THE FLAGSHIP REPORT

ALTERNATIVE INCOME PORTFOLIO

Portfolio Review  |  May 2026

21 Positions. 10.06% Average Yield. All Positions: Buy.

The Alternative Income Portfolio enters May 2026 in excellent shape. Twenty-one positions. A blended yield of 10.06% on current prices. A mix of real estate credit, energy royalties, preferred equity, closed-end fund discounts, agency mortgage exposure, and infrastructure income that spans geographies, capital structures, and commodity cycles. The goal, as always, is simple: collect a durable, growing stream of income from assets priced below what they are actually worth, and let time do the rest.

Below is the full current holdings table, followed by individual position commentary organized by sector. Prices and yields reflect current market levels as of the May 11, 2026 edition.

The real estate credit sleeve of the portfolio is where we do the most nuanced underwriting. These are not passive exposures to real estate price appreciation. They are positions in the debt capital structure, yielding income that is supported by contractual obligations, subordination buffers, and in several cases, regulatory capital structures that have survived cycles far uglier than the current one. We own them because the yield is generous and the structural protection is real.

AOMN  |  Angel Oak Mortgage REIT 9.50% Senior Notes due 2029     Price: $25.02   Yield: 9.48%

Angel Oak Mortgage REIT's senior notes are the type of instrument that rewards careful reading of the prospectus and punishes those who skip it. These are fixed-rate notes at 9.50%, maturing July 30, 2029, trading right at par. The yield at current prices is 9.48%, which is to say there is no meaningful premium to par here, no hidden discount to harvest. What you own is a contractual coupon at 9.50% from a non-QM mortgage originator and holder with a focused book of residential credit that has performed consistently through the 2022 rate shock.

Angel Oak's model is to originate non-QM mortgages for borrowers who do not fit agency boxes, hold them on balance sheet, and fund them through a combination of securitization, warehouse lines, and long-term debt of which AOMN is a part. Non-QM credit quality has surprised to the upside in this cycle: these are not subprime borrowers but self-employed borrowers, real estate investors, and foreign nationals who do not fit the automated underwriting molds. Delinquency rates remain manageable. We own the notes, not the equity, and the notes sit senior in the capital structure. Collect the 9.50% and let it compound.

RWTO  |  Redwood Trust 9.00% Senior Notes due 2029     Price: $25.07   Yield: 8.97%

Redwood Trust's senior notes at 9.00% are a companion holding to AOMN, providing senior debt exposure to a residential mortgage originator and portfolio manager focused on jumbo and non-QM markets. RWTO trades at a slight premium to par, which compresses the yield from the stated 9.00% coupon to 8.97% at current levels. That is not a concern; the fractional premium is trivial against the income stream over a three-year hold to maturity.

The Redwood story is well known to regular readers. The legacy multifamily bridge portfolio that weighed on the credit story for the past two years is running off. Jumbo mortgage origination volumes are growing. The balance sheet is becoming cleaner and the risk profile is simplifying. The notes mature September 1, 2029, which means you have three and a half years of 9% income with a par payoff at the end. That is a fine outcome in any rate environment.

FINS  |  Angel Oak Financial Strategies Income Term Trust     Price: $12.90   Yield: 10.56%

FINS is a closed-end term trust managed by Angel Oak Capital, the same parent as AOMN, focused on financial sector credit including bank subordinated debt, trust preferred securities, and related instruments. It is a term trust, meaning it has a defined termination date at which NAV is distributed to shareholders, providing a built-in discount compression mechanism that pure perpetual CEFs lack.

At $12.90 and a 10.56% yield, FINS is generating substantial income from a portfolio of financial sector subordinated debt that benefits from the same strong bank credit fundamentals we track in the Banking Credit Report. Community and regional bank capital ratios remain healthy, charge-off rates are controlled, and sub-debt coverage ratios are solid. The term structure means we are not simply hoping sentiment improves; the math works its way toward NAV at termination regardless of whether the closed-end fund market ever falls back in love with bank debt CEFs.

