Santander AM. Intermediate Fixed-Income Fund. Prospectus May 14, 2014

Transcription

1 Santander AM Intermediate Fixed-Income Fund Prospectus May 14, 2014 This prospectus contains important information about the shares of Common Stock of the Fund. Please read it before investing and keep it for future reference. Santander AM Intermediate Fixed-Income Fund, Inc.

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3 PROSPECTUS Santander AM Intermediate Fixed-Income Fund, Inc. Common Stock The Fund is a newly organized, non-diversified, open-end management investment company registered under the Puerto Rico Investment Companies Act, as amended. Investment objective: To provide a high level of current income, consistent with the preservation of capital. Principal investment strategies: The Fund invests primarily in fixed-income securities, including U.S. government, mortgage-backed, assetbacked and corporate debt securities and municipal obligations. Normally, at least 20% of the Fund s assets must be invested in taxable Puerto Rico securities. The Fund normally will invest at least 80% of its assets in a diversified portfolio of fixed-income instruments of varying maturities, and normally will maintain an average portfolio duration of less than seven years. The Fund invests at least 95% of its assets in investmentgrade securities, or, if unrated, deemed by the Investment Adviser to be of comparable credit quality. The Fund is authorized to issue preferred stock and debt securities and engage in other forms of leverage to increase amounts available for investment. Common stock offered by the Fund: The Fund offers to the public three classes of shares of common stock: Class A, Class C and Class I, each with different charges and expenses (the Shares ). You should discuss purchase options with your financial consultant to determine which class of Shares represents the best investment option for your particular situation. The initial subscription period for the Shares is scheduled to end on or about May 30, 2014, but may be extended or shortened by the Fund and Santander Securities LLC. A continuous offering of the Shares is expected to commence on the fifth business day after the conclusion of the initial subscription period. The Shares are being offered only to individuals who have their principal residence in Puerto Rico and to entities whose principal office and principal place of business are located in Puerto Rico. Dividends and automatic reinvestment: The Fund intends to declare and distribute monthly dividends of substantially all of its net investment income. All dividends declared and distributed by the Fund will be reinvested automatically in additional Shares of the Fund unless a shareholder elects to receive cash. Risk factors and other investment considerations: The Fund is designed, and is suitable, for long-term investors that are residents of Puerto Rico. The Fund is not a vehicle for trading purposes. The Fund is a non-diversified investment company, and is subject to risks that may result in a loss of your investment. See Risk Factors and Special Considerations beginning on page 12. While the use of leverage provides the opportunity for increased net income, it can create special risks, including higher volatility of the net asset value, market value and dividend rate of the shares of the Fund. See Risk Factors and Special Considerations of Leverage beginning on page 38. The Board of Directors of the Fund has adopted a policy whereby shareholders may redeem their shares of common stock on a daily basis and will receive the net asset value per share less the applicable redemption fee, if any. See Redemption of Shares beginning on page 48. Tax benefits: Dividends received by Qualifying Individuals and Qualifying Corporations that qualify as Exempt Dividends (each as defined herein) will be exempt from Puerto Rico regular income tax and alternative minimum tax. See Tax Matters Puerto Rico Taxation of Fund Shareholders beginning on page 59. Ordinary Dividends (as defined herein) received by Qualifying Individuals, estates and trusts will be subject to a 10% preferential tax to be withheld at source rather than to the regular tax on ordinary income. A portion of Ordinary Dividends may be subject to a tax rate of 15% (instead of the 10% preferential rate), under certain circumstances. See Tax Matters Puerto Rico Taxation of Fund Shareholders beginning on page 59. Investments in the Fund by individuals who acquired their U.S. citizenship by reason of their birth or residence in Puerto Rico and who reside in Puerto Rico at the time of death are not subject to Puerto Rico or U.S. estate taxes. Gain on the sale or redemption of Fund shares held for more than six months is subject to special tax rates for Qualifying Individuals and Qualifying Corporations. (continued on next page) THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE OFFICE OF THE COMMISSIONER OF FINANCIAL INSTITUTIONS OF PUERTO RICO. THE OFFICE OF THE COMMISSIONER OF FINANCIAL INSTITUTIONS HAS NOT MADE ANY DETERMINATION REGARDING THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The shares offered by this prospectus are not deposits or obligations of any bank, are not endorsed or guaranteed by any bank and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Santander Securities LLC - Distributor May 14, 2014

4 THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, OR WITH THE OFFICE OF THE COMMISSIONER OF FINANCIAL INSTITUTIONS OF PUERTO RICO OR ANY OTHER STATE SECURITIES COMMISSION. THE SECURITIES DESCRIBED IN THIS PROSPECTUS ARE OFFERED FOR SALE ONLY IN THE COMMONWEALTH OF PUERTO RICO PURSUANT TO REGISTRATION OF THE FUND WITH THE OFFICE OF THE COMMISSIONER OF FINANCIAL INSTITUTIONS OF PUERTO RICO AS AN INVESTMENT COMPANY UNDER THE PUERTO RICO INVESTMENT COMPANIES ACT, AS AMENDED. THE FUND HAS NOT BEEN REGISTERED UNDER THE U.S. INVESTMENT COMPANY ACT OF THESE SECURITIES ARE BEING OFFERED EXCLUSIVELY TO INDIVIDUALS HAVING THEIR PRINCIPAL RESIDENCE WITHIN THE COMMONWEALTH OF PUERTO RICO AND TO PERSONS, OTHER THAN INDIVIDUALS, WHOSE PRINCIPAL OFFICE AND PRINCIPAL PLACE OF BUSINESS ARE LOCATED WITHIN THE COMMONWEALTH OF PUERTO RICO. (continued from previous page) Other Fund characteristics: The Fund is not a vehicle for trading or seeking exposure in the commodity futures, commodity options or swaps markets. However, the Fund may seek to hedge its portfolio through the use of futures transactions, swaps and options to reduce volatility in both the net asset value of its shares of common stock and its net interest income, subject to the rules and regulations of the U.S. Commodity Futures Trading Commission (the CFTC ). The value of the Shares of the Fund will depend on the value of the underlying investments held by the Fund which will fluctuate with general market economic conditions and other factors that may be beyond the control of the Fund. An investment in the Fund is subject to taxation as described under Tax Matters beginning on page 58. The Fund may enter into various types of transactions with affiliated parties as described in this prospectus. All transactions with affiliates will be subject to procedures adopted by the Board of Directors and, particularly, the Independent Directors of the Board, in an effort to address potential conflicts of interest. There is no assurance that the procedures will be effective. Santander Asset Management, LLC, as investment adviser to the Fund, manages the overall investment policy, strategic asset allocation, portfolio rebalancing and risk management of the Fund s assets. The principal offices of Santander Asset Management, LLC are located at Santander Tower Building, Suite 1800, Tabonuco Street B-7, Guaynabo, Puerto Rico , and its main telephone number is (787) No dealer, salesperson or any other person has been authorized to give any information or to make any representations in connection with this offering other than those contained in this prospectus and you should not rely on such other information and representations. This prospectus does not constitute an offer by the Fund, Santander Securities LLC or any selected dealer to sell or a solicitation of an offer to buy any of the securities offered hereby in any jurisdiction other than the Commonwealth of Puerto Rico.

