatory organizations that supervise
the financial markets that could adversely affect the Fund. In particular, these agencies are implementing a variety of new rules pursuant
to financial reform legislation in the United States. The EU (and some other countries) are implementing similar requirements. The Fund
also may be adversely affected by changes in the enforcement or interpretation of existing statutes and rules by these governmental regulatory
authorities or self-regulatory organizations.
In
addition, the securities and futures markets are subject to comprehensive statutes, regulations and margin requirements. The CFTC, the
SEC, the Federal Deposit Insurance Corporation, other regulators and self-regulatory organizations and exchanges are authorized under
these statutes, regulations and otherwise to take extraordinary actions in the event of market emergencies. The Fund and the Adviser historically
have been eligible for exemptions from certain regulations. However, there is no assurance that the Fund and the Adviser will continue
to be eligible for such exemptions. The CFTC and certain futures exchanges have established limits, referred to as “position limits,”
on the maximum net long or net short positions which any person may hold or control in particular
options and futures contracts.
Risks
Associated with Status as a Regulated Investment Company
The
Fund intends to qualify for federal income tax purposes as a regulated investment company under Subchapter M of the Code. Qualification
requires, among other things, compliance by the Fund with certain distribution requirements. Statutory limitations on distributions on
the common shares if the Fund is leveraged and fails to satisfy the 1940 Act’s asset coverage requirements could jeopardize the
Fund’s ability to meet such distribution requirements. The Fund presently intends, however, to purchase or redeem any outstanding
leverage to the extent necessary in order to maintain compliance with such asset coverage requirements.
Potential
Conflicts of Interest Risk
The
Adviser and its affiliates are involved worldwide with a broad spectrum of financial services and asset management activities and may
engage in the ordinary course of business in activities in which their interests or the interests of their clients may conflict with those
of the Fund. The Adviser and its affiliates may provide investment management services to other funds and discretionary managed accounts
that follow an investment program similar to that of the Fund. Subject to the requirements of the 1940 Act, the Adviser and its affiliates
intend to engage in such activities and may receive compensation from third parties for their services. Neither the Adviser nor its affiliates
are under any obligation to share any investment opportunity, idea or strategy with the Fund. As a result, the Adviser and its affiliates
may compete with the Fund for appropriate investment opportunities. The results of the Fund’s investment activities, therefore,
may differ from those of other accounts managed by the Adviser and its affiliates, and it is possible that the Fund could sustain losses
during periods in which one or more of the proprietary or other accounts managed by the Adviser or its affiliates achieve profits. The
Adviser has informed the Fund’s Board of Directors that the investment professionals associated with the Adviser are actively involved
in other investment activities not concerning the Fund and will not be able to devote all of their time to the Fund’s business and
affairs. The Adviser and its affiliates have adopted policies and procedures designed to address potential conflicts of interests and
to allocate investments among the accounts managed by the Adviser and its affiliates in a fair and equitable manner.
Foreign
Currency Risk
The
Fund’s investments that are denominated in a foreign currency will be subject to the risk that the value of a particular currency
may change in relation to the U.S. dollar. Among the factors that may affect currency values are trade balances, the level of short-term
interest rates, differences in relative values of
similar
assets in different currencies, long-term opportunities for investment and capital appreciation and political developments. As a result,
a change in currency exchange rates may adversely affect the Fund’s profitability.
Income
and Distribution Risk
The
income that Shareholders receive from the Fund is expected to be based in part on income from short-term gains that the Fund earns from
dividends and other distributions received from its investments. If the distribution rates or yields of the Fund’s holdings decrease,
Shareholders’ income from the Fund could decline. In selecting equity income securities in which the Fund will invest, the Adviser
will consider the issuer’s history of making regular periodic distributions (i.e., dividends)
to its equity holders. An issuer’s history of paying dividends or other distributions, however, does not guarantee that the issuer
will continue to pay dividends or other distributions in the future.
The dividend income stream associated with equity income securities generally is not fixed but is elected and declared at the discretion
of the issuer’s board of directors and will be subordinate to payment obligations of the issuer on its debt and other liabilities.
Accordingly, an issuer may forgo paying dividends on its equity securities. In addition, because in most instances issuers are not obligated
to make periodic distributions to the holders of their equity securities, such distributions or dividends generally
may be discontinued at the issuer’s discretion. There can be no assurance that quarterly distributions paid by the Fund to the Shareholders
will be maintained at initial levels or increase over time.
Cyber
Security Risk
The
occurrence of a disaster such as a cyber-attack, a natural catastrophe, an industrial accident, a terrorist attack or war, events unanticipated
in the disaster recovery systems of the Fund and Adviser, or a support failure from external providers, could have an adverse effect on
the Fund’s ability to conduct business and on its results of operations and financial condition, particularly if those events affect
the Fund, the Adviser’s computer-based data processing, transmission, storage, and retrieval systems or destroy data. If the Adviser
was unavailable in the event of a disaster, the Fund’s ability to effectively conduct is business could be severely compromised.
The
Fund and the Adviser depend heavily upon computer systems to perform necessary business functions. Despite implementation of a variety
of security measures, the computer systems of the Fund and the Adviser could be subject to cyber-attacks and unauthorized access, such
as physical and electronic break-ins, “phishing” attempts or unauthorized tampering. Like other companies, the Fund and the
Adviser may experience threats to their data and systems, including malware and computer virus attacks, impersonation of authorized users,
unauthorized access, system failures and disruptions. The Fund does not control the cyber security plans and systems put in place by third-party
service providers, and such third-party service providers may have limited indemnification obligations to the Fund, the Adviser, Shareholders
and/or a portfolio company, each of which would be negatively impacted. If one or more of these events occurs, it could potentially jeopardize
the confidential, proprietary and other information processed and stored in, and transmitted through, the computer systems and networks
of the Fund, or the Adviser, or otherwise cause interruptions or malfunctions in the Fund’s operations, which could result in damage
to the Fund’s reputation, financial losses, litigation, increased costs, regulatory penalties and/or customer dissatisfaction or
loss.
Emerging
Markets Risk
The
Fund may invest in securities of companies in an “emerging market.” Investments in emerging market securities involve a greater
degree of risk than, and special risks in addition to the risks associated with, investments in domestic securities or in securities of
foreign, developed countries. Foreign investment risk may be particularly high to the extent that the Fund invests in securities of issuers
based or doing business in emerging market countries or invests in securities denominated in the currencies of emerging market countries.
Investing in securities of issuers based or doing business in emerging markets entails all of the risks of investing in securities of
foreign issuers, including being less liquid, more volatile and harder to value than U.S. securities, but to a heightened degree. These
heightened risks include: (i) greater risks of
expropriation,
confiscatory taxation, nationalization and less social, political and economic stability; (ii) the smaller size of the market for such
securities and a lower volume of trading, resulting in a lack of liquidity and in price volatility; (iii) certain national policies which
may restrict the Fund’s investment opportunities, including restrictions on investing in issuers or industries deemed sensitive
to relevant national interests and requirements that government approval be obtained prior to investment by foreign persons; (iv) certain
national policies that may restrict the Fund’s repatriation of investment income, capital or the proceeds of sales of securities,
including temporary restrictions on foreign capital remittances; (v) the lack of uniform accounting and auditing standards and/or standards
that may be significantly different from the standards required in the United States; (vi) less publicly available financial and other
information regarding issuers; (vii) potential difficulties in enforcing contractual obligations; and (viii) higher rates of inflation, higher
interest rates and other economic concerns. Also, investing in emerging market countries may entail purchases of securities of issuers
that are insolvent, bankrupt, in default or otherwise of questionable ability to satisfy their payment obligations as they become due,
subjecting the Fund to a greater amount of credit risk and/or high-yield risk.
Infectious
Illness Risk. A widespread outbreak of an infectious illness, such as the COVID-19 pandemic,
may result in travel restrictions, disruption of healthcare services, prolonged quarantines, cancellations, supply chain disruptions,
business closures, lower consumer demand, layoffs, ratings downgrades, defaults and other significant economic, social and political impacts.
Markets may experience temporary closures, extreme volatility, severe losses, reduced liquidity and increased trading costs. Such events
may adversely affect the Fund, its investments, and the value of your investment in the Fund.
The fallout from the COVID-19 pandemic and its subsequent variants, and the long-term impact on economies, markets, industries and individual
issuers, are not known. Some sectors of the economy and individual issuers have experienced, and could continue to experience, particularly
large losses as a result of new variants of COVID-19.
Convertible
Securities Risk
Convertible
securities generally offer lower interest or dividend yields than non-convertible securities of similar quality. The market values of
convertible securities tend to decline as interest rates increase and, conversely, to increase as interest rates decline. In the absence
of adequate anti-dilutive provisions in a convertible security, dilution in the value of the Fund’s holding may occur in the event
the underlying stock is subdivided, additional equity securities are issued for below market value, a stock dividend is declared or the
issuer enters into another type of corporate transaction that has a similar effect.
Credit
Default Swaps Risk
Credit
default swap agreements may involve greater risks than if the Fund had invested in the reference obligation directly since, in addition
to general market risks, credit default swaps are subject to illiquidity risk, counterparty risk and credit risk. A buyer generally also
will lose its investment and recover nothing should no credit event occur and the swap is held to its termination date. If a credit event
were to occur, the value of any deliverable obligation received by the seller (if any), coupled with the upfront or periodic payments
previously received, may be less than the full notional value it pays to the buyer, resulting in a loss of value to the seller. When the
Fund acts as a seller of a credit default swap, it is exposed to many of the same risks of leverage described herein since if an event
of default occurs, the seller must pay the buyer the full notional value of the reference obligation.
Although
the Fund may seek to realize gains by selling credit default swaps that increase in value, to realize gains on selling credit default
swaps, an active secondary market for such instruments must exist or the Fund must otherwise be able to close out these transactions at
advantageous times. In addition to the risk of losses described above, if no such secondary market exists or the Fund is otherwise unable
to close out these transactions at advantageous times, selling credit default swaps may not be profitable for the Fund.
The
market for credit default swaps has become more volatile as the creditworthiness of certain counterparties has been questioned and/or
downgraded. The Fund will be subject to credit risk with
38
respect
to the counterparties to the credit default swap contract (whether a clearing corporation or another third party). If a counterparty’s
credit becomes significantly impaired, multiple requests for collateral posting in a short period of time could increase the risk that
the Fund may not receive adequate collateral. The Fund may exit its obligations under a credit default swap only by terminating the contract
and paying applicable breakage fees, or by entering into an offsetting credit default swap position, which may cause the Fund to incur
more losses.
39
Management of the Fund
Directors and Officers
The
Fund’s business and affairs are managed under the direction of the Board of Directors. Accordingly, the Board of Directors provides
broad oversight over the Fund’s affairs, including oversight of the duties performed by the Adviser. The Fund’s officers are
responsible for the day-to-day operations. Each Director and officer will hold office until his/her successor is duly elected and qualifies
or until he/she resigns or is removed in the manner provided by the Fund’s Charter or Bylaws. Unless otherwise indicated, the address
of each director and officer is Brookfield Place, 225 Liberty Street, 35th Floor, New York, New York, 10281-1023. Additional information
regarding the Board and its committees, and officers, is set forth under “Management of the Fund” in the statement of additional
information. The Board of Directors consists of a majority of Directors who are not interested persons (as defined in the 1940 Act) of
the Adviser or its affiliates.
Adviser
The
Adviser is an affiliate of Oaktree Capital Management, L.P. (“OCM”), a leading global investment management firm headquartered
in Los Angeles, California focused on less efficient markets and alternative investments, and is a subsidiary of Oaktree Capital Group,
LLC (“OCG,” together with OCM and the Adviser, “Oaktree”). A number of the senior executives and investment professionals
of Oaktree have been investing together for over 38 years and have generated impressive investment performance through multiple market
cycles. Oaktree emphasizes an opportunistic, value-oriented approach to investments in distressed debt, corporate debt (including mezzanine
finance, direct lending, high yield debt and senior loans), control investing, convertible securities, real estate, listed equities and
multi-strategy solutions. As of December 31, 2023, OCM had approximately $189 billion of assets under management. The Adviser is registered
with the SEC as an investment adviser under the Advisers Act.
Oaktree’s primary
firm-wide goal is to achieve attractive returns while bearing less than commensurate risk. Oaktree believes that it can achieve this goal
by taking advantage of market inefficiencies in which financial markets and their participants fail to accurately value assets or fail
to make available to companies the capital that they reasonably require.
Management Agreement
Pursuant to a management
agreement with the Fund (the “Management Agreement”), the Adviser is responsible for the management of the Fund’s portfolio.
