UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549

FORM N-Q

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED

MANAGEMENT INVESTMENT COMPANY

Registrant’s telephone number, including area code: (312) 827-0100

Date of fiscal year end: May 31

 

Date of reporting period: June 1, 2018 – August 31, 2018

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Fidelity & Guaranty Life Holdings, Inc.
5.50% due 05/01/251,5	2,250,000		2,227,500
AmWINS Group, Inc.
7.75% due 07/01/265	2,000,000		2,107,500
NFP Corp.
6.88% due 07/15/255	1,940,000		1,901,200
LoanCore Capital Markets LLC / JLC Finance Corp.
6.88% due 06/01/201,5	1,605,000		1,629,075
Majid AL Futtaim Holding
7.13%7	1,500,000		1,498,050
Quicken Loans, Inc.
5.25% due 01/15/281,5	1,375,000		1,259,844
CyrusOne LP/ CyrusOne Finance Corp.
5.00% due 03/15/241	1,104,000		1,117,800
Springleaf Finance Corp.
7.13% due 03/15/26	1,100,000		1,094,577
GEO Group, Inc.
6.00% due 04/15/261	775,000		747,875
5.88% due 10/15/24	350,000		341,250
Greystar Real Estate Partners LLC
5.75% due 12/01/251,5	1,000,000		977,500
American Equity Investment Life Holding Co.
5.00% due 06/15/271	750,000		738,302
Prosight Global Inc.
7.50% due 11/26/20†††,1	650,000		674,554
CoreCivic, Inc.
4.75% due 10/15/27	750,000		673,125
Assurant, Inc.
7.00% due 03/27/488	400,000		408,000

Guggenheim Credit Allocation Fund
SCHEDULE OF INVESTMENTS (Unaudited)	August 31, 2018

 

 

Charter Communications Operating LLC / Charter Communications Operating Capital
4.20% due 03/15/281	450,000		430,936
Total Communications			30,058,631
Consumer, Non-cyclical -  14.8%
Vector Group Ltd.
6.13% due 02/01/251,5	3,750,000		3,590,625
Great Lakes Dredge & Dock Corp.
8.00% due 05/15/221	3,450,000		3,544,875
Beverages & More, Inc.
11.50% due 06/15/225	4,000,000		3,155,000
FAGE International S.A./ FAGE USA Dairy Industry, Inc.
5.63% due 08/15/261,5	3,400,000		2,983,500
Midas Intermediate Holdco II LLC
7.88% due 10/01/221,5	3,351,000		2,919,559
Flexi-Van Leasing, Inc.
10.00% due 02/15/235	2,024,000		1,760,880

 

	Face
	Amount~		Value
CORPORATE BONDS†† - 90.1% (continued)
Consumer, Non-cyclical -  14.8% (continued)
Post Holdings, Inc.
5.63% due 01/15/281,5	1,250,000		$1,207,812
KeHE Distributors LLC / KeHE Finance Corp.
7.63% due 08/15/211,9	1,075,000		1,054,844
Avanos Medical, Inc.
6.25% due 10/15/221	925,000		945,813
Endo Finance LLC / Endo Finco, Inc.
7.25% due 01/15/221,5	450,000		432,000
5.38% due 01/15/235	425,000		363,375
Bausch Health Companies, Inc.
6.50% due 03/15/221,5	650,000		672,750
Avantor, Inc.
6.00% due 10/01/241,5	500,000		507,500
Total Consumer, Non-cyclical			23,138,533
Energy -  13.4%
Unit Corp.
6.63% due 05/15/211	4,000,000		3,995,000
American Midstream Partners LP / American Midstream Finance Corp.
9.25% due 12/15/211,5	3,565,000		3,520,437
Indigo Natural Resources LLC
6.88% due 02/15/261,5	2,850,000		2,750,250
Moss Creek Resources Holdings, Inc.
7.50% due 01/15/261,5	2,230,000		2,174,250
Exterran Energy Solutions LP / EES Finance Corp.
8.13% due 05/01/251	1,750,000		1,837,500
Parkland Fuel Corp.
6.00% due 04/01/261,5	1,150,000		1,150,000
CNX Resources Corp.
8.00% due 04/01/23	1,000,000		1,057,810
Bruin E&P Partners LLC
8.88% due 08/01/235	1,000,000		1,036,250
Covey Park Energy LLC / Covey Park Finance Corp.
7.50% due 05/15/251,5	970,000		988,187
Gibson Energy, Inc.
5.25% due 07/15/245	CAD  1,200,000		919,554
Alta Mesa Holdings LP / Alta Mesa Finance Services Corp.
7.88% due 12/15/24	750,000		735,938
Legacy Reserves LP / Legacy Reserves Finance Corp.
6.63% due 12/01/21	695,000		538,625
Trinidad Drilling Ltd.
6.63% due 02/15/255	200,000		198,000
Schahin II Finance Co. SPV Ltd.
5.88% due 09/25/221,9,10	825,233		115,533