5 TABLE OF CONTENTS Page PROSPECTUS SUMMARY... 1 FEES AND EXPENSES RISK FACTORS AND SPECIAL CONSIDERATIONS Dividend Risk Risk of Low Level of Capital Manager Risk Fund Investment Risk Fund s Non-Diversified Status Transactions Involving Affiliates; Conflicts of Interest Mortgage-Backed Securities Puerto Rico Obligations U.S. Government Securities Increasing Government Debt Municipal Obligations Build America Bonds Government Intervention in Financial Markets Foreign Securities Fixed-Income Securities Interest Rates CMOs Commercial Mortgage-Backed Securities Other Mortgage-Related Securities CMO Residuals Asset-Backed Securities Preferred Stock Corporate Debt Securities Inverse Floating Obligations Derivative Instruments Futures Contracts and Options on Futures Contracts Swaps, Options and Futures Transactions Potential Government Regulation of Derivatives When-Issued Securities and Delayed-Delivery Transactions Repurchase Agreements Reverse Repurchase Agreements Political Risk Credit Risk Call and Income Risk Temporary Investment Optional Redemption Lower-Rated and Below Investment Grade Securities Borrowing and Leverage Limitation on the Offering and Transfer of Shares Issuer-Specific Changes and Other Risks Inflation and Deflation Valuation of Fund Assets and Illiquid Securities Use of Fair Market Valuation Techniques Change of Law Risk Market Disruption and Geopolitical Risk Geographic Location THE FUND LIMITATIONS ON THE OFFERING AND TRANSFER OF SHARES INVESTMENT OBJECTIVE AND POLICIES Other Investment Policies and Practices Page RISK FACTORS AND SPECIAL CONSIDERATIONS OF LEVERAGE Effects of Leverage Portfolio Management and Other Considerations INVESTMENT RESTRICTIONS CHOOSING A SHARE CLASS TO BUY COMPARING THE FUND CLASSES PURCHASE OF SHARES Purchase of Class A Shares Purchase of Class C Shares Purchase of Class I Shares Initial Subscription Period for Shares Continuous Offering of Shares Distribution Plan for Shares REDEMPTION OF SHARES Redemption Repurchase Redemption Fees DIRECTORS AND OFFICERS Compensation of Directors Indemnification of Directors INVESTMENT ADVISORY AND ADMINISTRATIVE ARRANGEMENTS Investment Adviser Administrator Transfer Agent and Sub-Transfer Agent Custodian Distributor Banking Relationship PORTFOLIO TRANSACTIONS Portfolio Turnover Transactions Involving Affiliates DIVIDENDS AND DISTRIBUTIONS AUTOMATIC DIVIDEND REINVESTMENT PLAN TAX MATTERS Puerto Rico Taxation of the Fund Puerto Rico Taxation of Fund Shareholders United States Taxation of the Fund United States Taxation of Qualifying Investors NET ASSET VALUE PERFORMANCE INFORMATION EXCHANGING SHARES PRIVACY POLICY LEGAL MATTERS AND AUDITORS GENERAL INFORMATION Reports to Shareholders Additional Information APPENDICES Appendix A Securities in which the Fund May Invest... A-1 Appendix B Ratings of Municipal Obligations and Debt Securities... B-1 Appendix C Hedging and Related Income Strategies... C-1 Appendix D Privacy Policy... D-1 Appendix E Puerto Rico Residency Representation Letter... E-1 Appendix F Letter of Intent and Right of Accumulation... F-1 i

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7 PROSPECTUS SUMMARY This summary is qualified in its entirety by reference to more detailed information included elsewhere in this prospectus and to the Certificate of Incorporation and By-Laws of the Fund, all other relevant documents referred to herein, and all applicable statutory and regulatory provisions. A copy of the Certificate of Incorporation and By-Laws of the Fund may be examined at the offices of Santander Asset Management, LLC located at Santander Tower Building, Suite 1800, Tabonuco Street B-7, Guaynabo, Puerto Rico The Fund...Santander AM Intermediate Fixed-Income Fund, Inc. (the Fund ) is a newly organized, non-diversified, open-end management investment company. The Fund is incorporated under the laws of the Commonwealth of Puerto Rico and is registered as an investment company under the Investment Companies Act of Puerto Rico (the Puerto Rico Investment Companies Act ). See The Fund. Risk Factors...The Fund is subject to risks that may result in a loss of all or a portion of your investment. See Risk Factors and Special Considerations. The Offering...The Fund is offering shares of its Class A common stock (the Class A Shares ), Class C common stock (the Class C Shares ) and Class I common stock (the Class I Shares and, together with the Class A Shares and Class C Shares, the Shares or the Common Stock ) to the public at a purchase price per unit of $10.00, plus the applicable sales charge (as described elsewhere in this prospectus), during an initial subscription period that is scheduled to end on or about May 30, Shares may be purchased through Santander Securities LLC, a securities broker-dealer registered in Puerto Rico ( Santander Securities or the Distributor ) and other securities dealers that have entered into selected dealer agreements with Santander Securities. During the initial subscription period, the Fund will offer its Class A Shares to the public at a purchase price per unit of $10.00, plus a maximum initial sales charge of 2.75%. The initial sales charge will be reduced gradually for purchases of $100,000 or more, and will be eliminated for purchases of $2,000,000 or more, in a single transaction or in several transactions pursuant to such shareholder s Right of Accumulation or a Letter of Intent. Class A Shares are subject to a higher account maintenance and distribution fee and administrative fee than the Class I Shares, but lower than Class C Shares. A contingent deferred sales charge of 1.00% will be assessed on redemptions of Class A Shares made within one year after purchase where no initial sales charge was paid at time of purchase as part of an investment of $2,000,000 or more (whether in a single transaction or in several transactions pursuant to such shareholder s Right of Accumulation or a Letter of Intent); otherwise, Class A Shares will not be subject to a contingent deferred sales charge upon redemption. See Purchase of Shares Purchase of Class A Shares, Right of Accumulation and Letter of Intent. During the initial subscription period, the Fund will offer its Class C Shares to the public at a purchase price per unit of $10.00, without a sales charge. However, Class C Shares are subject to a higher account maintenance and distribution fee and administrative fee than the Class A Shares or Class I Shares. Class C Shares are not subject to a contingent deferred sales charge upon redemption. The maximum investment in one or more transactions is $1,000,000 (not including Class C Shares acquired pursuant to the Fund s Automatic Dividend Reinvestment Program). The Fund reserves the right to waive or modify this requirement at any time.