REM  |  iShares Mortgage Real Estate ETF     Price: $22.52   Yield: 8.79%

REM is the portfolio's broad-market anchor for the mortgage REIT sector, providing diversified exposure to agency and non-agency mREITs in a single liquid vehicle. The ETF holds a basket of mREITs including AGNC, NLY, Starwood Property Trust, and others, with the index weighting naturally concentrating in the largest and most liquid names.

At $22.52 and an 8.79% yield, REM is delivering on its core mandate. The distribution reflects the blended dividend stream from its underlying holdings, which in the current environment of stable agency MBS spreads and a steepening yield curve are generating solid net interest income. REM allows us to hold the sector without concentrating entirely in any single mREIT's balance sheet risk. It is the diversification vehicle; AGNC below is the high-conviction single-name position.

AGNC  |  AGNC Investment Corp     Price: $10.82   Yield: 13.30%

AGNC is the largest pure-play agency mREIT in the market, and at $10.82 with a 13.30% yield it is the highest-income instrument from the mortgage sector in the portfolio. The agency mREIT model is straightforward: own agency-backed MBS funded by short-term repo borrowing and pocket the spread, hedged against interest rate movements through a portfolio of swaps and other derivatives. The government guarantee on the underlying mortgages eliminates credit risk; what remains is interest rate risk and prepayment risk.

The current environment is constructive for AGNC on balance. Agency MBS spreads have stabilized after the turbulence of early 2025. Prepayment speeds are low, which extends the effective duration of the portfolio and improves yield. The 30-year mortgage rate at 6.30% means refinancing incentives are minimal and the cash flow profile of the book is predictable. Book value held reasonably well through Q1 2026. The 13.30% yield at current prices is well-supported by net interest income and hedge management. This is a core holding and we are comfortable here.

Preferred equity sits in an interesting structural position: senior to common equity in liquidation and dividend priority, junior to debt, and priced to reflect that middle-ground risk profile. In the current environment, high-quality real estate preferred shares at discounts to liquidation preference offer compelling income with meaningful downside protection from the capital structure position above common equity. Both of our preferred holdings are from issuers whose underlying asset quality supports the preferred dividend, which is the only test that matters.

VNOprO  |  Vornado Realty Trust Preferred O     Price: $15.37   Yield: 7.24%

Vornado Realty Trust is the dominant owner of Class A Manhattan office and street retail, with one of the most recognizable trophy asset portfolios in the country: PENN District, the Farley Building, 1290 Avenue of the Americas, 888 Seventh Avenue. The common equity has had a difficult several years as the office narrative weighed on the stock regardless of underlying asset performance. The preferred, however, is a different conversation.

The Series O preferred pays a fixed dividend that is well covered by the cash flow generated by Vornado's Manhattan trophy portfolio. At $15.37, the preferred trades at a significant discount to its $25.00 liquidation preference, which is both the source of the 7.24% current yield and the potential for capital appreciation if Vornado's common equity recovery continues to draw investors back to the capital structure. We are not betting on the common equity; we are collecting a fixed preferred dividend from a company whose assets are performing at the trophy end of exactly the market we described in the newsletter, with an embedded capital gain if sentiment normalizes toward liquidation preference.

PEBprE  |  Pebblebrook Hotel Trust 6.375% Series E Preferred     Price: $19.99   Yield: 7.95%

Pebblebrook Hotel Trust is an upscale lifestyle hotel REIT with a portfolio of independent and soft-branded hotels concentrated in coastal urban markets: San Francisco, Seattle, Boston, Portland, Philadelphia, Key West. The preferred Series E pays 6.375% on a $25.00 liquidation preference, with PEBprE trading at $19.99, nearly $5 below par, generating a current yield of 7.95%.

The hotel sector has had a more nuanced recovery than the REIT narrative would suggest. Urban leisure demand is genuinely strong in Pebblebrook's markets; group and business travel has recovered substantially; RevPAR trends in their portfolio have been healthy. The common equity carries more risk as labor costs and insurance expenses have compressed hotel operating margins. The preferred, at $19.99, is protected by a substantial subordination buffer from a portfolio whose liquidation value comfortably covers the preferred stack. The discount to par is the opportunity. We collect 7.95% and wait for the $5.01 gap to par to close as the hotel REIT story continues to clarify.