 

 

 

 

Wrangler Buyer Corp.
6.00% due 10/01/255	175,000		168,875
Total Industrial			5,080,826
Utilities -  2.8%
LBC Tank Terminals Holding Netherlands BV
6.88% due 05/15/231,5	2,000,000		1,995,000
Terraform Global Operating LLC
6.13% due 03/01/261,5	975,000		943,312
Superior Plus LP / Superior General Partner, Inc.
7.00% due 07/15/265	800,000		802,000
AmeriGas Partners, LP / AmeriGas Finance Corp.
5.75% due 05/20/271	750,000		740,625
Total Utilities			4,480,937
Technology -  1.3%
Infor US, Inc.
6.50% due 05/15/221	1,700,000		1,722,049
Ascend Learning LLC
6.88% due 08/01/255	250,000		252,500
Total Technology			1,974,549
Total Corporate Bonds
(Cost $145,647,236)			141,225,098
SENIOR FLOATING RATE INTERESTS††,6 - 44.3%
Technology -  9.7%
Lytx, Inc.
8.83% (1 Month USD LIBOR + 6.75%) due 08/31/23†††,2	3,453,199		3,382,050
24-7 Intouch, Inc.
4.25% (1 Month USD LIBOR + 4.25%) due 08/20/25	2,450,000		2,401,000
Advanced Computer Software
6.83% (1 Month USD LIBOR + 4.75%) due 05/31/24	2,352,066		2,363,826

 

 

 

Blue Nile, Inc.
8.58% (1 Month USD LIBOR + 6.50%) due 02/17/23	451,250		451,250
SMG US Midco 2, Inc.
9.08% (1 Month USD LIBOR + 7.00%) due 01/23/26	300,000		302,001
CH Holding Corp.
9.33% (1 Month USD LIBOR + 7.25%) due 02/03/25	200,000		202,000
Total Consumer, Cyclical			12,121,679
Industrial -  6.8%
Springs Window Fashions
10.56% (1 Month USD LIBOR + 8.50%) due 06/15/26	2,900,000		2,769,500
Hayward Industries, Inc.
10.33% (1 Month USD LIBOR + 8.25%) due 08/04/25	2,325,000		2,325,000

 

