Alternative Credit Income Fund
PORTFOLIO OF INVESTMENTS
December 31, 2020 (Unaudited)
| | | Coupon | | | Reference Rate
& Spread | | Maturity | | | Principal | | | Value | |
| BANK LOANS (33.83%)(a) | | | | | | | | | | | | | | | | | | |
| Beverage, Food and Tobacco (0.93%) | | | | | | | | | | | | | | | | | | |
| BrightPet(b) | | | 7.25 | % | | 3M US L + 6.25%, 1.00% Floor | | | 10/05/2026 | | | $ | 2,000,000 | | | $ | 1,959,843 | |
| BrightPet - Revolver | | | 7.25 | % | | 3M US L + 6.25%, 1.00% Floor | | | 10/05/2026 | | | | 500,000 | | | | 490,000 | |
| | | | | | | | | | | | | | | | | | 2,449,843 | |
| Communication Services (1.05%) | | | | | | | | | | | | | | | | | | |
| Spectrio TL(b) | | | 7.00 | % | | 1M US L + 6.00%, 1.00% Floor | | | 12/09/2026 | | | | 2,823,529 | | | | 2,788,235 | |
| | | | | | | | | | | | | | | | | | | |
| Consumer Discretionary (5.10%) | | | | | | | | | | | | | | | | | | |
| Bass Pro Group LLC, First Lien Initial Term Loan | | | 5.75 | % | | 3M US L + 5.00%, 0.75% Floor | | | 09/25/2024 | | | | 2,954,198 | | | | 2,968,453 | |
| BBB Industries US Holdings, Inc., Second Lien Term Loan | | | 8.65 | % | | 3M US L + 8.50% | | | 06/29/2026 | | | | 5,000,000 | | | | 4,525,000 | |
| CEC Entertainment, Inc., First Lien DIP Initial Term Loan | | | 9.25 | % | | 9.25% | | | 12/30/2025 | | | | 370,085 | | | | 462,606 | |
| CEC Entertainment, Inc. TL | | | 6.50 | % | | 3M US L + 6.50%, 1.00% Floor | | | 12/30/2027 | | | | 404,740 | | | | 396,645 | |
| Coinamatic Canada, Inc., Second Lien Initial Canadian Term Loan | | | 8.00 | % | | 1M US L + 7.00%, 1.00% Floor | | | 05/12/2023 | | | | 196,756 | | | | 183,830 | |
| Jo-Ann Stores LLC, Second Lien Initial Term Loan | | | 10.25 | % | | 1M US L + 9.25%, 1.00% Floor | | | 05/21/2024 | | | | 4,277,967 | | | | 3,926,831 | |
| Wash MultiFamily Acquisition, Inc., Second Lien Initial US Term Loan | | | 8.00 | % | | 1M US L + 7.00%, 1.00% Floor | | | 05/15/2023 | | | | 1,123,389 | | | | 1,049,582 | |
| | | | | | | | | | | | | | | | | | 13,512,947 | |
| Consumer Staples (3.64%) | | | | | | | | | | | | | | | | | | |
| 8th Avenue Food & Provisions, Inc., Second Lien Term Loan | | | 7.90 | % | | 1M US L + 7.75% | | | 10/01/2026 | | | | 2,500,000 | | | | 2,481,250 | |
| Alphabet Holding Company, Inc., Second Lien Initial Term Loan | | | 7.90 | % | | 1M US L + 7.75% | | | 09/26/2025 | | | | 5,000,000 | | | | 4,992,500 | |
| Winebow Holdings, Inc., First Lien Term Loan | | | 4.75 | % | | 1M US L + 3.75%, 1.00% Floor | | | 07/01/2021 | | | | 2,347,588 | | | | 2,166,237 | |
| | | | | | | | | | | | | | | | | | 9,639,987 | |
| Financials (3.69%) | | | | | | | | | | | | | | | | | | |
| Asurion LLC, Second Lien Replacement B-2 Term Loan | | | 6.65 | % | | 1M US L + 6.50% | | | 08/04/2025 | | | | 4,696,970 | | | | 4,742,765 | |
| Asurion LLC, First Lien New B-7 Term Loan | | | 3.15 | % | | 1M US L + 3.00% | | | 11/03/2024 | | | | 1,954,887 | | | | 1,942,181 | |
| Riverside Fund V Offshore, L.P. | | | 9.45 | % | | 9.45% | | | 03/02/2021 | | | | 3,125,000 | | | | 3,093,750 | |
| | | | | | | | | | | | | | | | | | 9,778,696 | |
| Health Care (5.35%) | | | | | | | | | | | | | | | | | | |
| Outcomes Group Holdings, Inc., Second Lien Term Loan | | | 7.75 | % | | 3M US L + 7.50% | | | 10/26/2026 | | | | 1,538,462 | | | | 1,394,877 | |
| Sound Inpatient Physicians, Inc., Second Lien Initial Term Loan | | | 6.90 | % | | 1M US L + 6.75% | | | 06/28/2026 | | | | 1,000,000 | | | | 995,000 | |