8 Class C Shares held for approximately five years will be converted automatically to Class A Shares. See Purchase of Shares Purchase of Class C Shares. During the initial subscription period, the Fund will offer its Class I Shares to the public at a purchase price per unit of $10.00, without a sales charge. Moreover, Class I Shares are not subject to an account maintenance and distribution fee, and are not subject to a contingent deferred sales charge upon redemption. See Purchase of Shares Purchase of Class I Shares. Subscriptions for Shares must be made through a brokerage account maintained with the Distributor or with the Puerto Rico branch of a broker-dealer or financial institution in the selling group. Shares of the Fund subscribed for during the initial subscription period for which the Distributor accepts purchase orders will be issued and sold by the Fund on the third Business Day after the end of the initial subscription period (the Initial Settlement Date ). The Distributor may extend or shorten the initial subscription period. The Fund and the Distributor may in their discretion determine to withdraw the offering of the Fund s Class A, Class C or Class I Shares without notice for any reason before the end of the initial subscription period. The Fund also reserves the right to refuse, in whole or in part, any order for Shares of the Fund. On the fifth Business Day after the Initial Settlement Date, the Distributor expects to commence a continuous offering of the Shares to the public at a price equal to the net asset value ( NAV ) per share next determined after a purchase order is received and becomes effective plus any applicable sales charge. See Net Asset Value. As described elsewhere in this document, the maximum applicable sales charge during the continuous offering of the Class A Shares will be 2.75%. Such initial sales charge will be reduced gradually for purchases of $100,000 or more, and will be eliminated for purchases of $2,000,000 or more, in a single transaction or in several transactions pursuant to such shareholder s Right of Accumulation or a Letter of Intent. Class A Shares are subject to a higher account maintenance and distribution fee and administrative fee than the Class I Shares, but lower than Class C Shares. A contingent deferred sales charge of 1.00% will be assessed on redemptions of Class A Shares made within one year after purchase where no initial sales charge was paid at time of purchase as part of an investment of $2,000,000 or more (whether in a single transaction or in several transactions pursuant to such shareholder s Right of Accumulation or a Letter of Intent); otherwise, Class A Shares will not be subject to a contingent deferred sales charge upon redemption. See Purchase of Shares, Purchase of Class A Shares Right of Accumulation and Letter of Intent. During the continuous offering, Class C Shares will be offered at a price equal to the NAV per share next determined after a purchase order is received, without a sales charge. However, Class C Shares are subject to a higher account maintenance and distribution fee and administrative fee than the Class A Shares or Class I Shares. Class C Shares are not subject to a contingent deferred sales charge upon redemption. The maximum investment in one or more transactions is $1,000,000 (not including Class C Shares acquired pursuant to the Fund s Automatic Dividend Reinvestment Program). The Fund reserves the right to waive or modify this requirement at any time. Class C Shares held for approximately five 2

9 years will be converted automatically to Class A Shares. See Purchase of Shares Purchase of Class C Shares. During the continuous offering, Class I Shares will be offered at a price equal to the NAV per share next determined after a purchase order is received, without a sales charge. Moreover, Class I Shares are not subject to an account maintenance and distribution fee, and are not subject to a contingent deferred sales charge upon redemption. See Purchase of Shares Purchase of Class I Shares. For each of the Class A and Class C Shares, the minimum initial investment is $5,000 and the minimum subsequent investment is $100. The Fund reserves the right to waive or modify the initial and subsequent investment requirements at any time. Class C Shares held for approximately five years will be converted automatically to Class A Shares. See Fees and Expenses and Purchase of Shares. For Class I Shares, except for shares purchased by clients of financial intermediary platforms under which they pay asset-based fees, such as mutual fund wrap fee programs, managed account programs, asset allocation programs, bank trust programs and certain retirement platforms ( Financial Intermediary Platforms ), the minimum initial investment is $2,000,000 and the minimum subsequent investment is $100. In the case of Class I Shares purchased by clients of Financial Intermediary Platforms, the minimum initial investment is $5,000 and the minimum subsequent investment is $100. The Fund reserves the right to waive or modify the initial and subsequent investment requirements at any time. See Fees and Expenses and Purchase of Shares. To permit the Fund to invest the net proceeds from the sale of its Shares in an orderly manner, the Fund may, from time to time, suspend the sale of its Shares. A suspension of issuances of Shares could result in the acceleration of certain of the Fund s debt obligations. Payment of such obligations could decrease the assets of the Fund. See Purchase of Shares. Restrictions...The Class A and Class C are being offered for sale exclusively to individuals who maintain their principal residence in Puerto Rico and to entities that have their principal office and principal place of business in Puerto Rico. Class I Shares are being offered for sale exclusively to individuals who maintain their principal residence in Puerto Rico and entities that have their principal office and principal place of business in Puerto Rico that are (i) clients of Financial Intermediary Platforms, (ii) employer-sponsored retirement plans, pension plans and profit-sharing plans that are not subject to ERISA, (iii) endowment funds and foundations, (iv) Puerto Rico government instrumentalities, departments, authorities or agencies or municipalities, and (v) accredited investors as defined in Rule 501 of Regulation D under the Securities Act of For purposes of this prospectus, entities having their principal office and principal place of business in Puerto Rico are considered to be residents of Puerto Rico. Investors will be required to deliver a Puerto Rico Residency Representation Letter in the form of Appendix E to this prospectus. The Shares may be sold, pledged, hypothecated or otherwise transferred exclusively to residents of Puerto Rico. Shareholders who cease to be Puerto Rico residents will not have available the tax benefits that make the Fund an attractive investment, and such shareholders have an obligation to notify the Distributor or the Selected Dealer where the Shareholder maintains the account that holds the Shares of the Fund, within 30 days of 3