The energy income positions in this portfolio are generating exceptional cash flows at current oil and gas prices. WTI in the $95 to $98 range is an income windfall for royalty owners and mineral holders; fee-based midstream infrastructure is collecting record throughput as domestic producers push volumes hard to compensate for global supply disruption. We own these positions for structural income, not as a pure oil price bet, but we are not going to apologize for collecting the war premium while it persists.

DMLP  |  Dorchester Minerals     Price: $26.72   Yield: 9.51%

Dorchester Minerals is the gold standard of the royalty trust and mineral ownership space: a publicly traded partnership that owns royalty and net profits interests across producing basins in Texas, Oklahoma, Colorado, Louisiana, and North Dakota. Management is disciplined, the balance sheet is clean, and the distribution is directly tied to production revenues from interests that require no capital expenditure by Dorchester to maintain. The wells are operated by others; Dorchester simply collects its share.

At $26.72 and a 9.51% yield, DMLP is delivering on its mandate at current oil prices. The distribution will fluctuate with commodity prices, but the royalty structure provides leverage to price increases without the operating cost exposure of an E&P company. Permian Basin and other producing area activity is strong. The non-operated, non-capex model means every dollar of distribution is essentially free cash flow. This is one of the cleanest income structures in the oil patch and it belongs in any energy income sleeve.

BSM  |  Black Stone Minerals     Price: $13.49   Yield: 8.90%

Black Stone Minerals is the largest publicly traded natural resources company focused on oil and natural gas mineral and royalty interests, with positions across 41 states and more than 70 geological basins. Like Dorchester, BSM owns the mineral rights that entitle it to a royalty on production without bearing operating or capital costs. Unlike Dorchester, BSM also owns overriding royalty interests and participates in well-level economics in ways that provide additional upside in high-activity drilling environments.

At $13.49 and an 8.90% yield, BSM is an excellent complement to DMLP. The Haynesville Shale exposure is particularly interesting in the current environment: Haynesville natural gas is among the closest domestic supply to LNG export terminals, and with global LNG prices at record levels, producer activity in the basin is accelerating. BSM collects a royalty on every Mcf of gas produced from its Haynesville acreage regardless of whether it flows to a Louisiana export terminal or a domestic utility. The geographic diversification across 41 states also provides basin-level risk management that single-basin trusts cannot offer.

GRNT  |  Granite Ridge Resources     Price: $5.25   Yield: 8.38%

Granite Ridge Resources is a non-operating oil and gas company that acquires working interests in producing wells across multiple U.S. basins, primarily in the Permian, Eagle Ford, Haynesville, and Bakken. As a non-operator, Granite Ridge participates in well economics without managing drilling or completion operations. The company brings institutional discipline to what has historically been a fragmented and opaque asset class.

At $5.25 and an 8.38% yield, Granite Ridge is modestly valued relative to the cash flow being generated at current prices. The non-operator model means capex is at the discretion of the operators, which introduces some uncertainty about the pace of well development on their acreage. But it also means Granite Ridge is not allocating capital at the top of a price cycle, a mistake many E&P companies are prone to making. The current distribution is well-supported by production cash flows. Management has shown a preference for maintaining distributions through price cycles rather than maximizing the payout in up-cycles and slashing in down-cycles, which is the right approach for an income-oriented investor base.

AMZA  |  InfraCap MLP ETF     Price: $47.50   Yield: 7.80%

InfraCap MLP ETF provides actively managed exposure to the midstream MLP sector with a yield-enhancement strategy that includes covered call writing on top of the underlying MLP distributions. The result is a yield of 7.80% at current prices that in most environments represents a premium to what the underlying MLPs generate on their own. The trade-off is that covered call writing caps some of the upside in a strong MLP price rally.