| Upstream Rehabilitation, Inc., Second Lien Term Loan | | | 8.65 | % | | 1M US L + 8.50% | | | 11/20/2027 | | | | 7,500,000 | | | | 7,312,500 | |
| Viant Medical Holdings, Inc., Second Lien Initial Term Loan | | | 7.90 | % | | 3M US L + 7.75% | | | 07/02/2026 | | | | 5,000,000 | | | | 4,462,500 | |
| | | | | | | | | | | | | | | | | | 14,164,877 | |
| Industrials (6.75%) | | | | | | | | | | | | | | | | | | |
| Jazz Acquisition, Inc., Second Lien Term Loan | | | 8.15 | % | | 1M US L + 8.00% | | | 06/18/2027 | | | | 4,000,000 | | | | 3,290,000 | |
| Restaurant Technologies, Inc., Second Lien Initial Term Loan | | | 6.65 | % | | 1M US L + 6.50% | | | 10/01/2026 | | | | 4,500,000 | | | | 4,275,000 | |
| Tempo Acquisition LLC, First Lien Extended Term Loan | | | 3.75 | % | | 1M US L + 3.25%, 0.50% Floor | | | 11/02/2026 | | | | 2,585,522 | | | | 2,573,409 | |
| USS Ultimate Holdings, Inc., Second Lien Initial Term Loan | | | 8.75 | % | | 1M US L + 7.75%, 1.00% Floor | | | 08/25/2025 | | | | 7,750,000 | | | | 7,742,754 | |
| | | | | | | | | | | | | | | | | | 17,881,163 | |
| | | Coupon | | | Reference Rate
& Spread | | | Maturity | | | | Principal | | | | Value | |
| Information Technology (5.67%) | | | | | | | | | | | | | | | | | | |
| EagleView Technology Corp., Second Lien Term Loan | | | 8.50 | % | | 1M US L + 7.50%, 1.00% Floor | | | 08/14/2026 | | | $ | 2,000,000 | | | $ | 1,810,000 | |
| Hyland Software, Inc., Second Lien Initial Term Loan | | | 7.75 | % | | 3M US L + 7.00%, 0.75% Floor | | | 07/07/2025 | | | | 1,760,000 | | | | 1,779,061 | |
| Ivanti Software, Inc., Second Lien Term Loan | | | 8.50 | % | | 1M US L + 8.50%, 1.00% Floor | | | 10/30/2028 | | | | 5,000,000 | | | | 4,981,250 | |
| Renaissance Holding Corp., Second Lien Initial Term Loan | | | 7.15 | % | | 3M US L + 7.00% | | | 05/29/2026 | | | | 6,486,683 | | | | 6,446,141 | |
| | | | | | | | | | | | | | | | | | 15,016,452 | |
| Materials (1.65%) | | | | | | | | | | | | | | | | | | |
| Ball Metalpack Finco LLC, Second Lien Initial Term Loan | | | 9.75 | % | | 3M US L + 8.75%, 1.00% Floor | | | 07/31/2026 | | | | 5,000,000 | | | | 4,375,000 | |
| | | | | | | | | | | | | | | | | | | |
| TOTAL BANK LOANS | | | | | | | | | | | | | | | | | | |
| (Cost $90,228,347) | | | | | | | | | | | | | | | | | 89,607,200 | |
| | | | | | | | | | | | | | | | | | | |
| BONDS & NOTES (20.48%) | | | | | | | | | | | | | | | | | | |
| ASSET BACKED SECURITIES (3.26%)(a)(c) | | | | | | | | | | | | | | | |
| Financials (3.26%) | | | | | | | | | | | | | | | | | | |
| Bowman Park CLO, Ltd., Class F | | | 7.21 | % | | 3M US L + 7.00% | | | 11/23/2025 | | | | 1,000,000 | | | | 898,881 | |
| Canyon Capital CLO 2014-1, Ltd., Class ER | | | 7.91 | % | | 3M US L + 7.70% | | | 01/30/2031 | | | | 1,000,000 | | | | 795,366 | |
| Jamestown CLO V, Ltd., Class F | | | 6.07 | % | | 3M US L + 5.85% | | | 01/17/2027 | | | | 1,475,620 | | | | 302,328 | |
| OCP CLO 2013-4, Ltd., Class DR | | | 6.98 | % | | 3M US L + 6.77% | | | 04/24/2029 | | | | 1,000,000 | | | | 969,205 | |
| Octagon Investment Partners 36, Ltd., Class F | | | 7.99 | % | | 3M US L + 7.75% | | | 04/15/2031 | | | | 1,000,000 | | | | 876,190 | |
| Octagon Investment Partners XIV, Ltd., Class ER | | | 8.59 | % | | 3M US L + 8.35% | | | 07/15/2029 | | | | 2,132,000 | | | | 1,857,571 | |
