to timely, or at all, obtain replacement financing
if the LA is terminated. Were this to happen, the fund would be required to de-leverage, selling securities at a potentially inopportune time and incurring tax consequences. Further, the fund’s ability to
generate income from the use of leverage would be adversely affected.
Note 7—Liquidity Agreement
The fund has entered into a LA with
State Street Bank and Trust Company (SSB) that allows it to borrow or otherwise access up to $91.3 million (maximum facility amount) through a line of credit, securities lending and reverse repurchase agreements. The
amounts outstanding at April 30, 2026 are shown in the Statement of assets and liabilities as the Liquidity agreement.
The fund pledges its assets as
collateral to secure obligations under the LA. The fund retains the risks and rewards of the ownership of assets pledged to secure obligations under the LA and makes these assets available for securities lending and
reverse repurchase transactions with SSB acting as the fund’s authorized agent for these transactions. All transactions initiated through SSB are required to be secured with cash collateral received from the
securities borrower (the Borrower) or cash is received from the reverse repurchase agreement (Reverse Repo) counterparties. Securities lending transactions will be secured with cash collateral in amounts at least
equal to 100% of the market value of the securities utilized in these transactions. Cash received by SSB from securities lending or Reverse Repo transactions is credited against the amounts borrowed under the line of
credit. As of April 30, 2026, the LA balance of $91,300,000 was comprised of $84,244,042 from the line of credit and $7,055,958 cash received by SSB from securities lending or Reverse Repo transactions.
Upon return of securities by the
Borrower or Reverse Repo counterparty, SSB will return the cash collateral to the Borrower or proceeds from the Reverse Repo, as applicable, which will eliminate the credit against the line of credit and will cause
the drawdowns under the line of credit to increase by the amounts returned. Income earned on the loaned securities is retained by SSB, and any interest due on the reverse repurchase agreements is paid by SSB.
SSB has indemnified the fund for
certain losses that may arise if the Borrower or a Reverse Repo Counterparty fails to return securities when due. With respect to securities lending transactions, upon a default of the securities borrower, SSB uses
the collateral received from the Borrower to purchase replacement securities of the same issue, type, class and series. If the value of the collateral is less than the purchase cost of replacement securities, SSB is
responsible for satisfying the shortfall but only to the extent that the shortfall is not due to any of the fund’s losses on the reinvested cash collateral. Although the risk of the loss of the securities is
mitigated by receiving collateral from the Borrower or proceeds from the Reverse Repo counterparty and through SSB indemnification, the fund could experience a delay in recovering securities or could experience a
lower than expected return if the Borrower or Reverse Repo counterparty fails to return the securities on a timely basis.
Interest charged is at the rate of
overnight bank funding rate (OBFR) plus 0.700% and is payable monthly on the aggregate balance of the drawdowns outstanding under the LA. As of April 30, 2026, the fund had an aggregate balance of $91,300,000 at an
interest rate of 4.34%, which is reflected in the Liquidity agreement on the Statement of assets and liabilities. During the six months ended April 30, 2026, the average balance of the LA and the effective average
annual interest rate were $91,300,000 and 4.45%, respectively.
The fund may terminate the LA with
60 days’ notice. If certain asset coverage and collateral requirements, or other covenants are not met, the LA could be deemed in default and result in termination. Absent a default or facility termination
event, SSB is required to provide the fund with 360 days’ notice prior to terminating the LA.
Note 8—Purchase and sale of securities
Purchases and sales of securities,
other than short-term investments and U.S. Treasury obligations, amounted to $39,702,156 and $34,848,737, respectively, for the six months ended April 30, 2026. Purchases and sales of U.S. Treasury obligations
aggregated $10,503,538 and $12,495,856, respectively, for the six months ended April 30, 2026.