	Face
	Amount~		Value
SENIOR FLOATING RATE INTERESTS††,6 - 44.3% (continued)
Industrial -  6.8% (continued)
Diversitech Holdings, Inc.
9.84% (3 Month USD LIBOR + 7.50%) due 06/02/25	1,000,000		$1,010,000
Resource Label Group LLC
10.84% (3 Month USD LIBOR + 8.50%) due 11/26/23	850,000		841,500
Bioplan USA, Inc.
6.83% (1 Month USD LIBOR + 4.75%) due 09/23/21	857,299		794,074
National Technical
8.33% (1 Month USD LIBOR + 6.25%) due 06/12/21†††,2	730,523		712,260
Ranpak
9.31% (1 Month USD LIBOR + 7.25%) due 10/03/22	536,667		538,008
PT Intermediate Holdings III LLC
10.33% (3 Month USD LIBOR + 8.00%) due 12/08/25	450,000		452,250
STS Operating, Inc. (SunSource)
6.33% (1 Month USD LIBOR + 4.25%) due 12/11/24	375,000		371,876
Advanced Integration Technology LP
7.22% (3 Month USD LIBOR + 4.75%) due 04/03/23	364,764		363,852
ProAmpac PG Borrower LLC
10.81% (1 Month USD LIBOR + 8.50%) due 11/18/24	250,000		250,418
Wencor Group
5.58% (1 Month LIBOR + 3.50%) due 06/19/19	215,385		208,923
Total Industrial			10,637,661
Consumer, Non-cyclical -  5.6%
NES Global Talent
7.84% (3 Month USD LIBOR + 5.50%) due 05/11/23	3,241,875		3,241,875
CTI Foods Holding Co. LLC
9.33% (1 Month USD LIBOR + 7.25%) due 06/28/21	3,430,000		1,715,000
5.58% (1 Month USD LIBOR + 3.50%) due 06/29/20	630,000		497,700
Immucor, Inc.
7.17% (1 Month USD LIBOR + 5.00%) due 06/15/21	1,188,000		1,200,866
IHC Holding Corp.
8.92% (1 Month USD LIBOR + 6.75%) due 04/30/21†††,2	1,158,725		1,151,006
ScribeAmerica Intermediate Holdco LLC (Healthchannels)
6.58% (3 Month USD LIBOR + 4.50%) due 04/03/25	548,625		547,253
Examworks Group, Inc.
8.25% (3 Month USD LIBOR + 3.25%) due 07/27/21†††,2	383,333		356,923

 

 

	Face
	Amount~		Value
SENIOR FLOATING RATE INTERESTS††,6 - 44.3% (continued)
Consumer, Non-cyclical -  5.6% (continued)
Targus Group International, Inc.
15.13% (1 Month USD LIBOR + 11.50%) due 05/24/16†††,2,3,10	383,723		$–
Total Consumer, Non-cyclical			8,710,623
Energy -  5.0%
Gavilan Resources LLC
8.08% (1 Month USD LIBOR + 6.00%) due 03/01/24	3,280,000		3,169,300

 

Rise Ltd.
2014-1B, 6.50% due 02/12/39	284,967		279,268
Turbine Engines Securitization Ltd.
2013-1A, 6.38% due 12/13/481,9	218,400		186,866
Total Transport-Aircraft			1,959,322
Whole Business -  0.6%
TSGE
2017-1, 6.25% due 09/25/31†††,2	1,000,000		1,007,264
Collateralized Debt Obligations -  0.6%
Anchorage Credit Funding 1 Ltd.
2015-1A, 6.30% due 07/28/305	1,000,000		1,007,144

 

Guggenheim Credit Allocation Fund
SCHEDULE OF INVESTMENTS (Unaudited)	August 31, 2018

 

	Face
	Amount~		Value

6	Variable rate security.  Rate indicated is the rate effective at August 31, 2018. In some instances, the underlying reference rate shown was below the minimum rate earned by the security or has been adjusted by a predetermined factor. The settlement status of a position may also impact the effective rate indicated. In instances where multiple underlying reference rates and spread amounts are shown, the effective rate is based on a weighted average.
7	Perpetual maturity.
8	Security has a fixed rate coupon which will convert to a floating or variable rate coupon on a future date.
9	Security is a 144A or Section 4(a)(2) security. These securities have been determined to be illiquid and restricted under guidelines established by the Board of Trustees. The total market value of 144A or Section 4(a)(2) illiquid and restricted securities is $1,679,967 (cost $2,440,071), or 1.1% of total net assets — See Note 6.
10	Security is in default of interest and/or principal obligations.
11	Security has no stated coupon. However, it is expected to receive residual cash flow payments on defined deal dates.
12	Term loan interests in the Fund’s portfolio generally have variable rates.  All or a portion of this security represents unsettled loan positions and may not have a stated coupon rate.
13	Security has a fixed rate coupon which will convert to a floating or variable rate coupon on a future date.