| Saranac CLO VII, Ltd., Class ER | | | 6.94 | % | | 3M US L + 6.72% | | | 11/20/2029 | | | | 500,000 | | | | 290,716 | |
| Tralee CLO II, Ltd., Class ER | | | 8.07 | % | | 3M US L + 7.85% | | | 07/20/2029 | | | | 1,000,000 | | | | 973,883 | |
| Tralee CLO II, Ltd., Class FR | | | 9.07 | % | | 3M US L + 8.85% | | | 07/20/2029 | | | | 1,000,000 | | | | 745,228 | |
| Trinitas CLO III, Ltd., Class F | | | 6.74 | % | | 3M US L + 6.50% | | | 07/15/2027 | | | | 582,453 | | | | 238,277 | |
| Voya CLO 2014-2, Ltd., Class ER | | | 7.92 | % | | 3M US L + 7.70% | | | 04/17/2030 | | | | 1,000,000 | | | | 684,467 | |
| | | | | | | | | | | | | | | | | | 8,632,112 | |
| CONVERTIBLE CORPORATE BONDS (1.38%) | | | | | | | | | | | | | | | |
| Financials (1.38%) | | | | | | | | | | | | | | | | | | |
| GSV Capital Corp. | | | 4.750 | % | | N/A | | | 03/28/2023 | | | | 515,000 | | | | 750,076 | |
| Scorpio Tankers, Inc. | | | 3.000 | % | | N/A | | | 05/15/2022 | | | | 3,025,000 | | | | 2,909,917 | |
| | | | | | | | | | | | | | | | | | 3,659,993 | |
| CORPORATE BONDS (15.84%) | | | | | | | | | | | | | | | | | | |
| Consumer Staples (15.84%) | | | | | | | | | | | | | | | | | | |
| Cooke Omega Investments, Inc. / Alpha VesselCo Holdings, Inc.(c) | | | 8.500 | % | | N/A | | | 12/15/2022 | | | | 6,011,000 | | | | 6,197,431 | |
| Dole Food Co., Inc.(c) | | | 7.250 | % | | N/A | | | 06/15/2025 | | | | 3,000,000 | | | | 3,070,935 | |
| H-Food Holdings LLC / Hearthside Finance Co., Inc.(c) | | | 8.500 | % | | N/A | | | 06/01/2026 | | | | 7,978,000 | | | | 8,369,122 | |
| Mileage Plus Holdings LLC / Mileage Plus Intellectual Property Assets, Ltd.(c) | | | 6.500 | % | | N/A | | | 06/20/2027 | | | | 1,000,000 | | | | 1,076,875 | |
| Monitronics - Escrow(d) | | | –% | | | N/A | | | 12/31/2049 | | | | 2,650,000 | | | | – | |
| New Enterprise Stone & Lime Co., Inc.(c) | | | 6.250 | % | | N/A | | | 03/15/2026 | | | | 1,475,000 | | | | 1,514,641 | |
| New Enterprise Stone & Lime Co., Inc.(c) | | | 9.750 | % | | N/A | | | 07/15/2028 | | | | 1,000,000 | | | | 1,100,000 | |
| Trident TPI Holdings, Inc.(c) | | | 6.625 | % | | N/A | | | 11/01/2025 | | | | 2,399,000 | | | | 2,443,729 | |
| Trident TPI Holdings, Inc.(c) | | | 9.250 | % | | N/A | | | 08/01/2024 | | | | 7,000,000 | | | | 7,472,500 | |
| Wolverine Escrow LLC(c) | | | 13.125 | % | | N/A | | | 11/15/2027 | | | | 5,000,000 | | | | 4,037,500 | |
| Wolverine Escrow LLC(c) | | | 9.000 | % | | N/A | | | 11/15/2026 | | | | 2,000,000 | | | | 1,896,850 | |
| Wolverine Escrow LLC(c) | | | 8.500 | % | | N/A | | | 11/15/2024 | | | | 5,000,000 | | | | 4,779,525 | |
| | | | | | | | | | | | | | | | | | 41,959,108 | |
| TOTAL BONDS & NOTES | | | | | | | | | | | | | | | | | | |
| (Cost $54,423,868) | | | | | | | | | | | | | | | | | 54,251,213 | |
| | | | | | | | | | | | | | | | | | | |
| | | Shares | | | Value | |
| COMMON EQUITY (17.46%) | | | | | | | | |
| Consumer Discretionary (0.27%) | | | | | | | | |
| CEC Entertainment, Inc. Equity(e) | | | 79,564 | | | $ | 711,302 | |
| | | | | | | | | |
| Financials (17.19%) | | | | | | | | |
| Apollo Investment Corp. | | | 106,332 | | | | 1,129,778 | |
| Ares Capital Corp. | | | 361,124 | | | | 6,099,384 | |
| BlackRock Capital Investment Corp. | | | 492,323 | | | | 1,324,350 | |
| FS KKR Capital Corp. | | | 150,016 | | | | 2,484,265 | |
| FS KKR Capital Corp. II | | | 195,000 | | | | 3,198,000 | |