10 ceasing to be Puerto Rico residents, to redeem their Shares as soon as it becomes economically feasible to do so, and to agree not to purchase any more Shares. The Distributor, the Selected Dealers, and the Transfer Agent will be implementing various procedures to verify periodically Shareholder residence on behalf of the Fund, and have an obligation to inform the Fund of any Shareholders who cease to be residents of Puerto Rico and to provide the Fund with such additional information as required for compliance with the regulations issued by the U.S. Department of the Treasury and the IRS on January 17, 2013 (the FATCA Regulations ). The Fund reserves the right to act on such information and redeem any Shares owned by a shareholder who ceases to be a resident of Puerto Rico. See Risk Factors and Special Considerations Limitations on the Offering and Transfer of Shares, Limitations on the Offering and Transfer of Shares and Appendix E Puerto Rico Residency Representation Letter. Investment Objective and Investment Policies...The Fund s investment objective is to provide shareholders with a high level of current income, consistent with the preservation of capital. There can be no guarantee that the Fund will meet its investment objective or that the Fund s performance will be positive for any period of time. An investment in the Fund is not guaranteed. The Fund seeks to achieve its investment objective by investing, under normal market conditions, up to 80% of its assets in non-puerto Rico fixed-income securities, including U.S. government, mortgage-backed, asset-backed and corporate debt securities. To comply with Puerto Rico regulatory requirements, the Fund normally will invest at least 20% of its assets in Puerto Rico fixed-income securities the interest on which is taxable under the Puerto Rico Internal Revenue Code of 2011, as amended (the Puerto Rico Code ). The Fund may not invest more than 15% of its total assets in securities of foreign issuers. In addition, the Fund will seek to invest, under normal market conditions, at least 80% of its assets in a diversified portfolio of fixed income instruments of varying maturities, and normally will maintain an average portfolio duration of less than seven years. The Fund may not invest in common stock of any type without the specific approval of its Board of Directors. The Fund may invest in securities having a wide range of maturities. In addition, the Fund may invest all or a portion of its assets in short-term investments for temporary or defensive purposes, subject to certain conditions specified in the Commissioner s Ruling (as defined herein). See Investment Objective and Policies. The Fund intends to invest at least 95% of its total assets in securities that, at the time of purchase, are rated within the four highest investment grade categories by Moody s Investors Service, Inc. ( Moody s ), Standard & Poor s Ratings Group ( S&P ), Fitch Ratings ( Fitch ) or any other nationally recognized statistical rating organization ( NRSRO ) or, if not rated, are considered by the Investment Adviser to be of comparable credit quality. The Fund may invest up to 5% of its total assets in securities that, at the time of purchase, are rated below investment grade or, if unrated, that are considered by the Investment Adviser to be below investment grade. Santander Asset Management, LLC ( SAM or the Investment Adviser ) has the responsibility for determining whether an unrated security is of a credit quality that is comparable to that of a security rated investment grade by a nationally recognized statistical rating organization, 4

11 and can therefore be purchased by the Fund without regard to the 5% limitation on securities rated below investment grade. To the extent that the Investment Adviser incorrectly assesses the credit quality of an unrated security, the Fund may be exposed to a greater degree of credit risk. The Fund is not a vehicle for trading or seeking exposure in the commodity futures, commodity options or swaps markets. However, in order to hedge various portfolio positions or to enhance portfolio returns, the Fund may invest, subject to applicable regulations, in certain instruments that may be characterized as derivatives or synthetic instruments. These investments include, among other things, mortgagebacked securities, various types of options transactions, futures transactions and options thereon and interest rate swaps, caps and floors. Such investments also may consist of indexed securities, including inverse securities. For a discussion of the risks associated with these investments, see Risk Factors and Special Considerations, Investment Objective and Policies Other Investment Policies and Practices Call Rights and Swaps, Options and Futures Transactions, and Appendix A Securities in Which the Fund May Invest. Intermediate Duration...While it is anticipated that the Fund will invest substantially all of its assets in securities having a wide range of maturities, including securities with maturities of 30 years or more, the Fund normally will maintain an average duration of less than seven years. Redemptions...It is not currently anticipated that a secondary market will develop for the Shares. The Fund s Certificate of Incorporation, however, provides that the Board of Directors of the Fund, not less frequently than once each year, shall permit shareholders to redeem their shares of Common Stock at periodic intervals. The Board of Directors of the Fund has adopted a policy that allows shareholders to redeem their Shares on a daily basis at a price per share equal to their respective net asset value per share determined as of the close of trading on the New York Stock Exchange ( NYSE ) based on prices at the time of closing (generally, the NYSE closes at 4:00 p.m., prevailing Eastern Time) on each Business Day (as defined herein). See Redemption of Shares. Class A Shares, Class C Shares and Class I Shares that are redeemed by a shareholder that has held such Shares for 60 days or less prior to redemption will be subject to a redemption fee of 1.00% of the net asset value of the class of Shares being redeemed. There is no redemption fee for Class A Shares, Class C Shares or Class I Shares redeemed after having been held for at least 60 days prior to redemption. The redemption fees are designed to discourage short-term trading in Class A, Class C and Class I Shares of the Fund. The redemption fees will be used to compensate the Fund for expenses directly related to redemption. See Redemption of Shares Redemption Fees. A contingent deferred sales charge of 1.00% will be assessed on redemptions of Class A Shares made within one year after purchase where no initial sales charge was paid at time of purchase as part of an investment of $2,000,000 or more (whether in a single transaction or in several transactions pursuant to such shareholder s Right of Accumulation or a Letter of Intent; otherwise, Class A Shares will not be subject to a contingent deferred sales charge upon redemption. Class C Shares and Class I Shares that are redeemed will not be subject to a contingent deferred sales charge. 5