The current environment is ideal for AMZA's strategy. Midstream MLPs are generating record throughput revenues, distributions are growing, and debt leverage has declined to multi-decade lows across the sector. Fee-based revenues make the income stream far more durable than the underlying commodity price might suggest. AMZA's actively managed approach allows the manager to tilt toward the highest-quality midstream operators and away from those with more commodity-sensitive cash flows. At $47.50, this is a solid core midstream income vehicle with the added yield cushion from the options overlay.

KYN  |  Kayne Anderson Energy Infrastructure Fund     Price: $13.84   Yield: 7.08%

Kayne Anderson is one of the longest-established and most respected managers in the energy infrastructure closed-end fund space. KYN holds a concentrated portfolio of midstream MLPs and energy infrastructure companies selected through fundamental analysis by a team with decades of sector experience. It is a closed-end fund, meaning shares trade at a premium or discount to NAV, and it employs modest leverage to enhance income.

At $13.84 and a 7.08% yield, KYN is the more conservatively priced of our two midstream CEF positions. The Kayne Anderson team tilts toward large-cap investment-grade midstream operators with the strongest balance sheets and longest distribution track records, which produces a slightly lower current yield than a more aggressive MLP allocation would provide, but with meaningfully lower credit and leverage risk. In a sector where capital discipline and credit quality vary widely among operators, having an experienced manager doing that screening is worth the modest expense ratio.

BIPH  |  Brookfield Infrastructure Finance ULC 5.0%     Price: $16.52   Yield: 7.57%

Brookfield Infrastructure Finance ULC's 5.0% notes are a fixed-income complement to our equity-oriented infrastructure positions, providing debt-level exposure to the Brookfield Infrastructure ecosystem at a yield of 7.57% at current prices. Brookfield Infrastructure is one of the largest and most diversified owners of global infrastructure assets, spanning utilities, transport, midstream energy, and data infrastructure across every major geography.

At $16.52, BIPH trades at a significant discount to its $25.00 par value, which is the source of the 7.57% current yield on a 5.0% coupon instrument. The discount reflects the rate environment; the coupon was set in a lower-rate world and the market has repriced it accordingly. For us, this is an opportunity: we are buying Brookfield infrastructure debt at $16.52 with a 5.0% coupon and the expectation that rates will eventually moderate, compressing the discount and providing capital appreciation on top of the income. Brookfield's underlying assets are long-duration, regulated or concession-based, and geographically diversified. The credit quality is investment-grade. We collect 7.57% and wait.

The closed-end fund sleeve of the portfolio is where we do our most explicit discount hunting. These are managed pools of assets trading below the value of what they own. The income we collect while waiting for discounts to compress is not incidental to the thesis; in many cases it is the majority of the total return we expect to earn. Several of these funds carry distribution yields in the double digits, which reflects a combination of portfolio income generation and, in some cases, leverage amplifying the underlying yield. We monitor distribution coverage carefully for each position.

RA  |  Brookfield Real Assets Income Fund     Price: $12.79   Yield: 11.07%

Brookfield Real Assets Income Fund is a diversified closed-end fund that invests across real asset categories including real estate debt, infrastructure debt, and natural resource debt and equity. The Brookfield management team brings exceptional deal flow and analytical resources across all three categories. The fund employs leverage, which amplifies both income and volatility; the current distribution of 11.07% reflects a blended yield from the underlying portfolio plus the leverage contribution.

At $12.79, RA trades at a meaningful discount to NAV, providing the structural advantage we look for in closed-end fund investing. The real asset focus is highly appropriate for the current environment: infrastructure and real estate debt provide inflation-linked revenues, natural resource exposure benefits from elevated commodity prices, and the Brookfield franchise provides credit selection quality that individual investors cannot replicate. The leverage is manageable at current rates and the distribution coverage ratio has held up well. We own RA for the income and the discount, with confidence that Brookfield's management quality underpins the NAV.

PGZ  |  Principal Real Estate Income Fund     Price: $10.10   Yield: 12.48%

Principal Real Estate Income Fund is a closed-end fund focused on commercial real estate debt and preferred equity instruments, managed by Principal Global Investors. The 12.48% yield at $10.10 reflects both the portfolio's income generation from higher-coupon CRE debt and the leverage employed to amplify the underlying yield. PGZ's portfolio sits primarily in private CRE debt, including first mortgages and mezzanine loans on commercial properties.