| Owl Rock Capital Corp. | | | 5,949 | | | | 75,314 | |
| PennantPark Floating Rate Capital Ltd. | | | 303,163 | | | | 3,192,306 | |
| PennantPark Investment Corp. | | | 250,000 | | | | 1,152,500 | |
| Portman Ridge Finance Corp. | | | 255,046 | | | | 487,138 | |
| Solar Capital Ltd. | | | 514,872 | | | | 9,015,409 | |
| Solar Senior Capital Ltd. | | | 178,599 | | | | 2,582,542 | |
| Trinity Capital Inc.(c)(e) | | | 100,000 | | | | 1,262,026 | |
| TriplePoint Venture Growth BDC Corp. | | | 415,109 | | | | 5,413,021 | |
| WhiteHorse Finance, Inc. | | | 524,959 | | | | 7,144,692 | |
| Whiting Petroleum Corp.(e) | | | 39,046 | | | | 976,150 | |
| | | | | | | | 45,536,875 | |
| | | | | | | | | |
| TOTAL COMMON EQUITY | | | | | | | | |
| (Cost $47,324,583) | | | | | | | 46,248,177 | |
| | | Dividend Rate | | | Shares | | | Value | |
| PREFERRED STOCKS (4.68%) | | | | | | | | | | | | |
| Financials (3.00%) | | | | | | | | | | | | |
| Maiden Holdings North America, Ltd. | | | 7.750 | % | | | 88,000 | | | | 1,906,080 | |
| Trinity Capital, Inc.(c) | | | 7.000 | % | | | 240,000 | | | | 6,036,000 | |
| | | | | | | | | | | | 7,942,080 | |
| | | | | | | | | | | | | |
| Services (1.68%) | | | | | | | | | | | | |
| Pennfoster(e) | | | 10.750 | % | | | 4,558,315 | | | | 4,467,149 | |
| | | | | | | | | | | | | |
| TOTAL PREFERRED STOCKS | | | | | | | | | | | | |
| (Cost $12,468,555) | | | | | | | | | | | 12,409,229 | |
| | | | | | | | | | | | | |
| PRIVATE INVESTMENT FUNDS (25.43%) | | | | | | | | | | | | |
| BlackRock Global Credit Opportunities Fund, LP(f) | | | | | | | | | | | 18,532,247 | |
| CVC European Mid-Market Solutions Fund(f) | | | | | | | | | | | 13,495,833 | |
| GSO Credit Alpha Fund II LP(f) | | | | | | | | | | | 8,412,614 | |
| Monroe Capital Private Credit Fund III LP(f) | | | | | | | | | | | 8,425,550 | |
| Tree Line Credit Strategies LP(f) | | | | | | | | | | | 18,492,223 | |
| | | | | | | | | | | | | |
| TOTAL PRIVATE INVESTMENT FUNDS | | | | | | | | | | | | |
| (Cost $67,540,419) | | | | | | | | | | | 67,358,467 | |
| | | | | | | | | | | | | |
| | | Shares | | | Value | |
| WARRANTS (0.07%) | | | | | | | | |
| CEC Entertainment, Inc. | | | 237,941 | | | $ | 178,456 | |
| | | | | | | | | |
| TOTAL WARRANTS | | | | | | | | |
| (Cost $–) | | | | | | | 178,456 | |
| | | | | | | | | |
| SHORT TERM INVESTMENT (4.10%) | | | | | | | | |
| Dreyfus Treasury Cash Management, Institutional Class, 0.03%(g) | | | 10,859,596 | | | | 10,859,596 | |
| | | | | | | | | |
| TOTAL SHORT TERM INVESTMENT | | | | | | | | |
| (Cost $10,859,596) | | | | | | | 10,859,596 | |
| | | | | | | | | |
| INVESTMENTS, AT VALUE (106.05%) | | | | | | | | |
| (Cost $282,845,368) | | | | | | $ | 280,912,338 | |
| | | | | | | | | |
| LINE OF CREDIT (-5.35%) | | | | | | | (14,167,920 | ) |
| Other Liabilities In Excess Of Other Assets (-0.70%)(h) | | | | | | | (1,858,786 | ) |
| | | | | | | | | |
| NET ASSETS (100.00%) | | | | | | $ | 264,885,632 | |
| Investment Abbreviations: |
| LIBOR - London Interbank Offered Rate |
| |
| Reference Rates: |
| 1M US L - 1 Month LIBOR as of December 31, 2020 was 0.14% |
| 3M US L - 3 Month LIBOR as of December 31, 2020 was 0.24% |