 

 

The following table summarizes the inputs used to value the Fund's investments at August 31, 2018 (See Note 3 in the Notes to Schedule of Investments):

 

 

Guggenheim Credit Allocation Fund
SCHEDULE OF INVESTMENTS (Unaudited)	August 31, 2018

 

 

* This derivative is reported as unrealized appreciation/depreciation at period end.

 

The Fund may hold assets and/or liabilities in which the fair value approximates the carrying amount for financial statement purposes. As of August 31, 2018, reverse repurchase agreements of $76,723,307 are categorized as Level 2 within the disclosure hierarchy. See Note 3.

 

The following is a summary of the significant unobservable inputs used in the fair valuation of assets and liabilities categorized within the Level 3 of the fair value hierarchy.

 

Category		Ending Balance at August 31, 2018			Valuation Technique	Unobservable Inputs		Input Range				Weighted Average
Assets:
Asset-Backed Securities		$	1,007,264		Model Price	Market Comparable Yield			6.2	%			-
Asset-Backed Securities			411,913		Yield Analysis	Yield			6.2	%			-
Common Stocks			143,998		Enterprise Value	Valuation Multiple			6.2x-9.4x				7.4x
Common Stocks			1,442		Model Price	Liquidation Value			-				-
Corporate Bonds			674,554		Option Adjusted Spread off the prior month end broker mark over the 3 month LIBOR	Indicative Quote			-				-
Senior Floating Rate Interests			8,751,113		Yield Analysis	Yield			9.2%-12.1	%			9.9	%
Senior Floating Rate Interests			3,501,404		Enterprise Value	Valuation Multiple			9.1x-9.4x				9.1x
Senior Floating Rate Interests			712,260		Model Price	Market Comparable Yields			6.3	%			-
Senior Floating Rate Interests			408,829		Model Price	Purchase Price			-				-
Warrants			25,375		Enterprise Value	Valuation Multiple			9.4x				7.4x
Total		$	15,638,152
Liabilities:
Unfunded Loan Commitments		$	104,642		Model Price	Purchase Price			-				-

 

		Assets																								Liabilities
		Asset-Backed Securities				Corporate Bonds				Senior Floating Rate Interests				Warrants				Common Stocks				Total Assets				Unfunded Loan Commitments
Beginning Balance		$	1,430,016			$	687,359			$	11,750,092			$	-			$	283,937			$	14,151,404			$	(175,354	)
Purchases/(Receipts)			-				88				894,315				-				-				894,403				(251,335	)
(Sales, maturities and paydowns)/Fundings			(22,659	)			(5,825	)			(2,008,966	)			-				(258)				(2,037,708	)			77,730
Amortization of discount/premiums			-				-				31,420				-				-				31,420				(13,750	)
Total realized gains or losses included in earnings			-				5,262				(25,737	)			-				-				(20,475	)			512,500
Total change in unrealized appreciation (depreciation) included in earnings			11,820				(12,330	)			(28,595	)			25,375				(138,239	)			(141,969	)			(262,971	)
Transfers into Level 3			-				-				2,970,000				-				-				2,970,000				-
Transfers out of Level 3			-				-				(208,923	)			-				-				(208,923	)			8,538
Ending Balance		$	1,419,177			$	674,554			$	13,373,606			$	25,375			$	145,440			$	15,638,152			$	(104,642	)
Net change in unrealized appreciation (depreciation) for investments in Level 3 securities still held at August 31, 2018		$	11,820			$	(7,067	)		$	(2,528	)		$	25,375			$	(138,239	)		$	(110,639	)		$	(12,642	)

 

Affiliated Transactions

Investments representing 5% or more of the outstanding voting shares of a portfolio company of a fund, or control of or by, or common control under Guggenheim Investments (“GI”), result in that portfolio company being considered an affiliated company of such fund, as defined in the 1940 Act.