This is a higher-risk position within the real estate credit sleeve, and we own it with that understanding. The CRE debt market has maturity wall issues we discussed at length in the main newsletter, and PGZ has exposure to that environment. What makes it attractive is the discount to NAV and the yield: at 12.48%, we are being compensated for the credit complexity. The Principal management team has a long track record in CRE debt and has managed the portfolio conservatively through a difficult refinancing cycle. Position sized appropriately within the portfolio, PGZ is an excellent income contributor with upside from discount compression.

BRW  |  Saba Capital Income and Opportunities Fund     Price: $6.79   Yield: 14.96%

Saba Capital Income and Opportunities Fund is managed by Saba Capital Management, one of the most sophisticated closed-end fund activists in the market. Boaz Weinstein and team not only invest in deeply discounted CEFs but actively campaign for discount-narrowing actions: tender offers, open-ending, managed distribution policies, and board changes. BRW is essentially a fund-of-funds CEF that owns other discounted CEFs, providing a double layer of discount: BRW itself trades at a discount to its own NAV, which consists of stakes in other CEFs that are trading at discounts to their NAVs.

At $6.79 and a 14.96% distribution yield, BRW is the most aggressive income vehicle in the portfolio. The yield reflects a combination of the underlying CEF income streams and Saba's active approach to monetizing discounts through activist campaigns. The risk is that discounts widen rather than compress, which would reduce NAV even as income is collected. But Saba's track record of extracting value from discounted CEFs through activism is well-documented. We own BRW knowing it is the highest-risk, highest-yield position in the book and size it accordingly.

PFFA  |  Virtus InfraCap U.S. Preferred Stock ETF     Price: $21.79   Yield: 9.40%

Virtus InfraCap U.S. Preferred Stock ETF holds a portfolio of U.S. preferred stocks with an income-enhancement strategy using modest leverage. At $21.79 and a 9.40% yield, PFFA sits at the intersection of preferred equity income and ETF convenience, providing broad exposure to the preferred stock market across financials, real estate, and utilities without single-issuer concentration risk.

Preferred stocks are currently at interesting valuations. Fixed-rate preferreds issued in 2019 to 2021 trade well below their $25.00 par values because their coupons were set in a lower-rate environment; those discounts provide capital gain potential as rates eventually moderate. PFFA's leveraged approach captures more of the current yield while the portfolio's diversification manages credit risk. The 9.40% yield is attractive relative to where these instruments would have priced three years ago, and the ETF structure provides daily liquidity and transparent holdings.

SPE  |  Special Opportunities Fund     Price: $14.39   Yield: 9.06%

Special Opportunities Fund is a closed-end fund managed by Bulldog Investors, the original CEF activist firm with a decades-long track record of purchasing deeply discounted closed-end funds and pressing for shareholder-friendly actions to close those discounts. SPE holds a portfolio of other closed-end funds and special situation investments selected for discount depth and catalyst potential.

At $14.39 and a 9.06% yield, SPE is a conservative entry point to the CEF activism space relative to BRW. Bulldog's approach is methodical and patient; they do not take concentrated positions in single CEFs and do not seek board control. Instead, they accumulate positions, submit shareholder proposals, and engage management over time. The results are solid: a portfolio of CEF positions that gradually compress toward NAV while generating income. The 9.06% yield at current prices reflects the income from the underlying CEF portfolio. We own it as a core closed-end fund holding with the activism catalyst as a free option on top of the income.

FAX  |  Asia-Pacific Income Fund     Price: $14.66   Yield: 13.51%

Aberdeen Asia-Pacific Income Fund is one of the oldest and most established closed-end funds focused on Asia-Pacific fixed income and currencies. FAX provides exposure to Australian bonds, Asian sovereign and corporate debt, and related currency positions, managed by Aberdeen's deep Asia-Pacific team. The fund employs leverage and invests in local currency instruments, which creates currency exposure that is both a source of additional income and a risk factor.