| (a) | Variable rate investment unless otherwise indicated. Interest rates reset periodically. Interest rate shown reflects the rate in effect at December 31, 2020. For securities based on a published reference rate and spread, the reference rate and spread are indicated in the description above. Certain variable rate securities are not based on a published reference rate and spread but are determined by the issuer or agent and are based on current market conditions. These securities do not indicate a reference rate and spread in their description above. |
| (b) | This investment has an unfunded commitment as of December 31, 2020. |
| (c) | Securities exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These securities may be sold in the ordinary course of business in transactions exempt from registration, normally to qualified institutional buyers. As of December 31, 2020, the aggregate market value of those securities was $57,889,246, representing 21.85% of net assets. |
| (d) | Security in default on interest payments. |
| (e) | Non-income producing security. |
| (f) | Investment is held through CIF Investments LLC, a wholly-owned subsidiary. |
| (g) | Money market fund; interest rate reflects seven-day effective yield on December 31, 2020. |
| (h) | Includes cash held as collateral for written options. |
Securities determined to be illiquid/restricted under the procedures approved by the Fund's Board of Trustees are as follows.
| Date(s) of Purchase | | Security | | Cost | | | Value | | | % of Net Assets | |
| 3/31/2018 - 12/31/2020 | | BlackRock Global Credit Opportunities Fund | | | 18,186,006 | | | | 18,532,247 | | | | 7.0 | % |
| 12/31/2017 - 6/30/2019 | | Tree Line Credit Strategies | | | 19,000,000 | | | | 18,492,223 | | | | 7.0 | % |
| 9/30/2017 - 3/31/2020 | | CVC European Mid-Market Solutions Fund | | | 13,556,610 | | | | 13,495,833 | | | | 5.1 | % |
| 6/30/2018 - 12/31/2020 | | GSO Credit Alpha Fund II | | | 8,296,543 | | | | 8,412,614 | | | | 3.2 | % |
| 9/30/2018 - 12/31/2020 | | Monroe Capital Private Credit Fund III | | | 8,501,260 | | | | 8,425,550 | | | | 3.2 | % |
| | | | | | | | | | | | | | | |
| Total Illiquid Assets | | | | $ | 67,540,419 | | | $ | 67,358,467 | | | | 25.5 | % |
Additional information on investments in private investment funds: |
| Security | | Value | | | Redemption Frequency | | Redemption Notice (Days) | | | Unfunded Commitments as of December 31, 2020 | |
| BlackRock Global Credit Opportunities Fund, LP(a) | | $ | 18,532,247 | | | N/A | | | N/A | | | $ | 6,816,986 | |
| CVC European Mid-Market Solutions Fund(b) | | | 13,495,833 | | | N/A | | | N/A | | | | 1,525,516 | |
| GSO Credit Alpha Fund II LP(a) | | | 8,412,614 | | | N/A | | | N/A | | | | 6,703,457 | |
| Monroe Capital Private Credit Fund III LP(b) | | | 8,425,550 | | | N/A | | | N/A | | | | 1,498,740 | |
| Tree Line Credit Strategies LP | | | 18,492,223 | | | Quarterly | | | 90 | | | | N/A | |
| Total | | $ | 67,358,467 | | | | | | | | | $ | 16,544,699 | |
Unfunded Debt Instruments
| Security | | | | | | | | | Maturity | | | | Unfunded Commitment | |
| BrightPet - Delayed Draw Term Loan | | $ | – | | | | | | 10/05/2026 | | | $ | 1,000,000 | |
| BrightPet - Revolver | | | – | | | | | | 10/05/2026 | | | | 500,000 | |
| Spectrio – Delayed Draw term Loan | | | – | | | | | | 12/09/2026 | | | | 1,176,471 | |
| Total | | | | | | | | | | | | $ | 2,676,471 | |
| | | | | | | | | | | | | | | |
| Total Unfunded Commitments | | | | | | | | | | | | $ | 19,221,170 | |
|
| (a) | A voluntary withdrawal may be permitted at the General Partner's discretion with the General Partner's consent. |