 

 

 

Guggenheim Credit Allocation Fund
SCHEDULE OF INVESTMENTS (Unaudited)	August 31, 2018

 

 

 

*	Non-income producing security.
1	Security was fair valued by the Valuation Committee August 31, 2018.  The total market value of affiliated and fair valued securities amounts to $643,728, (cost $2,076,190) or 0.4% of total net assets.
2	Variable rate security.  Rate indicated is the rate effective at August 31, 2018. In some instances, the underlying reference rate shown was below the minimum rate earned by the security or has been adjusted by a predetermined factor. The settlement status of a position may also impact the effective rate indicated. In instances where multiple underlying reference rates and spread amounts are shown, the effective rate is based on a weighted average.
3	Security is in default of interest and/or principal obligations.

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Note 1 – Organization and Significant Accounting Policies

Organization

Guggenheim Credit Allocation Fund (the "Fund") was organized as a Delaware statutory trust on June 7, 2012, and commenced investment operations on June 26, 2013. The Fund is registered as a diversified, closed-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act").

The Fund's investment objective is to seek total return through a combination of current income and capital appreciation.

Significant Accounting Policies

The Fund operates as an investment company and, accordingly, follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946 Financial Services – Investment Companies.

The following significant accounting policies are in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and are consistently followed by the Fund. This requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. All time references are based on Eastern Time.

(a) Valuation of Investments 

The Board of Trustees of the Fund (the “Board”) has adopted policies and procedures for the valuation of the Fund's investments (the “Valuation Procedures”). Pursuant to the Valuation Procedures, the Board has delegated to a valuation committee, consisting of representatives from Guggenheim’s investment management, fund administration, legal and compliance departments (the “Valuation Committee”), the day-to-day responsibility for implementing the Valuation Procedures, including, under most circumstances, the responsibility for determining the fair value of the Fund’s securities and/or other assets.

Valuations of the Fund's securities are supplied primarily by pricing services appointed pursuant to the processes set forth in the Valuation Procedures. The Valuation Committee convenes monthly, or more frequently as needed, to review the valuation of all assets which have been fair valued for reasonableness. The Fund's officers, through the Valuation Committee and consistent with the monitoring and review responsibilities set forth in the Valuation Procedures, regularly review procedures used and valuations provided by the pricing services.

If the pricing service cannot or does not provide a valuation for a particular investment or such valuation is deemed unreliable, such investment is fair valued by the Valuation Committee.

Equity securities listed on an exchange (New York Stock Exchange (“NYSE”) or American Stock Exchange) are valued at the last quoted sale price as of the close of business on the NYSE, usually 4:00 p.m. on the valuation date. Equity securities listed on the NASDAQ market system are valued at the NASDAQ Official Closing Price on the valuation date, which may not necessarily represent the last sale price. If there has been no sale on such exchange or NASDAQ on a given day, the security is valued at the closing bid price on that day.

Open-end investment companies ("Mutual Funds") are valued at their net asset value (“NAV”) as of the close of business, on the valuation date. Exchange-traded funds ("ETFs") and closed-end investment companies ("CEFs") are valued at the last quoted sale price.

Generally, trading in foreign securities markets is substantially completed each day at various times prior to the close of the NYSE. The values of foreign securities are determined as of the close of such foreign markets or the close of the NYSE, if earlier. All investments quoted in foreign currencies are valued in U.S. dollars on the basis of the foreign currency exchange rates prevailing at the close of U.S. business 4:00 p.m. Investments in foreign securities may involve risks not present in domestic investments. The Valuation Committee will determine the current value of such foreign securities by taking into consideration certain factors which may include those discussed above, as well as the following factors, among others: the value of the securities traded on other foreign markets, ADR trading, closed-end fund trading, foreign currency exchange activity, and the trading prices of financial products that are tied to foreign securities such as World Equity Benchmark Securities. In addition, under the Valuation Procedures, the Valuation Committee and Guggenheim Funds Investment Advisors, LLC (“GFIA”, or the “Adviser”) are authorized to use prices and other information supplied by a third party pricing vendor in valuing foreign securities.