In return for its investment advisory services, the Fund pays the Adviser a monthly fee at the annual rate of 1.25% of the average daily
value of the Fund’s Managed Assets. The management services of the Adviser to the Fund are not exclusive under the terms of the
Management Agreement and the Adviser is free to, and does, render management services to others.
The
Adviser has contractually agreed to waive all or a portion of its investment advisory fees and/or to reimburse certain expenses of the
Fund, including organizational expenses and offering costs, to the extent necessary to maintain the Total Annual Fund Operating Expenses
After Fee Waiver and/or Expense Reimbursement (excluding any front-end or contingent deferred sales loads, brokerage commissions and other
transactional expenses, acquired fund fees and expenses, interest (including, “Interest Payments on Borrowed Funds”), taxes,
and extraordinary expenses, such as litigation; and other expenses not incurred in the ordinary course of the Fund’s business) at
no more than 2.10% for Class D Shares and 2.85% for Class T Shares. The fee waiver and expense reimbursement arrangement will continue
until at least April 30, 2025, and may not be terminated by the Fund or the Adviser before such time. Thereafter, this arrangement may
only be terminated or amended to increase the expense cap as of April 30th of each calendar year, provided that in the case
of a termination by the Adviser, the Adviser will provide the Board of Directors with written notice of its intention to terminate the
arrangement prior to the expiration of its then current term. Any waivers and/or reimbursements made by the Adviser are subject to recoupment
from the Fund for a period not to exceed three years after the occurrence of the waiver and/or reimbursement, provided that the Fund may
only make repayments to the Adviser if such repayment does not cause
40
the
Fund’s expense ratio (after the repayment is taken into account) to exceed the lesser of (1) the expense cap in place at the time
such amounts were waived, or (2) the Fund’s current expense cap.
The
Management Agreement will have an initial term of two years, and continue in effect thereafter only so long as such continuance is specifically
approved at least annually by the Board of Directors in accordance with the requirements of the 1940 Act.
A
discussion regarding the basis of the Board of Directors’ initial approval of the Management Agreement was provided in the annual
report for the period ended December 31, 2023. The basis for subsequent approvals of the Fund’s Management Agreement will be provided
in annual or semi-annual reports to shareholders for the financial reporting periods in which the Agreement was acted upon by the Board
of Directors.
The
table below sets forth the total advisory fees paid by the Fund to the Adviser for the fiscal years ended December 31, 2023 and December
31, 2022, and for the period from November 1, 2021 through December 31, 2021. Advisory fees recouped by the Adviser were done pursuant
to expense limitation agreements (see the “Expense Limitation Agreements” section below).
| | | |
2023 |
| |
2022 |
| |
2021 |
| |||||||||
|
Advisory
Fees |
| | | $ | 2,630,998 | | | | | $ | 1,995,058 | | | | | $ | 218,733 | | |
|
Advisory
Fees Recouped/(Reimbursed) |
| | | $ | 137,705 | | | | | $ | 202,188 | | | | | $ | (603,375) | | |
|
Net
Advisory Fees Paid to Adviser |
| | | $ | 2,768,703 | | | | | $ | 2,197,246 | | | | | $ | — | | |
Portfolio
Managers
Bruce
Karsh, Wayne Dahl, Armen Panossian, Danielle Poli, and David Rosenberg manage the Fund. Bruce Karsh is the lead portfolio manager for
the Fund. Their professional backgrounds are below.
Bruce
Karsh
Co-Founder,
Chief Investment Officer and Portfolio Manager
Mr.
Karsh is Oaktree’s Co-Chairman and one of the firm’s co-founders. He also is Chief Investment Officer and serves as portfolio
manager for Oaktree’s Opportunities, Value Opportunities and Global Credit strategies, including the Oaktree Diversified Income
Fund. Prior to co-founding Oaktree, Mr. Karsh was a managing director of TCW Asset Management Company, and the portfolio manager of the
Special Credits Funds from 1988 until 1995. Prior to joining TCW, Mr. Karsh worked as Assistant to the Chairman of SunAmerica, Inc. Prior
to that, he was an attorney with the law firm of O’Melveny & Myers. Before working at O’Melveny & Myers, Mr. Karsh
clerked for the Honorable Anthony M. Kennedy, then of the U.S. Court of Appeals for the Ninth Circuit and retired Associate Justice of
the U.S. Supreme Court. Mr. Karsh holds an A.B. degree in economics summa cum laude from Duke University, where he was elected to Phi
Beta Kappa. He went on to earn a J.D. from the University of Virginia School of Law, where he served as Notes Editor of the Virginia Law
Review and was a member of the Order of the Coif. Mr. Karsh serves on the boards of a number of privately held companies. He is a member
of the investment committee of the Broad Foundations. Mr. Karsh is Trustee Emeritus of Duke University, having served as Trustee from
2003 to 2015, and as Chairman of the Board of DUMAC, LLC, the entity that managed Duke’s endowment, from 2005 to 2014.
Wayne
Dahl
Managing
Director and Co-Portfolio Manager
Mr.
Dahl serves as a portfolio manager within our Global Credit and Investment Grade Solutions strategies and is a founding member of the
Global Credit Investment Committee. Mr. Dahl joined Oaktree in 2016 from Prosiris Capital Management in New York, where he was the Chief
Risk Officer. Prior thereto, Mr. Dahl was Head of Risk Management for Canyon Capital Advisors in Los Angeles for nine years where he developed,
implemented and managed the firm’s risk measurement and reporting systems
41
across
all investment strategies. Mr. Dahl began his career at Rumson Capital in quantitative research and development focused on the convertible
arbitrage strategy. He received his B.A. degree in economics with a minor in mathematics from Brigham Young University and his Master
of Science in Mathematics in Finance degree from New York University’s Courant Institute of Mathematical Science.
Armen
Panossian
Managing
Director, Head of Performing Credit and Co-Portfolio Manager
Mr.
Panossian serves as co-Chief Executive Officer, primarily focused on overseeing the organization and performance of Oaktree’s investment
teams. He is also Head of Performing Credit, where his responsibilities include oversight of the firm’s liquid and private credit
strategies and as a portfolio manager within the Global Private Debt and Global Credit strategies. Mr. Panossian joined Oaktree’s
Global Opportunities group in 2007. In January 2014, he joined the U.S. Senior Loans team to assume co-portfolio management responsibilities
and lead the development of Oaktree’s CLO business. He became head of all performing credit in 2019. Mr. Panossian joined Oaktree
from Pequot Capital Management, where he worked on their distressed debt strategy. Mr. Panossian holds a B.A. degree in economics with
honors and distinction from Stanford University, where he was elected to Phi Beta Kappa; an M.S. degree in health services research from
Stanford Medical School; a J.D. degree from Harvard Law School; and an M.B.A. from Harvard Business School. Mr. Panossian serves on the
Advisory Board of the Stanford Institute for Economic Policy Research. He is a member of the State Bar of California.
David
Rosenberg
Managing
Director and Co-Portfolio Manager
Mr.
Rosenberg serves as a co-portfolio manager of Oaktree’s U.S. High Yield Bond, Global High Yield Bond and Investment Grade Solutions
strategies. He also serves as a co-portfolio manager of the Global Credit strategy and is a founding member of its Investment Committee.
Mr. Rosenberg joined Oaktree in 2004 following graduation from the University of Southern California with an M.B.A. in business administration.
Before attending graduate school, he served as an associate in the Franchise Systems Finance Group at J.P. Morgan. Mr. Rosenberg also
holds an M.P.A. in professional accounting with a concentration in finance and a B.A. degree in business administration from the University
of Texas at Austin. He is a Certified Public Accountant (inactive).
Danielle
Poli
Managing
Director and Co-Portfolio Manager
Ms.
Poli is a managing director and portfolio manager within Oaktree’s Global Credit strategy. She is a founding member of the strategy,
having helped design its portfolio management processes and having served as a member of the Global Credit Investment Committee since
2017. Ms. Poli has led the expansion of the firm’s multi-asset credit offerings, including a product for Brookfield Oaktree Wealth
Solutions which she has co-managed since 2021. In addition, Ms. Poli oversaw Oaktree’s product management activities globally across
Credit, Private Equity, Real Assets and Listed Equities from 2019 to 2023. Prior to joining Oaktree in 2014, Ms. Poli earned her M.B.A.
at the UCLA Anderson School of Management, where she received the Laurence and Lori Fink Investment Management Fellowship. Prior thereto,
she worked at PAAMCO KKR Prisma (formerly PAAMCO) where Ms. Poli helped manage hedge fund portfolios for institutional clients. Ms. Poli
holds a B.S. degree in business administration from the University of Southern California and is a CAIA charterholder.
Control
Persons
A
control person is a person who owns, either directly or indirectly, beneficially more than 25% of the voting securities of a company.
As of the date of this Prospectus, the Fund could be deemed to be under control of Oaktree Fund GP I, L.P., a Delaware limited partnership,
which currently has voting authority with respect to approximately 64% of the value of the outstanding interests in the Fund.
42
Plan
of Distribution
Quasar
Distributors, LLC, a wholly owned subsidiary of Foreside Financial Group, LLC (dba ACA Global) (the “Distributor”) serves
as the principal underwriter and distributor of the Fund’s Shares pursuant to a distribution contract (the “Distribution Contract”)
with the Fund. The Distributor, located at Three Canal Plaza, Suite 100, Portland, Maine, 04101, is a broker-dealer registered with the
SEC and is a member of the Financial Industry Regulatory Authority (“FINRA”).
The
Distributor acts as the distributor of Shares for the Fund on a best efforts basis, subject to various conditions, pursuant to the terms
of the Distribution Contract. The Distributor is not obligated to sell any specific amount of Shares of the Fund.
Shares
of the Fund are continuously offered through the Distributor and/or certain financial intermediaries that have agreements with the Distributor.
As discussed below, the Fund may authorize one or more intermediaries (e.g.,
broker-dealers and other financial firms) to receive orders on its behalf. The Shares will be offered at NAV per share (plus any applicable
sales load) calculated each regular business day. Please see “Net Asset Value” below.
The
Fund and the Distributor have the sole right to accept orders to purchase Shares and reserve the right to reject any order in whole or
in part.
The
Fund’s Shares are not listed for trading on any securities exchange. There is currently no secondary market for the Fund’s
Shares and the Fund does not anticipate that a secondary market will develop for its Shares. Investors should consider Shares of the Fund
to be an illiquid investment. None of the Adviser or the Distributor intends to make a market in the Fund’s Shares.
The
Fund has agreed to indemnify the Distributor and certain of the Distributor’s affiliates against certain liabilities, including
certain liabilities arising under the 1933 Act. To the extent consistent with applicable law, the Distributor has agreed to indemnify
the Fund and each Director against certain liabilities under the 1933 Act and in connection with the services rendered to the Fund.
Share
Classes
Since
receiving the Exemptive Relief, the Fund has implemented a Multi-Class Plan pursuant to Rule 18f-3 under the 1940 Act. Although the Fund
is not an open-end investment company, it will comply with the terms of Rule 18f-3 as a condition of the granted Exemptive Relief, which
permits the Fund to have, among other things, a multi-class structure and distribution and shareholder servicing fees.
Under
the Multi-Class Plan, shares of each class of the Fund represent an equal pro rata
interest in the Fund and, generally, have identical voting, dividend, liquidation, and other rights, preferences, powers, restrictions,
limitations, qualifications and terms and conditions, except that: (a) each class has a different designation; (b) each class of shares
bears any class-specific expenses; and (c) each class shall have separate voting rights on any matter submitted to Shareholders in which
the interests of one class differ from the interests of any other class, and shall have exclusive voting rights on any matter submitted
to Shareholders that relates solely to that class.
At
present, only Class D and Class T Shares are available for purchase. In the future, the Fund may offer additional classes of shares. Each
share class will represent an investment in the same portfolio of investments, but each class has its own expense structure and arrangements
for shareholder services or distribution, which allows you to choose the class that best fits your situation and eligibility requirements.
Class
D Shares may be offered for investment to investors such as pension and profit sharing plans, employee benefit trusts, endowments, foundations,
corporations and individuals that can meet the minimum investment amount. Class T Shares may be offered for investment through certain
financial firms that charge their customers transaction or other fees with respect to their customers’ investments in the Fund.
Class
T Shares are not available for purchase directly from the Distributor and are primarily offered and sold to retail investors by certain
broker-dealers which are members of FINRA and which have agreements with the Distributor to sell Class T Shares, but may be made available
through other financial firms, including banks and trust companies, and to specified benefit plans (as defined below) and other retirement
accounts.