| (b) | A voluntary withdrawal may be permitted with the General Partner's prior written consent |
See Notes to Portfolio of Investments.
Alternative Credit Income Fund
NOTES TO PORTFOLIO OF INVESTMENTS (Unaudited)
December 31, 2020
1. ORGANIZATION
Alternative Credit Income Fund (formerly known as Resource Credit Income Fund) (the “Fund”) was organized as a Delaware statutory trust on December 11, 2014 and is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as a closed-end management investment company that operates as an interval fund with a continuous offering of its shares. During the period that began on October 1, 2020 and ended on October 30, 2020, Resource Alternative Advisor, LLC served as the Fund’s investment adviser. On October 31, 2020, Sierra Crest Investment Management LLC (the “Adviser”) replaced Resource Alternative Advisor, LLC as the Fund’s investment adviser. The Fund’s investment objectives are to produce current income and to achieve capital preservation with moderate volatility and low to moderate correlation to the broader equity markets. Effective December 5, 2019, the Fund is diversified and pursues its investment objectives by investing, under normal circumstances, at least 80% of its assets (defined as net assets plus the amount of any borrowing for investment purposes) in fixed-income and fixed-income related securities.
On February 3, 2020, the Fund formed a wholly-owned subsidiary, CIF Investments LLC, a Delaware corporation.
The Fund currently offers Class A, Class C, Class W, Class I and Class L shares; all classes of shares, except Class L, commenced operations on April 20, 2015. Class L shares commenced operations on July 28, 2017. Class C, Class W and Class I shares are offered at net asset value (“NAV”). Class A shares are offered at NAV plus a maximum sales charge of 5.75% and may also be subject to a 0.50% early withdrawal charge, which will be deducted from repurchase proceeds, for shareholders tendering shares fewer than 365 days after the original purchase date, if (i) the original purchase was for amounts of $1 million or more and (ii) the selling broker received the reallowance of the dealer-manager fee. Class C shares are subject to a 1.00% early withdrawal charge. Class L shares are offered at NAV plus a maximum sales charge of 4.25%. Each class represents an interest in the same assets of the Fund and classes are identical except for differences in their sales charge structures, ongoing service and distribution charges and early withdrawal charges. All classes of shares have equal voting privileges except that each class has exclusive voting rights with respect to its service and/or distribution plans. The Fund’s income, expenses (other than class-specific distribution fees) and realized and unrealized gains and losses are allocated proportionately each day based upon the relative net assets of each class.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the Fund in preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The Fund is considered an investment company for financial reporting purposes under GAAP. The Fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 946 “Financial Services – Investment Companies” including FASB Accounting Standard Update (“ASU”) 2013-08. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses for the period. Actual results could differ from those estimates.