NOTES TO SCHEDULE OF INVESTMENTS (Unaudited)

August 31, 2018

Debt securities with a maturity of greater than 60 days at acquisition are valued at prices that reflect broker-dealer supplied valuations or are obtained from independent pricing services, which may consider the trade activity, treasury spreads, yields or price of bonds of comparable quality, coupon, maturity, and type, as well as prices quoted by dealers who make markets in such securities. Short-term debt securities with a maturity of 60 days or less at acquisition are valued at amortized cost, provided such amount approximates market value. Money market funds are valued at their NAV.

Typically, loans are valued using information provided by an independent third party pricing service which uses broker quotes in a non-active market.

Investments for which market quotations are not readily available are fair valued as determined in good faith by GFIA, subject to review and approval by the Valuation Committee, pursuant to methods established or ratified by the Board. Valuations in accordance with these methods are intended to reflect each security’s (or asset’s or liability’s) “fair value". Each such determination is based on a consideration of all relevant factors, which are likely to vary from one pricing context to another. Examples of such factors may include, but are not limited to market prices; sale prices; broker quotes; and models which derive prices based on inputs such as prices of securities with comparable maturities and characteristics, or based on inputs such as anticipated cash flows or collateral, spread over Treasuries, and other information analysis.

Note 2 – Financial Instruments

As part of its investment strategy, the Fund utilizes derivative instruments. These investments involve, to varying degrees, elements of market risk. Valuation and accounting treatment of these instruments can be found under Significant Accounting Policies in Note 1 of these Notes to Schedule of Investments.

Derivatives

Derivatives are instruments whose values depend on, or are derived from, in whole or in part, the value of one or more other assets, such as securities, currencies, commodities or indices. Derivative instruments may be used to increase investment flexibility (including to maintain cash reserves while maintaining exposure to certain other assets), for risk management (hedging) purposes, to facilitate trading, to reduce transaction costs and to pursue higher investment returns. Derivative instruments may also be used to mitigate certain investment risks, such as foreign currency exchange rate risk, interest rate risk and credit risk. U.S. GAAP requires disclosures to enable investors to better understand how and why a Fund uses derivative instruments, how these derivative instruments are accounted for and their effects on the Fund’s financial position and results of operations.

Forward Foreign Currency Exchange Contracts

A forward foreign currency exchange contract is an agreement between two parties to exchange two designated currencies at a specific time in the future. Certain types of contracts may be cash settled, in an amount equal to the change in exchange rates during the term of the contract. The contracts can be used to hedge or manage exposure to foreign currency risks with portfolio investments or to gain exposure to foreign currencies.

The market value of a forward foreign currency exchange contract changes with fluctuations in foreign currency exchange rates. Furthermore, the Fund may be exposed to risk if the counterparties cannot meet the contract terms or if the currency value changes unfavorably as compared to the U.S. dollar.

In conjunction with the use of derivative instruments, the Fund is required to maintain collateral in various forms. The Fund uses, where appropriate, depending on the financial instrument utilized and the broker involved, margin deposits at the broker, cash and/or securities segregated at the custodian bank, discount notes or repurchase agreements allocated to the Fund.

The Fund has established counterparty credit guidelines and enters into transactions only with financial institutions of investment grade or better. The Fund monitors the counterparty credit risk.

Note 3 – Fair Value Measurement  

NOTES TO SCHEDULE OF INVESTMENTS (Unaudited)

August 31, 2018

In accordance with U.S. GAAP, fair value is defined as the price that the Fund would receive to sell an investment or pay to transfer a liability in an orderly transaction with an independent buyer in the principal market, or in the absence of a principal market, the most advantageous market for the investment or liability. U.S. GAAP establishes a three-tier fair value hierarchy based on the types of inputs used to value assets and liabilities and requires corresponding disclosure. The hierarchy and the corresponding inputs are summarized below:

Level 1 — quoted prices in active markets for identical assets or liabilities.