43
Class
T Distribution Plan
The
Fund has implemented a Distribution Plan for the Class T Shares of the Fund. The Distribution Plan operates in a manner consistent with
Rule 12b-1 under the 1940 Act, which regulates the manner in which an open-end investment company may directly or indirectly bear the
expenses of distributing its shares. Although the Fund is not an open-end investment company, it will comply with the terms of Rule 12b-1
as a condition of the granted Exemptive Relief, which permits the Fund to have, among other things, a multi-class structure and distribution
and shareholder servicing fees. Each Distribution and Servicing Plan permits the Fund to compensate the Distributor for providing or procuring
through financial firms, distribution, administrative, recordkeeping, shareholder and/or related services with respect to the Class T
Shares, as applicable. Most or all of the distribution and/or service fees are paid to financial firms through which Shareholders may
purchase or hold Class T Shares, as applicable. Because these fees are paid out of the applicable share class’s assets on an ongoing
basis, over time they will increase the cost of an investment in Class T Shares and may cost you more than other types of sales charges.
The
maximum annual rates at which the distribution fees may be paid under the Distribution Plan is 0.75% for Class T Shares (calculated as
a percentage of the Fund’s average daily net assets attributable to the Class T Shares).
Shareholder
Servicing Plan
The
Fund has implemented a “Shareholder Services Plan” with respect to its Class D and Class T shares under which the Fund may
compensate financial intermediaries for providing ongoing services in respect of Fund Shareholders. Such services may include responding
to customer inquiries of a general nature regarding the Fund; crediting distributions from the Fund to customer accounts; arranging for
bank wire transfer of funds to or from a customer’s account; responding to customer inquiries and requests regarding Statements
of Additional information, shareholder reports, notices, proxies and proxy statements, and other Fund documents; forwarding Prospectuses,
Statements of Additional Information, tax notices and annual and semi-annual reports to beneficial owners of Fund shares; and providing
such other similar services as the Fund may reasonably request to the extent a financial intermediary is permitted to do so under applicable
statutes, rules, or regulations.
Under
the Shareholder Services Plan, the Fund, with respect to each of Class D and Class T shares, may incur expenses on an annual basis equal
up to 0.25% of its average net assets attributable to Class D and Class T shares, respectively. The Adviser, the Distributor or an affiliate
may make additional payments to intermediaries for these and other services, and their payments may be based on the same or other methods
of calculation. See Revenue Sharing below.
The
Adviser has contractually agreed to limit the shareholder servicing fees for each share class to the extent necessary to maintain the
shareholder servicing fees at no more than 0.10% of the average daily net assets of the Fund’s Class D Shares and Class T Shares,
respectively, until at least April 30, 2025. Thereafter, this arrangement may be extended, terminated, or modified by the Adviser in its
sole discretion and at any time. If the Fund’s Class D Shares or Class T Shares operate below the total expense ratio for each share
class after fee waivers and/or expense reimbursement, this arrangement will continue to limit the shareholder servicing fees for each
share class to the extent necessary to maintain the shareholder servicing fee expense cap, as described above. The Fund’s actual
shareholder servicing fees may differ from the estimates above. Any shareholder servicing fee reimbursed or otherwise absorbed by the
Adviser are subject to recoupment from the Fund for a period not to exceed three years after the occurrence of the reimbursement, provided
that the Fund may only make repayments to the Adviser if such repayment does not cause the Fund’s shareholder servicing fees (after
the repayment is taken into account) to exceed the lesser of (1) the Annual Limit in place at the time such amounts were waived, or (2)
the Fund’s current Annual Limit.
Revenue
Sharing
The
Adviser, the Distributor, the Administrator or an affiliate of each may make cash payments from their own resources to broker-dealers
or financial intermediaries for various reasons. These payments, often
44
referred to as “revenue sharing,” may support
the delivery of services to the Fund or Shareholders in the Fund, including transaction processing and sub-accounting services.
These payments also may
serve as an incentive to sell Fund Shares or to promote Shareholder retention. As such, the payments may go to firms providing various
marketing support or other promotional services relating to the Fund, including advertising and sales meetings, as well as inclusion of
the Fund in various promotional and sales programs. Marketing support services also may include business planning assistance, broker-dealer
education about the Fund and shareholder financial planning assistance.
Please be aware that revenue
sharing arrangements or other payments to intermediaries could create incentives on the part of the parties receiving the payments to
more positively consider the Fund relative to other funds either not making payments of this nature or making smaller such payments. A
Shareholder or prospective investor with questions regarding revenue sharing or other such payments may obtain more details by contacting
his or her broker representative or other financial intermediary directly. The Fund’s Statement of Additional Information includes
a listing of certain parties receiving revenue sharing payments in respect of the Fund.
Purchasing Shares
The following section
provides basic information about how to purchase Shares of the Fund.
The Fund typically does
not offer or sell its shares to non-U.S. residents. For purposes of this policy, a U.S. resident is defined as an account with (i) a U.S.
address of record and (ii) all account owners residing in the U.S. at the time of sale.
If you are eligible to
buy Class D Shares and Class T Shares, you should buy Class D Shares because Class T Shares may be subject to sales charges and will pay
an annual distribution fee.
Individual Shareholders
who purchase Shares through financial intermediaries, pensions or profit sharing plans may not be eligible to hold Shares outside of their
respective plan or financial intermediary platform.
Class D Shares
Eligible investors may
purchase Class D Shares in the following ways:
•
Through
your broker-dealer or other financial firm. Class D Shares may be offered
through certain financial firms that charge their customers transaction or other fees with respect to their customers’ investments
in the Fund. Class D Shares may also be offered to investors in pension and profit sharing plans, employee benefit trusts, endowments,
foundations, corporations and individuals that can meet the minimum investment amount. Your broker-dealer or other financial firm may
establish different minimum investment requirements than the Fund and may also independently charge you transaction or other fees and
additional amounts (which may vary) in return for its services, which will reduce your return. Shares you purchase through your broker-dealer
or other financial firm will normally be held in your account with that firm. If you purchase shares through a broker-dealer or other
financial firm, instructions for buying, selling, exchanging or transferring Class D Shares must be submitted by your financial firm or
broker-dealer on your behalf.
•
Through
the Transfer Agent. You should discuss your investment with your financial
adviser before you make a purchase to be sure the Fund is appropriate for you. Individual investors who meet the minimum investment amount
and wish to invest directly in Class D Shares may obtain an Account Application online at https://publicsecurities.brookfield.com/enhttps://www.brookfieldoaktree.com/
or by calling the Transfer Agent at 1-855-862-5873. If you do not list a financial adviser and his/her brokerage firm on the Account Application,
the Distributor is designated as the broker of record, but solely for purposes of acting as your agent to purchase shares.
Class T Shares
Investors may purchase
Class T Shares through their broker-dealer or other financial firm. Class T Shares are not available for purchase directly from the Distributor.
45
•
Through
your broker-dealer or other financial firm. Class T Shares are primarily
offered and sold to retail investors by certain broker-dealers which are members of FINRA and which have agreements with the Fund’s
distributor to offer Class T Shares, but may be made available through other financial firms, including banks and trust companies and
to specified benefit plans and other retirement accounts. Your broker-dealer or other financial firm may establish different minimum investment
requirements than the Fund and may also independently charge you transaction or other fees and additional amounts (which may vary) in
return for its services, which will reduce your return. Shares you purchase through your broker-dealer or other financial firm will normally
be held in your account with that firm and instructions for buying, selling, exchanging or transferring Class T Shares must be submitted
by your broker-dealer or other financial firm on your behalf.
The
completed Account Application may be submitted using the following methods:
| | Overnight Mail: | | | Oaktree
Diversified Income Fund Inc. c/o U.S. Bancorp Fund Services, LLC 615 East Michigan Street, 3rd Floor Milwaukee, Wisconsin 53202 |
|
| | Regular Mail: | | | Oaktree
Diversified Income Fund Inc. c/o U.S. Bancorp Fund Services, LLC P.O. Box 701 Milwaukee, Wisconsin 53201‑0701 |
|
For
inquiries, please call 1-855-862-5873
Payment
for the purchase of Shares may be made by check payable to the transfer agent and sent to the Regular Mail address above; or by wiring
federal funds to:
| | U.S.
Bank National Association 1555 North River Center Drive Milwaukee, Wisconsin 53212 |
| |||
| | ABA: | | | #075000022 | |
| | Account#: | | | 112-952-137 | |
| | Account Name: | | | U.S. Bancorp Fund Services, LLC | |
| | FFC: | | | (include Oaktree Diversified Income Fund Inc. Account Number) | |
In
order to receive the current day’s NAV, order instructions must be received in good order prior to the close of regular trading
on the NYSE (ordinarily 4:00 p.m., Eastern time) (“NYSE Close”). Instructions must include the name and signature of an appropriate
person designated on the Account Application (“Authorized Person”), account name, account number, name of the Fund and dollar
amount. Payments received without order instructions could result in a processing delay or a return of wire. Failure to send the accompanying
payment on the same day may result in the cancellation of the order.
Investment
Minimums
Class
D Shares. The following investment minimums apply for purchases of Class D Shares:
|
Initial
Investment |
| |
Subsequent Investments |
| |||
|
$25,000
per account |
| | | $ | 5,000 | | |
Class
T Shares. The following investment minimums apply for purchases of Class T Shares:
|
Initial
Investment |
| |
Subsequent Investments |
| |||
|
$2,500
per account |
| | | $ | 500 | | |
The
initial investment minimums may be modified for certain financial firms that submit orders on behalf of their customers. The Fund or the
Distributor may lower or waive the minimum initial investment for certain classes of shares or categories of investors at their discretion.
The minimum initial investment may also be modified for the Directors and certain employees and their extended family members of current
officers,
directors, and employees of the Fund, the Adviser, Administrator, certain other subsidiaries of Oaktree, employees of certain firms providing
services to the Fund (such as the custodian and the shareholder servicing agent), and to the immediate family members of any such persons
or to any trust, pension, profitsharing or other benefit plan for only such persons. Please see the Statement of Additional Information
for details.
Additional
Investments. An investor may purchase additional Class D Shares at any time. If
you invest in Shares through a broker-dealer, contact your financial firm for information on purchasing additional Shares.
Other
Purchase Information. Purchases of the Fund’s Shares will be made in full
and fractional shares.
The
Fund and the Distributor each reserves the right, in its sole discretion, to suspend the offering of shares of the Fund or to reject any
purchase order, in whole or in part, when, in the judgment of management, such suspension or rejection is in the best interests of the
Fund.
In
the interest of economy and convenience, certificates for shares will not be issued.
Sales
Charge — Class T Shares
This
section includes important information about sales charge reduction programs available to investors in Class T Shares of the Fund and
describes information or records you may need to provide to the Distributor or your financial firm in order to be eligible for sales charge
reduction programs.
Unless
you are eligible for a waiver, the public offering price you pay when you buy Class T of the Fund is the NAV of the shares plus an initial
sales charge. The initial sales charge varies depending upon the size of your purchase, as set forth below.
No
sales charge is imposed where Class T Shares are issued to you pursuant to the automatic reinvestment of income dividends or capital gains
distributions. For investors investing in Class T Shares of the Fund through a financial intermediary, it is the responsibility of the
financial intermediary to ensure that you obtain the proper “breakpoint” discount.
Because
the offering price is calculated to two decimal places, the dollar amount of the sales charge as a percentage of the offering price and
your net amount invested for any particular purchase of Fund shares may be higher or lower depending on whether downward or upward rounding
was required during the calculation process.
Class
T Shares are subject to a 3.00% maximum sales charge as a percentage of the offering price.
|
Amount Purchased |
| |
Sales Load as a % of Offering Price |
| |
Sales Load as a % of Amount Invested |
| |
Dealer’s Concession as a % of Offering Price |
| |||||||||
|
Under
$250,000 |
| | | | 3.00% | | | | | | 3.09% | | | | | | 3.00% | | |
|
$250,000
but less than $500,000 |
| | | | 2.50% | | | | | | 2.56% | | | | | | 2.50% | | |
|
$500,000
but less than $1,000,000 |
| | | | 1.50% | | | | | | 1.52% | | | | | | 1.50% | | |
|
$1,000,000
or over(*) |
| | | | 0.00% | | | | | | 0.00% | | | | | | 0.00% | | |
*
As
shown, investors that purchase $1,000,000 or more of the Fund’s Class T Shares will not pay any initial sales charge on the purchase.