12 The right to redeem Shares on a daily basis may be suspended for periods during which trading on the NYSE is restricted or the NYSE is closed or banks in the Commonwealth of Puerto Rico are closed for business (other than weekend and holiday closings), for any period during which an emergency exists as a result of which disposal of portfolio securities or determination of the net asset value per Share of the Fund is not reasonably practicable, and for such other periods as the Board of Directors determines that such a suspension of daily redemptions is, in their discretion, appropriate. The Board of Directors of the Fund also reserves the right to alter its policy of redeeming Shares on a daily basis. A suspension of redemptions of Shares could result in the acceleration of certain of the Fund s debt obligations in cases in which the offering documents for such debt obligations contain a covenant restricting suspensions of redemptions. Payment of such obligations could decrease the assets of the Fund. See Redemption of Shares. The Fund reserves the right to redeem all Class A Shares, Class C Shares or Class I Shares if, after one year following the commencement of the Fund s operations, the net assets of such class of common stock are less than $25 million. For a detailed description of this right, see Risk Factors and Special Considerations Optional Redemption and Redemption of Shares. Leverage...The Fund may increase amounts available for investment through the use of leverage. The Fund also may utilize leverage to pay for redemptions of its Shares or to pay certain expenses of the Fund. The Fund contemplates using leverage in order to seek to enhance its potential to provide a high level of current income and total return. The Fund may borrow money from banks or other financial institutions, enter into reverse repurchase agreements and dollar rolls and offer commercial paper and other debt securities or shares of preferred stock. All such forms of leverage may represent in the aggregate up to 50% of the Fund s total assets immediately after such leverage. The proceeds from such leverage will be invested in longer-term obligations in accordance with the Fund s investment objective. Issuance and ongoing expenses of such leverage will be borne by the Fund and will reduce the net asset value of the Shares. The use of leverage by the Fund creates an opportunity for increased net income but, at the same time, creates special risks. Because, under normal market conditions, obligations with longer-term or medium-term maturities produce higher yields than short-term obligations, the Investment Adviser believes that the spread inherent in the difference between the short-term rates paid by the Fund in the course of leveraging and the longer-term and medium-term rates received by the Fund from securities purchased with the proceeds of such leverage will provide holders of Shares with a potentially higher yield. Investors should note, however, that leverage creates certain risks for holders of Shares, including higher volatility in the net asset value and market value of the Shares as well as in the dividend rate paid by the Fund on its Shares. Since any decline in the value of the Fund s investments will be borne entirely by holders of Shares, the effect of leverage in a declining market would result in a greater decrease in net asset value per share than if the Fund were not leveraged, which likely would be reflected in a decline in the market price of the Shares. Additionally, fluctuations in 6

13 the dividend rate on, and the amount of taxable income allocable to, the preferred stock will affect the yield to holders of Shares. See Risk Factors and Special Considerations of Leverage. The Fund may, but is not obligated to, use derivatives, such as interest-rate swaps, subject to applicable regulations, in order to fix the rate after expenses (or all-in rate ) paid on a significant portion of the Fund s leverage in an effort to lower leverage costs over an extended period. There can be no guarantee that any such efforts will be successful. The Fund is not a vehicle for trading or seeking exposure in the commodity futures, commodity options or swaps markets. See Risk Factors and Special Considerations Derivative Transactions, Swaps, Options and Futures Transactions and Risk Factors and Special Considerations of Leverage. Holders of Shares will receive substantially all net income of the Fund remaining after payment of interest or dividends associated with leverage and any preferred stock issued by the Fund and other Fund expenses and will generally be entitled to a pro-rata share of net realized capital gains. Upon any liquidation of the Fund, the holders of shares of any outstanding preferred stock will be entitled to receive liquidating distributions before any distribution is made to holders of Shares. See The Fund. Investment Adviser...Santander Asset Management, LLC is the Fund s investment adviser responsible for the management of the assets of the Fund, subject to the discretion of the Fund s Board of Directors. SAM is an indirect subsidiary of Banco Santander, S.A. and thus is under common control with, and is an affiliate of, Santander Securities, the Fund s distributor, and Banco Santander Puerto Rico, the Fund s transfer agent. See Investment Advisory and Administrative Arrangements Investment Adviser. Administrator...SAM is the Fund s administrator. See Investment Advisory and Administrative Arrangements Administrator. Transfer Agent...Banco Santander Puerto Rico ( Banco Santander ) is the Fund s transfer agent. Banco Santander is an indirect subsidiary of Banco Santander, S.A. and thus is under common control with, and is an affiliate of, SAM, the Fund s investment adviser and administrator, and Santander Securities, the Fund s distributor. Banco Santander and the Fund have engaged BNY Mellon Investment Servicing (US) Inc. to act as sub-transfer agent. See Investment Advisory and Administrative Arrangements Transfer Agent and Sub-Transfer Agent. Custodian...Citibank, N.A. is the Fund s custodian. See Investment Advisory and Administrative Arrangements Custodian. Distribution Plan...The Fund has adopted a distribution plan for its Class A and Class C Shares (the Distribution Plan ) that permits it to pay account maintenance and distribution fees to support the sale and distribution of shares and services provided to investors by Santander Securities or other brokers or financial institutions. The Distribution Plan provides that the Fund pays Santander Securities an account maintenance and distribution fee, accrued daily and paid monthly, at the annual rate of 0.25% and 1.10%, respectively, of the average daily net assets of the Fund (excluding outstanding leverage) related to the Class A and Class C Shares in order to compensate the Distributor and securities firms with which the Distributor enters into related agreements (including clearing brokers) for providing certain distribution-related activities (including networking, record- 7

14 keeping and other shareholder services) with respect to holders of Class A and Class C Shares of the Fund. Average daily net assets is defined herein under Investment Advisory and Administration Arrangements Investment Adviser. See Purchase of Shares Distribution Plan for Shares. Dividends and Distributions...The Fund intends to distribute monthly dividends of substantially all of its net investment income, if any, to holders of Class A, Class C and Class I Shares. The per-share dividends on Class C Shares of the Fund will be lower than the per-share dividends on Class A Shares, principally as a result of the higher account maintenance and distribution fees applicable to Class C Shares. The per-share dividends on Class I Shares of the Fund will be higher than the per-share dividends on Class A or Class C Shares, principally as a result of the absence of an account maintenance and distribution fees applicable to Class I Shares, but holders of Class I Shares who are clients of Financial Intermediary Platforms should keep in mind that their financial intermediary may charge them additional fees other than those set forth in this Prospectus. Please note that dividend rates will vary from month to month, and that the Fund does not intend to maintain a stable dividend. Monthly distributions to holders of Class A, Class C and Class I Shares will consist of all or a portion of its net investment income, if any, remaining after the payment of interest expense or dividends in connection with the Fund s leverage program and other Fund expenses. At times, the Fund may pay out less than all of its net investment income or pay out accumulated undistributed income in addition to current net investment income. Net capital gains, if any, will be retained by the Fund, unless the Board of Directors determines that capital gains must be distributed to holders of Common Stock and preferred stock in order to ensure advantageous tax treatment for the Fund. See Dividends and Distributions and Tax Matters. Dividends to be paid by the Fund will be declared by the Fund s Board of Directors or Dividend Committee, at its sole discretion, and are paid out of the net investment income available for distribution to holders of Shares. Dividend rates may fluctuate from month to month, and the Fund cannot guarantee any particular dividend level. See Risk Factors and Special Considerations Dividend Risk. Ordinary Dividends (as defined below under Tax Matters ) distributed to investors will be distributed net of a 10% Puerto Rico income tax withholding, which will be automatically withheld at the source by the issuing and paying agent of the Fund. A portion of Ordinary Dividends may be subject to a tax rate of 15% (instead of the 10% preferential rate), under certain circumstances. See Dividends and Distributions and Tax Matters. Tax Matters...In the opinion of Pietrantoni Méndez & Alvarez LLC, counsel to the Fund, (i) amounts distributed as Exempt Dividends (see Tax Matters ) on the Fund s Common Stock will be exempt from (a) Puerto Rico regular income tax and alternative minimum tax; and (b) municipal license taxes in the case of investors that are individuals, estates or trusts; (ii) amounts distributed as Ordinary Dividends (see Tax Matters ) on the Fund s Common Stock will be subject to regular Puerto Rico income tax at a 10% preferential rate in the case of individuals, estates or trusts, 8