Securities Valuation – Securities listed on an exchange are valued at the last reported sale price at the close of the regular trading session of the exchange on the business day the value is being determined, or in the case of securities listed on NASDAQ, at the NASDAQ Official Closing Price. Short-term investments that mature in 60 days or less may be valued at amortized cost, provided such valuations represent fair value.
Structured credit and other similar debt securities including, but not limited to, collateralized loan obligations (“CLO”) debt and equity securities, asset-backed securities (“ABS”), commercial mortgage-backed securities (“CMBS”) and other securitized investments backed by certain debt or other receivables (collectively, “Structured Credit Securities”), are valued on the basis of valuations provided by dealers in those instruments and/or independent pricing services recommended by the Adviser and approved by the Fund’s Board of Trustees (the “Board” or “Trustees”). In determining fair value, dealers and pricing services will generally use information with respect to transactions in the securities being valued, quotations from other dealers, market transactions in comparable securities, analyses and evaluations of various relationships between securities and yield to maturity information. The Adviser will, based on its reasonable judgment, select the dealer or pricing service quotation that most accurately reflects the fair market value of the Structured Credit Security while taking into account the information utilized by the dealer or pricing service to formulate the quotation in addition to any other relevant factors. In the event that there is a material discrepancy between quotations received from third-party dealers or the pricing services, the Adviser may (i) use an average of the quotations received or (ii) select an individual quotation that the Adviser, based upon its reasonable judgment, determines to be reasonable. In any instance in which the Adviser selects an individual quotation, the Adviser will provide to the Fund’s Fair Value Committee (the “Valuation Committee”) an analysis of the factors relied upon in the selection of the relevant quotation.
When price quotations for certain securities are not readily available, or if the available quotations are not believed to be reflective of market value by the Adviser, those securities will be valued at “fair value” as determined in good faith by the Fund’s Valuation Committee using procedures adopted by and under the supervision of the Board. There can be no assurance that the Fund could purchase or sell a portfolio security at the price used to calculate the Fund’s NAV.
Fair valuation procedures may be used to value a substantial portion of the assets of the Fund. The Fund may use the fair value of a security to calculate its NAV when, for example, (1) a portfolio security is not traded in a public market or the principal market in which the security trades is closed, (2) trading in a portfolio security is suspended and not resumed prior to the normal market close, (3) a portfolio security is not traded in significant volume for a substantial period, or (4) the Adviser determines that the quotation or price for a portfolio security provided by a broker-dealer or independent pricing service is inaccurate.
The “fair value” of securities may be difficult to determine and thus judgment plays a greater role in the valuation process. The fair valuation methodology may include or consider the following guidelines, as appropriate: (1) evaluation of all relevant factors, including but not limited to, pricing history, current market level and supply and demand of the respective security; (2) comparison to the values and current pricing of securities that have comparable characteristics; (3) knowledge of historical market information with respect to the security; and (4) other factors relevant to the security which would include, but not be limited to, duration, yield, fundamental analytical data, the Treasury yield curve and credit quality.
Valuation of Private Investment Funds – The Fund invests a portion of its assets in Private Investment Funds. Private Investment Funds measure their investment assets at fair value and generally report a NAV or its equivalent on a calendar quarter basis. In accordance with ASC 820, the Fund has elected to apply the practical expedient and to value its investments in Private Investment Funds at their respective NAVs at each quarter-end. For non-calendar quarter-end days, the Valuation Committee estimates the fair value of each Private Investment Fund by adjusting the most recent NAV for such Private Investment Fund, as necessary, by the change in a relevant benchmark that the Valuation Committee has deemed to be representative of the underlying securities in the Private Investment Fund.
Loan Participation and Assignments – The Fund may invest in debt instruments, which are interests in amounts owed to lenders (the “Lenders”) by corporate, governmental or other borrowers. The Fund’s investments in loans may be in the form of participations in loans or assignments of all or a portion of the loans from third parties. When the Fund purchases an interest in a loan in the form of an assignment, the Fund acquires all of the direct rights and obligations of a lender (as such term is defined in the related credit agreement), including the right to vote on amendments or waivers of such credit agreement. However, the Fund generally has no right to enforce compliance with the terms of the loan agreement with the borrower. Instead, the administration of the loan agreement is often performed by a bank or other financial institution that acts as agent for all Lenders (the “Agent”). Circumstances may arise in connection with which the Agent takes action that contradicts the will of the Lenders. For example, under certain circumstances, an Agent may refuse to declare the borrower in default, despite having received a notice of default from the Lenders. When the Fund purchases an interest in a loan in the form of a participation, the Fund purchases such participation interest from another existing Lender, and consequently, the Fund does not obtain the rights and obligations of the Lenders under the credit agreement, such as the right to vote on amendments or waivers. The Fund has the right to receive payments of principal, interest and any fees to which it is entitled only from the Lender from which the Fund has received that participation interest. In this instance, the Fund is subject to both the credit risk of the borrower and the credit risk of the Lender that sold the Fund such participation interest.