However, unless eligible for a waiver, purchases of $1,000,000 or more of Class T Shares will be subject to an early withdrawal charge
of 1.00% if the shares are repurchased during the first 12 months after their purchase. See “Early Withdrawal Charges — Class
T Shares” and “Sales at Net Asset Value” below.
Investors
in the Fund may reduce or eliminate sales charges applicable to purchases of Class T Shares through utilization of the Combined Purchase
Privilege, Right of Accumulation, Letter of Intent or Reinstatement Privilege. These programs will apply to purchases of other closed-end
funds that Oaktree or
PSG
sponsors currently or in the future (collectively, “Eligible Funds”), which offer Class T Shares. These programs are summarized
below and described in the Statement of Additional Information. Eligible Funds do not include any open-end funds sponsored by PSG.
Combined
Purchase Privilege and Right of Accumulation (Breakpoints). A Qualifying Investor
(as defined below) may qualify for a reduced sales charge on Class T Shares at the breakpoint levels disclosed herein by combining concurrent
purchases of the Class T common shares of one or more Eligible Funds into a single purchase (the “Combined Purchase Privilege”).
In addition, a Qualifying Investor may obtain a reduced sales charge on Class T Shares of the Fund by adding the purchase value of Class
T Shares of an Eligible Fund with the current aggregate net asset value of all Class T common shares of any Eligible Fund held by accounts
for the benefit of such Qualifying Investor (the “Right of Accumulation” or “Cumulative Quantity Discount”).
The
term “Qualifying Investor” refers to:
1.
an
individual, such individual’s spouse or domestic partner, as recognized by applicable state law, or such individual’s children
under the age of 21 years (each a “family member”) (including family trust* accounts established by such a family member);
or
2.
a
trustee or other fiduciary for a single trust (except family trusts* noted above), estate or fiduciary account although more than one
beneficiary may be involved; or
3.
an
employee benefit plan of a single employer.
Letter
of Intent. By signing a Letter of Intent (LOI) a Shareholder can reduce its Class
T sales charges. A Shareholder’s individual purchases will be made at the applicable sales charge based on the amount they intend
to invest over a 13-month period. The LOI will apply to all purchases of Class T Shares. Any shares purchased within 90 days of the date
a Shareholder signs the letter of intent may be used as credit toward completion, but the reduced sales charge will only apply to new
purchases made on or after that date. Purchases resulting from the reinvestment of dividends and capital gains do not apply toward fulfillment
of the LOI. Shares equal to 4.75% of the amount of the LOI will be held in escrow during the 13-month period. If, at the end of that time
the total amount of purchases made is less than the amount intended, a Shareholder will be required to pay the difference between the
reduced sales charge and the sales charge applicable to the individual purchases had the LOI not been in effect. This amount will be obtained
from redemption of the escrow shares. Any remaining escrow shares will be released to the Shareholder.
Reinstatement
Privilege. Shareholders who redeemed Class T shares of the Fund that were originally
subject to a front-end sales load may buy back Class T shares of the Fund into the same Shareholder account within 45 days of the redemption
date without paying a sales charge on the reinstated shares. The amount eligible to be repurchased under this Reinstatement Privilege
may not exceed the amount of a Shareholder’s redemption proceeds originally received from the reinstated shares. Reinstatements
will be priced at the Fund’s current NAV. To exercise this Reinstatement Privilege, a Shareholder must notify its financial consultant
or the Fund’s transfer agent at the time of the transaction that is believed to qualify the Shareholder for the privilege.
Sales
at Net Asset Value. Shares of the Fund may be offered without a sales charge to:
(1) any other investment company in connection with the combination of such company with the Fund by merger, acquisition of assets, or
otherwise; (2) any unit investment trusts registered under the 1940 Act which have shares of the Fund as a principal investment; and (3)
persons investing in certain fee-based programs under which they pay advisory fees to a broker-dealer or other financial institution that
has entered into an agreement with the Fund and/or its Distributor.
In
addition, as discussed above, Shareholders who redeemed shares of the Fund that were originally subject to a sales charge may buy back
shares of the Fund into the same shareholder account within 45 days of the redemption date without paying a sales charge on the reinstated
shares. The amount eligible to
*
For
these purposes, a “family trust” is one in which a family member, as defined in section (1) above, or a direct lineal descendant(s)
of such person is/are the beneficiary(ies), and such person or another family member, direct lineal ancestor or sibling of such person
is/are the trustee(s).
be
repurchased may not exceed the amount of a Shareholder’s redemption proceeds originally received from the reinstated shares. Reinstatements
will be priced at the Fund’s current NAV. To exercise this reinstatement privilege, a Shareholder must notify its financial consultant
or the Fund’s transfer agent at the time of the transaction that is believed to qualify the shareholder for the privilege.
Exchanges. Exchanges
of Shares for Class T Shares of the Fund will not be subject to a sales charge.
Early
Withdrawal Charges — Class T Shares
Unless
a Shareholder is eligible for a waiver, if the Shareholder purchases $1,000,000 or more of Class T Shares (and, thus, pays no initial
sales charge) of the Fund, the Shareholder will generally be subject to a 1% early withdrawal charge (“EWC”) if the Class
T Shares are repurchased within 12 months of their purchase. The Class T EWC does not apply if a Shareholder is otherwise eligible to
purchase Class T Shares without an initial sales charge or is eligible for a waiver of the EWC.
How
EWCs Will Be Calculated
An
EWC is imposed on repurchases of Class T Shares on the amount of the repurchase which causes the current value of a Shareholder’s
account for the Class T Shares of the Fund to fall below the total dollar amount of the Shareholder’s purchase payments on which
they paid no initial sales charge as a result of reaching a breakpoint on the initial purchase and have not been held 12 months.
The
following rules apply under the method for calculating EWCs:
•
Shares
acquired through the reinvestment of dividends or capital gains distributions will be repurchased first and will not be subject to any
EWC.
•
For
the repurchase of all other Shares, the EWC will be based on your original purchase price of the Shares being sold.
EWCs
will be deducted from the proceeds of a Shareholder’s repurchase, not from amounts remaining in the Shareholder’s account.
Reductions
and Waivers of Initial Sales Charges and EWCs
The
initial sales charges and EWCs on Class T Shares may be reduced or waived under certain purchase arrangements and for certain categories
of investors. See “Sales at Net Asset Value” above for information on such reductions or waivers that may be applicable to
Class T Share initial sales charges.
In
addition to EWC waivers described under “Early Withdrawal Charges — Class T Shares” above, EWCs on Class T Shares may
also be reduced or waived for repurchases where the Shareholder can demonstrate hardship, which shall be determined in the sole discretion
of the Distributor, and there will be minimal cost borne by the Distributor associated with the repurchase, which shall be determined
in the sole discretion of the Distributor. What qualifies as “hardship” and “minimal cost” borne by the Distributor
will be determined in the sole discretion of the Distributor, but will be applied uniformly to all Shareholders that can demonstrate such
hardship or for which there will be such minimal cost. The Distributor follows how Internal Revenue Service regulations classify “hardship”
— a financial hardship may occur when an individual has an immediate and heavy financial need and the money to be withdrawn from
the Shareholder’s account is necessary to meet that need. The Distributor generally determines an EWC waiver or reduction to be
of “minimal cost” where the Shareholder can demonstrate that the repurchase triggering the EWC was inadvertently executed
during the period subject to the EWC and substantially all of the EWC period has lapsed.
Required
Shareholder Information and Records. In order for investors in Class T Shares of the
Fund to take advantage of sales charge reductions, an investor or his or her financial firm must notify the Fund that the investor qualifies
for such a reduction. If the Fund is not notified that the investor is eligible for these reductions, the Fund will be unable to ensure
that the reduction is applied to the investor’s account. An investor may have to provide certain information or records to his or
her financial firm or the Fund to verify the investor’s eligibility for breakpoint discounts or sales charge waivers.
An
investor may be asked to provide information or records, including account statements, regarding shares of the Fund or other Eligible
Funds held in:
•
any
account of the investor at another financial firm; and
•
accounts
of Qualifying Investors at any financial firm.
Exchanging
Shares
Intra-Fund
Exchanges: Shares of one class of the Fund may be exchanged at any time, at a Shareholder’s
option, directly for shares of another class of the Fund (an “intra-fund exchange”), subject to the terms and conditions described
below and provided that the Shareholder for whom the intra-fund exchange is being requested meets the eligibility requirements of the
class into which such Shareholder seeks to exchange. Additional information regarding the eligibility requirements of different share
classes, including investment minimums and intended distribution channels, is described under “Purchasing Shares” and “Investment
Minimums” above.
Shares
of one class of the Fund will be exchanged for shares of a different class of the Fund on the basis of their respective NAVs. Ongoing
fees and expenses incurred by a given share class will differ from those of other share classes, and a Shareholder receiving new shares
in an intra-fund exchange may be subject to higher or lower total expenses following such exchange. Intra-fund exchanges generally should
not result in the realization of income or gain for U.S. federal income tax purposes.
Financial
Intermediary-Directed Exchanges: Financial intermediaries may, in connection with a change
in a client’s account type, at the direction of a client, or otherwise in accordance with a financial intermediary’s policies
and procedures, direct the Fund on behalf of the intermediary’s clients to exchange shares of one class of Shares of the Fund for
shares of another class of Shares of the Fund, or exchange Shares of the Fund for the same class or another class of common shares of
another Eligible Fund. Any such exchange will not be subject to a sales charge. Class T Shares of the Fund are, however, subject to higher
annual operating expenses than Class D Shares. See “Summary of Fund Expenses.” The Fund will only complete such an exchange
at the direction of a financial intermediary and without making inquiry as to whether the exchange is consistent with the particular intermediary’s
policies and procedures or the client’s account type and/or suitability criteria. An investor should contact his or her financial
intermediary to learn more about the details of this exchange feature and whether and under what circumstances it may apply in accordance
with the investor’s arrangements with the particular intermediary.
Shares
Purchased or Held Through Financial Intermediaries
The
availability of sales charge waivers and discounts may depend on the particular financial intermediary or type of account through which
you purchase or hold Fund shares. The Fund’s sales charge waivers
and discounts disclosed in this Prospectus are available for qualifying purchases and are generally available through financial firms.
Please contact your financial firm for more information regarding applicable sales charge waivers, discounts and/or breakpoints available
to you and the financial firm’s related policies and procedures.
While
neither the Fund nor the Distributor imposes an initial sales charge on Class D Shares, if you buy Class D Shares through certain financial
firms they may directly charge you transaction or other fees in such amount as they may determine. Please consult your financial firm
for additional information.
Signature
Validation
The
following section provides additional information for investors who purchase shares directly from the Fund. If you are investing through
a financial intermediary, please contact your financial intermediary directly for more information. A signature guarantee from an acceptable
guarantor is required if you want repurchase proceeds sent to an address other than the address of record, to a person other than the
registered shareholder(s) for the account or to a bank account number other than the one previously designated. In addition to the situations
described above, the Fund and/or the Fund’s transfer agent reserve the right to require a signature guarantee in other instances
based on the circumstances relative to the particular situation.
Information
Regarding State Escheatment Laws
It
is important that the Fund maintains a correct address for each investor. An incorrect address may cause an investor’s account statements
and other mailings to be returned to the Fund. Based upon statutory requirements for returned mail, the Fund will attempt to locate the
investor or rightful owner of the account. If the Fund is unable to locate the investor, then it will determine whether the investor’s
account can legally be considered abandoned. The Fund is legally obligated to escheat (or transfer) abandoned property to the appropriate
state’s unclaimed property administrator in accordance with statutory requirements. The investor’s last known address of record
determines which state has jurisdiction.
Request
for Multiple Copies of Shareholder Documents
To
reduce expenses, it is intended that only one copy of the Fund’s Prospectus and each annual and semi-annual report, when available,
will be mailed to those addresses shared by two or more accounts. If you wish to receive individual copies of these documents and your
shares are held directly with the Fund, call the Fund at 1-855-862-5873. You will receive the additional copy within 30 days after receipt
of your request by the Fund. Alternatively, if your shares are held through a financial institution, please contact the financial institution
directly.
Acceptance
and Timing of Purchase Orders
You
may purchase shares of the Fund by check, by wire transfer, via electronic funds transfer through the Automated Clearing House (“ACH”)
network or through a bank or through one or more brokers authorized by the Fund to receive purchase orders. Please use the appropriate
account application when purchasing by mail or wire. If you have any questions or need further information about how to purchase shares
of the Fund, you may call a customer service representative of the Fund toll-free at 1-855-862-5873. The Fund reserves the right to reject
any purchase order. For example, a purchase order may be refused if, in the Adviser’s opinion, it is so large that it would disrupt
the management of the Fund. Orders may also be rejected from persons believed by the Fund to be “market timers.”