Level 2 — significant other observable inputs (for example quoted prices for securities that are similar based on characteristics such as interest rates, prepayment speeds, credit risk, etc.).

Level 3 — significant unobservable inputs based on the best information available under the circumstances, to the extent observable inputs are not available, which may include assumptions.

The types of inputs available depend on a variety of factors, such as the type of security and the characteristics of the markets in which it trades, if any. Fair valuation determinations that rely on fewer or no observable inputs require greater judgment. Accordingly, fair value determinations for Level 3 securities require the greatest amount of judgment.

Independent pricing services are used to value a majority of the Fund’s investments. When values are not available from a pricing service, they may be computed by the Fund’s investment adviser or an affiliate.  In any event, values may be determined using a variety of sources and techniques, including: market prices; broker quotes; and models which derive prices based on inputs such as prices of securities with comparable maturities and characteristics or based on inputs such as anticipated cash flows or collateral, spread over Treasuries, and other information and analysis. A significant portion of the Fund’s assets and liabilities are categorized as Level 2, as indicated in this report.

Indicative quotes from broker-dealers, adjusted for fluctuations in criteria such as credit spreads and interest rates, may be also used to value the Fund’s assets and liabilities, i.e. prices provided by a broker-dealer or other market participant who has not committed to trade at that price. Although indicative quotes are typically received from established market participants, the Fund may not have the transparency to view the underlying inputs which support the market quotations. Significant changes in an indicative quote would generally result in significant changes in the fair value of the security.

Certain fixed income securities are valued by obtaining a monthly indicative quote from a broker-dealer, adjusted for fluctuations in criteria such as credit spreads and interest rates.

The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The suitability of the techniques and sources employed to determine fair valuation are regularly monitored and subject to change.

Note 4 – Federal Income Tax Information

The Fund intends to comply with the provisions of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and will distribute substantially all taxable net investment income and capital gains sufficient to relieve the Fund from all, or substantially all, federal income, excise and state income taxes. Therefore, no provision for federal or state income tax is required.

Tax positions taken or expected to be taken in the course of preparing the Fund’s tax returns are evaluated to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. Management has analyzed the Fund’s tax positions taken, or to be taken, on federal income tax returns for all open tax years, and has concluded that no provision for income tax is required in the Fund’s financial statements. The Fund’s federal tax returns are subject to examination by the Internal Revenue Service for a period of three years after they are filed.

At August 31, 2018, the cost of securities for Federal income tax purposes, the aggregate gross unrealized appreciation for all securities for which there was an excess of value over tax cost, and the aggregate gross unrealized depreciation for all securities for which there was an excess of tax cost over value were as follows:

NOTES TO SCHEDULE OF INVESTMENTS (Unaudited)

August 31, 2018

 

 

Note 5 – Unfunded Loan Commitments

Pursuant to the terms of certain loan agreements, the Fund held unfunded loan commitments as of August 31, 2018. The Fund is obligated to fund these loan commitments at the borrower’s discretion.

The unfunded loan commitments as of August 31, 2018, were as follows:

*The face amount is denominated in U.S. dollars unless otherwise indicated.

GBP - British Pound

Note 6 – Restricted Securities

The securities below are considered illiquid and restricted under guidelines established by the Board:

 

1	All or a portion of these securities have been physically segregated in connection with reverse repurchase agreements and unfunded loan commitments. As of August 31, 2018, the total value of restricted and segregated securities was $1,215,461.
2	Security is in default of interest/and or principal obligations.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

By:          /s/ Brian E. Binder       

Brian E. Binder

President and Chief Executive Officer

Date:       October 26, 2018

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By:          /s/ Brian E. Binder       

                Brian E. Binder

President and Chief Executive Officer

Date:      October 26, 2018

 

By:          /s/ John L. Sullivan      

John L. Sullivan

Chief Financial Officer, Chief Accounting Officer and Treasurer

Date:       October 26, 2018