15 except that a portion of Ordinary Dividends may be subject to a tax rate of 15% (instead of the 10% preferential rate), under certain circumstances ; (iii) individual shareholders should take into consideration Ordinary Dividends and long-term capital gains subject to special tax rates for computing their net income subject to alternative minimum tax; (iv) Qualifying Corporations (see Tax Matters ) will be subject to regular and alternative minimum tax on Ordinary Dividends and will qualify for an 85% dividends received deduction for Ordinary Dividends received. The alternative minimum tax liability of some Qualifying Corporations will include an additional tax component based on gross revenues, which will include Ordinary Dividends; (v) by purchasing Common Stock of the Fund, investors will be agreeing irrevocably to be subject to a 10% Puerto Rico income tax withholding that will be automatically withheld at source by the Fund or its paying agent on amounts distributed as Ordinary Dividends; (vi) the Common Stock will be exempt from Puerto Rico personal property taxes and will not be subject to U.S. federal and Puerto Rico estate taxes in the hands of certain investors who are residents of Puerto Rico; (vii) the Fund will not be engaged in a U.S. trade or business and will not be subject to U.S. federal income tax on portfolio interest; (viii) the dividends paid by the Fund will constitute income from sources within Puerto Rico and as such will not be subject to U.S. federal income tax when received by (a) individuals who are bona fide residents of Puerto Rico during the entire taxable year of receipt, and who own, directly or indirectly, less than 10% of the total Common Stock of the Fund, (b) Puerto Rico corporations that are not engaged in a U.S. trade or business to which the dividends are effectively connected, or (c) Puerto Rico corporations that are engaged in a U.S. trade or business, but for which its investment in the Fund is not effectively connected to its U.S. trade or business; and (ix) gains on the sale or redemption of the Common Stock held for more than six months which are considered long-term capital gains are subject to special tax rates for Qualifying Individuals and Qualifying Corporations (see Tax Matters ). Automatic Dividend Reinvestment Plan...All dividend distributions declared and distributed by the Fund to shareholders will be reinvested automatically in additional Shares unless such shareholder elects to receive cash. Distributions of Ordinary Dividends, whether automatically reinvested or paid in cash, will be paid to shareholders net of the applicable withholding tax. Shareholders whose Shares are held in the name of a broker or nominee should contact such broker or nominee to confirm that they may participate in the Fund s dividend reinvestment plan. See Automatic Dividend Reinvestment Plan. 9

16 Transactions Involving Affiliates...The Fund may enter into various types of transactions with affiliated parties as described in this prospectus. All transactions with affiliates will be subject to procedures adopted by the Board of Directors and, particularly, the Independent Directors of the Board, in an effort to address potential conflicts of interest. There is no assurance that the procedures will be effective. See Portfolio Transactions Transactions Involving Affiliates. 10

17 FEES AND EXPENSES The following table describes the fees and expenses that you may pay if you buy and hold Shares of the Fund. Shareholders transaction expenses, such as initial sales charges, redemption fees or contingent deferred sales charges, are charged directly to an investor s account when the shareholder buys or sells Shares of the Fund. Annual Fund operating expenses are paid out of the Fund s assets and include fees for portfolio management, maintenance of shareholder accounts, shareholder servicing, accounting and other expenses. You do not pay these fees directly but, as the example below shows, these costs are borne indirectly by all Fund shareholders. Shareholder Transaction Expenses: Class A Class C Class I Maximum Sales Charge or Load (as a percentage of offering price) (1) % None None Maximum Redemption Fee % (2) 1.00% (2) 1.00% (2) Contingent Deferred Sales Charge... None (3) None None Annual Fund Operating Expenses (as a percentage of average daily net assets) Investment Advisory Fees (4) % 0.50% 0.50% Account Maintenance and Distribution Fees (4) % 1.10% None Maximum Administration Fee (5) % 0.13% 0.13% Other Expenses (6) % 0.02% 0.02% Total Annual Operating Expenses (7) % 1.75 % 0.65 % (1) (2) (3) (4) (5) (6) (7) The initial sales charge on purchases of Class A Shares decreases gradually with the size of the purchase and will be eliminated for purchases of $2,000,000 or more or in several transactions pursuant to such shareholder s Right of Accumulation or a Letter of Intent. See Purchase of Shares Purchase of Class A Shares Right of Accumulation and Letter of Intent. Class A, Class C and Class I Shares redeemed within 60 days of purchase are subject to certain redemption fees. See Purchase of Shares and Redemption of Shares. The Class A, Class C and Class I Shares acquired through the Fund s dividend reinvestment plan are not subject to initial sales charges or to any redemption fees or contingent deferred sales charges upon redemption. See Automatic Dividend Reinvestment Plan. Redemption fees are applicable only in cases of redemptions of Class A Shares, Class C Shares and Class I Shares within 60 days of purchase, and are based on the net asset value of such shares at the time of the redemption or exchange. A contingent deferred sales charge of 1.00% will be assessed on redemptions of Class A Shares made within one year after purchase where no initial sales charge was paid at time of purchase as part of an investment of $2,000,000 or more (whether in a single transaction or in several transactions pursuant to such shareholder s Right of Accumulation or a Letter of Intent). Investment advisory fees, which are indirectly paid by shareholders, and administrative fees, will be charged as a percentage of average daily net assets (including the assets purchased with the proceeds of leverage). Account maintenance and distribution fees to support the sale and distribution of shares and services provided to investors by Santander Securities or other broker-dealers or financial institutions, which also are indirectly paid by shareholders, will be charged as a percentage of average daily net assets, excluding the assets purchased with the proceeds of leverage attributable to each class of Shares. Administration fees are reduced gradually for average daily net assets of the Fund (including the assets purchased with the proceeds of leverage) above $250,000,000, down to a minimum of 0.07% for average daily net assets (including the assets purchased with the proceeds of leverage) above $500,000,000. See Investment Advisory and Administrative Arrangements Administrator. Other Expenses do not include interest payments on borrowed funds, taxes, brokerage commissions or extraordinary expenses. There is no guarantee that actual expenses will be the same as those shown on the table. Until at least June 30, 2016, SAM has agreed to reimburse the Fund to the extent that total annual operating expenses (including the investment advisory fees but excluding interest, taxes, brokerage commissions and extraordinary expenses) for Class A Shares, Class C and Class I Shares exceed 0.90%, 1.75% and 0.65% of each class s average daily net assets (including the assets purchased with the proceeds of leverage), respectively. Under the Investment Advisory Agreement between SAM and the Fund, any reduction in SAM s management fees as a result of SAM s fee waivers may be recovered by SAM within the first two fiscal years following such fee waiver if overall Fund expenses fall below these percentage limitations. The Fund may borrow money through, among other things, the issuance of preferred stock and debt securities, and other forms of leverage. As a result of any such borrowing, the Fund will incur interest costs not reflected in the preceding table. Assuming the utilization of leverage by borrowing in the amount of approximately 50% of the Fund s total assets, and an annual interest rate (including dividends on preferred stock) of 2.50% payable on such leverage based on market rates as of the date of this prospectus, the annual portfolio yield on the assets that the Fund s portfolio must experience (net of expenses) in order to cover such interest payments would be 1.25%. The actual cost of leverage (including dividends on preferred stock) will be based on market rates at the time the Fund undertakes a leveraging strategy, and such actual cost of leverage may be higher or lower than the assumed cost, as more fully described in the section entitled Risk Factors and Special Considerations of Leverage in this prospectus. 11