All
checks must be in U.S. dollars drawn on a domestic financial institution. The Fund will not accept payment in cash or money orders. To
prevent check fraud, the Fund will not accept third-party checks, Treasury checks, credit card checks, traveler’s checks or starter
checks for the purchase of shares. The Fund is unable to accept post-dated checks or any conditional order or payment.
To
buy shares of the Fund, complete an account application and send it together with your check for the amount you wish to invest in the
Fund to the address below. To make additional investments once you have opened your account, write your account number on the check and
send it together with the most recent confirmation statement received from the transfer agent. If your payment is returned for any reason,
your purchase will be canceled and a $25 fee will be assessed against your account by the transfer agent. You may also be responsible
for any loss sustained by the Fund.
In
addition to cash purchases, Fund shares may be purchased by tendering payment in-kind in the form of shares of stock, bonds or other securities.
Any securities used to buy Fund shares must be readily marketable, their acquisition consistent with the Fund’s investment objective
and otherwise acceptable to the Adviser and the Board. For further information, you may call a customer service representative of the
Fund toll-free at 1-855-862-5873.
In
compliance with the USA PATRIOT Act of 2001, please note that the transfer agent will verify certain information on your account application
as part of the Trust’s Anti-Money Laundering Program. As requested on the account application, you should supply your full name,
date of birth, social security number and permanent street address. Mailing addresses containing only a P.O. Box will not be accepted.
Please contact the transfer agent at 1-855-862-5873 if you need additional assistance when completing your account application.
If
the transfer agent does not have a reasonable belief of the identity of an investor, the account application will be rejected or the investor
will not be allowed to perform a transaction on the account until such information is received. The Fund may also reserve the right to
close the account within five business days if clarifying information/documentation is not received.
Shares
of the Fund have not been registered for sale outside of the United States. The Adviser generally does not sell shares to investors residing
outside of the United States, even if they are United States citizens or lawful permanent residents, except to investors with United States
military APO or FPO addresses.
Periodic
Repurchase Offers
The
Fund is a closed-end interval fund, a type of fund that, in order to provide liquidity to Shareholders, has adopted a fundamental investment
policy to make offers to repurchase Shares. No Shareholder will have the right to require the Fund to repurchase its Shares, except as
permitted by the Fund’s Interval Fund structure. No public market for the Shares exists, and none is expected to develop in the
future. Consequently, shareholders generally will not be able to liquidate their investment other than as a result of repurchases of their
Shares by the Fund, and then only on a limited basis.
The
Fund has adopted, pursuant to Rule 23c-3 under the 1940 Act, a fundamental policy, which cannot be changed without shareholder approval,
requiring the Fund to offer to repurchase at least 5% and up to 25% of its Shares at NAV on a regular schedule. The schedule requires
the Fund to make repurchase offers every three months. The Fund expects the first repurchase offer to be issued within six months following
effectiveness of the Fund’s Registration Statement.
Repurchase
Dates
The
Fund will make quarterly repurchase offers. Subject to Board approval, Repurchase Request Deadlines are expected to occur each February,
May, August and November, and Repurchase Offer Notices are expected to be sent to Shareholders each January, April, July and October preceding
each such Repurchase Request Deadline. As discussed below, the date on which the repurchase price for Shares is determined will occur
no later than the 14th
day after the Repurchase Request Deadline (or the next business day, if the 14th
day is not a business day). A repurchase schedule setting forth each of these dates for the Fund’s current calendar year is available
on the Fund’s website at https://www.brookfieldoaktree.com/.
Repurchase
Request Deadline
The
date by which Shareholders wishing to tender Shares for repurchase must respond to the repurchase offer will be no more than 14 days before
the Repurchase Pricing Date (defined below). When a repurchase offer commences, the Fund sends, at least 21 days before the Repurchase
Request Deadline, written notice to each Shareholder setting forth, among other things:
•
The
percentage of outstanding Shares that the Fund is offering to repurchase and how the Fund will purchase Shares on a pro
rata basis if the offer is oversubscribed.
•
The
date on which a Shareholder’s repurchase request is due.
•
The
date that will be used to determine the Fund’s NAV applicable to the repurchase offer (the “Repurchase Pricing Date”).
•
The
date by which the Fund will pay to Shareholders the proceeds from their Shares accepted for repurchase.
•
The
NAV of the Shares as of a date no more than seven days before the date of the written notice and the means by which Shareholders may ascertain
the NAV.
•
The
procedures by which Shareholders may tender their Shares and the right of Shareholders to withdraw or modify their tenders before the
Repurchase Request Deadline.
•
The
circumstances in which the Fund may suspend or postpone the repurchase offer.
This
notice may be included in a shareholder report or other Fund document. Shareholders that hold shares through a financial intermediary
will need to ask their financial intermediary to submit their repurchase requests and tender shares on their behalf. The
Repurchase Request Deadline will be strictly observed. If a Shareholder’s repurchase request
is not submitted to the Fund’s transfer agent in properly completed form by the Repurchase Request Deadline, the Shareholder will
be unable to sell his or her shares to the Fund until a subsequent repurchase offer, and the Shareholder’s request for that offer
must be resubmitted. If a Shareholder’s authorized intermediary will submit his or her repurchase request, the Shareholder should
submit his or her request to the authorized intermediary in the form requested by the authorized intermediary sufficiently in advance
of the Repurchase Request Deadline to allow the authorized intermediary to submit the request to the Fund. If a Shareholder’s authorized
intermediary is
unable
or fails to submit the Shareholder’s request to the Fund in a timely manner, or if the Shareholder fails to submit his or her request
to the Shareholder’s authorized intermediary, the Shareholder will be unable to sell his or her shares to the Fund until a subsequent
repurchase offer, and the Shareholder’s request for that offer must be resubmitted.
Shareholders
may withdraw or change a repurchase request with a proper instruction submitted in good form at any point before the Repurchase Request
Deadline.
Determination
of Repurchase Price and Payment for Shares
The
Repurchase Pricing Date will occur no later than the 14th
day after the Repurchase Request Deadline (or the next business day, if the 14th
day is not a business day). The Fund expects to distribute payment to Shareholders within (5) business days after the Repurchase Pricing
Date and will distribute such payment no later than seven (7) calendar days after such date. The Fund’s NAV per share may change
materially between the date a repurchase offer is mailed and the Repurchase Request Deadline, and it may also change materially between
the Repurchase Request Deadline and Repurchase Pricing Date. The method by which the Fund calculates NAV is discussed below under “Net
Asset Value.” During the period an offer to repurchase is open, Shareholders may obtain the current NAV by visiting https://www.brookfieldoaktree.com/
https://publicsecurities.brookfield.com/en or calling the Fund’s Investor Relations Team (toll-free) at 1-855-777-8001 or by sending
an e-mail request to the Fund at publicsecurities.enquiries@brookfield.com.
Repurchase
Fee
The
Fund does not currently charge a repurchase fee. However, in the future the Fund may charge a repurchase fee of up to 2.00%, which the
Fund would retain to help offset non-de minimis estimated costs related to the repurchase incurred by the Fund, directly or indirectly,
as a result of repurchasing Shares, thus allocating estimated transaction costs to the Shareholder whose Shares are being repurchased.
The Fund may introduce, or modify the amount of, a repurchase fee at any time. The Fund will provide advance notice to shareholders of
any such introduction or modification of the repurchase fee. The Fund may also waive or reduce a repurchase fee if the Adviser determines
that the repurchase is offset by a corresponding purchase or if for other reasons the Fund will not incur transaction costs or will incur
reduced transaction costs.
Suspension
or Postponement of Repurchase Offers
The
Fund may suspend or postpone a repurchase offer in limited circumstances set forth in Rule 23c-3 under the 1940 Act, as described below,
but only with the approval of a majority of the Directors, including a majority of Directors who are not “interested persons”
of the Fund, as defined in the 1940 Act. The Fund may suspend or postpone a repurchase offer only: (1) if making or effecting the repurchase
offer would cause the Fund to lose its status as a regulated investment company under Subchapter M of the Code; (2) for any period during
which the NYSE or any other market in which the securities owned by the Fund are principally traded is closed, other than customary weekend
and holiday closings, or during which trading in such market is restricted; (3) for any period during which an emergency exists as a result
of which disposal by the Fund of securities owned by it is not reasonably practicable, or during which it is not reasonably practicable
for the Fund fairly to determine the value of its net assets; or (4) for such other periods as the SEC may by order permit for the protection
of Shareholders of the Fund.
Oversubscribed
Repurchase Offers
There
is no minimum number of Shares that must be tendered before the Fund will honor repurchase requests. However, the Fund’s Directors
set for each repurchase offer a maximum percentage of Shares that may be repurchased by the Fund, which is currently expected to be at
least 5% and up to 25% of the Fund’s outstanding Shares. In the event a repurchase offer by the Fund is oversubscribed, the Fund
may repurchase, but is not required to repurchase, additional Shares up to a maximum amount of 2% of the outstanding Shares of the Fund.
If the Fund determines not to repurchase additional Shares beyond
the
repurchase offer amount, or if Shareholders tender an amount of Shares greater than that which the Fund is entitled to repurchase, the
Fund will repurchase the Shares tendered on a pro rata
basis. The Fund may in its sole discretion and for administrative convenience accept all shares tendered by Shareholders who own less
than one hundred shares and who tender all of their shares, before prorating other amounts tendered.
If
any Shares that you wish to tender to the Fund are not repurchased because of proration, you will have to wait until the next repurchase
offer and resubmit a new repurchase request, and your repurchase request will not be given any priority over other Shareholders’
requests. Thus, there is a risk that the Fund may not purchase all of the Shares you wish to have repurchased in a given repurchase offer
or in any subsequent repurchase offer. In anticipation of the possibility of proration, some Shareholders may tender more Shares than
they wish to have repurchased in a particular quarter, increasing the likelihood of proration.
There
is no assurance that you will be able to tender your Shares when or in the amount that you desire.
Consequences
of Repurchase Offers
From
the time the Fund distributes or publishes each repurchase offer notification until the Repurchase Pricing Date for that offer, the Fund
must maintain liquid assets at least equal to the percentage of its Shares subject to the repurchase offer. For this purpose, “liquid
assets” means assets that may be sold or otherwise disposed of in the ordinary course of business, at approximately the price at
which the Fund values them, within the period between the Repurchase Request Deadline and the repurchase payment deadline, or which mature
by the repurchase payment deadline. The Fund is also permitted to borrow up to the maximum extent permitted under the 1940 Act to meet
repurchase requests.
If
the Fund borrows to finance repurchases, interest on that borrowing will negatively affect Shareholders who do not tender their Shares
by increasing the Fund’s expenses and reducing any net investment income. There is no assurance that the Fund will be able to sell
a significant amount of additional Shares so as to mitigate these effects.
These
and other possible risks associated with the Fund’s repurchase offers are described under “Principal Risks of the Fund —
Repurchase Offers Risk” above. In addition, the repurchase of Shares by the Fund will be a taxable event to Shareholders, potentially
even to those Shareholders that do not participate in the repurchase. For a discussion of these tax consequences, see “Tax Matters”
below and “Taxation” in the Statement of Additional Information.
Net
Asset Value
The
Fund’s NAV per Share is computed by dividing the total current value of the assets of the Fund, less its liabilities, by the total
number of Shares outstanding at the time of such computation. The Fund computes its NAV per Share as of the close of trading on each day
the New York Stock Exchange (“NYSE”) is open for trading.
The
Board has adopted procedures for the valuation of the Fund’s securities. The Adviser oversees the day to day responsibilities for
valuation determinations under these procedures. The Board regularly reviews the application of these procedures to the securities in
the Fund’s portfolio.
The
Board has designated the Adviser as the valuation designee pursuant to Rule 2a-5 under the 1940 Act to perform fair value determination
relating to any or all Fund investments. The Board oversees the Adviser in its role as the valuation designee in accordance with the requirements
of Rule 2a-5 under the 1940 Act.
Investments
in equity securities listed or traded on any securities exchange or traded in the over-the-counter market are valued at the last trade
price as of the close of business on the valuation date. If the NYSE closes early, then the equity security will be valued at the last
traded price before the NYSE close. Prices of foreign equities that are principally traded on certain foreign markets will generally be
adjusted daily pursuant to a fair value pricing service approved by the Board in order to reflect an adjustment for the factors occurring
after the close of certain foreign markets but before the NYSE close. When fair value pricing is employed, the value of the portfolio
securities used to calculate the Fund’s NAV may differ from quoted or official closing prices. Investments in open-end registered
investment companies, if any, are valued at the NAV as reported by those investment companies.
