extent of the Fund’s earnings and profits. For individual and certain other non-corporate
shareholders (each, an “individual shareholder”), those dividends would be eligible to be taxed as “qualified dividend
income” (as described in each Fund’s prospectus) (“QDI”), which is subject to federal income tax at the lower rates for net capital
gain. In the case of corporate shareholders that meet certain holding period and other requirements regarding their shares of the Fund,
all or part of those dividends would be eligible for the dividends-received deduction. Furthermore, the Fund could be required to recognize
unrealized gains, pay substantial taxes and interest, and make substantial distributions before requalifying for RIC treatment.
The Code imposes a 4% excise tax (“Excise Tax”) on a RIC that fails to distribute
during a calendar year an amount at least equal to the sum of (1) 98% of its ordinary (taxable) income for the year, (2) 98.2% of its
capital gain net income for the 12-month period ending on October 31 of that year, plus (3) any prior undistributed taxable income and gains.
Each Fund intends to continue to make distributions necessary to avoid imposition of the Excise Tax. However, a Fund may
in certain circumstances be required to liquidate portfolio investments to make those distributions, potentially resulting in additional
taxable gain or loss.
The use of hedging strategies, such as writing (selling) and purchasing options and
futures contracts and entering into forward currency contracts, involves complex rules that will determine for federal income tax purposes
the amount, character, and timing of recognition of the gains and losses a Fund realizes. Gain from the disposition of foreign currencies
(except certain gains that may be excluded by future regulations), and gains from options, futures contracts, and forward currency
contracts a Fund derives with respect to its business of investing in securities or foreign currencies, will be treated as “qualifying income”
under the income requirements. Swap agreements and other derivative instruments, such as commodity-linked derivative instruments,
including commodity index-linked notes, commodity options, futures contracts, and options on futures contracts, may not be
“qualifying income.”
Some futures contracts, foreign currency contracts, and “non-equity” options (i.e.,
certain listed options, such as those on a “broad-based” securities index), but not including any “securities futures contract” that is not a “dealer securities
futures contract” (both as defined in the Code), interest rate swap, currency swap, basis swap, interest rate cap, interest rate floor,
commodity swap, equity swap, equity index swap, credit default swap, or similar agreement, in which a Fund invests may be subject to section 1256 of the Code (collectively, “section 1256 contracts”). Any section 1256 contracts a Fund holds
at the end of its taxable year generally must be “marked-to-market” (that is, treated as having been sold at that time for their fair
market value) for federal income tax purposes, with the result that unrealized gains or losses will be treated as though they were realized.
Sixty percent of any net gain or loss recognized on these deemed sales, and 60% of any net realized gain or loss from any actual sales
of section 1256 contracts, will be treated as long-term capital gain or loss, and the balance will be treated as short-term capital
gain or loss. These rules may operate to increase the amount that a Fund must distribute to satisfy the distribution requirement (i.e.,
with respect to the portion treated as short-term capital gain), which will be taxable to its shareholders as ordinary income when distributed
to them, and to increase the net capital gain a Fund recognizes, without in either case increasing the cash available to it.
Section 988 of the Code also may apply to forward currency contracts and options and
futures contracts on foreign currencies. Under that section, each foreign currency gain or loss generally is computed separately
and treated as ordinary income or loss. These gains or losses will increase or decrease the amount of a Fund’s investment company taxable
income to be distributed to its shareholders as ordinary income, rather than affecting the amount of its net capital gain. In the
case of overlap between sections 1256 and 988, special provisions determine the character and timing of any income, gain, or loss.
Section 1092 of the Code (dealing with straddles) also may affect the taxation of
certain options, futures contracts, and forward currency contracts in which a Fund may invest. That section defines a “straddle” as
offsetting positions with respect to actively traded personal property; for these purposes, options, futures contracts, and forward currency
contracts are positions in personal property. Under that section, any loss from the disposition of a position in a straddle generally
may be deducted only to the extent the loss exceeds the unrealized gain on the offsetting position(s) of the straddle. In addition, these
rules may postpone the recognition of loss that otherwise would be recognized under the mark-to-market rules discussed above. The
regulations under section 1092 also provide certain “wash sale” rules, which apply to transactions where a position is sold at
a loss and a new offsetting position is acquired within a prescribed period, and “short sale” rules applicable to straddles. If a Fund makes
certain elections, the amount, character, and timing of recognition of gains and losses from the affected straddle positions would be determined
under rules that vary according to the elections made.
Each Fund will monitor its transactions, make appropriate tax elections, and make
appropriate entries in its books and records when it acquires any option, futures contract, forward currency contract, foreign currency,
or hedged investment to mitigate the effect of the foregoing rules, prevent its disqualification as a RIC, and minimize the imposition
of federal income tax and the Excise Tax.
Certain Funds may invest in the stock of “passive foreign investment companies” (“PFICs”).
A PFIC is any foreign corporation (with certain exceptions) that, in general, meets either of the following tests for a taxable
year: (1) at least 75% of its gross income is passive or (2) an average of at least 50% of its assets produce, or are held for the production
of, passive income. Under certain circumstances, a Fund will be subject to federal income tax on a portion of any “excess distribution”
it receives on the stock of a PFIC and of any gain on its disposition of that stock (collectively, PFIC income), plus interest thereon,
even if the Fund distributes the PFIC income as a dividend to its shareholders. The balance of the PFIC income will be included
in the Fund’s investment company taxable income