18 Example This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes the payment by the Fund of operating expenses set forth in the table above. The rows entitled Assuming Leverage also assume the utilization of leverage by borrowing in the amount of approximately 50% of the Fund s total assets. Based on this level of borrowing, it is estimated that, as a percentage of net assets attributable to common stock (excluding the assets purchased with the proceeds of leverage), the investment advisory fees would be 1.00%, the administration fees would be up to 0.26%, and Other Expenses would be 0.04%. In addition, for purposes of the example, SAM has estimated, based on present market conditions, that interest payments on borrowed funds and dividend payments on preferred shares would be 0.50%. Thus, the Fund s total operating expenses as a percentage of net assets attributable to common stock (excluding the assets purchased with the proceeds of leverage) and as a percentage of net assets of the Fund (including the assets purchased with the proceeds of leverage) would be 2.05% and 1.15%, respectively, for Class A Shares; 2.90% and 2.00%, respectively, for Class C Shares; and 1.80% and 0.90%, respectively, for Class I Shares. Since the sole purpose of the example is to illustrate the expenses associated with an investment in the Fund s Shares, it does not take into consideration the income earned on assets acquired with leverage. This income could offset some or all of the cost associated with the Fund s leverage. The Fund s intent is to use leverage only when it believes that it can invest the proceeds of the leverage in assets that will earn a return in excess of the cost of leverage net of expenses. The Fund makes no assurance that additional yield will result from its use of leverage. This example assumes that you invest $10,000 in the Fund s Shares for the time periods indicated. This example also assumes: (i) the deduction of a 2.75% initial sales load at the time of purchase of Class A Shares and no initial sales load at the time of purchase of Class C Shares or Class I Shares, (ii) a 3.75% return each year, (iii) the deduction of the total annual operating expenses described above and, in the case of the rows entitled Assuming Leverage, the cost of leverage described above, (iv) the automatic conversion of Class C Shares to Class A Shares at the end of the fifth year of issuance, and (v) the reinvestment of all dividends and other distributions at net asset value. Assuming No Leverage 1 year 3 years 5 years 10 years Class A $ 364 $ 549 $ 745 $1,286 Class C ,935 Class I Assuming Leverage Class A ,315 2,447 Class C ,528 3,223 Class I ,116 This example also provides you with a means for comparison with the expense levels of other investment companies with different fee structures over varying investment periods. To facilitate such comparison, the Fund has assumed that its annual return will be 3.75%. This example should not be considered a representation of future expenses or annual rates of return. Actual expenses or annual rates of return may be more or less than those assumed for purposes of the example. RISK FACTORS AND SPECIAL CONSIDERATIONS There can be no guarantee that the Fund will meet its investment objective or that the Fund s performance will be positive for any period of time. An investment in the Fund is not guaranteed. There is a risk that you could lose all or a portion of your investment in the Fund and that the income you will receive from your investment may vary. The net asset value of the Fund s Shares, and the dividend rate paid by the Fund on its Shares, will go up and down with interest rate changes as well as with the prices of the securities in which the Fund invests. These fluctuations are likely to be greater in the case of a fund having a leveraged capital structure, such as the Fund. See Risk Factors and Special Considerations of Leverage. 12