At $14.66 and a 13.51% yield, FAX is generating exceptional income from a combination of the underlying bond portfolio yields and the currency dynamics that favor Asian fixed income against a moderating U.S. dollar. The AUD and other Asia-Pacific currencies have held up well against the dollar as commodity prices have supported commodity-exporting countries in the region. FAX's Australian bond exposure benefits from the Reserve Bank of Australia's more measured rate approach relative to the Fed. This is one of the most internationally diversified income positions in the portfolio and complements the sovereign bond discussion in the main newsletter beautifully.

DMA  |  Destra Multi-Alternative Fund     Price: $7.38   Yield: 15.51%

Destra Multi-Alternative Fund is the highest-yielding position in the portfolio at 15.51%, which earns it both the most attention and the most scrutiny. DMA invests in a multi-alternative strategy that includes private credit, alternative income instruments, and selected equity positions, with a distribution policy that reflects a combination of investment income and other return sources.

At $7.38, DMA trades at a meaningful discount to its reported NAV, and the distribution at 15.51% is the most aggressive income commitment in the book. We own it with clear eyes: the distribution is partially supported by the underlying portfolio income and partially reflects a managed distribution from other sources. The risk is distribution sustainability if the underlying portfolio does not continue generating sufficient income. That said, DMA is a smaller position sized to reflect its risk profile, and the income contribution is meaningful at current yield levels. We monitor this one the most carefully of the CEF holdings.

BANX  |  ArrowMark Financial Corp     Price: $19.66   Yield: 9.80%

ArrowMark Financial Corp is a business development company focused on bank-related credit: trust preferred securities, subordinated bank debt, and related financial sector instruments. The portfolio draws on ArrowMark's long history as a specialist in community and regional bank credit, a sector we know as well as any in the market. At $19.66 and a 9.80% yield, BANX is generating income from a portfolio of bank credit instruments whose underlying fundamentals are in good shape.

Community and regional bank credit metrics remain healthy across most of the country. Capital ratios are elevated relative to pre-pandemic levels, charge-off rates are controlled, and deposit bases have stabilized after the disruptions of 2023. Trust preferred securities and sub-debt from well-capitalized community banks offer yields that reflect complexity and illiquidity premiums more than credit risk. ArrowMark's expertise in this space means they are selecting the right institutions and structuring the credit positions appropriately. For an income portfolio already heavy in bank equity and mortgage credit, BANX provides exposure to bank credit in a different part of the capital structure at an attractive yield.

Twenty-one positions. A 10.06% blended yield. A portfolio that spans senior secured notes, preferred equity, royalty interests, closed-end fund discounts, agency mortgage securities, and international bond exposure. No position is there because it is convenient or because everyone else owns it. Each one is there because we believe the income is durable, the price is fair or better, and the structural characteristics protect us in scenarios worse than the current one.

The world in May 2026 is providing an unusually large menu of income opportunities. War-premium energy yields. Discounts in real estate credit that reflect irrational fear rather than credit reality. Preferred equity trading at twenty to forty cents below liquidation preference from issuers whose assets are performing well. Closed-end fund discounts created by rate anxiety that has already been substantially absorbed into bond prices. We are collecting from all of it.

Income investors do not predict the future. They build portfolios that get paid while the future sorts itself out.

The discipline, as always, is to resist the temptation to concentrate in whatever is working most dramatically right now. Energy income is exceptional today. That does not mean the entire portfolio should be energy royalties. The income from real estate credit feels less exciting at 9% than Dorchester Minerals at 9.51%, but both contribute to the same goal: a durable, growing stream of income that compounds over time. Stay diversified. Collect the income. Reinvest when prices are attractive. Let time do the rest.

The Flagship Report Alternative Income Portfolio is published for informational and educational purposes only. This is Tim Melvin's personal investment commentary and opinion. Nothing in this publication constitutes investment advice, a solicitation, or a recommendation to buy or sell any security. Prices and yields reflect market levels as of May 11, 2026 and are