Securities
for which market prices are not readily available, cannot be determined using the sources described above, or for which the Adviser determines
the quotation or price for a portfolio security provided by a broker-dealer or an independent pricing service is inaccurate, will be valued
at a fair value determined by the Adviser following the procedures adopted by the Adviser under the supervision of the Board. The Adviser’s
valuation procedure establishes parameters for the sources, methodologies, and inputs the Adviser uses in determining fair value.
The
fair valuation methodology may include or consider the following guidelines, as appropriate: (1) evaluation of all relevant factors, including
but not limited to, pricing history, current market level, supply and demand of the respective security; (2) comparison to the values
and current pricing of securities that have comparable characteristics; (3) knowledge of historical market information with respect to
the security; (4) other factors relevant to the security which would include, but not be limited to, duration, yield, fundamental analytical
data, the Treasury yield curve, and credit quality. The fair value may be difficult to determine and thus judgment plays a greater role
in the valuation process. Imprecision in estimating fair value can also impact the amount of unrealized appreciation or depreciation recorded
for a particular portfolio security and differences in the assumptions used could result in a different determination of fair value, and
those differences could be material. For those securities valued by fair valuations, the Adviser reviews and affirms the reasonableness
of the valuations based on such methodologies and fair valuation determinations on a regular basis after considering all relevant information
that is reasonably available. There can be no assurance that the Fund could purchase or sell a portfolio security at the price used to
calculate the Fund’s NAV.
An
internal pricing hierarchy has been established to maximize the use of observable market data and minimize the use of unobservable inputs
and to establish classification of fair value measurements for disclosure purposes. Observable inputs are inputs that reflect the assumptions
market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the
reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market
participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
Valuations
of Fund investments are disclosed in reports publicly filed with the SEC. The Adviser will provide the Board of Directors with periodic
reports, no less than quarterly, that discuss the functioning of the valuation process, if applicable to that period, and that identify
issues and valuation problems that have arisen, if any.
Under
certain circumstances, the NAV per Share of a class of the Fund’s Shares may be different from the per share NAV of another class
of shares as a result of the different daily expense accruals applicable to each class of shares.
Distributions
The
Fund intends to declare and pay distributions quarterly at rates from net investment income. Subject to applicable law, the Fund may fund
a portion of its distributions with gains from the sale of portfolio securities and other sources. The dividend rate that the Fund pays
on its Shares may vary as portfolio and market conditions change, and will depend on a number of factors, including without limitation
the amount of the Fund’s undistributed net investment income and net short- and long-term capital gains, as well as the costs of
any leverage obtained by the Fund (including interest expenses on borrowings and dividends payable on any preferred shares issued by the
Fund). As portfolio and market conditions change, the rate of distributions on the Shares and the Fund’s dividend policy could change.
For a discussion of factors that may cause the Fund’s income and capital gains (and therefore the dividend) to vary, see “Principal
Risks of the Fund.” The net investment income of the Fund consists of all income (other than net short-term and long-term capital
gains) less all expenses of the Fund (after it pays accrued dividends on any outstanding preferred shares).
The
Fund may distribute less than the entire amount of net investment income earned in a particular period. The undistributed net investment
income would be available to supplement future distributions. As a result, the distributions paid by the Fund for any particular month
may be more or less than the amount of net investment income actually earned by the Fund during the period.
The
tax treatment and characterization of the Fund’s distributions may vary significantly from time to time because of the varied nature
of the Fund’s investments. If the Fund estimates that a portion of one of its dividend distributions may be comprised of amounts
from sources other than net investment income in accordance with its policies and accounting practices, the Fund will notify shareholders
of record of the estimated composition of such distribution through a section 19 notice (“Section 19 Notice”). To determine
the sources of the Fund’s distributions during the reporting period, the Fund references its internal accounting records at the
time the distribution is paid and generally bases its projections of the final tax character of those distributions on the tax characteristics
of the distribution reflected in its internal accounting records at the time of such payment. If, based on such records, a particular
distribution does not include capital gains or paid-in surplus or other capital sources, a Section 19 Notice generally would not be issued.
It is important to note that differences exist between the Fund’s daily internal accounting records, the Fund’s financial
statements presented in accordance with U.S. GAAP, and recordkeeping practices under income tax regulations. Examples of such differences
may include, among others, the treatment of paydowns on mortgage-backed securities purchased at a discount and periodic payments under
interest rate swap contracts. Notwithstanding the Fund’s estimates and projections, it is possible that the Fund may not issue a
Section 19 Notice in situations where the Fund’s financial statements prepared later and in accordance with U.S. GAAP or the final
tax character of those distributions might later report that the sources of those distributions included capital gains and/or a return
of capital. Additionally, given differences in tax and U.S. GAAP treatment of certain distributions, the Fund may not issue a Section
19 Notice in situations where the Fund’s financial statements prepared later and in accordance with U.S. GAAP might report that
the sources of these distributions included capital gains and/or a return of capital.
The
tax characterization of the Fund’s distributions made in a taxable year cannot finally be determined until at or after the end of
the year. As a result, there is a possibility that the Fund may make total distributions during a taxable year in an amount that exceeds
the Fund’s net investment income and net realized capital gains (as reduced by any capital loss carry-forwards) for the relevant
year. For example, the Fund may distribute amounts early in the year that are derived from short-term capital gains, but incur net short-term
capital losses later in the year, thereby offsetting short-term capital gains out of which distributions have already been made by the
Fund. In such a situation, the amount by which the Fund’s total distributions exceed net investment income and net realized capital
gains would generally be treated as a tax-free return of capital up to the amount of a Shareholder’s tax basis in his or her Shares,
with any amounts exceeding such basis treated as gain from the sale of Shares. In general terms, a return of capital would occur where
a Fund distribution (or portion thereof) represents a return of a portion of your investment, rather than net income or capital gains
generated from your investment during a particular
period.
A return of capital distribution is not taxable, but it reduces a Shareholder’s tax basis in the Shares, thus reducing any loss
or increasing any gain on a subsequent taxable disposition by the Shareholder of the Shares. The Fund will send Shareholders detailed
tax information with respect to the Fund’s distributions annually. See “Tax Matters.”
The
1940 Act currently limits the number of times the Fund may distribute long-term capital gains in any tax year, which may increase the
variability of the Fund’s distributions and result in certain distributions being comprised more or less heavily than others of
long-term capital gains currently eligible for favorable income tax rates.
Unless
a Shareholder elects to receive distributions in cash, all distributions of Shareholders whose shares are registered with the plan agent
will be automatically reinvested in additional Shares under the Fund’s Dividend Reinvestment Plan. See “Dividend Reinvestment
Plan.”
Although
it does not currently intend to do so, the Board of Directors may change the Fund’s distribution policy and the amount or timing
of distributions, based on a number of factors, including the amount of the Fund’s undistributed net investment income and net short-
and long-term capital gains and historical and projected net investment income and net short- and long-term capital gains.
Dividend
Reinvestment Plan
The
Fund intends to distribute substantially all of its net investment income to Shareholders in the form of dividends. The Fund intends to
declare and pay distributions quarterly from net investment income. In addition, the Fund intends to distribute any net capital gains
earned from the sale of portfolio securities to Shareholders no less frequently than annually. Net short-term capital gains may be paid
more frequently. Unless Shareholders specify otherwise, dividends will be reinvested in Shares of the Fund in accordance with the Fund’s
dividend reinvestment plan. The Fund may pay distributions from sources that may not be available in the future and that are unrelated
to the Fund’s performance, such as from offering proceeds and/or borrowings.
The
Fund has adopted a Dividend Reinvestment Plan (the “Plan”) that provides that, unless Shareholders elect to receive their
distributions in cash, they will be automatically reinvested by U.S. Bancorp Fund Services, LLC (the “Plan Administrator”),
in additional Shares. If Shareholders elect to receive distributions in cash, they will receive them paid by check mailed directly to
them by the Plan Administrator. The Plan Administrator can be contacted through mail at by writing to U.S. Bancorp Fund Services, LLC,
P.O. Box 701, Milwaukee, Wisconsin 53201-0701 or by phone at 1-855-862-5873.
Shares
received under the Plan will be issued to Shareholders at their NAV on the ex-dividend date; there is no sales or other charge for reinvestment.
Shareholders are free to withdraw from the Plan and elect to receive cash at any time by giving written notice to the Plan Administrator
or by contacting the broker or dealer, who will inform the Fund.
The
Plan Administrator provides written confirmation of all transactions in the shareholder accounts in the Plan, including information Shareholders
may need for tax records. Any proxy Shareholders receive will include all Shares received under the Plan.
Automatically
reinvested dividends and distributions are taxed in the same manner as cash dividends and distributions. See “Tax Matters.”
The
Fund and the Plan Administrator reserve the right to amend or terminate the Plan. 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. If the Plan
is amended to include such service charges, the Plan Administrator will include a notification to registered holders of Shares with the
Plan Administrator.
Additional
information about the Plan may be obtained from the Plan Administrator.
Description
of Securities
The
information contained under this heading is only a summary and is subject to the provisions contained in the Fund’s Charter and
Bylaws and the laws of the State of Maryland.
Common
Stock
General. The
Charter authorizes the Fund to issue up to 1,000,000,000
shares of common
stock , $.001 par value per share, 500,000,000
of which have been classified as Class
D Shares and 500,000,000
of which have been classified as Class
T Shares (collectively “Shares” and respectively, “Class D Shares” and “Class T Shares”).
The Board of Directors may, without any action by the Shareholders, amend the Charter from time to time to increase or decrease the aggregate
number of shares of stock or the number of shares of stock of any class or series that the Fund has authority to issue under the Charter
and the 1940 Act. In addition, the Charter authorizes the Board of Directors, without any action by the Shareholders, to classify and
reclassify any unissued common stock and preferred stock into other classes or series of stock from time to time by setting or changing
the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications and terms
and conditions of redemption for each class or series. Although the Fund has no present intention of doing so, it could issue a class
or series of stock that could delay, defer or prevent a transaction or a change in control of the Fund that might otherwise be in the
Shareholders’ best interests. Under Maryland law, shareholders generally are not liable for the Fund’s debts or obligations.
All
common stock offered pursuant to this Prospectus will be, upon issuance, duly authorized, fully paid and nonassessable. Holders of shares
of common stock are entitled to receive distributions when authorized by the Board of Directors and declared by the Fund out of assets
legally available for the payment of distributions. Holders
of common stock have no preference, conversion, exchange, sinking fund, redemption or appraisal rights and have no preemptive rights to
subscribe for any of the Fund’s securities. All shares
of common stock have equal distribution, liquidation and other rights. The Fund may offer multiple classes of common stock, which may
be subject to differing fees and expenses. Distributions may vary among the classes as a result of the different fee structure of the
classes.
Limitations
on Distributions. If any shares of preferred stock are outstanding, holders of
shares of common stock will not be entitled to receive any distributions from the Fund unless it has paid all accumulated distributions
on preferred stock and unless asset coverage (as defined in the 1940 Act) with respect to preferred stock would be at least 200% after
giving effect to such distributions. See “Leverage.”
If
any senior securities representing indebtedness are outstanding, holders of shares of common stock will not be entitled to receive any
distributions from the Fund unless it has paid all accrued interest on such senior indebtedness and unless asset coverage (as defined
in the 1940 Act) with respect to any outstanding senior indebtedness would be at least 300% after giving effect to such distributions.
Liquidation
Rights. Shareholders are entitled to share ratably in the assets legally available
for distribution to Shareholders in the event of liquidation, dissolution or winding up, after payment of or adequate provision for all
known debts and liabilities, including any outstanding debt securities or other borrowings and any interest accrued thereon. These rights
are subject to the preferential rights of any other class or series of stock, including any preferred stock. The rights of Shareholders
upon liquidation, dissolution or winding up would be subordinated to the rights of holders of any preferred stock or senior securities
representing indebtedness.