19 As a newly organized entity, the Fund has no operating history. The Fund expects that there will be no secondary market for its Shares, although the Board of Directors of the Fund has adopted a policy whereby Shares are redeemable on a daily basis. Because of the initial sales charge imposed on the Class A Shares, the redemption fee imposed on Class A, Class C and Class I Shares held for 60 days or less, and the lack of a secondary market for Class A, Class C and Class I Shares, the Fund is designed, and is suitable, for long-term investors and should not be considered a vehicle for trading purposes. Upon the issuance by the Fund of commercial paper or other debt securities or shares of preferred stock, the Fund may be subject to certain restrictions on its investments imposed by one or more nationally recognized statistical rating organizations ( NRSROs ) that may issue ratings of such securities. The NRSRO leverage guidelines may impose asset coverage or portfolio composition requirements that are more stringent than those imposed by the Fund s investment policies. It is not anticipated that these guidelines will impede the Investment Adviser from managing the Fund s portfolio in accordance with the Fund s investment objective and policies. Dividend Risk The Fund intends to distribute monthly dividends equal to substantially all of its net investment income, if any, and annual dividends equal to substantially all of its net capital gains, unless the Fund s Board of Directors deems it advisable to retain some or all of the net capital gains, as permitted under Puerto Rico law. Dividends to be paid by the Fund will be declared by the Fund s Board of Directors or Dividend Committee, at its sole discretion, and are paid out of the net investment income available for distribution to holders of Shares. Dividend rates may fluctuate from month to month, and the Fund does not intend to maintain a stable dividend. The Fund cannot guarantee any particular dividend level. Risk of Low Level of Capital If the Fund does not raise a sufficient amount of capital to establish economies of scale, or to the extent that redemptions of Shares cause the Fund s capital to reach a low level, the Fund s fixed expenses would increase when expressed as a percentage of the Fund s assets. While SAM has agreed to waive or reimburse, until at least June 30, 2016, a portion of its investment advisory fees to the extent necessary to prevent the total operating expenses for the Class A Shares, the Class C Shares and the Class I Shares from exceeding 0.90%, 1.75% and 0.65% of each class s average daily net assets (including the assets purchased with the proceeds of leverage), respectively, it reserves the right to discontinue any voluntary waiver of its fees or reimbursements to the Fund in the future. See Fees and Expenses and Investment Advisory and Administrative Arrangements Investment Adviser. Manager Risk The Fund is subject to manager risk, which is the chance that poor security selection by the investment adviser will cause the Fund to underperform other funds with a similar investment objective. Fund Investment Risk An investment in the Fund is not equivalent to an investment in the underlying securities held by the Fund. Fund s Non-Diversified Status The Fund is classified as a non-diversified management investment company. This means that the Fund may invest a greater portion of its assets in a single issuer than would be the case if the Fund were classified as a diversified management investment company. As a non-diversified management investment company, the Fund may invest up to 25% of its total assets in the securities of a single issuer; provided that this limitation does not apply to securities issued or guaranteed by the Commonwealth of Puerto Rico, the U.S. Government, a state of the United States, or any of their respective political subdivisions, agencies or instrumentalities (including Fannie Mae, Freddie Mac and GNMA mortgage-backed securities) pursuant to the ruling letters (collectively, the Commissioner s Ruling ) issued to the Fund by the Office of the Commissioner of Financial Institutions of Puerto Rico (the Commissioner ). Accordingly, the Fund may be subject to greater risk with respect to its portfolio securities than a diversified fund because changes in the financial condition or market assessment of a single issuer may cause greater fluctuation in the net asset value of the 13

20 Fund s Shares. In addition, the Fund may be more exposed to any single economic, political or regulatory occurrence than a more widely diversified fund. Transactions Involving Affiliates; Conflicts of Interest The Fund will not be registered under the U.S. Investment Company Act of 1940, as amended (the 1940 Act ), and, therefore, will not be subject to the restrictions contained therein regarding, among other things, transactions between the Fund on the one hand and SAM and its affiliates, including, the Distributor, on the other hand. It is anticipated that affiliated transactions, including, but not limited to, purchases by the Fund of Puerto Rico mortgagebacked securities issued or guaranteed by the Federal National Mortgage Association ( FNMA or Fannie Mae ), the Federal Home Loan Mortgage Corporation ( FHLMC or Freddie Mac ) or the Government National Mortgage Association ( GNMA or Ginnie Mae ) from Banco Santander and/or its affiliates in order to meet the Fund s investment policy, and secondary market transactions, will take place in which affiliates of the Fund (including the Distributor) may be the primary or only dealer in a particular portfolio security being purchased or sold by the Fund. However, all transactions with affiliates will be conducted only in accordance with procedures adopted by the Board of Directors in an effort to address potential conflicts of interest that may arise. See Portfolio Transactions Transactions Involving Affiliates. An affiliated party also may act as agent in connection with the placement of the Fund s preferred stock, debt securities, and other forms of leverage. Such activities will be carried out in accordance with procedures established by the Fund s Board of Directors in an effort to address potential conflicts of interest including, among other things, the potential conflicts of interest in setting dividends or interest rates. There is no assurance these procedures will be effective. In addition, the advisory fee payable to the Investment Adviser (an affiliated party) during periods in which the Fund is utilizing leverage will be higher than when it is not doing so because the fee is calculated as a percentage of average net assets (including the proceeds of leverage). Because the asset base is not reduced by aggregate indebtedness incurred in leveraging the Fund, the Investment Adviser may have a conflict of interest in formulating a recommendation to the Fund as to whether, and to what extent, it should use leverage. Affiliated parties also may directly provide some or all of such leverage. See Portfolio Transactions Transactions Involving Affiliates. Mortgage-Backed Securities Mortgage-backed securities, in general, differ from investments in traditional debt securities in that, among other things, principal may be prepaid at any time due to prepayments by the obligors on the underlying obligations. Since a portion of the assets of the Fund is expected to be invested in mortgage-backed securities, the potential for increasing the Fund s exposure to these and other risks related to such securities might cause the market value of the Fund s investments to fluctuate more than otherwise would be the case. The yield of the Fund will depend in part on the rate at which principal payments are made on such securities, which will in turn depend on the rate at which principal prepayments are made on the underlying mortgage loans. The yield to maturity on mortgage-backed securities offered at a discount from or a premium over their principal amount will depend on, among other things, the rate and timing of payments of principal (including prepayments) on the mortgage loans underlying the mortgage-backed securities. Such yield may be adversely affected by a higher or lower than anticipated rate of principal prepayments on the mortgage loans underlying the mortgage-backed securities. Therefore, since a substantial portion of the assets of the Fund is expected to be invested in mortgage-backed securities, the potential for increasing the Fund s exposure to these and other risks related to such securities might cause the net income generated by the Fund to fluctuate more than otherwise would be the case. Changes in the rate of prepayment of the underlying mortgage loans will have a direct impact upon the maturity structure of mortgage-backed securities. An increase in the rate of prepayment of the underlying mortgage loans will lead to an acceleration in the principal returns and a reduction in the average life of the mortgage-backed security. A reduction in the rate of prepayment, on the other hand, will lead to fewer principal returns and an extension of the average life of the mortgage-backed security. Rising interest rates tend to extend the duration of mortgage-backed securities, making them more sensitive to changes in interest rates and more likely to decline in value (this is known as extension risk). The Fund by investing in mortgage-backed securities at a discount (or premium) faces the risk that relatively late (or early) principal distributions following issuance of mortgage-backed securities could result in an actual yield that is lower than the yield anticipated by the Fund. 14