The Fund may enter into unfunded loan commitments, which are contractual obligations for future funding. Unfunded loan commitments represent a future obligation in full, even though a percentage of the notional loan amounts may not be utilized by the borrower. The Fund may receive a commitment fee based on the undrawn portion of the underlying line of credit portion of a floating rate loan.
Fair Value Measurements – A three-tier hierarchy has been established to classify fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability that are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity's own assumptions about the assumptions market participants would use in pricing the asset or liability that are developed based on the best information available. In accordance with the authoritative guidance on fair value measurements and disclosure under GAAP, the Fund discloses the fair value of its investments in a hierarchy that prioritizes the inputs to valuation techniques used to measure the fair value.
Various inputs are used in determining the fair value of the Fund's investments as of December 31, 2020. These inputs are categorized in the following hierarchy under applicable financial accounting standards:
| Level 1 – | Unadjusted quoted prices in active markets for identical, unrestricted assets or liabilities that the Fund has the ability to access at the measurement date; |
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| Level 2 – | Quoted prices which are not active, quoted prices for similar assets or liabilities in active markets or inputs other than quoted prices that are observable (either directly or indirectly) for substantially the full term of the asset or liability at the measurement date; and |
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| Level 3 – | Significant unobservable prices or inputs (including the Fund's own assumptions in determining the fair value of investments) where there is little or no market activity for the asset or liability at the measurement date. |
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.
An investment level within the fair value hierarchy is based on the lowest level input, individually or in the aggregate, that is significant to fair value measurement. The valuation techniques used by the Fund to measure fair value during the period ended December 31, 2020 maximized the use of observable inputs and minimized the use of unobservable inputs.
The inputs or methodologies used for valuing securities are not necessarily an indication of the risk or liquidity associated with investing in those securities. The following is a summary of the fair values according to the inputs used in valuing the Fund's investments as of December 31, 2020:
| Investments in Securities at Value | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Bank Loans(a) | | $ | – | | | $ | 89,607,200 | | | $ | – | | | $ | 89,607,200 | |
| Bonds & Notes(a) | | | – | | | | 54,251,213 | | | | – | | | | 54,251,213 | |
| Common Equity(a) | | | | | | | | | | | | | | | | |
| Consumer Discretionary | | | – | | | | 711,302 | | | | – | | | | 711,302 | |
| Financials | | | 44,274,849 | | | | 1,262,026 | | | | – | | | | 45,536,875 | |
| Preferred Stocks(a) | | | | | | | | | | | | | | | | |
| Insurance | | | 1,906,080 | | | | – | | | | – | | | | 1,906,080 | |
| Private Equity | | | 6,036,000 | | | | – | | | | – | | | | 6,036,000 | |
| Services | | | – | | | | 4,467,149 | | | | – | | | | 4,467,149 | |
| Rights and Warrants(a) | | | – | | | | 178,456 | | | | – | | | | 178,456 | |
| Short Term Investments | | | 10,859,596 | | | | – | | | | – | | | | 10,859,596 | |
| TOTAL | | $ | 63,076,525 | | | $ | 150,477,346 | | | $ | – | | | $ | 213,553,871 | |
| Investments measured at net asset value(a) | | | | | | | | | | | | | | $ | 67,358,467 | |
| Total Investments, at fair value | | | | | | | | | | | | | | $ | 280,912,338 | |
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| (a) | For detailed descriptions, see the accompanying Portfolio of Investments. |
There were no transfers between Level 1, 2 and 3 during the period ended December 31, 2020. It is the Fund's policy to recognize transfers between levels at the end of the reporting period.
Securities Transactions and Investment Income – Investment security transactions are accounted for on a trade date basis. Cost is determined and gains and losses are based upon the specific identification method for both financial statement and federal income tax purposes. Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Premiums on securities are accreted to the earliest call date and purchase discounts are amortized over the life of the respective securities.