Voting
Rights. Each outstanding share of common stock entitles the holder to one vote
on all matters submitted to a vote of Shareholders, including the election of Directors. The Charter provides that, in the event that
the Board of Directors determines that any matter affects only one or more classes of common stock, only the holders of the affected classes
will be entitled to vote on the matter. The presence of the holders of shares of stock entitled to cast one-third of the votes entitled
to be cast (without regard to class) will constitute a quorum at a meeting of shareholders. The Bylaws provide that directors are elected
by a plurality of all the votes cast at a meeting of shareholders duly called and at which a quorum is present. There is no cumulative
voting in the election of Directors. Consequently, at each annual
61
meeting
of shareholders, the holders of a majority of the outstanding shares of stock entitled to vote will be able to elect all of the successors
of the class of directors whose terms expire at that meeting. Pursuant to the 1940
Act, holders of preferred stock will have the right to elect two directors at all times. Pursuant to the Charter and Bylaws, the Board
of Directors may amend the Bylaws to alter the vote required to elect directors.
Preferred
Stock
General. The
Charter authorizes the issuance of up to 1,000,000,000
shares of preferred
stock , $.001 par value per share, with preferences, conversion or other rights, voting powers, restrictions, limitations
as to distributions, qualifications and terms and conditions of redemption as determined by the Board of Directors.
Our
Board of Directors may, without any action by the Shareholders, amend the Charter from time to time to increase or decrease the aggregate
number of shares of stock or the number of shares of stock of any class or series that the Fund has authority to issue under the Charter
and under the 1940 Act. In addition, the Charter authorizes the Board of Directors, without any action by the Shareholders, to classify
and reclassify any unissued preferred stock into other classes or series of stock from time to time by setting or changing the terms,
preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications and terms and conditions
of redemption for each class or series.
Distributions. Holders
of any preferred stock will be entitled to receive cash distributions, when, as and if authorized by the Board of Directors and declared
by us, out of funds legally available therefor. The Prospectus for any preferred stock will describe the distribution payment provisions
for those shares. Distributions so declared and payable will be paid to the extent permitted under Maryland law and to the extent available
and in preference to and priority over any distribution declared and payable on the common stock.
Limitations
on Distributions. If the Fund has senior securities representing indebtedness outstanding,
holders of preferred stock will not be entitled to receive any distributions from the Fund unless asset coverage (as defined in the 1940
Act) with respect to outstanding debt securities and preferred stock would be at least 200% after giving effect to such distributions.
See “Leverage.”
Liquidation
Rights. In the event of any voluntary or involuntary liquidation, dissolution or
winding up, the holders of preferred stock would be entitled to receive a preferential liquidating distribution, which is expected to
equal the original purchase price per share plus accumulated and unpaid distributions, whether or not declared, before any distribution
of assets is made to holders of common stock. After payment of the full amount of the liquidating distribution to which they are entitled,
the holders of preferred stock will not be entitled to any further participation in any distribution of the Fund’s assets. Preferred
stock ranks junior to the Fund’s debt securities upon liquidation, dissolution or winding up.
Voting
Rights. Except as otherwise indicated in the Charter or Bylaws, or as otherwise
required by applicable law, holders of any preferred stock will have one vote per share and vote together with holders of common stock
as a single class.
The
1940 Act requires that the holders of any preferred stock, voting separately as a single class, have the right to elect at least two Directors
at all times. The remaining Directors will be elected by holders of common stock and preferred stock, voting together as a single class.
In addition, subject to the prior rights, if any, of the holders of any other class of senior securities outstanding, the holders of any
shares of preferred stock have the right to elect a majority of the Directors at any time two years’ accumulated distributions on
any preferred stock are unpaid. The 1940 Act also requires that, in addition to any approval by Shareholders that might otherwise be required,
the approval of the holders of a majority of shares of any outstanding preferred stock, voting separately as a class, would be required
to (1) adopt any plan of reorganization that would adversely affect the preferred stock, and (2) take any action requiring a vote of security
holders under Section 13(a) of the 1940 Act, including, among other things, changes in the
62
Fund’s
subclassification as a closed-end investment company or changes in the Fund’s fundamental investment restrictions. See “Certain
Provisions in the Charter and Bylaws.” As a result of these voting rights, the Fund’s ability to take any such actions may
be impeded to the extent that any shares of the Fund’s preferred stock are outstanding.
The
affirmative vote of the holders of a majority of any outstanding preferred stock, voting as a separate class, generally will be required
to amend, alter or repeal any of the preferences, rights or powers of holders of preferred stock so as to affect materially and adversely
such preferences, rights or powers. The class vote of holders of preferred stock described above will in each case be in addition to any
other vote required to authorize the action in question.
63
Certain Provisions in the Charter and Bylaws
The following description
of certain provisions of the Charter and Bylaws is only a summary. For a complete description, please refer to the Charter and Bylaws,
which have been filed as exhibits to the registration statement on Form N-2, of which this Prospectus forms a part.
The Charter and Bylaws
include provisions that could delay, defer or prevent other entities or persons from acquiring control of the Fund, causing the Fund to
engage in certain transactions or modifying the structure.
Furthermore, these provisions
can have the effect of depriving shareholders of the opportunity to sell their shares at a premium over prevailing market prices by discouraging
third parties from seeking to obtain control of us. These provisions, all of which are summarized below, may be regarded as “anti-takeover”
provisions.
Board of Directors; Election of Directors
Our Charter provides that
the number of Directors may be established only by the Board of Directors pursuant to the Bylaws, but may not be less than one. The Bylaws
provide that the number of Directors may not be less than the minimum number required by the Maryland General Corporation Law (the “MGCL”),
which is one, nor more than fifteen. Subject to any applicable limitations of the 1940 Act, any vacancy may be filled by the directors
in the manner provided in the Bylaws. As permitted by Maryland law, the Bylaws provide that the Fund is not required to hold an annual
meeting of shareholders in any year in which the election of Directors is not required under the 1940 Act and the Fund does not intend
to hold regular annual meetings of shareholders. Accordingly, Directors will be elected to serve indefinite terms between annual meetings
of shareholders.
Removal of Directors
Our Charter provides that,
subject to the rights of holders of one or more classes of preferred stock, a director may be removed only for cause and only by the affirmative
vote of at least two-thirds of the votes entitled to be cast in the election of Directors.
Approval of Extraordinary Corporate Action; Amendment of
Charter and Bylaws
Under Maryland law, a
Maryland corporation generally cannot dissolve, amend its charter, merge, convert, sell all or substantially all of its assets, engage
in a share exchange or engage in similar transactions outside the ordinary course of business, unless declared advisable by the Board
of Directors and approved by the affirmative vote of shareholders entitled to cast at least two-thirds of the votes entitled to be cast
on the matter. However, a Maryland corporation may provide in its charter for shareholder approval of these matters by a lesser percentage,
but not less than a majority of all of the votes entitled to be cast on the matter. Subject to certain exceptions described below, the
Charter provides for approval of Charter amendments by the shareholders entitled to cast at least a majority of the votes entitled to
be cast on the matter. The Charter provides that (1) the Fund’s liquidation or dissolution, or any merger, consolidation, share
exchange or sale or exchange of all or substantially all of the assets that requires the approval of the shareholders under the MGCL,
(2) certain transactions between the Fund and any person or group of persons acting together and any person controlling, controlled by
or under common control with any such person or member of such group, that may exercise or direct the exercise of 10% or more of the voting
power in the election of directors, (3) any amendment to the Charter that would convert the Fund from a closed-end investment company
to an open-end investment company or otherwise make the Fund’s common stock a redeemable security and (4) any amendment to certain
provisions of the Charter, including the provisions relating to the number, qualifications, election and removal of directors, requires
the approval of the shareholders entitled to cast at least 80% of the votes entitled to be cast on such matter. If such a proposal is
approved by at least two-thirds of the Continuing Directors (defined below), in addition to approval by the full Board, such proposal
may be approved by the shareholders entitled to cast a majority of the votes entitled to be cast on such matter or, in the case of transactions
with a group described
64
above, by the vote, if any, of the shareholders required
by applicable law. The “Continuing Directors” are defined in the Charter as (1) the Fund’s current directors, (2) those
directors whose nomination for election by the shareholders or whose election by the directors to fill vacancies is approved by a majority
of Continuing Directors then on the Board and (3) any successor directors whose nomination for election by the shareholders or whose election
by the directors to fill vacancies is approved by a majority of the Continuing Directors then in office. This provision could make it
more difficult for certain extraordinary transactions to be approved if they are opposed by the Continuing Directors and discourage proxy
contests for control of the Board by persons wishing to cause such transactions to take place.
Our Charter and Bylaws
provide that the Board of Directors has the exclusive power to make, alter, amend or repeal any provision of the Fund’s Bylaws.
Shareholder-Requested Special Meetings
Our Bylaws provide that
special meetings of shareholders may be called by the Board of Directors and certain officers of the Fund. In addition, the Bylaws provide
that, subject to the satisfaction of certain procedural and informational requirements by the shareholders requesting the meeting, a special
meeting of shareholders will be called by the secretary of the Fund upon the written request of shareholders entitled to cast not less
than a majority of all the votes entitled to be cast at such meeting.
Action by Shareholders
Under Maryland law, shareholder
action can be taken only at an annual or special meeting of shareholders or, unless the charter provides for shareholder action by less
than unanimous written consent (which is not the case for the Charter), by unanimous written consent in lieu of a meeting.
Exclusive Forum
Our Bylaws provide that,
unless the Fund consents in writing to the selection of an alternative forum, the Circuit Court for Baltimore City, Maryland, or, if that
Court does not have jurisdiction, the United States District Court for the District of Maryland, Northern Division, shall, to the fullest
extent permitted by law, be the sole and exclusive forum for (a) any Internal Corporate Claim, as such term is defined in the MGCL, (b)
any derivative action or proceeding brought on behalf of the Fund, other than actions arising under United States federal securities laws,
(c) any action asserting a claim of breach of any duty owed by any director or officer or other agent of the Fund to the Fund or to the
stockholders of the Fund, (d) any action asserting a claim against the Fund or any director or officer or other agent of the Fund arising
pursuant to any provision of the MGCL or the Charter or Bylaws, or (e) any other action asserting a claim against the Fund or any director
or officer or other agent of the Fund that is governed by the internal affairs doctrine. None of the foregoing actions, claims or proceedings
may be brought in any court sitting outside the State of Maryland unless the Fund consents in writing to such court. The exclusive forum
selection provision will not apply to claims arising under the federal securities laws or any other claim for which the federal courts
have exclusive jurisdiction.
Certain Provisions of the Maryland General Corporation Law
The Maryland Business
Combination Act prohibits certain business combinations, subject to exceptions and limitations, between a Maryland corporation and an
“interested shareholder” (defined generally as any person who beneficially owns 10% or more of the voting power of
the corporation’s outstanding voting stock or an affiliate or associate of the corporation who, at any time within the two-year
period immediately prior to the date in question, was the beneficial owner of 10% or more of the voting power of the corporation’s
then outstanding shares of stock) or an affiliate of any interested shareholder for five years after the most recent date on which the
shareholder becomes an interested shareholder, and thereafter imposes two super-majority shareholder voting requirements on these combinations,
unless, among other conditions, the Shareholders receive a minimum price, as defined in the statute, for their shares and the consideration
is received in cash or in the same form as previously paid by the interested shareholder for its shares of stock. The Maryland Business
Combination Act does not apply to a corporation
65
registered under the 1940 Act as a closed-end investment
company, such as the Fund, unless the board of directors adopts a resolution to be subject to the statute. The Board of Directors has
not adopted a resolution electing to be subject to the Maryland Business Combination Act.
The Maryland Control
Share Acquisition Act provides that, subject to certain exceptions, holders of “control shares” (defined as voting
shares that, when aggregated with all other shares controlled by the shareholder, entitle the shareholder to exercise one of three increasing
ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect
acquisition of ownership or control of issued and outstanding “control shares”) have no voting rights except to the extent
approved by the Fund’s shareholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter,
excluding shares owned by the acquirer, by the Fund’s officers or by the Fund’s employees who are also directors of the Fund.
The Maryland Control Share Acquisition Act does not apply to a corporation registered under the 1940 Act as a closed-end investment company,
such as the Fund, unless the board of directors adopts a resolution to be subject to the statute. The Board of Directors has not adopted
a resolution electing to be subject to the Maryland Control Share Acquisition Act.
66
Tax Matters
The discussion below and
certain disclosure in the SAI provide general tax information related to an investment in Shares of the Fund. Because tax laws are complex
and often change, Shareholders should consult their tax advisers about the tax consequences of an investment in the Fund. Unless otherwise
noted, the following tax discussion applies only to U.S. shareholders that hold the Shares as capital assets. A U.S. shareholder is an
individual who is a citizen or resident of the United States, a U.S. corporation, a trust if it (a) is subject to the primary supervision
of a court in the United States and one or more U.S. persons have the authority to control all substantial decisions of the Fund or (b)
has made a valid election to be treated as a U.S. person, or any estate the income of which is subject to U.S. federal income tax regardless
of its source.
The
Fund intends to elect to be treated, and intends to qualify each taxable year thereafter, as a regulated investment company (a “RIC”)
under Subchapter M of the Code. To qualify under Subchapter M for the favorable tax treatment accorded to RICs, the Fund must, among other
things: (1) distribute to its shareholders in each taxable year at least 90% of the sum of its investment company taxable income (as that
term is defined in the Code, but without regard to the deduction for dividends paid) and its net tax-exempt income; (2) derive in each
taxable year at least 90% of its gross income from (a) dividends, interest, payments with respect to certain securities loans, and gains
from the sale or other disposition of stock, securities or foreign currencies, or other income (including but not limited to gain from
options, futures and forward contracts) derived with respect to its business of investing in such stock, securities or foreign currencies;
and (b) net income derived from interests in certain publicly traded partnerships that are treated as partnerships for U.S. federal income
tax purposes and that derive less than 90% of their gross income from the items described in (a) above (each, a “Qualified Publicly
Traded Partnership”); and (3) diversify its holdings so that, at the end of each quarter of each taxable year of the Fund (a) at
least 50% of the value of the Fund’s total assets is represented by cash, cash items, U.S. government securities and securities
of other RICs, and other securities, with these other securities limited, with respect to any one issuer, to an amount not greater in
value than 5% of the value of the Fund’s total assets, and to not more than 10% of the outstanding voting securities of such issuer,
and (b) not more than 25% of the value of the Fund’s total assets is represented by the securities (other than U.S. government securities
or securities of other RICs) of (I) any one issuer, (II) any two or more issuers that the Fund controls and that are determined to be
engaged in the same or similar trades or businesses or related trades or businesses or (III) any one or more Qualified Publicly Traded
Partnerships. As a RIC, the Fund generally will not be subject to U.S. federal income tax on its investment company taxable income and
net capital gain (the excess of net long-term capital gain over net short-term capital loss), if any, that it distributes in each taxable
year to its shareholders. The Fund intends to distribute to its shareholders, at least annually, substantially all of its investment company
taxable income and net capital gain. As of December 31, 2023, the Fund had short-term and long-term capital loss carryforwards of $2,645,116
and $1,750,773 respectively. The capital loss carryforwards will not expire.
If the Fund failed to
qualify for the favorable tax treatment accorded to RICs in any taxable year, the Fund would be subject to U.S. federal income tax at
regular corporate rates on its taxable income (including its net capital gain), even if such income were distributed to its shareholders,
and all distributions out of earnings and profits (including distributions of net capital gain) would be taxed to Shareholders as ordinary
dividend income. Such distributions generally would be eligible (i) to be treated as “qualified dividend income” in the case
of individual and other non-corporate Shareholders and (ii) for the dividends received deduction in the case of corporate Shareholders.
In addition, the Fund could be required to recognize unrealized gains, pay taxes and make distributions (which could be subject to interest
charges) before requalifying for taxation as a RIC.
A RIC that fails to
distribute, by the close of each calendar year, an amount at least equal to the sum of 98% of its ordinary taxable income for such calendar
year and 98.2% of its capital gain net income (adjusted for certain ordinary losses) for the one-year period ending on October 31 of such
calendar year, plus any shortfalls from any prior year’s required distribution, is liable for a 4% nondeductible excise tax on the
portion of the undistributed amounts of such income that are less than the required distributions. For these purposes, the Fund will be
deemed to have distributed any income or gain on which it paid U.S. federal income tax.
67
Distributions to Shareholders of ordinary
income (including “market discount” realized by the Fund on the sale of debt securities), and of net short-term capital gains,
if any, realized by the Fund will generally be taxable to Shareholders as ordinary income to the extent such distributions are paid out
of the Fund’s current or accumulated earnings and profits. Distributions, if any, of net capital gains properly reported as “capital
gain dividends” will be taxable as long-term capital gains, regardless of the length of time the Shareholder has owned Shares of
the Fund. A distribution of an amount in excess of the Fund’s current and accumulated earnings and profits (as determined for U.S.
federal income tax purposes) will be treated by a Shareholder as a return of capital which will be applied against and reduce the Shareholder’s
tax basis in his or her Shares. To the extent that the amount of any such distribution exceeds the Shareholder’s basis in his or
her Shares, the excess will be treated by the Shareholder as gain from a sale of the Shares. Distributions paid by the Fund generally
will not be eligible for the dividends received deduction allowed to corporations or for the reduced rates applicable to certain qualified
dividend income received by non-corporate Shareholders.
Distributions will be
treated in the manner described above regardless of whether such distributions are paid in cash or invested in additional Shares of the
Fund pursuant to the Plan. Shareholders receiving distributions in the form of additional Shares of the Fund will generally 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.
The additional Shares received by a Shareholder pursuant to the Plan will have a new holding period commencing on the day following the
day on which the Shares were credited to the Shareholder’s account.
Although dividends generally
will be treated as distributed when paid, dividends declared in October, November, or December, payable to Shareholders of record on a
specified date in one of those months, and paid during the following January, will be treated as having been distributed by the Fund (and
received by Shareholders) on December 31 of the year in which declared.
In general, the sale or
other taxable disposition of Shares (except pursuant to a repurchase by the Fund, as described below) will result in capital gain or loss
to Shareholders. A holder’s gain or loss generally will be a long-term capital gain or loss if the Shares have been held for more
than one year. Present law taxes both long- and short-term capital gains of corporations at the rates applicable to ordinary income. For
non-corporate taxpayers, however, long-term capital gains are currently eligible for reduced rates of taxation. Losses realized by a holder
on the sale or other taxable disposition of Shares held for six months or less are treated as long-term capital losses to the extent of
any distribution of long-term capital gain received (or amounts designated as undistributed capital gains, as discussed under “Taxation
— Distributions” in the SAI) with respect to such Shares. In addition, no loss will be allowed on the sale or other taxable
disposition of Shares if the owner acquires (including pursuant to the Plan) or enters into a contract or option to acquire securities
that are substantially identical to such Shares within 30 days before or after the disposition. In such case, the basis of the securities
acquired will be adjusted to reflect the disallowed loss.
From time to time, the
Fund may offer to repurchase its outstanding Shares. Shareholders who tender all Shares held, or considered to be held, by them will be
treated as having sold their shares and generally will realize a capital gain or loss. If a Shareholder tenders fewer than all of its
Shares or fewer than all Shares tendered are repurchased, such Shareholder may be treated as having received a taxable dividend upon the
tender of its Shares. In such a case, there is a risk that non-tendering Shareholders, and Shareholders who tender some but not all of
their Shares or fewer than all of whose Shares are repurchased, in each case whose percentage interests in the Fund increase as a result
of such tender, will be treated as having received a taxable distribution from the Fund.
The
Fund may be required to withhold from all distributions and redemption proceeds payable to U.S. shareholders who fail to provide the Fund
with their correct taxpayer identification numbers or to make required certifications, or who have been notified by the IRS that they
are subject to federal backup withholding. Certain Shareholders specified in the Code generally are exempt from such backup withholding.
This backup withholding, currently imposed at a rate of 24%, is not an additional tax. Any amounts withheld may be refunded or credited
against the Shareholder’s U.S. federal income tax liability, provided the required information is timely furnished to the IRS.
68
If a Shareholder (other than a partnership)
is not a U.S. shareholder (other than such a Shareholder whose ownership of shares is effectively connected with a U.S. trade or business),
certain dividends received by such Shareholder may be subject to U.S. federal withholding tax. To the extent that Fund distributions consist
of ordinary dividends that are subject to withholding, the applicable withholding agent will generally be required to withhold U.S. federal
income tax at the rate of 30% (or such lower rate as may be determined in accordance with any applicable treaty). However, dividends paid
by the Fund that are “interest-related dividends” or “short-term capital gain dividends” will generally be exempt
from such withholding, in each case to the extent the Fund properly reports such dividends to Shareholders. For these purposes, interestrelated
dividends and short-term capital gain dividends generally represent distributions of interest or short-term capital gains that would not
have been subject to U.S. federal withholding tax at the source if they had been received directly by a non-U.S. shareholder, and that
satisfy certain other requirements. Net capital gain dividends (that is, distributions of the excess of net long-term capital gain over
net short-term capital loss) distributed by the Fund to a non-U.S. shareholder will not be subject to U.S. federal withholding tax.
The Fund may be required
to withhold from distributions to a non-U.S. shareholder that are otherwise exempt from U.S. federal withholding tax (or taxable at a
reduced treaty rate) unless the non-U.S. shareholder certifies his or her foreign status under penalties of perjury or otherwise establishes
an exemption.
Under
Sections 1471 through 1474 of the Code (such Sections commonly referred to as “FATCA”), a 30% United States federal withholding
tax may apply to any ordinary dividends and other distributions that the Fund pays to (i) a “foreign financial institution”
(as specifically defined in the Code), whether such foreign financial institution is the beneficial owner or an intermediary, unless
such foreign financial institution agrees to verify, report and disclose its U.S. “account” holders (as specifically defined
in the Code) and meets certain other specified requirements or (ii) a non-financial foreign entity, whether such non-financial foreign
entity is the beneficial owner or an intermediary, unless such entity provides a certification that the beneficial owner of the payment
does not have any substantial United States owners or provides the name, address and taxpayer identification number of each such substantial
U.S. owner and certain other specified requirements are met. In certain cases, the relevant foreign financial institution or non-financial
foreign entity may qualify for an exemption from, or be deemed to be in compliance with, these rules. In addition, foreign financial institutions
located in jurisdictions that have an intergovernmental agreement with the U.S. governing FATCA may be subject to different rules. The
Fund will not pay Shareholders any additional amounts in respect of amounts withheld under FATCA. You should consult your own tax adviser
regarding FATCA and whether it may be relevant to your ownership and disposition of Shares.
The foregoing tax discussion
is for general information only. The provisions of the Code and regulations thereunder presently in effect as they directly govern the
taxation of the Fund and Shareholders are subject to change by legislative or administrative action, and any such change may be retroactive
with respect to the Fund’s transactions. The foregoing does not represent a detailed description of the U.S. federal income tax
considerations relevant to special classes of taxpayers including, without limitation, financial institutions, insurance companies, pass-through
entities (or investors therein), U.S. shareholders whose “functional currency” is not the U.S. dollar, tax-exempt organizations,
dealers in securities or currencies, traders in securities or commodities that elect mark to market treatment, or persons that will hold
Shares as a position in a “straddle,” “hedge” or as part of a “constructive sale” for U.S. federal
income tax purposes. In addition, this discussion does not address the application of the Medicare tax on net investment income or the
U.S. federal alternative minimum tax.
Shareholders are advised
to consult with their own tax advisers for more detailed information concerning federal income tax matters.
69
Custodian and Transfer Agent
Pursuant to a Custody
Agreement between the Fund and U.S. Bank National Association, located at 1555 North Rivercenter Drive, Suite 302, Milwaukee, Wisconsin
53212 (the “Custodian”), the Custodian serves as the custodian of the Fund’s assets, holds the Fund’s portfolio
securities in safekeeping and keeps all necessary records and documents relating to its duties. The Custodian is compensated with an asset-based
fee plus transaction fees and is reimbursed for out-of-pocket expenses.
U.S. Bancorp Fund Services,
LLC, located at 615 East Michigan Street, Milwaukee, Wisconsin 53202, serves as the Fund’s transfer agent and dividend disbursing
agent with respect to the Shares of the Fund.
70
Independent Registered Public Accounting Firm
Deloitte & Touche
LLP is the independent registered public accounting firm of the Fund and audits the financial statements of the Fund. Deloitte & Touche
LLP is located at 111 South Wacker Drive, Chicago, Illinois 60606.
71
Legal Matters
Paul
Hastings LLP serves as counsel to the Fund. Venable LLP serves as Maryland counsel to the Fund. Paul Hastings LLP may rely on the opinion
of Venable LLP as to certain matters of Maryland law.
72
OAKTREE DIVERSIFIED INCOME FUND INC.
CLASS D SHARES
CLASS T SHARES
CLASS T SHARES
PROSPECTUS
April 29, 2024
All dealers that buy, sell or trade the Fund’s Shares, whether
or not participating in this offering, may be required to deliver a Prospectus in accordance with the terms of the dealers’ agreements
with the Fund’s Distributor.
You should rely only on the information contained
in or incorporated by reference into this Prospectus. The Fund has 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 making an offer of these securities
in any jurisdiction where the offer is not permitted.